Close-Out of Complaint on Metropolitan Water Reclamation District of Greater Chicago Incurring Inappropriate Expenses on Recovery Act Projects



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U.S. ENVIRONMENTAL PROTECTION AGENCY OFFICE OF INSPECTOR GENERAL Close-Out of Complaint on Metropolitan Water Reclamation District of Greater Chicago Incurring Inappropriate Expenses on Recovery Act Projects Report No. 12-X-0090 November 22, 2011 Scan this code to learn more about the EPA OIG.

Report Contributors: Bill Spinazzola Patrick McIntyre Michael Rickey Hotline To report fraud, waste, or abuse, contact us through one of the following methods: e-mail: OIG_Hotline@epa.gov. write: EPA Inspector General Hotline phone: fax: 1-888-546-8740 202-566-2599 1200 Pennsylvania Avenue NW Mailcode 2431T online: http://www.epa.gov/oig/hotline.htm. Washington, DC 20460

U.S. Environmental Protection Agency Office of Inspector General At a Glance 12-X-0090 November 22, 2011 Why We Did This Review We received a complaint that the Metropolitan Water Reclamation District of Greater Chicago may have used noncompetitive practices when procuring bond underwriting contracts and incurred excessive or inappropriate expenses on American Recovery and Reinvestment Act of 2009 (Recovery Act)- funded projects. Background According to the U.S. Environmental Protection Agency (EPA), Region 5, the State of Illinois used a combination of Clean Water State Revolving Fund (CWSRF) and Recovery Act funds to provide $20 million for four district projects. The Recovery Act provided $10,000,001 of the total $20 million. The Recovery Act funding consisted of $5,000,002 in principal forgiveness and $4,999,999 in loans. The CWSRF portion was also a loan. Close-Out of Complaint on Metropolitan Water Reclamation District of Greater Chicago Incurring Inappropriate Expenses on Recovery Act Projects What We Found Our review did not disclose any indication of misuse of funds provided to the district by Illinois CWSRF loans or Recovery Act funds provided through EPA. The types of costs mentioned in the complaint were not included in the amounts paid to the district by the CWSRF. According to state personnel, most, if not all, of the funding administered through the CWSRF was for construction-related expenses. The CWSRF and Recovery Act funds did not pay for professional services contracts or other administrative costs such as training, travel, entertainment, or conference expenses. Since we did not find any indication that the district misused CWSRF or Recovery Act funds, we have closed the complaint and plan no further action on this matter. For further information, contact our Office of Congressional and Public Affairs at (202) 566-2391. The full report is at: www.epa.gov/oig/reports/2012/ 20111122-12-X-0090.pdf

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. 20460 THE INSPECTOR GENERAL November 22, 2011 MEMORANDUM SUBJECT: Close-Out of Complaint on Metropolitan Water Reclamation District of Greater Chicago Incurring Inappropriate Expenses on Recovery Act Projects Report No. 12-X-0090 FROM: TO: Arthur A. Elkins, Jr. Inspector General Susan Hedman Regional Administrator, Region 5 We have closed the complaint that the Metropolitan Water Reclamation District of Greater Chicago may have used noncompetitive practices when procuring bond underwriting contracts and incurred excessive or inappropriate expenses on American Recovery and Reinvestment Act of 2009 (Recovery Act)-funded projects. We concluded that U.S. Environmental Protection Agency (EPA) funds were not used for any of the expenses in question. We also referred questions about the Build America Bond program to the Treasury Inspector General for Tax Administration. To assess the complaint, we performed the following procedures: Interviewed personnel from Region 5, the Illinois Environmental Protection Agency, and the district Obtained a list of the funding that the district had received from the Illinois Clean Water State Revolving Fund (CWSRF) since July 2005 Determined whether the amounts paid for with CWSRF or Recovery Act funds included any costs for contracts with bond underwriters and/or financial advisors, training expenses, travel and entertainment expenses, or conferences Our review did not disclose any indications of misuse of funds provided to the district by the CWSRF loans or Recovery Act funds provided through EPA. The types of costs mentioned in the complaint were not included in the amounts paid to the district by the CWSRF. According to 12-X-0090 1

personnel at the Illinois Environmental Protection Agency, most, if not all, of the funding administered by the CWSRF was for construction-related expenses. The CWSRF did not fund professional services contracts, or other administrative costs such as training, travel, entertainment, or conference expenses. According to Region 5, the CWSRF funded 16 district projects since 2005 with either loans or a combination of loans and principal forgiveness. Four of the 16 projects included funding authorized by the Recovery Act. Total CWSRF loans for the four projects were $20,000,000. The Recovery Act provided $10,000,001 of the total $20 million. The $10,000,001 in Recovery Act funding consisted of $5,000,002 in principal forgiveness and $4,999,999 in loans. We reviewed reimbursement claims for the four Recovery Act-funded loans. As of the dates of our review, June 21 and June 22, 2011, total claims for reimbursement were $18,485,500. None of the four projects we reviewed included expenses for bond underwriters, financial advisors, travel, entertainment, training, or conferences. The amounts reimbursed included only construction costs and associated construction contingency. The district issued capital bonds under the Recovery Act s Build America Bond program. Under this program, the U.S. Treasury will reimburse government agencies for 35 percent of their interest expense on the bonds. On April 29, 2010, the District received notice of an informal inquiry relating to the 2009 Bonds by the United States Securities and Exchange Commission (SEC). The SEC requested production of all documents related to the issuance and sale of the 2009 Bonds. Further, on September 24, 2010, the Internal Revenue Service notified the district of a routine examination of Build America bonds issued by the district during 2009 to determine compliance with federal tax requirements. Since the Build America Bond program is outside our authority to review, we referred questions about this program to the Treasury Inspector General for Tax Administration for consideration. We provided a draft copy of this memorandum to the Illinois Environmental Protection Agency, Infrastructure Financial Assistance Section, and the Metropolitan Water Reclamation District of Greater Chicago for review. Both organizations agreed with the contents of the memorandum. Because this report contains no recommendations, you are not required to respond to this report. The report will be made available at http://epa.gov/oig. If you or your staff have any questions regarding this report, please contact Melissa Heist, Assistant Inspector General for Audit, at (202) 566-0899 or heist.melissa@epa.gov; or Robert Adachi, Product Line Director, at (415) 947-4537 or adachi.robert@epa.gov. 12-X-0090 2

Status of Recommendations and Potential Monetary Benefits RECOMMENDATIONS POTENTIAL MONETARY BENEFITS (in $000s) Rec. No. Page No. Subject Status 1 Action Official Planned Completion Date Claimed Amount Agreed-To Amount No recommendations 1 O = recommendation is open with agreed-to corrective actions pending C = recommendation is closed with all agreed-to actions completed U = recommendation is unresolved with resolution efforts in progress 12-X-0090 3

Appendix A Distribution Regional Administrator, Region 5 Agency Follow-Up Official (the CFO) Agency Follow-Up Coordinator Audit Follow-Up Coordinator, Region 5 Public Affairs Officer, Region 5 Manager, Infrastructure Financial Assistance Section, Illinois Environmental Protection Agency Executive Director, Metropolitan Water Reclamation District of Greater Chicago General Counsel, Metropolitan Water Reclamation District of Greater Chicago 12-X-0090 4