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I £>02 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
^U^ WASHINGTON. D.C. 20460
2A1990
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
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SUBJECT: Audit Report P1SFF9-11-0032-0100492
Obligations and Disbursements Of The
Hazardous Substance Superfund For The
Fiscal Year Ende4 September 30, 1989
FROM:
TO:
Kenneth A.
Assistant Inspec^r General for Audit (A-109)
/
Charles L. Grizfele
Assistant Administrator for Administration
and Resources Management (PM-208)
SCOPE AND OBJECTIVES
Leonard G. Birnbaum and Company (LGB&Co.) has completed an audit
of obligations and disbursements of the Hazardous Substance
Superfund for the fiscal year ended September 30, 1989. Their
report, based on field work performed from July 24, 1989, through
May 11, 1990, is attached. The audit was conducted in accordance
with generally accepted auditing standards, including the Govern-
ment Auditing Standards (1988 Revision) issued by the Comptroller
General of the United States.
The audit objectives were to determine if the U.S. Environmental
Protection Agency (EPA) :
1. Presented the Schedule of Obligations and the Schedule
of Disbursements fairly, in all material respects, in
accordance with applicable laws, regulations, and
guidelines;
2. Complied with laws and regulations which, if not
followed, might have a material effect on the Schedules; and
3. Established an adequate system of internal accounting
control to ensure the reliability of applicable financial
- ^ management records.
Additionally, the audit included a review of the status of
findings and recommendations included in the prior audit report
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HEADQUARTERS LIBRARY
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
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Audit work was performed at the 10 regional offices, 3 major
laboratory facilities, the National Enforcement Investigations
Center, and Headquarters. At the completion of the field work at
each location, exit conferences were held with responsible Agency
officials. In addition, we conducted an exit conference with
senior Headquarters officials on September 20, 1990, to discuss
how the written comments would be considered in the final report.
The Agency's position on the findings discussed at the exit
conferences, as well as the written comments provided on the
draft of this report, are summarized at appropriate locations in
the report. The complete written response to the draft report is
also included as Appendix 3 of this report.
SUMMARY OF AUDIT RESULTS
The auditors concluded that the Schedules of Obligations (Exhibit
I) and Disbursements (Exhibit II) for fiscal 1989 were fairly
presented. They also concluded that Agency management, except for
material internal control weaknesses identified below, complied
with laws and regulations which might have a material effect on
these two schedules.
The auditors identified a material internal control weakness in
the reporting capabilities of EPA's newly implemented Integrated
Financial Management System (IFMS). The reporting system failed
to provide complete and accurate reports consistent with the
needs and objectives of EPA's management. As a result, EPA
officials could not provide a Schedule of Disbursements by major
object class from EPA's accounting system that reconciled with
total disbursements reported to the Office of Management and
Budget for fiscal 1989. The difference amounted to $26.8
million. The majority of this difference was recorded in a
Prepaid Adjustments Account without sufficient detail to support
the account posting.
Other significant weaknesses in internal controls related to
electronic data processing were also noted by the auditors.
These weaknesses included: failure to reconcile data converted
from the prior accounting system to the IFMS; lack of sufficient
audit trails; inadequate security for access to computer systems;
and failure of the IFMS to capitalize property transactions when
initially recorded.
Additionally, the auditors again found material weaknesses in the
internal controls for recording and managing accounts receivable
and accounting for and controlling personal property. The audit
disclosed that: 110 receivables totaling $43 million, due for
cost recovery actions, fines and penalties, and state cost
shares, were not timely recorded; 22 receivables totaling $39.7
million were not recorded in the correct fiscal year; and 33
receivables were not assessed interest of $434,219. In the
property area, the auditors noted numerous problems such as: 494
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items costing $1.5 million were not recorded in the Personal
Property Accounting System (PPAS), 439 items costing $515,520
could not be located at the time of the audit, and six regions
had not performed annual inventories. They also identified
58 personal property items costing $329,268 that were noted in
prior audit findings as items not recorded in PPAS and remained
unrecorded in PPAS as of September 30, 1989. These weaknesses in
accounts receivable and personal property have existed for many
years and, while Agency management continues to make progress in
improving these areas, increased management attention and
emphasis is needed to resolve these long-standing weaknesses.
The auditors reviewed the package of supporting documents
submitted directly to us by the Director, Financial Management
Division, subsequent to the issuance of the report. As a result,
the auditors accepted $963,972 of obligations and $203,937 of
disbursements that were questioned in the draft report. The
auditors questioned $2,186,055 of obligations and $2,898,310 of
disbursements because of recording errors and lack of documenta-
tion. Details on questioned costs are provided in the attached
report. The auditors noted that costs questioned this year were
significantly greater than last year. They attributed the
increase, in part, to the conversion to the IFMS and the resul-
ting problems associated with the conversion and operation of the
new system.
During the auditors' testing of certain internal control and
compliance attributes, they noted that many attributes exceeded
an acceptable five-percent error rate. When comparing these
results with prior year results, they noted that more attributes
exceeded a five-percent error rate for fiscal 1989 and, in most
cases, the error rates increased over rates reported in the prior
year. Problems noted by the auditors included: (1) financial
management offices (FMOs) did not date stamp the receipt of
obligating documents, (2) officials authorizing vouchers did not
date the signed documents, and (3) FMOs could not always record
obligations timely after the IFMS was installed because the
system was not operating during certain periods of time.
We recognize that Agency management is aware of needed improve-
ments and has initiated an action plan to take corrective action.
We also note that EPA's Deputy Administrator issued a memorandum,
on September 10, 1990, that requires Regional Administrators to
submit quarterly accounts receivable progress reports. We
believe the Agency's plan for corrective action, including the
initiative by the Deputy Administrator, is responsive to the
draft report's recommendations. Accordingly, in most instances,
the auditors are not making additional recommendations at this
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time. We will ensure that LGB&Co. follows up on the status of
implementing corrective actions during the annual audit of the
Hazardous Substance Superfund.
We are concerned about the length of time proposed to implement
corrective actions. In some instances, important corrective
action is not proposed to be completed until fiscal 1992. Also,
some corrective actions are dependent on the availability of
contractor assistance and on the approval and prioritization of
the Systems Management Group to classify and record capital asset
purchases in the IFMS. Accordingly, significant internal and
management control weaknesses will continue to exist for fiscals
1990 and 1991 as well as part of 1992.
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ACTION REQUIRED
As the action official, you are required under EPA Directive 2750
to provide this office with a written response to the audit
report within 90 days of the audit report date. Please reference
the audit report number in your response. Also, send a copy of
your response to the Agency Internal Control Official [ATTN:
Director, Resource Management Division (PM-225)] and the Audit
Follow-up Coordinator [ATTN: Program Operations Support Staff
(PM-208)]. We have no objection to further release of this
report to the public.
We appreciate the efforts of your staff in providing a timely
response to the draft report. Their assistance and cooperation
was a critical factor in allowing us to issue this report within
the congressionally mandated timeframe.
Should your staff have any questions about this report, please
have them contact Kenneth D. Hockman, Divisional Inspector
General for Audit, Internal Audit Division, or Melissa Heist of
his staff, at 308-8222 or FTS 398-8222.
Attachment
cc: See attached distribution list
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DISTRIBUTION OF THE AUDIT REPORT
A. Office of the Inspector General (A-109)
B. Headquarters Offices
Assistant Administrator for Administration and Resources
Management (PM-208)
Assistant Administrator for Enforcement and Compliance
Monitoring (LE-133)
Assistant Administrator for Solid Waste and.Emergency
Response (OS-100)
Assistant Administrator for Research and Development (RD-672)
Associate Administrator for Regional Operations (A-101)
Comptroller, Office of the Comptroller (PM-225)
Director, Financial Management Division (PM-226F)
Deputy Director, Financial Management Division (PM-226F)
Chief, Financial Compliance and Quality Assurance
Staff (PM-226F)
Chief, Financial Systems Branch (PM-226F)
Chief, Headquarters Accounting Operations Branch (PM-226)
Chief, Fiscal Policies and Procedures Branch (PM-226F)
Chief, Superfund Accounting Branch ((PM-226F)
Chief, Financial Reports and Analysis Branch (PM-226F)
Director, Office of Administration (PM-217)
Director, Facilities Management and Services
Division (PM-215)
Chief, Program Management, Policy, and Analysis
Branch (PM-215)
Chief, Security and Property Management Branch (PM-215)
Director, Procurement and Contracts Management
Division (PM-214F)
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Director, Office of Emergency and Remedial Response (OS-200)
Director, Office of Waste Programs Enforcement (OS-500)
Agency Internal Control Official [ATTN: Director, Resource
Management Division (PM-225)]
Audit Follow-up Coordinator [ATTN: Program Operations Support
Staff (PM-208)
C. Regional Offices
Regional Administrators, Regions 1 through 10
Financial Management Officers, Regions 1 through 10
D. Others
Director, National Enforcement Investigations Center
Director, Office of Administration and Resources Management,
Research Triangle Park (MD-20)
Director, National Contracts Payment Division, Research
Triangle Park (MD-32)
Director, Office of Administration, Cincinnati
Financial Management Officer, Cincinnati Financial
Management Center
Financial Management Officer, Las Vegas Accounting
Operations Office
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TABLE OF CONTENTS (CONTINUED)
7, PERSONNEL COMPENSATION COSTS WERE QUESTIONED
DUE TO ERRORS AND LACK OF DOCUMENTATION
EXHIBITS
EXHIBIT I
EXHIBIT II
EXHIBIT III
EXHIBIT III A
EXHIBIT IV
EXHIBIT IV A
EXHIBIT IV B
EXHIBIT V
EXHIBIT VI
EXHIBIT VII
SCHEDULE OF OBLIGATIONS, FISCAL
YEAR ENDED SEPTEMBER 30, 1989
SCHEDULE OF DISBURSEMENTS, FISCAL
YEAR ENDED SEPTEMBER 30, 1989
SUMMARY SCHEDULE OF OBLIGATIONS
QUESTIONED, FISCAL YEAR ENDED
SEPTEMBER 30, 1989
DETAIL SCHEDULE OF NONPAYROLL
OBLIGATIONS QUESTIONED, FISCAL
YEAR ENDED SEPTEMBER 30, 1989
SUMMARY SCHEDULE OF DISBURSE-
MENTS QUESTIONED, FISCAL YEAR
ENDED SEPTEMBER 30, 1989
DETAIL SCHEDULE OF PAYROLL DIS-
BURSEMENTS QUESTIONED, FISCAL
YEAR ENDED SEPTEMBER 30, 1989
DETAIL SCHEDULE OF NONPAYROLL
DISBURSEMENTS QUESTIONED, FISCAL
YEAR ENDED SEPTEMBER 30, 1989
DETAIL SCHEDULE OF PERSONAL PRO-
PERTY ITEMS NOT RECORDED IN
PERSONAL PROPERTY ACCOUNTING
SYSTEM (PPAS)/NOT PHYSICALLY
LOCATED, FISCAL YEAR ENDED
SEPTEMBER 30, 1989
DETAIL SCHEDULE OF PERSONAL PRO-
PERTY ITEMS NOT IN NATIONAL
PPAS BUT IN LOCAL PPAS, FISCAL
YEAR ENDED SEPTEMBER 30, 1989
DETAIL SCHEDULE OF PERSONAL PRO-
PERTY ITEMS NOTED IN PRIOR
AUDIT FINDINGS STILL NOT IN
PPAS, FISCAL YEAR ENDED
SEPTEMBER 30, 1989
PAGE
82
85
90
94
95
101
102
107
112
126
129
ii
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TABLEOF CONTENTS (CONTINUED)
PAGE
APPENDICES
APPENDIX 1 SCOPE AND METHODOLOGY OF STATIS-
TICAL SAMPLING FOR THE FISCAL
YEAR 1989 SUPERFUND AUDIT A1-1
APPENDIX 2 PROJECTIONS FROM THE FISCAL
YEAR 1989 SUPERFUND AUDIT A2-1
APPENDIX 3 ASSISTANT ADMINISTRATOR'S RE-
SPONSE TO THE DRAFT AUDIT
REPORT A3-1
iii
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AUDIT
ON SCHEDULES OF
OBLIGATIONS AND DISBURSEMENTS
OF THE
HAZARDOUS SUBSTANCE SUPERFUND
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1989
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AUDIT ON
SCHEDULES OF OBLIGATIONS AND DISBURSEMENTS
OF THE
HAZARDOUS SUBSTANCE SUPERFUND
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1989
TABLE OF CONTENTS
PAGE
ACRONYMS AND GLOSSARY iv
SCOPE AND OBJECTIVES 1
SUMMARY OF AUDIT RESULTS 2
BACKGROUND 18
INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULES OF
OBLIGATIONS AND DISBURSEMENTS 20
INDEPENDENT AUDITOR'S REPORT ON INTERNAL ACCOUNTING
CONTROL 23
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH LAWS
AND REGULATIONS 27
FINDINGS AND RECOMMENDATIONS
1. INTERNAL CONTROL WEAKNESSES WERE NOTED IN THE
INTEGRATED FINANCIAL MANAGEMENT SYSTEM 29
2. IMPROVEMENTS ARE NEEDED IN RECORDING AND MAN-
AGING ACCOUNTS RECEIVABLE AND COLLECTIONS 36
3. IMPROVEMENTS ARE NEEDED IN ACCOUNTING FOR
AND CONTROLLING PERSONAL PROPERTY 47
4. OBLIGATIONS WERE QUESTIONED DUE TO LACK OF
DOCUMENTATION AND RECORDING ERRORS 56
5. SCHEDULE OF DISBURSEMENTS DID NOT AGREE WITH
OUTLAYS REPORTED TO THE OFFICE OF MANAGE-
MENT AND BUDGET 65
6. DISBURSEMENTS WERE QUESTIONED DUE TO RECORD-
ING ERRORS AND LACK OF DOCUMENTATION 71
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THIS PAGE INTENTIONALLY LEFT .BLANK
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AUDIT ON
SCHEDULES OF OBLIGATIONS AND DISBURSEMENTS
OF THE
HAZARDOUS SUBSTANCE SUPERFUND -
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1989
ACRONYMS AND GLOSSARY
ACRONYMS
AA - Assistant Administrator for Administration and
Resources Management
AH - Allowance Holder
AHRC - Allowance Holder Responsibility Center
AP - Accounting Point
CERCLA - Comprehensive Environmental Response, Compensation,
and Liability Act of 1980
CICS - Customer Information Control System
EDP - Electronic Data Processing
EPA - Environmental Protection Agency
FMC - Financial Management Center
FMD - Financial Management Division
FMFIA - Federal Managers' Financial Integrity Act
FMO - Financial Management Officer
FMS - Financial Management System
FMSD i - Facilities Management and Services Division
FRAB - Financial Reports and Analysis Branch
FSB - Financial Systems Branch
GAO - General Accounting Office
HAOB - Headquarters Accounting Operations Branch
IFMS - Integrated Financial Management System
MARS - Management and Accounting Report System
NCC - National Computer Center
NEIC - National Enforcement Investigations Center
OARM - Office of Administration and Resources Management
OMB - Office of Management and Budget
OIG - Office of the Inspector General
PAO - Property Accountable Officer
PC&B - Personnel Compensation and Benefits
PCMD - Procurement and Contracts Management Division
PPAS - Personal Property Accounting System
RACF - Resource Access Control Facility
RC - Responsibility Center
RMDS - Resources Management Directives System
RPIO - Responsible Planning and Implementation Officer
RTP - Research Triangle Park
SARA - Superfund Amendments and Reauthorization Act of 1986
SFO - Servicing Finance Office
SMG - System Management Group
.
iv
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ACRONYMS AND GLOSSARY (CONTINUED)
ACRONYMS (CONTINUED)
SPUR - Software Package for Unique Reports
GLOSSARY
Accounts Receivable - Moneys due to the Agency, such as cost
recovery actions, fines and penalties, and state cost-shares.
Allowance Holders - Heads of major EPA offices responsible for
the control of resources.
Commitment - A reservation of a specified amount of funds for a
specific purpose. It is not a legal promise to pay and may. be
canceled prior to obligation. Once funds are committed, they
are not available for any other purpose, unless decommitted.
Disbursements - The amount of cash outlays to liquidate obliga-
tions. The amount of expenditure checks issued and cash pay-
ments made, net of refunds received. Disbursements include all
advances and exclude amounts of nonexpenditure documents which
are issued for the purpose of accomplishing transfers. Net
disbursements represent gross disbursements less collections
credited to the account and acknowledged by a disbursing office
or depositary bank.
Financial Management Officers - Officers who are responsible for
processing commitment and obligation documents, generating
reports, and helping offices reconcile problems and discrepan-
cies. FMOs are located in Headquarters, Research Triangle
Park, Las Vegas, Cincinnati and each of the 10 Regional of-
fices. Each Financial Management Officer supervises a Servic-
ing Finance Office.
Ineligible Costs - Questioned costs involving an alleged viola-
tion of a provision of a law, regulation, contract, grant,
cooperative agreement, or other agreement or document governing
the expenditure of funds.
Obligations - Amounts of orders placed, contracts awarded, serv-
ices received, travel performed, and similar transactions
during a given period that will require payments during the
same or future periods. These transactions may have matured as
a legal liability or may be contingent upon some future per-
formance .
Questioned Costs - Costs that are considered by the auditors to
be ineligible, unsupported or unnecessary/unreasonable. (Refer
to respective definitions for ineligible, unsupported and
unnecessary/unreasonable costs).
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ACRONYMS AND GLOSSARY (CONTINUED)
GLOSSARY (CONTINUED)
Responsibility Centers - Divisions, branches, sections, laborato-
ries or offices that carry out an Allowance Holders' programs.
Servicing Finance Offices - Finance offices which pay spending
actions as well as perform the necessary accounting functions
such as entering and updating financial records.
Unnecessary/Unreasonable Costs - Questioned costs involving the
expenditure of funds that resulted in unnecessary or unreasona-
ble costs.
Unsupported Costs - Questioned costs that, at the time of an
audit, were not supported by adequate documentation and/or were
not approved by responsible program officials.
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UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
REPORT OF FINANCIAL AUDIT ON
SCHEDULES OF OBLIGATIONS AND DISBURSEMENTS
OF THE ' '
HAZARDOUS SUBSTANCE SUPERFUND
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1989 ,
. . . SCOPE AND OBJECTIVES
We have audited the accompanying Schedules of ' Obligations and
Disbursements of the Hazardous Substance Superfund (Superfund)
reported by the U.S. Environmental Protection Agency (EPA) for
the fiscal year ended September 30, 1989. We conducted our audit
in accordance with generally accepted auditing standards, promul-
gated by the American Institute of Certified Public Accountants
(AICPA), and Government Auditing Standards (1988 Revision).
issued by the Comptroller General of the United States. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the aforementioned schedules
are free of material misstatement.
We made a study and evaluation of the system of internal account-
ing control in order to determine our auditing procedures for the
purpose of expressing an opinion on the schedules referred to
above. We also designed audit steps to test compliance with
applicable laws and regulations. We reviewed the status of
.findings and recommendations included in the prior audit report,
covering the fiscal year ended September 30, 1988 (Audit Report
P1SFF8-11-0048-9100488, issued September 22, 1989).
During fiscal 1989, EPA implemented the Integrated Financial
Management System (IFMS) as the Agency's official financial
management system, replacing the Financial Management System
(FMS). For fiscal 1989, the FMS was in operation as the Agency's
system from October 1, 1988 through February 28, 1989. In March
1989, the IFMS was installed and was operational for the remain-
der of .the fiscal year, from March 1, 1989 through September 30,
1989. . . :
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Our audit was conducted in two phases: 'interim fieldwork and
year-end fieldwork. Our audit work during these phases generally
corresponded with the periods of operation of the two systems
(FMS and IFMS) during the fiscal year. Interim fieldwork was
performed from July 24, 1989 through October 30, 1989, and pri-
marily covered the period that the FMS was in operation. Year-
end fieldwork was conducted from January 2, 1990 through May 11,
1990, and covered the period that the IFMS was in operation.
As a part of the audit, we selected statistical samples from the
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SCOPEAND OBJECTIVES (CONTINUED)
obligation and disbursement transactions recorded in both systems
(FMS and IFMS) during fiscal 1989. The samples were tested to
determine if they were recorded accurately and in accordance with
internal control and compliance attributes. The scope and meth-
odology of the sampling is described in Appendix 1. Our audit
included examining, on a test basis: financial management re-
cords at EPA's Servicing Finance Offices (SFOs) and Accounting
Points (APs) located at 10 regional offices, 3 major laboratory
facilities, and Headquarters;, financial records at the National
Enforcement Investigations Center (NEIC); and personal property
management records for the accountable areas at these locations.
The audit objectives were to determine if:
{1) The Schedules of Obligations and Disbursements are
presented fairly, in all material respects, in
accordance with applicable laws, regulations, and
guidelines;
(2) EPA management complied with laws and regulations
which, if not followed, might have a material effect
upon the Schedules of Obligations and Disbursements;
. and
(3) EPA established an adequate system of internal
accounting control to ensure the reliability of
applicable financial management records.
It was not within the scope of our audit to determine the allowa-
bility and allocability of the general support services cost
pools that were accumulated and allocated to Superfund from
another EPA appropriation, or to verify the bases for these
allocations. Our audit procedures for cost allocations were
limited to reviewing methodologies, testing the accuracy of the
mathematical computations, and verifying that the allocations
were made in a timely manner.
SUMMARY OF AUDIT RESULTS
A material internal control weakness existed in the reporting
capabilities of IFMS. The reporting subsystem failed to provide
complete and accurate reports consistent with the needs and
objectives of EPA's management. As a result, EPA was unable to
provide necessary reports from the IFMS during fiscal 1989. EPA
could not provide a Schedule of Disbursements by major object
class from the IFMS which agreed with, or was reconcilable to,
total disbursements (outlays) reported to the Office of Manage-
ment and Budget (OMB) in the Report on Budget Execution (SF-133)
for the fiscal year ended September 30, 1989. The difference
between the total disbursements reported to us in the Schedule of
Disbursements and total outlays reported to OMB amounted to
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SUMMARY OFAUDIT RESULTS (CONTINUED)
$26,767,694. Also, there were material weaknesses in the opera-
tion of internal controls for recording and managing accounts
receivable and accounting for and controlling personal property.
The weaknesses in recording and managing accounts receivable and
collections resulted in: $43.1 million of receivables not being
recorded timely; $39.7 million of receivables not being recorded
in the correct fiscal year; $2.1 million of receivables and $2.6
million of collections not being transferred from the FMS to the
IFMS; $511,965 of collections not being recorded against the
corresponding receivables; and $434,219 of interest not being
assessed on past due receivables. The weaknesses in accounting
for and controlling personal property resulted in: property
items costing $1,529,895 not being recorded in the Agency proper-
ty records and $515,520 of property items that could not be
located.
Weaknesses were also found and improvements are needed in:
retaining proper documentation to support obligation and dis-
bursement transactions; receiving and recording obligation data
timely; paying invoices timely; and supporting certain payroll
transactions. As a result of weaknesses in these areas, we
questioned $2,186,055 of nonpayroll obligations, $2,875,846 of
nonpayroll disbursements, and $22,464 of payroll disbursements.
We also noted significant weaknesses in the internal controls for
the implementation, design, and operation of the electronic data
processing (EDP) system. These weaknesses were: failure to
reconcile data converted from the FMS to the IFMS; lack of suffi-
cient audit trails; inadequate security for gaining access to
computer systems; and failure to capitalize property transactions
when initially recorded in the IFMS.
In our opinion, except for the effects of such adjustments, if
any, that might have been necessary, had the Schedule of Dis-
bursements reported to us been in agreement with, or reconciled
to the Report on Budget Execution filed with OMB, and had we,
within our scope, been able to determine the allowability and
allocability of the accumulated cost pools of general support
services and the bases for the allocation, the Schedules of
Obligations and Disbursements, presented as Exhibits I and II,
present fairly, in all material respects, the obligations and
disbursements of EPA's Superfund for the fiscal year ended Sep-
tember 30, 1989, on the basis of accounting described in the
Exhibits referred to above.
We express no opinion on the overall system of internal account-
ing control due to the limited purpose of the study and evalua-
tion made as part of our audit. However, we noted certain mat-
ters, described above as material weaknesses, involving the
internal accounting control, that we consider to be reportable
conditions under the standards established by the AICPA. Report-
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SUMMARY OF AUDIT RESULTS (CONTINUED)
able conditions involve matters coming to our attention relating
to significant deficiencies in the design or operation of inter-
nal controls that, in our judgment, could adversely affect the
Agency's ability to record, process, summarize, and report finan-
cial data consistent with the assertions of management in the
schedules referred, to above. A material weakness is a reportable
condition in which the design or operation of one or more of the
internal accounting controls does not reduce to a relatively low
level the risk that errors or irregularities in amounts that
would be material in relation to the schedules being audited may
occur and not be detected within a timely period by employees in
the normal course of performing their assigned functions.
f
Except for the material internal control weaknesses discussed
above, the results of our tests for compliance indicated that EPA
management had complied with laws and regulations which might
have a material effect on the schedules identified above. Fur-
ther, for compliance items not tested, nothing came to our atten-
tion which indicated that EPA had not complied with applicable
laws, regulations, and guidelines which might have a material
effect on the schedules identified above.
•
We recommended in our draft report that the Assistant Administra-
tor (AA) for the Office of Administration and Resources Manage-
ment (OARM) take corrective actions to improve the Agency's
systems for financial reporting, management of accounts receiva-
ble, and accounting for and controlling property. We also recom-
mended that the AA require reconciliation of cash disbursements
accounts with amounts reported to OMB and require the review and
resolution of questioned obligations, disbursements and payroll
costs.
In response to our draft report, the AA generally agreed with our
recommendations and indicated that corrective actions had been or
would be taken. We revised the questioned costs in this report
as a result of Agency personnel providing additional documenta-
tion. In addition, Agency officials indicated that they have
corrected or were researching the remaining questioned costs.
FINANCIAL RESULTS OF AUDIT
EPA reported obligations of $1,510,214,270 and disbursements
(outlays) of $911,415,634 to OMB in the Report on Budget Execu-
tion (SF-133), filed November 30, 1989, for the fiscal year ended
September 30, 1989. In February 1990, EPA's Financial Management
Division (FMD) officials provided us with a Schedule of Obliga-
tions by major object class, prepared from a combination of FMS
and IFMS data and reports, which totaled $1,497,877,504. The
difference of $12,336,766, between the combined FMS and IFMS
obligations ($1,497,877,504) and the obligations reported to OMB
($1,510,214,270), was reconciled by EPA personnel. The Schedule
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SUMMARY OF AUDIT RESULTS (CONTINUED)
of Obligations provided to us included a $5/437,494 payroll
accrual from February 28, 1989, which was reversed by EPA person-
nel prior to the preparation of the SF-133. We adjusted the
Schedule of Obligations to exclude the payroll accrual. As a
result, the total obligations reported in Exhibit I amount to
$1,492,440,010. The Schedule of Disbursements by major object
class, provided by FMD officials in February 1990, was prepared
from the combination of FMS and IFMS reports and totaled
$938,183,328. The difference between the combined FMS and IFMS
disbursements ($938,1-83,328) and the outlays reported to OMB
($911,415,634) amounted to $26,767,694. The majority of this
difference was recorded in a Prepaid Adjustments Account without
sufficient detail to support the account posting or balance or to
make subsequent adjustments necessary to adjust the proper gener-
al ledger accounts.
We accepted $1,490,253,955 of obligations and $935,285,018 of
disbursements reported in the Schedules of Obligations and Dis-
bursements for fiscal 1989. However, had EPA been able to recon-
cile the disbursements reported in the Schedule of Disbursements
to the outlays reported to OMB and make adjustments as necessary,
we may have accepted a lesser amount of disbursements. We ques-
tioned $2,186,055 of obligations and $2,898,310 of disbursements.
The amounts questioned for fiscal 1989 were significantly greater
than the amounts questioned in fiscal 1988. As a result, the
projected questioned costs from our statistical analysis were
also significantly greater. We believe that the increase in
questioned costs was due, in part, to the conversion of financial
systems from the FMS to the IFMS and the resulting problems
associated with the conversion and operation of the new system.
Our findings are summarized below and presented in detail in the
Findings and Recommendations and Exhibits.
Reported, accepted and questioned costs are summarized as fol-
lows :
REPORTED ACCEDED QUESTIONED COSTS
INELIGIBLE UNSUPPORTED TOTAL
FY 1989
Obligation* $1.492.440.010 tl.490.253.955 $106.475 $ 2.079.580 $ 2.166.055
FY 1989
Disbursements $ 938.183.328 $ 935.285.018 $ 1.663.156 $'1.235.154 $ 2.898.310
FOLLOW-UP ON PRIOR AUDIT FINDINGS
The prior audit report, which covered the period from October 1,
1987 through September 30, 1988, identified weaknesses related
to: accounting for and controlling personal property; allocating
-------
SUMMARY OF AUDIT RESULTS (CONTINUED)
support services costs; and recording and managing accounts
receivable. The report also identified noncompliance with cer-
tain EPA policies and procedures for obligations and disburse-
ments. Specifically, for obligation transactions, the report
cited deficiencies in: providing obligation documentation to
FMOs promptly; FMOs recording obligations timely; and program
offices entering commitment information into the FMS for commit-
ments greater than $25,000. Deficiencies in disbursement trans-
actions included: authorized officials not approving disburse-
ment documents; FMOs not paying invoices timely or taking cash
discounts; FMOs not recording disbursements timely; and program
offices not properly documenting Superfund personnel compensation
transactions.
In response to the prior audit report, the Assistant Administra-
tor (AA) for Administration and Resources Management generally
agreed with the findings and recommendations. The AA indicated
that corrective actions had been or would be taken in regard to:
accounting for and controlling personal property; retaining
documentation supporting cost allocations; monitoring Superfund
support costs; and resolving questioned disbursements.
The AA's responses to our draft audit report for fiscal 1988 were
dated August 14 and August 18, 1989. Some of the corrective
actions indicated in the responses were not scheduled for imple-
mentation until after fiscal 1989. The AA's response to our
final report for fiscal 1988 indicating corrective action taken
was dated December 22, 1989. We did not attempt to follow up on
corrective actions which may have been initiated after fiscal
1989. We will review these corrective actions as a part of our
fiscal 1990 audit.
The Agency did not have an audit tracking system for corrective
actions taken in fiscal 1989. We found that some corrective
actions for property items indicated in response to our report
had not been taken at several regional offices. The AA agreed
with our recommendations to obtain certifications from PAOs and
to require PAOs to retain copies of these certifications that
corrections were made to the PPAS for the items omitted. Despite
these requirements by the AA, we found, in our follow-up on prior
findings, that 58 property items amounting to $329,268 were still
not recorded in the PPAS at Regions 4, 5 and 6. Exhibit VII
provides a detail list of these items. We believe that the
Agency should adopt measures to ensure that corrective actions
indicated in response to audit reports are implemented. This
includes the recording of these property items at Regions 4, 5
and 6. The prior audit findings may have been resolved and
corrective actions verified had an audit tracking system been in
place during the fiscal year. A new Management Audit Tracking
System was developed and became operational in February 1990.
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SUMMARY OF AUDIT RESULTS (CONTINUED)
The AA disagreed with the criteria that we used for timely re-
cording of disbursements. We used the criteria related to re-
cording obligations from EPA's Comptroller Policy Announcement
No. 86-09. We believe that disbursements should be recorded
within the same timeliness standards (four working days) as
obligations. Although EPA has not established criteria for
recording disbursements. Title 2 of the General Accounting Office
(GAO) Policy and Procedures Manual for Guidance of Federal Agen-
cies, Appendix II, Internal Control Standards states that trans-
actions and other significant events are to be promptly recorded.
The AA disagreed that there was a conflict between the Agency
directive requiring a signed "Memorandum of Acceptance by Custo-
dial Officers" and Region 2's General Counsel opinion that a
signed letter assuming custodial responsibilities is not required
and does not affect the accuracy of the property records. EPA
Facilities and Support Services Manual. Volume 4830-2 - Personal
Property Management, PMR 2-21 states that each custodial officer
is required to sign an assumption of custodial responsibilities
memorandum indicating acceptance of custodial duties and submit
it to his designated Property Accountable Officer (PAO). The
memorandum establishes responsibility for specific accountable
property on a specified date, indicates that an inventory was
taken and relieves the previous custodial officer of liability
for accountability of.property. Since Agency policy requires a
signed memorandum, we believe that this requirement should be
enforced at all Agency locations.
INTERNAL CONTROL WEAKNESSES WERE NOTED IN THE INTEGRATED FINAN-
CIAL MANAGEMENT SYSTEM
A material internal control weakness existed in the reporting
capabilities of the IFMS. The reporting subsystem did not pro-
vide complete and accurate reports consistent with the needs and
objectives of EPA's management. Also, data was not reconciled in
the transfer of accounting information from the FMS to the IFMS,
audit trails were sometimes not sufficient to trace transactions,
security over gaining access to the operating system and applica-
tion software (IFMS) was inadequate, and the property subsystem
was not integrated with the IFMS.
^«»
The IFMS was acquired to provide a comprehensive financial man-
agement system to support EPA's financial management functions.
The system was expected to perform the standard accounting func-
tions of commitment and obligation processing, document tracking,
accounts payable, accounts receivable and general ledger. The
system also was expected to support an end-user-oriented report
writer, an ad hoc query capability, and an automated interface
between the mainframe and user workstations. However, in fiscal
1989, the IFMS did not meet EPA's expectations for accounts
receivable, general ledger, and reporting functions. As a re-
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SUMMARY OF AUDIT RESULTS (CONTINUED)
suit, EPA could not produce necessary reports from the IFMS
during the fiscal year or at year-end. Consequently, Agency
personnel could not properly monitor many financial activities
during the fiscal year.
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, FMD to: ensure that a reporting system for the IFMS is
developed and implemented in fiscal 1990; verify that transac-
tions and account balances brought forward from the FMS to the
IFMS are complete, correct and reconciled; modify the security
controls for the IFMS to allow only one user per User ID at the
same time; and assign transaction codes in the IFMS for capital
property and equipment purchases.
The AA concurred that the reporting capabilities in the IFMS were
not adequate in fiscal 1989 and indicated that improvement of
IFMS reporting was made one of the top system priorities for
fiscal 1990. The improvements are scheduled to be accomplished
over a two year period, extending into fiscal 1992. The AA also
agreed to verify and reconcile transactions and account balances
brought forward from the FMS to the IFMS. The AA agreed that the
security controls for the IFMS should be modified to allow only
one user per User ID to obtain access to the IFMS at the same
time. The AA stated that the Agency has adequate procedures in
place for financial recording of capital asset transactions.
However, the AA agreed to investigate partial implementation of
the IFMS property module to facilitate the classification and
recording of capital asset purchases.
The Agency's response to our draft report and the corrective
actions taken and proposed are responsive to our recommendations.
However, we are concerned that the implementation of some of the
proposed corrective actions will extend into fiscal 1992. As a
result/ the Agency will have reporting deficiencies in fiscal
years 1990 and 1991. We encourage earlier implementation of the
proposed corrective actions, if possible. However, we are making
no further recommendations on these issues at this time.
IMPROVEMENTS ARE NEEDED IN RECORDING AND MANAGING ACCOUNTS RE-
CETVABTf]g ANQ COLLECTIONS
EPA needs to improve the recording and managing of accounts
receivables and collections. Our audit disclosed that 110 re-
ceivables, totaling $43,094,911, due for cost recovery actions,
fines and penalties, and state cost-shares, were not recorded in
a timely manner. Also, 22 receivables, totaling $39,739,334,
were not recorded in the correct fiscal year. We also noted that
33 receivables were not assessed interest, totaling $434,219. In
addition, 6 collections, totaling $511,965, were not recorded
against the corresponding receivables. Additionally, 12 receiva-
8
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SUMMARY OF AUDIT RESULTS (CONTINUED)
"~x
IMPROVEMENTS ARE NEEDED IN ACCOUNTING FOR AND CONTROLLING PERSON-
AL PROPERTY
EPA's accounting for and controlling personal property need to be
improved. Our audit disclosed that 494 property and equipment
items costing $1,529,895 were not recorded in the PPAS. These
494 items were identified from our audit samples of disburse-
ments, which included 1,123. items costing $5,053,350, purchased
during fiscal 1989. Also, 439 of the 1,123 items, costing
$515,520, could not be physically located. At Regions 2, 4, 5,
6, 7 and 9, we noted that annual inventories had not been per-
formed. Also, at Regions 2, 5, 6, 7 and 9, custodial officers
for property had not been properly designated or had not accepted
custodial responsibilities. Further, the national PPAS listing
obtained from the Facilities Management and Services Division
(FMSD) did not agree with the PPAS listings at Regions 3 and 10
and Cincinnati. Our audit disclosed that 52 items, valued at
$167,039, were not recorded in the national PPAS listing but were
recorded in the local listings.
The primary cause of property items not being recorded in the
PPAS and items not being located was due to contracting offices,
custodial officers, or receiving personnel not sending documenta-
tion of property purchased and received to the appropriate PAOs.
The failure to conduct annual physical inventories and obtain
acceptances of custodial duties was due to non-compliance with
Agency policies and procedures, primarily because of inadequate
staffing and training of property personnel. If annual invento-
ries had been performed, omissions from the PPAS and unlocated
property items might have been identified. As a result of the
above deficiencies, EPA property was not properly controlled,
thus increasing the possibility of waste, loss, unauthorized use
and misappropriation.
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management obtain certi-
fications that.corrective actions have been taken to record the
omitted property items in the PPAS, and to locate and identify
property that could not be located during our audit fieldwork;
emphasize the importance of conducting physical inventories and
preparing and signing memorandums of designation and assumption
of custodial responsibilities; require the Director, FMSD, to
correct the deficiency causing the loss of data between the
national PPAS and local PPAS; and direct the Comptroller to issue
a policy requiring FMOs to provide documentation of property
purchases to the appropriate PAOs where property was delivered.
The AA agreed to obtain certifications that property items had
been located and/or recorded in the PPAS. The AA agreed to issue
a letter emphasizing the Agency policy for conducting physical
inventories and designating custodial responsibility. FMSD
10
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SUMMARY OF AUDIT RESULTS (CONTINUED)
bles, valued at $2,068,514, and 31 collections, valued at
$2,606,359, were not properly transferred from the FMS tp the
IFMS during the conversion process.
Accounts receivable were not being recorded timely or in the
correct fiscal year because: internal controls were not estab-
lished for forwarding settlement documents to the FMOs; judicial
orders were not promptly obtained from the Department of Justice;
and FMOs were not recording accounts receivable promptly in the
IFMS when settlement documents were received prior to payment.
In addition, the regions did not establish routine procedures to
regularly reconcile Superfund program office and Office of Re-
gional Counsel records with IFMS records. Also, the total amount
of installment receivables was not recorded in the correct fiscal
year. Only the current portions of installment receivables were
recorded instead of the total amounts due. The failure to prop-
erly record installment receivables was primarily due to a lack
of guidance by FMD. We also found that receivables at Headquar-
ters were not being monitored by the Financial Reports and Analy-
sis Branch (FRAB). As a result, Headquarters Accounting Opera-
tions Branch {HAOB) was not informed when billings should have
been prepared or interest and penalties assessed on past due
accounts. There were insufficient IFMS reports to assist the
FMOs and FRAB in monitoring outstanding receivables and ensuring
the proper transfer of receivables and collections from the FMS
to the IFMS. Because of inadequate monitoring of accounts re-
ceivable, interest and penalties were not always assessed on past
due accounts. Some collections were not recorded because the
IFMS accounts receivable subsystem was not operating properly
during fiscal 1989.
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, FMD to review the transfer of Superfund receivables and
collections from the FMS to the IFMS to ensure the amounts have
been correctly recorded, and to transfer all outstanding receiva-
bles recorded by HAOB prior to fiscal 1989 to the appropriate
regional offices.
The AA agreed to review the transfer of Superfund receivables and
collections from the FMS to the IFMS, and stated that the recon-
ciliation process had begun. The AA also stated that FMD agreed
to transfer outstanding accounts receivable from HAOB to the
appropriate regional offices after completion of the reconcilia-
tion process.
The Agency's response to our draft report and the proposed
corrective actions are responsive to our recommendations. There-
fore, we are making no further recommendations at this time.
-------
SUMMARY OF AUDIT RESULTS (CONTINUED)
personnel stated that the items from local PPAS listings in
question were now recorded in the national PPAS. The AA indicat-
ed that Agency personnel will monitor this problem to assess the
reliability of the PPAS. The AA disagreed with the recommenda-
tion to require FMOs to provide paid invoice copies for property
items purchased to the PAOs where property was delivered.
••
We are recommending that the AA instruct the Director of FMD,
FMSD, and Procurement and Contracts Management Division (PCMD) to
work together to develop procedures to ensure that all account-
able property and equipment items are properly recorded timely in
e PPAS at actual cost.
OBLIGATIONS WERE QUESTIONED DUE TO LACK OF DOCUMENTATION AND
RECORDING ERRORS
Based upon the results from our statistical sampling, we ques-
tioned $2,186,055 of nonpayroll obligations. A total of
$1,368,861,625 nonpayroll obligations were recorded in fiscal
1989. The $2,186,055 of questioned obligations were specific
transactions in our interim and year-end samples, which were
ineligible or unsupported. The ineligible costs amounted to
106,475. The unsupported costs amounted to $2,079,580.
Using statistical\sampling techniques, we projected that the
"universe of nonpayroll obligations contained questioned costs
within a range from\($32, 002, 644) tox^Xlr 5 0 3, 824, or between
(02.34%) and 2.74% of^fehe recorded amount. /.Our projections were
made with a 95% confidencex^imit, L/e., we "are 95% confident that
the projected questioned obligations fall within this range.
(See Appendix 2 for more details.) The projected questioned
obligations were immaterial ^n relation to the total recorded
nonpayroll obligations. Therefore;\we questioned only specific
transactions with errors from our samples and accepted the bal-
ance of the recorded nonpayroll obligations.
The ineligible and unsupported costs were questioned for various
reasons: obligating documents could not be located; no Superfund
> justification was on or attached to obligating documents; amounts
were incorrectly charged to Superfund; errors were made in cor-
recting entries; transactions were obligated twice; documentation
could not be located because transactions were recorded at an
Accounting Point different from the AP indicated in the IFMS;
amounts obligated did not agree with the obligating documents; a
transaction was charged to an incorrect account number; and an
obligation was not properly authorized. (See Finding No. 4 and
Exhibit III A for additional details.) In addition, the results
of some tests of internal control and compliance attributes for
nonpayroll obligations indicated unacceptable levels (over 5%) of
noncompliance with Agency policies and procedures.
11
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SUMMARY OF AUDIT RESULTS (CONTINUED)
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management require the
appropriate FMOs to review and resolve the questioned obligation
transactions; emphasize the importance of forwarding obligating
documents to FMOs on a timely basis; and advise the FMOs that all
obligating documents be date stamped upon receipt, reviewed for
correctness, completeness and approvals, and posted to the IFMS
in a timely manner. We also recommended that the AA instruct the
Comptroller to issue a policy announcement requiring the use of
sequentially numbered journal/standard vouchers containing all
appropriate accounting information, approval and explanation.
In response to our draft report, the AA agreed to require the
appropriate FMOs to review and resolve the questioned obligation
transactions. The AA indicated that Agency personnel had cor-
rected most of the questioned transactions and were researching
the remaining questioned costs. The AA agreed to notify all FMOs
of the policy that all obligating documents are to be date
stamped upon receipt, reviewed for completeness, and posted to
the IFMS in a timely manner. In addition, the AA stated that FMD
has drafted a policy announcement requiring the use of sequen-
tially numbered journal/standard vouchers containing all appro-
priate accounting information.
The Agency's response to our draft report and the corrective
actions taken and proposed are responsive to our recommendations.
Therefore, we are making no further recommendations at this time.
SCHEDULE OF DISBURSEMENTS DID NOT AGREE WITH OUTLAYS REPORTED
OFFICE OF MANAGEMENT AND BUDGET
TO
Our audit disclosed a $26,767,694 difference between the total
disbursements reported in the Schedule of Disbursements (Exhibit
II) and the total outlays reported to OMB for fiscal 1989. Tbe
amounted* to
* Our review of this difference disclosed that
Financial Management Division (FMD) officials could not reconcile
the differences between U.S. Treasury disbursements and EPA's
records for fiscal 1989, due to the reporting deficiencies of the
IFMS and the failure to reconcile conversion data from the FMS,
as reported in Finding No. 1. The inability to reconcile conver-
sion data or perform monthly reconciliations resulted in this
significant difference betwaen the Agency's records and
Treasury's records at year-endj FMD officials adjusted EPA's
disbursements at year-end to agree with Treasury's records and
reported the adjusted amount of disbursements to OMB. However,
FMD did not have sufficient detail information to reconcile the
difference and support the adjustments. The majority of the
difference of $26,767,694 was recorded in a Prepaid Adjustments
12
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SUMMARY OF AUDIT RESULTS (CONTINUED) •»
Account without sufficient detail to support the account posting
or balance or to make subsequent adjustments necessary to adjust
the proper general ledger accounts.
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, FMD, to: make necessary adjustments to clear the Year-
end Prepaid Adjustments Account to properly reflect the correct
amounts in the accounting records.; provide a reconciliation' of
the specific differences between disbursements^ reported in the
Schedule of Disbursements and total outlays reported to' OMB; and
ensure that reconciliations with Treasury are performed on a
monthly basis in fiscal 1990 and 1991 to reduce unexplained and
unsupported differences at year-end. • > '
The AA agreed with our recommendation to make the necessary
adjustments to the Prepaid Adjustments Account and other general
ledger accounts. The AA disagreed with our recommendation to
provide a reconciliation of.the differences reported in the
Schedule of Disbursements and total outlays reported to OMB,
stating that the outlays reported to OMB are supported by the
general ledger. The AA acknowledged that the "prepaid" general
ledger account needs to be reclassified to more appropriate
general ledger accounts. The AA agreed with our recommendation
to ensure that monthly reconciliations with Treasury are per-
formed. The Agency's corrective actions are scheduled to be
completed from October 1990 through November 1991.
In our evaluation of the AA's comments, we acknowledged that the
Agency's proposed corrective actions are generally responsive to
our recommendations. However, the AA disagreed with our recom-
mendation to provide a reconciliation of differences between
disbursements reported in the Schedule of Disbursements and total
outlays reported to OMB. We disagree with the AA's statements
that outlays reported to OMB are "totally supported" by the
general ledger. FMD personnel made journal entries to bring the
general ledger disbursement accounts into balance with Treasury
and these entries were made without supporting detail documenta-
tion. The journal entries make up the balance in the Prepaid
Adjustments Account, which has not been subsequently cleared.
We are recommending that the AA instruct the Director, FMD to
ensure that the adjustments made to clear the Year-end Prepaid
Adjustments Account are recorded at the object class level (where
appropriate) so that specific differences between disbursements
previously reported in the Schedule of Disbursements and outlays
reported to OMB can be identified. We are also recommending that
FMD prepare a .report from the general ledger, after all adjust-
ments are recorded, of fiscal 1989 disbursements by major object
class, which agrees with or is reconciled to the outlays reported
to OMB. • -
13
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SUMMARY OF AUDIT RESULTS (CONTINUED)
DISBURSEMENTS WEREQUESTIONED DUE TO RECORDING ERRORS AND LACK OF
DOCUMENTATION
p^qa/i |ip^n rna i-fa^y^ ny rv
$-1 OTC B.A/T — i-rF nrmT-i-nfrfrl 1' il ?•
o-r ihiuiiiii iiin'ii
U-L a r, ri i. i s r i caj. • a amp ixng , we quests
SDursetne'nto . -A c ox era.* - o c $ o ~57 ? /:
o wore regarded in fizjeal 1909.
:oned
Wl
The
$2,875,846 of questioned costs were specific transactions in our
samples which were ineligible or unsupported. The ineligible
costs amounted to $1,661,474. The unsupported costs amounted to
$1,214,372. The ineligible and unsupported costs were questioned
because: documents could not be located; documents could not be
located because transactions were recorded at an AP different
from the AP indicated in the IFMS; transactions were recorded
twice as current year disbursements in the conversion process;
complete accounting information was not recorded in IFMS; input
errors were made; and an error was made in allocating funds to
Superfund.
(3ee Flailing HU. 0 unJ EAhibll IV & £ui
cle±-a-il3 *-) In addition, the results of some tests of internal
\ control and compliance attributes for nonpayroll disbursements
indicated unacceptable levels (over 5%) of noncompliance with
\ Agency policies and procedures.
Using statistical sampling techniques, we projected^-that ques-
tioned costs would f»il within a range from ($-4~;"436,398) to
$13,247,712, or between N).54%) and 1.62% of nonpayroll disburse-
ments. Our projections of^questioned disbursements were made
with a 95% confidence limit, >><., we ajpex95% confident that the
projected questioned obligations^g^T within this range. (See
Appendix 2 for more details.) Jfne projected questioned costs
were immaterial in relation ./to the total recorded nonpayroll
disbursements. Therefore,vwe questioned\only the transactions
with errors from our samples and accepted the balance of the
recorded nonpayroll disbursements.
We also reviewed certain standard voucher (SV) transactions
H-¥nn"mrrfrinm r^flttg e" O"1 T — "' 17) for contract disbursement
redistributions at RTF, an expansion of the statistical sample
for standard vouchers. These voucher transactions were initially
processed to redistribute Superfund site-specific costs from non-
si te-specificaccountnumbers to site-specif ic account numbers *
RTF off-Jreieria informed ua LhaL all These standarePimuchcr farans-
•fehe-±ranaac.t4«ns . "We
«
if" these transactions had
3Dfn 1 flifttW If all these transactions had been properly reversed
in fiscal 1989, the amounts should have zeroed out at year-end.
The printout from IFMS showed over 9,000 transactions were proc-
essed, resulting in net amounts of $168,246 and $87,319 for SV
transaction types 01 and 02, respectively. As a result, dis-
bursements recorded for these redistribution transactions were
14
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SUMMARY OF AUDIT RESULTS (CONTINUED)
misstated by $255,565 at year-end. We believe that the effects
of the misstatement are errors between amounts charged to site-
specific and nonsite-specific account numbers.
— ——
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, FMD, to: require the appropriate FMOs to review and
resolve the questioned disbursement transactions; ensure that the
IFMS accounts payable subsystem properly includes interest on
payments made after the due date; amend the policy announcement
for journal vouchers to include standard vouchers; and emphasize
the importance of complying with Agency policies for cash manage-
ment regarding prompt payment and taking cash discounts.
In response to the draft report, the AA stated that the FMOs have
been advised to review and resolve the questioned disbursement
transactions. However, the AA disagreed with specific finding
amounts summarized in Exhibit IV and detailed in Exhibit IV B.
The AA concurred in part with our recommendation to ensure that
the IFMS accounts payable subsystem include interest on payments
made after the due date. The AA disagreed that there were any
implementation problems with the interest function in the IFMS.
The AA agreed to include standard vouchers in a policy announce-
ment for journal vouchers.- The AA also agreed to issue a memo-
randum on the Prompt Payment Amendments Act, which includes the
policies for cash management for prompt payment and cash dis-
counts .
The AA's response to our draft report and the Agency's corrective
actions taken and proposed are generally responsive to our recom-
mendations. However, regarding the Agency's disagreement with
specific finding amounts, we reviewed documentation provided with
the Agency's response and found that transactions identified by
the Agency as payments at Las Vegas were actually unsupported
standard voucher transactions recorded at Headquarters which were
indicated in the IFMS as Las Vegas transactions. We also noted
that conversion transactions at RTP were recorded in both the FMS
and the IFMS as fiscal year 1989 disbursements and were included
twice in the Schedule of Disbursements.
We are recommending that the AA instruct the Director, FMD, to:
obtain documentation from Financial Systems Branch personnel to
}§*ssupport the standard vouchers recorded from Las Vegas; and deter-
^ mine if the RTP conversion transactions were part of the $26.8
million difference between the Agency's disbursements reported in
the Schedule of Disbursements and the total outlays reported to
OMB.
15
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SUMMARY OF AUDIT RESULTS (CONTINUED)
PERSONNEL COMPENSATION COSTS WERE QUESTIONED DUE TO
LACK OF DOCUMENTATION
ERRORS AND
Based_on.. the - analysis -of -our- statistical samples—o£-personnel
compensation -transactions, we accepted- $ 1-0 3-r-5'1'.4 ».&1-5.~^-f--fefee- re-
corded disbursements^^totalinig "$10'37'S'3'6,979,"' presented'_" in ExhiI5 i t
JJ^—-We"*qtr€sCioneS net~^pe"fs"aritt"el compensation disbursem'STrtrs' of
$ 2-2/464 /•••wM'Cit~wege-^rne-l-l g i'trl'e^or'-ansappert ed-~tx;an-s act ion a in ew
samples"; "(See FTrtdlny—Ne-j—7—a-ad—Exhrtoif IV'TS—ft*r—ardd-t-fcional
de-t«4r6) . The ineligible costs amounted to a net total of
$1,682. The unsupported costs amounted to a net total of
$20,782. The questioned costs resulted from: ineligible lump
sum leave; unrecorded redistributions; lack of documentation to
support transactions; FMS/IFMS data not in agreement with source
information; incorrect pay rates; and input, adjustment and
rounding errors. We also found that two of nine internal control
and compliance attributes for payroll transactions exceeded an
error rate of five percent.
•MMMtaM*
Using statistical sampling techniques, we projected that the
universe of personnel compensation disbursements contained ques-
tioned costs within a range from $462,607 to $2,535,170, or
between 0.45% and 2.45% of the recorded amount. Our projections
were made with a confidence limit of 95%, i.e., we are 95% confi-
dent that the questioned costs would fall within this range had
we audited the entire universe of transactions. (See Appendix 2
for more details.) The projected questioned costs were immateri-
al to the total payroll disbursements. Therefore, we questioned
only transactions with errors from our samples and accepted the
balance of recorded payroll disbursements.
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, FMD, to require the FMOs to review and resolve the
questioned payroll transactions. The AA agreed with our recom-
mendation.
The AA's response to our draft report and the Agency's corrective
actions taken and proposed are responsive to our recommendation.
Therefore, we are making no further recommendations regarding
this finding.
AGENCY'S COMMENTS AND OUR EVALUATION
Audit exit conferences were held with EPA officials at the 10
regional offices, the three major laboratory facilities, the
National Enforcement Investigations Center and Headquarters at
the conclusion of fieldwork. The purpose of the exit conferences
was to present the findings and recommendations and to ensure a
clear understanding of the audit by management. A conference was
held on July 10, 1990, with FMD officials at Headquarters to
16
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SUMMARY OF AUDIT RESULTS (CONTINUED)
discuss the consolidated findings and recommendations in the
draft audit report.
On July 20, 1990, the OIG issued the draft audit report to EPA's
Assistant Administrator for Administration and Resources Manage-
ment and requested written comments. The AA provided the
Agency's formal written response to the draft report in a memo-
randum to the Assistant Inspector General for Audit, dated August
27, 1990. Essentially, the AA agreed with the accuracy of the
findings and the recommendations contained in the draft report.
However, the AA, in some cases, proposed alternative corrective
actions from those recommended in the draft report. We evaluated
the Agency's comments and proposed corrective actions, and gener-
ally concur that the Agency's plan for corrective action is
responsive to our recommendations.
On September 20, 1990, we held an exit conference with EPA
officials at Headquarters to discuss the Agency's response to our
draft report and our evaluation of the Agency's comments. As a
result of this meeting, we revised some of our recommendations in
this final report.
To present a balanced view of the issues, we summarized the
Agency's comments in the Summary of Findings and in detail in the
Findings and Recommendations section of this report. We also
included the AA's memorandum as Appendix 3. In addition, Agency
officials supplied additional documentation in support of certain
costs which were questioned in the draft report. We reviewed
this information and made determinations regarding the adequacy
of the documentation to support the costs. We accepted certain
costs based upon our review of the documentation provided and
revised the questioned costs presented throughout this report.
Certain questioned transactions that the Agency provided documen-
tation of corrective actions remain questioned costs in this
report because the condition existed as of September 30, 1989 and
the costs are included in the Schedules of Obligations and Dis-
bursements. Explanations for the remaining questioned costs are
provided in detail in the appropriate Findings and Recommenda-
tions and Exhibits.
17
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BACKGROUND
The Superfund program was established by the Comprehensive Envi-
ronmental Response, Compensation, and Liability Act of 1980
{CERCLA), Public Law 96-510, enacted on December 11, 1980* The
Superfund program was created to protect public health and the
environment from the release, or threat of release, of hazardous
substances from abandoned hazardous waste sites (sites) and other
sources where response was not required by other Federal laws. A
Trust Fund was established by CERCLA to provide funding for
responses ranging from control of emergency situations to provi-
sion of permanent remedies at uncontrolled sites. CERCLA author-
ized a $1.6 billion program financed by a five-year environmental
tax on industry and some general revenues. CERCLA requires that
response, or payment for response, be sought from those responsi-
ble 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 provided two broad
categories of response: removals and remedial response. Remov-
als 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 problems at abandoned or uncontrolled sites.
CERCLA recognizes that the Federal government can only assume
responsibility for remedial response at a limited number of
sites representing the greatest public threat. It, therefore,
requires the maintaining of a National Priorities List (NPL),
which must be updated at least annually. The NPL is composed
primarily of sites which have been ranked on the basis of a
standard scoring system which evaluates their potential threat to
public health. In addition, each state was allowed to name its
highest priority site without regard to the ranking system.
CERCLA Section 104(c) (3) provides that no remedial actions shall
be taken unless the State in which the release occurs enters into
a contract or cooperative agreement with EPA to provide certain
assurances, including cost sharing. At privately operated sites,
the State must pay 10 percent of the costs of remedial action.
Pre-remedial activities (preliminary assessments, site inspec-
tions), 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 subdivi-
sion at the time of disposal of hazardous substances, the State
must pay at least 50 percent of all response costs, including
removals and remedial planning previously conducted.
CERCLA was revised and expanded by the Superfund Amendments and
18
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BACKGROUND (CONTINUED)
Reauthorization Act of 1986 (SARA), Public Law 99-499, enacted on
October 17, 1986. SARA reinstituted the environmental tax and
expanded the taxing mechanisms available for an additional five-
year period. It authorized an $8.5 billion program for the 1987-
1991 period. The Trust Fund was renamed the Hazardous Substance
Superfund.
CERCLA Section 111(k), as amended, states that the Inspector
General shall conduct an annual audit of all payments, obliga-
tions, reimbursements, or other uses of Superfund to assure that
Superfund is being properly administered.
19
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LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
ICOMAftQ Q. •IMMBAUH
LMLIC A, LllPtlt
IHV1NO J. JANDLIN
DAVID SAKOV*
CAROL A. *CMMCIOt*
ALMKT N. FUKUOA
XKVIN McftiNSTRIC
M (•«<*« «* ri*«
41 RIVER ROAD
SUMMIT. NEW JERSEY 07»Ol
101-271-2844
FAX 2O1-27S-fl78*
OTHER OFFICES
SAM PHANCIICO. CA 4I
WAtHtNOTON. O.C. 7OJ »12 Till
IAN 01(30. CA •l*-4«7-»a*4
Mr. Kenneth A. Konz
Assistant Inspector General for Audit
Office of the Inspector General
U.S. Environmental Protection Agency
Washington, D.C. 20460
INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULES OF OBLIGATIONS
DISBURSEMENTS
AND
We have audited the accompanying Schedules of Obligations and
Disbursements of the Hazardous Substance Super fund (Superfund)
reported by the U.S. Environmental Protection Agency (EPA) for
the fiscal year ended September 30, 1989, as presented in Exhib-
its I and II. These schedules are the responsibility of EPA's
management. Our responsibility is to express an opinion on the
schedules based on our audit.
Except as discussed in the following two -paragraphs, we conducted
our audit in accordance with generally accepted auditing stand-
ards and Government Auditing Standards, issued by the Comptroller
General of the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the schedules are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the schedules. An audit also includes
assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall
schedule presentation. We believe that our audit provides a
reasonable basis for our opinion.
The Schedules of Obligations and Disbursements, presented as
Exhibits I and II, were prepared by EPA's Financial Management
Division (FMD) from a combination of reports from the two finan-
cial management systems (FMS and IFMS) used during the fiscal
year. Because of a material internal control weakness in the
reporting capabilities of the Agency's new integrated Financial
Management System (IFMS), EPA officials were unable to provide a
Schedule of Disbursements from the IFMS, which agreed with the
combined reports. In addition, the combined reports provided to
us, totaling $938,183,328, did not agree with the total disburse-
ments (outlays), of $911,415,634, reported to the Office of
Management and Budget in the Report on Budget Execution (SF-133),
20
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INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULES OF OBLIGATIONS AND
DISBURSEMENTS (CONTINUED) .' '—
dated November 30, 1989. FMD officials made year-end closing
adjustments through a prepaid adjustments account to bring the
general ledger disbursements accounts into agreement with the
disbursements reported to OMB. FMD has been unable to analyze
the account and make the necessary adjusting entries to the
appropriate general ledger accounts.
The Schedules of Obligations and Disbursements included obliga-
tions 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 the calcula-
tions of the bases for the allocations of these costs to deter-
mine the allowability and allocability of the general support
services costs.
As described in Note 1 to Exhibit I and Note 1 to Exhibit II, the
Schedules of Obligations and Disbursements were prepared in
conformity with accounting policies and procedures which are
legislatively established and promulgated through various Federal
and EPA policies and procedural standards, which is a comprehen-
sive basis of accounting other than generally accepted accounting
principles. These schedules are not intended to present either
the financial position or the financial results of operations in
conformity with generally accepted accounting principles.
In our opinion, except for the effects of such adjustments, if
any, that might have been necessary had the Schedule of Disburse-
ments reported to us been in agreement with, or reconciled to the
Report on Budget Execution filed with OMB, and had we been able
to determine the allowability and allocability of the accumulated
cost pools of general support services and the bases for the
allocations, the Schedules of Obligations and Disbursements
referred to above, present fairly, in all material respects, the
obligations and disbursements of EPA Superfund for the fiscal
year ended September 30, 1989, on a comprehensive basis of ac-
counting other than generally accepted accounting principles,
which is described above and in the Notes referred to above.
Our audit was made for the purpose of forming an' opinion on the
Schedules of Obligations and Disbursements, Exhibits I and II.
The supplemental schedules presented in Exhibits III through VII
for the fiscal year ended September 30, 1989, are presented for
the purpose of additional analysis and are not required as part
of the Schedules of Obligations and Disbursements. The informa-
tion in the supplemental schedules has been subjected to the
auditing procedures applied in the audit of the Schedules of
Obligations and Disbursements. In our opinion, except for the
effects, if any, of the matters discussed in paragraphs three and
four above, the information in the supplemental schedules is
fairly stated, in all material respects, in relation to the
21
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INDEPENDENT AUDITOR'S REPORT OH THE SCHEDULES OF OBLIGATIONS AND
)NTI!
Schedules of Obligations and Disbursements. The information in
Appendix 1 describes the scope and methodology of statistical
sampling for this audit, and .Appendix 2 summarizes the projec-
tions made from this audit, including dollar amounts of ques-
tioned and accepted obligations and disbursements, by major
object class, and estimates of the number of exceptions and
corresponding error rates for various internal control and com-
pliance attributes. The information in Appendix 3 was provided
by the Agency in response to our draft audit report. Additional
documentation provided in conjunction with the Agency's response
was subjected to the auditing procedures applied in the audit of
the Schedules of Obligations and Disbursements.
This report is intended for use in connection with the schedules
to which it refers and should not be used for any other purpose.
This restriction is not intended to limit the distribution of the
report, which is a matter of public record.
LEONARD G. BIRNBAUM & COMPANY
Summit, New Jersey
May 11, 1990
22
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THIS PAGE INTENTIONALLY LEFT BLANK
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LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
LCOMA*O a. H
I.MUI A. lIiP«»
IHVina J tANOUM
OAVIB «AKOf»
CAKOL A. • CHrl«PO»«
ALSCKT PI. PUKUOA
KCVIM HCKIMSTIIK
AMCHICAM 4WITITVTK
0« CPAt
41 R1VKK MOAD
SUMMIT. NEW JEMSIY 070OI
201-279-2844
PAX 201 273 B784
OTHER OFFICES
VAN PRANCmCa, CA 4tl-M*-*«14
WAIMINaTON. P.C. 7O« »J1 7«J1
SAN DliaO. CA «!• 4IT <1«4
Mr. Kenneth A. Konz
Assistant Inspector General for Audit
Office of the Inspector General .
U.S. Environmental Protection Agency
Washington, D.C. 20460
INDEPENDENT AUDITOR'S REPORT ON INTERNAL ACCOUNTING CONTROL
We have audited the Schedules of Obligations and Disbursements of
the Hazardous Substance Superfund (Superfund) reported by the
U.S. Environmental Protection Agency (EPA) for the fiscal year
ended September 30, 1989, and have issued our Independent Audi-
tor's Report thereon, dated May 11, 1990. • .
Except as explained in the third and fourth paragraphs of. the
aforementioned report, we conducted our audit in accordance with
generally accepted auditing standards and Government Auditing
Standards. issued by the Comptroller General of the United
States. Those standards, require that we plan and perform the
audit to obtain reasonable assurance about whether the schedules
referred to above are free of material misstatement.
As part of,our audit, we made a study and evaluation of EPA's
system of internal accounting control to the extent we considered
necessary to evaluate the system as required by the above stand-
ards. For the purpose of.this report, we have classified the
.significant internal accounting controls into the following
categories: . , • -
- Budgetary
Obligations " .
Disbursements
Personnel compensation
Cost allocations ' .
Property and equipment .
Billings and receivables
Collections
Electronic data processing
Financial reporting .
23
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INDEPENDENT AUDITOR'S REPORT ON INTERNAL ACCOUNTING CONTROL
f CONTINUED)
Our study included all of the control categories listed above,
except that we did not evaluate the controls for payroll ob,liga-
tions. We considered our evaluation of controls for payroll
disbursements, from which payroll obligations are recorded and
adjusted, sufficient for this transaction category. Also, due to
a scope limitation, our evaluation of controls for cost alloca-
tions was limited to reviewing the methodology, calculations and
timely recording of the allocation entries. We did not review
the controls for determining the cost pools or calculations of
the bases for the allocations.
The purpose of our study and evaluation was to determine the
nature, timing and extent of the auditing procedures necessary
for expressing an opinion on the Schedules of Obligations and
Disbursements. Our study and evaluation was more limited than
would be necessary to express an opinion on the system of inter-
nal accounting control taken as a whole or on any of the catego-
ries of. controls identified above.
EPA's management is responsible for establishing and maintaining
a system of internal accounting control. In fulfilling this
responsibility, estimates and judgments by management are re-
quired to assess the expected benefits and related costs of
control procedures. The objectives of a system of internal
accounting control are to provide management with reasonable, but
not absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition, and that transactions are
executed in accordance with management's authorization and re-
corded properly to permit preparation of financial reports and
schedules in accordance with applicable laws and regulations.
Because of inherent limitations in any system of internal ac-
counting control, errors or irregularities may nevertheless occur
and not be detected. Also, projection of any evaluation of
internal accounting control to future periods is subject to the
risk that 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 third paragraph would not necessarily disclose all materi-
al weaknesses in the system. Accordingly, we do not express an
opinion on EPA's system of internal accounting control taken as a
whole or on any of the categories of controls identified in the
third paragraph.
We noted certain matters involving internal accounting control
that we consider to be reportable conditions under standards
established by the American Institute of Certified Public Ac-
countants. Reportable conditions involve matters coming to our
attention relating to significant deficiencies in internal ac-
counting control, that in our judgment, could adversely affect
24
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INDEPENDENT AUDITOR'S REPORT ON INTERNAL ACCOUNTING CONTROL
(CONTINUED)
the organization's ability to record, process, summarize, and
report financial data consistent with the assertions of manage-
ment in the schedules referred to above.
We found a material internal control weakness in the capabilities
of the financial reporting system of the Agency's IFMS. The
system failed to provide complete and accurate reports consistent
with the needs and objectives of EPA's management. As a result,
EPA was unable to provide necessary reports from the IFMS during
fiscal 1989, and was unable to provide a Schedule of Disburse-
ments from the IFMS which was in agreement with, or reconciled
to, disbursements (outlays) reported to the Office of Management
and Budget (OMB) in the Report on Budget Execution (SF-133) for
the fiscal year ended September 30, 1989-. This material weakness
affects the Schedules of Obligations and Disbursements, presented
as Exhibits I and II.
We also found material weaknesses in: recording and managing
accounts receivable and accounting for and controlling personal
property. As a result, receivables and collections, including
penalties and interest, were not recorded timely or in the cor-
rect fiscal year. In addition, property and equipment was not
properly recorded or controlled in the personal property system,
and may be subject to waste, loss, unauthorized use and misappro-
priation. However, these material weaknesses do not affect the
Schedules of Obligations and Disbursements, presented as Exhibits
I and II.
A material weakness is a reportable condition in which the design
or operation of the specific internal control does not reduce to
a relatively low level the risk that errors or irregularities in
amounts that would be material to the financial reports or sched-
ules being audited may occur and not be detected within a timely
period by employees in the normal course of performing their
assigned functions.
Our study and evaluation of the system of internal accounting
control would not necessarily disclose all matters that might be
reportable conditions and, accordingly, would not necessarily
disclose all reportable conditions that are also considered to be
material weaknesses as defined above. We believe that the three
matters reported above regarding financial reporting, accounts
receivable, and personal property are material weaknesses.
However, the latter two matters do not effect the schedules
audited.
Our audit also disclosed weaknesses in the following categories,
that, although not considered material in relation to the Sched-
ules of Obligations and Disbursements, in our opinion, warrant
the attention of management:
25
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INDEPENDENT AUDITOR'S REPORT ON INTERNAL ' ACCOUNTING CONTROL
(CONTINUED)
Obligations
Disbursements ,
Personnel compensation
Electronic data processing
The specific weaknesses in the above noted categories are further
discussed in the Findings and Recommendations included with this
report.
We also noted other matters involving internal accounting control
that we will report to EPA's management in a separate letter.
This report is intended solely for the use of EPA management and
should not be used for any other purpose. This restriction is
not intended to limit the distribution of the report, which is a
matter of public record.
LEONARD G. BIRNBAUM & COMPANY
Summit, New Jersey
May 11, 1990
26
-------
LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
LIONAKD •. IIRNIAUM
lt»LI« A. lllPCIt
mVIMO J. IANOLI*
DAVID *A*O'«
CAMOS. A. ICMNCIOK*
ALBCltT N. PUKUOA
KCVJN MeHINSTIIIK
41 Riven ROAO
SUMMIT. NEW JERSEY O79O1
201-273.2844
FAX 201-273.0784
MtuatiM
rwc
OTHER OFFICES
9AN F«ANCI*CO. C» 41* **••><*
WAftrMMQTOH. D.C. 7OJ->a2-7l23
IAN DIIOO, CA • (••4
Mr. Kenneth A. Konz
Assistant Inspector General for Audit
Office of the Inspector General
U.S. Environmental Protection Agency
Washington, D.C. 20460
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH LAWS AND
TIONS
REGULA-
We have audited the Schedules of Obligations and Disbursements of
the Hazardous Substance Superfund (Superfund) reported by the
U.S. Environmental Protection Agency (EPA) for the fiscal year
ended September 30, 1989, and have issued our Independent Audi-
tor's Report thereon, dated May 11, 1990.
Except as explained in the third and fourth paragraphs of the
aforementioned report, we conducted our audit in accordance with
generally accepted auditing standards and Government Auditing
Standards. issued by the Comptroller General of the United
States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the schedules
referred to above are free of material misstatement.
Compliance with laws, regulations, contracts, and grants applica-
ble to Superfund is the responsibility of EPA's management. As
part of obtaining reasonable assurance about whether the sched-
ules are free of material misstatement, we performed tests of
compliance with certain provisions of laws, regulations, con-
tracts, and grants. However, our objective was not to provide an
opinion on overall compliance with such provisions.
Except for inadequate financial reporting capabilities of the
IFMS, disclosed as a material internal control weakness in our
Independent Auditor's Report On Internal Accounting Control,
dated May 11, 1990, and material internal control weaknesses in
recording and managing accounts receivable and recording and
controlling personal property, the results of our tests indicated
that, with respect to the transactions tested, EPA complied, in
all material respects, with the provisions referred to in the
preceding paragraph. With respect to items not tested, nothing
27
-------
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH LAWS AND REGULA-
TIONS (CONTINUED)
came to our attention that caused us to believe that EPA had not
complied, in all material respects, with those provisions.
However, our audit was not directed primarily toward obtaining
knowledge of such noncompliance.
This report is intended for use in connection with the schedules
to which it refers and should not be used for any other purpose.
This restriction is not intended to limit the distribution of
this report, which is a matter of public record.
LEONARD G. BIRNBAUM & COMPANY
Summit, New Jersey
May 11, 1990
28
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FINDINGS AND RECOMMENDATIONS
1. INTERNAL CONTROL WEAKNESSES WERE NOTED
FINANCIAL MANAGEMENT SYSTEM
IN THE INTEGRATED
A material internal control weakness existed in the reporting
capabilities of the IFMS. The IFMS did not provide complete and
accurate reports consistent with the needs and objectives of EPA
management. Other weaknesses in internal controls related to
electronic data processing (EDP) were: data was not properly
reconciled in the transfer of financial information from the FMS
to the IFMS; audit trails were not always sufficient to trace
transactions to the appropriate Accounting Points (APs) or per-
sons initiating the transactions; security over gaining access to
the operating system and application software (IFMS) was inade-
quate; and the property subsystem was not integrated with the
IFMS.
The new IFMS was acquired to provide a comprehensive financial
management system to support EPA's financial management func-
tions. The system was expected to perform the standard account-
ing functions of commitment and obligation processing, document
tracking, accounts payable, accounts receivable and general
ledger. The system also was expected to support an end-user-
oriented report writer, an ad hoc query capability, and an auto-
mated interface between the mainframe and user workstations.
However, in fiscal 1989, the IFMS had not met EPA's expectations
for accounts receivable, general ledger, and reporting functions.
These three functions were reported as "material financial sys-
tems nonconformances" in EPA's Federal Managers' Financial Integ-
rity Act (FMFIA) report for fiscal 1989.
ReportingCapabilities Of The IFMS Were Not Adequate
The IFMS did not provide complete and accurate reports to system
users and EPA management during fiscal 1989. We noted that the
Reporter and Ad Hoc Reporting subsystems of the IFMS did not
provide useful standard reports and did not function to allow
users to develop special purpose reports. A limited number of
standard FMS reports and Software Package for Unique Reports
(SPUR) were available to users after the implementation of the
IFMS. However, these reports were prepared from an FMS data base
which was downloaded from the IFMS. Due to various differences
between the two systems, the transfer of data from the IFMS to
the FMS in the downloading process was not complete or accurate.
Therefore, the reports produced from the FMS data base were not
always reliable. Year-end reports to OMB and Treasury were
prepared using information from both the FMS and the IFMS. The
problems associated with reporting financial information for
fiscal 1989 are discussed in further detail in Finding No. 5 and
in Note 1 to Exhibit II.
OMB Circular A-127, Financial Management Systems, Paragraph 6.d
29
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
states that data shall be recorded and reported in a manner to
facilitate carrying out the responsibilities of both program and
administrative managers. The agency financial management system
shall provide for a coherent, timely, and accurate financial
management data base.
Additionally, Financial Management and Accounting Objectives, (a
follow-up to OMB Circular A-127, Financial Management Systems),
Section VI states that all financial reports internal to an
agency are to contain meaningful, coherent, and reliable informa-
tion responsive to the express needs of the user and which help
the user to reach informed conclusions and decisions.
IFMS was implemented without adequate reporting capabilities. At
the time the IFMS was implemented, the standard reports that were
available did not provide data in a useful format. In addition,
the Ad Hoc Reporting subsystem was not implemented. As a result,
the IFMS data had to be downloaded to the FMS so the SPUR report-
ing package could be used. The SPUR reports were not always
accurate because some data was rejected in the downloading proc-
ess. Therefore, some EPA users kept manual records in an attempt
to track information.
EPA officials were aware of the lack of financial reporting
capabilities of the IFMS and reported this weakness as a "materi-
al financial system nonconformance" to the President and Congress
in EFA's FMFIA report for fiscal 1989. FMD made a decision to
use reports from the FMS for data entered prior to the implemen-
tation of the IFMS, and IFMS reports for data entered after con-
version, for reporting to OMB and Treasury. In response to our
draft report, the AA stated that Agency has established a correc-
tive action plan for developing a reporting system.
Data Was Not Reconciled In The Transfer From The FMS To The IFMS
Adequate controls were not in place to ensure the proper conver-
sion of data from the FMS to the IFMS. For example, a reconcili-
ation of data transferred from the FMS to the IFMS was not per-
ormed to ensure that all records containing financial informa-
were properly converted to the new system. According to
Financial Systems Branch (FSB) officials, approximately 5% to 7%
of the transactions transferred from the FMS to the IFMS were
initially rejected. The rejected data was mainly caused by edit
functions in the IFMS which did not allow the FMS data to be
transferred to the IFMS. At year-end, data converted from the
FMS to the IFMS had still not been reconciled to determine that
all data was carried forward into the new system.
^^H
OMB Circular A-130, Management of Federal Information Resources,
Paragraph 8.b.10 states: "Agencies shall assure that information
systems operate effectively and accurately." OMB Circular A-127,
30
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Financial Management Systems, Paragraph 6.a, states: "Financial
management information shall be reasonably complete and accurate,
shall be verifiable and ordinarily be drawn from the official
records and systems."
Without adequate controls in place to ensure the complete trans-
fer of data to the new accounting system, the risk of reliance on
incomplete and inadequate financial information existed. The
failure to adequately control the conversion of data or to per-
form a reconciliation of data resulted in questionable data
integrity and reliability of financial information. Corrections
of rejected transactions and other errors were not centrally
controlled and were input at all Accounting Points (APs). As a
result, some corrections were duplicated. Also, duplications of
obligations and double input of other transactions were noted
during our tests of transactions. We were also informed by
budget officers, program officials, and FSB personnel that double
obligations occurred during the fiscal year.
In response to our finding issued during fieldwork, the Director,
FMD agreed that reconciliations between the FMS and the IFMS were
incomplete at year-end. The Director indicated that substantial
efforts to reconcile the FMS account balances with balances in
the IFMS continued beyond year-end. Also, the Director stated
that part of this effort includes reconciliation of the FMS data
to the IFMS conversion data to ensure that the FMS ending and the
IFMS beginning balances agree. In response to our draft report,
the AA indicated that the Agency has established a corrective
action plan to reconcile this data.
Audit Trails Were Not Always Sufficient To Trace Transactions
Our audit disclosed that the General Journal File containing
detail transaction data was sometimes not adequate to trace
entries back to the users that were responsible for initiating
the entry. The file also contained incorrect AP data for certain
transactions and the account number and object class information
were not always recorded. This resulted in a lack of supporting
documentation and unsupported costs at Regions 1, 2 and 3. These
unsupported costs are described in Findings No. 4 and 6, and are
detailed in Exhibits III A and IV B. The lack of accountability
increases the risk of fraud or misuse of funds.
i aec
\ inc
\ •
Financial Management and Accounting Objectives, (a follow-up to
OMB Circular A-127, Financial Management Systems), Section III,
states: "Transactions and other significant events should be
promptly recorded in financial records under proper classifica-
tions. The entry should be traceable to the person making the
entry."
The inability to trace transactions to specific users from the
31
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
General Journal files was due to the construction of the IFMS
User ID, which contained the user's password. FMD officials
wanted password protection to prevent passwords from being passed
on to unauthorized users. Therefore, a modification to the IFMS
was made to prevent the password from being recorded in this
file. The Director, FMD concurred with our finding and expects
to resolve this problem in fiscal 1991 by providing a secondary
password in addition to the User ID. FMD officials also stated
that they were working on correcting errors in APs identified by
auditors and attempting to locate documentation for the unsup-
ported costs. The AA did not address this problem in the re-
sponse to our draft report.
Security Over Gaining Access To Systems Was Inadequate
System users could gain access'the National Computer Center (NCC)
operating system through the Customer Information Control System
(CICS) using the same Resource Access Control Facility (RACF)
User ID at different terminals concurrently. Also, IFMS users
could gain access and enter information in the IFMS using the
same IFMS User ID at different terminals simultaneously.
Proper security controls were not implemented to prevent the use
of the same User ID by more than one user or at different termi-
nals simultaneously when accessing CICS or the IFMS. Account-
ability and traceability to specific users are compromised when
users can access CICS or the IFMS using the same User ID from
more than one location or terminal. Possible manipulation of
information, unauthorized access to high level information, and
exposure to fraudulent or inappropriate activities is increased.
Financial Management and Accounting Objectives, (a follow-up to
OMB Circular A-127, Financial Management Systems), Section III,
states: "Transactions and other significant events should be
promptly recorded in financial records under proper classifica-
tions. The entry should be traceable to the person making the
entry."
In response to our finding that NCC users could utilize the same
RACF User ID concurrently, the Director, FMD stated that NCC
implemented a change in April 1990 to prevent the same NCC User
ID to be active on more than one terminal concurrently. The
Director, FMD agreed with our finding that the IFMS users could
use the same User ID simultaneously to enter information in the
IFMS. In October 1989, FSB initiated a policy to strengthen
controls over the payments process of the IFMS. The policy
requires every IFMS Certifying Officer to have their own IFMS
User ID, which must be changed on a regular basis. However, this
policy will not completely correct this weakness because Certify-
ing Officers are not the only IFMS users. The AA's response to
our draft report indicated that this issue would be addressed in
32
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FINDINGS AND RECOMMENDATIONS (CONTINUED )
future modifications to the IFMS.
Property Subsystem Was Not Integrated With The IFMS
The IFMS did not capitalize property and equipment when purchased
or placed in service. When EPA purchased property and equipment,
these disbursements were charged to object classes for operating
expense accounts rather than asset accounts . In order to record
capitalized property and equipment in asset accounts in the IFMS,
FRAB provided monthly equipment procurement reports to each FMO.
Each FMO was required to review the reports, record journal
vouchers to capitalize property and equipment in the IFMS, and
return the reports to FRAB.
Failure to initially classify and record applicable property and
equipment purchases as capitalized property in the IFMS results
in additional work for FMOs and FRAB personnel. This method also
increases the likelihood of errors and omissions of property in
the financial records . The IFMS should contain a standard trans-
action code for charging capital asset transactions to capital
property and equipment accounts when disbursements are initially
recorded.
TltlrT
For Guidance of
Agencies requires that all
.
with an initial acquisition cost .of $5,000 or more and" an esti-
mated iserv-iee""Ti'f e of 2 years or gr e at e if. ,b'e~,. .ca.p i.fcalized when
placed in service. OMB Circular A- 12'?, Financial Management
Systems, Paragraph 3 states that data shall be entered only once
and transferred au toraatij ca.1 ly .itp.^appTOpr^te^iajcicaiMvbe or other
""ro:if " Iys*tems
The IFMS was implemented without transaction codes for capitaliz-
ing property and equipment. EPA did not implement a property
subsystem which would record capitalized property and equipment
transactions in asset accounts when the disbursements were re-
corded. A similar finding was previously reported in our 1988
audit report. Agency officials indicated at that time, that the
IFMS, to be implemented in fiscal 1989, would provide for the
capitalization of property and equipment. However, the IFMS did
not provide for capitalizing property and equipment at the time
of purchase. The IFMS was not integrated with EPA's existing
property system and the property subsystem for the IFMS was not
implemented in fiscal 1989. We believe that the IFMS should be
modified to allow for capitalization of assets at the time of
purchase, even without full integration with the property subsys-
tem.
"tn response to our finding and recommendation, the Director, FMD
indicated that the IFMS contains a property module that is sched-
uled for implementation in fiscal 1992. The Director stated that
33
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FINDINGS AND RECOMMENDATIONS (CONTINUED) f
>.
when implemented, the property accounts will be fully integrated
with the IFMS. In addition, the Director stated that the interim
procedures used to capitalize property items in the IFMS were in
accordance with recommendations made by GAO and OIG auditors.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, Financial Management Division to:
o ensure that a reporting system for the IFMS is developed
and implemented in fiscal 1990;
o verify that transactions and account balances brought
forward from the FMS to the IFMS are correct, complete,
and reconciled and that the reconciliation is retained
for audit;
o modify the security controls for the IFMS to allow only
one user per User ID at the same time; and
o assign transaction codes in the IFMS for capital property
and equipment asset purchases and issue policies and
procedures for recording these transactions in fiscal
1991.
AA's COMMENTS ON DRAFT REPORT RECOMMENDATIONS
The AA concurred that the reporting capabilities in the IFMS were
not adequate in fiscal 1989 and indicated that improvement of the
IFMS reporting was made one of the top system priorities for
fiscal 1990. The AA stated that improvements are scheduled to be
accomplished in two phases: (1) development of "Critical Re-
ports", supplying essential information to meet immediate needs,
to be implemented by September 30, 1990; and (2) development of a
Management and Accounting Report System (MARS) to be implemented
by May 31, 1991, as an augmentation to standard reporting capa-
bilities. The AA agreed to verify and reconcile transactions and
account balances brought forward from the FMS to the IFMS.
However, the AA stated that the completion of this task is de-
pendent upon the resolution of other findings and the development
of MARS to provide detailed reporting of transactions and account
balances for specific Agency accounting offices.
The AA also agreed that the security controls for the IFMS should
be modified to allow only one user per User ID to obtain access
to the IFMS at one time. However, the AA indicated that imple-
mentation of this control will require modification of the IFMS
core software because future releases of the vendor software do
not address this requirement. The AA further stated that Agency
34
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
personnel will, by October 31, 1990, define and present the
modification to EPA's System Management Group (SMG), which is
responsible for overseeing operational management of the IFMS and
setting priorities for enhancements and modifications to the
IFMS. If the modification is agreed to by SMG, a modification
would be implemented by May 31 , 1991.
The AA stated in response to our recommendation, regarding.capi-
talization of property and equipment that the Agency has adequate
procedures in place for .financial recording of these transac-
tions. The AA referred to an FMD memorandum, issued on January
19, 1989, which provided an interim process for capitalization of
assets and reflected the necessary transaction codes for proper
accounting. The AA further stated that this process meets the
requirements as set forth in GAO's Title II. Additionally, the
AA stated that financial policies and procedures for property and
equipment will be issued in RMDS 2550C, Chapter 8, "Property and
Inventory" in fiscal 1991. The .AA did agree, however, to inves-
tigate partial implementation of the IFMS property module, sched^
uled for complete implementation in fiscal 1992,,to facilitate
-the classification and recording of capital asset purchases. The
AA indicated..that the request for early partial implementation
will be presented to SMG by November 30, 1990, and if approved,
the modification would be implemented by May 30, 1991.
OUR EVALUATION OF THE AA's COMMENTS
The AA's response to our draft report and the Agency's proposed
corrective actions are generally responsive to our recommenda-
tions. However, we are concerned that the target dates for
implementing some of the proposed corrective actions will extend
into fiscal 1992. As a result, the Agency will have reporting
deficiencies in fiscal years 1990 and 1991.. Consequently, as
indicated in the Agency's response, reconciling data transferred
from the FMS to the IFMS cannot be completed until fiscal 1992.
We are also concerned with the length of time for resolving other
findings, such as clearing the,year-end prepaid adjustment ac-
counts, reconciling the differences between disbursements and
outlays reported to OMB, and performing monthly, reconciliations
with Treasury. We encourage earlier implementation of these
corrective actions, if possible. , •
Further, the Agency's interim procedures currently in use for
recording capitalized property and equipment do not meet GAO and
OMB requirements. GAPPolicy and Procedures Manual for Guidance
of Federal Agencies - Title 2, Appendix II, Internal Control
Standards states that transactions and other significant events
are to be promptly recorded and properly classified. As stated
in OMB Circular A-127, Financial Management Systems, Paragraph 3,
"data shall be entered only once and transferred automatically to
appropriate accounts or other parts of the system or systems."
35
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
The interim procedures require FMOs to make monthly journal
entries to record capitalized items from a listing of property
and equipment charged initially to operating expense accounts.
In order to meet GAO and OMB requirements, property and equipment
transactions should be initially recorded in the IFMS in capital
asset accounts. We encourage implementation of the property
module before fiscal 1992,. or at a minimum, partial implementa-
tion which will provide for recording property and equipment
items as capital assets when purchased.
We are making no further recommendations on these issues at this
time. We will follow up during our fiscal 1990 audit to deter-
mine if the proposed corrective actions were accomplished in
accordance with the Agency's plan.
2. IMPROVEMENTS ARE NEEDED IN RECORDING AND MANAGING ACCOUNTS
RECEIVABLE AND COLLECTIONS
EPA heeds to improve the recording and managing of accounts
receivable and collections. Our audit disclosed that 110 receiv-
ables, totaling $43,094,911, due for cost recovery actions, fines
and penalties, and state cost-shares, were not recorded in a
timely manner. Also, 22 receivables, totaling $39,739,334, were
not recorded in the correct fiscal year. We noted that 33 re-
l ceivables were not assessed interest totaling $434,219. In
i addition, 6 collections, totaling $511,965, were not recorded
i against their corresponding receivables. Additionally, 12 re-
ceivables, totaling $2,068,514, and 31 collections, amounting to
$2,606,359, were not properly transferred from the FMS to the
'• IFMS. .'.'•••
Accounts receivable were not recorded timely or in the correct
fiscal year because: internal controls were not established for
f forwarding settlement documents to the FMOs; judicial orders were
not promptly obtained from the Department of Justice; and FMOs
did not timely record accounts receivable in the IFMS when
settlement documents were received prior to payment. In addi-
, tion, the regions did not establish routine procedures to regu-
| larly reconcile Superfund program office and Office of Regional
\ Counsel records with the IFMS records.
On October 6, 1988, the AA issued a memorandum to all Regional
Administrators transferring the responsibility of recording,
billing, and monitoring cost recovery actions, fines and penal-
ties, and state cost-share receivables to the regions. However,
receivables that had been previously recorded by HAOB were not
transferred to the regional FMOS. The responsibility for moni-
toring these receivables remained with FRAB, while billing and
collecting these receivables were the responsibilities of HAOB.
36
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Accounts Receivable Were Not Recorded In A Timely Manner
Amounts due as a result of cost recovery actions, fines and
penalties, and state cost-share receivables were not recorded in
a timely manner. Our tests at the regional offices of a non-
statistical sample of 277 receivables and collections totaling
$100,410,524, disclosed that 110 receivables, totaling
$43,094,911, were not recorded until a check for payment was
received or the monies were transferred -from HAOB to the regional
offices via Inter Office Transfer Vouchers. The following re-
ceivables were not recorded timely:
Audit
Location
Region 1
Region 3
Region 4
Region 5
Region 6
Region 8
Region 9
Number
Totals
110
Dollar Value
$15,463,101
634,126
1,089,041
5,276,921
1,758,518
375,000
18.498.204
$43,094,911
This table represents only those items that were
disclosed from our audit samples. The table is not
intended to represent a complete listing of receiva-
bles that were not recorded timely.
Regional Counsels and Superfund Program Offices often did not
forward settlement documents and orders to the FMOs within one
day of final signature, as required by Agency policy. Also,
judicial orders were not promptly obtained from the Department of
Justice. This is symptomatic of a major weakness in internal
control. EPA did not have an adequate system for tracking unset-
tled claims against .responsible parties.
Additionally, problems were encountered in recording receivables
and collections during the implementation of the IFMS. The IFMS
accounts receivable subsystem was not operative until June 1989.
Also, the IFMS reporting subsystem was not functional during
fiscal 1989. As a result of these deficiencies, the FMOs could
not properly record accounts receivables and collections, or
monitor and reconcile receivables with other offices.
RMDS 2550D. Chapter 12, Part 5, Paragraph b. states:
Regional Superfund Branch Chiefs should ensure that
any demand letter, consent decree, Agency order or
37
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
other notice requiring payment is forwarded to the
Regional FMO within one work day of final signature.
This source documentation should be transmitted by a
memorandum that identifies the amount(s) due, the name
and address of the party(ies) to be billed, any pay-
ment schedule, if other than lump sum payment has been
negotiated, and any other information that the origi-
nating office believes appropriate to ensure that any
follow-up billings are prepared accurately. The FMOs
should establish routine procedures with the Superfund
Branch Chief and Regional Counsel to regularly recon-
cile Program and Counsel records with the Accounts
Receivable subsystem, and to exchange information on
any changes in the amounts due and on the status of
debts, including cases concluded by the Department of
Justice.
Agency officials cannot effectively manage receivables if amounts
due are not recorded promptly. Untimely recording of receivables
affects financial reports and may result in the loss of collec-
tions and interest.
Regional officials generally agreed with our findings and recom-
mendations. However, Region 4 officials disagreed, stating that
Headquarters was responsible for setting up amounts due the
Agency during this time period. Our audit covered the period
from October 1, 1988 to September 30, 1989. During fiscal 1989,
recording, billing, and monitoring of Superfund accounts receiva-
ble had been transferred from Headquarters and were the responsi-
bilities of the regional FMOs.
Accounts Receivables Were Not Recorded In The Correct Fiscal Year
Amounts due as a result of cost recovery actions, fines and
penalties and state cost-share receivables were not recorded in
the correct fiscal year. Our tests at the regional offices of a
non-statistical sample of 277 receivables and collections total-
ing $100,410,524, disclosed that 22 receivables totaling
$39,739,334, were not recorded in fiscal 1989. As a result,
accounts receivable were misstated at year-end. The following
receivables were not recorded in fiscal 1989:
Audit
Location Number Dollar Value
Region 1 3 $ 5,046,701
Region 2 3 454,000
Region 5 7 16,532,873
38
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FINDINGS.AND RECOMMENDATIONS (CONTINUED)
Audit
Location Number Dollar Value
/
Region 8 3 7,205,760
Region 9 _6 .10.500.000
Totals 22 $39,739,334
This table represents only those items that were
disclosed from our audit samples. The table is not
intended to represent a complete listing of receiva-
bles that were not recorded in fiscal 1989.
At Regions 2, 5, 8 and 9, the deferred portions of 11 installment
receivables, amounting to $19,446,873, were not recorded. In
most cases, only the current portion of deferred payment arrange-
ments (approved installments), was recorded in IFMS, instead of
the total receivable. The remaining 11 receivables, totaling
$20,292,461, were not entered into the IFMS in fiscal 1989 be-
cause documentation from the Regional Counsels or Superfund
program offices was not forwarded to the FMOs on a timely basis.
Documentation was not forwarded timely because internal controls
were not established by program offices or Regional Counsels for
forwarding settlement documents to the FMOs.
Title 2 of the GAP Policy and Procedures Manual for Guidance of
Federal Agencies states that accounts receivable shall be record-
ed at the time the events occur that entitle an agency to collect
funds. RMDS 2550D. Chapter 9, Paragraph 4 b. states:
Following the execution of a Superfund State Contract
(SSC), the Regional Project Manager (RPM) or Regional
Program Office (RPO) must immediately forward a copy
of the signed SSC to the regional Financial Management
Office (FMO)
Agency officials cannot effectively manage receivables if amounts
due are not properly recorded in the IFMS. The failure to record
receivables causes inaccurate internal reports and financial
statements, and could result in the loss of collections and
interest.
In response to our findings and recommendations, Regions 1, 2, 5,
8 and 9 generally agreed that certain receivables were not re-
corded at year-end. Region 8 officials stated that, according to
FMD personnel, installment receivables on SSCs could not be
entered into the IFMS because of system problems. Regional
officials indicated that procedures have been implemented to
ensure that documents are forwarded timely to the FMOs, and the
total amount of SSC receivables will be recorded in the IFMS.
39
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Inroroved Monitoring Of Receivables Is Needed To Ensure
That
Interest And Penalties Are Recorded And Debtors Pav The
In A Timely Manner
Aaencv
Improved monitoring of accounts receivable is needed to ensure
that debtors pay the Agency in a timely manner and that interest
and penalties are promptly assessed on past due accounts. We
found that Regions 2, 4, and 7 and FRAB were not monitoring
receivables as Agency directives require. We identified 33
accounts due over 30 days at Regions 2, 4, and 7 and HAOB, which
amounted to $18,262,507, out of 81 receivables tested, totaling
$28,555,830.
We also found that interest was not always accrued on past due
receivables. We calculated unrecorded interest of $434,219 at
Regions 2, 4, and 7 and HAOB. At HAOB, we also found that inter-
est in the amount of $58,668 was improperly accrued on 5 state
cost-share receivables for clean-up activities which were not
completed. Additionally, we noted that two cost recovery receiv-
ables at HAOB, totaling $69,174, were not assessed penalties for
overdue payments. We calculated that two receivables were over-
due for 630 and 60 days. The consent decrees indicated that
penalties of $2,000 and $100 per day, respectively, should have
accrued on these two receivables after notice from EPA of non-
compliance with the payment terms. There was no evidence in the
files that EPA had issued such notices of non-compliance to the
responsible parties.
Deficiencies in assessing interest and penalties were caused by:
(1) the lack of communication and the separation of responsibili-
ties between Regional Counsels, Superfund program offices, FRAB
and HAOB; (2) the IFMS accounts receivable subsystem not operat-
ing properly; and (3) the lack of reports from the IFMS. The
lack of accurate reports and failure to follow procedures and
directives resulted in the inability or failure to monitor delin-
quent accounts receivable. Also, at Regions 2, 4 and 7, demand
letters had not been sent to debtors for receivables over 31 days
old. Demand letters should include accrued interest on overdue
receivables. The £ullawi4^^--3j^tee3?egt~^*a^-uio^^e^agded- in fiscal
ni> a
Audit
Location
Region 2
Region 4
Receivables Tested
Dollar
Number Value
13 $17,683,839
12 4,311,939
Receivables Due Over 30 Davs
Dollar
Number Value
7
4
$13,493,369
503,690
Unrecorded
Interest *
36,488
24,468
$
40
-------
Audit
Location
Region 7
HAOB
FINDINGS AND RECOMMENDATIONS (CONTINUED)
Receivables Tested
Dollar
Number Value
17
39
Totals 81
811,938
5.748.114
$28,555,830
Receivables Due Over 30 Davs
Dollar
Number
1
11
33
value
195,000
4.070.448
$18,262,507
Unrecorded
Interest *
29,415
343.848
$ 434,219
* Interest was calculated on account balances at
interest rates specified by EPA, based upon the number
of days outstanding, which ranged from 11 days to over'
540 days.
The above table represents only those items that were
disclosed from our audit samples. The table is not
intended to represent a complete listing of receiva-
bles due over 30 days on which interest was not ac-
crued .
<,
Agency directives require periodic contact with the debtor and
regular evaluations of the collectibility of the debt. EPA Ac-
counting Manual. Chapter 17, Section 17.4.0 requires:
All debtors except Federal agencies or common carri-
ers, whose debt is 31 or more days old, are to be sent
a demand letter for delinquent payment. A total of
three demand letters in addition to the initial bill-
ing should normally be sent.
Additionally,
states:
RMDS 2550D. Chapter 9, Paragraph 4 d.(3) and (4)
Thirty days prior to each payment date scheduled in
the SSC, the FMO will send to the state a notice of
the amount required and the due date. The FMO is
responsible for establishing systems to ensure that
billings are sent out on a timely basis.... If EPA
does not receive the requested funds by the date on
the payment schedule, the FMO will notify the RPM/RPO
immediately to determine whether the state payment is
simply late or whether the state has defaulted on its
required statutory assurances, including state cost
share. The FMO will also issue billings each 30 days
until paid, or until notified by the Regional Adminis-
trator that the state is in default on its assurances.
In such case, follow-up billings will be handled on a
case-by-case basis. Billings will include interest
accrued.
41
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Also, RMDS 2550D. Chapter 12, Paragraph 5 a.(1) states:
In accordance with the Superfund Amendments and
Reauthorization Act of 1986, EPA will assess interest
on costs recoverable under CERCLA. Interest will
accrue from the later of (1) the date payment of a
specified amount is demanded in writing, or (2) the
date of the expenditure concerned.
The failure to perform regular evaluations of debts and contact
or notify delinquent debtors results in misstatements of accounts
receivable and uncollected penalties and interest. Delays in
notifying responsible parties that settlement documents are
effective and payments are due slows the collection process.
When receivables are not promptly recorded and collected, Super-
fund loses the interest which would have accrued on the invest-
ment of the collections plus unassessed interest on past due
amounts.
In response to our findings and recommendations, Region 2 offi-
cials stated that four SSC receivables were paid within 30 days
after the due date and, therefore, interest should not be ac-
crued. Region 2 officials agreed that three of the cost recovery
receivables were not received timely and interest should have
been accrued. We agree that four SSC collections were received
within thirty days after the due date. However, we considered
these payments late, noting that the collections were received
11, 11, 20 and 5 days late. We calculated interest of $30,178,
which should have been assessed and collected on these late
payments.
Region 4 officials agreed that a collection on one overdue re-
ceivable amounting to $400,000 was received late with no interest
accrued or collected. Region 4 personnel sent the debtor a
corrected bill with accrued interest of $23,166. Region 4 offi-
cials disagreed that three receivables totaling $103,590 were
received late with no interest. The officials stated that the
collections were received outside the scope of our audit. We do
not concur with Region 4's response. We determined that the
three receivables were collected in October 1988 and February
1989, which was within the period of our audit (October 1, 1988 -
September 30, 1989); The collections were also received late.
We calculated interest on the overdue receivables amounting to
$1,302, which was not accrued or collected.
No responses to our findings and recommendations were received
from Region 7, FRAB, or HAOB.
42
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Collections Were Not Recorded Against Corresponding Receivables
In The IFMS
At Regions 4, and 5, and HAOB, we found that collections were not
ys posted against the corresponding receivables in the IFMS.
examination of a non-statistical sample of 20 receivables and
collections totaling $4,343,745, disclosed that 6 collections
amounting to $511,965, were not recorded in the IFMS. As a
result, the following collections were not recorded and the
corresponding receivables were misstated at year-end:
Audit
Location
Region 4
Region 5
HAOB
Collections Not Recorded
Number
3
2
1
Totals
Dollar Value
$174,000
279,679
58.286
$51'1,965
The above table represents only those items that were
disclosed from our audit samples. This table is not
intended to represent a complete listing of collec-
tions that were not recorded.
The failure to record collections was due to miscommunication
between HAOB and the regional FMOs, as well as input errors. In
addition, during the period from March 1989 through June 1989,
the accounts receivable subsystem of the IFMS was not operating
properly. According to HAOB officials, collections received
during that period could not be entered into the IFMS.
RMDS 255QD. Chapter 12, Paragraph 5, states:
In all consent/settlement agreements and administra-
tive orders the Regional Counsel must advise the
debtor to make the remittance check payable to the
"EPA Hazardous Substance Superfund," and to send the
check to the regional Superfund Lockbox address....
The Headquarters Accounting Operations Branch will
immediately notify the FMO of any amounts received in
the Headquarters Lockbox and will transfer the funds
to the Regional FMO via an "IOTV" within three working
days.
In response to our findings and recommendations, Region 4 offi-
cials indicated that the receivables were set up when consent
decrees were received from Regional Counsel. The address on the
demand letters indicated that payments should be made to the
Headquarters Lockbox in Pittsburgh, instead of to the appropriate
43
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
regional Superfund Lockbox address. Upon receipt of these col-
lections by EPA Headquarters, Region 4's FMO was not notified
that collections had been received; therefore, the receivables
remained open at year-end. Region 5 officials agreed that two
collections were improperly input; however, stated that two
errors out of hundreds of items of input did not indicate an
unusual problem. HAOB officials stated that the collection was
input in the FMS, however, the collection was not properly trans-
ferred with other accounting data from the FMS to the IFMS. We
disagree with HAOB officials that the collection was entered in
the FMS prior to conversion to the IFMS. According to EPA's Out-
standing Accounts Receivable Subsidiary File as of September 30,
1989, the collection was not recorded in the FMS prior to the
conversion.
Transfer Of Receivables And Collections From The FMS To
Was Not Properly Performed
The IFMS
review of accounts receivable and collections indicated that
some receivables and collections_jrecorded in the FMS were not
properly transferred to the IFMOT -Qvr—beata at -4ho royronal
of f ic_e.s_-aad-~HAOB - of—a- non-s tatis£Tcal^_sample of-—1-5 9 receivables
ajnjJcoJJ^c4AOi^r-~feo4»l-it*g--^ e i va-
bTes amount-ing ""to 'ST2", 06 8*, "51 4 , and "31—collections- amounting—fco
$2yj6J3JL>L,3.5j3if —wex.e-~not-—pgopeg-ly trans£erre=at'* f i s cal- ye ar- end:
Audit
Location
Region 9
Cincinnati
HAOB
Totals
Items
Tested
27
20
ill
Dollar
Value
$18,498,204
4,008,899
16.429.383
Receivables Not
Transferred
Dollar
Value
159 $38,936,486
Number
5
1
12
Collections Not
Transferred
Dollar
value
$ 334,000
68,708
1.665.806
$2,068,514
Number
1
Ifi
31
7,441
2.598.918
$2,606,359
The above table represents only those items that were
disclosed from our audit samples. This table is not
intended to represent a complete listing of receiva-
bles or collections that were not transferred from the
FMS to the IFMS.
As a result of the receivables and collections not being properly
transferred, accounts receivable were misstated at year-end. The
problem was mainly due to FSB officials not ensuring that the
transfer of the data from the FMS to the IFMS was completely
recorded. Because the IFMS reports were not generated, monitor-
44
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
ing of the transfer of data from the FMS to the IFMS could not be
readily performed by FSB personnel.
OMB Circular A-127, Attachment, Selected Legal Requirements
Related To Financial Management Systems, 31 U.S.C. 3512, Execu-
tive agency accounting systems, Paragraph (b)(1) states:
To ensure compliance with subsection (a)(3) of this
section and consistent with standards the Comptroller
General prescribes, the head of each executive agency
'shall establish internal accounting and administrative
controls that reasonably ensure that.... revenues and
expenditures applicable to agency operations are
recorded and accounted for properly so that accounts
and reliable financial and statistical reports may be
prepared.and accountability of the assets may be
maintained.
In response to our findings and recommendations, Region 9 and
Cincinnati officials agreed that the transfer of data from the
FMS to the IFMS was not always correct and the accounts receiva-
ble reports were not available until January, 1990. FSB offi-
cials > agreed that- some collection data was not properly trans-
ferred from the FMS to the IFMS. These officials stated that a
review of all Superfund receivables will be performed to ensure
that amounts were converted correctly. FSB officials also stated
that, upon further review of the 6 receivables amounting to
$1,665,806, which we indicated were not transferred to IFMS, two
of these receivables, totaling $306,987, were transferred. We
disagree with the FSB officials because the Year-end Accounts
Receivable Subsidiary File (an FMS report) was used to obtain our
sample of receivables. We were unable to trace any of the six
receivables to the All Billings Detail Report (an IFMS report),
dated January 6, 1990.
EPA's Office of Inspector General (OIG) auditors performed an
audit of the establishment and collection of Superfund accounts
receivable at Regions 3, 4 and 5. The OIG issued a consolidated
report, Superfund Cost Recovery Accounts Receivable Establishment
And Collections. (Audit Report EISJF9-05-0274-0100207, dated
March 28, 1990). The OIG auditors made several recommendations,
which are applicable .to this finding. In the report, the OIG
auditors recommended that the AA work with the Deputy Administra-
tor and coordinate with the AA for Solid Waste and Emergency
Response and the General Counsel to provide assurance that the
FMOs, Superfund program offices, and Offices of Regional Counsel:
have established procedures and internal controls over the flow
of documents to ensure that receivables are recorded timely; and
establish procedures to reconcile Superfund and Regional Counsel
records with the IFMS. The OIG auditors also recommended that
the AA: complete and issue RMDS 2540, Receivables and Billings
45
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Chapter 9; and coordinate with the AA for Solid Waste and Emer-
gency Response to require the Office of Waste Programs Enforce-
ment to include timeframes for forwarding completed judicial
orders to EPA as part of the annual Interagency Agreements with
the Department of Justice.
In response to the OIG draft report recommendations, the AA
outlined several planned corrective actions. We believe the
corrective actions, when implemented, will help resolve the
deficiencies noted in this finding. Therefore, we are making no
recommendations in the areas covered by the OIG report recommen-
dations .
On September 10, 1990, the Deputy Administrator of EPA issued a
memorandum to all Regional Administrators outlining an action
plan for improving the Agency's management of accounts receivable
and requested each Region to submit quarterly progress reports to
ensure consistent, effective accounts receivables practices
throughout the Agency.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, Financial Management Division to:
o review the transfer of Superfund receivables and collec-
tions from the FMS to the IFMS to ensure the amounts have
been correctly converted; and
o transfer all outstanding receivables recorded by HAOB and
monitored by FRAB prior to fiscal 1989 to the appropriate
regional offices.
AA's COMMENTS ON DRAFT REPORT RECOMMENDATIONS
The AA agreed to review the transfer of Superfund receivables and
collections from the FMS to the IFMS. The AA stated that the
reconciliation process had already begun and development of
reconciliation procedures and reports are scheduled for comple-
tion by September 30, 1990. The AA indicated that complete open
Superfund accounts receivable reconciliation is scheduled to be
completed by February 28, 1991. Certifications by FMOs are
scheduled for April 30, 1991, and general ledger adjustments are
to be recorded by June 30, 1991. The AA also stated that FMD
agreed to transfer outstanding accounts receivable from HAOB to
the appropriate regional offices. This transfer is scheduled
after completion of the reconciliations of receivables, cash
receipts, and interest accruals. These reconciliations are to be
completed by April 30, 1991, and the transfer of accounts receiv-
able are scheduled for June 30, 1991.
46
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
QOR EVALUATION OF THE AA'S COMMENTS
The AA's response to our draft report and the Agency's proposed
corrective actions are responsive to our recommendations. There-
fore, we are making no further recommendations on these issues at
this time. We will follow up during our fiscal 1990 audit to
determine if the proposed corrective actions were accomplished in
accordance with the Agency's plan.
IMPROVEMENTS ARE NEEDED IN ACCOUNTING FOR
PERSONAL PROPERTY
AND CONTROLLING
EPA's accounting for and controlling personal property need to be
improved. Our audit disclosed that 494 items, costing
$1,529,895, were not recorded in the Personal Property Accounting
System (PPAS). Also, 439 personal property items, costing
$515,520, acquired during fiscal 1989, could not be located.
These deficiencies were disclosed from our statistical samples of
disbursement transactions, which included 1,123 property items,
jQ(^_costing $5,053,350, purchased in fiscal 1989. We also noted that
& annual physical inventories had not been performed at .Regions 2,
4, 5, 6, 7 and 9. Also, at Regions 2, 5,6, 7 and 9, custodial
officers for property had not been properly designated or had not
officially accepted custodial responsibilities. Further, EPA's
national PPAS listing of property items did not agree with local
PPAS listings at Regions 3 and 10 and Cincinnati.
EPA maintains personal property records in a new automated PPAS
which was implemented in fiscal 1989. After implementation at
Headquarters in January 1989, PPAS was placed in service at the
regions and Financial Management Centers (FMCs) on a staggered
basis. As of June 1989, all regions, FMCs, and Headquarters were
using the new PPAS system. The new PPAS has many edit checks to
prevent users from entering erroneous or incomplete data. Users
must record the document control number; account number, and
object class related to property items purchased. There is also
a data field that identifies Superfund property. The new PPAS
can also identify up to five separate account numbers for proper-
ty items that are split-funded.
Prior year audits and internal control reviews disclosed major
weaknesses in accounting for and controlling property, such as
errors and omissions from the PPAS and missing or unlocated
property. Implementation of the new PPAS has not corrected these
weaknesses. Headquarters property officials stated in a meeting
during our interim fieldwork that the effects of the new property
system may not be noticed until fiscal 1990. However, we noted
that many of the weaknesses were caused by lack of controls or
non-compliance with the Agency's policies and procedures. A new
system will not correct all these deficiencies, unless more
emphasis is placed on the need to properly account for and con-
47
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FINDINGS AND RECOMMENDATIONS (CONTINUED1
trol Agency property.
We selected random samples of Superfund disbursement transactions
recorded in the FMS during our interim fieldwork and the IFMS
during our year-end fieldwork. Included in these samples were
1,123 property and equipment items purchased at various audit
locations. We attempted to trace these property items to the
national PPAS listing provided to us by an official from the
Facilities Management and Services Division (FMSD) at Headquar-
ters. We also attempted to locate and verify the existence of
these items in our samples. In addition, we reviewed documenta-
tion to determine compliance with Agency polices for designations
of property officials, annual physical inventories and other ap-
plicable procedures.
Property^
System
Was Not Recorded In The Personal Property Accountincr
Our tests of samples of disbursement transactions included 1,123
property and equipment items, costing $5,053,350, which were
purchased during fiscal 1989. Our audit disclosed that 494
items, costing $1,529,895, should have been recorded in the PPAS,
but were not. This unrecorded property included 435 items,
costing $958,282, which were paid for by the Servicing Finance
Office (SFO) at Research Triangle Park (RTF), and delivered to
other EPA locations! A detail"Mrst'lng'oT^tHe 'unrecorded property
:"items--iV pravraechjrn~-Exhibit V. The following-summari-aes—the
JJtfims™that_Jrfere_not recorded- in- the • PPAS:
Audit
Location
Region 2
Region 4
Region 5
Region 6
Region 7
Region 8
Region 9
Region 10
RTP
Cincinnati
NEIC
Headquarters
Totals
Number of Items
135
13
62
45
1
12
19
158
6
4
3
494
Cost
Of Items
$ 174,401
60,409
611,326
110,578
2,619
257,221
23,036
85,977
56,734
21,864
8,820
116.910
$1,529,895
The above table represents only those items that were
disclosed from our audit samples. The table is not
intended to represent a complete listing of items that
48
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FINDINGS"AND RECOMMENDATIONS (CONTINUED)
were omitted from the PPAS during fiscal 1989.
Two major objectives of the internal control standards issued by
the U.S. General Accounting Office (GAO) pursuant to the Federal
Managers Financial Integrity Act [31 U.S.C. 3512 (b) ] are to
ensure that: all Government-owned assets are protected against
waste, loss, unauthorized use, and misappropriation; and ac-
countability for assets is maintained. GAO internal control
standards also require that transactions be promptly recorded and
properly classified.
FMSD issued Policy Announcement No. 88-01, dated.September 14,
1988, to clarify EPA policies and procedures for the control and
accountability of personal property, and to address the changes
necessary to accommodate Superfund requirements. The new policy
raised the threshold for accountable property from $50 to $300 on
sensitive items and from $300 to $1,000 on all other items. The
policy stated that for property acquired and received, a record
shall be established in the PPAS, a bar code decal will be af-
fixed to the property, and responsibility for the item shall be
assigned to a custodian.
,—•—s.
There were various reasons why EPA property purchases were not
recorded in the property records. Receiving documents for
property and equipment items were not always sent by contracting
offices, custodial officers, or receiving personnel to the
Property Accountable Officers (PAOs) when property was ordered or
received. The failure to provide this documentation has been a
recurring cause of this problem in several prior audits. No
current procedure requires FMOs to forward payment documents
(paid invoice copies) for property purchases to the appropriate
PAOs. Such a requirement would provide documentation to property
offices from the payment source. The invoices could be used to
verify or enter the actual costs of property items in the PPAS
and could be matched with purchase orders and receiving documents
from other sources.
Also, we found property items that were in storage waiting to be
installed. As a result, no bar code decal had been affixed and,
without bar code decals, property items could not be recorded in
the PPAS. The failure to record items in the PPAS resulted in
inaccurate property records. This deficiency increases the
possibility of waste, loss, unauthorized use and misappropriation
of property.
s~
EPA Facilities and Support Services Manual. Volume 4830-2, Per-
sonal Property Management, PMR 2-20 states:
Nonexpendable property consists of both capitalized
and noncapitalized items, depending upon cost only.
Capitalized items shall be accounted for in the EPA
49
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_
FINDINGS AND RECOMMENDATIONS (CONTINUED)
Personal Property Accounting System (PPAS), and non-
capitalized items, on Sensitive Item Custody Cards,
EPA Form 1740-21. Nonexpendable property has a life
expectancy of more than one year and is complete in
itself (not a component). The following types of
property shall be affixed with bar code property
"decals and documented accountability shall be estab-
lished at the time of receipt:
o Property having a dollar value of $1,000 or
more
o Sensitive items
o Office furniture, furnishings, and machines...
In response to our findings and recommendations, officials at
Regions 2, 8, and 9, RTP, NEIC and Headquarters indicated that
they have taken action to correct the omissions from the PPAS.
Region 4 officials indicated that they were not provided with a
list of the items in question. We noted that this list was
originally provided to the PAO while the auditors were on-site
and again to the Comptroller of Region 4 after the officials
responded to the finding. Region 5 officials stated that they
were investigating the items that were missing from the PPAS.
Region 6 officials indicated that the items not recorded in the
PPAS were received at the Houston Laboratory. The PAO at Region
6 stated that there was a continuous problem with the Laboratory
officials failing to provide the appropriate documentation to
enter the property items into the PPAS. Region 6's PAO stated
that he will submit a formal request to the Director, Office of
Administration, that the Houston Laboratory be designated as a
separate accountable area. Region 9 officials indicated that
they were still investigating proper accounting for personal
computer boards. Region 10 officials stated that, during a
period of fiscal 1989, they did not have a full-time, trained PAO
and property items during that time period went unrecorded.
Also, officials said that a full-time PAO had since been assigned
to Region 10 and was reviewing the PPAS to ensure that all
property was recorded. Cincinnati officials stated that the
majority of the items were in the PPAS. However, we noted that
these items were not on the national list, dated January 18,
1990, provided to the auditors by FMSD at Headquarters. Region 7
did not respond to our finding.
^Property Could Not Be Located And Physical Inventories Were Not
Performed
At Regions 2, 4, 5, 6, 9, and 10, RTP, Cincinnati, and Headquar-
ters, EPA property officials could not locate for our inspection
439 items of personal property, costing $515,520, which were
50
-------
/
FINDINGS AND RECOMMENDATIONS (CONTINUED)
included,in pur 1.123 sample.items, costing $5,053^,3.£o| A detail
"li'sting of these unlocated property items is provided in Exhibit
V. Annual physical inventories were not performed for fiscal
1989 at-Regions 2, 4, 5, 6, 7 and 9 Regions 2 .and 7 performed
physical inventories in fiscal 1988. Regions 6 and"9"conducted
physical inventories in fiscal 1987. Regions 4 and 5 had vnot
performed physical inventories since before fiscal 1987. Annual
physical inventories are-required by Agency directives. Omis-
sions from the PPAS recordFs->.qould have been identified through
physical inventories and reconciliations with PPAS, FMS and IFMS
records. The required annual ..physical inventories could also
have identified missing or unlocated,vproperty. The following
summarizes the items that could not vbe, located for physical
inspection:
Audit Number of Cost
Location Items Of Items
Region 2 98' ' $133,136
Region 4 6 12,589
Region 5 30 20,616
Region 6 45 110,578
Region 9 1 3,662
Region 10 146 34,075
RTF 5 21,058
Cincinnati ' 1 19,887
Headquarters 107 159.919
Totals 439 $515,520
sss =======
The above table represents only those items that were
disclosed from our audit samples. The table is not
intended to represent a complete listing of items
purchased in fiscal 1989 that could not be located.
At Regions 4, 9, and 10 and Cincinnati, the items noted above
could not be located because they were not. properly entered into
the PPAS. When property is not entered into the PPAS, no audit
trail exists to identify the decal number, custodial area or
location of the property. At Region 2, the above property items
were held in a storage area and no bar code decal was affixed.
Consequently, we were unable to physically inspect all these
items. At Region 5, some items were transferred without the
custodial officer being notified and the items could not be
located. At Region 6, the items noted above were not physically
inspected because they were delivered to the Houston Laboratory
and were not recorded in the PPAS. At Headquarters, 60 bar code
readers could not be located because they were transferred with-
out the custodial officer being notified. These bar code readers
were purchased by Headquarters for other regions, delivered to
51
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Headquarters, recorded in the PPAS, and transferred to other EPA
locations. The custodial officer at Headquarters was not aware
that they were transferred. Therefore, these items had not been
transferred out of Headquarters PPAS listings. At RTP, the PPAS
did not allow the complete transfer of information when property
was transferred from one custodial area to another or to another
EPA location.
EPA Facilities and Support Services Manual, Volume 4830-2, Per-
sonal Property Management, PMR 2-26 states that "capitalized
nonexpendable equipment shall be inventoried at least annually as
prescribed in the Federal Property and Administrative Services
Act of 1949, as amended." Also, GAO internal control standards
require that accountability for Government-owned assets be main-
tained, including information on location of property.
Failure to initially record items in the PPAS and also require
the use of proper transfer documents resulted in inaccurate
property records. These deficiencies increase the possibility of
waste, loss, unauthorized use and misappropriation of property.
Also, failure to conduct annual inventories precludes property
officials from locating and identifying unrecorded, or missing
property. Officials at Regions 2, 4, 5, 6 and 7 indicated that
inadequate staffing and training of property personnel and the
establishment of new property thresholds for accountable property
were the primary reasons for noncompliance with this requirement.
Region 9 officials indicated that the inventory could not be
completed because of the earthquake in October 1989, which oc-
curred after the close of fiscal 1989. In accordance with Agency
policy, the inventory should have been performed during the
fiscal year.
In response to our findings and recommendations, officials at
Regions 2, 4 and 5 indicated that procedures would be initiated
to conduct annual physical inventories. Also, Region 5 stated
that 24 of the items were personal computer monitors and the
decal numbers were removed because the cost would be included
with the personal computers. However, we noted that these moni-
tors were still listed in PPAS with decal numbers separate from
the personal computers. Officials at Region 6 stated that custo-
dial officers will be designated for the property items that are
stored, and after this is, done, an annual inventory will be
conducted. Officials at Region 7 did not respond to our finding.
Region 9 officials stated that, because of the earthquake, the
Region is moving to a new location and a complete annual invento-
ry will be performed after the relocation.
Memorandums Of Acceptance Bv CustodialOfficers Were Not Prepared
And... Signed
Custodial officers at Regions 2, 5, 6, 7 and 9 had not signed
52
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FINDINGS AND RECOMMENDATIONS fCONTINUED)
memorandums of acceptance of custodial responsibility for ac-
countable personal property. As a result, assumption of custodi-
al responsibilities for property at these locations had not been
properly acknowledged. Consequently, accountable property was
not under proper control at these locations. This lack of ac-
ceptance of responsibility for the care and protection of
property increases the possibility of waste, loss, unauthorized
misappropriation.
Pl*f-C(0(L f#rJt- I .
EPA Facilities and Support Services Manual. Volume 4830-2, Per-
sonal Property Management, PMR 2-21 states;in part:
Each custodial area shall be placed under the juris-
diction of a responsible custodial officer. This
individual shall be designated in writing by the head
of the activity that has property management authori-
ty Each custodial officer shall sign the assump-
tion memorandum indicating acceptance of custodial
responsibilities and submit it to his designated
Property Accountable Officer. Each custodial
officer shall be responsible for the care and
protection of all personal property assigned to his
custodial area, including sensitive items and con-
. w trolled property.
There were several reasons why custodial officers did not sign
memorandums of acceptance for assumption of custodial responsi-
bilities. At Region 2, custodial officers lacked clarification
on whether they were personally and financially liable for the
property items in their custodial area. At Region 5, custodial
officers were in training; therefore, no action had been initiat-
ed to have,them sign for assumption of custodial responsibili-
ties. Region 6's management had not initiated any action to
determine if the custodial officers signed for assumption of
custodial responsibilities. While auditors were on-site, Region
7 was asked to provide any documentation to indicate that custo-
dial officers had assumed their responsibilities. Region 7 did
not provide such documentation. Region 9 stated that the custo-
dial officers were waiting until physical inventories were com-
pleted before they sign letters of acceptance.
-^—•
In response to our findings and recommendations, officials at
Regions 5, 6 and 9 indicated that corrective action had been or
will be taken. Region 2 officials stated that a formal opinion
had been issued by the Regional Counsel stating that the signing
of such assumption letters was not an essential part of the
designation of custodial officers. In our opinion, since a
signed memorandum is required.by Agency policy, the policy should
be enforced uniformly at all locations. Region 7 officials were
given an opportunity but did not respond to the finding.
53
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(\-
FINDINGS AND RECOMMENDATIONS (CONTINUED)
. ^
Lack Of—Data Integrity Between The National PPAS Listing And
Local PPAS Listings
At Regions 3 and 10 and Cincinnati, 52 items, valued at $167,039,
were not recorded in the national PPAS listing, dated January 18,
1990, but were found in local PPAS listings. As a result, the
national property records of the Agency did not accurately re-
flect all property items purchased in fiscal 198jgJ A—detail^
listing of these property items is provided" in Exhibit V-I. —The
following summarizes the items that were not - -recorded—i-R—
-------
FINDINGS AND RECOMMENDATIONS (CONTINUED)
Administrators and Assistant Administrators that correc-
tive actions have been taken to record the omitted
property items noted in this report in the PPAS, and to
locate and identify property that could not be located at
the time of our audit fieldwork;
o emphasize to the appropriate Regional Administrators and
Assistant Administrators the importance of complying with
Agency policies for conducting physical inventories and
preparing and signing memorandums of designation and
assumption of custodial responsibilities;
o require the Director, FMSD, to correct the deficiency
causing the loss of data between the national PPAS list-
ings and local PPAS listings; and
o direct the Comptroller to issue a policy requiring FMOs
to provide documentation (paid invoice copies) of proper-
ty purchases to the appropriate PAOs where property was
delivered.
AA's COMMENTS ON DRAFT REPORT RECOMMENDATIONS
The AA agreed to obtain certifications from Regional Administra-
tors and Assistant Administrators that property items had been
located and/or recorded in the PPAS. The AA stated that a letter
requesting certifications would be issued by September 15, 1990,
and certifications would be obtained by November 15, 1990.
The AA agreed to issue a letter by September 15, 1990, emphasiz-
ing the Agency policy for conducting physical inventories and
designating custodial responsibility. The AA also stated that
the policy for signing memorandums of assumption of custodial
responsibilities is under review.
In response to our recommendation to require the Director, FMSD,
to correct the deficiency causing the loss of data between the
local and national PPAS, the AA stated that a preliminary inves-
tigation indicated that 50 of the 51 items disclosed in our
report were now recorded in the national PPAS. An FMSD official
informed us subsequent to the AA's response that all items were
now recorded in the PPAS. The AA also indicated that Agency
personnel will continue to review this issue to determine if
there is a problem with the reliability of the PPAS.
The AA disagreed with our recommendation to issue a policy re-
quiring FMOs to provide paid invoice copies for property items
.purchased to the PAOs where property was delivered. The AA
stated that the payment of an invoice should not be used as the
original source document for entering property in PPAS, since the
payment may be made up to 37 days after receipt of property.
55
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
During our exit conference on September 20, 1990, FMD officials
disagreed with our recommendation to require FMOs to provide paid
invoice copies for property purchases to PAOs. The Director, FMD
stated that this requirement would increase the workload of FMOs
and require additional paperwork.
OUR EVALUATION OF THE AA's COMMENTS
The AA's response to our draft report and the Agency's proposed
corrective actions are generally responsive to our recommenda-
tions. We will follow up during our fiscal 1990 audit to deter-
mine if the proposed corrective actions were accomplished in
accordance with the Agency's plan.
In regard to our draft report recommendation to require FMOs to
provide payment documents to PAOs, we agree that the payment
documents should not be used as source documents for the original
entry of items into the PPAS. However, payment documents (paid
invoices) or information obtained form these documents should be
used as the source for recording the actual cost of property
items, since procurement documents often contain estimated cost
data and receiving reports may not provide any cost information.
In addition, previous attempts to improve the flow of documenta-
tion from contracting offices and receiving personnel have appar-
ently been unsuccessful, since this has been a recurring audit
finding. Documentation from another source (FMOs) would improve
internal control, providing another internal check to ensure that
PAOs receive documentation of property purchases. However, in
view of the Agency's disagreement with our recommendation , we
have revised our recommendation to allow the Agency officials to
provide a solution to this problem.
RECOMMENDATIONS
We recommend that the AA instruct the Directors of FMD, FMSD, and
Procurement and Contracts Management Division (PCMD) to work
together to develop procedures to ensure that all accountable
property and equipment items are properly recorded timely in the
PPAS at actual cost.
OBLIGATIONS WERE QUESTIONED DUE TO LACK OF DOCUMENTATION AND
RECORDING ERRORS
Based upon' tfie"^resuTCs"^>f""our s tat is t ical-sampling,—we~ques%ioaed
gat ions. .._A,.jfcpJtal^Qf$1,368,861,625
~wej?e =^^rt?'Gord=edi"'-"i'n^-~f~^S'C'S.'3r""1989*i ' —«Ehe
$2^-4-8 6T-0 5 5 of questionod obligations wo-ro tranche Hop i_^n. our
iRfeeri-m diiJ year end sample's",—wliich weitf lUtiligmiu ur-unaupporfa-
«£-. The ineligible costs amounted to $106,475. The unsupported
costs amounted to $2,079,580. (S'
In addition, the results of some tests of internal control and
56
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
compliance attributes'for nonpayroll obligations indicated unac-
ceptable levels (over 5%) of noncompliance with Agency policies
and procedures.
Using statistical sampling techniques, we projected JUxafthe
universeNxf^ nonpayroll obligations contained questioned costs
within a rah^eLfrom ($32,002,644) to $37,,5.0-37824, or between
(02,34%) and 2.7$V-
-------
FINDINGS AND RECOMMENDATIONS (CONTINUED)
with the obligating document. At Region 3, of obligating docu-
ments for cooperative agreements were not maintained by the FMO.
At Region 5, obligating documents could not be located, no Super-
fund justification was on or attached to obligating documents,
amounts were incorrectly charged to Superfund, an error was made
in a correcting entry, and amounts were obligated twice. Region
6's questioned costs were due to lack of Superfund justification
and one transaction was obligated twice. At Region 7, costs were
questioned because of a duplication of conversion data and trans-
actions were obligated twice. At Region 8 and Cincinnati, the
officials who approved several obligations did not have obligat-
ing authority. At Region 9, documents could not be located and
recorded amounts did not agree with the obligating documents. At
RTF, documents could not be located and an error was made in a
correcting entry. Las Vegas had one transaction questioned
because no Superfund justification could be located. At Head-
quarters, no Superfund justification was on or attached to the
obligating documents; recorded amounts did not agree with the
obligating documents; and a transaction was a duplicate of con-
version data.
In response to our draft report, Region 1 stated that the account
number on a purchase order had been changed by hand, however, no
documentation was received to support the change. Region 1 also
stated that they had no idea why Region 2 cost allocation trans-
actions indicate being recorded at Region 1. Region 2 officials
stated that, during the IFMS nightly update and conversion proc-
ess, the cost allocation transactions from another region were
inadvertently converted to Region 2fs files. Region 3 indicated
that they could not provide documentation for other Regions'
transactions. Region 5 officials stated that they have taken
action to correct the transactions, however, no documentation to
support the corrections was provided. Region 6 officials
provided a copy of the justification from an individual's comput-
er which was not signed and they stated that the original was
forwarded to RTF with the order. Region 6 stated that they made
a request to RTF for a copy of the Superfund justification.
Region 7 stated that one double obligation was correct in IFMS
and another double obligation was in the process of being cor-
rected prior to our issuance of an audit finding during our
fieldwork. However, the supporting documentation provided was
not. adequate for us to accept the questioned costs for either
transaction. In response to our findings and recommendations,
Region 8 officials stated that they made a request to PCMD to
change the Contract Management Manual to correspond to the Office
of Information Resources Management 1-1Oa delegation of authori-
ty.
Officials at Cincinnati stated in response to our finding that
there is no established procedure for an "Authorized Official
Signature List" to be prepared annually and that authorizations
58
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
are delegated by job title. However, in response to our draft
audit report, additional documentation was provided to support 4
obligations, totaling $29,894, of 17 items that had been previ-
ously questioned. Cincinnati officials also provided some dele-
gations of authority which resolved some questioned costs, howev-
er, not all delegations were provided and some costs remained
questioned. RTF officials provided documentation to support 9
obligation transactions previously questioned, amounting to
$747,475. Officials at Las Vegas stated that one transaction
questioned was a grant agreement in which the Superfund justifi-
cation might be on the award document. Las Vegas responded to
our draft report by stating that the auditors did not pursue the
issue of locating the justification. However, upon review, we
noted that an EPA official at Headquarters was contacted and
stated that no justification was available. No additional docu-
mentation was provided to us to support the use of Superfund
monies.
The sampling universe of nonpayroll obligations was taken from
the fiscal 1989 Allotment File in the FMS for the five months
from October 1, 1988 through February 28, 1989; and the General
Journal File from the IFMS for the seven months from March 1,
1989 through September 30, 1989. The transactions were separated
into subuniverses for contracts; cooperative agreements; travel;
and all other object classes, excluding personnel compensation
and benefits. Additionally, we segregated journal voucher
transactions from the transactions in each subuniverse. In
addition to testing the transaction amounts to supporting docu-
ments, we also tested internal control and compliance attributes
to determine the degree of compliance with Agency policies and
procedures. Our statistical analysis Indicated that the follow-
ing error rates exceeded our expected error rate of five percent:
N Interim Year-End
Attribute and Subuniverse Error Rate(1) Error Rate(1)
Obligation document number agrees with
obligating document:
Contracts (2) 8.73%
Travel (2) 8.11%
Notes:
(1) - Observed error rate represents the actual error rate
of each sample tested.
(2) - Error rate was less than 5%.
(3) - Computer file did not provide sufficient complete object
class information to compare to obligating documents.
N/A - Attribute was not applicable during interim/year-end
fieldwork.
59
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Attribute and Subuniverse
Interim Year-End
Error Rated ) Error Rated )
Document control number agrees with
obligating document:
Contracts (2)
Travel (2)
Account number agrees with obligating
document:
Contracts (2)
Cooperative Agreements (2)
Travel (2)
Standard Vouchers (2)
Account number is a valid Superfund
account number for FY 1989:
Contracts (2)
Travel (2)
Object class agrees with obligating
document:
Contracts (2)
Other Object Classes 13.51%
Travel 6.52%
Journal/Standard Vouchers (2)
Object class code is reasonable based
upon description of goods or
services ordered:
Contracts (2)
Other Object Classes 5.69%
Travel (2)
Name of authorized official agrees with
authorized official signature list
maintained by FMO:
Contracts (2)
Other Object Classes 13.28%
13.22%
7.89%
8.48%
5.62%
10.26%
13.19%
7.98%
10.00%
8.98%
(2)
45.45%{3)
13.19%
9.23%
9.19%
44.44%(3)
8.54%
5.42%
Notes:
{1) - Observed error rate represents the actual error rate
of each sample tested.
(2) - Error rate was less than 5%.
(3) - Computer file did not provide sufficient complete object
class information to compare to obligating documents.
N/A - Attribute was not applicable during interim/year-end
fieldwork.
60
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Attribute and Subuniverse
Obligating documents was date stamped
by FMO when received:
Contracts
Cooperative Agreements
Other Object Classes
Travel
Interim Year-End
Error Rated ) Error Rated)
5.85%
10.77%
36.33%
31 .11%
Receipt of obligating document was timely:
Contracts 53.72%
Cooperative Agreements 20.00%
Other Object Classes 42.44%
Travel 57.14%
Journal/Standard Vouchers 33.33%
Posting of obligation to FMS/IFMS by FMO
was timely:
Contracts (2)
Cooperative Agreements 33.08%
Other Object Classes 97.14%
Travel 56.52%
Journal/Standard Vouchers (2)
Commitment was previously entered into
FMS, if obligation was greater than
$25,000:
Contracts 5.20%
Other Object Classes 60.00%
Travel Authorization contains signature
of authorizing official:
Travel (2)
Travel Authorization indicates travel
was Superfund related:
Travel (2)
13.72%
22.47%
21.61%
N/A
56.11%
25.99%
34.04%
N/A
54.55%
38.65%
25.42%
24.04%
N/A
65.45%
N/A
N/A
7.32%
28.57%
Notes:
(1) - Observed error rate represents the actual error rate
of each sample tested.
(2) - Error rate was less than 5%.
(3) - Computer file did not provide sufficient complete object
class information to compare to obligating documents.
N/A - Attribute was not applicable during interim/year-end
fieldwork.
61
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Interim Year-End
Attribute and Subuniverse Error Rated) Error Jtated)
Journal/Standard voucher contains
sequential number assigned by
FMO:
Journal/Standard Voucher 6.67% 25.45%
Explanation of entry appears on
journal/standard voucher or
attached documentation:
Journal/Standard Voucher 5.56% 19.44%
Journal/Standard voucher contains
preparer signature, title, and
date:
Journal/Standard Voucher 7.14% 50.91%
Journal voucher was approved by
authorizing official and
contains their signature,
title, and date:
Journal/Standard Voucher 7.14% 70.91%
Notes:
(1) - Observed error rate represents the actual error rate
of each sample tested.
(2) - Error rate was less than 5%.
(3) - Computer file did not provide sufficient complete object
class information to compare to obligating documents.
N/A - Attribute was not applicable during interim/year-end
fieldwork.
EPA Voucher Examination Manual, Chapter 2, states:
All documents must be authorized or approved by an
official delegated the authority to authorize the
particular document, such as a purchase order, travel
order, etc. The accounting office must be furnished
with lists of persons by title to whom such authority
has been delegated.
EPA Comptroller Policy Announcement No. 86-09 establishes poli-
cies, procedures and timeframes with which program, administra-
tive, and financial management offices must comply in order to
ensure prompt recording of obligations. This Policy Announcement
62
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FINDINGS AND RECOMMENDATIONS (CONTINUED1
states that individuals with obligating authority are responsi-
ble for ensuring that 'the actual obligating documents are re-
ceived by the servicing finance office within three work days of
execution. The Policy Announcement further states that FMOs will
ensure that obligations are recorded in the FMS within four work
days of receipt of actual obligating documents or other accept-
able written evidence. "Also, the Policy Announcement states that
obligating documents will be date stamped upon receipt. In
addition, as a result of a prior audit, the Comptroller issued a
memorandum dated November 15, 1988, emphasizing that FMOs must
record obligations in a timely manner and program offices need to
forward obligation documents to FMOs promptly.
During the testing of internal control and compliance attributes
for nonpayroll obligations, we noted many attributes exceeded an
acceptable 5% error rate. In comparing the results from the
prior year audit tests of obligations, we noted that more at-
tributes exceeded an acceptable error rate for fiscal 1989 and,
in most cases, the error rates increased over rates reported in
the prior year. One recurring problem was that obligating docu-
ments were not being date stamped when received by the FMOs. As
a result, we were not able to test the timeframes for receipt of
obligating documents and recording of obligations. Another
recurring attribute exception was that obligating documents were
not received in a timely manner. These exceptions were due to
procurement offices not forwarding the documents.to FMOs on a
timely basis. Also, we found that officials authorizing
journal/standard vouchers did not date the signed documents.
Another recurring exception was that obligations were not posted
by the FMO on a timely basis. This attribute could not .be tested
in many cases, and was considered an error, because the obligat-
ing documents were not date stamped. Also, after the IFMS was
installed, there were periods of time when the system was not
operating, therefore, obligations could not always be recorded
timely. .
The failure to properly follow Agency policies and- procedures for
recording obligations, as indicated above, can result in incom-
plete and inaccurate accounting records. Also, noncompliance
with these policies impedes the ability of Allowance Holders to
monitor available funds, which increases the risk of over-obliga-
tion of funds and potential violations of the Anti-Deficiency
Act.
DRAFT'REPORT RECOMMENDATIONS
We'recommended in our draft report that EPA's Assistant .Adminis-
trator for Administration and Resources Management:
> .
o require the appropriate FMOs to review and resolve the
questioned obligation transactions;
63
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
o emphasize to program officials the importance of forward-
ing obligating documents to FMOs on a timely basis in
accordance with Agency polices;
o advise the FMOs that all obligating documents be date
stamped upon receipt, reviewed for correctness, complete-
ness, and approvals and posted to the IFMS in a timely
manner; and
o instruct the Comptroller to issue a policy announcement
requiring the use of sequentially numbered journal/stand-
ard vouchers, which contain preparer's name, title, and
date, approving official's name, title, and date, expla-
nation of entry and referenced supporting documentation.
AA's COMMENTS ON DRAFT REPORT RECOMMENDATIONS
The AA agreed to require the appropriate FMOs to review and
resolve the questioned obligation transactions. The AA indicated
that Agency personnel had researched most of the transactions
related to the questioned obligations and determined that: (a)
$1,793,329 of the questioned costs were valid and supportable;
(b) $1,019,706 represented input errors that have been corrected
in the IFMS; and (c) $336,992 were being researched and would be
resolved in accordance with a corrective action plan. The action
plan indicates that all FMOs, except Region 9, will research,
•produce supporting documentation, and record necessary correcting
entries by September 30, 1990. Supporting documentation will be
submitted to FMD, and FMD will verify resolution of the costs
questioned by October 31, 1990. Region 9 will follow the same
procedures for the $133,790 of costs identified as unsupported
.(because records were placed in storage due to the earthquake)
and submit documentation to FMD by November 15, 1990.
The AA agreed to notify all FMOs by August 30, 1990, that program
officials need to be reminded of the importance of forwarding
obligating documents on a timely basis. Also, the AA agreed to
notify all FMOs by August 30, 1990, that all obligating documents
be date stamped upon receipt; reviewed for correctness, complete-
ness, and approvals; and posted to IFMS in a timely, manner.
In addition, the AA stated that FMD has drafted a policy an-
nouncement requiring the use of sequentially numbered
journal/standard vouchers, which contain the preparer's name,
title, and date; approving official's name, title, and date;
explanation of entry; and referenced supporting documentation.
The policy announcement will be issued by October 31, 1990.
OUR EVALUATION OF THE AA'S COMMENTS
The AA's response to our draft report and the Agency's corrective
64
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
actions taken and proposed are responsive to our recommendations.
We are making no further recommendations at this time. We will
follow up during our fiscal 1990 audit to determine if the cor-
rective actions taken and proposed corrective actions were accom-
plished in accordance with the Agency's plan. We reviewed addi-
tional documentation provided by the Agency in response to the
draft report and accepted $1,528,304 of the $1,793,329 identi-
fied by the Agency as valid and supportable. We also acknowledge
that the Agency provided support indicating that $1,000,000 of
$1,019,706, representing input errors, has been subsequently
corrected, however, these costs remain questioned in this report
because these amounts were included in the Schedule of Obliga-
tions (Exhibit I) and were adjusted by the Agency subsequent to
year-end. For additional details on the status of questioned
costs, please refer.to Exhibit III A, Footnotes.
SCHEDULE OF DISBURSEMENTS DID NOT AGREE WITH OUTLAYS REPORTED
TO THE OFFICE OF MANAGEMENT AND BUDGET
Our audit disclosed a $26,767,694 difference between the total
disbursements reported in the Schedule of Disbursements (ExTUMt
S*1 and the total outlays reported to OMB for fiscal 1989.
Jth
shadui-
$938,183,328. "The total ^outlays in the RepSrt* on -Budge fc—ExecHa -
£ifiSL~i.SF^l.33^,, -submitfeed- to-~OMBst3n~-November—3
-------
FINDINGS AND RECOMMENDATIONS (CONTINUED)
balances..
Financial Management Division (FMD) officials explained that the
difference consisted of net adjustments of $24,366,170 made
between cash disbursements accounts and the Year-end Prepaid
Adjustments Account (General Ledger Account No. 145.1) in the
IFMS, miscellaneous adjustments of $2,254,514 in the FMS, and an
unexplained difference of $147,010, as shown below:
Schedule of Disbursements $938,183,328
Outlays per SF-133 911,415.634
Difference $ 26,767,694
= = = = = = = = = s;s
Year-end Prepaid Adjustments - IFMS (net) $ 24,366,170
Miscellaneous adjustments - FMS (net) 2,254,514
Unexplained difference 147.010
$ 26,767,694
We noted that four journal entries for $24,366,170 had been made
at year-end to bring the IFMS general ledger disbursement ac-
counts into balance with U.S. Treasury disbursements and EPA's
reports to OMB. After Treasury provided EPA with final cash
disbursement balances at fiscal year-end, FRAB prepared journal
entries to cash disbursement accounts to adjust EPA's records to
agree with Treasury records. FMD used the Year-end Prepaid
Adjustments Account to adjust these differences between EPA's
accounts and the Treasury's records for fiscal 1989. The journal
entries substantially make up the balance in the Year-end Prepaid
Adjustments Account in IFMS. Other miscellaneous adjustments of
$2,254,514 were made to general ledger accounts in the FMS during
the year-end closing. The difference of $147,010 was not ex-
plained. The adjustments of $24,366,170 in the IFMS Prepaid
Adjustments Account are significant, amounting to 2.6% of total
reported disbursements of $938,183,328.
Our audit was conducted in two separate phases, corresponding to
the periods of operations of the FMS and the IFMS. In each
phase, we requested that FMD provide Schedules of Disbursements
by major object class. Disbursements were reported to us from a
combination of disbursement data for Superfund appropriations 68-
20X8145 and 68-20M8145. The Suoerfund Activity For The Fiscal
Year 89 Through February 1989 Report was prepared by FRAB from
information contained in the FMS Detail History File. The total
year to date disbursements from this report amounted to
$370,669,594 for the five month period ended February 28. The
Year To Date Disbursement Totals Report was prepared by FSB from
information contained in the IFMS General Journal File. This
file in the IFMS is comparable to the Detail History File in the
FMS. Total disbursements from this report amounted to
66
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
$567,513,734 for the seven month period, from March 1 through
September 30. The total disbursements for the fiscal year com-
bined from the two reports above amounted to $938,183,328, as
shown below:
System File Dates Amount
FMS Detail History 10/1/88-2/28/89 $370,669,594
IFMS General Journal 3/1/89-9/30/89 567.513.734
Total $938,183,328
The disbursements in the Report on Budget Execution submitted to
OMB in November 1989 were adjusted by FRAB to agree with Treasury
records. The adjusting entries were subsequently reversed prior
to the above reports being provided to us in February 1990.
Year-end prepaid adjustments and miscellaneous adjustments were
recorded again after the above reports were provided to us. FMD
closed the.books for fiscal 1989 in April 1990. In May 1990, we
were provided with the General Ledger Balance Cumulative Through
Accounting Period 89/16, dated April 26, 1990. The general
ledger accounts for cash disbursements in the final trial bal-
ances agreed with Treasury records and the outlays reported to
OMB.
Year-end closing activities include reconciling EPA's cash
disbursements accounts with Treasury records. Normally, this
reconciliation involves identifying specific differences between
EPA and Treasury records, which are usually due to timing.
However, at the end of fiscal 1989, due to the lack of IFMS
reporting capabilities and the problems with conversion from the
FMS to the IFMS, FMD officials were unable to identify the spe-
cific differences to support a reconciliation. As a result, FMD
has been unable to make subsequent journal entries from the Year-
end Prepaid Adjustments Account to the proper general ledger
accounts to adjust the prepaid account and other general ledger
accounts.
FRAB officials stated that the Year-end Prepaid Adjustments
Account consisted of conversion activity which, affected cash
disbursement accounts and timing differences between Treasury and
EPA. Entries to the Prepaid Adjustments Account were made at the
appropriation level, and not at the detail object class level.
Therefore, FRAB does not have detail accounting information to
support the entries made to the prepaid accounts or to provide a
reconciliation.
The lack of reporting capabilities of IFMS resulted in the fail-
ure to identify specific differences between EPA records (FMS and
IFMS) and to reconcile differences with Treasury records. As a
result, FMD did not have sufficient support and cannot make the
67
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
necessary adjustments to the appropriate general ledger accounts.
Without accurate and reliable accounting records, EPA was unable
to properly manage and maintain accountability over financial
operations and reporting.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, Financial Management Division to:
o make necessary adjustments to clear the Year-end Prepaid
Adjustments Account and other general ledger accounts to
properly reflect the correct amounts in the accounting
records;
o provide a reconciliation of the specific differences
between disbursements reported in the Schedule of Dis-
bursements and total outlays reported to OMB; and
o ensure that reconciliations with Treasury are performed
on a monthly basis in fiscal 1990 and 1991 to reduce
unexplained and unsupported differences at year-end.
AA's COMMENT? ON DRAFT REPORT RECOMMENDATIONS
The AA agreed with our recommendation to make the necessary
adjustments to the Prepaid Adjustments Account and other general
ledger accounts. The AA stated that Agency personnel normally
research all charges into the prepaid account, determine the
proper adjusting entries needed to close this account, and re-
classify all charges to their appropriate account classification.
In order to complete this task, the Agency is attempting to
create file data bases and report formats that will allow the
finance offices to conduct detailed analysis of the various
general ledger accounts and identify adjustments needed to cor-
rect these accounts. Corrective milestones for this task have
been identified as follows:
Corrective Action;
- Identify Corrective Action Strategy
- Develop Reports
- Finance Offices Conduct Analysis
- Enter adjustments into the IFMS
Target Dates *
10/31/90
5/31/91
9/30/91
11/30/91
* Dependent upon development of specific reports from
the IFMS data base using contractor assistance.
The AA disagreed with our recommendation to provide a
reconciliation of the specific differences between disbursements
68
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
reported in the Schedule of Disbursements (Exhibit II) and total
outlays reported to ,0MB. The AA stated that the outlays reported
to OMB are totally supported by the general ledger. The AA
indicated that the special report (of disbursements) provided to
the auditors did not agree with the total outlays because the
special report reflected "reversing entries" that account for the
difference. The AA further stated that the special report should
be disregarded for audit purposes and the general ledger file be
used in all comparative analysis. The AA acknowledged that some
accounting data, which resides in the "prepaid" general ledger
account, needs to be reclassified to more appropriate general
ledger accounts. The corrective action plan for this task is
described above.
The AA agreed with our recommendation to ensure that monthly
reconciliations with Treasury are performed in fiscal years 1990
and 1991. The AA stated that corrective actions are being taken
as follows: (1) a reconciliation process is being prepared to
reconcile cash transactions for FY 1991 from the beginning of the
fiscal year. Existing reports will be used for reconciliation
purposes until proper cash reconciliation reports are available.
Also, specific general ledger edits will be incorporated into the
IFMS to reduce the type of entries that cause cash to be out of
balance with Treasury records. Financial Management Offices will
be more closely monitored with regard to their reconciliation
activities during FY 1991; and (2) corrective milestones have
been established to "go back" and take corrective actions for FY
1990 activity. These.milestones are shown as target dates above.
OUR EVALUATION OF THE AA's COMMENTS
The AA's response to our draft report and the Agency's proposed
corrective actions are generally responsive to our recommenda-
tions, except for disagreement with our recommendation to provide
a reconciliation of specific differences between disbursements
reported in the Schedule of Disbursements and total outlays
reported to OMB. We will follow up during our fiscal 1990 audit
to determine if the proposed corrective actions were accomplished
in accordance with the Agency's plan.
We disagree with the AA's statements that: the outlays reported
to OMB are "totally supported" by the general ledger; the differ-
ences between the special report and the total outlays are due to
"reversing entries"; and the special report of disbursements
should be disregarded for audit purposes. First, the general
ledger agreed with the outlays reported to OMB because FMD per-
sonnel made journal entries to bring the general ledger disburse-
ment accounts into balance with Treasury. These journal entries,
which were made without any supporting detail documentation, make
up the balance in the "Prepaid Adjustments Account". Second,
the special report of disbursements provided to us for audit did
69
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/
FINDINGS AND RECOMMENDATIONS (CONTINUED)
not agree with the outlays reported to OMB or with the ending
general ledger because the entries described above had been
"reversed" when the special report was prepared for us. The fact
that these entries had been "reversed" should not be confused
with normal accounting procedures for "reversing entries" at the
beginning of the following accounting period. These entries were
reversed in fiscal 1 989 because they had only been made to faring
the general ledger into agreement with Treasury disbursements,
and were unsupported by any detail. Third, the special report of
disbursements was provided to us for audit purposes by Agency
officials in February 1990 and represented the only schedule of
disbursements by major object class description available for
audit. The Agency did not close its books and prepare a final
general ledger until April 26, 1990. Subsequent to that date, we
requested that EPA provide a report of disbursements by major
object class from the general ledger that agreed with the outlays
reported to OMB. FMD officials were unable to produce a meaning-
ful report by major object class because of journal entries which
had been made at the appropriation level, which did 'not include
object class data.
In order to properly reconcile the Prepaid accounts, specific
transactions at the object class level must be identified and the
appropriate accounts adjusted at the object class level. There-
fore, we believe it is essential to identify the specific differ-
ences between disbursements reported in the Schedule of Disburse-
ments and the outlays reported to OMB. We are also concerned
that the target dates for reconciling the $26.8 million differ-
ence between Agency accounting records and the outlays reported
to OMB for fiscal 1989 will extend into fiscal 1992. We encour-
age earlier implementation of corrective actions so Agency ac-
counting records can properly reflect the correct amounts for
1989 disbursements.
RECOMMENDATIONS — -K ' ^ co (JT^CJ *Juu-3*' ^J (JMUf1 ^AjU^. Q.
*
/ .
(we recommend that the AA instruct the Director, FMD to:\
ensure that the adjustments made to clear the Year-end
Prepaid Adjustments Account are recorded at the object
class level (where appropriate) so that specific differ-
ences between disbursements previously reported in the
Schedule of Disbursements and outlays reported to OMB can
be identified; and
prepare a report from the general ledger, after all
adjustments are recorded, of fiscal 1989 disbursements by
major object class, which agrees with or is reconciled to
the outlays reported to OMB, and retain for the auditors.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
6. DISBURSEMENTS WERE QUESTIONED DUE TO RECORDING ERRORS AND
LACK OF DOCUMENTATION
Based upon the results of our statistical sampling, w<|_ questioned
$2, 875, .846 of nonpayroll disbursements. A totaJL-of"""$81 5,979, 481
nonpayrol-1- ..disbursements were recorded_>n — fiscal 1989. The
$2,875,846 of "questioned costs were speci'fic transactions in our
samples which were ineligible or..--uri'supported. The ineligible
costs amounted to $1 , 661 , 4T4~;- .^fhe unsupported costs amounted to
$1,214,372. , (See Exhibit^T B f or details.) In addition, the
results of some tests^dr internal control and compliance at-
tributes for nonpayroll disbursements indicated unacceptable
levels (over 5%) of noncompliance with Agency policies and proce-
dures .
Using statistical sampling techniques, we projected that ques-
tioned costs would fall within a range f rojn^(4^436, 398 ) to
$13,247,712, or between (0.54%) and 0...9-7%-' of "nonpayroll disburse-
ments. Our projections^ of ..questioned disbursements were made
with a 95% confidence limitf, i.-e., we are 95% confident that the
questioned costs ^fal'l within "this range. (See Appendix 2 for
more details. ) xTfie projected questioned costs were immaterial in
relation to £fte total recorded nonpayroll disbursements. There-
fore, we questioned only the transactions with errors from our
samples and accepted the balance of recorded nonpayroll disburse-
ments .
The ineligible and unsupported costs were questioned for various
reasons. At Regions 2 and 3, we found that cost allocation
transactions for Regions 6 and 5 were recorded under AP 02 and AP
03. At Region 9 and Las Vegas, we found that standard voucher
transactions were recorded by FSB under AP 09 and AP 33. Since
no documentation was maintained by the FMOs to support the above
transactions, this resulted in documents not being located and
the costs were considered unsupported. At Regions 5 and 9, costs
were questioned because the documents could not be located. The
questioned costs at Region 8 were due to an error in allocating
costs to Superfund. At Region 10, one disbursement was ques-
tioned because of an input error and another disbursement was
questioned because the recorded amount did not agree with the
obligating document. At RTF, costs were questioned because
thirteen prior years' disbursement transactions were previously
recorded in the FMS and converted to the IFMS as current year
disbursement transactions. The questioned costs at Region 9 and
Las Vegas were due to FSB officials inputting SV transactions for
Accounting Point 33 and not forwarding supporting documents to
the FMO at Las Vegas. At Cincinnati, the reason for questioning
costs was that interest was paid in error. At Headquarters, the
reasons for the questioned costs were that documents could not be
located and complete accounting information was not recorded in
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
the IFMS.
ctfC
We also reviewed certain standard voucher (SV) transactions
(transactions codes SV 01 and SV 02) at RTF, which was an expan-
sion of the statistical sample taken for standard vouchers.
These voucher transactions were initially processed to redistrib-
ute Superfund site-specific costs from nonsite-specific to site-
specific account numbers. RTF officials informed us that all
these standard voucher transactions for redistribution of pay-
ments on contracts had been reversed due to system problems with
the effect of the transactions. We obtained a computer printout
of these transactions to determine if all the transactions were
reversed as of September 30, 1989. If all these transactions had
been properly reversed during fiscal 1989, the balances should
have zeroed out at year-end. The printout from the IFMS showed
over 9,000 transactions were processed, resulting in net balances
of $168,246 and $87,319 for SV transaction types 01 and 02,
respectively. As a result, disbursements recorded for these
redistribution transactions were misstated by $255,565 at year-
end. We did not determine the effect of the misstatement. We
believe that it results in errors between amounts charged to
site-specific and nonsite-specific account numbers.
In response to our draft report, Region 2 stated that Region 6
cost allocations appeared under AP 02 because during the nightly
IFMS update and conversion process, the charges were inadvertent-
ly converted to Region 2 files. Region 3 stated that our samples
contained Region 5 cost allocation transactions. Region 5 stated
that one item was part of an error and was incorrectly coded and
keyed into the system. However, documentation provided was
inadequate and it could not be determined if a correcting entry
had been made. Region 9 stated in response to our draft report
that due to the October 17, 1989, earthquake, supporting docu-
ments were placed in storage. In addition, they stated that one
transaction was a standard voucher initiated and entered by
Headquarters and that they had never seen the documentation.
Headquarters officials, in response to our draft report, stated
that they agreed that airline receipts could not be located,
however, the travel voucher substantiates a valid Superfund cost.
We continue to question the cost for lack of supporting documen-
tation. Also, officials at Headquarters stated that complete
accounting information for travel disbursements was not located
in the Payment Voucher Header Table because of an apparent inter-
face problem with the Travel Order Line Table.
RTF officials, in response to our draft report, stated that the
transactions which we considered duplicates in the FMS and the
IFMS were not recorded twice but were rejected during the initial
conversion to the IFMS. The officials stated that when the
transactions were corrected, the .applicable accounting period was
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
changed from "0089" to "0589". As a result, the conversion
transaction appeared in the current general ledger. We ques-
tioned these costs because they were included in both the FMS
files and the IFMS files as current year disbursements and,
therefore, were recorded twice in the disbursements reported to
us.
Concerning the standard voucher transactions at RTF, officials
stated that the auditors reported that CV-01 and CV-02 transac-
tions processed by RTF misstated disbursements by $168,246 and
$87,319, respectively, because the transactions did not "zero
out" in the IFMS. RTF officials did not concur with the finding.
RTF officials indicated that the CV-01 transaction code was
originally developed to process S/F Site Specific Redistribution
transactions from the CPS and the IFMS. However, after briefly
using this transaction code for this purpose, RTF officials noted
it was not having the desired effect on the IFMS obligation
tables. RTF personnel proceeded to reverse thousands of CV-01
transactions and reprocess them with CO and CD transactions
codes. Apparently, not all transactions were completed by the
end of the fiscal year. Since December 1989, RTF personnel
reconciled the cumulative obligation amounts between the CPS and
the IFMS for each accounting line every month. As a result of
this process, officials stated that there are no longer any
unreconcilable differences and all appropriate corrections were
made to the CV redistributions.
RTF officials also did not concur with the finding regarding the
CV-02 transactions. Officials stated that the CV-02 transaction
code was developed to process Letter-of-Credit (LOG) and Interof-
fice Transfer Vouchers (IOTV) transactions between the CPS and
the IFMS. RTF personnel indicted that the transaction code was
not designed to have a zero effect in the IFMS. Further, accord-
ing to RTF officials, the auditor's only basis for the finding
was that the transaction code amounts did not zero out in the
IFMS, and since there were no findings related to out-of-balance
LOCs and lOTVs; RTF did not research this finding..
Cincinnati's response to our draft audit report resulted in two
previously questioned transactions amounting to $10,302 being
accepted. In addition, officials stated that with the implemen-
tation of the IFMS, the "flag" was not set in the Vendor table in
the IFMS to distinguish payment to a Federal Agency, resulting in
interest being erroneously paid. The Vendor table has since been
corrected. Las Vegas stated that the unsupported costs were
identified by the User ID as being input by FMD Headquarters.
The questioned costs for Regions 2 and 3, resulting from cost
allocation transactions recorded at other APs, were provided to
FSB for review at the conclusion of our fieldwork. Regions 8 and
10 did not respond to the questioned costs in our. draft report.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Internal Control And Compliance Attribute Rates Were Unacceptable
The sampling universe for nonpayroll disbursements was taken from
the fiscal 1989 Detail History File from the FMS for the five
months from October 1, 1988 through February 28, 1989; and the
General Journal File from the IFMS for the seven months ,from
March 1, 1989 through September 30, 1989. The transactions in
this file were separated into subuniverses: contracts, coopera-
tive agreements, travel, and all other object classes, excluding
personnel compensation and benefits. In addition, journal/stand-
ard voucher transactions were segregated into separate universes
for attribute testing. We tested internal control and compliance
attributes to determine the degree of compliance with Agency
policies and procedures. Our statistical analysis indicated that
the error rates exceeded five percent for the following at-
tributes :
Interim Year-End
Attribute and Subuniverse Error Rate(1) Error Rated)
Obligation Document Number agrees with
disbursement documents:
Travel 28.57% (2)
Journal/Standard Vouchers (2) 32.63%
Document Control Number/Bar Code Number
agrees with disbursement documents:
Travel 28.57% 6.58%
Journal/Standard Vouchers (2) 36.78%
Account Number agreed with disbursement
documents:
Cooperative Agreements 20.00% (2) (3)
Travel 28.57% 6.02%
Journal/Standard Vouchers (2) 22.67%
Account Number is a valid Superfund
Account Number:
Travel 28.57% 6.02%
Notes:
(1) - Observed error rate represents the actual error
rate of each sample tested, unless otherwise
noted.
(2) - Error rate was 5% or less.
(3) - Projected error rate.
CND - Could not determine from information in the IFMS file
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
.. ' . •• Interim Year-End
Attribute and Subuniverse Error Rated ) Error Rated!
Object Class agrees with disbursement
documents: ;.-•••
Travel 28.57% 6.02%
Journal/Standard Vouchers ' (2) 20.39%'
Object Class code is reasonable based
upon description of goods or ser-
VXC6SI '
Other Object Classes 20.90% 26.73%{3)
Travel 28.57% ' 6.02%
Appropriation Number on disbursement
documents is Superfund
(68-20X8145):
Travel 33.33% (2)
Travel Voucher was date stamped by FMO:
Travel 28.57% 10.81%
Authorized official's approval was
indicated on disbursement
documents: ,
Cooperative Agreements 6.92% (2) (3)
Travel 28.57% 7.81%
Journal/Standard Vouchers 12.92% 60.00%
Disbursement documents were matched
and indicated evidence of review . •
by voucher examiner or accounting
technician:
Travel 28.57% 8.77%
Notes:
(1) - Observed error rate represents the actual error
rate of each sample tested, unless otherwise
noted.
(2) - Error rate was 5% or less.
(3) - Projected error rate.
•CND - Could not determine from information in the IFMS file,
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FINDINGS AND RECOMMENDATIONS(CONTINUED)
Attribute and Subuniverse
Costs claimed on Travel Voucher for
airfare, lodging and rental
vehicles are supported by
receipts and supporting receipts
are attached for all expenses
> $25.00:
Travel ; 28.57%
Disbursement documents were perforated
or stamped "PAID" and indicated
Treasury schedule and date:
Other Object Classes 8.52%
Date approved by project officer or
voucher examiner was prior to
date certified by certifying
officer:
Other Object Classes (2)
Journal/Standard Voucher contains
sequential number and it agrees
with schedule number:
Journal/Standard Vouchers 7.69%
Explanation of entry is provided in
documentation:
Journal/Standard Vouchers (2)
Preparer signature and title is
indicated on documents:
Journal/Standard Vouchers (2)
Receipt of Travel Voucher by FMO was
timely:
Travel 57.14%
- Interim Year-End
Error Rate(1 ) Error Rated )
11.36%
8.58%(3)
6.53%{3)
50.40%
43.20%
64.00%
33.33%
Notes:
(1) - Observed error rate represents the actual error
. rate of each sample tested, unless otherwise
noted.
(2) - Error rate was 5% or less.
(3) - Projected error rate.
CND - Could not determine from information in the IFMS file.
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Interim Year-End
Attribute and Subuniverse Error Rated) Error Rated )
Invoice was paid on time but not early:
Contracts 35.52% 20.90%(3)
Other Object Classes 38.81% 29.00%(3)
Cash discount, if available and cost-
effective, was taken:
Contracts . (2) 7.69%(3)
Other Object Classes (2) 42.67%{3)
Interest penalty on late payments was
included with disbursement:
Contracts > (2) 20.00% (3.)
Other Object Classes 100.00% 63.74%{3)
Posting of disbursement to FMS/IFMS by
FMO was timely:
Cooperative Agreements 36.86% CND
Other Object Classes 15.09% CND
Travel - 31.58% CND
Journal/Standard Vouchers 28.78% 56.07%
Notes:
(1) - Observed error rate represents the actual error
rate of each sample tested, unless otherwise
noted.
(2) - Error rate was 5% or less.
(3) - Projected error rate.
CND - Could not determine from information in the IFMS file.
EPA Comptroller Policy Announcement No. 86-09 states that in
order to report accurately and timely on funds status and other
financial results of Agency activities, data must be recorded as
promptly as possible after authorized officials take actions
(e.g., obligation of funds, disbursements) affecting that status.
We could find no specific Agency policy for timely recording of
disbursements in the FMS. Therefore, we used the timeframes
required for recording obligations, within 4 work days. However,
for disbursements made under the IFMS, we could not determine the
date of input of the disbursement transactions, therefore, we
were unable to conduct this test.
EPA Voucher Examination Manual, Chapter 2, 5 (c), states that
voucher invoices, and principal supporting documents will be date
stamped upon receipt in the accounting office. Comptroller
Policy Announcement 86-16 states that all Journal Vouchers will
be sequentially numbered. Each Financial Management Office has
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
the responsibility to establish its own sequential numbering
system for Journal Vouchers. All Journal Vouchers will contain
the signatures and titles of both the originator and the supervi-
sory financial management officer or designee.
One of the objectives in our audit of nonpayroll disbursements
was to determine if disbursements were made in accordance with
EPA's cash management policy and the Prompt Payment Act. OMB
Circular A-125, Prompt Payment, Revised December 21, 1989 and
effective April 1, 1989, communicated administrative guidance to
executive departments and agencies on implementing the new legis-
lation. The new legislation eliminates the grace period and
requires.Federal agencies to pay their bills on time, to pay
interest penalties when payments are made late, and to take
discounts only when payments are made by the discount date. On
May 24, 1989, The Department of Treasury issued procedures to be
followed for overdue vendor payments. These procedures were
issued to all agencies serviced by Treasury Financial Centers
including EPA.
Our tests of compliance with OMB Circular A-125 Revised, Prompt
Payment Act Amendments of 1988, included 783 transactions amount-
ing to $113,973,360. These transactions were selected in our
disbursements samples for the period March 1, 1989 through Sep-
tember 30, 1989, the period of operation of the IFMS. The re-
sults of those tests disclosed the following exceptions:
Total
Payment Made Number Amount
7 days or more before
the due date 28 $ 1,517,187
After the due date 168 $45,561,461
Interest penalties estimated at $3,092 should have been paid with
the payments made after the due date. We. found that interest
amounting to $693 was actually paid and $2,399 was not included
with the late payments.
The IFMS accounts payable subsystem was designed to automatically
schedule payments 30 days after receipt of a proper invoice or
receiving report indicating acceptance of goods or services,
whichever was later. The FMOs were responsible for entering the
proper date in the IFMS table to ensure that payments were made
in accordance with the Prompt Payment Act. The subsystem was
also designed to automatically include interest on payments not
made timely. We noted that interest was not always included with
late payments because: (1) the interest function in the IFMS
accounts payable subsystem was not working properly after imple-
mentation; and (2) the correct date of receipt of the invoice or
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FINDINGS AND RECOMMENDATIONS iCONTINUED)
receiving report was not always entered in the IFMS correctly.
As a result, payments were not always made within the prescribed
timeframes of the Prompt Payment Act. Also, payments did not
always include interest that should have been paid on late pay-
ments .
During our testing of internal control and compliance attributes,
we noted that many attributes exceeded an acceptable 5% error
rate. For invoices not being paid on time, cash discounts not
being taken, and interest penalties on late payments not being
paid, we noted that accounting personnel sometimes entered the
wrong date for receipt of invoice or acceptance in the IFMS.
Also, during the period from March 1, 1989 to September 30, 1989,
the IFMS system was not always functional. The attribute excep-
tions noted during year-end fieldwork relating to standard vouch-
ers were often caused by the lack of documentation to support
these transactions. Policies or procedures for standard voucher
transactions have not been issued since the implementation of the
IFMS. Therefore, we used the requirements for journal vouchers
for the preparation and support of standard vouchers.
The failure to properly follow Agency policies and procedures
relating to disbursements, as indicated in the attributes above,
could result in lack of proper documentation to support cost
recovery actions, improper charging of costs to Superfund, pay-
ment of excessive interest on late payments, and loss of cash
discounts.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, Financial Management Division to: ""
o require the appropriate FMOs to review and resolve the
questioned disbursement transactions and make any neces-
sary accounting entries;
o ensure that the IFMS accounts payable subsystem properly
includes interest on payments made after the due date;
o amend the policy announcement for journal vouchers to
include standard vouchers; and
o emphasize to the FMOs the importance of complying with
Agency policies for cash management regarding prompt pay-
ment and taking cash discounts.
AA's COMMENTS ON DRAFT REPORT RECOMMENDATIONS
The AA stated that FMOs have been advised to review and resolve
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
transactions questioned by the audit and to record the necessary
accounting entries. However, the AA disagreed with certain
specific findings summarized in Exhibit IV of our draft report.
The AA indicated that, of the $3,102,247 in questioned costs
reported in Exhibit IV in our draft report: (a) $2,066,061 were
valid and supportable; (b) $408,362 represented input errors that
have been corrected in the IFMS by various Accounting Points; and
(c) $627,824 were being researched and will be resolved in ac-
cordance with the following action plan:
Corrective Action;
- All FMOs except Region 9 will
research, produce supporting
documentation, and record
necessary correcting entries
to resolve transactions
questioned by the auditors.
Supporting documentation will
be submitted by FMD.
- FMD will verify resolution of
costs questioned.
- Region 9 will obtain records
placed in emergency storage
because of earthquake,
research, and provide
documentation to support
resolution of costs
identified as unsupported
by the audit. Submit
documentation to FMD.
Target Dates
9/30/90
10/31/90
11/15/90
The AA concurred in part with our recommendation to ensure that
the IFMS accounts payable subsystem properly includes interest on
payments made after the due date. The AA agreed that the correct
dates must be entered by SFOs to ensure that the interest
penalties are properly assessed for late payments. A newsletter
article emphasizing the importance of entering correct dates on
payment screens for Prompt Payment criteria will be republished
in a future newsletter. The AA disagreed that there were any
implementation problems with the operation of the interest func-
tion in the IFMS. The AA requested further clarification to
determine if the finding relates to non-contract payments in the
IFMS or contract disbursements processed in the CPS and posted to
the IFMS via an automated interface.
The AA agreed with our recommendation to include standard
vouchers in a policy announcement for journal vouchers. The AA
also agreed to issue a memorandum by August 30, 1990, reemphasiz-
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t . FINDINGS AND RECOMMENDATIONS (CONTINUED)
ing the policies and procedures on the Prompt Payment Act Amend-
ments of 1988 {Public Law 100-496) and the revised OMB Circular
A-125, "Prompt Payment," which was originally described in Comp-
troller Policy Announcement 90-03 (Implementation of the Prompt
Payment Act Amendments of 1988 and OMB Circular A-125. Revised).
This policy announcement includes the Agency's policies and
procedures for cash management for prompt payment and cash dis-
counts .
OUR EVALUATION OF THE AA' s COMMENTS
The AA's response to our draft report and the Agency's corrective
action taken and proposed are generally responsive to our recom-
mendations. We will follow up during our fiscal 1990 audit to
determine if the proposed corrective actions were accomplished in
accordance with the Agency's plan.
We reviewed additional documentation provided by .the Agency in
response to costs questioned amounting to $3,074,127 in the draft
report. We accepted $187,980 of the $2,066,061 and $408,362,
identified by the Agency in the response to our draft report as
valid and supportable and input errors corrected, respectively.
We also accepted $10,302 of previously unsupported costs based
upon additional documentation from Cincinnati, in addition to the
amounts identified by the Agency in their response. Further, we
found that transactions totaling $217,126 identified by the
Agency in Attachment II, Page 2 of 3 of the response, as payments
at Las Vegas, were actually unsupported standard voucher transac-
tions recorded at Headquarters in the IFMS as Las Vegas transac-
tions. We also noted that transactions amounting to $1,660,955,
also identified by the Agency, in Attachment II, Page 2 of 3 of
the response, as conversion transactions at RTP, were recorded in
both the FMS and the IFMS as disbursements in fiscal 1989. As a
result, these transactions were included twice in the Schedule of
Disbursements, Exhibit II, reported to us. We believe that these
transactions make up part of the unreconciled difference between
the Schedule of Disbursements and outlays reported to OMB report-
: ed in Finding No. 5. For additional details on the status of
questioned costs, please refer to Exhibit IV B, Footnotes. We
were advised by Agency personnel that the interest function in
the IFMS was not properly functioning when the IFMS was original-
ly implemented.
RECOMMENDATIONS
\We.recommend that the AA instruct the Directfor, FMD to:
o obtain documentation from the Financial Systems Branch
personnel at Headquarters to support the standard vouch-
ers recorded for AP 33 - Las Vegas; and
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
determine if the RTF conversion transactions were part of
the $26.8 million difference between the Agency's dis-
bursements reported in the Schedule of Disbursements and
the total outlays reported to OMB.
7. PERSONNEL COMPENSATION COSTS WERE QUESTIONED DUETO ERRORS
AND LACK OF DOCUMENTATION
Based on the analysis of our statistical samples of personnel
compensation transactions, we accepted $103,514,515 of the re-
corded disbursements, totaling $103,536,979, as presented in
Exhibit II. We questioned personnel compensation disbursement
costs of $22,464, which were specific ineligible or unsupported
transactions in our samples. The ineligible costs amounted to
$1,682. The unsupported costs amounted to $20,782. (See Exhibit
IV A.) The questioned costs resulted from: ineligible lump sum
leave; unrecorded redistribution of hours; missing documentation
to support transactions; account number data not in agreement
with source information; incorrect pay rates; and input, adjust-
ment, and rounding errors. We also found that two of nine inter-
nal control and compliance attributes for payroll transactions
exceeded an error rate of five percent.
Using statistical sampling techniques, we projected that the
universe of personnel compensation disbursements would contain
questioned costs within a range from $462,607 to $2,535,170, or
between 0.45% and 2.45% of the recorded amount. Our projections
were made with a confidence limit of 95%, i.e., we are 95% confi-
dent that the questioned costs would fall within this range had
we audited the entire universe of transactions. (See Appendix 2
for more details.) The projected questioned costs were immateri-
al to the total payroll disbursements. Therefore, we questioned
only transactions with errors from our samples and accepted the
balance of recorded payroll disbursements.
The sampling universe of personnel compensation transactions was
identified from the payroll subsystem (EPAYS) Paymerge File,
which totaled $104,671,979, as of September 30, 1989. The re-
corded obligations and disbursements for personnel compensation
amounted to $103,546,800 and $103,536,979, respectively, as shown
in Exhibits I and II. Differences between the Paymerge File
totals and the obligation and disbursement totals were considered
immaterial for audit purposes.
We tested nine internal control and compliance attributes to
determine the degree of compliance with Agency policies and
procedures. Our statistical analysis indicated that projected
error rates exceeded five percent for the following attributes:
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
Attribute
Leave time supported by application for leave or
timecard entry initialed by employee
Overtime hours, compensatory time worked, and
premium pay supported by an approved request
for and authorization of overtime work
Projected
Error Rates
12.81%
5.05%
Our statistical analysis of internal control and compliance
attributes indicated that the projected error rates exceeded five
percent for two out of nine attributes as compared to four of
nine in fiscal 1988. The projected error rates for all at-
tributes tested during fiscal 1989 were also lower than the
results in the prior year. This reduction in error rates indi-
cates improvement in compliance with EPA's timekeeping policies
and procedures.
DRAFT REPORT RECOMMENDATIONS
We recommended in our draft report that EPA's Assistant Adminis-
trator for Administration and Resources Management instruct the
Director, FMD to require the appropriate program officials and
FMOs to review the questioned payroll transactions and make, or
advise HAOB to make, any necessary adjustments to the payroll
records and to retain documentation of such adjustments for audit
purposes.
AA's COMMENTS ON DRAFT REPORT RECOMMENDATIONS
The AA agreed with our recommendation to require the appropriate
program officials and FMOs to review the questioned payroll
transactions and make, or advise HAOB to make, any necessary
adjustments to the payroll records and to retain documentation of
such adjustments for audit purposes. In addition, the AA stated
that they are currently researching the $28,120 in costs ques-
tioned in the draft audit report as ineligible or unsupported.
In order to complete this task, the Agency's corrective mile-
stones for this task have been identified as follows:
Corrective Action;
- HAOB will follow-up with the FMOs1
to determine status of any payroll
corrections.
Target Dates
8/31/90
9/30/90
- Resolve questioned amounts
OUR EVALUATION OF THE AA's COMMENTS
The AA's response to our draft report and the Agency's corrective
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FINDINGS AND RECOMMENDATIONS (CONTINUED)
actions taken and proposed are responsive to our recommendations.
As a result of additional documentation provided by the Agency in
response to our draft report, we accepted $5,655 of costs previ-
ously questioned. For additional details on the status of ques-
tioned costs, please refer to Exhibit IV A, Footnotes. We make
no further recommendation regarding this audit finding. We will
follow up during our fiscal 1990 audit to determine if the pro-
posed corrective actions were accomplished in accordance with the
Agency's plan.
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APPENDIX 1
SCOPE AND METHODOLOGY OF STATISTICAL SAMPLING
FOR THE FISCAL YEAR 1989 SUPERFUND AUDIT
The primary objective of the Hazardous Substance (Superfund) audit was to
determine the dollar reasonableness of reported obligations and disbursements for fiscal
year 1989. The audit was designed to produce valid agency-wide estimates of the total
dollar obligations and disbursements by major object class, the discrepancy between the
recorded and actual (audit) amounts, the total dollar amounts questioned by the auditors,
and the proportion of transactions recorded in accordance with specified internal control
or compliance attributes (e.g., the proportion of transactions for which the recording of
obligations complied with established internal controls or EPA policies and procedures, or
the proportion of accounts for which the recording of disbursements complied with
established internal controls or EPA policies and procedures.) Statistical samples were
selected for the audit from separate data files provided by the EPA Financial Systems
Branch (FSB) of the Financial Management Division: (1) the "Paymerge" file containing
personnel compensation and benefits transactions (both interim and year end); (2) the
"Allotment" file containing summary records of nonpayroll obligations (interim only); (3)
the "General Journal" file containing nonpayroll obligation detail records which were
unliquidated at the end of the fiscal year (yearend only); (4) the "General Journal" file
containing detail records of liquidated nonpayroll obligations (yearend only); (5) the "Detail
History" file containing nonpayroll transactions recording disbursements (interim only) and
(6) the "General Journal" file containing detail records of non-payroll disbursements
(yearend only). The procedures used to select the various audit samples and the methods
used to calculate the statistical projections are described in the sections below.
1.
1.1
Sampling Procedures
Personnel Compensation and Benefits '
The sampling frame (i.e., "universe" of personnel compensation and benefits
transactions) was constructed from a cumulative file of Superfund payroll transactions
(FY89.PAYMERGE) provided by the EPA's FSB. This file is referred to as the
"Paymerge" file and contained 280,338 individual compensation transaction records
representing $104,671,979 in payroll disbursements which were eligible for sampling. The
eligible transactions included only, those transactions in object class 11. Table 1 summarizes
the total number of transactions and dollars of disbursements recorded in the FY 1989
Paymerge universe file by date of transaction and object class.
AM
-------
In FY 1989, the Superfund audit was conducted in two phases. In the first phase,
a sample of 803 transactions was selected. These transactions included only those entered
in the FMS between the dates of 10/88 to 02/89, the first five months of the fiscal year.
Later, in the second phase, a sample of 871 transactions was selected from those which
were entered in the IFMS after 03/89 (the last seven months of the fiscal year). In both
phases, stratified samples of payroll transactions were selected. The strata from which the
samples were drawn were defined on the basis of object class and the amount of the
transaction. The samples were allocated' to the size strata in a way that was expected
to minimize the sampling error of the projected audit amount.. Table 2 also summarizes
the counts of transactions included in the sample in both phases.
1.2
Nonpavroll Obligations
The sampling frame of nonpayroll obligations was constructed from files of
Superfund obligation records provided by EPA's FSB. The AUDIT.MASTSF.G3780.S2
file is referred to as the "Allotment" file. From this master file, four separate
"subuniverses" were defined for Phase I sampling and analysis: (Al) contracts - major
object class 25; (A2) cooperative agreements - major object class 41; (A3) all other object
classes, except object classes 11, 12, and 13 (personnel compensation and benefits) and 21
(travel); and (A4) travel - major object class 21. About 39,000 obligation records are
included in the four subuniverses indicated above. The total amount recorded in the FMS
(allotment file) for the obligations in the four subuniverses was $257,075,834.* The
Let Nh denote the total number of transactions in size
stratum h, and let Sh denote the standard deviation of dollar
amounts (disbursements) of all transactions in stratum h, for h =
1, 2, ..., L. The values of Nh and S. were obtained directly from
special tabulations of the paymerge file. Given the total sample
size n, the approximately optimum number of cases to be sampled
from stratum h is then given by (e.g., see equation 5-25, chapter
5 in Cochran (1977): Sampling Techniques. John Wiley & Sons):
2 This figure excludes major object
(personnel compensation and benefits).
Al-2
classes 11, 12, 13
-------
distribution of the sampling units and corresponding obligations for Phase I is summarized
in Table 3a by subuniverse. The IFMS.TEST.AOBL.ACCT and tFMS.TEST.APAY.ACCT
files were combined during Phase II to create a master file for sampling of IFMS
obligation transactions. From this master file, five separate "subuniverses" were defined
for Phase II sampling analysis: (Ala) contracts - major object class 25; (Ala) cooperative
agreements - major object class 41; (A3a) all other object classes, except object classes 11,
12, and 13 (personnel compensation and benefits) and 21 (travel); (A4a) travel - major
object class 21; and (A6a) transactions which had no object class indicated in the record
of the transaction. About 268,039 obligation records were included in the five subuniverses
indicated above. The total amount recorded in the IFMS (obligation files) for the
obligations in the five subuniverses was $ 1,192,282,515.3 ' -
The obligation samples were selected in two phases. In Phase I, a total of
904 obligation records was selected from those recorded in the FMS during the first five
months of the fiscal year. In Phase II, a sample of 1,610 obligation records were selected
from those entered into the IFMS during the last seven months of the fiscal year. In each
phase, a stratified sample of obligation records was selected from each of the major object
class groups (subuniverses). The strata from which the samples were drawn were defined
on the basis of the amount of the obligation as recorded in the files referred to above.
The samples were allocated to the strata in a way that was expected to minimize the
sampling error of the projected audit amount. Under this allocation, obligation records
with the largest dollar amount were selected with certainty. Thus, in Phase I, for
subuniverse Al, all obligation records of $600,000 or more were included in the audit
sample, whereas for subuniverse A2, all records with obligations of $50,000 or more were
included in the sample, and for subuniverse A3, all records with obligations of $25,000 or
more were included in the sample. Similarly, in Phase II, for subuniverse Ala, all
obligation records of $500,000 or more (either positive or negative) were included in the
audit sample, whereas for subuniverse A2, all records with obligations of $200,000 or
more (positive or negative) in Phase II were included in the sample. Within each of the
remaining size strata, the universe file of obligation records was randomly sorted, and a
simple random sample of the desired size was selected from the sorted file. Table 3
summarizes the distribution of the sampling units and corresponding obligations by
subuniverse. It should be noted that a wide variance in the subuniverses of obligation
records for Phase II existed due to the large occurrence of both large positive and
negative amounts.
3 .This figure excludes major object
(personnel compensation and benefits).
Al-3
classes 11, .12, 13
-------
1.3
Nonoavroll Disbursements
The sampling frame of nonpayroll disbursements for Phase I was constructed
from the five monthly "Detail History" files of Superfund non-payroll transactions provided
by EPA's FSB* The five monthly files contained 85,285 transactions related to
disbursements (i.e., having transaction codes of 181, 191, or 236). Excluding major object
classes 11, 12, and 13, which were payroll transactions, the total disbursements were
$323,066,621. The sampling. frame of nonpayroll disbursements for Phase II was
constructed from the "General Journal" file containing Superfund nonpayroll disbursement
transactions provided by EPA's FSB. The file contained 107,484 transactions related to
disbursements. Excluding mujor object classes 11, 12, and 13, the total disbursements were
$494,183,240.
For Phase I, four separate "subuniverses" were defined for sampling and
analysis: (Bl) contracts - major object class 25; (B2) cooperative agreements - major
object class 41; (B3) all other object classes, except object classes 11, 12, 13, and 21; and
(34) travel - major object class 21. Within each subuniverse, transactions were stratified
by dollar amount, and whether the transaction recorded a disbursement or reversed a
disbursement/ The counts of transaction records and corresponding dollar amounts are
summarized in Table 4 by subuniverse. For Phase II, six separate "subuniverses" were
defined for sampling and analysis: (Bla) contracts - major object class 25; (B2a)
cooperative agreements - major object class 41; (B3a) all other object classes, except
object classes 11, 12, 13, and 21; (B4a) travel - major object class 21; (B5a) standard
vouchers - all major object classes; and (B6a) unidentifiable - those transactions which
contained no major object class. Within each subuniverse, transactions were stratified by
dollar amount, and whether the transaction recorded a disbursement or reversed a
disbursement.5 The counts of transaction records and corresponding dollar amounts are
summarized in Table 4a by subuniverse.
4 Specifically, records having transaction codes of 181 or 191
and a reversal code of 1, or a transaction code of 236 and a
reversal code of 2 were assigned to transaction group ,1. These
transaction codes record disbursements in the FMS. Records having
transaction codes of 181 or 191 and a reversal code of 2, or a
transaction code of 236 and a reversal code of 1 were assigned to
transaction group 2. These transaction codes reverse or credit
disbursements in the FMS.
5 Specifically, records having transactions codes of PV, DP,
DD, CR, CD, IG, TV, IF, AD, and CX. Transaction types were
primarily 01 or 02. Debit and credit codes and Increase/Decrease
codes also control the transactions effects on general ledger
accounts.
Al-4
-------
A total of 990 transactions related to nonpayroll disbursements was selected
for Phase I (transactions recorded in the period 10/88 - 2/89), and another 2,491 were
selected for Phase II (transactions recorded in the period 3/89 - 9/89). In each phase, a
stratified sample of disbursement transactions was selected from each of the major object
class groups (subuniverses). The sample was allocated to the strata in a way that was
expected to minimize the sampling error of the projected total dollar disbursements.
Under this allocation, records with the largest dollar amounts were selected with certainty.
Thus, for Phase I for subuniverse Bl, all records of $700,000 or more were included in the
audit sample. For subuniverse B2, all records of $200,000 or more were included in the
audit sample. Finally, for subuniverse B3, ail records of $50,000 or more were included
in the audit sample. For Phase II for subuniverse Bla, all records of $400,000 (positive
or negative) or more were included in the audit sample. For subuniverse B2a, all records
recording a disbursement of $ 100,000 (positive or negative) or more were included in the
audit sample. For subuniverse B3a, all records recording a disbursement of $12,500
(positive or negative) or more were included in the audit sample. Finally, for subuniverse
B5a, ail records recording a disbursement of $150,000 (positive or negative) or more were
included in the audit sample. Within each of the remaining size strata, the universe file
of disbursement transactions was randomly sorted, and a simple random sample of the
desired size was selected from the stratum. For each subuniverse, the goal in allocating
the sample to the size/type strata was to achieve a relative sampling error of about 1.5
percent or less (at the 95 percent confidence level) for an estimate of total dollar
disbursements. Tables 4 and 4a summarize the distribution of the sample by phase and
subuniverse.
2. Estimation Procedures
Two general types of estimates (projections) were made from the audit
results: (1) estimates of the total dollars and differences between the audit and recorded
amounts, and (2) estimates of the number or proportion of units with specified attributes.
The procedures used to calculate the sample-based estimates and their corresponding
sampling errors are described below. The. "subuniverses" for which estimates were
calculated are summarized in Table 5.
2.1 Estimates of Total Dollars
A "difference estimator" was used to obtain estimates of the total dollar value
(i.e., the accepted or audit amount) for each of the subuniverses indicated in Table 5.
The general form of this estimator is:
AM
-------
where
Y," = the estimated total audit amount for subuniverse g;
L, = the number of sampling strata defined for subuniverse g
the total dollar amount recorded in the FMS or IFMS for all
transactions in phase/stratum h of subuniverse g;
n(tl= the number of sample units in phase/stratum h of subuniverse g which
were tested'
= the dollar amount recorded in the FMS or IFMS for the ith sample
unit in phase/stratum h of subuniverse g;
*•«
the audit dollar amount for the ith sample unit in phase/
stratum h of subuniverse g.
The estimate y(" is expected to be efficient because of the high degree of
correlation between the recorded and audit values.
The estimated difference between the recorded and audit amounts for subuniverse
g is simply:
6 The number of tested units is usually, but not always equal
to the number of sampled units.
Al-6
-------
For each transaction or record tested, the difference between the audit and
recorded amounts (if any) was the questioned amount (either as an ineligible or a
unsupported amount). In this case, the total difference d,' may be expressed as:
where
d,' -• (<*»,+
d° - the estimated total questioned amount for subuniverse g;
The questioned amounts for subuniverse g were computed from the sample
as
where
2.2
" the questioned amount for the ith sample unit in phase/
stratum h of subuniverse g]
Estimates of Attributes
Attribute variables were coded as 1 (ah exception), 0 (no exception), or N (not
applicable)7. Denoting the subuniverse by g, the phase/stratum by h, and the sampled unit
by i, the projected number of exceptions for a particular attribute for subuniverse g, z,',
was computed as:
where
7 in a few cases the sample unit was not tested.- These "non-
responses" and "not applicables" did not enter into the calculation
of the projections of attributes.
Al-7
-------
L, = the number of sampling strata defined for
subuniverse g;
N0 * the total number of sampling units in the FMS or IFMS in
phase/stratum h of subuniverse g;
fy, = the number of sample units in phase/stratum h
of subuniverse g for which the given attribute was
coded as 0 or 1.
zva= I if the given attribute was coded 1, and equals 0
otherwise.
For a given attribute, the estimated number of units in subuniverse g to
which the attribute applied was computed as:
where b0 is the number of sample cases in phase/stratum h of subuniverse g for which the
attribute was coded as 1 or 0.
The corresponding estimated proportion of applicable cases which where
exceptions (i.e.,error rate) was computed as the ratio:
2.3 Calculation of Sampling Errors
The estimates given in the preceding section (referred to as sample projections) are
based on one particular subset (sample) of transactions, and thus are subject to sampling
variability. The "standard error" of the estimate provides a measure of this sampling
variability, and was used to construct intervals within which we would expect the "true"
population values to lie. These intervals are referred to as confidence intervals, and have
Al-8
^^m--
-------
been computed for the sample-based estimates described in the previous section.
For the projected audit amount, y,11, using the difference estimator defined in
Section 2.1, 95 percent confidence limits around the "true" population totui are given by
the expression y," ± 1.96 s (y,"), where y,. is the sample estimate, and s(y,") is the standard
error of the estimate. The standard error of the estimate was computed from the
expression:
where
s = the standard deviation of the universe
n = the sample size
and where y^ and x^ refer to the average audit and recorded dollar amounts per sample
unit in phase/stratum h of subuniverse g, respectively.
For attribute variables, 95 percent confidence limits around the total number of
exceptions in the population are given by the expression z,'+. 1.96 s (z,'),where zt* is the
sample estimate defined in Section 1.2, and s(z,') is the standard error of the estimate
defined by the expression:
where
and
N
computed as:
For an estimated proportion, p,, the corresponding standard error was
Al-9
-------
where
The formulas given above are referred to as "normal approximations," and will
provide reasonably accurate confidence limits provided that the error rates in the
population are not too small. In particular, if the error rates are so low that no errors
are found in the sample, use of formulas (2.1) or (2.2) to calculate the standard errors will
result in meaningless confidence intervals. For estimates of proportions (error rates), an
alternative method of constructing confidence intervals based on the binomial distribution8
is available, but this method requires the assumption that either the samples are simple
random samples, or in the case of stratified samples, that the error rates are constant from
stratum to stratum. In those cases where the normal approximation was not expected
to be applicable, this method was used to construct upper confidence limits for an error
rate. Since the samples are stratified, the confidence bounds obtained by this method
should be considered to be very rough. An alternative would be to provide no confidence
limits, but this might lead to the mistaken conclusion that there are no errors in the
population.
A similar problem exists for estimates of questioned amounts. If no exceptions are
louiul, confidence limits cannot he computed from the usiuil formulas. However, rough
upper bounds on the corresponding error can be calculated using what are known as
"Stringer bounds"*. These bounds can be used to obtain a rough indication of the
8 See Conover, W. (1980) Practical Nonparametric statistics.
New York: John Wiley & Sons.
9 This is described in the paper by Fienberg, S., J Neter, and
R. Leitch (1977). "Estimating the total overstatement error in
accounting populations." Journal of the American Statistical
Al-10
-------
magnitude of the dollar error in the population even if no exceptions are found in the
sample.
Stringer bounds can be calculated as follows: Suppose that there are k errors in the
d
sample. Denote the ith relative error (tainting) by ti = X, where d( is the difference
between the FMS or IFMS and audit amounts for the ith sample unit, and X, is the FMS
or IFMS amount for the ith unit. Order the nonzero tainting so that t, >. t, x..>. tr The
corresponding upper confidence bound is given by:
X Pu(n. ft l-a) * X £ [Pu(n, u l-o) - ?v(nt i-1; l-o)Jtj,
where Pu(n, k; 1-a) = the "exact" binomial upper confidence bound for a population
proportion when k "successes" (errors in this case) are found in a sample of n items, and
X is total FMS or IFMS amount.
The method given above is conservative, i.e., yields confidence intervals that are
wider than necessary. Further, we caution that Stringer bounds may not strictly apply for
the following reasons. First, PPS (probability proportion to size) sampling was not used
to select the sample; however, the sample was extensively stratified by FMS or IFMS
amount, and the sample allocation was made roughly in proportion to aggregate FMS or
IFMS amount. Thus, for the purpose of calculating the upper confidence bounds, we
assume that the sample can be treated as a PPS sample. Second, for the Stringer bound
to apply, the errors must be overstatements only; however, they can, on rare occasions,
be understatements. Third, in the data, there are sometimes line items with negative
amounts, and these were sampled with equal probability within the "negative" stratum.
Fourth, for the FY 1989 audit, the audit samples were selected in two phases. The rates
used to select the samples were somewhat different from phase to phase because it was
not possible to precisely predict the universe sizes at the end of the fiscal year. As a
result, when combining the Stringer bounds for each of the two phases to make the end-
of-year estimate, the confidence level may be lower than that specified10. (This is only
applicable for Payroll as Obligations and Disbursements were not combined.)
Association. Volume 72, Number 358, pages 295-302.
10 Specifically, suppose that Dw Is the 95% Stringer bound for
Phase I, and Dua is the corresponding bound for Phase II. Then D^
+ DU2 is an upper bound on the error for the entire fiscal year with
the confidence of at least (.95)3 = .9025.
Al-11
-------
Table 1 Distribution of dollars in FY89 paymerge file
Major Object Class
Period
Dollar Amount
11
10/89 to 2/89
3/89 to 9/89
$ 40,204,343
64,467,636
TOTAL
SI 04.671.979
Note: * Records dated 10/88 to 2/89 were sampled in Phase I. Records dated 3/89 to 9/89
in Phase II.
Al-12
-------
Table 2. Distribution of payroll compensation and dollars transactions by phase and
corresponding sample counts.
Universe Phase
\
Major Object !: 10/88 to 2/89
Class 11 11: 3/89 to 9/89
(Compensation)
Touls for both phases
Total Number
of transactions
in universe
file
112,778
167,560
280.338
Total dollar
amount of
transactions
in universe
S40.204.343
164,467,636
S 104.671. 979
Number of
transactions
in sample
803
871
1.674
Al-13
-------
Table 3. Distribution of nonpayrotl obligation transactions and dollars by subuhiverse and phase, and
corresponding sample counts.
Total number Total dollar Number of
of transactions amount of obligation
in universe obligations records
Subuniverse Phase file in universe in sample
Al. Major object I: 10/88 to 2/89 3,030
Class 25
A2. Major object I: 10/88 TO 2/89 222
Class 41
A3. Major object I: 10/88 to 2/89 3,365
Classes 22^3,24
26,31,32,42
A4. Major object I: 10/88 to 2/89 32,430
class 21
$215,842,079
S 25,756,944
S 11,613,405
TOTAL
39,047
S257.07S
414
134
310
S 3,863,406 46*
904
Note: * Indicates that sample was NOT a statistical sample, selected for compliance testing only.
AM4
-------
Table 3a. Distribution of nonpayroll obligation transactions and dollars by subuniverse and phase, and
corresponding sample counts.
Subuniverse Phase
Ala. Major Object 11: 3/89 to 9/89
Oast 25
Aia. Major Object It 3/89 to 9/89 '
Class 41
A3a. Major Object 11. 3/89 to 9/89
Classes other than
listed elsewhere
A4a. Major Object II: 3/89 to 9/89
Class 21
Aoa. Major Object II. 3/89 to 9/89
Class •
TOTAL
Total number
of transactions
in universe
file '
80,417
2359
26,985
157,795
483
26S.
-------
T«bi* 4. UtktrtbuOofl of aoupayroll 4M>«ifMmtnt tmiMMUaim and doUm» by »ubunJvcn* •nd plume, mint corresponding uunpte
couata.
Total number Tout dollar Number of
of iraowcUon amount of dbbuntmente
In anlv«nw dlkbuncmcnls rcconto
Subunivcfw PlMHW lilt In unlvcnc In wiinpic
Bi. Major Object !: 10/88 to 2A9
CUM 23
81 Major Object I: 10*88 to 189
41
B3. Major Object-All
Other Classes L 10/88 to 189
(not including
payroll or 21)
B4. Major Object I: 10/88 lo 2/89
Oast 21
40.714
1,973
6,488
36,110
$253,177.893
$ 44.047.578
S 19,915305
$ 3,925,845
382
269
330
TOTAL
85.285
990
Note: * Indicates that sample wa» NOT statistical, selected (or compliance letting only.
Al-16
-------
Tmbte 4*
nOtoa* tod
by
-------
Table 5. Definition of subuniverses (analytic classes)
Subuniverse Description
1 Al: Obligations, Major object class 25 - Phase I
2 . A2: Obligations, Major object class 41 - Phase I
3 A3: Obligations, Major object classes 21, 22, 23, 24, 26, 31, 32,
and 42 - Phase I
4 Ala: Obligations, Major object class 25 • Phase II
5 A2a: Obligations, Major object class 41 - Phase II
6 A3a: Obligations, Major object classes other than listed elsewhere
Phase II
7 Bl: Disbursements, Major object class 25-Phase I
8 B2: Disbursements, Major object class 41 - Phase I
9 B3: Disbursements, Major object - all other classes
except Major object class 21 and payroll - Phase I
10 Bla: Disbursements, Major object class 25 - Phase II
11 B2a: Disbursements, Major object class 41 - Phase II
12 B3a: Disbursements, Major object classes 22, 23, 24, 26, 31, 32,
and 50 - Phase II
13 B5a: Disbursements, Major object classes - all except payroll
Standard Vouchers (SVs) - Phase II
Al-18
-------
APPENDIX 2
PROJECTIONS FROM THE SUPERFUND AUDIT
FISCAL YEAR 1989
The following tables summarize the projections made from the 1989 Hazardous
Substance Superfund (Superfund) audit. The projections inciude estimates of total dollar
obligations and disbursements, by major object class, and also estimates of the number of
exceptions and corresponding error rates for various attributes. The error rates shown in
tables 4A through 7b for the attributes have different bases (denominators) depending on
the estimated number of transactions in the universe to which the particular attribute
applied. The formulas used to compute the projections are given in Section 2 of
Appendix 1.
Also shown in the tables are estimates of sampling precision for the various
projections (i.e., standard errors and 95 percent confidence limits). The formulas used to
calculate the 95 percent confidence limits are referred to as "normal approximations," and
are reasonably accurate provided that (1) the sample sizes are sufficiently large, and (2)
the actual error rates in the population are not too low. For many of the statistics of
interest in the Superfund audit (e.g., the questioned and the error rates for many of the
attributes tested), the error rates are quite low, and the resulting computed confidence
intervals may imply that the estimates are more accurate than they really are1. In
particular, if no amounts in the sample were questioned, the corresponding sampling error
(and hence confidence limits) could not be computed. Such, instances are noted in the
tables. While the absence of exceptions in the sample does indicate that the actual error
rates are low, this does not necessarily mean that there are no errors in the population.
Also shown in the appropriate tables are "observed" error rates. These are the
rates of occurrence which were found to exist in the samples tested. These are included,
as information, for sample universes in which the statistically selected sample was not
tested uniformly due to differences in applicable attributes or for which a valid statistical
sample was not drawn.
1 For example, see Neter, J. and J. Loebbecke (1977). "On the
behavior of statistical estimators when sampling accounting
populations." Journal of the American Statistical Association^
Volume 77, Number 359, pages 501-507.
-------
List of Tables
Table Title
la Estimates of accepted and questioned nonpayroll obligations by subuniverse
- Phase I
lb Estimates of accepted and questioned nonpayroll obligations by subuniverse
- Phase II
2a Estimates of accepted and questioned nonpayroll disbursements by
sufauniverse - Phase I
2b Estimates of accepted and questioned nonpayroll disbursements by
subuniverse • Phase II
3 Estimates of accepted and questioned payroll disbursements
4a Observed attribute error rates related to nonpayroll obligations for major
object class 25 (Contracts) - Phase I
4b Observed attribute error rates related to nonpayroll obligations for major
object class 41 (Cooperative agreements) • Phase I
4c Observed attribute error rates related to nonpayroll obligations for all other
major object classes - Phase I
4d Observed attribute error rates related to nonpayroll obligations for major
object class 21 (Travel) - Phase I
4e Observed attribute error rates related to nonpayroll obligations for Journal
Vouchers - all major object classes - Phase I
4f Observed attribute error rates related to nonpayroll obligations for major
object class 25 (Contracts) - Phase II
4g . Observed attribute of error rates related to nonpayroll obligations for major
object class 41 (Cooperative agreements) - Phase II
4h Observed attribute error rates related to nonpayroU obligations for all other
major object classes • Phase II
4i Observed attribute error rates related to nonpayroll obligations for major.
object class 21 (Travel) - Phase II
4j Observed attribute error rates related to nonpayroll obligations for Standard
Vouchers - all major object classes - Phase II
A2-2
-------
5a
5b
5c
5d
5e
5f
5g
5fa
5i
5j
6
7a
7b
Observed attribute error rates related to nonpayroll disbursements for major
object class 25 (Contracts) - Phase I
Observed attribute error rates related to nonpayroll disbursements for major
object class 41 (Cooperative agreements) - Phase I
Observed attribute error rates related to nonpayroll disbursements for all
other major object classes - Phase I
Observed attribute error rates related to nonpayroll disbursements for major
object class 21 (Travel) - Phase I
Observed attribute error rates related to nonpayroil disbursements for
Journal Vouchers • all major object classes - Phase I
Projections of error rates related to nonpayroll disbursements for major
object class 25 (Contracts) - Phase II
Projections of error rates related to nonpayroll disbursements for major
object class 41 (Cooperative agreements) - Phase II
Projections of error rates related to nonpayroll disbursements for all other
major object classes - Phase II
Observed attribute error rates related to nonpayroll disbursements for major
object class 21 (Tnvel) • Phase II
Observed attribute error rates related to nonpayroll disbursements for
Standard Vouchers - all major object classes • Phase II
Projections of error rates related to payroll compensation transactions -
Phases I and II
Projections of error rates related to nonpayroll obligations for Superfund
justification - Phase I
Projections of error rates related to nonpayroll obligations for Superfund
justification • Phase II
A2-3
-------
T«bJe la. Estimates of accepted and questioned noapajroll obligations by suimnlverse
Phase I
Major
Object
Class
25 contracts
41
Cooperative
Agreements
Other Object
Classes [3]
21-Travei
Obligations
FMS amount
Accepted (audit) amount
Questioned amount
FMS .Amount
, Accepted (audit) amount
Questioned amount
FMS Amount
Accepted (audit) amount
Questioned amount
FMS Amount
Accepted (audit) amount
Questioned amount
Sample
Estimates (2;
S215.342.079
5215.341.653
S 426
S 25.756.944
S 25.756,944
[4]
S 11.613.405
S 11.468,124
S 145.281
S 3,863,406
(5)
[5]
Standard
Error
. —
5540.636
$540,636
-.
[4]
[4]
—
S 45,767
S 45,767
™
[5]
[5]
9S% Confidence limits fll
Lower Upper
limit limit
—
214,782.007 216.901.300
( 1.059,221) 1.060.072
[41 [4]
[4! [4]
— —
11.378.421 11.557.827
55.578 234,984
—
[5] [5]
[5] [5]
Notes:
(!) The actual
level may be less loan 95 percent because of the small numbers of exceptions found in the sample.
. [2] For the accepted and questioned amounts, entries are projections. The corresponding FMS amounts are "universe" totals obtained
from files provided by UK Financial Systems Branch.
[3] Excluding object classes 11. 12, and 13.
[4] Standard error could not be computed because no errors were found la the sample.
(5} Due to insufficient samples tested, statistically valid projections cannot be made.
A2-4
-------
Table Ib. Estimates ol accepted and questioned nonpayroll obligations by subanivene
Phase II
Major
Object
Class
25 Contracts
41
Cooperative
Agreements
Other Object
Classes [3]
21 -Travel
Not identified
Obligations
IFMS amount
Accepted (audit) amount
Questioned amount
IFMS amount
Accepted (audit) amount
Questioned amount
IFMS amount
Accepted (audit) amount
Questioned amount
IFMS amount
Accepted (audit) amount
IFMS amount
Accepted (audit) amount
Questioned amount
Sample
Estimates (2|
S834.502.296
, S832. 129.495
S 2.372.801
5238,431,008
S238.214.107
S 216,901
S 32,798,400
S 32,783,218
S 15,182
S 6,091,050
[5]
PI
($ 30,963)
[5]
[5]
Standard
Error
—
S15.291.234
S15.291.234
—
S U89.642
S 1.589.642
«
S 263.963
S 263,963
—
PI
PI
PI
PI
95 <% Confidence limits 111
Lower Upper
limit limit
—
5802,158,677 S861. 100.314
(S27.598.018) S 32.343.619
—
5235,098.409 5241.329.806
(52.898,798) S 3.332.599
„_„
S 32,265,850 S 33.300.585
(S 502.185) S 532.550
—
[5] (5)
PI [51
PI [51
[5] [5]
Notes:
[1] The actual confidence level may be leu than 95 percent because of tbe small numbers of exceptions found in this sample.
{2| For the accepted and questioned amount*, entries are projections. The corresponding IFMS amounts are "universe" totals
obtained from files provided by the Financial Systems Branch.
[3] Excluding object classes 11. 12, and 13
[4] Standard error could not be computed because no errors were found in the sample.
[5] Due to insufficient samples tested, statistically valid projections cannot be made.
A2-5
-------
Table la. ErttaMtes at accepted and questioned nonp*ynll disbursements by subuahrene
Phase I
95% Confidence Limits (11
Major Object
Class
25 Contracts
41
Cooperative
Agreements
Other Object
Classes [3]
Disbursements
FMS Amount
Accepted (audit) amount
Questioned Amount
FMS Amount
Accepted (audit) amount
Questioned amount
FMS Amount
Accepted (audit) amount
Questioned anvmnt
Sample
Estimates [2]
S255.177.892
5255,177,892
w
S 44,047,578
S 43,495.078
S 522,500
S 19,915,306
i
S 19,914,824
S 482
Standard
Error
—
w
HI
1.301.247
1.301,247
539.508
539.508
539.508
Lower
Limit
—
HI
HI
40,944.634
(1,997,944)
18.857.388
18.857.388
(1.056.953)
I'pper
Limit
....
HI
HI
46.045,522
3.102.944
20.972,259
20.972.259
1.057.918
21 Travel
FMS Amount
S 3,925,845
Accepted (audit) amount
Questioned Amount
[S]
(51
[5]
(51
(5]
[5]
m .
151 1
Notes:
(lj The actual confidence level may be leu than 93 percent because of the small numbers of exceptions found in the sample
[2] For the accepted and questioned amounts, entries arc projections. The corresponding FMS amounts are "universe" totab
obtained Croat files provided by the Financial Systems Branch
[3] Excluding object classes 11, 12, and 13
[4] Standard error could not be computed because no errors were found in the sample
[5] Due to insufficient samples tested, statistically valid projections cannot be made
A2-6
-------
Table 2b. Estimate* of accepted and questioned nonpayroU disbursements by iiibnnivent
Phase II
Major
Object
Class
25
Contracts
41 - Cooperative
Agreements
Other Object
Classes (3)
Disbursements
IFMS amount
Accepted (audit) amount
Questioned amount
IFMS amount
Accepted (audit) amount
Questioned amount
IFMS amount
Accepted (audit) amount
Questioned amount
Sample
Estimates (2|
$398,290,756
5394,465.457
S 3.825.299
S 82.810.380
$ 32.810,380
[41
S 6.891.944
S 6.864.568
S 27,376
95% Confidence
Standard Lower
error limit
—
52,619.044 389.332.131
52.619.044 (1.308.027)
— —
[4] (4|
W M
51.454 6.763.719
51,454 (73.474)
limits Hi
Ipper
limit
—
399.598.783
3.953.625
w
M
6,965.418
128,225
21 - Travel
IFMS amount
141.340
Standard
Vouchers
Not Identified
Accepted (audit) amount
Questioned amount
IFMS amount
Accepted (audit) amount
Questioned amount
IFMS Amount
Accepted (audit) amount
Questioned •irmrt
[5]
[5]
$ 19.460,453
E5)
15]
(S 13,411321)
PI
[51
[5]
[5]
—
[51
[5]
—
PI
[5]
(5]
[51
—
(S]
(51
—
[51
[51
[51
[51
—
(51
[5]
—
[51
[51
Notes:
[1] The actual confidence level may be leu lhan 93 percent because of the small numbers of exceptions found in the sample.
[2J For the accepted and questioned amounts, entries are projections. The corresponding IFMS amount are "universe" totals
obtained bom Gtes provided by the Financial Systems Branch.
[3] Excluding object classes 11, 12, and 13.
[4] Standard error could not be computed because no errors were found in the sample
[5] Due to insufficient samples tested, statistically valid projections cannot be made.
A2-7
-------
Table 3. Estimates of accepted and questioned payroll disburscmenti
Major Object
Class
Payroll disbursements
Sample
Estimates [2]
95% Confidence limits HI
Standard
Error
Lower
Limit
Upper
Limit
11
Compensation
FMS Amount
IFMS Amount
Total FY89 Amount
Accepted (audit) amount
Questioned Amount
S 40.204.343
L64.467.363
5104.671.979
5103,172,798
S 1.498.388
5528,715 5102,136.516 5104.209.079
5528,715 S 462,607 S 2.535.170
Notes:
{!] The actual confidence level may be test than 95 percent because of the small numbers of exceptions found in the sample
[2] For the accepted and questioned amounts, curies are projections. The corresponding FMS and IFMS amounts are
"universe" totals obtained from files provided by the Financial Systems Branch.
A2-8
-------
Table 4m. Observed attribute error rate* related la aoapajrroU obligations for major object class 23 (Contracts)
Phase I
Attribute [11
Observed
error rate
(percent) [2]
Standard
error
95 percent
Confidence limits
Lower L'pper
limit limit
Estimated
number of
applicable
transactions
A
8
C
D
E
F
G
H
I
J
K
0.00%
0.00%
0.00-3>
0.00%
2.09%
0.52%
1.12%
5.85%
53.72%
4.82%
5.20
[2
[2
P
[2
(2
«->
I*
[2
[2
[2
(2
[2
[2]
(21
[21
[2]
(2)
(21
(21
[21
[21
PI'
[21
(21
[21
(21
(21
[2]
(21
(21
PI
(2!
12]
[2!
[2]
[2]
[2]
' [21
(21
PI
[2]
[2]
[2]
[2]
[21
Notes:
[1] Definitions of attributes:
A: Obligation document number agrees with the obligating document
B: Document control number agrees with the obligating document
C: Account number agrees with the obligating document
D: Account number it a valid Superfund account number
E: Object daw agrees with the obligating document
F: Object data is reasonable based upon description of goods or services compared to object class codes for fiscal year 1989
G: Name of Authorized Official on obligating document agrees with Authorized Officials' Signature List maintained by FMO
H: Obligating document was date stamped when received by the FMO
!: Receipt of obligating document was timely (within 3 working days)
J: Posting to FMS by FMO was timely (within 4 working days)
iC If obligation amount is > 525,000, a commitment was previously entered into FMS and prevaiidation was checked
[2] Due to insufficient samples tested, statistically valid projections cannot be made
A2-9
-------
Tabk 4b. Obaert*! ^rib-l* erfw nta
obUgMion for Major Object Class 41 $25,000, a commitment was previously entered into FMS and prevaiidation was checked.
(2] Due to insufficient samples tested, statistically valid projections cannot be made.
A2-10
-------
Table 4c. Observed attrOiate error rales related to nonpayroll obligations for all olher major object classes
Phase I
Attribute [1]
Observed
error rale
(percent) [2|
Standard
error
95 percent'
Confidence limits
Lower Upper
limit
Estimated
cumber of
applicable
transactions
A
B
C
D
E
F
G
H
I
J
K
0.77%
1.15%
1.15%
0.77%
13.31%
5.69%
13.28%
36.33%
42.44%
97.14%
60.00%
[2!
(2!
[2]
[2]
[2]
121
[2]
[2]
[21
[2]
[2]
(2]
[2]
[2]
[2]
(2]
[2]
[2]
[2]
[2]
[2]
(2)
[2]
(2]
12]
[2]
[2]
(2]
[2]
[2]
(2f
(2]
(21
[2]
[21
[2J
[21
[21
[2]
[1] Definitions of attribute*
A; Obligation document number agrees with the obligating document
B: Document control number agrees with the obligating document
C: Account number agrees with the obligating document
D: Account number it a valid Superfund account number
E; Object data agrees with the obligating document
F: Object das* is reasonable based upon description of goods or services compared to Object Class Codes for fiscal year 1989
G: Name of Authorized Official on obligating document agrees with Authorized Officials' Signature List maintained by FMO
H: Obligating document was date stamped when received by the FMO
I: Receipt of obligating document was timely (within 3 working days)
J: Posting to FMS by FMO was timely (within 4 working days)
fC If obligation amount is > 525,000. a commitment was previously entered into FMS and prevalidation was checked
[2] Due to insufficient samples tested, statistically valid projections cannot be made
A2-11
-------
Table 44. Observed attribute error rales related to nonpr/mU obligations for major object clan 21 (Travel)
Phase I
Attributes [I]
Observed
error rate
(percent) (2)
Standard
error
9$ percent
Confidence limits
Lower L'pper
limit limit
Estimated
number of
applicable
transactions
A
a
c
D
E
F
G
H
I
J
K
0.00%
2.17%
4.35%
0.00%
6.52%
0.00%
2.17%
31.11%
57.14%
56.52%
2.56%
[2]
[2]
[2]
[2]
[2]
(21
[2]
12!
[2]
[2]
[21
[2!
(21
' PI
[2]
[2]
(2)
(21
[2]
[21
[2]
[21
[2]
(2]
(21
[2|
[2]
[2]
[2]
[2]
[2]
(2]
[21
[2]
[2!
[21
[2]
[2]
(21
(2!
[21
(21
(2)
(2!
Notes:
[1] Definitions of attributes:
A: Obligating document number agrees with travel authorization
8: Document control number agrees with the travel authorization
C: Account number agrees with the travel authorization
D: Account number on travel authorization is a valid Superfund account number
E: Object ctaaaci agree with travel authorization
F: Object clan m reasonable based upon description of service* compared to object class codes (or fiscal year 1989
G: Travel authorization contains signature of Authorizing Officer
H: Travel authorization was date stamped when received by the FMO
I: Receipt of travel authorization was timely (within 3 working days)
J: Posting to FMS by FMO was timely (within 4 working days)
K: Travel authorization indicates travel was Superfund related
[2] Due to insufficient samples tested, statistically valid projections cannot be made
A2-12
-------
TaMe 4e, Observed *ttrib«l« error ntcs related U> nonp*,yroll obligation! for Journal Voucher , ill major object classes
Phase i
Attributes [1]
Observed
error rate
(percent) [2]
Standard
error
95 percent
Confidence limits
Lower L'pper
limit limit
Estimated
number of
applicable
transactions
A
B
C
D
E
F
G
H
I
J
0.00%
0.00%
0.00%
0.00%
6.67%
5.56%
7.14%
7.14%
33.33%
0.00%
• (
[
[
[
[
{
I
(
1
[2
[2]
[2]
[2]
[2]
[2]
[2]
] 12]
! [2]
i [2]
! (2)
(21
(2|
[21
(21
[2]
(2|
(2|
(2]
(21
(2]
[21
[21
[2]
[2]
[21
[21
[21
[2]
[21
(21
Notes:
[1] Definitions of attributes:
Obligation 4^^mrnt Dumber agrees with the JV or studied documentation
Document control number agrees with JV or atucbed documentation
Account number agree* with the JV or attached documentation
Object dm *f"m with the JV or attached documentation
Journal voucher dftcumrm contains sequential number and it agrees to obligation sample schedule number
Explanation of entry appears on Journal Voucher or attached documentation
Journal Voucher contains preparer signature, title, and date
A;
B:
C:
D:
E:
F:
G:
H: Journal Voucher was approved by authorized official and contains signature, title, and date
I: Receiving of JV by FMO was timely (within 3 working days)
J: Posting to FMS by FMO was timeiy (within 4 working days)
[2] Due to insufficient samples tested, statistically valid projection* cannot be made
A2-13
-------
Table 41 ObMrred attrOMte error rates related to nonpayroll obUgatk»M for major obj«ct claw 25 (Contracts)
Phase II
Attribute [1|
Observed
error rale
(percent) [2]
Standard
error
95 percent
Confidence limits
Lower
limit limit
Estimated
number of
applicable
transactions
A
8
C
D
E
F
G
H
I
J
3.73%
13.22%
8.48%
7.98%
8,98%
9.23%
8.54%
13.72%
56.11%
38.65%
[21
[2]
(21
[2]
[21
[2]
[21
(21
[2]
[21
[2]
[2]
[21
(21
[21
(21
[2]
[2]
[2]
[21
[21
[21
[2]
[21
[21
[2]
[21
[21
[21
[2]
[21
[2]
(2)
{2]
(21
[21
[2]
[2]
PI
PI
Note*;
[1] Definition* of attributes:
A: Obligation document Dumber agrees with obligating document
B: Document control number agrees with obligating document
C: Account inHBfrir acree* with obligating document
D: Account number * a valid Superfund account number (or FY 1989
E; Object clan agree* Witt obligating document
F: Object claw code ia reasonable bated upon description of good* or services ordered
G: Name of Authorized Official agrees with Authorized Official'* Signature Lilt maintained by FMO
H: Obligating document was daw stamped by the FMO when received
I: Receipt of obligating document was timely (5 3 working days)
J: Posting to IFMS by FMO was timely (< 4 working days)
[2] Due to insufficient samples tested, statistically valid projection* cannot be made
A2-14
-------
Table 4g. Observed attribute error rates related to nonpayroU obligations for major object claw 41 (Cooperative agreement*)
Phase II
Attribute (1)
Observed
error rate
(percent) [2]
Standard
error
, 95 percept
Confidence limits
Lower L'pper
limit limit
Estimated
number of
applicable
transactions
A
3
C
D
E
F
O
H
1.12%
2.34%
5.62%
2.25%
1.12%
1.12%
4.49%
22.47%
25.99%
25.42%
12]
[2]
PI
[2]
12]
(2]
[2]
(2|
[2]
PI
[2]
[2]
[2]
[2]
[21
[2]
[2]
PI
PI'
[2J
[21
[2]
(21
[2]
[2]
(2)
[21
[2]
[2]
PI
•PI
(21
PI
[2]
[2]
(2]
[2]
Notes;
(1) Definitions of attribute*:
A; Obligation 4MOTtnn number agree) with obligating document
B: Document control number agrees with obligating document
C Account number agree* with obligating document J
D: Account number i» a valid Superfund account number for FY 1989
E: Object data agrees with obligating document
F: Object clan code ii reasonable based upon description-of goods or services ordered
G: Name of Authorized Official agrees with Authorized Official's Signature List maintained by FMO
H: Obligating document was date stamped by the FMO when received
!: Receipt oC obligating document was timely (<_ 3 working days)
J: Posting to IFMS by FMO was timely (<. 4 working days)
[2] Due 10 insufficient samples tested, statistically valid projections cannot be made
A2-15
-------
Table 4h. Otarred .ttrll»«te «TOr rates related to nonpayroU ot.Ug.ttoo, for
-------
Table 41 ObMTTed mttrOtmtf error rale* related lo aonpayroU obUgBllom for major object class 21 (Travel)
Phase U
Attribute (1]
Observed
error rate
(percent) [2]
Standard
error
95 percent
Confidence limits
Lower I'pper
llmll
Estimated
number of
applicable
transactions
A
B
C
D
E
F
G
H
8.11%
7.89%
10.26%
10.00%
45.45%
44.44%
7.32%
28.57%
[21
[21
[21
[21
(2!
[2]
[21
[21
[2]
[21
[21
[2]
(21
[21
[21
[21
[2!
[21
[2]
[21
{21
(21
[21
[2]
Notes:
[1| Definitions Of attributes:
A;
B:
C
D:
E:
F:
G:
H:
Obligation document number agrees with travel authorization number
Document coatrol number agrees with tnvd authorization Mock
Account number agrees with the travel authorization block
Account number is a valid Superfund account number for FY 1989
Object class agrees with travel authorization
Object class is reasonable based upon description of services
Travel authorization contains signature of Authorizing Official
Travel authorization indicates travel was Superfund related
(2] Due to insufficient samples tested, statistically valid projections cannot be made
A2-17
-------
Table 4J. Obaerwd attribute error rates related to noapqrroll obligations for Standard Vouchers (SVs) / Journal Vouchers (JVs). all
Phase II
majorobjec
Attribute [1]
Observed
error rale
(percent) [2]
Standard
error
95 percent
Confidence limits
Lower L'pper
limit limit
Estimated
number of
applicable
transactions
A
B
C
D
E
F
G
H
13.19%
13.19%
25.45%
19.44%
50.91%
70.91%
54.55%
65.45%
(2j
(2)
12}
[2J
(2!
(21
[2]
[2]
(2]
[2!
12]
PI
[2]
[2]
[21
PI"
[2]
[2]
[2]
PI
[2]
[2]
[2]
[2]
(2!
[2]
[2]
[21 '
PI
(21
[21
(2]
Notes:
[1] Definition* of atirifcuta:
A: Account number ifrea with SV or JV or attached documentation
8: Object dan apes with SV or JV or attached documentation
C: SV or JV contain sequential number aititned by FMO
D: Explanation of entry appears on SV or JV or. attached documentation
E: SV or JV contains preparer signature, title and date
F: SV or JV waa approved by authorized official and contain* their signature, title and date
C: Receipt of SV or JV by FMO was timely (_<3 days)
H: Posting of SV or JV by FMO waa timely (<4 days)
[2] Due to insufficient samples tested, statistically valid projections cannot be made
A2-18
-------
Table 5*. Ofcaerred attrttmle error rates related to aonpay^U disbursementi for major object class 25 (Contracts)
Phase I
Attribute [1]
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.
N.
O.
P.
Q-
R.
Observed error
rale (percent) [2|
0.00%
0.03%
0.46%
0.00%
0.0096
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
1.09%
1.10%
35.52%
0.00%
0.00%
0.00%
Standard
error
PI
[2]
[2]
PI
[2]
PI
[2]
[2)
[21
[2]
PI
P]
[2]
[2]
P]
PI
(2!
PI
95 percent
Confidence limits
Lower Ipper
Limit Limit
[2]
[2!
(2]
[2]
(2)
[21
[21
[2]
[2]
(21
[21
[21
[2]
[2]
[21
[21
(21
(21
{21
(2|
(21
[21
[21
[2]
(2)
(21
[2]
[2]
[2]
(2]
[2!
[21
[21
[2j
PI
(2)
Estimated
number of
applicable
transactions
(21
[2]
[2]
[21
(2!
(2!
PI
[2]
[2]
(21
(21
PI
[21
[21
[21
[2]
PI
(21
Notes:
[1] Definitions of attributes:
A: Obligation document number agree* with disbursement documents
B. Document control number agrees with disbursement documents
C: Account number agrees with disbursement documents
D: Account number is a valid Superfund account number
E: Object class agrees with disbursement documents
F: Object clasi is reasonable based upon description of goods or services compared to object class codes Cor Q&cal year 1989
G: Valid obligation was recorded in FMS prior to disbursement
H: Project officer's or approving official's approval was indicated on disbursement documents
I: Invoice, receiving reports, approval forms and obligation documents were matched and indicate evidence of verification
by voucher ncamuvr or accounting technician
J: Disbursement documents are perforated or stamped paid
fC Check amount which includes the disbursement agrees with Treasury Schedule (SF-1166) amount
L: Certifying officer's signature is on Treasury Schedule SF-1166 (voucher and schedule of payment*) which includes
check amount
M: Date approved by project officer or authorized official was prior to date certified by certifying officer
N: Disbursement documents (invoices) were date stamped by the FMO when received
O: Invoice was paid on time, but not early {< 30 days and > 27 (unless discount was taken)]
P: Posting of disbursement to FMS by SFO was timely (<4 days)
Q: Cash discount, if available and cost-effective, was taken
R: Interest penalty on late payments was included with disbursements
[2J Due to insufficient samples tested, statistically valid projections cannot be made.
A2-19
-------
r
Table Six Observed •itotbttie error rates related to ooopajToU dbbunemente for major object class 41 (Cooperative agreements)
Phase I
95 percent
Attribute [1(
A
B
C
D
E
F
G
H
I
J
Observed
error rate
(percent) [2|
0.38%
1.14%
20.00%
0.38%
0.38%
0.38%
0.39%
6.92%
4.90%
36.86%
Standard
error .
(2]
[21
[21
[21
[2]
12]
[2]
[21
[2]
[2|
Confidence
Lower
limit
[2]
[21
[21
[2]
[2]
[2]
[21
[2]
[21
[21
limits
Upper
limit
[2!
[2!
(21
[21
(21
(21
[2]
"[2]
[2]
[21
Estimated
number of
applicable
transactions
[2]
[2)
[2]
[2]
[2]
[2]
[2!
12!
(2!
(2!
Notes:
[1) Definitions of attributes:
A: Obligation document number agree* with drawdown request
B: Document control number agrees with Letter of Credit History (Form 2550-15) or Grant Payment History Record
C: Account number agrees with drawdown request
D: Account number is a valid Superfund account number
E: Valid obligation was recorded in FMS prior to drawdown
F: Drawdown waa made within authorized budget period under the award
G: Drawdown request indicated evidence of review by technician for cash balances and availability of funds
H: Authorized official's approval waa indicated on drawdown request or *L" schedule
fc Authorized official's approval was timely (one day or less)
J: Posting to FMS was timely (within 4 days)
J2J Due to insufficient samples tested, statistically valid projections cannot be made
A2-20
-------
T«*t»5c.
Phase I
Attribute [l|
A
B
C
D
E
F
0
H
I
J
K.
L
M
N
O
P
Q
R
Observed
error rate
(percent) (2|
0.37%
0.75%
0.74%
. 0.37%
0.47%
20.90%
0.00%
0.83%
0.42%
8.52%
0.00%
0.00%
0.89%
2.59%
38.81%
15.09%
3.81%
100.00%
Standard
error
[2] -
[21
-. [2]
[2]
[2]
PI
[2]
PI-
[2]
[21
[2!
(2)
(2]
PI
[2]
[2]
[2]
[2]
95 percent
Confidence limits
Lower t'pper
limit limit
PI
[2]
[2!
(2|
[21
[2]
[2]
[2]
[2]
[2]
[21
[21
{21
(2]
PI
(21
[2]
[2]
(21
[21
PI'
[2]
[2]
121
[21
[2]
[2]
[2]
[21
(21
(2|
(21
(21
(2]
[21
[2!
Estimated
number of
applicable
transactions
(21
(21
[2]
[21
[21 .
[2]
[2]
[2!
121
{2!
(2!
(2!
[2]
(2J
[21
[21
[21
(2)
Notes:
[1] Definitions of attributes:
A: Obligation document number agrees with disbursement documeots
B: Document control number agrees with disbursement document!
C Account number agrees with disbursement document!
D: Account number ii a valid Superfund account number
E: Object class agrees with disbursement document!
F: Object class is reasonable baaed upon description of goods or services compared to Object Class Codes for fiscal year 1989
G: Valid obligation was recorded in FMS prior to disbursement
. H: Project officer's or approving official's approval was indicated on disbursement documents
I: Invoice, receiving reports, approval forms and obligation documents were matched and indicate evidence of verification by voucher
•"Tijiw or accounting n"*""*""
J: Disbursement documents are perforated or stamped paid
K: Check amouat which includes the disbursement agrees with Treasury Schedule (SF-1166) amount
L Certifying officer's signature is on Treasury Schedule SF-1166 (Voucher and Schedule of Payments) which includes check amount
M: Date approved by project officer or authorized official was prior to date certified by certifying officer
N: Disbursement documents (invoices) were date stamped by the FMO when received
O: Invoice was paid on time, but not early £<30 day* and £27 days (unless discount taken)]
P: Posting of disbursement to FMS by SFO was timely (£4 days)
Q: Cash discount, if available, and cost-effective, was taken
R: Interest penalty on late payments was included with disbursements
Due to insufficient samples tested, statistically'valid projections cannot be made
A2-21
-------
>21(Ti«**r,
Slanted
HI
(percent) [2}
Notes:
[1] Definitions of attributes:
A
B
C
D
E
F
G
H
I
J
K
L
M
2*57%
2*57%
28.57%
28.57%
28J7%
28^7%
J3J3%
2*57% .
28.57%
28.57%
28.57%
57.14%
JL58%
(21
(2]
[21
[2]
[2]
[2]
(21
12]
[2]
12]
[2]
[2]
[2]
[2!
12)
[21
{2]
12!
[2]
(21
(2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2]
(2]
[2]
[2]
(2]
[2]
[2]
[2]
[2]
(2|
(2]
(2!
(2!
(2]
[2]
(21
m
(2]
[2]
[2]
[2]
[2]
(2!
As OoUnatina, document number nurses with vuvat voucher
C: Account number agrees wtth travel'
D: Account Dumber Is a valid Super
E: Object class charged agreei with travel voucher
F: Object chun to luusunaMe based on description of ssrrkes compared to Object Clam Codes for focal year 1989
G: ApproprtaMM umber of travel voucher hi Saperrand (68.20X8145)
H: Travel vouchsr oipraiad by approvtng ofDcial
I; Travel rouruar wus dale stamped by the FMO
J: Travel voucher, travel aulhortastton and receipts were matched and Indicate evidence of review by voucher examiner or
K: Costs churned on travel rancher for airfare, todfuf and rental vehicles an supported by receipts and supporting receipts
are attached for all expenses > $25.00
L: Receipt of travel Toucher by FMO was timely (<10 working days)
M: Posting to FMS was timely (<4 working days)
(2] Doe to Insufficient samples tested, statistically valid projections cannot be made
A2-22
-------
i (JV») - all major object claws
Plus* I
Attribute [1)
Observed
error rate
(percent) [2]
Standard
error
95 percent
Confidence limits
Lower I'pper
limit limit
Estimated
number of
applicable
transactions
A
B
C
D
E
F
G
H
I
J
0.00%
0.00%
0.00%
0.00%
7.69%
0.-4S%
4.43%
12.92%
28.78%
0.00%
[21
[2]
[2]
[21
[2]
[2]
[2]
[2)
(2]
[2]
[2]
[2]
[2]
[21
PI
[2]
[2]
[2]
[2]
(2!
[2]
[2]
[2]
PI
[2]
[2]
[2]
[21
PI
(2|
[2]
(21
[2]
PI
[2]
[2]
[2)
[2]
PI
PI
Notes:
[1] Definitions of attributes:
A: Obligation +Hm~*> number agree* with the JV or attached documentation
B: Document control number agree* with JV or attached documentation
C: Account Number agree* with JV or attached documentation
O: Object daa* agree* to JV or attached documentation
E: Journal Voucher contain* sequential number and it agree* to obligation sample schedule number
F: Explanation of entry appear* on Journal Voucher or attached documentation
G: Journal Voucher contain* preparer signature and title
H: Journal Voucher wa* approved by authorized official and contains signature and title
I: Posting to FMS by FMO wa* timely (<4 working days)
[2] Due to insufficient samples tested, statistically valid projection* cannot be made
A2-23
-------
Table 5L Projection of attrtbate error rales related in nonpayroil dJsbuncmcola for major object daw 25 (Contracts)
Phase II
Attribute [2]
Projected
error rale
(percent)
Standard
trror
95 percent
Confidence limits fl|
Lower l-'pper
limit limit
Estimated
aamber of
applicable
transactions
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
0.15%
0.0095.
0.00%
0.00%
0.00%
0.15%
0.00%
0.15%
0.34%
0.23%
0.24%
0.00%
20.90%
7.69%
20.00%
0.15%
[3]
[3]
[3]
[3]
0.15%
[3]
0.15%
0.24%
0.23%
0.24%
[31
2.17%
7.12%
12.06%
0.00%
P]
(3]
(3]
[3]
0.00%
[3]
0.00%
0.00%
0.00%
0.00%
[3]
16.65%
0.00%
0.00%
0.44%
13]
[3]
PI
[3!
0.44%
[3!
0.44%
0.81%
0.68%
0.70%
[3]
25.15%
21.65%
43.64%
59039
52884
58866
59126
58952
59126
59126
59126
51410
37799
36672
37712
30690
1127
867
Notes:
[1] For attributes with low error rates, upper confidence limits are approximations based on the binomial distribution
[2] Definitions of attributes:
A: Bar Code Number agrees with disbursement documents
B: Obligation Document Number agrees with disbursement documents
C: Account number agrees with disbursement documents
D: Account number is a valid Supertax! account number
& Object Class agrees with disbursement documents
F: Object Class code is reasonable based upon description of goods or services
G: Valid obligation was recorded in IFMS prior to disbursement
H: Project Officer's or Voucher Examiner's approval was indicated on disbursement documents
I: Invoice, reccmflf reports, approval forma and obligation documents were matched and indicate evidence of
verification by voucher examiner or accounting technician
J: Disbursement documents were perforated or stamped paid
It Date approved by Project Officer or Voucher Examiner was prior to date certified by Certifying Officer
L; Disbursement documents (invoices) were date stamped by the FMO when received
M: Invoice was paid on time, but not early [ <30 days and > 23 days (unless discount taken))
N: Cash discount, if available and cost-effective, was taken
O: Interest penalty on late payments was included with disbursement
[3] Standard error could not be computed because no errors were found in the sample.
A2-24
-------
TaMt%
Attributes (2]
Projected
error rale
(percent)
Standard
error
95 percent
Confidence limits fll
Lower Lpper
Umit Hmi'i
Estimated
number of
applicable
transactions
A
B
C
D
E
F
G
H
I
0.21%
0.00%
1.78%
0.00%
0.00%
1.78%
0.20%
1.19%
1.25%
0.21%
[3]
0.59%
(3)
[31
0.59%
0.20%
0.48%
0.51%
0.00%
(3]
0.63%
[31
(3!
0.63%
0.00%
0:24%
0.26%
0.63%
[3|
2.93%
[3|
[3]
2.93%
0.59%
2.14%
2.24%
3.240
3.400
3.511
3.504
3.497
3.497
3.483
3.483
3,324
Notes:
[1] For attributes with low error rate*, upper confidence limit* are apprarimations bawd on the binomial distribution
[2] Definitions of attributes;
A; Bar Code Number agrees drawdown request or put disbursement document
B: Obligation Document Number agrees with drawdown request
C Account number agree* with drawdown request
D: Account number it a valid Superfund account
E; Valid obligation was recorded in IFMS prior to drawdown
F: Drawdown was made within authorized budget period under the award
G: Drawdown request indicates evidence of review by rrrnnirian for cash balances and availability of funds
H: Authorized Official's approval was indicated on drawdown request or *L" schedule
I: Authorized Official's approval was timely (< 1 work day)
[3] Standard error could not be computed because no errors were found in simple
A2-25
-------
- \
Table 5h. Projection* of attribute error rates reUled k> noopayrail dfabonaaeabi for all other major object classes
Phase II
95 percent
Attribute [2]
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
Projected
error rate
(percent)
1.23%
1.70%
1.76%
1.42%
1.98%
26.73%
1.04%
3.18%
1.04%
8.58%
6.53%
3.77% •
29.00%
42.67%
63.74%
Standard
error
0.50%
0.84%
0.62%
0.53%
0.65%
2.00%
0.46%
0.81%
0.46%
1.28%
1.17%
0.89%
2.17%
5.71%
5.04%
Confidence
Lower
limit
0.25%
0.05%
0.55%
0.37%
0.70%
22.81%
0.14%
1.60%
0.14%
6.07%
4.23%
2.02%
24.75%
31.48%
53.86%
limits fll
Upper
limit
2.21%
3.35%
2.97%
2.47%
3.26%
30.65%
1.94%
4.76%
1.94%
11.09%
8.83%
5.52%
33.25%
53.86%
73.62%
Estimated
number of
applicable
transactions
7.283
3.514
6.789
7,357
6.804
'7,327
7,208
7.058
7,208
7.148
6.640
7.148
6,550
1.122
1.361
Notes:
[Ij For attribute* with low error rates, upper confidence limits art approximations based oo the binomial distribution
[2] Definitions of attributes:
A: Bar code number agrees with disbursement document!
B: Obligation document number agrees with disbursement documents
C: Account number agrees with disbursement documents
D: Account number is a valid Superfund account number
E: Object data agrees with disbursement documents
F: Object dass code if reasonable based upon description of goods or services
G: Valid obligation ma recorded in IFMS prior to disbursement
H: Project Officer's or Voucher Examiner's approval was indicated on disbursement documents
I: Invoice, receiving reports, approval forms and obligation document* were matched and indicate evidence of verification by voucher
examiner or accounting technician
J: Disbursement documents were perforated or stamped paid
K: Date approved by Project Officer or Voucher Examiner was prior to date certified by Certifying Officer
L: Disbursement documents were date stamped by the FMO when received
M: Invoice was paid on time, but not early [<. 30 days and ^ 23 days (unless discount taken)!
N: Cash discount, if available and cost-effective, was taken
O: Interest penalty on late payments was included with disbursement
A2-26
-------
Table SL Observed attribote error rales related to noopayroU disbursements for major object class 21 (Travel)
Phase II
95 percept
Attribute (1|
A
B
C
D
E
F
0
H
!
J
K '
L
Observed
error rale
(percent) [2]
6.58%
2.33% •
6.02%
6.02%
6.02%
6.02%
S.00%
7.81%
10.81%
8.77%
11.36%
33.33%
Standard
error
[2]
[2)
[21
[2]
[21
PI
(21
[2]
[2]
(2)
PI
PJ
Confidence
Lower
limit
[2]
[21
[2]
[21
(21
PI,
[21 .
[21
[2]
[2!
(21
[21
limits
L'pper
limit
[21
[2]
PI
[2]
[2] '
(21
[2]
(2!
[21
PI
[2]
[2]
Estimated
Dumber of
applicable
transactions
[2]
' PI
[21
[2!
[21
[21
[21
[2] '
(21
[21
[2]
[2]
Notes:
[I] Definition* of attributes:
A: Bar code number agrees with travel voucher
B: Obligation document number agrees with travel voucher
C: Account number agrees with travel voucher
D: Account Dumber is a valid Superfund account number
E: Object clan agrees with travel voucher
F: Object das* is reasonable baaed on description of service*
G: Appropriation number on travel voucher is Superfund (68-20X8145)
H: Travel voucher was approved by Approving Official
I: Travel voucher warn date stamped by FMO
J: Travel voucher, travel authorization and receipts were matched and indicate evidence of review by voucher examiner
and initialed in 17 b
1C Costs claimed on travel voucher for airfare, lodging and rental vehicles are supported by receipts and supporting
receipts are attached for all expenses > $25.00
L: Receipt of travel voucher by FMO was timely (£ 10 working days)
[2] Due to insufficient samples tested, statistically valid projections cannot be made
A2-27
-------
\
Table SJ. Obaemd aitrfliiii* error rates related la nonpayroll dfebarsen
major object
eate for Standard Vouchers (SVj) / Journal Voucher* (JV*) . »ii
Phase II
Attributes [L]
Observed
error rale
(percent) [2]
Standard
error
95 percent
Confidence limits
Lower t'pper
limit limit
Estimated
number of
applicable
transactions
A
B
C
D
E
F
G
H
I
36.78%
32.63%
22.67%
20.39%
50.40%
43.20%
64.00%
60.00%
56.07%
(21
[2]
(2)
[2]
[2]
[21
[21
(2!
PI
[2J
[2]
(2]
PI
PI
[2]
[2]
[2]
[2]
[2]
[2]
[2]
[2!
(2!
PI
PI
[2]
[2]
[21
PI
[2]
[2]
(2!
[2]
[2]
[2]
[21
Notes:
[1] Definitions of attributes:
A:
B:
C
D:
E:
F:
G:
H:
PI
Bar code number agree* with SV or JV
Obligation document number afreet with SV or JV or attached docum
tation
Account number agree with SV or JV or attached documentation
Object daises agree* with SV or JV or attached documentation
SV or JV contains sequential number
Explanation of entry appears on SV or JV or attached documentation
SV or JV contains preparer signature and tide
SV or JV was approved by approving official and contains their signature and title
t: Posting to IFMS by FMO was timely (<4 working days)
Due to insufficient samples tested, statistically valid projections cannot be made
A2-28
_
-------
Table & Projections at attribute error rates related to payroll compensation transactions.
Attributes [2]
A
B
C
D
E
F
G
H
I
Projected
error rate
(percent [3))
0.00%
0.03%
. 2.14%
0.91%
1.29%
2.20%
12.81%
5.05%
3.83%
•Standard
error
[3]
0.10%
0.34%
0.23%
0.27%
0.28%
0.38%
0.13%
0.13%
95 percent
Confidence
limits fll
Lower
limit
PI
0.00%
1.47%
0.52%
0.76%
1.65%
12.07%
4.80%
3.48%
Upper
limit
[3]
0.23%
2.31%
5.00%
1.82%
2.75%
13.55%
5.30%
4.18%
Estimated
number of
applicable
transactions
91.939
168.973
250.697
259.572
260.075
167.801
'53.589
16.579
39.356
Notes:
[1] For attributes with low error rates, upper confidence limits are approximation* based on the binomial distribution.
(2} Definitions of attributes:
A: Original timccard was examined by auditor
B: Original rim.^M»t *** examined by auditor
C Account number agrees with timecard (EPA form 2565-1, 2 or 3) or timesbeet (EPA form 2560-28)
D. Timecard or •«•«••»*•* was certified by timekeeper
E. Timecard or lanetheft was certified by supervisor
F. Timesbeet wat signed by employee
C. Leave time supported by "Application for leave" (SF - 71) or timecard entry initialled by employee
H. Overtime hours, compensatory time worked, and premium pay supported by approved "Request for authorization of
overtime work" (EPA Form 2560-7) or approved by approving official in remarks column on timecard.
I Correction of previous timesbeet entries supported by revised timesneet and/or "Redistribution of payroll
charges" (EPA Form 255
-------
T«bfc 7«. Projections of •tliibnte error rales related la Doapayroll obligations for Saperfaad juslUlcaUon
Phase I
Universe (2}
Projected
error rale
(percent)
0.27%
0.78%
1.73%
PI
Standard
error
0.27%
0.77%
0.99%
[3]
gSjercent
Confidence limits [11
Lower l-'pper
limit limit
0.00%
0.00%
0.00%
[3]
0.80%
2.29%
3.67%
Estimated
Dumber of
applicable
transactions
2.701
214
1.872
Notes;
Attribute Description: Written Superfuad justification and statement of need is on or attached 10 the procurement request
[1] For attributes with low error raws, upper confidence limits are approximations based on the binomial distribution
[2] Definitions of universes:
1: Major object dan 23 (Contracts)
' 2: Major object class 41 (Cooperative agreements)
3: All other major object classes, except 11, 12, and 13
4: Major object class 21 (Travel)
[3] Due to insufficient samples tested, statistically valid projections cannot be made.
A2-30
-------
Table TV Projection of attribute error rales related to noa|MyroU obligations for Saperfiunt justtflcatioa
Phase II
Universe (2}
Projected
error rale
(percent)
Standard
error
95 percent
Confidence limits ftl
Lower L'pper
limit Hm it
Estimated
number of
applicable
transactions
0.25%
[31
162%
0.25%
[3]
0.99%
0.00%
13]
0.68%
[4]
0,74%
[3]
4.56%
67,125
[31
16.747
(41
Note:
Attribute Description: Written Supcrfund Justification/Statement of Need is on or attached to Procurement Request/Order
(EPA Form 1900-8) or obligating document
[1] For attributes wtta low error rate*, upper confidence limits are approximations based on the binomial distribution.
[2] Definitions of universes:
1: Major object dan 25 (Contracts)
I Major object dais 41 (Cooperative agreement*)
3: All other major object classes, except 11, IZ and 13
4: Major object das* 21 (Travel)
[3] Standard error could not be computed as no errors were found in the sample.
[4] Due to insufficient samples tested, statistically valid projections cannot be made.
A2-31
-------
THIS PAGE INTENTIONALLY LEFT BLANK
-------
APPENDIX 3
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
AL'G 2 T
ADMINISTRATION
AND RESOURCES
MEMORANDUM ' MANAGEMENT
SUBJECT: Response to the OIG Draft Audit Report P1SFF9-11-OQ32
Obligations and Disbursements of the Hazardous Substance
Superfund for the Fiscal Year Ended September 30, 1989
FROM: ,^-Charles L.
Assistant Administrator
TO: Kenneth A. Konz
Assistant Inspector General for Audit
I am pleased to attach the Office of Administration and
Resource Management's consolidated response to the subject draft
Superfund Audit Report. Our comments address each of the report
recommendations and the accuracy of the reported findings, as well"
as our plans for taking corrective actions.
Essentially, we agree with both the accuracy of the findings
and the recommendations contained in the report. With regard to
certain findings, however, we do have different perspectives about
the most effective approaches for resolving them. We have thus
proposed alternative corrective actions from those recommended in
your report, the merits of which we would appreciate your careful
consideration. For example, as discussed with the OIG staff, many
of the offices responding to the report expressed concern regarding
the auditors' review and recognition of information previously
provided. We believe this information would have resolved a
significant amount of the obligations and disbursements identified
as unsupported by the report. In this regard, please refer to the
package of supporting documents that the Director, Financial
Management Division provided directly to your staff for their
review and further consideration.
Attachment I contains our response to each recommendation.
Attachment II provides detailed information on the results of our
review of the questioned obligations and disbursements identified
in the report. '
I hope the information provided in our response is helpful in
resolving the issues highlighted in the draft report. If you have
questions or comments, please contact Frederick C. Carman, who is
coordinating this response for my office. He can be reached on
382-4083.
A3-1
-------
ATTACHMENT I
Page 1 of 12
RESPONSE TO RECOMMENDATIONS
DRAFT AUDIT REPORT P1SFF9-11-0032
AUDIT OF OBLIGATIONS AND DISBURSEMENTS UNDER THE
HAZARDOUS SUBSTANCES SUPERFUND
This Attachment contains the Office of Administration and
Resources Management consolidated response to recommendations in
the draft audit report of obligations and disbursements under the
Hazardous Substances Superfund for fiscal year ended
September 30, 1989.
1. INTERNAL CONTROL WEAKNESSES WERE NOTED IN TEE INTEGRATED
FINANCIAL MANAGEMENT SYSTEM (IFMS).
ndat ions /Responses
l.l Ensure that a reporting system for IFMS is developed and
implemented in fiscal 1990.
We concur 'with the finding that the reporting capabilities in
IFMS were not adequate in FY 1989. As a measure to eliminate that
deficiency, improvement of IFMS reporting was made one of the top
FY 90 system priorities by the Project Management Team. These
improvements are being accomplished in two phases, i.e.,
development of "Canned Reports" in FY 90 to meet immediate needs
and the development of an Ad Hoc report writer in FY 91 as an
augmentation to the standard reporting capabilities.
As a short term solution, a work group was established to
determine the required reports necessary to meet EPA's financial
management needs. Out of this work group evolved a series of
"Critical Reports" identified as essential to the financial
management reporting and reconciliation of sensitive, high-
visibility areas, i.e., Cash Management and Accounts Receivable.
Full development and implementation of these "Critical
Reports" are targeted for completion in FY 90. As a future
enhancement to the IFMS reporting capabilities, we initiated a
project to develop an Ad Hoc Report Writer (Management and
Accounting Report System (MARS) . This system is currently in
prototype and is scheduled for implementation in the third quarter
of FY 91.
Corrective Action; Target Date
- Implement Critical Reports. 9/30/90
- Implement MARS. . 5/31/91
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ATTACHMENT" i
Page 2 of 12
Recommendations/ResDonses (Cent) .
1.2 Verify that transactions and account balances brought forward
from PMS to IFMS are correct, complete and reconciled and that the
reconciliation is retained for audit.
We agree with the recommendation. However, the completion of
this task is dependent on resolution of several other findings (2.1
Superfund receivables and collections, 5.1 Clearing year-end
prepaid adjustments, 5.2 Reconciliation of differences between
"Schedule of Disbursements 4 Outlays" reported to OMB, and 5.3
Monthly reconciliation with Treasury).
These reconciliation efforts cannot be effectively conducted
until adequate ad hoc reporting capabilities are available in IFMS
(See response to 1.1 IFMS reporting system implementation). In
order to conduct a complete and accurate reconciliation, the
Agency's accounting offices will need detailed reporting of the
transactions and account balances for their specific offices,
1.3 Modify the security controls for IFMS to allow only one user
per User ID at the same time.
We agree with the finding. To implement'the recommendation
will require modification to the IFMS core software. Future
releases of the vendor software do not address this requirement.
EPA will have to allocate resources to customize this software
modification. We will define and present the requirement to EPA's
System Management Group (SMG) and to the Federal Financial System
Users Group (Federal government users group established for all
government agencies using AMS1 FFS Software). The SMG was
established to oversee the operational management of IFMS and to
set priorities for enhancements and modifications to the system.
Implementation of this modification will be based on the decision
of the System Management Group. Therefore, the targeted completion
dates beyond Step 2 are contingent upon the approval/prioritization
of the modification by the SMG.
Corrective Action:
- Define modification & resources needs.
- Present to EPA's System Management Group.
- Submit task order to vendor.
- Analyze/design/program/test.
- Implement modification.
Target Date
9/30/90
10/31/90
11/30/90
4/30/91
5/31/91
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ATTACHMENT I
Page 3 of 12
1.4 Assign transactions codes in IFMS for capital property and
equipment and asset purchases, and issue policies and procedures
for recording these transactions in fiscal year 1991.
We believe that the Agency has adequate procedures in place
for the financial recording of property and equipment asset
purchases. On January 19, 1989, FMD issued a memorandum entitled,
"Identification and Capitalization of Assets." This memorandum
provides an interim process for Agency capitalization and reflects
the necessary transaction codes for proper accounting of these
assets. This process meets the requirements as set forth in GAO's
Title II.
To further ensure that the processes for property are
disseminated, we will be issuing the HMDS Division 2550C, Chapter
8, "Property and Inventory" to provide financial policies and
procedures for property and equipment. Currently, this HMDS is in
draft and we expect it will be in the green striped border process
in early fiscal 1991.
As stated in your draft report, the implementation of the
IFMS property module is scheduled for fiscal year 1992. As an
interim measure, we will investigate partial implementation of the
this module to facilitate the classification and recording of
capital asset purchases. Below are targeted completion dates for
partial implementation of the property module. Steps beyond step
2 are contingent upon the approval and prioritization of this
modification by the System Management Group.
Corrective Actioni
- Define interim modification requirements. 10/31/90
* Present request to System Management Group. . 11/30/90
* Develop system procedures for recording in IFMS. 1/31/91
- Submit tasJc order to vendor. 1/31/91
- Analyze/design/program/test. 3/31/91
- Implement interim process. 5/30/91
2. IMPROVEMENTS ARE HEEDED IH RECORDING AMD MANAGING ACCOUNTS
RECEIVABLE AND COLLECTIONS
Recoi""t*Qdat ions/Responses
2.1. Review the transfer of Superfund receivables and collections
from FMS to I7MS to ensure the amounts have been correctly
converted.
A3-4
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/Responses ( Can't i
We agree with the recommendation.
reconciliation process.
Corrective Action;
ATTACHMENT I
Page 4 of 12
We have already begun the
Develop IFMS Reconciliation Procedures
and Reports.
Obtain FMOs Certification.
Record IFMS General Ledger adjustments.
Target Date
9/30/90
4/30/91
6/30/91
2.2 Transfer all outstanding accounts receivable recorded by HAOB
and monitored by FRAB prior to Fiscal 1989 to appropriate regional
offices.
FMD agrees with the recommendation and will transfer the accounts
receivables after completing the reconciliation of the receivables,
cash receipts balances, and interest accruals.
Corrective Action:
- Phase I: Complete open
Superfund accounts receivable
reconciliation
- Phase II: Complete the
reconciliation of cash receipts
for open receivables, and
reconcile interest accruals
- Phase III: Send all open/
reconciled accounts receivable
to the regions to enter into IFMS
and close all the open accounts
receivable in HAOB ,
Target Date
2/28/91
4/30/91
6/30/91
3.
IMB ABB NEEDED IN ACCOUNTING FOR AND CONTROLLING
tL PROPERTY
3. l Obtain certifications from the appropriate Regional
Administrators and Assistant Administrators that corrective actions
have been taken to record the omitted property items noted in this
report in the PPAfl, and to locate and identify property that could
not be located at the time of our audit field work.
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ATTACHMENT I
Page S of 12
We agree with the recommendation and will request
certifications from the Regional Administrators and Assistant
Administrators that corrective actions have been taken.
Corrective Action; Targfet^Oata
- Issue letter requesting certifications. 9/15/90
- Obtain certifications that corrective actions
have been taken to resolve property findings
noted in the audit report. 11/15/90
3.2 Emphasize to the appropriate Regional Administrators and
Assistant Administrators the importance of complying with Agency
policies for conducting physical inventories and preparing and
signing memorandums of designation and assumption of custodial
responsibilities.
We agree with the recommendation and will reemphasize the
Agency policy for conducting physical inventories and designating
custodial responsibility. currently the policy of signing
memorandums of assumption of custodial responsibilities is under
review.
Corrective Action; Target Date
- Issue letter emphasizing Agency policy
for conducting physical inventories and
designating custodial responsibility. 9/15/90
3.3 Require the Director, FMSD, to correct the deficiency causing
the loss of data between the national PPAfl and local PPAfl.
A preliminary investigation indicates that 50 out of the 51
property items listed in the report that were on the local PPAS,
but not on the national PPAS, are now on the national system. The
other item is being researched. We will continue to review this
issue to s«« if there is a problem with the reliability of the PPAs
system.
3.4 Issue a policy requiring FMOs to provide documentation (paid
invoice copies) of property purchases to the appropriate PAOS where
property was delivered.
We disagree with the above recommendation. As stated in your
draft audit report, the FMSD Policy Announcement 88-01 states that
a record should be established in the PPAS upon being "acquired and
received." We believe this is the appropriate timing for the
recordation of property items. In this way assets are accounted
A3-6
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ATTACHMENT I
Page 6 of 12
Recommendations/Resoonses . (Gout) .
for upon receipt. We believe that using a payment to trigger the
recording of property is a violation of good internal controls.
Under the Prompt Payment,Act Amendments of 1988 an Agency may have
up to 37 days (including 7 days for acceptance of goods or
services) in which to pay an invoice. If the Agency were to use
the "paid invoices" for recording the property in the system this
could result in the property being unaccounted for up to 37 days.
4. OBLIGATIONS WERE QUESTIONED DUE TO LACK OF DOCUMENTATION AND
RECORDING ERRORS
4.1 Require the appropriate FMOs to review and resolve the
questioned obligation transactions..
We agree with the recommendation. The Financial Management
Officers have been advised to review and resolve the questioned
obligation transactions and to record the necessary accounting
entries. While we agree with the recommendation, we disagree with
the specific findings summarized in Exhibit IV of the audit report.
The auditors' exhibit identifies $ 8,587,521 in questioned costs.
Of this amount $ 5,437,494 relates to a payroll accrual that
appeared in an interim obligation report produced from IFMS shortly
after conversion from FMS. Inclusion of this amount in the Exhibit
is misleading and distorts the reporting accuracy of the Agency's
Superfund obligations. We recommend this amount be deleted from
the Exhibit or be included as a footnote in the Exhibit. The
discussion of Findings in the audit report acknowledges that the
accrual had been properly excluded from the Agency's official year-
end financial statements (specifically the Report on Budget
Execution - SF-133) and was properly reversed in the final year-
end trial balance. It is not readily apparent by looking at the
Exhibit that this issue was resolved and was the result of an
accounting oversight that would have been detected through normal
control procedures.1
We have also researched most of transactions related to the
remaining obligations questioned in the Exhibit. Of the remaining
$ 3,150,027, we have verified the following: a) $ 1,793,329.29 of
the questioned costs are valid and supportable (Refer to Attachment
II), b) $ 1,019,706.00 represent input errors that have been
corrected, in IFMS by the various accounting points, [one error
represented $ 1,000,000] and c) $ 336,991.71 are being researched
and will be resolved in accordance with the following action plan.
1. Auditors Note: The auditors agree with the Agency's response regarding the
payroll accrual, which was questioned in the draft report. This finding (pre-
viously part of Finding No. 6) and the related questioned costs have been re-
moved from this final report and Exhibit I has been adjusted.
A3-7
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ATTACHMENT I
Page 7 of 12
Pftccfft1t^**T1'^s.tions/Reaponse (Gout)»
Corrective Action; Target Date
- All FMOs except Region IX
'will research, produce supporting
documentation and record necessary
correcting entries to resolve
transactions questioned by the
auditors. Supporting documentation will
be submitted to FMD. 9/30/90
- FMD will verify resolution of
costs questioned. 10/31/90
- Region IX pulls records placed in
emergency storage because of earthquake,
research and provide documentation to
support resolution of $ 133,790.00 identified
as unsupported by the audit. Submit
documentation to FMD. 11/15/90
4.2 Emphasize to program officials the importance of forwarding
obligating documents to FMOs oa a timely basis in accordance with
Agency's policies.
All FMOs will be notified by August 30, 1990 that the program
officials need to be reminded of the importance of forwarding
obligating documents on a timely basis. We believe that this
approach will ensure all program officials will be notified.
4.3 Advise the fMDs that all obligating documents be date stamped
upon receipt, rovieved for correctness, completeness, mad approvals
and posted to IFMfl in a timely manner.
All FKOs will be notified by August 30, 1990 of this
requirement.
4.4 Issue a policy Announcement requiring the use of sequentially
numbered journal/standard vouchers, vhich contain prsparer's name,
title, and date, approving official's name title, and date,
explanation of entry and referenced supporting documentation.
FMD has drafted a policy announcement to comply with this
recommendation which will be issued to all FMOs. We anticipate
this policy will be issued by October 31, 1990.
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ATTACHMENT I
Page 8 of 12
5. SCHEDULE OF DISBURSEMENTS DID NOT AGREE WITH OUTLAYS REPORTED
TO OFFICE OF MANAGEMENT AND BUDGET
5.1 Make necessary adjustments to clear the year-end Prepaid
Adjustments Accounts and other general ledger accounts to
properly adjust the accounting records.
We agree with the recommendation to make necessary
adjustments to the Prepaid Account and other general ledger
accounts. As part of the accounting process, we normally research
all charges into the prepaid account, determine the proper
adjusting entries needed to clear this account and reclassify all
charges to their appropriate account classification. As mentioned
• in the audit report, the lack of reporting capabilities in IFMS
prevented the timely reconciliation of differences between EPA
records and Treasury records and the adjustments of the prepaid
account and other general ledger accounts. We are attempting to
create file data bases and report formats that will allow our
finance offices to conduct detailed analysis of the various general
ledger accounts and to identify adjustments needed to correct these
accounts.
Corrective milestones have been identified as follows:
Corrective Actions Target Dates *
- Identify corrective Action Strategy 10/31/90
- Develop Reports 5/31/91
- Finance Offices Conduct Analysis 9/30/91
- Enter adjustments into IFMS 11/30/91
\
* Dependent upon development of specific reports from the IFMS data
base using contractor assistance.
5.2 Provide a reconciliation of the specific differences between
disbursements reported in the schedule of disbursements and total
outlays reported to OMB.
We do not agree with this recommendation as stated in the
audit report. The audit report states there is a difference
between total disbursements reported in the schedule of
disbursements (audit report exhibit II) and the total outlays
reported to OMB for fiscal year 1989. The outlays reported to OMB
are totally supported by the general ledger. As explained to the
auditor personnel, the general ledger file supports the Agency's
reports to OMB. The audit team was given a special report,
subsequent to receiving the general ledger file, that did not agree
with the total outlay figures. We explained that this report
reflected "reversing entries11 that account for this difference.
A3-9
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ATTACHMENT I
Page 9 of 12
We further stated this report should be disregarded for audit
purposes and the general ledger file be used in all comparative
analysis.
While the general ledger and outlays amounts reported to OMB
do agree, we recognize that there are some accounting data that
needs to be reclassified to more appropriate general ledger
accounts. This accounting data presently resides in the "prepaid"
general ledger account. We agree this account must be analyzed and
appropriate accounting adjusting entries made.
Actions are presently underway to isolate needed adjustments
to the prepaid account. We are attempting to create file data
bases and report formats that will allow our finance offices to
conduct detail analysis of the various general ledger accounts.
Appropriate adjusting entries will be made. Corrective milestones
have been established along with target dates for completion. The
milestones are shown in recommendation 5.1 in this response.
s.3 Ensure that reconciliations vita Treasury are performed on a
monthly basis in fiscal years 1990 and 1991 to reduce unexplained
and unsupported differences at year-end.
We agree with the recommendation. Monthly cash reconciliation
with Treasury is standard procedure as part of the financial
reporting process. As mentioned in the audit report, the lack of
reporting and reconciliation capabilities in IFMS resulted in the
failure to reconcile differences between EPA records and Treasury
records. As a result, sufficient detailed accounting data was not
available to make necessary adjusting entries to appropriate
general ledger accounts in FY 1990.
Corrective actions are underway to perform cash
reconciliations with Treasury records/ A two step approach is
being taken: (1) a reconciliation process is being prepared to
reconcile cash transactions for FY 1991 from the beginning of the
fiscal year. Existing reports will be used for reconciliation
purposes until proper cash reconciliation reports are available.
Also, specific general ledger edits will be incorporated into the
IFMS to reduce the type of entries that cause cash to be out of
balance with Treasury records. Financial Management Offices will
be more closely monitored with regard to their reconciliation
activities during FY 1991; and (2) Corrective milestones have been
established to "go back1* and take corrective actions for FY 1990
activity. These milestones are shown in recommendation 5.1 along
with target dates for completion. The target dates are dependent
upon development of specific reports from the IFMS data base.
A3-10
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ATTACHMENT I
Page 10 of 12
Recommendations/ResBonse (Cont)
6. DISBURSEMENTS WERE QUESTIONED DUE TO RECORDING ERRORS AND
LACK OF DOCUMENTATION
ns /Responses
6.1 Require the appropriate PMOa to review and resolve the
questioned disbursement transactions and make any necessary
accounting entries.
We agree with the recommendation. The Financial Management
Officers have been advised to review and resolve transactions
questioned by the audit and to record the necessary accounting
entries. While we agree with recommendation, we disagree with the
specific findings summarized in Exhibit IV of the audit report.
The auditors1 exhibit identifies $ 3,102,247 in questioned costs.
Based on our research to date of the related transactions, we have
confirmed the following: a) $ 2,066,061.09 of the questioned costs
were valid and supportable (Refer to Attachment II) , b) $408,361.95
represent input errors that have been corrected in IFMS by the
various accounting points, and c) $ 627,823.96 are being
researched and will be resolved in accordance with the following
action plan.
Corrective Action: Target Date
- All FMOs except Region IX
will research, produce supporting
documentation and record necessary
correcting entries to resolve
transactions questioned by the
auditors, supporting documentation will
be submitted to FMD. . 9/30/90
• FMD will verify resolution of
costs questioned. 10/31/90
• Region IX pulls records placed in
emergency storage because of earthquake,
research and provide documentation to
support resolution of $687.62 identified
as unsupported by the audit. Submit
documentation to FMD. 11/15/90
A3-11
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ATTACHMENT I
Page 11 of 12
6.2 Ensure that the IFMS accounts payable subsystem properly
includes interest on payments after the due date.
We concur in part with this recommendation. We disagree with
the statement regarding the operation of the interest function in
IFMS. We are not aware of any implementation problems with this
feature. We will need further clarification to determine if this
finding relates to non-contract payments which are processed in
IFMS or contract disbursements which are processed in the Contracts
Payment System and posted in IFMS via an automated system
interface.
The computation of interest is based on dates entered on the
payment voucher. We concur that correct dates must be entered by
the Servicing Finance Offices to ensure that the interest penalties
are properly assessed for late payments. The March/90 issue of the
"HOTLINES" newsletter published an article which emphasized the
importance of entering correct dates on the payment screens for
Prompt Pay criteria. We will re-publish that article in a future
"HOTLINES" issue.
6.3 Amend the policy announcements for journal vouchers to include
standard vouchers.
See response to 4.4.
6.4 Emphasize to the FMOs the importance of complying with Agency
policies for cash payment regarding prompt payment and taxing cash
discounts.
We will issue a memorandum by August 30, 1990 reemphasizing
the policies and procedures on the Prompt Payment Act Amendments
of 1988 (Public Lav 100-496) and the revised OMB Circular A-125,
"Prompt Payment," which was originally described in Comptroller
Policy Announcement 90-03 (Implementation of the Prompt Payment Act
a^en/flman'ta °* 1988 and QMS Circular A-125. Revised 1 . This policy
announcement includes the Agency's policies and procedures for cash
management for prompt payment and cash discounts.
Prior to the finalization of the Prompt Payment Act Amendments
of 1988 and the revised OMB Circular A-125, an Agency workgroup
also informed finance officers through notices and meetings of the
new requirements.
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ATTACHMENT I
Page 12 of 12
7. PERSONNEL COMPENSATION AND BENEFITS OBLIGATIONS WERE
OVERSTATED AND PERSONNEL COMPENSATION COSTS WERE QUESTIONED DUE TO
ERRORS AND LACK OF DOCUMENTATION
Recommendations/Responses
7.1 Require the Appropriate program officials and FMOs to
review the questioned payroll transactions and make, or advise HAOB
to mafce, any necessary adjustments to the payroll records and to
retain documentation of such adjustments for audit purposes.
We accept the recommendation and are currently researching
the $ 28,120 in costs questioned by the audit report as unsupported
or ineligible. Documentation has been provided directly to the
auditors separate from this response that should resolve a portion
of this amount. The remaining items will be addressed as follows:
Corrective Action; Target Date
- HAOB will follow-up with the FMOs' 8/31/90
to determine status of any payroll
corrections.
- Resolve questioned amounts. 9/30/90
A3-L3
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ATTACHMENT II
Page 1 of 3
RESOLUTION OF OBLIGATIONS QUESTIONED
DRAFT FY 89 8UPERFUND AUDIT REPORT
(RE: RECOMMENDATION 4.1)
QUESTIONED COSTS
CASE ID INELIGIBLE UNSUPPORTED
212.63
425.26
720.00
790.00
541.40
625.00
550.00
1,200,00
1,551.00
3,604.00
5,000.00
5,000.00
3,625.00
24,875.00
17,700.00
14,250.00
3040001
3050012
3060003
3060008
3060014
3060023
3060036
3070008
3070053
3080017
3100004
3100019
3110005
3130009
3130020
3130026
3150001
3010079
1050009
SUBTOTAL
45,250.00
122,235.00
250,000.00
mmmmm*m*m*m'um 164,000.00
453,475.00
44,000.00
^^^^^^^^^^^^^4
$ 497,475.00
$1,793,329.29
*See footnote response Page 3
(3)
(4)
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ATTACHMENT II
Page 2 of 3
RESOLUTION 07 DISBURSEMENTS QUESTIONED
DRAFT FY 89 SUPERFUND AUDIT REPORT
(RE: RECOMMENDATION 6.1)
QUESTIONED COSTS
CASE ID
505002
506003
509007
510005
510007
513043
523006
532006
536001
536005
SUBTOTAL
106016
106023
106024
108028
107002
108018
108032
109007
109009
109016
109017
109019
110004
INELIGIBLE
$ 246,860.65
225,613.52
200,394.94
103,265.76
160,000.00
101,043.20
132,270.83
85,300.00
87,051.64
82,594.89
79,071.08
85,704.97
71,783.66
UNSUPPORTED
$ 335,218.05
297,337.75
95,630.11
68,811.21
68,811.21
15,260.83
(111.10)
(69,156.46)
(297,337.75)
(297,337.75)
$ 217,126.10
SUBTOTAL $1,660,955.14
107003 171*681.40
315068 5,766.75
418003 596.00
406001 4,517.30
«•*• *••«»•• Mb •»•••• •»•
SUBTOTAL $ 182,561.45
407001 $ 5,418.40
218005 $ 408,361.95
$1,660,955.14 $ 813,467.90
$2,474,423.04
TOTAL
TOTAL QUESTIONED
COSTS
RESPONSE
(5)
(6)
(7)
(8)
(9)
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ATTACHMENT II
Page 3 of 3
FOOTNOTES: RESPONSE TO QUESTIONED OBLIGATION
AND DISBURSEMENT TRANSACTIONS
(1) Input errors which caused "Unsupported" items are now
corrected. Charge is valid.
(2} AP27 provided auditors with information to verify authorized
approving officials. The auditors did not have enough time to
research this area before exiting.
AP04 informed the auditors previously that they had overlooked the
signature of the contracting officer on line 20B of the award/
contract during their field work.
(3) RTP does not concur with this finding. The obligation
document was received by AP22 on February 16, 1989.
(4) Supporting documents for AH 03 cooperative agreements are in
Las Vegas and should have been audited in Las Vegas. This is in
effect a nonfinding.
(5) RTP concurs with these findings, however, a copy of the
obligation document for 3010034 was received by AP22 on March 15,
1990. A copy of the obligation document for 3020010 was received
by AP 22 on August 10, 1990.
(6) Payments at Las Vegas, the Agency's centralized payment
processing center, were questioned because the supporting documents
were at other SFOs1. These costs are in effect a nonfinding since
the supporting documentation was not audited at the appropriate
SFOs.
7) The RTP SFO still maintains the validity of these costs since
they are corrections for conversion rejects and payment records
reconcile to IFMS figures.
(8) RTP provided supporting documentation in the form of an
invoice and PO approval form for 107003. The other two
transactions were also supported by invoices. Region 3 provided
appropriate documentation to support this disbursement transaction
that reflected the correct percentage chargeable to the Superfund
appropriation for FY89.
(9) Supporting documentation is available to support this
transaction. Copy of documentation was provided to the auditors.
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ATTACHMENT I
Page 12 of 12
7. PERSONNEL COMPENSATION AND BENEFITS OBLIGATIONS WERE
OVERSTATED AND PERSONNEL COMPENSATION COSTS WERE QUESTIONED DCS TO
ERRORS AND LACK OF DOCUMENTATION
7.1 Require the appropriate program officials and FMOS to
review the questioned payroll traasactioas aad maJca, or advise HAOB
to make, aay accessary adjustments to the payroll records aad to
retaia documentation of such adjustments for audit purposes.
We accept the recommendation and are currently researching
the $ 28,120 in costs questioned by the audit report as unsupported
or ineligible. - Documentation has been provided directly to the
auditors separate from this response that should resolve a. portion
of this amount. The remaining items will be addressed as follows:
Corrective
- HAOB will follow-up with the FMOs1
to determine status of any payroll
corrections.
- Resolve questioned amounts.
8/31/90
9/30/90
A3-13
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ATTACHMENT II
Page 1 of 3
CASE IP
3040001
3050012
3060003
3060008
3060014
3060023
3060036
3070008
3070053
3080017
3100004
3100019
3110005
3130009
3130020
3130026
3150001
3010079
1050009
SUBTOTAL
RESOLUTION OF OBLIGATIONS QUESTIONED
DRAFT FY 89 SUPERFTJND AUDIT REPORT
(RE: RECOMMENDATION 4.1)
QUESTIONED COSTS
_ INBLIQIBLB UNSUPPORTED RESPOKflg
212.63
425.26
720.00
790.00
541.40
625.00
550.00
1,200.00
1,551.00
3,604.00
5,000.00
5,000.00
8,625.00
24,875.00
17,700.00
14,250.00
45,250.00
122,235.00
250,000.00
$ 503,154.29 (1)
1010132
628,700.00
(2)
2020043
2040013
SUBTOTAL
3010034
3020010
SUBTOTAL
TOTAL QUESTIONED
COSTS
136,000.00
28,.000. 00
J 164,000.00
453,475.00
44,000.00
$ 497,475.00
$1,793,329.29
*See footnote response Page 3
(3)
(4)
A3-14
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•• • ' :-,-,;.'."-.-• ,..-iv'<•>•:.',;• ATTACHMENT II
.V'» { -I/ ,-'•;'.-'.- Page 2 of 3
-.'. 5. ..„ .1.,. ' '.
RESOLUTION 07 DISBURSEMENTS QUESTIONED
DRAPT FY 89 SUPBR7UND AUDIT REPORT
(RE: RECOMMENDATION 6.1)
CASE ID
QUESTIONED COSTS
505002 •
506003
509007
510005
510007
513043
523006
532006
536001
536005
SUBTOTAL
106016
106023
106024
108028
107002
108018
108032
109007
109009
109016
109017
109019
110004
SUBTOTAL
107003
315068
418003
406001
SUBTOTAL
407001
218005
<
•
$ 246,860.65
225,613.52
200,394.94
103,265.76
160,000.00
101,043.20
132,270.83
85,300.00
87,051.64
82,594.89
79,071.08
85,704.97
71,783.66
$1,660,955.14
$1,660,955.14
ufipyf fyitx^u
$ 335,218.05
297,337.75
. 95,630.11
63,311.21
68,811.21
15,260.83
(111.10)
(69,156.46)
(297,337.75)
, (297,337.75)
5 217,126.10
171 ,.68 1.40
5,766.75
596.00
4,517.30
$ 182,561.45
$ 5,418.40
$ 408,361.95
$ 813,467.90
TOTAL
TOTAL QUESTIONED
COSTS
RESPOM8B
(5)
(6)
(7)
(8)
$2,474,423.04
A3-IS
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HEADQUARTERS LIBRARY
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
ATTACHMENT II
Page 3 of 3
FOOTNOTES: RESPONSE TO QUESTIONED OBLIGATION
AND DISBURSEMENT TRANSACTIONS
(1) Input errors which caused "Unsupported" items are new
corrected. Charge is valid.
(2) AP27 provided auditors with information to verify authorized
approving officials. The auditors did not have enough time to
research this area before exiting.
AP04 informed the auditors previously that they had overlooked the
signature of the contracting officer on line 20B of the award/
contract during their field worK.
(3) RTP does not concur with this finding. The obligation
document was received by AP22 on February 16, 1989.
(4) Supporting documents for AH 03 cooperative agreements are in
Las Vegas and should have been audited in Las Vegas. This is in
effect a nonfinding.
(5) RTP concurs with these findings, however, a copy of the
obligation document for 3010034 was received by AP22 on March 15,
1990. A copy of the obligation document for 3020010 was received
by AP 22 on August 10, 1990.
(6) Payments at Las Vegas, the Agency's centralized payment
processing center, were questioned because the supporting documents
were at other SFOs'. These costs are in effect a nonfinding since
the supporting documentation was not audited at the appropriate
SFOs.
7} The RTP SFO still maintains the validity of these costs since
they are corrections for conversion rejects and payment records
reconcile to IFMS figures.
(8) RTP provided supporting documentation in the form of an
invoice and PO approval form for 107003. The other two
transactions were also supported by invoices. Region 3 provided
appropriate documentation to support this disbursement transaction
that reflected the correct percentage chargeable to the Superfund
appropriation for FY89.
(9) Supporting documentation is available to support this
transaction. Copy of documentation was provided to the auditors.
A3-L6
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