Grants Management: EPA Actions Taken Against Nonprofit Grant	 
Recipients in 2002 (30-JAN-04, GAO-04-383R).			 
                                                                 
The Environmental Protection Agency (EPA) awards over one-half if
its budget, or about $4 billion, annually in grants. At the end  
of fiscal year 2002, EPA was providing funding to 4,100 grant	 
recipients, with $245.4 million, or nearly 6 percent of its	 
awarded grant dollars, going to nonprofit grant recipients.	 
Congressional hearings in 1996 and 1999 cited concerns with the  
grants management capabilities of nonprofit grantees.		 
Specifically, the 1996 hearing raised questions about nonprofit  
grant recipients' use of federal funds for lobbying. The 1999	 
hearing cited concerns with the ability of nonprofit grantees to 
manage their grants, because, for example, many nonprofit	 
organizations do not have staff with accounting backgrounds.	 
Often, their grants are too small to be covered under the	 
requirements of the Single Audit Act. In response to such	 
concerns, EPA has included lobbying restrictions in grant	 
agreements, issued guidance and policies on grantee oversight,	 
and has attempted to improve nonprofit grantees' grants 	 
management with a 1-day training course and follow-up		 
instructional videotape specifically designed for nonprofit grant
recipients. However, as we reported in August 2003, nonprofit	 
grant recipients continue to have problems managing their grants.
These problems have led EPA to recommend actions to correct	 
specific problems, such as maintaining records to track staff	 
time, obtaining a required audit, and improving a financial	 
management system. In some cases, these problems led EPA to take 
more significant actions against nonprofit grant recipients, such
as issuing suspension orders, holding payments, and designating  
grantees as high-risk. As a result of continuing concerns about  
the problems that nonprofit grant recipients have had in managing
their grants, Congress asked us to provide supplementary	 
information on the grants management performance of nonprofit	 
grantees. Specifically, this report discusses (1) grants	 
management problems EPA identified with nonprofit recipients in  
2002, (2) corrective actions EPA recommended to address these	 
problems, and (3) EPA's more significant actions taken against	 
specific nonprofit grant recipients.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-383R					        
    ACCNO:   A09190						        
  TITLE:     Grants Management: EPA Actions Taken Against Nonprofit   
Grant Recipients in 2002					 
     DATE:   01/30/2004 
  SUBJECT:   Accounting 					 
	     Education or training				 
	     Federal grants					 
	     Grant administration				 
	     Lobbying activities				 
	     Nonprofit organizations				 
	     Records management 				 

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GAO-04-383R

United States General Accounting Office Washington, DC 20548

January 30, 2004

The Honorable James M. Inhofe Chairman, Committee on Environment

and Public Works United States Senate

Subject: Grants Management: EPA Actions Taken against Nonprofit Grant
Recipients in 2002

Dear Mr. Chairman:

The Environmental Protection Agency (EPA) awards over one-half if its
budget, or about $4 billion, annually in grants.1 At the end of fiscal
year 2002, EPA was providing funding to 4,100 grant recipients, with
$245.4 million, or nearly 6 percent of its awarded grant dollars, going to
nonprofit grant recipients. Congressional hearings in 1996 and 1999 cited
concerns with the grants management capabilities of nonprofit grantees.
Specifically, the 1996 hearing raised questions about nonprofit grant
recipients' use of federal funds for lobbying. The 1999 hearing cited
concerns with the ability of nonprofit grantees to manage their grants,2
because, for example, many nonprofit organizations do not have staff with
accounting backgrounds. Often, their grants are too small to be covered
under the requirements of the Single Audit Act.3 In response to such
concerns, EPA has included lobbying restrictions in grant agreements,
issued guidance and policies on grantee oversight, and has attempted to
improve nonprofit grantees' grants management with a 1-day training course
and follow-up instructional videotape specifically designed for nonprofit
grant recipients.

1Federal financial assistance includes grants, cooperative agreements,
loans, loan guarantees, scholarships, and other forms of assistance. For
simplicity, we are referring to all financial assistance as "grants."

240 C.F.R. Part 30 contains grant management requirements for recipients
including nonprofit organizations.

3The Single Audit Act Amendments of 1996, Pub. L. No. 104-156, 110 Stat.
1396 (codified at 31 U.S.C. S:S: 7501-7507), requires grantees to have an
audit of their financial statements and federal awards or a program
specific audit if they spend $300,000 or more in federal awards in a
fiscal year. The Office of Management and Budget (OMB), as authorized by
the act, increased this amount to $500,000 in federal awards as of June
23, 2003.

                         GAO-04-383R Grants Management

However, as we reported in August 2003,4 nonprofit grant recipients
continue to have problems managing their grants.5 These problems have led
EPA to recommend actions to correct specific problems, such as maintaining
records to track staff time, obtaining a required audit, and improving a
financial management system. In some cases, these problems led EPA to take
more significant actions against nonprofit grant recipients, such as
issuing suspension orders, holding payments, and designating grantees as
high-risk.

As a result of continuing concerns about the problems that nonprofit grant
recipients have had in managing their grants, you asked us to provide
supplementary information on the grants management performance of
nonprofit grantees. Specifically, this report discusses (1) grants
management problems EPA identified with nonprofit recipients in 2002, (2)
corrective actions EPA recommended to address these problems, and (3)
EPA's more significant actions taken against specific nonprofit grant
recipients.

To obtain this information, we relied on the results of our analysis of
EPA's oversight of grant recipients conducted in calendar year 2002. As
part of this effort, we reviewed the records of 1,232 in-depth grantee
reviews EPA conducted. EPA conducts in-depth reviews to analyze grantees'
compliance with grant regulations and specific grant requirements.6 For
each of these in-depth reviews, we developed and answered a standard set
of questions concerning the grantee and the findings of the review.7 We
also obtained and analyzed additional information from EPA on the
nonprofit grant recipients who received significant actions, including
background information on the organizations and any results of EPA
actions. For each of these grant recipients, we summarized EPA's
information on the problems identified, the corrective actions
recommended, significant actions taken, and the results of EPA's actions,
if provided. Enclosure I describes the types of problems EPA identified in
its 1,232 in-depth reviews and provides examples of these problems.
Enclosure II provides specific details on 15 nonprofit grant recipients
that EPA took a significant action against in 2002.

EPA Identified Many Problems with Nonprofit Grant Recipients

According to our analysis of EPA's calendar year 2002 in-depth reviews,
EPA identified 276 problems with nonprofit grantees. EPA identified these
problems in the 245 reviews it conducted of nonprofit grant recipients.
These reviews

4U.S. General Accounting Office, Grants Management: EPA Needs to
Strengthen Efforts to Address Persistent Challenges, GAO-03-846
(Washington, D.C.: Aug. 29, 2003).

5For additional information on nonprofit grantees and EPA's oversight of
them, see, U.S. General Accounting Office, Environmental Protection: EPA's
Oversight of Nonprofit Grantees' Costs Is Limited, GAO-01-366 (Washington,
D.C.: Apr. 6, 2001).

6EPA refers to these in-depth reviews as advanced monitoring. EPA conducts
these reviews either at the grantee's location (on-site) or at EPA's
office or another location (off-site). In 2002, EPA also contracted with
private firms to perform reviews of a limited number of grantees as part
of a pilot program.

7For detailed methodology, see GAO-03-846, app. I.

Page 2

GAO-04-383R Grants Management

represented 20 percent of EPA's 1,232 in-depth reviews.8 The identified
problems included inadequate accounting systems, failure to obtain
approved indirect cost rates, and insufficient documentation to support
sole-source contracts and other expenditures charged to the grants. Table
1 describes the five most frequently identified types of problems with
nonprofit grant recipients.

Table 1: Most Frequently Identified Problems with Nonprofit Grant
Recipients, 2002

        Problem       Number of problems   Examples of this type of problem   
    Technical issues                  49    The grantee was behind in the     
                                                progress of its work.         
                                          The grantee's written policies or   
Written procedures                 41  procedures were either missing or   
                                                     inadequate.              
                                         The grantee lacked documentation to  
                                         support sole-source contracts and    
      Procurement                     38 did not report its efforts to        
                                         encourage procurement from           
                                         disadvantaged businesses.            
                                          The grantee's progress report was   
    Progress reports                  29 late, or it did not include all the  
                                                necessary information.        
                                         The grantee did not track the amount 
                                            of time its employees spent on    
Personnel/payroll                  28 specific grant activities or did not 
                                         have appropriate staff resources to  
                                            perform the grant activities.     

Source: GAO's analysis of EPA's in-depth reviews.

EPA identified at least one problem in almost half of its reviews of
nonprofit grant recipients. Table 2 shows the number of problems
identified per in-depth review for nonprofit grant recipients.

Table 2: Number of Problems Per In-depth Review of Nonprofit Grant
Recipients, 2002

Number of problems identified     Number of reviews  Percentage of reviews 
                  0                                124                     51 
                  1                                 51                     21 
                  2                                 34                     14 
                  3                                 15                      6 
                  4                                  8                      3 
                  5                                  6                      2 
                  6                                  2                      1 
                  7                                  2                      1 
                  8                                  3                      1 
                Total                              245                    100 

Source: GAO's analysis of EPA's in-depth reviews.

Our analysis of EPA's 2002 in-depth reviews also identified similar grants
management problems with other types of recipients including states,
native American tribes, local governments, universities, and others (see
GAO-03-846, app. III).

EPA Recommended Corrective Actions to Resolve More than Half of the
Problems Identified

Overall, EPA recommended that nonprofit grant recipients take corrective
action in response to an identified problem in approximately 66 percent of
the in-depth reviews we analyzed. For example, EPA found that a nonprofit
grant recipient needed to have a Single Audit conducted for 2001 and 2002.
EPA recommended that the recipient immediately arrange to have these
audits conducted. For another nonprofit grant recipient, EPA found that
the recipient received funding from multiple sources but did not maintain
records to track the staff time that was

8In 2002, EPA conducted 135 reviews of the nonprofit recipients on-site
and 110 off-site.

Page 3

GAO-04-383R Grants Management

allocated to each of these grants. EPA recommended that the recipient
develop and use timekeeping records that meet the standards outlined in
the Office of Management and Budget's (OMB) circular.9 Table 3 shows the
number of nonprofit grant recipient problems identified by type of
problem, compared with the number of corrective actions EPA recommended.

Table 3: Comparison of Nonprofit Grant Recipient Problems with EPA's
Recommended Corrective Actions, 2002

                                      Number of Percentage of problems with   
                           Number of corrective corrective action             
                   Problem problemsa    actions 
                Accounting        18         16                            89 
            Administrative        12          7                            58 
               Approval of         1          0                             0 
             modifications                      
      Conflict of interest         4          1                            25 
              Cost sharing         1          0                             0 
    Financial expenditures        13         10                            77 
            Indirect costs         7          6                            86 
         Internal controls        11         10                            91 
                  Lobbying         0          0                           N/A 
    Missing required audit         2          2                           100 
         Personnel/payroll        28         20                            71 
               Procurement        38         29                            76 
            Program income         1          0                             0 
          Progress reports        29         16                            55 
       Property management         3          3                           100 
         Quality assurance         5          2                            40 
             Subagreements         1          1                           100 
          Technical issues        49         17                            35 
Terms and conditions of         8          1                            13 
                      work                      
                    Travel         4          4                           100 
        Written procedures        41         36                            88 
                     Total       276        181                            66 

Source: GAO's analysis of EPA's in-depth reviews.

aSee enclosure I for a description of problems identified in EPA's
in-depth reviews.

Our analysis of EPA's 2002 in-depth reviews found that for all types of
grant recipients (nonprofits, states, native American tribes, local
governments, universities, and others), EPA recommended corrective actions
for about half the problems it identified (see GAO-03-846, app. III).

EPA Took Significant Actions against Some Nonprofit Grant Recipients

We also found that EPA took 32 significant actions against 15 different
nonprofit grant recipients. These significant actions are shown in table
4.

9OMB has issued three circulars defining allowable costs for different
types of grant recipients: A-21, A87, and A-122.

Page 4

GAO-04-383R Grants Management

Table 4: Significant Actions EPA Took Against Nonprofit Grant Recipients,
2002

                                                                    Number of 
                                                                  significant 
    Type of significant action  Description of significant action     actions 
                                        EPA cancels the grant, or             
Grant termination/annulment        transfers it to a different           1
     or novation (or transfer)                         recipient. 
                                      EPA disallows a recipient's             
                                     expenditures when the agency 
                                determines that the recipient did 
         Disallowance of costs       not spend its grant funds in           7
                                     accordance with federal cost 
                               principles or its particular grant 
                                                       agreement. 
                                 EPA requires a recipient to stop             
                                 work and take action to minimize 
              Suspension order     its grant-related expenditures           5
                                 until it resolves EPA's areas of 
                                                         concern. 
                                 EPA decides it will not make any             
                  Payment hold more payments to a recipient until           6
                               the recipient has resolved an area 
                                                      of concern. 
                                  EPA designates the recipient as             
                                     high risk and places certain 
High-risk                        requirements on further grant 
designation/imposition of     work, such as having EPA approve           5
special grant conditions           all expenditures before the 
                                             recipient receives a 
                                                   reimbursement. 
                                  EPA requests that its Inspector             
    Referral for investigation    General conduct an audit of the           3
                                                       recipient. 
                                          EPA threatens to take a             
         Threat to take action        significant action, such as           5
                               disallowance of costs or a payment 
                                                            hold. 
                         Total                                             32 

Source: GAO analysis of EPA documents.

Note: EPA can also debar a grant recipient by declaring that the
particular organization or individual is not eligible to receive grants
for a specific period of time. We did not find any instances where EPA
debarred grant recipients in 2002.

In addition to taking significant actions against nonprofit grant
recipients EPA also took actions against state and tribal grant recipients
in 2002 (see GAO-03-846, app. III).

Of the 32 significant actions EPA took against nonprofit grant recipients
in calendar year 2002, 23 resulted from problems identified during
in-depth reviews. EPA took the other nine significant actions as a result
of problems identified during grantee oversight other than in-depth
reviews and investigations by the EPA Office of Inspector General (OIG).
Our analysis found that of the 36 nonprofit grant recipients that had
three or more problems identified during in-depth reviews, EPA took at
least one significant action in nine cases, or 25 percent of the cases.
Nonprofit grant recipients that received significant actions were often
cited as having multiple problems related to their accounting systems,
internal controls, or financial expenditures. While the problems
identified with some of these nonprofit recipients have been resolved
through corrective and significant actions, information provided by EPA
indicates that many problems remain unresolved. For example, some
recipients have improved their financial management systems as a result of
recommended actions, while in other instances a number of questionable
grant expenditures are still in the audit resolution process.10 We have
enclosed detailed information concerning the circumstances surrounding 15
nonprofit grant recipients that had significant actions taken against them
in 2002 (see encl. II).

We provided a draft of this report to EPA for comment. In response, we
received oral comments from EPA officials including the Director of the
Grants Administration Division. The EPA officials generally agreed with
the information presented in our report and provided some clarifying
comments that we incorporated into this report, as appropriate.

10EPA noted that for some of the cases with questionable costs still in
the audit resolution process, grant recipients have challenged the OIG's
findings under EPA's grant dispute procedures.

Page 5

GAO-04-383R Grants Management

We performed our work from December 2003 through January 2004 in
accordance with generally accepted government auditing standards. As we
agreed with your office, unless you publicly announce the content of this
report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will be sending copies of this report to the
congressional committees with jurisdiction over EPA and its activities;
the Honorable Mike Leavitt, EPA Administrator; and the Honorable Joshua B.
Bolten, Director, Office of Management and Budget. In addition, this
report will be available at no charge on the GAO Web site at
http://www.gao.gov.

If you have any questions about this report or need additional
information, please contact me at (202) 512-3841. Key contributors to this
report were Andrea Wamstad Brown, Christopher Murray, Rebecca Shea, Carol
Herrnstadt Shulman, and Amy Webbink.

Sincerely yours,

John B. Stephenson Director, Natural Resources

and Environment

Page 6

GAO-04-383R Grants Management

Enclosure I

Description of Problems Identified in EPA's 1,232 In-depth Reviews

                     Problem        Description of problems included in EPA's 
                                                             in-depth reviews 
                              Any failure of a grantee's financial management 
                             system of shortcomings in the procedures it used 
                                   to ensure the proper accounting of federal 
                               funds. For example, EPA found cases in which a 
                  Accounting   grantee  o  could not compare budgeted amounts 
                               with actual expenditures,  o  did not properly 
                             reconcile report balances to the general ledger, 
                                    or  o  did not separately track funds for 
                                                            different grants. 
              Administrative Cases in which a grantee's record keeping system 
                                                              was inadequate. 
                                    Any instance in which a grantee had begun 
Approval of modifications   performing tasks outside its original scope of 
                                work without seeking prior approval from EPA. 
                                 Cases in which a grantee, using grant funds, 
        Conflict of interest           entered into a contract with a closely 
                                                     affiliated organization. 
                             Cases in which a grantee failed to appropriately 
                Cost sharing              track and document its cost-sharing 
                                                                expenditures. 
                                Cases in which a grantee did not sufficiently 
                               document expenses to determine the eligibility 
                                  of costs or charged ineligible costs to the 
      Financial expenditures                                           grant. 
                                     Cases in which a grantee did not have an 
              Indirect costs     approved indirect cost rate or indirect cost 
                                                             allocation plan. 
           Internal controls      Cases in which a grantee did not adequately 
                                        segregate financial responsibilities. 
                    Lobbying               No instances of lobbying problems. 
                             Cases in which a grantee did not have its        
      Missing required audit required audit performed or had not submitted a  
                             copy of its audit to EPA.                        
                               Problems included cases in which a grantee did 
                             not track the amount of time its employees spent 
           Personnel/payroll    on specific grant activities, or did not have 
                              sufficient staff resources to perform the grant 
                                                                  activities. 
                              Cases in which grantees lacked documentation to 
                 Procurement support sole-source contracts and did not report 
                                  their efforts to encourage procurement from 
                                                    disadvantaged businesses. 
                              In one case, a grantee generated income through 
                                the use of grant funds but did not manage the 
              Program income    funds in accordance with the grant agreement; 
                                  and in another, the grant agreement did not 
                                   allow the grantee to generate such income. 
                               Instances in which a grantee's progress report 
            Progress reports  was missing or late, or did not include all the 
                                                       necessary information. 
                                  Cases in which the grantee did not properly 
         Property management             control property, such as equipment. 
                             Instances in which a grantee needed to revise    
           Quality assurance its quality assurance plan. Quality assurance    
                             plans are required to ensure the quality of data 
                             collected during the grant work.                 
                                    Cases in which a grantee did not properly 
               Subagreements      monitor subgrantees, or when a subgrantee's 
                                                       files were incomplete. 
            Technical issues       Cases in which a grantee was behind in the 
                                                        progress of its work. 
                             Cases in which a grantee was not meeting the     
                             terms and conditions of a grant agreement. Terms 
        Terms and conditions and conditions vary, depending on the grant      
                             agreement and in some cases overlap with the     
                             other problem categories.                        
                             Cases in which a grantee lacked documentation to 
                      Travel    support travel expenditures or did not obtain 
                               written approval from the appropriate official 
                                          prior to incurring travel expenses. 
Written procedures          Cases in which a grantee's written policies or 
                                procedures were either missing or inadequate. 

               Source: GAO's analysis of EPA's in-depth reviews.

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GAO-04-383R Grants Management

Enclosure II

Detailed Information on 15 Nonprofit Grant Recipients that Received Significant
                              EPA Actions in 2002

This enclosure provides detailed information on 15 nonprofit grant
recipients against which the Environmental Protection Agency (EPA) took
significant actions in 2002. The information provided includes background
on the recipient and the grant(s) received, descriptions of EPA identified
problems and recommended corrective actions, EPA's significant actions,
the results of these corrective and significant actions, and other
information. This information is presented for each grant recipient in
alphabetical order. We developed this information from our analysis of
EPA's 2002 in-depth reviews, as well as other information we obtained from
EPA during our audit work for the August 2003 report on EPA's grants
management.11 Additionally, EPA provided specific information on these 15
grant recipients.

Academy of Natural Sciences

During the week of October 22, 2001, officials from EPA's Region 3
conducted an onsite evaluation of the Academy of Natural Sciences (the
Academy) and identified several concerns with the Academy's financial
management and procurement systems. A subsequent review by officials from
EPA's Office of Grants and Debarment on February 27, 2002, found that
these concerns had been addressed through the appropriate corrective
actions. However, after evaluating the costs charged to the grant, Region
3 disallowed costs in the amount of $51,085 because of a conflict of
interest and lack of competition of a contract agreement, and lack of
supporting documentation in accounting records. The Region 3 Administrator
reversed the decision to disallow these costs on January 22, 2003.

Background

The Academy is a nonprofit organization governed by a board of trustees.
It was founded in 1812 for the purpose of advancing knowledge about the
natural world. The Academy is based in Philadelphia, Pennsylvania, and is
affiliated with the Patrick Center for Environmental Research and the
Estuarine Research Center.

Grants Received

o  	The Academy received a grant for $500,000 (X-983127-01) in June 1999,
for the Urban Rivers Awareness Program; a pilot program for scientific
research, hands-on and virtual educational experiences and exhibit design.
The recipient received an amendment in June 2000 for an additional
$665,000, bringing the total award to $1,165,000. This grant was closed in
July 2003 after Region 3 received all required deliverables.

o  	The Academy received a grant for $698,500 (X-983127-02) in August 2001
for the Urban Rivers Awareness Program. The objectives of this grant were
to test watershed education methods and to have a sustainable, effective

11GAO-03-846.

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GAO-04-383R Grants Management

Enclosure II

program. The recipient received an amendment for this grant in August 2003

and work on the grant is ongoing.  o  The Academy received a grant for
$76,569 (CB-983683-01) in August 2002 for the Chesapeake Bay Program. The
purpose of this grant was to assist in characterizing chemical contaminant
impacts in tributaries to the Chesapeake Bay. Work on this grant is
ongoing, and the project is scheduled to last until June 2004.

Description of Problems and Corrective Actions

The reviewers found problems in the following areas with the Academy's
management of grant number X-983127-01:12

Conflict of Interest

o  	The Academy entered into a contract for work with an entity whose sole
owner was previously employed by the recipient. More importantly, the
scope of work for the contract was submitted on August 11, 2000, but the
employee was not separated from the organization until September 29, 2000,
and the contract was signed on October 19, 2000. The reviewers determined
that this was a conflict of interest and that the contract had not been
awarded competitively, and disallowed the costs of the contract in the
amount of $44,900.

Financial Expenditures

o  	The Academy could not provide adequate documentation to support a
charge to the grant in the amount of $6,185. The reviewers disallowed
these costs.

Procurement

o  	The Academy's procurement files did not include documentation of
competitive awards or cost or price analyses for contracts awarded,
although its policies and procedures required this documentation. The
reviewers recommended that the recipient perform a cost or price analysis
for the remaining contracts awarded under the EPA grant.

EPA's Significant Actions

EPA notified the Academy that, based on its evaluation of costs incurred
under grant number X-983127-01, it was disallowing $51,085 for
nonconformance with EPA grants management regulations. This amount
included the $44,900 from the noncompetitive contract the Academy had
awarded to a previous employee and $6,185 in costs for

12These problems were those with corrective actions outstanding after the
February 2002 review by officials from the Office of Grants and Debarment.
They do not represent all of the grants management deficiencies identified
during the Region 3 October 2001 review.

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GAO-04-383R Grants Management

Enclosure II which the Academy could not provide adequate supporting
documentation. EPA requested that a check for this amount be mailed to
Region 3 within 30 days.

Results of Corrective and Significant Actions, and Other Information

In February 2002, officials from EPA's Office of Grants and Debarment
found that the Academy had addressed the problems with its financial and
procurement systems identified by Region 3 officials. However, the Academy
appealed the decision to disallow $51,085 in costs. The Regional
Administrator for Region 3 reversed the decision to disallow these costs
on January 22, 2003. EPA indicated that this decision was made after
reviewing additional information and supporting documentation submitted by
the Academy for the disallowed costs.

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GAO-04-383R Grants Management

Enclosure II

American Public Works Association

On January 30, 2002, officials from EPA's Office of Grants and Debarment
conducted an on-site, in-depth review of a grant with the American Public
Works Association (the Association). The reviewers found a number of
problems including unallowable costs related to alcoholic beverages
included as part of meal expenses. EPA reported that the Association took
corrective action before the recipient was formally notified.

Background

The Association is a nonprofit organization governed by a 17-member board
of directors. The Association is an international educational and
professional association of public agencies, private sector companies, and
individuals that provide goods and services related to public works. It
has offices in Kansas City, Missouri and Washington, D.C., and is
affiliated with the Canadian Public Works Association.

Grants Received

o  	The Association received a grant for $55,000 (X-82741801-2) in May
1999 to inform its members and other interested parties about certain
federal stormwater regulations. EPA reported that the workshops the
Association hosted were successful, and the program generated enough
income for the recipient to complete the work without drawing all of the
grant funds available. The grant was closed in June 2003.

Description of Problems and Corrective Actions

The reviewers found problems and recommended corrective actions in the
following areas:

Financial Expenditures

o  	The Association's policies allowed alcoholic beverages to be included
as part of meal expenses that in some cases were paid by the grant. EPA
recommended that the recipient examine all meal expenses paid for by
federal funds, and reimburse the appropriate accounts.

Procurement

o  	The Association had not filed reports of its efforts to select
disadvantaged businesses for grant activities. EPA recommended that the
recipient implement internal control policies and procedures within 30
days, including maintaining documentation, to ensure compliance with the
grant's terms and conditions regarding the selection of these businesses.
EPA also recommended that the recipient begin submitting its required
report to EPA within 90 days.

Page 11

GAO-04-383R Grants Management

Enclosure II

o  	The Association was unable to provide documented evidence of a cost or
price analysis being conducted for advertising services. The Association
was purchasing space in its own official magazine. However, the reviewers
could not find documentation supporting or justifying the award of the
noncompetitive contract for advertising services. EPA recommended that the
recipient perform and document a cost or price analysis for every
procurement action using federal funds. EPA also required the recipient to
construct contract files that include a sole source justification in all
noncompetitively awarded contracts.

EPA's Significant Actions

Following the review, EPA provided the Association with a letter
documenting its concerns and asking the recipient to provide a corrective
action plan within 30 days. These corrective actions included examining
all meal expenses paid for by federal funds, and reimbursing the
appropriate accounts.

Results of Corrective and Significant Actions, and Other Information

EPA noted that the Association began taking action to address its concerns
on compliance with requirements for selecting disadvantaged businesses and
justifying noncompetitive contracts. Additionally, the Association's
accounting staff began removing alcoholic beverage charges from the grant
accounts. EPA reported that the recipient took corrective action before it
was formally notified.

Page 12

GAO-04-383R Grants Management

Association for Commuter Transportation/Transportation Demand Management
Institute

On July 11, 2002, an official from EPA's Office of Grants and Debarment
conducted a prereview in preparation for an on-site review of a grant with
the Transportation Demand Management Institute (the Institute). The
reviewer found that the Institute actually had no paid employees, but
rather employees of Urban Trans Consultants, an associated for-profit
company, were contracted to work on the grant. As a result of the
conflicts of interest that were apparent with this company, EPA warned the
Institute that it was considering whether to issue a suspension order
unless the recipient responded within 10 days.

The response provided to EPA did not satisfy all concerns regarding the
apparent conflicts of interest, and EPA asked for additional information.
EPA conducted an on-site, in-depth review of the recipient on October 9,
2002. As a result of findings identified during the on-site review, EPA
decided to novate (i.e., transfer) the grant from the Institute to the
Association for Commuter Transportation (the Association).

Background

The Association is a nonprofit organization based in Denver, Colorado, and
governed by an 18-member board of directors. The Association's purpose is
to support its members in their efforts to enhance mobility, improve air
quality, and conserve energy through transportation demand management
activities. The Institute is a charitable foundation established by the
Association to conduct research and provide educational opportunities to
the membership and public. The executive committee of the Association also
serves as the board of directors for the Institute.

Grants Received

o  	The Institute received a grant for $69,750 (X-82893401-0) in April
2001 to redesign and update a Web site that would educate and inform key
constituencies and stakeholders in the Commuter Choice Initiative. The
grant has resulted in the Commuter Choice Web site,
www.commuterchoice.com. The grant was closed in November 2003.

o  	The Institute received a grant for $150,000 (X-82964601-0) in March
2002 to benefit the public by expanding awareness of transportation
choices, especially for commuters. The grant resulted in a conference and
the Commuter Choice Web site; and was transferred to the Association with
a remaining balance of $12,987.

Description of Problems and Corrective Actions

During the prereview, reviewers identified the following concerns with the
Institute's management of grant number X-82964601-0:

Conflict of Interest

o  	The reviewer was concerned about the relationship between the
Institute and Urban Trans Consultants, a for-profit company. In its grant
application, the Institute gave the impression that it had its own staff
and budget. However, during his discussion with the Institute's associate
director, the reviewer learned that the organization did not actually have
any paid employees, but rather contracted for the work of staff employed
by Urban Trans Consultants. Additionally, the executive director of the
Institute was the president of Urban Trans Consultants. EPA's primary
concern was that the affiliate relationships with interlocking officers
and directors created apparent conflicts of interest, especially when
those with the apparent conflicts of interest awarded and managed the
contracts. EPA asked the Institute to provide information on its financial
statements, how the grant and all contracts paid with grant funds had been
administered and by whom, its indirect cost rate proposal, and the
relationships between the Association, the Institute, and Urban Trans
Consultants.

EPA's Significant Actions

Based on its concerns regarding potential conflicts of interest between
the Institute and Urban Trans Consultants, EPA notified the Institute that
it was considering whether to impose a suspension order. The suspension
order would take effect if the Institute did not provide specific
information within 10 days. The Institute responded to EPA's concerns, but
it did not satisfy the questions that had been raised during the
prereview, according to EPA. EPA asked the Institute for additional
information that, if not provided within 10 days, would result in the
suspension order being imposed. EPA also asked to meet with the recipient.
EPA conducted an on-site review of the Institute on October 9, 2002. Based
on the findings identified during the review, EPA transferred the grant to
the Association. EPA determined that this transfer would allow for a more
appropriate structure and relationship between Urban Trans Consultants,
the Association, and EPA.

Results of Corrective and Significant Actions, and Other Information

EPA reported that, as of October 2003, the grant is being transferred to
the Association, with a remaining balance of $12,987.

Calcasieu League for Environmental Action Now, Inc.

On May 31, 2002, an official from EPA's Region 6 conducted an off-site
evaluation of a grant with the Calcasieu League for Environmental Action
Now. The reviewer determined that the recipient was not making progress on
the grant work or meeting the terms and conditions of its grant. The
reviewer warned the recipient that if it continued to not use its grant
funds, EPA would not extend the grant. Information provided by EPA
indicated that it has found the recipient noncompliant with its grant, and
it will not be allowed to apply for any future grants.

Background

The Calcasieu League for Environmental Action Now, Inc. is a nonprofit
community group governed by five board members and five officers. The
organization is a group of private citizens who are affected by the North
Ryan site in Lake Charles, Louisiana, that is on the Superfund National
Priority List. The grantee is affiliated with the Calcasieu Estuary Task
Force and the Calcasieu Local Emergency Planning Committee.

Grants Received

o  	The recipient received a grant for $50,000 (1-98658201-0) in January
2001 to hire independent technical advisors to help interpret and comment
on siterelated information generated by the state agency or EPA. The
grantee has not produced any results, and the grant's project period is
scheduled to end in January 2004.

Description of Problems and Corrective Actions

The reviewer found problems in the following areas:

Accounting

o  The recipient did not keep budget records.

Procurement

o  	The recipient had not submitted reports documenting compliance with
disadvantaged business contracting requirements.

Progress Reports

o  The recipient had not submitted the required progress reports.

Technical Issues

o  	The recipient had not expended any funds, and the grant work was not
on schedule.

Terms and Conditions

o  The recipient had not submitted the required financial status reports.

EPA's Significant Actions

EPA documentation indicated that repeated efforts to assist the recipient
with its grant activities had failed. A Region 6 official warned the
organization that at a minimum, it needed to submit the required quarterly
progress reports and that EPA would not extend the grant if the
organization continued to not use its funds.

Results of Corrective and Significant Actions, and Other Information

As a result of EPA's warnings, the Region 6 reviewer noted that the
recipient began sending in "no progress" reports the following quarter.
According to additional EPA documentation, the recipient has not used the
grant funds and has failed to produce the agreed upon deliverables. EPA
has found the organization was noncompliant with the grant and informed
the recipient that it cannot apply for any future grants.

Central States Air Resource Agencies Association

In July 2002, EPA's Office of Inspector General (OIG) issued a draft audit
of costs claimed under two grants awarded to the Central States Air
Resource Agencies Association (the Association). The draft audit
identified a number of problems with the recipient's management of its
funds. The OIG notified Region 6 of the findings, at which time EPA warned
the Association that it was considering whether to impose a suspension
order. EPA also designated the recipient as highrisk and imposed special
conditions on future grant work.

Additionally, the EPA Region 6 project officer for these grants conducted
a number of reviews throughout 2002. On September 5, 2002, the
Association's staff visited with EPA to submit corrective documents in
response to the OIG audit. The EPA reviewer found additional problems and
decided to continue the recipient's high-risk status until the audit
issues were resolved, as well as informing the recipient that new awards
would be postponed. EPA reported that the Association began to take action
in a number of areas.

In March 2003,13 the OIG published its audit of the costs claimed under
these grants. The OIG questioned $1,644,618 in recipient claims. As of
January 2004, the OIG's findings are in the audit resolution stage.

Background

The Association is a nonprofit organization governed by an 11-member board
of directors. The purpose of the organization is to promote interstate
collaboration on air issues among the states of the central United States
through a multistate organization. The recipient is affiliated with the
Central Regional Air Planning Association and is located in Oklahoma City,
Oklahoma.

Grants Received

o  	The Association received a grant for $255,000 (X-996940-01) in May
1998 to fund a regional multistate organization. The grant was
subsequently amended to total $2,226,243, and resulted in the
establishment of a multistate organization to promote the exchange of
information on controlling air pollution among the states of Arkansas,
Iowa, Kansas, Louisiana, Minnesota, Missouri, Nebraska, Oklahoma, and
Texas, and other interested parties. The organization provided a unified
regional voice for the air quality agencies in the central states. It also
provided training and performed other activities necessary to support the
development of sound air pollution control policy.

13EPA Office of Inspector General, Costs Claimed by Central States Air
Resource Agencies Association Under EPA Assistance Agreement Nos.
X996940-01 and X986516-01, Report No. 2003-1-00087 (Washington, D.C.: Mar.
31, 2003).

o  	The Association received a grant for $420,000 (X-986920-01) in
September 2001 to continue funding the multistate organization for
training and to provide a forum for interstate ozone issues. The grant
resulted in maintaining the operations of the multistate organization to
promote the exchange of information between the states and interested
parties in the central United States. Training was provided on basic
principles and practices of air pollution control, inspection, technical
writing, and air quality modeling. The recipient also provided information
and support to member states and interested parties on technical and
policy issues related to sound air pollution control policy.

o  	The Association received a grant for $500,000 (X-986516-01) in April
2000 and an amendment for an additional $500,000 in April 2001 to fund a
regional planning body for the central states. The grant resulted in
establishing an infrastructure for a regional planning body, including
both states and tribes, to address the 1999 Regional Haze Rule. Modeling,
monitoring, implementation and control strategies, communication,
emissions inventory and international workgroups were formed with
representation from states and tribes in the central United States.
Training, emissions inventory, and modeling activities were initiated to
support regional haze analyses.

Description of Problems and Corrective Actions

The OIG and Region 6 reviewer found problems and recommended corrective
actions in the following areas: 14,15

Accounting

o  	The OIG found that the Association had claimed outlays that did not
agree with the general ledger, which led the OIG to question all
$1,644,618 in costs claimed under these two grants.

o  	The OIG recommended that EPA require the Association modify its
financial management system to meet federal requirements. Modifications
were to, among other things, ensure that financial results are current,
accurate, and complete; include written procedures to determine
reasonableness, allocability, and allowability of costs; and include
accounting records that are supported by adequate source documentation.

o  	The OIG also recommended that EPA suspend work under the grants and
make no new awards until the Association could demonstrate that its
accounting practices were consistent with federal requirements.

14The OIG findings presented represent those identified in its final
report for grant numbers X996940-01 and X-986516-01, see EPA Office of
Inspector General, Report No. 2003-1-00087.

15A Region 6 official conducted on-site reviews of this recipient on March
22, April 12, and August 9, 2002, and an off-site review on September 5,
2002.

Financial Expenditures

o  	The OIG found that it was unable to evaluate the claimed direct costs
because the Association improperly charged all indirect costs to one of
its grants. The OIG recommended that EPA recover all grant funds that
could not be supported within 180 days.

Indirect Costs

o  	The OIG and Region 6 reviewer found that the Association did not
develop an indirect cost rate to allocate costs benefiting multiple
projects and to distinguish between direct and indirect costs.

Personnel/payroll

o  	The OIG found that the Association had an inadequate labor
distribution system. Specifically, labor claimed under the EPA grants was
not based on actual hours worked. Employees prepared time sheets but did
not identify any grant projects or final cost objectives. Also, the
organization did not use the time sheets to record salary costs in the
general ledger, but instead, charged all employee salaries, including
vacation, holiday, and sick leave to one grant. Region 6 officials
recommended that the recipient implement an adequate labor tracking system
as soon as possible.

o  	The Region 6 reviewer found that the Association's staff and
facilities were not appropriate to handle the grant work.

Procurement

o  	The OIG found that the Association did not competitively procure
equipment and services and did not perform a cost or price analysis for
these purchases. The OIG recommended that EPA recover the costs of
$575,743 for equipment and services unless the organization ensured that
federal requirements had been met.

Progress Reports

o  	The Region 6 reviewer found that the required progress reports were
not always being submitted on time and did not always include the required
financial information.

Technical Issues

o  The Region 6 reviewer found that grant work was not on schedule.

Terms and Conditions

o  	The Region 6 reviewer found that the Association had not complied with
its grants' terms and conditions.

Written Procedures

o  	The OIG found that the Association did not have written accounting
procedures regarding the allocation of joint costs.

EPA's Significant Actions

Region 6 notified the Association that as a result of the issues
identified in the draft OIG report it was considering issuing a suspension
order unless the organization responded appropriately. It also notified
the recipient that, in lieu of issuing a suspension order before the
recipient responded, EPA would designate the organization as high risk and
impose special conditions on future grant work. These special conditions
included the following:

o  	requiring EPA approval for each request for reimbursement of grant
expenses, based on clearly defined cost documentation, and

o  	postponing additional Clean Air Act awards until resolution of the
audit issues.

After the additional issues identified during the Region 6 review, EPA
reinforced the consequences of noncompliance with statutory and regulatory
requirements. EPA also informed the Association that its status on the
high-risk list would continue, as would the postponement of new awards
until the audit issues had been resolved.

Results of Corrective and Significant Actions, and Other Information

EPA documentation noted that the Association had begun to take action in a
number of areas. It had submitted new financial management, labor
distribution, personnel, procurement, property management, and travel
policies for EPA approval. Additionally, it had hired a consultant to
assist it in developing an adequate labor tracking system. EPA indicated
that these actions were sufficient for the Association to continue its
grant activities under the high-risk conditions without EPA imposing the
threatened suspension order. In its March 2003 report on its audit, the
OIG noted that the Association did not agree with the OIG's findings, but
the OIG continued to question the organization's claims for $1,644,618. As
of January 2004, the OIG's findings are in the audit resolution stage.

Consumer Federation of America Foundation

On March 21 and 22, 2002, officials from EPA's Office of Grants and
Debarment conducted an on-site, in-depth review of the Consumer Federation
of America Foundation (the Foundation). The reviewers found a number of
problems with the Foundation's grants management, which led EPA to take
four significant actions against it: issuing a suspension order, issuing a
payment hold, identifying unallowable costs, and requesting that the OIG
audit the Foundation. EPA reported that the Foundation was restructured
and that EPA imposed special terms and conditions on April 25, 2002. The
OIG indicated that its audit was completed in December 2003, and it is
currently awaiting comments from the Foundation. It expects to receive
these comments in late January 2004, and will issue the report soon
afterwards.

Background

The Foundation was established in 1972 as a nonprofit organization to
complement the work of the Consumer Federation of America (the
Federation), a lobbying organization. The Foundation, assists state and
local organizations, provides information to the public on consumer
issues, and conducts consumer research projects. The Foundation's State
and Local Resource Center provides training and technical assistance on
governance and resource development. It also awards grants for
organization development and equipment. The Center convenes an annual
caucus for state and local leaders and, through a Web site and regular
mailings, serves as a clearinghouse for information. The Foundation is
governed by the same 40-member board of directors as its affiliated
organization, the Federation. The Foundation's executive director is the
executive director of the Federation, while its project managers and
comptroller are also employed by the Federation. The Foundation used
Federation employees to run a centralized grants management system.

Grants Received

o  	The Foundation received a grant for $1,806,708 (X-825612-01) in July
1997 to create a national radon public service announcement to increase
voluntary home radon testing and mitigation. The grant resulted in
television, radio, and print public service announcements yielding
1,094,237 broadcasts/advertisements. The grant also resulted in the
development of materials for National Radon Action Week and strategies to
increase awareness from consumer studies and research. The grant was
closed in December 2002.

o  	The Foundation received a grant for $1,737,532 (X-825837-01) in
October 1997 to create a national media campaign to reduce childhood
exposure to environmental tobacco smoke. The grant resulted in a number of
television, radio, and print public service announcements. It also used
telephone and e-mail promotions to reach 1,500 media directors and

participated in two national press conferences publicizing the Smoke Free

Home Campaign. The grant is waiting for closeout as of January 2004.  o 
The Foundation received a grant for $225,161 (X-828814-01) in February
2001 to promote the environmental, economic, and health benefits of buying
energy-efficient products. The grant resulted in, among other things,
training for 16 states and local affiliates for public outreach
activities; publishing an article on the benefits of energy efficiency;
and maintaining and enhancing a Web site (www.buyenergyefficient.org). The
grant was closed in November 2003.

o  	The Foundation received a grant for $359,000 (X-829178-01) in August
2001 to educate consumers about reducing their risks from radon and other
indoor air quality issues by promoting testing and mitigation. This grant
is still active.

o  	The Foundation received a grant for $434,928 (XA-831201-01) in
September 2003 to increase public awareness of the environmental,
economic, and health benefits of energy-efficient products and practices.
The grant is still active and is expected to result in community outreach
to inform consumers and to support the Web site.

Description of Problems and Corrective Actions

The reviewers found problems and recommended corrective actions in the
following areas:

Conflict of Interest

o  	The Foundation awarded a sole-source contract to the Federation for
administrative and personnel services. It appeared to the reviewers that
hundreds of thousands of dollars were flowing between the two entities for
labor, fringe benefits, and indirect costs without signed or written
agreements. Additionally, the parent company is a lobbying organization,
but the reviewers had difficulty separating the two entities. EPA required
the Foundation to establish written agreements for all services paid for
with grant funds, provide written justifications for sole-source contracts
to the parent company, and explain how sole-source contracts did not
violate the code of ethics. Further, the reviewers recommended that the
recipient completely separate the two entities.

Financial Expenditures

o  	The Foundation was paying one of its consultants at $600 per hour,
significantly above the rate allowed by federal regulations-which EPA
indicated was $498.32 a day or $62.29 per hour. EPA recommended that the
recipient provide documentation of hourly rates for consultants over the
allowable limit, and then reimburse the grants for consultant costs that
were above the limitation.

Indirect Costs

o  	The Foundation did not have a current indirect cost rate approved by
EPA as required by the terms and conditions of the grant. The recipient
was instead operating under an old rate. The reviewers were also concerned
that the Foundation had no employees. Therefore all of the wages that were
being charged as indirect costs were actually for contract labor from the
Federation. EPA recommended that the recipient develop an indirect cost
rate proposal and reimburse the grants for the mis-charged indirect costs.

Personnel/payroll

o  	The Foundation and Federation employees did not fill out a time sheet
or personnel activity report, and the Foundation allocated labor costs
using budget estimates. The reviewers determined that this allocation
method was not allowable for supporting these expenses. EPA recommended
that the recipient complete personnel activity reports for personnel whose
compensation was charged to the grants. EPA also stated that any personnel
charges incurred on EPA grants that could not be supported with the
appropriate documentation would be disallowed and would have to be repaid
to the appropriate grant.

Procurement

o  	The reviewers did not find evidence to document that a cost or price
analysis was being performed for most contracted services. EPA recommended
that the recipient document a cost or price analysis, including a
sole-source justification, for procurements using federal funds.

o  	The Foundation had not complied with disadvantaged business
procurement requirements, and had not submitted the required reports
within 30 days of the end of each federal fiscal year. EPA recommended
that the recipient, within 30 days, implement procedures to ensure
compliance with these requirements. EPA also recommended that the
recipient begin filing the required reports within 90 days.

Written Procedures

o  	The Foundation did not have written travel policies. EPA recommended
that the recipient either adopt federal travel guidelines or develop its
own travel policy. EPA also required that all charges in excess of the
federal per-diem rates be repaid to the appropriate grant.

EPA's Significant Actions

As a result of the findings identified during the on-site review, EPA
notified the Foundation that it was suspending work and temporarily
withholding funds for

grant numbers X-825612-01, X-825837-01, X-828814-01, and X-829178-01 and
would notify the Financial Management Center not to make further payments
until EPA's concerns with the recipient's grants management had been
resolved. These included concerns with potential unallowable costs leading
to EPA's recommendations that the Foundation reimburse the grants for the
mis-charged indirect costs and consultant costs that were above the
limitation. EPA informed the recipient that the suspension order required
it to stop project work and take all reasonable steps to minimize costs
incurred on the project. The suspension order was scheduled to be in
effect for 45 days. Additionally, EPA forwarded a copy of its on-site
report to the OIG and requested that the OIG perform an audit of the
Foundation. EPA asked that the OIG perform tests on all grant related
financial transactions to confirm that the grant funds were being used
properly and noted there appeared to be acquisition versus assistance
issues with at least one of the grants.

Results of Corrective and Significant Actions, and Other Information

EPA did not provide specific information regarding the status of a number
of the corrective actions requested of the Foundation. However, EPA
indicated that the Foundation provided documentation of hourly rates for
consultants over the allowable limit, and reimbursed the grants for
consultant costs above the limit before the suspension order was lifted.
EPA also noted that the Foundation was restructured, and EPA placed
special terms and conditions on the recipient on April 25, 2002. Also, the
OIG indicated that the audit EPA requested was completed in December 2003,
and it is currently awaiting comments from the recipient. The OIG expects
to receive these comments in late January 2004, and will issue the report
soon afterwards.

Coordinating Committee for Automotive Repair

In May 2002, the OIG issued a special report on the Coordinating Committee
for Automotive Repair's (the Committee) grants management.16 The OIG
identified a number of findings, including that the Committee had not
accounted for $2,026,837 in costs claimed under its three grants, which
led EPA to take four significant actions against it: issuing a suspension
order, issuing a payment hold, disallowing costs, and imposing special
conditions on the recipient. The Committee disputed the suspension order
in January 2003. The Grants Administration Division and the Office of
Enforcement and Compliance Assurance are still working with the Committee
to try to resolve the issues identified in the OIG report.

Background

The Committee is a nonprofit organization governed by a board of directors
with approximately 10 members. Also referred to as CCAR-Greenlink, it is
one of 10 compliance assistance centers funded by EPA's Office of
Enforcement and Compliance Assurance to provide compliance assistance
information to the automotive industry via the Internet. This information
is designed to assist members of the industry to better understand their
environmental responsibilities and to help them achieve compliance with
environmental program requirements.

Grants Received

o  	The Committee received a grant for $1,765,000 (CX82437601) in
September 1995 to, among other things, provide multimedia environmental
compliance information and pollution prevention ideas that can help shop
owners comply with environmental requirements. The grant resulted in focus
groups to identify the best ways to deliver information to participants in
the industry. The grant also funded baseline surveys to document the level
of compliance and measure the success of compliance assistance efforts and
the development of a Web site.

o  	The Committee received a grant for $90,000 (CX82573201) in October
1997 that resulted in the Committee's working with three states to develop
statespecific information relating to auto repair and make this material
available through the compliance assistance center's Web site.

o  	The Committee received a grant for $333,945 (CX82836601) in September
2000 to conduct an outreach project to owners and technicians employed in
the automotive service and collision industry. The grant resulted in
maintaining and improving the center's Web site, continuing to conduct
outreach about the site and applicable environmental regulations,
developing educational modules, and responding to thousands of industry

16EPA Office of the Inspector General, EPA Cooperative Agreements Awarded
to the Coordinating Committee for Automotive Repair, Report No.
10960-2002-M-000017 (Washington, D.C.: May 29, 2002).

and public inquiries regarding environmental compliance and pollution
prevention activities. EPA reported that the Web site has been successful
and comments from users have been positive.

Description of Problems and Corrective Actions

The OIG found problems and made recommendations in the following areas:

Accounting

o  	The Committee identified indirect costs in its budget; however, its
accounting system treated all costs as direct.

o  	The Committee did not appropriately distribute costs between federal
and nonfederal activities.

o  	The Committee's accounting system was deficient because it did not
have adequate controls to prevent the submission and reimbursement of
ineligible expenses for travel.

o  	The OIG was unable to reconcile the Committee's total program outlays
claimed with the recipient's accounting system. These differences totaled
$8,580 for the three grants.

o  	The OIG recommended that the Committee modify its financial management
system to meet federal regulations. Modifications were to ensure that
financial results are current, accurate, and complete; include written
procedures to determine reasonableness, allocability, and allowability of
costs; and include accounting records that are supported by adequate
source documentation. EPA agreed with the OIG's recommendation and noted
that it was requiring that the Committee have its new financial management
system certified by a third-party auditor.

Financial Expenditures

o  	The Committee had not accounted for $2,026,837 in costs claimed under
its three grants. These included $149,509 in ineligible payroll costs,
such as a reduction in the number of hours for the executive director
without a similar reduction in salary; expenses paid to the executive
director in excess of the EPA-imposed ceiling; and holiday pay for the
recipient's employees for holidays, which were not authorized in its
written personnel policy. The remainder of the questioned amount consisted
of $1,877,328 in unsupported payroll, travel, equipment, printing/postage,
rent, telephone, outreach, administration, Web/computer, and supply costs.
Specifically, the OIG identified claims to EPA for alcoholic beverages and
trips for nonfederal activities on one of the grants.

o  	The OIG recommended that the Committee reconstruct the accounting
records necessary to document its grant expenditures and that EPA recover
all funds that could not be supported by the Committee's documentation.
EPA agreed with this recommendation and asked the

      recipient to provide documentation to substantiate the $1,877,328 in

     unsupported costs. EPA noted that the recipient did not believe it was

     going to be able to fully reconstruct all of the requested accounting

    records, and responded that the individuals who claimed the unsupported

costs could submit notarized affidavits.  o  The OIG recommended that EPA
recover all ineligible costs that did not meet Office of Management and
Budget (OMB) requirements. EPA agreed with this recommendation and asked
the Committee to pay back the $149,509 in ineligible costs.

Indirect Costs

o  	The Committee did not prepare indirect cost proposals as required by
the terms and conditions of its grants. The OIG recommended that the
recipient submit indirect cost proposals for 1995 to the present. EPA
agreed with this recommendation.

Personnel/payroll

o  	The Committee did not maintain adequate time records for all three
grants. The recipient's employees maintained weekly records of work
activity but did not usually identify the actual hours spent on the
activities. In some cases, employees identified nonfederal activities but
charged all salary costs to the grant. The OIG found that the Committee
needed to develop a time distribution (or timekeeping) system that met
federal regulations. EPA agreed with the OIG's recommendation and noted
that it was requiring that the recipient have its new time distribution
system certified by a thirdparty auditor.

EPA's Significant Actions

EPA notified the Committee that, based on the OIG's findings, it was
suspending work on grant number CX82836601 and temporarily withholding
funds until the recipient had resolved EPA's concerns. The suspension
order required the Committee to stop project work and to take all
reasonable steps to minimize costs incurred on the project. The order was
scheduled to be in effect for 45 days. Additionally, the recipient had to
repay the $149,509 in ineligible costs and provide documentation for the
$1,877,328 in unsupported costs from the three grants.

The OIG also recommended that EPA withhold further funding from the
Committee until it received confirmation that the recipient had the
financial management capability to manage its grant funds in accordance
with federal regulations. EPA did not agree with this recommendation and
in fact provided an additional funding increment to the recipient. EPA
decided this on the basis that the Committee had accomplished important
and effective work in the past. EPA also noted that two of the grants
mentioned in the OIG report had been completed

and the third was nearing completion. However EPA decided to place special
conditions on the Committee. These included:

o  	requiring the recipient to submit all requests for reimbursement to
the project officer for approval, based on a detailed justification of the
costs, and

o  	requiring the recipient to have appropriate staff take a grants
management course within 6 months.

Results of Corrective and Significant Actions, and Other Information

According to EPA, the Committee disputed the suspension order in January
2003, and the Grants Administration Division and the Office of Enforcement
and Compliance Assurance are still working with the recipient to resolve
the issues identified in the OIG report. The Committee submitted one of
the three required indirect cost proposals in June 2002 and met one of the
required special conditions when personnel attended a grants management
course in August 2002. The recipient provided EPA with an independent
auditor's report of its financial and time management systems. EPA
responded in December 2003, requesting additional information or
adjustments to the Committee's financial system in order to be eligible
for federal assistance. EPA expects the Committee to respond to this
request, in addition to providing information on the status of the OIG's
recommendations to reconstruct accounting records and submit indirect cost
proposals, by the end of January 2004. EPA documentation also indicated it
had conducted an on-site review for grant number CX82836601, in June 2002.
The reviewers did not identify further problems with the recipient's
grants management but noted that progress of the work was falling behind,
largely due to efforts to respond to the OIG's findings and
recommendations.

In August 2002, the OIG issued another report related to the Committee in
which

17

it described oversight issues identified during its review. The OIG found
that EPA's lack of oversight contributed to the recipient's grants
management problems. The project officer and grants specialist did not
provide the necessary oversight to ensure the recipient managed its grants
in accordance with federal regulations. Specifically, the project officer
and grants specialist did not work together to monitor the Committee or
follow recommended procedures in grant guidance, and the grants specialist
was not responsive to repeated requests from the recipient for assistance
in developing an indirect cost rate. The OIG reported that the project
officer was aware that the recipient had not developed an indirect cost
rate but allowed the grants to continue. The OIG concluded that adequate
EPA oversight could have prevented reimbursing the Committee for
ineligible and unsupported costs.

17EPA Office of the Inspector General, EPA's Lack of Oversight Contributed
to Coordinating Committee for Automotive Repair's Grant Management
Problems, Report No. 10960-2002-M000031 (Washington, D.C.: Aug. 22, 2002).

Engineers' Society of Western Pennsylvania

On April 8, 2002, EPA used contracted staff to conduct an on-site,
in-depth review of the Engineers' Society of Western Pennsylvania (the
Society). The reviewers found a number of problems, including unallowable
costs resulting from excessive salary expenses. The reviewers made
recommendations to correct these problems, and EPA requested that the
recipient submit a corrective action plan within 30 days. EPA noted that
the Society was put on a corrective action plan and completed it on July
26, 2002.

Background

The Society is a nonprofit organization governed by a 12-member board of
directors, with eight consultants to the board. The organization is a
membership society with the purpose of advancing the professions of
engineering, architecture, and applied sciences through technical
activities and public service. The Society is affiliated with 30
organizations: Association for the Advancement of Cost Engineering
International; American Concrete Institute; Association for Facilities
Engineers; American Institute of Chemical Engineers; American Institute of
Mining, Metallurgy & Petroleum Engineers/Society of Mining; American Iron
and Steel Institute; Association for Iron and Steel Technology; American
Society of Civil Engineers; American Society of Heating, Refrigeration &
Air Conditioning Engineers; American Society for Materials; American
Society for Mechanical Engineers; American Society for Professional
Estimators; American Society for Quality; Air & Waste Management
Association; Construction Specifications Institute; Institute of
Electrical & Electronics Engineers; Institute of Industrial Engineers;
Institute of Packaging Professionals; Instrument Society of America;
National Association of Corrosion Engineers; Project Management Institute;
Pennsylvania Society of Professional Engineers; Society for Analytical
Chemists of Pittsburgh; Society of Automotive Engineers; Society of
American Military Engineers; Society of Fire Protection Engineers; Society
of Plastics Engineers; Spectroscopy Society of Pittsburgh; Society of
Women Engineers; and Tri-State Construction Users.

Grants Received

o  	The Society received a grant for $1,306,584 (827988-01) in September
1999 to disseminate social, economic, and statistical research. The grant
resulted in a conference to present Brownfields research. The project has
expired and is waiting for closeout as of January 2004.

o  	The Society received a grant for $600,000 (830661-01) in September
2002 to conduct a Brownfields research conference. The grant resulted in a
conference for the dissemination of technical, engineering, and economic
and social science research on the issue of contaminated sites. The
project has expired and is waiting for closeout as of January 2004.

Description of Problems and Corrective Actions

The reviewers found problems with the management of grant number 827988-01
and made recommendations in the following areas:

Accounting

o  	The Society could not document that costs charged to the grant were
disbursed before it requested reimbursement from EPA. For example, in one
case the reviewers found a time sheet indicating that time was being
charged to the grant, but they could not find documentation to support
payment to the employee in the payroll register or a cancelled check. The
reviewers recommended that the recipient provide documentation for the
disbursement and ensure that expenditures for grant activities are
disbursed before asking EPA for reimbursement.

o  	The Society classified costs from one of its contracts for labor as
personnel. The reviewers recommended that the recipient reclassify these
costs to the appropriate budget line item and ensure that they were
allowable.

o  	In several instances, budgeted expenditures were exceeded by more than
10 percent. The reviewers recommended that the Society revise its
procedures to ensure adherence to the approved budget, and receive
approval from EPA for deviations greater than 10 percent.

Financial Expenditures

o  	The Society requested reimbursement for salaries at a rate greater
than the actual salary rate of some of the employees. The reviewers
concluded that the organization was reimbursed for more than the actual
costs incurred related to the grant. The reviewers recommended that the
recipient recalculate salary costs chargeable to all EPA grants based on
the actual rates paid to employees. The difference between actual costs
and the amount requested from EPA should be reimbursed. They also
recommended that the recipient revise its policies to ensure that only the
actual costs associated with federal grants were charged.

o  	The Society hired a professor at an hourly rate of $100 per hour,
which was higher than the allowable federal rate of $62.29 per hour. The
reviewers recommended that the recipient evaluate the amount paid to the
professor and adjust it to more closely reflect a reasonable cost as
defined in OMB regulations.

Indirect Costs

o  	The Society charged indirect costs to its grant but did not have an
officially approved indirect cost rate from EPA. The reviewers recommended
that the recipient develop an indirect cost allocation plan for EPA's
review.

Internal Controls

o  	The Society's general manager was responsible for approving all
expenditures related to the grant, including authorizing his own
timesheets and approving travel expense reports. The reviewers recommended
that the recipient develop a policy to ensure that all expenditures
receive approval from someone other than the person incurring the cost.

Personnel/payroll

o  	The Society's time sheets contained a number of problems. At least one
employee failed to sign time sheets for work conducted under the grant; in
several instances time sheets had no supervisor's signature, indicating
approval of the time charged to the grant; several time sheets were
missing both the employee's and supervisor's signatures; and the time
sheets of one individual were accumulated and submitted at one time for
several months of activity associated with the grant. The reviewers
recommended that the recipient implement new policies and procedures to
ensure that the payroll system and time sheets met the requirements of OMB
regulations.

Procurement

o  	The Society entered into several sole-source contracts without having
adequate justification. In one instance, the recipient did not request
competing bids for audit services; in another, the recipient contracted
with a local organization without providing a justification for the
contract or maintaining evidence that it had conducted a cost or price
analysis. The reviewers recommended that the recipient ensure compliance
and proper documentation in accordance with federal regulations for all
procurements.

o  	The Society's contract with one organization to obtain the services of
an employee was not documented with a written agreement. The reviewers
recommended that the recipient execute a written agreement with all
consultants.

o  	The Society had not documented nor submitted the required reports to
indicate compliance with disadvantaged business requirements. The
reviewers recommended that the recipient document the steps taken to
ensure compliance with these requirements and submit the necessary
reports.

Subagreements

o  	The Society did not require vendors and subcontractors to maintain
records for the appropriate length of time. The reviewers recommended that
the recipient ensure the compliance of subgrantees' policies and
procedures.

Terms and Conditions

o  	The Society was delinquent in filing at least one of its required
financial status reports. The reviewers recommended that the recipient
ensure compliance with its financial reporting requirements.

Written Procedures

o  	The Society did not maintain a written policies and procedures manual
for accounting, reporting, record retention, and other functions related
to the administration of the grant. The reviewers recommended that the
recipient develop and update policies and procedures to ensure compliance
with grant requirements.

EPA's Significant Actions

EPA requested that the recipient identify the actions it would take to
address the findings and recommendations in the contractor's report, and
the associated time frames of each action, in a corrective action plan
provided to EPA within 30 days. While not specifically identified in the
letter to the recipient, the contract's report stated that these
corrective actions should include addressing the unallowable costs related
to the excess salaries paid to some of the Society's employees.

Results of Corrective and Significant Actions, and Other Information

Documentation provided by EPA indicated that the Society repaid the
unallowable costs as part of its corrective action plan, which was
completed on July 26, 2002; the grant is awaiting closeout as of January
2004.

Geothermal Heat Pump Consortium

On March 7 and 8, 2002, officials from EPA's Office of Grants and
Debarment conducted an on-site, in-depth review of the Geothermal Heat
Pump Consortium (the Consortium). The reviewers stated that there were too
many indicators of poor grants management and allowable cost issues to
complete the review. These problems led EPA to take three significant
actions against the Consortium: issuing a suspension order, issuing a
payment hold, and requesting that the OIG audit the recipient. The OIG
published an audit of the Consortium in September 2003 in which it
questioned $1,153,472 in costs claimed by the recipient.18 The project is
in the audit resolution process as of January 2004.

Background

The Consortium is a nonprofit organization, founded in 1994, to implement
the National Earth Comfort Program. This program is a collaborative effort
between the Department of Energy, EPA, and private sector organizations
interested in promoting the growth of energy-efficient, environmentally
friendly heating and cooling technology. The Consortium has offices in
Washington, D.C., and Columbia, Maryland, and is governed by a 14-member
board of directors. The Consortium is a membership organization; its
members include electric utilities, equipment manufacturers, architects,
engineers, contractors, builders, energy service companies, and others.
Members also include many national organizations, such as the Edison
Electric Institute, Electric Power Research Institute, International
Ground Source Heat Pump Association, National Rural Electric Cooperative
Association, and the Association of Energy Engineers. According to EPA,
the benefits of membership in the Consortium include, among other things,
the opportunity to increase the awareness of GeoExchange (geothermal heat
pump) technology, and member support through a variety of services and
programs. EPA noted that the Consortium's Web site advertised the lobbying
experience of its staff.

Grants Received

o  	The Consortium received a grant for $712,500 (X-828299-01) in June
2000 to provide financial support for increasing awareness of GeoExchange
technology through public outreach and information dissemination.
Activities under the grant included operation of the GeoExchange
Information Center, maintenance of the Consortium's Web site, publication
of a newsletter, attendance at conferences, and production of a national
teleconference. The OIG published an audit of this grant in September
2003.

18EPA Office of the Inspector General, Geothermal Heat Pump Consortium,
Inc. Costs Claimed Under EPA Assistance Agreement Nos. X828299-01 and
X828802-01, Report No. 2003-4-00120 (Washington, D.C.: Sept. 30, 2003).

o  	The Consortium received a grant for $748,300 (X-82880201-0) in
September 2001 to increase awareness of the benefits of geothermal heat
pump technology by providing information to the public and conducting
outreach to the educational sector. The OIG published an audit of this
grant in September 2003; the project is in the audit resolution process as
of January 2004.

o  	The Consortium received a grant for $750,000 (X-83055901-0) in
December 2002 for emission reductions with GeoExchange technology. EPA did
not provide the results and current status of this grant.

Description of Problems and Corrective Actions

The reviewers found problems in the following areas:

Accounting

o  	The lack of financial accounts set up to track the flow of funds made
it impossible to determine the allowability and allocation of many
charges.

Conflict of Interest

o  	The Consortium entered into contracts for services paid for by EPA
funds with companies whose employees sat on the recipient's board of
directors.

Financial Expenditures

o  	A bonus plan was available to all management personnel at the
Consortium (all of the employees at the time of the review were
management). Consortium staff earned the bonus by obtaining industry
memberships as well as other funding (such as federal grants). These
bonuses appeared to be paid with funds generated from the sale of
memberships because the income all went to an unrestricted account. This
was also the account out of which the lobbying tax and lobbying activity
charges were paid. The reviewers believed that if it were determined that
the membership revenues were program income, many of the charges to the
grant would be unallowable.

Indirect Costs

o  	The Consortium did not have an approved indirect cost allocation plan
as required by the terms and conditions of the grant agreement. Instead,
the recipient was charging a flat 30 percent of salaries and wages to the
grant.

Procurement

o  	The Consortium's procurement files did not contain needed
documentation (such as a cost or price analysis) for all contracts and for
contracts with companies in which the recipient's staff had more than a
minimal financial interest; the recipient needed to document that it had
followed a competitive process.

Program Income

o  	The reviewers noted that many of the benefits the Consortium offers to
its members resulted from grant-related activities. Therefore, they were
concerned that membership dues could be partially considered program
income.

EPA's Significant Actions

As a result of the concerns identified during the on-site review, EPA
informed the Consortium that it was suspending work on the project and
temporarily withholding funds. EPA notified the Financial Management
Center not to make payments until EPA's concerns with the recipient's
grants management had been addressed. The suspension order required the
Consortium to stop project work and take all reasonable steps to minimize
project costs. This order was scheduled to be in effect for 45 days. EPA
also forwarded a copy of the preliminary report to the OIG, requesting an
audit of the Consortium. EPA requested that the OIG perform tests on all
grant-related financial transactions to confirm that the recipient was
properly using federal funds.

Results of Corrective and Significant Actions, and Other Information

As requested, the OIG conducted an audit of the Consortium's management of
grant numbers X828299-01 and X828802-01, and published its findings on
September 30, 2003. The OIG questioned $1,153,472 of claimed costs because
the Consortium did not comply with the federal rules, regulations, and
terms of the agreements. Specifically, the OIG found that the Consortium's
financial management system was inadequate because the Consortium did not
separately identify the costs for all direct activities, account for
program income generated by the activities funded by the grants, prepare
or negotiate indirect cost rates, prepare written procedures for
allocating costs to final cost objectives, maintain an adequate labor
distribution system, provide adequate support for direct cost allocations,
competitively procure contractual services or perform any of the required
cost or pricing analyses, and comply with all reporting requirements.
Regarding the finding that the Consortium's financial management system
did not separately identify costs for direct activities, the OIG reported
that the Consortium operated a membership organization that provided
lobbying support for its members. The Consortium's lobbying effort
included costs for outside legal counsel and legislative consultants, and
the salary and expenses for Consortium

employees involved in lobbying activities. However, the OIG noted that the
Consortium's financial management system was not structured to allow
membership and lobbying activities to be treated as direct costs. The
Consortium's employee time sheets did not include separate categories for
either membership or lobbying labor, and the general ledger either did not
use or include all accounts needed to accumulate all expenses related to
membership and lobbying activities.

The OIG recommended that EPA evaluate the need for the grants with the
Consortium, taking into consideration the fact that the recipient had
other income to support these activities, and if the grants were not
necessary, to annul the grants. If EPA determined that the grants were
necessary, the OIG recommended that EPA recover the $1,153,472 in
unsupported costs, suspend work under the grants, and make no new awards
until the Consortium demonstrated that its accounting practices were
consistent with federal regulations, require the grantee to submit an
indirect cost rate proposal, require the grantee to provide detailed
documentation supporting its use of program income, and factor the program
income into the reimbursement of any costs EPA determined were allowable
from the two grants. The Consortium did not agree with the OIG's findings;
its comments were included in the final report. EPA has indicated that the
project is in the audit resolution process as of January 2004. Additional
documentation provided by EPA noted that as a result of the issues
identified by the OIG, EPA is (1) requiring the Consortium to submit all
payment requests for EPA approval, and (2) holding additional funding
until the audit issues are resolved.

National Association of Local Government Environmental Professionals

On September 26, 2002, officials from EPA's Office of the Administrator
met to discuss grant progress with an official from the National
Association of Local Government Environmental Professionals (the
Association). The EPA officials told the recipient that nonperformance of
the activities within the scope of the grant and irregular submission of
progress reports was unacceptable. EPA recommended negotiating new
activities and targets and warned the recipient that if these activities
were not completed and the targets were not met, the Office of the
Administrator would turn the issue over to EPA's Grants Administration
Division for appropriate action. Additional information provided by EPA
indicates that the grant work has progressed on schedule since this
meeting.

Background

The Association, located in Washington, D.C., is a nonprofit organization
governed by a 12-member board of directors. The Association represents
local government personnel responsible for ensuring environmental
compliance, and developing and implementing environmental policies and
programs. The organization is affiliated with Spiegel and McDiarmid,
Washington, D.C.

Grants Received

o  	The Association received a grant for $610,000 (827183-01) in September
1998 for the Showcase Community network project. The grant resulted in
technical assistance and support for the Brownfields `Showcase
Communities' project. The grant is scheduled to expire in January 2004.

o  	The Association received a grant for $160,000 (829111-01) in January
2002 to support transportation community partnerships for clean air. The
grant provided for clean air innovation at the community level by
supporting participants in a clean air transportation partnership program.
The grant is scheduled to expire in January 2004.

o  	The Association received a grant for $200,000 (830592-01) in September
2002 for a community revitalization initiative. The grant supported
research for the promotion of new approaches in the cleanup and
redevelopment of hazardous waste sites. The grant is still active as of
January 2004.

o  	The Association received a grant for $200,000 (831388-01) in September
2003. Additional funding is expected to bring this grant to a total award
of $1,400,000. The purpose of the grant is Brownfields training, research,
and technical assistance. The grant has resulted in the creation of a
Brownfields communities network providing technical assistance and
training to local government officials and other key stakeholders. The
grant is active as of January 2004.

o  	The Association received a grant for $75,000 (GX828550-01-0). EPA
expects work on this grant to be completed by March 2004.

Description of Problems and Corrective Actions

The reviewers identified problems with the Association's management of
grant number GX828550-01-0 in the following areas:

Financial Expenditures

o  	The Association had spent a large portion of the grant funds in
relation to the amount of work that it had completed.

Progress Reports

o  The Association was not submitting progress reports on a timely basis.

Technical Issues

o  The Association was not on schedule with the progress of its work.

EPA's Significant Actions

According to the documentation EPA provided, the reviewers told the
Association that the September 26, 2002, meeting was a "last warning."
They emphasized that the recipient had received several prior warnings,
but EPA had not seen an improvement in performance. The reviewers said
that they would negotiate new activities and target dates with the
recipient, but if these were not met, the matter would be turned over to
EPA's Grants Administration Division for appropriate action.

Results of Corrective and Significant Actions, and Other Information

Additional information provided by EPA indicates that work on this grant
has progressed on schedule since the September 2002 meeting. However, EPA
also noted that a contractor performed a review of the Association's
financial management system. EPA expects the review to be completed in
late January 2004, and early indications are that the contractor
identified problems that will require corrective action by the recipient.

National Environmental Education and Training Foundation

From January 22 through 25, 2002, EPA contractor staff conducted an
on-site, indepth review of the National Environmental Education and
Training Foundation (the Foundation). The reviewers found a number of
problems, including an unallowable and duplicate travel expense in the
amount of $1,584.24, and made recommendations concerning these issues. EPA
requested that the Foundation submit a corrective action plan within 30
days. A February 26, 2002, on-site review conducted by officials from
EPA's Office of Grants and Debarment indicated that Foundation was
generally in compliance with its administrative requirements and terms and
conditions.

Background

Located in Washington, D.C., the Foundation is a nonprofit organization
founded in 1990 and governed by a board of directors with nine members and
six honorary members. According to EPA, the Foundation's mission is to
extend the contribution of environmental education and training to meet
critical environmental protection needs.

Grants Received

o  	The Foundation received a grant for $150,000 (828935-01) in April 2001
for watershed and television weather reporting. The grant resulted in
helping the public to understand watersheds and the role they play in the
health of aquatic ecosystems. The grant is in the closeout phase as of
January 2004.

o  	The Foundation received a grant for $10,000 (828015-01) in December
1999 for a resource guide to educate and train journalists and others in
public education on consumer confidence reports involving drinking water.
This grant is in the closeout phase as of January 2004.

o  	The Foundation received a grant for $1,638,848 (827026-01) in
September 1998 to target pesticides education to health care providers.
The grant resulted in educating health-care providers and other
professionals on pesticide related exposures and illnesses. This grant is
in the closeout phase as of January 2004.

o  	The Foundation received a grant for $195,780 (827807-01) in August
1999 for research and development of resources to advance environmental
mentoring. The grant resulted in an enhancement of environmental and
economic performance through linking the expertise of corporate
environmental leaders. This grant is in the closeout phase as of January
2004.

o  	The Foundation received a grant for $65,000 (826903-01) in September
1998 for an education backdrop on clean and safe water programs. The grant
resulted in the development of an initiative to fill existing gaps in
educational opportunities. This grant is in the closeout phase as of
January 2004.

Description of Problems and Corrective Actions

The reviewers found problems and recommended corrective actions in the
following areas:

Accounting

o  	The Foundation's "cash on hand end of period" and "cash on hand
beginning of period," as reported to EPA in the recipient's Federal Cash
Transaction Report, did not agree with the general ledger. The Transaction
Report cited a balance of $0 for both periods, while the general ledger
noted balances of $18,689 and minus $2,664, respectively. The reviewers
recommended that the Foundation reconcile its general ledger accounts to
ensure that its records and reporting amounts were correct within 30 days.

Financial Expenditures

o  	The Foundation incorrectly charged a travel expense of $792.12 to its
EPA grant. However, while attempting to correct the error, the Foundation
instead charged the expense twice. The reviewers recommended that EPA
disallow these expenses and that the recipient refund the amount of
$1,584.24 to the EPA grant.

Indirect Costs

o  	The Foundation did not have an approved indirect cost allocation plan,
as required by the terms and conditions of the grant. The reviewers
recommended that the recipient submit an indirect cost proposal within 60
days for approval, and negotiate its indirect cost rate with EPA.

Internal Controls

o  	The Foundation did not have proper separation of duties in the
payroll, personnel, and accounts payable functions. The vice president of
finance and administration was performing personnel and payroll functions.
He also had check-signing authority, access to blank checks, and conducted
bank reconciliations. The reviewers recommended the recipient separate
these duties by having the president review the payroll each pay period
and the bank reconciliation each month.

Progress Reports

o  	The progress reports for two out of the six grants were not filed at
the appropriate times during the previous year. The terms and conditions
of the grant agreement required quarterly submission of progress reports
within 30 days of the reporting period. The reviewers recommended that

the Foundation establish procedures to ensure timely submission of
progress reports within 30 days.

EPA's Significant Actions

EPA requested that the Foundation provide EPA with a list of corrective
actions to resolve the problems identified during the review, along with
associated time frames for each action, within 30 days. As part of these
corrective actions, the recipient was required to repay the grant
$1,584.24 for the amount charged to it in error.

Results of Corrective and Significant Actions, and Other Information

Additional information provided by EPA indicated that the Foundation
repaid the mis-charged amount and completed its corrective action plan.
Also, a February 26, 2002, on-site review conducted by officials from
EPA's Office of Grants and Debarment indicated that the Foundation was
generally in compliance with administrative requirements and the terms and
conditions of its grants.

National Environmental Policy Institute

On January 15 and 16, 2002, officials from EPA's Office of Grants and
Debarment conducted an on-site, in-depth review of the National
Environmental Policy Institute (the Institute). The reviewers found a
number of problems with the Institute's grants management, which led EPA
to take two significant actions against it: issuing a payment hold and a
suspension order. EPA also learned that the Institute was going to cease
operations, and due to concerns about the proper expenditure of the
remaining grant funds and the Institute's financial instability, EPA
placed special conditions on the recipient to ensure that remaining grant
funds were spent in an allowable manner. EPA reported that the Institute
has ceased operations and that it transferred the remaining funds,
amounting to $381,353, to another recipient in February 2003.

Background

The Institute was established as a nonprofit organization in 1993. The
Institute's mission was to provide a framework for improving environmental
policy and management; however, it has ceased operations.

Grants Received

o  	The Institute received a grant for $2,000,000 (828769-01-0) in
November 2000 to develop a telework and emissions trading study. The grant
was transferred to the Global Environment and Technology Foundation in
February 2003.

Description of Problems and Corrective Actions

The reviewers found problems and recommended corrective actions in the
following areas:

Accounting

o  	The Institute's accounting records did not identify the source and use
of funds. EPA recommended that the recipient maintain a system of
accounting records that adequately identified the source and use of funds
provided for grant activities.

o  	The Institute did not have budget controls in place. EPA recommended
that the recipient compare actual expenditures or outlays with budgeted
amounts for each grant or subgrant.

Financial Expenditures

o  	The Institute was unable to provide adequate documentation to
determine the allocability of a number of costs totaling at least $1,237.
For example, the reviewers noted one invoice for "Shirazi Dr. Cobb" in the
amount of

$198.20. The reviewers could not obtain an explanation for the 25 lunches
charged on this invoice and could not determine if the money was spent for
a grant purpose. In another instance, the reviewers found an invoice for
"Shirazi Sheraton Hotels" in the amount of $260.91. However, they found no
source documentation for this invoice and could not determine if the money
was spent for a grant purpose. EPA recommended that the recipient provide
source documentation and explanations for the transactions.

Missing Required Audit

o  	The Institute had not obtained its required Single Audit. EPA
recommended that the recipient obtain this audit.

Personnel/payroll

o  	The Institute received funding from multiple sources, but it did not
maintain records (such as time sheets) to track the staff time that it
allocated to its grants. EPA recommended that the recipient develop and
use timekeeping records that meet the standards outlined in federal
regulations.

Procurement

o  	The Institute had not filed reports of its efforts to select
disadvantaged businesses for grant activities. These reports were
specifically required as a term and condition in the grant agreement. EPA
recommended that the recipient file its required reports by February 15,
2002.

Property Management

o  	The Institute did not have a fixed asset control system. EPA
recommended that the recipient implement a fixed asset threshold or adopt
the federal standard. EPA also recommended that the recipient maintain a
fixed asset control system (1) providing detailed property records for
assets acquired under a grant or subgrant, and (2) including procedures to
provide reasonable assurance that safeguards are present to prevent or
detect unauthorized use of these assets.

Written Procedures

o  	The Institute did not have written policies or procedures for
accounting, codes of conduct, procurement, travel, or record retention.
EPA recommended that the recipient develop written policies and procedures
that met the standards outlined by federal regulations.

EPA also recommended that the Institute require an employee to get
training in grants management and that it provide additional financial
support personnel to help ensure that new policies and procedures are
enforced.

EPA's Significant Actions

As a result of the concerns identified during the on-site review, EPA
informed the Institute that it was suspending work on the project and
temporarily withholding funds. EPA indicated that it was notifying the
Financial Management Center not to make further payments until EPA's
concerns with the recipient's grants management had been addressed and a
corrective action plan was in place. The suspension order required the
Institute to stop project work and take all reasonable steps to minimize
project costs. This order was scheduled to be in effect for 45 days, and
EPA requested that the recipient submit a corrective action plan
identifying the actions to be taken and associated time frames within 30
days.

EPA learned that the Institute was considering ceasing operations. Based
on this information, EPA informed the recipient that it was considering
the issuance of another suspension order and requested a discussion of
these concerns. After the Institute's decision to formally cease
operations, EPA notified the organization that it was concerned about the
proper expenditure of the remaining grant funds and the Institute's
financial instability. These concerns led EPA to place special conditions
on the Institute. Specifically,

o  changing the method of payment from advance to reimbursement;

o  	requiring the recipient to submit all reimbursement requests for EPA
approval and including a list of expenditures identifying task, vendors,
and supporting documentation to show that the costs were authorized by the
scope of work for the grant; and

o  requesting that the recipient continue to submit Financial Status
Reports.

Results of Corrective and Significant Actions, and Other Information

EPA provided information indicating that the Institute was unable to
formulate a corrective action plan to resolve the findings from the
on-site review and that the Institute dissolved shortly after the
suspension order was put in place. EPA reported that the Institute's
remaining funds, amounting to $381,353, were transferred to the Global
Environment and Technology Foundation in February 2003.

Self Reliance Foundation

On October 16 and 17, 2002, officials from EPA's Office of Grants and
Debarment conducted an on-site, in-depth review of the Self Reliance
Foundation (the Foundation). The reviewers identified a number of problems
with the Foundation's grants management practices, which led EPA to take
two significant actions against it: issuing a payment hold and classifying
the Foundation as a high-risk recipient with special conditions on future
grant work. EPA reported that while the Foundation has taken some
corrective actions, it still has not complied with several terms and
conditions; and as a result, the Grants Administration Division sought to
terminate grant number X-82851401 as of December 31, 2003.

Background

The Foundation is a nonprofit organization founded in 1979 to help
Hispanics take advantage of opportunities for personal and community
empowerment in the areas of health, women's issues, education, economic
opportunities, science, environmental protection and access to new
technologies. The Foundation operates the Hispanic Community Resource
Helpline, the only national, multiservice, bilingual information and
referral service in the United States. The organization is headquartered
in Washington, D.C., and is governed by a board of directors with six
members. It is affiliated with the Hispanic Radio Network.

Grants Received

o  	The Foundation received a grant for $75,000 (X-82851401) in September
2000 to provide outreach and education of pesticide exposure hazards to
the Spanish-speaking agricultural community including farm workers, their
families, growers, and the general public. The results of the grant are
incomplete and EPA is seeking to terminate the agreement.

o  	The Foundation received a grant for $50,000 (X-83041801-0) in
September 2002 to create a Spanish language educational mass media and
outreach program focusing on radon and asthma. The results of the grant
are incomplete because work was just beginning when EPA imposed sanctions
on the Foundation.

o  	The Foundation received a grant for $21,232 (NE-98364501-0) in June
2002 to develop a bilingual exhibit to educate children about asthma and
its environmental causes. EPA is waiting for a final progress report for
this grant.

Description of Problems and Corrective Actions

The reviewers found problems and recommended corrective actions in the
following areas:

Accounting

o  	The Foundation did not have a system in place to produce required
financial reports or to reconcile the amount reported as disbursements to
EPA with the general ledger. EPA recommended that the recipient develop a
system within 60 days.

o  	The Foundation drew budgeted amounts at the beginning of the award
periods before actually incurring the expenses. EPA recommended that the
recipient immediately begin following EPA's guidelines for cash advances.

Internal Controls

o  	The Foundation's operations lacked adequate segregation of duties.
Specifically, one contractor had control over processing accounting
transactions, balancing the general ledger, the checking account, the
payroll log, and other financial and nonfinancial duties. EPA recommended
that the recipient divide these responsibilities among various individuals
within 60 days.

Missing Required Audit

o  	The Foundation had not obtained its required Single Audit for 2001 and
2002. EPA recommended that the recipient immediately arrange to have these
audits conducted.

Personnel/payroll

o  	The Foundation's time sheets showed a number of problems: at least one
employee failed to sign the time sheets related to grant activity; in
several instances the time sheets did not show supervisory approval; none
of the time sheets signatures' were dated; and one employee was paid
without a time sheet so the reviewers were unable to determine if the
employee's time was allocable to the grant. EPA recommended that the
recipient implement new policies and procedures to ensure that its payroll
system met the appropriate standards within 60 days.

Procurement

o  	The Foundation did not document its efforts toward the selection of
disadvantaged businesses for grant activities. EPA recommended that the
recipient develop a system to ensure adherence to procurement policies
regarding these vendors (including documentation) within 90 days.

o  	The Foundation was using EPA grant funds to make oral contracts and
had no written contracts, no documentation of preaward review, and no
contract monitoring system. EPA recommended that the recipient implement
procedures to ensure adherence to procurement policies,

    including requests for proposals, and general procurement standards for

sole-source solicitation within 30 days.  o  The Foundation entered into a
sole-source contract without providing an adequate written justification
or evidence of a cost or price analysis. EPA recommended that the
recipient immediately begin ensuring it made and documented grant
procurements in accordance with federal regulations.

Progress Reports

o  	The Foundation did not include required financial information in its
programmatic reports. EPA recommended that the recipient immediately begin
including this financial information in its reports.

Property Management

o  	The Foundation's property management system did not include all fixed
assets owned, and the reviewers were unable to determine if equipment had
been purchased with federal funds. EPA recommended that within 120 days
the recipient complete and update its property management system to
include all of its fixed assets and other information required by EPA. EPA
also recommended that the recipient take an accurate inventory and compare
it with the general ledger and other records.

Written Procedures

o  	The Foundation had not developed a formal and comprehensive policies
and procedures manual. EPA recommended that, within 120 days, the
recipient develop policies and procedures covering, among other things,
accounting and reporting, budget, fixed assets, procurement, and a code of
conduct.

EPA's Significant Actions

As a result of these problems, EPA placed a payment hold on the
Foundation's account by instructing the Financial Management Center not to
make further payments until the concerns had been resolved. EPA also
classified the Foundation as high-risk and placed the following special
conditions on it:

o  changing the method of payment from advance to reimbursement;

o  	requiring the recipient to submit written procurement and contract
administration procedures for EPA approval;

o  	requiring the recipient to submit the procedures it would follow to
ensure that professional service contracts are awarded competitively for
EPA approval; and

o  	requiring the recipient to submit a code of conduct and procedures for
EPA's approval.

The special conditions also included statements that:

o  	No contractor or consultant of the recipient may participate in the
selection, award, or administration of a contract awarded to their firm;

o  	The recipient must take steps to make its relationship with all
consultants or contractors funded by EPA grant money clear to EPA
officials involved in overseeing the grants;

o  	The recipient's procurement files must contain documentation of a cost
or price analysis for all contracts awarded with EPA grant funds;

o  	The recipient must establish written procedures to ensure that all
costs being charged to the grants are properly controlled and documented
and that the procedures must include an independent review of expenses
incurred by consultants or contractors; and

o  	The recipient must comply with the terms and conditions of its grant
agreements regarding selection of disadvantaged businesses.

EPA requested that the Foundation submit a corrective action plan and
provide documentation that it had an adequate financial management system
in order for the special conditions to be discontinued.

Results of Corrective and Significant Actions, and Other Information

Documentation provided by EPA noted that in May 2003, the Foundation
issued accounting and financial management policies and procedures that
addressed many of the findings identified in the on-site review. However,
EPA also reported that the Foundation still had not complied with several
terms and conditions and failed to submit requested items and required
reports. Specifically, the Foundation had not submitted the following
items for approval: the annual progress report for grant number
X-82851401; contract administration policies and procedures; procedures to
ensure that all costs are reasonable, allocable, and allowable; a
utilization report for disadvantaged business activities; a sole-source
procurement policy requiring that written justification for selections be
included in the file; procedures to solicit quotes from disadvantaged
businesses and documentation of their selection; and procedures to ensure
timely submission of progress reports. EPA reported that as a result of
these deficiencies, the Grants Administration Division sought to terminate
grant number X-82851401 as of December 31, 2003.

Tribal Association on Solid Waste and Emergency Response

On July 1, 2002, EPA received a report contractor staff who conducted an
on-site, in-depth review of the Tribal Association on Solid Waste and
Emergency Response (the Association). The reviewers found a number of
problems with the Association's grants management, which led EPA to take
three significant actions against it: issuing a suspension order, issuing
a payment hold, and requesting that the OIG audit the Association. The OIG
published its audit in September 2003 and questioned all costs claimed by
the Association as unsupported. 19 EPA reported that the grantee has taken
measures to correct the deficiencies identified during the on-site review
and the audit, and it lifted the suspension order. The project is in the
audit resolution process as of January 2004.

Background

The Association is a nonprofit organization located in Washington, D.C.
Its purpose is to preserve and restore the health and environment of
Indian and Alaskan native communities. The Association also has as its
purpose ensuring that environmental policies address the needs and values
of tribes, with respect to solid waste, emergency response, and Superfund
issues. The Association is a membership organization consisting of over
100 federally recognized tribes and is governed by a 12-member board of
directors.

Grants Received

o  	The Association received a grant for $3,360,000 (CR82718101-0) in
September 1998 to research the effects of waste contamination on human
health and the detection of hazardous substances in tribal communities.
The Association is still conducting work for this grant.

Description of Problems and Corrective Actions

The reviewers found problems and recommended corrective actions in the
following areas:

Accounting

o  	The Association did not have a system in place to produce required
financial reports or to reconcile the amount reported as disbursements to
EPA with the general ledger. The reviewers recommended that, within 60
days, the Association develop a system that includes line items for:
annual budget, monthly and year-to-date disbursements, and unused or
overexpended balances. The reviewers further recommended that the

19EPA Office of the Inspector General, Costs Claimed by the Tribal
Association on Solid Waste and Emergency Response Under EPA Assistance
Agreement No. CR827181-01, Report No. 20034-00119 (Washington, D.C.: Sept.
19, 2003).

Association use this information to produce the required financial reports
and make any adjustments necessary to reconcile the general ledger
amounts.

o  	The Association advanced annual budgeted amounts to contractors at the
beginning of the contract periods. The reviewers recommended that the
Association limit cash advances to contractors to the minimum amount
necessary to carry out required activities.

Internal Controls

o  	The Association's financial operation and other functions lacked
adequate segregation of duties. Specifically, one employee had control
over processing, authorizing, and approving accounting transactions. This
individual also managed procurement and grant activities, maintained the
general ledger, and performed other duties. The reviewers recommended that
the Association assign responsibility for approval and authorization of
accounting transactions to someone other than this employee. Additionally,
the reviewers recommended that the Association hire other personnel to
perform certain functions, such as grants management, procurement, and
financial reporting.

Personnel/payroll

o  	The Association's personnel files did not include all necessary and
updated information about its employees. The reviewers recommended that
the Association maintain personnel files that are complete and updated for
current and terminated employees.

Procurement

o  	The Association did not have documentation supporting its efforts to
select disadvantaged businesses. The reviewers recommended that the
Association implement procedures to document its efforts for selecting
these vendors within 90 days.

o  	The Association awarded a contract for a multiyear research project
using a sole-source solicitation, without documenting a preaward review.
The reviewers recommended that the Association implement procedures to
ensure compliance with procurement policies and EPA requirements within 90
days.

Progress Reports

o  	The Association did not prepare or submit in a timely way the various
reports required by EPA, such as its annual progress report. The reviewers
recommended that the Association follow EPA's guidelines in preparing and
submitting required reports.

Property Management

o  	The Association's property management system did not account for all
fixed assets, nor had it conducted a physical inventory. The reviewers
recommended that the Association complete and update its property
management system to account for these deficiencies within 30 days.

Technical Issues

o  	The Association did not properly prepare or submit in a timely way the
various reports required by EPA, such as the semiannual Federal Cash
Transaction Reports and quarterly Financial Status Reports. The reviewers
recommended that the Association follow EPA's guidelines in preparing and
submitting required reports.

Written Procedures

o  	The Association did not have a formal and comprehensive policies and
procedures manual. The reviewers recommended that the Association develop
a manual within 120 days that included, among other things, accounting and
reporting policies and procedures, budget policies, fixed asset policies,
and procurement policies.

EPA's Significant Actions

As a result of the findings identified during the on-site review, EPA
notified the Association that it was suspending work and temporarily
withholding funds and would notify the Financial Management Center not to
make further payments until EPA had resolved its concerns with the
recipient's grants management. EPA requested that the Association submit a
corrective action plan, with associated time frames, within 30 days. EPA
informed the Association that the suspension order required it to stop
project work and take all reasonable steps to minimize costs incurred on
the project. The order was scheduled to be in effect for 45 days.
Additionally, EPA forwarded a copy of its on-site report to the OIG and
requested that the OIG audit the Association. EPA asked that the OIG
perform tests on all grant related financial transactions to confirm that
the grant funds were being used properly.

Results of Corrective and Significant Actions, and Other Information

As requested, the OIG conducted an audit of the Association's management
of grant number CR827181-01 and published its findings on September 19,
2003. The OIG questioned $2,357,376 of claimed costs because the
Association did not comply with the federal rules, regulations, and terms
of the agreement. Specifically, the OIG found that among other things, the
Association could not or did not (1) reconcile claimed costs to its
general ledger, (2) support its salaries and wages with the appropriate
timesheets, and (3) competitively procure

contractual services or perform any of the required cost or pricing
analyses. Regarding the finding that the Association did not competitively
procure contractual services, the OIG reported that a former Association
board member was instrumental in soliciting a university for a contract.
However, before the Association awarded the contract, the former board
member was hired by the university.

The OIG recommended that EPA recover the $2,357,376 in unsupported costs,
suspend work under the grant, make no new awards until the Association
demonstrated that its accounting practices were consistent with federal
regulations, and require the Association to modify its financial
management system to include, among other things, financial reports that
are current, accurate, complete, and supported by accounting records and
an adequate time distribution system that could account for total hours
worked and identify specific activities. The Association did not agree
with the OIG's findings, and its comments were included in the final
report. EPA reported that the Association has taken measures to correct
the deficiencies identified during the on-site review and the audit, and
it has lifted the suspension order. The project is currently in the audit
resolution process, and the Grants Administration Division is scheduled to
respond to the OIG in January 2004.

Washington Heights Environmental Coalition

In May 2002, Region 6 officials returned a request for reimbursement from
the Washington Heights Environmental Coalition (the Coalition) in the
amount of $352 for multiple reasons, including a lack of grant funds
remaining in the account and an ineligible expenditure. Region 6 officials
also conducted an on-site, indepth review of the Coalition on July 9,
2002. The officials found that the project was not on schedule. Additional
documentation provided by EPA indicated that the agency had noted problems
with the Coalition, such as late submission of a progress report and a
lack of grants management skills. EPA found the Coalition to be in
noncompliance and determined that it must produce deliverables before
receiving advanced payment funds. Information EPA provided noted that the
Coalition has not received additional grants.

Background

The Coalition is a nonprofit group of citizens affected by the Hudson
Refinery site in Cushing, Oklahoma, that is on the Superfund National
Priority List. The Coalition is located in Cushing and is governed by a
four-member board of directors.

Grants Received

o  	The Coalition received a grant for $50,000 (1-98677501-0) in August
2001 to hire independent technical advisors to help interpret and comment
on siterelated information generated by the state agency or EPA. The grant
resulted in few analysis documents from the technical adviser; EPA is
waiting for further deliverables.

Description of Problems and Corrective Actions

EPA documentation identified problems in the following areas:

Financial Expenditures

o  	A Coalition request for reimbursement was denied for three reasons:
(1) the amount of the request was $352, but the recipient had only $346
remaining in its checking account, (2) $2.70 of this $352 was ineligible
for repayment because the claimed cost was incurred on April 28, 2001,
which was before the grant was awarded, and (3) the remaining $3.30 over
the $346 was too small a request for EPA to process.

Personnel/payroll

o  	The Coalition did not have staff with the skills necessary to manage
its grant and prepare required reports or forms correctly. EPA requested a
special training session with the recipient to assist it in managing its
grant.

Progress Reports

o  The Coalition had been late in submitting a progress report. Technical
Issues

o  	The Coalition was behind in hiring its technical advisor, which
affected the submission of analysis documents. The reviewers noted that a
major barrier to accomplishing the work was the recipient's lack of
administrative skills.

EPA's Significant Actions

EPA did not process the Coalition's ineligible expenditure.

Results of Corrective and Significant Actions, and Other Information

Additional information provided by EPA indicated that the Coalition has
produced few of its analysis documents. EPA found the recipient to be in
noncompliance and determined that it must produce deliverables before
drawing further funds. EPA noted that it has not awarded any more grants
to the Coalition.

(360422)

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