Accountability Audit Report Department of Ecology

Accountability Audit Report

Department of Ecology

For the period July 1, 2017 through June 30, 2018

Published July 22, 2019

Report No. 1024311

Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 [email protected]

Office of the Washington State Auditor

Pat McCarthy

July 22, 2019

Maia Bellon

Director


Olympia, Washington

Report on Accountability

Thank you for the opportunity to work with you to promote accountability, integrity and openness

in government. The State Auditor’s Office takes seriously our role of providing state and local

governments with assurance and accountability as the independent auditor of public accounts. In

this way, we strive to help government work better, cost less, deliver higher value and earn greater

public trust.

Independent audits provide essential accountability and transparency for Department operations.

This information is valuable to management, the governing body and public stakeholders when

assessing the government’s stewardship of public resources.

The attached comprises our independent audit report on the Department’s compliance with

applicable requirements and safeguarding of public resources for the areas we examined. We

appreciate the opportunity to work with your staff and we value your cooperation during the audit.

Sincerely,

Pat McCarthy

State Auditor

Olympia, WA

Office of the Washington State Auditor Page 3

TABLE OF CONTENTS

Audit Results ................................................................................................................................... 4

Schedule of Audit Findings and Responses .................................................................................... 5

Summary Schedule of Prior Audit Findings .................................................................................. 16

Information about the Department ................................................................................................ 18

About the State Auditor's Office ................................................................................................... 19


AUDIT RESULTS

This report describes the overall results and conclusions for the areas we examined. In most of the

areas we examined, Department operations complied with applicable state laws, regulations, and

its own policies, and provided adequate controls over safeguarding of public resources.

We identified areas within the Underground Store Tank program in which the Department could

make improvements. These recommendations are included with our report as a finding.

About the audit

This report contains the results of our independent accountability audit of the Department of

Ecology from July 1, 2017 through June 30, 2018.

Management is responsible for ensuring compliance and adequate safeguarding of public resources

from fraud, loss or abuse. This includes the design, implementation and maintenance of internal

controls relevant to these objectives.

This audit was conducted under the authority of RCW 43.09.310, which requires the Office of the

State Auditor to examine the financial affairs of all state agencies. Our audit involved performing

procedures to obtain evidence about the Agency’s use of public resources, compliance with state

laws and regulations and its own policies and procedures, and internal controls over such matters.

In keeping with general auditing practices, we do not examine every transaction, activity or area.

Instead, based on our risk assessment for the year ended June 30, 2018, the areas examined were

those representing the highest risk of fraud, loss, abuse, or noncompliance. The following areas

were examined during this audit period:

Grant Management – examination of payments and contract monitoring of the

following federal grants:

Performance Partnership Grant

Puget Sound Action Agenda

Coastal Wetlands Planning, Protection, and Restoration

Disbursements from Local Toxics Control Account – examination of payments and

contract monitoring

Underground storage tank program – examination of compliance with applicable laws

and review of revenue activity


SCHEDULE OF AUDIT FINDINGS AND RESPONSES

2018-001 The Department of Ecology did not have adequate internal controls

over and did not comply with requirements to conduct

underground storage tank compliance inspections every three

years.

Background

The federal Environmental Protection Agency (EPA) granted approval to the

Department of Ecology (Department) to administer the Underground Storage Tank

(UST) program in Washington. The UST program is one of the largest pollution

prevention programs at the Department. Federal grant funds help the state pay for

the program. Every year, over 3 billion gallons of fuel is stored underground. The

Department regulates nearly 9,000 tanks at more than 3,400 facilities, including gas

stations, industrial and commercial properties, and government-owned properties.

After completion of initial required inspections, federal law and a state rule require

the Department to perform an onsite inspection of each underground storage tank

at least once every three years. According to the Department’s website, it conducts

compliance inspections at about 1,200 underground storage tank facilities each year

and inspects all tanks every two and a half years.

The UST Program has 14 inspectors located in Western Washington and three

inspectors in Eastern Washington. The Department maintains a database of all

underground storage tanks in Washington, including those that require inspection.

The database is used to generate a report of tanks that have missed their inspection

due date to determine the inspection schedule for inspectors.

Description of Condition

The Department did not have adequate internal controls over and did not comply

with the federal and state requirements to ensure all underground tanks were

inspected at least once every three years. The Department did not perform regular

monitoring to ensure it complied with the three-year tank inspection requirement.

We obtained a list of the last three inspection dates for all operational tanks. We

reviewed the time between each set of inspections performed.

Our review of the most recent inspection of 3,429 sites showed that 431 sites

(12.6 percent of the total operational sites) were not inspected within three years.

The longest time between inspections in this group was 5.5 years.


From our review of the prior inspection of 3,392 sites, we found 183 sites

(5.4 percent of the total operational sites) were not inspected in a timely manner.

The longest time between inspections in this group was over 15.5 years. The

majority of the sites in both groups were located in the Central and Eastern regions

of the state.

The following table summarizes the results of our review:

Number of days overdue Number of most recent

inspections overdue Number of prior

inspections overdue

1-7 46 51

8-30 71 59

31-60 75 30

61-180 220 26

181-365 16 5

>365 3 12

Total number of overdue inspections

431 183

Cause of Condition

The Department said staff turnover and uneven distribution of the work force across

the state, particularly in the Central and Eastern regions, hindered its ability to stay

on schedule to meet the three-year inspection requirement.

Effect of Condition

This lack of inspections poses an environmental risk of hazardous material being

released into the soil, groundwater, surface water, or surrounding air spaces.

By not complying with the federal requirements, the state is at risk of having federal

funds withheld and of potentially being disqualified from receiving future federal

funding.

Recommendations

We recommend the Department:

Develop and implement adequate internal controls to ensure all operational

underground storage tanks are inspected at least once every three years.

Comply with the federal and state requirements for inspecting the

underground storage tanks.


Department’s Response

Ecology acknowledges the essential finding of this audit that the Department did

not meet the federal requirement of inspecting every underground storage tank

(UST) every 3-years.

As mentioned in the SAO report, the principle reason Ecology missed the 3-year

inspection frequency is staff turnover and the time it takes to recruit, hire and train

new inspectors. UST inspector positions are complex and require at least 6-months

of training before the inspector can complete the duties necessary to conduct an

UST inspection. The majority of tanks missing the 3-year inspection frequency in

recent years are in the Central and Eastern Regional Offices, where there has been

a higher percentage of staff turnover.

Ecology is well aware of the situation and has taken a number of steps to minimize

the impact on the 3-year inspection frequency requirement, including working to

expedite the training of new UST inspectors to get them up to speed and able to

conduct independent inspections more quickly, working to cross-train staff, and

also sending inspectors based in the Northwest and Southwest Regional Offices to

conduct inspections in the Central and Eastern Regional Office areas. We are on

track to get caught up on the sites that currently exceed the 3-year inspection

requirement in the coming months.

The SAO analysis identified a number of sites that appear to exceed the 3-year

inspection cycle by many years (5.5 years and 15.5 years were cited in the report).

USTs are only required to be inspected every 3 years if they are in operational or

in temporary closed status. While we have not had the resources to track down the

specific circumstance of every site appearing to be seriously delinquent, the two

sites listed above (and all others that we’ve spot checked) were not due to be

inspected for the majority of the time listed. For example, the site listed as being

15.5 years overdue for inspection had the fuel removed from the tanks in 1989 and

then new tanks installed in 2016. The SAO analysis concluded that Ecology is out

of compliance with federal law because of sites like this, but that is not the case.

Ecology reports quarterly to the EPA on sites that have missed the 3-year

inspection cycle requirement and thus the EPA is well aware of the recent situation

where we have struggled in the Central and Eastern Regions. Historically, EPA

inspectors have been able to provide mutual aid and help Ecology meet the 3-year

inspection requirement when, for various reasons, Ecology has been unable to meet

this requirement. We have discussed the current situation with the EPA on multiple

occasions but due to their own staffing shortages, and bigger issues with the

Oregon UST program, they are not currently in a position to help.


Ecology is not currently at risk of losing federal funding for our UST program or

from being disqualified from future federal funding. The 3-year inspection

requirement is only part of what the EPA requires of Ecology. The Energy Policy

Act of 2005 required states receiving federal LUST Trust Fund money to do 3 things

in their Underground Storage Tank Program:

1. Require that newly installed tanks be double-walled and monitored

interstitially. WA has required double-walled tanks since October 1, 2012.

2. Require UST owners and operators to complete training on the UST

regulations. Owners and operators in WA have been required to do this

since December 31, 2012.

3. Inspect all regulated tanks at least every 3 years.

As described above, while there are regulated UST that Ecology has been unable

to inspect every 3 years, the EPA is well aware of the situation and has not

requested any corrective action.

Ecology takes its responsibility to protect human health and the environment very

seriously. We are fortunate that because of our strong compliance with the 3

elements of the Energy Policy Act listed above (and other actions), our UST

program consistently minimizes the risk to the environment from petroleum

contained in USTs. Ecology data shows that over the past 20 years, releases from

regulated USTs have declined by an order of magnitude; from more than 350

releases per year in 1999 to approximately 30 per year over the past 3 years.

Ecology agrees that there is more that we should do to proactively manage this

issue and we appreciate that the SAO has brought this to our attention. For

example, rather than waiting to act until a site has missed the 3-year inspection

period, we will create a new report that identifies sites that are within 6-months of

the 3-year period so that we can take all appropriate actions to complete the

inspection before the 3-years lapses.

Auditor’s Remarks

We thank the Department for its cooperation and assistance throughout the audit.

We will review the status of the Department’s corrective action during our next

audit.


Applicable Laws and Regulations

42 U.S.C sec.6991d, Inspections, monitoring, testing, and corrective action, states

in part:

(a) Furnishing information

For the purposes of developing or assisting in the development

of any regulation, conducting any study, taking any corrective

action, or enforcing the provisions of this subchapter, any owner

or operator of an underground storage tank (or any tank subject

to study under section 6991h of this title that is used for storing

regulated substances) shall, upon request of any officer,

employee or representative of the Environmental Protection

Agency, duly designated by the Administrator, or upon request

of any duly designated officer, employee, or representative of a

State acting pursuant to subsection (h)(7) of section 6991b of

this title or with an approved program, furnish information

relating to such tanks, their associated equipment, their contents,

conduct monitoring or testing, permit such officer at all

reasonable times to have access to, and to copy all records

relating to such tanks and permit such officer to have access for

corrective action. For the purposes of developing or assisting in

the development of any regulation, conducting any study, taking

corrective action, or enforcing the provisions of this subchapter,

such officers, employees, or representatives are authorized—

(1) to enter at reasonable times any establishment or other

place where an underground storage tank is located;

(2) to inspect and obtain samples from any person of any

regulated substances contained in such tank;

(3) to conduct monitoring or testing of the tanks, associated

equipment, contents, or surrounding soils, air, surface water

or ground water; and

(4) to take corrective action.


Each such inspection shall be commenced and completed with

reasonable promptness.

(c) Inspection requirements

(1) Uninspected tanks

In the case of underground storage tanks regulated under this

subchapter that have not undergone an inspection since

December 22, 1998, not later than 2 years after August 8,

2005, the Administrator or a State that receives funding

under this subchapter, as appropriate, shall conduct on-site

inspections of all such tanks to determine compliance with

this subchapter and the regulations under this subchapter (40

CFR 280) or a requirement or standard of a State program

developed under section 6991c of this title.

(2) Periodic inspections

After completion of all inspections required under paragraph

(1), the Administrator or a State that receives funding under

this subchapter, as appropriate, shall conduct on-site

inspections of each underground storage tank regulated

under this subchapter at least once every 3 years to determine

compliance with this subchapter and the regulations under

this subchapter (40 CFR 280) or a requirement or standard

of a State program developed under section 6991c of this

title. The Administrator may extend for up to one additional

year the first 3-year inspection interval under this paragraph

if the State demonstrates that it has insufficient resources to

complete all such inspections within the first 3-year period.

(3) Inspection authority

Nothing in this section shall be construed to diminish the

Administrator's or a State's authorities under subsection (a).

40 C.F.R Sec 281.40 Requirements for compliance monitoring program and

authority:

(a) Any authorized representative of the state engaged in

compliance inspections, monitoring, or testing must have

authority to obtain by request any information from an owner or


operator with respect to the UST system(s) that is necessary to

determine compliance with the UST regulations.

(b) Any authorized representative of the state must have

authority to require an owner or operator to conduct monitoring

or testing.

(c) Authorized representatives must have the authority to enter

any site or premises subject to UST regulations or in which

records relevant to the operation of the UST system(s) are kept,

and to copy these records, obtain samples of regulated

substances, and inspect or conduct the monitoring or testing of

UST system(s).

(d) State programs must have procedures for receipt, evaluation,

retention, and investigation of records and reports required of

owners or operators and must provide for enforcement of failure

to submit these records and reports.

(g) The state must maintain the data collected through

inspections and evaluation of records in such a manner that the

implementing agency can monitor over time the compliance

status of the regulated community. Any compilation, index, or

inventory of such facilities and activities shall be made available

to EPA upon request.

The Office of Financial Management’s State Administrative and Accounting

Manual (SAAM) states in part:

20.15.10 Internal control definition:

Internal control is a process, effected by those charged with

governance, management, and other employees, designed to

provide reasonable assurance regarding the achievement of

the entity’s objectives relating to operations, reporting, and

compliance. For purposes of Chapter 20, the state’s internal

control objectives are defined as the need for each agency to:

Safeguard its assets.

Check the accuracy and reliability of its accounting data.

Promote operational efficiency.

Encourage adherence to policies for accounting and

financial controls.


The definition of internal control emphasizes that internal control is:

Geared to the achievement of objectives in one or more

separate but overlapping categories – operations,

reporting, and compliance.

A process consisting of ongoing tasks and activities – a

means to an end, not an end in itself.

Effected by people – not merely about policy and

procedure manuals, systems, and forms, but about

people and the actions they take at every level of an

organization to effect internal control.

Able to provide reasonable assurance – but not absolute

assurance, to an entity’s management.

Adaptable to the entity structure or size – flexible in

application for the entire entity or for a subset of an

entity.

This definition of internal control is intentionally broad. It

incorporates concepts that are fundamental to how entities

design, implement, and operate a system of internal control and

assess its effectiveness.

20.15.20 Roles and responsiblities:

Agency management is responsible for the agency’s

operations, compliance and financial reporting objectives.

Therefore, the adequacy of internal control to provide

reasonable assurance of achieving these objectives is also the

responsibility of management. That said, every state

employee has a role in effecting internal control. Roles vary

in responsibility and level of involvement, as discussed

below.

Given agency structure and size, individuals may assume

multiple roles. However, care should be taken to address the

increased risk that may result from the concentration of

responsibilities.


20.15.20.a

Those charged with governance are responsible for

overseeing the strategic direction of the agency and

obligations related to the agency’s accountability. This

includes overseeing the design, implementation, and

operation of an effective internal control system. For most

agencies, those charged with governance include the agency

head and members of agency senior management. For

agencies with a governing board, the board may appoint

individuals to fulfill this function.

20.15.20.b

The agency head is ultimately responsible for identifying

risks and establishing, maintaining, and monitoring the

agency’s system of internal control. If the agency head

delegates this responsibility, the designated person should

have sufficient authority to carry out these responsibilities.

The agency head together with those charged with

governance and agency management set the tone at the top

that affects the control environment in particular and all

other components of internal control. The agency head signs

the annual Financial Disclosure Certification and, if

applicable, the Federal Assistance Certification.

20.15.20.d

Agency management at all levels is responsible for internal

control under their span of control. Management is

responsible to communicate to agency employees their

explicit or implicit control activity duties. In addition,

agency management should provide channels outside

normal reporting lines so agency employees can report

noncompliance, problems in operations, and illegal acts.

Management is also responsible to convey the importance of

internal control to all employees both by what they say and

what they do. If management is willing to override controls,

then the message that internal control is not important will

be conveyed to employees.


20.24.10 Control activities overview:

Control activities are policies, procedures, techniques, and

mechanisms that help ensure that risks to the achievement of

an agency’s objectives are mitigated. Control activities are

performed at all levels of the agency, at various stages within

business processes, and over the technology environment.

They may be preventive or detective in nature. Preventive

controls are designed to deter the occurrence of an

undesirable event by implementing procedures to avoid

them. Detective controls are designed to identify undesirable

events that do occur and alert management about what has

happened.

When designing and implementing control activities,

management should consider cost versus benefit and the

likelihood and impact of the associated risk. Building control

activities into business processes and systems as they are

being designed is generally more cost-effective than adding

them later.

20.28.10 Monitoring overview:

Monitoring is the process of evaluating the quality of

internal control performance over time and promptly

addressing internal control deficiencies. Monitoring can take

the form of ongoing evaluations, which are built into

business processes at different levels of the agency, or

separate evaluations, which are conducted periodically and

vary in scope and frequency, depending on assessment of

risks, effectiveness of ongoing evaluations, and other

management considerations.

Monitoring of the internal control system is essential in

helping internal control remain aligned with changing

objectives, environment, laws, resources, and risks.


Washington Administrative Code 173-360A-0250:

Compliance monitoring, investigation, and access.

(1) The department's compliance monitoring program,

including procedures for inspections and recordkeeping,

must be consistent with and no less stringent than the

program required by 40 C.F.R. Sec. 281.40, as amended, and

section 9005 of the Solid Waste Disposal Act (42 U.S.C.

Sec. 6991d).


SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS


July 1, 2017 through June 30, 2018

Audit Period:

07/01/2016-06/30/2017

Report Ref. No.:

51521

Finding Ref. No.:

2017-001

Finding Caption:

The Department of Ecology did not have adequate internal controls over fee collections for the

vehicle emission testing program.

Background:

The Department did not adequately monitor its contract to ensure the vendor accurately

collected and remitted fees.

We found $1,376 in deduction were made for customer wait times that were not allowed by

the contract.

Status of Corrective Action: (check one)

☐ Fully

Corrected

☐ Partially

Corrected ☐ Not Corrected

☒ Finding is considered no

longer valid

Corrective Action Taken:

After 38 years, Washington’s emission check program will end January 1, 2020. After this

time, vehicle owners will no longer be required to have their vehicle’s emissions tested before

renewing their registration.

Audit Period:

07/01/2015-6/30/2016

Report Ref. No.:

47442

Finding Ref. No.:

2016-001

Finding Caption:

The Department of Ecology did not establish adequate internal controls to ensure wastewater

discharge permit fees were properly assessed and billed.


Background:

The Department did not perform reconciliations between its permitting and billing systems to

ensure all fees were accurately billed. The Department did not monitor to ensure the water

quality program implemented policies and procedures over the permit fee billing process.

We examined 98 permits, for which the Department billed $120,764, and found 23 permits for

which the customer was billed the incorrect fee according to the fee schedule.

Status of Corrective Action: (check one)

☐ Fully

Corrected

☐ Partially

Corrected ☒ Not Corrected

☐ Finding is considered no

longer valid

Corrective Action Taken:

The Department has established policies and procedures over the billing process to: 1) verify

the accuracy of fees; 2) perform a reconciliation between permitting and billing system;

3) determine when accounts can be adjusted or written off; and 4) ensure required

documentation is obtained and reviewed.


INFORMATION ABOUT THE DEPARTMENT

The Department of Ecology (“Ecology”) was established by the state Legislature to oversee

Washington State’s environmental stewardship activities. The Department’s mission is to protect,

preserve, and enhance the environment for current and future generations. The Department’s

operating budget for the 2017-2019 Biennium is $495.6 million, with an $840.8 million capital

biennial budget. Sixty-six percent of Ecology's combined capital and operating budgets will be

passed through to local communities to be used on environmental projects throughout Washington.

The Department headquarters is located in Lacey and is supported by four regional offices and six

field offices, and staffed with approximately 1,570 employees. The Governor appoints the

Department’s Director.

Contact information related to this report

Address: Department of Ecology

P.O. Box 47612

Olympia, WA 98504-7612

Contact: Janis Henry, Senior Financial Advisor

Telephone: 360-407-6386

Website: www.ecy.wa.gov

Information current as of report publish date.

Audit history

You can find current and past audit reports for the Department of Ecology at

http://portal.sao.wa.gov/ReportSearch.

http://portal.sao.wa.gov/ReportSearch/?qItemType=1&qItemDesc=Ecology,%20Department%20of&qItemValue=S461


ABOUT THE STATE AUDITOR’S OFFICE

The State Auditor's Office is established in the state's Constitution and is part of the executive

branch of state government. The State Auditor is elected by the citizens of Washington and serves

four-year terms.

We work with our audit clients and citizens to achieve our vision of government that works for

citizens, by helping governments work better, cost less, deliver higher value, and earn greater

public trust.

In fulfilling our mission to hold state and local governments accountable for the use of public

resources, we also hold ourselves accountable by continually improving our audit quality and

operational efficiency and developing highly engaged and committed employees.

As an elected agency, the State Auditor's Office has the independence necessary to objectively

perform audits and investigations. Our audits are designed to comply with professional standards

as well as to satisfy the requirements of federal, state, and local laws.

Our audits look at financial information and compliance with state, federal and local laws on the

part of all local governments, including schools, and all state agencies, including institutions of

higher education. In addition, we conduct performance audits of state agencies and local

governments as well as fraud, state whistleblower and citizen hotline investigations.

The results of our work are widely distributed through a variety of reports, which are available on

our website and through our free, electronic subscription service.

We take our role as partners in accountability seriously, and provide training and technical

assistance to governments, and have an extensive quality assurance program.

Contact information for the State Auditor’s Office

Public Records requests [email protected]

Main telephone (360) 902-0370

Toll-free Citizen Hotline (866) 902-3900

Website www.sao.wa.gov

https://www.sao.wa.gov/report-a-concern/how-to-report-a-concern/fraud-program/

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mailto:[email protected]

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Documents

Accountability Audit Report Department of Ecology