Health Board presses EPA for investigation results: Newly released documents shed light on inquiry into payments of legal fees

This article originally appeared in the Nov. 16, 2018 issue of The Western News. View clip online. Award: 1st place investigative news story, Div. 2: Weekly newspapers, Montana Newspaper Association 2019 Better Newspaper Contest.

The City-County Board of Health has given the Environmental Protection Agency a Dec. 1 deadline for telling it the outcome of an investigation into the improper use of EPA grant funds.

The letter making the request — dated Oct. 11, 2018 and signed by Jinnifer Mariman, the health board’s legal counsel — was included among other documents provided in response to a recent Freedom of Information Act request The Western News sent to the EPA.

The EPA and health board previously have said little about the investigation, which has been looking into payments made to the health board’s previous legal counsel R. Allan Payne and his law firm, Doney Crowley Bloomquist Payne Uda, P.C.

The EPA Office of Inspector General, in charge of the investigation, by practice does not comment on its work, and had told county officials not to discuss it publicly.

The documents clarify or expand upon information previously reported in The Western News and reveal previously unreported details.

How it began

The investigation was set into motion by a letter dated May 18, 2016, signed by Lincoln County Commissioner Mike Cole and addressed to Robin Thomas and Cinna Vallejos — the agency’s project manager and grant coordinator, respectively, for Libby — in the EPA’s Region 8 office in Denver, Colorado.

Cole’s letter followed a draft independent report prepared by the Kalispell accounting firm Denning, Downey and Associates and completed in October 2015. The county asked the firm to evaluate fees relating to the Asbestos Resource Program — funded by a cooperative agreement between the EPA and the City-County Board of Health — and paid to Payne and his firm from April 1, 2012 to Sept. 30, 2015.

The firm reported several irregularities in the program’s accounting and payment procedures, including the terms of Payne’s firm’s contract with the health board. Accordingly, he was to be paid up to 20 percent of the total amount of the grant funds awarded by the EPA, but only if those funds were in excess of the actual, out-of-pocket expenses incurred by the health board for the administration of the ARP.

The firm found that some of Payne’s fees were improperly paid using grant funds without the required proof that the work was related to grant administration. The firm also questioned an agreement allowing the direct deposit of grant funds into a trust account at Payne’s firm, and noted that some disbursements of grant funds from that account to Lincoln County — for services it provided to the health board — prematurely withheld Payne’s maximum 20 percent fee.

The report included recommendations for how the county could address each issue it raised.

Cole’s letter also followed a letter dated Feb. 18, 2016 and signed by Payne, whom Cole had asked to respond to the accounting report. Payne wrote that his firm agreed “with many of the findings in the report,” yet “it is our opinion these [recommended] changes are discretionary policy issues and the County could implement none, some or all of the changes.”

Noting that the accounting report was “based in part on Governmental Accounting Standards Board statements … which control how to report the financial status of a local government [entity],” Payne wrote that they could not override federal Office of Management Budget guidelines that “control the use of federal grant funds and to provide accountability and oversight.”

Payne also wrote that “although there was nothing improper with the county accepting 80 percent of the amount it invoiced the Board of Health … this payment arrangement was changed in March 2014” to align disbursements with invoices.

Further, Payne argued that Lincoln County “did not pay Doney Crowley out of EPA grant funds; instead, it has paid Doney Crowley using proceeds it generated as the Board of Health’s contractor.”

Still, Payne indicated his firm’s willingness to assist the county with substantiation of its work and other related matters to resolve the situation.

The report doesn’t indicate what prompted Lincoln County to request the evaluation, which the firm stressed was not an audit and therefore did not contain or serve as an official opinion.

“Had we performed additional procedures, other matters might have come to our attention that would have been reported to you,” the report states.

Despite Payne asserting that the payments were not improper, Cole wrote in his letter to the EPA that the commissioners were “now being advised this compensation [agreement] is not allowed under the grant provided to us by the EPA” and that “we need the EPA to advise us on this matter.”

“We have three questions,” Cole wrote. “Is this compensation prohibited? If so, can you explain (citing regulations) why it is prohibited? What would you like us to do about it? If you would like us to return some grant funding, please tell us how much and how you want it returned.”

Cole included with his letter Payne’s compensation agreement, which he noted Payne himself had created. He also included the accounting report, a list of payments made to Payne “and the regulations we feel address this situation.”

Previously reported

The Western News first reported on Cole’s letter in the May 27, 2016 edition. That story described irregularities stemming from how the City/County Board of Health processed the disbursement of grant funds and payments of attorney fees.

The first eight payments from EPA, beginning June 30, 2012, and ending March 31, 2014, were deposited directly into Payne’s firm’s trust account. Upon receipt of those payments, Payne retained 20 percent and remitted 80 percent to Lincoln County, which funds were then deposited into the ARP account. In total, Payne retained $202,194.33 during that time.

Between the March 31, 2014, payment and the next, June 30, 2014, payment, the procedure changed. Upon receipt of the funds from EPA, the entire amount was deposited in the ARP fund and Payne’s firm was paid from ARP. Three 2014 payments, dated June 30, Sept. 30, and Dec. 30, were processed in that fashion. However, it was determined payment to Payne from ARP was not allowed, so the ARP fund was reimbursed the money paid to Payne, a total of $65,551.50, from the county’s Payment In Lieu of Taxes (PILT) fund. PILT funds are essentially unrestricted county budget dollars. An additional invoice for $21,880.50, dated March 31, 2015, was paid directly from PILT.

In total, Payne’s firm received $289,716.33 between June 30, 2012, and March 31, 2015. Those funds were repaid to the ARP fund from the county’s PILT fund.

Initial EPA response

In a letter dated Aug. 15, 2016, Martin Hestmark, the assistant regional administrator for the EPA Office of Ecosystems Protection and Remediation in Denver, responded to Cole’s letter.

After stating appreciation that the county “has taken steps to investigate its concerns about the appropriate use of Federal funding provided in the [cooperative agreement],” Hestmark requested more information: invoices from Doney Crowley for its work under the cooperative agreement; any final report or other analysis provided by Denning, Downey and Associates; and “a detailed general ledger for all funds/accounts that identify the source and application of federal funds, income and expenditures, assets and obligations pertaining to this [cooperative agreement].”

No provided document describes the county’s response to Hestmark’s request, though some of the released records appear to match what he asked for.

Funding put on hold

Whatever the county provided prompted the EPA to place a temporary hold on payments made to the county under the cooperative agreement.

The hold was formally announced in a letter dated Sept. 20, 2016 and signed by James Hageman, director of the EPA’s Grants, Audit and Procurement Program in Denver.

The County Commission “has shared information indicating a possible failure to comply with statutes, regulations and/or terms and conditions applicable to this Cooperative Agreement,” Hageman wrote in explanation of the hold. “The EPA will closely review the information provided and will then identify the next steps.”

Funding reinstated

In a statement released to the media the day Hageman’s letter was sent, the EPA announced the hold and acknowledged that “work completed to date by the Asbestos Resource Program is consistent with the scope of the grant” and that the “EPA is currently working with the county to ensure that this important work continues.”

The EPA and the county would eventually reach a new agreement in October 2017. Whereas the previous agreement, in effect since April 2012, was between the agency and the City-County Board of Health, the new agreement was between the EPA and Lincoln County.

Rich Mylott, EPA Region 8 spokesperson, said at the time that the “EPA evaluated options with the county and we collectively determined that a new cooperative agreement was the best way to ensure continued funding while we evaluate concerns associated with the prior agreement.”

The investigation continues

A handful of documents from the latter half of 2017 show that the EPA continued to request information based on questions raised during the ongoing investigation.

One document — a letter Hageman wrote to Cole on Aug. 10, 2017 — is the first of the documents made public to acknowledge that the tight-lipped EPA Office of Inspector General was in fact conducting an investigation and had been since Aug. 31, 2016, following a meeting in Denver between the EPA and the health board.

“At that point,” Hageman wrote, “the EPA Region 8 discontinued its own active review and referred the matter to the EPA Office of Inspector General (OIG) for investigation.”

According to its website, the OIG “is an independent organization that performs audits and investigations of the EPA to detect and prevent fraud, waste and abuse.”

The website states that “the OIG typically does not announce, confirm or deny the existence of an open investigation or make public the results of investigations,” a practice that has stymied not only The Western News in its reporting but also the very county officials who tipped off the EPA in the first place.

Hageman acknowledged this in his letter, stating that because of the OIG’s independence “information gathered in its investigation is not always able to be shared with the Region.”

The OIG website allows that “once an investigation has been closed, the report of investigation (ROI) and related documents may be available under the Freedom of Information Act.”

In his letter Hageman shared what initial OIG findings he could, and they served as the basis of additional requests for information from the health board.

According to Hageman, an OIG interim report “indicated that the [health board] improperly drew down $331,911.61 in violation of Office of Management and Budget” regulations. The dollar amount appeared to match payments Payne’s firm received pursuant to its agreement with the health board, he wrote.

Hageman also wrote that based upon information provided it did not appear that Payne’s firm provided itemized statements of work or substantiation of its 20 percent payment, nor did it appear that either the county or the health board had verified whether the firm’s fee “was consistent with the fee agreement or with work performed.”

Hageman therefore requested “all invoices or other documentation that substantiate these attorney fee costs.”

Hageman also wrote that it appeared the health board had drawn down $144,500.46 in excess of expenditures from February 2012 to June 2016 and was improperly keeping the money in an interest-bearing account. He therefore requested bank statements related to this account.

In a follow-up letter dated Sept. 1, 2017, Mariman, the health board’s current legal counsel, indicated she was including the requested information except for the bank statements, a request she said she understood to have been retracted since Hageman’s letter.

Closed meetings

Some of the documents suggest what might have been discussed in closed sessions at three otherwise public meetings of the City-County Board of Health.

Each of those meetings — Oct. 11, 2017, Nov. 8, 2017 and Jan. 10, 2018 — included as a final agenda item an “Update on EPA’s Request for Additional Information” that was denoted as closed to the public due to attorney-client privilege.

Among the released documents are three letters that precede the October and November meetings and three that precede the January meeting, all of which refer to information the EPA requested.

The first, dated July 5, 2017, is signed by Payne and addressed to Amber Nichols of the EPA Office of the Inspector General in Denver, Colorado. The letter refers to previously requested “available time records” related to his firm’s work for the City-County Board of Health on the “implementation and administration” of the cooperative agreement between the Board and the EPA.

Payne indicated that the records accompany the letter, yet those records do not appear to have been provided as part of the FOIA request.

The next two letters are the aforementioned Hageman letter of Aug. 10, 2017 and Mariman letter of Sept. 1, 2017.

The fourth letter is from Hageman to Cole and dated Nov. 21, 2017. Hageman wrote that the records provided in response to his Aug. 10 request, pertaining to substantiation of Payne’s firm’s fees, were insufficient. He also wrote that the EPA still sought the bank statements Mariman mistakenly thought were no longer wanted.

Mariman wrote two letters in response. One, dated Dec. 5, 2017, was sent to Payne to ask for help in responding to Hageman’s outstanding requests.

The other, dated Dec. 8, 2017, was sent to Sarah Hulstein of the EPA’s Region 8 office in Denver. Mariman explained that the county had asked for more information from Payne’s firm for substantiation purposes, and that following a conversation with Hageman and Commissioner Mark Peck, County Administrator Darren Coldwell had provided the requested bank statements.

None of the documents made public contain minutes or any other description of what was said at the closed sessions.

Nearing resolution?

Four of five documents that were written in 2018 and released as part of the FOIA request show the county and the EPA continuing to work through information requests and preliminary findings.

In a letter dated May 11, 2018 and sent to Commissioner Cole, the EPA’s Hulstein states that the EPA determined that $89,381.99 in attorney’s fees — not $331,911.61 as previously thought — had been paid from EPA grant funds. Hulstein explained that the new amount reflected corrections made as new information was provided.

Hulstein also indicated that the health board had drawn $476,412.07 in excess of recorded expenditures — $331,911.61 more than the previously determined $144,500.46, and an amount that does not include the EPA funds that were used to pay attorney fees.

“We would be glad to consider any additional information you may have that could impact this determination,” Hulstein wrote. “At this point the $476,412.07 plus interest at 1 percent will be used for our final billing on the improper payments under this cooperative agreement.”

Hulstein also wrote that the EPA is “separately considering the proper treatment of the attorney fees and any additional approvable costs” and is currently reviewing a final statement Payne’s firm provided in January 2018.

It isn’t clear if this final statement is the same as the later of two 42-page documents provided in the release of information that contains an accounting of Doney Crowley’s professional fees from March 5, 2012 to May 24, 2017. The total amount listed is $287,099.64.

“The question of the allowability of the attorney fees is complicated by the fact that the attorney fees were paid based on a percentage of funds received from EPA, which is unallowable,” she continued.

The released documents don’t include a response from the county to Hulstein’s letter. The next letter provided, dated Oct. 11, 2018, was sent by Mariman to Hulstein and referred to an email Hulstein sent Oct. 4, 2018 to Commissioner Peck.

The Western News’ FOIA request did not include that email. According to Mariman’s letter, it sought to clarify matters of attorney-client privilege and business confidentiality of documents shared between the county and the EPA — requests Hulstein apparently made in response to The Western News’ FOIA request.

In response to Hulstein, Mariman did not authorize the release of “detailed descriptions of legal services rendered,” citing attorney-client privilege. She also stated that the county was “not claiming any business confidentiality protection” pertaining to other documents previously provided to the EPA, though she asked that the EPA redact any bank account number contained within any documents prior to release.

Though the health board was not directly subject to the FOIA request, Mariman indicated the health board’s desire to share information about the investigation with the public.

“Because the EPA OIG is now agreeable to disclosing this matter in response to a FOIA request, we presume you have no further objection to us providing our relevant correspondence with EPA on this issue to the public,” she wrote.

Mariman also reiterated a request made twice before, asking the EPA for an explanation and documentation behind its calculations because they didn’t mesh with the county’s own calculations.

In making her closing request — that the EPA reveal the results of the investigation by Dec. 1 — Mariman alluded to the county’s desire for resolution, citing its prompt response to all of the EPA’s requests “in an effort to get a prompt resolution/determination from EPA.”

“This matter has now been pending … [for] over a year,” she wrote. “The [health] board would very much like to hear from the EPA regarding its investigation so the board may report that outcome to the community.”

Four days later, on Oct. 15, Mariman wrote Jan Ivers and George Jamison, the health board’s chair and vice-chair, respectively. She recapped the investigation up to that point and advised that, “should the board wish to do so,” it could now make publicly available correspondence and attachments that Mariman provided on a flash drive.

About the FOIA request

The Western News assumes its FOIA request was limited in scope and the documents released as a result are a subset of the records pertaining to the investigation.

The EPA withheld a few of the documents the FOIA request sought, citing law enforcement exemptions.

A copy of the FOIA request and the records the EPA released can be downloaded by visiting and entering “EPA-R8-2018-011473” in the “Quick Search” box.

The records the City-County Health Board released can be download at under the section titled “Posted Documents.”