oversight

High-Risk Series: Superfund Program Management

Published by the Government Accountability Office on 1997-02-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             High-Risk Series




February 1997
                Superfund Program
                Management




GAO/HR-97-14
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States



      February 1997
      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
      its work identified as high risk because of vulnerabilities
      to waste, fraud, abuse, and mismanagement. This effort,
      which was supported by the Senate Committee on
      Governmental Affairs and the House Committee on
      Government Reform and Oversight, brought a
      much-needed focus on problems that were costing the
      government billions of dollars.

      In December 1992, GAO issued a series of reports on the
      fundamental causes of problems in high-risk areas, and in
      a second series in February 1995, it reported on the status
      of efforts to improve those areas. This, GAO’s third series
      of reports, provides the current status of designated
      high-risk areas.

      This report describes our assessment of the progress
      made in correcting weaknesses in the Environmental
      Protection Agency’s (EPA) management of the Superfund
      program. Given the hundreds of billions of dollars
      estimated to be needed to clean up hazardous waste sites,
      the report focuses on the need for EPA and federal
      agencies to make greater use of risk as a criterion in
      setting priorities for their cleanup work. The report also
      discusses EPA’s limited recovery of Superfund cleanup
costs from responsible parties and inadequate controls
over contractors’ costs.

Copies of this report series are being sent to the
President, the congressional leadership, all other
Members of the Congress, the Director of the Office of
Management and Budget, and the heads of major
departments and agencies.




James F. Hinchman
Acting Comptroller General
of the United States




            Page 2    GAO/HR-97-14 Superfund Program Management
Page 3   GAO/HR-97-14 Superfund Program Management
Contents



Overview                                                         6

Weaknesses in                                                   12
Superfund
Program
Management
Progress Made                                                   20

Further Action                                                  34
Needed
Related GAO                                                     39
Products
1997 High-Risk                                                  41
Series




                 Page 4   GAO/HR-97-14 Superfund Program Management
Page 5   GAO/HR-97-14 Superfund Program Management
Overview



           The Environmental Protection Agency’s
           (EPA) Superfund program began in 1980 as a
           relatively short-term project to clean up
           abandoned hazardous waste sites. At that
           time, the country’s hazardous waste
           problems were thought to be limited. Since
           then, thousands of waste sites have been
           discovered. Furthermore, cleaning up these
           sites—many of which are owned by the
           federal government—has proved to be far
           more complicated and costly than
           anticipated. Recent estimates show that
           cleaning up these sites could amount to over
           $300 billion in federal costs and many
           billions more in private expenditures.

           Under the Superfund law, EPA can compel
           the private parties responsible for
           abandoned or inactive hazardous waste sites
           to clean them up, or it can conduct the
           cleanup and demand reimbursement of its
           costs from the responsible parties.
           Currently, EPA has negotiated with private
           parties to do about 70 percent of the
           cleanups. To pay for EPA’s cleanups, the
           agency draws on a legislatively established
           trust fund that is primarily financed by a tax
           on crude oil and certain chemicals and by an




           Page 6    GAO/HR-97-14 Superfund Program Management
              Overview




              environmental tax on corporations.1 Federal
              agencies generally use their annual
              appropriations to finance cleanups of the
              facilities under their jurisdiction.


The Problem   The magnitude of the nation’s hazardous
              waste problem calls for the efficient use of
              available funds to protect the environment
              and the public. As we have reported in the
              past, however, certain management
              problems have put this investment at risk.2
              First, EPA and other federal agencies have
              not consistently allocated their cleanup
              resources to reduce the most significant
              threats to human health and the
              environment. For instance, EPA historically
              has not taken into account on a consistent
              basis the relative risk of sites in establishing
              priorities for its work. Similarly, the
              government has not had a priority-setting
              system for allocating the funds to clean up
              federal hazardous waste sites nationwide.
              Second, although EPA is responsible for
              pursuing reimbursement when it funds a

              1
               In December 1995, the authority to collect these taxes expired, and
              taxes are no longer being collected. However, as of
              September 1995, the trust fund had an unappropriated balance of
              $2.9 billion. As a result, the fund could still be used to finance the
              Superfund program.
              2
               High-Risk Series: Superfund Program Management
              (GAO/HR-93-10, Dec. 1992) and High-Risk Series: Superfund
              Program Management (GAO/HR-95-12, Feb. 1995).

              Page 7         GAO/HR-97-14 Superfund Program Management
           Overview




           cleanup, the agency has recovered from
           responsible parties only a fraction of the
           moneys that it has spent. Finally, while
           about half of the Superfund program’s
           budget annually goes to contractors, EPA has
           had long-standing problems with controlling
           the contractors’ costs.


Progress   Since our 1995 report, EPA and other federal
           agencies have taken steps toward addressing
           these areas. First, EPA has begun using a
           risk-based process to set priorities and
           allocate some of its fiscal year 1996 cleanup
           funds for those sites that are ready to begin
           the construction of the cleanup method.
           However, EPA’s regions make the decisions
           to allocate the funds for sites in the earlier
           phases of the cleanup process, and our
           recent review showed that EPA’s regions
           varied in the extent to which they consider
           risk in making their decisions. Other federal
           agencies have made uneven progress in
           (1) taking the first step toward setting
           priorities—that is, developing a complete
           inventory of the waste sites that need
           cleanup—and (2) implementing systems to
           rank sites for cleanup according to risk.

           Second, EPA has made some improvements
           in its cost recovery program. The agency has


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Overview




continued to obtain legal agreements with
responsible parties to privately fund the
majority of the cleanups. EPA enforcement
officials point out, however, that this
approach generally leaves the more difficult
cleanups for cost recovery action and thus
decreases their ability to recover past costs.
While some costs are not expected to be
recovered, EPA’s historically low recovery
rate in part results from the agency’s slow
pace in completing action on its 1992
proposed rule to increase the indirect costs
that it could recover. The agency’s delay, in
fact, has been a costly one to the
government. When EPA proposed in 1992 to
recover more of its indirect costs, the agency
estimated the cumulative value of these
costs at $1.1 billion. In 3 years, the estimated
value of these excluded costs has grown to
$3.8 billion, according to EPA.

Finally, for the past several years, EPA has
focused attention on strengthening its
management of Superfund contracts. The
agency has continued to exercise oversight,
such as conducting reviews of its regions’
performance in this area, and made other
improvements. However, our recent review
found that in spite of the agency’s actions,
several problems persist: (1) EPA’s regions
are still too dependent upon the contractors’


Page 9     GAO/HR-97-14 Superfund Program Management
                  Overview




                  own cost proposals to establish the price of
                  cost-reimbursable work, (2) EPA continues to
                  pay its cleanup contractors a high
                  percentage of total contract costs to cover
                  administrative expenses rather than ensuring
                  that the maximum amount of available
                  moneys is going toward the actual cleanup
                  work, and (3) little progress has been made
                  in improving the timeliness of audits to
                  verify the accuracy of billions of dollars in
                  Superfund contract charges.


Outlook for the   Thus, despite many improvements, further
Future            actions are needed to safeguard the
                  investment of hundreds of billions of dollars.
                  EPA needs to continue using risk as a
                  criterion in setting priorities for cleaning up
                  sites and to ensure greater consistency in its
                  regions’ use of risk in setting the priorities
                  for initial cleanup work at nonfederal sites.
                  Also, the federal government needs to
                  complete its inventory of the federal
                  facilities requiring cleanup and consistently
                  implement a process to set cleanup priorities
                  and allocate funding for its sites nationwide.

                  To help recover more of its program costs,
                  EPA needs to move expeditiously to increase
                  the amount of indirect program costs that
                  can be recovered. By the end of 1997, EPA


                  Page 10    GAO/HR-97-14 Superfund Program Management
Overview




officials said that they plan to make changes
in their accounting system and guidance that
will increase the recovery of indirect costs.
The officials estimated that such changes
could increase cost recoveries by as much as
$500 million (of the $3.8 billion in excluded
indirect costs). In addition, EPA needs to
establish specific goals and performance
measures that would allow it to more
effectively evaluate its performance in
recovering costs.

Finally, although EPA has been addressing
the weaknesses in contract management, the
agency remains vulnerable to overpaying its
contractors and not achieving the maximum
cleanup work with its limited resources. EPA
needs to better estimate the costs of
contractors’ work, use the estimates to
negotiate reasonable costs, provide
contractors with appropriate incentives to
hold down their administrative expenses,
and increase the timeliness of contract
audits.




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Weaknesses in Superfund Program
Management


                      Past waste management and disposal
                      practices have allowed hazardous
                      substances to seep into the land and water at
                      thousands of federally and privately owned
                      hazardous waste sites. Cleaning up this
                      contamination will cost the federal
                      government hundreds of billions of dollars.
                      Given the limited resources available for
                      cleanups, it is essential that the government

                  •   give greater and more consistent
                      consideration to allocating cleanup dollars
                      first to the sites that present the greatest
                      threat to human health and the environment,
                  •   replenish the trust fund by increasing to the
                      maximum extent its recovery of costs from
                      the parties responsible for cleaning up these
                      sites, and
                  •   spend its cleanup contract dollars wisely.


Risk Plays a          In the past, EPA did not set priorities
Limited Role in       according to the relative health and
Allocating            environmental risks posed by waste sites.
Resources             Consequently, EPA could not demonstrate
                      that it was spending its Superfund resources
                      to achieve maximum protection. EPA has a
                      policy to allocate its resources first to the
                      sites that present the greatest risk. However,
                      EPA’s regions, which generally establish
                      workload priorities, were not consistent in


                      Page 12   GAO/HR-97-14 Superfund Program Management
Weaknesses in Superfund Program
Management




using risk as a factor to set their priorities.
This inconsistency was important because
the regions decide which sites move into the
initial phases of cleanup, such as conducting
site studies to examine the nature and extent
of the contamination. These sites in turn
would continue to receive priority for federal
funds until cleanup is completed, which can
take years. More recently, EPA and its regions
have begun to take steps to give greater
consideration to the sites’ relative risks
when setting priorities.

Likewise, we have reported that the
government does not have an integrated
system to set cleanup priorities in order to
ensure that other federal agencies involved
in cleanups are efficiently spending billions
of dollars each year to identify and address
their waste sites. For example, a critical first
step in establishing priorities is completing
an inventory of sites. However, even after 10
years, federal agencies had made uneven
progress in accomplishing this task.3

The government also does not have a good
system for ranking sites according to their
relative health and environmental risks and
using the rankings to allocate funding to

3
Federal Facilities: Agencies Slow to Define the Scope and Cost of
Hazardous Waste Site Cleanups (GAO/RCED-94-73, Apr. 15, 1994).

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                    Weaknesses in Superfund Program
                    Management




                    hazardous waste site cleanups—either
                    within individual agencies or across agency
                    lines. The costs to clean up the Department
                    of Energy’s nuclear weapons complex, for
                    example, may run up to $265 billion.
                    However, we reported that the agency was
                    not setting priorities by comparing the risks
                    among sites. Instead, the Department of
                    Energy’s program has been driven by goals
                    and milestones in interagency cleanup
                    agreements, which may not achieve the
                    maximum protection of public health and
                    safety with the available resources.


EPA Recovers a      While EPA has successfully negotiated with
Small Fraction of   private parties to do over 70 percent of the
Its Cleanup Costs   cleanups (worth an estimated $12 billion), it
                    has been less successful in recovering the
                    costs from responsible parties when the
                    agency does the work. Through the end of
                    fiscal year 1995, EPA had obtained
                    agreements with responsible parties to
                    recover only $1.6 billion (14 percent) of the
                    $11.6 billion the agency spent. Of course, not
                    all costs are expected to be recovered. In
                    fact, EPA enforcement officials point out that
                    the agency’s success in getting responsible
                    parties to privately finance most of the
                    cleanup work generally leaves the more
                    difficult cases for cost recovery.


                    Page 14     GAO/HR-97-14 Superfund Program Management
Weaknesses in Superfund Program
Management




Nevertheless, EPA, while it seeks to fully
recover direct costs spent at a site (including
contract, personnel, and travel costs), has
excluded a significant portion of its indirect
costs from the agency’s recovery efforts,
such as the research and development costs
for new cleanup approaches. As a result,
through the end of fiscal year 1992, EPA
enforcement officials estimated that the
agency had excluded $1.1 billion.

Second, EPA lacks (1) specific goals and
performance measures that could be used to
improve the results of its cost recovery
program, (2) adequate management
information to monitor progress against
these goals and measures, and (3) reliable
financial information to monitor the
program’s progress.

Finally, the Superfund law further prevents
EPA from recovering millions of dollars
annually by restricting the interest rates
charged to the responsible parties on
recoverable costs. The law specifies that
interest is 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. EPA
usually waits until most reimbursable work
at a site is completed before it negotiates


Page 15     GAO/HR-97-14 Superfund Program Management
                  Weaknesses in Superfund Program
                  Management




                  with the responsible party for repayment
                  because it combines these efforts to save on
                  legal and other enforcement costs. As a
                  result, this practice can postpone interest
                  charges for several years. Furthermore, the
                  Superfund law limits EPA to charging interest
                  on recoverable amounts to the government’s
                  borrowing rate, which is lower than
                  commercial borrowing rates. This
                  requirement, in effect, results in an
                  advantage 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.


Weaknesses in     For almost a decade, we have reported on
Contract          major weaknesses in EPA’s management of
Management        Superfund contracts, primarily in reducing
Could Lead to     the agency’s exposure to excessive
Excessive Costs   payments for contractors’ work.4 These
                  weaknesses result from EPA’s (1) heavy
                  reliance on contractors to do much of the
                  work in the Superfund program and (2) the
                  use of cost-reimbursable contracts. This type

                  4
                   See Superfund Contracts: EPA Needs to Control Contractor Costs
                  (GAO/RCED-88-182, July 29, 1988) and Superfund: EPA Has Not
                  Corrected Long-Standing Contract Management Problems
                  (GAO/RCED-92-45, Oct. 24, 1991).

                  Page 16       GAO/HR-97-14 Superfund Program Management
Weaknesses in Superfund Program
Management




of contract requires special oversight by the
agency because it reimburses the
contractors for all allowable costs and gives
them little incentive to control costs. We
have repeatedly reported that EPA has not
overseen its cost-reimbursable contracts as
necessary to prevent contractors from
overcharging the government.

For example, we found in 1988 and 1991 that
EPA had not protected itself against
potentially wasteful spending by
independently estimating how much the
contracted work should cost. Instead, the
agency was relying primarily on the
contractors’ own cost proposals to establish
budgets for its contracted work. In response
to these reported weaknesses, EPA Superfund
program officials in 1992 required the staff,
among other things, to independently
prepare cost estimates of contracted work
and to use them in negotiating the
contractors’ costs. The agency also
subsequently provided its staff with
guidance and training in preparing these
estimates. However, EPA’s internal reviews
still found problems with the agency’s
preparation of the estimates.

We also reported in 1991 that EPA’s
Alternative Remedial Contracts Strategy


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Weaknesses in Superfund Program
Management




(ARCS) contractors were spending only
two-thirds of their total contract costs
directly on cleanup work. Another third of
the costs was going toward items such as
managers’ salaries, rents, computers,
telephones, and reports (called program
management costs).5 After learning of these
high indirect costs, the Congress capped
them for fiscal years 1994 and 1995 at
15 percent and 11 percent of the total
contract cost, respectively. As we reported
in 1995, EPA worked with these contractors
to get the contracts’ costs down, on average,
to meet the annual targets. However, the
program management costs for individual
contracts still varied widely, ranging up to
22 percent.

We also reported on a large audit backlog of
EPA contracts.6 Audits are necessary for
effective management and are a primary tool
for deterring and detecting waste, fraud,
abuse, and mismanagement. With
cost-reimbursable contracts, audits are
performed to verify the accuracy of the
contractors’ charges. We identified several
steps that EPA and its Office of Inspector

5
See Superfund: EPA Has Not Corrected Long-Standing Contract
Management Problems (GAO/RCED-92-45, Oct. 24, 1991).
6
 EPA’s Contract Management: Audit Backlogs and Audit Follow-Up
Problems Undermine EPA’s Contract Management
(GAO/T-RCED-91-5, Dec. 11, 1990).

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Weaknesses in Superfund Program
Management




General (OIG) could take to reduce the
number of insufficient or untimely audits,
such as identifying and requesting the
resources required to reduce the backlog
within a reasonable time.




Page 19     GAO/HR-97-14 Superfund Program Management
Progress Made



                  EPA and the other federal agencies have
                  taken initiatives to address the areas that we
                  have identified, but serious weaknesses
                  remain that leave the government vulnerable
                  to wasteful spending.


Risk Plays More   EPA and the other federal agencies involved
of a Role in      in cleaning up hazardous waste sites have
Allocating        begun to establish risk-based priorities to
Resources         allocate their resources. In fiscal year 1996,
                  EPA had unstable funding and a backlog of
                  sites waiting to enter the construction phase
                  of cleanup. As a result, EPA chose not to
                  employ its previous practice of having
                  individual regions allocate these resources
                  for the sites in their respective states.
                  Instead, the agency established a panel,
                  composed of regional and headquarters
                  representatives, to rank all of the sites
                  nationwide that needed federal funds to
                  begin cleanup. The panel used five weighted
                  criteria, four of which addressed health and
                  environmental risks, to rank the sites.
                  According to the EPA senior manager in
                  charge of the panel process, the panel results
                  were provided to the Assistant Administrator
                  for Waste Management who then used the
                  results to allocate the available funds
                  nationwide.



                  Page 20   GAO/HR-97-14 Superfund Program Management
Progress Made




Also, we found that EPA’s regions, which
allocate the funding for the work done at
sites before the actual cleanup begins, were
not consistent and varied in the extent to
which they based their funding allocations
on risk. Some regions said that they used
teams to place sites into different risk
categories for allocating resources. Another
region, however, used a less formal process
than assigning sites to specific categories to
set priorities. When the regions use different
approaches, EPA cannot be assured that it is
consistently addressing its worst sites first
and achieving the maximum protection with
available funds.

Other federal agencies have made uneven
progress in identifying and assessing their
contaminated facilities. For example, the
four major land management agencies in the
Departments of the Interior and Agriculture
have made limited progress in completing an
inventory of potential mining waste sites.7
The slow progress stems from a variety of
factors, such as limited resources and the
low priority that some agencies have
assigned to this effort. On the other hand,
the Departments of Defense and Energy and
several other agencies have made substantial

7
Federal Land Management: Information on Efforts to Inventory
Abandoned Hard Rock Mines (GAO/RCED-96-30, Feb. 23, 1996).

Page 21       GAO/HR-97-14 Superfund Program Management
Progress Made




progress in identifying sites with potential
hazardous waste problems.8 Given the
continuing restraint on federal resources, it
is even more important that the government
rank sites for cleanup on the basis of relative
risk—something it cannot do until a full
inventory of sites is available.

Moreover, the government has not
developed an integrated approach for setting
federal cleanup priorities across agency lines
on the basis of relative risk, although
individual agencies have made progress in
establishing their own approaches. For
example, we found that the Departments of
Defense and Energy had developed
priority-setting approaches, but neither has
fully compared the risks agencywide. Thus,
the agencies are unable to compare the risks
for sites at different facilities. Furthermore,
because agencies have independently
developed different approaches to set
risk-based priorities, interagency
comparisons of risks are difficult. Yet setting
priorities for federal cleanups is critical
because nearly $54 billion has already been
budgeted, and the remaining cleanup work
may cost hundreds of billions of dollars
more.


8
Federal Hazardous Waste Sites: Opportunities for More
Cost-Effective Cleanups (GAO/T-RCED-95-188, May 18, 1995).

Page 22       GAO/HR-97-14 Superfund Program Management
                   Progress Made




EPA Has Made       EPA  has taken steps to improve its cost
Limited Progress   recovery program but still needs to address
in Recovering      several key problems. The agency has
More Costs         adopted procedures so that it can more
                   accurately identify and report on the costs
                   that are and are not potentially recoverable.9
                   As a result, EPA has increased its ability to
                   better focus its recovery efforts. The agency
                   has also revised its approach to more
                   efficiently allocate about half a billion
                   dollars in contractors’ non-site-specific costs
                   so that the agency can now include these
                   costs in its recovery efforts.

                   However, EPA has not completed action to
                   make final its 1992 proposed rule that would
                   allow it to significantly increase the indirect
                   costs that the agency could recover from
                   responsible parties. Through the end of
                   fiscal year 1995, EPA enforcement officials
                   estimated that these excluded costs totaled
                   more than $3.8 billion in indirect costs—up
                   from $1.1 billion just 3 years earlier. (See fig.
                   1.)




                   9
                    Superfund: EPA Has Opportunities to Increase Recoveries of Costs
                   (GAO/RCED-94-196, Sept. 28, 1994).

                   Page 23       GAO/HR-97-14 Superfund Program Management
                           Progress Made




Figure 1: Status of EPA’s Efforts to Recover Superfund Program Costs Through
Fiscal Year 1995 (Dollars in Billions)




                                                        Indirect costs excluded by
 Unrecoverable costs                                    EPA's rule ($3.8)
 ($1.8)
                                       33%
                       16%




                        23%                   15%
                                                          Costs sought through
Costs EPA has yet to                                      litigation ($1.7)
pursue ($2.7)
                                     14%



                               Value of cost recovery
                               settlements ($1.6)

                           Note: EPA enforcement officials estimated all of the dollar
                           values except the value of the cost recovery settlements. Of the
                           $1.6 billion that EPA has legal agreements to recover, a total of
                           $1.2 billion had been collected.

                           Source: GAO’s presentation of data from EPA and the Treasury
                           Department.




                           EPA postponed completing its rulemaking
                           because, among other things, the agency
                           received many adverse comments from the
                           private parties that may pay these costs. To


                           Page 24        GAO/HR-97-14 Superfund Program Management
Progress Made




expeditiously increase the indirect costs that
the agency can recover, EPA enforcement
officials and the Acting Chief Financial
Officer said that they plan to make changes
in the program’s accounting system and cost
recovery guidance by the end of 1997, rather
than to continue moving forward with the
rulemaking approach. EPA enforcement
officials recently estimated that these
changes, if implemented as planned, could
increase recoveries by as much as
$500 million. The officials estimated that the
remaining $3.3 billion cannot be recovered,
for example, because some of these costs
are linked to recovery cases that have
already been settled or because no
financially viable party could be identified.

In addition, EPA has not established specific
goals and performance measures that would
allow the agency to more effectively evaluate
its performance in recovering costs. These
measures would also be useful in assessing
the reasons behind the program’s continued
low rate of recovery. EPA has agreements
with responsible parties to recover only 14
percent of the $11.6 billion that the agency
has spent through fiscal year 1995. Instead of
specific results-oriented goals and
performance measures, the agency
continues to establish annual targets that


Page 25    GAO/HR-97-14 Superfund Program Management
Progress Made




focus on the number of cases for which the
regions should decide how the agency
should pursue cost recovery actions. EPA
enforcement officials said that, while they
consider their current goals to be adequate,
they are in the process of establishing goals
and measures under the Government
Performance and Results Act.10

We also reported in 1995 that EPA’s staff
lacked the information needed to efficiently
perform Superfund cost recovery work.11
The limitations in the agency’s automated
information and financial systems prevent
cost recovery staff from relying on these
systems to provide all of the information
needed to identify and report cost recovery
data. As a result, staff must do excessive
manual searches and reconciliations to
ensure that the information supporting cost
recovery cases is accurate, reliable, and
complete. The efficient identification of
supporting cost and cleanup documentation
is critical because if the information is not
available, the government can be prevented
from recovering its costs. While EPA has

10
  This act requires EPA and other federal agencies to establish
long-term strategic plans that cover a period of at least 5 years, no
later than the end of fiscal year 1997. These plans are to be the
starting point for agencies to set annual goals for programs and to
measure the programs’ performance in achieving those goals.
11
 Superfund: System Enhancements Could Improve the Efficiency
of Cost Recovery (GAO/AIMD-95-177, Aug. 25, 1995).

Page 26        GAO/HR-97-14 Superfund Program Management
                       Progress Made




                       efforts under way to improve its financial
                       and management information systems, the
                       agency has not validated the effectiveness of
                       these actions.


Even With              Our recent work shows that EPA has
Improvements,          improved its management of Superfund
Serious                contracts, but the agency is still vulnerable
Weaknesses             to paying excessive contractors’ costs
Remain in              because of (1) the poor quality of the
                       independent cost estimates that EPA prepares
Controlling
                       to evaluate the contractors’ proposed costs
Contractors’           and the limited use EPA makes of these
Costs                  estimates in negotiating the price of
                       contracted work, (2) the large amount of
                       costs going toward remedial contractors’
                       administrative and other program
                       management expenses rather than to
                       conducting cleanup work, and (3) the
                       persistent and large backlog of the audits of
                       the costs that contractors have charged the
                       government.


EPA’s Cost Estimates   EPA regional contracting officials are
Provide Little         generally preparing independent estimates of
Control Over           the cost of Superfund contracted work, as
Contract Costs         required. However, we found that the poor
                       and inconsistent quality of the estimates
                       often did not provide the government with a


                       Page 27    GAO/HR-97-14 Superfund Program Management
Progress Made




good idea of what a contractor’s work
assignment should cost. Furthermore, EPA
infrequently used these estimates to
negotiate a better contract price for the
government. This situation places the
government at risk of paying more than is
reasonable or necessary to accomplish
Superfund work.

EPA’s own internal reviews have identified
problems with the quality of the agency’s
cost estimates for Superfund contracted
work. A 1995 review in one region found
several examples of projects for which no
government cost estimates had been
prepared. In another region, EPA found in
1996 that the contracting officers had
inappropriately revealed the government’s
cost estimate (i.e., its negotiating position)
to the contractors before the cost
negotiation process. Other internal reviews
found that some EPA cost estimates were not
detailed enough to meet the agency’s
standards for such estimates. Still another
review raised questions about whether
regional contracting personnel had adequate
expertise to prepare meaningful cost
estimates. One review suggested that EPA
may want to expand its use of government
expertise from sources such as the Army
Corps of Engineers, an agency that has


Page 28    GAO/HR-97-14 Superfund Program Management
Progress Made




extensive experience in contracting for
construction projects.

Similarly, our recent review found problems
with both the quality and use of independent
government cost estimates. In developing
cost estimates, we found that EPA staff
sometimes omitted key work steps or made
incorrect assumptions; in one case, a
significant mathematical error was made. In
other cases, EPA expressed these estimates in
such wide ranges of acceptable costs that
the estimates were not effective for
evaluating the contractors’ proposals.
Besides this poor quality, our review also
raises questions about how well EPA staff
members were using the estimates to
negotiate the contractors’ costs. We found
that EPA usually (in 21 of 26 cases)12
accepted the contractors’ proposed costs
unchanged—even though EPA’s estimates
ranged from 48 percent below to 164 percent
above the contractor’s proposed costs.
Furthermore, while EPA requires its staff to
justify any differences between its estimate
and the contractors’ proposal, we found that
EPA staff commented on the differences but
then usually deferred to the contractor’s


12
  Our review included all of the government cost estimates
prepared in two regions for Superfund work assignments during
the first 9 months of 1995.

Page 29       GAO/HR-97-14 Superfund Program Management
                   Progress Made




                   position, stating that the contractor’s cost
                   appeared “fair and reasonable.”


Superfund          While the annual average percentage of
Contractors’       program management costs that contractors
Program            charge EPA has declined, our work shows
Management Costs   that EPA still has some problems in
Remain a Concern
                   controlling these costs. First, our analysis
                   shows that only 7 of the 41 ongoing ARCS
                   contracts have met the agency’s original
                   11-percent target for program management
                   costs, over the 10-year life of these contracts.
                   Almost half of these contracts had
                   cumulative program management costs that
                   ranged from 15 to 22 percent, in part
                   because EPA did not control these costs in
                   the early years of the contracts.

                   Second, we found that EPA needs to continue
                   controlling program management costs as it
                   begins awarding its next group of contracts,
                   known as Response Action Contracts (RAC).
                   After more than a year of operation, EPA’s
                   first two active RAC contracts have incurred
                   program management costs of 21 and
                   38 percent. EPA officials told us that while
                   they expect higher program management
                   percentages early in a contract before
                   cleanup work is fully under way, they are
                   concerned about the high rate of these


                   Page 30    GAO/HR-97-14 Superfund Program Management
Progress Made




charges. Moreover, the officials noted that
these contracts’ first year of operation was
during fiscal year 1996—when the agency
operated for 8 months without a final
budget. This unusual situation hampered the
agency’s ability to assign cleanup work to
these contractors and thus contributed to
some of the high program management
costs.

Finally, we found that one of EPA’s key tools
for controlling these costs rewards those
contractors with the highest costs. EPA
intended the contracts to provide financial
incentives (or award fees) to encourage the
contractors to control their program
management costs. However, our analysis of
EPA’s data shows that the contractors with
the highest program management costs
received the highest award fees because the
fees are calculated as a percentage of the
program management costs. To illustrate,
two of these contractors did about
$40 million worth of remedial work.
However, one contractor incurred about
$7 million in program management costs,
while the other contractor incurred about
$4 million. For their performance in program
management, EPA awarded about $300,000 to
the first contractor and about $155,000 to the



Page 31    GAO/HR-97-14 Superfund Program Management
                     Progress Made




                     second. EPA officials said that they plan to
                     further explore this matter.


Contract Audit       Finally, EPA has not made much progress in
Backlog Continues    reducing the risk to Superfund contract
to Place Superfund   dollars resulting from insufficient or
Dollars at Risk      untimely audits. The backlog, which EPA’s OIG
                     attributes to a governmentwide problem of
                     limited audit resources, has remained steady
                     at about 500 unfulfilled requests for audits.
                     The OIG audits about 15 percent of the
                     backlog and funds other agencies (in
                     particular, the Department of Defense) to do
                     the remaining audits because the contractors
                     conduct more business with these other
                     agencies. EPA’s audit needs, however, must
                     compete with the other demands within
                     these agencies for audit resources. While
                     more resources would help address this
                     problem, according to OIG officials, the
                     agency also needs to compel contractors to
                     submit complete and timely documentation
                     for the final audit requests. Our analysis of
                     EPA’s data shows that 54 percent of the
                     incurred-cost data submitted for audit are
                     either inadequate or untimely. EPA and its OIG
                     have recently completed a joint review to try
                     to correct the backlog and acknowledged
                     that EPA needs to find a way to devote more



                     Page 32    GAO/HR-97-14 Superfund Program Management
Progress Made




resources and take other actions to diminish
the audit backlog.

While the audit backlog is not entirely within
the agency’s control, the resulting lag in
performing audits increases the vulnerability
of EPA’s contracting dollars to waste, fraud,
and abuse. When the audit of contracts is
delayed by years, changes in personnel and
old documentation make it difficult for
auditors to decide whether contractors have
charged only allowable costs. Therefore,
increasing the agency’s efforts and resources
to reduce the audit backlog would help to
alleviate this risk.




Page 33    GAO/HR-97-14 Superfund Program Management
Further Action Needed



                      While EPA has addressed weaknesses in its
                      management of the Superfund program, it
                      needs to more effectively use its limited
                      resources and take additional steps to better
                      control the program’s costs.


Risk Should Drive EPA needs to continue considering sites’
Resource          relative risk in setting priorities to allocate
Allocation        Superfund’s limited resources. EPA officials
                      have indicated that they will continue using
                      the panel process to rank sites by risk.
                      However, several years ago, when available
                      funding appeared insufficient, EPA set up a
                      similar panel process but never fully
                      implemented it because the funding situation
                      improved. Thus, we would like to see the
                      agency continue using this approach and
                      make it an integral part of its program
                      operations.

                      Also, EPA needs to ensure that its regions are
                      consistently considering sites’ relative risk
                      when setting priorities for the cleanup work
                      they manage. This action is important
                      because the regions’ decisions affect which
                      new sites can begin the early stages of the
                      cleanup process and eventually move into
                      the national panel process for funding. Thus,
                      without a consistent and broad application
                      of priority setting, EPA cannot ensure that it


                      Page 34   GAO/HR-97-14 Superfund Program Management
               Further Action Needed




               is spending its resources in the most
               effective way to reduce risk.

               To set priorities for federal facilities, the
               government needs to complete its inventory
               of the sites requiring cleanup. Thus, we have
               recommended that the Congress amend the
               Superfund law to require (1) that agencies
               submit plans for completing their inventories
               to EPA for review and approval, (2) that
               agencies report annually to EPA on their
               progress in carrying out these plans, and
               (3) that EPA report annually to the Congress
               on the agencies’ progress. Finally, the federal
               government needs to establish a
               priority-setting process for federal site
               cleanups based on relative risks, and
               agencies need to consistently implement this
               process nationwide. Otherwise, federal
               agencies and the Congress will be hindered
               in making informed decisions about the
               priority, pace, or level of federal cleanups.


EPA Must       Further improvements in cost recovery will
Improve Its    depend on EPA’s expeditious expansion of
Efforts to     the indirect program costs it recovers. Until
Recover More   then, the government will continue to lose
Costs          the opportunity to more fully recoup
               hundreds of millions of dollars. In addition,
               EPA enforcement officials said that their



               Page 35     GAO/HR-97-14 Superfund Program Management
Further Action Needed




ability to recover costs will depend on the
effect of the agency’s new administrative
initiative to waive a portion of the past and
future costs that are attributable to the
parties that do not have the financial
capability to pay their share.

To better track its progress in recovering
past costs, EPA needs to establish goals and
performance measures for its efforts. Also,
EPA needs to continue to collect better
information on the success of its cost
recovery negotiations and on the
recoverability of many of its costs. These
actions would improve the agency’s ability to
evaluate its accomplishments and forecast
the amounts that it is likely to recover. The
agency also needs to validate the
improvements made to its accounting
system and complete its current initiative to
improve its information systems to support
cost recovery efforts. Finally, as we have
suggested in the past, the Congress may
want to consider revising the Superfund
law’s interest provisions to increase the
interest that EPA could charge on recoverable
costs.




Page 36     GAO/HR-97-14 Superfund Program Management
                Further Action Needed




Continued       Although EPA has made progress in
Attention to    addressing some of its persistent contract
Contract        management weaknesses, the agency still
Management Is   needs to better control its Superfund
Needed          contractors’ costs. In particular, EPA needs to
                improve the quality of its independent cost
                estimates and more effectively use them to
                determine the scope and size of its
                contractors’ work budgets. As suggested in
                EPA’s internal reviews, EPA may need to make
                greater use of available government
                expertise, such as the Army Corps of
                Engineers, to help it improve this aspect of
                contract management.

                EPA also needs to ensure that its contractors
                are reducing their program management
                costs, so that the available funds are spent
                on the actual cleanup work to the maximum
                extent possible. Finally, given the risk of
                fraud, waste, abuse, and mismanagement
                resulting from the backlog of contract
                audits, EPA needs to ensure that its
                contractors are submitting timely and
                complete final bills. The agency also needs
                to work with its OIG to decide how more
                resources can be allocated to auditing
                contracts and whether EPA can assume more
                audit responsibility for its contracts.




                Page 37     GAO/HR-97-14 Superfund Program Management
Further Action Needed




In conclusion, until these steps are taken,
the government remains at risk of spending
hundreds of billions of dollars in federally
funded cleanups—but not addressing the
most significant threats to human health and
the environment. At the same time, EPA loses
the opportunity to recover hundreds of
millions more of its past costs that could be
returned to the Treasury. In addition, the
agency remains vulnerable to inefficiently
spending about half of its Superfund
program budget because of inadequate
controls over its contractors’ costs.




Page 38     GAO/HR-97-14 Superfund Program Management
Related GAO Products



            Executive Guide: Effectively Implementing
            the Government Performance and Results
            Act (GAO/GGD-96-118, June 1996).

            Federal Facilities: Consistent Relative Risk
            Evaluations Needed for Prioritizing Cleanups
            (GAO/RCED-96-150, June 7, 1996).

            Superfund: More Emphasis Needed on Risk
            Reduction (GAO/T-RCED-96-168, May 8, 1996).

            State Cleanup Standards (GAO/RCED-96-98R,
            April 24, 1996).

            Superfund: Implications of Key
            Reauthorization Issues (GAO/T-RCED-96-145,
            April 24, 1996).

            Environmental Protection: Selected Issues
            Related to EPA’s Fiscal Year 1997
            Appropriations (GAO/T-RCED-96-164, April 17,
            1996).

            Superfund: How States Establish and Apply
            Environmental Standards When Cleaning Up
            Sites (GAO/RCED-96-70FS, March 20, 1996).

            Superfund: System Enhancements Could
            Improve the Efficiency of Cost Recovery
            (GAO/AIMD-95-177, Aug. 25, 1995).



            Page 39   GAO/HR-97-14 Superfund Program Management
Related GAO Products




Superfund: Information on Current Health
Risks (GAO/RCED-95-205, July 19, 1995).

Superfund: EPA’s Use of Risk Assessments in
Cleanup Decisions (GAO/T-RCED-95-231, June 22,
1995).

Superfund: Risk Assessment Assumptions
and Issues (GAO/T-RCED-95-206, May 24, 1995).

Federal Hazardous Waste Sites:
Opportunities for More Cost-Effective
Cleanups (GAO/T-RCED-95-188, May 18, 1995).

Superfund: The Role of Risk in Setting
Priorities (GAO/T-RCED-95-161, April 5, 1995).




Page 40     GAO/HR-97-14 Superfund Program Management
1997 High-Risk Series



             An Overview (GAO/HR-97-1)

             Quick Reference Guide (GAO/HR-97-2)

             Defense Financial Management (GAO/HR-97-3)

             Defense Contract Management (GAO/HR-97-4)

             Defense Inventory Management (GAO/HR-97-5)

             Defense Weapon Systems Acquisition
             (GAO/HR-97-6)

             Defense Infrastructure (GAO/HR-97-7)

             IRS Management (GAO/HR-97-8)

             Information Management and Technology
             (GAO/HR-97-9)

             Medicare (GAO/HR-97-10)

             Student Financial Aid (GAO/HR-97-11)

             Department of Housing and Urban
             Development (GAO/HR-97-12)

             Department of Energy Contract Management
             (GAO/HR-97-13)




             Page 41   GAO/HR-97-14 Superfund Program Management
1997 High-Risk Series




Superfund Program Management
(GAO/HR-97-14)




The entire series of 14 high-risk reports
can be ordered by using the order
number GAO/HR-97-20SET.


Page 42     GAO/HR-97-14 Superfund Program Management
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