High Risk Series: Superfund Program Management (Letter Report, 02/95,
GAO/HR-95-12).
In 1990, GAO began a special effort to identify federal programs at high
risk of waste, fraud, abuse, and mismanagement. GAO issued a series of
reports in December 1992 on the fundamental causes of the problems in
the high-risk areas. This report on Superfund program management is
part of the second series that updates the status of this high-risk
area. Readers have the following three options in ordering the high-risk
series: (1) request any of the individual reports in the series,
including the Overview (HR-95-1), the Guide (HR-95-2), or any of the 10
issue area reports; (2) request the Overview and the Guide as a package
(HR-95-21SET); or (3) request the entire series as a package
(HR-95-20SET).
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HR-95-12
TITLE: High Risk Series: Superfund Program Management
DATE: 02/01/95
SUBJECT: Pollution control
Hazardous substances
Waste disposal
Environmental monitoring
Contract administration
Prioritizing
Cost control
Reimbursements to government
Overhead costs
Liability (legal)
IDENTIFIER: Superfund Program
High Risk Series 1995
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Cover
================================================================ COVER
High-Risk Series
February 1995
SUPERFUND PROGRAM MANAGEMENT
GAO/HR-95-12
Superfund Program Management
Abbreviations
=============================================================== ABBREV
EPA - Environmental Protection Agency
OMB - Office of Management and Budget
Letter
=============================================================== LETTER
February 1995
The President of the Senate
The Speaker of the House of Representatives
In 1990, the General Accounting Office began a special effort to
review and report on the federal program areas we considered high
risk because they were especially vulnerable to waste, fraud, abuse,
and mismanagement. This effort, which has been strongly supported by
the Senate Committee on Governmental Affairs and the House Committee
on Government Reform and Oversight, brought much needed focus to
problems that were costing the government billions of dollars.
In December 1992, we issued a series of reports on the fundamental
causes of problems in designated high-risk areas. We are updating
the status of our high-risk program in this second series. Our
Overview report (GAO/HR-95-1) discusses progress made in many areas,
stresses the need for further action to address remaining critical
problems, and introduces newly designated high-risk areas. This
second series also includes a Quick Reference Guide (GAO/HR-95-2)
that covers all 18 high-risk areas we have tracked over the past few
years, and separate reports that detail continuing significant
problems and resolution actions needed in 10 areas.
This report discusses our assessment of the progress made in
correcting weaknesses in the Environmental Protection Agency's (EPA)
management of the Superfund program. In view of the escalating costs
of hazardous waste cleanups and the growing constraints on federal
resources, it focuses on the need to make informed judgments to
allocate funds for cleaning up hazardous waste sites. It also
discusses our concerns about EPA's limited recovery of Superfund
cleanup costs and long-standing deficiencies in EPA's management of
Superfund cleanup contracts.
Copies of this report series are being sent to the President, the
Republican and Democratic leadership of the Congress, congressional
committee chairs and ranking minority members, all other members of
the Congress, the Director of the Office of Management and Budget,
and the Administrator of the Environmental Protection Agency.
Charles A. Bowsher
Comptroller General
of the United States
OVERVIEW
============================================================ Chapter 0
In 1980, the Environmental Protection Agency's (EPA) Superfund
program began as a relatively short-term project to clean up
abandoned hazardous waste sites. At that time, the extent and
severity of the country's hazardous waste problems were thought to be
limited. Since then, however, thousands of waste sites have been
discovered, and their cleanup has proved to be far more complicated
and costly than anticipated. Although final costs for completing the
cleanup effort have not yet been determined, recent estimates
indicate that cleaning up thousands of hazardous waste sites--many of
which are owned by the federal government--could amount to over $300
billion in federal costs and many billions more in private
expenditures.
Under the Superfund law, private parties that are responsible for
toxic chemical sites must clean up the contamination themselves or
reimburse EPA for doing so. When EPA performs the cleanup, it draws
on a legislatively established trust fund that is primarily financed
by a tax on crude oil and certain chemicals and by an environmental
tax on corporations. Although the cleanup of federal sites is
required by the Superfund law, federal agencies generally must use
their annual appropriations, not the trust fund, to clean up their
facilities.
THE PROBLEM
EPA's efficient use of available funds is important to protect the
environment and the public from the dangers of hazardous waste, but
as we reported in 1992, certain management problems have put this
interest at risk.\1 Spiraling cleanup costs and limited resources
demand that funding be allocated where it can reduce the most
significant threats to human health and the environment. However,
EPA has not established priorities for cleaning up nonfederal sites
on the basis of their relative risk. Similarly, the government does
not have a priority-setting system for allocating funds for cleaning
up federal hazardous waste sites across agency lines. Furthermore,
EPA has recovered only a fraction of the moneys that it has spent on
cleanups from responsible parties. In addition, while EPA relies
heavily on contractors to perform much of its cleanup work, it has
only begun to address long-standing deficiencies in its contract
management.
PROGRESS
Since we reported on these problems in EPA's management of the
Superfund program, EPA has taken some steps to address them. In
fiscal years 1992 and 1993, the agency directed more funds to cleanup
efforts that address immediate threats, such as removing drums
leaking toxic chemicals at sites. While federal agencies have made
uneven progress in identifying sites for cleanup and estimating
cleanup costs, a task force has been established to identify options
for establishing a way to prioritize federal facility cleanups across
agency lines. To help recover more of its Superfund expenditures,
EPA has initiated a process to recoup contractors' costs that it
previously excluded, and it has plans to invest more resources in
this effort. EPA has also taken actions to strengthen its Superfund
contract management, for example, by reducing its potential liability
to pay damage claims brought against contractors that it indemnifies.
OUTLOOK FOR THE FUTURE
These actions alone, however, are insufficient. We have suggested
that EPA make greater use of risk as a criterion in setting cleanup
priorities for nonfederal sites. We have also said that the federal
government needs to complete its inventory of federal facilities
requiring cleanup and adopt a process to set cleanup priorities and
to allocate funding across agency lines. To help EPA recover more of
its Superfund cleanup costs, we have recommended that it finalize a
proposed regulation, which has been under review in the agency for
several years, to broaden the kinds of indirect costs that it may
collect from responsible parties. If the Congress were to amend the
Superfund law to allow EPA to charge higher interest rates instead of
the lower rates now mandated, EPA could recover millions more in
interest costs annually on amounts due to it from responsible
parties. If enacted, this change in the statute would eliminate what
has been, in effect, a subsidy for the parties on whose behalf EPA
has performed cleanups. Finally, EPA must sustain its commitment to
improving its contract management if long-standing deficiencies are
to be rectified.
--------------------
\1 High-Risk Series: Superfund Program Management (GAO/HR-93-10,
Dec. 1992).
WEAKNESSES IN SUPERFUND PROGRAM
MANAGEMENT
============================================================ Chapter 1
Past waste management and disposal practices have allowed toxic
chemicals to seep into the land and water at thousands of federally
and privately owned hazardous waste sites. In 1980, the Congress
enacted the Comprehensive Environmental Response, Compensation, and
Liability Act, which established a trust fund to help finance the
cleanup of the most dangerous of these sites. Thousands of sites
have been identified, and estimated cleanup costs have grown into
hundreds of billions of dollars. Given the limited resources
available for cleanups, it is essential that EPA
ensure that cleanup dollars go to the sites that present the greatest
threat,
replenish the trust fund by maximizing its recovery of costs from the
parties responsible for cleaning up these sites, and
spend its cleanup contract dollars wisely.
RISK PLAYS LITTLE ROLE IN
ALLOCATING RESOURCES
As environmental needs compete with other national issues for
increasingly limited federal funds, EPA should be investing its
resources where they are likely to have the greatest impact in
reducing threats to human health and the environment. However, EPA
has not operated the program so that Superfund expenditures are
prioritized to ensure that contaminated sites posing the most risk
are handled first. In 1989, EPA adopted a policy of addressing the
"worst sites first" in the Superfund program. Although this policy
calls for allocating the program's limited resources first to the
sites that present the greatest risk, our recent work shows that risk
plays only a minor role in EPA's setting of Superfund cleanup
priorities. EPA's regional offices, which are responsible for
establishing workload priorities, use factors other than risk, such
as the length of time a site has been waiting in the processing
queue, to prioritize their work.
Given the huge investment of public funds required, priority- setting
is especially important in cleaning up contaminated federal
facilities--such as the nuclear weapons complex--where recent
Department of Energy estimates of anticipated cleanup costs run about
$300 billion. However, the federal government does not have a
complete inventory of its hazardous waste sites needing cleanup or
reliable estimates of cleanup costs. Furthermore, it lacks an
effective way to rank federal facilities for cleanup across agency
lines on the basis of relative risk.
EPA RECOVERS A SMALL FRACTION OF
ITS COSTS
The Superfund law requires that the parties responsible for
contaminating sites clean them up or reimburse EPA for doing so.
However, through fiscal year 1993, EPA had recovered only 14 percent
of its costs, in part because it excludes certain costs from its
recovery efforts. EPA has narrowly defined which indirect costs it
will seek to recover--excluding, for example, research and
development costs. As a result, the agency has forgone any
opportunity to recover over $2.9 billion in indirect costs.
EPA also lacked an approach for allocating and subsequently
recovering $545 million in contractors' costs that were not directly
related to specific sites, including administrative and other costs.
In addition, as we have reported, EPA managers have not given
sufficient attention or resources to cost recovery, and EPA lacks (1)
specific goals that it could use to evaluate its performance in
recovering costs and (2) adequate information to monitor its
progress.
The Superfund law further prevents EPA, in two ways, from recovering
millions of dollars annually by restricting the interest rates
charged to responsible parties on recoverable costs. First, the law
allows interest to accrue from the date that EPA actually spends the
money or from the date that EPA demands payment from the responsible
parties, whichever is later. In some cases, interest does not begin
accruing for several years because EPA waits to demand payment until
it has completed other reimbursable cleanup work at a site. Second,
the Superfund law limits EPA to charging interest on recoverable
amounts only at the government's borrowing rate, which is lower than
commercial borrowing rates. This latter restriction, in effect,
results in a subsidy to the parties that leave cleanup work to the
government. Whereas the responsible parties that borrow money to
fund their own cleanups have to obtain financing from lenders at
commercial rates, the parties that reimburse EPA are charged the
government's lower borrowing rate. We estimated that in 1990 EPA
could have accrued about $105 million in interest on its fiscal year
1989 expenditures if these two restrictions had been eliminated.
EPA's cost recovery efforts are also hampered by incomplete and
unreliable data. In their January 1994 report on internal controls
over the Superfund trust fund, EPA's independent auditors concluded
that accounting system weaknesses could impair the agency's ability
to identify and recover Superfund costs. EPA has also identified its
accounting systems as a material weakness in its Federal Managers'
Financial Integrity Act reports since 1992.
WEAKNESSES IN CONTRACT MANAGEMENT
PERSIST
EPA makes extensive use of cost-reimbursable contracts in the
Superfund program. Because these contracts require EPA to reimburse
the contractor for all allowable costs, they give the contractor
little incentive to control costs and require special agency
oversight. Between 1988 and 1993, we reported on major weaknesses in
EPA's management of Superfund cost-reimbursable contracts. For
example, EPA did not protect Superfund from excessive exposure to
damage claims stemming from contractors' negligence by limiting its
indemnification of contractors. We reported in 1989 and 1991 that
EPA was granting unlimited indemnification to almost all of its
cleanup contractors, thereby placing Superfund's entire unobligated
balance at risk.
In addition, EPA had not given sufficient management attention to
ensuring that contractors' costs were being controlled.
Specifically, the agency was not (1) independently estimating the
costs of contracted work before approving contractors' budgets, (2)
reviewing contractors' monthly bills (invoices) to ensure reasonable
charges, (3) holding down contractors' administrative and other
non-site-specific costs, or (4) performing timely audits of
contractors' final bills. Furthermore, our recent work showed that
all three Superfund contractors that we reviewed billed the
government for costs--for entertainment, tickets for sporting events,
or alcoholic beverages--that either were not permitted or appeared
questionable under applicable regulations.
Finally, EPA relies on contractors to perform functions that it
believes it needs to perform itself to effectively manage and control
the Superfund program. For example, EPA has identified functions
being performed by contractors that, by their very nature, should be
done by government--not contractor--employees, such as the
preparation of agency decision documents.
PROGRESS MADE
============================================================ Chapter 2
EPA has made progress in allocating its limited Superfund resources
to situations presenting the greatest risk, improving efforts to
recover its cleanup costs, and increasing management attention to
controlling costs on Superfund contracts.
RISK PLAYS LIMITED ROLE IN
ALLOCATING RESOURCES
EPA has taken some first steps to allocate its resources in
accordance with its policy of cleaning up the worst sites first. In
fiscal years 1992 and 1993, EPA moved an additional $109.5 million
into its emergency removal program, which is designed to eliminate
imminent threats, such as drums leaking toxic chemicals.
Federal agencies have made uneven progress toward identifying and
assessing their contaminated facilities and prioritizing them for
cleanup. The Departments of Defense and Energy, for example, have
made substantial progress in identifying contaminated facilities and
developing preliminary estimates of cleanup costs. But other federal
agencies, such as the Department of the Interior, which is also
expected to have a substantial cleanup problem, are only beginning to
inventory their facilities and cannot yet estimate their cleanup
costs. Moreover, no overall management of these efforts across
federal agencies occurs, leaving open the opportunity for
inconsistently allocating resources.
Recognizing the need to develop a coordinated cleanup strategy among
the federal agencies, the administration established a senior-level
task force in September 1993. A key objective for the task force
includes developing options for allocating cleanup resources, within
and across agencies, so as to reduce risks cost-effectively. As of
October 1994, the task force was developing a discussion paper that
outlines options for establishing a priority-setting mechanism for
cleaning up federal facilities but does not yet have a completion
date.
SOME ACTIONS HAVE BEEN TAKEN TO
RECOVER MORE COSTS
EPA has also taken some action to increase its recovery of past costs
but still has a low recovery rate at this time. EPA management has
designated cost recovery as a material weakness in its Federal
Managers' Financial Integrity Act reports since 1992 and has plans to
give more resources to this area. Also, in April 1993 EPA began
allocating contractors' administrative and other non-site-specific
costs among sites in preparation for recovering these costs. As of
October 1994, EPA had allocated $279 million of the $545 million in
non-site-specific contractors' costs charged through the end of
fiscal year 1993.
However, EPA has been slow to take other key steps that would
significantly increase its recovery of the government's cleanup
costs. In August 1992, EPA proposed a rule to more fully recover its
indirect program costs--a proposal the agency estimates would triple
the amounts it could consider recoverable as indirect costs. But it
has not yet published its final rule because it did not want to
create controversy during the current Superfund reauthorization
debate. Also, EPA has not established specific goals for its cost
recovery efforts, such as goals that specify the dollar amount or the
percentage of the costs that EPA expects to recover from these cases,
and the agency still lacks an adequate information system for
evaluating the program's progress in meeting results-oriented goals.
Furthermore, although EPA has acknowledged the need for improved cost
accounting capabilities and has begun laying the groundwork to remedy
this deficiency, it currently does not expect to have the problem
corrected until late 1995.
CONTRACT MANAGEMENT HAS RECEIVED
GREATER ATTENTION
The agency has made significant progress in limiting Superfund's
exposure to claims against contractors that it indemnifies and in
improving its use of independent government cost estimates and
invoice reviews to control contractors' costs. In January 1993, EPA
adopted new indemnification guidelines, under which it no longer
offers contractors this protection unless too few bids are received
in response to a contract offer that does not include
indemnification. Furthermore, when EPA does indemnify a contractor,
it will now limit the protection to specific dollar amounts and time
periods. EPA has also begun but not completed the process of
modifying existing contracts to include these limits.
After years of giving insufficient attention to correcting known
contract management problems, EPA's management has focused greater
attention on Superfund contracting to better control contractors'
costs and other problems. For example, EPA and the Office of
Management and Budget (OMB) designated Superfund remedial cleanup
contracts as highly vulnerable to waste, fraud, and abuse. Moreover,
EPA has elevated the procurement function in the agency and
designated senior officials in headquarters and the regions to be
accountable for procurement efforts. EPA also is moving the work of
250 Superfund contractor employees to federal employees to reduce the
program's reliance on contractors and the vulnerabilities associated
with contractors performing certain tasks. The agency also provided
guidance and training for preparing independent government cost
estimates and reviewing contractors' invoices.
In a further effort to control contractors' costs, EPA decreased its
contractors' average administrative and other non-site-specific costs
from 15 percent of total contract costs in fiscal year 1992 to about
9 percent as of June 1994. But these administrative and
non-site-specific costs for individual contracts still vary widely,
ranging up to 22 percent. In addition, EPA has conducted internal
reviews of Superfund contracting problems, developed strategies and
milestones for addressing them, and performed periodic reviews to
monitor the implementation of solutions and to identify additional
problems that require management-level attention.
However, little progress has been made in reducing the risk to
Superfund contract dollars resulting from insufficient or untimely
audits. For example, backlogs of requests by procurement officials
for audits to verify the accuracy of contractors' charges have grown,
even though the agency has taken some steps to reduce its backlog,
such as increasing the number of auditors in its Inspector General's
office. These backlogs are part of a larger governmentwide problem
caused by limited audit resources, since EPA relies largely on other
federal agencies, such as the Defense Contract Audit Agency, to
perform its audits. (See figure 1.) This backlog, and the
corresponding lag in performing audits, increases the difficulty in
detecting and disallowing costs that should not be charged to
government contracts and delays contract closeouts.
Figure 1: Number of
Unfulfilled Requests for Audits
of EPA Contractor Costs,
September 1990-August 1994
(See figure in printed
edition.)
Source: GAO's presentation of EPA's data.
But progress has been made in clarifying sections of federal
procurement regulations whose definitions of allowable contract costs
for entertainment and other expenses are open to interpretation. The
Congress recently enacted the Federal Acquisition Streamlining Act of
1994, which tightens these definitions and may prevent the recurrence
of questionable charges such as we found in our work.
FURTHER ACTION NEEDED
============================================================ Chapter 3
While EPA has addressed weaknesses in its management of the Superfund
program, it needs to take additional steps to reduce the program's
vulnerability to wasteful spending and mismanagement.
RISK SHOULD DRIVE RESOURCE
ALLOCATION
EPA needs to take further actions to allocate Superfund's limited
resources so that they will more effectively reduce risks. We
recently testified that EPA makes little use of its risk information
to determine which sites should be cleaned up first, even though the
agency has a policy of addressing the worst sites first. As of
January 1994, EPA had a backlog of about 5,500 sites to screen for
inclusion in the Superfund program. To address this backlog in
accordance with its policy, EPA should first assess the sites that
are most likely to qualify for the program--a judgment the agency can
make on the basis of available data. Instead, EPA typically first
assesses the sites that have been awaiting review the longest or the
sites for which it has the most complete information. Moreover, EPA
does not consider the risk, cost, or feasibility of cleaning up a
site when it determines where to conduct the studies required to
begin cleanup work. Without such considerations, EPA has no basis
for targeting its funds to the sites where they are likely to have
the most impact.
To set priorities for cleaning up federal facilities, more complete
information on the number of facilities requiring cleanup and better
estimates of cleanup costs are needed. In order for the government
to know how many contaminated facilities exist, federal agencies that
have been slow to compile inventories of hazardous waste sites need
to complete this process expeditiously. Until a complete inventory
exists and agencies have better estimates of cleanup costs, federal
agencies and the Congress will be handicapped in making informed
decisions about the priority, pace, or level of federal cleanups. In
addition, the federal government needs to establish a system for
allocating cleanup resources across agency lines.
SUSTAINED EFFORT IS NEEDED FOR EPA
TO RECOVER MORE COSTS
Further improvements in EPA's recovery of Superfund cleanup costs
will depend largely on EPA's sustaining its efforts in this area and
on changes being made to the Superfund law. First, EPA needs to
finalize its proposed rule to increase its recovery of indirect
program costs. Until this rule is made final, the government will
continue to lose the opportunity to replenish the trust fund by more
fully recovering its costs. Second, to increase the interest charged
on recoverable costs, changes in the Superfund law's interest
provisions need to be made.
To better track its progress in recovering past costs, EPA needs to
establish clear results-oriented goals for its cost recovery efforts.
Also, EPA needs to collect better information on the success of its
cost recovery negotiations and on the recoverability of many of its
costs. Such information would improve EPA's ability to evaluate its
cost recovery accomplishments and to forecast the amounts that it is
likely to recover. EPA also needs to complete its current initiative
to improve the agency's cost accounting capabilities to support its
cost recovery efforts.
CONTINUED ATTENTION TO CONTRACT
MANAGEMENT IS NEEDED
Although EPA has made progress in controlling Superfund contractors'
costs, the agency will need to sustain its current level of
management attention if it is to succeed in fully implementing these
improvements. This concern was heightened when recent internal and
EPA Office of Inspector General reviews found problems, for example,
with EPA's preparation of independent government cost estimates and
monthly reviews of contractors' invoices. EPA also needs to continue
to bring down its cleanup contractors' administrative and other
non-site-specific costs, in particular for contractors with higher
than average costs in this area. Furthermore, EPA, OMB, and other
federal agencies have worked together to address the audit backlogs,
but until adequate resources are available for audits, backlogs will
persist and Superfund contract dollars will remain at risk. Finally,
given the permanence of the Superfund program, EPA will need to
further assess its balance of in-house and contract resources, a
process begun this past year.
RELATED GAO PRODUCTS
============================================================ Chapter 4
Superfund: Legal Expenses for Cleanup-Related Activities of Major
U.S. Corporations (GAO/RCED-95-46, Dec. 23, 1994).
Superfund: Estimates of Numbers of Future Sites Vary
(GAO/RCED-95-18, Nov. 29, 1994).
Superfund: EPA Has Opportunities to Increase Recoveries of Costs
(GAO/RCED-94-196, Sept. 28, 1994).
Superfund: Status, Cost, and Timeliness of Hazardous Waste Site
Cleanups (GAO/RCED-94-256, Sept. 21, 1994).
Superfund: Improved Reviews and Guidance Could Reduce
Inconsistencies in Risk Assessments (GAO/RCED-94-220, Aug. 10,
1994).
Superfund: Reauthorization and Risk Prioritization Issues
(GAO/T-RCED-94-250, June 24, 1994).
Relative Risk in Superfund (GAO/RCED-94-233R, June 17, 1994).
Superfund: Risk Assessment Process and Issues (GAO/T-RCED-93-74,
Superfund: EPA Action Could Have Minimized Program Management Costs
(GAO/RCED-93-136, June 7, 1993; GAO/T-RCED-93-50, June 10, 1993).
High-Risk Series: Superfund Program Management (GAO/HR-93-10, Dec.
1992).
1995 HIGH-RISK SERIES
============================================================ Chapter 5
An Overview (GAO/HR-95-1)
Quick Reference Guide (GAO/HR-95-2)
Defense Contract Management (GAO/HR-95-3)
Defense Weapons Systems Acquisition (GAO/HR-95-4)
Defense Inventory Management (GAO/HR-95-5)
Internal Revenue Service Receivables (GAO/HR-95-6)
Asset Forfeiture Programs (GAO/HR-95-7)
Medicare Claims (GAO/HR-95-8)
Farm Loan Programs (GAO/HR-95-9)
Student Financial Aid (GAO/HR-95-10)
Department of Housing and Urban Development (GAO/HR-95-11)
Superfund Program Management (GAO/HR-95-12)
The entire series of 12 high-risk reports can be ordered by using the
order number GAO/HR-95-20SET.