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I UNITED STATES
"^ ENVIRONMENTAL PROTECTION. AGENCY
^ WASHINGTON, D.C.
REPORT OF FINANCIAL AND COMPLIANCE AUDIT
OBLIGATIONS AND DISBURSEMENTS
OF THE
HAZARDOUS SUBSTANCE SUPERFUND
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1967
Protection
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AND COMPLIANCE AUDIT
OBLIGATIONS AND DISBURSEMENTS
OF THE
HAZARDOUS SUBSTANCE SUPERFUND
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1987
TABLE QF CONTENTS
PAGE
SCOPE AND OBJECTIVES 1
SUMMARY QF AUDIT RESULTS 2-10
BACKGROUND 11-12
AUDITORS' REPORT QN. THE SCHEDULE QF OBLIGATIONS
AND. THE SCHEDULE Q£ DISBURSEMENTS 13-14
AUDITORS' REPORT ON. INTERNAL ACCOUNTING CONTROL
AND COMPLIANCE 15 - 1?
FINDINGS AND RECOMMENDATIONS
- 1. IMPROVEMENTS ARE NEEDED IN ACCOUNTING
FOR AND CONTROLLING PERSONAL PROPERTY 18 - 30
x 2. PROCEDURES FOR ALLOCATING GENERAL SUPPORT
SERVICES COSTS SHOULD IE MODIFIED 30 - 36
3. EPA NEEDS TQ STRENGTHEN PROCEDURES FOR
MONITORING LETTERS Q£ CREDIT 36-39
4. EPA HEEDS JQ MAKE IMPROVEMENTS JN. RECORDING
AND MANAGING ACCOUNTS RECEIVABLE 39 - 42
5. OBLIGATIONS WERE QUESTIONED DUE £Q
RECORDING ERRORS 42 - 49
6- DISBURSEMENTS WERE QUESTIONED DUE £Q
RECORDING ERRORS 49 - 52
7. RESULTS QF STATISTICAL ANALYSIS QF PERSONNEL
COMPENSATION AND BENEFITS TRANSACTIONS 52 - 55
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TABLE £E CONTENTS (CONTINUED!
BXHIBITfl
PAGB
EXHIBIT
APPBKPTX 2
APPENDIX
SCHEDULE OF OBLIGATIONS, FISCAL
YEAR ENDED SEPTEMBER 30, 1967 36 - 59
SCHEDULE OF DISBURSEMENTS, FISCAL
YEAR ENDED SEPTEMBER 30, 1967 60 - 62
SCOPE AND METHODOLOGY OF
STATISTICAL SAMPLING 63-74
PROJECTIONS FROM THE SUPERFUND
AUDIT FOR FISCAL YEAR 1967 73 - 90
AGENCY'S RESPONSE TO DRAFT
AUDIT REPORT 91 - 110
AGENCY'S SPECIFIC COMMENTS TO
OUR DRAFT REPORT AND OUR
EVALUATION 111 - 122
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AND COMPLIANCE AUDIT
OBLIGATIONS AND DISBURSEMENTS
OF THE
HAZARDOUS SUBSTANCE SUPERFUND
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1987
SCOPE
OBJECTIVES
We have performed a financial and compliance audit of the
obligations and disbursements of the Hazardous Substance
Superfund (Superfund) reported by the U.S. Environmental
Protection Agency (EPA) for the fiscal year ended September 30,
1987. Our audit was performed in accordance with generally
accepted auditing standards and .the standards for financial and
compliance audits contained in the U.S. General Accounting Office
Standards fjpr^ Audit o_£ Governmental Organizations. Programs.
Activities, and Functions (1981 revision). Our examination
included tests of the Superfund financial management records of
EPA's servicing finance offices located at the 10 regional
offices, 3 major laboratory facilities, and EPA Headquarters;
evaluations of internal accounting control for Superfund at those
locations and the National Enforcement Investigations Center
(NEIC); and such other auditing procedures as we considered
necessary in the circumstances. Audit fieldwork was performed
from February 16, 1988 through April 29, 1988.
As a part of the audit, transactions which obligated and
disbursed funds for Superfund activities were selectively tested
using statistical samples. The scope and methodology of the
sampling is described in Appendix 1. The audit objectives were
to determine if:
(1) The Schedule of Obligations and the Schedule of
Disbursements are presented fairly in accordance
with applicable laws, regulations, and guidelines;
(2) EPA management complied with laws and regulations
which, if not followed, might have a material
effect upon the Schedule of Obligations and the
Schedule of Disbursements; and
(3) EPA established an adequate system of internal
accounting control to ensure the reliability of
applicable financial management records.
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SCOPE
OBJECTIVES (CONTINUED)
The audit included a study and evaluation of internal accounting
control for Superfund, including a review of electronic data
processing (EDP) controls. Our evaluation of EDP controls was
limited to reviewing systems documentation for the Financial
Management System (FMS). We also performed limited testing of
the EDP controls related to the input of obligation and
disbursement transactions and the update of the FMS.
Additionally, we reviewed the status of findings and
recommendations included in the prior audit report covering the
fiscal year ended September 30, 1986.
It was not within the scope of our audit to determine the
allowability and allocability of the general support services
cost pools that were accumulated and allocated to Superfund or to
verify the bases for these allocations. Our audit procedures for
cost allocations were limited to reviewing methodologies, testing
the mathematical accuracy, and verifying that the allocations
were made in a timely manner.
SUMMARY QF AUDIT RESULTS
Based upon the results of our audit, it is our opinion that,
except for the scope limitation in determining the allowability
and allocability of general support services costs described
above, EPA's Schedule of Obligations and Schedule of
Disbursements, Exhibits I and II, are presented fairly in
accordance with applicable laws, regulations and guidelines. The
results of our tests for compliance indicated that EPA management
has complied with laws and regulations which might have a
material effect upon the schedules identified above. Further,
for compliance items not tested, nothing came to our attention
which indicated that EPA had not complied with applicable laws,
regulations and guidelines. Although we express no opinion on
the system of internal controls due to the limited purpose of our
audit, we believe that EPA has established an adequate system of
internal accounting control to ensure the reliability of
applicable financial management records.
However, our audit disclosed that improvements are needed in the
Agency's systems for accounting for and controlling personal
property and procedures for allocating general support services
costs. In addition, we noted that monitoring letters of credit
and recording and managing accounts receivable require
improvement. Our review of EDP controls indicated that, with
minor exceptions, the existing controls in the FMS were
functioning properly. We recommended that corrective action be
taken by the Assistant Administrator (AA) for the Office of
Administration and Resources Management (OARM). [The AA referred
to subsequently in this report is the AA for OARM unless
otherwise specified.]
EPA obligated $1,015,497,148 and disbursed $529,833,100 from
Superfund during the fiscal year ended September 30, 1987. in
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SUMMARY OJE AUDIT RESULTS (CONTINUED)
our draft report, we accepted $990,819,220 of obligations and
$526,964,946 of disbursements. We questioned $567,024 of
obligations and set-aside $23,215,042 of obligations based upon
statistical projections of errors. The causes of the questioned
and set-aside obligations were due primarily to missing
documentation and lack of written justification for charging
Superfund. We also questioned $96,445 of disbursements and set-
aside $1,875,847 of disbursements resulting from lack of
supporting documentation, based upon statistical projections of
errors. In addition, we questioned $895,862 of obligations and
disbursements due to over-allocations of general support
services costs, resulting primarily from the Agency using
budgeted rather than actual bases for some allocations.
We provided the Agency with opportunities to respond to the
questioned and set-aside costs in our draft report. As a result
of efforts by the Agency to locate missing documentation, to
provide written Superfund justifications, and to make other
determinations, we have revised our projections. We accepted
$1,014,501,781 of obligations and $528,927,615 of disbursements
for fiscal 1987. We questioned $995,367 of obligations and
$905,48^5 of disbursements. Of these amounts, $99,505 of
obligations and $9,623 of disbursements were questioned due to
revised projections of errors in sample transactions. We
questioned $895,862 of obligations and disbursements due to over-
allocations of general support services costs, as noted above.
Although Regions 4 and 5 indicated that adjustments were made to
correct $135,291 of the questioned cost allocations after our
audit, these costs are included in the obligations and
disbursements presented in this report and consequently, are
.questioned.
Note: Questioned costs are costs that are unallowable under the
provisions of applicable laws, regulations, policies, or
program guidelines.
Set-aside costs are costs that cannot be accepted without
additional information or evaluations and approvals by
responsible Agency program officials.
Our findings are summarized below and presented in detail in the
Findings and Recommendations and Exhibits.
FINANCIAL RESULTS fi£ AUDIT
Accepted and questioned costs are summarized as follows:
TOTAL
$1.015.497.148
FY 1987
Obligations
FY 1987
Disbursements $ 529.833.100
ACCEPTED
11.014.501.781
$ 528.927.615
QUESTIONED
COSTS
t995.36?
$905.485
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FOLLOW-UP ON PRIOR AUDIT FINDINGS
The prior audit report, which covered the period from October 1,
1985 through September 30, 1986, identified weaknesses related
to: managing personal property; allocating support services
costs; and recording receivables. The report also identified
noncompliance with EPA policies for: comparing authorized
signatures on obligation documents with signature
lists; promptly providing obligation documentation and recording
obligations; obtaining authorized officials' approvals on
disbursement documents; cancelling documents after payment; and
documenting Superfund personnel compensation and benefits.
The Agency indicated in response to the prior audit that
corrective actions would be taken in the areas cited in the
report. However, the corrective actions described in the
response generally were not scheduled to take place until after
fiscal year (fiscal) 1987. Our audit disclosed that corrective
actions were still required in accounting for and controlling
personal property, allocating general support services costs,
recording and managing Superfund receivables, and complying with
EPA policies for recording obligations, disbursements, and
personnel compensation and benefits. Findings in these areas are
summarized below and further discussed in the Findings and
Recommendations section of this report.
1• IMPROVEMENTS ARE NEEDED 1H ACCOUNTING FOR AND CONTROLLING
PERSONAL PROPERTY
Management of the Agency's personal property for the Superfund
program needs to be improved with regard to capitalizing the
costs in the accounting system and controlling the property. The
accounting system did not account for Superfund capital
equipment. The official property management records, which were
the basis for capitalizing property on an Agency-wide basis, were
not adequate or reliable for this purpose. Additionally, some
Agency property was not recorded in the property records and some
personal property could not be located. We also noted at some
locations that no annual physical inventories had been taken.
Finally, those responsible for the property sometimes had not
properly accepted custodial responsibilities. Thus, Agency
[personnel had not complied with applicable laws, regulations and
lirectives.
^^" i • i
We identified several causes of the above deficiencies such as:
.(1) the absence of reconciliation of the property records with
the financial management records, (2) inadequate provision for
• capitalizing Superfund personal property, (3) breakdown in the
.flow of documentation for recording property, (4) data input
problems, and (5) noncompliance with existing policies and
procedures for physical inventories, sensitive items and
transferred property. We recommended in our draft report that
rthe Agency: supplement the existing policies and procedures
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SUMMARY OJF AUDIT RESULTS (CONTINUED)
records to the Personal Property Accounting System (PPAS);
emphasize to Property Accountable Officers the importance of
complying with existing guidance; provide additional training to
property management personnel; review the new Integrated
Financial Management System (IFMS) and the new PPAS to ensure
they will adequately capitalize and account for property; obtain
certifications that errors and omissions from the PPAS were
corrected; and resolve the difference between an EPA Directive
and Regional Counsel's opinion concerning the need to sign a
letter of acceptance of custodial reponsibility.
"5^1*,
The Agency generally concurred with our recommendations and
indicated that corrective action had been or would be taken.
However, the Agency indicated that an Agency policy for
reconciling property and accounting records cannot be implemented
at the present time and a policy for capitalizing EDP software is
contingent upon specific U.S. General Accounting Office (GAO)
guidance. Also, the Agency did not indicate that they would
obtain certifications that corrections of errors in the PPAS had
been made. The Agency did not agree that they needed to resolve
the difference between EPA policy and a Regional Counsel's
opinion regarding memorandums of acceptance of custodial
responsibility.
We are recommending that the Agency: establish an interim policy
for reconciling accounting and property records by requiring FMOs
to provide listings of property and equipment disbursements to
appropriate property personnel for fiscal 1988 and on a quarterly
basis for fiscal 1989. We recommend that these listings be used
by property personnel to ensure that all property items recorded
in the FMS are recorded in PPAS. We are also recommending that
the Agency establish a policy for recording and accounting for
EDP software based upon existing GAO requirements. Additionally,
we are recommending that certifications be obtained to ensure
that corrections of errors and omissions from the PPAS were made
based upon information provided by our auditors. Finally, we are
recommending that Property Custodial Officers be advised that
they are required to sign the appropriate memorandums to accept
custodial responsibility in accordance with existing Agency
policies.
2. PROCEDURES FOR ALLOCATING GENERAL SUPPORT SERVICES COSTS
SHOULD B£ MODIFIED
/ Improvements in procedures for allocations of general support
services costs need to be implemented to ensure that costs
charged to Superfund represent the actual benefits received. Our
audit disclosed that disbursements were allocated to Superfund
based upon cumulative obligations recorded for general support
costs in the Salaries and Expenses (S&E) appropriation. we also
questioned $895,862 of obligations and disbursements for support
costs charged to Superfund due primarily to Headquarters
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SUMMARY QF AUDIT RESULTS (CONTINUED)
utilizing budgeted in lieu of actual full-time equivalent (FTE)
ratios in the allocation of certain costs. Regions 4 and 5 made
errors in the calculations of allocations to Superfund which
resulted in $135,291 of the questioned costs. In addition, we
noted that Region 10 over-allocated support costs and Regions 1
and 3 under-allocated support costs to Superfund by undetermined
amounts.
We recommended in our draft report that the allocation of costs
be based on cumulative obligations and cumulative disbursements,
respectively. Additionally, recommendations were made to revise
Agency policy to require that cost allocations be based upon
actual rather than budgeted FTE ratios and that adjustments be
made using actual FTE ratios. The Agency disagreed with our
recommendations on the basis that the current procedures reflect
the most accurate and practical method of allocating these costs.
The Agency indicated that it would not be practical to implement
our recommendation to allocate obligations and disbursements
separately. Also, the Agency stated that their use
of budgeted data for certain cost allocations was more
representative of the use of Agency resources and that any
adjustments to actual for fiscal 1987 would be insignificant.
We disagree with the Agency's position that the existing
procedures for allocating support services costs reflect the most
accurate and practical method of allocating costs. We are
recommending that the Agency utilize a two-step allocation
process for allocating obligations and disbursements to
Superfund. This method could be implemented for disbursements in
the same manner that obligations are now accumulated and
allocated. We also believe that cost allocations should reflect
actual usage or be based upon actual data rather than budgeted
information. Since this information is readily available to the
Agency, we are recommending that all cost allocations be based
upon actual data. We further believe that adjustments should be
made to reflect the calculation of allocations based upon actual
data, as indicated in our report, and have recommended that these
adjustments be recorded.
3. EPA NEEDS TO STRENGTHEN PROCEDURES FOR MONITORING LETTERS QF
CREDIT
Improvements in procedures are needed in monitoring letters of
credit to ensure that: (1) Federal Cash Transactions Reports
(SF-272) are filed timely; (2) recipients do not have excess
cash on hand; and (3) cash drawdowns reported by recipients
reconcile with FMS records. At Regions 1, 8, 9r and 10, we found
that recipients did not submit SF-272 reports within the 15-day
period as required. Also, we found that two recipients in Region
1 had excess cash on hand totaling $235,000. We reviewed SF-
272s to verify that drawdowns reported by the recipients were
reconciled to the FMOs' records. We noted discrepancies at
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SUMMARY QF AUDIT RESULTS (CONTINUED)
Regions 1 and 9, amounting to $44,571 and $581,245, respectively,
as a result of reconciliations performed by us. Furthermore, in
Regions 1 and 9, no reconciliations of the SF-272s to the FMOs'
records were performed by FMO personnel. The proper monitoring
of recipients' reports increases assurance that funds are
approved for utilization only as actual needs arise. We believe
that Comptroller Policy Announcement 88-06, issued in February
1988, provides the necessary guidance for monitoring and
reconciling SF-272s and FMO records.
We recommended in our draft report that the AA for OARM request
the Regional Administrator of Region 1 to follow-up with two
recipients regarding potential excess cash balances. Also, we
recommended that the AA request the Regional Administrators of
Regions 1, 8, 9 and 10 to notify recipients identified as late
filers of SF-272s of the requirements for timely filing. The AA
indicated in his response that appropriate corrective actions
were taken regarding follow-up by Region 1 and notifications were
sent by Regions 1,8, 9 and 10. We also recommended in our draft
report that noncomplying recipients be formally notified and the
recipients' responses and notifications be documented to provide
support for any potential action against the recipients. The AA
indicated that the Agency disagreed that guidance requiring
documentation of follow-up actions with noncomplying recipients
was necessary. We believe that any follow-up actions should be
documented and continue to make this recommendation.
4. EPA NEEDS ZQ MAKE IMPROVEMENTS
ACCOUNTS RECEIVABLE
RECORDING AND MANAGING
Improvements in recording and managing accounts receivable are
needed to ensure that: (1) all receivables are recorded in a
timely manner; (2) the dollar value of each receivable is
recorded and adjusted according to Agency policy; and (3) the
FMOs are as aggressive in collection of debts as they should be.
Our examination revealed instances in which: (1) interest was not
assessed; (2) deficiencies were found in the monitoring,
management and collection activities of overdue accounts, and (3)
amounts due to the Agency for cost recovery actions or penalties
were not recorded in a timely manner. Deviations from prescribed
procedures were the result of misinterpretation of Agency policy
and reported resource limitations. Also, the accounting records
did not supply the type of data needed to properly monitor aged
accounts receivables.
We made no recommendations in the draft report because the Agency
was responding to a March 1988 audit report from the Office of
the Inspector General (OIG) on this matter. The AA for OARM
indicated that accounts receivable issues were in the process of
close out as indicated in the Comptroller's February 1, 1988
response to the OIG report.
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SUMMARY QF AUDIT RESULTS (CONTINUED)
5. OBLIGATIONS
QUESTIONED DUE 2Q RECORDING ERRORS
In our draft report, we questioned $567,024 and set aside
$23,215,042 of the $930,492,580 of nonpayroll obligations
recorded in fiscal 1987, based upon projections of the results of
statistical sampling. The obligations were set aside primarily
due to the lack of written justification for charging Superfund.
The questioned obligations were a result of improper charges,
duplications and errors in Superfund obligations. The Agency was
given the opportunity to respond to the questioned and set-aside
costs in our samples, and subsequent to issuance of the draft
report, provided additional documentation and determinations by
Agency officials. Based upon the revised results from
statistical sampling of non-payroll obligation transactions, we
questioned $99,505 of $930,492,580 recorded in fiscal 1987.
These results were based upon projections of the results of our
examination of sample transactions. Obligations were questioned
as a result of duplicate or excessive obligations being recorded.
The AA also disagreed with our rationale for projecting
questioned and set-aside obligations based upon recording errors
and the lack of written documentation to support obligating the
Superfund program, which were found in our statistical samples.
The AA indicated that the Agency did not believe that a
procedural deviation, such as lack of written justification for
charging Superfund, should be the basis for set-aside costs.
We believe that projecting questioned and set-aside obligations
from the results of statistical samples is a valid and widely
accepted audit technique. Our rationale for the lack of written
Superfund justification as a basis for set-aside costs is that
these justifications represent a key internal control procedure
required to support Superfund costs. Without written
justification to support charges to Superfund, the Agency may not
be able to support such costs as valid Superfund expenditures in
cost-recovery actions. We have, however, given the Agency
several opportunities to support the set-aside obligations with
documentation that existed within the Agency or determinations
that could be provided by Agency officials. As a result, all of
the previously set-aside costs have been resolved and this report
reflects projections of questioned costs based upon further
information provided by the Agency.
6. DISBURSEMENTS WERE QUESTIONED DUE T_Q RECORDING ERRORS
We questioned $96,445 and set aside $1,875,847 of the
$447,236,028 of nonpayroll disbursements recorded in fiscal 1967
in our draft report, based upon the projection of results of
statistical samples. The questioned costs resulted from c- -^
which were incorrectly allocated to Superfund. Disbursements
were set aside primarily due to the lack of adequate supporting
documentation. Based upon the revised results from statistical
8
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SUMMARY QS. AUDIT RESULTS ICONTINUED)
sampling of non-payroll disbursement transactions, we questioned
$9,623 of $447,236,028 recorded in fiscal 1987. These results
were based upon projections of the audit results of our
examination of sample transactions. The questioned costs
resulted from costs which were incorrectly allocated to the
Super fund appropri at i on.
The AA disagreed with our basis for the projection of questioned
and set-aside disbursements due to the lack of documentation to
support Superfund disbursements. The AA stated that the Agency's
position was that the lack of written Superfund justification was
not sufficient reason to question or set-aside costs.
He believe that the Agency misinterpreted our basis for set-aside
disbursements. We indicated in our draft report that these costs
were set-aside due to lack of adequate documentation. This was
not a lack of written Superfund justification but missing
supporting documents such as invoices, receiving reports or other
documents required to support Superfund disbursements. Again, we
have given the Agency several opportunities to provide support
for the disbursements that resulted in the projected set-aside
costs. In most cases, the Agency did locate support for these
transactions and our projections now reflect revised information.
7. RESULTS O£ STATISTICAL ANALYSIS QF PERSONNEL COMPENSATION
AND BENEFITS TRANSACTIONS
Based upon the results of our statistical sampling of personnel
compensation and benefits transactions, we accepted the recorded
obligations and disbursements, amounting to $85,004,567 and
$82,597,072, respectively. However, we also tested internal
control and compliance attributes and found unacceptable levels
of compliance with Agency policies and procedures for recording
payroll transactions. We recommended in our draft report that
the Agency re-emphasize the importance of compliance with Agency
policies and procedures for recording personnel compensation and
.benefits transactions. The AA for OARM concurred with our
recommendations.
AGENCY*S COMMENTS
Audit exit conferences were held with EPA officials at the 10
regional offices, 3 major laboratory facilities, the National
Enforcement Investigations Center and Headquarters at the
conclusion of fieldwork at each audit location. The purpose of
the exit conferences was to present the findings and
recommendations and to ensure a clear understanding of the audit
by EPA management. A conference was held on June 29, 1988, with
EPA officials at Headquarters, to discuss the consolidated
findings and recommendations in the draft audit report.
On July 1, 1988, we provided Agency officials with the draft
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SUMMARY QS.
RESULTS (CONTINUED)
report* The Assistant Administrator for the Office of
Administration and Resources Management (OARM) provided us with
formal written comments on our draft report in a memorandum dated
August 19, 1988. A formal exit conference was held on September
13, 1988, with EPA officials at Headquarters, to discuss their
response to the draft report. To provide a balanced
understanding of the issues, we have summarized the Agency's
position above and in detail in the Findings and Recommendations
section of this report. In addition, we have included the
Agency's August 19, 1988 response as Appendix 3. We also
included our evaluation of the Agency's specific comments
(Attachment II of their response) as Appendix 4.
10
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BACKGROUND
The "Superfund" program was established by the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), Public Law 96-510, enacted on December 11, 1980. The
Superfund program was created to protect public health and the
environment from the release, or threat of release, of hazardous
substances from abandoned hazardous waste sites (sites) and other
sources where response was not required by other Federal laws. A
Trust Fund was established by CERCLA to provide funding for
responses ranging from control of emergency situations to
provision of permanent remedies at uncontrolled sites. CERCLA
authorized a $1.6 billion program' financed by a five-year
environmental tax on industry and some general revenues. CERCLA
requires that response, or payment for response, be sought from
those responsible for the problem, including property owners,
generators, and transporters.
The basic regulatory blueprint for the Superfund Program is the
National Oil and Hazardous Substances Contingency Plan (NCP), 40
CFR Part 300. The NCP was first published in 1968 as part of the
Federal Hater Pollution Control Plan and has been substantially
revised to meet CERCLA requirements. The NCP lays out two broad
categories of response: removals and remedial response.
Removals are relatively short-term responses and modify an
earlier program under the Clean Water Act. Remedial response is
long-term planning and action to provide permanent remedies for
serious problems at abandoned or uncontrolled sites.
CERCLA recognizes that the Federal government can only assume
responsibility for remedial response at a limited number of sites
representing the greatest public threat. It, therefore, requires
the maintaining of a National Priorities List (NPL), which must
be updated at least annually. The NPL is composed primarily of
sites which have been ranked on the basis of a standard scoring
system which evaluates their potential threat to public health.
In addition, each State was allowed to name its highest priority
site without regard to the ranking system.
CERCLA Section 104(c) (3) provides that no remedial actions shall
be taken unless the State in which the release occurs enters into
a contract or cooperative agreement with EPA to provide certain
assurances, including cost sharing. At privately operated sites,
the State oust pay 10 percent of the costs of remedial action.
Pre-remedial activities (preliminary assessments, site
inspections), remedial planning (remedial investigations,
feasibility studies, remedial designs) and removals may be funded
100 percent by EPA. For facilities operated by a State or
political subdivision at the time of disposal of hazardous
substances, the State must pay at least 50 percent of all
response costs, including removals and remedial planning
previously conducted.
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BACKGROUND (CONTINUED)
CERCLA was revised and expanded by the Superfund Amendments and
Reauthorization Act of 1986 (SARA), Public Law 99-499, enacted on
October 17, 1986. SARA reinstituted the environmental tax and
expanded the taxing mechanisms available for an additional five-
year period. It authorized an $8.5 billion program for the 1987-
1991 period. The Trust Fund was renamed the Hazardous Substance
Superfund.
CERCLA Section 111(k), as amended, states that the Inspector
General shall conduct an annual audit of all payments,
obligations, reimbursements, or other uses of Superfund to assure
that Superfund is being properly administered.
12
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LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
k(OMA»o O.
Lttl.lt ». ktl»C»
IHVINO J. lAMOklH
OAVI0 SAKO'I
CAHOl A, •CHMCIOtR
ALtlMT N. FVKUOA
41 MlVCft ROAD
•UMMIT. NEW JCftBcr 07901
I0l-27>.2«44
Mr. Ernest E. Bradley III
Assistant Inspector General for Audit
Office of Inspector General
U.S. Environmental Protection Agency
Washington, D.C. 20460
OTHER OFFICES
•AN rflANCISCO. CA 4IB-t«B.a«l4
WASHINGTON. O.C. 7O9'»22-7622
TW«; 710 (Ji-oeea
CABLE; LllPCft O.C.
AUDITORS' REPORT OJJ
Q£ DISBURSEMENTS
THE SCHEDULE QF OBLIGATIONS AND THE SCHEDULE
We have examined the Schedule of Obligations and the Schedule
of Disbursements of the Hazardous Substance Superfund (Superfund)
reported by the U.S. Environmental Protection Agency (EPA) for
the fiscal year ended September 30, 1987, as presented in the
Exhibits. Except as explained in the following paragraph, our
examination was performed in accordance with generally accepted
auditing standards and the standards for financial and compliance
audits contained in the U.S. General Accounting Office Standards
fpr Audit of Governmental Organizations. Programs. Activities.
and Functions (1981 revision). Additionally, the U.S.
Environmental Protection Agency Hazardous Substance Superfund
Audit Guide (revised February 12, 1988) was used as a guide in
our examination. Accordingly, our examination included such
tests of the accounting records and such other auditing
procedures as we considered necessary in the circumstances.
The Schedule of Obligations and the Schedule of Disbursements
contained obligations and disbursements for general support
services costs which were allocated to Superfund from another EPA
appropriation. Because of a scope limitation, we did not perform
audit procedures on the general support services cost pools or
the calculations of the bases for the allocations of these costs
to determine the allowability and allocability of the general
support services costs.
The Schedule of Obligations and the Schedule of Disbursements
were prepared by the EPA Financial Management Division from
financial information contained in the Financial Management
System, for the fiscal year ended September 30, 1987. As
described in Exhibits I and II, Note 1, EPA's policy is to
prepare these schedules in accordance with accounting policies
and procedures which are legislatively established and
promulgated through various Federal and EPA policy -..-
procedural standards. These standards differ in some respects
from generally accepted accounting principles. Accordingly,
these schedules are not intended to present either the financial
13
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AUDITORS' REPORT Ojf THE SCHEDULE Qg OBLIGATIONS AND THE SCHEDULE
QE DISBURSEMENTS (CONTINUED)
position or the financial results of operations in conformity
with generally accepted accounting principles.
In our opinion, except for the qualification described above,
with respect to the allowability and allocability of the
accumulated cost pools of general support services and the bases
for the allocations, the Schedule of Obligations and Schedule
of Disbursements are presented fairly in accordance with
applicable Federal laws, regulations, policies, and program
guidelines for the fiscal year ended September 30, 1987.
This report is intended for use in connection with the schedules
to which it refers and should not be used for any other purpose.
xt**1»
^ C*&+
LEONARD G. BIRNBAUM
Summit, New Jersey
April 29, 1988
COMPANY
14
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LEONARD G, BIRNBAUM AND COMPANY
CERTIFIED PUBUC ACCOUNTANTS
ILKONAftO «. •IKMBAUM
kUUf A.
IHVINO J.
DAVID •AKOI't
CAKOU A. •CMNtlOIN
*k»C*T M. FUKUOA
41 KIVCH ftOAO
•UMMIT. MCW JIKCfy 07001
Mr. Ernest E. Bradley III
Assistant Inspector General for Audit
Office of Inspector General
U.S. Environmental Protection Agency
Washington, D.C. 20460
AUDITORS• REPORT Qfi INTERNAL ACCOUNTING CONTROL
OTHER OFFICES
•AN PHANCICCO. CA 4IS-M8-S014
WASHINGTON. O.C, 7O9-«21-7exi
TWK: 710 e91.0»*9
CA«UC: UIPM O.C.
COMPLIANCE
We have examined the Schedule of Obligations and the Schedule of
Disbursements of the Hazardous Substance Superfund (Superfund)
reported by the U.S. Environmental Protection Agency (EPA) for
the fiscal year ended September 30, 1987, and we have issued our
Auditors' Report thereon, dated April 29, 1988. As part of our
examination, we made a study and evaluation of EPA's system of
internal accounting control for Superfund to the extent we
considered necessary to evaluate the system as required by
generally accepted auditing standards and the standards for
financial and compliance audits contained in the U.S. General
Accounting Office Standards for Audit of governmental
Organ i z a t i on s. Programs. Activities. and Functions (1981
Revision). For the purpose of this report, we have classified
the significant internal accounting controls into the following
categories:
Obligations
Disbursements, including letters of credit
Cost allocations
Property and equipment
Billings and receivables
Collections
Our study included all of the control categories listed above,
except that we did not evaluate the accounting controls over
payroll obligations. He considered our evaluation of controls for
payroll disbursements, from which obligations are recorded and
adjusted, sufficient for this transaction category.
The purpose of our study and evaluation was to determine the
nature, timing and extent of the auditing procedures necessary
for expressing an opinion on the Schedule of Obligations and the
Schedule of Disbursements. Our study and evaluation was more
limited than would be necessary to express an opinion on the
system of internal accounting control for Superfund taken as a
whole or on any of the categories of controls identified above.
15
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AUDITORS' REPORT QN. INTERNAL ACCOUNTING CONTROL
(CONTINUED)
COMPLIANCE
EPA management is responsible for establishing and maintaining a
system of internal accounting control. In fulfilling this
responsibility, estimates and judgments by management are
required to assess the expected benefits and related costs of
control procedures. The objectives of internal accounting
control are to provide reasonable, but not absolute, assurance
that assets are safeguarded against loss from unauthorized use or
disposition, and that transactions are executed in accordance
with management's authorization and recorded properly to permit
preparation of financial reports in accordance with applicable
Federal laws and regulations. The concept of reasonable
assurance recognizes that the cost of a system of internal
accounting control should not exceed the benefits derived and
also recognizes that the evaluation of these factors necessarily
requires estimates and judgments by management.
There are inherent limitations that should be recognized in
considering the potential effectiveness of any system of internal
accounting control. Because of inherent limitations in any
system of internal accounting control, errors or irregularities
may nevertheless occur and not be detected. In the performance
of most control procedures, errors can result from misunder-
standing instructions, mistakes of judgment, carelessness, or
other personal factors. Control procedures .whose effectiveness
depend on segregation of duties can be circumvented by collusion.
Similarly, control procedures can be circumvented intentionally
by management, either with respect to the execution and recording
of transactions or with respect to the estimates and judgments
required in the preparation of financial statements. Further,
projection of any evaluation of internal accounting control to
future periods is subject to the risks that the procedures may
become inadequate because of changes in conditions and that the
degree of compliance with the procedures may deteriorate.
Our study and evaluation made for the limited purpose described
in the first paragraph would not necessarily disclose all
material weaknesses in the system. Accordingly, we do not
express an opinion on EPA's system of internal accounting control
for Superfund taken as a whole or on any of the categories of
controls identified in the first paragraph.
Our study and evaluation disclosed material weaknesses in
accounting for and controlling personal property. These
weaknesses resulted from the absence of control procedures and
non-compliance with existing controls. As a result, property was
not correctly recorded in the accounting system or properly
controlled within the personal property system, and is subject to
waste, loss, unauthorized use and misappropriation. However,
these weaknesses do not materially affect the Schedule of
Obligations and the Schedule of Disbursements.
16
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AUDITORS' REPORT OJg INTERNAL ACCOUNTING CONTROL
(CONTINUED)
COMPLIANCE
Our examination also disclosed weaknesses in the following areas
that, although not considered material in relation to the
Schedule of Obligations and the Schedule of Disbursements, in
our opinion warrant the attention of management:
Allocating general support services costs.
Monitoring letters of credit.
Recording and managing accounts receivable.
Recording nonpayroll obligations and disbursements.
Recording personnel compensation and benefits.
The above conditions are further discussed in the Findings and
Recommendations section of this report.
The U. S. Environmental Protection Agency Hazardous Substance
Suoerfund Audit Guide (revised February 12, 1988) requires a
review and evaluation of the adequacy of EPA's system of internal
accounting control for Superfund as a basis for reliance thereon
and for the determination of the resultant extent of the tests to
which auditing procedures are to be restricted. The audit guide
also requires a review of CERCLA, as amended; and other Federal
and EPA regulations, policies, and guidelines, to determine if
Federal funds are being expended in accordance with provisions of
CERCLA, as amended; and other Federal and EPA regulations,
policies, and guidelines.
The results of our tests indicated that for the items tested, EPA
complied with the provisions of CERCLA, as amended; and other
Federal and EPA regulations, policies and guidelines, except for
the conditions described in the Findings and Recommendations.
Furthermore, for the items not tested, based upon our examination
and procedures referred to above, nothing came to our attention
which indicated that EPA had not complied with the provisions of
CERCLA, as amended; and other Federal and EPA regulations,
policies, and guidelines, beyond the conditions described in the
Findings and Recommendations.
This report is intended solely for the use of EPA management and
should not be used for any other purpose.
LEONARD G. BIRNBAUM ft COMPANY
Summit, New Jersey
April 29,1988
17
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1.
FINDINGS AND RECOMMENDATION^
IMPROVEMENTS ARE NEEDED £N ACCOUNTING FOR AND CONTROLLING
PERSONAL PROPERTY
Management of the Agency's personal property for the Superfund
program needs to be improved with regard to capitalizing the
costs in the accounting system and controlling the property. The
accounting system did not account for Superfund capital
equipment. The property management records, which were used as
the basis for capitalizing property on an Agency-wide basis, were
not adequate or reliable for this purpose. Additionally, some
Agency property was not recorded in the property records and
some personal property could not be located. We also noted at
some locations that no annual physical inventories had been
taken. Finally, those responsible for the property sometimes had
not properly accepted custodial responsibilies. Thus, Agency
personnel had not complied with applicable laws, regulations and
directives.
To control property and serve as the basis for the amount
capitalized in the accounting system for property, the Agency
keeps official property management records in the automated
Personal Property Accounting System (PPAS). The PPAS, however,
was not designed to: (1) identify property .with more than one
appropriation; (2) be reconciled to property disbursement data
in the accounting system; or (3) show a book value, including
depreciation, we found errors in information about the values of
property, custodial responsibilities for property, and
descriptions of property. These problems weaken control over
property and make PPAS an inappropriate source for capitalizing
property, particularly by appropriation. Weaknesses in controls
over personal property have been previously identified in the
fiscal 1986 audit report. Corrective actions indicated by the
Agency in response to that report were not expected to be
implemented until after fiscal 1987.
At each audit location, we selected samples of Superfund property
and equipment items purchased during fiscal 1987, which were
recorded in the Financial Management System (FMS). We attempted
to trace the items selected to the Personal Property Accounting
System listings, which were the official EPA property
accountability records and to verify their existence. we also
selected samples of Superfund property from the PPAS and
attempted to physically inspect the items selected. During our
physical inspections, we selected sample items to trace into the
PPAS listings. In addition, we reviewed documentation to
determine compliance with Agency policies for accountable and
custodial responsibilities, annual physical inventories and ot:.--
applicable procedures.
18
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A.
FINDINGS AND RECOMMENDATIONS (CONTINUED)
Incorrect Amounts Here Recorded In The Personal Property
Accounting System
Amounts recorded for property in PPAS were not always correct.
Our examination of samples of personal property at each audit
location identified 30 items of personal property totaling $2.1
million that were incorrectly recorded in the PPAS, resulting in
an overstatement of Superfund property. There were breakdowns in
the flow of documentation and problems with entering data in
PPAS, which caused most of these errors. The Agency also lacks
policies and procedures requiring the reconciliation of property
purchases in the FMS with items entered into the PPAS. This
reconciliation would have identified the above types of errors
and would have allowed for timely adjustments by EPA management.
In the examination of Superfund property, we noted the following
errors in amounts recorded in the PPAS:
Audit
Location
Headquarters
Region 1
Region 2
Region 3
Region 9
Region 10
Las Vegas
RTP
Cincinnati
Totals
Number Of
Items
6
4
3
8
2
1
4
1
1
Amounts
$ 79,920
2,099,664
9,987
(18,615)
908
4,715
80
(132)
(1,860)
$2,174,667
The above table represents only those items that were
disclosed from our audit samples and does not represent a
complete listing of items that may have been incorrectly
recorded in the PPAS.
Incorrect amounts were recorded in the PPAS because of a
breakdown in the flow of documentation to the Property
Accountable Officers (PAOs) as well as problems with entering
data into the system. For example, the documents used by the
PAOs to record property items in PPAS often were the receiving
copies of purchase requisitions, which did not reflect actual
disbursement data. Therefore, the amounts entered in the
property records did not include adjustments for price changes,
freight or discounts. An example of entering incorrect data in
the PPAS was found at Region 1. A computer costing $2,097 was
recorded as $2,097,029. in this case, the PAO had attempted to
correct the error, but an incorrect code caused the adjustment to
be rejected. The Agency indicated that this error was
subsequently corrected.
19
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
We also noted that improvements were needed in editing and
reviewing input data. We found that PPAS data input totals from
the system were verified against input coding sheets rather than
the original source documents. In addition, custodial officers
were not receiving monthly updated property listings to verify
the reasonableness of data.
Our audit disclosed that the information in the property system
was not reconciled with accounting data for property purchases in
the FMS. Such a reconciliation is required by Title 2 of GAP
Policies and Procedures Manual For Guidance of Federal Agencies^
Appendix 1, Section 13, which states that Agency property records
must be integrated with or reconciled with the accounting system.
The existing systems for property and accounting are not designed
to be integrated or to allow for easy reconciliation. In
addition, the Agency did not have any policies requiring the
reconciliation or integration of these systems. A reconciliation
would have disclosed differences between the amounts in PPAS and
FMS.
In response to our Notifications of Findings and Recommendations,
officials of Regions 1, 2, 3, 9, 10, RTP, Cincinnati, Las Vegas,
and Headquarters generally concurred with the findings and stated
that the corrections have been or will be made to correct the
errors in amounts recorded in PPAS. At a June 29, 1986
conference, Agency officials indicated that' the new Integrated
Financial Management System (IFMS) was designed to capitalize
personal property and interface with a property system to prevent
future reconciliation problems. However, officials stated that
these systems probably would not be integrated for several years
and, in the interim, the reconciliations would continue to be a
problem. We suggested that each FMO, in conjunction with
property personnel compare, property information recorded in the
FMS to data recorded in PPAS on an item basis.
B. The Accounting System Did Not Account For Suoerfund Capital
Equipment
The accounting system did not adequately account for Superfund
capital equipment. Title 2 of the GAP Policies and Procedures
Manual for Guidance of Federal Agencies requires that (1) all
property, plant, and equipment with an initial acquisition cost
of $5,000 or more and an estimated service life of 2 years or
greater be capitalized and reported in the financial statements;
and (2) equipment be capitalized when placed in service. when
EPA purchased capital equipment, disbursements were charged to an
operating expense account, rather than a capital account. To
adjust the capital equipment account, EPA made periodic journal
voucher adjustments. To determine the amount that should be
capitalized, EPA's Financial Management Division (FMD) obtained
computer listings from PPAS records of all EPA equipment valued
at $5,000 or more. FMD used the listings to make adjustments to
20
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FINDINGS
RECOMMENDATIONS {CONTINUED)
bring previous capital equipment balances into agreement with
PPAS records.
We believe the procedure described above did not adequately meet
requirements for capitalizing Superfund property. First, the
journal voucher adjustments recorded all capital equipment,
including Superfund purchases, in another appropriation. The
significant effects were that no capital equipment was shown in
the Superfund appropriation and the Superfund operating expense
account was overstated by the amount of capital equipment charged
to it. Second, these periodic adjustments were based on the PPAS
dollar balance at a given date. There are a number of problems
with using property records to record accounting transactions.
One problem is that this nets equipment acquisitions and
disposals into a single transaction. This precludes proper
accounting treatment of gains or losses on sales or disposals of
capital assets. Another problem is that PPAS was not an accurate
record to be used as a source of entry for accounting
information. As previously discussed, PPAS contains errors in
amounts. Also, as addressed later in this finding, property was
not always recorded in PPAS. Finally, PPAS does not have the
capability to allocate the costs of property between
appropriations. Therefore, PPAS cannot appropriately identify
property associated with specific appropriations.
The cause of the problems discussed above was that EPA's FMS did
not include transaction codes for capital asset transactions.
There should be a standard transaction code for charging capital
equipment accounts when disbursements are made. In addition,
specific object class codes should be used to identify capital
equipment. This would require identifying capital equipment when
the procurement is initiated.
In response to our Notification of Findings and Recommendations,
officials of the Headquarters FMD disagreed with aspects of our
finding. FMD stated that the disbursement procedures
appropriately maintain the proper balances within the accounts
in FMS. Further, FMD believes that existing internal controls
are adequate to maintain accuracy in the obligation and
disbursement process. FMD agreed that the journal entry to the
capital equipment account balances should not have been a net
adjustment. Also, FMD agreed that the adjustment of the capital
accounts made at September 30, 1987, was charged to another
appropriation, and FMD was looking into remedies to this process
of recording capital equipment. FMD stated that the new
Integrated Financial Management System, to be phased in beginning
in January 1989, will improve internal controls and will properly
provide for the capitalization of property and equipment.
C. Property Was Not Recorded Irj The Property Records
Not all property was recorded in the property records.
we
-------
FINDINGS AND RECOMMENDATIONS (CONTINUED)
identified 333 items of personal property that should have been
included in PPAS, but were not. The cost of this property
totaled approximately $2.6 million. In addition, there was no
Agency-wide system to capture EDP software information.
Information was not readily available to determine the amount of
EDP software that should be recorded in the property records.
Also, sensitive property items were not always covered by
personal property custody cards as required by Agency directives.
We selected samples totaling approximately 1,000 Superfund
property and equipment items purchased during fiscal 1987, which
were recorded in the FMS. We attempted to trace the items
selected to the PPAS listings at each audit location. The
results of our testing, detailed below, indicated that 333
property items with a cost of $2,594,986 were not recorded in the
PPAS. Included in this amount was $904,954 of Superfund personal
property that was purchased by Financial Management Offices for
other EPA locations. As a result, the PPAS did not accurately
reflect all Superfund personal property and equipment purchased
during fiscal 1987.
Audit
Location
Headquarters
Region 2
Region 3
Region 4
Region 5
Region 6
Region 7
Region 8
Region 9
Region 10
RTP
NEIC
Las Vegas
Cincinnati
Totals
Number of Items
Not Recorded in
PgAS From Sample
27
1
44
76
21
51
18
5
36
10
15
11
14
4
333
Cost
Of Items
Not Recorded
$ 140,887
6,825
819,678
106,297
112,311
931,613
162,755
36,004
39,119
34,226
13,372
89,988
33,434
68,457
$2,594,966
The above table represents only those items that were
disclosed from our audit samples and does not represent a
complete listing of items that may have been omitted from
the PPAS.
We also found during our physical inspections of personal
property that Headquarters and Regions 1, 4, 5 and 10 did not-
maintain accurate and up-to-date personal property custody card
for sensitive items. Sensitive items are items of personal
22
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FINDINGS
RECOMMENDATIONS (CONTINUED)
property that include, but are not limited to calculators,
cameras and portable computers which, because of their nature and
portability, are particularly susceptible to misappropriation.
The Personal Property Management Manual states that the users of
such items shall assume full responsibility by signing a personal
property custody card.
EPA did not treat EDP software as capital or accountable
property. The Agency did not require EDP software to be
identified in PPAS or other property records. Information was
not readily available to ascertain the total dollar effect of not
capitalizing EDP software Agency-wide. However, we identified
the purchase of an EDP contract payment system at Research
Triangle Park, amounting to $125,000 that was not accounted for
or capitalized. Additionally, the Agency's policies and
procedures for property management did not include provisions for
capitalizing EDP software that meet required Federal agency
capitalization criteria.
Two of the major objectives of the internal control standards
issued by GAO pursuant to the Federal Managers Financial
Integrity Act (31 U.S.C. 3512 (b)) are to ensure that all
Government-owned assets are protected against waste, loss,
unauthorized use, and misappropriation, and that accountability
for assets is maintained. One of the internal control standards
requires that transactions be promptly recorded and properly
classified. Thus, pertinent information maintains its relevance
to management and is useful in controlling operations and making
decisions. Additionally, Title 2 of the GAO Policies ajid
Procedures Manual for Guidance of Federal Agencies requires that
certain property, plant and equipment, including software, be
capitalized.
There were various reasons why EPA property purchases were not
recorded in the property records. Receiving documents were not
sent by contracting offices or custodial officers to PAOs when
property was ordered or received. For example, we found that
Superfund property valued at $904,954 purchased by several
locations for other locations had not been recorded in PPAS
because documents were not forwarded to the PAOs. There were
also omissions and delays in entering data in PPAS because the
system waa not operating during a part of the fiscal year.
Finally, there was some uncertainty by EPA's FMD regarding the
requirements for maintaining property records for EDP software.
In addition, as previously discussed, the Agency had no
requirements for reconciling property purchases in FMS with PPAS
records, thereby reducing the possibility that omissions of
property from PPAS would be discovered in a timely manner.
In response to our findings, Regions 3, 4, 6, 7, RTP and
Cincinnati have taken action to correct the omissions from the
PPAS. The Agency indicated that Region 5, 8 and NEIC are also
taking corrective action. Regions 2, 4, 9 and Las Vegas
23
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FINDINGS
RECOMMENDATIONS (CONTINUED)
concurred with our findings and indicated that procedures would
be implemented to ensure that all property received from another
FMO was properly identified and accounted for in the PPAS.
Region 10 indicated that 6 items were recorded in the PPAS but
not as Superfund property and 4 items were components of other
property. In the Agency response, they stated that Regions 1, 4
and 5 have taken corrective action regarding the custody cards.
Additionally, FMD indicated that they were working with 6AO on
the capitalization of software and will issue a new policy.
D, Physical Inventories Were. Not Performed An
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FINDINGS AND RECQMMENPATIONS (CONTINUED)
9 of the 10 items at Region 1 and the item at Region 9 had been
reported as missing during fiscal 1986. In addition, at
Headquarters, we found a memorandum, dated September 1967, from
the PAD to a custodial officer requesting the custodial officer
to locate 35 items of missing property, valued at $116,382,
identified during a physical inventory. EPA Facilities and
Support Services Manual. Volume 4830-2 PMR 2-23 contains detailed
procedures to be followed when accountable property is lost,
damaged or destroyed, including reporting to a Board of Survey.
As of the end of our fieldwork, no actions had been taken to
comply with the existing requirements for follow-up on these
missing items.
EPA Facilities and Support Services Manual. Volume 4830-2
Personal Property Management, PMR 2-26 states: "Capitalized
nonexpendable equipment shall be inventoried at least annually as
prescribed in the Federal Property and Administrative Services
Act of 1949, as amended." Failure to conduct annual inventories
and require the use of proper transfer documents resulted in
inaccurate property records, thereby increasing the possibility
of waste, loss, unauthorized use and misappropriation of
Superfund property. Agency officials at the locations which did
not perform physical inventories indicated that inadequate
staffing and training of property personnel and renovations and
relocations of offices and personnel were the primary reasons for
noncompliance with this requirement.
In response to our findings, officials at Regions 5 and 7 have
located the property or reported it missing, and officials at
Regions 1, 4, Headquarters and Las Vegas indicated that follow-up
procedures would be initiated to locate the missing property. In
addition, officials at Regions 2, 4 and 5 and Headquarters,
indicated that procedures would be initiated to conduct annual
physical inventories.
E. Letters Oif Acceptance Q£ Assumption Of Custodial
Responsibilities Were Not Prepared
Custodial officers at RTP and Regions 1, 2, 4, 6, 9 and 10 had
not accepted custodial responsibilities in the manner required by
the Agency directive. Reasons given for this were that custodial
officers had doubts about the accuracy of the PPAS records or did
not have time to fulfill the responsibilities. In addition, the
Regional Counsel in Region 2 said the required acceptance was not
needed. As a result, responsibility had not been properly
acknowledged. Consequently, EPA property was not under proper
control, thereby increasing the possibility of waste, loss,
unauthorized use and misappropriation.
EPA Facilities and Support Services Manual. Volume 4830-2
Personal Property Management, PMR 2-21 states:
Each custodial area shall be placed under the
25
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FINDINGS
RECOMMENDATIONS (CONTINUED)
jurisdiction of a responsible custodial officer. This
individual shall be designated in writing by the head
of the activity that has property management
authority each custodial officer shall sign the
assumption memorandum indicating acceptance of
custodial responsibilities and submit it to his
designated Property Accountable Officer. Each
custodial officer shall be responsible for the
care and protection of all personal property assigned
to his custodial area, including sensitive items and
controlled property.
There were several reasons that custodial officers did not sign
assumptions of custodial responsibilities. Custodial officers
were not receiving monthly updated property listings. Also,
some officers doubted the accuracy of the PPAS records. In
addition, physical inventories of custodial areas were not always
performed upon the change of custodial officers. Therefore,
accurate and complete records of property for which the officers
should be responsible were not available. Custodial officers
also stated that they had not assumed their responsibilities
because of a lack of time and staff resources. At Region 2, in
some cases, there were no letters of acceptance or assumptions of
responsibilities. Region 2 Counsel issued an opinion that the
assumption memorandum did not need to be signed for the officer
to assume responsibility for reasonable care of the property for
which he or she was accountable. As a result, some custodial
officers did not sign their memorandums.
In response to our findings, officials at Regions 1, 4, 6, 9 and
RTP concurred with the findings and indicated that corrective
action has or will be taken. Region 2 did not concur with our
finding, based on the opinion of Regional Counsel that the
memorandum does not need to be signed by custodial officers for
the official to assume property accountability.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant
Administrator for Administration and Resources Management:
o emphasize to Property Accountable Officers
importance of complying with Agency policies;
the
o establish an Agency policy for reconciling property and
accounting records;
establish
software;
an Agency policy for capitalizing EDP
o provide additional training, as necessary, to instruct
property management personnel 'in their duties;
26
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
o obtain certifications from Property Accountable Officers
that corrective actions have been taken to correct
errors and omissions from the PPAS;
o review the new Personal Property Accounting System to
ensure that it will adequately account for Superfund
property and will contain data elements to simplify
reconciliation procedures;
o review the new Integrated Financial Management System to
ensure that it will properly account for capital
equi pment; and
o resolve the difference between the EPA Directive and the
Region 2 Counsel's opinion concerning the need to sign a
letter of acceptance of custodial responsibility.
AGENCY'S RESPONSE TO
The Assistant Administrator
and Resources Management
recommendations that:
REPORT RECOMMENDATIONS
(AA) for the Office of Administration
(OARM) stated in response to our
o The Director, Facilities Management and Services
Division (FMSD), will send a memorandum to the property
accountable officers re-emphasizing the Agency's
requirements for property.
o Although they agree with the recommendation to
establish an Agency policy for reconciling property and
accounting records, it cannot be implemented at the
present time. In fiscal 1989, the Agency plans to
retrieve data from the Financial Management System
(FMS) to capitalize property items. This effort will
be coordinated with the FMSD. In addition, the
Director, Financial Management Division (FMD), has
reviewed the capabilities of the new Integrated
Financial Management System (IFMS) to ensure that the
reconciliation function is sufficient to comply with
the General Accounting Office's (GAO) requirements.
o Using specific GAO guidance relative to capitalization
Of Federal Government assets, the Director, FMD, will
provide the appropriate accounting structure and
guidance to account for EDP software. Such guidance
will be incorporated in the Resources Management
Directives System during fiscal 1989.
o The Director, FMSD, has requested additional property
management resources through the budget process and has
augmented resources through the use of task forces.
FMSD has established a Superfund Property Policy Task
Force and a Property Management Roundtable.
27
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FINDINGS
RECOMMENDATIQMS fCONTINUED)
addition, training sessions for property management
officers have been held in Cincinnati, Research
Triangle Park (RTF) and Headquarters in 1967. Also,
FMSD will review the contents of current training
sessions to incorporate issues raised in this audit
report.
o The Director, FMSD, will be required to correct and
update the PPAS based on physical inventories taken by
property management officers. Each property management
officer will be instructed to provide written
confirmation to the FMSD that such inventory has been
completed.
o FMSD is currently reviewing the new PPAS to ensure that
the requirements for Superfund accountability are being
met. The new PPAS will be reviewed for opportunities
to streamline the reconciliation process. The new PPAS
will be an interim system until the Integrated
Financial Management System is implemented in fiscal
1989 and will eliminate the need for manual
reconciliation.
o The Director, FMD, through the IFMS taskforce, has
worked extensively with the Director, FMSD, to ensure
that the property module of IFMS meets the needs of the
Agency. FMD held an extensive review and comment
period to address the technical, policy and procedural
capabilities of IFMS throughout OARM and will continue
to do so throughout the IFMS implementation process in
fiscal 1989.
o OARM disagrees that a conflict exists between the
Agency Directive and the Region 2 General Counsel
opinion. Custodial officers are required to sign for
property as part of their responsibilities. In the
event that custodial officers do not sign for the
property, they are not relieved of their
responsibilities. Therefore, the Director, FMSD, will
notify custodial officers, in writing, of their
responsibilities as outlined by the EPA Directive.
OUR EVALUATION O£ THE AGENCY'S RESPONSE
The Agency's response to our draft report recommendations
indicated proposed corrective actions that, if implemented, were
generally responsive to our recommendations for: (1) emphasizing
compliance with Agency policies; (2) providing additional
training for property management personnel; and (3) reviewing the
new PPAS and the IFMS to ensure that Superfund property wili ~*.
properly accounted for, capitalized and reconciled between the
two systems. Consequently, we make no further recommendations
regarding these issues. However, the Agency's action on our
28
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FINDINGS
RECOMMENDATIONS (CONTINUED)
other recommendations in the draft report were not considered
sufficient to ensure that appropriate corrective action would be
taken in a timely manner. In regard to the Agency's response to
our recommendation for establishing policy on reconciling
property and accounting records, we do not believe that the
proposed interim procedures are sufficient to ensure adequate
accounting records or property controls. The data that FMD plans
to use in fiscal 1989 is retrievable from FMS for fiscal 1988 and
prior years. We believe that this information should be obtained
for fiscal 1988 and used to ensure the update of the property
records in the PPAS. The coordination of these procedures with
subsequent physical inventories of property would disclose
Superfund property that is unaccounted for.
The Agency's response to our recommendation on establishing an
Agency policy for capitalizing EDP software indicates that their
policy will be based on guidance that the U.S. General Accounting
Office (GAO) has not as yet issued. However, GAO has already
issued guidance requiring EDP software with an acquisition cost
of $5,000 or more and an estimated useful life of two years or
greater be capitalized. Therefore, we believe the Agency should
provide guidance to implement the current GAO policy.
Based upon the Agency's response to our recommendation on the
correction of errors and omissions from the PPAS, we agree that
the PPAS should be updated from results of physical inventories
taken by property management officers when they are performed.
However, we believe that the errors and omissions identified in
our audit report should be corrected in the PPAS based upon
information provided by our auditors during the audit fieldwork.
The results of physical inventories would not disclose errors in
recorded amounts in the PPAS identified by the audit.
Our recommendation regarding the need for Property Custodial
Officers to sign Memorandums Of Acceptance By Custodial Officers
was based upon EPA's Property Management Regulations. Regional
Counsel in Region 2 indicated that an executed memorandum was not
essential in order to assume property accountability nor did it
preclude the Custodial Officers from performing the function. We
believe that since the requirement has been established as Agency
policy, the Regions should be consistent in application of the
policy.
RECOMMENDATIONS
We recommend that EPA's Assistant
Administration and Resources Management:
Administrator for
o establish an interim Agency policy requiring each FMO to
provide listings of property and equipment disbursements
from the FMS and copies of supporting documentation to
the appropriate Property Accountable Officers on an
annual basis for fiscal 1988 and on a quarterly basis
29
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2.
FINDINGS AND RECOMMENDATIONS (CONTINUED)
beginning in fiscal 1989;
o instruct the Director, FMSD, to require Property
Accountable Officers to utilize the listings of property
disbursements furnished by the FMOs to ensure that all
property items recorded in the FMS are also recorded in
PPAS;
o establish an Agency policy for capitalizing EDP software,
based upon existing GAO requirements;
o obtain certifications from Property Accountable Officers
that corrective actions have been taken to correct the
remaining errors and omissions from the PFAS; and
o instruct the Director, FNSD, to advise Property Custodial
Officers at Region 2 that they are required to sign
Memorandums Of Acceptance By Custodial Officers according
to Agency policy.
PROCEDURES FOR ALLOCATING GENERAL SUPPORT SERVICES COSTS
SHOULD SI MODIFIED
Procedures for ^MBOBttB^^MHBgBl support services costs need to
be improved to ensure that costs charged to Superfund represent
the actual benefits received. Our audit disclosed that
disbursements were allocated to Superfund based upon cumulative
obligations recorded for general support costs in the Salaries
and Expenses (S&E) appropriation. We questioned $895,862 of
support costs changed to Superfnnd due primarily to Headquarters
utilizing budgeted in lieu of actual full-time equivalent (FTE)
ratios in the allocation of certain costs. The use of this
method of allocation resulted in an over-allocation of $760,571.
Also, Regions 4 and 5 made errors in the calculations of
allocations to Superfund amounting to $120,232 and $15,059,
respectively. In addition, we noted Region 10 over-allocated
support costs and Regions 1 and 3 under-allocated support costs
to Superfund by undetermined amounts.
Agency guidance on cost allocations did not specify that the
allocation* of obligations and disbursements should be calculated
separately. Consequently, when Superfund reimbursed the S&E
appropriation for allocated costs, the allocations were based
upon obligations. Superfund disbursements reflecting these
allocations were recorded at the same time and in the same
amounts as the obligations. We believe that to properly match
costs, Superfund disbursements for the allocated costs should be
recorded based upon the disbursements recorded in the SiE
appropriation. We did not attempt to determine the dollar impact
on Superfund disbursements of the Agency's practice of allocating
disbursements based upon obligation data, but believe the Agency
should determine the effect. This finding was previously
30
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
reported in the fiscal 1986 audit report and the Agency response
indicated that obligations and disbursements were allocated
separately. However, this was not the method used in either
fiscal 1986 or fiscal 1987, although it may have been the intent
of the Agency guidance.
GAP Policy and Procedures Manual for Guidance o_£ Federal Agencies
Title 2 — Accounting, Appendix 1 states that periodic
recognition of the effects of transactions is fundamental to the
accounting process. Recognition governs when the results of an
event are to be included in the financial statements and ensures
that the effects of similar events and transactions are accounted
for similarly. One of the three principles that form the basis
of recognition is matching. Matching involves identifying and
recording costs in the proper period, i.e., the period in which
the costs are incurred.
We also found that the Superfund Program was not always charged
its proportionate share of support services costs. This was due
in part to the Agency's policy for allocating support costs,
which allowed allocations to be based upon authorized (budgeted)
data.
The Financial Management Manual. Appendix 17-3 "Standard Plan for
Distributing Support Costs to the Superfund Appropriation"
states:
The two types of allocation ratios that may be used are
the actual FTE ratio and the authorized FTE ratio. The
actual FTE usage ratio will be used for allocating
general support, except where the use of the authorized
FTE ratio has been certified and approved.
EPA Headquarters allocated general support costs to Superfund
using a combination of both budgeted/authorized FTEs and actual
FTEs depending on the type of expenses being allocated. He
believe that allocations of all general support services costs
should be based upon actual FTE ratios to achieve an equitable
allocation. Based upon our calculations, the use of budgeted
ratios resulted in an over-allocation of general support costs to
Superfund by $760,571.
Region 4 over-allocated support costs to the Superfund
appropriation by $120,232. Our review revealed that Region 4 had
included prior months' allocation amounts with general support
costs to which the FTE ratio was applied, resulting in an over-
allocation of $113,398. Additionally, Region 4 did not retain
the September 30 reports to document the costs which were used in
calculating the year-end allocations. Based upon the 13th month
reports, which were available, we determined that $3,834 was
over-allocated to Superfund. Finally, negative cost allocation
adjustments were not entered into the FMS which resulted in an
over-allocation to Superfund of $3,000. We also found that
31
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Region 5 made mathematical errors in calculating allocated costs
resulting in an over-allocation of costs to Superfund amounting
to $15,059.
Region 1 made only ten monthly general support cost allocations
because the ceiling for charging Superfund had been reached.
Information was not readily available to determine the impact of
the resulting under-allocation of support services costs to
Superfund. Since regional Superfund ceilings may be adjusted by
EPA's Comptroller, we believe that Region 1 should have computed
the allocations for the entire year and requested additional
funding. The absence of a full allocation understates Superfund
costs and could result in under-recoveries of costs in cost
recovery actions.
After adjusting to actual FTE ratios at the end of the third
quarter, Region 3 allocated general support costs based on
authorized FTE ratios for the fourth quarter of fiscal 1987.
Region 3 personnel stated that most of the costs allocated to
Superfund were incurred during the first three quarters of the
year, and that subsequent adjustments would have been immaterial.
At Region 10, hours related to another program were not included
in the total FTE base for determining the Superfund FTE ratio.
The required information was not available at Regions 3 and 10
for us to determine the dollar amounts by which the Superfund
appropriation was mischarged.
In response to our Notifications of Findings and Recommendations,
Regions 3, 4, 5 and 10 indicated that procedures would be
implemented to correct the disclosed deficiencies. However,
Region 4 indicated that the final September 30 allocation could
not be based on the 13th month report due to time limitations of
entering the allocations into the FMS. Region 1 stated that EPA
provided the Superfund ceiling and costs were only allocated to
that limit. Officials of FMD at Headquarters disagreed with our
finding with regard to allocating certain costs on an actual
basis versus an authorized/budgeted basis. They stated that
adjustments to an actual basis should not be made for certain
costs because the budgeted amounts reflected conditions that
existed at the time their operating plan was established. They
believed that deviations from those conditions should not require
changing the original allocation.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant
Administrator for Administration and Resources Management:
o revise the allocation methodology of the plan to clarify
the requirements for allocating costs based upon
cumulative obligations and cumulative disbursements
separately;
32
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FINDINGS AND RECOMMENDATIQMS {CONTINUED)
o change the policy to require all cost allocations for
general support services to be based on actual FTE
ratios;
o require FMD to recalculate general support cost
allocations for Headquarters based on actual FTE ratios
and make the appropriate adjustments to Superfund;
o require the Comptroller to request the Regional
Administrator of Region 3 to recalculate general
support costs using actual FTE ratios and make the
appropriate adjustments to Superfund; and
o obtain written certifications from the Regional
Administrators of Regions 4, 5 and 10 that the general
support services cost allocations for fiscal 1987 were
recalculated and appropriate adjustments were made.
AGENCY'5 RESPONSE TQ
REPORT RECOMMENDATIONS
The Assistant Administrator for the Office of Administration and
Resources Management stated in response to our recommendations
that:
o The Agency believes the current procedure is the most
accurate and practical way of allocating these costs, so
they disagree that a revision to the methodology is
necessary. Further/ the auditors suggestion that
"Superfund disbursements should be recorded based upon
the disbursements recorded in the S4E appropriation for
the allocated costs" is not feasible. The Agency implies
that the recommended allocation of disbursements would be
tied to individual spending actions, unlike the initial
allocations of obligations, which occur at the General
Ledger level and are not tied to individual spending
actions. It is highly impractical to determine at the
time funds are actually disbursed for any spending
action, what ratio was used to allocate the obligation
for that spending action. Further, because the ratios
are constantly being adjusted throughout the year based
on cumulative figures, the meaningfulness of attempting
to ti« the allocation of any particular disbursement back
to the original obligation is very questionable.
o The Agency disagrees that the existing policy should be
changed to require all cost allocations to be based on
actual FTE ratios. The Agency's approach for using
authorized FTEs in certain instances reflects those
circumstances where the use of actual FTEs is not
representative of Superfund's use of Agency resources.
For example, the acquisition of space does not ±ena
itself to the use of actual FTEs since space must be
determined in advance based on a projected needs, i.e.,
33
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
the budget. Regardless of whether the space was actually
used during the year according to these projections, the
space was available to the Superfund program. In this
instance, to apply actual FTE ratios to determine the
allocation would erroneously undercharge the Superfund
appropriation for its share of cost.
The current methodology is consistent, provides a fair
estimate of costs, and does not materially distort the
amount of the Agency's obligations and disbursements.
The recommendation that we adjust the Superfund
appropriation to reflect actual ratios would result in an
adjustment of .15% of total Superfund obligations and
disbursements. This low percentage supports our position
that our methodology does fairly reflect the appropriate
charges.
o The Agency disagrees with the recommendation to require
FMD to recalculate and adjust Headquarters cost
allocations based on actual FTE ratios, for the same
reasons stated in the previous response.
o The Agency disagrees with the recommendation to request
the Regional Administrator of Region 3 to recalculate and
adjust cost allocations based on actual FTE ratios for
the same reasons stated in the previous two responses.
The Comptroller will request the Regional Administrator
of Region 3 to use Agency guidelines for allocating
general support costs to the Superfund appropriation.
o The Director, Financial Management Division, received
written confirmation from the Financial Management
Officers of Regions 4, 5 and 10 that corrections to the
general support services cost allocation for fiscal 1987
have been made.
OUR EVALUATION Q£ THE AGENCY'S RESPONSE
The AA for OARM indicated that written confirmations from FMOs of
Regions 4, 5 and 10 concerning corrections had been received by
the Director, FMD. Therefore, we make no further recommendation
on this issue. However, the Agency disagreed with our
recommendations for: revising the Agency's methodology to
allocate coats based upon cumulative obligations and cumulative
disbursements/ separately; changing the policy to require all
cost allocations to be based on actual FTE ratios; and requiring
recalculations and adjustments to cost allocations for fiscal
1987 based upon actual versus budgeted data.
In regard to the Agency's response to our recommendation for
allocating obligations and disbursements separately, we do not
believe that the current procedure provides either the most
accurate or practical method of allocating support services
34
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
costs. A more accurate method would be to allocate obligations
based upon cumulative obligations, and disbursements based upon
cumulative disbursements. The current method does not recognize
the timing differences between obligations and disbursements, the
de-obligation of funds in subsequent years, or that the Agency
does not always disburse the total obligations recorded. As a
result, Superfund is being charged with disbursements which may
never occur.
As for the Agency's argument that a separate allocation of
disbursement is not feasible, we believe that the same procedures
now being utilized to allocate both obligations and disbursements
could be easily changed to a two-step allocation. This could be
done by allocating disbursements based upon cumulative
disbursements (instead of obligations) by sub-object classes at
the General Ledger level. The calculation would involve the same
accounts for which cumulative obligations were allocated, by
applying the calculation to cumulative disbursements. This
method would not require the allocation of individual spending
actions, but would simply duplicate the current procedures at the
disbursement level. The FTE ratios would be applied in the same
manner in the two-step allocation as is currently done in the
one-step allocation.
Regarding the Agency's response to our recommendation for the use
of actual versus budgeted data, we know of no circumstance where
the use of actual data is not representative of the use of
resources. The example given to support the Agency's position
for using budgeted data versus actual data relates to the
acquisition of space. We disagree that using projected needs, or
budgeted data, represents or approximates actual usage. If, in
the Agency example, the space budgeted for Superfund was actually
used by another program, Superfund would still bear the cost.
Whether the basis used for space should be based upon FTE ratios,
or some other measure such as square footage, does not justify
using budgeted data when actual data would be more representative
of the utilization of resources. To utilize a budgeted FTE ratio
for certain costs distorts the fair distribution of actual costs
to the benefiting programs. We believe that actual data should
be utilized in all cases where the data is readily available.
In regard to our recommendation that the Agency make adjustments
of cost allocations based upon actual data, we believe that these
adjustments represent the use of a method that is generally
accepted and more easily supportable. We also believe that an
adjustment amounting to $760,571 should be recorded, regardless
of the percentage of the adjustment to Superfund.
RECOMMENDATIONS
We recommend that the Assistant Administrator for the Office of
Administration and Resources Management:
35
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3.
FINDINGS AND RECOMMENDATIQMS (CONTINUED)
o revise the Agency's cost allocation plan methodology to
require the allocation of costs based upon cumulative
obligations and cumulative disbursements separately;
o change the Agency policy to require all cost allocations
for general support services to be based on actual data;
o require FMD to recalculate general support cost
allocations for Headquarters based on actual FTE ratios
and make the appropriate adjustments to Superfund; and
o require the Comptroller to request the Regional
Administrator of Region 3 to recalculate general support
costs using actual FTE ratios and advise the Comptroller
of the resulting under-charge to Superfund.
EPA NEEDS 2Q STRENGTHEN PROCEDURES FOR MONITORING LETTERS QF
CREDIT
Improvements in procedures are needed in monitoring letters of
credit to ensure that: (1) recipients file Federal Cash
Transactions Reports (SF-272s) promptly; (2) recipients do not
have excess cash on hand; and (3) cash drawdowns reported by
recipients are reconciled with FMS records. At Regions 1, 8, 9,
and 10, we found that recipients did not submit SF-272 reports
within the 15-day period as required. Also we found that two
recipients in Region 1 had excess cash on hand totaling $235,000.
We reviewed SF-272s to verify that drawdowns reported by the
recipients were reconciled to the FMOs' records. In Regions 1
and 9, no reconciliations of the SF-272s to the FMOs' records
were performed by FMO personnel during fiscal 1987. Furthermore,
when we performed reconciliations, we noted discrepancies at
Regions 1 and 9 amounting to $44,571 and $581,245, respectively.
The EPA ACCOUNTING MANUAL. Chapter 25 states:
The Financial Management Office will monitor the
financial status of grants by means of:
Federal Cash Transactions Report (SF-272) - This
report must be submitted fifteen (15) working
days following the end of each calendar quarter.
This report shows cash on hand at the end of the
period.
In addition, the LETTER fiF CREDIT - TREASURY FINANCIAL
COMMUNICATIONS SYSTEM RECIPIENTS MANUAL, states:
EPA will monitor drawdowns to ensure that
recipient organizations are maintaining minimum
balances of Federal funds. Each request for
funds message will be reviewed by EPA prior to
36
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FINDINGS AND RECOMMENDATIONS (CONTINUED*
approval to ensure that payment will not result
in excessive funds or violation of award
authority. Based on this review, EPA will take
any action necessary to minimize outstanding
Federal cash balances.
We reviewed the filing dates on non-statistical samples of
recipients' SF-272 reports to determine if they were filed within
15 working days after the end of the calendar quarter. Since SF-
272s are necessary for the reconciliation process, the 15-day
requirement helps to ensure that discrepancies will be discovered
in a timely manner and that immediate corrective action can be
taken. We found that, in 35 of 55 reports tested (64%) at
Regions 1, 8, 9 and 10, the SF-272s were filed between 1 and 123
days after the required date of receipt, for an average by
Region, as follows:
Audit
Location
Region 1
Region 8
Region 9
Region 10
Average
Davs Late
36
9
6
23
Our review of SF-272 reports revealed excess cash on hand for two
recipients of letters of credit in Region 1, totaling $235,000 at
September 30, 1987. Monitoring of cash 'on hand increases
assurance that funds are only drawn down by recipients as actual
cash needs arise. The timing of drawdowns by recipients has a
substantial impact on the Treasury Department's management of the
public debt and financing costs. Premature drawdowns result in
unnecessary interest costs incurred by the Government.
Additionally, we reviewed SF-272s to verify that drawdowns
reported on the SF-272s by recipients were reconciled with the
FMOs' records. At Regions 1 and 9, there were no reconciliations
of the SF-272s to the FMOs' records. Furthermore, when we
performed these reconciliations, we noted differences for two
Region 1 recipients, totaling $44,571, and one recipient in
Region 9, amounting to $581,245. Further, in Region 9, one
recipient's award amount recorded in the FMS did not agree with
the Letter of Credit History (EPA Form 2550-15) by $2,742,948 and
the unpaid obligations differed by $1,122,070. Reconciling SF-
272s to FMOs' records is an integral process of monitoring
letters of credit. Failure to perform such reconciliations
could result in inaccurate information in EPA's financial
records.
The cause of the conditions cited above can be partly attributed
to a lack of Headquarters guidance regarding reconciliation of
SF-272s and FMO records. Also, some Regions indicated that they
did not have sufficient staff to follow up on SF-272 late filings
and excess cash on hand balances. Comptroller Policy
37
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FINDINGS AND RECOMMENDATIONS f CONTINUED)
Announcement No. 88-06, issued February 12, T988 provides
additional guidance on the monitoring of letter of credit
drawdown procedures. Announcement 88-06 adequately addresses
procedures regarding the reconciliation of the SF-272s to FMOs'
records. However, procedures for documenting the follow-up on
recipient noncompliance with timely filing requirements are not
specified.
As a result of our audit, Region 1 sent written requests to the
recipients to reconcile the differences. In addition, Region 1
officials instructed the staff to follow-up on late SF-272
submissions. For fiscal 1988, personnel in Regions 1 and 9
stated that these reconciliations were being performed. Region 9
explained the reconciliation difference of $581,245 as $590,245
being included in another letter of credit and a $9,000 posting
error. Also, Region 9 indicated that the amounts in the FMS and
the Letter of Credit History differed because of special
conditions restricting drawdowns to authorized levels. Officials ,,
at Headquarters, at a June 29, 1988 meeting, indicated that they
also monitored letter of credit reporting as part of their
quality assurance reviews.
DRAFT REPORT RECOMMEND AT I QNS
We recommended in our draft report that EPA's Assistant
Administrator for Administration and Resources Management:
•
o request the Regional Administrator of Region 1 to follow-
up to determine if the two recipients identified in the
finding were maintaining excess cash balances and, if so,
take appropriate corrective action;
o request the Regional Administrators of Regions 1, 8, 9
and 10 to notify in writing the recipients identified as
late filers of SF-272s of the requirements for timely
filing and the corrective actions that may be initiated
if the compliance problem is not resolved; and
o issue additional Agency guidance requiring FMOs to
document follow-up action taken on recipient
noncompliance with timely filing requirements for SF-
272a.
AGENCY 'S
IQ DRAFT REPORT RECOMMENDATIONS
The Assistant Administrator for the Office of Administration and
Resources Management stated in response to our recommendations
that:
o The Director, Financial Management Division (FMD)
received written confirmation from the Financial
Management Officer of Region 1 that -letters were sent on
April 7, 1988 to the two recipients requesting a
38
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
reconciliation of drawdown amounts.
reconciliations have been completed.
The required
o The Director, FMD, received written confirmation from the
Financial Management Officers of Regions 1,8, 9 and 10
that follow-up actions were being taken with the
identified late filers.
o The Agency disagreed with the recommendation that
additional Agency guidance should be issued requiring
FMOs to document follow-up action taken on recipient
noncompliance with timely filing requirements for SF-
272s. They further stated that most of the problems
cited in our draft report were a result of noncompliance
with current policies and procedures.
The Grants Administration Division (GAD) was asked to
develop a Superfund Cooperative Agreement management
improvement plan. In reviewing each Region's management
of cooperative agreements, the GAD noted problems with
recipients filing SF-272s promptly. GAD recommended that
each Region develop a system to track when required
reports are due and provide guidelines for appropriate
actions when recipients fail to submit reports or submit
reports of substandard quality.
OUR EVALUATION Q£ THE AGENCY 'S RESPONSE
The Agency actions regarding reconciliations of drawdown amounts
and follow-up action with identified late filers of SF-272s, when
completed, adequately responds to our recommendations. However,
we disagree with the Agency's position that sufficient letter of
credit guidance currently exists for use by the Regions and
cooperative agreement recipients and that additional follow-up
procedures are not warranted. The existing guidance does not
specify procedures for documenting the follow-up on recipient
noncompliance with timely filing requirements. We believe that
documentation of all follow-up action would enhance EPA's
position should more drastic measures be required.
RECOMMENDATION
We recommend that EPA's Assistant Administrator for the Office of
Administration and Resources Management issue additional Agency
guidance requiring FMOs to document follow-up actions taken in
regard to recipient noncompliance with timely filing requirements
for SF-272S.
4. EPA NEEDS JQ MAKE IMPROVEMENTS
ACCOUNTS RECEIVABLE
RECORDING AND MANAGING
Our review of accounts receivable indicated that improvements
were needed to ensure that: (1) all receivables are recorded in a
39
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
timely manner; (2) the dollar value of each receivable is
recorded and adjusted according to Agency policy; and (3) the
FMOs are aggressive in collecting debts. Accounts receivable,
for the purposes of this report, are defined as moneys due to the
Agency, such as refunds for overpayments of contracts,
cooperative agreements or grants, repayments of travel advances,
penalties, and cost recovery actions.
A. Accounts Receivable .Were No.fr Recorded. In & Timely Manner
An important prerequisite of accounts receivable management is
the timely recording of all amounts owed to the Agency. We found
that amounts due to Superfund as a result of cost recovery
actions and penalties were not recorded in a timely manner by
Headquarters. Our tests at Headquarters of a judgmental sample
of 11 fiscal 1987 collections totaling $12,563,841, out of a
total collections universe of $20,577,273, disclosed that 10,
totaling $11,940,785, were not recorded as receivables until
after a check in payment was received. Although this problem has
been reported in two prior Superfund audits, and FMD has agreed
to take corrective action to improve the situation, the problem
persists.
According to the Financial Management Manual. Chapter 7, the
Agency's policy is to promptly establish an account receivable in
the accounting records for all amounts owed. to the Agency. To
achieve this, program offices must forward a copy of all action
documents establishing a debt to the appropriate FMO. Further,
the FMO must process bills within one work day after receipt from
the program office. Similar requirements appear in the EPA
Accounting Manual. Chapter 17. The problem of not recording the
receivables timely most often resulted from the failure of
program offices to forward documents in a timely manner.
Recording receivables promptly is important since it is not
possible to effectively manage receivables if they are not
recorded in the FMS. Also, a large number of unidentified
receivables could materially affect the financial statements of
Superfund and possibly result in a loss of interest earnings.
B. Interest Was Nofc Correctly Computed and Recorded
The FMOs did not always correctly compute and record interest for
receivable* that were delinquent. The Debt Collection Act of
1982 or the Federal Claims Collection Standards generally allow
the Agency to collect interest. Our evaluation of accounts
receivable in Regions 2 and 9 disclosed that 9 receivables from a
total of 18 were outstanding for more than 30 days and that no
interest was assessed on these overdue accounts.
Government-wide, as well as Agency guidance, permits additional
charges to be collected under certain circumstances. The Debt
Collection Act allows Agencies to assess interest. Regulations
40
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
implementing this Act became effective in April 1984. Among
these regulations, 4 CFR 102.13 provides for assessing interest.
However, the Agency must give the debtor a written notice that
explains the charges. The Financial Management Manual Chapter 7,
Paragraph 5 and the EPA Accounting Manual Chapter 17, Sections
17.4, 17.6 and 17.7 also permit collecting interest.
We have identified two primary reasons for the Agency not
recording interest: interest charges were not included in the
payment terms on bills sent to debtors; or the FMOs were
unfamiliar with Agency directives. Region 9 was not aware of the
requirements to charge and to record interest. Region 9
indicated that corrective action was taken in fiscal 1988.
Region 2 did not assess interest to States during fiscal 1987.
However, the Region requested a clarification from EPA
Headquarters in a memorandum dated January 25, 1988, as to
whether interest should be assessed to States. Pending a
response from Headquarters, the Region is including an interest
clause on billings to States.
Due to the omission of the interest, the balances of accounts
receivable were understated. We estimated that the under-
statement of interest accrued was $1,000 in Region 2, and $6,243
in Region 9.
C. Aggressive Collection Action Was Needed To Ensure That
Debtors Pav The Agency In A Timely Manner
Collection action was needed to ensure that debtors pay the
Agency in a timely manner. We noted that Region 2 and
Headquarters were generally not collecting receivables as
aggressively as Agency directives require. Agency reports
identified accounts due over 30 days in Regions 2, 10 and in
Headquarters. Further, the total balance of accounts receivable
due over 120 days in Headquarters was $6,028,964 as of the end of
fiscal 1987. Deficiencies in collection activities were, in most
cases, closely related to the monitoring and management of
delinquent accounts receivable. Headquarters did not conduct
sufficient periodic management reviews of its Superfund accounts
receivable balances during fiscal 1987, to determine whether the
accounts ware valid and collectible, or were invalid, delinquent,
uncollectible, subject to deferred payment arrangements, or
otherwise in need of special management or collection efforts.
The Agency directives require periodic contact with the debtor
and regular evaluations of the collectibility of the debt. The
EPA Accounting Manual. Chapter 17, Section 17.4 requires that
debtors (other than Federal agencies and common carriers) be sent
three demand letters if the debt is not paid within 31 days. The
letters should be sent to the debtor 31, 61 and 91 days after the
initial bill. Unless the debtor acknowledges the debt, the
debtor should be contacted by telephone before mailing the secc:
and third letters. The second and third letters should be sent
41
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
by registered mail, return receipt requested. Similar
requirements are found in the Financial, Management Manual.
Chapter 7, Paragraphs 5d and 5k. In addition, Paragraph 5g
requires the FMO to notify certain debtors that, if payment is
not received within 60 days of the due date, information
regarding the debt will be referred to credit bureaus. Fifteen
days after the third demand letter is sent, both directives
require the FMO to evaluate the situation. At this point,
either: (1) more collection action should be taken; (2) the debt
should be written off by the FMO if the principal is less than
$150 (less than $2,000 effective October 1987) and further
collection action would be useless; or (3) the debt should be
transferred to another office for action. Generally, the debts
are transferred to the EPA Claims Officer.
Collection activity for most FMOs is very labor-intensive. Files
must be reviewed, the accounts requiring action identified, and
the action taken. Officials in Region 2 indicated that staff
turnover prevented them from performing the required action to
follow up on delinquent accounts. Region 10 officials indicated
in response to our finding that the problem had been corrected.
According to Headquarters, the periodic aging of Superfund
accounts receivable did not provide the type of detailed
management information needed to determine whether receivables
over 120 days old were, in fact, delinquent and in need of
special handling and/or collection efforts.
Non-performance of the prescribed follow-up procedures could
result in the loss of the receivables and interest earnings, or a
potential overstatement of the accounts receivable balance and a
corresponding understatement of bad debts.
The Office of the Inspector General issued Audit Report EIA67-11-
0029-80779, dated March 17, 1988, covering their review of EPA's
accounts receivable activities. The report identified similar
findings and made appropriate recommendations. The Agency
Indicated that they responded to the Office of the Inspector
General's report, so we make no further recommendations.
5. OBLIGATIONS WERE QUESTIONED DUE JS RECORDING ERRORS
Based upon the results from our statistical sampling, we
projected questioned costs of $99,505, from a total of
$930,492,580 of nonpayroll obligation transactions. Our
projections were made with a 95% confidence limit, i.e., we are
95% confident that the questioned and accepted costs fall within
a range of values. For example, the projected questioned costs
fall within a range from $<49,451> to $248,961. See Exhibit I
and Appendix 2 for more details. The projection of questioned
obligations resulted from one sample transaction which was
duplicated, one transaction which was over-obligated and one
transaction for which the Agency could not locate property
42
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
charged to the Superfund appropriation. In addition, the results
of the testa of 11 internal control and compliance attributes for
nonpayroll obligations indicated unacceptable levels (over 5%) of
noncompliance with Agency policies and procedures.
The sampling frame of nonpayroll obligations was taken from the
fiscal 1987 allotment file in the FMS. It was separated into
three subuniverses for contracts, cooperative agreements and all
other object classes, excluding those for personnel compensation
and benefits. We tested 11 internal control and compliance
attributes to determine the degree of compliance with Agency
policies and procedures. Our statistical analysis of these
attributes indicated the following estimated error rates for each
subuniverse, which exceeded our expected error rate of five
percent.
Note: The estimated error rates in the following table were
projected based upon the initial results of our
statistical sampling. As a result of the Agency providing
additional documentation subsequent to the issuance of the
draft report, some of these attribute error rates
(specifically for written Superfund justification) would
have changed. However, we did not recalculate these
estimated error rates based upon revised data.
Subuniverse
Contracts
Cooperative
Agreements
Attribute
Receipt of obligating document is timely
Posting to FMS by FMO is timely
A commitment was previously entered into
FMS, if obligation is greater than
$25,000
Name of authorized official agrees with
official's signature list maintained
by FMO
Receipt of obligating document is timely
Posting to FMS by FMO is timely
Other Object Obligation document number agrees with
Classes
obligating document
Document control number agrees with
obligating document
Account number agrees with obligating
document, and account number indicates
current year source of funds
Object class agrees with obligating
document
Object class appears reasonable based
on description of obligation
Appropriation number is Superfund
Estimated
Error
Rate
41.89%
22.58%
11.37%
7.59%
36.30%
45.21%
7.37%
7.25%
7.76%
6.36%
7.23%
11 .31%
43
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Subuniverse
FINDING AND RECOMMENDATIONS (CONTINUED)
Attribute
Written Superfund justification/
statement of need is on obligating
document
Name of authorized official agrees
with authorized official's signature
list maintained by FMO
Receipt of obligating document is
timely
Posting to FMS by FMO is timely
A commitment was previously entered
into FMS, if obligation is greater
than $25,000
Estimated
Error
16.64%
25.25%
49.21%
56.62%
38.59%
The failure to properly follow Agency policies and procedures
related to obligations as indicated above could result in errors,
inefficiencies and inappropriate charges to the Superfund
program.
One of the attributes identified above was an Agency requirement
for written Superfund justification or statements of need on the
obligating document or procurement request/order. EPA Facilities
and Support Services Manual. Volume 4830-2 PMR 2-20 states that
all procurement requests should include a statement of need and
justification that the requested items or services are required
to meet the program's objectives. In addition, Chapter 17 of
EPA's Financial Management Manual. Paragraph 6 states that
offices will be expected to provide the information which served
as the rationale for decisions on how to charge items bought for
partial or total Superfund use. We considered this requirement a
key internal control procedures for charging obligations to
Superfund.
During our audit fieldwork, we reviewed the available
documentation to support the charges to Superfund for our sample
items to determine if written justification and statements of
need were maintained. We also requested program offices to
provide this documentation from their copies of procurement
requests. If we could not make a determination that an
obligation should be Superfund and no written documentation to
support the charging of Superfund was provided, we set aside the
costs in our sample. As a result, these set-aside transactions
resulted in the projection of set-aside obligations of $23
million in our draft report. Because this problem was
widespread, we reported this condition as a material weakness in
internal controls in the draft report. Subsequent to the release
of the draft report, the Agency, upon our request, provided
additional information to support these obligations as being
Superfund related. Therefore, we have accepted the majority of
the obligations in this report and no longer consider this a
material weakness.
44
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant
Administrator for Administration and Resources Management:
o emphasize the need for FMOs to follow Agency policies
for timely recording of obligations in the FMS;
o emphasize the need for program offices to follow Agency
policies requiring written statements of need for
charging Superfund and providing obligation documents to
FMOs in a timely manner; and
o request the appropriate program offices and FMOs to
review and resolve the previously provided set-aside and
questioned sample transactions, which resulted in the
projected questioned and set-aside obligations.
AGENCY'S RESPONSE 2Q DRAFT REPORT RECOMMENDATIONS
The AA for OARM stated in response to our recommendations that:
o The Director, Financial Management Division, will
prepare a written memorandum to the FMOs emphasizing the
requirement for timely recording of pbligations into the
FMS.
o The Director, Financial Management Division, will
prepare a memorandum to all program offices re-
emphasizing the requirements for Superfund justification
for obligation documents and the need to promptly
forward those documents to their servicing finance
office.
o The Agency agrees that the FMOs should correct errors
found during the audit. In most cases, the FMOs
resolved or provided the necessary data or correction at
the time of the auditors' review and provided this
information to them. In some cases, these questioned
costs were still reported in this report even though the
auditors had indicated that responses to the preliminary
notification of findings were acceptable. Attachment II
of the response identifies specific regional or field
office comments which indicate where corrective action
had been taken and had not been recognized by the
auditors.
Concerning the lack of Superfund justification, the
Agency acknowledges that the Superfund support
documentation procedures need strengthening in the area
of internal recordkeeping. However, the Agency believes
that the lack of documentation is not conclusively
indicative of errors in the Agency's obligation activity
45
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
within the Superfund appropriation. The Agency strongly
disagrees that this weakness in internal procedures
represents a material weakness or should be the basis
for set-aside costs. In addition, the projected set-
aside obligations represented only 2.3% of the total
universe of Agency obligations, which is considered
immaterial.
Finally, it is the Agency's position that the auditors
did not conduct a sufficient amount of fieldwork to
conclude that the Agency had mischarged the Superfund
appropriation. Had the auditors used additional audit
techniques such as interviews or inquiries with
knowledgeable sources within the Agency, the
relationship of the obligations to Superfund could have
been resolved prior to issuance of the draft report.
The Agency referred to AICPA Statement on Auditing
Standards (SAS) #39, paragraph #34, as follows:
"34. In assessing the tolerable rate of deviations, the
auditor should consider that, while deviations from
pertinent control procedures increase the risk of
material errors in the accounting records, such
deviations 49 not necessarily result in errors [emphasis
added]. For example, a recorded disbursement that does
not show evidence of required approval may nevertheless
be a transaction that is properly authorized and
recorded."
The Agency also quoted AICFA Statement on Auditing
Standards #31, paragraph #15, as support for their
position, as follows:
"15. Corroborating evidential matter includes
documentary material such as checks, invoices,
contracts, and minutes of meetings; confirmations and
other written representations bv knowledgeable people
[emphasis added); information obtained by the auditor
from inquiry, observation, inspection, and physical
examination; ..."
OUR EVALUATION QF THE AGENCY'S RESPONSE
The Agency's proposed corrective actions regarding the
preparation of memorandums emphasizing the requirements that FMOs
record obligations in a timely manner and program offices prepare
and retain written Superfund justifications and promptly forward
obligation documents to FMOs, when issued, are responsive to our
recommendations.
We are aware that, in some cases, the FMOs agreed with tv
questioned costs identified during the audit and made tv._
46
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
necessary corrections at that time. However, these errors are
included in the obligations reported in this report and,
therefore, are reported as questioned costs and used as the basis
for projected questioned costs. Where appropriate in this
report, we have acknowledged corrective action taken by the
Agency. Appendix 4 provides our evaluation of the Agency's
specific comments provided in Attachment II to Appendix 3.
Concerning the costs set aside in the draft report, we agree that
the lack of Superfund justification is not conclusive of error.
If we had believed that the Agency mischarged the Superfund
appropriation, we would have questioned these costs. However,
without the written justification required by Agency policy, we
could not conclude that these were valid Superfund obligations.
Therefore, we used the set-aside classification for those costs
that could not be accepted without additional information or
evaluations and approvals by responsible Agency officials. On
June 27, 1988, we sent letters to Agency program officials giving
them the opportunity to confirm whether the set-aside
transactions were valid Superfund obligations. Based upon
responses to these letters and additional inquiries, we have
accepted the previously set-aside costs from our sample, which
were the basis of the projections in the draft report.
We reported the lack of Superfund justification as a material
internal control weakness in our draft report because the
condition was widespread within the Agency (16.64% of
transactions tested) and the potential dollar effect represented
a material amount ($23 million). An authoritative source fcr
audit practitioners suggests that when the relevant base (such as
obligations) for a governmental unit exceeds $5 million, the
threshold for establishing materiality is 0.7 percent. As the
Agency indicated in their response, the projected set-aside
obligations represented 2.3 percent of the total obligations.
In addition, we believe that Superfund justification is a key
internal control procedure which is required by Agency
directives, in part, to support Superfund costs in cost recovery
actions. Without adherence to this control procedure, there is
limited assurance that Superfund costs are properly documented as
"necessary for" and "incidental to" the Superfund program, as
required by Section III (a) of CERCLA.
With regard to the Agency's position on relating deviations in
internal control procedures to dollar errors, we recognize that
such deviations do not necessarily result in errors. However,
the AICPA Professional Statements on Auditing Standards state
that for dual-purpose samples:
In some circumstances the auditor may design a sample
that will be used for dual purposes: testing
compliance with a control procedure that provides
documentary evidence of performance and testing whether
the recorded monetary amount of transactions is
47
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
correct.
AICPA standards, therefore, support our position to set aside
costs related to internal control deviations because the Agency's
records did not conclusively demonstrate that these transactions
were Superfund related. Consequently, due to these deviations,
we could not readily determine if the recorded amount was
correct, partially correct or incorrect. Only after we pursued
the matter with the Agency, were we subsequently presented with
data to enable us to accept these transactions.
Also/ in assessing the risk of material errors, auditors evaluate
the risk of control failures based upon the relative significance
of the control procedure being tested. Since the control
procedure in this case was identified as a high risk that
failures could result in material errors, the auditors were
justified in using this as a basis for set-aside costs.
The Agency also stated that additional audit work should have
been conducted to conclude that the Agency has mischarged the
Superfund appropriation. The Agency has misinterpreted the
purpose of set-aside costs as defined in the audit report. Set-
aside costs are costs that cannot be accepted without additional
information or evaluations and approvals by responsive Agency
program officials. Therefore, the Agency's presumption that the
auditors had concluded that these costs were mischarged is
incorrect. The auditors concluded that additional information
was necessary in order to make a determination regarding the
acceptance of these costs.
The Agency also agreed that their compliance with internal
control procedures require improvement. The AICPA Professional
Standards support our action to obtain assurance that accounting
data is reliable before accepting the costs.
RECOMMENDATIONS
He recommend that EPA's Assistant
Administration and Resources Management:
Administrator for
o obtain certification from the Director, Financial
Management Division, that memorandums were sent to all
FMOs emphasizing the requirement for timely recording of
obligations in the FMS;
o obtain certification from the Director, Financial
Management Division, that memorandums were sent to all
program offices re-emphasizing the requirements for
Superfund justifications on procurement requests/orders
and the need to promptly forward obligation documents to
servicing FMOs; and
o instruct the Director, Financial Management Division, to
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
obtain certifications from the FMOs that the errors
resulting in projected questioned costs in this report
have been corrected.
6. DISBURSEMENTS WERE QUESTIONED DUE TQ RECORDING ERRORS
Based upon the results from our statistical sampling, we
projected questioned costs of $9,623 from a total of $447,236,028
of nonpayroll disbursements. Our projections of questioned and
accepted costs were made with confidence limits of 95%,
indicating ranges of values. See Exhibit II and Appendix 2 for
more details. The projected questioned costs resulted from a
sample transaction which was over-charged to Superfund. We also
examined 10 to 15 internal control and compliance attributes in
the disbursement process for which we expected the error rate not
to exceed five percent. We found that compliance with several of
the control procedures exceeded an acceptable level of error
rates.
The sampling frame of nonpayroll disbursements was taken from the
fiscal 1987 detail history file of the FMS. It was separated
into three subuniverses for contracts, cooperative agreements and
all other object classes, excluding those for personnel
compensation and benefits. We tested internal control and
compliance attributes to determine the degree of compliance with
Agency policies and procedures. Our statistical analysis of
these attributes indicated that estimated error rates exceeded
five percent for the following attributes:
Note: The estimated error rates in the following table were
projected based upon the initial results of our
statistical sampling. As a result of the Agency providing
additional documentation subsequent to the issuance of the
draft report, some of these attribute error rates would
have changed. However, we did not recalculate these
estimated error rates.
Estimated
Error
Subuniveraa Attribute Rate
Contracts
(15 attri-
butes tested)
Cooperative
Agreements
(10 attri-
butes tested)
Invoice was paid on time, but not
early
Posting of disbursement to FMS by
FMO was timely
Cash discount, if available and
cost effective, was taken
Drawdown request indicates evidence
of review by technician for cash
balances and availability of
funds
Authorized official's approval was
indicated on drawdown request
52.07%
10.62%
27.87%
25.50%
28.61%
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Subuniverse Attribute
Posting to FMS by FMO was timely
Estimated
Error
Rate
33.86%
Other Object
Classes (15
attributes
tested)
Project officer or approving official
is authorized to approve payment and
approval is indicated on disbursement
document 12.51%
Disbursement documents are per-
forated and stamped paid and
indicate treasury schedule and
date 11.70%
Certifying officer is authorized
to certify payments and signature
is on treasury schedule 5.17%
Date approved by project officer or
authorized official was prior to
date certified by certifying
officer 7.01%
Invoice was paid on time, but not
early 70.94%
Posting of disbursement to FMS by
FMO was timely 19.46%
The failure to properly follow Agency guidelines related to
disbursements, as indicated in the attributes above, could result
in errors, lack of sufficient documentation and the improper
charging of costs to the Superfund appropriation.
During our audit fieldwork, we reviewed the documentation
available at the FMOs to support Superfund disbursements for our
sample items. Where the Agency could not locate documentation
(invoices, receiving reports, etc,) to support the disbursements,
we set aside the costs in our sample. As a result, these set-
aside transactions resulted in the projection of set-aside
disbursements of $1.88 million in our draft report. Subsequent
to the issuance of the draft report, the Agency provided
additional documentation upon our request to support most of
these Superfund disbursements. Therefore, we have accepted the
previously set-aside disbursements in this report.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant
Administrator for Administration and Resources Management:
o emphasize to the FMOs the importance of following Agency
policies and procedures for disbursements, particularly
those related to the timely payment of invoices and the
timely entry of disbursement data i.n the FMS; and
o require the FMOs to review and resolve the previously
provided questioned and set-aside sample transactions,
50
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FINDINGS
RECOMMENDATIONS (CONTINUED)
which resulted in the projected questioned and set-aside
disbursements.
AGENCY'S RESPONSE TJ3 DRAFT REPORT RECOMMENDATIONS
The AA for OARM stated in response to our recommendations that:
o He would direct the Director, FMD, to prepare written
memorandum[s] to the FMOs emphasizing the
requirement for timely payments and timely entry of the
payment activity into FMS.
o The FMOs should correct errors found during the audit.
In most cases, the FMOs resolved or provided the
necessary data or correction at the time of the review
and provided this information to the auditors. In some
cases, these questioned costs were still reported in
this report. Attachment II of the response identifies
specific regional and field office comments which
indicate that corrective action had not been recognized
by the auditors.
The lack of justification within the finance offices may
reflect a weakness in internal administrative
procedures, however, it is not indicative of mischarges.
The auditors overlooked the extensive approval process
necessary to establish the obligation as well as other
alternative audit techniques for obtaining evidential
matter and that these controls do not have to be
duplicated at the time of disbursement.
The Director, FMD, will review the administrative
procedures for processing Superfund disbursements to
determine where administrative procedures can be
strengthened in the area of Superfund justification
documentation.
OUR EVALUATION Q£ THE AGENCY'S RESPONSE
The Agency's proposed corrective action indicating that the AA
for OARM should direct the Director, FMD, to prepare memorandums
emphasizing to FMOs the requirement for timely payments and
timely entry of payments in the FMS, when issued, is responsive
to our recommendation.
We have acknowledged the FMOs' corrections of errors as
appropriate in this report and in Appendix 4 in our evaluation of
the Agency's specific comments provided in Attachment II to
Appendix 3. However, the errors found during the audit are
included in the disbursements reported in this report and
therefore, are reported as questioned costs and used as the bas~.
for the projection of questioned costs in this report.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Concerning the projected set-aside disbursements in the draft
report, the Agency was mistaken in their belief that
disbursements were set aside for lack of written Superfund
justification. The cause of the set-aside disbursements was a
lack of adequate documentation, i.e., invoices, receiving
reports, etc., could not be located. Without sufficient
documentation, we could not determine that these were valid
Superfund disbursements. Therefore, we set aside these costs
pending further information and evaluations by responsible Agency
officials. On June 28, 1988, we sent letters to FMOs requesting
additional documentation to support the set-aside costs. Based
upon responses to these letters and additional inquiries, we
reviewed the information provided and accepted the previously
set-aside costs.
RECOMMENDATIONS
We recommend that EPA's Assistant
Administration and Resources Management:
Administrator for
7.
o obtain certification from the Director, Financial
Management Division, that memorandums were sent to all
FMOs emphasizing the requirements for timely payments
and timely recording of payments in the FMS; and
o instruct the Director, Financial Management Division, to
obtain certifications from the FMOs that the errors
resulting in projected questioned costs in this report
have been corrected.
RESULTS (QE STATISTICAL ANALYSIS Q£ PERSONNEL COMPENSATION
AND BENEFITS TRANSACTIONS
Based upon the results of our statistical sampling of personnel
compensation and benefits transactions, we accepted the recorded
obligations and disbursements amounting to $85,004,567 and
$82,597,072, respectively. The difference between the
$85,004,567 of recorded obligations and the $82,597,072 of
recorded disbursements, is represented by the approximate net
effect of year-end accruals. We are 95% confident that the
personnel compensation and benefits disbursements falls within a
range from $80,168,408 to $83,161,966, with the midpoint being
$81,665,187. The projections were based upon a sampling
population of $81,633,631, which excludes a small part of the
total disbursements. Because the midpoint of the projected range
so closely approximates the sampling population, we accepted the
total recorded disbursements. Further, since obligations are
adjusted monthly by EPA to reflect actual disbursements plus
accruals, and we accepted the disbursements recorded, we also
accepted the recorded obligations. See Appendix 1 for more
details. The results of tests of 10 key internal control and
compliance attributes for payroll transactions indicated
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FINDINGS
RECOMMENDATIONS ICONTINUED}
unacceptable levels (over 5%) of noncompliance with Agency
policies and procedures.
Our statistical analysis of internal control and compliance
attributes indicated that the estimated error rates exceeded five
percent for all attributes tested. One reason for some of the
high estimated error rates was that the Agency was unable to
provide some of the timesheets and tinecards. These were the
documents used to make original entries into FMS and were the
primary source of information used by us for our testing
purposes. Agency procedures require the program offices to
review the distribution of time charges made from timesheets for
each pay period. During our review of internal controls, we
found that this control procedure was in place and functioning
properly. Therefore, we concluded that the original documents
must have been available at the time of original entry and
review, and were subsequently misplaced.
Estimated
Error
Attributes Sates
Account number agrees with timesheet
Hours agree with timecard
Hours agree with time sheet
Dollar amount agrees with audited hours
times pay rate
Timecard certified by timekeeper
Timesheet certified by employee
Timesheet certified by timekeeper
Timesheet certified by supervisor
Leave time supported by application for
leave or timecard entry initialed by
employee
Overtime hours, compensatory time worked,
and premium pay supported by approved
request for and authorization of
overtime work
18.38% (a)
5.31%
13.59% (b)
5.21%
24.36% (c)
12.78% (d)
21.60% (c)
14.19%
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FINDINGS AND RECOMMENDATIONS (CONTINUED1
signature of a timekeeper. However, many of the timecards
and timesheets were signed by "timekeepers" for whom there
were no timekeeper signature cards on file to verify that
the signature was appropriate and the individual was
approved to sign as a timekeeper. We noted that Agency
procedures require designated agents to certify to the
timekeepers signature on timecards.
(d) Employee signature could not be verified because
timesheets could not be located by EPA.
(e) There was difficulty in determining employees'
supervisors during the audit period. The Agency could not
provide a listing of supervisors and alternative audit
procedures to determine supervisors were not always
successful.
(f) Approvals for leave time, overtime hours, compensatory
time worked, and premium pay could not be verified because
the appropriate forms could not be located by EPA.
The estimated error rates for the 1987 attributes were greater
than the prior year and more control weaknesses were noted. The
types of errors noted could result in a misstatement of personnel
compensation and benefits costs, or a lack of adequate
documentary evidence to support charges to the Superfund program.
DRAFT REPORT RECOMMENDATION
We recommended in our draft report that EPA's Assistant
Administrator for Administration and Resources Management
emphasize the importance of compliance with EPA policies and
procedures for maintaining adequate payroll records to support
charges to Superfund.
AGENCY'S RESPONSE JQ DRAFT REPORT RECOMMENDATION
In October 1987, the Director, Financial Management Division,
issued a memorandum to all concerned parties. The memorandum re-
emphasized the importance of EPA's policies and procedures
regarding timesheets and timecards. Additionally, the Financial
Management Division has already taken the following actions:
o trained each program office on how to use the Payroll
Redistribution System and to complete timesheets;
o initiated a two-hour timekeeping module as part of the
Office of Human Resources Management's training course
for new administrative employees;
o offered a one-day timekeeping course for timekeepers and
designated agents and will continue to routinely provide
training and information to the Agency's timekeepers.
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FINDINGS AEB RECOMMENPATTOM? (CONTINUED
2HB EVALOATIQtf QF THE AGENCY'S RESPONSE
The Agency's corrective action is responsive to
e
55
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EXHIBITS
-------
UNITED STATES EXHIBIT I
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUNDi
SCHEDULE OF OBLIGATIONS (NOTE 1) *~unu;
FISCAL YEAR ENDED SEPTEMBER 30, 1987
Description Tn4-ai .
*± T2ial Accented Question^
Personnel Compensation $ 73,792,675 $ 73,792 675 S
-------
UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
HAZARDOUS SUBSTANCE SUPERFUND
NOTES TO SCHEDULE OF OBLIGATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1987
EXHIBIT I
(CONTINUED)
NOTE
SUMMARY OJl SIGNIFICANT ACCOUNTING POLICIES
The Schedule of Obligations was prepared by the EPA Financial
Management Division based on financial information contained in
the Financial Management System for the fiscal year ended
September 30, 1987. EPA's policy is to prepare schedules in
accordance with accounting policies and procedures that are
legislatively established and promulgated through various Federal
and EPA policy and procedural standards. This schedule is not
intended to present either the financial position or the
financial results of operations in conformity with generally
accepted accounting principles.
Obligations - Nonoavroll
Obligations an»=aOBDunts of orders placed,. contracts awarded,
services received, "travel performed, and similar transactions
during a given period that will require payments during the same
or future periods. Such amounts include disbursements for which
obligations had not been previously recorded and reflect
adjustments for differences between obligations previously
recorded and actual disbursements to liquidate those obligations.
The term "obligation" includes both obligations that have
matured (legal liabilites) and those that are contingent upon
some future performance, such as providing services or furnishing
materials. Obligations represent funds obligated against the
current fiscal year's appropriation, including carry-over
authority for appropriations from prior years. Obligations are
recorded for budgetary purposes by appropriation.
Obligations, as presented in this Exhibit, were reported by EPA's
Financial System Branch in a Special Superfund Audit Report from
information contained in the Financial Management System
"Allotment File". The total obligations from this report,
amounting to $1,015,497,148, were reconciled with the totals
reported by EPA to the Office of Management and Budget for
appropriations 68*20X8145 and 68-2068145 for the period ended
September 30, 1987.
57
-------
EXHIBIT I
(CONTINUED)
Obligations - Payroll
Payroll obligations are based upon actual personnel compensation
and benefits recorded monthly in the payroll subsystem plus
accruals generated at month-end. Personnel compensation and
benefits obligations amounted to $85,004,567, which, based on EPA
policy, were recorded on an accrual basis for obligation
accounting.
NOTE 2^ OBLIGATIONS QUESTIONED
Questioned obligations of $995,367 consist of $895,862 for
general support services costs improperly allocated to the
Superfund appropriation, and $99,505 of obligations, based on the
projection of exceptions in the statistical samples.
a. General support services costs were questioned due to
errors in cost allocations as follows:
Description
Region 4,
Transportation of Things $ 5,467
Rent, Communication and
Utilities 15,067
Printing and Reproduction 1,920
Other Contractual Services 56,238
Supplies and Materials 21,834
Equipment 19,706
Land and Structures
Grants, Subsidies and
Contributions
Insurance Claims and
Indemnities
Region 5.
$
(2,915)
(6,003)
23,977
Headquarters Total
$ 923 $ 6,390
Totals
$120,232
$15,059
517,756
92
217,583
6,529
16,735
105
845
3
529,908
(3,991)
297,798
28,363
36,441
105
845
3
$760,571 $895,862
SB3SBS3 8S8BB* •••BBSS BSS3SS3
Additional detail relating to these cost allocation errors are
contained in Finding 2.
b. Questioned costs of $99,505 consists of the following:
Description Amount
Supplies and Materials
Equipment
Total
$ 4,103 (i)
95.402 (ii)
$99,505
(i) Represents amounts questioned because of an
excess allocation.
58
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EXHIBIT I
(CONTINUED)
(ii) Represents amounts questioned because of a
duplicate obligation of funds and property
that could not be located.
Additional details relating to the testing of obligations are
contained in Finding 5.
59
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EXHIBIT
UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
SCHEDULE OF DISBURSEMENTS (NOTE 1)
FISCAL YEAR ENDED SEPTEMBER 30, 1987
Description
Personnel Compensation
Personnel Benefits
Total Personnel Corn -
pensation & Benefits
Travel and Transportation
of Persons
Transportation of Things
Rent, Communications,
and Utilities
Printing and Reproduction
Other Contractual
Services
Supplies and Materials
Equipment
Land and Structures
Grants, Subsidies, and
Contributions
Insurance Claiaa and
Indemnities
Total Non-Personnel
Grand Totals
Total
Accepted
Questioned
t 71,998,092
10,598,980
82,597,072*
6,553,164
397,488
14,402,134
632,943
373,226,247
2,180,637
6,594,411
804
43,246,131
2,069
447,236,028
529,833,100
$ 71,998,092
10,598,980
82,597,072
6,543,541
391,098
13,872,226
*
636,934
372,928,449
2,152,274
6,557,970
699
43,245,286
2,066
446,330,543
$528,927,615
••BSSBSBSVO
(NOTE 2)
$
-
9,623
6,390
529,908
(3,991)
297,798
28,363
36,441
105
845
3
905,485
$ 905,485
The accompanying notes are an integral part of this schedule
60
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
HAZARDOUS SUBSTANCE SUPERFUND
NOTES TO SCHEDULE OF DISBURSEMENTS
FISCAL YEAR ENDED SEPTEMBER 30, 1987
EXHIBIT
ICQNTINUEDJ
NOTE i.. SUMMARY QF SIGNIFICANT ACCOUNTING POLICIES
The Schedule of Disbursements was prepared by the EPA Financial
Management Division based on financial information contained in
the Financial Management System for the fiscal year ended
September 30, 1987. EPA's policy is to prepare schedules in
accordance with accounting policies and procedures that are
legislatively established and promulgated through various Federal
and EPA policy and procedural standards. This schedule is not
intended to present either the financial position or the
financial results of operations in conformity with generally
accepted accounting principles.
Disbursements - Nonoavroll
Disbursements represent the amount of cash outlays made to
liquidate obligations. They represent funds 'disbursed during the
current fiscal year against either prior years' or current
year's appropriations. Disbursements are recorded on the cash
basis of accounting in EPA's general ledger by appropriation.
Disbursements, as presented in this Exhibit, were reported by
EPA's Financial Systems Branch in a Special Superfund Audit
Report from information contained in the Financial Management
System "Allotment File." The total disbursements from this
report, amounting to $529,633,100 were reconciled with the totals
reported by EPA to the Office of Management and Budget for
appropriations 68-20X8145 and 68-2068145 for the period ended
September 30, 1987.
Disbursements - Payroll
Personnel compensation and benefits disbursements amounted to
$82,597,072, which, represented actual personnel compensation and
benefits paid during fiscal 1987 on a cash basis.
NOTE
DISBURSEMENTS QUESTIONED
Questioned disbursements of $905,485 consist of $895,862 for
general support services costs improperly allocated to the
Superfund appropriation, and $9,623 of disbursements based upon
the projection of an exception from the statistical sample
transactions.
61
-------
EXHIBIT II
(CONTINUED)
General support servicing costs were questioned due to errors in
cost allocations as follows:
Description
Region J.
Transportation of Things $ 5,467
Rent, Communication and
Utilities 15,067
Printing and Reproduction 1,920
Other Contractual Services 56,238
Supplies and Materials 21,834
Equipment 19,706
Land and Structures
Grants, Subsidies and
Contributions
Insurance Claims and
Indemnities
Total
$120,232
Region £
$
(2,915)
(6,003)
23,977
$15,059
X8B3BS
Headouarterg Total
$ 923 $ 6,390
517,756
92
217,583
6,529
16,735
105
529,908
(3,991)
297,798
28,363
36,441
105
645
$760,571
mnmamm*
845
$895,862
Additional details relating to these cost allocation errors are
contained in Finding 2. Additional details relating to the
testing of disbursements are contained in Finding 6.
62
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APPENDICES
-------
APPENDIX 1
SCOPE AND METHODOLOGY OF STATISTICAL SAMPLING
The primary objective of the Hazardous Substance (Superfund) audit was to
determine the dollar reasonableness of reported obligations and disbursements for fiscal year 1987.
The audit was designed to produce valid agency-wide estimates of the total dollar obligations and
disbursements by major object class, the discrepancy between the recorded and actual (audit)
amounts, the total dollar amounts questioned and set aside by the auditors, and the proportion of
transactions recorded in accordance with specified internal control or compliance attributes (e.g.,
the proportion of transactions for which the recording of obligations complied with established
internal controls or EPA policies and procedures, or the proportion of accounts for which the
recording of disbursements complied with established internal controls or EPA policies and
procedures). Statistical samples were selected for the audit from three separate data files provided
by the EPA Financial Systems Branch: (1) the "paymerge" file consisting of personnel
compensation and benefits transactions; (2) the "allotment" file consisting of summary records of
nonpayroll obligations; and (3) the "detail history" file consisting of nonpayroll transactions
recording disbursements. The procedures used to select the audit samples are described below in
Section I. Section 2 summarizes the procedures used to calculate the statistical projections from
the sample.
1. Sampling Procedures
1.1 Personnel Compensation and Benefits
The sampling frame (i.e., "universe" file of personnel compensation and benefits
transactions) was constructed from a file of Superfund payroll transactions provided by the EPA
Financial Systems Branch (FMSY.AUDIT.SFFY8713.TAPEJ>AYMERGE). This file is referred
to as the "paymerge'' file and includes over 931,000 individual transaction records representing
$84.546,009* in payroll disbursements. Records in the frame were initially aggregated by social
'This figure represents the total Superfund personnel compensation and benefits disbursements recorded in the
paymerge file for fiscal year 1987. As explained in Note 2, certain out of scope transactions were excluded from this
universe, reducing the universe to $84,485,884. Further, during the audit, the auditors determined thai it would not
be feasible to test certain types of benefit transactions, which totaled $2,852,253. This resulted in a universe
amounting to 581,633,631. from which projections were made.
63
-------
security number (SSN) and pay period (PP) to form 93,470 consolidated SSN/PP units. These
SSN/PP units should represent an employee's Superfund pay distribution for each pay period. On
average, there were 10 transaction records per unique SSN/PP, although the actual number of
transactions varied widely by SSN/PP. These SSN/PP units formed the basic sampling unit for
the audit.
A decision was made to test certain unusual transactions in their entirety. Thus, all
SSN/PPs with erroneous dates2, and all SSN/PPs with negative net disbursements were included
in the sample. In addition, a stratified sample of 452 SSN/PPs was selected from the remaining
transactions. The strata from which the samples were drawn were defined on the basis of the sum
of the dollar amounts of the transactions associated with the SSN/PP3. The sample was allocated4
to the strata in a way that was expected to minimize the sampling errors of numeric variables
correlated with the reported dollar amount. Under this allocation, all SSN/PPs with dollar amounts
of $6,000 or more were included in the sample (i.e., sampled with "certainty"). Within each of the
remaining size strata, the universe file of SSN/PPs was randomly sorted, and a systematic sample
of the desired size was selected from the sorted file. Table 1 summarizes the counts of transactions
and SSN/PPs in the paymerge frame, and the corresponding counts in the sample.
2For this purpose, values of 0000,0186,0386,0986,1044, or 1226 for month and year in the paymerge data record
were considered to be erroneous.
3The dollar amount for an SSN/PP was computed prior to deleting certain transactions having "out of scope* source-
of-fund (SOF) codes (U, SOF codes other than T or "N"). SOF codes of T and "N" represent fiscal year 1987
transactions. Consequently, the size classes used to select the samples may not correspond to the actual size of the
consolidated SSN/PP record. However, this discrepancy was trivial because the number of records with ineligible
SOF codes in the paymerge file was small, and in no way biased the projections from the sample.
4Let Njj denote the total number of SSN/PPs in size stratum h. and let Sj, denote the standard deviation of dollar
amounts (disbursements) of all SSN/PPs in stratum h, where h » 1, 2,.... L. The values of Nh and Sh were
obtained directly from special tabulations of the paymerge file. Given the total sample size n, the approximately
optimum number of cases to be sampled from stratum h is then given by (e.g., see equation 5-25. chapter 5 in
Cochran (1977): Sampling Techniques, John Wiley & Sons):
64
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Table 1.
Distribution of SSN/PP units in payroll trtniaction frune aid sample
Description
of stratum
Total for
site strata
SSNlPPs with
improper data
SSN/PPs with
negative
disbursements
TOTAL
Total disburse*
menu* as
recorded in
paymerge file
J 94, 458.1 83
27.222
479
S 84.48S.884
Number of
SSN/PP units
in universe
93J22
23
125
93,470
Number of
transactions
in universe
929.342
393
1.300
931.03S
Number of
SSN/PPs
in sample
452
23
125
600
Number of
transactions
in sample
5,2 JO
393
1.300
6.903
The dollar amounts in the table reflect only transactions with source-of-funds (SOF) codes of "7" or "N."
See footnote 3 in text.
1.2
Nonpavroll Obligations
The sampling frame of nonpayroll obligations was constructed from a file of
Superfund nonpayroll obligation records provided by the EPA Financial Systems Branch
(FMSY.AUDIT.MASTSF.FY8713.H6150). This file is referred to as the "allotment" file and
contains over 530,000s individual obligation records. Three separate "subuniverses" were defined
for sampling and analysis: (Al) contracts - major object class 25; (A2) cooperative agreements -
major object class 41; and (A3) all other object classes, excluding object classes 11, 12, and 13
(personnel compensation and benefits). About 90,000 obligation records are included in the three
subuniverses indicated above. With only a few exceptions, each record in the file is uniquely
identified by the obligation document number, document control number, account number, and (4-
digit) object class. The total amount recorded in the FMS (allotment file) for the obligations in the
three subuniverses is S930.492.5806. The distribution of the sampling units and corresponding
obligations is summarized in table 2 by subuniverse.
5This number includes all source of fund codes. About 160.000 of the 530.000 obligation records have source of
funds codes of "7" and "N," Le., those relating to fiscal year 1987.
figure excludes personnel compensation and benefits obligations (object class 11, 12. or 13). These object
classes account for $85,004.567 in the allotment file. When added 10 the amount for the three subuniverses. Uie
total obligations are 51,015,497.148.
-------
Approximately 1,600 records related to non-payroll obligations were selected from
the FY87 "allotment" file for the audit A stratified sample of obligation records was selected from
each of the three major object class groups (subuniverses). The strata from which the samples
were drawn were defined on the basis of the obligation as recorded in the allotment file. The
sample was allocated to the strata in a way that was expected to minimize the sampling errors of
numeric variables correlated with the dollar amount recorded in the allotment file. Under this
allocation, records with the largest obligations were selected with certainty. Thus, for subuniverse
Al, all records with obligations of $600,000 or more were included in the audit sample, whereas
for subuniverse A2, all records with obligations of $100,000 or more were included in the sample,
and for subuniverse A3, all records with obligations of $50,000 or more were included in the
sample. Within each of the remaining size strata, the universe file of obligation records was
randomly sorted, and a systematic sample of the desired size was selected from the sorted file.
Table 2 summarizes the distribution of the sample by subuniverse. Note that all duplicate records
(cases with the same obligation document number, document control number, account number,
and object class code), and all records with negative dollar amounts were included in the sample
with "certainty."
66
-------
Table!
Distribution of obligation records in the allotment file and in the sample by subunivene
Sufttniverse
Al
Major Object
Class 25
A3
Major Object
Class 41
A3
All Other
Object Classes
Except 11, 12.
and 13
Sat
class
negative
-------
Three separate "subuniverses" were defined for sampling and analysis: (Bl)
contracts - major object class 25; (B2) cooperative agreements - major object class 41; and (B3) all
other object classes, excluding object classes 11, 12, and 13. Within each subuniverse,
transactions were stratified by size, and whether the transaction recorded a disbursement (group 1)
or reversed (credited) a disbursement (group 2)8. The counts of sampling units and corresponding
dollar amounts are summarized in table 3 by subuniverse and transaction group.
Approximately 1,400 transactions related to nonpayroll disbursements were
selected from the FY87 detail history file. A stratified sample of disbursement transactions was
selected from each of the three major object class groups (subuniverses). The sample was
allocated to the strata in a way that was expected to minimize the sampling errors of numeric
variables correlated with the dollar amount recorded in the detail history file. Under this allocation,
records with the largest amounts were selected with certainty. Thus, for subuniverse Bl, all
records recording a disbursement of $600,000 or more, and all records reflecting a reversal of
$400,000 or more were included in the audit sample. For subuniverse B2, all records recording a
disbursement of $150,000 or more, and all records reflecting a reversal of $37,500 or more were
included in the audit sample. Finally, for subuniverse B3, all records recording a disbursement of
$100,000 or more, and all records reflecting a reversal of $25,000 or more were included in the
audit sample. Within each of the remaining size strata, the universe file of disbursement
transactions was randomly sorted, and a systematic sample of the desired size was selected from
the sorted file. For each subuniverse, the goal in allocating the sample to the size * type strata was
to achieve a relative sampling error of about 1.5 percent (at the 95 percent confidence level) for an
estimate of total dollar disbursements. Table 3 summarizes the distribution of the sample by
subuniverse and transaction group.
8SpecificaHy. records having transaction codes of 181 or 191 and a reversal code ofi, or a transaction code of 236
and a reversal code of 2 were assigned to transaction group 1. These transaction codes record disbursements in the
FMS. Records having uansaction codes of 181 or 191 and a reversal code of 2. or a transaction code of 236 and a
reversal code of 1 were assigned to transaction group 2. These transaction codes reverse or credit disbursements in
the FMS.
68
-------
Duiribuiioa of diibuneiDent tnniKtioni ia aniveiw tad in wmpk by nbvnmna
StftaiuwM
Bl
Major
Object
Out 25
B2
Major
Object
O.I.4I
S3
All other
object eUiset
except
II. 12. 13
Transaction
iyp*
Group 1
(Diibune-
•eon)
Gravpl
(RevoMli)
Group 1
(Du bone-
Group 2
(Revert ill)
Group 1
(Dubune-
Group2
(ReveruU)
TOTAL FOR BI, Bl, B3
5iM
c/ocr
-------
2.
Estimation Procedures
Two general types of estimates (projections) were made from the audit results: (1)
estimates of total dollars and differences between the audit and recorded amounts, and (2) estimates
of the number or proportion of units with specified attributes. The procedures used to calculate the
sample-based estimates and their corresponding sampling errors are described below. The
"subuniverses" for which estimates were calculated are summarized in table 4.
Table 4. Definition of subuniverses (analytic classes)
Subuniverse
Description
1
2
3
4
5
6
Al: Obligations, major object class25
A2: Obligations, major object class 41
A3: Obligations, other non-payroll object
classes
B1: pisfanaexDtnfs, major object class 25
B3: Disbursements, other non-payroll object
classes
Personnel compensation
2.1
Estimates of Total Dollars
A "difference estimator" was used to obtain estimates of the total dollar value
(accepted amount) for each of the subuniverses indicated in table 4. The general form of this
estimator is:
where
the estimated total audit amount for subuniverse g;
70
-------
L( a the number of sampling strata defined for subuniverse g;
Xgj, • the total dollar amount recorded in the FMS for all transactions
in stratum h of subuniverse g;
n.|j = the number of sample units in stratum h of subuniverse g which
were tested9;
xjhi s the dollar amount recorded in the FMS for the ith5
-------
sample as:
dg = the estimated total questioned, amount for subuniverse g;
d. = the estimated total set-aside amount for subuniverse g.
The questioned and set-aside amounts for subuniverse g were computed from the
where
d«hi ** the questioned amount for the Jth sample unit in stratum A of
subuniverse g;
dghi = the set-aside amount for the ith sample unit in stratum h of
subuniverse g.
2.2
Estimates of Attributes
Attribute variables were coded as 1 (an exception), 0 (no exception), or N (not
applicable)10. Denoting the subuniverse by g, the stratum by h, and the sampled unit by i, the
projected number of exceptions for a particular attribute for subuniverse g, zg", was computed as:
where
N.
> the number of sampling strata defined for subuniverse^;
3 the total number of sampling units in the FMS in stratum h
of subuniverse #;
> the number of sample units in stratum h of subuniverse g for
which the given attribute was coded as 0,1, or N.
zghi a* 1 if the given attribute was coded as 1, and equals 0 otherwise.
10In a few cases the sample unit was not tested Although these "nonrcsponses" did not enter into the calculation of
the projections of attributes, they are reflected in the estimates of the number of exceptions.
72
-------
For a given attribute, the estimated number of units in subuniverse g to which the
attribute applies was computed as:
where b^ is the number of sample cases in stratum h of subuniverse g for which the attribute was
coded as 1 or 0.
The corresponding estimated proportion of applicable cases which are exceptions
was computed as:
2,3 C^|pilfrrioi| of Samofing Errors.
The estimates given in the preceding section (referred to as sample projections) are
based on one particular subset (sample) of transactions, and thus are subject to sampling
variability. The "standard error" of the estimate provides a measure of this sampling variability,
and was used to construct intervals within which we would expect the "vac" population values to
lie. These intervals are referred to as confidence intervals, and have been computed for the sample-
based estimates described in the previous section.
For the projected audit amount, yf", using the difference estimator defined in
section 1.1, 95 percent confidence limits around the "true" population total are given by the
expression yf "± 1.96 s(yf"), where y^" is the sample estimate, and s(yg") is the standard error of
the estimate. The standard error of the estimate was computed from the expression:
73
-------
where
N
,h
*,h)2/(nfh-l)
and where ygh and Xgh refer to the ayjaage. audit and recorded dollar amounts per sample unit in
stratum h of subuniverse g, respectively.
For attribute variables, 95 percent confidence limits around the total number of
exceptions in the population are given by the expression z,' ± 1.96 sCz,1), where zt' is the sample
estimate defined in section 1.2, and s(zg') is the standard error of the estimate defined by the
expression:
where
and
For an estimated proportion, ps, the corresponding standard error was computed
as:
where
-------
APPENDIX 2
PROJECTIONS FROM TOE SUPERFUND AUDIT
FOR FISCAL YEAR 1987
The following tables summarize the projections made from the 1987 Superfund
audit The projections include estimates of total dollar obligations and disbursements, by major
object class, and also estimates of the number of exceptions and corresponding error rates for
various attributes. The error rates shown in tables 4A through 8 for the different attributes have
different bases (denominators) depending on the estimated number of transactions in the universe
to which the particular attribute applied. The formulas used to compute the projections are given in
section 2 of Appendix 1. Also given in the tables are estimates of sampling precision for the
various projections (i.e., standard errors and 95 percent confidence limits).
List of Tables
Table
1
1A
2
2A
3
4A
4B
4C
Tide
Estimates of accepted, questioned, and set-aside nonpayroll
obligations, by subuniverse.
Estimates of accepted, questioned, and set-aside nonpayroll
obligations, for major object classes 21,23,26,31.
Estimates of accepted, questioned, and set-aside nonpayroll
disbursements, by subuniverse.
Estimates of accepted, questioned, and set-aside nonpayroll
disbursements, for major object classes 21,22,23,31.
Estimates of audit amounts and errors for payroll disbursements.
by major object class.
Projections of error rates for attributes related to obligations
for major object class 25 (contracts).
Projections of error rates for attributes related to obligations
for major object class 41 (cooperative agreements).
Projections of error rates for attributes related to nonpayroll
obligations for all major object classes except 25,41.
75
-------
List of Tables (continued)
Table
5A
5B
5C
6
7
8
Tide
Projections of error rates for attributes related to nonpayroll
disbursements for major object class 25 (contracts)
Projections of error rates for attributes related to nonpayroll
disbursements for major object class 41 (cooperative agreements)
Projections of error rates for attributes related to nonpayroll
disbursements for all major object classes except 25,41.
Projections of error rates for attributes related to payroll
transactions.
Projections of error rates for nonpayroll obligations, major
object classes 21,23,26, and 31.
Projections of error rates for nonpayroll disbursements, major
object classes 21,23,26, and 31. •
76
-------
Table 1. Estimates of accepted, questioned, and let-wide nonpayroU obligations, by subuniverse
Major object
f|««y
25
Contracts
41
Cooperative
agreements
Other
object classes
-
Obligations
FMS amount ft)
Accepted (audit) amount
Questioned amount
Set-aside amount
FMS amount
Accepted (audit) amount
Questioned amount
Set-aside amount
FMS amount (2J
Accepted (audit) amount
Questioned amount
Set-aside amount
Sample
estimate!
$719,732*54
$719,732,954
SO
$0
$I66J07J09
$166,207,009
$0
$0
$47J015J97
$46,915,892
$99^05
$0
Standard
—
—
—
—
—
—
76M53
76,253
—
95 paiLciit confidence limits
Lower
limit
—
—
—
—
—
—
46.766.436
-49,951
_
Upper
limit
—
__
—
—
—
—
47,065,348
248.961
—
fFor the accepted, questioned, and set-aside amounts, entries are projections. The FMS amounts are 'universe' totals obtained from
files provided by the Financial Systems Branch.
161 obligation records in "nejanve" stratum.
[2JExcludes 323 obligation records in "negative' stratum, and 46 obligation records in "duplicate" stratum.
77
-------
Table 1 A. Estimates of accepted, questioned, «nd set-aside nonpayroll obligation*, for msjor object elasiet 21.23,26,31 *
Major object
frlttft
21
23
^26
31
Obligations
FMS amount
Accepted (audit} amount
^jiesBffHBfl amount
Set-aside amount
FMS amount
Accepted (audit) amount
Questioned amount
Set-aride smount
f MS amount
Accepted (audit) amount
Quesiioned amount
Set-aside amount
FMS amount
AoLcpted (ttioit) ttfmmt
i^hwwtWMHlH aMfWVffaf
s*— —
Sample
cstioatet
$7J72,661
$7^72,661
$0
$0
$16J44fl4
$16^44^>14
$0
$0
«,
-------
Ttble 2. Estimates of accepted, questioned, and let-wide nonpayroU disbursements, by rabuiivcne
Major object
das*
25
Contracts
41
Coopcn&vc
•jjocmcntf
Other
object classes
Disbursements
FUS amount
Accepted (audit) amount
Set-aside amount
FMS amount
Accepted (audit) amount
Questioned amount
Set'Sftde amount
FMS amount
Accepted (audit) amount
Questioned amount
Set-aside amount
Simple
erttmaur
$373J26J47
$3n&6JA7
$0
SO
t43146J31
$43^46,131
SO
SO
t30,7«3,6SO
$30,754,027
$5,623
$0
SunUrd
cnor
—
—
9360
9,560
—
95 percent confidence limits
Lower
limit
—
—
30,735 .289
-9,115
—
Upper
limit
—
—
30,772.765
28.36}
—
fFdr die accepted, questioned, and set-aside amounts, entries are projections. The FMS amounts are "universe" totals obtained from
files provided by the financial Systems Branch.
79
-------
Table 2A. Estimate* of accepted, questioned, and set-aside nonpayrpQ disbursements for major object classes 21,22,23,31
Major object
class
21
22
23
31
Obligations
FMS amount
Accepted (audit) amount
Questioned amount
Set-aside amount
FMS amount
Accepted (audit) amount
Questioned amount
Set-aside amount
FMS amount
Accepted (audit) amount
Oimdifkntvl •mnunf
FMS amount
Accepted (audit) amount
QiMarioMrf •iiaaml
ueauuneu amuuw
CM* • ••!!• MMWM*
dd^avoB aiiHEiin
Sample
estunatef
$6,553,164
$6,543,541
$9,623
SO
$397,4*8
$397,488
$0
$0
$14,402,135
$14,402,135
$0
$0
S6J94,4ll
$«4H4U
$0
$0
StBadVD
—
9^60
9^60
—
—
—
—
—
—
—
—
—
95 uataa confidence limit*
Lower
limit
—
6424.803
-9.115
—
—
—
—
_
_
—
— .
—
Upper
limit
—
6462.279
28461
—
—
—
—
—
—
—
—
—
tForthe accepted, quecd^oed, and set-aside amounts, entries are projections. The FMS amoimu are "universe" totals obtained from
file* provided by the Financial Systems Branch.
80
-------
Table 3. Estimates of audit amount ami arm for payroll disbursements, by major object class
Major object
class
11
Compensation
12*
Benefits
TOTAL
Disbursements
FMS amount 1 1]
Accepted (audit) amount
Enw (difference)
FMS amount (I]
Accepted (audit) amount
Emr (difference)
FMS amount (I)
Acorpted (audit) amount
Emr (difference)
Samplt
esUmatef
$73,7S6J08
$73,960,010
$203,102
97JMS34
$7,676,988
(S17L546)
$910)5,441
$81,636,998
$31,556
Standard
eoor
72S.074
725.074
110.118
110.118
*
763.663
763.663
95 percent confidence limits
Low
limit
7Z.538.865
-U18.043
7,461.157
-387 J77
^^
80.140.219
-1,465^23
Upper
limit
75481.155
1.624.247
7.891819
44.285
fU^
83433.777
U28.335
•Induda cnty object dazset 1210 and 1211.
tFor accepted amounts and errors, entries an projections. The FMS amounts are "universe" totals obtained from files provided by
die Financial Systems Branch.
[IJExchides amounts for 23 SSNjPPi with enoneous dates and 124 SSN/PPs in (be "negative" stratum.
81
-------
Table 4 A. Projections of error rates for attributes related to nonpayroll obligations for major object class 25
(contracts)
Auributet
A
B
C
D
E
F
G
H
I
J
K
Projected
number of
exceptions
0
97
0
0
0
1
126
294
3,238
1,744
493
Standard
enor
_
77
—
—
—
0
47
294
878
729
90
95 percent confidence limits
Lower
limit
_
0
_
—
—
1
34
0
1417
315
317
Upper
limit
_
248
—
—
—
1
218
870
4.959
3,173
669
Estimated
error rate
0.00%
0.77%
0.00%
0.00%
0.00%
0.01%
1.45%
3.40%
41.89%
22.58%
1U7%
tDefinition of Attributes:
A: Obligation document number agrees with obligating document
B: Document control number agrees with obligating document.
C: Account number agrees with obligating document, and account number begins with 7 or N.
D: Object class agrees with obligating document
E: Object class appears reasonable based on description of obligation,
F: Appropriation number is Superfund.
G: Written superfund justification/statement of need is on obligating document
H: Name of authorized official agrees with authorized official's signature list maintained by FMO.
I: Receipt of obligating document is timely (S 3 days).
J: Posting to FMS by FMO is timely (£ 4 days).
K: If obligation amount > $25,000, a commitment was previously entered into FMS.
62
-------
Table 4B. Projections of enor rates for attributes related to nonpayroll obligations for major object class 41
(cooperative agreements)
Attribute!
A
B
C
D
E
F
G
H
1
J
K
Projected
number of
exceptions
5
0
5
1
0
6
16
46
220
274
14
Standard
enor
5
—
5
0
—
1
11
15
23
24
0
95 percent confidence limits
Lower
limit
0
—
0
1
—
4
0
17
175
227
14
Upper
limit
15
__
15
1
_
8
38
75
265
321
14
Estimated
error rate
0.83%
0.00%
0.83%
0.17%
0.00%
0.99%
3.01%
7.59%
3630%
45.21%
2.89%
tDefinition of Attributes:
A; Obligation document number agrees with obligating document.
B: Document control number agrees with obligating document.
C: Account number agrees with obligating document, and account number begins with 7 or N.
D: Object class agrees with obligating document.
£: Object class appears reasonable based on description of obligation.
F: Appropriation number is Supeifund.
G: Written superfund justification/statement of need is on obligating document
H: Name of authorized official agrees with authorized official's signature list maintained by FMO.
t Receipt of obligating document is timely (£ 3 days).
J: Posting to FMS by FMO is timely (S 4 days).
K: If obligation amount > $25.000, a commitment was previously entered into FMS.
83
-------
Table 4C. Projections of error rates for attributes related to nonpayrolJ obligations for all major object classes
except 25,41
Auribulet
A
B
C
D
£
F
G
H
I
J
K
Projected
number of
exceptions
5,153
5,520
5,911
4,770
5,488
6,935
12,341
18,465
34,184
39,238
4425
Standard
error
2,082
2.110
2,132
2,060
2,108
2.386
2,995
3.526
3.981
4.017
2.082
95 percent confidence limits
Lower
limit
1.072
U84
1.732
732
U56
2258
6,471
11354
26381
31365
444
Upper
limit
9.234
9.656
10,090
8.808
9.620
11.612
18.211
25376
41.987
47,111
8,606
Estimated
error rate
737%
725%
7.76%
636%
723%
1131%
16.64%
2525%
4921%
56.62%
3839%
TDefiniuon of Attributes:
A; Obligation document number agrees with obligating document
B: Document control number agrees with obligating document.
C: Account number agrees with obligating document, and account number begins with 7 or N.
D: Object class agrees with obligating document
E: Object class appears reasonable based on description of obligation.
F: Appropriation number is Superfund.
G: Wriaeo superfund justification/statement of need is on obligating document
H: Name of authorized official agrees with authorized official's signature list maintained by FMO.
t Receipt of obligating document is timely (S 3 days).
J: Posting to FMS by FMO is timely (£ 4 days).
K: If obligation amount > $25,000, a commitment was previously entered into FMS.
84
-------
Table SA. Projections of error rates for attributes related to nonpayroll disbursements for major object class 25
(contracts)
Attribute!
A
B
C
D
E
F
G
H
I
J
k
L
M
N
O
Projected
number of
exceptions
1,382
0
40
80
222
661
756
40
921
0
0
119
11,241
6,538
660
Standard
error
977
—
39
55
221
659
677
39
696
_
—
119
1,652
1,664
659
95 percent confidence limits
Lower
limit
0
—
0
0
0
0
0
0
0
—
—
0
8,003
3,277
0
qpper
limit
3,297
_
116
188
655
1.953
2,083
116
2,285
—
—
352
14,479
9.799
1,952
Estimated
error rate
2.13%
0.00%
0.06%
0.14%
2.17%
1.61%
1.17%
0.06%
1.51%
0.00%
0.00%
0.65%
52.07%
10.62%
27.87%
t Definition of Attributes:
A: Obligation document number agrees with disbursement documents.
B: Document control number agrees with disbursement documents.
C: Account number agrees with disbursement documents.
D: Object class agrees with disbursement documents.
E: Object class appears reasonable based on description of goods or services on disbursement documents.
F: Valid obligation was recorded in FMS prior to disbursement
G: Project officer or approving official is authorized to approve payment and approval is indicated on
dcuments.
H: Invoice, receiving reports, approval forms and obligation documents are matched and indicate evidence of
verification.
L Disbursement documents are perforated and stamped paid and iiidicaie treasury schedule number and date.
J: Check amount agrees with treasury schedule amount
K: Certifying officer is authorized to certify payments and signature is on treasury schedule SF-1 166.
L: Date approved by project officer or authorized official was prior to date certified by certifying officer.
M: Invoice was paid on time, but not early (S 30 days but 2 25 days, unless discount was taken).
N: Posting of disbursement to FMS by SFO was timely £ 4 days).
O. Cash discount, if available and cost-effective, was taken.
85
-------
Table SB. Projections of error rates for attributes related to nonpayroU disbursements for major object class 41
(cooperative agreements)
Auributef
A
B
C
D
E
F
G
H
I
J
Projected
number of
exceptions
0
15
7
19
512
583
94
691
0
0
Standard
error
.
11
5
19
88
78
47
97
—
~
93 percent confidence limits
Lower
limit
.
0
0
0
340
430
2
SOI
-
™
Upper
limit
37
17
56
684
736
186
881
—
—
Estimated
error rote
0.00%
0.72%
034%
054%
25.50%
28.61%
4.57%
33.86%
0.00%
0.00%
tDefinition of Attributes:
A: Obligation document number agrees with drawdown request for L schedule.
B: Document control number agrees with grant payment history record or FMO report.
C: Account number agrees with grant payment history record or FMO report.
D: Valid obligation was recorded in FMS prior to drawdown.
E: Drawdown request or L schedule indicates evidence of review by technician for cash balanc
of funds.
F: Authorized official's approval was indicated on drawdown request of L schedule.
G: Authorized official's approval was timely ($1 day).
H: Posting to FMS by SFO was timely (S 3 days).
I: Drawdown amount agrees to amount posted to grant payment history or FMO report
J: Drawdown amount was included in monthly confirmation from treasury.
t and availability
86
-------
Table SC. Projections of error rates for attributes related to nonpayroU disbursements for all major object
classes except 25.41
Auributef
A
B
C
D
E
F
0
H
I
J
K
L
M
N
O
Projected
number of
exceptions
90
1366
1,663
144
16
534
9,918
970
8457
W22
3,729
4,793
22,700
14323
194
Standard
error
78
936
871
79
5
316
2.195
808
2312
1,281
1.479
1.731
3,251
2,644
' 90
95 percent confidence limits
Lower
limit
0
0
0
0
6
0
5.616
0
4.025
0
830
1.400
16328
9.141
18
Upper
limit
243
3,201
3370
299
26
1.153
14,220
2354
13,089
4,833
6.628
8.186
29,072
19305
1 370
Estimated
error rate
0.11%
1.72%
2.04%
0.18%
0.02%
0.72%
1231%
124%
11.70%
3.12%
5.17%
7.01%
70.94%
19.46%
1.77%
tDefinition of Attributes:
A: Obligation document number agrees with disbursement docu
B: Document control number agrees with disbursement documents.
C: Account number agrees with disbursement documents.
D: Object class agrees with disbursement documents.
E: Object class appears reasonable based on description of goods or services on disbursement documents.
F: Valid obligation was recorded in FMS prior to disbursement.
G: Project officer or approving official is authorized to approve payment and approval is indicated on
disbursement documents.
H: Invoice, receiving reports, approval forms and obligatkm dooin»ents are inatcbed and indicate evidence of
verification.
L Dfchinfnft dlHaB1*"^ ff»- perforated and aamped paid and indicate treasury schedule number and date.
J: Check amount afree* with treasury schedule amount
K; Certifying officer to authorized to certify payments and signature is on treasury schedule SF- 1166.
L: Date approved by project officer or authorized official was prior to date certified by certifying officer.
M: Invoice was paid on time, but not early (S 30 days but 2 25 days, unless discount was taken).
N: Posting of disbursement to FMS by SFO was timely (S 4 days).
O: Cash discount, if available and coa-effecdve, was taken.
87
-------
Table 6. Projections of error rates for attributes related to payroll transactions
Affiibutet
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
Projected
Dumber of
exceptions
1,743
12,623
1,743
9494
4,622
230
20389
3,721
8,755
14,765
9,692
6,131
1,653
2329
696
Standard
CHUT
676
1334
676
1,660
988
230
2.211
1,174
1.626
2.023
1.689
1,167
649
853
365
95 percent confidence limits
Lower
limit
418
9.028
418
6,040
2,686
0
16455
1.420
5,568
10.800
6382
3,844
381
1,157
0
Upper
limit
3.068
16,218
3.068
1^548
6458
681
25.223
6,022
11,942
18,730
13.002
8,418
2.925
4401
• 1,411
Estimated
error rate
3.83%
1838%
5-31%
1349%
521%
1339%
2436%
434%
12.78%
21.60%
14.19%
16.17%
25.44%
41.63%
20.74%
tDefinition of Attributes:
A: Account number agrees with time card.
B: Account number agrees with timesbeeL
C: Hours agree with timecard.
D: Hours agree with time sheet
E: Dollar amount agrees with audited hours x pay rate,
F: Dollar amount agrees with audited base amount x benefit rate.
G: Timecard certified by timekeeper.
H: Timecard certified by supervisor.
L Timesheet certified by employee.
Jt Timesheet certified by rimfV"p*Ti
K: Timesheet certified by supervisor.
L: Leave rime supported by application for leave or timecard entry initialed by employee.
M: Overtime hoori,compensatoiy rime wortod, and pronium pay supported
authorization of overtime work.
N: Overtime hours approved by approving official in remarks column on time card.
O: Correction of previous timesheet entries supported by revised timeshe«an(l/or redistribution of payroll
charges.
88
-------
Tabie 7. Projections or error rales for nonpayroll obligations, major object classes 21.23,26, and 31
Attribute!
A
B
C
D
E
F
G
H
I
J
K
Major object
class 21
7.5%
7.6%
8.2%
6.6%
6.5%
10.5%
15.5%
26.5%
50.8%
60.5%
402%
Major object
Class 23
272%
24.4%
24.4%
24.4%
28.2%
25.0%
30.5%
31.1%
38.9%
63.0%
0.0%
Major object
class 26
0.0%
0.0%
0.0%
0.0%
9.6%
0.0%
11.4%
33%
18.9%
15.8%
0.0%
Major object
class 31
03%
03%
03%
03%
117%
263%
34.7%
2J%
48.8%
20.4%
82%
Total*
7.4%
73%
7.8%
6.4%
72%
113%
16.6%
253%
492%
56.6%
38.6%
-Total for all object classes except 25,41,11,12,13.
tDefinition of Attributes:
A: Obligation document number agrees with obligating document
B: Document control number agrees with obligating document
C: Account number agrees with obligating document, and account number begins with 7 or N.
D: Object class agrees with obligating document.
£: Object class appears reasonable based on description of obligation.
F: Appropriation number is Superfund.
G: Written superfund justification/statement of need is on obligating document.
H: Name of authorized official agrees with authorized official's signature list maintained by FMO.
L Receipt of obligating document is timely (S 3 days).
J: Posting to FMS by FMO is timely (S 4 days).
K: If obligation amount > $25,000, a commitment was previously entered into FMS.
89
-------
Table 8. Projections of error races for nonpayroll disbursements, major object classes 21,23,26, and 31
Attributef
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
Major object
class 21
0.1%
0.7%
2.1%
0.0%
0.0%
0.8%
12.9%
0.0%
10.4%
3.6%
5.5%
5.7%
85.1%
20.1%
0.1%
Major object
class 23
0.0%
0.9%
0.4%
0.4%
0.0%
0.0%
4.1%
32.2%
35.1%
0.0%
12.2%
3.6%
27.7%
1.1%
0.0%
Major object
class 26
0.0%
14.4%
22%
0.0%
0.0%
0.0%
4.0%
0.0%
1.5%
0.0%
0.0%
18%
24.9%
6.1%
0.0%
Major object
class 31
0.2%
0.2%
3.1%
3.6%
0.4%
0.1%
43-5%
8.3%
8.5%
0.5%
0.2%
56.6%
43.9%
21.5%
58.8%
Total*
0.1%
1.7%
2.0%
0.2%
0.0%
0.7%
12.5%
U%
11.7%
3.1%
5.2%
7.0%
70.9%
19.5%
1.8%
•Total for all object classes except 25,41,11,12,13.
fDefinition of Attributes:
A; Obligation document number agrees with disbursement documents.
B: Document control number agrees with disbursement documents.
C: Account number agrees with disbursement documents.
D: Object class agrees with disbursement documents.
£• Object class appears reasonable based on description of goods or services on disbursement documents.
F: Valid obligation was recorded in FMS prior to disbursement.
0: Project officer or approving official is authorized ID approve payment and approval is indicated on
disbursement documents.
H: Invoice, recdving reports, approval forms and obUgatkmd^oimentssie matched and inolcateevkkoce of
verification.
t PfcfrTTTPT! lfW«l»""H ft p"*?™***1 •"* «*ampaH paid and mHifCM traa«my «riwfcil
-------
** i
-,
/ A
V£E
APPENDIX 3
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
AU3 I 9 1938
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT:
FROM:
TO:
Response to Draft Audit Report P5EH8-11-0030
Obligations and Disbursements of the Hazardous
Substance Super fund fqr->t*ve Fiscal Year Ended
September 30,
Assistant/Administrator
Ernest E. Bradley, III
Assistant Inspector General for Audit (A-109)
In response to your memorandum of July l, 1988, we have
reviewed the subject draft Superfund audit report and have
attached our comments. Although we generally agree with many of
the recommendations, we disagree with the conclusions and
recommendations that are immaterial and have no impact on the fair
presentation of obligations and disbursements.
We do not agree with the decision to set aside $24 million of
obligations and disbursements. This set aside was based on
projections of errors from statistical samples when the auditors
did not locate written Superfund justifications; however, other
documents available to support expenditures were not considered.
s~
I ^emphasize that we maintain and enforce adequate internal
controls to ensure Superfund monies are spent appropriately.
Relevant to this, the AICPA, Statement on Auditing Standards
generally states that while deviations from pertinent control
procedures increase the risk of material errors in the accounting
records* such deviations do not necessarily result in errors. The
Standards also indicate the relationship of procedural deviations
to other related internal controls should be considered (e.g.
approval signatures on obligating documents).
91
-------
- 2 -
We also question the summary conclusion that the projected
set aside costs represent a material weakness in the Agency's
schedule of obligations and disbursements. The total set aside
represents approximately 2.3% of obligations and less than 0.5% of
disbursements. we suggest that these variances are
"insignificant" and "immaterial" as indicated in professional
reporting standard, AICPA, Statement of Financial Accounting
Concepts #2.
The other recommendations that we do not support are those
that do not comply with established Agency guidelines. Several
recommendations require corrections to the Financial Management
System (FMS) even though Agency guidelines were followed. For
example, one recommends that we revise our existing policy for
allocating general support services costs to remedy incorrect
charges to the Superfund appropriation. We developed the Agency
policy for cost allocation to reflect a reasonable, consistent,
and practical method for allocating these costs. Acceptable
practices for large organizations are to develop estimating
processes which will ensure the best method for achieving a fair
presentation of financial position. Our present procedures and
guidelines, utilizing budgeted full-time equivalents (FTEs) in
lieu of actual FTEs, are appropriate for charging Superfund costs.
Our allocation method provides a fair presentation of our
financial position, and again with this finding, we believe the
recommended adjustments are immaterial. The rationale for our
current policy should have been considered in conjunction with the
magnitude of the error to total Superfund obligations and
disbursements.
For increased effectiveness in future audits, we suggest that
particular attention be focused on the fair presentation of
Superfund obligations and disbursements, the materiality of the
audit findings, and the compliance with AICPA pronouncements.
Attachment I to this memorandum contains our detailed
response to each recommendation and Attachment II contains
comments to the other report information. We would also
appreciate having our complete comments included in your final
report. Should you have any questions, please contact Anthony
Musick in the Financial Management Division on 382-5097.
Attachments
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ATTACHMENT I
RESPONSE TO RECOMMENDATIONS
DRAFT AUDIT REPORT IP5EH8-11-0030
Audit of Obligations & Disbursements Under
Hazardous Substances Superfund
This attachment contains our response to each recommendation
in the draft audit report. Additionally, we have the following
general comments concerning the overall audit.
o The timing of memos on the entrance conference provided
little or no notice to the financial management
officers (FMOs) on the agenda of the entrance
conference or the nature of the information
requested by the auditors.
o Some preliminary Notification of Findings (PNFs)
requested only clarification of an issue and were
subsequently withdrawn after the FMOs provided
written responses.
o Some PNFs were issued after the exit conference which
did not allow the FMOs time to prepare a response.
o At the Headquarters' exit conference, three audit findings
were raised for the first time.
o Auditors made numerous duplicate requests for information
previously provided.
o Requests for auditor space, locking file cabinets,
telephones, etc. were not made in consideration of our
available facilities. We provided what accommodations
were available, which at a minimum were equivalent to
those of the finance office staff. As you are aware,
space within EPA is at a premium.
We discussed this matter with the accounting firm and your
staff. We feel that to improve the effectiveness of the FY 1988
audit these foregoing items should be considered in planning the
audit. Additionally, we must work together on clearer and
increased communications between the contract auditors and the
FMOs.
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1.
Our responses to your specific recommendations follow:
IMPROVEMENTS ARE NEEDED IN ACCOUNTING FOR AND CONTROLLING
PERSONAL PROPERTY "" "~~" '
Recommendations/Responses
We recommend that EPA's Assistant Administrator for
Administration and Resources Management emphasize to Property
Accountable Officers (sic) the importance of complying with
Agency policies.
We agree that the Assistant Administrator (AA) for the Office
of Administration and Resources Management (OARM) should emphasize
the importance of complying with Agency policies and will direct
the Director, Facilities Management and Services Division (FMSD),
to send a memorandum to the property accountable officers re-
emphasizing the Agency's requirements for property.
We recommend that EPA's Assistant Administrator for
Administration and Resources Managementestablish an Agency policy
for reconciling property and accounting records.
We agree with the recommendation, but we cannot implement
this recommendation at the present time. 4QBBQlMfeiy« the Personal
Property Accounting System's (PPAS) infoi.i«aLiuflPtarused to capi-
talize items in the Financial Management System (FMS). In FY 1989,
the Financial Management Division (FMD) plans to use the Software
Package for Unique Reports (SPUR) to retrieve data from the FMS to
make these adjustments. This effort will be coordinated with the
FMSD..
In addition, the Director, Financial Management Division, has
reviewed the capabilities of the new Integrated Financial Management
System (IFMS) to ensure that the reconciliation function is suffi-
cient to comply with the General Accounting Office's (GAO) Policy
and Procedures Manual for Guidance of Federal Agencies, Title 2.
We recommend that EPA's Assistant Administrator for
Administration and Resources Management establish an Agency policy
for capitalizing EDP software.
The General Accounting Office will be issuing specific
guidance relative to capitalization of the Federal Government's
assets. Based on this guidance, the Director, FMD, will provide,
as necessary, the appropriate accounting structure and guidance to
account for these assets and will incorporate necessary revisions
to the Resource Management Directives System, Division 2550C,
Chapter 8, Property and Inventory. This chapter is scheduled for
completion during FY 1989.
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We recommend that EPA1s Assistant Administrator for
Administration and Resources Management provide additional training,
as necessary to instruct property management personnel in their
duties.''
We agree with the recommendation and we held training sessions
for property management officers in Cincinnati, Research Triangle
Park (RTF), and Headquarters in 1987. FMSD will also review the
contents of the current training sessions to incorporate issues
raised in this audit report.
In addition, the Director, FMSD, has requested additional
property management .resources through the Agency's formal budget
process. The FMSD has also taken opportunities to augment re-
sources whenever possible through the use of task forces. Speci-
fically, FMSD has established a Superfund Property Policy Task
Force and a Property Management Roundtable composed of two regional
representatives and property officials from Cincinnati, RTP, and
Headquarters. The latter group is tasked with resolving issues
and improving property management Agencywide.
We recommend that EPA's Assistant Administrator for
Administration and Resources Management obtain certifications from
Property Accountable Officers (sic) that corrective actions have
been taken to correct errors and omissions from the PPAS. ~
The AA for the OARM will require the Director, FMSD, to
correct and update the PPAS resulting from physical inventories
taken by the property management officers. Each property manage-
ment officer will be instructed to provide written confirmation to
the FMSD that such inventory has been completed.
We recommend that EPA's Assistant Administrator for
AdminTstration and Resources Management review the new Personal
Property AccountingSystem to ensure that it will adequately
account for Superfund property and will contain data elements to
I,
simplify reconciliation procedures.
The new PPAS ia currently being reviewed by FMSD to ensure
that the requirements for Superfund accountability are being met.
The new PPAS will also be reviewed for opportunities to streamline
the reconciliation process. The new PPAS will be an interim system
until the time when the Integrated Financial Management System is
implemented in FY 1989. We believe IFMS will eliminate the need
for manual reconciliation.
We recommend that EPA's Assistant Administrator for
Administration and Resources Management review the new I'n teg rated
Financial Management System to ensure that it will properly account
for capital equipment.
The Director, FMD, through the IFMS taskforce, has worked
extensively with the Director, FMSD, to ensure that the property
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module of IFMS meets the needs of the Agency. FMD held an
extensive review and comment period to address the technical,
policy and procedural capabilities of IFMS throughout OARM and
will continue to do so throughout the IFMS implementation process
in FY 1989.
We recommend that EPA's Assistant Administrator for
AdminTstration and Resources Management resolve the difference
between
cj
responsibility.
>etween the EPA directive (sic) and the Region 2 Counsel's opinion
;oncerning the need to sign a letter of acceptance of custodial
We disagree that a conflict exists between the Agency
Directive and the Region 2 General Counsel opinion. Custodial
officers are required to sign for property as part of their respon-
sibilities. In the event that custodial officers do not sign for
the property, they are not relieved of their responsibilities.
Therefore/ the Director, FMSp, will notify custodial officers, in
writing of their responsibilities as outlined by the EPA Directive,
2. PROCEDURES SHOULD BE MODIFIED FOR ALLOCATION OF GENERAL
SUPPORT SERVICES COSTS
Recommendations/Responses
We recommend that EPA's Assistant Administrator for
Administrationand Resources Managementrevise the allocation
methodology of theplanto clarify the requirements for
allocating costs based upon cumulative obligations and cumulative
disbursements separately.
We disagree with the recommendation that a revision to our
allocation methodology is necessary. The auditors have correctly
noted that obligations and disbursements are allocated at the same
time and in the same amount. The first step of the procedure
involves a calculation of obligations to be allocated, using
cumulative obligations and the appropriate FTE ratio. The dollar
value calculated is then used as the amount of obligations and
disbursements to be charged to Superfund each month. We believe
that this procedure is the most accurate and practical way of
allocating these costs.
The auditors suggest that "Superfund disbursements should be
recorded based upon the disbursements recorded in the S&E appro-
priation for the allocated costs." That suggestion is not
feasible because the initial allocations of obligations occur
at the General Ledger level — they are not tied to individual
spending actions but rather to total support cost obligations in
certain sub-object classes. Thus, it is highly impractical to
determine at the time funds are actually disbursed for any
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spending action, what ratio was used to allocate the obligation
for that spending action. Further, because the ratios are
constantly being adjusted throughout the year based on cumulative
figures, the neaningfulness of attempting to tie allocation of any
particular disbursement back to the original obligation is very
questionable.
We recommend that EPA's Assistant Administrator for
Administration and Resources Management change the policy to
require all cost allocations for general support services to be
based on actual FTE ratios.
We disagree that the Agency policy should be modified. We
feel that it accurately estimates the general support costs to be
allocated to the Superfund appropriation under the current method-
ology. The current methodology provides for a monthly allocation
of the cumulative Salaries and Expenses (S&E) appropriation to the
Superfund appropriation based on the cumulative monthly FTE ratio
of Superfund versus total FTEs. The cumulative FTE ratio
reflects both authorized and actual FTEs depending on the nature
of the cost.
The Agency's approach for using authorized FTEs in certain
instances reflects those circumstances where the use of actual
FTEs was not representative of Superfund*s use of Agency resources.
For example, the acquisition of space does not lend itself to the
use of actual FTEs since space must be determined in advance based
on a projected needs, i.e. the budget. Regardless of whether the
space is actually used during the year according to these pro-
jections, the space was available to the Superfund program. In
this instance, to apply actual FTE ratios to determine the allo-
cation would erroneously undercharge the Superfund appropriation
for its share of cost.
We also believe that the current methodology is consistent,
provides a fair estimate of costs, and does not materially distort
the amount of the Agency's obligations and disbursements. You
recommended in this report that we adjust the Superfund appropri-
ation to reflect actual ratios. The adjustment you proposed is
.15% of total Superfund obligations and disbursements. This low
percentage supports our position that our methodology does fairly
reflect the appropriate charges.
We recommend that EPA's Assistant Administrator for
AdminTstration and Resources Management require FMD to recal-
culate general support cost allocations for Headquarters based
on actual FTE ratios and make the appropriate adjustments to
Superfund.
We disagree with the basis for this recommendation and the
recommended action. As we stated in our response to the previous
recommendation, we feel that the current Agency policy for Superfund
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suppott cost allocation is effective for accurately projecting the
charges to the Superfund appropriation from the S&E appropriation.
We believe the Agency's policy for allocating general support
costs:
o provides the most conservative estimate,
o provides consistency across the Agency, and
o provides reliability of data within the FMS.
We also believe that any system for estimating costs will
contain some degree of error, however we maintain that adjustment
of .15% of total disbursements is insignificant and indicates in
fact, that our approach is a sound method for distributing general
support costs to the Superfund appropriation.
We recommend that EPA*s Assistant Administrator for
Administration and Resources Management require the Comptroller
to request the Regional Administrator of Region 3 to recalculate
general support costs using actual FTE ratios and make the appro-
priate adjustments to Superfund.
We disagree with the recommendation for the same reasons
stated in the two previous recommendations. We maintain that the
Agency methodology fairly estimates the amount of general support
costs.
The Comptroller will request the Regional Administrator for
Region 3 to use Agency guidelines for allocating general support
costs to the .Superfund appropriation.
We recommend thatEPA*s Assistant Administrator for
Administration and Resources Management obtain written certifi-
cations from the RegionalAdministrators of Regions 4, 5 and 10
that the general support services cost allocations for fiscal
2E
iL
1987 (sic) were recalculated and appropriate adjustments were
made.
We agree that the AA for OARM should request written
certifications from the Regional Administrators of Regions 4, 5,
and 10 that correcting adjustments were made to the general support
services cost allocations for FY 1987. However, subsequent to
completion of audit fieldwork, the Director, Financial Management
Division, received written confirmation from the Financial Manage-
ment Officers of Regions 4, 5 and 10 that corrections have been
made.
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3- EPA NEEDS TO STRENGTHEN PROCEDURES FOR MONITORING LETTERS
OF CREDIT""'
Recommendations/Responses
We recommend that EPA*s Assistant Administrator for
Administration and Resources Management request the Regional
Administrator of Region 1 to followop (sic) to determine if "the
.two recipients identified in the finding were maintaining excess
cash balances and, if so, take appropriate corrective action.
We agree that the AA for OARM should request the Regional
Administrator of Region 1 to followup with the two grant recipients
maintaining excess cash balances and to provide written confirmation
that follow-up action has been taken. However, subsequent to the
completion of audit fieldwork, the Director, Financial Management
Division, received written confirmation from the Financial Manage-
ment Officer of Region 1 that letters were sent on April 7 , 1988,
to the two recipients requesting a reconciliation of drawdown
amounts. The required reconciliations have been completed. In
addition, the auditors were notified at the time of the audit of
these actions by the Financial Management Officer.
We recommend that ILPA'^s Assistant Administrator for
Administration and Re»a»»ec» Management request the Regional
Administrators of Regions l'f 8, 9 and 10 to jiotijy in writing
the recipients identified as late filers of SF-272s of the
requirements for timely filing and the corrective actions 'that
may be initiated if the compliance problem is not resolvedT
We agree that the m ior OARM should request the Regional
Administrators of Regions JL, 8, 9 and 10 to notify in writing
the recipients identified as late filers of SF-272s and to provide
them with the requirements for timely filing and subsequent cor-
rective action which will be taken by the Agency for noncompliance
with the requirements. Subsequent to the completion of audit
fieldwork, the Director, FMD, received written confirmation from
the Financial Management Officers of Regions 1, 8, 9 and 10 that
follow-up actions were being taken with the identified late filers
In addition, the auditors were notified at the time of the audit
of these actions by the Financial Management Officers.
We recommend that EPA's Assistant Administrator for
Administration and Resources Management issue additional Agency
guidance requiring FMOs to document follow-up action taken on
recipient noncompliance with timely filing requirements for ~
SF-272S. "
We disagree with the recommendation and we believe that
sufficient Letter of Credit (LOC) guidance currently exists for
use by the regions and cooperative agreement recipients and that
additional follow-up procedures are not warranted at this time.
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Current LOG guidance includes the following:
o Resources Management Directive 2540, Chapter 5, Cash
Management - Letter of Credit.
o Letter of Credit - Treasury Financial Communications
System (LOC-TFCS) Recipient's Manual.
o Comptroller's Policy Announcement No. 88-06, Letter of
Credit Reconciliation Procedures.
Most of the problems cited in the subject report were a
result of noncompliance with current policies and procedures. We
will continue stressing adherence to all financial operating
procedures, including LOG procedures by regions and cooperative
agreement recipients.
4. EPA NEEDS TO IMPROVE RECORDING AND MANAGING ACCOUNTS
RECEIVABLE
Recommendations/Responses
The Office of the Inspector General issued Audit Report
EIA67^11-0029-80779, dated March 17, 19B8, covering their review
of EPA's accounts receivable activities* The .report identifiei""
similar findings and made appropriate recommendations. Conse-
quently, we make nofurther recommendations in anticipation
that the Agencywill respond totheOffice ofthe Inspector
General's report.
Accounts receivable issues are in the process of close out
as indicated in the Comptroller's response dated February 1,
1988, to the Office of Inspector General Audit Report on accounts
receivable.
5. OBLIGATIONS WERE QUESTIONED DDE TO RECORDING ERRORS AND
SET-ASIDE FOR LACK OF WRITTEN JUSTIFICATION
Recommendations/Responses
We recommend that EPA's Assistant Administrator for
Administration and Resources Management emphasize the need for
FMOs to follow Agency policies for timely recording of obligations
in the FMS.
We agree with the recommendation and the Director, Financial
Management Division, will prepare a written memorandum to the FMOs
emphasizing the requirement for timely recording of obligations
into the FMS.
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We recommend that EPA's Assistant Administrator for
Administration and Resources Management emphasize the need for
program offices to follow Agency policies requiring written
statements of need for charging Superfund and providing obligation
documents to FMOs in a timely manner*
We agree with the recommendation and the Director,
Financial Management Division, will prepare a memorandum to all
program offices re-emphasizing the requirements for Superfund
justification for obligation documents and the need to promptly
forward those documents to their servicing finance office.
We recommend that EPA's Assistant Administrator for
Administration and Resources Management request the appropriate
program offices and FMOs to review and resolve the previously
provided set-aside and questioned sample transactions, which
resulted in the projected questioned and set-aside obligations,
We agree that FMOs should correct errors found during the
audit. In most cases, the FMOs resolved or provided the necessary
data or correction at the time of the auditors' review and provided
this information to them. In some cases, these questioned
costs were still reported in this report even though the auditors
had indicated that responses to the preliminary notification of
findings were acceptable. Attachment II, identifies specific
regional or field office comments which indicate where corrective
action had been taken and had not been recognized by the auditors.
We strongly disagree with the rationale used to arrive at
the summary conclusion that the projected, set-aside costs of $24
million represent a material weakness in the Agency's schedule
of obligations and disbursements. The auditors reportedly used a
statistically-based sample and determined that a percentage of
items sampled lacked written justification. They erroneously
used that percentage to project a dollar amount of incorrect
obligation and disbursement transactions. In fact, the only logi-
cal conclusion to be made is that a percentage of the total
universe of obligation and disbursement items lack written justifi-
cation, and that this conclusion is indicative of a weakness in
internal procedures.
We also believe that the lack of documentation is not
conclusively indicative of errors in the Agency's obligation and
disbursement activity within the Superfund appropriation. In
fact, the AICPA Statement on Auditing Standards #39, paragraph
#33, states:
"In assessing the tolerable rate, the auditor should consider
the relationship of procedural deviations to (a) the accounting
records being tested, (b) any related internal accounting control
procedures [emphasis added], and (c) the purpose of the auditor's
evaluation."
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Paragraphs 134 and 141 of the same reference further re-emphasize
our point by stating:
"34. In assessing the tolerable rate of deviations, the
auditor should consider that, while deviations from pertinent
control procedures increase the risk of material errors in the
accounting records, such deviations do not necessarily result in
errors (emphasis added].For example, a recorded disbursement
that does not show evidence of required approval may nevertheless
be a transaction that is properly authorized and recorded."
"41. In addition to the evaluation of the frequency of
deviations from pertinent procedures, consideration should be
given to the qualitative aspects of the deviations. These include
(a) the nature and cause of the deviations, such as whether they
are errors or irregularities or are due to the misunderstanding
of instructions or to carelessness, and (b) the possible relation-
ship of the deviations to other phases of the audit* The discovery
of an irregularity ordinarily requires a broader consideration of
possible implications than does the discovery of an error [emphasis
added]."
Based on the above reference issued by the Auditing Standards
Board of the American Institute of Certified Public Accountants,
it is our position that the auditors have not conducted a suffi-
cient amount of audit work to conclude that this Agency has mis-
charged the Superfund appropriation. Had the auditors used
additional audit techniques such as interviews or inquiries with
knowledgeable sources within the Agency, they may have verified a
substantial number of the set-aside items. The following paragraph
taken from the United Stated General AccountingOffice Comprehensive
Audit Manual, AppendixI, pages 8-13 further supports our position:
"Interviews are sometimes the only means of obtaining basic
information. Information obtained in interviews may also be used
to supplement, explain, interpret, or contradict information obtained
by other means."
For example, one of the items set-aside
lack of documentation, was an obligation for
auditors stated that the transaction was not
ment document in the finance office records.
staff however provided the auditors with the
located in the official contract file of the
by the auditors for
$1 million. The
supported by a procure'
The finance office
procurement document
procurement office.
This example addresses our points very clearly: (1) an
obligation of that magnitude could not be processed through the
financial system without several administrative checkpoints, (2)
the auditor did not ask questions of any staff member prior to
classifying the transaction as "set-aside," and, in fact, (3) the
supporting documentation provided, reflected the highest level of
signature authority (office director).
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The AICPA Statement on Auditing standards 131, paragraph 15/
further supports our point:
"15. Corroborating evidential matter includes documentary
material such as checks, invoices, contracts, and minutes of
meetings; confirmations and other written representations by
knowledgeable people [emphasis added]; information obtained by the
auditor from inquiry, observation, inspection, and physical exam-
ination; . . . "
We acknowledge that the Agency's Superfund support
documentation procedures need strengthening in the area of
internal recordkeeping, however, we do not agree that because a
procedure was not followed, that obligations and disbursements
could be erroneously charged to the Superfund appropriation.
In summary, we do not believe that a procedural deviation
distorts the Agency's obligations and disbursements. The pro-
jected set-aside obligations represent only 2.3% of the total
universe of Agency obligations. The percentage is considered
immaterial, and no evidence indicates any inappropriate charges
to the Superfund appropriation. The conclusion reached by this
audit appears contradictory to the stated audit objectives
and AICPA pronouncements.
6. LACK OF DOCUMENTATION FOR SOPERFUND DISBURSEMENTS RESULTS
IN QUESTIONED AND SET-ASIDE COSTS
Recommendations/Responses
We recommend that EPA*s Assistant Administrator for
Administration and Resources Management emphasize to the FMOs
the importance of following Agency policies and procedures for
disbursements, particularly those related to the timely payment
of invoices and the timely entry of disbursement data in the FMS.
We agree that the AA for OARM should direct the Director,
FMD, to prepare written memorandum to the FMOs emphasizing the
requirement for timely payments and timely entry of the payment
activity into FMS.
We recommend that EPA's Assistant Administrator for
Administration and Resources Management request the FMOs" to review
and resolve the previously provided questioned and set-aside sample
transactions, which resulted in the projected questioned and set-
aside disbursements.
We agree that FMOs should correct errors found during the
audit. In most cases, the FMOs resolved or provided the neces-
sary data or correction at the time of the review and provided
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this information to the auditors. In some cases, these questioned
costs were still reported in this report. Attachment II, identi-
fies specific regional and field office comments which indicate
that corrective action had not been recognized by the auditors.
We disagree with the basis for set-aside costs. In summary,
our disagreement is based on our position that the lack of Super-*
fund justification within the finance offices is not a basis for
concluding that these costs were inappropriately charged to the
Superfund appropriation. We acknowledge that the lack of justifi-
cation within the finance offices may reflect a weakness in internal
administrative procedures, however, it is not indicative of
mischarges. We maintain that the auditors overlooked the extensive
approval process necessary to establish the obligation as well as
other alternative audit techniques for obtaining evidential matter
and that these controls do not have to be duplicated at the time
of disbursement.
The Director, FMD, will review the administrative procedures
for processing Superfund disbursements to determine where admini-
strative procedures can be strengthened in the area of Superfund
justification documentation.
7. RESULTS OF STATISTICAL ANALYSIS OF PERSONNEL COMPENSATION
AND BENEFITS TRANSACTIONS
Recommendations/Responses
We recommend that EPA's Assistant Administrator for
Administration and Resources Management emphasize the importance
of compliance with EPA policies and procedures for maintaining
adequate payroll records to support charges to Superfund.
In October 1987, the Director, Financial Management Division,
issued a memorandum to all concerned parties. The memorandum
re-emphasized the importance of EPA's policies and procedures
regarding timesheets and timecards. Additionally, the Financial
Management Division has already taken the following actions:
o trained each program office on how to use the Payroll
Redistribution System and to complete timesheets;
o initiated a two-hour timekeeping module as part of the
Office of Human Resources Management's training course
for new administrative employees;
o offered a one-day timekeeping course for timekeepers and
designated agents.
FMD will continue to routinely provide training and information
to the Agency's timekeepers.
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ATTACHMENT II
SPECIFIC COMMENTS TO
DRAFT AUDIT REPORT NO. P5EH8-11-0030
Summary of Audit Results
o Page 5
The reference to Region 7 should be deleted as it is a
typographical error.
Property
o Page 16, Bottom of Page
Region 1 submitted a data input form on February 24, 1988,
correcting the code and acquisition cost of the computer,
inadvertently recorded as $2,097,029, costing $2,097.
o Page 17, Middle of Page
Inaccurate amounts recorded in the PPAS have been corrected
by Cincinnati.
o Page 19, Table
Cincinnati recorded the missing items in PPAS.
The RTP Property Officer entered the missing purchases into
PPAS.
Region 5 located and recorded 17 of 21 property items into
PPAS. They will continue to locate and enter the remaining
i terns.
Region 6 collected receiving reports, located the missing items
and entered the data into the PPAS. Region 6 stated that they
have strengthened administrative property procedures.
The report identified that 18 items are not recorded in
Region 7'» PPAS. Mine of the 18 items are non-accountable and
therefor*, are not required to be recorded in PPAS. At the
time of the audit, the remaining 9 items were being entered.
In fact, the necessary paperwork had been completed, the items
all accounted for, in use, and were appropriately marked with
decals.
Region 8 was experiencing computer problems. These problems
were corrected.
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National Enforcement Investigations Center (Center), Region 8,
acknowledged that a small number of Superfund property items
were not included in PPAS. Currently all the Center's property
is logged into PPAS and steps have been taken to assure its
weekly input. Additionally, the Center is working on a system
to check the property and accounting records.
o Page 19, Last Paragraph
Region 1 issued a memo dated March 18, 1988, to each property
custodial officer to maintain accurate and up-to-date personal
property custody cards for sensitive items.
Region 4 initiated and developed new procedures to eliminate
the problem of missing custody cards in the future.
Region 5 provided additional training in June 1988. The
problem of not maintaining personal property custody cards for
sensitive items was corrected*
o Page 21, Second Paragraph
Region 4 conducted a physical inventory to identify all property
within custodial area 14. Efforts are underway to reconcile
the PPAS with the physical inventory.
Region 5 performs an average of three local inventories per
month. Complete physical inventories are conducted on an
annual basis.
o Page 21, Table
Region 5 stated that the custodial officer located all 23
property items cited by the auditors.
Region 7 could not locate one item valued at $300. They have
initiated the process for reporting missing items.
o Page 21, Bottom of Page
Region 1 completed property reconciliation on March 31, 1988.
The results are being reviewed.
o Page 22, Bottom of Page
RTP is replacing custodial assumption letters that were
accidentally disposed.
Region 1 prepared letters of acceptance of assumption of
custodial responsibilities effective with the FY 1988
inventories.
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Region 4 conducted a training course for custodial officers.
The custodial officers are now completing the Assumption of
Custodial Responsibility forms. Over 90% of the forms have
been signed and returned, and of the remaining 10%, physical
inventories are being completed. Additionally, custodial
officers will be given a monthly printout to keep them
informed of any changes in inventories.
General Support Services Costs
o Page 24, Middle of Page
Comptroller Policy Announcement 88-01, states, "If the
difference is more than $1,000, the offices should process
an adjusting entry..." The support costs identified as over-
allocated in Region 10 was for $188; therefore, it would not
warrant an adjusting entry.
o Page 25, Bottom of Page
Region 4 concurs that the Superfund allocation formula was
incorrect. The FY 1987 Superfund allocation has been recomputed
and this resulted in $11,900 increase to Superfund expenses.
Region 5 provided the auditors with documented evidence that
the $15,059 overcharge error was corrected.
o Page 26, First Paragraph
Region 1 complied with the procedure. The allocation procedure
in the Agency's Financial Management Manual presupposes that
there are available funds in Superfund to be able to affect an
allocation. The ten allocations were made on a monthly basis.
At that point, they no longer had available Superfund monies to
absorb an additional allocation. To make charges which would
exceed allowances is not allowable and could place the Region
in an anti-deficiency position if the report recommendation is
executed.
Letter of Credit
o Page 28, Third Paragraph
The auditors have a misunderstanding of Federal grant policy.
They stated that if excess cash was not held by a recipient, it
would be available for other users in the region.
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-4-
° Page 28, Bottom of Page
Region 1 developed a reconciliation worksheet based on
Comptroller Policy Announcement No. 88-06. This action was
accepted by the auditors during their review and the reference
should be removed from the report.
Region 9 explained to the auditors the difference of $581,245.
To reiterate/ the recipient was previously on another letter
of credit and the $590,244 was reported on that letter of
credit. In order for the letter of credit records to reconcile
to the FMO records, both letters of credit must be reviewed.
The remaining $9,000 was a posting error that was corrected in
January 1988.
Region 9 disagrees that there is a discrepancy of $1,122,070
between FMS and the letter of credit file. Letter of credit
increases are not always authorized for all amounts awarded
on the cooperative agreement. The agreement may contain
special conditions which restrict the recipient from access
to cash until certain requirements are met.
o Page 29, Second Paragraph
The Assistant Administrator for Administration and Resources
Management asked the Grants Administration Division (GAD) to
develop a Superfund Cooperative Agreement management improvement
plan. GAD's initial effort involved reviewing each Region's
management of its cooperative agreements. Between August and
December 1987, GAD and program staff visited every regional
office. During those visits, they met with senior regional
officials, including program, finance, and grants staffs to
determine how each Region manages cooperative agreements, how
the program, finance, and grants staffs interact, and what
regional cooperative agreement management activities need
improvement.
One finding of the reviews concerned problems with recipients
filing Federal Cash Transactions Reports (SF-272) promptly.
In response GAD recommended that each Regional Assistance
Administration Unit (AAU) develop a system to track when
required reports, including the Federal Cash Transactions
Reports (FCTRs), are due (or overdue). The systems will
provide guidelines for appropriate action when recipients
either fail to submit reports or submit reports of substandard
quality.
108
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-5-
Accounts Receivable
0 Page 31, Third Paragraph
To say that the FMO did not know whether interest should be
assessed to states is misleading. The Region had requested
clarification from PMD on the propriety of charging interest
receivables due under Intergovernmental Personnel Act. Pending
a response, the Region is now including an interest clause on
all Intergovernmental Personnel Act billings.
o Page 31, Bottom of Page
We do not agree that aggressive collection action is not being
taken by the Agency. The report did not identify which of the
$6,028,964 accounts receivable due over 120 days were noncontrol-
lable, e.g., in appeals, claims or on installment where debtors
pay on an approved schedule. In these cases, the subsystem
would age these receivables based on when the account was
originally established, not as of the next payment due date.
Obligations and Disbursements
o Page 34, Table, Attributes
Currently, Region 6 enters obligations into the system within
24 to 48 hours.
Region 6 requires all documents be reviewed for date stamps
as a part of the data entry process.
o Page 37, SecondParagraph
All missing payroll items were accounted for at the Headquarters
exit conference.
o Page 38, Reason (e)
A listing of employees1 supervisors is not maintained by the
payroll system, but by the designated agents.
o Page 40, Exhibit, "Other Contractual Services" and Appendix
2L Page 6
Research Triangle Park (RTF) has the following comments:
Based on projection of errors, the auditors set aside
$23,215,042 of which $18,705,204 represent contract payment,,.
109
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-6-
The auditors stated the cause for set-aside cost was primarily
due to missing documentation and lack of written justification,
However, the referenced appendix shows the highest occurrence
of error was in attributes I, J and K which relate either to
timeliness or commitment verification.
Attribute J: Timely Posting to FMS by FMO.
We recognize that internal procedural problems existed to
preclude timely obligations of contracts in all cases. These
problems related to: (1) mail distribution of contracts, (2}
returning documents to contracting officials for correction,
and (3) waiting for valid accounting information. In all
three situations, we have taken steps to correct problems
creating delays in recording contract obligations.
o Appendix 2, Page 9
RTP provides the following comment on a contract disbursement
attribute exceeding a 5% error rate:
ATTRIBUTE M - Invoice was paid on time, but not early.
Based on the information in the auditors' work papers, the
210 exceptions noted for this attribute are characterized
as follows:
Number of days
required to pay
<25
31-37
38-45
>45
TOTAL
Number of exceptions
by category
11
133
35
31
210-
Of the 210 exceptions, 175 fell within the 23-45 day grace
period of the Prompt Payment Act.
Of the 31 late payments, 25 were for contracts which are not
subject to the Prompt Payment Act. 'Of the remaining six
payments, two were actually made within the allowable 45 day
limit and the 4 payments made in excess of 45 days and subject
to the Prompt Payment Act represent .92% of the total sample.
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APPENDIX 4,
AGENCY'S SPECIFIC COMMENTS JO OUR DRAFT REPORT AND OUR EVALUATION
The following are the Agency's specific comments to our draft
audit report and our evaluation of these comments. These
specific comments were generally provided as Attachment II to the
Agency's formal written response and are included in their
entirety in Appendix 3.
Note: The page numbers referred to in the Agency's comments were
the draft report page numbers. The final report page numbers are
indicated in parentheses.
AGENCY'S COMMENTS
Summary of Audit Results
o Pace 5. (6. 7J
The reference to Region 7 should be deleted as it is a
typographical error.
OUR EVALUATION Q£ THE AGENCY'S COMMENTS
We recognized this typographical error after our initial
submission of the draft report. The reference should have been
to Region 1 . This page was revised and provided to the Agency
on July 1 1 subsequent to the issuance of the draft report .
AGENCY'S COMMENTS
Property
o Page 16 (19) . Bottom of Page
Region 1 submitted a data input form on February 24, 1988,
correcting the code and acquisition cost of the computer,
inadvertently recorded as $2,097,029, costing $2,907.
OUR EVALUATION Qg THE AGENCY'S COMMENTS
The submission of the data input form was prepared after this
error was brought to the attention of Region 1 by our
auditors. The corrective action indicated is responsive to
our recommendation that certification be obtained to ensure
that this error was corrected.
AGENCY'S COMMENTS
o Page V7 (20). Middle flf Page
Inaccurate amounts recorded in the PPAS have been corrected by
Cincinnati .
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APPENDIX 4
(CONTINUED)
OUR EVALUATION OJ1 THE AGENCY'S COMMENTS
The corrective action indicated is responsive to our
recommendation that certification be obtained to ensure that
these errors in amounts be corrected.
AGENCY'S COMMENTS
o Page H (22). Table
Cincinnati recorded the missing items in PPAS.
The RTP Property Officer entered the missing purchases into
PPAS.
Region 5 located and recorded 17 of 21 property items into
PPAS. They will continue to locate and enter the remaining
items.
Region 6 collected receiving reports, located the missing
items and entered the data into the PPAS. Region 6 stated
that they have strengthened administrative property
procedures.
The report identified that 18 items are not recorded in Region
7's PPAS. Nine of the 18 items are non-accountable and,
therefore, are not required to be recorded in PPAS. At the
time of the audit, the remaining 9 items were being entered.
In fact, the necessary paperwork had been completed, the
items all accounted for, in use, and were appropriately marked
with decals.
Region 8 was experiencing computer problems.
were corrected.
These problems
National Enforcement Investigations Center (Center), Region 8,
acknowledged that a small number of Superfund property items
were not included in PPAS. Currently all the Center's
property is logged into PPAS and steps have been taken to
assure its weekly input. Additionally, the Center is working
on a system to check the property and accounting records.
OUR EVALUATION QF THE AGENCY'S COMMENTS
The corrective actions indicated, if implemented, are
responsive to our recommendation that certification be
obtained to ensure that the errors and omissions noted in our
audit were corrected.
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APPENDIX £
(CONTINUED)
AGENCY'S COMMENTS
o Page 19 f?2). Last Paragraph
Region 1 issued a nemo dated March 18, 1988, to each property
custodial officer to maintain accurate and up-to-date personal
property custody cards for sensitive items.
Region 4 initiated and developed new procedures to eliminate
the problem of missing custody cards in the future.
Region 5 provided additional training in June 1988. The
problem of not maintaining personal property custody cards for
sensitive items was corrected.
OUR EVALUATION
AGENCY'S COMMENTS
The corrective actions indicated are responsive to our
recommendations that complying with Agency policies be
emphasized and additional training be provided to property
personnel.
AGENCY'S COMMENTS
o Paoe gl (2 4J. Second Paragraph
Region 4 conducted a physical inventory to identify all
property within custodial area 14. Efforts are underway to
reconcile the PPAS with the physical inventory.
Region 5 performs an average of three local inventories per
month. Complete physical inventories are conducted on an
annual basis.
OUR EVALUATION QE THE AGENCY'S COMMENTS
The corrective actions indicated are responsive to our
recommendation that the importance of complying with Agency
policies be emphasized.
AGENCY'S COMMENTS
o Page H (24). Table
Region 5 stated that the custodial officer located all 23
property items cited by the auditors.
Region 7 could not locate one item valued at $300. They have
initiated the process for reporting missing items.
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APPENDIX 4.
(CONTINUED!
OUR EVALUATION OF THE AGENCY'S COMMENTS
The corrective actions indicated are responsive to our
recommendation that certifications be obtained to ensure that
errors and omissions from the PPAS were corrected.
AGENCY 'S COMMENTS
o Pace 21 (25). Bottom
Pace (Too of Pace)
Region 1 completed property reconciliation on March 31, 1988.
The results are being reviewed.
OUR EVALUATION Q£ THE AGENCY'S COMMENTS
The corrective action indicated, when completed, is responsive
to our recommendation that certifications be obtained to
ensure that errors and omissions from the PPAS were corrected.
AGENCY'S COMMENTS
o Pacre 22 ( 25 ) . Bottom of Pace
RTP is replacing custodial assumption letters that were
accidentally disposed.
Region 1 prepared letters of acceptance of assumption of
custodial responsibilities effective with the FY 1988
inventories .
Region 4 conducted a training course for custodial officers.
The custodial officers are now completing the Assumption of
Custodial Responsibility forms. Over 90% of the forms have
been signed and returned, and of the remaining 10%, physical
inventories are being completed. Additionally, custodial
officers will be given a monthly printout to keep them
informed of any changes in inventories.
OUR EVALUATION fl£ THE AGENCY'S COMMENTS
The corrective actions indicated, when completed, are
responsive to our recommendations that the importance of
complying with Agency policies be emphasized and that
additional training for property personnel be provided.
AGENCY'S COMMENTS
General Support Services Costs
o Pace 24 (30). Middle fif Page
Comptroller Policy Announcement 88-01, states, "If the
114
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APPENDIX 4
(CONTINUEPJ
difference is more than $1,000, the offices should process an
adjusting entry..." The support costs identified as
overallocated in Region 10 was for $188; therefore, it would
not warrant an adjusting entry.
OUR EVALUATION
AGENCY'S COMMENTS
We did not calculate the amount of the reported over-
allocation of support costs at Region 10. We concur that, if
the amount was only $188, no adjustment would be warranted.
AGENCY 'S COMMENTS
O Pace 25 (31 ). Bottom o^ Page
Region 4 concurs that the Superfund allocation formula was
incorrect. The FY 1987 Superfund allocation has been
recomputed and this resulted in $11,900 increase to Superfund
expenses .
Region 5 provided the auditors with documented evidence that
the $15,059 overcharge error was corrected.
OUR EVALUATION Q£ THE AGENCY'S COMMENTS
»
The recomputation and adjustments at Regions 4 and 5 were
prepared based upon the results of our audit. Consequently,
the amounts reported for FY 1967 in our draft audit report did
not include adjustments made subsequent to the audit. Also,
Region 4 recomputed their cost allocations to correct an
overcharge of $120,232 to Superfund, and this resulted in an
additional $11,900 being charged to Superfund. This indicates
that there were $132,132 of costs that had not been previously
allocated to Superfund in the initial allocation.
The corrective actions are responsive to our recommendation
that certifications be obtained that the cost allocations were
recalculated and adjusted.
AGENCY'S COMMENTS
o Pace 2Q (32). First Paragraph ( Second Paragraph)
Region 1 complied with the procedure. The allocation
procedure in the Agency's Financial Management Manual
presupposes that there are available funds in Superfund to be
able to affect an allocation. The ten allocations were made
on a monthly basis. At that point, they no longer had
available Superfund monies to absorb an additional allocation.
To make charges which would exceed allowances is not allowable
and could place the Region in an anti-deficiency position if
the report recommendation is executed.
115
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OUR EVALUATION OJF THE AGENCY'S COMMENTS
APPENDIX 4
(CONTINUED)
We understand that Region 1 complied with the Agency policy
regarding Super fund ceilings. However, as we indicated in our
report, the absence of a complete allocation of costs to
Superfund understates Superfund costs. Also, Regions may
request additional funding to increase their Superfund
ceilings. At a minimum, information on the amounts of under-
allocations to Superfund should be calculated and reported to
EPA's Comptroller for a determination regarding Superfund
ceilings and anti-deficiency positions.
AGENCY'S COMMENTS
Letter
Credit
o Page 28 (?7) . Third Paragraph ( Second Paragraph )
The auditors have a misunderstanding of Federal grant policy.
They stated that if excess cash was not held by a recipient,
it would be available for other users in the region.
OUR EVALUATION OF THE AGENCY'S COMMENTS
The sentence was deleted from this report. We meant to convey
that the use of Federal funds results in interest costs to the
Government. Thus, excess cash held by one recipient could have
been used by other recipients without the Government incurring
interest costs for additional funds.
AGENCY'S COMMENTS
o Pace 28 (37) . Bottom o.f Page
Region 1 developed a reconciliation worksheet based on
Comptroller Policy Announcement No. 88-06. This action was
accepted by the auditors during their review and the reference
should be removed from the report.
Region 9 explained to the auditors the difference of $581,245.
To reiterate, the recipient was previously on another letter
of credit and the $590,244 was reported on that letter of
credit. In order for the letter of credit records to
reconcile to the FMO records, both letters of credit must be
reviewed. The remaining $9,000 was a posting error that was
corrected in Janaury 1988.
Region 9 disagrees that there is a discrepancy of $1,122,070
between FMS and the letter of credit file. Letter of credit
increases are not always authorized for all amounts awarded on
the cooperative agreement. The agreement may contain special
conditions which restrict the recipient from access to cash
until certain requirements are met.
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APPENDIX 4
ICQNTINUEDT
OUR EVALUATION Qg THE AGENCY'S COMMENTS
The Agency response indicated that corrective actions were
taken subsequent to fiscal 1987. Consequently, these findings
should not be removed from the report. Howevex, we
acknowledged in this report that Regions 1 and 9 are now
performing reconciliations. Because of the corrective actions
indicated during our fieldwork, we made no recommendations in
the draft report. Concerning the $581,245 reconciliation
problem in Region 9, we have revised our report to include the
Region's explanation of the difference.
According to our audit workpapers from Region 9, the unpaid
obligation per the FMO-6 report in the FMS did not agree with
the SF-1193 (Grant Payment History). Whether the letter of
credit amounts are authorized or not does not eliminate the
need for reconciliation of the award amounts and the unpaid
obligations plus drawdowns.
AGENCY'S COMMENTS
o Page 29 (37). Second Paragraph (Last; Paragraph)
The Assistant Administrator for Administration and Resources
Management asked the Grants Administration Division (GAD) to
develop a Superfund Cooperative Agreement management
improvement plan. GAD's initial effort involved reviewing
each Region's management of its cooperative agreements.
Between August and December 1987, GAD and program staff
visited every regional office. During those visits, they met
with senior regional officials, including program, finance,
and grant staffs to determine how each Region manages
cooperative agreements, how the program, finance, and grant
staffs interact, and what regional cooperative agreement
management activities need improvement.
One finding of the reviews concerned problems with recipients
filing Federal Cash Transactions Reports (SF-272) promptly.
In response GAD recommended that each Regional Assistance
Administration Unit (AAU) develop a system to track when
required reports, including the Federal Cash Transactions
Reports (FCTRs), are due (or overdue). The systems will
provide guidelines for appropriate action when recipients
either fail to submit reports or submit reports of substandard
quality.
OUR EVALUATION Q£ THE AGENCY'S COMMENTS
The corrective action indicated is responsive to our
recommendation that the Agency issue additional guidance for
follow-up actions on cooperative agreement recipient
noncompliance. We believe that such guidance should require
117
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APPENDIX ±
(CONTINUED!
the Agency to document any actions taken when recipients
either fail to submit reports or submit substandard reports.
AGENCY'S COMMENTS
Accounts Receivable
o Page 3J. (41). Third Paragraph {Second Paragraph)
To say that the FMO did not know whether interest should be
assessed to states is misleading. The Region had requested
clarification from FMD on the propriety of charging interest
[on] receivables due under [the] Intergovernmental Personnel
Act. Pending a response, the Region is now including an
interest clause on all Intergovernmental Personnel Act
billings.
OUR EVALUATION OF
AGENCY'S COMMENTS
We noted in our draft report that the Region had requested
clarification regarding the propriety of charging interest.
We have changed the wording of our report finding to indicate
that the Region did not charge interest during fiscal 1987.
AGENCY'S COMMENTS
o Page 31 (41). Bottom
-------
APPENDIX 4.
(CONTINUEPJ
AGENCY'$ COMMENTS
Obligations and Disbursements
o Paoe H (43. 44). Table. Attributes
Currently, Region 6 enters obligations into the system within
24 to 48 hours.
Region 6 requires all documents be reviewed for date stamps as
a part of the data entry process.
OUR EVALUATION fi£ THE AGENCY'S COMMENTS
The corrective action indicated by Region 6 is responsive to
our recommendation that FMOs follow Agency policies for timely
recording of obligations in the FMS.
AGENCY'S COMMENTS
o Pace 37 (53). Second Paragraph
All missing payroll items were accounted for at the
Headquarters exit conference.
OUR EVALUATION QF. THE AGENCY'S COMMENTS
The results of our attribute testing on payroll items was
provided to Headquarters Accounting Operations Branch
officials at the Headquarters exit conference. No
documentation for missing items was provided to us at that
time.
AGENCY'S COMMENTS
o Page 38 (54). Reason (ej
A listing of employees' supervisors is not maintained by the
payroll system, but by the designated agents.
OUR EVALUATION Q£ THE AGENCY'S COMMENTS
We requested these lists during our audit fieldwork and were
not informed that the designated agents maintained such lists.
AGENCY'S COMMENTS
o Page 4JL (56). Exhibit. "Other Contractual Services" and
Appendix 2. Page £ (80)
Research Triangle Park (RTP) has the following comments:
119
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APPENDIX ,|
iCONTINUED)
Based on projection of errors, the auditors set aside
$23,215,042 of which $18,705,204 represent contract payments.
The auditors stated the cause for set-aside cost was primarily
due to missing documentation and lack of written
justification. However, the referenced appendix shows the
highest occurrence of error was in attributes I, J and K which
relate either to timeliness or commitment verification.
Attribute J: Timely Posting fcg FMg bjc FMQ
We recognize that internal procedural problems existed to
preclude timely obligations of contracts in all cases. These
problems related to: (1) mail distribution of contracts, (2)
returning documents to contracting officials for correction,
and (3) waiting for valid accounting information. In all
three situations, we have taken steps to correct problems
creating delays in recording contract obligations.
OUR EVALUATION QF THE AGENCY'S COMMENTS
We set-aside $23,215,042 of obligations because of the lack of
written Superfund justification. As understood by our
auditors and Agency officials at RTF, this written
justification is required to be maintained by the program
office which originated the purchase request/orders resulting
in the obligations. Therefore, although we set-aside these
contract obligations that were processed by RTP, the lack of
documentation was at the program office level, where we
attempted to obtain the written justifications. Also, while
we noted a high occurrence of error for certain other
attributes, these were not the basis for set-aside costs.
The corrective action indicated by RTP is responsive to our
recommendation that the need for FMOs to follow Agency
policies for timely recording of obligations in the FMS be
emphasized.
AGENCY'S COMMENTS
o Appendix 2. Page 9. (85)
RTP provides the following comment on a contract disbursement
attribute exceeding a 5% error rate:
ATTRIBUTE M - Invoice was paid on time, but not earlv.
Based on the information in the auditors' work papers, the 210
exceptions noted for this attribute are characterized as
follows:
120
-------
•r
Number of days
required Jfcfi oav
<25
31-37
38-45
>45
TOTAL
APPENDIX 1
(CONTINUED?
Number of exceptions
by category
11
133
35
-21
210
Of the 210 exceptions, 175 fell within the 23-45 day grace
period of the Prompt Payment Act.
Of the 31 late payments, 25 were for contracts which are not
subject to the Prompt Payment Act. Of the remaining six
payments, two were actually made within the allowable 45 day
limit and the 4 payments made in excess of 45 days and subject
to the Prompt Payment Act represent .92% of the total sample.
OUR EVALUATION QE THE AGENCY 'S COMMENTS
Our audit procedures were designed to measure the Agency's
compliance with its own policies and procedures, which were to
pay between 25-30 days from receipt of an invoice. We did not
analyze the exceptions beyond the stated criteria. The
indicated error rate was substantially above 5% for compliance
with Agency policy.
The following Agency comment was included in Attachment I of
Appendix 3 and is addressed here as a specific comment to our
draft report.
AGENCY 'S COMMENTS
o Exhibit I
One of the items set-aside by the auditors for lack of
documentation, was an obligation for $1 million. The auditors
stated that the transaction was not supported by a procurement
document in the finance office records. The finance office
staff, however, provided the auditors with the procurement
document located in the official contract file of the
procurement office.
This example addresses our points very clearly: (1) an
obligation of that magnitude could not be processed through
the financial system without several administrative
checkpoints, (2) the auditor did not ask questions of any
staff member prior to classifying the transaction as "set-
aside" and, in fact, (3) the supporting documentation
provided, reflected the highest level of signature authority
(office director).
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APPENDIX 4
CONTINUED}
OUR EVALUATION fig "THE AGENCY'S COMMENTS
The item identified by the Agency as a $1 million obligation was
set aside because the written Justification on the procurement
request indicated that the contract was for Superfund and another
EPA program. There was no allocation or indication of the
percentage funded by Superfund and, only after additional
inquiry, were we able to determine that the non-Superfund portion
was obligated in a separate transaction.
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