EPA investigation finds $60m delta in water grants

Regulatory background

• The Environmental Protection Agency’s (EPA) Office of Inspector General (OIG) performs oversight of the agency as an independent office that is tasked to help the agency run in a more efficient and consistent manner. OIG conducts audits, evaluations, and investigations of different programs and offices within the greater EPA and uses those actions to make recommendations on how a program or office can be better run. In addition, OIG may review completed programs to determine what improvements should be made for similar programs in the future to improve efficiency and reduce fraud, waste, and abuse.
• The Water Infrastructure Improvements for the Nation (WIIN) Act was signed into law on December 16, 2016, and serves as a vehicle to administer different grant programs to improve the country’s water infrastructure. The Act’s goal was to improve water infrastructure, including through programs to reduce water scarcity, improve water management resources, address aging water infrastructure, and more. Within the Act are three distinct grant programs: the Small, Underserved, Disadvantaged Communities Grant (SUDC Grant); the Voluntary School and Child Care Lead Testing and Reduction Grant; and the Reducing Lead in Drinking Water Grant. The last two are focused on reducing lead concentrations in drinking water, especially for children, and the SUDC Grant is aimed at aiding households that are served by a public water system that violates the Safe Drinking Water Act (SDWA) (by exceeding Maximum Contaminant Levels, treatment techniques, or action levels). The first two grants were awarded non-competitively to states, territories, and tribes, but the Reducing Lead in Drinking Water Grant was awarded on a competitive basis for all applicants other than tribes.
• The SUDC Grant’s program included funding for drinking water projects and activities in communities that are unable to finance projects to comply with drinking water regulations. This grant was administered by the EPA’s Office of Ground Water and Drinking Water within the greater Office of Water (OW). Within the OW, the Drinking Water Capacity and Compliance Assistance Division was responsible for oversight of grant solicitations and awards. EPA regional offices were also responsible for the execution of any grant funding and programs within each EPA Region.
• OIG began an investigation of the WIIN Act grant programs as part of a greater project on lead service line replacement in December 2022, and quickly discovered significant issues relating to internal controls in the grant program. OIG’s audit was limited to certain internal controls components, and in a management alert explained that the alert “may not have disclosed all internal control deficiencies that existed at the time of the audit” due to the scope.

OIG Management Alert

• Although the audit of the program is ongoing, OIG issued a management alert on June 20, 2023, for discrepancies discovered relating to WIIN Act programs. The OIG explained that these issues were an “urgent matter that warranted the issuance of a management alert” and that based on the applicable guidance, the EPA itself could not determine how WIIN Act funds were distributed to replace lead service lines in disadvantaged communities around the nation.
• Between FY2017-2021, the EPA received a total of just under $163 million for WIIN Act grant funding. OIG requested that OW provide OIG with the complete list of WIIN Act grants awarded to replace lead service lines in disadvantaged communities. OW initially told OIG that the office could retrieve the information themselves by navigating through OW’s website. OIG explained that “after some resistance,” the Drinking Water Capacity and Compliance Assistance Division stated that it had encountered “issues” when attempting to collect the information for the request, and that EPA employees had spent 65 hours over the course of several weeks collecting the list of grants.
• Once the agency had the grant data, it cross-referenced it with data from the Next Generation Grant System (NGGS), the public-facing site, as well as with information from regional grant project officers. At this point, OIG discovered significant discrepancies between the amounts reported as awarded between almost all parties. For example, in Region 7 in FY2018-19, the NGGS reported $1,773,250 in WIIN Act awards; OW reported $3,987,075; EPA Region 7 reported $1,824,150; and the EPA’s website reported $2,477,425.
• These accounting woes continued as OIG widened its search. Between FY2017-2021, the EPA received $96,816,000 in funds for WIIN Act-related programs for SUDC grants, but OW reported that the agency had awarded $147,971,153 in WIIN Act funding over the same period. The EPA received $66,022,000 in funding for the Reducing Lead in Drinking Water Grant, but OW had reported that it awarded $74,594,901 in funding. This led to a total delta of $59.72 million between what the EPA received and what OW had reported it awarded in grant funding.

Next steps

• The audit still has a long way to go and based on the current trajectory with this management alert, OIG will likely issue a wide swath of recommendations. OIG is conducting the audit in the middle of one of the largest pushes in recent history to remove lead service lines via Bipartisan Infrastructure Law funding which may also lead to more efficient program outcomes as the agency looks to distribute billions of dollars for lead service line replacement in the future.
• The significant dichotomies between each reported grant award total indicates a significant lack of communication and coordination between EPA offices. In addition, the fact that the Drinking Water Capacity and Compliance Assistance Division took weeks to come up with a simple list of grant awards means that there will likely be program changes in the near future that may take better stock of what the program is doing, where its money is going, and which organizations are receiving those funds.

To contact the author of this analysis, please email Walker Livingston.
To contact the editor of this analysis, please email Patricia Iscaro.

Key Documents and Dates

• The EPA Could Not Readily Identify More Than $162 Million in Water Infrastructure Improvements for the Nation Act Grant Funds (June 20, 2023)