A. BACKGROUND & SUMMARY
The Comprehensive Environmental Response, Compensation and Liability Act of 1980, (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986, (SARA), provides for the identification, investigation and cleanup of Superfund, hazardous waste sites. Under these Acts, the Environmental Protection Agency (EPA) is required to recover its response costs from responsible parties after participating in the investigation, cleanup, oversight, enforcement and other required administrative provisions.
State agencies which spend CERCLA funds must account for and document all response costs to permit recovery of these costs from responsible parties by EPA and the State. Funds may also be provided to the State by EPA under a grant system to undertake Superfund related response activities. State agencies which spend CERCLA grant funds must account for and document all State costs.
This manual outlines procedures involved with the expenditure of funds by the Maryland Department of the Environment (MDE) for CERCLA activities. It sets forth financial management and recordkeeping requirements for Superfund sites and for CERCLA related activities covered by EPA grants. Many of the principles and procedures covered by this manual serve as guidance for non-CERCLA sites, as well, which have the potential for future cost recovery actions. This manual will continue to be updated as new procedures are developed.
Documentation procedures involve complex financial management and recordkeeping policies that must be followed to assure cost recovery. These policies are based on regulations and guidance, in part, set forth in:
- Code of Federal Regulations, (CFR), Title 40, Part 31, Part 33 and Part 35, Subpart "O".
- "State Superfund Financial Management and Recordkeeping Guidance", 1987, EPA.
- OMB Circular No. A-87, " Cost Principles for State and Local Governments".
- Code of Maryland Regulations, (COMAR), Title 21.
Key features of the Superfund financial management and recordkeeping policies which are set forth in detail herein in Section D, include:
- Documentation of all expenses involved with response or grant-specified activities.
- Recovery of "reasonable and necessary" costs only.
- Identification of financial documents, and all other cost related records or agreements which may serve as the basis for determining or authorizing response costs, with the phrase - "SUPERFUND DO NOT DESTROY".
- Maintaining timesheets and other financial document originals without alteration after approvals.
- Maintenance of a unique file or set of files, either containing hard copies, or electronic images shall be maintained for each Superfund site which shall be identified by a project cost account (PCA) code to permit timely access to site records.
Record categories within these files shall be organized in a consistent manner.
- Maintenance of additional files, containing backup documentation which provide background and serve as a basis or authorization for costs, should also be maintained. These general files may contain information that is not necessarily site-specific.
- Retain original documents for each site, OU or activity.
- Electronic records may be acceptable for cost recovery if approved by EPA or Attorney General's office.
- Submitting cost documentation, in response to requests from attorneys or EPA only after, expense related records are reconciled with the cost summary.
- Retention of records stamped with the phrase - "SUPERFUND DO NOT DESTROY" for at least 10 years following submission of the final Financial Status Report, (FSR), unless otherwise directed by EPA.
Records are to be retained longer than 10 years if litigation, claim, cost recovery or other associated action takes place before the end of the 10-year period.
- EPA must approve destruction of documents that were required to be saved.
Establish Superfund and EPA grant financial management and recordkeeping procedures which:
- enable the State to meet legal responsibilities and EPA audit requirements;
- document expense related records in a legally acceptable manner;
- facilitate accountability and cost recovery; and
- provide timely access to site, operable unit and activity related expense information.
C. ORGANIZATIONAL RESPONSIBILITIES
1. ERRP - (Environmental, Restoration and Redevelopment Program)
ERRP conducts and oversees CERCLA response activities within the Waste Management Administration, (WAS). Its areas of responsibilities cover:
- Pre-remedial, remedial, removal and operation & maintenance phases.
- Response activities which include, but are not limited to, investigations, review and comment on reports, oversight and implementation of response actions, and enforcement actions, and
- Program development.
CERCLA activities may be funded under EPA grants/ Cooperative Agreements (CAs). The terms of these grants are negotiated between EPA and the State. The State also uses its own funds in engaging in response activities.
Trained staff conduct technical activities associated with investigation, assessment and cleanup, including related activities such as training, travel, and Program development and the like. These employees shall submit timesheets for further processing and record keeping. Time devoted to various response activities is distributed to a number of unique PCA codes within the timesheets, thereby permitting assignment of costs to appropriate sites, OUs and activities. In addition, the technical staff may initiate requisitions such as purchase and travel requests and other financial documents associated with response activities. PCA codes are also used to assign costs for these and other activities as well.
Clerical and administrative staff may assist the technical staff in fiscal, timekeeping, purchase requisitions, travel vouchers and record keeping matters. This staff also serves as liaison with other divisions in processing time accountability documents and other requisitions.
The Program Administrator of ERRP manages ERRP Program and technical activities and approves all ERRP requisitions. Originators of requisitions must justify the necessity of items requested before approval and must satisfy terms of the grants. Approval, or sign off, by the Program Administrator may be via electronic signature where the Advanced Purchasing Inventory Control System (ADPICS), or a similar system, is used with the Financial Management Information System (FMIS) to process the requisition. FMIS is the computerized statewide accounting system which tracks costs by site, OU and activity, and by grant level.
2. Office of Administrative Services (OAS)
A site group, established under CERCLA, functions in a support role in the areas of:
- General program support necessary to operate a State program to implementing CERCLA activities;
- Inter-agency coordination of ERRP activities as necessary to implement CERCLA administrative record keeping and fiscal requirements;
- Legal assistance associated with the administration of the CERCLA program.
Specific functions include, but are not limited to:
- Develop procedures for fiscal and contract management that:
Ensure the financial integrity of CERCLA site-specific expenditures and CERCLA related procurement administration.
Provide clerical and administrative support for the CERCLA program.
- Prepare and negotiate CA grant applications
Notify State Clearinghouse of an application.
Assure that no conflict exists with other State agencies in their plans and programs.
Determine personnel, supplies and equipment that will be needed under each CA.
- Administer grant award
Set up unique PCA codes for each site, OU and/or appropriate activity to provide proper accountability.
Prepare State budget to allow utilization of funds.
- After State budget approval, review CA expenditures and monitor the funding status of each CA.
- Procure a Remedial Management Services (RMS) contractor, where applicable, and manage the administrative aspects of the contract.
- Submit timesheets, covering OAS activities, with their time distributed to appropriate PCA codes. After approval, the timesheets are sent to Fiscal Services for checking and allocation.
- Prepare, review and approve journal entries for time and other cost related items to assure coverage under grants.
- Maintain files of all cost-related documents (timesheets, inventory, invoices etc). and respond to requests from EPA regarding submittal of cost documentation summaries.
- Ensure that appropriate records are available to the public under the Maryland Public Information Act (MPIA).
- Process requisitions.
- Review invoices from Fiscal Services to approve payment.
- Prepare quarterly and other financial and inventory reports as required by EPA.
The OAS program is funded under CAs negotiated between EPA and the State.
c. OAS STAFF
Administrative Officers and associated clerical and administrative staff determine (with ERRP) whether a request is reasonable and necessary and is authorized by a grant. OAS Staff responsibilities include procurement, budget oversight, financial management, property management, inventory, records retention and contract administration functions within the CERCLA Program.
The Lead Agency Budget Specialist is responsible for assuring that there is State appropriation approval of funding and authority to spend grant money. The Lead Agency Budget Specialist provides State budget certification and may initiate budget or grant amendments to cover items not provided for in the budget or the grant.
The Director of WAS has final responsibility for budgeting and grants management. These responsibilities may be delegated for routine requisitions.
3. OTHER UNITS
a. FISCAL SERVICES (FS)
Fiscal Services, a part of the Administrative and Employee Services Administration (AESA), plays a major role in Superfund financial management and recordkeeping. It is responsible for:
- Processing all timesheets, including correcting for leave availability and allocating leave time and indirect costs.
- Processing other expenditure documents including travel advances, expense reports, contractor invoices and purchase orders.
- Recording Superfund payroll and other expenses in FMIS under its R*STARS program, the Maryland accounting system, by site, OU and/or activity, as applicable.
- Performing Automated Clearing House (ACH) transactions.
- Preparing Federal Cash Transaction Reports (FCTRs).
- Retaining some of the original documentation for Superfund expenditures.
- Processing invoices for payment.
b. PROCUREMENT AND CENTRAL SERVICES
This division, part of the AESA, handles procurement, inventory control, receiving and stores for MDE. Its major responsibilities include:
- Adhere to all State regulations and purchasing authorities delegated to MDE by the Department of General Services (DGS) and the Department of Budget and Fiscal Planning (DBFP) agreements in the procurement of goods and services.
Issue purchase orders for approved requisitions for supplies and equipment and process requisitions for services.
ADPICS or similar EPA approved electronic system may be used for purchases.
Procurement authority and the steps involved in the procurement process depend on the nature and cost of the purchase.
Documentation of the agreed upon level of purchasing authority should be maintained.
- Prepare/maintain inventory records and assist in disposal of excess and surplus property in accordance with the guidelines of the Inventory Control Manual, July 1, 1992.
- Monitor vehicle usage, provide guidelines for their use, and at the request of OAS, control, purchase, and dispose of State vehicles.
c. ISCD - (Information Systems and Communications Division)
This Division enters timesheet data into Master payroll to be uploaded for timekeeping and grants management purposes.
d. DGS - (Department of General Services)
Among its authorities, as outlined in COMAR, Title 21, DGS is responsible for approval of contracts for the purchase of all commodities and supplies. It also has authority to award contracts for capital construction, architectural and engineering, or maintenance in the amount of $100,000 or less. It may delegate part of its authority to other procurement agencies.
DGS also keeps on file inventory records submitted by MDE and is responsible for the disposal of State owned property.
e. DBFP - (Department of Budget and Fiscal Planning)
Among its authorities DBFP approves service contracts and automatic data processing contracts in the amount of $100,000 or less. It also has authority over purchasing, leasing and rental of motor vehicles for use by State officials and employees. Other authorities of DBFP are described in COMAR, Title 21. DBFP may delegate some of its procurement authority to other agencies.
f. BPW - (Board of Public Works)
Except as provided under State Finance and Procurement Article, 12-101, Annotated Code of Maryland, BPW may control all procurement in the State. BPW responsibilities and authorities include:
- Setting policy and adopting regulations;
- Exercising any authority conferred on a department by the Annotated Code of Maryland and, to the extent that its action in exercising this authority is inconsistent with the action of any department, the action of BPW shall prevail;
- Delegating to any department or procurement agency all or part of its authority with regard to specific procurements or classes of procurements; and
- Approving contracts in excess of $100,000 and other contracts not specifically delegated to another department or agency.
D. FINANCIAL MANAGEMENT & RECORDKEEPING
1. LEGAL BASIS AND BASIC REQUIREMENTS FOR COST RECOVERY
CERCLA, as amended by SARA, authorizes recovery of federal and State costs from responsible parties. To pursue required CERCLA cost recovery against a responsible party, the costs must be accurately documented. In addition, the necessity of the work done must be proved and the party's responsibility for the release or potential release of hazardous substances must be established. Proving the necessity of the work done and demonstrating party responsibility are beyond the scope of this manual. This manual focuses on the documentation and record keeping requirements and procedures that the State must satisfy to provide for successful cost recovery actions.
In order to attain the Automated Clearing House Payment Requests, the following procedures must be undertaken. A grant expenditure report is obtained from the FMIS help desk. Cost data from the grant expenditure report is entered into a draw spreadsheet which calculates indirect costs and the total amount to draw. The draw amount is entered on the EPA ACH Payment Request form. This form, along with a cover letter and any other information requested, is faxed to the EPA Regional Finance Office.
a. REQUIRED RECORDS
Expenses incurred during the course of a Superfund response action by the State fall into a number of categories. These include, but are not limited to direct labor, administrative and overhead (indirect), supply and equipment, travel and contractor costs. In accordance with CFR, Title 40, Part 35, Subpart "O", the records must support the following items by site, OU or activity:
Amount of funds received and expended
Direct and indirect project costs
Description of property, including a manufacturer's serial number or other identification
Source of the property
Information regarding ownership (MDE or EPA)
Unit acquisition date and cost
Percentage of EPA's interest and cost
Location, use and condition (by site, OU or activity, as applicable) and the date this information was recorded
Ultimate disposition data
Reasons for rejecting any or all bids
Justification for procurement made on a non-competitively negotiated basis, where required
For procurements > $25,000 document:
Basis for contractor selection
Written justification for selecting the procurement method
Written justification for use of any specification which does not provide for maximum free and open competition
Written justification for the choice of contract type
Basis for award cost or price, including a copy of the cost and price analysis and documentation of negotiations.
Time and attendance records and supporting documentation
Documentation of compliance with applicable statutes and regulations
Number of site specific technical hours spent to complete each pre-remedial project
A history of each expense item must be established to be considered valid by a court. Supporting records which constitute a valid history of any cost for work, leased or purchased item must demonstrate that:
- the work was authorized by the State;
- the work was completed (or received);
- the State was billed for the cost; and
- the State paid for the cost.
b. DOCUMENT AND OTHER COST RECOVERY REQUIREMENTS
Each document serving as evidence to support costs claimed by the State must meet a number of legal requirements in order to be considered reliable and authentic. The document must have been produced at roughly the same time as the expense was incurred, it must be produced and utilized in the normal course of business and expert witness must be available, if requested, to testify as to the authenticity and reliability of the document.
Records that prove that expenses were reasonable and necessary must be retained by the State. Violation of EPA or State procurement regulations make it difficult to demonstrate reasonable and necessary conditions. If auditors discover improper practices, the costs associated with these practices may be disallowed, resulting in increased State costs.
c. CHALLENGES TO STATE EXPENSE RECORDS
Cost documentation may be successfully challenged by a responsible party if any of the standards or requirements are not met. State personnel may be questioned under oath on issues such as record keeping practices, financial management, procurement practices, and similar matters and may be required to respond to written questions on these matters. Furthermore, all supporting expense records may be examined for completeness, inaccuracies, inconsistencies and other flaws. If the State receives a request from EPA the defendants in a federal cost recovery for production of documents, it must comply.
State personnel may also be asked procedural questions under oath as to how the State determined various types of costs. If the cost documentation does not meet the requirements in this manual, State personnel will be asked to explain the reasons therefore. Examples where further explanation may be required include: procedures to accurately account for employee time, bid evaluation methods, consistency or completeness of records, methodology for calculating equipment usage rates, etc.
d. PROTECTED INFORMATION
Certain personal and business information may be protected from disclosure and the Attorney General's (AG's) office must always be ed in deciding on information to be withheld. Examples of information that may be withheld from disclosure, but are not limited to: social security numbers, credit card numbers, vacation and sick leave balances, and home addresses. An example of business information that may withheld is confidential trade or financial information
2. PREPARING COST DOCUMENTATION
Each MDE organization involved in initiating an activity, processing a request or undertaking other Superfund response activities is a link in the chain of cost documentation. These units include ERRP, OAS, Procurement, AG's office, Fiscal Services and other entities referred to in other groups. Specific descriptions of the activities of each of the various units involved are described in Section C,3.
The process used to provide cost documentation is initiated when the State program managers receive a request for a package detailing the State's expenses at a site. The request may come from sources such as EPA, the State's legal staff or a responsible party.
- The documents requested must be provided.
- Where a large number of documents is requested, the cost documentation package should contain an up-to-date summary of costs. This summary, which breaks out costs by category (salaries, travel, supplies and equipment, etc., as requested), should be placed at the front of the package (See Appendix 1)
- The remainder of the package is divided into sections containing supporting documents for each of the cost categories in the summary.
- A section summary should be included where there are a large number of records in any one section.
- Reconciliation of all the expense records in each section is the final step in preparing the cost documentation package. No cost documentation should be submitted to EPA, the legal staff, etc, until the expense records reconcile exactly with the cost summary. The attached checklist should be completed to ensure reconciliation. (See Appendix 2).
3. EPA AUDITS
EPA may audit a Superfund CA to determine whether a) the costs that the State has claimed under the agreement are allowable and allocable to the project under the terms of the CA and applicable regulations; and b) controls and procedures in the State's financial and project management, recordkeeping, accounting, procurement and property management meet EPA and other Federal requirements. Major issues concern the State's ability to provide a) responsible accounting, b) timely and accurate reporting and c) effective procedures for indirect cost allocation, equipment purchases and contractor procurement. The procedures as outlined in this manual must be followed to ensure the successful meeting of audit considerations.
4. COST ACCOUNTING
a. VOUCHER PROCESSING
Vouchers are processed quarterly and are broken down by program cost account codes according to site, OU and activity. These breakdowns include invoices and direct invoices, purchase orders, petty cash and travel expense-related items. Expense-related petty cash is processed utilizing the standard statewide processing system. Purchase orders that have previously been given authority are system matched with receiver reports and processed as is. Purchase orders that haven't received authority are first sent to the Administrative Office for review and approval and then through the process outlined above. This information is sent to the State's General Accounting Office where the reference numbers are processed and matched with the comptroller's reference numbers. All vouchers and journal adjustments are filed by fiscal year and date. Original documents are retained there for three years and then returned to OAS for further storage and retention.
b. COMPUTERIZED COST TRACKING
FMIS, the State computerized accounting system, tracks all costs by site, OU and activity. Where vouchers allow costs to be charged to multiple sites, this information is allocated to the appropriate PCA codes under FMIS. The system provides detailed documentation to substantiate site-specific charges and provides an audit trail. It allows the State to reconcile source documentation with financial accounting system information. Together with FMIS reports, proof of payment can be established with reports that include the date paid and the check number.
c. REPORTING REQUIREMENTS
In accordance with CFR, Title 40, Part 31 and Part 35, Subpart "O", a number of reports must be submitted to EPA. These include, but are not limited to, the following:
- Quarterly progress reports covering activities delineated in the Statement of Work are submitted quarterly by ERRP, within 30 days of the end of each Federal fiscal quarter. Key items to be reported upon include:
Details of work accomplished during the reporting period, delays, or other problems and corrective actions planned. For pre-remedial CAs, the report must include a list of site-specific products completed and estimated technical hours spent to complete each product.
A comparison of the percentage of project completed to the project schedule and explanation of discrepancies.
A comparison of funds spent to date to planned expenditures and an explanation for significant discrepancies.
Compare per task basis for remedial, enforcement and removal tasks.
An estimate of time and funds needed to complete work required in the CA, a comparison with actual time and funds remaining and justification for any increase.
- Notification of significant developments covering events which may occur between scheduled reporting dates, and having significant impact on CA supported activity, should be given by OAS to the EPA project officer as soon as the condition becomes known.
- Inventory reports shall be submitted as described in Section F2 of this manual.
- A Department of Labor report must be submitted to the DOL Regional Office of Compliance for each construction project expected to exceed $10,000 within a 12 month period and a copy must be sent to EPA. This report shall be submitted by OAS to DOL within 10 days of each such construction contract and contain the following information:
Estimated start and completion dates
Project number, name and site location.
- Minority and Women's Business Enterprise (MBE/WBE) reports must be submitted by OAS to the award official covering the use of MBE and WBE firms within 30 days after the end of each Federal fiscal quarter. A report on the efforts to encourage MBE participation in the Superfund program may be submitted quarterly, but is required November 1 of each year.
- Financial Status Reports (FSRs), complying with requirements in CFR, Title 40, Part 31 and Part 35, Subpart "O", shall be submitted by OAS. FSRs include financial information by site, OU and activity, as applicable.
OAS Administrative Officer prepares the report and submits to Fiscal Services to ensure figures match FMIS and then forward to EPA.
A final FSR must have no unliquidated obligations.
If any obligations remain unliquidated, the FSR is considered as an interim report; a final report must be submitted after liquidating all obligations.
FSRs shall be submitted as follows:
Annually, due 90 days after the end of the Federal fiscal year or as specified in the CA; if quarterly or semiannually, due 30 days after the reporting period.
Within 90 days after completing each CERCLA-funded response activity at a site.
Within 90 days after termination or closeout of the CA.
- Federal Cash Transaction Reports (FCTRs), covering grant payments (by letter or credit, Treasury check advances or electronic transfers of funds), shall be submitted by FS.
To prepare a FCTR, expenditure data from the grant tracking spreadsheet and data from individual draw requests is obtained. Instructions on the back of the FCTR form are utilized to enter data onto the FCTR preparation sheet. This form is then filled in and mailed to the Regional office.
FCTRs are due quarterly, within 15 working days after the end of the quarter.
5. RECORDKEEPING GUIDANCE
Effective recordkeeping is essential for cost recovery. Good recordkeeping provides a complete set of expense related records for each site and timely access to these records. It is important to emphasize that cost documentation procedures apply both to the State and to the State's contractors.
Direct access to the files should be restricted. Files should be maintained in a locked file cabinet. Responsibility for maintaining the files shall be assigned to OAS Administrative Officers and/or specifically designated OAS clerical or administrative staff.
a. PROCEDURES FOR USING THE FILE MAGIC ELECTRONIC FILING SYSTEM
Original documents are scanned and indexed using File Magic 5 Software. The following procedures should be followed when using this system. A File Magic manual is available for further information.