The Office of Inspector General at the EPA has recommended that the agency seek to recover nearly $25.2 million of the $25.4 million given America’s Clean Water Foundation in three federal grants – $21.1 million of which went to Validus Services LLC, a for-profit subsidiary of the National Pork Producer Council (NPPC).

There’s a small problem in getting the loot back, however. On July 14, 2006, the Foundation’s attorney told EPA that the Foundation had “dissolved” – vanished – along with its office, employees and board of directors.

America’s Clean Water Foundation (ACWF) and NPPC have a short, profitable history; a history this space outlined twice in 2001 and 2002.

A Dec. 2001 column documented how the not-for-profit NPPC established a for-profit subsidiary – then called Environmental Management Solutions, LLC (EMS), now Validus – with the help of the not-for-profit, Washington, D.C.-based ACWF.

A Feb. 2002 column explained how NPPC then became the “exclusive” license holder of producer checkoff-developed programs like the On-Farm Odor/Environmental Assistance Program, the Environmental Assurance Program and “all other (checkoff) environmental programs.”

The deal was particularly sweet because NPPC would make “no royalty payment” for the licenses to the checkoff for “years 0 to 5 inclusive” while allowing it to “grant sublicenses to ‘third parties, including a subsidiary Limited Liability Company ...’”

The licenses were the linchpin to NPPC hopes for its fledgling subsidiary.

At that time, NPPC was pushing Congress to boost the USDA’s Environmental Quality Incentives Program from $200 million in the 1995 Farm Bill to nearly $1 billion in the 2002 Farm Bill. (Its wish came true.) Most of the cash would assist livestock producers to identify, then fix, their environmental problems.

With arguably the best livestock assessment program licensed to it free for five years and an anticipated five-fold increase in federal dollars to fix problems identified by that program, NPPC had positioned its for-profit arm, at the time EMS, to profit for years to come.

And it did. Of the $25.9 million in three EPA grants awarded to America’s Clean Water Foundation between 1998 and 2003, NPPC/EMS/Validus, the Foundation’s biggest contractor, received $21.1 million to operate on-farm environmental programs.

But the wheels on the slick deal began to squeak when the Foundation’s accountant “discovered accounting irregularities and a potential embezzlement of funds” in a mid-2004 audit of the EPA grants.

The EPA, according to the Inspector General’s Feb. 20, 2007 report on the grants, (www.epa.gov/oig/reports/2007/) then spent two years trying to get to the bottom of an increasingly rotten barrel at the Foundation.

Every time it went deeper, though, it found more trouble – incorrect labor costs, unsupported or inaccurate payments, duplicate records and worse.

EPA auditors turned to the Foundation’s key subcontractor, NPPC’s Validus, to piece together a clearer picture of where its money went. Validus’ records, according to the Inspector General’s report, were riddled with questionable costs and payments, also.

“In total,” noted EPA auditors, “we questioned the $21,107,498 ... claimed (by Validus) because the Foundation was unable to demonstrate that the contract costs were reasonable, allowable and allocable ...”

Some, indeed, were questionable.

For example, “Validus billed the Foundation a flat rate of $25,000 per month for the use of an on-farm assessment checklist that the Council [NPPC] developed under a contract with the National Pork Board,” the checkoff.

According to the EPA report, the Foundation paid Validus $1.25 million in license fees during the time Validus had a five-year, royalty free ride to the environmental programs.

It simply billed the Foundation for a cost it did not incur and slipped the cash into its pocket.

Make that NPPC’s pocket.

Where it will stay because, by law, EPA can seek repayment only from its contractor, the now-gone America’s Clean Water Foundation, and not the Foundation’s subcontractors NPPC, EMS or Validus.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Alan Guebert may write to him in care of this publication.