&EPA
United States
Environmental Protection
Agency
Office of the
Chief Financial Officer
(2710A)
EPA-190-R-00-OC3
March 2000
http://www.epa.gov
FY 1999 Audited
Financial Statements
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
0-003
Internet Address (URL) . http://www.epa.gov
Recycled/Recyclable.Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Postconsumer)
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TABLE OF CONTENTS
Message from the Administrator iii
Management's Discussion and Analysis 1
Message from the Chief Financial Officer 17
Chief Financial Officer's Analysis 19
Principal Financial Statements 25
OIG's Report on EPA's FY 1999 Financial Statements 71
Acronyms 89
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
EPA's FY 1999 Annual Financial Statements Page i
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MESSAGE FROM THE ADMINISTRATOR
I am pleased to present the U.S. Environmental Protection Agency's Annual Financial
Statements for Fiscal Year 1999. These statements summarize EPA's financial activities and
highlight the successes achieved by EPA's programs during this time.
Over the past seven years of unprecedented economic expansion, this Administration,
working with the Congress, and our state and tribal partners, has distinguished itself through
unprecedented environmental progress. On a range of issues in 1999 EPA continued to build on
its record of achievements.
The 1996 amendments to the Safe Drinking Water Act, a fine example of what we can
achieve when the Congress and the Agency work together, coupled with the President's
Clean Water Action Plan, have contributed greatly to improving the quality of tap water
and cleaning up the Nation's waters. More recently, under a new cooperative,
intergovernmental process, we recently completed a comprehensive, nationwide
assessment of watersheds to help achieve our Clean and Safe Water goal.
We have placed special emphasis on protecting our Nation's greatest resource - our
children - through actions like implementing the Food Quality Protection Act, that for the
first time puts emphasis on protecting the health of infants and children from pesticide
risks. For example, EPA announced the cancellation of certain uses and risk reduction
strategies for the highly toxic organophosphate pesticides methyl parathion and azinphos
methyl. Residues from these pesticides are often found on foods children commonly eat.
This is the first time the Agency has set standards because of the specific effects a
pesticide has on children's health.
• Accelerated cleanups of our Nation's worst Superfund hazardous waste sites have helped
ensure that neighborhoods are free from toxic waste sites. EPA and its partners met the
FY 1999 goal of construction completion at 85 Superfund sites. Under this
administration, more than three times as many toxic waste site cleanups have been
completed than were completed in the previous 12 years of the Superfund program.
Under our Brownfields Assessment Demonstration Pilot Program, we continued to forge
stronger partnerships with states, cities, and communities by providing funding and
technical support to 307 communities to help them redevelop abandoned or underutilized
industrial properties.
EPA's FY 1999 Annual Financial Statements Paae iii
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• Our Nation's air quality continues to improve through cleaner cars and fuels. The
President announced a final rule that will give Americans substantially cleaner-burning
vehicles and cleaner fuels. For the first time ever, SUVs, vans and light trucks will be
held to the same tough standard as cars. By the end of the decade, every single vehicle
rolling off the assembly line will be 77 to 98 percent cleaner than the vehicles we drive
today. These reductions will be the equivalent of taking 164 million cars off the road,
and will prevent thousands of premature deaths and respiratory illnesses. But this action
will not limit a consumer's choice in vehicles.
• EPA's Office of Environmental Information was created to be an innovative center of
excellence for the creation, management, and use of information as a strategic resource.
Having quality environmental information will enable EPA to make informed decisions,
improve information management, reduce reporting burdens, improve public access, and
measure success in support of the Agency's mission to protect the environment and
human health.
Working cooperatively with industry, the public, and local leaders we continued to find
innovative, cost-effective, and common sense solutions to environmental and public
health challenges. Our Project XL (excellence and Leadership) initiative enables
companies, states, and localities to redesign current EPA rules if they can formulate
alternative systems that are both cheaper and cleaner for the environment.
When I began my service as Administrator, I stated that the Agency would fulfill its
mission while adhering to sound management principles designed to ensure prudent and effective
stewardship of the taxpayer funds entrusted to us. These financial statements are one major
indicator of our commitment to fiscal accountability. I look forward to continued management
improvements enabling EPA to link its resources with results, measure its successes, meet the
long-term goals and objectives established in its Strategic Plan, and address the critical
environmental challenges that will emerge during the new millennium.
M. Browner
Administrator
Page iv EPA's FY 1999 Annual Financial Statements
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MANAGEMENT'S DISCUSSION
AND ANALYSIS (MD&A)
EPA's FY 1999 Annual Financial Statements
Page
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Note: This FY 1999 Organization Chart does not reflect the Office of Environmental
Information (OEI) which was established in FY 2000.
Page 2
EPA's FY 1999 Annual Financial Statements
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
The Environmental Protection Agency (EPA) was established to lead the nation's efforts to protect
human health and safeguard the environment. EPA continues to work in partnership with local,
state, tribal, federal and global communities to protect the air, water, land, and public health for all
generations. This section contains an overview of the initiatives taken to ensure that all citizens have
a clean environment and presents the key financial management highlights of the Agency. [For more
detailed information on environmental initiatives, see EPA's FY 1999 Annual Performance Report
(APR), to be issued in March 2000.]
EPA's Mission and Strategic Goals
The Agency's mission statement encompasses all of the legislative mandates of its programs and
serves as a guidepost for all activities. Our strategic planning framework comprises ten strategic
long-term goals that support the Agency's mission. We have articulated a set of objectives for each
strategic goal, as well as performance goals to identify the progress we aim to make each year
towards longer-term commitments.
Mission
"The mission of the U.S. Environmental Protection Agency is to protect human health and to
safeguard the natural environment — air, water, and land — upon which life depends."
Strategic Goals
EPA has ten strategic goals to fulfill this mission. The Agency's Strategic Goals are:
1. Clean Air
2. Clean and Safe Water
3. Safe Food
4. Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces, and
Ecosystems
5. Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency
Response
6. Reduction of Global and Cross-Border Environmental Risks
7. Expansion of Americans' Right to Know About Their Environment
8. Sound Science, Improved Understanding of Environmental Risk, and Greater Innovation to
Address Environmental Problems
9. A Credible Deterrent to Pollution and Greater Compliance with the Law
10. Effective Management.
EPA's FY 1999 Annual Financial Statements Page 3
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
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Overview of FY1999 Results
EPA is proud of its FY 1999 contributions to establishing a cleaner, healthier environment. The
results presented in this report demonstrate continued progress and reveal a mix of tools and
approaches used to protect public health and promote environmental protection. Throughout the
year, the Agency maintained close contact with its primary partners-states, tribes, and other federal'
agencies-whose involvement contributed significantly to the annual accomplishments discussed in
this report and progress toward the longer-term environmental results.
For FY 1999, EPA can report significant accomplishments that contributed to cleaner air and land
and safer food and water, meeting the majority of the 69 annual performance goals (APGs) to which
the Agency committed in its FY 1999 Annual Plan. The Agency is also on track to achieve several
APGs with targets that fall beyond FY 1999. Final results are not yet available for a number of
APGs due to differences in reporting schedules. Owing to a variety of factors, EPA did not achieve
some of the accomplishments it had planned for FY 1999. A table showing detailed results for
EPA's 69 APGs is included in the Appendix of the FY 1999 APR.
Selected Accomplishments
Innovative Approaches to Environmental Problems
EPA is taking a fresh look at environmental problems and their solutions. We are devising more
efficient and effective regulatory programs, expanding cooperative partnerships, and building
simpler and more flexible processes for rule-making and permitting. We have some exciting results
to report.
A 25-Percent Reduction in Acid Rain. In the Northeast and Mid-Atlantic regions of the United
States, where ecosystems are most prone to acidification, acid deposition has declined by up to 25
percent through the efforts of the acid rain program, which implements a system of emissions trading
known as "cap and trade." This successful, market-based program was established by the Clean Air
Act to control emissions of sulfur dioxide (SO2) from electric power plants that cause acid rain and
other environmental and public health problems. The "cap and trade" system is innovative in its use
of the market to achieve greater environmental results for a given cost than are possible through
traditional approaches. The program places a mandatory ceiling, or cap, on emissions nationwide
from electric utilities, and allocates emissions to these pollution sources in the form of allowances.
At the end of the year, sources must hold one allowance for each ton of SO2 they emitted. Extra
allowances may be banked (or carried over) for future use, or sold to other companies. This
flexibility gives utilities the opportunity to find cost efficiencies while ensuring that overall emission
reductions are achieved. Estimates by Edison Electric Institute in 1989 of estimated costs under
traditional approaches were $7.4 billion by 2010, versus EPA's initial estimate of $4.6 billion under
"cap and trade." Based on recent compliance cost information, a 1998 Resources for the Future
report estimated costs of SO2 emissions reductions to be less than $1 billion by 2010.
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Early Progress in Food Safety. EPA is piloting a new approach to broaden public participation in
decision-making on older agricultural pesticides. We are confronted with a large number of
pesticides that were registered, or licensed for use, before tough standards for food safety were
enacted into law. EPA is required by statute to evaluate these pesticides to set safe limits for their
residues on foods, also called "food tolerances." Our new approach to reassessment makes the
process more transparent to the agricultural community, whose members are most directly affected
by Agency findings. We are pleased to report that, as of September 30, 1999, EPA exceeded the
statutory requirement of evaluating 33 percent of the 9,721 existing pesticide food tolerances,
completing a net total of 3,430 reassessments (over 35%).
Regulations that Produce Better Environmental Results. One of EPA's boldest innovations, Project
XL ("excellence and Leadership") was created through the President's Reinventing Environmental
Regulation Initiative. In FY 1999, EPA approved five more regulatory pilot projects through Project
XL, bringing the number of pilot experiments in the implementation stage to 15. An additional 36
XL proposals were either under development or in negotiation, bringing the total number of projects
to 51, meeting the Agency's goal for FY 1999. To date, these pilots have revealed over 40
opportunities for improving environmental regulations, and eight innovations have already been
incorporated into EPA regulations, permitting, and stakeholder involvement approaches. Project XL
gives approved regulated sources the flexibility to develop alternative strategies to replace or modify
specific regulatory requirements, contingent upon the production of greater environmental benefits.
Innovative Partnerships for Environmental Results
EPA could not have achieved the results described in this document during FY 1999 without forging
innovative partnerships with many different governments, groups, and agencies. The Agency
operates with the active participation of state and local agencies, tribes, community leaders,
businesses, and private citizens to develop the most effective standards for public health and
environmental protection.
Targeting Clean Water Efforts, from Coast to Coast. EPA's Strategic Plan includes a commitment
to expand our focus on watersheds in pursuit of our goal for Clean and Safe Water. FY 1999
brought to fruition a cooperative, intergovernmental process to assess the condition of the nation's
watersheds. For the first time, all 50 states, the District of Columbia, five territories, and numerous
tribes each completed a comprehensive, nationwide assessment of watersheds within their
boundaries, with guidance from EPA, the U.S. Department of Agriculture, and other federal
agencies. The results incorporate water quality data, habitat conditions, endangered species listings,
and other environmental factors. Taken together, this information helps all agencies identify the
aquatic resources in greatest need of restoration and/or protection under the Clean Water Action
Plan.
A Cleaner Environment, a Stronger Economy. During FY 1999, EPA's government/industry
partnership programs contributed to the reduction of annual greenhouse gas emissions in total by 35
metric tons in carbon equivalent. The Agency's climate change efforts are part of the President's
EPA's FY 1999 Annual Financial Statements Page 5
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five-year Climate Change Technology Initiative included in the 1999 Budget and are designed to
overcome barriers to investments in more efficient technologies by consumers, businesses, and
others. EPA promotes energy-efficient technologies through programs such as the Energy Star
Labeling Program and the Voluntary Aluminum Industry Partnership. Our support for innovation
enables industries to limit greenhouse gas emissions and at the same time improve local air quality,
save money for consumers and businesses, and enhance overall economic productivity.
Making the Most of our Land. In FY 1999, EPA demonstrated its commitment to Brownfields
redevelopment by meeting its goal to provide funding and technical support to 80 communities,
bringing the total communities served to 307. The Brownfields Assessment and Development
Program supports the assessment, cleanup, and redevelopment of industrial and commercial
properties that have been abandoned or underutilized due to real or perceived environmental
contamination. Redevelopment efforts are designed to empower states, communities, and other
stakeholders to work together on Brownfields projects. EPA and its partners also met the Agency's
goal to complete construction at 85 Superfund sites in FY 1999. Major administrative reforms in
the Superfund program have enabled us in the past seven years to complete construction at over three
times the number of sites achieved during the first twelve years of the program.
Managing and Improving Environmental Information
EPA is working to assemble and manage more precise information about the environment to present
a more complete picture to the public and to enhance Agency decision-making. During FY 1999,
EPA made notable advances in the quality of data being produced and the availability of
environmental information to all partners and stakeholders. When all of us-state and tribal
governments, non-governmental and private organizations, communities, and individual
citizens-have access to valid, consistent, and comprehensible data about environmental conditions,
we can work together more effectively to address environmental problems and reduce exposure to
harmful substances.
Establishing Common Data Standards. The State/EPA Information Management Workgroup,
founded to promote compatible data standards and systems designs, has negotiated a common vision
and operating principles for managing environmental information. Although EPA and state
agencies are committed to sharing environmental data, the variety of data standards currently in use
makes it difficult to integrate information or create accurate composites of environmental conditions.
The workgroup has established multi-party action teams to identify and promulgate joint
environmental data standards. In FY 1999, the teams completed standards for facility identification
and standard date, and work is currently underway on standards for latitude/longitude, industrial
classification, chemical identity, and biological classification.
Putting Information into the Hands of the Public. The Agency recognizes that making
environmental and public health information available to local residents is one of the most effective
ways to reduce local pollution and prevent it from happening in the future. EPA, the Environmental
Defense Fund, and the Chemical Manufacturers Association achieved considerable success in FY
Page 6 EPA's FY 1999 Annual Financial Statements
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1999 during the first phase of the Chemical Right-to-Know Initiative. The focus was on 2,800
chemicals produced and imported at volumes exceeding one million pounds per year which,
therefore, present significant chance of public and environmental exposure. The Right-to-Know
initiative aims to identify and make public basic screening-level information on these chemicals,
including some that may present particular concerns for children's health. Over 200 companies
committed voluntarily to provide screening level toxicity information on over 1,150 of the chemicals
in question.
New Information about Human Health and the Environment. Research and development programs
at EPA seek out more innovative, effective ways to gather and distribute information about
environmental health risks. The endocrine disrupters research program is producing important
results by expanding our knowledge of how exposure to certain chemicals can affect human
endocrine systems. In FY 1999, the Agency initiated a study to examine children for the effects of
two endocrine-disrupting chemicals (EDCs). This study will help to characterize the key factors that
influence human exposures to these chemicals and other persistent pesticides, toxics, and metals.
It will also help produce a field exposure study protocol to support a follow-on larger-scale study
to begin in FY 2000. The data from these studies will teach us more about where, when, and how
children and other sensitive sub-populations are exposed to these kinds of environmental
contaminants.
Transforming Information Management for the Next Century. During FY 1999, EPA laid the
groundwork for a new office dedicated to information and information access issues. Formally
established in FY 2000, EPA's Office of Environmental Information (OEI) will play a significant
role to advance the creation, management, and use of data as a strategic resource. OEI will work
closely with EPA's external partners to meet their data needs, develop appropriate policies regarding
data protection and information security, create and oversee information standards and records
management policies, and enhance the security and reliability of EPA's information infrastructure.
The office supports the Agency's mission by integrating quality environmental information to
maximize its usefulness for decision-makers.
Year 2000 (Y2K) Activities
In FY 1999, EPA positioned the Agency's information technology assets to successfully transition
to the upcoming calendar year change. All 50 EPA mission critical systems were assessed,
renovated, and certified through an independent certification program. In addition, the Agency's
major computing platforms (mainframe, client/server, supercomputer) and wide area
telecommunications networks were 100 percent compliant. EPA also completed assessment and
renovation of its 1,475 non-mission critical systems, as well as renovations to 28 data exchanges,
which are a combination of mission critical and non-mission critical systems. Currently, the Agency
is monitoring the post Y2K transition testing process for mission critical and non-mission critical
systems. This will enable EPA to determine whether or not the moratorium on modifications to
information technology assets is needed through March 15, 2000.
EPA's FY 1999 Annual Financial Statements - Pa«e 7
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EPA assessed all leased and owned buildings for Y2K compliance. The Agency received written
confirmation from the General Services Administration (GS A) on March 1,1999, that all EPA space
was successfully evaluated and compliant. To address any adverse impact of the century change on
EPA facilities, the Agency prepared guidance for all facility managers and coordinated the
preparation of facility contingency plans specifically addressing building systems. The Agency
completed testing facility contingency procedures and identified corrective actions.
To address worst case scenarios of the Y2K transition and ensure continuity of the core business
processes, the Agency developed procedures to respond to threats and risks of the calendar year
change. Through careful business process analysis, the Agency's Business Continuity and
Contingency Planning (BCCP) methodology includes state and local interfaces, where appropriate.
The Agency's BCCP also includes cross-cutting programmatic threats that may affect the continuity
of business operations.
Within the Agency's BCCP methodology, EPA formed business resumption teams (BRTs) for each
of the following nine core business processes:
• Protection of Air Quality
• Protection of Water Quality
• Safe Disposal of Waste Products
• Regulation of Pesticides and Toxic Substances
• Emergency Response to Environmental Emergencies
• Research and Development to Improve the Understanding of Environmental Risks
• A Credible Deterrent to Pollution and Greater Compliance with the Law
• Expansion of Americans' Right-to-Rnow About Their Environment
Financial/Administrative Management of Agency Operations
The overall goals of the BRTs are to: 1) identify threats/risks and business priorities for its own core
business process; 2) develop and embellish a set of contingency procedures; 3) review and rehearse
procedures; and 4) enhance and implement procedures. EPA's BCCP Life Cycle includes
milestones for corrective actions for identified contingencies and procedures through a series of
workshops, rehearsals, and follow-up meetings.
The following table represents the historical and estimated future costs for Agency Y2K activities:
Fiscal Year
Cost (in Millions)
1996
$0.8
1997
$5.3
1998
$11.5
1999
S22.3
2000
Sl.O
Total
$40.9
Building on Lessons Learned
As a learning year, FY 1999 provided EPA many opportunities to identify and develop the
capabilities essential for results-based management. The Agency knows that future successes will
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EPA's FY 1999 Annual Financial Statements
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depend in large measure on its ability to set quantifiable, attainable goals and targets; to forecast
external factors that may have an impact on program planning; to measure performance and results
more precisely; and to analyze more accurately the relationships among costs, activities, and results.
For a variety of reasons that affected the Agency's ability to accomplish what it had planned, EPA
achieved less than full performance for several of its 69 FY 1999 APGs discussed in the Agency's
FY 1999 APR. The Agency does not expect the shortfall in meeting these annual performance
targets, however, to compromise its progress toward the long-range goals to which they contribute.
For example, the Agency met the statutory and cumulative goal of reassessing existing tolerances
for pesticide food uses, but missed its annual target due to efforts to strengthen involvement of the
agricultural community in the reassessment process. In another case, the Agency added only four
states (out of the eight that were planned) to the One Stop Reporting program in FY 1999. However,
EPA did develop a technology transfer activity to support states' efforts to increase their level of
information integration. While they may not have resulted in the performance planned for F Y 1999,
these and other such efforts build a strong foundation for longer-term progress towards the Agency's
goals.
In some cases, external factors affected the Agency's ability to achieve planned APGs. For example,
due to difficulties reaching agreements with developing nations, EPA delivered 16 international
training modules instead of the 30 originally planned. Similarly, the Agency's decision to relinquish
interest in the Wilson Building so that the District of Columbia Government could return to its
historic home delayed the consolidation of EPA Headquarters offices at the Federal Triangle.
Looking Ahead
In addition to the missed APGs, other program issues will need careful attention by the Agency and
our partners if we are to maintain progress towards the achievement of long-term performance
results. The Agency is working to address these challenges as we continue to strive for
environmental outcomes.
Air Court Case: Implications for Future of EPA 's Regulations. In May 1999, in a split decision (2
to 1), a panel of judges on the U.S. Court of Appeals fortheD.C. Circuit held that the Clean Air Act,
as applied in setting the new public health air quality standards for ozone and particulate matter,
represents an unconstitutional delegation of legislative authority. The Court's decision calls into
question these important new health air standards for ozone and particulate matter, which would
protect the health of 125 million Americans, including 35 million children. Ozone and particulate
matter are harmful pollutants that together contribute to acute health effects ranging from premature
death to asthma and other respiratory problems. The Court's decision stands in the way of EPA's
public health protection efforts and carries with it long-term implications not only for these new air
quality standards, but also for many other federal regulations containing broad grants of authority
to executive branch agencies. In January 2000, the Administrator filed a cetiorari petition seeking
Supreme Court review of key aspects of the Court's opinion.
EPA's FY 1999 Annual Financial Statements pa°e 9
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Nonpoint Source Pollution. Nonpoint source (NPS) pollution is the nation's largest contributor to
water quality problems. There are literally millions of diffuse sources of polluted runoff from
agricultural lands, residential areas, city streets, and forests, and from pollutants settling out of the
air. A key challenge for the future is to foster a national commitment to preventing nonpoint source
pollution, assuring adequate investments by federal, state, tribal and local governments to fund
projects to address these problems.
Performance Information: Need for Improved Data Quality and Availability. EPA gathers much
of its data on the environment from sources outside the Agency, whose reporting cycles and data
standards vary widely. For this reason, EPA has concerns about data quality, availability, and
measurability. In a few instances, data relevant to FY 1999 performance are either lacking or of poor
quality. We need accurate baseline data to measure performance effectively. EPA goal
teams-bringing together representatives from all Agency offices whose work contributes to progress
on our strategic goals-are working to determine what data are needed to set the baselines so that we
can assess results over the long term. We are also working to develop performance measures that
focus more on the outcomes of our work than on our programmatic outputs.
Need for Improved and More Accessible Information. EPA, in cooperation with the states and tribes,
must advance efforts to reinvent environmental information by adopting formal data standards,
providing universal access to electronic reporting, and re-engineering the Agency's national data
systems. EPA must use efforts such as joint EPA/state/tribal information activities, Environmental
Monitoring for Public Access and Community Tracking (EMPACT), Environmental Justice grants,
and drinking water Consumer Confidence Reports (CCRs) to help provide communities and
individuals with the information and tools they need, to address environmental problems. EPA is
striving to provide information in simpler, clearer terms and make it more accessible to states and
local governments, the regulated community, and the public.
Future Trends
A number of current trends, which are likely to continue into the future, will have implications for
the success of EPA's programs. The increasing likelihood of climate-change-driven weather
extremes, such as more frequent hot, dry summers, may make it increasingly difficult to reach
attainment with air quality standards, despite the full implementation of emission control plans.
Similarly, droughts and floods, such as those that occurred in 1999, can significantly impact the
success of the Agency's water and waste programs. As evidenced by the nation's recent experience,
flood waters can disrupt hazardous waste sites and spread animal and other wastes. Drought
conditions can preclude reliance on dilution to improve water quality. The Agency and its partners
have established some pollution control strategies predicated upon fairly typical temperature and
precipitation regimes; however, these control strategies may be less likely to succeed, as we are
exposed to increasing climate and weather extremes.
Population growth, and the attendant development of suburban and urban areas, pose further
implications for environmental protection programs. Sprawl places increased demands on
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transportation, and can result in more people relying heavily on private vehicles. The need to drive
more, coupled with the trend towards larger vehicles such as sports utility vehicles, can contribute
to increased emissions of conventional pollutants and greenhouse gases such as carbon dioxide. In
addition to air quality concerns, population growth places increased pressure on the nation's
infrastructure for providing clean and safe water. This concern is especially apparent as the U.S.
population grows in southern and southwestern states with fewer water resources and often less
highly-developed water and wastewater treatment infrastructures.
The current trend of general economic growth and increased consumer demands will also bear upon
the success of EPA's programs across all media. If domestic manufacturing and production rise to
meet the demands of wealthier, more prosperous consumers, waste streams and air and greenhouse
gas emissions are likely to increase.
Financial Analysis Highlights
Financial Trends
Appropriation Levelsfor FY1996-1999. For Fiscal Year 1999, Congress appropriated a total of $7.9
billion to the Agency. A comparison of total Agency appropriations for Fiscal Years 1996 through
1999 is provided in the following chart:
Appropriations by Fiscal Year
Supwfunci
TAG
All Othar
1996 1997 1998 1999
The chart is categorized by Superfund, State and Tribal
Assistance Grants (STAG), and All Other. The
Superfund appropriation category is net of transfers to
the Science and Technology (S&T) and Office of
Inspector General (OIG) appropriations. The All Other
category includes appropriations for OIG, Oil, Leaking
Underground Storage Tank (LUST), Buildings and
Facility, Environmental Program and Management
(EPM), and S&T.
FY 1999 EPA Expenditures
46.8% ^ Contrac
FY 1999 Expenses. In Fiscal Year 1999, EPA expended
S7.7 billion using current and prior year appropriation
authority. Of this amount, as depicted, 74.9 percent was
expended for contracts, inter-agency agreements, and grants.
Superfund Financial Trends. The U.S. Congress passed the
Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (CERCLA) (P.L. 96-510), which
formally established the Superfund program and the
Hazardous Substance Response Trust Fund, now known as
the Hazardous Substance Superfund (Trust Fund). Although CERCLA has not been reauthorized
Contracts & lAGs
27.7%
EPA's FY 1999 Annual Financial Statements
Pa
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since 1995, the Superfund program continues to operate each year by way of annual Congressional
appropriations.
The Trust Fund, which is administered by the Bureau of Public Debt, U.S. Department of the
Treasury (Treasury), is the primary financing source for the Superfund program. For FY 1999,
Treasury reports that the Trust Fund received $889.5 million in receipts from the revenue sources
shown in the following chart:
Superfund Trust Fund Revenue Sources
FY1999
General Fund Transfi
36.5%
Cost Recoveri e
36.0%
Fines & Penalties
0.4%
The Superfund program's authority to tax expired on
December 31, 1995. Consequently, tax revenues have
diminished and the remaining revenue sources for the Trust
Fund are: cost recoveries; interest, fines, and penalties;
interest from Trust Fund investments; and general revenues.
Due to diminishing revenues, EPA has increased its efforts
to conserve existing Trust Fund balances and replenish the
Trust Fund with all eligible revenues. Specifically, EPA
has done the following to accomplish these goals:
Reemphasized its "enforcement first" philosophy to compel Potentially Responsible Parties
(PRPs) to clean up their sites. By having PRPs perform clean-ups, EPA can reduce related
response and legal enforcement costs which result in cost savings to both the taxpayer and
the Trust Fund.
Cumulative Superfund Trust Fund Cost
Recoveries
FY 1994 thru FY 1999
2500
1994 1995 1996 1997 1998 1999
Accelerated efforts to pursue cost recovery (see
chart). During FY 1999, EPA recovered
$319.7 million — the largest cost recovery
amount for a one year period to date.
Placed increased emphasis on debt collection
activities to pursue unpaid debts owed EPA.
Diversified the Trust Fund's investment
portfolio, with direction from Treasury, to
return a higher rate of interest to the Fund.
Office of the Chief Financial Officer's (OCFO's) Accomplishments
Financial Performance Measures. OCFO tracks nine Core Financial Management Performance
Measures for monitoring the key functions in EPA's 14 finance offices. The measures cover the
timeliness of processing of payments (commercial, grant, travel, payroll), recording of contract
obligations and accounts receivable, and reconciling cash as well as the use of electronic payments
for travel and payroll. The Agency improved its performance compared to FY 1998 and exceeded
the performance goals for all the measures during FY 1999.
Paae !2
EPA's FY 1999 Annual Financial Statements
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Benchmarking. EPA, as a CFO Council member agency, participated in a Benchmarking project
sponsored by The Hackett Group, an organization that conducts benchmarking studies for the private
sector. EPA's business processes were compared to other government agencies and to private sector
companies in areas such as transaction processing, control and risk management, decision support
and finance function management. EPA compared very favorably against both government and
private sector averages in the number of finance FTEs per billion dollars of appropriations (equated
to revenues for private sector comparison) and the FTE staff time allocated to processing financial
transactions (lowest among both government and private sector).
One area of concern that the study revealed was the overall cost of EPA's financial systems. OCFO
is evaluating replacement systems and other measures to bring these costs in line with government
and private sector averages.
Integration of Planning, Budgeting, and Accounting. EPA prepared its FY 1999 Annual Plan and
Budget by linking resources to the Goals and Objectives in the Agency's Strategic Plan in
accordance with the requirements of the Government Performance and Results Act (GPRA) and
other related management reform initiatives. The General Accounting Office (GAO) commended
EPA for being the first Agency to succeed at full integration of budget requests and annual
performance plans. During the year, substantial enhancements were made to the Agency's Budget
Automation System (BAS) to allow the resource community greater flexibility in formulating their
budgets. The GPRA structure is used to account for the costs of our programs and meets the
requirements of the Statement of Federal Financial Accounting Standards No. 4, Managerial Cost
Accounting Concepts and Standards for the Federal Government, that requires Agencies to account
for the "full costs" of their outputs.
Working Capital Fund. In 1999, the Working Capital Fund (Fund) completed its third year of
providing administrative support services to Agency offices on a fee-for-service basis and ended its
protected status as a mandatory source for services provided to internal Agency customers. The
Fund is expected to demonstrate additional savings through increased efficiencies driven by market
forces.
In 1999, the Fund operated two successful business activities, providing customers postage services
and an array of telecommunications and data processing services. As expected, the Fund has
promoted effective resource utilization Agency-wide by more clearly identifying to Agency
managers, who must now account for the cost of administrative services in their budget planning,
both the resources their organizations consume and the cost of those resources. EPA has experienced
a 20 percent reduction in its postage costs, a savings of approximately $1 million annually, simply
through reduced internal demand. Similarly, EPA experienced significant savings in its
telecommunications and data processing operations. For FY 1996, the year before the Fund
commenced operations, these activities consumed approximately $114 million of the Agency's
appropriated budget. Actual costs for these operations dropped to approximately SI02 million in
FY 1997 (first year of Fund's operations). Costs were SI 14.1 million and $127.8 million in Fiscal
Years 1998 and 1999, respectively. Fund administrators are currently examining a business case
EPA's FY 1999 Annual Financial Statements Page 13
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analysis for including certain payroll services within the Fund, and additional expansions are
contemplated within the next several years.
FY1999 Biennial Review of EPA User Fee Systems. The Chief Financial Officers Act of 1990 (CFO
Act), Section 902(a)(8), directs EPA's Chief Financial Officer to: "review on a biennial basis, the
fees, royalties, rents and other charges imposed for services and things of value it provides, and make
recommendations on revising those charges to reflect costs incurred by it in providing those services
and things of value."
The Agency's FY 1999 review was conducted in accordance with the CFO Act and provisions set
forth in Office of Management and Budget Circular A-25, "User Charges." During this review
process, the Agency assessed its existing fee systems, made necessary revisions and identified
potential new fee systems. EPA has six existing fee systems: Motor Vehicle and Engine
Compliance Fee, National Radon Proficiency Program Fee, Maintenance Fee, Tolerance Fee,
Premanufacture Notice Fee, and Lead Accreditation and Certification Fee. The Agency is also
proposing several new fees: Outside User Fee, Tolerance Fee, Registration "Fee for Service,"
Registration Review, and Registration Fee.
The preliminary results of the review reveal that the Agency is taking reasonable and appropriate
actions to ensure that fees reflect costs where it would not adversely affect the service provided and
where EPA has the statutory authority to do so. A formal report is being prepared and is expected
to be completed by March 2000.
Re-engineered and Streamlined Payment Processes. In 1999, the Agency successfully re-engineered
and/or streamlined several payment processes to ease the burden on external and internal customers,
reduce the reliance on paper documents, and
help the Agency take advantage of rebates
and discounts for prompt payment. The
benefits from these efficiencies flow back to
EPA's program offices and are used to
further the Agency's mission.
For small purchase payments, the Agency
worked closely with its new credit card
issuer to streamline invoicing and recording
of accounting data. The Agency also
developed new intranet-based reporting
tools to facilitate cost allocation and
expanded the use of automated tools to
reduce duplicate data entry. The bank card
effort alone allowed EPA to earn about S365
thousand in rebates in 1999.
Bankcard Program
Six Year Comparison of Total Number of Purchases
In Thousands
90.0
79.7
| 1994
1995
| 1996
] 1997
i 1998
1999
Page 14
EPA's FY 1999 Annual Financial Statements
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For travel and transportation payments, EPA implemented a new credit card to offer over 16,000
Agency employees a way to better manage their accounts and to provide the Agency with rebates
and new administrative tools.
For contractor payments, the Agency moved aggressively to use electronic imaging of contracts to
make information more accessible while reducing the use of paper. EPA introduced a new release
of the Electronic Approval System (EASY) and expanded the use of the system to 94 project
officers, up from 20 in 1998. EASY provides project officers a streamlined on-line invoice approval
process. This re-engineering enabled EPA to pay 99.9 percent of invoices on time and earn over
$344 thousand in discounts in 1999.
Payment Related Initiatives Under Way. Three initiatives are underway to re-engineer and automate
payment processes. First, by the end of September 2000, all EPA grant payment offices will have
implemented Treasury's Automated Standard Application for Payments (ASAP) which standardizes
federal payment request procedures for grant recipients. Second, a dedicated team thoroughly
analyzed alternatives for replacing the aging EPA Integrated Payroll and Personnel System (EP AYS)
and recommended a product that will interface easily with other agency software, automate a number
of tasks, and provide high quality information to employees. Third, in 1999, the Agency obtained
a new intranet-based release of Travel Manager Plus (TM+) software that allows travel documents
to be prepared, processed, and approved on-line. TM+ will interface with the Agency's Integrated
Financial Management System (IFMS) to allow the automatic obligation and disbursement of funds
from fully approved documents.
EPA's FY 1999 Annual Financial Statements Page 15
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MESSAGE FROM THE CHIEF FINANCIAL OFFICER
I am pleased to present the FY 1999 financial statements of the Environmental Protection
Agency (EPA). Identifying strengths and weaknesses is a key component in the continuous
improvement of financial management at EPA. This document reflects the progress the Agency
has made and signals our commitment to addressing the challenges we still face.
EPA's financial statements have a slightly different look this year with the inclusion of
Management's Discussion and Analysis (MD&A) in place of the Overview found in the FY 1998
Audited Financial Statements. The MD&A highlights EPA's financial and programmatic
accomplishments in FY 1999, as well as current and future challenges.
In FY 1999, EPA furthered its commitment to strong program performance and financial
management through activities such as the following:
• Laid the ground work for a new Office of Environmental Information that will help
Agency programs use information as a strategic resource.
• Successfully converted the Agency's financial management systems to comply
with Year 2000 (Y2K) requirements.
• Integrated planning, budgeting, and accounting by linking resources with the ten strategic
goals and related objectives in the Agency's Strategic Plan.
• Achieved the majority of the 69 annual performance goals included in the Agency's FY
1999 Annual Plan, and remained on track to achieve several goals with targets falling
beyond the FY 1999 time frame.
• Improved performance relative to FY 1998, and exceeded FY 1999 performance targets,
for timely payment processing (commercial, grant, travel, and payroll), recording of
contract obligations and accounts receivable, and using electronic payments for travel and
payroll.
• Implemented a new bank card program for travel and small purchases, increasing EPA's
use of electronic mechanisms for financial transactions.
These actions are just a few of the many activities that comprise the Agency's overall
strategy for strengthening financial management and programmatic functions at EPA. We will
continue to identify other ways to improve financial management functions and ensure that
dollars spent will be used as efficiently as possible to carry out our mission.
EPA's FY 1999 Annual Financial Statements Page 17
U.S. EPA Headquarters Library
Mai! code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
-------
The preparation of the financial statements has been a collaborative effort among OCFO,
the OIG, and the Agency's program offices. I want to acknowledge the hard work and
commitment of all the employees throughout the Agency who contributed to this effort.
5
lichael W. S. Ryan
Acting Chief Financial Officer
Page 18
EPA's FY 1999 Annual Financial Statements
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EPA's FY 1999 Annual Financial Statements
Paae 19
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Chief Financial Officer's Analysis of the
FY 1999 Audited Financial Statements
The Chief Financial Officers Act of 1990 (CFO Act), as amended by the Government
Management Reform Act of 1994 (GMRA), requires EPA to prepare agency-wide financial
statements. The Agency has categorized its appropriations for presentation in the FY 1999
financial statements as follows:
• Hazardous Substance Superfund Trust Fund (Superfund), and
• All Other Appropriations (All Others).
Summary of Auditor's Report and Opinions
The Agency prepared the following FY 1999 Financial Statements: Statement of Financial
Position (Balance Sheet), Statement of Changes in Net Position, Statement of Net Cost, Statement
of Budgetary Resources, Statement of Financing, and Statement of Custodial Activity. The Office
of Inspector General (OIG) did not identify any material inconsistencies between the information
presented in EPA's Management's Discussion and Analysis (MD&A) and in the principal financial
statements. However, the OIG did identify exceptions in rendering its opinion that the Agency's
financial statements are fairly presented.
In its February 10, 2000, draft audit report, the OIG raised for the first time an opinion level
question regarding support for an amount identified in a footnote to the Statement of Changes in Net
Position that related to the Superfund equity line titled "Other." OCFO provided the OIG with an
explanation and backup documentation for this amount on February 24,2000. OIG in its final report
has indicated that the support was not provided in time for them to apply audit procedures.
In addition, on February 28, 2000, the OIG raised another issue affecting the Statement of
Financing. The OIG stated that the Agency was unable to provide support for the composition of
the "Other" line item in the Statement of Financing for All Other Appropriations Funds. In fact, the
line item consisted mostly of prior period and other adjustments that could have been audited. The
OIG did not request an explanation nor supporting documentation for this amount.
Report on Internal Controls
In evaluating the Agency's internal controls the OIG stated that the Agency made some
improvements in its financial statement preparation process but they also stated that the financial
statements provided to them were incomplete and contained significant errors. The OIG proposed
the financial statement preparation process as a material weakness.
EPA's FY 1999 Annual Financial Statements Page 21
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We disagree with the categorization of the OCFO financial statement preparation process as
a material weakness. The Agency took aggressive action to meet the milestone dates for the FY
1999 statements and to ensure quality data. We cooperated fully on a time line jointly developed
by the CFO and the OIG. While we agreed to some of the presentation enhancements proposed by
the OIG, in some instances, the issues raised by the auditors were not errors in the underlying
accounting data in the system. In other instances the auditors' findings of error related to differences
in professional judgement on the application of accounting standards and presentation on the
financial statements. While we agree that the financial statement process can be significantly
improved, we do not believe the process constitutes a material weakness that places the agency at
risk in preparing reliable financial statements.
Compliance with Laws and Regulations
Compliance with the Federal Financial Management Improvement Act (FFMIA)
The OIG identified the following as instances of substantial noncompliance with FFMIA
requirements:
• The OIG stated that our revised security plans for EPA's core financial systems continued
to be substantially noncompliant with federal financial management system requirements.
The OIG stated that they believed the security plans did not adequately address the system's
operational security controls and still lack significant detail to document critical operational
controls.
• The OIG stated that EPA's methodology for accumulating and reporting costs by the
Agency's ten strategic goals could not be relied upon to fairly state the Agency's cost to
achieve each goal. Therefore, they believed EPA managers did not have adequate cost
accounting data to manage their programs.
• The OIG stated that the Agency was able to report "trading partner" information on only a
portion of its intragovernmental transactions.
Regarding the security plan, OCFO is developing a Remediation Plan to address the security
issues raised and will incorporate them in FY 2000 security plan actions.
On cost accounting, we agree that improvements can be made. However, we believe the
Agency' s current policy and practices substantially comply with federal Managerial Cost Accounting
Standards (SFFAS 4). Further, the OIG's primary issue relates to year-end audited financial
statement presentation. This concern does not necessarily reflect upon the reliability of the
Agency's underlying accounting data. OCFO provides Agency managers a variety of management
reports and ad-hoc reporting tools which enables officials to manage their programs on an on-going
basis. OCFO will continue to work with the OIG, however, to improve EPA's cost accounting
capabilities.
Page 22 EPA's FY 1999 Annual Financial Statements
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OCFO also acknowledges that the Agency's FY 1999 Financial Statement reporting did not
fully meet the most recent OMB and Treasury requirements for "trading partner" information. Those
requirements were not issued until late FY 1999 and FY 2000. We have taken steps since then to
ensure that Agency intergovernmental transaction data will be correctly identified for the FY 2000
statements and that we will meet the overall reporting requirements for FY 2000.
Other Noncompliance Issues
The OIG did not identify any instances of noncompliance with laws and regulations that
would result in material misstatements to the audited financial statements. However, the OIG did
report two issues under the category of compliance with laws and regulations that, while not
material, they still considered to be significant. OCFO has worked with the Agency's Office of
General Counsel in resolving both issues.
The first concerned finding reported in past years about the Agency's practices for recording
disbursements against grants funded with more than one appropriation. The Agency has since issued
a revised policy "Accounting for Resources under the Government Performance and Results Act
(GPRA)," which changes the way that grant disbursements, as well as other Agency transactions,
are charged.
The second issue concerned Agency compliance with Office of Management and Budget
(OMB) Circular A-25, "User Charges." OCFO recently completed a Biennial Review of the
Agency's user fee systems. The review was performed in accordance with the CFO Act and
provisions set forth in OMB Circular A-25. We expect to issue the final report on the 1999 Biennial
Review of the Agency's user fee systems by March 15, 2000.
Impediments to Correcting Problems
Gathering information on grant accruals has been a major challenge for the Agency in the
preparation of its financial statements. For the preparation of the FY 2000 statements, we plan to
work with the OIG in streamlining this process.
Progress in Correcting Previously Identified Problems
The financial statement preparation process was identified as a material weakness last year.
As we noted above, under our "Report on Internal Controls," we addressed the problems identified
in the development of the FY 1998 financial statements in the preparation of EPA's FY 1999
financial statements and are committed to further improvements in FY 2000.
EPA's FY 1999 Annual Financial Statements Page 23
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In last year's audit report, the OIG recommended two improvements in the accounts
receivable area. In response, we clarified our policies and provided training and guidance to resolve
these issues.
Page 24 EPA's FY 1999 Annual Financial Statements
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PRINCIPAL
FINANCIAL
STATEMENTS
EPA's FY 1999 Annual Financial Statements
Paee 25
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CONTENTS
Financial Statements
Consolidating Balance Sheet
Consolidating Statement of Net Cost
Consolidating Statement of Changes in Net Position
Combined Statement of Budgetary Resources
Combined Statement of Financing
Statement of Custodial Activity
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balances with Treasury
NoteS. Cash
Note 4. Investments
Note 5. Accounts Receivable
Note 6. Loans Receivable, Net - Non-Federal
Note 7. Inventory and Related Property
Note 8. General Plant Property and Equipment - Net
Note 9. Debt
Note 10. Other Liabilities
Note 11. Leases
Note 12. Pensions and Other Actuarial Benefits
Note 13. Unexpended Appropriations
Note 14. Amounts Held by Treasury
Note 15. Commitments and Contingencies
Note 16. Grant Accrual
Note 17. Environmental Cleanup Costs
Note 18. Superfund State Credits
Note 19. Superfund Preauthorized Mixed Funding Agreements
Note 20. Income and Expenses from Other Appropriations
Note 21. Custodial Non-Exchange Revenues
Note 22. Statement of Budgetary Resources
Note 23. Adjustments
Note 24. Unobligated Balances Available
Note 25. Obligated Balance, Net - End of Period
Note 26. Difference in Outlays between Statement of Budgetary Resources and SF-133
Note 27. Statement of Financing
Note 28. Other Financing Sources
EPA's FY 1999 Annual Financial Statements Page 27
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Supplemental Information Requested by OMB
Required Supplemental Information
Deferred Maintenance (Unaudited)
Intra-govemmental Assets (Unaudited)
Intra-govemmental Liabilities (Unaudited)
Supplemental Statement of Budgetary Resources (Unaudited)
Working Capital Fund Supplemental Balance Sheet (Unaudited)
Working Capital Fund Supplemental Statement of Net Cost (Unaudited)
Working Capital Fund Supplemental Statement of Changes in Net Position (Unaudited)
Required Supplemental Stewardship Information
Annual Stewardship Information (Unaudited)
paoe 28 EPA's FY 1999 Annual Financial Statements
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Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 1999
(Dollars in Thousands)
Superfund All Combined Intra-agency
Trust Fund Others Totals Eliminations
ASSETS
Intragovem mental:
Fund Balance with Treasury (Note 2)
Investments (Note 4)
Accounts Receivable, Net (Note 5)
Other
Total Intragovemmental
Accounts Receivable, Net (Note 5)
S 20,069 $ 10,794,978 $
4,417,886 1,398,005
48,982 55,194
3,037 7,801
4,489,974 12,255,978
643,255 88,565
Loans Receivables, Net - Non Federal (Note 6) 1 0 1 ,3 1 2
Cash (Note 3)
55
Inventory and Related Property, Net (Note 7) 237
Marketable Securities Equity (Note 4)
General Property, Plant and Equipment,
Other
Total Assets
LIABILITIES
Intragovemmental :
Accounts Payable
Debt (Note 9)
5,146
Net (Note 8) 13,407 385,968
835 2,668
S 5,152,617 S 12,834,783 S
S 89,594 $ 2,737 S
37,922
Environmental and Disposal Costs (Note 17) 14,321
Other (Note 10)
Total Intragovemmental
Accounts Payable
Pensions and Other Actuarial Liabilities
Other (Note 10)
Total Liabilities
Commitments and Contingencies (Note
NET POSITION
Unexpended Appropriations (Note 13)
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
96,746 174,372
186,340 229,352
47,945 75,241
(Note 12) 5,826 23,987
611,256 752.651
851,367 1,081,231
15)
2.656.831 10,076,964
1.644.419 1,676.588
4.301.250 11.753.552
S 55,152,617 S 12,834.783 S
10,815,047 S
5,815,891
104,176 (2,513)
10,838 (2,638)
16,745,952 (5,151)
731.820
101,312
55
237
5,146
399,375
3,503
17,987,400 S (5,151)
92,331 S
37,922
14,321
271,118 (5,151)
415,692 (5,151)
123,186
29,813
1,363,907
1,932,598 (5,151)
12,733,795
3,321,007
16.054,802
17.987.400 S (5,151)
Consolidated
Totals
S 10,815,047
5,815,891
101,663
8,200
16,740,801
731,820
101,312
55
237
5,146
399,375
3,503
S 17,982,249
S 92,331
37,922
14,321
265,967
410,541
123,186
29,813
1,363,907
1,927.447
12,733.795
3,321,007
16.054,802
S 17.982.249
The accompanying notes are an integral part of these statements.
EPA's FY 1999 Annual Financial Statements
Page 29
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Environmental Protection Agency
Consolidating Statement of Net Cost
For the Year Ended September 30,1999
(Dollars in Thousands)
COSTS:
Intragovem mental
With the Public
Expenses from Other Appropriations (Note 20)
Total Costs
Superfund All Combined Intra-agency Consolidated
Trust Fund Others Totals Eliminations Totals
S 454,791 $ 607,490 S 1,062,281 S (344,375)
1,254,104 5,764,882 7,018,986
35,664 (35,664)
717,906
7,018,986
1,744,559 6,336,708 8,081,267 (344,375) 7,736,892
Less:
Earned Revenues
Total Revenue
707,674 212,904 920,578 (19,375) 901,203
707,674 212,904 920,578 (19,375)
901,203
NET COST OF OPERATIONS
51,036,885$ 6,123,804 $7,160,689 5(325,000) 56,835,689
The accompanying notes are an integral part of these statements.
Pase 30
EPA's FY 1999 Annual Financial Statements
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Year Ended September 30,1999
(Dollars in Thousands)
Net Cost of Operations
Financing Sources (Other Than Exchange Revenues):
Appropriations Used
Taxes (and Other Non-Exchange Revenues)
Trust Fund Appropriations Received (Note 14)
Imputed Financing
Income from Other Appropriations (Note 20)
Transfers-In/Out
Other Financing Sources (Note 28)
Net Results of Operations
Prior Period Adjustments
Net Changes in Cumulative Results of Operations
Increase (Decrease) in Unexpended Appropriations
Change in Net Position
Net Position - Beginning of Period
Net Position - End of Period
Superfund
Trust Fund
S 1,036,885
1,549,960
25,169
325,000
31,437
35,664
(1,524,112)
(593,767)
(20,122)
(613,889)
(149,129)
(763,018)
5,064,268
S 4,301,250
All
Others
$ 6,123,804
6,150,746
225,275
_
165,232
(35,664)
206
(75,179)
306,812
12,481
319,293
249,165
568,458
11,185,094
S 11,753,552
Combined Intra-agency
Totals Eliminations
S 7,160,689 $ (325,000)
7,700,706
250,444
325,000 (325,000)
196,669
206
(1,599,291)
(286,955)
(7,641)
(294,596)
100,036
(194,560)
16,249,362
S 16,054,802 S
Consolidated
Totals
S 6,835,689
7,700,706
250,444
_
196,669
206
(1,599,291)
(286,955)
(7,641)
(294,596)
100,036
(194,560)
16,249,362
S 16,054,802
The accompanying notes are an integral part of these statements.
EPA's FY 1999 Annual Financial Statements
Page 31
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Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Year Ended September 30,1999
(Dollars in Thousands)
Superfund
Trust Fund
AH
Others
Combined
Totals
Budgetary Resources:
Budget Authority
Unobligated Balances - Beginning of Period
Spending Authority from Offsetting Collections
Adjustments (Note 23)
Total Budgetary Resources
$ 1,410,708
701,468
139,421
(59,368)
$ 6,447,893
1,717,941
276,342
(81,848)
S 7,858,601
2,419,409
415,763
(141,216)
$ 2,192,229
$ 8,360,328
$ 10,552,557
Status of Budgetary Resources:
Obligations Incurred
Unobligated Balances - Available (Note 24)
Unobligated Balances - Not Available
Total, Status of Budgetary Resources
Outlays:
Obligations Incurred
Less: Spending Authority from Offsetting Collections
and Adjustments
Obligated Balance, Net - Beginning of Period
Less: Obligated Balance, Net - End of Period (Note 25)
Total Outlays
S 1,709,357
482,872
S 2,192,229
S 1,709,357
326,851
2,550,841
2.433,861
$ 1,499,486
$ 6,685,653
1,567,142
107,533
$ 8,360,328
S 6,685,653
427,091
8,750,289
9,153,233
S 5,855,618
S 8,395,010
2,050,014
107,533
S 10,552,557
8,395,010
753,942
11,301,130
11,587,094
7,355,104
The accompanying notes are an integral part of these statements.
Pa°e 32
EPA's FY 1999 Annual Financial Statements
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Environmental Protection Agency
Combined Statement of Financing
For the Year Ended September 30, 1999
(Dollars in Thousands)
Superfund All
Trust Fund Others
Obligations and Nonbudgetary Resources
Obligations Incurred
Less: Spending Authority for Offsetting
Collections and Adjustments
Recoveries
Financing Imputed for Cost Subsidies
Income from Other Appropriations (Note 20)
Transfers- In/Out
Exchange Revenue Not in the Budget
Nonexchange Revenue Not in the Budget
Other
Total Obligations as Adjusted and
Nonbudgetary Resources
Resources that Do Not Fund Net Cost of Operations
Change in Amount of Goods, Services, and
And Benefits Ordered but Not Yet Received or
Provided
Change in Unfilled Customers Orders
Costs Capitalized on the Balance Sheet
Financing Sources that Fund Costs of Prior Periods
Trust Fund Outlays Not Affecting Net Cost
Total Resources that Do Not Fund Net
Costs of Operations
Costs that Do Not Require Resources
Depreciation and Amortization
Bad Debt Expense from Non-Credit
Reform Receivables
Loss on Disposition of Assets
Total Costs That Do Not Require Resources
Financing Sources Yet to be Provided (Note 27)
Net Costs of Operations
The accompanying notes are an intes
$ 1,709,357
(139,421)
(205,200)
31,437
35,664
(612,898)
(4,150)
241
815.030
• 156,635
49,033
(9,510)
74
196,232
2,595
18,316
477
21,388
4,235
S 1,036,885
;ral part of these
$ 6,685,653
(276,342)
165,232
(35,664)
206
(73,735)
40,351
6.505.701
(280,131)
19,440
(162,028)
9,628
(413,091)
13,481
894
884
15,259
15,935
$ 6,123,804
statements.
Combined
Totals
S 8,395,010
(415,763)
(205,200)
196,669
206
(686,633)
(4,150)
40,592
7.320.731
(123,496)
68,473
(171,538)
9,628
74
(216,859)
16,076
19,210
1,361
36,647
20,170
S 7,160,689
EPA's FY 1999 Annual Financial Statements
Page 33
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Environmental Protection Agency
Statement of Custodial Activity
For the Year Ended September 30,1999
(Dollars in Thousands)
All Others
Revenue Activity:
Sources of Collections:
Fines and Penalties S 126,996
Total Cash Collections 126,996
Accrual Adjustment 4,679
Total Custodial Revenue 131,675
• Disposition of Collections:
Transferred to Others (by Recipient) 116,151
Increase (Decrease) in Amounts To Be Transferred 15,524
Total Disposition of Revenue 131,675
Net Custodial Revenue Activity $ —
The accompanying notes are an integral part of these statements.
Page 34 EPA's FY 1999 Annual Financial Statements
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Environmental Protection Agency
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Basis of Presentation
These consolidating financial statements have been prepared to report the financial position and results of
operations of the Environmental Protection Agency (Agency) for the Hazardous Substance Superfund
(Superfund) Trust Fund and All Other Funds, as required by the Chief Financial Officers Act of 1990 and
the Government Management Reform Act of 1994. The reports have been prepared from the books and
records of the Agency in accordance with "Form and Content for Agency Financial Statements," specified
by the Office of Management and Budget (OMB) in Bulletin 97-01, and the Agency's accounting policies
which are summarized in this note. These statements are therefore different from the financial reports also
prepared by the Agency pursuant to OMB directives that are used to monitor and control the Agency's use
of budgetary resources.
B. Reporting Entities
The Environmental Protection Agency was created in 1970 by executive reorganization from various
components of other Federal agencies in order to better marshal and coordinate Federal pollution control
efforts. The Agency is generally organized around the media and substances it regulates — air, water, land,
hazardous waste, pesticides and toxic substances. For FY 1999 the reporting entities are grouped as
Hazardous Substance Superfund and All Other Funds.
Hazardous Substance Superfund
In 1980, the Hazardous Substance Superfund, commonly referred to as the Superfund Trust Fund, was
established by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) to provide resources needed to respond to and clean up hazardous substance emergencies and
abandoned, uncontrolled hazardous waste sites. The Superfund Trust Fund financing is shared by Federal
and state governments as well as industry. The Agency allocates funds from its appropriation to other
Federal agencies to carry out the Act. Risks to public health and the environment at uncontrolled hazardous
waste sites qualifying for the Agency's National Priorities List (NPL) are reduced and addressed through a
process involving site assessment and analysis, and the design and implementation of cleanup remedies.
Throughout this process, cleanup activities may be supported by shorter term removal actions to reduce
immediate risks. Removal actions may include removing contaminated material from the site, providing an
alternative water supply to people living nearby, and installing security measures. NPL cleanups and
removals are conducted and financed by the Agency, private parties, or other Federal agencies. Through
1999, construction of cleanup remedies were completed at a total of 670 NPL sites (includes Federal and
non-Federal sites). Superfund includes the Treasury collections and investment activity. The Superfund
Trust Fund is accounted for under Treasury symbol number 8145.
EPA's FY 1999 Annual Financial Statements Page 35
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All Other Funds
All Other Funds include Trust Fund appropriations, General Fund appropriations, Revolving Funds, Special
Funds, the Agency Budgetary Clearing accounts, Deposit Funds, General Fund Receipt accounts, the
Environmental Services Special Fund Receipt Account, the Miscellaneous Contributed Funds Trust Fund,
and General Fund appropriations transferred from other Federal agencies as authorized by the Economy Act
of 1932. Trust Fund appropriations are to the Leaking Underground Storage Tank (LUST) Trust Fund and
the Oil Spill Response Trust Fund. General Fund appropriations are to State and Tribal Assistance Grants
(STAG), Science and Technology (S&T), Environmental Programs and Management (EPM), Office of
Inspector General (IG), Buildings and Facilities (B&F), and Payment to the Hazardous Substance Superfund.
General Fund appropriations that no longer receive current appropriations but have unexpended authority
are the Asbestos Loan Program, Program and Research Operations (PRO), and Energy, Research and
Development. Revolving Funds include the FIFRA Revolving Fund and Tolerance Revolving Fund which
receive no direct appropriations; however, they do collect fees from public industry as a source of
reimbursement for the services provided. In addition to FIFRA and Tolerance, a Working Capital Fund
(WCF) was established and designated as a franchise fund to provide computer operations support and
postage service for the Agency. A Special Fund was established to collect the Exxon Valdez settlement as
a result of the Exxon Valdez oil spill. All Other Funds are as follows:
The LUST Trust Fund was authorized by the Superfund Amendments and Reauthorization Act of 1986
(SARA) as amended by the Omnibus Budget Reconciliation Act of 1990. The LUST appropriation provides
funding to respond to releases from leaking underground petroleum tanks. The Agency oversees cleanup
and enforcement programs which are implemented by the states. Funds are allocated to the states through
cooperative agreements to clean up those sites posing the .greatest threat to human health and environment.
Funds are used for grants to non-state entities including Indian tribes under section 8001 of the Resource
Conservation and Recovery Act. The program is financed by a 0.1 cent a gallon tax on motor fuels which
will expire in 2005, and is accounted for under Treasury symbol number 8153.
The Oil Spill Response Trust Fund was authorized by the Oil Pollution Act (OPA) of 1990. The Oil Spill
Response Trust Fund was established in FY 1993 and monies were appropriated to the Oil Spill Response
Trust Fund. The Agency is responsible for directing, monitoring and providing technical assistance for
major inland oil spill response activities. This involves setting oil prevention and response standards,
initiating enforcement actions for compliance with OPA and Spill Prevention Control arid Countermeasure
requirements, and directing response actions when appropriate. The Agency carries out research to improve
response actions to oil spills including research on the use of remediation techniques such as dispersants and
bioremediation. Funding of oil spill cleanup actions is provided through the Department of Transportation
under the Oil Spill Liability Trust Fund and reimbursable funding from other Federal agencies. The Oil
Spill Response Trust Fund is accounted for under Treasury symbol number 8221.
The State and Tribal Assistance Grants (STAG) appropriation provides funds for environmental programs
and infrastructure assistance including capitalization grants for State revolving funds and performance
partnership grants. Environmental programs and infrastructure supported are Clean and Safe Water;
Capitalization grants for the Drinking Water State Revolving Funds; Clean Air; Direct grants for Water and
Wastewater Infrastructure needs, Partnership grants to meet Health Standards, Protect Watersheds, Decrease
Wetland Loss, and Address Agricultural and Urban Runoff and Storm Water; Better Waste Management;
Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces and Ecosystems; and
paoe 36 EPA's FY 1999 Annual Financial Statements
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Reduction of Global and Cross Border Environmental Risks. STAG is accounted for under Treasury
symbol 0103.
The Science and Technology (S&T) appropriation finances salaries; travel; science; technology; research
and development activities including laboratory and center supplies; certain operating expenses; grants;
contracts; intergovernmental agreements; and purchases of scientific equipment. These activities provide
the scientific basis for the Agency's regulatory actions. In FY 1999, Superfund research costs were
appropriated in Superfund and transferred to S&T to allow for proper accounting of the costs. Scientific and
technological activities for environmental issues include Clean Air; Clean and Safe Water; Americans Right
to Know About Their Environment; Better Waste Management; Preventing Pollution and Reducing Risk in
Communities, Homes, Workplaces, and Ecosystems; and Safe Food. The Science and Technology
appropriation is accounted for under Treasury symbol 0107.
The Environmental Programs and Management (EPM) includes funds for salaries, travel, contracts, grants,
and cooperative agreements for pollution abatement, control, and compliance activities and administrative
activities of the operating programs. Areas supported from this appropriation include Clean Air; Clean and
Safe Water; Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces, and Ecosystems;
Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency Response; Reduction
of Global and Cross Border Environmental Risks; Americans' Right to Know About Their Environment;
Sound Science, Improved Understanding of Environmental Risk, and Greater Innovation to Address
Environmental Problems; a Credible Deterrent to Pollution and Greater Compliance with the Law; and
Effective Management. The Environmental Programs and Management appropriation is accounted for under
Treasury symbol 0108.
The Office of Inspector General appropriation provides funds for audit and investigative functions to identify
and recommend corrective actions on management and administrative deficiencies that create the conditions
for existing or potential instances of fraud, waste and mismanagement. Additional funds for audit and
investigative activities associated with the Superfund Trust Fund and the Leaking Underground Storage Tank
Trust Fund are appropriated under those Trust Fund accounts and are transferred to the Office of Inspector
General account. The audit function provides contract audit, internal and performance audit, and financial
and grant audit services. The Office of Inspector General appropriation is accounted for under Treasury
symbol 0112 and includes expenses incurred and reimbursed from the appropriated trust funds being
accounted for under Treasury symbols 8145 and 8153.
The Buildings and Facilities appropriation provides for the construction, repair, improvement, extension,
alteration, and purchase of fixed equipment or facilities that are owned or used by the Environmental
Protection Agency. The Buildings and Facilities appropriation is accounted for under Treasury symbol 0110.
The Payment to the Hazardous Substance Superfund appropriation authorizes appropriations from the
General Fund of the Treasury to finance activities conducted through Hazardous Substance Superfund.
Payment to the Hazardous Substance Superfund is accounted for under Treasury symbol 0250.
The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act of 1986 to
finance control of asbestos building materials in schools. Funds have not been appropriated for this Program
since FY 1993. For FY 1993 and FY1992, the program was funded by a subsidy appropriated from the
General Fund for the actual cost of financing the loans, and by borrowing from Treasury for the unsubsidized
portion of the loan. The Program fund disbursed the subsidy to the Financing fund as loans were made, and
EPA's FY 1999 Annual Financial Statements Page 37
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disbursed administrative expenses to the providers. The Financing fund received the subsidy payment,
borrowed from Treasury and disbursed loans and collects the asbestos loans. The Asbestos Loan Program
is accounted for under Treasury symbol 0118 for the subsidy and administrative support, under Treasury
symbol 4322 for loan disbursements, loans receivable and loan collections on post FY 1991 loans, and under
Treasury symbol 2917 for pre FY 1992 loans receivable and loan collections.
The Program and Research Operations appropriation provides salaries and travel associated with
administering the operating programs within the Environmental Protection Agency. It incorporated
personnel, compensation and benefit costs and travel, exclusive of the Hazardous Substance Response Trust
Fund, the Leaking Underground Storage Tank Trust Fund, the Office of Inspector General and the Oil Spill
Response Trust Fund. In fiscal year 1996, Congress restructured the Agency's accounts. The Program and
Research Operations appropriation was eliminated. Activity remaining from prior fiscal year appropriations
is accounted for under Treasury symbols 0200 and 0201.
The FIFRA Revolving Fund was authorized by the Federal Insecticide, Fungicide and Rodenticide Act
Amendments of 1998, as amended by the Food Quality Protection Act of 1996. Fees are paid by industry
to offset costs of accelerated reregistration, expedited processing of pesticides, and establishing tolerances
for pesticide chemicals in or on food and animal feed. The FIFRA Revolving Fund is accounted for under
Treasury symbol number 4310.
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees are paid by
industry for Federal services of pesticide chemicals in or on food and animal feed. Effective January 2,
1997, fees collected are now being collected and deposited in the Reregistration and Expedited Processing
Revolving Fund (4310). The fees collected prior to this date are accounted for under Treasury symbol
number 4311.
The Working Capital Fund (WCF) includes two activities: computer support services and postage. WCF
derives revenue from these activities based upon fee for services. WCF's customers currently consist solely
of Agency program offices. Accordingly, revenue generated by WCF and expenses recorded by the program
offices for use of such services, along with the related advances/liabilities, are eliminated on consolidation.
The WCF is accounted for under Treasury symbol 4565.
The Exxon Valdez Settlement Fund has funds available to carry out authorized environmental restoration
activities. Funding is derived from the collection of reimbursements under the Exxon Valdez settlement as
a result of the oil spill. The Exxon Valdez Settlement fund is accounted for under Treasury symbol number
5297.
Appropriations transferred to the Agency from other Federal agencies include funds from the Appalachian
Regional Commission and the Department of Commerce which provide economic assistance to state and
local developmental activities, the Agency for International Development which provides assistance on
environmental matters at international levels, and from the General Services Administration which provides
funds for rental of buildings, and operations, repairs, and maintenance of rental space. The transfers
appropriations are accounted for under Treasury symbols 0200, 1010, 1021, 2050. and 4542.
Clearing Accounts include the Budgetary suspense account, Deposit in Transit differences. Unavailable
Check Cancellations and Overpayments, and Undistributed and Letter of Credit differences. Clearing
accounts are accounted for under Treasury symbols 3875. 3878, 3879, and 3880.
Page 38 EPA's FY 1999 Annual Financial Statements
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Deposit funds include Fees for Ocean Dumping, Nonconformance Penalties, Suspense and payroll deposits
for Savings Bonds, and State and City Income Taxes Withheld. Deposit funds are accounted for under
Treasury symbols 6050, 6264, 6265, 6275, and 6875.
General Fund Receipt Accounts include Hazardous Waste Permits; Miscellaneous Fines, Penalties and
Forfeitures; General Fund Interest; Interest from Credit Reform Financing Accounts; Fees and Other Charges
for Administrative and Professional Services; and Miscellaneous Recoveries and Refunds. General Fund
Receipt accounts are accounted for under Treasury symbols 0895, 1099,1435,1499,2410, 3200, and 3220.
The Environmental Services Receipt account was established for the deposit of fee receipts associated with
environmental programs, including radon measurement proficiency ratings and training, motor vehicle
engine certifications, and water pollution permits. Receipts in this special fund will be appropriated to the
S&T appropriation and to the EPM appropriation to meet the expenses of the programs that generate the
receipts. Environmental Services are unavailable receipts accounted for under Treasury symbol 5295.
The Miscellaneous Contributed Funds Trust Fund includes gifts for pollution control programs that are
usually designated for a specific use by the donor and deposits from pesticide registrants to cover the costs
of petition hearings when such hearings result in unfavorable decisions to the petitioner. Miscellaneous
Contributed Funds Trust Fund is accounted for under Treasury symbol 8741.
The accompanying financial statements include the accounts of all funds described in this note. The expense
allocation methodology is a financial statement estimate that presents EPA's programs at full cost.
Superfund may charge some costs directly to the fund and charge the remainder of the costs to the All Other
Funds in the Agency-wide appropriations. These amounts are presented as Expenses from Other
Appropriations on the Statement of Net Cost and as Income from Other Appropriations on the Statement of
Changes in Net Position and the Statement of Financing.
The Superfund Trust Fund is allocated general support services costs (such as rent, communications, utilities,
mail operations, etc.) that were initially charged to the Agency's S&T and EPM appropriations. During the
year, these costs are allocated from the S&T and EPM appropriations to the Superfund Trust Fund based on
a ratio of direct labor hours, using budgeted or actual full-time equivalent personnel charged to these
appropriations, to the total of all direct labor hours. Agency general support services cost charges to the
Superfund Trust Fund may not exceed the ceilings established in the Superfund Trust Fund appropriation.
The related general support services costs charged to the Superfund Trust Funds was $48.3 million for FY
1999.
C. Budgets and Budgetary Accounting
Superfund
Congress adopts an annual appropriation amount to be available until expended for the Superfund Trust
Fund. A transfer account for the Superfund Trust Fund has been established for purposes of carrying out the
program activities. As the Agency disburses obligated amounts from the transfer account, the Agency draws
down monies from the Superfund Trust Fund at Treasury to cover the amounts being disbursed.
EPA's FY 1999 Annual Financial Statements Page 39
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All Other Funds
Congress adopts an annual appropriation amount for the LUST Trust Fund and for the Oil Spill Response
Trust Fund to remain available until expended. A transfer account for the LUST Trust Fund has been
established for purposes of carrying out the program activities. As the Agency disburses obligated amounts
from the transfer account, the Agency draws down monies from the LUST Trust Fund at Treasury to cover
the amounts being disbursed. The Agency draws down all the appropriated monies from the Treasury's Oil
Spill Liability trust fund to the Oil Spill Response Trust Fund when Congress adopts the appropriation
amount. Congress adopts an annual appropriation for STAG, Buildings and Facilities, and for Payments to
the Hazardous Substance Superfund to be available until expended; adopts annual appropriation for S&T,
EPM and for the Office of the Inspector General to be available for two fiscal years. When the
appropriations for the General Funds are enacted, Treasury issues a warrant to the respective appropriations.
As the Agency disburses obligated amounts, the balance of funds available to the appropriation is reduced
at Treasury.
The Asbestos Loan Program is a commercial activity financed by a combination from two sources: one for
the long term cost of the loan and another for the remaining non-subsidized portion of the loan. Congress
annually adopts a one year appropriation, available for obligation in the fiscal year for which it is
appropriated, to cover the estimated long term cost of the Asbestos loans. The long term costs are defined
as the net present value of the estimated cash flows associated with the loans. The portion of each loan
disbursement that does not represent long term cost is financed under a permanent indefinite borrowing
authority established with the Treasury. The annual appropriation bill limits the amount of obligations that
can be made for direct loans. A permanent indefinite appropriation is available to finance the costs of
subsidy re-estimates that occur after the year in which the loan is disbursed. No appropriation was adopted
by Congress for FY 1999; therefore, there was no new financing available to the Asbestos Loan Program for
FY 1999.
Funding of the FIFRA and the Tolerance Revolving Funds is provided by fees collected from industry to
offset costs incurred by the Agency in carrying out these programs. Each year the Agency submits an
apportionment request to OMB based on the anticipated collections of industry fees.
Funding of the WCF is provided by fees collected from other Agency appropriations collected to offset costs
incurred for providing the Agency administrative support for computer support and postage.
Funds transferred from other Federal agencies is funded by a non expenditure transfer of funds from the
other Federal agencies. As the Agency disburses the obligated amounts, the balance of funding available
to the transfer appropriation is reduced at Treasury.
Clearing accounts, Deposit accounts, and Receipt accounts receive no budget. The amounts are recorded
to the Clearing and Deposit accounts pending further disposition. Amounts recorded to the Receipt accounts
capture amounts receivable to or collected for the General Fund of the U.S. Treasury.
paoe 40 EPA's FY 1999 Annual Financial Statements
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D. Basis of Accounting
Superfund and All Other Funds
Transactions are recorded on an accrual accounting basis and on a budgetary basis (where budgets are
issued). Under the accrual method, revenues are recognized when earned and expenses are recognized when
a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates
compliance with legal constraints and controls over the use of Federal funds. All interfund balances and
transactions have been eliminated.
E. Revenues and Other Financing Sources
Superfund
The Superfund receives most funding needed to support the program through appropriations that may be
used within statutory limits, for operating and capital expenditures (primarily equipment). Additional
financing for the Superfund Trust Fund is obtained through reimbursements from other Federal agencies,
from States for State Cost Share, and from potentially responsible parties (PRPs) for future costs. Revenues
collected through cost recovery are deposited with the Trust fund at Treasury.
All Other Funds
The majority of All Other Funds appropriations receive funding needed to support programs through
appropriations, which may be used, within statutory limits, for operating and capital expenditures. Under
Credit Reform provisions, the Asbestos Loan Program received funding to support the subsidy cost of loans
through appropriations which may be used with statutory limits. The Asbestos Direct Loan Financing fund,
an off-budget fund, receives additional funding to support the loan disbursements through collections from
the Program fund for the subsidized portion of the loan and through borrowing from Treasury for the non-
subsidized portion. The last year Congress provided appropriations for this fund was 1993, accordingly no
new funding has been available for this program. The FIFRA and the Tolerance Revolving Funds receive
funding, which is now deposited with the FIFRA Revolving Fund, through fees collected for services
provided. The FIFRA Revolving Fund also receives interest on invested funds. The WCF receives revenue
through fees collected for services provided to Agency program offices. Such revenue is eliminated with
related Agency program expenses on Consolidation. The Exxon Valdez Settlement Fund received funding
through reimbursements.
Appropriations are recognized as Other Financing Sources when earned, i.e., when goods and services have
been rendered without regard to payment of cash. Other revenues are recognized when earned, i.e., when
services have been rendered.
F. Funds with the Treasury
Superfund and All Other Funds
The Agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements are
handled by Treasury. The funds maintained with Treasury are Appropriated Funds, Revolving Funds and
EPA's FY 1999 Annual Financial Statements Page 41
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
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Trust Funds. These funds have balances available to pay current liabilities and finance authorized purchase
commitments.
G. Investments in U.S. Government Securities
All Other Funds
Investments in U.S. Government securities are maintained by Treasury and are reported at amortized cost
net of unamortized discounts. Discounts are amortized over the term of the investments and reported as
interest income. The FIFRA Revolving Fund, which is included in All Other Funds, holds the investments
to maturity, unless they are needed to finance operations of the fund. No provision is made for unrealized
gains or losses on these securities because, in the majority of cases, they are held to maturity.
H. Marketable Equity Securities
Superfufid
During FY 1993 and FY 1996, the Agency received marketable equity securities, valued at a total $5.1
million, which are still held, from a company in settlement of Superfund cost recovery actions. The Agency
records marketable securities at cost as of the date of receipt. Marketable securities are held by Treasury,
and reported at their cost value in the financial statements until sold.
I. Accounts Receivable and Interest Receivable
Superfund
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as amended by
the Superfund Amendments and Reauthorization Act (SARA) provides for the recovery of costs from
potentially responsible parties (PRPs). However, cost recovery expenditures are expensed when incurred
since there is no assurance that these funds will be recovered.
It is the Agency's policy to record accounts receivable from PRPs for Superfund site response costs when
a consent decree, judgment, administrative order, or settlement is entered. These agreements are generally
negotiated after site response costs have been incurred. It is the Agency's position that until a consent decree
or other form of settlement is obtained, the amount recoverable should not be recorded.
The Agency also records accounts receivable from states for a percentage of Superfund site remedial action
costs incurred by the Agency within those states. As agreed to under Superfund State Contracts (SSCs), cost
sharing arrangements under SSCs may vary according to whether a site was privately or publicly operated
at the time of hazardous substance disposal and whether the Agency response action was removal or
remedial. SSC agreements are usually for 10% or 50% of site remedial action costs. States may pay the full
amount of their share in advance, or incrementally throughout the remedial action process. Allowances for
uncollectible state cost share receivables have not been recorded, because the Agency has not had collection
problems with these agreements.
Page 42 EPA's FY 1999 Annual Financial Statements
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All Other Funds
The majority of receivables for All Other Funds represent interest receivable for Asbestos and FIFRA and
both accounts receivable and interest receivable to the General Fund of the Treasury.
J. Loans Receivable
All Other Funds
Loans are accounted for as receivables after funds have been disbursed. The amount of Asbestos Loan
Program loans obligated but not disbursed are disclosed in Note 6. Loans receivable resulting from
obligations on or before September 30, 1991 are reduced by the allowance for uncollectible loans. Loans
receivable resulting from loans obligated on or after October 1, 1991 are reduced by an allowance equal to
the present value of the subsidy costs associated with these loans. The subsidy cost is calculated based on
the interest rate differential between the loans and Treasury borrowing, the estimated delinquencies and
defaults net of recoveries offset by fees collected and other estimated cash flows associated with these loans.
K. Appropriated Amounts Held by Treasury
Superfund and All Other Funds
For the Superfund and LUST Trust Funds, and for amounts appropriated to the Office of Inspector General
from the Superfund and LUST Trust Funds, cash available to the Agency that is not needed immediately for
current disbursements remains in the respective Trust Funds managed by Treasury. At the end of FY 1999
approximately $2.9 billion remained in the Treasury managed Superfund Trust Fund and approximately
S82.6 million remained in the LUST Trust Fund to meet the Agency's disbursement needs.
L. Advances and Prepayments
Superfund and All Other Funds
Advances and prepayments represent funds advanced or prepaid to other entities both internal and external
to the Agency for which a budgetary expenditure has not yet occurred.
M. Property, Plant, and Equipment
Superfund and All Other Funds
The Fixed Assets Subsystem (FAS) implemented in FY 1997 maintains EPA-held personal and real property
records. The FAS automatically generates depreciation entries monthly based upon the acquisition date.
Purchases of EPA-held and contractor-held personal equipment are capitalized if the equipment is valued
at $25 thousand or more and has an estimated useful life of at least two years. Prior to implementing FAS,
depreciation was taken on a modified straight-line basis over a period of six years depreciating 10% the first
and sixth year, and 20% in years two through five. All EPA-held personal equipment purchased before the
implementation of FAS was assumed to have an estimated useful life of five years. New acquisitions of
EPA-held personal equipment are depreciated using the straight-line method over the specific assets' useful
lives, ranging from two to 15 years.
EPA's FY 1999 Annual Financial Statements Paae 43
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Real property consists of land, buildings, and capital and leasehold improvements. Real property, other than
land, is capitalized when the value is $75 thousand or more. Land is capitalized regardless of cost.
Buildings are valued at an estimated original cost basis, and land is valued at fair market value. Depreciation
for real property is calculated using the straight-line method over the specific assets' useful lives, ranging
from 10 to 102 years. Leasehold improvements are amortized over the lesser of their useful lives or the
unexpired lease terms. In addition to property and improvements not meeting the capitalization criteria,
expenditures for minor alterations, and repairs and maintenance are expensed as incurred.
N. Liabilities
Superfund and All Other Funds
Liabilities represent the amount of monies or other resources that are likely to be paid by the Agency as the
result of a transaction or event that has already occurred. However, no liability can be paid by the Agency
without an appropriation or other collection of revenue for services provided. Liabilities for which an
appropriation has not been enacted are classified as unfunded liabilities and there is no certainty that the
appropriations will be enacted. Liabilities of the Agency, arising from other than contracts, can be abrogated
by the Government acting in its sovereign capacity.
O. Borrowing Payable to the Treasury
All Other Funds
Borrowing payable to Treasury results from loans from Treasury to fund the Asbestos direct loans described
in part B and C of this note. Periodic principal payments are made to Treasury based on the collections of
loans receivable.
P. Interest Payable to Treasury
All Other Funds
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt to Treasury.
At the end of FY 1999, there was no outstanding interest payable to Treasury since payment was made
through September 30.
Q. Accrued Unfunded Annual Leave
Superfund and All Other Funds
Annual, sick and other leave is expensed as taken during the fiscal year. Sick and other leave earned but not
taken is not accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is
accrued as an unfunded liability. Accrued unfunded annual leave is included in the Statement of Financial
Position as a component of "Other Liabilities-Governmental". As of September 30, 1999, the unfunded
annual leave liability for the Superfund Trust Fund was SI8.4 million and for All Other Funds was S86.4
million.
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R. Retirement Plan
Superfund and All Other Funds
The majority of the Agency's employees participate in the Civil Service Retirement System (CSRS), to
which the Agency contributes 8.51% and employees contribute 7.25% of base pay.
On January 1, 1987, the Federal Employees Retirement System (FERS) went into effect pursuant to Public
Law 99-335. Most employees hired after December 31,1983, are automatically covered by FERS and Social
Security. Employees hired prior to January 1, 1984 were allowed to either join FERS and Social Security
or remain in CSRS. A primary feature of FERS is that it offers a savings plan to the Agency employees
which automatically contributes 1 percent of pay and matches any employee contribution up to an additional
4 percent of pay. For most employees hired after December 31, 1983, the Agency also contributes the
employer's matching share for Social Security.
With the issuance of "Accounting for Liabilities of the Federal Government" (SFFAS-5) , which was
effective for the FY 1997 financial statements, accounting and reporting standards were established for
liabilities relating to the Federal employee benefit programs (Retirement, Health Benefits and Life
Insurance). SFFAS-5 requires that employing agencies recognize the cost of pensions and other retirement
benefits during their employees' active years of service. SFFAS-5 requires that the Office of Personnel
Management, as administrator of the Civil Service Retirement and Federal Employees Retirement Systems,
the Federal Employees Health Benefits Program, and the Federal Employees Group Life Insurance Program,
provide EPA with the 'Cost Factors' to compute EPA's liability for each program.
Note 2. Fund Balances with Treasury
Fund Balances with Treasury as of September 30. 1999, consists of the following (in thousands):
Entity Assets Non-Entity Assets Total
Trust Funds:
Superfund $ 20,069 S $ 20,069
Lust 30 30
Oil Spill (9,320) (9,320)
Revolving Funds:
FIFRA 7,319 7.319
Tolerance 22 22
Working Capital Fund 37,066 37,066
Appropriated Funds 10,694.125 10.694,125
Other Fund Types
Total
63.480
S 10,812.791
2,256
S 2,256
65,736
S 10,815,047
EPA's FY 1999 Annual Financial Statements Pase 45
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Entity fund balances includes balances which are available to pay current liabilities and to finance authorized
purchase commitments. Also, entity assets, Other Fund Types consist of the Environmental Services Receipt
account. The Environmental Services Receipt account is a special fund receipt account. Upon Congress
appropriating the funds, EPA will use the receipts in the Science and Technology appropriation and the
Environmental Programs and Management appropriation.
The non-entity Other Fund Type consist of deposits. The deposit accounts are awaiting documentation for
the determination of proper accounting disposition.
NoteS. Cash
In All Others, as of September 30, 1999, Cash consisted of imprest funds totaling $55 thousand.
Note 4. Investments
As of September 30, 1999, investments consisted of the following:
Amounts for Balance Sheet Reporting
Cost
Unamortized
(Premium) Investments,
Discount Net Market Value
Superfund
Intragovernmental
Securities:
Non-Marketable
Other Securities:
Marketable
All Others
Intragovernmental
Securities:
Non-Marketable
$ 4.593.183 $ 175.297 $ 4.417.886 S 4.417.886
5.146 $_
5.146 S 11.525
S 1.461.697 S 63.692 S 1.398.005 $ 1.398.005
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from
responsible parties (RP). Some RP's file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy
settlements, EPA is an unsecured creditor and is entitled to receive a percentage of the assets remaining after
secured creditors have been satisfied. Some RPs satisfy their debts by issuing marketable securities in the
reorganized company. The Agency does not intend to exercise ownership rights related to these securities,
and instead will convert these securities to cash as soon as practicable.
The other securities represent assets received during a bankruptcy proceeding.
Page 46
EPA's FY 1999 Annual Financial Statements
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Note 5. Accounts Receivable
The Accounts Receivable for September 30, 1999, consist of the following:
1999
Intragovernmental Assets:
Accounts & Interest Receivable
Total
Governmental Assets:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Doubtful Accounts
Total
Superfund
$ 48,982
S 48,982
$ 75,721
927,758
(360,224)
$ 643,255
AH Others
$ 55,194
$ 55,194
149,250
(60.685)
88,565
Accounts receivable due from other Federal agencies are considered fully collectible.
The Allowance for Doubtful Accounts is determined on a specific identification basis as a result of a case-
by-case review of receivables at the regional level, and a reserve on a percentage basis for those not
specifically identified.
Note 6. Loans Receivable, Net - Non-Federal
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 are net of an allowance for
estimated uncollectible loans, if an allowance was considered necessary. Loans disbursed from obligations
made after FY 1991 are governed by the Federal Credit Reform Act. The Act mandates that the present
value of the subsidy costs (i.e., interest rate differentials, interest subsidies, anticipated delinquencies, and
defaults) associated with direct loans be recognized as an expense in the year the loan is made. The net
present value of loans is the amount of the gross loan receivable less the present value of the subsidy.
An analysis of loans receivable and the nature and amounts of the subsidy and administrative expenses
associated entirely with Asbestos Loan Program loans as of September 30, 1999, is provided in the following
sections.
EPA's FY 1999 Annual Financial Statements
Page 47
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1999
Loans Value of
Receivable, Assets Related
Gross Allowance* to Direct Loans
Direct Loans Obligated Prior to FY 1992 $ 67,441 $ $ 67,441
Direct Loans Obligated After FY1991 51,960 (18,089) 33,871
Total $ 119,401 $ (18,089) $ 101,312
* Allowance for Pre-Credit Reform loans (Prior to FY 1992 ) is the Allowance for Estimated
Uncollectible Loan and the Allowance for Post Credit Reform loans (After FY 1991) is the
Allowance for Subsidy Cost (present value).
Subsidy Expenses for Post Credit Reform Loans:
Interest Expected Fee
Differential Defaults Offsets Total
Current Year's Direct Loan S 109 $ S S 109
Direct Loan Subsidy Expense $ 2,507
Note 7. Inventory and Related Property
The Inventory and Related Property at September 30, 1999, consisted of the following:
1999
Superfund All Others
Operating Materials and Supplies Held for
Use in Normal Operations $ _ $237
Total $ $ 237
Note 8. General Plant Property and Equipment
Superfund property, plant and equipment, consists of personal property items held by contractors and the
Agency. EPA also has property funded by various other Agency appropriations. The property funded by
these appropriations are presented in the aggregate under "All Others" and consists of real, EPA-Held and
Contractor-Held personal, and capitalized-leased property.
Purchases of EPA-Held and Contractor-Held personal property are capitalized if the equipment is valued at
$25 thousand or more and has an estimated useful life of at least two years. The Agency depreciates EPA-
Held personal property using a straight-line method over the asset's useful life ranging from two to 15 years.
Page 48 EPA's FY 1999 Annual Financial Statements
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Contractor-Held personal property is depreciated over five years using a modified straight-line method. Real
property, other than land, is capitalized when the value is $75 thousand or more and is depreciated using the
straight-line method over the specific asset's useful life ranging from 10 to 102 years. Leasehold
improvements are amortized over the lesser of their useful lives or the unexpired lease term.
As of September 30, 1999. Plant, Property and Equipment consisted of the following:
EPA-Held
Equipment
Contractor-
Held
Equipment
Land and
Buildings
Capital Leases
Total
Note 9. Debt
Superfund
AH Others
Acquisition Accumulated Net Book Acquisition Accumulated Net Book
Value Depreciation Value Value Depreciation Value
$ 22,983 $ (15.734) $ 7,249 $ 129.555 $ (85,676) $ 43,879
(2,113)
6,158
86,504
(75,090)
11,414
$ 31,254
(17,847) $ 13,407 $
370,102
40,992
627,153
(70,643)
(9,776)
S (241,185)
299,459
31,216
$ 385,968
The Debt consisted of the following as of September 30, 1999:
All Others
Other Debt:
Debt to Treasury
Classification of Debt:
Intra-governmental Debt
Total
Beginning Net Ending
Balance Borrowing Balance
37.922 $_
S 37.922
S 37.922
$ 37,922
Note 10, Other Liabilities
The Other Liabilities Covered by Budgetary Resources and Not Covered by Budgetary Resources for
September 30, 1999, are as follows:
EPA's FY 1999 Annual Financial Statements
Page 49
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Other Liabilities Covered by Budgetary Resources:
Non-Current
Intra-governmental - Superfund
Accrued Liabilities $
FECA Accrued Liability 73 1
Other 1,256
Total Intra-governmental $ 1,987
Intra-governmental - All Other
Accrued Liabilities $
FECA Accrued Liability 1 ,048
WCF Advances
Other 64
Total Intra-governmental $ 1,112
Superfund
Cash Out - Non Federal $ 90
Accrued Liabilities
Accrued Funded Payroll and Benefits
Other 3
Total $ 93
All Other
Accrued Funded Payroll & Benefits S
Accrued Liabilities
Other Liabilities 335
Total S 335
Current
$ 91,389 $
485
2,885
$ 94,759 S
S 55,214 $
4,496
2,637
(104)
$ 62,243 $
$ 457,706 $
97,477
15,243
21,647
S 592,073 $
$ 65,974 S
553,443
8,291
S 627,708 S
Total
91,389
1,216
4,141
96,746
55,214
5,544
2,637
(40)
63,355
457,796
97,477
15,243
21,650
592,166
65,974
553,443
8,626
628,043
Pa«e 50
EPA's FY 1999 Annual Financial Statements
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Other Liabilities Not Covered by Budgetary Resources:
Non-Current Current Total
Intra-governmental - All Other
Custodial Liability S —- S 111,017 S 111.017
Total Intra-governmental
Superfund
Accrued Unfunded Annual Leave
Contingent Liabilities - Unfunded
Total
All Others
Accrued Unfunded Annual Leave
Capital Lease Liability
Total
111,017 $ 111,017
$ 18,415 $ 18,415
675 675
$ 19,090 $ 19,090
S 86,430 $
38,178
Note 11. Leases
The Capital Leases as of September 30, 1999, consist of the following:
Capital Leases:
Summary of Assets Under Capital Lease:
Land, Buildings and Personal Property
Accumulated Amortization
86,430
38,178
$ 38,178 S 86,430 $ 124,608
All Others
S 40.992
S 9.776
EPA has three capital leases for land and buildings housing scientific laboratories and/or computer facilities.
All of these leases include a base rental charge and escalator clauses based upon either rising operating costs
and/or real estate taxes. The base operating costs are adjusted annually according to escalators in the
Consumer Price Indices published by the Bureau of Labor Statistics (U.S. Department of Labor). These
leases terminate in fiscal years 2010, 2013 and 2025. The charges are expended out of the Environmental
Programs and Management appropriation. EPA has one capital lease for a xerox copier that expires in FY
2002. The total future minimum lease payments of the capital leases are listed below.
EPA's FY 1999 Annual Financial Statements
Page 51
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Future Payments Due: All Others
Fiscal Year
2000 $ 6,314
2001 6,314
2002 6,303
2003 6,295
2004 6,295
After 5 Years 102,489
Total Future Minimum Lease Payments 134,010
Less: Imputed Interest (95.832)
Net Capital Lease Liability S 38,178
Liabilities not Covered by
Budgetary Resources $ 38,178
Operating Leases:
The General Services Administration (GSA) provides leased real property (land and buildings) as office
space for EPA employees. GSA charges a Standard Level Users Charge that approximates the commercial
rental rates for similar properties.
EPA has five direct operating leases for land and buildings housing scientific laboratories and/or computer
facilities. Most of these leases include a base rental charge and escalator clauses based upon either rising
operating costs and/or real estate taxes. The base operating costs are adjusted annually according to
escalators in the Consumer Price Indices published by the Bureau of Labor Statistics (U.S. Department of
Labor). Three leases terminate in fiscal year 2000. In fiscal 1997 and 1998, EPA entered into two leases,
which terminate in fiscal 2017 and 2003 respectively. The charges are expended out of the EPM
appropriation. The total minimum future costs of the operating leases are listed below.
Fiscal Year
2000
2001
2002
2003
2004
Beyond 2004
Total Future Minimum
Lease Payments
Superfund All Others
$ — - $ 6,109
36
34
34
24
310
$ — $ 6,547
Total Land
& Buildings
$ 6,109
36
34
34
24
310
$ 6,547
Page 52 EPA's FY 1999 Annual Financial Statements
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Note 12. Pensions and Other Actuarial Benefits
FECA provides income and medical cost protection to covered Federal civilian employees injured on the job;
employees who have incurred a work-related occupational disease; and beneficiaries of employees whose
death is attributable to a job-related injury or occupational disease. Annually, EPA is allocated the portion
of the long term FECA actuarial liability attributable to the entity. The liability is calculated to estimate the
expected liability for death, disability, medical and miscellaneous costs for approved compensation cases.
The liability amounts and the calculation methodologies are provided by DOL.
The FECA Actuarial Liability at September 30, 1999, consisted of the following:
Superfund All Other
FECA Actuarial Liability $ 5,826 $ 23,987
The FY 1999 present value of these estimates was calculated using a discount rate of 5.5 percent in years
1 and 2, 5.55 percent in year 3 and 5.6 percent in year 4 and thereafter. The estimated future costs are
recorded as an unfunded liability.
Note 13. Unexpended Appropriations
As of September 30, 1999, the Unexpended Appropriations consisted of the following:
Unexpended Appropriations: Superfund All Others Total
Unobligated
Available $ 473,194 S 1,277,839 $ 1,751,033
Unavailable 88,054 88,054
Undelivered Orders 2.183,637 8,711.071 10.894,708
Total S 2,656,831 S 10,076,964 $ 12,733,795
Note 14. Amounts Held by Treasury
Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship by the U.S.
Department of Treasury in the "Hazardous Substance Superfund Trust Fund" (Superfund) and the "Leaking
Underground Storage Tank Trust Fund" (LUST).
Superfund (Audited)
Superfund is supported primarily by an environmental tax on corporations, cost recoveries of funds spent
to clean up hazardous waste sites, and fines and penalties. Prior to December 31, 1995, the fund was also
supported by other taxes on crude and petroleum and on the sale or use of certain chemicals. The authority
to assess those taxes and the environmental tax on corporations also expired on December 31,1995, and has
not been renewed by Congress. It is not known if or when such taxes will be reassessed in the future.
EPA's FY 1999 Annual Financial Statements Page 53
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
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The following reflects the Superfund Trust Fund as maintained by the U.S. Department of Treasury as of
September 30, 1999. The amounts contained in these statements have been provided by the Treasury and
are unaudited. Outlays represent appropriations received by EPA's Superfund Trust Fund, such funds are
eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
EPA
Treasury
Combined
Undistributed Balances
Available for Investment
Unavailable for Investment
Total Undisbursed Balance
Investments, Net of Discounts
Total Assets
Liabilities & Equity
Debt
Equity
Total Liability and Equity
Receipts
Crude and Petroleum
Certain Chemicals
Corporate Environmental
Cost Recoveries
Fines & Penalties
Total Revenue
Appropriations Received
Interest Income
Total Receipts
Outlays
Transfers to EPA
Total Outlays
Net Income
S -— S 1,262 $
— —
1,262
2.894,095 1,523,791
$ 2.894.095 S 1.525.053 S
S — - $ — - $
2,894,095 1,525,053
$ 2.894.095 S 1.525.053 $
$ — $ (2,060) $
12,830
10,249
319,746
3,648
344,413
325,000
220,086
889,499
(1,545,851) 1,545,851
(1,545,851) 1,545,851
$ 1.545,851 $ (656.352) $
LUST (Audited)
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites.
represents LUST Trust Fund as maintained
1,262
1,262
4,417,886
4.419.148
—
4,419,148
4,419.148
(2,060)
12,830
10,249
319,746
3,648
344,413
325,000
220,086
889,499
889.499
The following
by the U.S. Department of Treasury. The amounts contained in
Page 54
EPA's FY 1999 Annual Financial Statements
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these statements have been provided by Treasury and are unaudited. Outlays represent appropriations
received by EPA's LUST Trust Fund, such funds are eliminated on consolidation with the LUST Trust Fund
maintained by Treasury.
EPA
Undisbursed Balances
Available for Investment
Unavailable for Investment
Total Undisbursed Balance
Investments, Net of Discounts
Total Assets
Liabilities & Equity
Debt
Equity
Total Liability and Equity
Receipts
Highway TF Tax
Airport TF Tax
Inland TF Tax
Gross Revenue
Less: Reimbursement to G/F
Net Revenue
Interest Income
Net Receipts
Outlays
Transfers to EPA
Total Outlays
Net Income
Note 15. Commitments and Contingencies
82,594
82,594
(60,783)
$ 60.783
Treasury
10
10
1,312,103
1,312,113
$ 82,594 S 1,312,113
199,333
18,270
1,024
218,627
(3,091)
215,536
57.789
273,325
60,783
S 212.542
Combined
$ 10
10
_ 1.394,697
$ 82.594 S 1.312.113 $ 1.394.707
1,394,707
1,394,707
199,333
18,270
1,024
218,627
(3,091)
215,536
57,789
273,325
$ (60,783) S 60,783 S_
273.325
EPA is a party in various administrative proceedings, legal actions, and claims brought by or against it.
These include:
EPA's FY 1999 Annual Financial Statements
Page 55
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
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- Various personnel actions, suits, or claims brought against the Agency by employees and others.
- Various contract and assistance program claims brought against the Agency by vendors, grantees and
others.
- The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include the
collection of fines and penalties from responsible parties.
- Claims against recipients for improperly spent assistance funds which may be settled by a reduction of
future EPA funding to the grantee or the provision of additional grantee matching funds.
Superfund
Under CERCLA i 106 (a), EPA issues administrative orders that require parties to clean up contaminated
sites. CERCLA f!06(b) allows a party that has complied with such an order to petition EPA for
reimbursement from the Fund of its reasonable costs of responding to the order, plus interest. To be eligible
for reimbursement, the party must demonstrate either that it was not a liable party under CERCLA i 107 (a)
for the response action ordered, or that the Agency's selection of the response action was arbitrary and
capricious or otherwise not in accordance with law.
There are currently nine CERCLA / 106(b) administrative claims and four pending lawsuits. If the
claimants are successful, the total losses on the administrative and judicial claims could amount to
approximately $32.4 million and $13.7 million, respectively. The Environmental Appeals Board has not yet
issued final decisions on the administrative claims; therefore a definite estimate of the amount of the
contingent loss cannot be made. The claimants' chance of success in eight of these outstanding claims is
characterized as reasonably possible. The outcome of the remaining claim is considered probable and the
expected liability is $50 thousand. The claimants'chance of success in three of the four pending lawsuits is
also reasonably possible. The outcome of the remaining lawsuit is considered remote.
There are a number of outstanding CERCLA f 106(a) cleanup orders where the recipients of the orders have
not yet completed the ordered response actions. Each such recipient could potentially file a claim with EPA
for reimbursements under CERCLA f 106(b) of its costs of responding to the order once it has completed
the ordered actions.
EPA is responsible to indemnify response action contractors (CERCLA / 119) for legal costs that will
eventually exceed or have exceeded the deductible specified in the current indemnification agreements. Such
payments by the United States would be recoverable government response costs. EPA has only one claim
which is considered remote.
EPA contractors have submitted response action contractor claims. No claims were material.
All Other
There were no material litigation, asserted or unasserted claims or assessments involving all other
appropriated funds of the Agency.
56 EPA's FY 1999 Annual Financial Statements
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Judgement Fund
In cases which are paid by the U.S. Treasury Judgement Fund, the Agency must recognize the full cost of
a claim regardless of who is actually paying the claim. The Agency is involved in various other actions that
in the aggregate do not exceed $3.4 million.
In addition, EPA is party to certain pending litigation upon which EPA believes it has a reasonable legal
position. No estimate has been provided for a loss.
In the opinion of EPA's management and General Counsel, the ultimate resolution of any legal actions still
pending will not materially affect EPA's operations or financial position.
Note 16. Grant A ccrual
Grant accruals represent Grantee expenses that were not reported to EPA for reimbursement as of September
30, 1999.
EPA selected a statistical sample of grant recipients from our grantee universe to use as our basis to calculate
our accrual. EPA sent confirmation letters to the sample grantees, asking them to provide the amount of
unbilled grant expense at September 30, 1999. We then aggregated up the unbilled grant expense rates.
Finally, we used these two weighted-average rates to compute the overall unbilled grant expense accruals.
1999
Superfund Trust Fund S 13,981
All Others S 430.299
Note 17. Environmental Cleanup Costs
EPA has three sites that require clean up stemming from its activities. Two of these sites will be paid from
the Treasury Judgement Fund amounting to $105 thousand. EPA estimates that clean up on the other site
will be approximately $ 1 thousand. EPA also holds title to a site in Edison, New Jersey, which was formerly
an Army Depot. While EPA did not cause the contamination, the Agency could potentially be liable for a
portion of the clean up costs. However, it is expected that the Department of Defense and the General
Services Administration will bear all or most of the cost of remediation.
Accrued Clean-up Cost
EPA has sixteen sites that will require future clean up associated with permanent closure. The estimated cost
will be approximately $14.3 million. Since the clean up costs associated with permanent closure are not
primarily recovered though user fees, EPA has elected to recognize the estimated total cleanup cost as a
liability upon implementation and record changes in estimate in subsequent years. The FY 1999 estimate
decreased by approximately $.2 million for unfunded clean-up costs over FY 1998. There was an increase
of $20 thousand for funded clean-up costs for FY 1999. EPA could also be potentially liable for cleanup
costs at a GSA-leased sites: however, the amounts are not known.
EPA's FY 1999 Annual Financial Statements Page 57
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Of the nearly $ 14.3 million in estimated clean up costs, approximately $11.3 million represents the estimated
expense to close the current RTF research facility. These costs will be incurred within the next three years.
The remaining amount represents the future decontamination and decommissioning costs of EPA's research
facilities.
Note 18. Superfund State Credits
Authorizing statutory language for Superfund and related Federal regulations require States to enter into
Superfund State Contracts (SSCs) when EPA assumes the lead for a remedial action in their State. The SSC
defines the State's role in the remedial action and obtains the State's assurance that they will share in the cost
of the remedial action. Under Superfund's authorizing statutory language, States will provide EPA with a
ten percent cost share for remedial action costs incurred at privately owned or operated sites, and at least fifty
percent of all response activities (i.e., removal, remedial planning, remedial action, and enforcement) at
publicly operated sites. In some cases, States may use EPA approved credits to reduce all or part of their
cost share requirement that would otherwise be paid by the States. Credit is limited to State site-specific
expenses EPA has determined to be reasonable, documented, direct out-of-pocket expenditures of non-
Federal funds for remedial action. Once EPA has reviewed and approved a State's claim for credit, the State
must first apply the credit at the site where it was earned. The State may apply any excess/remaining credit
to another site when approved by EPA. As of September 30, 1999, total outstanding State credits has been
estimated at $7.3 million.
Note 19. Superfund Preauthorized Mixed Funding Agreements
Under Superfund Preauthorized Mixed Funding Agreements, settling Potentially Responsible Parties (PRPs)
agree to perform response actions at their sites with the understanding that EPA will reimburse the PRPs a
percentage of their total response action costs. EPA's authority to enter into mixed funding agreements is
provided under Section lll(a)(2) of the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) of 1980. Under Section 122(b)(l) of CERCLA, as amended by the Superfund
Amendments and Reauthorization Act (SARA) of 1986, a PRP may assert a claim against the Superfund
Trust Fund for a portion of the costs they incurred while conducting a preauthorized response action as
agreed to under a mixed funding agreement. As of September 30, 1999, EPA had 13 outstanding
preauthorized mixed funding agreements with obligations totaling $50 million. A liability is not recognized
for these amounts until the PRP's work has been performed and has been approved by EPA for payment.
EPA will not disburse any funds under these agreements, however, until the PRP's application, claim, and
claims adjustment processes have been reviewed and approved by EPA.
Note 20. Income and Expenses from other Appropriations
The Statement of Net Cost reports program costs that include the full costs of the program outputs and
consist of the direct costs and all other costs that can be directly traced, assigned on a cause and effect basis,
or reasonably allocated to program outputs.
During Fiscal Year 1999, EPA had three appropriations which funded a variety of programmatic and non-
programmatic activities across the Agency, subject to statutory' requirements. The Environmental Programs
and Management (EPM) appropriation was created to fund personnel compensation and benefits, travel.
procurement, and contract activities. Two prior year appropriations, Program and Research Operations
paoe 58 EPA's FY 1999 Annual Financial Statements
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(PRO) and Abatement Control and Compliance (AC&C) generated expenses. PRO funded travel, personnel
compensation and benefits. AC&C funded procurement and contract activities.
All of the expenses from EPM, PRO and AC&C were distributed among EPA's two Reporting Entities:
Superfund and All Others. This distribution is calculated using a combination of specific identification of
expenses to Reporting Entities, and a weighted average that distributes expenses proportionately to total
programmatic expenses.
As illustrated below, this estimate does not impact the net effect of the Statement of Net Costs.
1999
Income From Expenses From
Other Appropriations Other Appropriations Net Effect
Superfund $ 35,664 $ (35,664) $
All Others (35,664) 35,664
Total S $ $
Note 21. Custodial Non-Exchange Revenues
EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous receipts.
Collectability by EPA of the fines and penalties is based on the responsible parties' willingness and ability
to pay.
1999
Fines, Penalties & Misc Revenue (EPA) $ 128,176
Accounts Receivable for Fines, Penalties
& Miscellaneous Receipts 1999
Accounts Receivable $ 66,750
Less: Allowance for Doubtful Accounts 36,265
Total . $ 30,485
Note 22. Statement of Budgetary Resources
A reconciliation of budgetary resources, obligations incurred, and outlays, as presented in the audited
Statement of Budgetary Resources, to amounts included in the Budget of the United States Government for
the year ended September 30, 1999. is as follows:
EPA's FY 1999 Annual Financial Statements Page 59
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Budgetary Obligations
Resources Incurred
Outlays
Superfund
Statement of Budgetary Resources
Allocated to Other Agencies
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other
Budget of the United States Government
$ 2,192,229 $ 1,709,357 $ 1,499,486
97,741 80,789 77,029
(31,240) (26,489)
$ 2,258,730 $ 1,763,657 $ 1,576,515
All Other
Statement of Budgetary Resources
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other
S 8,360,328 $ 6,685,653
77,806 9,411
5,855,618
(1,260)
Budget of the United States Government $ 8,438,134 S 6,695,064 S 5,854,358
Note 23. Adjustments
During FY 1999, there is a reduction in the Superfund Trust Fund authority available of $262.9 million
between the beginning available and ending available authority. This amount represents amounts that were
overstated in the beginning FY 1999 authority available resulting from anticipated reimbursable funding that
was not decreased prior to the close of FY 1998. This amount is reflected as part of the $59.3 million
Adjustments on the Statement of Budgetary Resources. The remaining amount of the Adjustments is for
Recoveries of prior year obligations of $205.2 million and the Canceled Authority of $1.6 million.
Note 24. Unobligated Balances Available
The Superfund Trust Fund has an unobligated balance of $483 million in unexpired authority. All Others
has an unobligated balance of $ 1,675 million which includes $ 1,567 million in unexpired authority and $ 108
million in expired authority. The unexpired authority is available to be apportioned by the Office of
Management and Budget for new obligations at the beginning of FY 2000. Unobligated balances of expired
authority is not available for new obligations. However, the expired authority is available for upward
adjustments of obligations incurred as of the end of the fiscal year.
Note 25. Obligated Balance, Net - End of Period
Undelivered Orders at the end of the period are $2.4 million for the Superfund Trust Fund and $9.2 million
for All Others.
Page 60
EPA's FY 1999 Annual Financial Statements
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Note 26. Difference in Outlays Between Statement of Budgetary Resources and SF-133
Outlays between the Statement of Budgetary Resources and the SF-133 differ by an unidentified $1 million
for All Others.
Note 27. Statement of Financing
Increases in Unfunded Liabilities relate to unfunded annual leave, environmental liabilities, contingent
liabilities and the Federal Employees Compensation Act (FECA) special benefit fund. For Superfund and
All Others, the amounts totaled $4.2 million and $15.9 million, respectively and is reflected in Financing
Sources Yet to Be Provided.
Note 28. Other Financing Sources
Consists primarily of Appropriations to EPA from the Superfund and LUST Trust Funds held at Treasury
(Treasury Trust Funds). Such appropriations are reported as non expenditure transfers on the financial
statements of the respective Treasury Trust Funds. Upon consolidation with Trust funds held by EPA, the
Treasury Trust Fund Appropriation non expenditure transfers are reported as Other Financing Sources to
offset Appropriations Used and Trust Fund revenues.
1999
Trust Funds Superfund LUST
Treasury Trust Fund Transfers $ (1,545,851) $ (60,783)
Custodial Liability Reclassification 22,718
Other (979) (14,396)
Total S (1,524,112) $ (75,179)
EPA's FY 1999 Annual Financial Statements Pase 61
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Environmental Protection Agency
Required Supplemental Information
As of September 30,1999
(Dollars in Thousands)
(Unaudited)
Deferred Maintenance
The EPA classifies property, plant, and equipment as follows: 1) EPA-Held Equipment, 2) Contractor-Held
Equipment, 3) Land and Buildings, and, 4) Capital Leases. The condition assessment survey method of
measuring deferred maintenance is utilized. The Agency adopts requirements or standards for acceptable
operating condition in conformance with industry practices.
One deferred maintenance project was identified in the Land and Buildings category, with an estimated total
cost of $325,000. This project included repairing and resurfacing weathered and cracked parking lots and
driveways. No deferred maintenance was reported for the other three categories.
Infra-governmental Assets
Intra-governmental assets represent transactions between all federal departments and agencies.
Accounts Receivable
Agency Superfund All Others
Dept. of the Army S 34 ' S
Dept. of Interior 143
Dept. of Energy 24
Dept. of the Air Force 5
Unassigned 48,948 55,022
Total S 48,982 $ 55,194
Intra-governmental Liabilities
Intra-govemmental liabilities represent transactions between all federal departments and agencies.
Accounts Payable Other Liabilities Debt
Agency
Dept. of Agriculture
Library of Congress
US Postal Service 11
Pa°e 62 EPA's FY 1999 Annual Financial Statements
Superfund All Other
$ $ (3)
Superfund AH Other
S $ (759)
66
All Other
S __
-------
Intra-governmental Liabilities - continued
Accounts Payable
Other Liabilities
Government Printing
Office
Dept. of the Army
Government
Accounting Office
OPM
Executive Office of the
President
Dept. of the Treasury
Dept. of Commerce
Dept. of Justice
Dept. of the Interior
Secretary of Defense
Dept. of Air Force
Dept. of Labor
Tennessee Valley
Authority
Small Business
Administration
Dept. of Health and
Human Services
NASA
Housing and Urban
Development
Dept. of Energy
National Labor Relations
Board
Dept. of Transportation
Agency for International
Development
Government Services
Administration
National Science
Foundation
Superfund All Other
Superfund
34
(12)
498
425
1,216
All Other
82
26
(1)
98
46
(8)
(994)
(203)
(5,043)
5
4,649
1
(185)
6,073
67
100
(1,282)
(2)
(1,049)
431
(10,248)
38
Debt
All Other
37,922
EPA's FY 1999 Annual Financial Statements
Page 63
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Intra-governmental Liabilities - continued
Accounts Payable Other Liabilities Debt
Agency Superfund All Other Superfund All Other All Other
Dept. of State —- —- —- (11)
Unassigned 89,582 2,749 94,573 182,475
Total $ 89,594 S 2,737 $ 96,746 $ 174,372 $ 37,922
Page 64 EPA's FY 1999 Annual Financial Statements
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Environmental Protection Agency
Required Supplemental Information
Supplemental Statement of Budgetary Resources
As of September 30,1999
(Dollars in Thousands)
Unaudited
Environmental Miscellaneous Consolidated
Programs & Science* LUST All All
STAG Management Technology FIFRA Trust Fund Others Others
Budgetary Resources:
Budget Authority
Unobligated Balances - Beginning of
the Period
Spending Authority from Offsetting
Collections
Adjustments
Total Budgetary Resources
5 3,408,050 S 1,853,150 S 660,672 $ — S 72,500 S 453,521 S 6,447,893
1,159,696 202,100 143,627 15,342 2,733 194,443 1,717,941
6,595
120,791
48,159
(11,035)
50,802 18,400
(908) 35
'- 1 152,385
(434) (190,297)
276,342
(81,848)
S 4.695.132 S 2,092,374 S 854,193 S 33,777 S 74,800 S 610,052 S 8,360,328
Status of Budgetary Resources:
Obligations Incurred
Unobligated Balances - Available
Unobligated Balances-Not Available
S 3,430,652 S 1,858,653 S 692,256 S 22,225 S 71,230 S 610,637 S 6,685,653
1.264,480 146,973 139,411 11,552 3,570 1,156 1,567,142
86,748 22,526
(1.741)
107,533
Total Status of Budgetary Resources 54,695,132 S 2,092,374 5854,193 S 33.777 S 74,800 S 610,052 S 8,360,328
Outlays:
Obligations Incurred
Less: Spending Authority from
Offsetting Collections and Adjustments 127,386
Obligated Balance. Net - Beginning
of Period
Less: Obligated Balance, Net - End
of the Period
Total Outlays
S 3,430,652 S 1,858,653 S 692,256 S 22,225 S 71,230 S 610,637 S 6,685,653
64,263 55,514 18,435 1,898 159,595 427,091
7,012.337 873,197 481,875 (627) 74,552 308,955 8,750,289
7,570.173 794,380 511,824 (926)
198,476 9.153,233
S 2,745,430 S 1,873,207 S 606,793 S 4.089 S 64,578 S 561,521 S 5,855,
,618
EPA's FY 1999 Annual Financial Statements
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Balance Sheet
As of September 30,1999
(Dollars in Thousands)
ASSETS
Intragovernmental
Fund Balance With Treasury
Advances and Prepayments
Total Intragovernmental
Advances and Prepayments
Operating Materials and Supplies, Net
General Property Plant and Equipment
Other
Total Assets
LIABILITIES
Intragovernmental
Accounts Payable
Other
Total Intragovernmental
Accounts Payable
Other
Total Liabilities
NET POSITION
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
Unaudited
$ 37,066
443
37,509
5
13
17,184
15,559
$ 70,270
$ 1,500
23.293
24,793
13,165
1.171
39,129
31.141
31.141
70.270
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EPA's FY 1999 Annual Financial Statements
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Net Cost
For the Year Ended September 30,1999
(Dollars in Thousands)
Unaudited
COSTS:
Intrago vernmental $ 15,177
With the Public 112,629
Total 127,806
Less: Earned Revenues 119,972
Net Cost of Operations $ 7,834
EPA's FY 1999 Annual Financial Statements Page 67
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Changes in Net Position
For the Year Ended September 30,1999
(Dollars in Thousands)
Unaudited
Net Cost of Operations S 7,834
Financing Sources (Other Than Exchange Revenues)
Imputed Financing 5,937
Transfers-In 4.160
Transfers-Out (4,160)
Other (952)
Net Results of Operations (2,849)
Prior Period Adjustments (5,535)
Net Changes in Cumulative Results of Operations 2,686
Net Position-Beginning of Period 28,455
Net Position-End of Period $ 31,141
Page 68 EPA's FY 1999 Annual Financial Statements
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Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30,1999
(Dollars in Thousands)
INVESTMENT IN THE NATION'S RESEARCH
AND DEVELOPMENT:
Public and private sector institutions have long been
significant contributors to our nation's environment
and human health research agenda. EPA's Office of
Research and Development, however, is unique
among scientific institutions in this country in
combining research, analysis, and the integration of
scientific information across the full spectrum of
health and ecological issues and across both risk
assessment and risk management. Science enables
us to identify the most important sources of risk to
human health and the environment, and by so doing,
informs our priority-setting, ensures credibility for
our policies, and guides our deployment of
resources. It gives us the understanding and
technologies we need to detect, abate, and avoid
environmental problems. Science provides the
crucial underpinning for EPA decisions and
challenges us to apply the best available science and
technical analysis to our environmental problems
and to practice more integrated, more efficient, and
more effective approaches to reducing
environmental risks.
Among the Agency's highest research priorities is a
program to expand the understanding of near- and
long-term effects of the environment on children.
Another priority is the Particulate Matter (PM)
research program, which focuses on review,
implementation, and eventual attainment of the
National Ambient Air Quality Standards (NAAQS).
ForFY 1999, the full cost of the Agency's Research
and Development activities totaled S603 million. A
breakout of the expenses is below (Dollars in
thousands):
FY 99 Programmatic Expenses: S543.777
Allocated Expenses: S 58,728
FY98 Programmatic Expenses: $507,828
Allocated Expenses: $ 53,322
INVESTMENT IN THE NATION'S
INFRASTRUCTURE:
The Agency makes significant investments in the
Nations's drinking water and clean water
infrastructure. The investments are the result of
three programs: The Construction Grant Program
which is being phased out, and two State
Revolving Fund (SRF) programs.
Construction Grants Program: During the 1970s
and 1980s, the Construction Grants Program was a
source of Federal funds, providing more than $60
billion of direct grants for the construction of
public wastewater treatment projects. These
projects, which constituted a significant
contribution to the nation's water infrastructure,
included sewage treatment plants, pumping
stations, and collection and intercept sewers,
rehabilitation of sewer systems, and the control of
combined sewer overflows. The construction
grants led to the improvement of water quality in
thousands of municipalities nationwide.
Congress set 1990 as the last year that funds would
be appropriated for Construction Grants. Projects
funded in 1990 and prior will continue until
completion. Beyond 1990, EPA shifted the focus
of municipal financial assistance from grants to
loans that are provided by State Revolving Funds.
State Revolving Funds: The Environmental
Protection Agency provides capital, in the form of
capitalization grants, to state revolving funds
which state governments use to make loans to
individuals, businesses, and governmental entities
for the construction of wastewater and drinking
water treatment infrastructure. When the loans are
EPA's FY 1999 Annual Financial Statements
Page 69
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repaid to the state revolving fund, the collections are
used to finance new loans for new construction
projects. The capital is reused by the states and is
not returned to the Federal Government.
The Agency is also appropriated funds to finance
the construction of infrastructure outside the
Revolving Funds. These are reported below as
Other Infrastructure Grants.
The Agency's expenses related to investments in the
Nation's Water Infrastructure are outlined below:
FY99
Construction Grants: $ 414,528
Clean Water SRF: $ 925,744
Safe Drinking Water SRF: $ 387,429
Other Infrastructure Grants: $ 245,606
Allocated Expenses: $ 213,117
FY98
Construction Grants: $ 444,817
Clean Water SRF: $ 1,109,017
Safe Drinking Water SRF: $ 94,936
Other Infrastructure Grants: $ 138,363
Allocated Expenses: S 187,649
STEWARDSHIP LAND
The Agency acquires title to certain land and land
rights under the authorities provided in Section 104
(J) CERCLA related to remedial clean-up sites. The
land rights are in the form of easements to allow
access to clean-up sites or to restrict usage of
remediated sites. In some instances, the Agency
takes title to the land during remediation and returns
it to private ownership upon the completion of
clean-up.
As of 9/30/99, the Agency possesses the following
22
2
0
18
2
0
land and land rights:
Superfund Sites with Easements
Beginning Balance
Additions
Withdrawals
Ending Balance
Superfund Sites with Land
Beginning Balance
Additions
Withdrawals
Ending Balance
HUMAN CAPITAL
Agencies are required to report expenses incurred
to train the public with the intent of increasing or
maintaining the nation's economic productive
capacity. Training, public awareness, and research
fellowships are components of many of the
Agency's programs, and are effective in achieving
the Agency's mission of protecting public health
and the environment, but the focus is on enhancing
the nation's environmental, not economic,
capacity.
FY99
Training and Awareness Grants $46,630
Fellowships SI 0,23 9
Allocated Expenses $ 6,142
FY98
Training and Awareness Grants S39,131
Fellowships $11,084
Allocated Expenses $ 5,273
Page 70
EPA's FY 1999 Annual Financial Statements
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FINANCIAL STATEMENTS
Audit Report 00100231
EPA's FY 1999 Annual Financial Statements
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Note: This summary is part of Audit Report Number 00100231 issued by the EPA Office of
Inspector General on February 29, 2000. Therefore, it contains references to other sections of the
report (e.g., attachments) which are not included. For a complete copy of the report, please contact:
Environmental Protection Agency
Office of the Inspector General
Financial Audit Division
Mail Code 2422
401 M Street, S.W.
Washington, D.C.
Telephone: 202-260-1397
FAX: 202-260-1398
Audit Report 00100231
Paoe 72 EPA's FY 1999 Annual Financial Statements
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INSPECTOR GENERAL'S REPORT ON EPA'S
FISCAL 1999 FINANCIAL STATEMENTS
The Administrator
U.S. Environmental Protection Agency:
In accordance with the requirements of the Government Management Reform Act (GMRA), we
performed an audit of EPA's fiscal 1999 financial statements. Following are our opinions on the
Agency's financial statements, and the results of our evaluation of internal controls and tests of
compliance.
The financial statements include expenses of grantees, contractors and other Federal agencies.
Our audit work pertaining to these expenses included testing only within EPA. Audits of grants,
contracts and interagency agreements performed at a later date may disclose questioned costs of
an undeterminable amount at this time.
The Office of Inspector General (OIG) is not independent with respect to amounts pertaining to
its operations that are presented in the financial statements. The amounts included for the OIG
are not material to EPA's financial statements. The OIG is organizationally independent with
respect to all other aspects of the Agency's activities.
OPINIONS ON EPA'S FISCAL 1999 FINANCIAL STATEMENTS
Superfund Trust Fund Financial Statements
The Agency was unable to provide support in a timely manner for the composition of Other
Financing Sources for the Superfund Trust Fund, so we were unable to apply audit procedures to
satisfy ourselves as to the fair presentation of this line item. In addition, Note 28 to the financial
statements discloses these differences as Custodial Liability Reclassifications and Other which in
our opinion does not adequately address the source or composition of these amounts. Except for
the effects, if any, of adjustments that may have been necessary to correct the amounts reported
as Other Financing Sources in the Statement of Changes in Net Position and the related effects
on Equity and Net Costs of Operations, the financial statements for the Superfund Trust Fund
fairly present the assets, liabilities, and net position; net costs; changes in net position; budgetary
resources; and reconciliation of net costs to budgetary obligations for the fund as of and for the
year ended September 30, 1999, in accordance with generally accepted accounting principles, as
described in Note 1 to the financial statements.
Audit Report 00100231
EPA's FY 1999 Annual Financial Statements Page 73
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All Other Appropriated Funds Financial Statements
The Agency was unable to provide support for the composition of "Other" in the Statement of
Financing for All Other Appropriated Funds, and we were unable to apply audit procedures to
satisfy ourselves as to the fair presentation of this line item. Except for the effects, if any, of
adjustments that may have been necessary to correct the amounts reported as "Other" in the
Statement of Financing, the financial statements for All Other Appropriated Funds fairly present
the assets, liabilities, and net position; net costs; changes in net position; budgetary resources;
reconciliation of net costs to budgetary obligations; and custodial activity for All Other
Appropriated Funds as of and for the year ended September 30, 1999, in accordance with
generally accepted accounting principles, as described in Note 1 to the financial statements.
Agency-wide Financial Statements
The Agency was unable to provide support in a timely manner for the composition of Other
Financing Sources for the Agency as a whole. In addition, Note 28 to the financial statements
discloses these differences as Custodial Liability Reclassifications and Other which in our
opinion does not adequately address the source or composition of these amounts. In addition, the
Agency was unable to provide support for the composition of "Other" in the Statement of
Financing for the Agency as a whole. We were unable to apply audit procedures to satisfy
ourselves as to the fair presentation of these line items. Except for the effects, if any, of
adjustments that may have been necessary to correct the amounts reported as Other Financing
Sources in the Statement of Changes in Net Position and the related effects on Equity and Net
Costs of Operations, and the amounts reported as "Other" in the Statement of Financing the
Agency-wide financial statements fairly present the assets, liabilities, and net position; net costs;
changes in net position; budgetary resources; and reconciliation of net costs to budgetary
obligations for the Agency as of and for the year ended September 30, 1999, in accordance with
generally accepted accounting principles, as described in Note 1 to the financial statements.
Other Significant Matters
Although we were able to render opinions on EPA's financial statements, weaknesses existed in
the Agency's process for preparing the fiscal 1999 financial statements that resulted in the
Agency being unable to provide us with complete, accurate and reliable statements, footnotes
and supplemental information by the agreed upon dates. Significant audit effort was needed to
assist the Agency in improving the presentation of the financial statements and to resolve
preparation issues in order for the Agency to obtain the best possible opinions by March 1, 2000.
In addition, GRPA requires EPA to develop plans on intended accomplishments, measure how
well it is doing, make appropriate decisions based on the information gathered, and communicate
information about performance to Congress and the public. To do this, EPA developed a
strategic plan with ten goals and during fiscal 1999 began tracking the cost to achieve each of its
Audit Report 00100231
Page 74 EPA's FY 1999 Annual Financial Statements
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goals. We found that the Agency's methodology for accumulating costs by goal could not be
relied upon to fairly state costs by goal. The Agency had originally planned to present its
Statement of Net Cost by goal. After we expressed concern about the Agency's ability to fairly
present its costs by goal, Agency management decided to present EPA's costs for the Superfund
Trust Fund and All Other Appropriated Funds rather than present the information by goal.
Weaknesses in this area also affect the quality of cost accounting data Agency managers have
available for decision making.
REVIEW OF EPA'S REQUIRED SUPPLEMENTAL STEWARDSHIP
INFORMATION, REQUIRED SUPPLEMENTAL INFORMATION, AND
MANAGEMENT DISCUSSION AND ANALYSIS
EPA's Required Supplemental Stewardship Information, Required Supplemental Information,
and Management Discussion and Analysis are presented for purposes of additional analysis. We
inquired of EPA's management as to their methods of preparing this information and reviewed
this information for consistency with the principal financial statements. However, our audit was
not designed to express, and we are not expressing an opinion on it.
We did not identify any material inconsistencies between the information presented in EPA's
principal financial statements and the information presented in EPA's: (1) Required
Supplemental Stewardship Information, (2) Required Supplemental Information, and (3)
Management Discussion and Analysis. We did find that EPA was unable, in most cases, to
provide Required Supplemental Information about its trading partners. The January 7, 2000,
technical amendments to OMB Bulletin 97-01 require agencies to report, as Required
Supplemental Information, their intra-govemmental assets and liabilities by federal trading
partner (see Attachment 3 for additional details on this issue).
EPA's Management Discussion and Analysis presents performance information about various
EPA programs. Our audits of EPA's programmatic areas have identified weaknesses in the
environmental data information systems used to generate data used for managing the Agency's
environmental programs. The Agency has several initiatives underway to address data quality
and ensure that environmental data systems contain timely and accurate data. Although these
initiatives move the Agency in the right direction, EPA has not developed an overall strategy to
address the completeness of its environmental data. As a result, EPA's ability to evaluate the
outcomes of its programs in terms of environmental changes will continue to be limited by gaps
and inconsistencies in the quality of its data.
EPA's Management Discussion and Analysis states that the Agency is in compliance with
Statement of Federal Financial Accounting Standards No. 4, "Managerial Cost Accounting
Concepts and Standards for the Federal Government." We do not believe the Agency is in
Audit Report 00100231
EPA's FY 1999 Annual Financial Statements Page 75
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compliance with this standard because EPA was not able to: (1) determine the full costs of its
activities, (2) accumulate and report cost of activities on a regular basis for management
information purposes, and (3) use appropriate costing methodologies to accumulate and assign
costs to outputs (see Attachment 3 for additional details on this issue).
EPA's Management Discussion and Analysis also states that, during fiscal 1999, the Agency
conducted a review of its user fees in accordance with the requirements of the CFO Act and
provisions of OMB Circular A-25, "User Charges." Our audit work showed, however, that the
Acting CFO still needs to follow through and either institute, revise, or update its user fees or
obtain exceptions from OMB for the user fees identified during the 1997 review, as updated by
the 1999 review (see Attachment 3 for additional details on this issue).
EVALUATION OF INTERNAL CONTROLS
We evaluated the Agency's internal controls over financial reporting: (1) to determine the audit
procedures necessary to express an opinion on the financial statements, and (2) to determine
whether the internal controls provide reasonable assurance that:
• transactions are properly recorded, processed, and summarized to permit the preparation
of reliable principal financial statements in accordance with generally accepted
accounting standards;
• financial transactions are executed in compliance with applicable laws and regulations;
and
• assets are safeguarded against loss from unauthorized acquisition, use or disposition.
Recognizing on-going work by the General Accounting Office (GAO) on computer security
controls, we supplemented our review of these controls by relying on the GAO review. We did
not test all internal controls relevant to operating objectives as broadly defined by the Federal
Managers' Financial Integrity Act, such as those controls relevant to ensuring efficient
operations. Our objective in evaluating controls was not to express an opinion on controls.
Consequently, we are not expressing an opinion on EPA's internal controls. Our evaluation
would not necessarily disclose all matters in the internal control structure that might be
reportable conditions or material weaknesses. Because of inherent limitations in any system of
internal controls, losses, noncompliance, or misstaternents could occur and not be detected.
Also, projecting our evaluation of internal controls to future periods is subject to the risk that
controls may become inadequate because of changes in conditions, or the degree of compliance
with such controls may deteriorate.
Audit Report 00100231
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Material Weaknesses
OMB Bulletin 98-08, "Audit Requirements for Federal Financial Statements," defines a material
weakness as a situation where internal controls do not reduce to a relatively low level, the risk
that errors, fraud or noncompliance in amounts material to the audited financial statements,
Required Supplemental Stewardship Information, or reported performance measures may occur
and not be detected in a timely manner by employees in the normal course of performing their
assigned functions. In evaluating the Agency's internal control structure, we identified the
following material weaknesses.
Although the Agency made some improvements in its financial statement preparation processes,
the financial statements provided to us for the purpose of expressing an opinion were incomplete
and contained significant errors. The financial statements that we used as a basis for rendering
our opinions were not received until late February 2000. Further, significant audit effort was
needed to assist the Agency in improving the presentation of the financial statements and to
resolve preparation issues in order for the Agency to obtain the best possible opinions by March
1, 2000. The Agency needs to make further improvements in its financial statement preparation
process. These improvements should be designed to improve the accuracy and reliability of
financial information used to prepare financial statements after the end of the year, as well as the
data that is available on an ongoing basis throughout the year to manage EPA's environmental
programs. Attachment 1 describes weaknesses in the Agency's financial statement preparation
process in more detail.
The Office of Inspector General previously reported concerns that security plans for EPA's core
financial systems were not compliant with Federal financial management system requirements.
Our work continues to show significant deficiencies for fiscal 1999. As a result, we continue to
report the issue as a noncompliance with the Federal Financial Management Improvement Act
(FFMIA). (See Attachment 3 for details.) Additional developments for fiscal 1999 support the
listing of computer security controls as a material weakness.
EPA's Acting CFO (in his Management Representation letter to us) listed potential
vulnerabilities in the Agency's mainframe computer and network servers as an exception to
Agency FFMIA compliance. In addition, the Acting CFO cited the lack of sufficient detail in
security plans, and security training programs that were under development but not yet
completed and implemented, as further exceptions to complying with system requirements.
In addition, a current, more comprehensive, on-going review by the GAO indicates that computer
security weaknesses "pose a serious threat to the integrity of EPA's information systems; and if
unconnected could allow unauthorized users to take control of EPA's network operations." The
problems are of such magnitude that the security program was rendered ineffective. There have
been numerous computer incidents identified, but the system to document and manage the
incidents is inadequate. The operating computer and network controls were vulnerable to
Audit Report 00100231
EPA's FY 1999 Annual Financial Statements Page 77
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tampering and disruption of services. EPA is vulnerable to serious disruptions, disclosure of data
and destruction of data. A Congressional Committee, citing the seriousness of the vulnerability,
plans a March 2000 hearing on the issue.
Relying on the work of GAO and our efforts, and noting the concern of the Acting CFO, we
consider the lack of adequate computer security controls a material weakness.
Reportable Conditions
We also identified the following reportable conditions. OMB Bulletin 98-08 defines a reportable
condition as an internal control weakness that could adversely affect EPA's ability to ensure:
(1) transactions are executed in accordance with applicable laws; (2) assets are safeguarded
against unauthorized acquisition, use, or disposition; (3) transactions are properly recorded,
processed, and summarized to permit the preparation of reliable financial statements and
Required Supplemental Stewardship Information in accordance with generally accepted
accounting principles; and (4) transactions are properly recorded, processed and summarized to
permit the preparation of reliable performance information.
• The Agency did not timely identify and deobligate unnecessary funds during its annual review
of inactive obligations. Therefore, the Agency had to conduct a "special review" of its open
obligations to ensure an accurate reporting of its open obligations in the Agency's financial
statements. The special review identified $14.6 million of open obligations which should have
been deobligated by September 30, 1999 in addition to the $10 million which should have been
deobligated based on the fiscal 1998 special review. In addition, our fiscal 1999 audit work
identified another $6.3 million which should have been deobligated by September 30, 1999.
• During fiscal 1999, the Agency continued its efforts to improve controls in the accounts
receivable area. However, we continued to find: (1) accounts receivable that were not recorded
and billed timely, (2) accounts receivable balances in the Agency's Integrated Financial
Management System (IFMS) were not reconciled to subsidiary records, (3) outstanding
receivables were not timely followed up on and written off, and (4) collection transactions were
not properly recorded. Consequently, some accounts receivable may not be correctly valued and
timely collected. These problems were primarily caused by Offices of Regional Counsel and
program offices not timely forwarding documentation needed to manage accounts receivable to
the financial management offices.
• Some Agency project officers were not fulfilling one of their program oversight duties, that of
timely reviewing and approving interagency agreement invoices. In addition, some project
officers were not obtaining and reviewing supporting cost documentation for amounts billed by
other agencies. The Agency needs to continue making improvements in this area, so that it can
be assured that payments are only made for costs billed that are valid and allowable under the
terms of its interagency agreements.
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• For a number of years, we have reported that EPA needs to make improvements in accounting
for its property. The Agency has been addressing weaknesses in its accounting for property;
however, our fiscal 1999 audit work disclosed the need for further corrective actions. We again
found property that was not recorded or not recorded timely or accurately. In addition, we found
weaknesses in the reconciliation of property information in the Agency's accounting system with
information contained in the property subsystem. When property is not accurately accounted for
it impacts the quality of data available to manage EPA's resources and increases the risk of theft,
loss or misuse of the property.
• We continue to be unable to assess the adequacy of the automated internal control structure as
it relates to automated input, processing and output controls for the accounting transactions
contained in the Agency's IFMS. We recognize the Agency has initiated a work group to replace
the Agency payroll system, and the Agency's budget request indicated a desire to replace IFMS
in the near future. An active data dictionary would simplify conversion of data in implementing
future financial systems.
Attachment 2 describes each of these reportable conditions in more detail. We will also be
reporting other less significant matters involving the internal control structure and its operation in
a separate management letter.
Comparison of EPA'S FMFIA Report with Our Evaluation of Internal Controls
As required by OMB Bulletin 98-08, we compared EPA's Federal Managers' Financial Integrity
Act (FMFIA or the Integrity Act) Report with our evaluation of the Agency's internal control
systems. For reporting under FMFIA, material weaknesses are defined differently than they are
defined for financial statement audit purposes. OMB Circular A-123, "Management
Accountability and Control" defines a material weakness as a deficiency that the Agency head
determines to be significant enough to be reported outside the Agency. OMB Bulletin 98-08
defines a material weakness as a weakness in controls that creates a risk that errors, fraud or
noncompliance in amounts material to the financial statements could occur and not be timely
detected.
As a part of the fiscal 1999 Integrity Act process, the Agency reported the following two material
weaknesses that relate to the Agency's financial statements.
• Construction Grants Close Out. In 1992, EPA designated this area as an Agency weakness
and in 1996 reclassified it as a material weakness due to the concern that lack of Agency-wide
attention might result in the loss of resources to properly complete the program. In addition,
there were concerns that millions of dollars in potentially ineligible program costs might not be
available for reuse on other high priority state clean water projects. The Agency is in the process
of implementing its corrective action strategy and expects to close out all construction grants by
2006.
Audit Report 00100231
EPA's FY 1999 Annual Financial Statements Page 79
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
-------
• Information Systems Security Plans. Our audits have identified deficiencies in the
Agency's information security planning. Security plans serve as a management control
mechanism to assist officials in the implementation of Agency security policies and in protecting
valuable information technology resources. Organizational security programs are to include the
development, maintenance, and management reviews of information security plans; to date, the
Agency's program and regional offices are not fully compliant. At risk is the possible
unauthorized access, use, modification, or destruction of EPA information resources that could
result from exploitation of these vulnerabilities. As previously noted, we also consider this
weakness a material weakness, as well as a FFMIA noncompliance.
As a part of the Agency's Integrity Act process, the Agency did not identify and report the
financial statement preparation process as a material weakness. Rather the Agency elected to
track the Agency's corrective actions in the financial statement preparation process as an
Agency-level weakness. We believe the Agency should report weaknesses in its financial
statement preparation process as an Integrity Act material weakness.
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
We tested compliance with provisions of those laws and regulations that could either materially
affect the financial statements or RSSI, or that OMB or we considered significant to the audit.
Our compliance testing did not disclose any material misstatements to the financial statements as
a result of noncompliance with laws and regulations. However, the objective of our audit,
including our tests of compliance with applicable laws and regulations, was not to provide an
opinion on overall compliance with such provisions. Consequently, we do not express such an
opinion. There are a number of ongoing investigations involving EPA's grantees and contractors
which could reveal violations of laws and regulations, but a determination about these cases has
not been made.
Federal Financial Management Improvement Act Compliance
As required by FFMIA, as a part of our audit, we assessed whether EPA's financial management
systems substantially complied with Federal financial management systems requirements,
applicable accounting standards, and the Standard General Ledger at the transaction level. In
planning, performing and reporting on our tests of compliance, we followed OMB Bulletin 98-
08, "Audit Requirements For Federal Financial Statements."
We found EPA was not in substantial compliance with the FFMIA requirements because of
weaknesses in: (1) the Agency's process for preparing financial statements, and (2) its computer
security controls. We also identified the following instances of substantial noncompliance with
FFMIA requirements. Attachment 3 describes the following two noncompliance issues in more
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detail and provides our recommendations on actions that should be taken to correct these
noncompliances.
• EPA's methodology for accumulating and reporting costs by the Agency's ten strategic
goals could not be relied upon to fairly state the Agency's costs to achieve each goal.
Weaknesses in this area affected the quality of cost accounting data EPA managers had
available during fiscal 1999 to manage their programs. In addition, the Agency was not
in compliance with Statement of Federal Financial Accounting Standards (SFFAS) No. 4
that requires EPA to: (1) determine the full costs of its activities, (2) accumulate and
report cost of activities on a regular basis for management information purposes, and (3)
use appropriate costing methodologies to accumulate and assign costs to outputs.
• EPA was unable, in most cases, to report its intra-govemmental assets and liabilities by
trading partner because finance offices were not coding transactions to show this
information. The Treasury Financial Manual requires agencies to report trading partner
information, so Treasury can eliminate intra-govemmental transactions when it prepares
the Financial Report of the United States Government. Agencies also need this
information, so they can manage their assets and liabilities.
Other Noncompliance Issues
We also identified the following noncompliance issues that did not cause a material misstatement
to the financial statements, but are nonetheless significant.
Disbursements for Multiple Appropriation Grants. EPA is not complying with appropriation
law when making disbursements for grants funded with more than one appropriation.
Disbursements for these grants are made using the oldest available funding (appropriation) first
which may or may not be the appropriation that benefitted from the work performed. Thus, EPA
is not complying with Title 31 U.S.C. 1301 which requires EPA to match disbursements to the
benefitting appropriation. A January 13, 2000, Office of General Counsel decision concluded
that making disbursements for multiple appropriation grants using the oldest available funding
first violates 31 U.S.C. 1301 and is an inappropriate method of charging, except in limited
situations.
User Fees. In response to our prior audit report findings, EPA's OCFO conducted biennial
reviews of user fees required by OMB Circular A-25, "User Charges" and the CFO Act. The
November 1997 review showed five current fees, four proposed fees, and eight exceptions. To
be in complete compliance with OMB Circular A-25, the Acting CFO needs to follow through
and either institute, revise, or update its user fees or obtain exceptions from OMB for the user
fees updated in 1997, as updated by the 1999 review. See Attachment 3 for a further discussion
of this issue, including the Agency's comments on this issue and our recommended corrective
action.
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PRIOR AUDIT COVERAGE
During previous financial audits, weaknesses that impacted our audit objectives were reported in
the areas of:
• the Agency's process for preparing financial statements, including the Statements of
Budgetary Resources and Financing;
• recording unbilled Superfund oversight costs;
• accounting for and managing Superfund accounts receivable;
• accounting for and controlling property;
• recording accrued liabilities for grants;
• approving payments for interagency agreements;
• identifying, tracking and reporting EPA's environmental liabilities;
• recording revenue for Superfund state contracts;
• documenting EPA's Integrated Financial Management System;
• complying with federal financial management system security requirements;
• accounting for payments for grants funded from multiple appropriations;
• reconciling the components of Superfund net position;
• identifying and allocating indirect costs;
• reviewing Agency fees; and
• allocating costs to the Superfund Trust Fund.
Attachment 4 summarizes the status of the prior audit report recommendations in each of these
areas. Other sections of this report on internal controls and compliance with laws and regulations
provide additional details on the current status of the Agency's corrective actions.
The Chief Financial Officer (CFO), as the Agency's Audit Follow-up Official, oversees EPA's
follow-up on audit findings and recommendations, including resolution and implementation of
corrective actions. For these prior audits, final action occurs when the Agency completes
implementation of the corrective actions to remedy weaknesses identified in the audit.
We acknowledge that many actions and initiatives have been taken to resolve prior financial
statement audit issues. We also recognize that the issues we have reported are complex, and
require extensive, long-term corrective actions and coordination by the CFO with various
Assistant Administrators, Regional Administrators and Office Directors before they can be
completely resolved. A number of issues have been unresolved for a number of years.
On January 13, 2000, the OCFO and the OIG jointly sponsored a meeting with a number of
senior managers and representatives from the OCFO, the Office of General Counsel and the
Office of Administration and Resources Management to discuss our concerns about the audit
management process and the length of time management was taking to complete corrective
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action on some of our older audit recommendations. The intended outcome of this meeting was
to ensure a clear understanding of the roles, responsibilities and processes needed to implement a
quality audit management program.
We acknowledge that EPA updated its policy in fiscal 1999 to enhance the audit management
process (EPA Order 2750, Audit Management Process, revised December 3, 1998).
Nevertheless, the Agency's Audit Follow-up Official, OCFO, agreed on a number of additional
actions to ensure appropriate resources and priority attention by senior management is devoted to
our prior audit issues and that progress and status on these issues is appropriately discussed in
management's semiannual reports to Congress. Because efforts are underway by the OCFO to
further strengthen and enhance the audit management process, we will monitor the progress
during fiscal 2000 to determine if we need to make any audit recommendations concerning the
audit follow-up process and management's reporting of progress made on corrective action plans
to Congress. Our office will continue to work with the OCFO in helping them to resolve all
audit issues resulting from our financial statement audits.
RECOMMENDATIONS
We are not making any new recommendations concerning the Agency's financial statement
preparation process. The recommendations we made as a part of the fiscal 1998 audit, when
fully implemented, should correct weaknesses in the Agency's financial statement preparation
process.
To correct the other FFMIA noncompliances we noted during this audit, we are recommending
the Acting Chief Financial Officer (CFO):
• incorporate planned fiscal 2000 security plan actions for financial systems into a formal
remediation plan,1
• establish procedures to identify actual costs by goal, objective and subobjective at the time
the costs are recorded,
• develop timely, reliable, accurate cost reports to enable managers to monitor the total cost of
their programs,
• develop a Statement of Net Cost with accurate and reliable cost information by goal which
can be used for external reporting, and
1 We expect the General Accounting Office will also make recommendations designed to improve the Agency's computer security.
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• issue policies to require all finance offices to expedite the review and input of trading partner
information for the Agency's intra-governmental assets and liabilities.
Our report also contains recommendations related to the other internal control and compliance
issues we identified during this audit.
AGENCY COMMENTS AND OIG EVALUATION
In a memorandum dated February 24, 2000, the Acting CFO responded to our draft report. In the
response, he indicated that his office agrees that further improvements need to be made to the
process for preparing financial statements. However, the weaknesses we identified in the
financial statement preparation process do not warrant categorization as a material weakness, nor
are they indicative of the Agency's inability to provide managers with information that is
accurate and reliable for use on a day-to-day basis to manage Agency programs. The Acting
CFO also disagreed with our conclusion that the Agency is in noncompliance with the
requirements of SFFAS No. 4, "Managerial Cost Accounting Concepts and Standard for the
Federal Government." The Acting CFO agreed with many of the recommendations and
indicated corrective actions are planned or ongoing to implement these recommendations.
Finally, the Acting CFO expressed appreciation for our cooperation in resolving outstanding
financial statement issues. The Agency's complete response is included as Appendix II to this
report.
We will continue to support the Agency's efforts to improve its processes for preparing timely,
reliable financial statements. In particular, we look forward to working with the Agency to make
improvements in the cost accounting information available to Agency managers to use in
carrying out their environmental programs. We have not changed our classification of the
reported material weakness and noncompliance issue. The rationale for our conclusions is
included in the appropriate sections of this report.
RESPONSIBILITIES AND METHODOLOGY
EPA MANAGEMENT RESPONSIBILITIES
EPA's management is responsible for:
• preparing annual financial statements and Required Supplemental Stewardship
Information;
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• establishing and maintaining a system of internal controls; and
• complying with applicable laws and regulations.
OIG RESPONSIBILITIES
We are responsible for:
• auditing the financial statements to determine if they are free of material misstatements
and presented fairly in accordance with generally accepted accounting principles, and
• evaluating related internal controls and testing compliance with applicable provisions of
laws and regulations.
AUDIT METHODOLOGY
In order to fulfill our responsibilities, except as described in our opinions, we:
• examined on a test basis, evidence supporting the amounts and disclosures in the
principal financial statements;
• assessed the accounting principles used and significant estimates made by management;
• evaluated the overall presentation of the financial statements;
• obtained an understanding of the significant internal controls over financial reporting,
determined whether they had been placed in operation, assessed control risk, and tested
the effectiveness of significant manual controls relevant to the following significant
cycles, classes of transactions, and account balances:
• Receivables and Collections
• Disbursements and Operating Expenses
• Payroll
• Investments
• Property
• Budget and Obligations
o o
e Accounts Payable and Accrued Liabilities
• Fund Balances
• General Accounting and Financial Reporting
• gained an understanding of the significant internal controls related to the RSSI;
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• inquired of EPA's management as to their methods of preparing EPA's Required
Supplemental Information;
• compared EPA's RSSI and Required Supplemental Information with the Agency's
principal financial statements;
• obtained an understanding of the automated internal control structure of the subsystem
interfaces with IFMS;
• completed a separate audit addressing the adequacy of critical mainframe operating
systems libraries, program property tables and supervisory call programs;
• reviewed the work of the GAO relative to computer security controls at EPA to determine
their findings and that we could rely on their work;
• documented the status of corrective actions in the Agency's FFMIA remediation plan,
dated March 31, 1999;
• followed-up on findings and recommendations from previous audits that could materially
affect the financial statements;
• obtained an understanding of management's process for evaluating and reporting on
internal controls and accounting systems as required by FMFIA;
• compared the material weaknesses reported in the Agency's FMFIA report to the material
weaknesses we found;
• tested compliance with applicable sections of laws and regulations that either materially
affect the financial statements or RSSI, or that OMB or our office considered significant
to the audit; and
• performed sufficient tests to report whether EPA's financial management systems
substantially comply with Federal financial management systems requirements,2
applicable accounting standards, and the Standard General Ledger at the transaction level
as required by the FFMIA.
Detailed system documentation was not available that would have allowed us to develop an
understanding of the IFMS automated transaction level control structure and to test those
2 We evaluated whether EPA was in substantial compliance with OMB Circular A-I27; OMB Circular A-130. Appendix 3; and Joint
Financial Management Improvement Program system requirements, as identified in OMB Bulletin 98-08. We also evaluated systems
budgetary reporting requirements, as stated in OMB Circular A-l I.
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automated controls. Our systems compliance work also was limited to evaluating the scope and
methodology of three reviews performed by the Treasury Financial Management Service:
(1) EPA Financial Systems' Compliance with OMB Circular A-127, dated November 4, 1999;
(2) IFMS Documentation Evaluation, dated September 1999; and (3) EPA Financial Systems'
Compliance with OMB Circular A-130, dated August 25, 1999. In addition, we performed field
work to evaluate the adequacy of Agency actions to revise core financial systems security plans,
which were identified in the Agency FFMIA remediation plan, dated March 31, 1999.
We met with GAO and discussed the results of their computer security control review of EPA
and attended the GAO exit conference with EPA on February 2, 2000. This allowed us to
develop an understanding of the issues. We reviewed a GAO summary of the issues and
reviewed supporting work papers. We further reviewed the qualifications of the GAO staff and
obtained assurance of their independence to satisfy ourselves that we could rely on their work.
The information presented in EPA's Management Discussion and Analysis is supplemental
information required by OMB Bulletin 97-01, entitled "Form and Content of Agency Financial
Statements." OMB Bulletin 98-08, "Audit Requirements for Federal Financial Statements,"
requires that we obtain an understanding of the internal controls designed to ensure that data
supporting the measures are properly recorded and accounted for to permit the preparation of
reliable and complete performance information. Our audit work related to EPA's Management
Discussion and Analysis was limited to comparing the financial information included in the
document with information contained in the principal financial statements.
Details of Audit Field Work
We selected statistical and non-statistical samples from EPA's detailed accounting records
supporting various financial statement amounts. We tested these sample transactions to
determine if they were adequately supported by documentation and were recorded in accordance
with internal control policies and procedures and applicable laws and regulations. We also
reviewed other supporting documentation, such as worksheets and schedules, that the Agency
used in preparing its financial statements. In addition, we applied certain analytical review
procedures to account balances.
The financial management records and supporting documentation we reviewed were maintained
by Financial Management Centers in Washington, D.C., Research Triangle Park, Cincinnati and
Las Vegas; Financial Management Offices in EPA's regional offices; the Office of the Chief
Financial Officer; various offices within the Office of Administration and Resources
Management; the Office of Enforcement and Compliance Assurance (OCEA); and by
Headquarters and regional program offices. To gain an understanding of established internal
control procedures, and to evaluate these controls, we also interviewed personnel in these offices
and reviewed applicable policies and procedures. In addition, we conducted a physical inventory
of a sample of property items, and we observed the Agency's physical inventory of its property.
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Our fieldwork for the audit was performed from June 9, 1999 through February 24, 2000.
Except as previously discussed in this report, we conducted our audit work in accordance with:
generally accepted auditing standards; the standards applicable to financial audits contained in
the Government Auditing Standards, issued by the Comptroller General of the United States; and
OMB Bulletin No. 98-08, "Audit Requirements for Federal Financial Statements." These
standards require that we plan and perform our audits to obtain reasonable assurance that the
financial statements are free of material misstatement. We believe that our audit provides a
reasonable basis for our opinions.
This report is intended solely for the information arid use of the management of EPA, OMB and
Congress, and it is not intended to be and should not be used by anyone other than these
specified parties. We caution that misstatements, losses and noncompliance may occur and not
be detected by the tests performed and that such testing may not be sufficient for other purposes.
fones O. Rauch
assistant Inspector General for Audit
U.S. Environmental Protection Agency
February 24, 2000
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ACRONYMS
AC&C
APGs
APR
ASAP
B&F
BAS
BCCP
BRTs
CCRs
CERCLA
CFO
CFO Act
CSRS
EASY
EDCs
EMPACT
EPA
EPM
EPAYS
FAS
FASAB
FECA
FERS
FFMIA
FMFIA
FTE
FY
GAO
GMRA
GPRA
GSA
IFMS
LUST
MD&A
Abatement Control and Compliance
Annual Performance Goals
Annual Performance Report
Automated Standard Application for Payments
Buildings and Facilities
Budget Automation System
Business Continuity and Contingency Planning
Business Resumption Teams
Consumer Confidence Reports
Comprehensive Environmental Response, Compensation, and Liability Act
Chief Financial Officer
Chief Financial Officers Act of 1990
Civil Service Retirement System
Electronic Approval System
Endocrine-disrupting Chemicals
Environmental Monitoring for Public Access and Community Tracking
Environmental Protection Agency
Environmental Program and Management
EPA Integrated Payroll and Personnel System
Fixed Assets Subsystem
Federal Accounting Standards Advisory Board
Federal Employees Compensation Act
Federal Employees Retirement System
Federal Financial Management Improvement Act
Federal Managers' Financial Integrity Act
Full-time Equivalents
Fiscal Year
General Accounting Office
Government Management and Reform Act of 1994
Government Performance and Results Act of 1993
General Services Administration
Integrated Financial Management System
Leaking Underground Storage TankFebruary 27, 200044
Management's Discussion and Analysis
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
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EPA's FY 1999 Annual Financial Statements
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NAAQS
NPL
NFS
OCFO
OECA
OEI
OIG
OMB
OPA
PM
PRO
PRPs
RP
S&T
SARA
SO,
SRF
SSCs
SFFAS
STAG
TM+
UAOs
WCF
XL
Y2K
National Ambient Air Quality Standards
National Priorities List
Nonpoint Source
Office of the Chief Financial Officer
Office of Enforcement and Compliance Assurance
Office of Environmental Information
Office of Inspector General
Office of Management and Budget
Oil Pollution Act
Particulate Matter
Program and Research Operations
Potentially Responsible Parties
Responsible Parties
Science and Technology
Superfund Amendments and Reauthorization Act of 1986
Sulfur Dioxide
State Revolving Fund
Superfund State Contracts
Statement of Federal Financial Accounting Statndards
State and Tribal Assistance Grants
Travel Manager Plus
Unilateral Administrative Orders
Working Capital Fund
excellence and Leadership
Year 2000
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EPA's FY 1999 Annual Financial Statements
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For more information, contact:
Financial Management Division
U.S. Environmental Protection Agency
Ariel Rios Building
1200 Pennsylvania Avenue, N.W. (2733R)
Washington, DC 20460
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