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Guidance on Exercising CERCLA Enforcement Discretion in Anticipation of Full Cost Accounting Consistent With the ``Statement of Federal Financial Accounting Standards No. 4''
Note: EPA no longer updates this information, but it may be useful as a reference or resource.
[Federal Register: June 2, 2000 (Volume 65, Number 107)]
[Notices]
[Page 35339-35345]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jn00-63]
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ENVIRONMENTAL PROTECTION AGENCY
[FRL-6708-8]
Guidance on Exercising CERCLA Enforcement Discretion in
Anticipation of Full Cost Accounting Consistent With the ``Statement of
Federal Financial Accounting Standards No. 4''
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice.
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SUMMARY: The EPA Office of Enforcement and Compliance Assurance, Office
of Site Remediation Enforcement is providing guidance to its regional
components on the exercise of enforcement discretion, from May 30, 2000
through October 2, 2000, in anticipation of EPA's implementation of
full cost accounting.
Attachments 1 and 2 were prepared by the Office of the Chief
Financial Officer. They describe the reasons for full cost accounting
and the methodology being used to implement full cost accounting.
EFFECTIVE DATE: May 30, 2000.
FOR FURTHER INFORMATION CONTACT: Chad Littleton, Office of Enforcement
and Compliance Assurance, Office of Site Remediation Enforcement, U.S.
EPA, 1200 Pennsylvania Ave., NW, Washington, DC 20460 (MC 2273A); e-
mail: littleton.chad@epa.gov; phone: (202) 564-6064.
SUPPLEMENTARY INFORMATION:
Memorandum
Subject: Guidance on Exercising CERCLA Enforcement Discretion In
Anticipation of Full Cost Accounting Consistent with the Statement of
Federal Financial Accounting Standards No. 4
From: Steven A. Herman, Assistant Administrator, Office of Enforcement
and Compliance Assurance
To:
Regional Administrators, Regions I-X
Deputy Regional Administrators, Regions I-X
Regional Counsel, Regions I-X
Superfund Division Directors, Regions I-X
This memorandum provides guidance to EPA personnel on how to
exercise enforcement discretion as it relates to upcoming changes in
EPA's indirect cost accounting methodology.
A. Upcoming Revisions to Indirect Cost Accounting
EPA's Office of the Chief Financial Officer (OCFO) recently
announced that it is revising the Agency's methodology for allocating
indirect costs to Superfund sites. These steps will bring Superfund
into compliance with cost accounting standards issued by the Federal
Accounting Standards Advisory Board (FASAB) on July 31, 1995,
(Statement of Federal Financial Accounting Standards No. 4 (SFFAS No.
4)).\1\ The principal goal of those standards is to make it possible
for Federal agencies to determine and report the true costs of their
programs and activities. The Federal Financial Management Improvement
Act of 1996 (Title VIII, Public Law 104-208)\2\ requires all Federal
agencies to develop and use cost accounting methodologies that are
consistent with the SFFAS No. 4 and other applicable standards.\3\
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\1\ Available as SFFAS 4 at www.financenet.gov/financenet/fed/
fasab/concepts.htm.
\2\ Available from the 104th Congress catalog at
www.access.gpo.gov/nara/publaw/104publ.html.
\3\ ``(5) To rebuild the accountability and credibility of the
Federal Government, and restore public confidence in the Federal
Government, agencies must incorporate accounting standards and
reporting objectives established for the Federal Government into
their financial management systems so that all the assets and
liabilities, revenues, and expenditures or expenses, and the full
costs of programs and activities of the Federal Government can be
consistently and accurately recorded, monitored, and uniformly
reported throughout the Federal Government.
(6) Since its establishment in October 1990, the Federal
Accounting Standards Advisory Board (hereinafter referred to as the
``FASAB'') has made substantial progress toward developing and
recommending a comprehensive set of accounting concepts and
standards for the Federal Government. When the accounting concepts
and standards developed by FASAB are incorporated into Federal
financial management systems, agencies will be able to provide cost
and financial information that will assist the Congress and
financial managers to evaluate the cost and performance of Federal
programs and activities, and will therefore provide important
information that has been lacking, but is needed for improved
decision making by financial managers and the Congress.'' (Public
Law 104-208, 110 STAT 3009-389-390).
``Each agency shall implement and maintain financial management
systems that comply substantially with Federal financial management
systems requirements, applicable Federal accounting standards, and
the United States Government Standard General Ledger at the
transaction level.'' (Id.)
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A copy of the OCFO memorandum announcing and describing EPA's
implementation of an accounting methodology complying with the SFFAS
No. 4 is attached for your reference (Attachment 1). That memorandum
describes important background events and EPA's approach to
implementing the revised methodology, defines many important accounting
terms as they apply to EPA, lists preliminary estimated regional
indirect rates based on the revised methodology, and states that OCFO
will calculate actual indirect costs rates using the revised
methodology (hereinafter ``revised rates'' or ``revised indirect
rates'') for all fiscal years after 1989. The OCFO expects the revised
rates to be completed and issued by October 2, 2000, at which time EPA
will begin using the revised rates.
B. The Revised Rates and Superfund Site Costs
As described more fully in the attached OCFO memorandum, direct
costs are costs an organization incurs when it produces a specific
result. Most of the other costs of running the organization are
indirect costs. EPA's current indirect cost accounting methodology
allocates to Superfund sites only about one-third of the indirect costs
that are incurred by EPA and properly allocable to sites. SFFAS No. 4
requires ``full cost accounting,'' which means that Superfund indirect
costs must be allocated to sites. For that reason, implementing an
indirect cost methodology based on SFFAS No. 4 will increase the
aggregate amount of indirect costs allocated to sites.
The effect of applying the revised rates will vary from site to
site because the SFFAS-compliant methodology and the current
methodology use different techniques for allocating indirect costs to
individual sites. The SFFAS-compliant methodology allocates
[[Page 35340]]
indirect costs in proportion to direct costs, whereas the current
methodology uses the number of Superfund staff hours charged to a site.
As a result, sites with large direct Federal expenditures compared to
the number of Superfund staff hours will generally see the largest
indirect cost increases, and few if any decreases. Sites with smaller
Federal expenditures compared to the number of Superfund staff hours,
such as sites cleaned up by potentially responsible parties (PRPs)
where EPA's costs are largely for oversight performed by EPA staff,
will generally see smaller indirect cost increases, and are also more
likely to see decreases.
C. Enforcement Discretion as It Relates to the Revised Indirect Rates
As noted above, the OCFO expects the revised rates to be available
on October 2, 2000, and will begin using them as soon as they are
issued. In general this means that after October 2, 2000, site costs,
including oversight costs, will be calculated using the revised rates.
The following sections address areas of particular enforcement interest
and describe how the Agency intends to exercise its enforcement
discretion in individual cases to provide a fair and efficient
transition to the revised accounting methodology.
1. Concluded Matters
EPA has previously settled or litigated numerous claims for past
response costs. The costs EPA sought in those cases included indirect
costs based on the current rates. EPA recognizes the importance of
repose and finality in those cases and therefore the Agency has no
plans to re-open any concluded matters to apply the revised rates to
claims for past costs that were presented and resolved in those
matters. This includes consent decrees, litigated judgments and
administrative orders on consent. It also includes ceilings established
in settlements and judgments for oversight or other response costs that
the Agency can bill to PRPs under those existing settlements or
judgments.
2. Oversight Billings
The Agency has no plans to recompute oversight bills that were
prepared and sent to PRPs before the revised rates are issued.
3. Claims in Litigation Prior to October 2, 2000
When EPA issues the revised indirect rates there will be a number
of cost recovery cases pending in Federal courts. The past costs EPA is
seeking in those cases will have been calculated using the current
indirect rates. There may be special circumstances in those cases,
especially if the litigation is at an advanced stage, that cause the
case team to decide not to seek to amend the claim by applying the
revised indirect rates. An example might be certain cases in which
costs have already been presented to the court and the parties are
awaiting the court's decision. These decisions will be made by the EPA/
Department of Justice (DOJ) case team on a case-by-case basis. This
approach is intended to be consistent with prior practice (See, Policy
on Recovering Indirect Costs in CERCLA Section 107 Cost Recovery
Actions, OSWER Directive 9832.5, June 27, 1986) (superseded by this
guidance).
4. Interim Settlement Policy in Anticipation of the Revised Rates
This memorandum gives advance notice of the revised rates. One
purpose of the advance notice is to provide PRPs who have unresolved
cost recovery liabilities an opportunity to settle with the United
States at the current rates. For sites where the revised rates would
result in higher indirect costs, it may be advantageous for the PRPs to
settle with the United States under the current rates. Therefore, until
the revised rates are issued, which the OCFO expects to occur on
October 2, 2000, the Agency will entertain settlement offers resolving
the claims of the United States for CERCLA response costs based on the
current indirect rates.
Generally, the Agency will consider a settlement offer based on
site costs computed using the current indirect cost rates, if: (1) The
offer is made prior to October 1, 2000; (2) the Agency determines, in
its sole discretion, that there is sufficient information available on
which to base a settlement decision; and (3) it appears to the Agency
that the offer is likely to lead to an executed final settlement by
March 30, 2001. For cases in litigation or that have been referred to
DOJ, the DOJ/EPA case teams will determine the appropriate response to
any settlement offer. For all other matters, regional case teams will
determine the appropriate response to any settlement offer. Case teams
may set alternative milestone dates for any individual PRP or site, if
appropriate, based on PRP-specific or site-specific circumstances after
consultation with the Regional Support Division (RSD) in the Office of
Site Remediation Enforcement (OSRE).
After such an offer has been received, if settlement negotiations
are unproductive or it becomes evident that the applicable milestone
dates have not been met, or are not likely to be met, the Agency may,
at its sole discretion, withdraw the opportunity to enter a settlement
based on the current rates.
D. Proving Indirect Costs
Implementing the SFFAS accounting methodology will not alter the
burden of proof that the Agency must meet when seeking recovery of
indirect costs. EPA will continue to provide evidence acceptable in a
court of law to prove that the indirect costs sought are allocable to
the site that is the subject of the enforcement action.
E. National Consistency/Coordination
Except for the specific transition related adjustments noted above,
existing policy and guidance applicable to considering or accepting
settlement offers is unchanged. Implementing the revised indirect rates
will not affect the discretion of the Agency or DOJ to settle or
compromise cost recovery claims, including those cases where costs are
based on the revised rates. Litigation risk, equitable considerations,
and other factors that are considered in determining whether to settle
or compromise claims may still be taken into account. As always, EPA
will exercise its discretion to ensure that any resulting settlements
are fair, reasonable, and consistent with CERCLA.
When EPA begins using the revised rates, we expect that the Agency
will face questions about matters associated with the transition to the
revised rates. EPA has a substantial interest in promoting a nationally
consistent approach during this transition period. Therefore, I have
asked the RSD to monitor EPA's implementation of the revised indirect
rates. I also ask each regional office to designate a point of contact
to assist RSD in our effort to quickly resolve key questions about
EPA's use of the revised rates, and to promote national consistency
among the regional offices. Please send the name and telephone number
of your workgroup member to Maria Cintron-Silva, RSD, no later than
three weeks after the date of this memorandum. Workgroup contacts will
be expected to provide information regarding each of the offers
received and their dispositions. For questions about this memorandum
and OECA's implementation of the revised rates, please contact Chad
Littleton, in the Office of Site Remediation Enforcement, at 202-564-
6064.
[[Page 35341]]
Attachments
Dated: May 26, 2000.
Steven A. Herman,
Assistant Administrator, Office of Enforcement and Compliance
Assurance.
Memorandum
Subject: Accounting for Indirect Costs Associated with Superfund Site-
Specific Activities
From: Joseph Dillon, Acting Comptroller (2731)
To: Senior Resource Officials
This Policy Announcement provides the policies and procedures for
implementing Statement of Federal Financial Accounting Standards
(SFFAS) No. 4, Managerial Cost Accounting Standards for the Federal
Government, for the Superfund Site Cleanup Program by providing a
revised indirect cost methodology. This methodology along with existing
policies and procedures regarding direct costs results in accounting
for the ``full costs'' of actions taken at or in connection with
Superfund Sites.
Background
The Office of Management and Budget (OMB) issued SFFAS No. 4 on
July 31, 1995, with an effective date of October 1, 1997. SFFAS No. 4
requires federal agencies to determine the full cost of their outputs
(programs). The full cost of programs includes both those costs
specifically identifiable with each particular program, or direct
costs, and those costs which collectively support the many programs, or
indirect costs.
Since 1985, EPA has been identifying the indirect costs associated
with Superfund site-specific activities for all fiscal years after
1982. However, the indirect cost methodology developed at that time was
conservative and did not result in allocating all indirect costs to
sites. As a result, the General Accounting Office, the EPA Office of
Inspector General, OMB and Congress have repeatedly criticized EPA's
methodology. The Office of the Chief Financial Officer (OCFO) has
developed an indirect cost methodology to compute indirect cost rates
for Superfund site-specific activities in accordance with SFFAS No. 4.
By incorporating the resulting indirect cost rates into their analyses,
Superfund Managers will be able to compute the full cost of their
program.
Policy and Procedures
The OCFO has developed a Superfund indirect cost methodology based
upon full cost accounting concepts. Using that new methodology, OCFO is
presently calculating and will issue indirect cost rates based upon the
full cost accounting methodology (``revised rates''). The OCFO will
issue revised rates for each Fiscal Year, by Region beginning with FY
1990. The revised rates will be issued after the date of this Policy
Announcement and are expected to be completed and issued by October 2,
2000. Once the revised rates are issued, Superfund managers should use
the revised rates to determine the full cost of Superfund site specific
activities. In the meantime, EPA Superfund program managers may use the
preliminary, estimated indirect cost rates identified in Attachment 1
as the basis for estimating the full cost of Superfund site-specific
activities.
Beginning with FY 2001, the Agency will no longer compute nor
issue, as provisional or final, indirect cost rates based upon the
earlier Ernst & Whinney methodology.
A brief description of the full cost methodology is as follows:
EPA's annual costs are analyzed to determine whether the costs
represent general Agency or Regional support activities, program
support activities, or program direct costs. Those general Agency
support activities and the Superfund program support activities are
included in calculations that allocate these costs to programs and
produce a Superfund indirect cost pool for each region. Each Region's
indirect cost pool, including appropriate Regional support costs, is
divided by the Region's direct costs incurred for site-specific
activities to determine the Region's indirect cost rate for the fiscal
year, which is expressed as a percentage of direct site costs. The
Region's indirect cost rate is multiplied against the direct costs
incurred for a particular Superfund site to determine the amount of
indirect costs that will be allocated to that site. By adding the
direct site costs and the indirect costs allocated to a particular
site, or group of sites, the total cost for that site or group of sites
is determined.
For a more detailed description of the Superfund Indirect Cost Rate
Methodology, please refer to Attachment 1.
Effective Date
OCFO expects to complete and issue the new Superfund Full Indirect
Cost Rates by October 2, 2000, at which time they will be effective for
all accounting purposes.
Additional Information
If you need further information on this Policy Announcement, please
contact Charles Young of the Program and Cost Accounting Branch,
Financial Management Division at (202) 564-4914.
Attachment 2
Superfund Full Cost Indirect Cost Rate Methodology
Background
OMB, the Secretary of the Treasury and the Comptroller General
established the Federal Accounting Standards Advisory Board (FASAB) in
October 1990 to set Federal Government Accounting Standards. In
September 1993, the Vice President in his report on the National
Performance Review recommended an action which required the FASAB to
issue a set of cost accounting standards for all federal agencies.
FASAB issued the Statement of Federal Financial Accounting Standards
(SFFAS) No. 4, Managerial Cost Accounting Concepts and Standards for
the Federal Government on July 31, 1995, which became effective for EPA
on October 1, 1997. Title VIII of the Federal Financial Management
Improvement Act of 1996 (Title VIII, Public Law 104-208) requires
federal agencies to comply with the Federal Financial Accounting
Standards and emphasizes that agencies' systems must report the total
costs of programs and activities. EPA will comply with this requirement
for all the Agency's programs, based on specific needs of each program
and applicable accounting requirements. The methodology described in
this Policy Announcement applies to EPA's Superfund site-specific
activities as set forth below.
SFFAS No. 4 sets forth five fundamental elements of managerial cost
accounting to provide information on the cost of federal programs. One
of those elements is to determine the full cost of government goods and
services. According to the Standard, full cost includes both direct and
indirect costs. Direct costs are defined as ``costs that can be
specifically identified with an output.'' Indirect costs are costs that
are common to multiple outputs but cannot be specifically identified
with any particular output. In the context of the Superfund program,
direct costs include those that are directly incurred by the United
States for site-specific activities performed at or in connection with
a particular site or a particular group of sites. Site-specific
activities include the assessment, investigation and clean-up of a
site, ancillary site-associated activities, and related enforcement
actions. Indirect costs are those that support the Superfund program as
a whole and cannot be identified to any one site or other ``output'' of
the
[[Page 35342]]
program. The government's full cost at a Superfund site consists of the
direct costs incurred for site-specific activities and the
proportionate share of all the costs that provide indirect support to
the site.
In 1985, EPA, with the assistance of the accounting firm Ernst &
Whinney, developed an indirect rate methodology for determining the
government's cost of site-specific activities under CERCLA. The
indirect rates developed were conservative. As a result of the
conservative methodology, a substantial portion of the indirect cost
pool was not allocated to individual Superfund sites, even though site-
specific activities are the direct output that the indirect costs
support. As a result, the General Accounting Office (GAO), the EPA
Office of Inspector General (OIG), OMB and Congress have repeatedly
criticized the methodology for failing to identify the full cost of
Superfund site clean-ups and therefore failing to allow potential
recovery of all indirect costs. The OIG considered this method of
recovering less than full overhead costs as a Federal Manager Financial
Integrity Act (FMFIA) ``material weakness'' and suggested the Agency
identify it as such.
EPA has revised the Superfund indirect cost methodology to enable
the Agency to report the full cost of the program in compliance with
SFFAS No. 4 and with other federal mandates requiring the reporting of
cost information. During the preparation of the revised methodology,
EPA sought separate independent reviews of the methodology by both GAO
and the national accounting firm KPMG. KPMG found the revised
methodology in compliance with SFFAS No. 4, as well as ``easier to
understand, more thorough and more complete than the previous
methodology.'' GAO reviewed the revised methodology and found ``that
the design of EPA's proposed Superfund indirect cost methodology
complies with cost accounting standards for federal government'' as
well as the requirements of SFFAS No. 4.
Approach
EPA's approach to developing a full cost indirect cost methodology
for Superfund is based on the guidance provided by SFFAS No. 4. In
addition, certain other factors are also taken into account. These
include the nature and classification of Agency costs, private sector
cost accounting practices and the cost/benefit of obtaining the data
necessary to compute indirect cost rates. Indirect cost rates will be
developed for each region and each Fiscal Year beginning with FY 1990.
We are beginning with FY 1990 because active Superfund sites have costs
incurred in prior years generally no earlier than FY 1990, with limited
exceptions. Thus, computing full cost indirect rates back to FY 1990
will allow Superfund managers to determine the full cost of site-
specific activities for nearly all active sites, while going back
before FY 1990 would be of primarily historic interest. Therefore, we
consider it most cost effective to compute rates no further back than
1990; if managers need indirect cost information for years prior to
1990, the rates computed using the current methodology may be used for
those earlier years. Use of the revised indirect cost rates will
provide Superfund managers, other EPA management and Congress with the
full cost of Superfund site-specific activities.
The current Superfund indirect cost methodology uses indirect rates
which are expressed as a rate per hour of labor effort. This rate is
computed using a base consisting of all labor hours (including both
site and non-site labor), but is applied to only site labor hours. This
results in an under-allocation of indirect costs. This approach,
although acceptable from an accounting standpoint, is conservative in
its allocation of indirect costs to individual sites and led to the
criticisms noted above. The principal conceptual change the Agency will
make as it moves to full cost accounting in compliance with SFFAS No. 4
with respect to Superfund site-specific activities, is to ensure that
indirect costs that support site clean-up are fully allocated to site
charges. In order to do so, EPA will allocate the appropriate indirect
cost pool using total direct site costs as an allocation base. This
will result in indirect cost rates expressed as a percentage of total
direct site costs rather than a dollar rate per hour as is the current
method. The change in the allocation base is the most important
difference between the full cost accounting methodology and the prior
methodology, with only minor changes to the indirect cost pool (further
described below). The indirect cost pool identified for calculation of
the new indirect cost rate will reflect only those costs which are
appropriately allocable to and support the Superfund site-specific
activities.
In determining the indirect costs associated with the Superfund
program, certain costs funded from non-Superfund appropriations are
included as indirect costs because they provide services that benefit
the Superfund program and are necessary to reflect full cost. SFFAS No.
4 states that one of the components of full cost is the ``cost of
support services provided by other responsibility segments * * * and by
other reporting entities.'' We include other appropriations because our
approach determines the allocability of indirect costs according to the
organizational unit that provides the support services regardless of
which appropriation has been charged with the costs. We begin with the
total costs of organizational units and then allocate these costs to
all units receiving support services.
Not all appropriations, however, are included as indirect costs.
For example, charges under the Oil Spill appropriation are not
included. Oil Spill disbursements support only the Oil Spill program
and should not be allocated to other programs. State and Tribal
Assistance Grants appropriations are also excluded. These are grants to
states, local and tribal governments which fund a variety of
environmental programs and infrastructure projects pertaining to water
quality initiatives. Funding under the Science and Technology
appropriation is excluded. These funds support research and development
initiatives. The treatment of research and development costs is
discussed under the section on direct costs. The programs funded by the
appropriations listed above are considered to be separate from
Superfund and have their own outputs. These appropriations do not
include any indirect costs that are allocable to the Superfund program.
As explained below under Exclusions from the Pool, costs associated
with certain organizational units are also removed from the indirect
cost pool depending on their relationship to the Superfund program.
The concept of full cost, according to the Standard, also requires
that inter-entity costs or the costs of services received from other
entities be recognized. Costs of employee benefits funded by the Office
of Personnel Management (OPM) are considered inter-entity costs and
will be included as indirect costs. Because methodologies to estimate
the costs of services received from federal agencies other than OPM are
still under development, these costs are not included in the indirect
cost pool at this time.
The methodology for determining indirect costs allocable to
Superfund site-specific activities is patterned after private sector
models that group costs according to levels of organization and
benefit. Indirect costs are classified hierarchically. At the highest
level are Agency-wide costs, i.e., national costs which benefit all
organizations. Examples of these are facilities management, budget
functions, human resource management, and OPM inter-
[[Page 35343]]
entity costs. The next level incorporates regional costs which benefit
each of the Agency's ten regions. These are general costs which are
essentially counterparts of national costs but benefit regions only.
Examples include the costs of regional administration, support, and
policy and planning functions. Superfund program management costs
comprise the next two levels. These are the support costs incurred at
both headquarters and regions to implement Superfund site-specific
activities. Costs from each of these four levels form the basis of the
indirect cost pool. The final product--separate indirect cost rates for
each of EPA's ten regions--will be expressed as a percentage of direct
(site-specific) costs for each region.
Direct Costs
In determining the direct costs of the Superfund program, we use
SFFAS No. 4's definition of direct costs. However, the direct costs of
the Superfund program as a whole, are not necessarily synonymous with
the direct costs of Superfund site-specific activities. Superfund site-
specific activity is one component of the Superfund program.
Site-Specific Costs
The major component of Superfund direct costs is the costs of site-
specific activities, i.e. the cost of all activities that go toward the
assessment, investigation and actual clean up of a site, related
enforcement actions, and other site-associated activities. Examples
include, but are not limited to, the costs of salaries and benefits of
employees who work directly at the site or provide other site-related
effort, contractor costs of removal or remedial activities, and
analytical work performed for the site.
Certain other Superfund-related costs are also considered direct
costs, although they may or may not be associated with site-specific
activities. These costs are described in the next several paragraphs.
ZZ Costs
``ZZ'' costs are expenses incurred for site work before a site is
established as a Superfund site and assigned a site-specific
identifier. If a site-specific identifier is established, the ZZ costs
incurred in connection with the site are reclassified to that site-
specific identifier. If reclassified, they become part of direct site-
specific costs, but for purposes of the indirect rate calculation, ZZ
costs are classified as direct costs even if not reclassified.
R&D Costs
Research and Development (R&D) costs are treated as direct costs.
All costs incurred within the Office of Research and Development, a
separate and distinct organizational unit within the Agency, are
excluded from the indirect cost pool. Research and Development costs
are considered to be directly incurred for production of R&D outputs.
Superfund-related research and development costs are mainly related to
the Superfund Innovative Technology (SITE) program. This program
evaluates the application of emerging remediation technologies.
NIEHS Costs
Costs associated with the National Institute of Environmental
Health Sciences (NIEHS) interagency agreement (IAG) are treated as
direct costs. This indirect cost methodology is designed to determine
the indirect costs that support Superfund site-specific activities.
Therefore NIEHS costs are excluded in their entirety from the indirect
cost pool.
OSWER Immediate Office Program Area Costs
Costs associated with certain offices within the Office of Solid
Waste and Emergency Response (OSWER) Immediate Office are treated as
direct costs. Although these costs are related to the Superfund program
and are direct costs of the functions they perform, they are not
allocable to Superfund site-specific activities and so are not included
in the indirect cost pool for site-specific response costs. For
example, the Chemical Emergency Preparedness and Prevention Office
(CEPPO), which reports directly to the OSWER Assistant Administrator,
implements Agency-wide chemical emergency preparedness and prevention
programs. The costs connected with Federal Facilities activities,
whether within OSWER or OECA, as well as the costs of activities
associated with Brownfields and the Emergency Planning and Community
Right-to-know Act, are also considered direct and thus excluded from
the indirect cost pool.
Indirect Cost Pool
The indirect cost pool consists of all costs classified as indirect
for all appropriations that fund administrative, management and support
functions. The pool includes Superfund non-site-specific costs that
provide support to Superfund site-specific activities and the other
direct Superfund activities. The indirect cost pool includes the non-
site portion of: Personnel compensation and benefits, travel, rent,
communications, utilities, contracted services, materials and supplies
costs. Depreciation and inter-entity costs are also included. The major
organizational units contributing costs to the indirect cost pool are
described below.
EPA headquarters organizations providing services on an Agency-wide
or national basis include the Office of the Administrator, the Office
of Administration and Resources Management (human resources,
procurement, facilities), the Office of the Chief Financial Officer
(Comptroller, budget, finance), the Office of Information Resources
Management, the Office of Policy, Planning and Evaluation, the Office
of the Inspector General and the Office of General Counsel. The ten EPA
regional offices have corporate structures similar in function to those
of headquarters. Each region has a regional administrator's office and
offices providing general regional support services such as personnel,
finance, policy and information management. Costs for these
organizations comprise regional indirect costs.
Management and support costs associated with carrying out the
Superfund program are another component of the indirect cost pool.
These costs are incurred at both headquarters and the regions. At the
headquarters level, these are the program management and support costs
incurred by the Office of Solid Waste and Emergency Response (OSWER)
and by the Office of Enforcement and Compliance Assurance (OECA). At
the regional level, Superfund program management costs incurred by
regional program divisions in support of Superfund site-specific
activities are included in the indirect cost pool. Any of the offices
noted above may also have Superfund site-specific charges. Those site-
specific charges are subtracted from the total cost of the organization
during the indirect cost computation.
The Superfund indirect cost pool, that is, the pool of indirect
costs which is ultimately allocable to Superfund sites, will consist of
proportionate amounts of Agency-wide, regional and program-related
costs. In other words, the Superfund indirect cost pool will be
comprised of only the portion of Agency-wide, regional and program-
related costs which supports Superfund sites, with the remaining costs
supporting all other Agency programs.
Exclusions From the Pool
Superfund non-site specific contractor costs, such as program
management, that are distributed through the annual allocation process
are excluded from the
[[Page 35344]]
indirect cost pool. Annual allocation is the process by which response
action contractor non-site support costs are allocated to sites on
which the contractor worked. The site-allocable portion of these
contracts is removed from the pool because it is allocated to
individual sites under a separate process and is treated as a portion
of direct site-specific costs incurred by EPA.
Costs of organizational units that provide no direct or indirect
support to Superfund are excluded. Examples include the Office of
International Activities and certain organizations within the Office of
the Administrator, such as the Science Advisory Board and the Office of
Administrative Law Judges.
Indirect Cost Base
To properly distribute costs, the indirect cost base must reflect
the services provided to each organizational recipient and finally, to
the Superfund sites themselves. There are several intermediate
allocations of costs, as described below, which use appropriate
allocation bases. The choice of allocation base depends on the type of
cost to be allocated.
Agency-wide or national indirect costs, also referred to as general
and administrative (G&A) costs, are allocated using one of two
allocation bases. Facilities, human resources and OPM inter-entity
costs are allocated to all EPA organizations based on personnel
compensation and benefits (PC&B) costs. The rationale for using PC&B
costs as the allocation statistic is that these indirect costs are
purely workforce-related and would not otherwise be incurred. Costs
associated with other organizations providing Agency-wide benefits,
such as procurement, budget, finance, information management, policy,
planning, general counsel and inspector general, are distributed across
the entire Agency based on total Agency costs. Depreciation will be
allocated to all EPA organizations using appropriate cost accounting
principles. We are in the process of gathering these costs and
determining the appropriate allocation base. Depreciation costs will be
incorporated into the rates as soon as possible.
The next level of indirect costs is regional costs which provide
general and administrative support similar to that provided at the
Agency-wide level. Regional G&A cost pools, including each region's
share of national G&A, personnel and facilities costs, depreciation and
inter-entity costs are distributed across the entire region based on
total regional costs. This is similar to the distribution of Agency-
wide support costs across total Agency costs.
Headquarters program management and support costs incurred by OSWER
and OECA must be allocated to program areas within each office of an
EPA Assistant Administrator and to the regions. Program areas are
designated by sub-organization or by funding vehicle such as
interagency agreements which fund a particular type of activity. The
allocation of headquarters program management and support costs is
based on the total costs associated with each program area and region.
The headquarters allocation base includes administrative and program
costs from appropriations other than Superfund and Superfund site-
specific and non-site-specific costs. The regional allocation base
consists of regional site charges made within each office of an EPA
Assistant Administrator.
The final Superfund indirect cost pool is allocated using Superfund
site charges. These site charges include both headquarters and regional
site charges, ZZ charges, site charges made under the Department of
Justice (DOJ), Corps of Engineers, Bureau of Reclamation, etc.,
interagency agreements and the Superfund response contract program
management costs that are allocated to sites in a separate process. EPA
charges arising from mixed funding settlements are direct site costs
and are also included in the indirect cost base. The charges for the
Agency for Toxic Substances and Disease Registry (ATSDR) are not
included in the indirect cost base because their funding mechanism--a
``transfer allocation''--does not result in a charge to EPA's
accounting system. Again, instead of a rate per hour as in the current
methodology, the indirect cost rate will be expressed as a percentage
of direct (site) costs.
Computation of Indirect Cost Rates
Data used for the indirect cost computations are obtained from the
Agency's Integrated Financial Management System.
The indirect cost pool supporting Superfund site-specific
activities in each region for a given fiscal year consists of
proportionate shares of the following: program management and support
costs incurred by relevant units of EPA headquarters (including their
share of nationwide G&A); the region's G&A; and the region's non-site
Superfund costs.
The computation of the indirect cost rates consists of nine steps.
A detailed document more fully describing the accounting methodology
employed will be released with the calculated rates by region by fiscal
year. That document will contain a detailed description of each of the
nine steps. Briefly, steps 1 and 2 compute the nationwide G&A rate and
step 3 computes the regional G&A rates. Steps 4 through 9 perform
various allocations and refinements of costs ensuring that the regional
Superfund cost pools, which are summarized in step 9, reflect only
costs by region associated with Superfund site-specific activities.
Estimated Indirect Rates by Region
As noted above, the revised indirect cost rate methodology will for
the first time provide information on the full costs of the outputs of
Superfund site-specific activities. The process of computing rates
using the full cost methodology is ongoing. As noted above, the revised
rates by region by fiscal year will not be issued for several months.
In the meantime, we are providing an approximation of the rates that
can be used as a means to estimate the full cost of Superfund site-
specific activities. These rates are based on the average of
preliminary computed rates for fiscal years 1994, 1997 and 1998. It
should be noted that rates for any given region may vary considerably
from year to year; therefore, the final calculated rates may differ
from the estimated average rates listed below.
Estimated Rates*
(Subject to Change)
Region 1--30.0%
Region 2--30.8%
Region 3--43.6%
Region 4--48.1%
Region 5--41.6%
Region 6--29.0%
Region 7--54.4%
Region 8--35.1%
Region 9--40.9%
Region 10--38.6%
* Based on the average of preliminary rates for Fiscal Years
1994, 1997 and 1998.
The overall effect of implementing the full cost accounting
methodology for Superfund indirect costs will be to increase the
aggregate amount of indirect costs allocated to site-specific
activities. As compared to indirect costs allocated using the current
methodology, the indirect costs allocated to individual sites may
increase or decrease, depending on a number of factors, and will not be
known with certainty until all the rates are computed. The estimated
rates provided above, however, may be used to predict generally the
amount of indirect costs to be allocated to a particular site using the
full cost accounting methodology.
[[Page 35345]]
To apply these rates to an individual site, identify the total
direct site-specific costs of that site (including any DOJ costs but
excluding any ATSDR costs) and multiply that total by the appropriate
region's indirect cost rate. If you have total site costs including
indirect costs using the current labor hours-based rates, total direct
site-specific costs consists of the total site costs minus the
previously-assessed indirect costs. Adding the direct site-specific
costs and the indirect costs calculated under the new methodology will
result in the full cost of that site.
[FR Doc. 00-13845 Filed 6-1-00; 8:45 am]
BILLING CODE 6560-50-P