Office of Inspector General

Audit Report 

Report of Audit on the Center for

Chesapeake Communities 

E6DEP8-03-0014-9100117

March 31, 1999
Inspector General Division

 Conducting the Audit: Mid-Atlantic Audit Division

Philadelphia, PA

Region Covered: Region 3

Program Office Involved: Chesapeake Bay Program Office
March 31, 1999

MEMORANDUM

SUBJECT: Final Audit Report on the Center 

for Chesapeake Communities 

Report Number E6DEF8-03-0014-9100117

FROM: Carl A. Jannetti

Divisional Inspector General for Audit (3AI00)

TO: W. Michael McCabe 

Regional Administrator (3RA00)

Attached is our final audit report on the Center for Chesapeake Communities

(CCC). It contains findings concerning the formation of the CCC, and issues related

to the cooperative agreement EPA awarded to this nonprofit. This report also

discusses the method used to award contracts to obtain Local Government Advisory

Committee (LGAC) support services, and the CCC’s procurement and financial

procedures.

ACTION REQUIRED

In accordance with EPA Order 2750, you as the action official are required to

provide this office a written response to the audit report within 90 days of the final

audit report date. For corrective actions planned but not completed by the response

date, reference to specific milestone dates will assist in deciding whether to close

this audit. Your response should address all recommendations, and include

milestone dates for corrective actions.

This audit report contains findings that describe problems the Office of Inspector

General (OIG) has identified and corrective actions the OIG recommends. This

report represents the opinion of the OIG. Final determinations on matters in this

report will be made by EPA managers in accordance with established EPA audit

resolution procedures. We have no objection to further release of this report to the

public. Should your staff have any questions, please contact me or Lisa White at

215-814-5800.

Attachment 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

MID-ATLANTIC DIVISION

1650 Arch Street

Philadelphia, Pennsylvania 19103-2029

(215) 814-5800
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i Report No. 9100117

EXECUTIVE SUMMARY

Purpose The purpose of this audit was to evaluate the activities

surrounding the formation of the Center for Chesapeake

Communities (CCC). Our objectives included a review of:

EPA’s award and administration of the cooperative

agreement to the CCC, the method used to obtain LGAC

support services, and the CCC’s procurement and financial

procedures. Our objectives also focused on determining the

validity of concerns raised by LGAC. 

Results-in-Brief EPA awarded a noncompetitive cooperative agreement to the

CCC without adequate justification. Awarding the

cooperative agreement noncompetitively, without adequate

justification, created an appearance of preferential treatment

that compromises the integrity of the Chesapeake Bay

Program. 

Moreover, EPA awarded cooperative agreements to

intermediaries which in turn awarded contracts to provide

LGAC support services. To obtain these support services, the

intermediaries awarded contracts to Redman/Johnston

Associates. EPA officials explained that by awarding

cooperative agreements to obtain the services of an LGAC

support contractor, it was able to avoid Federal procurement

regulations, making the procurement for support services

easier. However, while easing the process for awarding the

support contracts, EPA did not comply with the intent of

Public Law 95-224 entitled the Federal Grant and

Cooperative Agreement Act of 1977, 31 U.S.C. 6301 et seq. 

As a nonprofit recipient of EPA funds, the CCC’s conduct is

governed by 40 CFR Part 30. This regulation addresses a

recipient’s ethical responsibilities. Among such

responsibilities is the requirement to avoid a contract award

that would raise a real or apparent conflict of interest on the

part of the award official. In the case of the CCC, the

Executive Director acted favorably toward Redman/Johnston

Associates by awarding it two contracts after
ii Report No. 9100117

 Redman/Johnston Associates absorbed costs totaling

approximately $2,300 for incorporating the CCC. This action

compromised the integrity of the CCC’s contract award

process and violated EPA’s regulations.

We also found that neither the CCC nor Redman/Johnston

Associates had financial management systems in place to

properly account for Federal funds. As a result, the abilities

of these organizations to record, process, summarize and

report financial data were adversely affected.

Recommendations We recommend that the Region III Administrator:

1) Terminate the existing cooperative agreement

awarded to the CCC. Once terminated, if Region III

continues to believe the services are needed, attempts

should be made to award a new cooperative agreement

competitively. If advertisements and requests for

proposals do not identify entities able to perform the

services required, then Region III can award the

cooperative agreement noncompetitively. This award

should only be made after Region III has ensured that

an adequate justification has been provided. 

2) Obtain LGAC support services directly, without using

an intermediary.

3) Discontinue all payments to the CCC and review all

costs already incurred under the cooperative

agreements for allowability and reasonableness. To

that end, labor amounts billed by Redman/Johnston

Associates not supported by adequate timesheets

should be disallowed.

4) Prior to awarding assistance agreements and before

allowing advance payments, ensure that recipients

have developed and implemented adequate internal

controls and financial management systems that

comply with Office of Management and Budget (OMB)

and EPA regulations.
iii Report No. 9100117

5) Contact our office prior to closeout of the cooperative

agreement awarded to the CCC to afford us the option

of performing a final audit.

Region III Response

The Region concurs with virtually all the recommendations outlined in the draft

report, and in a number of instances has already taken actions which have the

effect of carrying out the recommendations in whole or in part. This includes: a site

review and evaluation of the CCC’s financial management and records systems;

development of a management plan for competing nonprofit grants in the

Chesapeake Bay Program Office; issuance of the first Request for Proposals under

the new competitive procedures outlined in the management plan; and initiation of

a vulnerability assessment for all Chesapeake Bay Program grants. Other actions

will be taken in full response to the recommendations made in the final report.

OIG Evaluation

EPA’s response meets the intent of our recommendations, however, Region III

deferred responding to the recommendation in Chapter 4. We expect that the

Region’s response to the final audit report will address all of our recommendations. 
iv Report No. 9100117

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v Report No. 9100117

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................... i

ACRONYMS ....................................................... vii

CHAPTER 1 ......................................................... 1

INTRODUCTION ............................................... 1

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

Background ............................................... 2

Scope and Methodology ..................................... 5

Prior Audit Coverage ....................................... 8

CHAPTER 2 ......................................................... 9

EPA NEEDS TO ADEQUATELY JUSTIFY NONCOMPETITIVE

COOPERATIVE AGREEMENT .............................. 9

EPA Responsibilities Unfulfilled .............................. 9

LGAC Vice Chair Forms the CCC ............................ 10

Feasibility Study Inappropriately Helps the CCC ................ 14

Conclusion .............................................. 16

Recommendations ........................................ 17

CHAPTER 3 ........................................................ 21

IMPROPER USE OF COOPERATIVE AGREEMENTS ................ 21

Assistance Agreement Misuse Triggers Concerns ............... 21

EPA Improperly Used Assistance Agreements .................. 22

COG Excluded In Favor of CCC .............................. 23

Recommendation ......................................... 24

CHAPTER 4 ........................................................ 26

CONFLICT OF INTEREST SHOULD HAVE PRECLUDED 

AWARD OF CONTRACT ................................... 26

Contractor Should Have Been Disqualified ..................... 26

CCC’s Procurement Records Were Incomplete .................. 31

Recommendation ......................................... 33
vi Report No. 9100117

CHAPTER 5 ........................................................ 38

EPA MUST ENSURE THAT RECIPIENTS HAVE AN ADEQUATE

FINANCIAL MANAGEMENT SYSTEM ....................... 38

CCC Disregarded Budget ................................... 39

CCC’s Costs Unsupported .................................. 40

Contractor’s Costs Unsupported ............................. 41

Conclusion .............................................. 42

Recommendations ........................................ 42

Exhibit A - Analysis of Expenditures by the CCC ........................... 48

Exhibit B - Costs Claimed by the Contractor .............................. 49

Exhibit C - Excerpt from Revised Application for EPA Assistance ............. 50

Appendix 1 - Region III’s Response to the Draft Report ...................... 51

Appendix 2 - CCC’s Response to the Draft Report .......................... 57

Appendix 3 - Redman/Johnston Associates Response to the Draft Report ....... 67

Appendix 4 - Distribution ............................................. 76
vii Report No. 9100117

ACRONYMS

CCC/or Center Center for Chesapeake Communities

CBPO Chesapeake Bay Program Office

CFR Code of Federal Regulations

COG Metropolitan Washington Council of Governments

EPA Environmental Protection Agency 

LGAC Local Government Advisory Committee

NWI National Wilderness Institute

OIG Office of Inspector General

OMB Office of Management and Budget

RFP Request for Proposal

RFQ Request for Qualifications

SRO Senior Resource Official
viii Report No. 9100117

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1 Report No. 9100117

1. On May 12, 1998, the OIG also received a request from the Landmark Legal Foundation, on

behalf of itself and the National Wilderness Institute (NWI) formally requesting our review into the

incorporation of the CCC. The NWI also placed a report on the Internet discussing some of the

issues addressed in this report. 

CHAPTER 1 

INTRODUCTION

Purpose The purpose of this audit was to evaluate the activities

surrounding the formation of the Center for Chesapeake

Communities (CCC). Our objectives included a review of:

EPA’s award and administration of the cooperative

agreement to the CCC, the method used to obtain LGAC

support services, and the CCC’s procurement and financial

procedures. On December 15, 1997, the Office of Inspector

General (OIG) received a letter from the Chair of the

Chesapeake Bay Local Government Advisory Committee

(LGAC). This letter requested that the OIG evaluate issues

raised by LGAC members regarding the CCC1. Our

objectives also focused on determining the validity of LGAC’s

concerns regarding: 

ó The relationship between the CCC and the LGAC. 

Specifically, several members of the LGAC also served

on the Board of the CCC leading to perceptions of

conflict of interest.

ó The possible conflict of interest by the Executive

Director of the CCC because he was a member of the

LGAC and Chair of the LGAC’s nonprofit study

workgroup.

ó The process by which the LGAC nonprofit workgroup

performed its feasibility study.

ó The actions of Redman/Johnston Associates (the

contractor used to provide staff support to the LGAC)

to pay the filing fees and other costs associated with

the incorporation of the CCC.
2 Report No. 9100117

Background The Chesapeake Bay Program is the unique regional

partnership which has been directing and conducting the

restoration of the Chesapeake Bay since the signing of the

1983 Chesapeake Bay Agreement. The Chesapeake Bay

Program partners include the States of Maryland,

Pennsylvania, and Virginia; the District of Columbia; the

Chesapeake Bay Commission; EPA; and participating

advisory groups. 

The EPA Region III Chesapeake Bay Program Office (CBPO)

in Annapolis, MD coordinates the cleanup initiatives of the

Chesapeake Bay. It provides administrative and technical

support to the network of regional committees,

subcommittees and workgroups that participate in the

Chesapeake Bay Program under the overall direction of the

Chesapeake Executive Council.

The Chesapeake Executive Council membership includes the

EPA Administrator; the Governors of Virginia, Maryland

and Pennsylvania; the Mayor of the District of Columbia;

and the Chair of the Chesapeake Bay Commission. The

Council establishes policy direction for the restoration and

protection of the Chesapeake Bay and its living resources. 
3 Report No. 9100117

The Principals’ Staff Committee acts as the policy advisors to

the Executive Council, accepting items for Council

consideration and approval. Membership includes the EPA

Region III Administrator, EPA’s Director of the Chesapeake

Bay Program, the Executive Director of the Chesapeake Bay

Commission, and various state Department Secretaries and

Directors. The Implementation Committee is responsible for

the annual workplan, budget, technical and computer

support, and public outreach. 

Establishing the LGAC in March 1988 fulfilled a

commitment in the Chesapeake Bay Agreement. LGAC is

composed of local government representatives from the

States of Maryland, Virginia and Pennsylvania, as well as

the District of Columbia. Each of the states may appoint up

to six members to serve on LGAC. The District of Columbia

may appoint three. All members serve without

compensation. This committee is charged with developing

and implementing a strategy for local government

participation in the Chesapeake Bay Program. The

committee gives advice on matters relating to local

governments to the Chesapeake Executive Council, the

Principals’ Staff Committee and the Implementation

Committee. To accomplish this task, LGAC holds quarterly

meetings to discuss current Chesapeake Bay Program policy. 

In addition to its policy role, the LGAC provides information

and technical assistance to local governments throughout the

Chesapeake Bay watershed. 

In recognition of the vital role local governments play in the

Chesapeake Bay restoration effort, the Chesapeake

Executive Council adopted the Local Government

Partnership Initiative in 1995. This Initiative was a

commitment to strengthen the Chesapeake Bay Program’s

partnership with local governments. To ensure that the

objectives of the Initiative were achieved, LGAC formed a

task force to develop a Local Government Participation

Action Plan. The goal of this Action Plan was to establish a

strategy to broaden the participation of local governments in

the Chesapeake Bay Program. 
4 Report No. 9100117

The Local Government Participation Action Plan was

endorsed by the chief executives of the Chesapeake Bay

Program in October 1996, and contained a commitment to

improve and establish technical and financial assistance

programs to local governments. These programs were

intended to enhance local governments’ capacity to

implement Chesapeake Bay restoration and protection

measures. One of the many tasks under this commitment

was to investigate the feasibility of establishing a nonprofit

entity to further assist local governments in implementing

Chesapeake Bay protection and restoration activities. As a

result, the LGAC formed a workgroup to examine the

feasibility of establishing a nonprofit entity. Prior to the

completion of this study, the Center for Chesapeake

Communities (CCC), a nonprofit organization, was

incorporated on August 5, 1997. The LGAC Vice Chair

became the Executive Director of the nonprofit.

As a result of the workgroup’s efforts, a draft feasibility

report was prepared in September 1997. This report

concluded that:

Although government groups provide services to

local governments, and nonprofit organizations

work with local government constituents, there

is currently not a nonprofit organization that

serves as a regional resource organization in the

watershed with a local government focus. 

Soon after the CCC was incorporated, EPA awarded it a

noncompetitive cooperative agreement on September 30,

1997. This agreement was amended twice. The first

amendment was for a time extension. The second

amendment, dated March 2, 1998, increased funding and

extended the project and budget periods. Details of the

cooperative agreement and amendments follow.

Assistance

Number

EPA

Amount

Project

Period Budget Period

CB993675-01-0 $45,000 9/8/97-12/31/97 9/8/97-12/31/97

CB993675-01-1 -0- 9/8/97-3/31/98 9/8/97-3/31/98

CB993675-01-2 $314,370 9/8/97-12/31/03 9/8/97-3/15/99
5 Report No. 9100117

The purpose of the initial cooperative agreement was to

support start-up of the CCC, prepare a local government

training module, and plan a local government summit. The

second amendment included funding for the CCC to:

í Conduct activities that will enhance its ability to

provide technical assistance, as well as seek financial

assistance opportunities for local governments

interested in Chesapeake Bay restoration and

protection activities.

í Complete various projects including enhancing efforts

to implement the tributary nutrient reduction

strategies, broadening the engagement of local

governments, and supporting toxic reduction pollution

prevention goals.

í Provide staff support for the LGAC.

Almost one-half of the cooperative agreement funds provided

to the CCC were used for a contract award to obtain LGAC

support. LGAC support includes items such as: coordination

and scheduling of meetings, interaction with local

governments through press releases, managing the

Chesapeake Bay Program Local Government homepage,

planning and holding media events, and providing technical

support to local governments. For the past five years,

Redman/Johnston Associates has been awarded this

contract. 

Scope and

Methodology

Our audit was performed in accordance with the Government

Auditing Standards (1994 Revision) issued by the

Comptroller General of the United States, except that we did

not follow all of the elements of the planning standards in

Chapter 6. Since this review was initiated as a result of a

letter sent from the Chair of the LGAC, our work focused on

determining the validity of the issues raised in his letter. 

The audit included tests of the program records and other

auditing procedures we considered necessary. 

To accomplish our objectives, we performed our review at

EPA Region III's Chesapeake Bay Program Office in
6 Report No. 9100117

Philadelphia. We also conducted work at the CCC’s and

Redman/Johnston’s offices. We interviewed the Executive

Director of the CCC, the President of Redman/Johnston

Associates, and some of the LGAC members.

Our review in Region III included interviews and meetings

with the Project Officer, the Grants Specialist and the

Deputy Director of the Chesapeake Bay Program Office. We

reviewed the program and grant files for the cooperative

agreement awarded to the CCC. We also reviewed the grant

file for the cooperative agreement awarded to the

Metropolitan Washington Council of Governments (COG)

because it previously awarded contracts to Redman/Johnston

Associates to provide support to the LGAC. 

Our review at the CCC included files pertaining to 

cooperative agreement number CB993675-01 awarded by

EPA. We did not include the Small Watershed Grant and

the Sustainable Development Challenge Grant in the scope

of our review. At the time of our fieldwork, these assistance

agreements had not been awarded. We reviewed the

procedures the CCC used to award the contracts to

Redman/Johnston Associates, and any internal controls

affecting our review that the CCC had in place at the time of

our audit. We performed a detailed review of the CCC’s

check register, canceled checks, invoices, receipts, and bank

statements. 

During our visit to Redman/Johnston Associates office, we

reviewed invoices submitted to both the COG and the CCC

along with canceled checks, a transaction report from

January 1997 through April 1998, documentation supporting

the incorporation of the CCC, the proposal to the CCC for the

contract award and various documents pertaining to LGAC

support work.

We reviewed Title 40 of the Code of Federal Regulations Part

30, Grants and Agreements with Institutions of Higher

Education, Hospitals and Other Nonprofit Organizations. 

We also reviewed Public Law 95-224, the Federal Grant and

Cooperative Agreement Act of 1977, U.S.C. 6301 et seq., EPA

Order 5700.1 titled Policy for Distinguishing Between
7 Report No. 9100117

Assistance and Acquisition, OMB Circulars A-110 and A-122,

the Grants Management Fact Sheet for Agency Leaders,

titled, Competition for Assistance Agreements, and Executive

Order 12674, Principles of Ethical Conduct for Government

Officers and Employees.

We did not review EPA’s oversight procedures for the

administration of the cooperative agreement awarded to the

COG. Moreover, we did not review the COG’s costs or

conduct a site visit at the COG. However, we did request

various documents from the COG and interviewed some of its

personnel.

We reviewed the CBPO’s annual assurance letter for fiscal

year 1998 prepared as a result of the Federal Managers’

Financial Integrity Act. There were no weaknesses

identified that pertained to the scope of work we reviewed. 

However, the letter indicates that this review was requested

and that the findings would be used to strengthen the

CBPO’s management controls.

Our review began on January 9, 1998 and ended on

September 18, 1998. To obtain a preliminary response to the

issues in this report, we issued position papers to the

Director of the Chesapeake Bay Program Office on

November 5, 1998. We received verbal comments from him

on November 10, 1998, and written comments from the

Deputy Director on November 12, 1998. 

We issued a draft report on November 20, 1998 to the Region

III Administrator. In order to obtain comments from the

CCC, we provided them Chapter 4, the applicable portion of

Chapter 5, and Exhibits A and C. We also provided

Redman/Johnston Associates Exhibit B and the portion of

Chapter 5 applicable to the contractor in order to obtain their

comments. Subsequently, the CCC Executive Director asked

if he could provide Redman/Johnston Associates Chapter 4 so

that they both could respond. We granted that request. The

CCC provided comments on January 21, 1999, and

Redman/Johnston Associates provided comments on

December 24, 1998 and January 4, 1999. Several meetings

were conducted with Region III officials to discuss the issues
8 Report No. 9100117

in the report. EPA Region III provided their written

response on March 10, 1999. After evaluating these

responses, our position remains unchanged on the issues

discussed in this report. 

Exit conferences were held on March 17, 1999 with the CCC

Executive Director, on March 24, 1999 with the Director of

the CBPO and on March 26, 1999 with the Deputy Director

of the CBPO. We also conducted an exit conference with the

contractor on March 26, 1999. During that exit conference

the contractor qualified his responses to the audit report

because he was not given the opportunity to comment on

Chapters 2 and 3. In our opinion, the contractor had the

opportunity to comment on all of the major points in the

report. All of the responses are summarized at the end of

each chapter and provided in their entirety as Appendices.

Prior Audit

Coverage

There has been no prior audit coverage of the nonprofit

organization that is discussed in this report. 
9 Report No. 9100117

CHAPTER 2

EPA NEEDS TO ADEQUATELY JUSTIFY NONCOMPETITIVE

COOPERATIVE AGREEMENT 

EPA officials are responsible for ensuring that there is

adequate justification for assistance agreements awarded

noncompetitively. Competition is essential to ensure that

the government obtains the most qualified organizations at

the best price. EPA received no such assurances when it

awarded a noncompetitive cooperative agreement to the

CCC. Moreover, awarding the cooperative agreement

noncompetitively, without adequate justification, created an

appearance of preferential treatment that compromises the

integrity of the Chesapeake Bay Program. 

EPA

Responsibilities

Unfulfilled

On May 31, 1994, the EPA Deputy Assistant Administrator

for Administration and Resources Management sent a

memorandum to all Senior Resource Officials (SROs)

addressing SRO responsibilities. One responsibility he

specified was to ensure that there is “adequate justification

for assistance agreements awarded noncompetitively” when

reviewing assistance funding packages. According to a

Grants Management Fact Sheet for Agency Leaders, titled,

Competition for Assistance Agreements, dated December

1995, Agency managers must develop a solid justification if

they do not use competition.

Awarding a noncompetitive cooperative agreement without

adequate justification seriously challenges the concept of free

and open competition embraced by the Agency. Listed below

are some of the effects of awarding a cooperative agreement

noncompetitively without adequate justification:

í Gives the appearance EPA may be giving preferential

treatment to any single assistance applicant.

í Reduces EPA’s opportunity to receive a wide range of

innovative and creative ideas to support its mission by

limiting the range of potentially eligible recipients.
10 Report No. 9100117

í May fund organizational start-up costs at the expense

of performing direct project activities.

í Is inconsistent with the intent of the Federal Grant

and Cooperative Agreement Act of 1977 which

encourages competition, where appropriate, in the

award of grants and cooperative agreements.

Even a Region III Chesapeake Bay Program document

recognized the need for competition. According to a

questions and answers document prepared by Region III

officials to supplement LGAC’s feasibility report, 

It would be inappropriate for the Bay Program

or any of its subcommittees to directly launch or

approve a specific nonprofit organization.

 

By awarding the CCC a noncompetitive cooperative

agreement without adequate justification, Region III officials

also did not comply with the intent of Executive Order

12674, Principles of Ethical Conduct for Government

Officers and Employees. Section 101(h) of the Executive

Order states that Government employees shall act

impartially and not give preferential treatment to any

private organization or individual.

Although in retrospect they now agree that the cooperative

agreement awarded to the CCC should have been

competitively awarded, Region III officials contend that the

level of detail contained in the justification for this

assistance agreement was common for Region III assistance

agreements, and not unique to this award. They also

contend that our conclusion that this award portrays

preferential treatment to a single grantee is not appropriate. 

We disagree with Region III. We believe the events

paralleling the award of this cooperative agreement support

our conclusion about the appearance of preferential

treatment in Region III’s handling of this matter. These

same events also indicate that a competitive award was

needed.

LGAC Vice Chair

Forms the CCC

The LGAC headed by a Chair and several Vice Chairs,

commissioned a task force to prepare the Local Government 
11 Report No. 9100117

Participation Action Plan. (One of these LGAC Vice Chairs

became the task force Chair). The Action Plan that this task

force prepared called for broadening local government

participation in the Chesapeake Bay Program, and

committed to study the feasibility of establishing a nonprofit

to assist local governments. LGAC then established a

workgroup to perform this feasibility study. 

The feasibility study workgroup members included

representatives from EPA’s Chesapeake Bay Program Office,

the COG, and various representatives from other

organizations involved with Chesapeake Bay protection

efforts. (The Chair of this workgroup was the same person

who chaired the task force and later became Executive

Director of the CCC.) The workgroup also included the

President of Redman/Johnston Associates, acting in his role

as Executive Director to the LGAC. According to EPA

personnel, this workgroup met often to evaluate the

feasibility of establishing a nonprofit. 

In effect, one LGAC member was the Chair of the task force

that prepared the Action Plan committing to study the

feasibility of establishing a nonprofit. This same person was

also the Chair of the workgroup that performed this

feasibility study. Finally, this same person became the

Executive Director of the CCC. 

Before the feasibility study

was finalized, the CCC was

incorporated and awarded a

cooperative agreement by

EPA to do the work

contemplated by the

feasibility study. The CCC’s Executive Director and the

President of Redman/Johnston Associates involvement in the

feasibility study, coupled with EPA’s decision to award the

cooperative agreement to the CCC, caused some LGAC

members to request this audit. The following chart provides

a timeline that shows the CCC being incorporated before the

feasibility study was finalized.

CCC incorporated before

feasibility study was

finalized
12 Report No. 9100117

Before LGAC began the feasibility study to determine if a

nonprofit was the method of choice for increasing local

government participation, a new nonprofit was being

planned. Soon after the CCC was incorporated in August

1997, EPA sent the CCC a letter confirming the award of the

cooperative agreement and issued the Agency’s Program

Decision justifying the noncompetitive award to the CCC. 

This justification stated that:

Establishing this new nonprofit center is one of

the commitments of the Chesapeake Bay

Informal discussions begin concerning the 

establishment of a nonprofit

Executive Council adopts the Local Government

Participation Action Plan that committed to broaden 

participation by local governments in CBP

Redman/Johnston Associates discusses incorporating 

a new nonprofit with an attorney

LGAC establishes workgroup to study the feasibility 

of a nonprofit

Redman/Johnston Associates incorporates CCC and

LGAC Vice Chair becomes CCC Executive Director

EPA sends letter to CCC confirming funding and prepares

Program Decision Memorandum justifying award to CCC

Draft feasibility study published that

indicates nonprofit does not exist with local government

focus. Contained draft bylaws, articles, and a budget for an

entity named the CCC

LGAC publishes progress report to Chesapeake

 Executive Council

LGAC considering workgroup findings but not ready 

to make recommendation on nonprofit

September 1997

 October 1997

 August 1997

 February 1997

 September

August 1996

October 1996

 January

1997

Executive Council adopts the 1995 Local Government

Partnership Initiative which is a commitment to

strengthen the Chesapeake Bay Program’s partnership

with local governments
13 Report No. 9100117

 Program Local Government Participation Action Plan. 

No other organization would have been suitable for

the task. 

As previously noted, EPA made this determination before the

LGAC finalized its feasibility study indicating there was not

currently a nonprofit that provided this service. The fact

that the Chair of the workgroup and Redman/Johnston

Associates, as participants in that workgroup, had a personal

financial interest in the conclusion that no nonprofit existed,

raises concern about the workgroup’s objectivity and the

validity of its conclusion.

EPA personnel told us that the workgroup contacted other

organizations, and could not identify an existing

organization that fulfilled the mission contemplated by the

feasibility study. Region III personnel believed it was

important to note that the draft feasibility report indicated

that: 

Staff contacted local government associations

and representatives to inform them of the study

and seek their input to the needs analysis ...

Representatives of existing regional non-profits

served on the workgroup ... and were consulted

on the merits of a new organization. 

Although the workgroup studied the need for a nonprofit to

assist local governments to participate in the Chesapeake

Bay Program, neither EPA personnel nor the LGAC’s

feasibility report documented that the possibility was

explored that an existing nonprofit would be able to provide

this service. Moreover, because an existing nonprofit did not

have a local government focus does not mean such a focus

could not have been developed. 

In the process of making the award to the CCC, there was no

evidence that EPA solicited proposals from the nonprofit

community for the type of work contemplated. Without

efforts to seek out other nonprofits willing or capable of

performing the services EPA wanted, Region III did not

fulfill its responsibility to obtain competition. The principal

problem we found with EPA’s justification for awarding the

CCC a cooperative agreement noncompetitively was that
14 Report No. 9100117

Region III did not independently confirm that no other

nonprofits were able to perform the work desired.

Using an existing organization could have avoided the costs

of creating a new organization and capitalized on the

existing organization’s experience. Apparently, duplication

of effort was a concern of some LGAC members. This is

evidenced by a letter dated September 9, 1997 from the

Director of the Virginia Department of Conservation and

Recreation to the Chair of the LGAC which stated:

Unfortunately, Virginia was not consulted

during the feasibility study and, as it turns out,

much of what is planned for the Center is

duplicative of the work being done by the

Chesapeake Bay Local Assistance Department.

When we discussed this letter with Region III officials, they

disagreed with the Director’s comments. They asserted that

Virginia was represented on the workgroup, and if the

Virginia officials had concerns, these concerns were not

relayed to the workgroup when the feasibility study was

being drafted. Conversely, the Virginia representative

contended he was unaware that the CCC was being

incorporated at this time. 

Feasibility Study

Inappropriately

Helps the CCC

When asked what was

the basis for awarding

a noncompetitive

cooperative agreement,

the Region III Project

Officer replied the

feasibility study was the basis for the award. Ultimately,

this study indicated: 

There is currently not a nonprofit organization

that serves as a regional resource organization

in the watershed with a local government focus.

In our opinion, the feasibility study does not provide a basis

for not competing this cooperative agreement because the

workgroup never formally considered the option of using an

already existing nonprofit. Rather, the study focused on

incorporating a new nonprofit.

Feasibility study did not

justify noncompetitive award
15 Report No. 9100117

The feasibility study resulted in the creation of a mission

statement and business plan for the CCC, as well as bylaws,

articles of incorporation, and a budget. These items should

not have been prepared as part of the feasibility study

because the establishment of a nonprofit was not within the

scope of work of the feasibility study. The generation of

these documents, however, certainly enhanced the CCC’s

incorporation process. The Statement of Purpose section of

the feasibility study indicated the study was intended to: 

í Ensure that the mission of a new nonprofit did not

duplicate the activities of existing organizations; 

í Create opportunities for local governments to

participate in the investigation process; and

í Assess the availability of resources needed to establish

and maintain a nonprofit organization. 

While EPA Region III was awarding the CCC a cooperative

agreement noncompetitively, the LGAC was still not

convinced about using a new nonprofit. The progress report

to the Chesapeake Executive Council, dated October 30,

1997, summarized the actions taken by LGAC to implement

the Local Government Participation Action Plan. This

report, issued after Region III had awarded the cooperative

agreement to the CCC, did not mention the CCC. To the

contrary, the report discussed the nonprofit workgroup

results. The workgroup concluded that: 

A nonprofit organization ... will contribute to

the overall effort to protect and restore the

Bay.... The LGAC is currently considering the

workgroup’s findings and is not ready to make a

recommendation at this time.

Despite this report, Region III officials had already awarded

a cooperative agreement to the CCC in order to fund the

start-up of the nonprofit.

EPA officials indicated that it was important to note that

during the LGAC’s November 1997 meeting, it ultimately

endorsed the feasibility report and the working relationship
16 Report No. 9100117

with the CCC. However, we noted that the minutes of this

meeting showed that the LGAC endorsed the CCC after a tie

vote was broken by the LGAC Chair, who was a board

member of the CCC. At this same meeting, a second motion

was passed which called for the OIG to perform this audit.

The LGAC members who requested this audit contend there

were several reasons why Region III awarded this grant to

the CCC. Chief among them was the relationship between

Region III officials, the CCC’s Executive Director, and the

President of Redman/Johnston Associates. It has also been

asserted that this current arrangement provides Region III

more control of Chesapeake Bay Program funds destined for

local governments. However, we could not confirm the

validity of the reasons. 

Conclusion The advance incorporation of the CCC gives the appearance

of preferential treatment because of: 

ó the Executive Director of the CCC and

Redman/Johnston Associates integral participation in

the feasibility study; 

ó EPA’s award to the CCC before the final publication of

the study;

ó EPA’s reliance on the study’s conclusion, before the

final publication of such conclusion, to justify a grant

award to the CCC; and

ó the study’s subsequent conclusion which provided a 

financial benefit to the CCC’s incorporators.

Region III's actions did not fulfill its responsibility for

ensuring that there was adequate justification for the

noncompetitive award to the CCC. Instead Region III's

actions compromised local initiative, promoted a

noncompetitive award, and gave the appearance of

preferential treatment.
17 Report No. 9100117

Recommendations We recommend that the Region III Administrator:

2-1 Terminate the existing cooperative agreement

awarded to the CCC.

2-2 Attempt to award a new cooperative agreement

competitively if Region III continues to believe the

services are needed. If advertisements and requests

for proposals do not identify entities able to perform

the services required, then Region III can award the

cooperative agreement noncompetitively. This award

should only be made after Region III has ensured

adequate justification has been provided. 

Region III Response

In retrospect, given the clarification of policies which will result from the draft

report, as well as controversy within the LGAC over the formation of the Center, it

would have been better to have competed this grant. This would have eliminated

any appearance of preferential treatment even where there was none, as in this

case. The Bay Program is currently engaged in a process to do just that for a

successor grant. At the same time, it is important to note that the Bay Program

was following normal and customary practice, and that Agency policy provides a

considerable degree of discretion to the Program Manager to make determinations

of the need for formal competition. The Chesapeake Bay Program employs

considerable competition in the selection of priority projects and tasks through an

open Budget Steering Committee process involving dozens of organizations, and it

was assumed that this provided ample competition to meet the intent of Agency

policy. Given the concerns identified in the draft report, the Region will evaluate

its procedures for competition and implement changes as may be necessary.

The Region further agrees that as the new nonprofit was formed, the Center and

the contractor should have acted in ways which would have eliminated any

appearance of a conflict and the complaints that resulted. Simple preventative

measures should have been taken much earlier in the process: the LGAC Vice Chair

should have stepped down from the Workgroup Chairmanship when he first started

considering launching a nonprofit; he should have informed the LGAC of the

Center’s creation in a timely manner and recused himself on all matters affecting

the nonprofit decision; and a clearer separation should have been made between the

work of the contractor and the Center’s issuance of a Request For Qualifications

used to employ the new LGAC support staff. We recognize the inherent difficulty of

anyone conducting business with the LGAC without interacting with their official
18 Report No. 9100117

support staff, Redman/Johnston and Associates. However, greater efforts should

have been employed to ensure separation of the roles and avoid any appearance of

conflict in contracting. The Region took strong action in September 1997, prior to

the award of the first Center grant, to seek written assurances from the CCC

Director about avoiding even the appearance of a conflict of interest in future

actions.

The Region agrees with Recommendation 2-1 that the existing cooperative

agreement should be brought to an end and be replaced by a new grant

arrangement as determined by the outcome of a competitive Request for Proposals

(RFP). The Region also commented that it is critical to maintain LGAC and other

project support, and a precipitous action to replace it could lead to the same issues

of non-competition raised by the Inspector General. We will transition to the

successful candidate(s) under the new RFP on or around August 1, 1999. 

Region III concurs with Recommendation 2-2. The Region has taken steps to

compete the local government assistance functions consistent with an overall

Chesapeake Bay Program management plan. By taking such action, the Region

does not indicate concurrence that the initial justification for non-competition was

inadequate. In fact, the file justification for this award far exceeded in level and

detail what is typical for other similar grants. No extraordinary efforts were taken

by the Region to streamline the award of this grant so as to deny others the

opportunity to compete.

A broad-based Workgroup was employed to develop the Feasibility Report which

was essentially completed on schedule in June 1997, prior to the CCC’s

incorporation. This consensus report of the Workgroup, involving 12 participants in

total and 5 existing nonprofit entities, made a clear recommendation that “there is

currently not a non-profit organization that serves as a regional resource

organization in the watershed with a local government focus.” Significant efforts

were also made by the Workgroup staff to contact existing service providers in the

Region to see if the work could be done through existing means. Staff reported

directly to the Workgroup, which included EPA, that they could not identify a

willing nonprofit entity. Documentation of this search and of the Workgroup’s

serious concern for impacts on existing service providers is provided in the

Feasibility Report. 

Other serious inaccuracies in the draft report relate to compliance with law and

Agency policies. The draft report makes declarative statements that the Region did

not comply with Agency Fact Sheets and the Federal Grant and Cooperative

Agreement Act with respect to competition for grants. While we acknowledge above

that, in retrospect, competing this grant could have averted any appearance of
19 Report No. 9100117

conflict, we do not concur with these statements and wish to point out the full

context of these documents. 

Agency policy, as articulated in the Grants Management Fact Sheet for Agency

Leaders entitled Competition for Assistance Agreements, Number 9, states that

“the Agency encourages fair and open competition in the award of discretionary

assistance agreements.” (Emphasis added.) This does not constitute a requirement

to do so in the case of every grant awarded. In fact, the Fact Sheet clearly states

that “Program Leaders should determine up-front if a competitive process is

appropriate for your assistance program.” (Emphasis added.) Further, the

Federal Grant and Cooperative Agreement Act of 1977 “encourages competition,

where appropriate, in the award of grants and cooperative agreements.” 

(Emphasis added.)

Citing Executive Order 12674, Principles of Ethical Conduct, the report asserts that

Region III did not act impartially and without preferential treatment to an

organization or individual. At the time of grant award, the Region was not aware of

any other eligible and interested prospective grantee, after months of extensive

consultations and research conducted by the Feasibility Workgroup and by Region

III independently. The COG had not expressed interest in continuing this grant at

that point. Therefore, EPA could not have acted in preference to one organization

at the exclusion of a known, alternative option. There are no assertions of personal

friendship or association in the report. Further, no one in EPA directly benefitted

from any of these actions. Therefore, this assertion that Region III officials did not

comply with the Principles of Ethical Conduct is incorrect and should be deleted in

its entirety. 

OIG Evaluation

Region III’s agreement to terminate the existing cooperative agreement with the

CCC, and to award future cooperative agreements competitively meets the intent of

our recommendations. 

The Region stated it conducted a thorough assessment to determine that a “new”

nonprofit was needed. However, without asking the existing nonprofit community

if it had any interest in providing this service, the Region did not provide them the

opportunity to develop an interest in serving the Chesapeake Bay Program. This

opportunity was given to the CCC. Moreover, there was no documentation for the

“assessment” the Region stated it performed. These two factors, coupled with the

CCC Executive Director’s actions to incorporate the CCC before the feasibility study

was finalized, are the basis for the findings in this chapter.
20 Report No. 9100117

We recognize that EPA is not mandated to award all cooperative agreements

competitively. However, there must be an adequate justification for all

noncompetitive awards. Awarding assistance agreements noncompetitively without

a valid reason or justification would open the Agency to allegations of preferential

treatment. We disagree that the Budget Steering Committee process fulfilled the

need to compete a specific cooperative agreement. It merely defined which projects

will get funding.

We disagree with Region III’s comments regarding the Executive Order. Region III

allowed events to occur that benefitted the contractor and the CCC. The

formulation of the CCC’s bylaws, mission statement, and articles of incorporation

gave preferential treatment. Also, Region III was aware the CCC was being formed

by the people performing the feasibility study, which again gives the appearance of

preferential treatment. This awareness was evidenced by the written assurance

Region III obtained from the CCC Executive Director about avoiding even the

appearance of a conflict of interest, except that Region III’s actions did not go far

enough. The Region did not exercise its responsibility to ensure that the CCC

Executive Director complied with the written assurance he gave to Region III.
21 Report No. 9100117

CHAPTER 3

IMPROPER USE OF COOPERATIVE AGREEMENTS

EPA should not have awarded cooperative agreements to

intermediaries who awarded contracts to obtain LGAC

support services. EPA officials explained that by awarding

cooperative agreements to obtain the services of an LGAC

support contractor, it was able to avoid Federal procurement

regulations, making the procurement for support services

easier. According to these same officials, they were

attempting to get LGAC support work accomplished in a

more efficient manner, since they believed they had the

option to award either a contract or assistance agreement. 

However, Region III's actions did not comply with the intent

of the Federal Grant and Cooperative Agreement Act of 1977

and fostered a perception of preferential treatment.

Assistance

Agreement Misuse

Triggers Concerns

While easing the process for awarding the support contracts,

EPA did not comply with the intent of the Federal Grant and

Cooperative Agreement Act of 1977. This Act was passed

because Congress was concerned that Federal agencies were

misusing assistance agreements to circumvent competition

and other procurement rules. Moreover, EPA Order 5700.1

prohibits using cooperative agreements to circumvent

procurement regulations. 

EPA Order 5700.1 is designed to inform program, assistance,

and procurement award officials of circumstances that

require the use of contracts rather than assistance

agreements. The Order provides that EPA may not award

an assistance agreement to an eligible intermediary [such as

a nonprofit entity] to provide assistance to an ineligible

recipient [such as a profit making entity].

Legislative History of the Competition in Contracting Act of

1984, while not governing assistance agreements, explains

Congress’ desire for competition in Federal awards. Senate

Report Number 98-50, at 3-4 (1984), states that:
22 Report No. 9100117

. . . possibly the most important benefit of

competition is its inherent appeal of ‘fair play.’ 

Competition maintains the integrity in the

expenditure of public funds by ensuring that

government contracts are awarded on the basis

of merit rather than favoritism. . . . The

Attorney General has interpreted congressional

intent as preventing favoritism. . . .

EPA Improperly

Used Assistance

Agreements

For a number of years the COG used an employee to provide

LGAC support. After this person resigned, the COG began

using contracts to obtain LGAC support. For more than four

years EPA awarded noncompetitive cooperative agreements

to the COG, which in turn awarded contracts to provide

LGAC support services. To obtain these support services, the

COG awarded contracts to Redman/Johnston Associates. For

example, during fiscal 1996, EPA awarded a $201,000

cooperative agreement to the COG. Using these cooperative

agreement dollars, the COG then awarded a $192,000 timeand-materials contract for LGAC support. The remaining

$9,000 was kept by COG as compensation for administering

the contract. Similarly, in fiscal 1997, EPA awarded the

COG $214,000 which resulted in a $204,000 time-andmaterials contract to Redman/Johnston Associates. The

remaining $10,000 was used for contract administration and

miscellaneous expenses such as LGAC meeting lunches,

newsletters and photocopying. 

According to COG

personnel, the LGAC

workplan for the contract to

Redman/Johnston

Associates was a product of EPA and the contractor. The

COG was merely the procurement intermediary EPA used to

award the support contract. COG personnel explained that

they were simply a “middle man without a role.” In our

opinion, there is no legitimate basis for an agency to make an

assistance or contract award to an entity that has no role

performing the work called for under such award. The

award to COG was essentially an award directly to

Redman/Johnston Associates which, as a profit making

entity, is not eligible to receive this assistance agreement

under the Clean Water Act. 

COG was “middle man

without a role”
23 Report No. 9100117

COG Excluded In

Favor of CCC

After the CCC was incorporated, EPA decided that the COG

would no longer be used as the vehicle to award LGAC

support contracts. Instead, EPA used the CCC, which

awarded a contract to the same contractor that received it in

the past. The cooperative agreement awarded to the CCC

provided $314,000, of which $155,000 was used for the

current contract. By providing the contract funds for LGAC

support to the CCC, EPA continued the practice of

improperly using an intermediary to award a contract. 

When we asked why the COG was no longer receiving the

cooperative agreement to award the contract, EPA

representatives told us that the COG was no longer

interested in continuing this service. We determined that

the COG initially said it no longer wanted to provide LGAC

support; however, the COG informed the nonprofit

workgroup in September 1997 of its potential desire to

continue providing this support. Subsequently, we also

discovered that the COG informed EPA in a letter dated

October 22, 1997 of its continued interest in providing staff

support to LGAC. 

In response to the COG’s letter, the EPA Region III

Administrator wrote to the COG Chair explaining that

Region III understood that COG was no longer interested in

providing LGAC support. EPA indicated that based on this

understanding and a variety of other factors, EPA had been

actively pursuing other options. In our opinion, Region III's

action to exclude the COG strengthens the perception of

Region III’s preferential treatment toward the CCC.

By awarding a contract, as opposed to a cooperative

agreement for LGAC support services, Region III could have

relied on the expertise of its procurement officials, who are

not closely involved with the Chesapeake Bay Program or

Redman/Johnston Associates. Such reliance would have

enhanced the integrity of the Chesapeake Bay Program

Office and not subjected that office to charges of preferential

treatment.
24 Report No. 9100117

Recommendation 3-1 We recommend that the Region III Administrator

obtain LGAC support services directly, without using

an intermediary.

Region III Response

The Region has agreed to a future limit on the amount of contracting under

cooperative agreements for this and similar Chesapeake Bay Program efforts. We

have done this by specifying evaluation criteria under the RFP which promote work

being done in-house by prospective grantees. 

EPA has an obligation under the Clean Water Act to ensure adequate support to

the operations of the Chesapeake Bay Program, which is comprised of over a dozen

major committees and three advisory committees. The active grant in 1997 was

scheduled to come to a close in early March 1998 and the COG had indicated for

years its desire to terminate its role. The Region was therefore required to

expeditiously identify an alternative, prospective grantee. Time urgency weighed

heavily since the grant for LGAC services was expiring. Because of the impending

expiration of the grant and the time required to process a new grant, the

Chesapeake Bay Program could not wait an indefinite amount of time for final

LGAC approval due to the need to support the Advisory Committee. LGAC’s

meeting schedule and a pattern of intentional delays were not conducive to

providing input to this decision in a timely manner. 

There are a number of other places in the draft report which are not clear, and

where the material presented or analyzed could lead the reader to a misleading or

incorrect conclusion. For example, extensive parts of the report are based on the

erroneous assumption that the Region’s motivation was to use the nonprofit grant

recipient as a means to fund a profit-making contractor in violation of procurement

regulations. In fact, the contracting out of some services to a profit-making

organization by the nonprofit grantee is a practice that had a history predating the

current grantee and is permissible under EPA rules. The selection of the contractor

was within the full authority and discretion of both previous and current grantees. 

Under these circumstances, it is misleading to include in the Introduction and

Chapter 3 of the draft report allegations that the Region was trying to avoid

procurement regulations. This is simply not the case. The Region sought out no

contractors, instructed no grantee to contract, was not the direct beneficiary of the

grant, and avoided no procurement regulations. This section of the Report and the

relevant parts of the Introduction should therefore be deleted or corrected.
25 Report No. 9100117

OIG Evaluation

Region III’s proposed action meets the intent of our recommendation. However, we

do not agree that portions of this finding should be deleted or corrected. We do not

dispute that grantees are permitted to use subagreements to accomplish work. 

Moreover, the draft report does not contend that the LGAC support work is for the

direct benefit of EPA or another Federal agency. Our finding demonstrates that

Region III should procure the LGAC support services directly (not using an

intermediary) either through a contract or an assistance agreement.

Awarding an assistance agreement to a nonprofit organization that results in 95% 

of the funds going to a contractor, with the remainder used for contract

administration, indicates that obtaining these services directly (using either an

assistance agreement or a contract) was the method that should have been used

initially. Moreover, by using an assistance agreement, EPA avoided awarding the

contract itself and allowed the CCC to award the contract under less than ideal

conditions.

We have noted EPA’s perceived need to act expeditiously in the award to the CCC. 

However, we do not agree that acting so quickly was necessary. Instead, EPA

should have considered extending its agreement with COG.
26 Report No. 9100117

CHAPTER 4 

CONFLICT OF INTEREST SHOULD HAVE PRECLUDED 

AWARD OF CONTRACT

As a nonprofit recipient of EPA funds, the CCC’s conduct is

governed by 40 CFR Part 30. This regulation addresses a

recipient’s ethical responsibilities. Among such

responsibilities is the requirement to avoid a contract award

that would raise a real or apparent conflict of interest on the

part of the award official. In the case of the CCC, the

Executive Director acted favorably toward Redman/Johnston

Associates by awarding it two contracts after

Redman/Johnston Associates absorbed costs totaling

approximately $2,300 for incorporating the CCC. This action

compromised the integrity of the CCC’s contract award

process and violated EPA regulations.

Contractor Should

Have Been

Disqualified

Title 40 CFR 30.42 states that

no recipient official shall

participate in a contract award

if a real or apparent conflict of

interest would be involved. This

regulation further establishes

that the recipients shall neither solicit nor accept gratuities,

favors, or anything of value from contractors, or parties to

subagreements. 

Title 40 CFR 30.43 requires all procurement transactions to

be conducted in a manner that provide, to the maximum

extent practical, open and free competition. The regulations

require the recipient to be alert to organizational conflicts of

interest as well as noncompetitive practices among

contractors that may restrict or eliminate competition. It

also requires that in order to eliminate an unfair competitive

advantage, contractors that develop or draft specifications,

requirements, statements of work, invitations for bids, and/or

requests for proposals shall be excluded from competing for

such procurements.

Contractor and CCC

interaction was

improper
27 Report No. 9100117

Title 40 CFR 30.44 requires a clear and accurate description

of the technical requirements for the services to be procured. 

Moreover, this written description should contain technical

requirements in terms of functions to be performed,

including the minimum acceptable standards. 

Title 40 CFR 30.46 requires a recipient to have procurement

records that include, at a minimum, the basis for contractor

selection; justification for lack of competition when

competitive bids or offers are not obtained; and the basis for

award cost or price. 

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.

Redman/Johnston Associates

participated in the preparation of

the assistance applications

submitted by the CCC and had

advance knowledge about the

cooperative agreement and intended contracts. Despite this,

Redman/Johnston Associates subsequently entered into a

sole source verbal agreement with the grantee to receive

$10,000 from the cooperative agreement awarded to the

CCC. 

EPA Region III awarded the CCC a $45,000 cooperative

agreement on September 30, 1997. According to this

agreement, the money was to be used to support start-up

functions for the CCC; conceptualize and begin to prepare a

local government training module and clearinghouse; and

plan a local government summit.

Initially, the CCC’s application for assistance, dated July 30,

1997, indicated that it would award a $10,000 contract for

preparation and filing of the articles of incorporation,

attorney fees, accountant fees, and staff support to create the

nonprofit organization. Ultimately, the CCC revised its

application for this assistance agreement, and indicated that

the $10,000 would be used for a contract to obtain “technical

assistance and organization start-up support to initiate the

activities of the Center [CCC].” Our review found that the 

Verbal agreement

prohibited
28 Report No. 9100117

contractor signed the Executive Director’s name with his own

initials (ADR) next to the Executive Director’s name on the

revised application for Federal Assistance that was

submitted to EPA (See Exhibit C). Because of this signatory

arrangement, it is not clear to us what role the Executive

Director may have played in the submission of this revised

application. However, the contractor stated in his response

that the CCC Executive Director authorized this signature.

Although he subsequently resigned, it is important to note

that at the time the CCC was incorporated, the President of

Redman/Johnston Associates was listed as a member of the

Board of Directors in the CCC’s articles of incorporation. 

Moreover, the CCC’s application for the cooperative

agreement listed the President of Redman/Johnston

Associates as the project manager. The assistance

application also contained this same contractor’s name and

telephone number as the point of contact for EPA questions. 

Contrary to what was in the CCC’s application, both the

Executive Director of the CCC and the President of

Redman/Johnston Associates told us the $10,000 was for

additional work needed to complete the feasibility study. 

The invoice submitted by the contractor to the CCC

confirmed that the contractor billed for work on the

feasibility study. These costs are unallowable because this

work was not authorized under the cooperative agreement

awarded to the CCC. 

Subsequently, we asked for a copy of the contract and the

applicable scope of work. Both the Executive Director of the

CCC and the President of Redman/Johnston Associates told

us they entered into a verbal agreement for $10,000 with the

approval of EPA. However, they had no supporting

documents to validate this verbal agreement or EPA’s

approval. 

Our review of the CCC’s financial records revealed that as of

May 6, 1998, the contractor was paid only $3,300 for his

services. The CCC’s Executive Director told us the contractor

had not been paid the full $10,000 billed because the CCC

was experiencing cash flow problems. He explained that the

payments would be made later. In any event, the verbal
29 Report No. 9100117

2. There were no telephone, Internet, or Dunn & Bradstreet listings available for any of these four

firms. This search was performed shortly after the RFQ was mailed.

 agreement for $10,000 should not have been made between

the CCC and the contractor because 40 CFR Part 30

prohibits this type of agreement. 

On March 31, 1998, the CCC

awarded another contract for the

LGAC support services to

Redman/Johnston Associates. It

appears from the steps that

preceded this award that

Redman/Johnston Associates had an inside track to the

award of the contract and should have been excluded. In our

opinion, documents in Region III's and the CCC’s files

indicated that the CCC’s award to Redman/Johnston

Associates was accomplished with only the pretense of

competition.

This second contract was funded by an amendment to the

cooperative agreement awarded to the CCC. The

amendment, dated March 2, 1998 was to increase the

funding by $314,000 and extend the project and budget

periods. Of this amount, $155,000 was to fund the contract

award to Redman/Johnston Associates. To award the second

contract, the CCC used a Request for Qualifications (RFQ)

method for selecting the contractor. The RFQ specified that

if the CCC continued to receive financial assistance from

EPA, the CCC reserved the right to extend the contract

through four subsequent years. 

According to the CCC’s Executive Director, the RFQ for the

LGAC support contract was sent to eighteen companies on 

February 6, 1998. We obtained the names of the eighteen

companies and began contacting them by telephone on

March 31, 1998, the day the contract was awarded. Our

review was able to confirm that only six of the eighteen

received the RFQ. Two companies did not return our 

telephone calls. Of the remaining ten companies, four could

not be located2 and six indicated they never received it. 

Contract awarded

with only pretense

of competition
30 Report No. 9100117

3. This company later sent a solicitation letter to the CCC for the preparation of an educational

outreach program.

Of the six companies that received the RFQ, only

Redman/Johnston Associates submitted a proposal and was 

awarded the contract on March 31, 1998. The five companies

that did not respond told us they did not bid because: 

P two were not qualified; 

P one believed the incumbent would be awarded the

contract and, therefore, decided not to submit a

proposal3; 

P one bid on a prior contract and never received a

response; and

P one did not give a reason for not responding.

When we initially requested the list of companies that were

mailed the RFQ, this document was faxed from

Redman/Johnston Associates to the EPA Project Officer, and

ultimately was sent to us. Although the Executive Director

of CCC and Region III officials said that the contract was

awarded competitively, the only entity that could provide a

list of the RFQ recipients was Redman/Johnston Associates. 

This document should have been generated by the CCC in

the course of a competitive procurement; it should have been

in the CCC’s files; and it should not have been released to

Redman/Johnston Associates, which should have been

completely separated from the CCC’s contract award process.
31 Report No. 9100117

Other documents also showed the contract was awarded with

only the pretense of competition.

è EPA files contained the Region III Project Officer’s

notes that indicated “competitive procurement—Tony 

prefers RFQ.” Tony Redman is a partner of

Redman/Johnston Associates, the company that

received the support contract, and the RFQ was the

method used to award the contract. 

è The CCC’s 1998 Application for Federal Assistance

included the CCC’s projected income and budgets. It

also included the estimated amounts budgeted for the

LGAC support contract. This budget is titled Draft #2

revised and includes handwritten changes on various

line items. It was faxed from Redman/Johnston

Associates to the CCC on September 11, 1997. This

was six months before the contract was awarded on

March 31, 1998. Redman/Johnston Associates access

to such information should have disqualified it from

the contract award.

è The Application for Federal Assistance, dated

December 16, 1997, signed by the Executive Director

of CCC was faxed to the Region III Grants

Management Branch from Redman/Johnston

Associates on February 25, 1998. These funds were

awarded by EPA to the CCC on March 2, 1998, and

included the funds for the LGAC support award. 

Redman/Johnston Associates’ integral involvement in the

procurement process should have eliminated its eligibility to

compete for this contract. Such involvement gave

Redman/Johnston Associates a significant competitive

advantage that 40 CFR Part 30 is designed to prohibit. Such

involvement also casts doubt on the legitimacy of the RFQ

process which resulted in Redman/Johnston Associates being

the sole bidder. 

CCC’s

Procurement

Records Were

Incomplete

Title 40 CFR 30.45 requires some form of cost or price

analysis shall be made and documented in connection with

every procurement. Because there was only one bidder, it

was essential that the CCC perform this cost or price 
32 Report No. 9100117

analysis. Price analysis compares a contractor’s prices to

market prices. A cost analysis reviews each element of cost

to determine reasonableness. Without a cost or price

analysis, EPA had no assurance that contract expenditures

were reasonable. Neither of these documents were found in

the CCC’s files. Moreover, there was no documentation

showing a reason for contractor selection.

Also, the CCC did not maintain written standards of conduct

for employees awarding and administering contracts as

required by 40 CFR 30.42. The Executive Director explained

to us on April 28, 1998 that he had no such standards

because EPA had never provided him with a copy of the

governing EPA regulation. 

The Application for Federal Assistance included a

Procurement System Certification, which required the

applicant to certify that it will follow EPA regulations. This

would have been the time the Executive Director should have

ensured that CCC complied with all applicable EPA

regulations. However, we found that the Executive Director

of the CCC did not sign this certification. Rather, the

contractor signed the Executive Director’s name with his own

initials next to the Executive Director’s name. The CCC’s

certification states:

This is a new nonprofit organization. Its

procurement procedures will comply with US

Environmental Protection Agency regulations

and standards. 

The Executive Director also should have been aware of what

was contained in the CCC’s bylaws. We found that the

Executive Director of the CCC was also the Secretary and

Treasurer which is a violation of the CCC’s bylaws. Article

VI indicates “any two or more offices may be held by the

same person, except the office of Executive Director and

Secretary.” 
33 Report No. 9100117

Recommendation 4-1 We recommend that the Region III Administrator, in

conjunction with the recommendations in Chapters 2

and 3 of this report, recover costs associated with the

verbal agreement made between the CCC and

Redman/Johnston Associates.

Region III Response

We will review the grantee’s response, and defer any action on the recommendation

in the interim.

CCC Response

The CCC was incorporated to address needs identified by the LGAC work group. 

Mr. Redman offered to act as agent for the incorporation to assure it would be in

place to provide funding for services to local governments. Mr. Redman's

involvement was never substantive in the operation of the Center and as the draft

points out, he resigned shortly after incorporation.

The draft asserts Redman Johnston had detailed knowledge of RFQ requirements. 

LGAC and Bay Program procedures provide this knowledge be widely shared with

LGAC members and Bay Program staff. This did not provide a competitive

advantage since the same information is provided to all potential bidders. A

conflict of interest did not exist because the Center awarded two contracts to

Redman Johnston. The contractor was also the Executive Director of LGAC and as

such was responsible for preparing budgets, developing work plans and securing

LGAC approval of these proposals. Mr. Redman was also responsible for their

presentation before the Bay Program's Budget Steering Committee. These roles

involve full knowledge of the funds available and their purposes for future LGAC

work. Interactions between CCC, Bay Program Staff and the contractor

(representing LGAC) was therefore not only normal, it was expected by EPA. 

EPA staff was fully aware that I intended to contract with Redman Johnston to

provide technical assistance and organizational start-up support to initiate the

activities of the Center. I regarded this work in many respects as an extension of

the work already completed by Redman Johnston to evaluate the need for, and

feasibility of using a non-profit organization to provide technical and financial

assistance to local governments. The actual contract for $9,894 was verbal. We

believe 40 CFR 30 Parts 43 and 44 do not prohibit our verbal agreement to a

contract in this amount since clear expectations existed, services were performed

based on these expectations, an invoice was rendered and reviewed by CCC and

EPA staff prior to payment, and full payment made based on the work completed.
34 Report No. 9100117

The draft report asserts an application dated July 30, 1997 was submitted by CCC

for services which covered incorporation and other services to create the Center. No

such application was submitted. I have not seen such an application. I know these

costs are not appropriate for a federal application. The application submitted in my

name in early August, 1997 (I was in North Carolina and authorized Mr. Redman

to sign my name) was the only application submitted. 

I believe neither the facts nor the draft support the assertion that the second

contract for $155,000 was a "done deal." The Center used an RFQ process that was

identical to the COG’s in previous years, including as recently as 1996. We used

the same contractor list and evaluation procedures. The draft indicated Mr.

Redman preferred an RFQ process. It did not mention the RFQ process was the one

used by COG, which is why the CCC used it. Redman Johnston was not the

assured awardee.

Eighteen firms were sent the RFQ. I reasonably believed all eighteen firms

received the RFQ since none were returned. Inspector General staff verified that at

least six acknowledged receipt. Even this number is sufficient to assure

competition. Had additional qualifying responses been received, they would have

been fairly and objectively evaluated by parties other than myself. It is noted in the

draft that the list of RFQ recipients was obtained from Redman Johnston. Mr.

Redman's response indicated why this occurred.

I believe it was appropriate for Mr. Redman to review the draft budget titled

Draft 2, dated September 11, 1997, in light of his role with LGAC and his

responsibility to present the budget to the Budget Steering Committee. The draft

notes the application for assistance was faxed from Redman Johnston's office on

December 16, 1997. I was in New Orleans at an EPA meeting and asked a Redman

Johnston staff member (without Mr. Redman's knowledge) to submit the

application based on text I had reviewed and approved since the staff member had

a copy of the application on disk and I did not have such materials. After keying in

the text I had approved on the form, he forwarded it to EPA. During this period,

late January and February, 1998, I was in the hospital recovering from surgery.

Redman/Johnston Associates Response

It is correct that I spearheaded the incorporation of the CCC. I agreed to do that at

no cost to EPA. The EPA representatives indicated that if a nonprofit was formed,

they would continue to fund LGAC activities through the CCC. My actions to

create the nonprofit were designed to protect LGAC access to financial resources to

support their ongoing activities. Your report should note that Mr. Allen expressly

authorized and directed me to submit the grant application in his name. 
35 Report No. 9100117

There is nothing improper about me being personally aware of future grant

availability. My job with LGAC was to prepare budgets based upon anticipated 

funding. Concerning the comment that Redman/Johnston benefitted from the grant

made to the CCC, it is accurate that there was an addendum to an existing contract

that resulted in additional work and revenue to Redman/Johnston, which was

funded through a grant which I assisted the Center in preparing. 

In investigating circumstances concerning the RFQ that was faxed from my office, I

have learned that you requested this list from Mr. Allen, who requested a former

employee of mine (the same one that now works for the Center) to obtain a copy on

his behalf from the COG. Apparently, he obtained a copy and forwarded it to the

Center without my knowledge. I recognize that he was an employee of my firm at

that time. Nevertheless, I repeat, I have never seen such a list. In fact, it appears

that the only reason such a list was ever in my office at all was because you

requested it of the Center, and at Mr. Allen’s request, my employee became a

transmittal middle man, after the contract was awarded, I should add. 

Work done to prepare the feasibility report was authorized in my contract with

COG. Unfortunately the level of effort required to explore the feasibility of creating

the Center, did not satisfy some LGAC members who expected to see a detailed

report. The need for the detailed report and additional related work performed

regarding start up for the Center was discussed with EPA staff and additional work

was approved by EPA as an extra. At that time it was understood that the

estimated cost to complete the work would be $10,000. Rather than process a

contract amendment through COG, EPA staff recommended that I receive

compensation from the $45,000 initial grant to be made to the Center. I accepted

that arrangement and performed the work accordingly. Therefore it does not seem

reasonable to disallow costs associated with preparation of the feasibility study

since I was contractually obligated to complete this task within the scope of work. 

OIG Evaluation

The ability of a Redman/Johnston Associates employee to obtain the RFQ list

(before contract award and not after as Mr. Redman contends) and a disk copy of

the CCC’s grant application is a problem. Even more disturbing was the disclosure

by the CCC’s Executive Director, during our exit conference, that an employee of

Redman/Johnston Associates mailed the RFQ to the 18 potential bidders for him. 

Although Mr. Redman’s actions to create a nonprofit were purportedly to protect

LGAC access to financial resources, by doing so he also protected the contract

revenues his company received for LGAC support. 

Although interaction between CCC, Chesapeake Bay Program Staff and the

contractor (representing LGAC) was considered normal and expected, we believe
36 Report No. 9100117

 that there is an inherent conflict of interest between the contractor’s position as the

Executive Director of LGAC and his position as the President of Redman/Johnston

Associates. For example, the contractor developed the LGAC workplan and budget

that contained amounts estimated for the contract he eventually competed for. 

Subsequently, he presented this same budget that he developed to the Chesapeake

Bay Program’s Budget Steering Committee.

The responses from the CCC and Redman/Johnston Associates confirmed that the

contractor “spearheaded” the CCC incorporation and submitted the CCC’s grant

application to EPA. Their responses also confirm that Redman/Johnston was privy

to LGAC budget information. The budget document [Draft #2] we discussed in our

report provided Redman/Johnston information about the future amendment to the

cooperative agreement that EPA would award to the CCC, and the contract the

CCC would award as a result of receiving the amendment. 

Title 40 CFR 30.46 requires a recipient to have procurement records that include, at

a minimum, the basis for contractor selection; justification for lack of competition

when competitive bids or offers are not obtained; and the basis for award cost or

price. Verbal contracts do not comply with this requirement nor are such contracts

good business practice. Although the CCC Executive Director and the President of

Redman/Johnston contend there were clear expectations about the verbal

agreement, a transaction involving almost $10,000 involves too many details that

cannot be left to memory. 

The CCC’s Executive Director asserts that he neither saw or submitted a grant

application dated July 30, 1997. However, we obtained this document from

Region III files and it contains Mr. Allen’s signature. A review of this application

by the Region III Grants Office disclosed that it contained unallowable costs for

items such as incorporating the CCC and fund raising. Annotations in Region III’s

files indicate that the results of the Region III review were sent to

Redman/Johnston, which ultimately sent these same comments to the Executive

Director of the CCC. Subsequently, the application was revised and the President

of Redman/Johnston affixed Mr. Allen’s signature to it before resubmitting it to

EPA. 

We disagree with the CCC’s contention that all 18 firms received the RFQ.

Personnel from two of these companies told us they did not receive the RFQ. We

determined this occurred because the addresses on the CCC’s list were incorrect. 

Four other companies did not exist; there were no telephone or Internet listings for

them. We attempted to locate them through Dunn and Bradstreet, and EPA’s

Office of Criminal Enforcement, Forensics and Training, which searched Secretary

of State Corporate Records and Uniform Commercial Code filings. The CCC’s

response indicates they used the COG’s 1996 RFQ list. Attempting to obtain
37 Report No. 9100117

 competition with an RFQ list that was almost two years old, without verifying its

accuracy, does not appear to be prudent. 

EPA regulations prohibit Redman/Johnston Associates from competing for the

contract awarded by the CCC. The contractor submitted the grant application

containing provisions that identified how much money was budgeted for the

contract it eventually received. The contractor and the CCC’s Executive Director

participated in the feasibility study that decided a new nonprofit was needed. The

contractor incorporated this new nonprofit [the CCC] without compensation before

it received a sole source verbal contract from the CCC. Subsequently, the

contractor was the only bidder for a second contract awarded without the cost or

price analysis required by EPA regulations. In our opinion, these events raised a

real or apparent conflict of interest which 40 CFR Part 30 required the CCC to

avoid. 
38 Report No. 9100117

CHAPTER 5

EPA MUST ENSURE THAT RECIPIENTS HAVE AN ADEQUATE

FINANCIAL MANAGEMENT SYSTEM 

The CCC did not properly account for Federal funds because

it did not have an adequate financial management system. 

Moreover, the contractor did not have an adequate financial

management system. According to EPA requirements, a

recipient’s accounting system must account for all costs

incurred under a project and must consistently apply

generally accepted accounting principles. As a result, the

abilities of these organizations to record, process, summarize

and report financial data were adversely affected. This

condition affects all the cooperative agreements awarded to

the CCC.

EPA’s Assistance Administration Manual requires the

Agency’s program office, as part of the technical review of the

application, to assess the applicant’s overall capabilities to

implement the intended activity efficiently and effectively. 

The manual indicates that reviews should cover such items

as adequacy of financial management and accounting

procedures. Title 40 CFR 30.21 requires the recipient’s

accounting system to provide the following:

ë Accurate, current and complete disclosure of the

financial results of each federally-sponsored project.

ë Records that adequately identify the source and

application of funds for federally-sponsored activities. 

These records will contain information pertaining to

Federal awards, authorizations, obligations,

unobligated balances, assets, outlays, and income.

ë Effective control over and accountability for all funds,

property and other assets. Recipients will adequately

safeguard all such assets and assure they are used

solely for authorized purposes.
39 Report No. 9100117

4. EPA selected the CCC for the 1997 Sustainable Development Challenge Grant Program. One of

the partners listed on the CCC’s project description was Redman/Johnston Associates. EPA also

awarded the CCC $391,000 under a cooperative agreement for the Small Watershed Grants

Program. The employee that prepared the proposals is no longer employed by the contractor and is

now employed by the CCC as the Director of Programs.

ë Comparison of outlays with budget amounts for each

award. Whenever appropriate, financial information

should be related to performance and unit cost data.

ë Written procedures for determining the

reasonableness, allocability and allowability of costs in

accordance with the applicable Federal cost principles

and the terms and conditions of the award.

ë Accounting records including cost accounting records

that are supported by source documentation.

CCC Disregarded

Budget

At the time of our review, EPA

was the sole source of the CCC’s

funding. As of May 1998, the

CCC had drawn down $139,000

from EPA and disbursed over

$73,000. The CCC was using

the advanced payment method to obtain funds under the

assistance agreement. According to 40 CFR 30.22(b), cash

advances to a recipient organization will be limited to the

amounts needed for the approved program or project. We

reviewed these disbursements and found the CCC

disregarded EPA requirements when it used funds for

projects that were not part of the cooperative agreement. 

Both the cooperative agreement and subsequent amendment

contained detailed budgets for all costs. These budgets are

required as part of the grant application process. However,

the CCC’s expenditures indicated that the Executive Director

disregarded the detailed budgets when he expended funds. 

For example, the CCC paid one employee of 

Redman/Johnston Associates $1,500, for preparing proposals

in order to apply for other grants.4 Subsequently, the CCC

received one of these assistance awards from EPA. Since

preparing these applications is not covered by the

cooperative agreement, Federal funds advanced to the CCC

should not have been used to pay these costs. In accordance

with EPA’s

EPA funds used to

prepare assistance

applications
40 Report No. 9100117

Assistance Administration Manual, a recipient’s accounting

system must include records that allow comparison of actual

costs with budgeted costs for each project. 

CCC’s Costs

Unsupported

We also found the CCC did not maintain adequate support

for its expenditures. The CCC’s supporting documentation

consisted of a haphazard collection of canceled checks, bank

statements and invoices. However, we could neither link

these documents to funds received under the cooperative

agreement, nor could we determine if the expenditures were

justified. 

For example, the CCC’s expenditures included $184 for

lunches for two CCC board meetings. These lunches were to

be provided to board members on the day of the CCC’s board

meetings. However, the CCC did not maintain minutes of

the board meetings or any other supporting documentation. 

Moreover, the CCC claimed the salaries of board members

that attended the meetings as an in-kind expenditure

chargeable to the cooperative agreement. In accordance with

OMB Circular A-110, volunteer services may be counted as

cost sharing or matching if the service is an integral and

necessary part of an approved project. However, since there

is no record of the board meetings, the CCC could not justify

the basis for the in-kind services used as the recipient

contribution to the cooperative agreement. 

At the time of our review, the Executive Director received: 

– $42,252 for Salary

– $2,474 for Health Insurance

– $448 for Life Insurance

– $5,128 for Retirement Benefit Contribution

– $2,000 reimbursement to himself for miscellaneous

items such as office supplies, phone, travel and office

expense. 

However, he did not maintain documentation, such as

timesheets or a time distribution system, as required by

OMB Circular A-122 to support his time charged to the

cooperative agreement. Section L of OMB Circular A-122

titled, Support of Salaries and Wages, requires that reports

reflecting the distribution of activity of each employee must 
41 Report No. 9100117

be maintained for all staff members whose compensation is

charged, in whole or in part, directly to awards. These types

of documents are needed to segregate the eligible work from

ineligible work and to support the number of hours charged

to the cooperative agreement. Because these documents

were not maintained by the CCC, we were unable to

determine if EPA funds were used in an effective and

efficient manner, and only for eligible and allowable costs. 

Without this assurance, we considered these costs

unsupported.

EPA should not have allowed the CCC to use the advanced

payment method to obtain funds from EPA because it did not

have an adequate financial management system. According

to OMB Circular A-110, reimbursement is the preferred

method when the recipient fails to meet the standards for

fund control and accountability as established by EPA

regulations. 

In accordance with EPA’s Assistance Administration

Manual, supporting documentation must include everything

needed to explain a transaction. Recipients must crossreference supporting documentation so that a transaction

can be traced from any document dealing with the

transaction back to the initiating documents, and forward to

entries in the accounting system. The CCC’s record keeping

did not satisfy this requirement.

Contractor’s Costs

Unsupported

Contractor personnel also did not use timesheets or any

mechanism to support actual hours charged to the contract. 

Moreover, the contractor did not segregate costs associated

with non-government funded business from the costs

chargeable to the contract funded by EPA.

From October 1, 1997 through December 15, 1997,

Redman/Johnston Associates was simultaneously billing two

contracts funded by EPA. One contract was with the COG

for LGAC support and the other was the $10,000 awarded by

the CCC. One contractor employee charged a total of 521

hours to these contracts, but could not provide timesheets of

the actual days he worked on each contract. 
42 Report No. 9100117

Redman/Johnston Associates was awarded time-andmaterials contracts for the LGAC support. Payments under

time-and-materials and labor-hour contracts must be

substantiated by individual daily job timecards. However,

the contractor did not keep daily timesheets and could not

support actual costs or hours charged. Instead, the

contractor divided the total amount of the contract over

twelve months, and then billed the monthly amount. The

contractor’s method of billing was to submit a monthly

invoice with an estimated number of hours that each

employee worked under the contract. When the contract

expired, the contractor had been reimbursed the total

amount of the award. In effect, the contractor billed as if the

contract was a fixed-price contract. 

In accordance with 40 CFR 30.44 (c) and OMB Circular

A-110, the type of procuring instrument used should be

determined by the assistance recipient, but should be

appropriate for promoting the best interest of the project. In

our opinion, a time-and-materials contract is the least

preferred contract type and should be used when no other

type is suitable. 

Conclusion We found that neither the CCC nor Redman/Johnston

Associates had financial management systems or internal

control structures in place to properly account for Federal

funds. 

Recommendations We recommend that the Region III Administrator:

5-1 Discontinue all payments to the CCC and review all

costs already incurred under the cooperative

agreements for allowability and reasonableness. To

that end, labor amounts billed by Redman/Johnston

Associates not supported by adequate timesheets

should be disallowed.

5-2 Prior to awarding assistance agreements and before

allowing advance payments, ensure that recipients

have developed and implemented adequate internal

controls and financial management systems that

comply with OMB Circulars and EPA regulations.
43 Report No. 9100117

5-3 Contact our office prior to grant closeout to afford us

the option of performing a final audit of the

cooperative agreement.

Region III Response

Region III concurs in-part with Recommendation 5-1. The Region discontinued

payments on the cooperative agreement in a letter to the CCC dated November 19,

1998. Based upon a thorough on-site review of the financial management systems

of the CCC, conducted on December 3-4, 1998, we have resumed payments in

accordance with requirements of the grant agreement.

Region III concurs in part with Recommendation 5-2. At the time of application for

cooperative agreements, grantees provide certifications that they will maintain

adequate financial records. The Region will continue to require and review all

grantee financial management system certifications as part of its review of

applications. We cannot perform in-depth site reviews of all grantee records before 

authorizing payments. This would result in delays in payments and would be

counter to the Prompt Payment Act provisions.

CCC Response

The Center for Chesapeake Communities was in the process of “starting up” during

the period prior, during and after the review was carried out. Every one of the

“systems” and much of the documentation noted in the report were in the process of

being created and are now in place. I believe it is unreasonable to believe that any

new organization would have all systems, policies, and manuals fully developed in

the first eight months of its existence. The report fails to note why the creation of

certain systems were delayed and why the Executive Director sought and received

critical volunteer help from knowledgeable, skilled and trusted persons. During the

period from December through March 1998 my attention to Center start-up was

secondary to extraordinary health issues.

The Center's largest expenditure, fully consistent with the authorized grants and

funds then received, was my salary. Until May, 1998, I was the only employee. It

was easily verified then, and has since been reviewed and verified by EPA Grants

and Audit Staff, that the salary and benefits paid to me were both appropriate and

consistent with the budgets submitted to EPA. The percentages cited in the draft

report concerning payments to me are accurate but easily misleading since during

all but the last 30 days of the entire period of September, 1997 to April, 1998 the

bulk of all the funds available were for my salary.
44 Report No. 9100117

It is important to note that I had already initiated procedures to address the

requirements of 40 CFR Part 30. The draft asserts that the Executive Director

disregarded the detailed budget when funds were expended. This is not the case. 

Rather, close attention was paid to these budgets and EPA requirements when

these expenditures were made. The CCC did employ a Redman Johnston employee

on a consulting basis during late March and early April 1998 because help was

needed to address critical grant and EPA requirements. The items cited in the

draft footnote are in error and misleading. No funds were paid to anyone for the

development of an application for a Sustainable Development Challenge Grant. 

This application was submitted in August 1997.

I did secure help to (1) develop a final draft of a training program required by our

start-up grant, (2) provide copy of the small water shed grant required by EPA Bay

Program Budget Steering Committee, (3) consult on a draft memo to the Governor

of Maryland on the Summit required by our grant, (4) consult on the configuration

of office equipment for a new Center office, (5) consult on the content of a draft

brochure for the Center (again required by our grant), and (6) respond to certain

technical questions from EPA Grants and audit staff on our budgets for ongoing

and proposed work. All of these activities are authorized by our grant from EPA. 

The individual involved had knowledge and skills I believed were essential to our

work and I had no other staff to draw on and could not, in good conscience, continue

to constantly ask for such enormous time commitments for free.

Board meetings were documented, EPA Staff was present. IG Staff had access to

copies of the agenda and other supporting materials in the files provided at the

time of their visit. Minutes were not available.

Redman/Johnston Associates Response

The draft report indicated the CCC "paid one employee of Redman/Johnston

Associates $1,500 for preparing proposals in order to apply for two other grants". 

Redman/Johnston Associates provided some support in the preparation of the

Sustainable Development Challenge Grant application. This assistance was

limited since our contract at that time made no provision for compensation for such

work. However, at no time was I aware of any arrangement between the Center

and the employee to be compensated in the amount of $1,500 for preparing these

proposals. Such action was never sanctioned by Redman/Johnston Associates, nor

did Redman/Johnston Associates receive any income for this work. This apparently

was an arrangement between my about-to-be-former employee and his prospective

employer. It was not an arrangement with Redman/Johnston Associates.

Redman/Johnston Associates has been a contractor with COG for more than three

years. At no time was our record keeping and billing questioned. Redman/Johnston
45 Report No. 9100117

Associates requested each payment on an invoice describing the work performed

and the period of performance of the work. The contract does not mandate that

Redman/Johnston Associates keep time records as a condition for payment. 

Although the phrase "time and materials" is used in the contract, it is not a typical

"time and materials" contract as defined by the Federal Acquisition Regulation, but

is more characteristic of a "fixed fee" contract. Specifically, the contract did not

specify a fixed hourly rate, which is required for "time and materials" contracts

under the Federal Acquisition Regulation. We viewed the contract as a fixed price

contract, and understood that we would be paid the budgeted amount for the work

performed. 

It seems unreasonable for you to indicate that none of the costs are supportable

since I provided the audit team copies of reports and documents reflecting

completion of many of the tasks budgeted for in the contract. In most cases, the

staff time needed to complete work assignments was greater than amounts

budgeted. In those cases, I did not submit invoices for additional staff hours

because it was our belief that we were committed to complete the assignments for

the prices in the contract. We assumed any additional time it might take was not

billable, and treated the contract as a fixed price contract. EPA staff who monitored

my performance of contract responsibilities during the period March 1997 to March

1998 have never indicated any failure on the part of my firm to complete contract

assignments and to do so within the price structure defined in the contract.

Please be advised that since April of 1998, we have adjusted our administrative

procedures as a result of your audit team's visit. They provided me the first clear

indication that our contract administrative procedures required us to maintain

daily time records. Since that time, personnel at Redman/Johnston have been

required to keep time sheets for all work related to LGAC assignments. These time

sheets now accompany our monthly invoices to the CCC.

OIG Evaluation

During May 1998, we conducted an on-site review of the CCC’s financial records. 

As a result of this review, Region III discontinued payments to the CCC in

November 1998. Subsequently, the Region conducted its own review of the CCC’s

expenditures, and determined that the CCC had improved its financial system, and

could show that its expenditures were supported by receipts. In their opinion, the

CCC’s financial management system properly documented the costs incurred under

the three EPA cooperative agreements. Based on this review, Region III reinstated

payments to the CCC in early December 1998. 

Our analysis of the Region III review disclosed that Region III did not determine if

the CCC’s expenditures were reasonable and allowable under the grant, as we
46 Report No. 9100117

recommended in our draft report. Without this determination, the Region’s review

was incomplete, and we disagree with Region III’s action to reinstate payments

before determining reasonableness and allowability of costs. In essence, the Region

determined that the CCC now had receipts for its expenditures, but the Region did

not evaluate whether or not the expenditures were reasonable and allowable under

the grant. 

Further analysis of the Region III financial review revealed that the CCC’s

accounting procedures still do not provide for the identification and segregation of

unallowable costs. For example, the Region III report showed that the CCC

charged the cooperative agreement $6,500 for fund raising. The CCC was informed

by Region III officials at the inception of the grant that fund raising costs were

unallowable, and any reference to these activities should be deleted from the

budget. The Region III review also revealed that the CCC had overdrawn funds on

one cooperative agreement by more than $82,000 and underdrawn another

cooperative agreement by $35,000. These examples represent additional

occurrences where the CCC did not follow the budgets contained in the cooperative

agreements with the EPA.

The CCC’s response stated that no funds were paid to a Redman/Johnston

Associates employee for preparing assistance agreements, but were paid for other

activities authorized under the grant. Moreover, during the exit conference, the

Executive Director indicated that he had a written consulting agreement with the

employee, which he forwarded to us. 

We disagree with the CCC Director’s position that the $1,500 paid to the

Redman/Johnston Associates employee was only for eligible work. At the time of

our site visit, we requested the Executive Director to clarify this expense and he

indicated the check was for grant writing. In a later conversation, the Executive

Director again told us he paid $1,500 to the Redman/Johnston Associates employee

to prepare the EPA grant application for the Small Watershed Grants Program. 

This grant writing is not eligible under the grant we reviewed. It is also

noteworthy that we did not consider the document provided as a valid consulting

agreement because it was not signed or dated by either party. As a result, our

position regarding this cost remains unchanged.

We disagree with the CCC’s comment that IG staff had access to copies of the board

meeting agendas. This information was not available at the time of our site visit. 

We again requested copies of these agendas during our exit conference, but we have

not received them to date. 

Redman/Johnston Associates comments also indicated that they viewed the LGAC

support contract as a fixed-fee contract, and not a time-and-materials contract. We
47 Report No. 9100117

 disagree with this conclusion because all of the Redman/Johnston invoices were

prepared as time and material invoices. Each monthly invoice included the hourly

labor rates multiplied by the number of hours each employee charged. It also

itemizes materials and other miscellaneous expenses. These invoices indicate that

the contract was administered as a time-and-materials contract.

Redman/Johnston Associates commented about EPA reviewing the contractors

invoices, and that EPA monitored its performance; however, we believe EPA should

not have any involvement with a contractor under an assistance agreement.

We disagree with the CCC’s response regarding how long a new organization

should be allowed to have its systems, policies and manuals in place. We are

sympathetic to the Executive Director’s health issues, but these health issues were

not a factor during the first three months of the grant period. Moreover, the

Executive Director knew many months before the initiation of the grant that the

CCC would be formed. EPA regulations require recipients to have these systems in

place before the grant starts, and Region III was responsible for ensuring they were

in place and operational before awarding the grant. 
48 Report No. 9100117

Exhibit A - Analysis of Expenditures by the CCC

Auditor’s Opinion

Funding Instrument

Period of

Performance

Costs

Expended as

of May 1998

Costs

Accepted

Costs

Unsupported Note

Cooperative Agreement

CB993675-01 awarded to the

CCC

November 1997

to May 1998 $73,621 -0- $73,621 1, 2, 3

Note 1: At the time of our fieldwork, the CCC expended $73,621. 

We considered the entire amount unsupported for the

reasons discussed in this report. 

Note 2: The $10,000 verbal contract with Redman/Johnston

Associates should not be charged to the cooperative

agreement. These costs are unallowable because work on

the feasibility study was not authorized under the

cooperative agreement awarded to the CCC. 

Note 3: The $1,500 used for preparing assistance applications is

also not included in the scope of work of the cooperative

agreement and should be disallowed.

Region III Response

The Regional Grants and Audit Management Branch conducted a site review of the

CCC’s financial management system and financial records. From this review we

have obtained supporting documentation for the $73,261 which the audit cites as

unsupported. A copy of our financial systems review is being forwarded under

separate cover. We defer response on the two specific issues in Exhibit A to the

grantee and contractor.

CCC Response

The CCC’s comments to these issues are contained in Chapters 4 and 5.

Redman/Johnston Associates Response

The contractor’s response to the verbal contract issue is contained in Chapter 4.

OIG Evaluation

Our evaluation of the responses are included in Chapters 4 and 5
49 Report No. 9100117

Exhibit B - Costs Claimed by the Contractor

Auditor’s Opinion

Funding Instrument

Period of

Performance

Costs

Expended

as of May

1998

Costs

Accepted

Costs

Unsupported Note

Contract Awarded by the COG 

under Cooperative Agreement

CB003983-06-0

March 1997 to

March 1998

$204,000 -0- $204,000 1

Note 1: During our fieldwork, we reviewed the invoices associated

with the last contract the COG awarded to

Redman/Johnston Associates. The period of performance

for this contract was March 1997 to March 1998. We

considered the entire $204,000 to be unsupported because

the expenditures were not supported by adequate

documentation. We did not review invoices applicable to

the previous contracts the COG awarded to

Redman/Johnston Associates. However, discussions with

the contractor indicated the record keeping and billing

methods used for these contracts were essentially the

same as the contract we reviewed. 

We did not review costs incurred by Redman/Johnston

Associates under the contract awarded by the CCC for

LGAC support. At the time of our review,

Redman/Johnston Associates services under this contract

were just beginning.

Region III Response 

Defer to Grantee or contractor’s Response.

Redman/Johnston Associates Response

Redman/Johnston Associates comments to this exhibit are included in Chapter 5. 

OIG Evaluation

Our evaluation of the contractor’s response is included in Chapter 5.
50 Report No. 9100117

Exhibit C - Excerpt from Revised Application for EPA Assistance
51 Report No. 9100117

Appendix 1 - Region III’s Response to the Draft Report
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION III

1650 Arch Street

Philadelphia, Pennsylvania 19103-2029

March 10, 1999 

SUBJECT: Response to Draft Audit Report on the 

Center for Chesapeake Communities

Report Number E6DEP8-03-0014

FROM: W. Michael McCabe 

Regional Administrator (3RA00)

TO: Carl A. Jannetti

Divisional Inspector General for Audit (3AI00)

This responds to the Draft Audit Report on the formation of the nonprofit Center for

Chesapeake Communities (CCC). This audit was requested by an Advisory Committee of the

Chesapeake Bay Program with full support of the Region. We saw it as an opportunity to clarify

and strengthen policies in a particularly confusing area of grants management related to awards to

nonprofit organizations. The audit was so noted in our annual Assurance Letter under the Federal

Managers Financial Integrity Act. 

The Region concurs with virtually all the Recommendations outlined in the Draft Report,

and in a number of instances has already taken actions which have the effect of carrying out the

Recommendations in whole or in part. This includes a site review and evaluation of the Center’s

financial management and records systems; development of a management plan for competing

nonprofit grants in the Chesapeake Bay Program Office; issuance of the first Request for

Proposals under the new competitive procedures outlined in the management plan; and initiation

of a vulnerability assessment for all Bay Program grants. Other actions will be taken in full

response to the Recommendations made in the Final Report.

In retrospect, given the clarification of policies which will result from the Draft Report, as

well as controversy within the Local Government Advisory Committee (LGAC) over the

formation of the Center, it would have been better to have competed this grant. This would have

eliminated any appearance of preferential treatment even where there was none, as in this case. 

The Bay Program is currently engaged in a process to do just that for a successor grant. At the

same time, it is important to note that the Bay Program was following normal and customary

practice, and that Agency policy provides a considerable degree of discretion to the Program

Manager to make determinations of the need for formal competition. The Chesapeake Bay

Program employs considerable competition in the selection of priority projects and tasks through

an open Budget Steering Committee process involving dozens of organizations, and it was

assumed that this provided ample competition to meet the intent of Agency policy. Given the

concerns identified in the Draft Report, the Region will evaluate its procedures for competition

and implement changes as may be necessary.

The Region further agrees that as the new nonprofit was formed, the Center and the

Customer Service Hotline 1-800-
2

contractor should have acted in ways which would have eliminated any appearance of a conflict

and the complaints that resulted. Simple preventative measures should have been taken or used

much earlier in the process: the LGAC Vice-Chair should have stepped down from the

Workgroup Chairmanship when he first started considering launching a nonprofit; he should have

informed the LGAC of the Center’s creation in a timely manner and recused himself on all matters

affecting the nonprofit decision; and a clearer separation should have been made between the

work of the contractor and the Center’s issuance of an RFQ used to employ the new LGAC

support staff. We recognize the inherent difficulty of anyone conducting business with the

LGAC without interacting with their official support staff, Redman/Johnston and Associates. 

However, greater efforts should have been employed to ensure separation of the roles and avoid

any appearance of conflict in contracting. The Region took strong action in September 1997,

prior to the award of the first Center grant, to seek written assurances from the CCC Director

about avoiding even the appearance of a conflict of interest in future actions.

To provide further context and to correct misleading statements in the Draft Report, we

recommend that the following issues be clarified:

First, it was not the practice of the Bay Program to compete such small grant awards in 

discretionary program areas. Project level competition is common in the Bay Program and

grantee competition is common for national grant programs such as Environmental Education and

Environmental Justice but not for smaller discretionary programs. It was common practice for

the Region to accept a concise statement of justification for non-competition in grant awards. In

fact, the file justification for this award far exceeded in level and detail what is typical for other

similar grants. No extraordinary efforts were taken by the Region to streamline the award of this

grant so as to deny others the opportunity to compete. In fact, at the time of initial grant award,

no other eligible and interested organization was known to the Region. 

Second, the Program was working under a clear mandate from the Chesapeake Executive

Council to significantly enhance technical and financial assistance to local governments to meet

Bay Program objectives. A critical recommendation of the Local Government Participation

Action Plan, central to many other of the commitments being fulfilled, was investigating the

feasibility of a new nonprofit since it had been established through extensive outreach that

capacities to assist locals were needed throughout the watershed.

Third, a broad-based Workgroup was employed to develop the Feasibility Report which

was essentially completed on schedule in June 1997, prior to the CCC’s incorporation. This

consensus report of the Workgroup, involving 12 participants in total and 5 existing nonprofit

entities, made a clear recommendation that “there is currently not a non-profit organization that

serves as a regional resource organization in the watershed with a local government focus.” 

Significant efforts were also made by the Workgroup staff to contact existing service providers in

the Region to see if the work could be done through existing means. Staff reported directly to the

Workgroup, which included EPA, that they could not identify a willing nonprofit entity. 

Documentation of this search and of the Workgroup’s serious concern for impacts on existing

service providers is provided in the Feasibility Report. 

Fourth, no objections to the formation of the nonprofit were heard from the Virginia state

government or LGAC representatives on the Workgroup, or from the Washington Council of

Governments, during the drafting of the Feasibility Report. Last minute objections from Virginia
3

representatives, after the report was essentially completed, evidenced a breakdown in

communications between career civil servants and these appointees on this matter, which EPA

could not have anticipated. This created confusion about the consensus reached in the

Workgroup. Confusion was also evidenced in the change of position and the late expression of

interest in this award by the Washington Council of Governments, whose staff cited suburban

Virginia representatives as the source of the last minute change of position. 

Finally, EPA has an obligation under the Clean Water Act to ensure adequate support to

the operations of the Bay Program, which is comprised of over a dozen major committees and

three advisory committees. The active grant in 1997 was scheduled to come to a close in early

March 1998 and the current grantee (WASHCOG) had indicated for years its desire to terminate

its role. The Region was therefore required to expeditiously identify an alternative, prospective

grantee. Time urgency weighed heavily since the grant for LGAC services was expiring. Because

of the impending expiration of the grant and the time required to process a new grant, the Bay

Program could not wait an indefinite amount of time for final LGAC approval due to the need to

support the Advisory Committee. LGAC’s meeting schedule and a pattern of intentional delays

were not conducive to providing input to this decision in a timely manner. 

There are a number of other places in the Draft Report which are not clear, and where the

material presented or analyzed could lead the reader to a misleading or incorrect conclusion.

For example, extensive parts of the report are based on the erroneous assumption that the

Region’s motivation was to use the nonprofit grant recipient as a means to fund a profit-making

contractor in violation of procurement regulations. In fact, the contracting out of some services

to a profit-making organization by the nonprofit grantee is a practice that had a history predating

the current grantee and is permissible under EPA rules. The selection of the contractor was 

within the full authority and discretion of both previous and current grantees. 

Under these circumstances, it is misleading to include in the Introduction and Chapter 3 of

the Draft Report allegations that the Region was trying to avoid procurement regulations. This is

simply not the case. The Region sought out no contractors, instructed no grantee to contract,

were not the direct beneficiary of the grant, and avoided no procurement regulations. This

section of the Report and the relevant parts of the Introduction should therefore be deleted or

corrected.

Other serious inaccuracies in the Draft Report relate to compliance with law and Agency

policies. The Draft Report makes declarative statements that the Region did not comply with

Agency Fact Sheets and the Federal Grant and Cooperative Agreement Law with respect to

competition for grants. While we acknowledge above that, in retrospect, competing this grant

could have averted any appearance of conflict, we do not concur with these statements and wish

to point out the full context of these documents. 

Agency policy, as articulated in the Grants Management Fact Sheet for Agency Leaders 

entitled Competition for Assistance Agreements, Number 9, states that “the Agency encourages

fair and open competition in the award of discretionary assistance agreements.” (Emphasis

added.) This does not constitute a requirement to do so in the case of every grant awarded. In

fact, the Fact Sheet clearly states that “Program Leaders should determine up-front if a

competitive process is appropriate for your assistance program.” (Emphasis added) Further, the

Federal Grant and Cooperative Agreement Act of 1977 “encourages competition, where
4

appropriate, in the award of grants and cooperative agreements.” (Emphasis added.)

The Program Leader and the Project Officer in this case made a determination that there

was adequate justification for non-competition of this award, based upon the extensive file

documentation including the draft, 50-page Feasibility Report, many months of consultations and

research, and two levels of management review within the Region. It was typical and customary 

for the Region to accept concise justifications for grants awarded without formal competition. 

This grant well exceeded the normal standard for such justifications. We therefore request that

these statements in the report be modified to show the entire policy in its correct context, and not

just selected portions of it. We further request that you modify these statements to reflect the

discretionary nature of this determination and the degree of judgment involved.. 

Citing Executive Order 12674, Principles of Ethical Conduct, the report asserts that

Region III did not act impartially and without preferential treatment to an organization or

individual. At the time of grant award, the Region was not aware of any other eligible and

interested prospective grantee, after months of extensive consultations and research conducted by

the Feasibility Workgroup and by Region III independently. The Metropolitan Washington

Council of Governments (COG) had not expressed interest in continuing this grant at that point. 

Therefore, EPA could not have acted in preference to one organization at the exclusion of a

known, alternative option. There are no assertions of personal friendship or association in the

report. Further, no one in EPA directly benefitted from any of these actions. Therefore, this

assertion that Region III officials did not comply with the Principles of Ethical Conduct is

incorrect and should be deleted in its entirety. 

Response to Audit Recommendations

Based upon our reading of the Draft Report, we offer the following summary of EPA

Region III responses to the recommendations:

Recommendation 2-1: Terminate the Existing Cooperative Agreement Awarded to the CCC

The Region agrees that the existing cooperative agreement should be brought to an end and be

replaced by a new grant arrangement as determined by the outcome of a competitive Request for

Proposals (RFP). It is critical to maintain LGAC and other project support, and a precipitous

action to replace it could lead to the same issues of non-competition raised by the Inspector

General. We will transition to the successful candidate(s) under the new RFP on or around

August 1, 1999. 

Recommendation 2-2: Award a New Cooperative Agreement Competitively

Concur: The Region has taken steps to compete the local government assistance functions

consistent with an overall Bay Program management plan. By taking such action, the Region

does not indicate concurrence that the initial justification for non-competition was inadequate.

Recommendation 3-1: EPA Should Obtain LGAC Services Directly

The Region has agreed to a future limit on the amount of contracting under Cooperative

Agreements for this and similar Bay Program efforts. We have done this by specifying 

5
evaluation criteria under the RFP which promote work being done in-house by prospective

grantees. 

Recommendation 4-1: Recover Costs Associated with a Verbal Agreement

This finding should be directed to the grantee. We will review the grantee’s response, and defer

any action on the Recommendation in the interim.

Recommendation 5-1: Discontinue Payments

Concur: The Region discontinued payments on the cooperative agreement in a letter of

November 19, 1998. Based upon a thorough on-site review of the financial management systems

of the CCC conducted on December 3-4, 1998, we have resumed payments in accordance with

requirements of the Grant Agreement.

Recommendation 5-2: Pre-Award Review of Fiscal Accounting Systems

Concur in Part: At the time of application for cooperative agreements, grantees provide

certifications that they will maintain adequate financial records. The Region will continue to

require and review all grantee financial management system certifications as part of its review of

applications. We can not perform in-depth site reviews of all grantee records before authorizing

payments. This would result in delays in payments and would be counter to the Prompt Payment

Act provisions.

Response to Exhibits A and B of the Draft Report

Exhibit A: Analysis of Expenditures by the CCC

The Regional Grants and Audit Management Branch conducted a site review of the CCC’s

financial management system and financial records. From this review we have obtained

supporting documentation for the $73, 261 which the audit cites as unsupported. A copy of our

financial systems review is being forwarded under separate cover. We defer response on the two

specific issues in Exhibit A to the grantee and contractor.

Exhibit B: Costs Claimed by the Contractor

Defer to Grantee or contractor’s Response.

We request that you consider all the changes we have suggested in the final report so as to

ensure a fair presentation of the facts and to provide the most useful response to the Local

Government Advisory Committee. We also request an exit briefing before the issuance of the

final report for the purposes of securing an explanation of how our comments have been

addressed.

If you have any questions or need any additional information, please contact Robert G.

Reed, Jr., Chief, Grants and Audit Management Branch, on 4-5410 or Robert J. Picollo of his

staff on 4-5405.

cc: Nikki Tinsley
57 Report No. 9100117

Appendix 2 - CCC’s Response to the Draft Report
January 8, 1999

Mr. Carl A. Jannetti

Divisional Inspector General for Audit

United States Environmental Protection Agency

Office of the Inspector General, Mid-Atlantic Division

1650 Arch Street

Philadelphia, PA 19103-2029

Re: Draft audit report on the Center for Chesapeake Communities (CCC)

Dear Mr. Jannetti:

This letter is our response to chapters 4 and 5 of the Draft Report enclosed with your letter dated

November 20, 1998. We trust that the comments and points made herein will be reflected in the

final report when issued.

Before I make a number of substantive points about the Draft, I believe it is important to note

several contextual circumstances which materially affect some of the judgments made in the Draft

and which serve as background for the facts asserted as a result of the review on which the Draft

Report is based. These contextual observations were not specifically highlighted in the Draft but

are relevant to its interpretation.

Context

First, the Center for Chesapeake Communities (hereinafter the"Center" or "CCC") was in the

process of "starting up" during the period prior, during and after the review was carried out.

Every one of the "systems" and much of the documentation noted in the report were in the

process of being created. As will be mentioned later, these systems are now in place, the

documentation then being developed is now present. I believe it is unreasonable to believe that

any new organization would have all systems, policies, manuals, etc. fully developed in the first

eight months of its existence. The Report fails to note that the required systems were under

development with a payroll system, tax reporting and payment, accounting system and policy

manual all initiated prior to the review and now fully in place.

Second, the Report fails to note why the creation of certain systems were delayed and why the

Executive Director sought and received critical volunteer help from knowledgeable, skilled and

trusted persons.

 Mail Phone Numbers

 209 West Street, Suite 201, Annapolis, MD 21401 410-267-8595, Fax: 410-267-8597
During early December, 1997, less than one (1) month after receipt of the first funds, I began to

experience severe health problems, making it difficult to eat, and difficult to walk distances

greater than 100 yards. Preliminary tests, as well as a visit to my doctor over the Christmas

holiday indicated several possible problems. Immediately after the New Year (1998), I was in the

emergency room for tests as a result of persistent chest pains and very high blood pressure. At the

doctor's request, my activities were reduced, and a stress test ordered. The test, carried out over

a little more than a week later, indicated a severe blockage of the blood supply to my heart and

the necessity for a heart bypass operation as soon as it could be scheduled, in addition to an

angioplasty. These were scheduled for early February, 1998 on consecutive days. I was advised

not to resume activities for two to three weeks after the surgery, and then only gradually. Thus,

during the period from December through March, 1998 my attention to Center start-up was

secondary to these extraordinary health issues. During this period, in order to carry out the

required development, preparation and distribution of documents and systems, I requested and

received needed volunteer help where necessary and delayed as much as possible.

Third, the Draft Report fails to acknowledge that the Center Director provided complete access

to all Center files, checks and records. When the review was carried out, fewer than 50 checks

had been written, all receipts had been filed by month, and a payroll system fully implemented.

Copies of these records were provided. The Center's largest expenditure, fully consistent with the

authorized grants and funds then received, was my salary. Until May, 1998, I was the only

employee. It was easily verified then, and has since been reviewed and verified by EPA Grants

and Audit Staff, that the salary and benefits paid to me were both appropriate and consistent with

the budgets submitted to EPA. The percentages cited in the Draft Report concerning payments to

me are accurate but easily misleading since during all but the last 30 days of the entire period of

September, 1997 to April, 1998 the bulk of all the funds available were for my salary.

Substantive Response - Actions taken prior to receipt of Draft Report.

In the context of these observations, I have always regarded the review undertaken by the EPA

Inspector General's office with the utmost seriousness. While I was not aware of the issues

identified until the Center received the Report on November 20, 1998, it is important to note that

I had already initiated procedures to address the requirements of 40 CFR part 30. The review by

EPA Grants and Audit Staff carried out in early December, 1998 in response to the assertion in

chapter 5, indicated that Center documentation is fully satisfactory and responsive to those

requirements. We believe that CCC is in full compliance with the Financial Management and

Procurement systems in 40 CFR part 30.

The following management actions had already been taken prior to the receipt of the Draft

Report:

1. Timesheets for all employees including time Distribution Systems by grant for all

employees. Timesheets are also on file for Redman Johnston Associates, LTD ("Redman

Johnston") for each month.

2. A financial management system was in place with appropriate coding of each expenditure.
3. Generally accepted accounting principles are now followed by the Center. We have

current and complete disclosure of financial results for each activity within each grant. 

4. We have records that adequately identify source and application of funds for all federally

sponsored activities. These records contain awards, authorizations, obligations,

unobligated balance and authorized income.

5. We have effectively segmented control and accounting for all funds, property and other

assets.

6. All assets are used for authorized purposes.

7. We have written procedures for our work, our staff and our organization.

8. We have on-site full accounting records and source documentation for our work.

9. We have, where appropriate, fully implemented a computerized procedure for our grants

and contract work.

10. We have staff in place, all substantive work underway, reported our progress and

maintained frequent communication on program issues with EPA staff.

11. We have involved state and local governments in our work and responsibly carried out our

agreed tasks.

12. We have a library of applicable federal regulations on site.

13. We have published a manual and distributed it to staff and our Board spelling out

compliance requirements of applicable federal regulations and have created detailed

employee policies and procedures.

14. All these records were reviewed by EPA Grants and Audit Staff during a two day site visit

in December, 1998.

Comments on Draft Chapter 4

Point 1

The incorporation of the Center was undertaken to address needs identified by a work group of

the Local Government Advisory Committee ("LGAC"). Mr. Redman offered to assist in this

process and to act as agent for the incorporation to assure it would be in place to provide funding

for services to local governments. Mr. Redman's involvement was never substantive in the

operation of the Center and as the draft points out, he resigned shortly after incorporation. Mr.

Redman's office was used as a point of contact because I was not immediately available and the

Corporation did not set up a point of contact until early September, 1998.

Point 2

The Draft asserts that a real or apparent conflict of interest exists because the Center awarded

two contracts to Redman Johnston. No such conflict existed. The Contractor was also the

Executive Director of LGAC and as such was responsible for preparing budgets, developing work

plans and securing LGAC approval of these proposals. Mr. Redman was also responsible for

their presentation before the Bay Program's Budget Steering Committee. These roles involve full

knowledge of the funds available and their purposes for future LGAC work. Interactions between

CCC, Bay Program Staff and the Contractor (representing LGAC) was therefore not only normal,

it was expected, as part of our responsibility by EPA.
The First Contract

EPA staff was fully aware that I intended to contract with Redman Johnston to provide technical

assistance and organizational start-up support to initiate the activities of the Center. I

regarded this work in many respects as an extension of the work already completed by Redman

Johnston to evaluate the need for and feasibility of a non-profit organization to provide technical

and financial assistance to local governments. The actual contract $9,864 was verbal. However,

real and substantive expectations were created, services were provided (EPA staff were fully

familiar with this work) and full payment was made with one-third (1/3) paid in April, May and

June of 1998. Note that at the time the Inspector General's review was carried out, these

payments were not complete. As pointed out in my interview with Inspector General staff, they

were delayed because of the grant processing and payment cycle of EPA and my attempt to

maintain the continuation of my own salary when the delays occurred.

I was not aware I needed a written agreement for these services since clear expectations

concerning the work were known by all concerned (myself, Mr. Redman and EPA staff). This

work was fully authorized by the start-up grant awarded to the Center.

The Draft Report asserts an application dated July 30, 1997 was submitted by CCC for services

which covered incorporation and other services to create the Center. No such application was

submitted. I have not seen such an application. I know these costs are not appropriate for a

federal application. The application submitted in my name in early August, 1997 (I was in North

Carolina and authorized Mr. Redman to sign my name) was the only application submitted, and as

mentioned above, it did seek assistance for only the following activities involving the formation of

the Center. These activities included delegation meetings with LGAC members, development of

information about the LGAC non-profit work group, identification of potential funding sources in

part to address LGAC concerns that such sources existed, and development of informational

materials on the new organization for LGAC members and Bay Program signatories.

This is the work that the first cooperative Agreement dated September 30, 1998 authorized. EPA

staff were fully aware of our agreement with Redman Johnston to provide these services and I

believe approved the agreement to secure them from Redman Johnston. We believe 40 CFR 30

parts 43 and 44 do not prohibit our verbal agreement to a contract in this amount since clear

expectations existed, services were performed based on these expectations, an invoice was

rendered and reviewed by CCC and EPA staff prior to payment and full payment made based on

the work completed.

The Second Contract

The Draft Report asserts that a second contract for $155,000 was a "done deal" based on the

review carried out by Inspector General Staff. I believe neither the facts or the Draft support such

a conclusion. The Center did use the Request for Qualification ("RFQ") process to select a

contractor. This process was identical to that conducted by the metropolitan Council of

Governments (COG) in previous years, including as recently as 1996. I consulted extensively

with COG staff about their process and obtained complete copies of the documentation used. 

The CCC process was designed to copy that process. We used the RFQ process as COG did
and the same contractor list and evaluation procedures. EPA had found these procedures

acceptable in the past and I saw no reason to change them, particularly in light of my health issue

in January and February, 1998 when this process was being implemented. Redman Johnston was

not the assured awardee.

Eighteen firms were sent the RFQ. I reasonably believed all eighteen firms received the RFQ

since none were returned. Inspector General staff verified that at least six acknowledged receipt.

Even this number is sufficient to assure competition. Two firms responded to CCC - Redman

Johnston and the SoHo group. The SoHo group requested a meeting prior to their submission of

a response to the RFQ. After a short delay because of my heart surgery, the meeting was held in

my office in Annapolis on February 24, 1998. I outlined the evaluation procedure, including

additional points for a minority-owned business (which SoHo was) and encouraged them to

respond. At the time, they indicated they would. Up until the day the final submission was due, I

fully expected at least two qualifying bids and was prepared to set up a review committee,

consisting of a member from each of the signatory jurisdictions. Such a procedure was not used

because the SoHo group called 2 hours before the deadline and indicated, based on their review of

Redman Johnston's work, qualifications and experience, they did not believe they could be

competitive. The CCC received only one (1) qualified response; that was from Redman Johnston. 

Their name was submitted to the LGAC Executive Committee, which approved the contract

award in early March, 1998.

At no time did I regard the award as a "done deal". Had additional qualifying responses been

received, they would have been fairly and objectively evaluated by parties other than myself.

It is noted in the Draft that the list of RFQ recipients was obtained from Redman Johnston. Mr.

Redman's response indicated why this occurred.

The Draft Report indicated Mr. Redman preferred an RFQ process. The report does not mention

the RFQ process was the one used by COG which is why the CCC used it. The draft report

mentions a draft budget titled Draft 2, dated September 11, 1997 concerning the budget being

developed for LGAC activities and CCC work. I believe it was entirely appropriate for Mr.

Redman to review this documentation in light of his role with LGAC and his responsibility to

present the budget to them and to the Budget Steering Committee as part of the process then

being carried out by the Bay Program.

The Draft notes the application for assistance was faxed from Redman Johnston's office on

December 16, 1997. I was in New Orleans at an EPA meeting and asked a Redman Johnston

staff member (without Mr. Redman's knowledge) to submit the application based on text I had

reviewed and approved since the staff member had a copy of the application form on disk and I

did not have such materials. After keying in the text I had approved on the form, he forwarded it

to EPA. During this period, late January and February, 1998, I was in the hospital recovering

from surgery. Work needed to be done during this period to meet EPA deadlines and I asked a

skilled and trusted person to volunteer and carry out these activities to assure the continuity of

work and funding.
The Draft asserts that the Contractor, Redman Johnston, had detailed knowledge of the RFQ

specifications and requirements, etc. The LGAC process and Bay Program procedures provide

that this knowledge be widely shared with LGAC members and the Bay Program staff. This does

not provide competitive advantage since the same information is provided to all potential bidders

as part of the RFQ process. Redman Johnston’s advantage is the excellent quality of their work

and their reputation as a firm. CCC procurement records clearly indicate Redman Johnston was

the only qualified bidder. The contract award amount was fixed by the RFQ. LGAC was

informed that another bidder had dropped out for the reasons mentioned earlier. Therefore, only

one bidder was recommended to LGAC. Our records are sufficient to show these were the facts.

EPA staff were fully aware of these facts. These facts were sufficient for a contract award and no

change was made to the cost of the contract since it was approved by the LGAC Executive

Committee.

Much is made in the Draft about written statements of conduct for employees awarding or

administering contracts. The Center now has such standards. We also now have more than one

employee. At the time the award was made, I believe it was competitively done. There was no

assurance Redman Johnston would prevail based on the Center's process, which was modeled

after a process conducted by an organization which does have such standards.

Chapter 5

Point 1

Earlier I indicated that CCC does have an adequate financial management system. This has been

verified by the review carried out by the EPA Staff in early December, 1998. I also indicated that

a number of actions initiated prior to the Inspector General review were not concluded until after

the Inspector General's review.

Point 2

The Draft asserts that the Executive Director disregarded the detailed budget when funds were

expended. This is not the case. Rather, close attention was paid to these budgets and EPA

requirements when these expenditures were made. The CCC did employ a Redman Johnston

employee on a consulting basis during late March and early April, 1998 because help was needed

to address critical grant and EPA requirements. The items cited in the Draft footnote are in error

and misleading. No funds were paid to anyone for the development of an application for a

Sustainable Development Challenge Grant. This application was submitted in August, 1997.

I did secure help to (1) develop a final draft of a training program required by our start-up grant,

(2) provide copy of the small water shed grant required by EPA Bay Program Budget Steering

Committee, (3) consult on a draft memo to the Governor of Maryland on the Summit required by

our grant, (4) consult on the configuration of office equipment for a new Center office, (5)

consult on the content of a draft brochure for the Center (again required by our grant), and (6)
respond to certain technical questions from EPA Grants and audit staff on our budgets for

ongoing and proposed work.

All of these activities are authorized by our grant from EPA. The individual involved had

knowledge and skills I believed were essential to our work and I had no other staff to draw on

and could not, in good conscience, continue to constantly ask for such enormous time

commitments for free.

Point 3

As indicated earlier in this response, the exact amounts cited in this chapter setting forth payments

to me are not disputed. Rather they are entirely consistent with my authorized salary for the

period cited and the health, life and retirement contributions are also consistent with the

authorized budget. The reimbursements are consistent with actual costs documented for this

same nine (9) month period. The $9,000 in vendor costs reflecting the equipment ordered and

now in use in our offices is fully consistent with our authorized budget for such costs as amended

in March, 1998.

Point 4

Board meetings were documented, EPA Staff was present. IG Staff had access to copies of the

agenda and other supporting materials in the files provided at the time of their visit. Minutes were

not available.

Point 5

The Executive Director did maintain a detailed personal calendar. Timesheets for employees were

not introduced until more than one employee was on staff. My time was, at the time of the

review, covered by only one grant from one source. No distribution by activity seemed necessary. 

Copies of my calendar were not requested.

Point 6

The advance payment method is used and has been continued subsequent to the review by EPA

Staff in December 1998. Our documentation is responsive to the EPA's Assistance

Administration Manual.

Point 7

We fully believe our expenditures are supported based on the facts cited in our response and the

review carried out by EPA Staff in December, 1998.

Point 8

We believe the verbal contract with Redman Johnston was valid, consistent with the cooperative
 agreement, and approved by EPA.

Point 9

The Consulting Agreement referred to in footnote 2 of the Draft was fully consistent with the

Cooperative Agreement. Note the actual activities addressed as identified in this response.

Point 10

Your Draft included 2 Exhibits, A & C. No Exhibit B was included.
Conclusion

Since the Center's incorporation, I have worked to build the independence, credibility and

reputation of a new non-profit to serve the interest of local governments in the Bay Watershed.

This organization was created to respond to real needs identified by these governments. EPA

Staff are well aware of these facts. However, some individuals in the Region hold strong views

concerning both the Federal Rules in clean water policy and any non-profit organization that seeks

to partner with local governments to assist them in addressing Chesapeake Bay protection and

restoration objectives. Their questions and suspicions led to the invitation which I supported for

the review by your office. We have consistently tried to be cooperative with the review. I regret

any shortcomings in our start-up which may have led to the assertions contained in the Draft. I

hope you will agree these were not inconsistent with the start-up of many new enterprises.

I deeply hope the facts provided by Mr. Redman and myself go far in addressing your concerns. It

would indeed be regrettable if the final report did not fully reflect these facts and on balance

seemed to reinforce the prejudice of a few and undermine the credibility of our organization

before it renders even the first full year of service. It is my hope the final report will fairly

represent all the facts and not create a cloud of suspicion from which we cannot emerge.

It is important to note that at all times the Center and its employees acted in good faith with the

intent to comply with relevant Federal regulations. No abuses occurred, and all funds received by

the Center have been appropriately accounted for. All actions taken by the Center were taken in a

manner which accomplished the stated objectives of the program without abusing procedures, and

perhaps most important, EPA, the Federal agency responsible for the program, was constantly

consulted by the Center's Executive Director to ensure that the Center was properly established,

that the start-up obligations were accomplished and that the resources available to the Center

were handled properly. If it is to be concluded that in some of these initial activities there may

have been some lack of swift or strict adherence to Federal regulations, it is clear that there was

no inappropriate activity and that any procedural or recordkeeping deficiencies have been

corrected. We hope the Inspector General's report will concur with these observations.

Sincerely,

Gary G. Allen

Executive Director
67 Report No. 9100117

Appendix 3 - Redman/Johnston Associates Response to the Draft Report
416 Goldsborough street - Easton, Maryland 21601 (410) 822-9630 Fax (410) 820-5039

December 22, 1998

Mr. Carl A. Jannetti

Divisional Inspector General for Audit

United States Environmental Protection Agency

Office of the Inspector General, Mid-Atlantic Division

1650 Arch Street

Philadelphia, Pennsylvania 19103-2029

Re: Draft audit report on the Center for Chesapeake Communities (CCC), Report

Number E6DEP8-03-0014

Dear Mr. Jannetti:

Please consider this letter as the draft written comments to the draft audit report you

requested in your letter dated November 20, 1998. Please note that these comments are in

response, only to the two pages of the draft audit report received from your office with the letter

dated November 20, 1998. I will respond in a separate letter to the issues raised in Chapters 4

and 5 of your draft report, which were not provided with your November 20th transmittal. To the

extent there is a final audit report which varies the draft report you provided, I reserve the right to

make a further response.

One of the pages submitted to me (unnumbered), titled "Contractor's Costs Unsupported"

suggests that RJA did not have an "adequate financial management system" because "our

personnel did not use time sheets or any mechanism to support actual hours charged to the

contract". As you know, RJA and the Metropolitan Washington Council of Governments

("COG") entered into a contract ("Contract") on April 28, 1997, which is the subject of your draft

report. RJA fully complied with the terms of the Contract.

Point #1

As I indicated to your field investigation team during their visit at our offices, RJA has

been a contractor with the Metropolitan Washington Council of Governments for three years

prior to the subject contract. At no time during those contracts was our record keeping and

billing procedure questioned. Throughout the period of our relationship with COG, and in

conformance with the Contract between RJA and COG, Section 2.b., RJA requested each

payment on an invoice form, upon the completion of each task, or a portion thereof, describing

the work performed and the period of performance of the work being invoiced. RJA sent invoices

in strict compliance with the language of the Contract. The Contract does not mandate that RJA 
416 Goldsborough street - Easton, Maryland 21601 (410) 822-9630 Fax (410) 820-5039

Page 2

keep time records as a condition for payment. None of these invoices were ever questioned by

COG or EPA administrative officials. Each invoice was prepared mindful of the need to complete

all work identified in the contract scope of services and to do so within budget. RJA completed

all tasks and assignments defined in our Contract work program on time and within the Budget

set forth under Section 2.a. of the Contract. That was what COG expected, and that is what RJA

accomplished. Time and materials billings were not contemplated.

Point #2

Although the phrase "time and materials" is used in Section 2.a. of the Contract, a review

of the contractual language as a whole reveals that the Contract is not a typical "time and

materials" contract as defined by the Federal Acquisition Regulations, but is more characteristic of

a "fixed fee" contract. Specifically, the Contract did not specify a fixed hourly rate, which is

required for "time and materials" contracts under the Federal Acquisition Regulations. 48 C.F.R.

16.601(a) provides that "[a] time and materials contract provides for acquiring supplies or

services on the basis of (1) direct labor hours at specified hourly rates that include wages,

overhead, general administrative expenses, and profit and (2) materials at cost, including, if

appropriate, material handling costs as part of material costs.” Reading the contract as a whole,

including the 20 pages of the Contract which specifically define tasks, and the specific budgets

allocated to the tasks, the payment schedule is more characteristic of a "fixed fee" contract, in

which the contractor receives payment based on completion of each task, as opposed to a "time

and materials" contract in which the contractor is paid at specified hourly rates.

The Federal Acquisition Regulations also provide that "[a] time-and-materials contract may

be used only when it is not possible at the time of placing the contract to estimate accurately the

extent or duration of the work or to anticipate the costs with any reasonable degree of certainty.” 

48 C.F.R. 16.601 (b). In this case, RJA and COG were able to estimate both the extent and

duration of work. Section 3 of the Contract states that the "period of performance under this

Contract is from March 16, 1997 through March 15, 1998." The Contract set forth specific and

identifiable tasks to be performed in the one year time period, and assigned budgets for each task.

Although Section 2.a. of the Contract indicates that the contractor shall be paid on a time

and materials basis an amount not to exceed $204,000, it further indicates (in the same sentence)

that payment shall be made in accordance with the scope of work and budget reflected in Contract

Attachments A and B (Scope of work and budget). These two attachments represent over 20

pages of the contract that define our responsibilities for completion of tasks and assign a budget

for each task. We viewed the Contract as a fixed price contract, and understood that we would

be paid the budgeted amount for the work performed. At no time has anyone provided any

indication that we did not complete all elements of the scope of services for which we were

engaged during the period March 1997 to March 1998, or that we exceeded the budget

established for the many tasks defined in the contract.
416 Goldsborough street - Easton, Maryland 21601 (410) 822-9630 Fax (410) 820-5039

Page 3

The draft audit report indicates that it is your opinion that "a time and materials contract is

the least preferred contract type and should be used when no other type is suitable”..... since

"according to 48 CFR 16.601, a time a materials contract provides no positive profit incentive to

the contractor for cost control or labor efficiency and therefore, oversight of contractor

performance is required". I agree.

Both RJA and COG considered the Contract a "fixed price" contract, or a lump sum

contract which is reflected in both the monthly invoicing under the terms of the Contract and the

manner in which our work was conducted. 48 C.F.R. 16.202-1 describes a "firm fixed price

contract as a contract which:

...provides for a price that is not subject to any adjustment on the basis of the contractor's

cost experience in performing the contract. This contract type places upon the contractor

the maximum risk and full responsibility for all costs and resulting profit or loss. It

provides maximum incentive for the contractor to control costs and perform effectively

and imposes a minimum administrative burden upon the contracting parties.

As I indicated to your review team, in many cases my invoices reflecting staff time

committed to performance of services under this contract account for less than the actual time

require to complete various aspects of work. In most cases, I found that staff time to complete

many of the contract specific work assignments was greater than amounts budgeted. In those

cases, when preparing invoices for our work, I did not submit invoices for additional staff hours

devoted to these assignments because it was our belief that we were committed to complete the

assignments and provide the products defined in the scope of work for the prices defined in the

contract. We assumed that any additional time it might take to complete those elements was not

billable. RJA did not bill for any costs or time over the agreed upon amounts, and treated the

Contract as a fixed price contract.

Given the fact that only 3 words in the entire body of the contract and attachments

references the fact that the contract was a "time and materials" contract and the fact that the

contract does not specify hourly rates, and fully 25 pages of the document characterize work to be

performed and budgets allocated to each work item, I have a great deal of trouble characterizing

the contract as simply a "time and materials" contract. Both parties treated the Contract as a

"fixed price" or lump sum contract, in which payment was made upon documentation of

completion of specific tasks as defined under the Contract. It is undisputed that RJA in fact

performed the tasks set forth in the Contract within the specified times. EPA administrative staff

who monitored my performance of Contract responsibilities during the period March, 1997 to

March 1998 have never indicated any failure on the part of my firm to complete Contract

assignments and do so within the price structure defined in the contract.
416 Goldsborough street - Easton, Maryland 21601 (410) 822-9630 Fax (410) 820-5039

Page 4

Point #3

Your finding that all costs associated with this Contract are unsupportable is quite

surprising given the fact that I provided audit team members copies of products,

(reports/documents) reflecting completion of many of the tasks which were budgeted in the

Contract (see Contract attachments A and B). For example, the Contract provided for:

í preparation and distribution of four quarterly newsletters at a budget of $12,250; and

í preparation of a pollution prevention toolkit (book publication and brochure) at a budget

of $25,000; and

í Preparation of a literature synthesis regarding the costs of sprawl and related pamphlets at

a budget of $5,000.

Each of these assignments was completed during the contract year and tangible work products in

the form of reports, publications, or copies of the newsletters were made available for your

review. It would therefore seem appropriate to credit these items as costs that are supportable in

Exhibit B (the second and only other page of the report I received). Quite frankly, it seems

unreasonable for you and your staff to indicate in your report that absolutely none of the costs

during the year are supportable in the face of clearly visible products.

Point #4

Note #2 on Exhibit B of the draft report indicates that all costs associated with preparing

the feasibility study for creation of a non-profit organization should be disallowed. The language

in the note is confusing and may be a result of confusion on the part of the investigators. There is

a distinct difference between "preparing the feasibility report" and "establishment of the nonprofit

entity". Work done to prepare the feasibility report was authorized in attachment 2 to my

contract with COG. (See page 2-1 attachment 2 to the contract scope of work) In fact, this work

item was budgeted in the amount of $6,500. Unfortunately the level of effort required to explore

the feasibility of creating the Center, did not satisfy some LGAC members who expected to see a

detailed report. The need for the detailed report and additional related work performed regarding

start up for the Center was discussed with EPA staff and additional work was approved by EPA

as an extra. At that time it was understood that the estimated cost to complete the work would

be $10,000. Rather than process a contract amendment through the Metropolitan Washington

Council of Governments, EPA staff recommended that I receive compensation from the $45,000

initial grant to be made to the Center. I accepted that arrangement and performed the work

accordingly. Therefore it does not seem reasonable to disallow costs associated with preparation

of the feasibility study since I was contractually obligated to complete this task within the scope of

work. On the other hand, the action to establish the nonprofit entity was not within the scope of

work and our firm has made no request, nor do we intend to request reimbursement of any

expenses associated with the "establishment of the nonprofit entity."
416 Goldsborough street - Easton, Maryland 21601 (410) 822-9630 Fax (410) 820-5039

Page 5

Point #5

In closing, please be advised that since April of 1998, we have adjusted our administrative

procedures as a result of your audit team's visit to our offices. Their visit provided me with the

first clear indication that our contract administrative procedures required us to maintain daily time

records of our work. Since that time, personnel at RJA have been required to keep time sheets

for all work related to LGAC assignments. These time sheets now accompany our monthly

invoices to the Center for Chesapeake Communities.

Sincerely,

Anthony D. Redman

Redman/Johnston Associates, Ltd.
416 Goldsborough street - Easton, Maryland 21601 (410) 822-9630 Fax (410) 820-5039

December 23, 1998

Mr. Carl A. Jannetti

Divisional Inspector General for Audit

United States Environmental Protection Agency

Office of the Inspector General, Mid-Atlantic Division

1650 Arch Street

Philadelphia, Pennsylvania 19103-2029

Re: Draft audit report on the Center for Chesapeake Communities (CCC), Report

Number E6DEP8-03-0014

Dear Mr. Jannetti,

I have been provided with copies of Chapter 4 and 5 of the above draft audit report. This

letter is intended to address the matters set forth therein which relate to Redman/Johnston

Associates, Ltd.

The first page of Chapter 4 in your report alleges that the Executive Director of the CCC

"acted favorably toward Redman/Johnston Associates by awarding it, for all intents and purposes,

two sole source contracts after Redman/Johnston Associates absorbed costs totaling $2,300 for

incorporating the CCC."

This conclusion is incorrect. There is a current contract with the Center for Chesapeake

Communities (CCC) dated March 31, 1998, which was awarded to RJA after a bid process in

which RJA was not involved, except as bidder.

It is correct that I spearheaded the incorporation of the CCC. I agreed to do that at no cost

to the EPA, whose representatives advised that absent incorporation, they could not provide an

initial grant to support the start-up activities of the Center. Please keep in mind that at that time

the Metropolitan Washington Council of Governments (COG) staff had indicated they would

withdraw future sponsorship of LGAC funding and that they supported the CCC assuming

responsibility for future grants that would support the ongoing activities of the Local Government

Advisory Committee (LGAC). The EPA representatives indicated that if a nonprofit corporation

was formed, they would continue to fund LGAC activities through the CCC. My actions to create

the non-profit were designed to protect LGAC access to financial resources to support
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Page 2

their ongoing activities. Since RJA's role as a contractor to the LGAC is subject to change each

year based on a competitive selection process, their was never any assurance that incorporation of

the Center would financially benefit RJA. In fact, RJA has sustained a substantial reduction in the

dollar volume of services we provide on behalf of the LGAC since the Center now receives a

portion of the LGAC's budget to provide many of these services.

As you indicated in your report, I signed Mr. Allen's name on certain application

paperwork, and in so doing included my initials since I was signing requisite application forms on

his behalf. Your report should note that Mr. Allen expressly authorized and directed me to submit

the grant application in his name. My initials following his name were intended to make it

perfectly clear that I had affixed a signature on his behalf as applicant.

You are correct that at the time CCC was incorporated, I was listed as a Director. Before

there were any Board of Directors meetings or any Board action, I resigned as a Director on

September 23, 1997. I never actually served as a Director, and was a Director in name only for

purposes of the initial incorporation.

There is a comment in the draft audit report suggesting that it was somehow improper for

me to be personally aware of future grant availability. That was my job with LGAC - to prepare

budgets based upon anticipated grant funding. There is nothing improper about that process. 

With respect to the comment in Chapter 4 that RJA benefitted from the grant ultimately made to

the CCC, it is accurate that there was an addendum to an existing contract which resulted in

additional work, and additional revenue ($9,894.00) to RJA, which was funded through a grant

which I assisted the Center in preparing.

In Chapter 4/page 3 of the report you describe the actions taken to amend the cooperative

agreement dated March 2, 1998 which awarded funding in the amount of $314,000 to the Center

of which $155,000 was to fund the contract for services to the LGAC. You characterize this award

of $155,000 to my firm as "a done deal". In fact the report asserts "in our opinion, documentation

in EPA's, the CCC's and Redman/Johnston Associates' files indicated the award of this contract

was a done deal". While this is an interesting opinion, it is incorrect as far as I know. Although I

had served for several years as contractor to provide support services to the LGAC, I received a

request for qualifications and submitted a proposal to provide these services as part of what I

understood to be a competitive contractor selection process. Please note that I had foreknowledge

of the amount budgeted for LGAC activities for that year since I had prepared LGAC's budget

request several months before the selection process took place. As I indicated earlier, I have

prepared the LGAC's budget request on behalf of the Committee for the past five years as part of

my contractual obligations to provide administrative support services to the organization. Without

a budget they would be unable to function from year to year. Moreover, the budget request I

prepare on their behalf each year is reviewed and approved by the LGAC members.
416 Goldsborough street - Easton, Maryland 21601 (410) 822-9630 Fax (410) 820-5039

Page 3

On page 4 in Chapter 4 you note that when you initially requested the list of firms that

were mailed the RFQ, the list was faxed from my offices to the Executive Director of the CCC who

in turn faxed it to you. I have never seen such a list. I can assure you it has never been in my

personal possession.

In investigating this circumstance, I have learned that you requested this list from Mr.

Allen, who requested a former employee of mine (the same one that now works for the Center) to

obtain a copy on his behalf from the Metropolitan Washington Council of Governments.

Apparently, he obtained a copy for COG and forwarded it to the Center without my knowledge. I

recognize that he was an employee of my firm at that time, nevertheless, I repeat, I never had any

indication that such a list was ever in my offices and to this day have never seen such a list. In fact,

it appears that the only reason such a list was ever in my office at all was because you requested it

of the Center, and at Mr. Allen's request, my employee became a transmittal middle man, after the

contract was awarded, I should add.

The second bullet located in Chapter 4 on page 5 of the report describes a proposed budget

titled "Draft 2" that was faxed from my office to the CCC on September 11, 1997. You note that

this was six months before the contract was awarded. The draft you saw was prepared at the

request of the Director of the Center to assure funding would be set aside for LGAC activities

during the coming year. As I have already indicated, preparing the LGAC's budget for the coming

year is part of my contract administrative obligation to the LGAC.

Chapter 5/page 1/last paragraph of the report indicates the CCC "paid one employee of

Redman/Johnston Associates $1,500 for preparing proposals in order to apply for two other

grants". Redman/Johnston Associates provided some support in the preparation of the Sustainable

Development Challenge Grant application. This assistance was limited since our contract at that

time made no provision for compensation for such work. However, at no time was I aware of any

arrangement between the Center and the employee to be compensated in the amount of $1,500 for

preparing these proposals. Such action was never sanctioned by RJA, nor did RJA receive any

income for this work. This apparently was an arrangement between my about-to-be-former

employee and his prospective employer. It was not an arrangement with RJA.

Please advise if additional comment is necessary.

Very truly yours,

Anthony D. Redman

Redman/Johnston Associates, Ltd.
76 Report No. 9100117

Appendix 4 - Distribution

Office of Inspector General (2410)

Regional Office

Regional Administrator (3RA00)

Director, Chesapeake Bay Program Office (3CB00)

Deputy Director, Chesapeake Bay Program Office (3CB00)

Office of Assistant Regional Administrator for Policy and Management (3PM00)

Audit Follow-up Coordinator (3PM70)

Office of Communication and Government Relations (3CG00)

Headquarters

Assistant Administrator for Administration and Resources Management (3101)

Assistant Administrator for Water (4101)

Comptroller (2731)

Director, Office of Grants and Debarment (3901R)

Director, Grants Administration Division (3903R)

Director, Office of Acquisition Management (3801R)

Director, Office of Regional Operations (1108)

Associate Administrator for Congressional and Intergovernmental 

 Relations (1301)

Associate Administrator for Communications, Education, and Media 

 Relations (1701)

Deputy Associate General Counsel, Finance and Operations Law Office (2377)

Agency Follow-up Official (2710)

Agency Follow-up Coordinator (2724) 

External

Local Government Advisory Committee (LGAC)

Center for Chesapeake Communities

Redman/Johnston Associates

Landmark Legal Foundation

Metropolitan Washington Council of Governments (COG)