The Environmental Protection Agency paid $750,000 a year to a warehouse contractor in suburban Washington whose employees watched television and lifted weights while taxpayer-paid supplies decayed in moldy, rat-infested conditions, an internal investigation found.

Inspector General Arthur A. Elkins‘ report about the “deplorable” conditions inside the 70,000 square foot facility in Landover, Md., stunned top EPA officials and prompted the immediate removal of the contractor.

Acting Administrator Bob Perciasepe also ordered regional administrators to quickly review all agency storage sites.

The report comes as lawmakers delve into questionable employee conference spending by the Internal Revenue Service and after bad publicity for the General Services Administration over an expensive, perk-laden conference in 2010.

Elkins noted in his urgent “early warning report” dated May 31 that EPA had not visited the warehouse before he contacted the agency on May 16 and informed officials about what his invetsigators found at the warehouse operated by contractor Apex Logistics LLC of College Park, Md.

The company’s only federal contract was to manage the warehouse, which it won from EPA in 2007. The company did not immediately return a phone message Monday to its offices seeking comment.

Elkins reported that old federal employee passports with personal information were kept in unsecured containers. The warehouse had “considerable amounts of unusable, inoperable and obsolete furniture” and outdated stocks of paper and print shop supplies.

The facility had new appliances received in 2007 and new furniture received in 2008 that were unopened. Elkins also reported archived files from the early 1990s, ceiling tiles, carpet, and large amounts of stationary and office supplies.

Apex employees set up personal spaces within the warehouse with televisions and decorations, including pin-up posters, chairs and couches, he said. They shielded them from security cameras with dividers and storage boxes.

“Limited camera coverage throughout the facility could allow employees to avoid monitoring. There was a locked office inside the facility for which we could not determine a purpose,” he said.

Apex employees set up a gym with surplus weight-lifting equipment, carpeted with EPA tiles, that was maintained in good working order, Elkins said, even as the rest of the warehouse showed signs of rat infestation and mold. The workers used EPA stationary to record workouts and played music on EPA equipment.

He said the gym raised questions about whether Apex was accurately billing EPA for worker hours, and concerns about insurance and fire liabilities. Propane and gasoline were stored within the building, and poorly stacked inventory on overhead shelves raised additional safety hazards.

“Deplorable conditions existed in the warehouse. Door jambs were corroded; dirt, dust and vermin feces were pervasive; and several items were rotting and potentially hazardous,” Elkins said. “We observed refrigerators with mold, and old computer bags molding and rotting.”

Perciasepe, in a lengthy letter to Elkins included in the report, detailed how the agency took “immediate, aggressive actions” to address the problems.

EPA issued a stop-work order to Apex by the afternoon of May 17 that cut off further payments, and employees were permanently removed from the warehouse that same day. EPA staff oversaw a near-complete inventory of the contents the weekend of May 18-19.

Old passports are to be sent to the State Department for destruction, and an investigation was begun on the potential loss of personal information in the passports and other stored documents.

Perciasepe said the EPA also began a review of employee management of the contract to determine potential disciplinary action. He said EPA would determine if it could terminate the Apex contract and bar Apex from future government work.

EPA also may challenge payments to the company, pending an audit of allowable costs by Elkins.

“EPA takes the recent situation detailed in the Office of the Inspector General’s Early Warning Report very seriously,” a spokesman said Monday. “The agency is continuing its investigation and response, and will take additional actions, as appropriate.”

He said the review of regional storage sites turned up no problems.

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