U.S. ENVIRONMENTAL PROTECTION AGENCY 

OFFICE OF INSPECTOR GENERAL 

Catalyst for Improving the Environment 

Quick Reaction Report 

Examination of Costs Claimed under 

EPA Grant X96906001 Awarded to 

Walker Lake Working Group, 

 Hawthorne, Nevada 

 Report No. 10-2-0054 

 January 6, 2010 
 

 

 

 

Report Contributors:	 Eileen Collins 

Michael Owen 

 Lela Wong 

Abbreviations 

CFR Code of Federal Regulations 

EPA U.S. Environmental Protection Agency 

FSR Financial Status Report 

OIG Office of Inspector General 
 

U.S. Environmental Protection Agency 10-2-0054 

January 6, 2010 Office of Inspector General 

At a Glance 

Catalyst for Improving the Environment 

Why We Did This Examination 

The U.S. Environmental 

Protection Agency (EPA) Office 

of Inspector General is 

examining grants awarded to 

nonprofit grantees. We selected 

Walker Lake Working Group 

(grantee) for examination. 

Background 

EPA Region 9 awarded grant 

X96906001 on September 30, 

2004. The grant provided 

federal assistance of $842,100 

for developing a conservation 

plan for Walker Lake that will 

sustain the native freshwater 

ecosystem. The plan will be 

based on scientific and social 

studies of the basin to show 

where water can be acquired or 

saved. The grant specifies that 

EPA will contribute 100 percent 

of the approved allowable 

project costs up to the awarded 

amount. 

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/ 

20100106-10-2-0054.pdf 

Examination of Costs Claimed under EPA Grant 

X96906001 Awarded to Walker Lake Working 

Group, Hawthorne, Nevada

 What We Found 

The grantee did not meet financial management requirements specified by Title 40 

Code of Federal Regulations Part 30 and Title 2 Code of Federal Regulations 

Part 30. In particular, the grantee claimed: 

•	 Contract costs that were not allowable because analysis and administration 

requirements were not met. 

•	 Travel and other direct costs that were not allowable because 

documentation requirements or cost principles were not met. 

The grantee’s Financial Status Report was also not supported by accounting system 

data. 

Because of these issues, EPA should recover $384,678 in questioned costs under 

the grant. These issues also indicate that the grantee may not have the capability to 

manage the grant and future EPA awards. 

What We Recommend 

We recommend that the Regional Administrator, EPA Region 9, disallow and 

recover $384,678 in questioned costs under the grant if the grantee is unable to 

provide adequate documentation to meet the appropriate federal financial 

management and procurement requirements. 

We also recommend that the Region 9 Regional Administrator require the grantee 

to improve its procurement process and internal controls, and establish procedures 

to ensure that future Financial Status Reports are properly supported by accounting 

system data. Further, the Region 9 Regional Administrator should establish special 

conditions for the grant and future EPA awards to the grantee that require payment 

to the grantee on a reimbursement basis and review and approval by the EPA 

project officer of reimbursement requests, including all supporting documentation 

for the claims prior to payment. 
 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

INSPECTOR GENERAL 

January 6, 2010 

MEMORANDUM 

SUBJECT:	 Examination of Costs Claimed under EPA Grant X96906001 

Awarded to Walker Lake Working Group, Hawthorne, Nevada 

Report No. 10-2-0054 

FROM: Robert Adachi 

Director of Forensic Audits 

TO:	 Jared Blumenfeld 

Regional Administrator 

EPA Region 9 

This report is on time-critical issues. These issues require immediate attention to protect 

the government’s interest since the grant is on-going and the grantee continues to make 

draw downs of federal funds. 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 $ 82,312. 

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 May 6, 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 at the e-mail address above. 
 

 

 

 

 

Examination of Costs Claimed under EPA Grant X96906001 10-2-0054 

Awarded to Walker Lake Working Group, Hawthorne, Nevada 

Table of Contents 

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

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

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

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

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

Contract Costs Did Not Meet Procurement Analysis and Administration 

 Requirements ............................................................................................. 4 

Travel and Other Direct Costs Did Not Meet Documentation Requirements 

or Cost Principles ........................................................................................ 5 

Financial Status Reports Are Not Supported by Accounting System Data .......... 6 

Conclusion .......................................................................................................... 7 

Recommendations ............................................................................................... 7 

Region 9 and Grantee Comments........................................................................ 8 

OIG Response ..................................................................................................... 8 

Status of Recommendations and Potential Monetary Benefits.............................. 9 

Appendix 

A Distribution ......................................................................................................... 10
 
 

10-2-0054 

Introduction 

Purpose 

The purpose of the examination was to determine whether the costs claimed by Walker 

Lake Working Group (grantee) complied with grant requirements and applicable federal 

laws and regulations. During our examination, we determined that the grantee did not 

comply with federal procurement and cost documentation requirements. We believe 

these issues require immediate attention in to protect the government’s interest since the 

grant is on-going and the grantee continues to make draw downs. 

Background 

The U.S. Environmental Protection Agency (EPA) Region 9 (Region) awarded grant 

number X96906001 on September 30, 2004. The purpose of the grant was to provide 

federal assistance for the grantee to develop a conservation plan for Walker Lake that will 

sustain the native freshwater ecosystem. The plan will be based on scientific and social 

studies of the basin to show where water can be acquired or saved. The grant was to fund 

legal and technical experts on western water law, native wildlife, and desert terminal 

lakes, who will help design the plan. 

The total amount awarded under the grant is $842,100. The grant specifies that EPA will 

contribute 100 percent of the approved allowable project costs up to the awarded amount. 

The budget and project period for the grant is from October 1, 2004, to October 31, 2011. 

The most recent Financial Status Report (FSR) submitted was for the period ended 

September 30, 2008, with a cumulative amount claimed of $388,849. 

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10-2-0054 

Independent Attestation Report 

As part of our continued oversight of grants awarded to nonprofit organizations by EPA, 

we have examined the costs claimed by the grantee in its FSR covering the period 

October 1, 2004, to September 30, 2008. By signing the award documents, the grantee 

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

Title 40 Code of Federal Regulations (CFR) Part 30, Title 2 CFR Part 230, and the terms 

and conditions of the grant. Our responsibility is to express an opinion on the grantee’s 

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, and the attestation standards 

established by the American Institute of Certified Public Accountants. We examined, on 

a test basis, evidence supporting the amount claimed in the FSR and performed other 

procedures we considered necessary under the circumstances. We believe that our 

examination provides a reasonable basis for our opinion. 

We conducted our audit between April 27, 2009, and October 14, 2009. We performed 

the following steps during our audit: 

•	 Reviewed EPA Region 9 project and grant files. 

•	 Interviewed the EPA project officer to obtain an understanding of the project. 

•	 Reviewed grantee support for the cumulative amounts reported for the period 

ended September 30, 2008, including the grantee’s electronic accounting records 

and supporting invoices, bank statements, cancelled checks, contracts, and 

procurement documents. 

•	 Interviewed grantee personnel to obtain an understanding of the project, as well as 

the grantee’s processes for procurement, drawing down EPA grant funds, and 

invoice payment. 

•	 Performed various fraud detection procedures, including interviewing EPA and 

grantee personnel, reviewing drawdown patterns and board of directors’ meeting 

minutes, performing a duplicate payment test, and performing a missing check 

review. 

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

misstatement, we performed tests of its compliance with the requirements of Title 40 

CFR Part 30, Title 2 CFR Part 230, 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 FSR. Our consideration of internal 

control 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 

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10-2-0054 

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 40 CFR Part 30 and 

Title 2 CFR Part 230: 

•	 The grantee did not comply with the cost analysis and contract administration 

requirements of Title 40 CFR Part 30. See discussion on page 4 of this report. 

•	 The grantee did not have adequate controls to ensure that travel and other direct 

costs claimed met documentation requirements and cost principles specified by 

Title 2 CFR Part 230. See discussion on page 5 of this report. 

•	 The grantee’s FSR was not supported by accounting system data. See discussion 

on page 6 of this report. 

As a result of these issues, we questioned $384,678 of the $388,849 claimed under the 

grant. 

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

meet, in all material respects, the requirements of Title 40 CFR Part 30, Title 2 CFR Part 

230, and the terms and conditions of the grant for the period ended September 30, 2008. 

Robert K. Adachi 

Director of Forensic Audits 

October 14, 2009 

3 
 

 

 

 

 

 

 

10-2-0054 

Results of Examination 

The grantee did not meet financial management requirements specified by Title 40 CFR 

Part 30 and Title 2 CFR Part 230. In particular, the grantee claimed: 

•	 Contract costs that were not allowable because procurement analysis and 

administration requirements were not met. 

•	 Travel and other direct costs that were not allowable because documentation 

requirements or cost principles were not met. 

The grantee’s FSR was also not supported by accounting system data. As a result of 

these issues, EPA should recover $384,678 in questioned costs under the grant. These 

issues also indicate that the grantee may not have the capability to manage the grant and 

future EPA awards. The questioned costs are summarized in Table 1: 

Table 1: Summary of Questioned Costs 

Cost Category Amount 

Claimed 

Amount 

Questioned 

Contract Costs1 $367,415 $364,750 

Travel and Other Direct Costs2 21,434 19,928

 Totals $388,849 $384,678 

1

 See discussion under Contract Costs Did Not Meet Analysis and 

 Administration Requirements. 2

 See discussion under Travel and Other Direct Costs Did Not Meet

 Documentation Requirements or Cost Principles. 

 Sources: Amounts claimed were from accounting system data the 

grantee provided in supporting the FSR amount. Costs questioned 

were based on OIG’s analysis of the data. 

Contract Costs Did Not Meet Procurement Analysis and 

Administration Requirements 

The grantee claimed contract costs of $367,415 that were not allowable because 

procurement analysis and administration requirements were not met. According to Title 

40 CFR Part 30.45, some form of cost or price analysis shall be made and documented in 

the procurement files in connection with every procurement action. The grantee claimed 

$367,415 under the grant for legal and other consulting services that were procured 

through sole source contracts without conducting the required cost or price analyses. 

Without the cost or price analyses, the grantee was unable to demonstrate that the 

contract prices and hourly rates charged by the consultants are fair and reasonable. 

The grantee also has not established a contract administration system in accordance with 

Title 40 CFR Part 30.47. During the examination, the grantee was unable to provide 

copies of the contracts for one of the legal consultants and its subcontractor. Title 40 

CFR Part 30.47 requires a system for contract administration that ensures contractor 

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10-2-0054 

conformance with the terms, conditions, and specifications of the contract, and adequate 

and timely follow-up of all purchases. Without formal written contracts on file, the 

grantee was unable to demonstrate whether the legal consultant’s and subcontractor’s 

costs claimed under the grant were fair and reasonable and conformed to the scopes of 

work, terms, and conditions of the contracts. Because of the analysis and the contract 

administration issues, we questioned all contract costs claimed. 

In response to our discussion draft issued on October 14, 2009, the grantee provided price 

information showing that $2,665 of costs of claimed for one of the contracts was fair and 

reasonable. To address the questioned costs for the other contracts, the grantee 

conducted surveys of legal firms and other sources and obtained general price 

information for their services. However, the survey information the grantee provided to 

us was not supported by cost or price documentation, nor did it show that prices were for 

services comparable to the work required under the grant. Therefore, the surveys did not 

meet the cost analysis requirements specified by Title 40 CFR Part 30. 

The grantee also obtained and provided copies of the contracts for the legal consultant 

and its subcontractor that were not available for our review during our field work. This 

contract information should help the grantee ensure that contract terms and conditions are 

met in the future. 

Because the grantee provided information showing that $2,665 of costs claimed for one 

of the contracts were fair and reasonable, we reduced the questioned costs accordingly. 

Total contract costs questioned were reduced from the $367,415 originally questioned in 

the discussion draft to $364,750. 

Travel and Other Direct Costs Did Not Meet Documentation 

Requirements or Cost Principles 

The grantee claimed $19,928 in travel and other direct costs that were not allowable 

because documentation requirements or cost principles specified by Title 2 CFR Part 230 

were not met. The claimed costs included $18,265 that did not meet documentation 

requirements and $1,663 that did not meet federal cost principles. Title 2 CFR Part 230, 

Appendix A specifies that costs need to be allocable and adequately documented to be 

allowable under the grant. Title 2 CFR Part 230, Appendices A and B provide the 

principles for determining the allowability of costs. 

The grantee claimed travel and other direct costs of $18,265 without vouchers, purchase 

orders, or other documentation showing the purpose and approval of the costs. In 

preparation for the examination, the grantee’s bookkeeper subsequently prepared 

vouchers detailing these costs based on available receipts. However, these vouchers were 

signed by neither the personnel that incurred the costs nor the approving official. 

According to Title 2 CFR Part 230, Appendix A, costs need to be allocable and 

adequately documented to be allowable under the grant. The grantee’s internal policy, 

approved by the board of directors on July 20, 2005, also requires that all travel expenses 

relevant to the project be submitted on a travel voucher to the treasurer. Because the 

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10-2-0054 

documentation prepared for the examination did not show that the costs were approved or 

met requirements of the grantee’s policy, we could not determine whether the costs were 

authorized and allocable to the grant. As a result, we questioned the $18,265 as not 

allowable. 

The grantee also claimed $1,663 in costs that were not allowable under the cost principles 

established by Title 2 CFR Part 230, Appendices A and B. The unallowable costs 

consisted of the following: 

•	 $1,080 in costs that were miscoded as EPA project costs. The grantee confirmed 

that the costs were not allocable to the grant. As discussed previously, Title 2 

CFR Part 230, Appendix A, specifies that costs must be allocable to the award in 

order to be allowable. 

•	 $300 incurred for Native American dancing entertainment at an educational event 

hosted by the grantee. Title 2 CFR 230 Appendix B, Paragraph 14, specifies that 

costs of entertainment, including amusement, diversion, and social activities, are 

unallowable. 

•	 $283 incurred for a television purchased as a raffle prize for an educational event 

hosted by the grantee. According to 2 CFR Part 230, Appendix B, Paragraph 

1.f(3), costs of promotional items and memorabilia, including models, gifts, and 

souvenirs, are unallowable 

In response to the discussion draft, the grantee provided vouchers that were retroactively 

signed by the individuals that incurred the costs. However, these revised vouchers were 

not signed by the approving official. Therefore, we continue to question the costs until 

these expenditures have been formally approved by the appropriate official. 

Financial Status Reports Are Not Supported by Accounting 

System Data 

The grantee’s FSR was not supported by accounting system data, as required under Title 

40 CFR Part 30. The grantee claimed total outlays of $460,297 for the period ended 

September 30, 2008, in its January 2009 FSR. However, the grantee was only able to 

provide accounting records for $388,849 of incurred costs under the grant. Therefore, the 

total outlays reported in the FSR were overstated by $71,448, based on the supporting 

accounting system data. According to the grant coordinator, the FSR was prepared based 

on copies of contractor invoices she received and travel and miscellaneous expense totals 

provided by the bookkeeper. The grant coordinator explained that the discrepancy 

between the FSR and accounting records may have been caused by a delay in recording 

some costs in the accounting system that were included in the FSR. However, since the 

grant coordinator did not maintain the supporting data and calculations for the FSR, the 

grantee was unable to reconcile the difference between the outlays reported in the FSR 

and the accounting records. 

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Under Title 40 CFR Part 30.21(b)(1), the grantee must make accurate, current, and 

complete disclosure of the financial results of financially assisted activities in accordance 

with the financial reporting requirements of the grant. Title 40 CFR 30.21(b)(2) requires 

that grantees maintain records that adequately identify the source and application of funds 

provided for financially assisted activities. Therefore, the grantee should improve its 

FSR preparation process to ensure these federal reporting and financial management 

requirements are met. 

This issue was discussed with the grantee during our site visit. The grantee submitted a 

revised FSR to the EPA on April 28, 2009, to reflect the $388,849 recorded in the 

accounting system for the period ended September 30, 2008. 

Conclusion 

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

financial management system. The findings also indicate that the grantee may not have 

the capability to manage the grant and future EPA awards. Therefore, EPA should have 

special conditions imposed on the current grant and all future awards of EPA funds as 

outlined in Title 40 CFR Part 30.14. Title 40 CFR Part 30.14, Special Award Conditions, 

states: 

. . . if an applicant or recipient has a history of poor performance; is not 

financially stable; has a management system that does not meet the 

standards prescribed in Circular A–110; has not conformed to the terms 

and conditions of a previous award; or is not otherwise responsible, EPA 

may impose additional requirements as needed, provided that such 

applicant or recipient is notified in writing as to: the nature of the 

additional requirements, the reason why the additional requirements are 

being imposed, the nature of the corrective action needed, the time 

allowed for completing the corrective actions, and the method for 

requesting reconsideration of the additional requirements imposed. 

The special conditions should include (1) payment on a reimbursement basis, and 

(2) EPA review and approval of reimbursement requests prior to payment. 

Recommendations 

We recommend that the Regional Administrator, EPA Region 9: 

1.	 Disallow and recover $384,678 in questioned costs under the grant. If the grantee 

provides adequate documentation to meet the appropriate federal financial 

management requirements or demonstrates that the contract costs are fair and 

reasonable, the amounts to be recovered should be adjusted accordingly. 

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2.	 Require the grantee to: 

a) Improve its procurement process to ensure compliance with Title 40 CFR 

Part 30. 

b) Improve its internal controls to ensure that costs claimed meet 

documentation requirements and cost principles specified by Title 2 CFR 

Part 230. 

c) Establish procedures to ensure that future FSRs are supported by 

accounting system data. 

3.	 Require that the following special conditions be included for the grant and 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 9 and Grantee Comments 

We issued a discussion draft to Region 9 and the grantee on October 14, 2009, to verify 

the factual accuracy of our information. We held exit conferences with Region 9 and the 

grantee on October 28, 2009, to obtain verbal comments on the discussion draft. 

The Region did not have any comment on the findings and recommendations during the 

exit conference. 

Prior to the exit conference, the grantee provided additional documentation as support for 

the questioned costs identified in the discussion draft and stated that more documentation 

is forthcoming. The grantee stated during the exit conference that it is capable of 

maintaining the grant to meet federal financial management requirements. The grantee 

also said that it has already made improvements to ensure procurement policies are 

followed, purchase records meet federal financial management requirements, and all 

future FSR filings are prepared from current accounting records. According to the 

grantee, the improvements include the coordination between its grants administrator and 

treasurer or accountant to ensure that all future FSRs are based on the current accounting 

records. 

OIG Response 

Our position on the findings and recommendations remains unchanged. We made minor 

changes to the report as appropriate based on the additional documentation provided by 

the grantee in response to the discussion draft. However, the grantee has not 

demonstrated that it has implemented corrective actions that will ensure that the financial 

management requirements specified by Title 40 CFR Part 30 and Title 2 CFR Part 230 

will be met in the future. 

8 
 

 

 

 

 

 

 

 

 

 

 

10-2-0054 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Planned 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Completion 

Date 

Claimed 

Amount 

Agreed To 

Amount 

1 7 Disallow and recover $384,678 in questioned costs 

under the grant. If the grantee provides adequate 

documentation to meet the appropriate federal 

financial management requirements or 

demonstrates that the contract costs are fair and 

U Regional Administrator, 

Region 9 

$385 

reasonable, the amounts to be recovered should 

be adjusted accordingly. 

2 8 Require the grantee to: 

(a) Improve its procurement process to ensure 

compliance with Title 40 CFR Part 30. 

U Regional Administrator, 

Region 9 

(b) Improve its internal controls to ensure that 

costs claimed meet documentation 

requirements and cost principles specified 

by Title 2 CFR Part 230. 

(c) Establish procedures to ensure that future 

FSRs are supported by accounting system 

data. 

3 8 Require that the following special conditions be 

included for the grant and future EPA awards to the 

grantee until the Region determines that the 

grantee has met all applicable federal financial and 

procurement requirements: 

U Regional Administrator, 

Region 9 

(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. 

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 

9 

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Appendix A 

Distribution 

Regional Administrator, Region 9 

Director, Office of Wastewater Management, Office of Water 

Director, Office of Wastewater Management - Municipal Services Division, 

 Office of Water 

Director, Office of Grants and Debarment 

Director, Grants and Interagency Agreements Management Division 

Agency Follow-up Official (the CFO) 

Agency Follow-up Coordinator 

Associate Administrator for Congressional and Intergovernmental Relations 

Associate Administrator for Public Affairs 

Region 9 Audit Follow-up Coordinator 

Region 9 Public Affairs Office 

Chairman, Walker Lake Working Group 

Acting Inspector General 

10