U.S. ENVIRONMENTAL PROTECTION AGENCY 

OFFICE OF INSPECTOR GENERAL 

Catalyst for Improving the Environment 

Quick Reaction Report 

Examination of Costs Claimed under 

EPA Grant XP98069201 Awarded to 

the City of Blackfoot, Idaho 

 Report No. 10-4-0086 

 March 29, 2010 
 

Report Contributors: Jessica Knight 

Janet Lister 

 Lela Wong 

Michael Owen 

Abbreviations 

CFR Code of Federal Regulations 

EDA U.S. Economic Development Administration 

EPA U.S. Environmental Protection Agency 

FSR Financial Status Report 

Grantee City of Blackfoot, Idaho 

HUD U.S. Department of Housing and Urban Development 

OIG Office of Inspector General 

SAAP Special Appropriation Act Projects 

Note: We have redacted information on page 9 of this report. Exemption (b)(6) of the 

Freedom of Information Act permits the government to withhold names of individuals when 

disclosure of such information “would constitute a clearly unwarranted invasion of personal 

privacy.” [5 U.S.C. § 552 (b)(6)] 
 

 

 

U.S. Environmental Protection Agency 10-4-0086 

March 29, 2010 Office of Inspector General 

At a Glance 

Catalyst for Improving the Environment 

Why We Did This Review 

The U.S. Environmental 

Protection Agency (EPA) 

Office of Inspector General is 

examining Special 

Appropriation Act Project 

(SAAP) grants. We selected 

the SAAP grant awarded to 

the City of Blackfoot, Idaho 

(grantee) for one of these 

examinations. 

Background 

EPA awarded grant number 

XP98069201 to the grantee on 

December 16, 1999. The 

purpose of the grant was to 

provide federal assistance of 

$3,716,525 for wastewater and 

clean water system 

improvements. The City of 

Blackfoot was required to 

provide local matching funds 

equal to 47 percent of the 

EPA-awarded funds. 

For further information, 

contact our Office of 

Congressional, Public Affairs 

and Management at 

(202) 566-2391. 

To view the full report, 

click on the following link: 

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

20100329-10-4-0086.pdf 

Examination of Costs Claimed under EPA Grant 

XP98069201 Awarded to the City of Blackfoot, Idaho

 What We Found 

The grantee did not meet financial management requirements specified by Title 2 

Code of Federal Regulations Part 225 and Title 40 Code of Federal Regulations 

Part 31. In particular, the grantee claimed: 

•	 Contract costs of $1,713,009 that were claimed under two other federal 

grants. 

•	 Supply and labor costs of $24,836 that were not supported by source 

documents. 

•	 Supply and administration costs of $6,684 that were not eligible because 

they did not meet cost principles. 

As a result of these issues, we determined that, based on payments made and the 

federal share being 53 percent, EPA should recover $1,045,926 in questioned 

costs under the grant. The grantee also should be designated as “high-risk” in the 

Integrated Grants Management System, and special oversight conditions should 

be imposed on all future awards of EPA funds to the grantee. 

What We Recommend 

We recommend that EPA Region 10’s Regional Administrator disallow and 

recover $1,045,926 in questioned costs. We also recommend that the Regional 

Administrator for all future awards to the grantee designate the grantee as “highrisk” and establish special conditions that require additional controls over 

payments. 
 

 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

INSPECTOR GENERAL 

March 29, 2010 

MEMORANDUM 

SUBJECT:	 Examination of Costs Claimed under EPA Grant XP98069201 

Awarded to the City of Blackfoot, Idaho 

Report No. 10-4-0086 

FROM: Robert Adachi 

Director of Forensic Audits 

TO:	 Dennis McLerran 

Regional Administrator 

EPA Region 10 

This report contains time-critical issues. The issues require immediate attention to 

ensure expeditious recovery of federal funds and implementation of additional controls 

over future awards to protect the government’s interest. This report represents the 

opinion of the Office of Inspector General and does not necessarily represent the final 

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

final determinations on matters in this report. 

The estimated cost of this report – calculated by multiplying the project’s staff days by 

the applicable daily full cost billing rates in effect at the time – is $108,097. 

Action Required 

In accordance with EPA Manual 2750, Chapter 3, Section 6(f), you are required to 

provide us your proposed management decision for resolution of the findings contained 

in this report before any formal resolution can be completed with the recipient. Your 

proposed decision is due in 120 days, or on July 27, 2010. To expedite the resolution 

process, please e-mail an electronic version of your proposed management decision to 

adachi.robert@epa.gov. 

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

be available at http://www.epa.gov/oig. If you have any questions, please contact me at 

(415) 947-4537 or the e-mail address above. 
Examination of Costs Claimed under EPA Grant 10-4-0086 

XP98069201 Awarded to the City of Blackfoot, Idaho 

Table of Contents 

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

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

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

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

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

Duplicate Contract Costs Not Allowable...................................................... 4 

Unsupported Costs Not Allowable............................................................... 5 

Ineligible Costs Not Allowable ..................................................................... 5 

Grantee Should Be Designated “High-Risk”................................................ 5 

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

Region 10 and Grantee Comments............................................................. 6 

OIG Response............................................................................................. 7 

Status of Recommendations and Potential Monetary Benefits..................... 8 

Appendices 

A Grantee Response..................................................................................... 9
 

B Distribution ................................................................................................ 10
 
10-4-0086 

Introduction 

Purpose 

The Office of Inspector General is examining Special Appropriation Act Project (SAAP) 

grants to identify issues warranting further analysis. This process includes reviewing the 

total project costs incurred by selected SAAP grant recipients. During our examination 

of the SAAP grant awarded to the City of Blackfoot, Idaho (grantee), we identified that 

the grantee claimed costs that were also claimed under other federal grants, as well as 

unsupported and ineligible costs. We believe these issues require immediate attention to 

ensure expeditious recovery of federal funds and implementation of additional controls 

over future awards to protect the government’s interest. 

Background 

The U.S. Environmental Protection Agency (EPA) Region 10 awarded grant number 

XP98069201 to the grantee on December 16, 1999. The purpose of the grant was to 

provide federal assistance of $3,716,525 for wastewater and clean water system 

improvements. EPA’s contribution to the project was 53 percent of approved costs not to 

exceed $3,716,525. The grantee was responsible for matching, at a minimum, 47 percent 

of the eligible project costs. The grant’s budget and project period was from 

December 17, 1999, to August 31, 2004. 

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Independent Attestation Report 

As part of our continued oversight of SAAP grants, we have examined the project costs 

incurred and claimed by the grantee in its financial status reports (FSRs) covering the 

period January 1, 2000, to March 17, 2004. By signing the award documents, the grantee 

accepted responsibility for preparing its cost claim to comply with the requirements of 

Title 2 Code of Federal Regulations (CFR) Part 225 (Cost Principles for State, Local, 

Indian Tribal Governments), Title 40 CFR Part 31 (Uniform Administrative 

Requirements for Grants and Cooperative Agreements to State and Local Governments), 

and the terms and conditions of the grant. Our responsibility is to express an opinion on 

the grantee’s final FSR based on our examination. 

We conducted our examination in accordance with the Government Auditing Standards 

issued by the Comptroller General of the United States, except that we did not obtain an 

understanding of the information systems controls since the grantee provided alternative 

documentation to support the costs claimed under the grant. Our examination was also 

limited in scope with regard to the grantee’s procurement. Because the record retention 

period expired prior to our examination, the grantee was unable to provide all contract 

documentation. Consequently, we were not able to obtain and review all contracts for 

compliance with federal procurement regulations and contract terms and conditions. Our 

review was also conducted in accordance with attestation standards established by the 

American Institute of Certified Public Accountants and, accordingly, included examining, 

on a test basis, evidence supporting management’s assertion and performing such other 

procedures as we considered necessary in the circumstances. Despite the scope 

limitations, we believe that our examination provides a reasonable basis for our opinion. 

We conducted our audit work between July 2008 and February 2010. We made a site 

visit to the grantee and performed the following steps: 

•	 Toured the wastewater and clean water facilities. 

•	 Reviewed the grantee’s supporting documents for drawdowns under the project 

for all federal grants. 

•	 Verified that 12 of the 22 drawdowns (54 percent) were deposited in the grantee’s 

bank account. 

•	 Judgmentally selected invoice payments with large dollar values and traced 

payments to cancelled checks and bank statements. 

•	 Interviewed grantee and contractor employees to obtain an understanding of the 

project, as well as the grantee’s processes for procurement, drawdowns of EPA 

grant funds, and invoice payment. 

•	 Interviewed the Single Auditor and reviewed the auditor’s working papers to 

obtain details on costs claimed under each federal grant that funded the project. 

•	 Performed various fraud detection procedures, including: (1) reviewing city 

council meeting minutes; and (2) performing a duplicate claims analysis by 

comparing costs claimed by the grantee under the EPA grant, U.S. Department of 

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10-4-0086 

Housing and Urban Development (HUD) Grant HDRI-99-V-4, and 

U.S. Economic Development Administration (EDA) Grant 07-01-03824. 

As part of obtaining reasonable assurance that the final FSR is free of material 

misstatement, we performed tests of its compliance with the requirements of Title 2 

CFR Part 225, Title 40 CFR Part 31, and the terms and conditions of the grant. We also 

considered the grantee’s internal controls over cost reporting to determine our audit 

procedures and to express our opinion on the final FSR. Our consideration of internal 

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

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

significant deficiencies that results in more than a remote likelihood that a material 

misstatement will not be prevented or detected. A significant deficiency is a deficiency 

in internal control, or combination of control deficiencies, that adversely affects the 

grantee’s ability to initiate, authorize, record, process, or report data reliably, in 

accordance with the applicable criteria or framework, such that there is more than a 

remote likelihood that a misstatement of the subject matter that is more than 

inconsequential will not be prevented or detected. 

Our examination disclosed the following noncompliance and material weaknesses 

concerning financial management requirements specified by Title 2 CFR Part 225 and 

Title 40 CFR Part 31. In particular, the grantee claimed: 

•	 Contract costs of $1,713,009 that were also claimed under two other federal 

grants. 

•	 Supply and labor costs of $24,836 that were not supported by source documents. 

•	 Supply and administration costs of $6,684 that were not eligible because they did 

not meet cost principles. 

As a result of these issues, we determined that, based on payments made and the federal 

share being 53 percent, EPA should recover $1,045,926 in questioned costs under the 

grant. 

In our opinion, because of the effect of the issues described above, the final FSR does not 

meet, in all material respects, the requirements of Title 2 CFR Part 225 and Title 40 CFR 

Part 31, and the terms and conditions of the grant for the period ended March 17, 2004. 

Robert K. Adachi 

Director of Forensic Audits 

March 29, 2010 

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10-4-0086 

Results of Examination 

The grantee did not meet financial management requirements specified by Title 2 CFR 

Part 225 and Title 40 CFR Part 31. In particular, the grantee claimed: 

•	 Contract costs of $1,713,009 that were also claimed under two other federal 

grants. 

•	 Supply and labor costs of $24,836 that were not supported by source documents. 

•	 Supply and administration costs of $6,684 that were not eligible because they did 

not meet cost principles. 

As a result of these issues, EPA should recover $1,045,926 in questioned costs under the 

grant. The grantee also should be designated as “high-risk” in the Integrated Grants 

Management System, and special conditions should be imposed on all future awards of 

EPA funds to the grantee. Table 1 provides more details on the questioned costs. 

Table 1: Summary of Questioned Costs 

Cost Category Questioned Costs 

Project Costs $6,783,395 

Less: Questioned Costs 

 Duplicate Contract1 $1,713,009 

 Unsupported Supply & Labor2 $24,836 

 Ineligible Supply & Administration3 $6,684 

Total Allowable Costs $5,038,866 

Federal Share (53%) $2,670,599 

Payments Made $3,716,525 

Amount Owed to EPA $1,045,926 

1

See discussion under Duplicate Contract Costs Not Allowable. 2

See discussion under Unsupported Costs Not Allowable. 3

See discussion under Ineligible Costs Not Allowable. 

Sources: Project cost data provided by the grantee. Costs questioned were 

 based on OIG’s analysis of the data. 

Duplicate Contract Costs Not Allowable 

The grantee claimed $1,713,009 in contract costs that were not allowable because the 

costs were also claimed under two other federal grants. The $1,713,009 in unallowable 

costs consisted of $266,972 also claimed under HUD Grant HDRI-99-V-4 and 

$1,446,037 also claimed under EDA Grant 07-01-03824. According to the grantee, it 

believed, based on discussions with managers from EPA and EDA, that using the funding 

under the three agencies’ grants as match against each other was acceptable. However, 

Title 2 CFR Part 225, Appendix A C(1)(h), specifies that costs claimed under a federal 

award must not be included as a cost or used to meet cost sharing or matching 

requirements of any other federal award in either the current or a prior period, except as 

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specifically provided by federal law or regulation, in order to be allowable. EPA’s SAAP 

guidance and the Fiscal Years 1998 and 2000 appropriations designating the funding for 

the grant did not provide the grantee with an option to claim costs under the award that 

were also claimed under the EDA grant. The costs also claimed under the HUD grant 

were reimbursed 100 percent by HUD and therefore are ineligible for further 

reimbursement. Therefore, we question the $1,713,009 claimed under the grant. 

Unsupported Costs Not Allowable 

The grantee claimed $24,836 in supply and labor costs that are not allowable because of 

the documentation requirements specified by Title 2 CFR Part 225 and Title 40 CFR 

Part 31. The $24,836 consisted of $20,741 in labor and $4,095 in supply costs. Title 2 

CFR Part 225, Appendix A C(1), states that costs must be adequately documented to be 

allowable under a federal award. According to Title 2 CFR Part 225, Appendix B, 8(a) 

and (h), all charges to federal awards for salaries and wages need to based on actual 

payroll costs. Title 40 CFR Part 31.20(b)(6) specifies that accounting records must be 

supported by source documentation such as cancelled checks, paid bills, payrolls, and 

time and attendance records. The grantee supported the claimed labor costs with a 

maintenance work report that listed the labor costs. However, the labor costs were not 

supported by payroll records. The grantee’s documentation for the supply costs consisted 

of hand-written cost summaries rather than the suppliers’ invoices. Because the supply 

and labor costs were not supported by source documents, we question the $24,836 

claimed under the grant. 

Ineligible Costs Not Allowable 

The grantee claimed $6,684 in supply and administration costs that were ineligible under 

the grant because they did not meet cost principles specified by Title 2 CFR Part 225. 

Title 2 CFR Part 225, Appendix A C(1)(b), specifies that costs must be allocable to the 

award in order to be allowable. According to Title 2 CFR Part 225, Appendix A C(3)(a), 

a cost is allocable to a particular cost objective if the goods or services involved are 

chargeable or assignable to such cost objective in accordance with relative benefits 

received. The $6,684 in ineligible costs consisted of $2,484 in supplies and $4,200 in 

grant administration fees. Review of the supporting invoices disclosed that these costs 

were not related to the work conducted under the grant. The $2,484 in supplies consisted 

of office supplies for city departments and diesel for a generator that were not associated 

with work funded by the grant. The $4,200 in grant administration fees were fees related 

to the management of the HUD grant. Since these costs did not benefit the EPA grant, 

we question the $6,684 as not allowable. 

Grantee Should Be Designated “High-Risk” 

Based on the findings above, the grantee does not meet the minimum requirements for a 

financial management system and should be designated as “high-risk” in the Integrated 

Grants Management System. Under Title 40 CFR Part 31.12(a)(1) and (3), a grantee may 

be considered high-risk if an awarding agency determines that a grantee has: (a) a history 

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of unsatisfactory performance, or (b) a management system that does not meet the 

management standards set forth in the regulation. Title 40 CFR Part 31.12(a)(5) also 

requires that special conditions and/or restrictions be included in awards to high-risk 

grantees. Therefore, we recommend that special conditions be imposed on all future 

awards of EPA funds to the grantee. The special conditions should include: (a) payment 

on a reimbursement basis, and (b) EPA review and approval of reimbursement requests 

prior to payment. 

Our examination of the grantee’s accounting system also identified that other funding 

agencies have no assurance that costs claimed under their funding agreements are 

allowable. As discussed in the report, we questioned $1,713,009 in contract costs that 

were claimed under the HUD and EDA grants. Therefore, HUD and EDA should 

consider examining costs claimed under their current funding agreements with the 

grantee. 

Recommendations 

We recommend that Regional Administrator, EPA Region 10: 

1.	 Disallow and recover $1,045,926 of questioned costs under the grant. 

2.	 Designate the City of Blackfoot as a high-risk grantee in the Integrated Grants 

Management System. Also, require the following special conditions to be 

included for all future EPA awards to the grantee until the Region determines that 

the grantee has met all applicable federal financial and procurement requirements: 

(a) Payment on a reimbursement basis. 

(b) Review and approval by the EPA project officer of reimbursement 

requests including all supporting documentation for the claims prior to 

payment. 

Region 10 and Grantee Comments 

We held an exit conference with representatives from Region 10 and the grantee on 

March 9, 2010, to obtain their comments on the findings and recommendations in the 

discussion draft. Region 10 did not comment on the findings and recommendations 

during the exit conference, while the grantee provided verbal comments. The grantee 

also submitted a written response to the findings on March 12, 2010. Appendix A 

provides the full text of the grantee’s written comments. 

The grantee did not agree with the report’s findings and recommendations. The grantee 

stated that the Wastewater Treatment Plant project was funded by a combination of City 

and EPA grant funds. According to the grantee, it provided approximately 47 percent of 

the project’s funding, which came from a $3,125,000 bond and $134,431 in cash. The 

grantee said that the EPA grant provided the remaining 53 percent of funding for the 

project. With regard to the EDA grant, the grantee stated that it paid $264,521 in project 

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costs and received $1,000,000 in EDA funds to pay for the water and sewer lines to the 

Spudnik Industrial Park. The grantee said it used paid invoices from the Wastewater 

Treatment Plant project to show matching funds to obtain the EDA grant funds. 

The grantee stated that it relied on the advice of EDA and HUD that portions of the EPA 

project could be included in the scope of work for their respective projects. The grantee 

said that it relied on guidance from the EPA Region 10 project manager indicating that it 

was acceptable to submit project invoices under multiple grants for reimbursement. 

According to the grantee, the EPA project manager told the grantee that normally this 

practice was not acceptable but in this case EPA was making an exception. The grantee 

also said that it believed that the EPA project manager had the authority to make the 

decision on the exception or had been in communication with someone who held that 

authority. 

OIG Response 

Our position on the findings and recommendations remains unchanged. We acknowledge 

that the grantee obtained a bond and used City funding to cover a portion of the costs for 

the EPA project. However, our review of the costs claimed under the EPA grant revealed 

that invoices with a total cost of $1,713,009 had also been claimed under the EDA and 

HUD grants. As discussed in the report, EPA’s SAAP guidance and the Fiscal Years 

1998 and 2000 appropriations designating the funding for the grant did not provide the 

grantee with an option to claim the same costs under both the EPA and EDA grants. In 

addition, the grantee did not have formal approval from EDA to claim costs reimbursed 

by EPA to meet matching funding requirements under the EDA grant. According to 

EDA’s Regional Counsel, when a recipient uses funds from another federal agency to 

meet matching requirements, the EDA must have a memorandum of agreement with the 

other agency. With regard to the costs claimed under both the EPA and HUD grants, the 

grantee received 100 percent reimbursement by HUD. Therefore, costs claimed under 

the HUD grant were ineligible for further reimbursement. 

We acknowledge that the grantee received guidance from the EPA project manager on 

reimbursement claims under the grants; however, that guidance was incorrect. Neither 

the grantee nor the Agency were able to provide documentation during the audit showing 

that senior EPA management approved the grantee to claim the same costs under multiple 

federal awards. 

7
 
 

 

 

 

 

 

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Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Planned 

Rec. Page Completion Claimed Agreed To 

No. No. Subject Status1 Action Official Date Amount Amount 

1 6 Disallow and recover the $1,045,926 of questioned U 

costs under the grant. 

2 6 Designate the City of Blackfoot as a high-risk U 

grantee in the Integrated Grants Management 

System. Also, require that the following special 

conditions be included for all future awards to the 

grantee until the Region determines that the 

grantee has met all applicable federal financial and 

procurement requirements: 

(a)	 Payment on a reimbursement basis. 

(b)	 Review and approval by the EPA project 

officer of reimbursement requests 

including all supporting documentation for 

the claims prior to payment. 

Region 10 

Regional Administrator
 

Region 10 

Regional Administrator 

$1,045.9 

O = recommendation is open with agreed-to corrective actions pending;
 

C = recommendation is closed with all agreed-to actions completed;
 

U = recommendation is undecided with resolution efforts in progress 

8
 
 

 

 

10-4-0086 

Appendix A 

Grantee Response 

March 12, 2010 

Point Number 1: 

•	 The WWTP project was funded by a combination of City funds and EPA Stag grant 

funds. It is the City's belief that approximately 47% of the funding ($3,125,000 in bonds & 

$134,431 City cash) for the WWTP project was provided by the City and approximately 

53% ($3,716,625) of the funding was provided by the EPA Grants. 

•	 On the EDA project, the City paid $264,521 and received $1,000,000 in EDA funds to pay 

for the water and sewer lines to the Spudnik Industrial Park. Paid invoices from the 

WWTP project were used on the EDA Water and Sewer Line project to show matching 

funds in order to obtain $1,000,000 in EDA grant funds. 

Point Number 2: 

•	 The City relied on the advice of all of the agencies involved who provided grants and 

grant management on additional related projects (like the UV and the Spudnik line/EDA 

and HUD) that portions of the EPA project could be included in the scope of the work for 

their project. 

•	 The agency representatives consulted regarding this project were not just “EPA staff” but 

were "the EPA project manager" to which the City was required to report. XXXX 

XXXXXX, being the EPA project manager, had significant authority with regards to our Text redacted project. He had the authority and responsibility to sign off on each phase of the project pursuant to before we could proceed to the next phase. Thus the City clearly relied on the 5 U.S.C. information communicated by his as factual. 552(b)(6). 

Additionally, XXX XXXXXXXXxxxxX stated it was normally not acceptable but in this case 

the EPA was making an exception, leading us to believe he had the authority to make 

that decision, or at least he had communication (written or verbal) from someone who 

held that authority. 

Please call if you have any comments or questions. 

Thanks. 

Mike Virtue, Mayor 

City of Blackfoot 

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Appendix B 

Distribution 

Regional Administrator, Region 10 

Assistant Administrator, Office of Water 

Director, Office of Grants and Debarment, Office of Administration and Resources 

 Management 

Director, Grants and Interagency Agreements Management Division, Office of 

Administration and Resources Management 

Acting Director, Office of Financial Management, Office of the Chief Financial Officer 

Agency Follow-up Official (the CFO) 

Agency Follow-up Coordinator 

Region 10 Audit Follow-up Coordinator 

Region 10 Public Affairs Office 

Region 10 Special Appropriation Act Projects Coordinator 

Mayor, City of Blackfoot, Idaho 

Acting Inspector General 

10