UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20490
.O
OCT - 7 1537
THE
MEMORANDUM
SUBJECT:
FROM:
TO:
Audit Report No. P5EH7-11-0022-80028
Consolidated Report of Financial
and Compliance Audit
Obligations and Disbursements Under
the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980
Fiscal Year Ended September 30, 1986
Ernest E. Bradley III
Assistant Inspector General for Audit (A-109)
C. Morgan Kinghorn
Acting Assistant Administrator for
Administration and Resources Management (PM-208)
Vaun Newill, M.D.
Assistant Administrator for
Research and Development (RD-672)
Attached are two copies of the above referenced report.
SCOPE AND OBJECTIVES
A certified public accounting (CPA) firm performed a financial and
compliance audit of the portion of the Hazardous Substance Response Trust
Fund (Superfund) reported by the U.S. Environmental Protection Agency
(EPA) for the fiscal year ended September 30, 1986. Superfund was estab-
lished under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (CERCLA). CERCLA [section lll(lc)J states that
the Inspector General shall audit as appropriate all payments, obligations,
reimbursements, or other uses of Superfund to assure that Superfund is
being properly administered and that claims are being appropriately and
expedltlouily considered. Audit procedures Mere performed to determine
if the costs to administer Superfund were "necessary for" and "incidental
to" the Implementation of CERCLA [section lll(a)j. As part of the audit,
the CPA made a study and evaluation of the system of Internal accounting
controls as well as an audit of costs obligated and disbursed under the
Superfund appropriation for the fiscal year ended September 30, 1986.
Additionally, the CPA reviewed the status of findings and recommendations
included in the prior audit reports.
U.S. Environmental Protection
Miwary, Boom 3404 PS-211-A
401 M Str*et. 3.W.
Washington. DC 204«0
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The audit was performed in accordance with generally accepted auditing
standards and the Standards for Audit of Governmental Organizations.
Programs. Activities, and Functions (1981 revision) promulgated bv the
U.S. Comptroller General.The CPA's examination included tests of the
accounting records of the 10 regional offices, 3 major laboratory
facilities, the National Enforcement Investigations Center {NEIC) and EPA
Headquarters; evaluations of internal accounting controls; and such other
auditing procedures as were considered necessary in the circumstances.
Audit exit conferences were held with responsible Agency officials at the
10 regional offices, 3 accounting operations offices located at the major
laboratory facilities, the NEIC and EPA Headquarters at the conclusion of
fieldwork at each audit location. The purpose of the exit conferences
was to present findings and recommendations and to ensure a clear under-
standing of the audit by Agency management. Agency officials were in
general agreement with the findings and recommendations presented at the
exit conferences and indicated that corrective actions would be taken.
This report presents a consolidation of the information and findings at
the above locations.
SUMMARY OF AUDIT RESULTS
The CPA found that significant improvements had been made in the overall
implementation of Agency guidance to account for Superfund costs. However,
the CPA also noted that compliance with existing policies and procedures
still needed to be improved and additional controls needed to be developed
to ensure accurate accounting for the Superfund program.
EPA obligated $393,272,582 and disbursed $416,685,493 from Superfund
during the fiscal year ended September 30, 1986. The CPA accepted
$393,233,239 of obligations and $416,313,532 of disbursements. The CPA
questioned $39,343 of obligations and $39,343 of disbursements due to
errors in calculating cost allocations and set aside $332,618 of disburse-
ments resulting from insufficient documentation to support two transactions.
The CPA's findings are summarized below and presented in detail in the
findings and recommendations and exhibits sections of the attached report.
1. FOLLOW ON PRIOR AUDIT FINDINGS
The prior audit reports. Issued as component audits of the 10 regional
offices, tilt 3 accounting operations offices located at the major laboratory
facilities, the NEIC and EPA Headquarters, covered the period from October 1,
1982 through September 30, 1984. These audit reports Identified weaknesses
related to: contract disbursements being charged to the proper appropriation;
compliance w1J« iuperfund charging policies for personnel compensation and
benefits; Implementation of cost allocation procedures for regional support
services costs; sufficient documentation for Superfund transactions; personal
property management system and procedures; letter of credit accounting for
cooperative agreements; cost-effective discounts being taken or recorded
as lost; and CERCLA Trust Fund receivables being recorded timely.
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The Agency has initiated corrective actions in a number of these areas.
The CPA found that the Agency generally took appropriate actions to
resolve prior audit questioned and set-aside costs. However, the audit
disclosed that additional improvements in property management, cost
allocations, and recordings receivables are still required, as well as
compliance with EPA policies for recording obligations, disbursements,
and personnel compensation.
2. PERSONAL PROPERTY MANAGEMENT PROCEDURES SHOULD BE STRENGTHENED
During the review of the personal property management system, the CPA
found 140 items purchased with CERCLA funds In fiscal 1986, with a
determinate cost of $735,507, that were not recorded In the Personal
Property Accounting System (PPAS). Also, when the CPA attempted to trace
samples of property items back to the PPAS, they found 245 Items that did
not appear on the listings. They could not determine the total costs of
the 245 items. The omission of these items from the property listings
occurred at Regions 1, 2, 3, 4, 5, 7, 8, 9, 10, Research Triangle Park
(RTP), and the NEIC. In addition, they noted errors 1n amounts and
quantities recorded in the PPAS at Regions 1, 5, and Las Vegas. Finally,
Regions 1, 2, 3, 4, 7, and 9 could not locate 103 items, valued at $252,138,
from a sample of items selected for physical inspection.
The review of internal controls for personal property disclosed a
significant procedural weakness in the system and various Instances of
noncomplLance with established internal controls. The procedural weakness
was the lack of Agency policies or procedures requiring the reconciliation
of purchases of property and equipment recorded in the Financial Management
System (FMS) with items entered into the PPAS. The omissions from the
PPAS of the items identified above would have been disclosed in a
reconciliation, or if there was an Interface between the two systems.
3. PROCEDURES FOR ALLOCATION OF SUPPORT SERVICES COSTS TO SUPERFUND
NEED IMPROVEMENT
The CPA believed the Agency's standard procedures for the allocation of
general support services costs to Superfund were not clearly defined. As
a result, the audit disclosed that at Headquarters, disbursements were
allocated to Superfund based upon a full-time equivalent (FTE) ratio
applied to cumulative obligations. Therefore, disbursements were recorded
in the Superfund appropriation based upon the obligations recorded In the
Salaries and Expenses appropriation in advance of actual disbursements.
The allocation of disbursements should be calculated by applying the FTE
ratio to cumulative disbursements. The Agency's standard procedures for
the allocation of support costs to Superfund do not clearly specify that
allocations of obligations and disbursement:: should be calculated separately
based upon cumulative obligations and cumulative disbursements, respectively,
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The CPA also noted that Region 3 overstated its general support services
cost allocations to Superfund. The overstatement occurred because Region!
3 used a ratio based on authorized FTEs, rather than the actual FTE ratio
base for Its cost allocations. The dollar effect of the misstatement
could not be determined because the Region applied the ratio to individual
transactions and, therefore, could not readily identify its total support
services costs for fiscal 1986. In addition, the CPA found that the
Superfund program was not always charged its proportionate share of
support services costs due to cost and FTE ceilings. As a result of the
above conditions, the allocations of support services costs to Superfund
did not always accurately reflect the benefits received by Superfund.
4. CERCLA TRUST FUND RECEIVABLES SHOULD BE RECORDED TIMELY
Amounts due Superfund, as a result of cost recovery actions and State
cost-sharing agreements, were not being recorded In a timely manner. The
failure to record cost recovery decrees and orders timely was the result
of a lack of compliance with Agency policy and guidance by: (I) EPA
Headquarters Financial Management Division (FMD); (2) Office of Waste
Programs Enforcement (OWPE); (3) Office of Enforcement and Compliance
Monitoring (OECM); and (4) Offices of Regional Counsel. The failure to
record State cost-sharing agreements timely was the result of a lack of
compliance w.ith Agency policy and guidance by: (1) EPA Headquarters FMD;
(2} CPA Headquarters Office of Emergency and Remedial Response (OEER);
and (3) EPA Regional Offices. This weakness In controls over accounts
receivable was disclosed in the prior Trust Fund audit report.
5. RESULTS OF STATISTICAL ANALYSIS OF NONPAYROLL OBLIGATION
TRANSACTIONS
Based upon the results of their statistical analysis of nonpayroll obligation
transactions recorded in fiscal 1986, amounting to $332,337,848, the CPA
accepted 5332,298,505 ($332,337,848 less $39,343 questioned in exhibit
I). They also examined 10 Internal control and compliance attributes
for nonpayroll obligations for which they expected the error rate not to
exceed three percent. The results of their statistical analysis disclosed
the following error rates 1n excess of three percent:
Attributes
Authorized official's
signature agrees with
listing Mlnta1ned by
FMO
Date received by FMO is
timely (within 3-10
working days of date
signed)
Sample
Size
1,605
1,605
Number of
Exceptions
101
6.29%
125
7.79*
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Attributes
Date Input In FMS is ,
timely (within 4 working
days of receipt by FMO)
Sample
Size
1,605
Number of
Exceptions
194
12.09%
The failure to maintain listings of authorized officials' signatures
could result In unauthorized obligations being recorded. Delays in
receipt of documents or their input into the FMS causes financial
information to be misstated on a current basis.
6. RESULTS OF STATISTICAL ANALYSIS OF NONPAYROLL DISBURSEMENT
TRANSACTIONS
Based upon the results of their statistical analysis of nonpayroll
disbursement transactions recorded in fiscal 1986, amounting to $356,434,858,
the CPA accepted $356,062,897 ($356,102.240 less $39,343 questioned in
exhibit II) and set aside $332,618. The audit estimate Indicated with
95 percent confidence that the total nonpayroll disbursements should have
been $354,082,786, or a difference of less than 1 percent of the recorded
value. The set-aside costs were the result of two specific exceptions
from stratified random samples. (See exhibit III, note 3.) All exceptions
disclosed in their testing were used in the calculation of the audit
estimate, however, they set aside only those individual transactions
exceeding $1,000.
They also examined fourteen internal control and compliance attributes
for nonpayroll disbursements (excluding contracts processed by the
Financial Managment Office at RTPJ for which they expected the error rate
not to exceed three percent. The results of their statistical analysis
indicated the following error rates in excess of three percent:
Attributes
Authorized official's
approval on disbursement
documents
All payment documents
were perforated and
marked paid
Sample
Size
703
703
Number of
Exceptions
78 (a)
26
11.10%
3.70%
(a) 53 of the 78 exceptions were lack of approval of Utter of Credit
drawdowns.
The lack of authorized officials' approvals on disbursement documents
could result in improper payments. The failure to properly cancel
disbursements documents which have been paid could result in duplicate
payments.
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7- RESULTS OF STATISTICAL ANALYSIS OF PERSONNEL COMPENSATION
TRANSACTION
The CPA performed a statistical analysis of personnel compensation
transactions for fiscal 1986. Based upon the results of their analysis
of a random sample of transactions, the CPA is 95 percent confident that
the total personnel compensation is no greater than $54,882,199 and no
less than $53,566,311, with a precision of $1,315,888. The recorded
disbursements for personnel compensation costs for fiscal 1986 were
$53,794,684, which falls within the upper and lower limits. Consequently,
they accepted the recorded personnel compensation costs for fiscal 1986.
OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT'S COMMENTS ON
FINDINGS AND THE CPA'S EVALUATION
The Acting Assistant Administrator of the Office of Administration and
Resources Management (OARM) provided us with formal written comments on
the draft report in a memorandum dated September 1, 1987. The Acting
Assistant Administrator of OARM generally concurred with the findings and
recommendations, except as noted in the Findings and Recommendations
section of this report, and indicated that corrective actions were taken
or were planned to resolve the issues cited in the draft report. The CPA
concluded that OARM's comments were generally responsive to the findings
and recommendations. To provide a balanced understanding of the Issues,
the CPA summarized OARM's position at appropriate locations in the report
and included the complete response as appendix 2.
RECOMMENDATIONS
Although the CPA firm addressed its recommendations to EPA's 'Deputy
Administrator, we believe the necessary actions can be taken at the
Assistant Administrator level. Therefore, we recommend that:
0 The Acting Assistant Administrator for Administration and
Resources Management:
- Review the cost allocation procedures as outlined in Chapter 17
of the Financial Management Manual and clarify the steps necessary
for allocating obligations and disbursements separately.
Review the Headquarters and nationwide cost allocations made for
fiscal 1986 to determine the Impact of basing disbursement
allocations on cumulative obligations, and, If necessary, ensure
that appropriate adjustments are made to reflect proper allocations
based upon cumulative disbursement amounts.
Ensure that adjustments are made to remove the $35,341 of
obligation and disbursements allocated to Superfund as a result
of commitments being Included with obligations 1n the cost
allocations calculations (See exhibit III, note 2 for details).
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0 The Assistant Administrator for Research and Development
to recalculate its allocable costs, as of September 30, 1986, and
make the necessary adjustments to correctly reflect the allocated
costs that benefited Superfund for fiscal 1986 (See exhibit III,
note 2 for details).
ACTION REQUIRED
EPA Directive 2750 requires the Action Official to provide us with a
written response to our audit findings and recommendations within 90 days
of the audit report date. We have designated the Acting Assistant
Administrator for Administration and Resources Management as the primary
Action Official for this report. Resolution of all findings and
recommendations should be coordinated with this official. As part of the
response to the above recommendations, we request that you also provide a
status report of actions accomplished since the response to the draft audit
report which is included as appendix 2 in the attached report. As appropriate,
new or revised milestone dates for the implementation of uncompleted
corrective actions should also be included in the status report.
Should your staff have any questions, please have them contact Kenneth D.
Hockman, Divisional Inspector General for Audit, on 382-49?C.
Attachment
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DISTRIBUTION
* Office of Inspector General (A-109)
Inspector General (1)
Deputy Inspector General (Ij
Assistant Inspector General
for Audit (1)
Divisional Inspector General
for Audit - All Divisions (6)
Director, Audit Operations Staff (4)
Chief, Program Analysis Unit (2)
B. Regional Office
Regional Administrator, Regions 1 through 10 (2 each)
C. Headquarters Office
Associate Administrator for Regional Operations (A-101)
Assistant Administrator for Administration and
Resources Management (PM-208)
Director, Office of Administration (PM-217)
Director, Facilities Management and Services Division
Director, Procurement and Contracts Management
Division (PM-214)
Director, Office of Administration and Resources
Management - RTP (MD-20)
Director, Financial Management Division - RTP (MD-32)
Director, Office of Administration - Cincinnati
Comptroller, Office of the Comptroller (PM-225J
Director, Financial Management Division (PM-226)
Chief, Superfund Accounting Branch, FMD (PM-226)
Financial Management Officer, Cincinnati
Financial Management Center
Financial Management Officer, Las Vegas Accounting
Operations Office
Assistant Administrator for Enforcement and
Compliance Monitoring (LE-133)
11 rector, National Enforcement Investigations Center,
Denvtr
Assistant Administrator for Solid Waste and
Emergency Response (WH-562A)
Director, Office of Waste Programs Enforcement,
OSWER (UH-527)
Director, Office of Emergency and Remedial Response
(Superfund), OSWER (WH-548)
Assistant Administrator for Research and Development
(RO-672)
Copies
15
20
2
1
1
2
1
1
1
1
1
1
1
2
1
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1
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2
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AND COMPLIANCE AUDIT
OBLIGATIONS AND DISBURSEMENTS UNDER THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1986
TICHENOR & ElCHE
CERTIFIED PUBLIC ACCOUNTANTS
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AND COMPLIANCE AUDIT
OBLIGATIONS AND DISBURSEMENTS UNDER THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1986
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AND COMPLIANCE AUDIT
OBLIGATIONS AND DISBURSEMENTS UNDER THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1986
TABLE OF CONTENTS
SCOPE AND OBJECTIVES
SUMMARY OF AUDIT RESULTS
SUMMARY OF FINDINGS
BACKGROUND
AUDITORS' REPORT ON THE STATEMENT OF OBLIGATIONS
AND THE STATEMENT OF DISBURSEMENTS
AUDITORS ' REPORT ON INTERNAL ACCOUNTING CONTROL
AND COMPLIANCE
FINDINGS AND RECOMMENDATIONS
1 . PERSONAL PROPERTY MANAGEMENT PROCEDURES
. SHOULD BE STRENGTHENED
2. PROCEDURES FOR ALLOCATION OF SUPPORT
T0 SUPERFUND NEED"
3.
4.
.
IMPROVEMN
CERCLA TRUST FUND RECEIVABLES SHOULD BE
RECORDED TIMEL?
RESULTS OF STATISTICAL ANALYSIS OF NON-
PAYROLL OBLIGATION TRANSACTIONS
RESULTS OF STATISTICAL ANALYS IS OF NON-
PAYROLL DISBURSEMENT TRANSACTION^
RESULTS OF STATISTICAL ANALYSIS OF
PERSONNEL COMPENSATION TRANSACTIONS
PAGE
1
2
3
8
10
12
15
21
26
31
32
34
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TABLE OF CONTENTS (CONTINUED)
EXHIBITS
EXHIBIT I:
EXHIBIT II:
EXHIBIT III:
APPENDICES
APPENDIX 1
APPENDIX 2
STATEMENT OF OBLIGATIONS, FISCAL
YEAR ENDED SEPTEMBER 30, 1986
STATEMENT OF DISBURSEMENTS, FISCAL
YEAR ENDED SEPTEMBER 30, 1986
NOTES TO STATEMENTS OF OBLIGATIONS
AND DISBURSEMENTS, FISCAL YEAR
ENDED SEPTEMBER 30, 1986
SCOPE AND METHODOLOGY OF STATISTICAL
SAMPLING
OFFICE OF ADMINISTRATION AND RESOURCES
MANAGEMENT'S RESPONSE TO DRAFT AUDIT
REPORT
PAGE
37
38
39
42
46
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AND COMPLIANCE AUDIT
OBLIGATIONS AND DISBURSEMENTS UNDER THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1986
SCOPE AND OBJECTIVES
We have performed a financial and compliance audit of the portion
of the Hazardous Substance Response Trust Fund (Superfund) re-
ported by the U.S. Environmental Protection Agency (EPA) for the
fiscal year ended September 30, 1986. Superfund was established
under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA). CERCLA (section lll(k)] states
that the Inspector General shall audit as appropriate all pay-
ments, obligations, reimbursements, or other uses of Superfund to
assure that Superfund is being properly administered and that
claims are being appropriately and expeditiously considered.
Contract, grant, and interagency agreement costs were examined
only to the extent necessary to determine if valid obligation and
disbursement transactions were properly recorded and records were
properly maintained. Audits of contracts, grants, and interagen-
cy agreements performed at a later date may disclose questioned
costs. In addition, it was not within the scope of the audit to
determine the validity, propriety, allowability and allocability
of the support services costs that were accumulated and allocated
to Superfund or to verify the ratios that were used as a basis
for the allocations. Our audit procedures were limited to re-
viewing Superfund allocation methodologies, testing the mathe-
matical accuracy of the allocations, and verifying that the al-
locations were made in a timely manner. As part of the audit, we
made a study and evaluation of internal accounting controls as
well as an audit of costs obligated and disbursed under the
Superfund appropriations for the fiscal year ended September 30,
1986. Additionally, we reviewed the status of findings and re-
commendations included in the prior audit reports, which covered
the fiscal years ended September 30, 1984 and 1983.
This audit was performed in accordance with generally accepted
auditing standards and the standards for financial and compliance
audits contained in the Standards for Audit of Governmental
Organizations. Programs. Activities, and Functions, issued by the
U.S.General Accounting Office.Our examination included tests
of the accounting records of the 10 regional offices, 3 account-
ing operations offices located at the major laboratory facili-
ties, the National Enforcement Investigations Center and EPA
Headquarters; evaluations of internal accounting .controls; and
such other auditing procedures as we considered necessary in the
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SCOPE AND OBJECTIVES (CONTINUED)
circumstances. Audit fieldwork was performed from March 2, 1987
through May 15, 1987.
As part of this audit, transactions obligated and disbursed for
Superfund activities were selectively tested. The audit objec-
tives were to determine if:
(1) The Statement of Obligations and the Statement of Dis-
bursements present fairly financial information in ac-
cordance with applicable laws, regulations, and guide-
1ines;
(2) EPA management complied with laws and regulations
which, if not followed, might have a material effect
upon the Statement of Obligations and the Statement of
Disbursements; and
(3) EPA established an adequate system of internal account-
ing control to ensure the reliability of accounting and
management records.
SUMMARY OF AUDIT RESULTS
We found that significant improvements had been made in the over-
all implementation of Agency guidance to account for Superfund
costs. However, we also noted that compliance with existing
policies and procedures still need to be improved and additional
controls need to be developed to ensure accurate accounting for
the Superfund program.
EPA obligated $393,272,582 and disbursed $416,685,493 from Super-
fund during the fiscal year ended September 30, 1986. We accept-
ed $393,233,239 of obligations and $416,313,532 of disbursements.
We questioned $39,343 of obligations and disbursements due to
errors in calculating cost allocations. We set aside $332,618 of
disbursements resulting from insufficient documentation to sup-
port two transactions.
Our findings are summarized in the Summary of Findings and pre-
sented in detail in the Findings and Recommendations and Ex-
hibits.
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SUMMARY OF AUDIT RESULTS (CONTINUED)
FINANCIAL RESULTS OF AUDIT
Questioned and set-aside costs are summarized below and detailed
in the Exhibits and Notes.
Set-aside Questioned
Total Accepte4 Costs Costs
FY 1986
Obligations $393,272,582 $393,233.239 $ $ 39,343
FY 1986
Disbursements $416,685,493 $416,313,532 $ 332,618 $ 39.343
Questioned costs represent 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 re-
sponsible Agency program officials.
SUMMARY OF FINDINGS
FOLLOW-UP ON PRIOR AUDIT FINDINGS
The prior audit reports, issued as component audits of the 10
regional offices, the 3 accounting operations offices located at
the major laboratory facilities, the National Enforcement In-
vestigations Center, and EPA Headquarters, covered the period
from October 1, 1982 through September 30, 1984. These audit re-
ports identified weaknesses related to: contract disbursements
being charged to the proper appropriation; compliance with Super-
fund charging policies for personnel compensation and benefits;
implementation of cost allocation procedures for regional support
services costs; sufficient documentation for Superfund transac-
tions; personal property management system and procedures; letter
of credit accounting for cooperative agreements; cost-effective
discounts being taken or recorded as lost; and CERCLA Trust Fund
receivables being recorded timely.
The Agency has initiated corrective actions ii «: number of these
areas. We found that the Agency generally took appropriate
actions to resolve prior audit questioned and set-aside costs.
However, our audit disclosed that additional improvements in
property management, cost allocations, and recording receivables
are still required, as well as compliance with EPA policies for
recording obligations, disbursements, and personnel compensation.
These findings are further discussed in the Findings and Recom-
mendations section of this report.
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SUMMARY OF FINDINGS (CONTINUED)
1. PERSONAL PROPERTY MANAGEMENT PROCEDURES SHOULD BE STRENGTH-
ENED' ~~ '
During our review of the personal property management system, we
found 140 items purchased with CERCLA funds in fiscal 1986, with
a determinable cost of $735,507, that were not recorded in the
Personal Property Accounting System (PPAS). Also, when we
attempted to trace samples of property items back to the PPAS, we
found 245 items that did not appear on the listings. We could
not determine the total costs of the 245 items. The omission of
these items from the property listings occurred at Regions 1, 2,
3, 4, 5, 7, 8, 9, 10, Research Triangle Park (RTP), and the Na-
tional Enforcement Investigations Center (NEIC). In addition, we
noted errors in amounts and quantities recorded in the PPAS at
Regions 1, 5, and Las Vegas. Finally, Regions 1, 2, 3, 4, 7, and
9 could not locate 103 items, valued at $252,138, from a sample
of items selected for physical inspection.
Our review of internal controls for personal property disclosed a
significant procedural weakness in the system and various in-
stances of non-compliance with established internal controls.
The procedural weakness was the lack of Agency policies or proce-
dures requiring the reconciliation of purchases of property and
equipment recorded in the Financial Management System (FMS) with
items entered into the PPAS. The omissions from the PPAS of the
items identified above would have been disclosed in a reconcil-
iation, or if there was an interface between the two systems.
2. PROCEDURES FOR ALLOCATION OF SUPPORT SERVICES COSTS TO SUPER-
FUND NEED IMPROVEMENT
We believe the Agency's standard procedures for the allocation of
general support services costs to Superfund were not clearly
defined. As a result, our audit disclosed that at Headquarters,
disbursements were allocated to Superfund based upon a full-time
equivalent (FTE) ratio applied to cumulative obligations.
Therefore, disbursements were recorded in the Superfund appro-
priation based upon the obligations recorded in the Salaries and
Expenses appropriation in advance of actual disbursements. The
allocation of disbursements should be calculated by applying the
FTE ratio to cumulative disbursements. The Agency's standard
procedures for the allocation of support costs to Superfund do
not clearly specify that allocations of obligations and disburse-
ments should be calculated separately based upon cumulative
obligations and cumulative disbursements, respectively.
We also noted that Region 3 overstated its general support ser-
vices cost allocations to Superfund. The overstatement occurred
because Region 3 used a ratio based on authorized FTEs, rather
than the actual FTE ratio, as a basis for its cost allocations.
The dollar effect of the misstatement could not be determined
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SUMMARY FINDINGS (CONTINUED)
because Che Region applied the ratio to individual transactions
and, therefore, could not readily identify its total support
services costs for fiscal 1986. In addition, we found that the
Superfund program was not always charged its proportionate share
of support services costs due to cost and FTE ceilings. As a
result of the above conditions, the allocations of support ser-
vices costs to Superfund did not always accurately reflect the
benefits received by Superfund.
3. CERCLA TRUST FUND RECEIVABLES SHOULD BE RECORDED TIMELY
Amounts due Superfund, as a result of cost recovery actions and
State cost-sharing agreements, were not being recorded in a time-
ly manner. The failure to record cost recovery decrees and or-
ders timely was the result of a lack of compliance with Agency
policy and guidance by: (1) EPA Headquarters Financial Manage-
ment Division (FMD); (2) Office of Waste Programs Enforcement
(OWPE); (3) Office of Enforcement and Compliance Monitoring
(OECM); and (4) Offices of Regional Counsel. The failure to re-
cord State cost-sharing agreements timely was the result of a
lack of compliance with Agency policy and guidance by: (1) EPA
Headquarters FMD; (2) EPA Headquarters Office of Emergency and
Remedial Response (OERR); and (3) EPA Regional Offices. This
weakness in controls over accounts receivable was disclosed in
the prior Trust Fund audit report.
4. RESULTS OF STATISTICAL ANALYSIS OF NON-PAYROLL OBLIGATION
TRANSACTIONS
Based upon the results of our statistical analysis of non-payroll
obligation transactions recorded in fiscal 1986, amounting to
$332,337,848, we accepted $332,298,505 ($332,337,848 less $39,343
questioned in Exhibit I). We also examined ten internal control
and compliance attributes for non-payroll obligations for which
we expected the error rate not to exceed three percent. The
results of our statistical analysis disclosed the following error
rates in excess of three percent:
Attributes
Authorized official's
signature agrees with
listing maintained by
FMO
Date received by FMO is
timely (within 3-10
working days of date
signed)
Sample
Size
1,605
1,605
Number of
Exceptions
101
6.29Z
125
7.79Z
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SUMMARY OF FINDINGS (CONTINUED)
Attributes
Date input in FMS is
timely (within 4 work-
ing days of receipt by
FMO)
Sample
Size
1,605
Number of
Exceptions
194
12.09Z
5. RESULTS OF STATISTICAL ANALYSIS OF NON-PAYROLL DISBURSEMENT
TRANSACTIONS
Based upon the results of our statistical analysis of non-payroll
disbursement transactions recorded in fiscal 1986, amounting to
$356,434,858, we accepted $356,062,897 ($356,102,240 less $39,343
questioned in Exhibit II) and set aside $332,618. Our audit
estimate indicated with 95Z confidence that the total non-payroll
disbursements should have been $354,082,786, or a difference of
less than 1Z of the recorded value. The set-aside costs were the
result of two specific exceptions from stratified random samples.
(See Exhibit III, Note 3.) All exceptions disclosed in our
testing were used in the calculation of the audit estimate,
however, we set aside only those individual transactions exceed-
ing $1,000.
We also examined fourteen internal control and compliance
attributes for non-payroll disbursements (excluding contracts
processed by the Financial Managaiacat Office (FMO) at RTF) for
which we expected the error rate not to exceed three percent,.
The results of our statistical analysis indicated the following
error rates in excess of three percent:
Attributes
Authorized official's
approval on disbursement
dccuuents
All payment documents
were perforated and
marked paid
Sample
Size
703
703
Number of
Exceptions
78 (a)
26
11.10Z
3.702
(a) 53 of the 78 exceptions were lack of approval of Letter
of Credit drawdowns.
-6-
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SUMMARY OF FINDINGS (CONTINUED)
6. RESULTS OF STATISTICAL ANALYSIS OF PERSONNEL COMPENSATION
TRANSACTIONS
We performed a statistical analysis of personnel compensation
transactions for fiscal 1986. Based upon the results of our ana-
lysis of a random sample of transactions, we are 95Z confident
that the total personnel compensation is no greater than
$54,882,199 and no less than $53,566,311, with a precision of
$1,315,888. The recorded disbursements for personnel compen-
sation costs for fiscal 1986 were $53,794,684, which falls within
the upper and lower limits. Consequently, we accepted the re-
corded personnel compensation costs for fiscal 1986.
OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT'S COMMENTS ON
FINDINGS AND OUR EVALUATION
Audit exit conferences were held with responsible Agency offi-
cials at the 10 regional offices, 3 accounting operations offices
located at the major laboratory facilities, the National Enforce-
ment Investigations Center and EPA Headquarters at the conclusion
of fieldwork at each audit location. The purpose of the exit
conferences was to present findings and recommendations and to
ensure a clear understanding of the audit by Agency management.
Agency officials were in general agreement with our findings and
recommendations presented at the exit conferences and indicated
that corrective actions would be taken.
In addition, the Acting Assistant Administrator of the Office of
Administration and Resources Management (OARM) provided us with
formal written comments on our draft report in a memorandum dated
September 1, 1987. The Acting Assistant Administrator of OARM
generally concurred with our findings and recommendations, except
as noted in the Findings and Recommendations section of this
report, and indicated that corrective actions were taken or were
planned to resolve the issues cited in the draft report. We con-
cluded that OARM's comments were generally responsive to our
findings and recommendations. To provide a balanced under-
standing of the issues, we summarized OARM's position at appro-
priate locations in this report and included the complete re-
sponse as Appendix 2.
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-------
BACKGROUND
The "Superfund" program was established by the Comprehensive En-
vironmental 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 and other sources
where response was not required by othjr Federal laws. A Trust
Fund was established by CERCLA to provide funding for responses
ranging from control of emergency situations to provision of per-
manent remedies at uncontrolled sites. CERCLA authorized a $1.6
billion program financed by a five-year environmental tax on in-
dustry 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 Water 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. Re-
movals 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 seri-
ous abandoned or uncontrolled hazardous waste sites.
CERCLA recognizes that the Federal government can only assume
responsibility for remedial resp^rso. at a limited number of sites
representing the greatest public threat. It therefore requires
the maintaining of a National Priorities List (tfFL), which must
be updated at least annually. The NFL is composed primarily of
sites which have been ranked en 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 nrken 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 most sites, the State
must pay 10 percent of the costs or 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 SO percent of all response costs, including removals and
remedial planning previously conducted.
CERCLA was revised and expanded by the Superfund Amendments and
Reauthorization Act of 1986 (SARA), Public Law 99-499, enacted on
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BACKGROUND (CONTINUED)
October 17, 1986. SARA reinstituted the environmental tax and
expanded the taxing mechanisms available for a five-year period.
It authorized an $8.5 billion program for the 1987-1991 period.
The Trust Fund was renamed the Hazardous Substance Superfund.
-9-
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TlCHENOR & EICHE
CERTIFIED PUBLIC ACCOUNTANTS THE SUMMIT, SUITE 200
4350 BROWNS8ORO ROAD
LOUISVILLE, KENTUCKY 40207
(302) 893-0700
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 ON THE STATEMENT OF OBLIGATIONS AND THE STATE-
MENT OF DISBURSEMENTS
We have examined the Statement of Obligations and the Statement
of Disbursements of the U.S. Environmental Protection Agency's
(EPA) portion of the Hazardous Substance Response Trust Fund (Su-
per fund) for the fiscal year ended September 30, 1986, as pre-
sented 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. fi-
nancial and compliance audits contained in the Standards for Au-
dit of Governmental Organizations, Programs; Activities, and
Functions,issued by the U.S.General Accounting Office.Addi-
tionally, the U.S. Environmental Protection Agency Hazardous Sub-
stance Response Trust Fund Audit Guide (revised February 23.
1987) 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
c ircums tances.
The Statement of Obligations and the Statement of Disbursements
referred to above contained obligation and disbursement costs
related to contracts, grants, and interagency agreements. Our
audit procedures were limited to determining if valid obligation
and disbursement costs were properly recorded in accordance with
applicable EPA policies and procedures. Accordingly, we did not
apply audit procedures to determine if contract, grant, and in-
teragency agreement costs were allowable in accordance with ap-
plicable Federal regulations and within the terms of specific
contracts, grants, and interagency agreements. Audits of con-
tracts, grants, and interagency agreements performed at a later
date may disclose questioned costs. In addition, the Statement
of Obligations and. the Statement 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 proce-
dures on the general support services cost pools or verify the
calculations of the bases for the allocations of these costs.
The Statement of Obligations and the Statement of Disbursements
were prepared for EPA's use by the EPA Financial Management Divi-
sion from financial information contained in the Financial Man-
agement System (Superfund Status Report, dated September 30,
1986). These statements are not intended to present either the
financial position or the financial results of operations in con-
-10-
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STATEMENT OF OBLIGATIONS AND THE STATE-
ISBURSEMENTS (CONTINUED^ : ^±£L
fonnity with generally accepted accounting principles. As de-
scribed in Note 1, EPA's policy is to prepare financial informa-
tion in accordance with accounting policies and practices which
are legislatively established and promulgated through various
Federal and EPA policy and procedural standards.
In our opinion, except for the effects of such adjustments, if
any, as might have been necessary had we been able to determine
the allowability of contract, grant, and interagency agreement
costs in accordance with applicable Federal regulations and the
terms of specific contracts, grants, and interagency agreements,
and had we been able to determine the allowability and allo-
cability of the accumulated costs pools of general support ser-
vices or the bases for the allocations ,. the Statement of Obliga-
tions and the Statement of Disbursements present fairly financial
information in accordance with applicable Federal laws, regula-
tions, policies, and program guidelines for the fiscal year ended
September 30, 1986.
This report is intended for use in connection with the statements
to which it refers and should not be used for any other purpose.
TICHENOR & EICHE
Louisville, Kentucky
May 15, 1987
-11-
-------
TlCHENOR & ElCHE
CERTIFIED PUBLIC ACCOUNTANTS
THE SUMMIT. SUITE 200
4350 BROWNSBORO ROAD
LOUISVILLE. KENTUCKY 40207
(502) 89J-0700
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 ON INTERNAL ACCOUNTING CONTROL AND COMPLIANCE
We have examined the Statement of Obligations and the Statement
of Disbursements of the U.S. Environmental Protection Agency's
(EPA) portion of the Hazardous Substance Response Trust Fund (Su-
per fund) for the fiscal year ended September 30, 1986, and we
have issued our Auditors' Report thereon, dated Kay 15, 1987. As
part of our examination, we made a study and evaluation of EPA's
Superfund system of internal accounting control to the extent we
considered necessary to evaluate the system as required by gen-
erally accepted auditing standards and the standards for finan-
cial and compliance audits contained in the Standards for Audit
of Governmental Organizations, Programs, Activities, and Func-
tions, issued by theU.S.General Accounting Office.Forthe
purpose of this report, we have classified the significant in-
ternal accounting controls into the following transaction cat-
egories:
Obligations
Disbursements
Payroll
Grants (Cooperative Agreements), Contracts, and
Interagency Agreements
Cost Allocations
Property and Equipment
Billings and Receivables
Collections
Our study included all of the transaction categories listed
above.
The purpose of our study and evaluation was to determine the na-
ture, timing and extent of the auditing procedures necessary for
expressing an opinion on the Statement of Obligations and the
Statement of Disbursements. Our study and evaluation was more
limited than would be necessary to express an opinion on the sys-
tem of internal accounting control taken as a ^i.ole or on any of
the categories of controls identified above.
EPA management is responsible for establishing and maintaining a
system of internal accounting control. In fulfilling this re-
sponsibility, estimates and judgments by management are required
to assess the expected benefits and related costs of control pro-
cedures. The objectives of internal accounting control are to
provide reasonable, but not absolute, assurance that assets are
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AUDITOR'S REPORT ON INTERNAL ACCOUNTING CONTROL AND COMPLIANCE
(CONTINUED)
safeguarded against loss from unauthorized use or disposition,
and that transactions are executed in accordance with manage-
ment'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 con-
sidering the potential effectiveness of any system of internal
accounting control. Because of inherent limitations in any sys-
tem 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 misunderstanding
instructions, mistakes of judgment, carelessness, or other per-
sonal factors. Control procedures whose effectiveness depend on
segregation of duties can be circumvented by collusion. Similar-
ly, control procedures can be circumvented intentionally by man-
agement, 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-
more, 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 mate-
rial weaknesses in the system. Accordingly, we do not express an
opinion on the system of internal accounting control of EPA's
portion of Superfund taken as a whole or on any of the categories
of control identified in the first paragraph. However, our study
and evaluation disclosed no condition that we believed to be a
material weakness in relation to the Statement of Obligations and
the Statement of Disbursements.
Our audit disclosed the following weaknesses which were not con-
sidered material in relation to the Statement of Obligations and
the Statement of Disbursements; however, were considered signifi-
cant weaknesses that warrant the attention of management:
0 Implementation and compliance with property management
procedures.
0 Compliance with policies for allocations of general
support services costs.
CERCLA Trust Fund receivables were not recorded in a
timely manner.
-13-
-------
AUDITOR'S REPORT ON INTERNAL ACCOUNTING CONTROL AND COMPLIANCE
(CONTINUED)"
0 Compliance with policies for recording obligations,
disbursements, and personnel compensation transactions.
The above conditions are further discussed in the Findings and
Recommendations section of this report.
The U.S. Environmental Protection Agency Hazardous Substance Re-
sponse Trust Fund Audit Guide (revised February 23, 1987)re-
quiresIreview andevaluationoltheadequacy of theinternal
accounting controls of EPA's portion of Superfund as a basis for
reliance thereon and for the determination of the resultant ex-
tent of the tests to which auditing procedures are to be re-
stricted. The audit guide also requires a review of CERCLA, oth-
er regulations, policies, and guidelines to determine if Federal
funds are being expended in accordance with provisions of CERCLA,
other regulations, policies, and guidelines.
The results of our tests indicate that for items tested, EPA com-
plied with tb? provisions of CERCLA, other regulations, policies,
and guidelines, except for the conditions described i.i the Find-
ings and Recommendations. Furthermore, for the items not tested,
based upon our examination and the procedures referred to above,
nothing came to our attention which indicated that EPA had not
complied with the provisions of CERCLA, other regulations, pol-
icies, 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.
TICHENOR & EICHE
Louisville, Kentucky
May 15, 1987
-14-
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FINDINGS AND RECOMMENDATIONS
1. PERSONAL PROPERTY MANAGEMENT PROCEDURES SHOULD BE STRENGTH-
ENED"
During our review of the personal property management system, we
found 140 items purchased with CERCLA funds in fiscal 1986, with
a determinable cost of $735,507, that were not recorded in the
Personal Property Accounting System (PPAS). Also, when we
attempted to trace samples of property items back to the PPAS, we
found 245 items that did not appear on the listings. We could
not determine the total costs of the 245 items. The omission of
these items from the property listings occurred at Regions 1, 2,
3, 4, 5, 7, 8, 9, 10, Research Triangle Park (RTP), and the Na-
tional Enforcement Investigations Center (NEIC). In addition, we
noted errors in amounts and quantities recorded in the PPAS at
Regions 1, 5, and Las Vegas. Finally, Regions 1, 2, 3, 4, 7, and
9 could not locate 103 items, valued at $252,138, from a sample
of items selected for physical inspection.
Our review of internal controls for personal property disclosed a
significant procedural weakness in the system and various in-
stances of non-compliance with established internal controls.
The procedural weakness was the lack of Agency policies or proce-
dures requiring the reconciliation of purchases of property and
equipment recorded in the Financial Management System (FMS) with
items entered into the PPAS. The omissions from the PPAS of the
items identified above would have been disclosed in a reconcil-
iation, or if there was an interface between the two systems.
The failure to record items in the PPAS was due partly to con-
tracting or receiving offices not providing documentation to the
property management offices. Also, the property system at Head-
quarters was not operational for a portion of fiscal 1986 and
property items could not be input into the PPAS from the property
management offices. We also found that annual physical inven-
tories were not performed for fiscal 1986 at Regions 8, 9, 10,
and RTP. Additionally, we found that the custodial officer
systems and the requisite written assumptions of responsibility
for property were not completely implemented at Regions 1, 4, 9,
10, and Headquarters. We also found that Regions 1, 3, 4, 7. and
9 did not have an adequate system in place for properly tracking
sensitive items. Regional personnel indicated that the primary
reasons for not implementing property management controls were
lack of staffing and training for property management personnel.
These internal control weaknesses in EPA's property management
system were disclosed in our prior Trust Fund audit reports.
Agency officials, in response to the previous Trust Fund audit
reports, indicated that corrective actions were taken to
implement procedures to prevent omissions from the PPAS in the
future and to improve internal controls.
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FINDINGS AND RECOMMENDATIONS^(CONTINUED)
The EPA Facilities and Support Services Manual includes Volume
4830 - Personal PropertyManagement - Book 1 which established
Property Management Regulations(PMRs) for EPA's property manage-
ment system. In addition, the EPA "How-To Handbook Procedures
for Property Management" provides additional guidance for ac-
countability of EPA property.
Property Items Not Recorded InThe Personal Property Accounting
System
At each audit location, we selected samples of Superfund property
and equipment items purchased during fiscal 1986, which were re-
corded in the Financial Management System (FMS). We physically
verified the existence of these items, except as previously not-
ed, and attempted to trace the items to the PPAS listings, which
are the official EPA property accountability records. In addi-
tion, we selected samples of property items from physical in-
spections and attempted to trace those items into the PPAS.
While we could identify the number of items not recorded in PPAS
from our samples, we could not determine the dollar value of the
items not recorded (no determinable cost). As a result of these
tests, we found the following omissions from the PPAS:
Audit
Location
Region 1
Region 2
Region 3
Region 4
Region 5
Region 7
Region 8
Region 9
Region 10
RTP
NEIC
Totals
Number Of Items
Not Recorded In
PPAS From Sample
(With Determin-
able Cost)
13
11
13
27
16
10
29
21
140
Dollar
Value
Of Items
Not Recorded
$ 41,988
32,117
67,480
72,084
30,928
27,710
131,315
331.885
$7S5.507
Number Of Items
Not Recorded In
PPAS From Sample
(No Determinable
Cost)
9
212
2
14
3
5
245
The above listing represents only those items that were disclosed
from our audit samples and is not intended to represent a com-
plete listing of items that may have been omitted from the PPAS
listings.
One cause cited by Agency personnel at the audit locations where
-16-
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
items were omitted from the PPAS listing was that contracting or
receiving offices did not forward the appropriate documents to
the property management offices. In some cases, this was due to
the contracting offices not being located in the same Region as
the property accountable area. However, in many cases, the re-
ceiving offices, which are located within the Region, did not
forward receiving documents to the property offices. This
situation could have been corrected had the property management
offices established follow-up procedures for open purchase orders
or unmatched receiving reports for property and equipment, since
copies of purchase orders or receiving reports should have been
on file in the property offices. Also, the property offices
indicated another reason for omission of items was that the
property system was not operational for a portion of fiscal 1986
and property items could not be input into the PPAS.
In response to our initial findings, Agency officials indicated
that corrective actions were taken to record these items in the
PPAS.
Property Items Unable To Be Located For Physical Inspection
At each audit location, we selected samples of Superfund property
and equipment items from the Agency's PPAS listings to be located
and physically inspected. From these samples, the following num-
ber of items could not be located:
Audit
Location
Region 1
Region 2
Region 3
Region 4
Region 7
Region 9
Totals
Number of
Items Not Able
To Be Located
And Inspected
18
7
50
13
5
1.0
103
Dollar
Value >
Of Items
Not Located
$ 35,706
19,829
86,981
67,480
4,499
37.643
$252.138
In response to our initial findings, Agency officials indicated
that corrective actions were taken to locate these items.
Errors In Amount And Quantities In PPAS
We also noted the following errors in amounts and quantities re-
corded in the PPAS listings:
-17-
-------
FINDINGS AND RECOMMENDATIONS (CONTINUED)
Audit
Location
Region 1
Region 5
Las Vegas
Total
Number
Of Items
2
5
9
Errors In
Quantities
2
2
9
Amounts
$ 458
$ 20,488
29,449
$ 50.395
Internal Control Weaknesses And Non-Compliance
We found a significant Agency internal control weakness, which,
had this control procedure been required, could have disclosed
the omission of items from the PPAS. Obligations and disburse-
ments are recorded for property and equipment items in certain
object class accounts in the FMS. Specific accounts in the FMS
are designed for the recording of capitalized property, which is
also required to be accounted for in the FPAS. There was no in-
terfacing between the two systems to ensure that purchases re-
corded in the FMS were also entered in the PFAS. Additionally,
since there were no EPA policies or procedures requiring the rec-
onciliation between the systems, there was no assurance that
Superfund property purchases recorded in the FMS were under prop-
erty accountability controls in the property management system.
We also noted that Regions 1, 3, 4, 7, and 9 did not have an ade-
quate system in place for properly tracking sensitive items of
property purchased with Superfund money. Sensitive items include
cameras, radios, video equipment, and calculators. The required
tracking system should be controlled and implemented through the
use of sensitive item custody cards. The cards are to be signed
by the individual who receives the property and the Property Ac-
countability Officer, with the custodial officer maintaining con-
trol of the cards. Also, the individual who signs the card as-
sumes financial responsibility for the item. Thus, individuals
are less likely to misappropriate or be careless with property
for which they are liable. However, by not enforcing this con-
trol procedure, sensitive property could be subject to misuse or
improper disposition.
In addition, Regions 8, 9, 10, and RTP did not perform annual
physical inventories and reconciliations with che PPAS. Failure
to conduct annual inventories diminishes the probability that
management would detect the loss, misuse or misappropriation of
Superfund property. We also found Regions 1, 4, 9, 10, and Head-
quarters (custodial area 108} did not have the required designa-
tions for the custodial officers; and Regions 9 and 10 did not
have the designations of accountability for the property account-
able officers. Without formal designations and assumptions of
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
duties, officials are not accountable for the property in their
custody. Finally, Regions 1, 2, 4, 7, 9, and 10 had property
items which were not affixed with EPA bar code decals.
Accountability for Superfund property is diminished when items
are not properly tagged. Unmarked property could be easily lost,
misappropriated or used for unauthorized purposes.
As a. result of the above procedural weaknesses and non-compliance
with internal controls, we concluded that the Agency did not have
adequate control over and accountability for Superfund property.
EPA, by not properly accounting for personal property items in
the PPAS and not implementing internal accounting and management
controls, diminishes the probability that Agency management could
detect the loss, misuse or misappropriation of Superfund proper-
ty.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Deputy Admini-
strator:
0 Obtain written certifications from all Regional Ad-
ministrators (except Region 6), Laboratory Directors at
RTP and Las Vegas, and the Director, NEIC, indicating
that all corrective actions taken in regard to property
accountability have been completed. Or, if action is
in process, obtain an action plan with specific
milestone dates for completion.
0 Require the Acting Assistant Administrator for Admini-
stration and Resources Management to:
establish policies and procedures requiring that
capitalized personal property accounts in the FMS
be reconciled with items and amounts recorded in
the PPAS on a periodic basis, at least annually;
provide additional staffing and training, as ne-
cessary, to instruct property management personnel
in their duties, emphasizing the weaknesses and
instances of non-compliance with existing controls
indicated in this report;
establish procedures to be implemented by the pro-
perty management offices to ensure annual physical
inventories are performed and reconciled to the
PPAS; and
consider the feasibility of establishing a prop-
erty management assessment review team to visit
the Regions and major laboratory facilities on a 2
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
to 3 year rotating basis, to assess the implementation
of EPA's property management policies and procedures.
PARK'S RESPONSE TO DRAFT REPORT AND OUR EVALUATION
The Acting Assistant Administrator of the Office of Administra-
tion and Resources Management (OARM) stated in response to our
recommendations:
0 The Facilities Management and Services Division (FMSD)
will lead the effort in reviewing and approving each
action plan developed in response to the specific
recommendations in the audit. FMSD will request each
location by September 30, 1987 (or 30 days after
issuance of the final audit) to develop action plans
within 60 days. FMSD will track the milestones and
accomplishments against these plans. As each location
completes its work, FMSD will request certification
th*»c all corrective actions taken in property account-
ability have been completed.
0 The Acting Assistant Administrator of OARM will
instruct the Director, Facilities Management and
Services Division (FMSD) and the Director, Financial
Management Division (FMD) to develop interim policies
and procedures for reconciling the documents and
amounts recorded in the Financial Management System
(FMS) to those recorded in the Personal Property
Accounting System (PPAS). FMSD and FMD will complete
these procedures by December 31, 1987. By September
30, 1987, the FMD will provide FMSD with an extract of
disbursements recorded in the Financial Management
System (FMS) for property. This will assist the FMSD
to identify new property acquisitions which have not
been recorded in PPAS.
Once the new Integrated Financial Management System
(IFMS) is implemented, the property and finance func-
tions will interface and prevent any future reconcila-
tion problems. IFMS, which is now in the final pro-
curement stages, will allow the property function to be
fully integrated with finance and other administrative
functions. The property function is scheduled for
implementation in Phase II of IFMS, which will be in FY
1990.
0 The Acting Assistant Administrator of OARM has request-
ed additional property management resources through the
Agency's formal budget process. In addition, the Fa-
cilities Management and Services Division has taken
opportunities to augment resources whenever possible
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
through the use of task forces. Specifically, FMSD has
established a Superfund Property Policy Task Force
which will develop by October 1987 draft property
policy on the acquisition, utilization and disposition
of personal property. FMSD has also established a
Property Management Roundtable (comprised -of two
regional representatives and property officials from
RTF, Cincinnati and Washington) which is charged with
resolving issues and improving property management
Agency-wide.
0 In the area of training, Property Management Officers
from Cincinnati and Research Triangle Park jointly con-
ducted a training program for field property management
personnel on August 4-5, 1987. Representatives from
all Regional Offices and the majority of our laborator-
ies participated in this training. FMSD also plans to
hold a 'similar training session for property management
personnel at Headquarters in late November of early
December 1987. FMSD will evaluate these courses taking
into account this audit report. By identifying areas
which need to be strengthened, FMSD can target future
courses to known weaknesses.
0 In conjunction with implementation of the PPAS, FMSD
will issue a directive requiring each accountable area
to conduct a comprehensive physical inventory and PPAS
reconciliation within 6 months. This directive will be
issued within 30 days of system installation.
0 The Acting Assistant Administrator of OARM has also
requested resources in the FY 1989 budget to support an
outreach capacity for property management. To augment
this request, FMSD will use the Property Management
Roundtable to conduct these types of assessments.
Beginning March 1, 1988, the Roundtable will work to
develop criteria for conducting these assessments. The
Roundtable will begin conducting these assessments
using these criteria by July 1988.
The proposed corrective actions are responsive to oijr recommenda-
tions and, consequently, we make no further recommendations.
2. PROCEDURES FOR ALLOCATION OF SUPPORT SERVICES COSTS TO SUPER-
FUND NEED IMPROVEMENT*
We believe the Agency's standard procedures for the allocation of
feneral support services costs to Superfund were not clearly de-
ined. As a result, our audit disclosed that at Headquarters,
disbursements were allocated to Superfund based upon a full-time
equivalent (FTE) ratio applied to cumulative obligations. There-
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
fore, disbursements were recorded in Che Superfund appropriation
based upon the obligations recorded in the Salaries and Expenses
appropriation in advance of actual disbursements. The allocation
of disbursements should be calculated by applying the FTE ratio
to cumulative disbursements. The Agency's standard procedures
for the allocation of support costs to Superfund do not clearly
specify that allocations of obligations and disbursements should
be calculated separately based upon cumulative obligations and
cumulative disbursements, respectively.
We also noted that Region 3 overstated its general support ser-
vices cost allocations to Superfund. The overstatement occurred
because Region 3 used a ratio based on authorized FTEs, rather
than the actual FTE ratio, as a basis for its cost allocations.
The dollar effect of the tnisstatement could not be determined
because the Region applied the ratio to individual transactions
and, therefore, could not readily identify its total support
services costs for fiscal 1986. In addition, we found that the
Superfund program was not always charged its proportionate share
of support services costs due to cost and FTE ceilings. As a
result of the above conditions, the allocations of support ser-
vices costs to Superfund did not always accurately reflect the
benefits received by Superfund.
Section 111(a) of CERCLA limits the charging of administrative
costs to Superfund to those which "are "necessary for" and "inci-
dental to" the implementation of the program. Therefore, an al-
lowable cost is allocable to Superfund to the extent of benefits
derived by the expenditure.
The Financial Management Manual, (Manual) Appendix 17-3 "Standard
Plan for Distributing Support Costs to the Superfund Appropria-
tion" 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."
Further, the Manual requires that the Superfund share of the gen-
eral support costs must be distributed from the Salaries and Ex-
penses (S&E) general support account by subobject class so that
costs allocated to Superfund can be readily identified. . However,
costs allocated to Superfund can be readily identified. However,
the manual does not specify that the allocations of obligations
and disbursements should be calculated separately.
We questioned the propriety of the Agency's allocation of costs
to Superfund because disbursement amounts were allocated to
Superfund in advance of the actual disbursements. Our audit dis-
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
closed Chat disbursements at Headquarters and for nationwide
support services were allocated to Superfund based upon, an FTE
ratio applied to cumulative obligations. As a result, disburse-
ments were recorded in the Superfund appropriation prior to the
actual disbursement being recorded in the S&E appropriation. The
allocation of disbursements that benefit Superfund should be cal-
culated by applying the FTE ratio to cumulative disbursement
amounts.
In response to the Headquarters Notification of Significant Find-
ing, Financial Management Division (FMD) officials stated that
standard procedures and adequate controls are in place to ensure
the validity and accuracy of allocations to the Superfund appro-
priation. In addition, they have implemented quality assurance
measures for both Superfund and other FMS transactions.
Region 3 did not utilize a system that readily identified the
total support services cost allocated to Superfund. Consequent-
ly, we could not determine the total support services .allocations
at Region 3 or perform any test work on the allocations. Region
3 allocated general support costs to Superfund based on an au-
thorized ratio of Superfund FTEs to total Regional FTEs. The
Region did not obtain certification and approval for the use of
authorized FTEs. This ratio was then applied to individual tran-
sactions rather than the total general support services costs.
While the Region's authorized FTE ratio was 23.0 percent, the
actual FTE ratio was 21.6 percent. The total dollar effect of
the 1.4 percent overstatement of the FTE ratio could not be
determined because the Region could not readily identify general
support services costs without reconstruction of all transactions
allocated to Superfund on the basis of authorized FTEs.
In response to our Notification of Significant Finding, Region 3
officials stated they are currently drafting procedures to allo-
cate costs in accordance with Chapter 17 of the Financial Manage-
ment Manual. The new written procedures are expected to be im-
plemented by the fourth quarter of fiscal 1987. In addition, the
Region stated that the actual FTE ratio will be determined for
fiscal 1986 and necessary adjustments made.
We also found that the Superfund program was not always charged
its proportionate share of support services costs. The Hazardous
Waste Engineering Laboratory at Cincinnati stopped allocating
costs to Superfund because its ceiling for charging Superfund had
been reached. As a result, Superfund was undercharged $13,291 in
support services costs. We noted that the Financial Management
Division, located at Research Triangle Park, N.C., Superfund FTE
ceiling was limited to five. However, based on the number of
transactions processed, approximately 10 FTEs could have been
charged to Superfund. We did not calculate the dollar effect
that an increase of five FTEs would have had on the costs al-
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
located to Superfund. Based on these conditions, there appeared
to be an unequitable distribution of costs between Superfund and
EPA's other programs.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Deputy Admini-
strator:
0 Obtain a written certification from the Regional Ad-
ministrator, Region 3, that the FMO, Region 3:
completed its implementation of a cost allocation
plan in accordance with the Financial Management
Manual;
reconstructed the total general support services
costs for fiscal 1986 and allocated these costs to
Superfund based on the actual FTE ratio; and
made the appropriate adjustments to the Superfund
appropriation.
0 Require the Acting Assistant Administrator for Admini-
stration and Resources Management to:
review the allocation methodology and consider the
propriety of the plan for allocating costs based
upon cumulative disbursements instead of obliga-
tions to Superfund; and
review the need for additional Superfund FTEs to
process Superrund financial transactions and to
achieve a more equitable allocation of general
support services costs.
0 Require the Assistant Administrator for Research and
Development to consider the need for additional Super-
fund monies for the Hazardous Waste Engineering Labora-
tory at Cincinnati.
PARK'S RESPONSE TO DRAFT REPORT
The Acting Assistant Administrator for OARM stated in response to
our recommendations:
0 OARM will issue a memorandum to the Regional Admini-
strator (Region 3) by October 1, 1987, requesting cert-
ification on the above items by November 1, 1987. The
Financial Management Division will initiate follow-up
actions to ensure these actions are properly completed.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
0 The Financial Management Division has reviewed our al-
location methodology and feels the audit report shows
some confusion about the purpose of the support cost
allocations and how they are performed. Contrary to
the impression given in the report, the choice is not
between allocating either obligations or disbursements.
Rather, both must beallocated. Obligations are
originally charged to the Salaries and Expense appro-
priation and allocated monthly to the Superfund
appropriation. FMO records the allocated amounts in
the General Ledger as Agency liabilities against the
Superfund appropriation. This first allocation is
essentially for funds control purposes. The Agency
must also allocate disbursements made against its
liabilities so that the Superfund Trust Fund is charged
for the Superfund Program's share of outlays. This
allocation is made by applying the FTE ratio to
cumulative disbursements. Allocations of both
obligations and disbursements are made using the same
methodology, i.e. applying FTE ratios against
cumulative amounts.
0 The Director, Financial Management Division annually
reviews and analyzes the need for additional FTEs based
on data accumulated from the workload models. This
review, however, is subject to Superfund FTE budget
ceilings and is adjusted accordingly.
0 The Office of Research and Development (ORD) is aware
that the Hazardous Waste Engineering Laboratory was
unable to charge all allowable costs to Superfund.
Available Superfund monies were extremely limited in FY
1986 and again in FY 1987. ORD performs an ongoing
review of resources in an effort to adjust the
distribution of needs as necessary. As part of this
process, additional funds have been requested for both
FY 1988 and FY 1989 in an effort to allow ORD to fully
charge Superfund for all costs.
OUR EVALUATION OF OARM'S COMMENTS
The Acting Assistant Administrator's comments were generally re-
sponsive to our recommendations, except for the response to our
recommendation regarding the review of cost allocation method-
ology. As indicated in the response, both obligations and dis-
bursements must be allocated from the Salaries and Expenses
appropriation to the Superfund appropriation. Although the
response states that obligations are allocated based upon
cumulative obligations, and disbursements are allocated based
upon cumulative disbursements, this method was not followed in
fiscal 1986. Our audit disclosed that, at Headquarters, both the
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
allocation of obligations and disbursements were based upon cumu-
lative obligations.
The methodology prescribed in Chapter 17 of the Financial
Management Manual does not clearly indicate that the obligations
should5eallocated based upon cumulative obligations and dis-
bursements should be allocated based upon cumulative disburse-
ments. We have revised the finding to eliminate any confusion
that may have resulted from our placing the cause of this finding
on the methodology of the allocation plan. It is apparent from
the response that the intent of the plan is to allocate
obligations based upon cumulative obligations, and disbursements
based upon cumulative disbursements.
RECOMMENDATIONS
We recommend that EPA's Deputy Administrator:
0 Require the Acting Assistant Administrator for Admini-
stration and Resources Management to:
review the cost allocation procedures as outlined
in Chapter 17 of the Financial Management Manual
and consider clarification of the steps necessary
for allocating obligations and disbursements
separately.
review the Headquarters and nationwide cost al-
locations made for fiscal 1986 to determine the
impact of basing disbursement allocations on
cumulative obligations, and, if necessary, ensure
that appropriate adjustments are made to reflect
proper allocations based upon cumulative disburse-
ment amounts.
3. CERCLA TRUST FUND RECEIVABLES SHOULD BE RECORDED TIMELY
Amounts due Superfund, as a result of cost recovery actions and
State cost-sharing agreements, were not being recorded in a time-
ly manner. The failure to record cost recovery decrees and or-
ders timely was the result of a lack of compliance with Agency
policy and guidance by: (1) EPA Keaoquarters Financial Manage-
ment Division (FMD); (2) Office of Waste Programs Enforcement
(OWPfi); (3) Office of Enforcement and Compliance Monitoring
(OECM); and (4) Offices of Regional Counsel. The failure to re-
cord State cost-sharing agreements timely was the result of a
lack of compliance with Agency policy and guidance by: (1) EPA
Headquarters FMD; (2) EPA Headquarters Office of Emergency and
Remedial Response (OERR); and (3) EPA Regional Offices. This
weakness in controls over accounts receivable was disclosed in
the prior Trust Fund audit report.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
The effect of these conditions was that Superfund receivables
attributable to cost recovery actions and State cost-sharing
agreements were not recorded on the accrual basis of accounting
as required by GAP Policy and Procedures Manual for Guidance of
Federal Agencies. Title 2--Accounting. Adequate receivables and
collectionsmanagement depends in part on timely and complete
identification of the receivables due the Agency. A large number
of unidentified receivables precludes the ability to adequately
manage receivables and collections and could result in a material
amount of lost interest.
We selected a non-statistical sample of 33 collections, totaling
$17,777,020 for audit testing. We found that 14 of the 33 col-
lections, totaling $8,522,567, were not recorded as receivables
until after a check in payment was received. Nine of the 14 col-
lections, totaling $5,816,814, represented cost recovery actions
and five, totaling $2,705,753, represented State cost-sharing
agreements for advance match funding. OECM, which is responsible
for preparing consent decree settlement agreements with
responsible parties, did not submit copies of settlements to the
Financial Reports and Analysis Branch; nor did the Regions send
Superfund State Contracts to the Office of the Comptroller as
required in Chapter 17 of the Financial Management Manual.
EPA's Financial Management Manual requires:
8 The Regions will forward all Superfund State Con-
tracts to the Office of the Comptroller, Financial
Management Division. Th^ Superfund State Contract
document will describe the specific billing proce-
dures such as amount owed, billing address, when
due, etc.
* When OECM signs a consent decree or OWPE issues an
administrative order containing penalties due, a
copy of the decree or order is to be sent immedi-
ately to the Office of the Comptroller's Financial
Reports and Analysis Branch.
0 OECM will forward to Financial Reports and Analy-
sis Branch all consent decrees or court orders
that identify a responsible party or parties and
an amount due.
0 The Headquarters Accounting Operations Office will
establish and liquidate accounts receivable, bill
responsible parties and receive all Superfund col-
lections.
State cost-sharing agreements currently originate in and are ad-
ministered by the Regions. The transfer of authority from Head
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
quarters Co the Regions was completed in fiscal 1985. In re-
sponding to the prior Trust Fund audit report, EPA's Comptroller
stated they were transferring responsibility for accounting for
cost-sharing requirements to the regional finance offices since
the originators of the cost-sharing agreements are now in the
regional program offices. However, the transfer of all account-
ing responsibilities to the regional finance offices was not
completed. Therefore, in order to record receivables in the
Agency's Financial Management System the Regions were still re-
quired to forward all Superfund State Contracts to the Office of
the Comptroller.
Cost recovery actions are the result of actions taken or iden-
tified by Offices of Regional Counsel, OECM, or OWPE. Superfund
receivables information on cost recovery actions originates at
the Offices of Regional Counsel and is tracked by the Offices of
Regional Counsel, OECM, and OWPE.
The condition involving the untimely recording of Superfund ac-
counts receivable was caused by a lack of compliance by the Re-
gions, OECM, OERR, and OWPE with the Agency guidelines. These
guidelines require coordination and communication between:
0 The Regions, OECM, OERR, and OWPE; and
0 Headquarters Financial Management Division.
Such coordination and communication were inadequate for the peri-
od covered by this audit.
In response to our Notification of Significant Finding, the Fin-
ancial Management Division noted that a work group headed by the
Chief, Quality Assurance Staff was established to review accounts
receivable. The issues and recommendations from this study will
be considered with our specific recommendations and corrective
action taken.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Deputy Admini-
strator:
0 Instruct the Assistant Administrator for Enforcement
and Compliance Monitoring and the Assistant Admini-
strator for Solid Waste and Emergency Response to
forward all copies of settlement documents to the
Financial Reports and Analysis Branch as soon as a
settlement has been reached.
0 Require the Regional Administrators to forward any
settlements which result from demand letters, and
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
which are not coordinated with the Office of
Enforcement and Compliance Monitoring, to the
Financial Reports and Analysis Branch immediately
to facilitate recording these settlements as
receivables.
0 Require the Acting Assistant Administrator for Adminis-
tration and Resources Management to instruct the Head-
quarters Financial Management Division to reconcile
recorded receivables with the Case Management System
maintained by the Office of Waste Program Enforcement
to ensure that all settlement documents were received
and recorded.
0 Require the Regional Administrators to immediately for-
ward all State cost-sharing agreements to the Office of
the Comptroller to ensure timely preparation of bill-
ings and recording of receivables.
PARK'S RESPONSE TO DRAFT REPORT AND OUR EVALUATION
The Acting Assistant Administrator of OARM stated in response to
our recommendations:
0 There have been problems in the past where Superfund
receivables have not been recorded timely. The major
problem has been that the financial management offices
have not received the source documents (e.g., consent
decrees, State Superfund Contracts with payment sche-
dules) as required. However, the following actions
will be taken to improve the situation:
issue a memorandum by October 1, 1987, instructing
the Assistant Administrators for Enforcement and
Compliance Monitoring (OECM) and Solid Waste and
Emergency Response to forward all copies of set-
tlement documents and information relating to
fines and penalties to the appropriate regional
finance offices.
issue a memorandum by October 1, 1987, requiring
the Regional Administrators to forward any settle-
ments which result from demand letters not coordi-
nated with OECM to the appropriate regional
finance offices.
issue a memorandum by October 1, 1987, direct-
ing Regional Administrators to forward all
state cost-sharing agreements to the regional
finance offices for preparation of billings
and recording of receivables.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
c The reconcilation of recorded receivables with the
Office of Waste Programs Enforcement (OWPE) case
management system was performed by the Financial
Management Division (FMD) during July 1987. FMD and
OWPE are currently working toward resolution of
existing differences. The anticipated date to resolve
these differences is September 30, 1987.
0 The Comptroller recently sent a memorandum to all
regions reminding them of existing procedures, roles
and responsibilities. Revised guidance (Resources
Management Directives System 2550D) for the Superfund
Financial Management Program has been prepared which
alters the current process by placing responsibility
for maintaining the subject receivables with the
regions rather than Headquarters. The guidance states
the following:
"Regional Superfund Branch Chiefs should ensure
that any demand letter, consent decree, Agency
order or other notice requiring payment are for-
warded to the regional FMO within one workday of
final signature."
"The FMOs should establish routine procedures with
the Superfund Branch Chief and regional counsel to
regularly reconcile program and counsel records
with the accounts receivable subsystem, and to
exchange information on any changes in the amount
due and on the status debts, including cases con-
cluded by the Department of Justice."
0 Also, the Financial Management Division will be per-
forming a joint study with representatives from OECM
during August and September 1987. The study will be
aimed toward improving the interface between offices
with the goal of ensuring timely notification and,
therefore, the recording of Trust Fund accounts
receivables.
* In addition, a project has been initiated with the
Office of Emergency and Remedial Response to review the
status of "advance match," "State credits," and "State
cost share" to ensure records are complete and ac-
curate, and adequate controls are in place.
The proposed corrective actions and the corrective action taken
are responsive to our recommendations. Consequently, we make no
further recommendations.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
\
* RESULTS OF STATISTICAL ANALYSIS OF NON-PAYROLL OBLIGATION
TRANSACTIONS
Based upon the results of our statistical analysis of non-payroll
obligation transactions recorded in fiscal 1986, amounting to
$332,337,848, we accepted $332,298,505 ($332,337,848 less $39,343
questioned in Exhibit I). We also examined ten internal control
and compliance attributes for non-payroll obligations for which
we expected the error rate not to exceed three percent. The
results of our statistical analysis disclosed the following error
rates in excess of three percent:
Attributes
Authorized official's
signature agrees with
listing maintained by
FMO
Date received by FMO is
timely (within 3-10
working days of date
signed)
Date input in FMS is
timely (within 4 work-
ing days of receipt by
FMO)
Sample
Size
1,605
1,605
1,605
Number of
Exceptions
101
125
194
6.29Z
7.79Z
12.09Z
The primary reason for the authorized official's signature excep-
tions was due to the failure of some FMOs to maintain listings of
authorized officials' signatures. Delays in timely receipt were
often caused by program offices not forwarding documents to the
FMO within the required time period. Also, exceptions recorded
for delays of receipt and input were caused by the FMOs not
always date stamping documents. EPA's Voucher Examinat ion
Manual, Chapter 2, Section 6 states:
"All documents must be authorized or approved hy an official
delegated the authority to authorize the particular docu-
ment The accounting office must be furnished with a list
of persons by title to whom such authority has been
delegated..."
EPA Comptroller Policy Announcement No. 86-09, dated March 25,
1986, states that valid obligating documents are to be received
by the servicing FMO within 3-10 working days of execution. In
addition, the FMO must ensure that the obligations are recorded
in the FMS within 4 days of receipt.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
The failure to maintain listings of authorized officials' signa-
tures could result in unauthorized obligations being recorded.
Delays in receipt of documents or their input into the FMS causes
financial information to be misstated on a current basis.
DRAFT REPORT RECOMMENDATION
We recommended in our draft report that EPA's Deputy Admini-
strator instruct the Acting Assistant Administrator for Admini-
stration and Resources Management to re-emphasize the need for
maintaining listings of authorized officials by FMOs and the
importance of timely input of obligations data into the FMS.
PARK'S RESPONSE TO DRAFT REPORT AND OUR EVALUATION
The Acting Assistant Administrator of OARM stated in response to
our recommendations:
0 The above recommendations were implemented via the fol-
lowing documents:
Comptroller's Policy No. 86-09, Requirements for
Timely Posting of Agency Obligations, issued March
25, 1986.
Comptroller's Transmittal No. 86-17, Listing of
Authorized Contracting Officials, issued August
21, 1986.
0 The Comptroller will issue a memorandum by October 1,
1987 to re-emphasize the above policies.
0 During our various financial reviews, the Financial
Management Division will ensure FMOs are adhering to
these policies.
The corrective action taken and proposed action are responsive to
our recommendations. Consequently, we make no further recom-
mendations.
5. RESULTS OrSTATISTICAL ANALYSIS OF NON-PAYROLL DISBURSEMENT
TRANSACTION'
Based upon the results of our statistical analysis of non-payroll
disbursement transactions recorded in fiscal 1986, amounting to
$356.434,858, we accepted $356,062,897 ($356,102.240 less $39,343
questioned in Exhibit II) and set aside $332,618. Our audit
estimate indicated with 95Z confidence that the total non-payroll
disbursements should have been $354,082,786, or a difference of
less than 1Z from the recorded value. The set-aside costs were
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
the result of two specific exceptions from stratified random
samples. (See Exhibit III, Note 3.) All exceptions disclosed
in our testing were used in the calculation of the audit esti-
mate; however, we set aside only those individual transactions
exceeding $1,000.
We also examined fourteen internal control and compliance at-
tributes for non-payroll disbursements (excluding contracts pro-
cessed by the Financial Management Office (FMO) at RTF) for which
we expected the error rate not to exceed three percent. The
results of our statistical analysis indicated the following error
rates in excess of three percent:
Attributes
Authorized official's
approval on disbursement
documents
Sample
Size
703
Number of
Exceptions
78
11.10Z
All payment documents
were perforated and
marked paid
703
26
3.70Z
(a) 53 of the 78 exceptions were lack of approval of Letter
of Credit drawdowns.
In addition, we examined sixteen internal control and compliance
attributes for 1,016 contract disbursements processed by the FMO
at RTF. Our statistical results disclosed no attributes that
exceeded a three percent error rate.
EPA's Voucher Examination Manual, Chapter 2, Sections 6.a. and
8.b. states:
"All documents must be authorized or approved by an official
delegated the authority to authorize the particular docu-
ment ..."
"Prominently stamp, mark, or perforate basic vouchers,
» invoices, and principal supporting documents with a paid
legend when scheduled and certified for payment."
The lack of authorized officials' approvals on disbursement docu-
ments could result in improper payments. The failure to properly
cancel disbursement documents which have been paid could result
in duplicate payments.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
DRAFT REPORT RECOMMENDATION
We recommended in our draft report that EPA's Deputy Admini-
strator:
0 Require the Acting Assistant Administrator for Adminis-
tration and Resources Management to:
instruct the Financial Management Offices at RTF
and Headquarters to review and resolve the set-
aside costs; and
re-emphasize to all Financial Management Offices
the importance of obtaining authorized officials'
approvals of disbursements and properly cancelling
all disbursement documents upon payment.
OARM'S RESPONSE TO DRAFT REPORT AND OUR EVALUATION
The Acting Assistant Administrator for Administration and Re-
sources Management stated in response to our recommendation that
he will ensure that the Financial Management Division issues a
memorandum to the FMOs at Research Triangle Park and Headquarters
by October 1, 1987 on set-aside costs. In addition, a separate
memorandum will be sent to all FMOs regarding the disbursement
issue.
The proposed corrective action is responsive to our recommenda-
tions and, consequently, we make uo further recommendations.
6. RESULTS OF STATISTICAL ANALYSIS OF PERSONNEL COMPENSATION
TRANSACTIONS
We performed a statistical analysis of personnel compensation
transactions for fiscal 1986. Based upon the results of our
analysis of a random sample of transactions, we are 952 confident
that the total personnel compensation is no greater than
$5>*.8*2,199 and no less than $53,566,311, with a precision of
$1,315,888. The recorded disbursements for personnel compensa-
tion costs for fiscal 1986 were $53,794,684, which falls within
the upper and lower limits. Consequently, we accepted the re-
corded personnel compensation costs for fiscal 1986.
Overall, on an Agency-wide basis, we noted improvement in the
implementation of Superfund charging policies for personnel com-
pensation. We also tested four key internal control attributes
for compliance with EPA policies and procedures. The statistical
analysis of our random sample for these attributes indicated the
following estimated percentage of'exceptions, which were in ex-
cess of our expected error rate of three percent:
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Stratified Attributes
Employee's signature on
timesheets
Supervisor's signature on
timesheets/timecards
Employee's pay rate was
correct
Number of hours were sup-
ported by timesheets/time-
cards
Estimated
Exceptions
5.762
24.462 (a)
6.052
8.452
(a) The reason for the high estimated percentage of exceptions
for this attribute was due partially to the difficulty in
determining employees' supervisors during the audit period.
The Agency could not provide a listing of supervisors and
our alternative procedures to determine supervisors were not
always successful. However, we did note that timesheets and
timecards are signed by timekeepers and reviewed by desig-
nated agents, who, according to EPA Accounting Operations
Branch personnel, check for supervisor signatures.
The types of errors noted above in key internal controls could
result in misstatement of personnel compensation costs.
DRAFT REPORT RECOMMENDATION
We recommended in our draft report that EPA's Deputy Admini-
strator instruct the Acting Assistant Administrator for Admini-
stration and Resources Management to re-emphasize the importance
of compliance with EPA policies and procedures for signatures
indicating review and approval of timesheets and timecards.
OARM'S RESPONSE TO DRAFT REPORT AND OUR EVALUATION
The Acting Assistant Administrator for Administration and Re-
sources Management stated in response to our recommendation that:
0 The Financial Management Division has already taken the
following actions:
trained each program office on how to use the Pay-
roll Redistribution System and how to complete
timesheets;
initiated teaching a two hour- timekeeping module
as part of Personnel Management Division's two and
-35-
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
a half day training course for new administrative
employees; and
started a full-day timekeeping course for time-
keepers and designated agents.
0 The Director, Financial Management Division will issue
a memorandum by October 1, 1987 to all concerned part-
ies to re-emphasize the importance of EPA's policies
and procedures regt ding timesheets and timecards.
The corrective action taken and the proposed action are
responsive to our recommendation and, consequently, we make no
further recommendations.
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EXHIBITS
-------
-------
UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
EXHIBIT I
HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
STATEMENT OF OBLIGATIONS (Note 1)
FISCAL YEAR ENDED SEPTEMBER 30, 1986
Description
Personnel Compensation
Personnel Benefits
Total Personnel Com-
pensation & Benefits
Travel and Transportation
of Persons
Transportation of Things
Total Travel and
Transportation
Rent, Communications,
and Utilities
Printing and Reproduction
Total
Accepted
Set-aside Questioned
$ 54,325,077 $ 54,325,077 $
6,609,657 6,609,657
60,934.734
4,058,751
278,621
4,337,372
9,888,050
398,188
60,934,734
4,058,658
278,579
4,337,237
9,873,039
396,882
Contractual
ervices
Supplies and Materials
Equipment
Total Supplies, Mater-
ials , and Equipment
Land and Structures
Grants, Subsidies, and
Contributions
Insurance Claims and
Indemnities
Grand Totals
286,242,945 286,235,391
6,018
27,685,946
(869)
6,018
27,685,946
(869)
93
42
135
15,011
1,306
7,554
1,636,828
2,143,370
3,780,198
1,631,586
2,133,275
3,764,861
5,242
10,095
15,337
$393.272,582 $393.233.239 $_
39,343
The Notes to the Statements of Obligations and Disbursements are
an integral part of this Statement. (See Exhibit III.)
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-------
EXHIBIT II
UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
STATEMENT OF DISBURSEMENTS (Note 1)
FISCAL YEAR ENDED SEPTEMBER 30, 1986
Description
Total
Accepted Set-aside Questioned Not
Personnel Compensation $ 53,794,684 $ 53,794,684 $
Personnel Benefit 6,455,951 6.455.951
Total Personnel Compen-
sation & Benefits 60,250.635 60,250,635
Travel and Transportation
of Persons
Transportation of Things
Total Travel and
Transportation
Rent , Communications ,
and Utilities
Printing and Reproduction
Cther Contractual
^ Services
Supplies and Materials
Equipment
Total Supplies, Mater-
ials, and Equipment
3,921,286
254,800
4,176,086
9,755,484
354,275
286,212,838
1,661,647
5,192,349
6,853,996
3,921,193
254,758
4.175.951
9,740,473
352,969
285,872,666 332,618
1,656,405
5,182,254
6,838,659
93
42
135
15,011
1,306
7,554
5,242
10,095
15,337
2
2
2
2
2
2,
2
2
2
Land and Structures
Grants, Subsidies, and
Contributions
Insurance Claims and
Indemnities
Grand Totals
5,964 5,964
49,077,084 49,077,084
(869) (869)
$416.685,493 $416.313,532 $ 332.618 $ 39,343
The Notes to the Statements of Obligations and Disbursements are
an integral part of this Statement. (See Exhibit III.)
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EXHIBIT III
UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
NOTES TO STATEMENTS OF OBLIGATIONS AND DISBURSEMENTS
FISCAL YEAR ENDED SEPTEMBER 30, 1986
Note 1. Summary of Significant Accounting Policies
The Statement of Obligations and the Statement of Disbursements
were prepared for EPA by the EPA Financial Management Division
based on financial information contained in the Financial Manage-
ment System (Superfund Status Report, dated September 30, 1986).
These Statements are not intended to present either the financial
position or the financial results of operations in conformity
with generally accepted accounting principles. EPA's policy is
to prepare financial information in accordance with accounting
policies and practices that are legislatively established and
promulgated through various Federal and EPA policy an*4 procedural
standards.
Obligations
Obligations are amounts of orders placed, contracts awarded, ser-
vices received, and similar transactions for bona fide needs
existing during a given period that will require payments during
the same or a future period and that comply with applicable laws
and regulations. Such amounts will include disbursements for
which obligations had not been previously recorded and will
reflect adjustments for differences between obligations
previously recorded and actual disbursements to liquidate those
obligations.
Obligations as presented in the Statement of Obligations repre-
sent funds obligated against that fiscal year's appropriations.
Disbursements
Disbursements are the amounts of cash outlays made to liquidate
obligations.
Disbursements as presented in the Statement of Disbursements rep-
resent funds disbursed during that fiscal year against either
prior years' or current year's appropriations.
Note 2. Questioned Costs
We questioned costs amounting to $39,343 as a result of errors in
cost allocations recorded at Headquarters.
We questioned $35,421 of obligations and disbursements at Head-
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EXHIBIT III
(CONTINUED;
UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
NOTES TO STATEMENTS OF OBLIGATIONS AND DISBURSEMENTS
FISCAL YEAR ENDED SEPTEMBER 30, 1986
quarters due to the improper inclusion of commitments with
obligations. Also, we questioned $3,9°.2 of obligation and dis-
bursements at Headquarters due to errors in the allocations made
by the Office of Research and Development (ORD). ORD allocated
costs based upon cumulative obligations as of July 31, 1986; used
unsupportable amounts; combined cumulative obligations for sub-
object classes and used the combined costs to allocate costs to
another subobject class; and combined a negative allocation
amount with a positive allocation because the FMS would not
accept the negative allocation.
In response to the Headquarters Notification of Significant
Finding, Financial Management Division (FMD) officials stated
they will work with ORD officials to review and adjust, if neces-
sary, ORD's allocation of fiscal 1986 support services costs to
Superfund. In addition, ORD calculations indicate that only
$1,599 should be returned to the Salaries and Expenses appropria-
tion. ORD plans to make this adjustment.
RECOMMENDATIONS
We recommend that EPA's Deputy Administrator:
0 Instruct the Acting Assistant Administrator for Ad
ministration and Resources Management LO ensure that
adjustments are made to remove the $35,341 of obliga-
tion and disbursements allocated to Superfund as a
result of commitments being included with obligations
in the cost allocations calculations; and
0 Require the Assistant Administrator for Research and
Development to recalculate its allocable costs, as of
September 30, 1986, and make the necessary adjustments
to correctly reflect the allocated costs that benefit-
ted Superfund for fiscal 1986.
Note 3. Set-aside Costs
We set aside the following transactions because the Agency could
not locate complete supporting documentation for the disburse-
ments:
.40-
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EXHIBIT III
(CONTINUED)
UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
SFO
22
99
Obligation
Document
Number
68016669
5W0114NASX
Account
Number
6UFA72D800
5TGB8145A7
Total
Object
Class
2535
2535
Amount
$330,099
2,519
$332,618
In response to our draft report, the Acting Assistant Admini-
strator for Administration and Resources Management stated that a
memorandum on set-aside costs would be issued by FMD to the FHOs
at Research Triangle Park and Headquarters.
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APPENDICES
-------
-------
APPENDIX 1
SCOPE AND METHODOLOGY OF STATISTICAL SAMPLING
I. Personnel Compensation
A. Sampling Population
The population of personnel compensation transactions
was obtained from the FMSY.SFFY 8613.PAYMERGE file of
Superfund payroll transactions provided by EPA's Fin-
ancial Systems Branch. The file contained 805,630
transaction records representing $61,017,307 of person-
nel compensation and benefits costs recorded in fiscal
1986.
B. Sampling Approach
We developed a joint sampling approach with the audit
of the Indirect Cost Rates for fiscal 1986 and divided
the file into site and non-site transactions using the
FMS account number to which costs were distributed. We
determined that our sampling unit would be an employ-
ee's pay distribution (all transaction records) for
each pay period, within the two files created. Our
next step was to summarize or group the transaction
records by Social Security Number/Pay Period (SSN/PP)
to create a sampling population. From this summariza-
tion, we determined that the number of SSN/PP site
sampling units were 74,017 and 80,080 non-site sampling
units. We then subdivided the population by Allowance
Holders (AH) for purposes of the Indirect Cost Rates
audit. The results of this division indicated that
there were fifteen site, and twenty-four non-site
allowance holder locations from which we could select
adequate random samples. (Any Allowance Holder site or
non-site group with an SSN/PP count of less than 150
was excluded. )
C. Sample Design
The payroll population was substantially distributed
between fifteen site and twenty-four non-site allowance
holder locations. Each allowance holder (site or non-
site) was a mutually exclusive subpopulation, with more
or less homogenous transactions. Under these condi-
tions, stratified (by location) statistical sampling
was employed.
A simple random number sample of 150 items was taken
from each allowance holder location (strata). The
sample taken was representative of the fiscal year.
From these samples, the first 40 randomly selected
transactions were examined and initial results were
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APPENDIX 1
"(CONTINUED),
SCOPE AND METHODOLOGY OF STATISTICAL SAMPLING (CONTINUED)
evaluated. This approach provided a population sample
size of 1,553 transactions for the Trust Fund audit.
D. Objective
The prime objective was to estimate the total dollar
reasonableness of the reported Trust Fund personnel
compensation for fiscal 1986. The objective required a
variables sampling plan. This type of sampling plan is
used to reach a conclusion about a population in terms
of dollar amount.
Examination of the population characteristics indicated
that the difference estimator (audit values minus book
values) would be cost-effective and a precise estimator
that would accomplish the audit objectives.
E. Confidence Limits
The level of confidence used in this analysis was 95Z.
II. Non-Payroll Obligations and Non-Payroll Disbursements
A. Sampling Population
The population of non-payroll obligations and non-
payroll disbursements was obtained from the
FMSY.HST.FY86YRND.H6400 file (Detail History File) of
Agency-wide transactions provided by EPA's Financial
Systems Branch. This file contained records of EPA's
transactions for all appropriations. We sorted this
file by appropriation numbers to obtain Superfund
transactions for the two Superfund appropriations in
fiscal 1986. The results of this sorting indicated
that 202,950 records pertained to Superfund transac-
tions. We then grouped these transactions by transac-
tion codes and determined that 76,075 records related
to obligation transactions amounting to $349,184,704(a)
and 107,635 records related to disbursement transac-
tions amounting to $356,740,067(b).
(a) This amount does not reconcile to reported non-
payroll obligations of $332,337,848, a difference
of $16,846,856. This difference is made up of
transactions which are, in effect, re-obligations
of prior year obligations (from non-site accounts
to site accounts) which were included in our
population, and certain other computer generated
transactions, which are not recorded as obligation
-43-
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APPENDIX 1
"(CONTINUED)
SCOPE AND METHODOLOGY OF STATISTICAL SAMPLING (CONTINUED)
transactions in the History File and were not
included in our population.
(b) This amount does not reconcile to reported non-
payroll disbursements of $356,434,858, an im-
material difference of $305,209.
B. Sampling Approach
We determined that our sampling unit would be at the
transaction level. We divided the file of obligation
and disbursement records into four groups: (1)
transactions recording obligations, (2) transactions
recording de-obligations, (3) transactions recording
disbursements, and (4) transactions reversing or
crediting disbursements.
Within these four groups, we stratified the population
into ten strata of $100,000 increments. Based upon our
review of this stratification, we determined that
stratified random sampling would be a logical and cost-
effective sampling method. We then divided the groups
of transactions by major object class: (1) Other
Contractual Services, (2) Grants, Subsidies and
Contributions (Cooperative Agreements), and (3) All
Other Object Classes.
C. Sample Design
From the stratification of the three types of transac-
tions, we utilized stratified random sampling to select
samples from each of the four groups of transactions.
As a result of the stratification, we were able to se-
lect 100Z of transactions in excess of $200,000 and
random samples of 100-150 items from the remaining
strata. The results produced sample sizes of 1,605
non-payroll obligations, 703 non-payroll disbursements
(excluding contracts), and 1,016 non-payroll contract
disbursements.
D. Objective
The primary objective was to estimate the total dollar
reasonableness of the reported Trust Fund non-payroll
obligations and non-payroll disbursements for fiscal
1986. This objective required a variables sampling
plan, which is used to reach a conclusion about a
population in terms of dollar amount. Examination of
the population characteristics indicated that the dif-
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APPENDIX 1
(CONTINUED^
SCOPE AND METHODOLOGY OF STATISTICAL SAMPLING (CONTINUED)
ference estimator (audit values minus book values)
would be cost-effective and a precise estimator that
would accomplish the audit objective.
E- Confidence Limits
The level of confidence used in this analysis was
95Z(a).
(a) Due to the difference noted above in the obliga-
tions transactions, we were unable to use the
confidence level on total non-payroll obligations.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. O.C. 20460
SEP I 1987
APPENDIX 2
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT: Response to Draft Audit Report No. P5EH7-11-0020
Consolidated Report of Financial and Compliance
Obligations and Disbursements Under
fear 1986
FROM: ~
TO
Acting Assistant Administrator
Ernest E. Bradley III
Assistant Inspector General for Audit
This is in response to your memorandum of July 22, 1987
transmitting the subject draft consolidated audit report for
our review and comment.
We have reviewed the draft audit report of the fiscal year
1986 CERCLA obligations and disbursements. Attachment 1 to this
memorandum provides the individual responses to every finding and
recommendation identified in the report. A number of the recommen-
dations cover the same areas addressed in the draft FY 1984/1983
CERCLA audit that I responded to on July 29, 1987. Consequently,
many of the corrective actions taken or planned that I identify
in this response are similar to those I identified earlier.
Attachment 2 suggests some corrections or clarifications to
the wording of the report.
This response covers the audit's major findings and recommen-
dations addressing property management, allocation of Regional
Support Service costs, recording of Trust Fund receivables, and
recording of Trust Fund obligations and disbursements.
If you have questions on this audit response, please contact
John Sandy, Director of the Resource Management Division at
382-4425.
Attachments
-46-
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DETAILED'RESPONSE TO IG AUDIT FINDINGS
Attachment .1
APPENDIX 2
(CONTINUED)
Finding No. 1.
PERSONAL PROPERTY MANAGEMENT PROCEDURES SHOULD BE STRENGTHENED
RECOMMENDATION
We recommend that EPA's Deputy Administrator:
Obtain written certification from all Regional Administrators
(except Region 6), Laboratory Directors, and the Director,
NEIC, indicating that all corrective actions taken in regard
to property accountability have been completed. Or, if action
is in progress, obtain an action plan with specific milestone
dates for completion.
RESPONSE
* The Facilities Management and Services Division (FMSD) will
lead the effort in reviewing and approving each action plan
developed in response to the specific recommendations in the
audit. FMSD will request each location by September 30, 1987
(or 30 days after issuance of the final audit) to develop
action plans within 60 days. FMSD will, track the milestones
and accomplishments against these plans. As each location
completes its work, FMSD will request certification that
all corrective actions taken in property accountability have
been completed.
RECOMMENDATION
We recommend that EPA's Deputy Administrator
Require the Acting Assistant Administrator for Administration
and Resources Management to:
establish policies and procedures requiring that capitalized
personal property accounts in the FMS be reconciled with
items and amounts recorded in the PPAS on a periodic basis,
at least, annually.
RESt-OdsE
I agree with the recommendation. The Acting Assistant
Administrator for Administration and Resources Management will
instruct the Director, Facilities Management and Services Division
(FMSD) and the Director, Financial Management Division (FMD)
to develop interim policies and procedures for reconciling the
documents and amounts recorded in the Financial Management
System (FMS) to those recorded in the Personal Property Accounting
-47-
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APPENDIX 2
(CONTINUED)
System (PPAS). FMSD and FMD will complete these procedures by
December 31, 1987. By September 30, 1987, the FMD will provide
FMSD with an extract of disbursements recorded in the Financial
Management System (FMS) for property. This will assist the
FMSD to identify new property acquisitions which have not been
recorded in PPAS.
Once the new Integrated Financial Management System (IFMS) is
implemented, the property and finance functions will interface
and prevent any future reconciliation problems. IFMS, which is
now in the final procurement stages, will allow the property
function to be fully integrated with finance and other adminis-
trative functions. The property function is scheduled for
implementation in Phase II of IFMS, which will be in FY 1990.
RECOMMENDATION
We recommend that EPA's Deputy Administrator:
Require the Acting Assistant Administrator for Administration
and Resources Management to:
- provide additional staffing and training, as necessary, to
instruct property management personnel in their duties,
emphasizing the weaknesses and instances of non-compliance
with existing controls indicated in this report.
RESPONSE
* I have requested additional property management resources
through the Agency's formal budget process In addition, the
Facilities Management and Services Division has taken oppor-
tunities to augment our resources whenever possible through
the use of task forces. Specifically, FMSO has established a
Superfund Property Policy Task Force which will develop by
October 1987, draft property policy on the acquisition,
utilization and disposition of personal property. FMSD has
also established a Property Management Roundtable (comprised
of two regional representatives and property officials from
RTP, Cincinnati and Washington) which is charged with resolving
issues and improving property management Agency-wide.
* In the area of training, Property Management Officers from
Cincinnati and Research Triangle Park jointly conducted a
training program for field property management personnel on
August 4-5, 1987. Represenatatives from all Regional Offices
and the majority of our laboratories participated in this
training. FMSD also plans to hold a similar training session
for property management personnel at Headquarters in late
November or early December 1987. FMSD will evaluate these
courses taking into account this audit report. By identifying
areas which need to be strengthened, FMSD can target future
courses to known weaknesses.
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APPENDIX 2
(CONTINUED
RECOMMENDATION
We recommend that EPA's Deputy Administrator;
* Require the Acting Assistant Administrator for Administration
and Resources Management to:
- 'establish procedures to be implemented by the property
management offices to ensure annual physical inventories
are performed and reconciled to the PPAS.
RESPONSE
* In conjunction with implementation of the PPAS, FMSD will issue
a directive requiring each accountable area to conduct a
comprehensive physical inventory and PPAS reconciliation within
6 months. This directive will be issued within 30 days of
system installation.
RECOMMENDATION
We recommend that EPA's Deputy Administrator:
* Require the Acting Assistant Administrator for Administration
and Resources Management to
consider the feasibility of establishing a property management!
assessment review team to visit the Regions and major laboratory
facilities on a 2 to 3 year rotating basis, to assess the
implementation of EPA's property management policies and
procedures.
RESPONSE
* This is a very appropriate and important recommendation to
implement. I have requested resources in the FY 1989 budget
to support an outreach capacity for property management. To
augment this request- FMSD will use the Property Management
Roundtable to conduct these types of assessments. Beginning
March 1, 1988, the Roundtable will work to develop criteria
for conducting these assessments. The Roundtable will begin
conducting these assessments using these criteria by July 1988.
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APPENDIX 2
(CONTINUED)
Finding No. 2.
PROCEDURES FOR ALLOCATION OF SUPPORT SERVICES COSTS TO SUPERFUND
NEED IMPROVEMENT
RECOMMENDATION
We recommend that EPA's Deputy Administrator:
obtain a written certification from the Regional Administrator,
Region 3, that the FMO, Region 3-
completed its implementation of a cost allocation plan in
accordance with the Financial Management Manual;
reconstructed the total general support services costs for
fiscal 1986 and allocated these costs to Superfund based on
the actual FTE ratio; and
make the appropriate adjustments to the Superfund appropriation.
RESPONSE
' I will issue a memorandum to the Regional Administrator by
October 1, 1987, requesting certification on the above items by
November 1, 1987. The Financial Management Division will initiate
follow-up actions to ensure these actions are properly completed.
RECOMMENDATION
We recommend that EPA's Deputy Administrator,
* Require the Acting Assistant Administrator for Administration
and Resources Management to:
- review the allocation methodology and consider the propriety
of the plan for allocating costs based upon cumulative dis-
bursements instead of obligations to Superfund.
RESPONSE
* The Financial Management Division has reviewed our allocation
methodology and feel the audit report shows some confusion
about the purpose of the support cost allocations and how they
are performed. Contrary to the impression given in the report, «*e 2
the choice is not between allocating either obligations or
disbursements. Rather, both must be allocated. Obligations
are originally charged to the Salaries and Expenses appropriation
and allocated monthly to the Superfund appropriation. FMO
records the allocated amounts in the General Ledger as Agency
liabilities against the Superfund appropriation. This first
allocation is essentially for funds control purposes.
-50-
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APPENDIX 2
(CONTINUED)
The Agency must also allocate disbursements made against its
liabilities so that the Superfund Trust Fund is charged for the
Superfund Program's share of outlays. This allocation is made by
applying the FTE ratio to cumulative disbursements. Allocations
of both obligations and disbursements are made using the same
methodology, i.e. applying FTE ratios against cumulative amounts.
RECOMMENDATION
We recommend that EPA's Deputy Administrator:
* Require the Acting Assistant Administrator for Administration
and Resources Management to:
- review the need for additional Superfund FTBs to process
Superfund financial transactions and to achieve a more equitable
allocation of general support services costs.
RESPONSE
* The Director, Financial Management Division annually reviews
and analyzes the need for additional FTEs based on data accumulated
from the workload models. This review, however, is subject to
Superfund FTE budget ceilings and is adjusted accordingly.
RECOMMENDATION
We recommend that EPA's Deputy Administrator:
* Require the Assistant Administrator for Research and Development
to consider the need for additional Superfund monies for the
Hazardous Waste Engineering Laboratory at Cincinnati.
RESPONSE
* The Office of Research and Development is aware that the
Hazardous Waste Engineering Laboratory was unable to charge
all allowable costs to Superfund. Available Superfund monies
were extremely United in FY 1986 and again in FY 1987. ORD
performs an ongoing review of resources in an effort to adjust
the distribution of needs as necessary. As part of this
process* additional funds have been requested for both FY 1988
and FY 1989 in an effort to allow ORD to fully charge Superfund
for all costr.
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APPENDIX 2
(CONTINUED)
Finding No. 3. :
CERCLA TRUST FUND RECEIVABLES SHOULD BE RECORDED TIMELY
RECOMMENDATION
We recommend that EPA's Deputy Administrator:
* Instruct the Assistant Administrator for Enforcement and
Compliance Monitoring and the Assistant Administrator for
Solid Waste and Emergency Response to forward all copies of
settlement documents to the Financial Reports and Analysis
Branch as soon as a settlement has been reached.
* Require the Regional Administrators to forward any settlements
which result from demand letters, and which are not coordinated
with the Office of Enforcement and Compliance Monitoring, to
the Financial Reports and Analysis Branch immediately, to
facilitate recording these settlements as receivables.
* Require the Acting Assistant Administrator for Administration
and Resources Management to instruct the Headquarters Financial
Management Division to reconcile recorded receivables with the
Case Management System maintained by the Office of Waste
Program Enforcement to ensure that all settlement documents
were received and recorded.
* Require the Regional Administrators to immediately forward
all State cost-sharing agreements to the Office of the
Comptroller to ensure timely preparation of billings and
recordation of receivables.
RESPONSE
* I agree that there have been problems in the past where
Superfund receivables have not been recorded timely. The
major problem has been that the financial management offices
have not received the source documents (e.g , consent decrees.
State Superfund Contracts with payment schedules) as required.
However, I will take the following actions to improve the
situation.
- issue a memorandum by October 1, 1987, instructing the
Assistant Administrators for Enforcement and Compliance
Monitoring (OECM) and Solid Waste
-------
APPENDIX 2
(CONTINUED }\
- issue a memorandum by October 1, 1987, requiring the Regional
Administrators to forward any settlements which result front
demand letters not coordinated with OECM to the appropriate
regional finance offices.
issue a memorandum by October 1, 1987, directing Regional
Administrators to forward all state cost-sharing agreements to
the regional finance offices for preparation of billings and
recordation of receivables.
With regard to the recommendation that the Financial Management
Division reconcile recorded receivables with the Office of Waste
Programs Enforcement (OWPE) case management system, this
recommendation has been implemented. The reconciliation was
performed by the Financial Management Division (FMD) during
July 1987. FMD and OWPE are currently working toward resolution
of existing differences. The anticipated date to resolve these
differences is September 30, 1987.
In addition :c the planned corrective actions citeo above, I
would like to call your attention to the initiatives already
underway to improve controls over these receivables. The
Comptroller recently sent a memorandum to all regions reminding
them of existing procedures, roles and responsibilities. We
have prepared revised guidance (Resources Management Directives
System 2550D) for the Superfund Financial Management Program
which alters the current process by placing responsibility for
maintaining the subject receivables with the regions rather
than Headquarters. The guidance states the following:
"Regional Superfund Branch Chiefs should ensure that any demand
letter, consent decree, Agency order or other notice requiring
payment are forwarded to the regional FMO within one workday
of final signature."
"The FMOs should establish routine procedures with the Superfund
Branch Chief and regional counsel to regularly reconcile program
and counsel records with the accounts receivable subsystem, and
to exchange information on any changes in the amount .due and on
the status of debts, including cases concluded by the Department
of Justice."
Also, the Financial Management Division will be performing a
joint study with representatives from OECM during August and
September 1987. The study will be aimed toward improving the
interface between offices with the goal of ensuring timely
notification and, therefore, recordation of trust fund accounts
receivable. Information learned during this study will serve
as input to instructions which I will be issuing to the AAs
and RAs.
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APPENDIX 2
(CONTINUED)
In addition, we have also initiated a project with the Office
of Emergency and Remedial Response to review the status of
"advance match," "state credits," and "State cost share" to
ensure our records are complete and accurate and adequate
controls are in place. We will take followup action as necessary
to correct any deficiencies noted and to ensure that receivables
are billed and collected timely.
Finding No. 4.
RESULTS OF STATISTICAL ANALYSIS OF NON-PAYROLL OBLIGATIONS
TRANSACTIONS
RECOMMENDATION
We recommend that the EPA Deputy Administrator instruct the
Acting Assistant Administrator for Administration and Resources
Management to re-emphasize the need for maintaining listings of
authorized officials by FMOs and the importance of timely input
of obligations data into the FMS.
RESPONSE
* The above recommendations were implemented via the following
documents:
- Comptroller's Policy No. 86-09, Requirements for Timely
Posting of Agency Obligations, issued March 25, 1986.
- Comptroller's Transmittal No. 86-17, Listing of Authorized
Contracting Officials, issued August 21, 1986.
* However, as requested, I will instruct the Comptroller to
issue a memorandum to re-emphasize the above policies. We
plan to issue this memorandum by October 1, 1987.
0 In addition, during our various financial reviews, the
Financial Management Division will ensure FMOs are adhering
to these policies.
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APPENDIX 2
(CONTINUED)
Finding No. 5.
RESULTS OF STATISTICAL ANALYSIS OF NON-PAYROLL DISBURSEMENTS
TRANSACTIONS
RECOMMENDATION
We recommend that EPA's Deputy Administrator:
* Require the Acting Assistant Administrator for Administration
and Resources Management to:
- instruct the Financial Management Offices at RTF and Headquarters
to review and resolve the set-aside costs, and
re-emphasize to all Financial Management Offices the importance
of obtaining authorized officials' approvals of disbursements
and properly cancelling all disbursement documents upon payment.
RESPONSE
I agree with this recommendation. The Acting Assistant Administrate]
for Administration and Resources Management will ensure that the
Financial Management Division issues a memorandum to the FMOs at
Research Triangle Park and Headquarters by October 1, 1987 on
set-aside costs. In addition, a separate memorandum will be sent
to all FMOs regarding the disbursement issue.
Finding No. 6-
RESULTS OF STATISTICAL ANALYSIS OF PERSONNEL COMPENSATION
TRANSACTIONS
RECOMMENDATION
We recommend that EPA's Deputy Administrator instruct the Acting
Assistant Administrator for Administration and Resources Management
to re-emphasize the importance of compliance with EPA policies
and procedures for signatures indicating review and approval of
timesheets and timecards.
RESPONSE
* The Director, Financial Management Division will issue, a
memorandum by October 1, 1987 to all concerned parties to
re-emphasize the importance of EPA's policies and procedures
regarding timesheets and timecards.
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APPENDIX 2
(CONTINUED)
To date the Financial Management Division has already taken
the following actions:
trained each program office on how to use the Payroll
Redistribution System and how to complete timesheets;
initiated teaching a two hour timekeeping module as part
of Personnel Management Division's two and a half day
training course for new administrative employees; and
started a full-day timekeeping course for timekeepers
and designated agents.
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Attachment 2
RESPONSE TO FACTUAL ACCURACY
AUDIT REPORT P5EH7-11-0020
APPENDIX _2
(CONTINUED),
Adit
Page 16
* The report notes that 29 items at RTP were purchased with
CERCLA funds and were not in PPAS. Of these 29 items:
- 21 were keypads that had property decals inappropriately
placed on them when received. Keypads are components of
video terminals and are not separately tracked or entered
into PPAS.
2 were not in PPAS because the system was not operational
at that time. Subsequent to the review, these two items
were entered into PPAS.
the remaining 6 were upgrades to existing systems. Upgrades
are tracked in PPAS under accounting data applicable to the
existing system. However, PPAS is updated to reflect the
revised cost of the total system including upgrades, and
the accounting data associated with upgrades is entered
into PPAS in the "comments" portion of the system.
Given the above information, these items should be eliminated from
the final report.
Pages 15 & 18
* The report states that RTP did not perform annual physical
inventories and reconcile to PPAJ. It was explained to the
auditors that RTP conducts inventories of each custodial
account on a cyclical basis. All accounts are not inventoried
at the same time; but each account is inventoried during the
year. During FY 1986, 80 percent of the custodial accounts
were inventoried. A 100 percent inventory was not accomplished
due to the following circumstances:
- Some property items could not be located.
Inventory procedures were changed from a mass to a cyclical
basis.
- Property Management had undergone a recent reorganization
and was training new staff to perform the inventories.
The statements in the draft report should either be removed or
qualified.
Itote
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Page 19
* We suggest language should be changed from
APPENDIX 2
(CONTINUED)
"...and Regions 9, 10, and Headquarters (accountable area
108) did not have the designations of accountability for the
property accountable officer."
to
"...and Regions 9, 10 and Headquarters (custodial area 108)
did not have the designations of accountability for the
property custodial officer."
Page 19
In the RECOMMENDATIONS section, the term "Laboratory Directors
should be clarified because the term in the report refers to
the Laboratory Directors at Research Triangle Park and Las
Vegas.
We suggest the language be changed from:
"Obtain written certification for all Regional Administrators
(except Region 6), Laboratory Directors, and the"
to:
"Obtain written certification from all Regional Administrators
(except Region 6), Laboratory Directors at RTF and Las Vegas,
and the..."
Page 27
* Paragraph 1 discusses CERCLA receivables Revised policy
guidance is in draft (Resources Management Directives System
2550D) which alters the current process for processing Super-
*fund Accounts Receivable. This revised guidance transfers the
responsibility for establishing, liquidating, billing and
collecting accounts receivables to the regions. This decen-
tralization will be implemented during FY 1988.
* Paragraph 3 presents a review of 33 sample collections. The
report states that "OECM, which is responsible for reaching
settlements with responsible parties, did not submit copies
of settlements to the Financial Reports and Analysis Branch." ,
There are two problems with this statement. First, OECM is
not responsible for reaching settlement with responsible
parties. It is usually a joint effort with the involved
Regional Counsel's Office and the Department of Justice.
In addition, the Regions have had the authority to settle
some cases without OECM involvement as of June 1986.
Arfcjtccs
Note?
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APPENDIX 2
(CONTINUED)
Page 23 continued
Second, the applicable tracking process is contained in a
guidance, "Procedures Documenting Costs in CERCLA Section 107
Actions," dated January 30, 1985. This guidance was issued
by Gene Lucero, Director of the Office of Waste Programs
Enforcement, and was concurred in by OECM and the Financial
Management Division. The guidance requires the Regional
Counsel representative on the case development team to send
a copy of the signed consent decree or settlement document
to the Financial Reports and Analysis Branch as soon as it
is available. OECM, on its own, copies the Financial Reports
and Analysis Branch with approval memoranda that accompany
settlements. If the January 30, 1985, procedures were and
are still valid, OECM was not responsible for submitting
copies of settlements. If the guidance is not valid, the
report should state that to end the confusion.
Page 28
* During the period audited, the Superfund Accounting Branch
was responsible for establishing and liquidating accounts
receivables. The Headquarters Accounting Operations Branch
collects Superfund monies via a lockbox in Pittsburgh.
To avoid this type of confusion regarding individual branch
responsibilities within the Financial Management Division, the
report would be clearer if the referenced branches within the
Division, were changed to;
"Financial Management Division"
In the future, please direct all recommendations to the Financial
Management Division, rather than individual branches within
the Division.
* The second full paragraph discusses OECM tracking of Superfund
receivables information. OECM only tracks the environmental
relief aspects of settlements, not collection of the money.
The purpose of the OECM system is to see to it that the
responsible parties perform the activities they have agreed to
do in their respective settlements.
" The last paragraph states that coordination in the recording
of accounts receivable "were inadequate for the period covered
by this audit-" If there is data to support this, the report
should provide it. Otherwise the report should be modified.
ftiffitn
Mte8
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APPENDIX 2
(CONTINUED)
Page 28
The first recommendation calls for "forwarding all copies of
settlement documents to the Financial Reports and Analysis
Branch..." Some settlements contain large amounts of complex
documents that do not contain any information on receivables.
This recommendation needs to be narrowed.
Page 40
The draft report and associated note in Exhibit III, Mote 3,
set-aside $330,099 applicable to contract 68-01-6669.
Documentation supporting RTF's treatment of the set-aside
cost was in RTF files. A copy is being provided to resolve
the $330,099-
Auditors'
f-bte lH
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AUDITORS' NOTES TO APPENDIX 2
The Acting Assistant Administrator of the Office of Adminis-
tration and Resources Management provided us with a memorandum
dated September 1, 1987 as the Agency's formal response to our
draft audit report. The memorandum included two attachments,
referenced in the response as Attachment 1 and Attachment 2.
Attachment 1 provided individual responses to each finding and
recommendation identified in the report, except as indicated in
Auditors1 Note 1 below. Attachment 2 provided suggested cor-
rections or clarifications to the wording of the report. In or-
der to ensure the Agency that we considered all the comments in
their response, we are providing Auditors' Notes which have been
referenced in these attachments.
Auditors' Note 1
Our draft report contained recommendations regarding the adjust-
ments of cost allocation errors which resulted in questioned
costs amounting to $39,343. The recommendations were presented
in Exhibit III, Note 2 on page 33 of the draft report. The Agen-
cy's response did not address these recommendations. We have
restated these recommendations in this report in Exhibit III,
Note 2 on page 40.
Auditors' Note 2
We have revised the audit finding to eliminate any possible con-
fusion regarding the allocations of support services obligations
and disbursements. We understand that both obligations and dis-
bursements must be allocated. However, they must be allocated
independently, i.e., obligations based upon cumulative obliga-
tions and disbursements based upon cumulative disbursements. Our
audit disclosed that this distinction was not made by the person-
nel responsible for allocating Headquarters and nationwide sup-
port services eosts. This resulted in the allocation of both
obligations and disbursements to Superfund based upon cumulative
obligation amounts in the Salaries and Expense appropriation. We
believe that the cost allocation procedures outlined in Chapter
17 of the Financial Management Manual do not clearly indicate the
intended allocation methodology.
Auditors' Note 3
We do not agree that these items should be eliminated from the
report. The 21 keypads and the 6 upgrades are considered compo-
nents or accessory items. According to the Personal Property
Management-Book 1, Volume 4830-2, Identification of Agency Prop-
erty:"All capitalized Government property shall have a numbered
bar code decal affixed for identification as EPA-owned proper-
ty.... A blank decal with the assigned decal number and suffix
handwritten or typed shall be affixed to accessory items." We
believe that these items should be entered in the PPAS using the
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AUDITORS' NOTES TO APPENDIX 2 (CONTINUED)
Che bar code decal from the primary item of property with a suf-
fix code indicating the accessory or component items.
Auditors' Note 4
We do not agree that the report should be modified. The Agency's
response substantiates the audit finding that an annual physical
inventory was not completed in fiscal 1986. In addition, the
auditors were not provided with any documentation in support of
the partial inventories indicated in the response.
Auditors' Note 5
We agree with this change and have modified the report according*
iy-
Auditors' Note 6
We concur and have changed the wording as suggested.
Auditors' Note 7
This finding was based upon Agency guidance in effect during fis-
cal 1986. The Financial Management Manual, Chapter 17, Paragraph
12, Billing and Collection states in part;
"The Financial Reports and Analysis Branch (FRAB) must re-
ceive consent decree settlement agreements and information
identifying responsible parties and amounts due as soon as
they are prepared by the Office of Enforcement and Compli-
ance Monitoring (OECM)."
We have modified the wording of the finding to reflect the re-
sponsibility of OECM for preparing the settlement agreements and
forwarding them to FRAB. Also, our draft report recommendation
stated that any settlements which were not coordinated with OECM
be forwarded to Financial Reports and Analysis Branch by the
Regional Administrators.
We have not been provided with the guidance "Procedures Document-
ing Cost in CERCLA Section 107 Actions" referred to in the re-
sponse. The transmittal of Chapter 17 of the Financial Manage-
ment Manual referred to in pur finding was dated December 31,
1984,effective October 1, 1984. If the guidance dated January
30, 1985 was intended to supercede previous guidance, we suggest
that this new guidance be incorporated in the Financial Manage-
ment Manual.
Auditors' Note 8
We believe the reference to the distinction between the Superfund
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AUDITORS' NOTES TO APPENDIX 2 (CONTINUED)
Accounting Branch and the Headquarters Accounting Operation
Branch relates to the fourth requirement excerpted from Chapter
17 of the Financial Management Manual. This statement was quoted
directly from the Manual and, unless this guidance has been su-
perceded, representedtBe Agency's policies and procedures for
fiscal 1986. We suggest that, if new guidance has been esta-
blished, the new procedures be incorporated in the Financial
Management Manual. Also, please note that we made no recommend^
ations to any branches within the Financial Management Division.
All the recommendations in our report were directed to EPA's
Deputy Administrator.
We stated in the report that receivables information is tracked
by the Office of Enforcement and Compliance Monitoring (OECM).
Since OECM is a principal party in preparing settlement agree-
ments and f->:virding receivables information to the Financial
Reports and Analysis Branch, we believe that this is-aa accurate
statement. We did not state or imply that OECM was involved in
collection activities.
We reported the results of our audit sampling, which indicated
that 14 of 33 collections were not recorded as receivables until
a check in payment was received. Since coordination and commu-
nication between the parties cited in the findings is required to
accomplish the timely recording of receivables, the logical con-
clusion for the high percentage of untimely recording of receiv-
ables in our sample was the lack of coordination and communica-
tion between these parties.
Auditors' Note 9
Our recommendation calls for forwarding all copies of settlement
documents to the Financial Reports and Analysis Branch. The em-
phasis on all copies of settlement documents was designed to en-
sure that receivables information was being provided on each cost
recovery action as soon as settlement was reached.
Auditors' Note 10
Agency officials at Research Triangle Park (RTP) were informed of
this finding during our audit and did not provide documentation
for these costs. The copy referred to in the response was not
included with the response, nor have we received any documenta-
tion for these costs from RTP.
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