Environmental Protection: Opportunities to Recover Funds Obligated for Completed Superfund Projects

Published by the Government Accountability Office on 1997-04-15.

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

                    United States General Accounting Office

GAO                 Testimony
                    Before the Subcommittee on VA, HUD, and Independent
                    Agencies, Committee on Appropriations, House of

For Release
on Delivery
Expected at
10 a.m. EDT
Tuesday             PROTECTION
April 15, 1997

                    Opportunities to Recover
                    Funds Obligated for
                    Completed Superfund
                    Statement for the Record by
                    Stanley J. Czerwinski, Associate Director,
                    Environmental Protection Issues,
                    Resources, Community, and Economic
                    Development Division

                 Mr. Chairman and Members of the Subcommittee:

                 We appreciate this opportunity to provide a statement for the record for
                 use in the Subcommittee’s hearing on the Environmental Protection
                 Agency’s (EPA) fiscal year 1998 appropriation. As you requested, we have
                 reviewed certain aspects of EPA’s contracts and assistance agreements1
                 that are used to accomplish the work of the Superfund program.
                 Specifically, we are providing information on (1) the total amount of
                 unspent obligated funds remaining on completed contract work orders
                 and assistance agreements and the EPA offices and regions primarily
                 responsible for administering these funds and (2) the timeliness of EPA’s
                 recovery of such funds.

                 In summary, we found the following:

             •   As of December 1996, about $249 million in unspent obligated funds was
                 potentially available to be recovered on over 6,000 completed work orders
                 and assistance agreements. EPA’s Office of Solid Waste and Emergency
                 Response and its regional offices located in Atlanta, New York, and
                 Philadelphia administer most of the funds.
             •   In the early 1990s, EPA recognized the need to take more timely action to
                 recover unspent funds. However, according to the agency’s Inspector
                 General, EPA’s offices responsible for managing contracts and assistance
                 agreements were not provided sufficient resources to do so, while carrying
                 out their other responsibilities. Consequently, in 1994, EPA created the
                 Superfund Deobligation Task Force to respond to a growing backlog of
                 completed work orders and assistance agreements, and the associated
                 unspent funds. Since fiscal year 1994, the task force has recovered over
                 $400 million. However, the task force is not keeping up with a growing
                 backlog of completed work orders and assistance agreements because it is
                 composed of part-time members who perform these activities only when
                 their primary job responsibilities enable them to do so.

                 EPA relies heavily on contracts and assistance agreements for the
Background       Superfund program, which was created to clean up the nation’s most
                 hazardous waste sites. EPA relies on contractors to accomplish the work of
                 the program, including (1) cleaning up hazardous waste sites,
                 (2) supervising cleanups performed by others, and (3) providing technical

                  Assistance agreements include grants, cooperative agreements, and interagency agreements. Grants
                 provide financial assistance to organizations to carry out a program without substantial federal
                 involvement. Cooperative agreements provide financial assistance and require substantial federal
                 involvement to carry out a program. Interagency agreements transfer funds between federal agencies.

                 Page 1                                                                       GAO/T-RCED-97-134
and scientific support to the program. Contracts are generally used to
obtain the services of private businesses when EPA manages the work.
Assistance agreements are generally used to support the activities of
states, nonprofit organizations, and universities in the Superfund program.
From fiscal years 1990 through 1996, Superfund contracts accounted for
$5 billion, or 57 percent, of the $8.8 billion that EPA obligated for all
contracts awarded during that period. From fiscal years 1990 through
1995, the most recent period for which information is available, EPA
entered into 620 Superfund assistance agreements valued at about
$387 million.

EPA issues individual work orders to describe the specific tasks and
requirements to be completed on contracts. When a new work order is
awarded or a new assistance agreement is entered into, EPA obligates an
amount equal to the estimated cost of the work. As work progresses, EPA
releases funds to contractors or the recipients of assistance agreements
and liquidates its obligations. In many instances, the amount of funds
obligated exceeds the amount eventually needed to pay the contractor or
other entities for the completed tasks and other requirements. In such
cases, the unspent funds may be deobligated and recovered when all work
has been completed or when the specified period of performance has
expired. Before recovering unspent funds, EPA reviews the completed
contract or assistance agreement to ensure that all appropriate payments
have been made. EPA leaves between 10 to 15 percent of the total
expenditures made under the contract or assistance agreement as a
reserve to cover any additional costs, as determined by a final audit.
Recovered funds are to be used for other Superfund activities, since
congressional appropriations for the Superfund program remain available
for use until expended.

EPA contracting officers or grant specialists are responsible for reviewing
the costs of the work and performing other closeout activities. The
maximum amount of time allowed for closing out contracts according to
the Federal Acquisition Regulation is 36 months from the date the
contracting officer receives evidence of the project’s completion.
Similarly, EPA’s Final Closeout Policy for Assistance Agreements specifies
that assistance agreements be closed within 180 days after completion.

Page 2                                                     GAO/T-RCED-97-134
                                    Using EPA’s data systems,2 we identified contract work orders and
Unspent Funds Could                 assistance agreements having unspent obligations for work that has been
Be Recovered From                   completed or for which the specified performance period has expired. Our
Inactive Superfund                  analysis of the data shows that about $249 million in unspent funds are
                                    potentially available for recovery, mostly on contracts and agreements
Contracts and                       administered by the Office of Solid Waste and Emergency Response and
Assistance                          three EPA regional offices. As shown in table 1, hundreds of work orders or
                                    agreements were completed prior to 1991.
Table 1: Balances of Unspent
Obligations by Contract and                                                             Number of
Assistance Agreements’ Completion                                                orders/assistance
Year                                Fiscal year                                        agreements               Unspent obligations
                                    1981-84                                                          7                        $100,945
                                    1985-87                                                         30                       1,542,836
                                    1988-90                                                        886                      16,871,139
                                    1991-93                                                      2,477                      68,923,588
                                    1994-96                                                      2,682                    161,484,102
                                    Total                                                        6,082                   $248,922,610

                                    We found that each of EPA’s 10 regional offices and various headquarters
                                    offices currently have unspent balances obligated for work that has been
                                    completed. (See app. I.) Completed work orders and agreements
                                    administered by the Office of Solid Waste and Emergency Response total
                                    over $54 million in unspent funds. In addition, such funds total over
                                    $43 million in region 2 (New York), over $18 million in region 3
                                    (Philadelphia), and over $30 million in region 4 (Atlanta). These four
                                    agency units account for approximately $145 million, or about 58 percent,
                                    of the $249 million potentially available for recovery.

                                    EPA officials told us that the Office of Solid Waste and Emergency
                                    Response has a large amount of unspent funds because the Superfund
                                    Deobligation Task Force, thus far, has given higher priority to recovering
                                    funds in EPA’s regions. However, the director of the task force told us that
                                    more emphasis will be placed on headquarters’ units during fiscal year
                                    1997. He also told us that EPA regions located in the eastern part of the
                                    United States, such as regions 2, 3, and 4, typically award a greater number
                                    of Superfund contracts and assistance agreements than other regions and
                                    therefore have more unspent funds on work orders and agreements.

                                     The EPA data systems that we used include (1) the Contracts Information System, (2) the Financial
                                    Information System, (3) the Grants Information and Control System, and (4) the Management and
                                    Accounting System. We did not verify the accuracy or reliability of the data systems.

                                    Page 3                                                                        GAO/T-RCED-97-134
                           EPA has experienced a continuing problem in recovering unspent funds on
Timely Actions Have        completed Superfund work orders and assistance agreements. To address
Not Been Taken to          this problem, EPA created a Superfund Deobligation Task Force, which has
Recover Funds              succeeded in recovering nearly $400 million in unspent funds since fiscal
                           year 1994. Nevertheless, the backlog of completed work orders and
                           assistance agreements with unspent funds continues to grow, as additional
                           work orders and assistance agreements are completed. Consequently, on
                           October 1, 1996, the agency implemented a policy that allows EPA offices
                           to use the funds they recover for their own Superfund activities, rather
                           than returning them to the agency for redistribution. However, thus far,
                           this incentive has not resulted in increased recoveries of funds.

Recovering Unspent Funds   In December 1990 hearings before the Subcommittee on Oversight and
Is a Long-Term Problem     Investigations, House Committee on Energy and Commerce, we said that
                           EPA’s failure to recover unspent funds increased the government’s need to
                           borrow; increased the agency’s vulnerability to fraud, waste, and abuse;
                           and resulted in missed opportunities to obtain interest payments due the
                           government from overpayments to contractors.3 A few years later, EPA’s
                           Inspector General reported that, as of March 1993, contracts awarded
                           under the Superfund program still had balances of over $100 million in
                           unspent obligated funds that were no longer needed for their original

                           According to the Inspector General’s report, EPA had experienced delay in
                           recovering unspent funds because it had given a low priority and few
                           resources to closing contracts, which involves ensuring that all goods and
                           services have been received, evaluating performance, and resolving all
                           outstanding issues or problems. The report stated that EPA’s Contract
                           Management Division had requested, but not received, additional
                           resources to carry out these responsibilities in a more timely manner.

                           In addition, according to the Inspector General’s report on assistance
                           agreements,4 EPA officials stated that competing priorities for staff
                           resources also has resulted in untimely closings of Superfund assistance
                           agreements. Officials of EPA’s Grants Administration Division, which
                           administers the agreements, stated that, while closeout functions are

                           EPA’s Contract Management: Audit Backlogs and Audit Follow-Up Problems Undermine EPA’s
                           Contract Management (GAO/T-RCED-91-5, Dec. 11, 1990).
                             Final Report of Audit on EPA’s Controls Over Assistance Agreements, EPA’s Office of Inspector
                           General (Sept. 28, 1995).

                           Page 4                                                                        GAO/T-RCED-97-134
                        important, the division places more emphasis on entering into new
                        assistance agreements than on closing old ones.

EPA’s Task Force Has    To handle a backlog of completed work orders and assistance agreements,
Recovered Substantial   in 1994 EPA established a Superfund Deobligation Task Force. The task
Funds                   force is composed of about 30 part-time members, representing several
                        headquarters offices and each of EPA’s 10 regional offices. Members review
                        individual contract work orders to identify completed projects, determine
                        the amount of unspent funds available for deobligation, and prepare
                        requests to deobligate and recover the unused funds. The task force gives
                        priority to work orders and assistance agreements with the largest
                        potential recovery of funds.

                        After the task force identifies unspent funds, EPA takes action to deobligate
                        and recover them, except for an amount held in reserve pending a final
                        audit of the actual costs of the work. If the reserve funds are not sufficient
                        to cover the final costs, as determined by the audit, EPA uses current-year
                        appropriated funds to pay the difference.

                        Since fiscal year 1994, the task force has recovered over $400 million.
                        However, we found that substantial funds remain on work orders and
                        assistance agreements that were completed years earlier. For example,
                        our analysis shows that 3,400 work orders and assistance agreements were
                        completed more than 3 years earlier, the maximum amount of time that
                        the Federal Acquisition Regulation and EPA’s regulations allow for closing
                        out contracts and assistance agreements. Funds totaling approximately
                        $87 million, or about 35 percent, of the $249 million that we identified
                        were associated with these orders and assistance agreements. If the work
                        orders or assistance agreements are not closed within the time specified,
                        EPA is required to do so as soon as possible.

                        Furthermore, while the task force has recovered substantial funds, it
                        apparently is not keeping up with a growing backlog of completed work
                        orders and assistance agreements. For example, in a May 1, 1996,
                        statement for the record to the Subcommittee on VA, HUD, and
                        Independent Agencies, House Committee on Appropriations, we said that
                        unspent funds on completed work orders totaled $164 million as of March
                        1, 1996.5 Our analysis shows that as of January 1, 1997, such unspent funds
                        had grown by $13 million, an increase of about 8 percent.

                         Environmental Protection: Selected Issues Related to EPA’s Fiscal Year 1997 Appropriation
                        (GAO/T-RCED-96-164, May 1, 1996).

                        Page 5                                                                        GAO/T-RCED-97-134
                       Task force officials told us that during fiscal year 1996, they spent less
                       time on recoveries than they had during the previous 2 fiscal years. The
                       task force recovered $160 million in fiscal year 1994, $170 million in fiscal
                       year 1995, but only $67 million in fiscal year 1996. According to task force
                       officials, fewer staff resources were provided and fewer funds were
                       recovered during fiscal year 1996 because higher priority was given to
                       other work requirements of the EPA units providing the part-time task force

                       These officials also told us that EPA does not have records showing the
                       amount of time that members spend on their task force activities but noted
                       that it is not unusual for competing priorities to severely limit the staff
                       resources that are available. The officials also told us that EPA has never
                       performed an analysis to determine the resources needed to eliminate the
                       agency’s backlog and to keep pace with new completed work orders and
                       assistance agreements.

                       The director of the task force told us that EPA intends to continue with its
                       task force approach. He acknowledged, however, that other options may
                       be considered if sufficient progress is not made in achieving timely
                       recoveries of unspent funds. Among such options are adding resources to
                       the EPA organizations responsible for managing and auditing contracts and
                       grants so that they may be closed in a more timely manner.

New Incentive Policy   EPA believes that a new policy, initiated on October 1, 1996, may result in
                       additional recoveries by providing more incentive to headquarters and
                       regional task force members to identify, deobligate, and recover funds on
                       completed work orders and assistance agreements. Until fiscal year 1997,
                       recovered funds were placed in a central pool and then distributed on the
                       basis of national Superfund priorities. As of October 1, 1996, the funds
                       remain with the offices recovering them to meet the offices’ Superfund
                       cleanup needs. EPA officials told us that this new policy might achieve
                       better results by providing greater incentive to EPA offices to deobligate
                       and recover unspent funds. The officials acknowledged, however, that
                       under the new policy, task force members must still find time to perform
                       the recovery activities while meeting other work requirements having
                       higher priority within their organizational units.

                       The recovery of substantial unspent funds on completed Superfund
Conclusions            contract work orders and assistance agreements could help EPA in meeting

                       Page 6                                                     GAO/T-RCED-97-134
                  its responsibilities for cleaning up Superfund hazardous waste sites.
                  Although the agency has taken actions to recover such funds, it has not
                  succeeded in eliminating a substantial backlog of completed work orders
                  and assistance agreements while keeping pace with annual additions to
                  the backlog. Consequently, EPA is not achieving timely recoveries of these
                  funds, as required by agency policy and the applicable federal contracting

                  To recover unspent funds on inactive Superfund contract work orders and
Recommendation    assistance agreements, we recommend that the Administrator of EPA
                  develop a strategy for identifying, deobligating, and recovering unspent
                  funds within the period specified for contracts by the Federal Acquisition
                  Regulation, and for assistance agreements by EPA’s Final Closeout Policy
                  for Assistance Agreements.

                  EPA officials, including the Director of the Budget Division, Office of the
Agency Comments   Comptroller, generally agreed with the information contained in this
                  statement for the record. They also agreed that a strategy was needed for
                  recovering unspent funds within the period specified by Federal
                  Acquisition Regulations and EPA’s regulations. We have incorporated
                  clarifying comments provided by EPA where appropriate.

                  Page 7                                                     GAO/T-RCED-97-134
Appendix I

Funds Available for Deobligation From
Superfund Work Orders and Assistance
Agreements by EPA Organization as of
December 2, 1996
                                                    Number of
                                             agreements to be
              EPA organization                     deobligated   Estimated recovery
              Region 1                                    229            $7,668,938
              Region 2                                    589            43,569,654
              Region 3                                    423            18,983,622
              Region 4                                    590            30,651,835
              Region 5                                    452            18,905,755
              Region 6                                    247            11,504,173
              Region 7                                    243             8,764,694
              Region 8                                    190            12,931,893
              Region 9                                    275            14,986,054
              Region 10                                   175            11,218,870
              Office of Research and                      704             5,061,885
              Office of Solid Waste and                 1,088            54,905,483
              Emergency Response
              Office of Policy, Planning,                 113             1,802,992
              and Evaluation
              Office of Administration and                497             4,751,486
              Resources Management
              Office of Enforcement and                   132             2,086,980
              Compliance Assurance
              Miscellaneous                               135             1,128,296
              Total                                     6,082          $248,922,610

(160371)      Page 8                                             GAO/T-RCED-97-134
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