Hi
CD
OFFICE OF INSPECTOR GENERAL
AUDIT REPORT
FINANCIAL MANAGEMENT
AUDIT OF EPA S FISCAL 1999
FINANCIAL STATEMENTS
Audit Report 00100231
February 29, 2000
-------
Inspector General Divisions
Conducting the Audit:
Lead Division:
Financial Audit Division
Washington, D.C.
Assist Divisions:
Mid-Atlantic Audit Division
Philadelphia, Pennsylvania
Cover Photo by Alan Bogus
Financial Audit Division
(Yosemite National Park)
Southern Audit Division
Atlanta, Georgia
Research Triangle Park, NC
Northern Audit Division
Chicago, Illinois
Cincinnati, Ohio
Eastern Audit Division
New York, New York
Western Audit Division
San Francisco, California
Regional and Program Offices
Involved:
Central Audit Division
Dallas, Texas
ADP Audits and Assistance Staff
Washington, D.C.
Agency-wide
-------
February 29, 2000
MEMORANDUM
SUBJECT: EPA's Fiscal 1999 Financial Statements
Audit Report No. 00100231
FROM: James O. Rauch /signed!
Assistant Inspector General for Audit (2421)
TO: Michael W.S.Ryan
Acting Chief Financial Officer (2710 A)
Romulo L. Diaz, Jr.
Assistant Administrator for
Administration and Resources Management (3101 A)
Steven A. Herman
Assistant Administrator for
Enforcement and Compliance Assurance (2201 A)
Attached is our audit report on the Agency's fiscal 1999 financial statements. The report
recognizes the efforts that were made to improve the Agency's financial statement preparation
process. Our work shows, however, that further improvements are needed in the Agency's
financial reporting processes to ensure that timely and reliable information is available at year-end
for external reporting purposes, as well as on an ongoing basis for the day-to-day management of
the Agency's environmental programs.
In this particular audit, the OIG did not measure the audited offices' performance against
the standards established by the National Contingency Plan (NCP). The findings contained in this
audit report are not binding in any enforcement proceeding brought by EPA or the Department of
Justice under Section 107 of the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) to recover costs incurred not inconsistent with the NCP.
In accordance with EPA Order 2750, the primary action official is required to provide us
with a written response to the audit report within 90 days of the final audit report date. Since this
report deals primarily with financial management issues, we are requesting the Acting Chief
-------
Financial Officer, as the primary action official, take the lead in coordinating and providing us a
written response to this report. For corrective actions planned but not completed by the response
date, reference to specific milestone dates will assist us in deciding whether or not to close this
report in our audit tracking system.
This audit report contains findings that describe problems the Office of Inspector General
has identified and corrective actions the OIG recommends. This audit report represents the
opinion of the OIG, and the findings contained in this report do not necessarily represent the final
EPA position. Final determinations on matters in this audit report will be made by EPA managers
in accordance with established EPA audit resolution procedures. Accordingly, the findings
described in this audit report are not binding upon EPA in any enforcement proceeding brought by
EPA or the Department of Justice. We have no objections to the further release of this report to
the public.
Should you or your staff have any questions about the report, please contact Edward
Gekosky, Divisional Inspector General for Audit, Financial Audit Division, at 260-1072, or
Alan Bogus of his staff at 260-4943.
Attachment
cc: See Report Distribution List
-------
EXECUTIVE SUMMARY
INTRODUCTION
We performed this audit in accordance with the Government Management Reform Act which
requires the Environmental Protection Agency (EPA or the Agency) prepare, and the Office of
Inspector General (OIG) audit the Agency=s financial statements each year. The requirement for
audited financial statements was enacted to help bring about improvements in agencies: financial
management practices, systems and controls so that timely, reliable information is available for
managing Federal programs.
OBJECTIVES
Our primary objectives were to determine whether:
EPA=s principal financial statements1 are fairly presented,
information presented in EPA=s Management Discussion and Analysis is consistent with
the principal financial statements,
adequate internal controls related to the principal financial statements were in place, and
the Agency complied with applicable laws and regulations that could materially affect the
principal financial statements.
RESULTS IN BRIEF
Opinions on EPA's Fiscal 1999 Financial Statements
The Agency was unable to provide support in a timely manner for the composition of Other
Financing Sources for the Superfund Trust Fund and the Agency as a whole. In addition, Note
28 to the financial statements discloses these differences as Custodial Liability Reclassifications
and Other which in our opinion does not adequately address the source or composition of these
1 EPA=s principal financial statements consist of the Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, Statement of
Budgetary Resources, Statement of Financing, Statement of Custodial Activity, and the Notes to the Principal Statements.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
amounts. The Agency was also unable to provide support for the composition of "Other" in the
Statement of Financing for the All Other Appropriated Funds and the Agency as a whole.
Therefore, we were unable to apply audit procedures to satisfy ourselves as to the fair
presentation of these line items.
Except for the effects, if any, of adjustments that may have been necessary to correct the amounts
reported as Other Financing Sources in the Statement of Changes in Net Position and the related
effects on Equity and Net Costs of Operations, the fiscal 1999 financial statements for the
Superfund Trust Fund are fairly presented.
Except for the effects, if any, of adjustments that may have been necessary to correct the amounts
reported as "Other" in the Statement of Financing, the fiscal 1999 financial statements for All
Other Appropriated Funds are fairly presented.
Except for the effects, if any, of adjustments that may have been necessary to correct the amounts
reported as Other Financing Sources in the Statement of Changes in Net Position and the related
effects on Equity and Net Costs of Operations, and the amounts reported as "Other" in the
Statement of Financing, the fiscal 1999 Agency-wide financial statements are fairly presented.
Although we were able to render opinions on EPA's financial statements, weaknesses existed in
the Agency's process for preparing the fiscal 1999 financial statements that resulted in the Agency
being unable to provide us with complete, accurate and reliable statements, footnotes and
supplemental information by the agreed upon dates. Significant audit effort was needed to assist
the Agency in improving the presentation of the financial statements and to resolve preparation
issues in order for the Agency to obtain the best possible opinions by March 1, 2000.
In addition, the Government Performance and Results Act requires EPA to develop plans on
intended accomplishments, measure how well it is doing, make appropriate decisions based on the
information gathered, and communicate information about performance to Congress and the
public. To do this, EPA developed a strategic plan with ten goals and during fiscal 1999 began
tracking the cost to achieve each of its goals. We found that the Agency's methodology for
accumulating costs by goal could not be relied upon to fairly state costs by goal. The Agency had
originally planned to present its Statement of Net Cost by goal. After we expressed concern
about the Agency's ability to fairly present its costs by goal, Agency management decided to
present EPA's costs for the Superfund Trust Fund and All Other Appropriated Funds rather than
present the information by goal. Weaknesses in this area also affect the quality of cost accounting
data Agency managers have available for decision making.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
Review of EPA's Management Discussion and Analysis
We did not identify any material inconsistencies between the information presented in EPA=s
Management Discussion and Analysis and in the principal financial statements. However, EPA=s
Management Discussion and Analysis states that the Agency is in compliance with Statement of
Federal Financial Accounting Standards No. 4, "Managerial Cost Accounting Concepts and
Standards for the Federal Government." We do not believe the Agency is in compliance with this
standard because EPA was not able to: (1) determine the full costs of its activities,
(2) accumulate and report cost of activities on a regular basis for management information
purposes, and (3) use appropriate costing methodologies to accumulate and assign costs to
outputs. EPA's Management Discussion and Analysis also states that, during fiscal 1999, the
Agency conducted a review of its user fees in accordance with the requirements of the Chief
Financial Officers (CFO) Act and provisions of OMB Circular A-25, "User Charges." Our audit
work showed, however, that the Acting CFO still needs to follow through and either institute,
revise, or update its user fees or obtain exceptions from OMB for the user fees identified during
the 1997 review, as updated by the 1999 review.
Evaluation of Internal Controls
In evaluating the Agency's internal controls, we identified the following material weaknesses.
Material weaknesses are situations where internal controls do not reduce to a relatively low level,
the risk that errors, fraud or noncompliance in amounts material to the principal financial
statements, Required Supplemental Stewardship Information or a reported performance measure
may occur and not be detected in a timely manner by employees in the normal course of
performing their assigned functions.
Although the Agency made some improvements in its financial statement preparation processes,
the financial statements provided to us for the purpose of expressing an opinion were incomplete
and contained significant errors. The financial statements that we used as a basis for rendering our
opinions were not received until late February 2000. Further, significant audit effort was needed
to assist the Agency in improving the presentation of the financial statements and to resolve
preparation issues in order for the Agency to obtain the best possible opinions by March 1, 2000.
The Agency needs to make further improvements in its financial statement preparation process.
These improvements should be designed to improve the accuracy and reliability of financial
information used to prepare financial statements after the end of the year, as well as the data that is
available on an ongoing basis throughout the year to manage EPA's environmental programs.
The Office of Inspector General previously reported concerns that security plans for EPA's core
financial systems were not compliant with Federal financial management system requirements.
Our work continues to show significant deficiencies for fiscal 1999. As a result, we continue to
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
iii
-------
report the issue as a noncompliance with the Federal Financial Management Improvement Act
(FFMIA). Additional developments for fiscal 1999 support the listing of computer security
controls as a material weakness. EPA's Acting CFO, in his Management Representation letter to
us, listed potential vulnerabilities in the Agency's mainframe computer and network servers as an
exception to Agency FFMIA compliance. Also, a current, more comprehensive review by the
General Accounting Office (GAO) indicates that EPA weaknesses "pose a serious threat to the
integrity of EPA's information systems; and if uncorrected could allow unauthorized users to take
control of EPA's network operations." The problems are of such magnitude that the security
program was rendered ineffective. A Congressional Committee, citing the seriousness of the
vulnerability, plans a March 2000 hearing on the issue. Relying on the work of GAO and our
efforts, and considering the concerns noted by the Acting CFO, we have concluded that computer
security controls should be considered a material weakness.
Tests of Compliance with Laws and Regulations
We did not identify any instances of noncompliance with laws and regulations that would result in
material misstatements to the audited financial statements. However, we did note the following
significant noncompliance issues.
EPA makes disbursements for grants that are funded from more than one appropriation using the
oldest available funding (appropriation) first which may or may not be the appropriation that
benefitted from the work performed. Thus, EPA is not complying with Title 31 U.S.C. 1301
which requires EPA to match disbursements to the benefitting appropriation. Even though this
instance of noncompliance did not result in a material misstatement of EPA's financial statements,
it is a significant issue the Agency must address.
In response to our prior audit report findings, EPA=s Office of the Chief Financial Officer
conducted biennial reviews of user fees required by OMB Circular A-25, "User Charges" and the
CFO Act. The November 1997 review showed five current fees, four proposed fees, and eight
exceptions. To be in complete compliance with OMB Circular A-25 requirements, the Acting
CFO needs to follow through and either institute, revise, or update its user fees, or obtain
exceptions from OMB, for the user fees identified during the 1997 review, as updated by the 1999
review.
Compliance with the Federal Financial Management Improvement Act
The Federal Financial Management Improvement Act (FFMIA) requires that, as a part of our
annual financial statement audits, we determine whether EPA's financial management systems
substantially comply with Federal financial management system requirements, applicable
accounting standards, and the Standard General Ledger at the transaction level. In addition to the
previously discussed material weaknesses in the Agency's process for preparing financial
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
iv
-------
statements and in its computer security, we also identified the following instances of substantial
noncompliance with FFMIA requirements.
! EPA's methodology for accumulating and reporting costs by the Agency's ten strategic
goals could not be relied upon to fairly state the Agency=s costs to achieve each goal.
Weaknesses in this area affected the quality of cost accounting data EPA managers had
available during fiscal 1999 to manage their programs. In addition, the Agency was not in
compliance with Statement of Federal Financial Accounting Standards (SFFAS) No. 4
that requires EPA to: (1) determine the full costs of its activities, (2) accumulate and
report cost of activities on a regular basis for management information purposes, and (3)
use appropriate costing methodologies to accumulate and assign costs to outputs.
! EPA was unable, in most cases, to report its intra-governmental assets and liabilities by
trading partner because finance offices were not coding transactions to show this
information. The Treasury Financial Manual (TFM) requires agencies to report trading
partner information, so Treasury can eliminate intra-governmental transactions when it
prepares the Financial Report of the United States Government. Agencies also need this
information, so they can manage their assets and liabilities.
RECOMMENDATIONS
We are not making any new recommendations concerning the Agency's financial statement
preparation process. The recommendations we made as a part of the fiscal 1998 audit, when fully
implemented, should correct weaknesses in the Agency's financial statement preparation process.
To correct the other FFMIA noncompliances we noted during this audit, we are recommending
the Acting Chief Financial Officer (CFO):
incorporate planned fiscal 2000 security plan actions for financial systems into a formal
remediation plan,2
establish procedures to identify actual costs by goal, objective and subobjective at the time the
costs are recorded,
develop timely, reliable, accurate cost reports to enable managers to monitor the total cost of
their programs,
develop a Statement of Net Cost with accurate and reliable cost information by goal which
can be used for external reporting, and
2 We expect the General Accounting Office will also make recommendations designed to improve the Agency's computer security.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
issue policies to require all finance offices to expedite the review and input of trading partner
information for the Agency's intra-governmental assets and liabilities.
Our report also contains recommendations related to the other internal control and compliance
issues we identified during this audit.
AGENCY COMMENTS AND OIG EVALUATION
In a memorandum dated February 24, 2000, the Acting CFO responded to our draft report. In
the response, he indicated that his office agrees that further improvements need to be made to the
process for preparing financial statements. However, the weaknesses we identified in the financial
statement preparation process do not warrant categorization as a material weakness, nor are they
indicative of the Agency's inability to provide managers with information that is accurate and
reliable for use on a day-to-day basis to manage Agency programs. The Acting CFO also
disagreed with our conclusion that the Agency is in noncompliance with the requirements of
SFFAS No. 4, "Managerial Cost Accounting Concepts and Standard for the Federal
Government." The Acting CFO agreed with many of the recommendations and indicated
corrective actions are planned or ongoing to implement these recommendations. Finally, the
Acting CFO expressed appreciation for our cooperation in resolving outstanding financial
statement issues. The Agency's complete response is included as Appendix II to this report.
We will continue to support the Agency's efforts to improve its processes for preparing timely,
reliable financial statements. In particular, we look forward to working with the Agency to make
improvements in the cost accounting information available to Agency managers to use in carrying
out their environmental programs. We have not changed our classification of the reported
material weakness and noncompliance issue. The rationale for our conclusions is included in the
appropriate sections of this report.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
vi
-------
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY i
INTRODUCTION i
OBJECTIVES i
RESULTS IN BRIEF i
RECOMMENDATIONS v
AGENCY COMMENTS AND OIG EVALUATION vi
ABBREVIATIONS
INTRODUCTION 1
PURPOSE 1
BACKGROUND 1
PRIOR AUDIT COVERAGE 2
INSPECTOR GENERAL'S REPORT ON EPA=S FISCAL 1999
FINANCIAL STATEMENTS 4
OPINIONS ON EPA=S FISCAL 1999 FINANCIAL STATEMENTS 4
REVIEW OF EPA=S REQUIRED SUPPLEMENTAL STEWARDSHIP
INFORMATION, REQUIRED SUPPLEMENTAL INFORMATION, AND
MANAGEMENT DISCUSSION AND ANALYSIS 6
EVALUATION OF INTERNAL CONTROLS 7
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS 11
RESPONSIBILITIES AND METHODOLOGY 13
EPA MANAGEMENT RESPONSIBILITIES 13
OIG RESPONSIBILITIES 13
AUDIT METHODOLOGY 13
ATTACHMENT 1 - MATERIAL WEAKNESS
ATTACHMENT 2 - REPORT ABLE CONDITIONS
ATTACHMENT 3 - COMPLIANCE WITH LAWS AND REGULATIONS
ATTACHMENT 4 - STATUS OF PRIOR AUDIT REPORT RECOMMENDATIONS
APPENDIX I EPA=S FISCAL 1999 FINANCIAL STATEMENTS
APPENDIX II AGENCY'S RESPONSE TO THE DRAFT REPORT
APPENDIX III REPORT DISTRIBUTION LIST
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
ABBREVIATIONS
ADP Automated Data Processing
APF Authorized Program Facility
ARTS Asbestos Retrieval Tracking System
BAS Budget Automation System
BCCP Business Continuity and Contingency Planning
BOC Budget Sub-object Class Code
CDOTS Contract Delivery Order Tracking System
CERCLA Comprehensive Environmental Response, Compensation and Liability Act
CFMC Cincinnati Financial Management Center
CFO Chief Financial Officer
CIO Chief Information Officer
CIS Contracts Information System
CMS Change Management System
CPARS Combined Payroll Redistribution Reporting System
CPS Contracts Payment System
CTS Superfund Cost Recovery Collection Tracking System
DOJ Department of Justice
DOPO Delivery Order Proj ect Officer
BAD Environmental Accountability Division
EDP Electronic Data Processing
EPA Environmental Protection Agency
EPAYS EPA Payroll and Personnel System
ERRD Emergency Remedial and Response Division
ESD Enterprise System Division
ETSD Environmental Technology Services Division
FACTS Federal Agencies' Centralized Trial-Balance System
FAS Fixed Assets Subsystem
FFMIA Federal Financial Management Improvement Act
FFMSR-O Framework for Federal Financial Management Systems
FFS Federal Financial Systems
FIFRA Federal Insecticide, Fungicide and Rodenticide Act
FMD Financial Management Division
FMFIA Federal Managers' Financial Integrity Act
FMOs Financial Management Offices or Officers
FMS Financial Management System
FOS Found-on-Station
FSB Financial Systems Branch
GAD Grants Administration Division
GAO General Accounting Office
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
ABBREVIATIONS
GAS Government Auditing Standards
GCRC Grants Customer Relations Council
GICS Grants Information and Control System
GMRA Government Management Reform Act
GPRA Government Performance and Results Act
lAGs Interagency Agreements
ICMS Integrated Contract Management System
IFMS Integrated Financial Management System
JFMIP Joint Financial Management Improvement Program
LUST Leaking Underground Storage Tank
MARS Management Accounting and Reporting System
NIST National Institute of Standards and Technology
NSA National Security Agency
NTSD National Technology Services Division
OARM Office of Administration and Resource Management
OC Office of the Comptroller
OCFO Office of the Chief Financial Officer
OECA Office of Enforcement and Compliance Assurance
OGC Office of General Counsel
OIG Office of Inspector General
OIRM Office of Information Resources Management
OMB Office of Management and Budget
OPAA Office of Planning, Analysis and Accountability
OP AC On-Line Payment and Collection System
OPP Office of Pesticide Programs
ORC Office of Regional Counsel
OSWER Office of Solid Waste and Emergency Response
P2000 Partnership 2000
FDD Presidential Decision Directive
PE Program Element
PMO Property Management Officer
PP&E Property, Plant, and Equipment
PPGs Performance Partnership Grants
PRC Program Results Code
RMDS Resources Management Directives System
RSSI Required Supplemental Stewardship Information
RTF Research Triangle Park
SARA Superfund Amendments and Reauthorization Act
SFFAS Statement of Federal Financial Accounting Standards
SIRMO Senior Information Resources Management Officer
SPEDI Small Purchase Electronic Data Interchange
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
ABBREVIATIONS
SRO Senior Resource Official
SSC Superfund State Contract
TFM Treasury Financial Manual
TM Travel Manager
UAO Unilateral Administrative Order
WCF Working Capital Fund
WFMC Washington Financial Management Center
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
INTRODUCTION
PURPOSE
We performed this audit in accordance with the Government Management Reform Act which
requires the Environmental Protection Agency (EPA or the Agency) prepare, and the Office of
Inspector General (OIG) audit the Agency=s financial statements each year. The requirement for
audited financial statements was enacted to help bring about improvements in agencies: financial
management practices, systems and controls so that timely, reliable information is available for
managing Federal programs. The objectives of our audit work were to determine if:
(1) EPA=s principal financial statements are fairly presented;
(2) information reported in EPA=s Required Supplemental Stewardship Information (RSSI),
Required Supplemental Information, and Management Discussion and Analysis is consistent with
information presented in the principal financial statements;
(3) adequate internal controls related to the principal financial statements were in place; and
(4) EPA management complied with applicable laws and regulations which, if not followed, could
have a direct and material effect on the principal financial statements or RSSI.
The Superfund Amendments and Reauthorization Act (SARA) of 1986 requires an audit of
obligations and disbursements of the Superfund Trust Fund. Our financial statement audit work
encompassed the SARA audit requirements.
BACKGROUND
EPA=s financial statements include two major components the Superfund Trust Fund and All
Other Appropriated Funds. These two components are described below.
Superfund Trust Fund
Congress established the Superfund Trust Fund in 1980 to identify and clean up spills of hazardous
materials and sites contaminated with hazardous substances. The Superfund program is primarily
managed by the Office of Solid Waste and Emergency Response and the Office of Enforcement and
Compliance Assurance. Much of the day-to-day operation of the program is carried out in EPA's
ten regional offices. Other Federal agencies also receive funding to carry out Superfund activities.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
All Other Appropriated Funds
All Other Appropriated Funds consists of the State and Tribal Assistance Grants Appropriation
which provides financial assistance to help states and tribes develop the technical, managerial and
enforcement capacity to operate environmental programs that monitor drinking water systems,
implement water quality standards, combat air pollution, promote the use of safer pesticides,
manage hazardous waste, and assure compliance with Federal environmental laws. It also includes
the Asbestos Loan Program, Leaking Underground Storage Tank Trust Fund, the Oil Spill Trust
Fund, the Agency=s Working Capital Fund, and the Environmental Program and Management,
Science and Technology, and Building and Facilities Appropriated Funds, as well as other
miscellaneous funds of EPA.
PRIOR AUDIT COVERAGE
During previous financial audits, weaknesses that impacted our audit objectives were reported in
the areas of:
the Agency=s process for preparing financial statements, including the Statements of
Budgetary Resources and Financing;
recording unbilled Superfund oversight costs;
accounting for and managing Superfund accounts receivable;
accounting for and controlling property;
recording accrued liabilities for grants;
approving payments for interagency agreements;
identifying, tracking and reporting EPA=s environmental liabilities;
recording revenue for Superfund state contracts;
documenting EPA's Integrated Financial Management System;
complying with federal financial management system security requirements;
accounting for payments for grants funded from multiple appropriations;
reconciling the components of Superfund net position;
identifying and allocating indirect costs;
reviewing Agency fees; and
allocating costs to the Superfund Trust Fund.
Attachment 4 summarizes the status of the prior audit report recommendations in each of these
areas. Other sections of this report on internal controls and compliance with laws and regulations
provide additional details on the current status of the Agency's corrective actions.
The Chief Financial Officer (CFO), as the Agency=s Audit Follow-up Official, oversees EPA=s
follow-up on audit findings and recommendations, including resolution and implementation of
corrective actions. For these prior audits, final action occurs when the Agency completes
implementation of the corrective actions to remedy weaknesses identified in the audit.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
We acknowledge that many actions and initiatives have been taken to resolve prior financial
statement audit issues. We also recognize that the issues we have reported are complex, and
require extensive, long-term corrective actions and coordination by the CFO with various Assistant
Administrators, Regional Administrators and Office Directors before they can be completely
resolved. A number of issues have been unresolved for a number of years.
On January 13, 2000, the OCFO and the OIG jointly sponsored a meeting with a number of senior
managers and representatives from the OCFO, the Office of General Counsel and the Office of
Administration and Resources Management to discuss our concerns about the audit management
process and the length of time management was taking to complete corrective action on some of
our older audit recommendations. The intended outcome of this meeting was to ensure a clear
understanding of the roles, responsibilities and processes needed to implement a quality audit
management program.
We acknowledge that EPA updated its policy in fiscal 1999 to enhance the audit management
process (EPA Order 2750, Audit Management Process, revised December 3, 1998). Nevertheless,
the Agency=s Audit Follow-up Official, OCFO, agreed on a number of additional actions to ensure
appropriate resources and priority attention by senior management is devoted to our prior audit
issues and that progress and status on these issues is appropriately discussed in management's
semiannual reports to Congress. Because efforts are underway by the OCFO to further strengthen
and enhance the audit management process, we will monitor the progress during fiscal 2000 to
determine if we need to make any audit recommendations concerning the audit follow-up process
and managements reporting of progress made on corrective action plans to Congress. Our office
will continue to work with the OCFO in helping them to resolve all audit issues resulting from our
financial statement audits.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
INSPECTOR GENERAL'S REPORT ON EPA's
FISCAL 1999 FINANCIAL STATEMENTS
The Administrator
U.S. Environmental Protection Agency:
In accordance with the requirements of the Government Management Reform Act (GMRA), we
performed an audit of EPA=s fiscal 1999 financial statements. Following are our opinions on the
Agency's financial statements, and the results of our evaluation of internal controls and tests of
compliance.
The financial statements include expenses of grantees, contractors and other Federal agencies. Our
audit work pertaining to these expenses included testing only within EPA. Audits of grants,
contracts and interagency agreements performed at a later date may disclose questioned costs of an
undeterminable amount at this time.
The Office of Inspector General (OIG) is not independent with respect to amounts pertaining to its
operations that are presented in the financial statements. The amounts included for the OIG are not
material to EPA's financial statements. The OIG is organizationally independent with respect to all
other aspects of the Agency=s activities.
OPINIONS ON EPA'S FISCAL 1999 FINANCIAL STATEMENTS
Superfund Trust Fund Financial Statements
The Agency was unable to provide support in a timely manner for the composition of Other
Financing Sources for the Superfund Trust Fund, so we were unable to apply audit procedures to
satisfy ourselves as to the fair presentation of this line item. In addition, Note 28 to the financial
statements discloses these differences as Custodial Liability Reclassifications and Other which in our
opinion does not adequately address the source or composition of these amounts. Except for the
effects, if any, of adjustments that may have been necessary to correct the amounts reported as
Other Financing Sources in the Statement of Changes in Net Position and the related effects on
Equity and Net Costs of Operations, the financial statements for the Superfund Trust Fund fairly
present the assets, liabilities, and net position; net costs; changes in net position; budgetary
resources; and reconciliation of net costs to budgetary obligations for the fund as of and for the year
ended September 30, 1999, in accordance with generally accepted accounting principles, as
described in Note 1 to the financial statements.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
All Other Appropriated Funds Financial Statements
The Agency was unable to provide support for the composition of "Other" in the Statement of
Financing for All Other Appropriated Funds, and we were unable to apply audit procedures to
satisfy ourselves as to the fair presentation of this line item. Except for the effects, if any, of
adjustments that may have been necessary to correct the amounts reported as "Other" in the
Statement of Financing, the financial statements for All Other Appropriated Funds fairly present the
assets, liabilities, and net position; net costs; changes in net position; budgetary resources;
reconciliation of net costs to budgetary obligations; and custodial activity for All Other
Appropriated Funds as of and for the year ended September 30, 1999, in accordance with generally
accepted accounting principles, as described in Note 1 to the financial statements.
Agency-wide Financial Statements
The Agency was unable to provide support in a timely manner for the composition of Other
Financing Sources for the Agency as a whole. In addition, Note 28 to the financial statements
discloses these differences as Custodial Liability Reclassifications and Other which in our opinion
does not adequately address the source or composition of these amounts. In addition, the Agency
was unable to provide support for the composition of "Other" in the Statement of Financing for the
Agency as a whole. We were unable to apply audit procedures to satisfy ourselves as to the fair
presentation of these line items. Except for the effects, if any, of adjustments that may have been
necessary to correct the amounts reported as Other Financing Sources in the Statement of Changes
in Net Position and the related effects on Equity and Net Costs of Operations, and the amounts
reported as "Other" in the Statement of Financing the Agency-wide financial statements fairly
present the assets, liabilities, and net position; net costs; changes in net position; budgetary
resources; and reconciliation of net costs to budgetary obligations for the Agency as of and for the
year ended September 30, 1999, in accordance with generally accepted accounting principles, as
described in Note 1 to the financial statements.
Other Significant Matters
Although we were able to render opinions on EPA's financial statements, weaknesses existed in the
Agency's process for preparing the fiscal 1999 financial statements that resulted in the Agency
being unable to provide us with complete, accurate and reliable statements, footnotes and
supplemental information by the agreed upon dates. Significant audit effort was needed to assist the
Agency in improving the presentation of the financial statements and to resolve preparation issues in
order for the Agency to obtain the best possible opinions by March 1, 2000.
In addition, GRPA requires EPA to develop plans on intended accomplishments, measure how well
it is doing, make appropriate decisions based on the information gathered, and communicate
information about performance to Congress and the public. To do this, EPA developed a strategic
plan with ten goals and during fiscal 1999 began tracking the cost to achieve each of its goals. We
found that the Agency's methodology for accumulating costs by goal could not be relied upon to
fairly state costs by goal. The Agency had originally planned to present its Statement of Net Cost
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
by goal. After we expressed concern about the Agency's ability to fairly present its costs by goal,
Agency management decided to present EPA's costs for the Superfund Trust Fund and All Other
Appropriated Funds rather than present the information by goal. Weaknesses in this area also affect
the quality of cost accounting data Agency managers have available for decision making.
REVIEW OF EPA'S REQUIRED SUPPLEMENTAL STEWARDSHIP
INFORMATION, REQUIRED SUPPLEMENTAL INFORMATION, AND
MANAGEMENT DISCUSSION AND ANALYSIS
EPA=s Required Supplemental Stewardship Information, Required Supplemental Information, and
Management Discussion and Analysis are presented for purposes of additional analysis. We
inquired of EPA=s management as to their methods of preparing this information and reviewed this
information for consistency with the principal financial statements. However, our audit was not
designed to express, and we are not expressing an opinion on it.
We did not identify any material inconsistencies between the information presented in EPA=s
principal financial statements and the information presented in EPA=s: (1) Required Supplemental
Stewardship Information, (2) Required Supplemental Information, and (3) Management Discussion
and Analysis. We did find that EPA was unable, in most cases, to provide Required Supplemental
Information about its trading partners. The January 7, 2000, technical amendments to OMB
Bulletin 97-01 require agencies to report, as Required Supplemental Information, their intra-
governmental assets and liabilities by federal trading partner (see Attachment 3 for additional details
on this issue) .
EPA=s Management Discussion and Analysis presents performance information about various EPA
programs. Our audits of EPA=s programmatic areas have identified weaknesses in the
environmental data information systems used to generate data used for managing the Agency=s
environmental programs. The Agency has several initiatives underway to address data quality and
ensure that environmental data systems contain timely and accurate data. Although these initiatives
move the Agency in the right direction, EPA has not developed an overall strategy to address the
completeness of its environmental data. As a result, EPA=s ability to evaluate the outcomes of its
programs in terms of environmental changes will continue to be limited by gaps and inconsistencies
in the quality of its data.
EPA=s Management Discussion and Analysis states that the Agency is in compliance with Statement
of Federal Financial Accounting Standards No. 4, "Managerial Cost Accounting Concepts and
Standards for the Federal Government." We do not believe the Agency is in compliance with this
standard because EPA was not able to: (1) determine the full costs of its activities, (2) accumulate
and report cost of activities on a regular basis for management information purposes, and (3) use
appropriate costing methodologies to accumulate and assign costs to outputs (see Attachment 3 for
additional details on this issue).
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
EPA=s Management Discussion and Analysis also states that, during fiscal 1999, the Agency
conducted a review of its user fees in accordance with the requirements of the CFO Act and
provisions of OMB Circular A-25, "User Charges." Our audit work showed, however, that the
Acting CFO still needs to follow through and either institute, revise, or update its user fees or
obtain exceptions from OMB for the user fees identified during the 1997 review, as updated by the
1999 review (see Attachment 3 for additional details on this issue).
EVALUATION OF INTERNAL CONTROLS
We evaluated the Agency's internal controls over financial reporting: (1) to determine the audit
procedures necessary to express an opinion on the financial statements, and (2) to determine
whether the internal controls provide reasonable assurance that:
transactions are properly recorded, processed, and summarized to permit the preparation of
reliable principal financial statements in accordance with generally accepted accounting
standards;
financial transactions are executed in compliance with applicable laws and regulations; and
assets are safeguarded against loss from unauthorized acquisition, use or disposition.
Recognizing on-going work by the General Accounting Office (GAO) on computer security
controls, we supplemented our review of these controls by relying on the GAO review. We did not
test all internal controls relevant to operating objectives as broadly defined by the Federal
Managers: Financial Integrity Act, such as those controls relevant to ensuring efficient operations.
Our objective in evaluating controls was not to express an opinion on controls. Consequently, we
are not expressing an opinion on EPA=s internal controls. Our evaluation would not necessarily
disclose all matters in the internal control structure that might be reportable conditions or material
weaknesses. Because of inherent limitations in any system of internal controls, losses,
noncompliance, or misstatements could occur and not be detected. Also, projecting our evaluation
of internal controls to future periods is subject to the risk that controls may become inadequate
because of changes in conditions, or the degree of compliance with such controls may deteriorate.
Material Weaknesses
OMB Bulletin 98-08, "Audit Requirements for Federal Financial Statements," defines a material
weakness as a situation where internal controls do not reduce to a relatively low level, the risk that
errors, fraud or noncompliance in amounts material to the audited financial statements, Required
Supplemental Stewardship Information, or reported performance measures may occur and not be
detected in a timely manner by employees in the normal course of performing their assigned
functions. In evaluating the Agency's internal control structure, we identified the following material
weaknesses.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
Although the Agency made some improvements in its financial statement preparation processes, the
financial statements provided to us for the purpose of expressing an opinion were incomplete and
contained significant errors. The financial statements that we used as a basis for rendering our
opinions were not received until late February 2000. Further, significant audit effort was needed to
assist the Agency in improving the presentation of the financial statements and to resolve
preparation issues in order for the Agency to obtain the best possible opinions by March 1, 2000.
The Agency needs to make further improvements in its financial statement preparation process.
These improvements should be designed to improve the accuracy and reliability of financial
information used to prepare financial statements after the end of the year, as well as the data that is
available on an ongoing basis throughout the year to manage EPA's environmental programs.
Attachment 1 describes weaknesses in the Agency=s financial statement preparation process in more
detail.
The Office of Inspector General previously reported concerns that security plans for EPA's core
financial systems were not compliant with Federal financial management system requirements. Our
work continues to show significant deficiencies for fiscal 1999. As a result, we continue to report
the issue as a noncompliance with the Federal Financial Management Improvement Act (FFMIA).
(See Attachment 3 for details.) Additional developments for fiscal 1999 support the listing of
computer security controls as a material weakness.
EPA's Acting CFO (in his Management Representation letter to us) listed potential vulnerabilities in
the Agency's mainframe computer and network servers as an exception to Agency FFMIA
compliance. In addition, the Acting CFO cited the lack of sufficient detail in security plans, and
security training programs that were under development but not yet completed and implemented, as
further exceptions to complying with system requirements.
In addition, a current, more comprehensive, on-going review by the GAO indicates that computer
security weaknesses "pose a serious threat to the integrity of EPA's information systems; and if
uncorrected could allow unauthorized users to take control of EPA's network operations." The
problems are of such magnitude that the security program was rendered ineffective. There have
been numerous computer incidents identified, but the system to document and manage the incidents
is inadequate. The operating computer and network controls were vulnerable to tampering and
disruption of services. EPA is vulnerable to serious disruptions, disclosure of data and destruction
of data. A Congressional Committee, citing the seriousness of the vulnerability, plans a March
2000 hearing on the issue.
Relying on the work of GAO and our efforts, and noting the concern of the Acting CFO, we
consider the lack of adequate computer security controls a material weakness.
Reportable Conditions
We also identified the following reportable conditions. OMB Bulletin 98-08 defines a reportable
condition as an internal control weakness that could adversely affect EPA's ability to ensure:
(1) transactions are executed in accordance with applicable laws; (2) assets are safeguarded against
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
unauthorized acquisition, use, or disposition; (3) transactions are properly recorded, processed, and
summarized to permit the preparation of reliable financial statements and Required Supplemental
Stewardship Information in accordance with generally accepted accounting principles; and
(4) transactions are properly recorded, processed and summarized to permit the preparation of
reliable performance information.
The Agency did not timely identify and deobligate unnecessary funds during its annual review of
inactive obligations. Therefore, the Agency had to conduct a Aspecial reviewฎ of its open
obligations to ensure an accurate reporting of its open obligations in the Agency=s financial
statements. The special review identified $14.6 million of open obligations which should have been
deobligated by September 30, 1999 in addition to the $10 million which should have been
deobligated based on the fiscal 1998 special review. In addition, our fiscal 1999 audit work
identified another $6.3 million which should have been deobligated by September 30, 1999.
During fiscal 1999, the Agency continued its efforts to improve controls in the accounts
receivable area. However, we continued to find: (1) accounts receivable that were not recorded
and billed timely, (2) accounts receivable balances in the Agency=s Integrated Financial Management
System (IFMS) were not reconciled to subsidiary records, (3) outstanding receivables were not
timely followed up on and written off, and (4) collection transactions were not properly recorded.
Consequently, some accounts receivable may not be correctly valued and timely collected. These
problems were primarily caused by Offices of Regional Counsel and program
offices not timely forwarding documentation needed to manage accounts receivable to the financial
management offices.
Some Agency project officers were not fulfilling one of their program oversight duties, that of
timely reviewing and approving interagency agreement invoices. In addition, some project officers
were not obtaining and reviewing supporting cost documentation for amounts billed by other
agencies. The Agency needs to continue making improvements in this area, so that it can be
assured that payments are only made for costs billed that are valid and allowable under the terms of
its interagency agreements.
For a number of years, we have reported that EPA needs to make improvements in accounting
for its property. The Agency has been addressing weaknesses in its accounting for property;
however, our fiscal 1999 audit work disclosed the need for further corrective actions. We again
found property that was not recorded or not recorded timely or accurately. In addition, we found
weaknesses in the reconciliation of property information in the Agency=s accounting system with
information contained in the property subsystem. When property is not accurately accounted for it
impacts the quality of data available to manage EPA=s resources and increases the risk of theft, loss
or misuse of the property.
We continue to be unable to assess the adequacy of the automated internal control structure as it
relates to automated input, processing and output controls for the accounting transactions
contained in the Agency=s IFMS. We recognize the Agency has initiated a work group to replace
the Agency payroll system, and the Agency=s budget request indicated a desire to replace IFMS in
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
the near future. An active data dictionary would simplify conversion of data in implementing future
financial systems.
Attachment 2 describes each of these reportable conditions in more detail. We will also be
reporting other less significant matters involving the internal control structure and its operation in a
separate management letter.
Comparison of EPA'S FMFIA Report with Our Evaluation of Internal Controls
As required by OMB Bulletin 98-08, we compared EPA's Federal Managers: Financial Integrity Act
(FMFIA or the Integrity Act) Report with our evaluation of the Agency=s internal control systems.
For reporting under FMFIA, material weaknesses are defined differently than they are defined for
financial statement audit purposes. OMB Circular A-123, flManagement Accountability and
Controlฎ defines a material weakness as a deficiency that the Agency head determines to be
significant enough to be reported outside the Agency. OMB Bulletin 98-08 defines a material
weakness as a weakness in controls that creates a risk that errors, fraud or noncompliance in
amounts material to the financial statements could occur and not be timely detected.
As a part of the fiscal 1999 Integrity Act process, the Agency reported the following two material
weaknesses that relate to the Agency=s financial statements.
Construction Grants Close Out. In 1992, EPA designated this area as an Agency weakness
and in 1996 reclassified it as a material weakness due to the concern that lack of Agency-wide
attention might result in the loss of resources to properly complete the program. In addition, there
were concerns that millions of dollars in potentially ineligible program costs might not be available
for reuse on other high priority state clean water projects. The Agency is in the process of
implementing its corrective action strategy and expects to close out all construction grants by 2006.
Information Systems Security Plans. Our audits have identified deficiencies in the Agency=s
information security planning. Security plans serve as a management control mechanism to assist
officials in the implementation of Agency security policies and in protecting valuable information
technology resources. Organizational security programs are to include the development,
maintenance, and management reviews of information security plans; to date, the Agency=s program
and regional offices are not fully compliant. At risk is the possible unauthorized access, use,
modification, or destruction of EPA information resources that could result from exploitation of
these vulnerabilities. As previously noted, we also consider this weakness a material weakness, as
well as a FFMIA noncompliance.
As a part of the Agency=s Integrity Act process, the Agency did not identify and report the financial
statement preparation process as a material weakness. Rather the Agency elected to track the
Agency=s corrective actions in the financial statement preparation process as an Agency -
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 10
-------
level weakness. We believe the Agency should report weaknesses in its financial statement
preparation process as an Integrity Act material weakness.
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
We tested compliance with provisions of those laws and regulations that could either materially
affect the financial statements or RSSI, or that OMB or we considered significant to the audit. Our
compliance testing did not disclose any material misstatements to the financial statements as a result
of noncompliance with laws and regulations. However, the objective of our audit, including our
tests of compliance with applicable laws and regulations, was not to provide an opinion on overall
compliance with such provisions. Consequently, we do not express such an opinion. There are a
number of ongoing investigations involving EPA's grantees and contractors which could reveal
violations of laws and regulations, but a determination about these cases has not been made.
Federal Financial Management Improvement Act Compliance
As required by FFMIA, as a part of our audit, we assessed whether EPA=s financial management
systems substantially complied with Federal financial management systems requirements, applicable
accounting standards, and the Standard General Ledger at the transaction level. In planning,
performing and reporting on our tests of compliance, we followed OMB Bulletin 98-08, AAudit
Requirements For Federal Financial Statements.ฎ
We found EPA was not in substantial compliance with the FFMIA requirements because of
weaknesses in: (1) the Agency=s process for preparing financial statements, and (2) its computer
security controls. We also identified the following instances of substantial noncompliance with
FFMIA requirements. Attachment 3 describes the following two noncompliance issues in more
detail and provides our recommendations on actions that should be taken to correct these
noncompliances.
! EPA=s methodology for accumulating and reporting costs by the Agency=s ten strategic
goals could not be relied upon to fairly state the Agency=s costs to achieve each goal.
Weaknesses in this area affected the quality of cost accounting data EPA managers had
available during fiscal 1999 to manage their programs. In addition, the Agency was not in
compliance with Statement of Federal Financial Accounting Standards (SFFAS) No. 4 that
requires EPA to: (1) determine the full costs of its activities, (2) accumulate and report cost
of activities on a regular basis for management information purposes, and (3) use
appropriate costing methodologies to accumulate and assign costs to outputs.
! EPA was unable, in most cases, to report its intra-governmental assets and liabilities by
trading partner because finance offices were not coding transactions to show this
information. The Treasury Financial Manual requires agencies to report trading partner
information, so Treasury can eliminate intra-governmental transactions when it prepares the
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 11
-------
Financial Report of the United States Government. Agencies also need this information, so
they can manage their assets and liabilities.
Other Noncompliance Issues
We also identified the following noncompliance issues that did not cause a material misstatement to
the financial statements, but are nonetheless significant.
Disbursements for Multiple Appropriation Grants. EPA is not complying with appropriation
law when making disbursements for grants funded with more than one appropriation.
Disbursements for these grants are made using the oldest available funding (appropriation) first
which may or may not be the appropriation that benefitted from the work performed. Thus, EPA is
not complying with Title 31 U.S.C. 1301 which requires EPA to match disbursements to the
benefitting appropriation. A January 13, 2000, Office of General Counsel decision concluded that
making disbursements for multiple appropriation grants using the oldest available funding first
violates 31 U.S.C. 1301 and is an inappropriate method of charging, except in limited situations.
User Fees. In response to our prior audit report findings, EPA=s OCFO conducted biennial reviews
of user fees required by OMB Circular A-25, AUser Chargesฎ and the CFO Act. The November
1997 review showed five current fees, four proposed fees, and eight exceptions. To be in complete
compliance with OMB Circular A-25, the Acting CFO needs to follow through and either institute,
revise, or update its user fees or obtain exceptions from OMB for the user fees updated in 1997, as
updated by the 1999 review. See Attachment 3 for a further discussion of this issue, including the
Agency's comments on this issue and our recommended corrective action.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 12
-------
RESPONSIBILITIES AND METHODOLOGY
EPA MANAGEMENT RESPONSIBILITIES
EPA's management is responsible for:
preparing annual financial statements and Required Supplemental Stewardship Information;
establishing and maintaining a system of internal controls; and
complying with applicable laws and regulations.
OIG RESPONSIBILITIES
We are responsible for:
auditing the financial statements to determine if they are free of material misstatements
and presented fairly in accordance with generally accepted accounting principles, and
evaluating related internal controls and testing compliance with applicable provisions of
laws and regulations.
AUDIT METHODOLOGY
In order to fulfill our responsibilities, except as described in our opinions, we:
examined on a test basis, evidence supporting the amounts and disclosures in the principal
financial statements;
assessed the accounting principles used and significant estimates made by management;
evaluated the overall presentation of the financial statements;
obtained an understanding of the significant internal controls over financial reporting,
determined whether they had been placed in operation, assessed control risk, and tested the
effectiveness of significant manual controls relevant to the following significant cycles,
classes of transactions, and account balances:
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 13
-------
Receivables and Collections
Disbursements and Operating Expenses
Payroll
Investments
Property
Budget and Obligations
Accounts Payable and Accrued Liabilities
Fund Balances
General Accounting and Financial Reporting
gained an understanding of the significant internal controls related to the RSSI;
inquired of EPA=s management as to their methods of preparing EPA=s Required
Supplemental Information;
compared EPA=s RSSI and Required Supplemental Information with the Agency=s principal
financial statements;
obtained an understanding of the automated internal control structure of the subsystem
interfaces with IFMS;
completed a separate audit addressing the adequacy of critical mainframe operating systems
libraries, program property tables and supervisory call programs;
reviewed the work of the GAO relative to computer security controls at EPA to determine
their findings and that we could rely on their work;
documented the status of corrective actions in the Agency=s FFMIA remediation plan, dated
March 31, 1999;
followed-up on findings and recommendations from previous audits that could materially
affect the financial statements;
obtained an understanding of management's process for evaluating and reporting on internal
controls and accounting systems as required by FMFIA;
compared the material weaknesses reported in the Agency's FMFIA report to the material
weaknesses we found;
tested compliance with applicable sections of laws and regulations that either materially
affect the financial statements or RSSI, or that OMB or our office considered significant to
the audit; and
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 14
-------
performed sufficient tests to report whether EPA=s financial management systems
substantially comply with Federal financial management systems requirements,3 applicable
accounting standards, and the Standard General Ledger at the transaction level as required
by the FFMIA.
Detailed system documentation was not available that would have allowed us to develop an
understanding of the IFMS automated transaction level control structure and to test those
automated controls. Our systems compliance work also was limited to evaluating the scope and
methodology of three reviews performed by the Treasury Financial Management Service:
(1) EPA Financial Systems: Compliance with OMB Circular A-127, dated November 4, 1999;
(2) IFMS Documentation Evaluation, dated September 1999; and (3) EPA Financial Systems:
Compliance with OMB Circular A-130, dated August 25, 1999. In addition, we performed field
work to evaluate the adequacy of Agency actions to revise core financial systems security plans,
which were identified in the Agency FFMIA remediation plan, dated March 31, 1999.
We met with GAO and discussed the results of their computer security control review of EPA and
attended the GAO exit conference with EPA on February 2, 2000. This allowed us to develop an
understanding of the issues. We reviewed a GAO summary of the issues and reviewed supporting
work papers. We further reviewed the qualifications of the GAO staff and obtained assurance of
their independence to satisfy ourselves that we could rely on their work.
The information presented in EPA's Management Discussion and Analysis is supplemental
information required by OMB Bulletin 97-01, entitled "Form and Content of Agency Financial
Statements." OMB Bulletin 98-08, "Audit Requirements for Federal Financial Statements,"
requires that we obtain an understanding of the internal controls designed to ensure that data
supporting the measures are properly recorded and accounted for to permit the preparation of
reliable and complete performance information. Our audit work related to EPA's Management
Discussion and Analysis was limited to comparing the financial information included in the
document with information contained in the principal financial statements.
Details of Audit Field Work
We selected statistical and non-statistical samples from EPA's detailed accounting records
supporting various financial statement amounts. We tested these sample transactions to determine
if they were adequately supported by documentation and were recorded in accordance with internal
control policies and procedures and applicable laws and regulations. We also reviewed other
supporting documentation, such as worksheets and schedules, that the Agency used in preparing its
financial statements. In addition, we applied certain analytical review procedures to account
balances.
3 We evaluated whether EPA was in substantial compliance with OMB Circular A-127; OMB Circular A-130, Appendix 3; and Joint Financial
Management Improvement Program system requirements, as identified in OMB Bulletin 98-08. We also evaluated systems budgetary reporting
requirements, as stated in OMB Circular A-l 1.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 15
-------
The financial management records and supporting documentation we reviewed were maintained by
Financial Management Centers in Washington, D.C., Research Triangle Park, Cincinnati and Las
Vegas; Financial Management Offices in EPA=s regional offices; the Office of the Chief Financial
Officer; various offices within the Office of Administration and Resources Management; the Office
of Enforcement and Compliance Assurance (OCEA); and by Headquarters and regional program
offices. To gain an understanding of established internal control procedures, and to evaluate these
controls, we also interviewed personnel in these offices and reviewed applicable policies and
procedures. In addition, we conducted a physical inventory of a sample of property items, and we
observed the Agency=s physical inventory of its property.
Our fieldwork for the audit was performed from June 9, 1999 through February 24, 2000.
Except as previously discussed in this report, we conducted our audit work in accordance with:
generally accepted auditing standards; the standards applicable to financial audits contained in the
Government Auditing Standards, issued by the Comptroller General of the United States; and OMB
Bulletin No. 98-08, AAudit Requirements for Federal Financial Statements.ฎ These standards
require that we plan and perform our audits to obtain reasonable assurance that the financial
statements are free of material misstatement. We believe that our audit provides a reasonable basis
for our opinions.
This report is intended solely for the information and use of the management of EPA, OMB and
Congress, and it is not intended to be and should not be used by anyone other than these specified
parties. We caution that misstatements, losses and noncompliance may occur and not be detected
by the tests performed and that such testing may not be sufficient for other purposes.
James O. Rauch
Assistant Inspector General for Audit
U.S. Environmental Protection Agency
February 24, 2000
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 16
-------
ATTACHMENT 1
MATERIAL WEAKNESS
TABLE OF CONTENTS
1 - FURTHER IMPROVEMENTS NEEDED IN THE AGENCY=S PROCESS
FOR PREPARING FINANCIAL STATEMENTS 1-1
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
FURTHER IMPROVEMENTS NEEDED IN THE AGENCY'S
PROCESS FOR PREPARING FINANCIAL STATEMENTS
The Government Management Reform Act (GMRA) requires EPA to submit its audited financial
statements to OMB by March 1. To ensure timely completion of the fiscal 1999 audited financial
statements, our office and the Office of the Chief Financial Officer (OCFO) agreed that the OCFO
would provide us a complete set of financial statements with related footnotes and supplemental
information by December 3, 1999, with the exception of selected items that would be provided no
later than December 15, 1999. This information would be used as the basis for expressing our
opinions. The final financial statements would be provided to us by January 18, 2000.
Weaknesses in the Agency's process for preparing the fiscal 1999 financial statements resulted in
the Agency being unable to provide us with complete, accurate and reliable statements, footnotes
and supplemental information by the agreed upon dates. Significant audit effort was needed to
assist the Agency in improving the presentation of the financial statements and to resolve
preparation issues in order for the Agency to obtain the best possible opinions by March 1, 2000.
As a result, the financial statements we used as a basis for rendering our opinions were not received
until late February 2000.
OMB Bulletin 98-08 requires that audited financial statements be prepared and submitted to the
agency head in sufficient time to enable the agency head to meet the GMRA due date. The fiscal
1998 audited financial statements were issued on September 28, 1999. EPA was unable to meet
the March 1, 1999 deadline due to difficulties in obtaining information from other Agency offices
and external sources, and problems in implementing new accounting standards and OMB reporting
requirements. These issues highlighted the need for the Agency to strengthen its coordination and
quality control processes to ensure accurate data is available to prepare the annual financial
statements and to manage the Agency's program activities on an ongoing basis. During the fiscal
1998 audit, we reported financial statement preparation as a material weakness. The Agency
subsequently declared financial statement preparation as an Agency-level control weakness.
The Agency agreed to implement corrective actions to improve the preparation of the fiscal 1999
financial statements. These corrective actions included: (1) developing a planning document with
milestones and responsibilities to prepare the statements, (2) establishing a Quality Control Group,
(3) updating policies and procedures for preparing the financial statements, and (4) the Director,
Financial Management Division (FMD) certifying as to the accuracy and completeness of the
financial statements. In order to prepare the fiscal 1999 financial statements, the Agency analyzed
the preparation process, established comprehensive time lines, improved the planning and
coordination to prepare the statements, assessed resources needed to complete the preparation and
review, strengthened its quality control process, and involved senior management. Despite these
efforts, during fiscal 2000, EPA continued to encounter difficulties in the preparation of timely,
reliable financial statements.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 1-1
-------
On December 3, the Director, FMD, submitted to us the financial statements, footnotes,
supplemental information and supporting documentation; and on December 15, additional
information was provided. The Agency met the committed milestones and improved the quality of
the content and presentation of this submission compared to submissions received in prior years.
However, the Agency's process for the preparation of the financial statements was not sufficient to
keep its commitments to provide us accurate and reliable statements, footnotes and supplemental
information prepared in accordance with OMB Bulletin 97-01. While continuous quality control is
important, at the time the statements were submitted to us, the Agency's internal quality control
review had not been completed. Based on our preliminary review of financial statements submitted
to us on December 3, 1999, we identified a number of significant deficiencies that would have
affected our opinion. We continued to find significant deficiencies on the financial statements
submitted to us on January 19, 2000 and February 12, 2000. The final financial statements that we
used as a basis for rendering our opinions were not received until late February 2000. Included as
an addendum is a listing of some of the issues we identified during our audit.
The number and type of errors and omissions we noted in the fiscal 1999 statements shows the
OCFO's current process for preparing financial statements needs further improvement. The
requirement for audited financial statements was enacted to bring about improvements in agencies'
financial practices, systems, and controls so that timely, reliable information is available for use by
the executive branch of the government and the Congress in the financing, management and
evaluation of Federal programs. When information submitted to us is not accurate and reliable for
the purpose of opining on the financial statements, we believe this is an indication that the Agency
needs to make further financial management improvements to meet the intent of the CFO Act and
GMRA. Using audit staff to perform quality control reviews of financial information after the end
of the year does not provide a means to ensure financial data in EPA's financial accounting system
is accurate on an ongoing basis. Process improvements should be designed not only to improve the
preparation of the financial statements at year-end, but also to provide Agency managers with
information that is accurate and reliable for use on a day-to-day basis to manage Agency programs.
In particular, the Agency needs accurate, reliable information on costs expended to achieve its
environmental goals (See Attachment 3, "EPA Was Not Able to Accurately Account for the Cost
to Achieve Each of its Goals").
RECOMMENDATIONS
We are not making any new recommendations at this time, as the Agency has not completed its
implementation of corrective actions in response to our fiscal 1998 recommendations. We believe
the significance of the issues we identified is an indication that the Agency needs to make further
financial management improvements. Therefore, the Agency should report financial statement
preparation as a fiscal 2000 Integrity Act material weakness, if weaknesses are not corrected by
fiscal 2000 year-end.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 1 -2
-------
AGENCY COMMENTS AND PIG EVALUATION
In responding to the draft report, the Acting CFO disagreed that the financial statement preparation
process should be reported as a material weakness. While the Acting CFO agreed that further
improvements need to be made to the process for preparing financial statements, he did not believe
the findings support categorization as a material weakness. In commenting on our addendum on
the presentation and preparation issues, the Acting CFO noted agreement with some changes but
noted a number of findings were not "errors," but rather differences in professional judgement on
the application of accounting standards.
The Acting CFO also disagreed that our finding is indicative of the Agency's inability to "provide
Agency managers with information that is accurate and reliable for use on a day-to-day basis to
manage Agency programs." The Acting CFO indicated that our findings are pertinent to the year-
end financial statement presentation and do not reflect upon the accuracy of the underlying
accounting data. Agency managers have a variety of management reports and ad hoc reports to
manage their programs on an ongoing basis.
We believe the cited weaknesses in the Agency's financial statement processes are significant
enough to continue to be reported as a material weakness. The requirements for audited financial
statements were enacted to bring about improvements in agencies' financial practices, systems and
controls so that timely, reliable information is available for managing Federal programs. Agency
management is ultimately responsible for the timely and reliable preparation of the financial
statements. As indicated, the December 3, 1999, January 19, 2000 and February 12, 2000 financial
statements contained significant deficiencies that would have affected our opinions. Significant
issues were still being resolved in mid-February 2000, and final statements with all significant issues
corrected, with the exception of those affecting "Other Financing Sources" in the Statement of
Changes in Net Position and "Other" in the Statement of Financing, were not received until late
February 2000.
We believe the Agency continues not to realize the severity of the problems noted. The Agency
continues to dismiss our findings as OIG presentation preferences, differences in professional
opinion, or needed changes are immaterial to the fair presentation of the financial statements. While
we purposely did not list all the issues found in the addendum due to time constraints, other
significant issues existed such as various OCFO adjustments, the adequacy of supporting
documentation for the adjustments, and its resultant effects on one or more of the principal
statements. In addition, we do not believe that the Agency has an effective and comprehensive
quality control process to provide a means for identifying and correcting errors in the financial
statements. The Agency needs to continue to make process improvements to improve the
preparation of the financial statements and to provide Agency managers with information that is
accurate and reliable for use on a day-to-day basis. We strongly encourage the Acting CFO to
undertake immediate corrective action in response to our fiscal 1998 recommendations.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 1 -3
-------
ADDENDUM
PRESENTATION AND PREPARATION ISSUES
FOR THE FISCAL 1999 FINANCIAL STATEMENTS
The issues described below illustrate the weaknesses we found regarding the Agency's
presentation and preparation of its fiscal 1999 financial statements. This listing is not totally
inclusive and therefore does not represent all of the weaknesses found. The number and type of
errors, omissions, and significance of the issues are characteristic of the weaknesses found.
Balance Sheet.
The Intra-governmental Trust Fund activity was not properly eliminated in the 12/3/99
statements and footnotes. This resulted in: (1) a $2.9 billion overstatement of the
Superfund "Accounts Receivable" balance, and (2) a $134 million overstatement in the All
Other "Accounts Receivable" balance. This issue is now resolved. There was still an
outstanding balance of $52.2 million for All Other "Accounts Receivable" on the 1/19/00
statements for which an adjustment was needed. This issue was corrected on the 2/12/00
statements.
The Working Capital Fund activity was not eliminated on the 12/3/99 consolidated
financial statements. This issue was corrected on the 1/19/00 statements.
Statement of Net Cost.
Intra-agency Working Capital Fund revenues and expenses were not eliminated on the
12/3/99 statements. This issue is now resolved.
Intra-agency elimination column and imputed interest and expense allocations on the
12/3/99 statements were reversed and therefore did not agree with the detailed schedules.
This issue was corrected on the 1/19/00 statements.
"Intra-governmental" costs of $7.2 billion and "With the Public" costs of $843 million on
the 1/19/00 statements were reversed. This issue is now resolved.
Adequate support was not provided for the crosswalk used to align costs to the Agency's
strategic goals as the approach used did not provide adequate audit evidence of actual
expenditure by goal. This issue is outstanding (See Attachment 3).
Adequate support was not provided for the Superfund account 5990 balance of $364
million and its classification on the 1/19/00 statements. This issue is now resolved.
Statement of Net Cost, Statement of Financing, and Statement of Net Position.
The presentation of the 1/19/00 Statements of Net Cost, Financing and Net Position did
not properly present the "Income/Expenses from Other Appropriations" balance of $35.7
million. The cost was properly reported on the Statement of Net Cost to reflect the total
cost of the fund. However, the Agency improperly included "Income from Other
Appropriations" on the Statement of Net Cost. This caused the "Net Cost of Operations"
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 1 -4
-------
to be understated. Such income should be disclosed on the Statement of Changes in Net
Position and should be shown as a financing source on the Statement of Financing. This
change also impacted the footnote. This issue is now resolved.
Statement of Budgetary Resources.
Adequate documentation was not provided to support the Superfund "Unobligated
Balance - Beginning of Period" on the 12/3/99 statements and the amount reported to
OMB on the SF-133. Upon obtaining OMB assistance, the Agency adjusted the fiscal
1999 statements to agree with the SF-133. This issue is now resolved.
Statement of Custodial Activity.
The 12/3/99 statement contained material misstatements. The statement's format was
inconsistent with last year's presentation. The statement incorrectly listed "Tax Revenues,"
and showed a material amount as "Miscellaneous." Excise tax revenue for LUST was
incorrectly included as "Tax Revenues." "Miscellaneous" contained fines and penalties that
were reported separately last year and the supporting schedule for the miscellaneous
amount did not foot. "Increase (Decrease) in Amounts Yet to be Transferred" was
mathematically incorrect and materially misstated. The 1/19/00 statement also contained
material misstatements. The "Retained by the Reporting Entity" balance of $267 million
was mathematically incorrect, materially misstated and did not belong on the statement.
The "Increase (Decrease) in Amounts to be Transferred" balance of $8.6 million was
mathematically incorrect and materially misstated. These issues are now resolved.
Statement of Changes in Net Position.
"Other Financing Sources" amount on the 12/3/99 statements was a positive rather than a
negative amount. This issue was corrected on the 1/19/00 statements.
Superfund "Increase (Decrease) in Unexpended Appropriation" balance of $93.4 million
on the 1/19/00 statements did not agree to the general ledger detail. This issue is now
resolved.
All Other "Transfers-Out" balance of $25 million on the 1/19/00 statements was a
positive rather than a negative amount, accordingly the account needed to be reclassified as
a "Transfers-In." This issue is now resolved.
Superfund "Other Financing Sources" balance of $1.6 billion on the 1/19/00 statements
contained an unsupported amount of $33.9 million; similarly the LUST portion of the All
Other "Other Financing Sources" balance was not supported. The unsupported amounts
could also affect equity and net cost of operations. This issue is outstanding.
Statement of Financing
Superfund "Other Resources" balance of $334 million on the 1/19/00 statements was
material and required classification. This issue is now resolved.
Superfund "Transfers-In" balance of $325 million on the 1/19/00 statements did not
belong on the statement. This issue is now resolved.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 1-5
-------
Superfund "Loss on Disposition of Assets" balance of $477 thousand on the 1/19/00
statements did not agree with support of $483 thousand. This issue is outstanding.
Superfund "Depreciation and Amortization" balance of $319 thousand on the 1/19/00
statements did not agree with support of $2.595 million. This issue is now resolved.
"Change in Amount of Goods, Services and Benefits Ordered but Not Yet Received or
Provided" for All Other on the 1/19/00 statements was not properly supported. This issue
is now resolved.
"Costs Capitalized on the Balance Sheet" on the 1/19/00 statements was misstated for
Superfund and All Other and did not agree to changes in property accounts. This issue is
now resolved.
"Financing Sources that Fund Costs of Prior Periods" on the 1/19/00 statements was
listed, but without balances. Balances were provided for All Other on the 2/24/00
statements, however, support was not adequate.
"Loss on Disposition of Assets" for All Other on the 1/19/00 statements did not agree to
the general ledger detail by approximately $3 million. This issue is now resolved.
"Other" of approximately $40 million for All Other and $241,000 for Superfund on the
2/24/00 statements was not supported. This issue is still outstanding.
Grant Accrual.
The grant accrual amount was not provided by December 15, as difficulties existed in
obtaining the needed information from grantees. The Agency also misstated the total grant
expenditures in calculating the grant accrual. This issue was corrected on the 1/19/00
statements.
Trading Partners.
Omitted from the 12/3/99 statements. This issue was corrected on the 1/19/00
statements.
The trading partner information included as Required Supplemental Information on the
1/19/00 statements did not agree with the line item reported on the balance sheet as
required by OMB Bulletin 97-01. This issue is now resolved.
Intra-governmental trading partner information for accounts receivable and liabilities
cannot be identified as required by OMB Bulletin 97-01 and the Treasury Financial Manual.
This issue is outstanding (See Attachment 3).
Expense Allocation.
The expense allocation is an estimate of the expenses reallocated from the All Other fund
to Superfund and FIFRA to show the full cost of these funds' activities. The calculation
was affected by input errors, unsupported spreadsheet balances, and Office of Pesticide
Programs (OPP) support which was not properly applied. This issue is now resolved.
Deferred Maintenance.
This information was omitted from 12/3/99 statements. This issue was corrected on the
1/19/00 statements.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 1 -6
-------
Pension and Other Post-retirement Benefits
OCFO staff correctly computed the imputed costs and revenues for Pension and Other
Post-retirement Benefits for All Other Funds (Non-Superfund) as per OMB guidance.
Originally these amounts were entered correctly in the All Other portion of the trial
balance. These amounts were subsequently backed out and a new amount, without the
portion attributable to FIFRA was re-entered. FIFRA amounts should be included as part
of the All Other portion of the financial statements as well as presented in the stand alone
financial statements for this Fund. The total amount of the difference was $2,047,766.
This issue was resolved on the 1/19/00 statements by the OCFO staff posting the imputed
amounts related to FIFRA back to the imputed amounts for All Other Funds.
Footnotes were omitted or incomplete:
The Statement of Budgetary Resources footnote was omitted from the 12/3/99
statements to describe a material amount shown as "Adjustments." This issue was
corrected on the 1/19/00 statements.
Unfunded Liabilities footnote on the 12/3/99 Statement of Financing was omitted. This
issue was corrected on the 1/19/00 statements.
Payroll footnote #1R on both 12/3/99 and 1/19/00 included the wrong contribution
and/or withholding rates. This issue is now resolved.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 1 -7
-------
ATTACHMENT 2
REPORTABLE CONDITIONS
TABLE OF CONTENTS
Page
2 - FURTHER IMPROVEMENTS NEEDED IN EPA=S PROCESS FOR
REVIEWING ITS UNLIQUIDATED OBLIGATIONS 2-1
3 - FURTHER IMPROVEMENTS NEEDED IN MANAGING EPA=S
ACCOUNTS RECEIVABLE 2-4
4 - ADDITIONAL IMPROVEMENTS NEEDED IN EPA=S INTERAGENCY
AGREEMENT INVOICE APPROVAL PROCESS 2-8
5 - CONTINUED IMPROVEMENTS NEEDED IN ACCOUNTING
FOR CAPITALIZED PROPERTY 2-10
6 - AUTOMATED APPLICATION PROCESSING CONTROLS FOR THE INTEGRATED
FINANCIAL MANAGEMENT SYSTEM COULD NOT BE ASSESSED 2-16
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
FURTHER IMPROVEMENTS NEEDED IN EPA'S PROCESS FOR
REVIEWING ITS UNLIQUIDATED OBLIGATIONS
EPA was required to make a $31 million adjustment to the fiscal 1999 financial statements due to
weaknesses in its process for reviewing unliquidated obligations. Specifically, during its annual
review, the Agency did not timely identify and deobligate some unnecessary funds. As a result of
weaknesses in the process for reviewing unliquidated obligations, the Agency had to perform an
additional Aspecial reviewฎ in order to obtain a more accurate accounting of its unliquidated
obligations. This special review identified $14.6 million of open obligations which should have
been deobligated by September 30, 1999, in addition to the $10 million which should have been
deobligated based on the fiscal 1998 special review. Our fiscal 1999 audit discovered an additional
$6.3 million which should have been deobligated by September 30, 1999. Various regulations
including GAO, OMB, Department of Treasury, and EPA policies address EPA=s responsibility to
review obligations annually and to deobligate all unnecessary funds.
EPA Office of the Comptroller Policy Announcement 96-04 and OMB guidance require EPA to
review unliquidated obligations at least once each year to ensure that transactions are valid, i.e.,
that appropriated funds are still available for the purpose and time period specified, and an actual
need still exists within the life of that appropriation. As a part of this annual review, the Financial
Systems Branch and both the Cincinnati and Research Triangle Park Financial Management
Centers send reports to each responsible office for their review. The reports list inactive
unliquidated obligations. For travel obligations, the reports include items with no activity in the
last three months. For all other obligations, the reports include items with no activity in the last six
months. EPA=s policy requires responsible officials to ensure that appropriate staff review the
inactive unliquidated obligations administered by their offices. These officials are also responsible
for certifying that the review was completed and Aappropriate deobligationฎ made. These
certifications are then sent to the Financial Reports and Analysis Branch which verifies the
submissions. We performed audit work in four regional offices and four financial management
centers and concluded that the review and deobligation processes need to be further improved.
Our fiscal 1998 audit of EPA=s financial statements disclosed material weaknesses in the
accounting for obligations. After the close of that fiscal year, the Agency performed a special
review of unliquidated obligations which identified $99.6 million in open obligations which should
have been deobligated before the close of the year. The review also identified a problem with
incorrect conversion in 1989, of obligation transactions from the predecessor accounting system to
IFMS. All of these weaknesses prevented the Agency from preparing timely and accurate
Statements of Budgetary Resources and Financing for fiscal 1998.
Our fiscal 1999 audit work showed that EPA=s process for reviewing inactive unliquidated
obligations to determine whether they are valid needs further improvement. Because the mandated
annual review was not entirely effective in identifying and deobligating invalid obligations, the
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-1
-------
Agency continued to have to rely on a Aspecial reviewฎ (performed subsequent to the closing of the
general ledger) to determine the true status of obligations. After this review is completed,
adjustments must be made in order for the financial statements to be presented fairly. The
certification of the annual review is also unreliable. Significant invalid obligations continue to be
detected by the Agency and the auditors not long after those same funds have been certified as
valid.
Weaknesses in EPA=s deobligation process have been previously documented by both internal and
external reports. For fiscal 1999, improvements were made in the process. The Agency was more
aggressive in identifying invalid obligations and initiating the deobligation process, and as a result,
reduced the adjustment by over $70 million. Although improvements were made in fiscal 1999,
the Agency still experienced difficulties in completing the deobligation process before the end of
the fiscal year. For fiscal 1998, for example, the Agency executed a $102.4 million, on-top
adjustment to reduce unliquidated obligations. By the end of fiscal year 1999, $10 million of those
dollars still had not been deobligated. In at least one case, a deobligation request was reportedly
submitted to FMD, but was never processed.
RECOMMENDATIONS
Since some findings are similar to our fiscal 1998 reported issues, we are not repeating the
respective fiscal 1998 recommendations, as the Agency has not completed its implementation of
corrective actions.
We recommend the Acting Chief Financial Officer (CFO):
2.1 incorporate the same analysis of individual obligations applied in the Aspecialฎ year-end
review into the annual review in order to perform one, thorough annual review. For
example, the Agency should develop reports which emphasize older, open unliquidated
obligations; and
2.2 require FMD to verify that deobligation requests have been processed in the IFMS and that
prescribed annual review and deobligation processes are completed at each location.
AGENCY COMMENTS AND PIG EVALUATION
In responding to the draft report, the Acting CFO stated that during the annual review, program
managers receive reports that show the budget fiscal year and last action date for each open
obligation, so they can identify older obligations. The Acting CFO also characterized the special
review as a review designed for financial statement presentation to identify unliquidated obligations
which are candidates for deobligation as of September 30.
We believe that program managers are not emphasizing the review of older obligations during the
annual review. This is evidenced by the need for a special year-end review. We believe the
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-2
-------
Agency could more efficiently use its resources by performing only one thorough annual review of
unliquidated obligations.
OCFO believes that its new procedures have addressed our recommendations to have FMD verify
that deobligation requests have been processed in the IFMS and that prescribed annual reviews and
deobligation processes are completed at each location. The Agency's new procedures require the
responsible officials to follow up to make sure that deobligation requests are processed in the
financial system. Additionally, the OCFO in the FY 2000 Quality Assurance Workplan guidance
memorandum instructed Regional Comptrollers and Financial Management Officers to include
unliquidated obligations in their review plans.
We are encouraged by the actions of OCFO, but still see a need for FMD to monitor the
deobligation process and verify that responsible officials have followed up to make sure
deobligations were processed correctly.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-3
-------
FURTHER IMPROVEMENTS NEEDED IN
MANAGING EPA'S ACCOUNTS RECEIVABLE
During prior financial statement audits, we reported weaknesses in the Agency=s management of its
accounts receivable. The Agency has taken corrective actions to improve controls in this area,
however, we continued to find: (1) accounts receivable that were not recorded and billed timely;
(2) accounts receivable balances in IFMS that were not reconciled to the subsidiary records;
(3) outstanding receivables that were not timely follow-up on and written-off; and (4) collection
transactions that were not properly recorded. Consequently, some accounts receivable may not be
correctly valued and timely collected. These problems were primarily due to Offices of Regional
Counsel (ORC) and program offices not timely forwarding documentation and other information
needed to manage accounts receivable to Agency FMOs.
Some Accounts Receivable Were Not Timely Recorded and Billed
The Statement of Federal Financial Accounting Standards Number 1, AAccounting for Selected
Assets and Liabilities;ฎ EPA=s Resources Management Directives System (RMDS) 2540, Chapter
9, flReceivables and Billings;ฎ4 and the Financial Management Divisions year-end closing
instructions all require accounts receivable to be recorded in the accounting system completely,
promptly and at the appropriate value. In Region 2, we identified ten receivables, valued at
$60,877,192 that were not recorded in IFMS within the established time frames. These receivables
were recorded from 3 days to 136 days beyond the time frames established by the Agency. During
any lapse of time when valid receivables are not recorded, the debtor may not be appropriately
billed, interest may not accrue, and EPA may not be paid the debt owed. In most cases, the
untimely recording of these receivables was attributed to the ORC or program offices not promptly
forwarding the appropriate documentation to the FMO.
Accounts Receivable Were Not Properly Reconciled to Subsidiary Records
RMDS 2540, Chapter 9, ACash Management: Receivables and Billings,ฎ paragraph 9. f(2)
requires the reconciliation of accounts receivable between the general ledger (IFMS) and the
manual subsidiary records. Chapter 14 of RMDS 2550D contains similar requirements for
Superfund accounts receivable.
Our audit work, in Region 5, found that accounts receivable recorded in IFMS did not always
reconcile to the subsidiary records because the region had not reconciled its Superfund Cost
Recovery Collection Tracking System (CTS) to IFMS. Reconciliations are designed to identify
receivables that have not been recorded or recorded at the correct amount. The untimely or
4 RMDS 2550D, Chapter 14 contains similar guidance applicable for Superfund accounts receivable.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-4
-------
incorrect recording of receivables could result in inaccurate or understated information recorded in
both the financial statements and internal EPA reports used for monitoring and managing accounts
receivable.
Outstanding Accounts Receivable Were Not Always Properly Managed
According to RMDS 2540, Chapter 9, paragraph 9.b.(3), the FMO is responsible for performing a
quarterly review of accounts receivable files and disposing of uncollectible receivables. RMDS
2550D, Chapter 14, paragraph 10 states that any changes affecting amounts due, status of debts,
and information on cases closed by the Department of Justice (DOJ) or bankruptcy court should be
communicated between the FMO and ORC. Once notified by the FMO that a debt is 120 days in
arrears, RMDS 2540, Chapter 9 requires that ORC must notify the FMO in writing within 30 days
of their decision to: (1) recommend the uncollected debt be referred to DOJ for the initiation of a
judicial action, (2) recommend additional FMO collection procedures such as referral to a private
collection agency, or (3) recommend write-off of the debt.
During our audit, we found that uncollectible accounts receivable were not timely written off due
to communication problems between FMOs and ORCs. In some cases, ORCs were aware of
certain actions initiated by DOJ but did not provide FMOs with available information about the
status of overdue receivables, collection actions initiated, the changes affecting amounts due, and
the cases closed by DOJ or the bankruptcy court.
For example, in Region 5 we found that our recommendation from fiscal 1998 regarding timely
communicating with the Comptroller Branch on the status of receivables had not been
implemented. Specifically, ORC did not always: (1) notify the Comptroller Branch of the selected
collection option within 30 days of the Comptrollers referral of a delinquent receivable to ORC,
and (2) communicate within three days to the Comptroller Branch any changes affecting amounts
due, status of debts, and cases closed by DOJ or the bankruptcy court. Additionally, in Region 2,
DOJ had officially closed the bankruptcy proceedings of two receivables and reversed the ruling on
a third. However, the FMO was not notified of DOJ=s action until 1 to 3 years after the decisions
were made. The value of these receivables totaled $3,039,525.
Timely follow up on accounts receivable is particularly important in Superfund cost recovery
cases. Since the Superfund Trust Fund is a revolving fund, collection of money from responsible
parties is necessary to replenish the Fund. When debts are not collected timely, the chances of
collecting all amounts owed decreases. Debtors may not be reachable and/or not in business or
assets may be diverted. As a result, less funds could be available in the future to clean up
contaminated sites.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-5
-------
Collection Transactions Were Not Properly Recorded
The Statement of Federal Financial Accounting Standards No. 1, AAccounting for Selected Assets
and Liabilities;ฎ RMDS 2540, Chapter 9, flReceivables and Billings;ฎ and FMD=s year-end closing
instructions all require accounts receivable to be recorded in the accounting system completely,
promptly and at the appropriate value. Specifically, year-end guidance to the FMOs stated that
IFMS would be open until October 15 for input of fiscal 1999 transactions such as expense or
revenue accruals or obligations that had not been entered by September 30. During this time,
FMOs were required to manually enter the appropriate fiscal year for all transactions. RMDS
2540, Chapter 10, Receipts and Deposits,ฎ paragraph 8 states: flFunds should be deposited
immediately (in accordance with Paragraph 5) and the nature of the remittance subsequently
determined. Suspense account 68X6875 should be used for depositing unidentified collections."
However, RMDS 2540, Chapter 10 does not specify what constitutes a reasonable period of time
for identifying the funds and applying them to the appropriate accounts.
Our audit work in Region 4 found that: (1) collection transactions were not recorded in the proper
period, and (2) amounts were held in suspense accounts for a lengthy time. The region
erroneously recorded three collection transactions that totaled $70,157 in both fiscal 1999 and
fiscal 2000. In addition, the balance in the region=s suspense account, $1.4 million, had not
changed from fiscal years 1997 to 1999. Region 4 indicated that these amounts represented entries
made in prior years, possibly as early as 1989, when the Agency made the transition from the old
FMS to the new IFMS. It is possible that the balance represents collections that should have been
offset against various accounts receivable. Therefore, Region 4's accounts receivable could
potentially be misstated.
RECOMMENDATION
Since some findings are similar to our fiscal 1998 reported issues, we are not repeating the
respective fiscal 1998 recommendations, as the Agency has not completed its implementation of
corrective actions.
We recommend the Acting Chief Financial Officer (CFO):
3.1 revise RMDS 2540 Chapter 10 to include a timeframe for clearing balances held in suspense
accounts.
AGENCY COMMENTS AND PIG EVALUATION
The Acting CFO concurred with our recommendation and will include a timeframe for clearing
balances in suspense accounts while revising RMDS 2540 Chapter 10. In addition, the Acting
CFO stated that the Agency is continuing to make improvements in the management of its
accounts receivable and is more effectively managing its receivables. He acknowledged continued
improvements are needed to ensure that all documents establishing accounts receivable are
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-6
-------
provided more timely to the FMOs by the program offices, regional counsel offices, and DOJ.
However, he did not believe the findings cited were sufficient to conclude a chronic timeliness
problem exists. The Acting CFO believes the entire accounts receivable finding should be removed
from the final audit report.
We acknowledge that steps that have been taken to improve the Agency's accounts receivable
practices; however, we do not agree that the finding should be removed since we continued to find
problems in this area during our fiscal 1999 audit.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-7
-------
ADDITIONAL IMPROVEMENTS NEEDED IN EPA'S
INTERAGENCY AGREEMENT INVOICE APPROVAL PROCESS
Some EPA project officers in Regions 2 and 5, Cincinnati and Headquarters were not fulfilling one
of their program oversight duties, that of reviewing and approving Interagency Agreement (IAG)
invoices. Specifically, we found instances where project offices were not timely approving IAG
invoices and instances where they were approving invoices without first obtaining the supporting
documentation for the costs billed on the invoice. Weaknesses in the IAG approval process
occurred because project officers were not: (1) fully aware of their duties and responsibilities for
approving IAG invoices, (2) held accountable for promptly approving IAG invoices, or (3) the
other Federal agency submitting the invoice was not providing supporting cost information. As a
result, EPA=s Cincinnati Financial Management Center (CFMC) recorded these transactions in the
accounting system, with limited assurance that the invoices were valid, appropriate and allowable
under the terms of the lAGs. In addition, since CFMC allocates costs incurred on lAGs with
multiple goals by using the first-in first-out accounting basis, costs for multiple goal lAGs could be
misstated. Weaknesses in the IAG invoice approval process have also been identified in prior
financial statement audits.
The Resources Management Directives System, Section 2550C, Chapter 4, Interagency
Agreements, paragraph 5 (g), states that the project officer is responsible for:
$ providing technical and managerial oversight;
$ receiving and reviewing detailed cost information submitted by other
agencies, which should be provided on a project-by-project basis;
$ approving vouchers and OP AC (On-Line Payment and Collection System)
billings received from other agencies after determining that performance is
in accordance with the agreement; and,
$ forwarding approved vouchers to EPA=s CFMC for payment within five
days after receipt.
In addition, Paragraph 10 (d) states that it is the responsibility of the project officer to monitor
lAGs. This responsibility includes: (1) monitoring EPA's receipt of goods or services to ensure
their delivery in accordance with the terms of the agreement, (2) reviewing detailed cost
information required of the agency providing the goods or services, and (3) resolving any
discrepancies which may arise.
EPA=s training manual for project officers entitled flManaging Your Financial Assistance
Agreement,ฎ 3rd Edition, October 1996, Module VIII provides guidance on OP AC billing. CFMC
charges a bill to the appropriate IAG and submits the invoice to the project officer for approval. If
there is a problem with the bill, EPA has 90 days to Acharge backฎ the funds to the appropriate
account.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-8
-------
In response to the recommendations made during the fiscal 1998 financial statement audit, the
Agency agreed to implement the following corrective actions by March 31, 2000.
The Grants Administration Division (GAD) would:
$ develop and issue a fact sheet for Agency managers conveying the need for timely
responses to invoices;
$ consult with the Grants Customer Relations Council (GCRC) on the acceptability
of CFMC notifying IAG approving officials when project officers have not
completed and returned the approval forms; and,
$ provide training on an ongoing basis to project officers on the proper procedures
for completing invoice approval forms.
The Financial Services Division would:
$ provide Senior Resource Officers a listing of delinquent project officers
semiannually in November and April; and,
$ disseminate follow-up correspondence on delinquent invoice approvals to the IAG
approving official upon concurrence by the GCRC.
We have no additional recommendations at this time. We will reevaluate this area during our fiscal
2000 financial statement audit to assess the effectiveness of the Agency=s corrective actions.
AGENCY COMMENTS AND PIG EVALUATION
The Acting CFO agreed to send Senior Resource Officials a list of "chronically" delinquent project
officers on a routine basis. On February 7, 2000, GAD issued a fact sheet instructing program
leaders to advise project officers to obtain adequate information before approving invoices. We
concur with the Agency=s planned and completed corrective actions.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-9
-------
CONTINUED IMPROVEMENTS NEEDED IN
ACCOUNTING FOR CAPITALIZED PROPERTY
For a number of years, we have reported that EPA needs to make improvements in its accounting
for property. During fiscal 1999, the Agency continued to take action to correct weaknesses in the
property area by issuing additional guidance on how to prepare procurement requests for property
acquisitions. The results of this year=s audit show, however, that the Agency needs to continue its
efforts to improve its accounting for property. We found that the capitalization criteria for
Automated Data Processing (ADP) systems was not consistently applied by the National
Technology Services Division (NTSD). We again found property that was not recorded or not
recorded timely or accurately in the Fixed Assets Subsystem (FAS)5, and property that was not
properly classified. In addition, we found weaknesses in the Agency=s process for reconciling
property information contained in IFMS with that contained in FAS. These weaknesses occurred
because property was delivered directly to its destination and Property Management Officers
(PMO) were not notified of its receipt; inaccurate or incomplete property and accounting
information was included on the procurement requests; and property payments were not
thoroughly researched during the reconciliation process. When property is not accurately
accounted for it impacts the quality of data available to manage EPA=s resources and increases the
risk of theft, loss, or misuse of the property.
Criteria for Capitalizing ADP Systems Needs to be Clarified
Statement of Federal Financial Accounting Standards (SFFAS) No. 6, "Accounting for Property,
Plant, and Equipment," states that once capitalization thresholds are established, these thresholds
should be consistently followed and disclosed in the financial reports. The Agency=s criteria and
guidance for capitalizing personal property are presented below.
Office of the Comptroller Policy Announcement 96-03, "Property, Plant and Equipment
Capitalization Threshold," establishes Agency criteria for capitalizing property, plant and
equipment (PP&E), but does not address ADP systems. This announcement provides the
following definition of personal property:
This includes assets such as equipment and furniture that are purchased or
constructed....Group purchases of related items such as modular furniture, which
individually do not exceed the $25,000 capitalization threshold, but collectively do, will
not be capitalized.
Office of the Comptroller Transmittal 99-03, AGuidelines on Preparing Requisitions for Property
and Related Goods and Servicesฎ examples 4 and 7, discuss the capitalization of an electronic
5 In late fiscal 1997, the Agency implemented FAS which is integrated with IFMS, the Agency=s accounting system.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-10
-------
certification system and server. In these examples, the Asystemฎ is one unit (e.g., server) which is
comprised of two or more components (e.g., CPU, monitor, disk pack). The guidance states the
determining criteria for listing an item as part of the system or individually is whether the individual
component can function on its own.
The capitalization criteria for ADP systems was not consistently applied by the NTSD. NTSD and
property officials indicated that the determination of what represented an ADP system and what
acquisition amount should be capitalized were subjective determinations and Agency guidance
needed to be clarified. Asa result, NTSD officials had different interpretations of the
capitalization criteria. For example, some officials believed the entire cost of a system should be
capitalized regardless of the cost of individual components while other officials indicated that the
capitalization criteria was to be applied on an individual component basis and only equipment items
over $25,000 should be capitalized. Different interpretations of what constitutes a system result in
inconsistent application of the capitalization criteria for similar purchases resulting in either
understatements or overstatements of capital assets and related accounts.
During our testing of Working Capital Fund (WCF) property acquisitions, we reviewed two similar
types of system acquisitions which were categorized differently. For both purchases, the individual
components each cost under $25,000 yet were part of the same set-up or system. One purchase
was for 10 routers to provide remote access to Agency E-Mail. The other purchase was for 23
switches to provide desktop connectivity to the North Ariel Rios Building. The purchase of the 10
routers was treated as a capital system and the entire acquisition cost was capitalized in the general
ledger6, even though the individual components (i.e., 10 routers) each individually cost under
$25,000. However, the purchase of the 23 switches was considered a non-capital purchase since
the components cost under $25,000. Consequently, the entire purchase price was charged to
operating expenses. We reviewed the Agency=s policy and guidance for capitalizing property and
do not believe these types of systems are addressed. NTSD and property officials we spoke with
agreed that the definition of what constituted a "system" was subjective and that Agency guidance
needed to be clarified. The Agency provided training in January 2000 to assist Agency
management in preparing procurement requests.
Property Was Not Always Recorded Timely or Accurately in FAS and IFMS
OMB Circular A-123, "Management Accountability and Control," requires that transactions be
promptly recorded, properly classified and accounted for in order to prepare timely accounts and
reliable financial and other reports. SFFAS No. 6 and Agency policy require that PP&E be
recognized when title passes to the acquiring entity or when the PP&E is delivered to the entity or
to an agent of the entity.
6 Even though the WCF Board intended this to be a capital purchase the purchase was not recorded as a capital system in FAS. Each router was
individually assigned a decal number and entered in FAS as a non-capital item. This occurred because the purchase order received by the PMO did
not indicate that this was a capital purchase but instead listed 10 items all valued at under $25,000 and assigned the cost to a non-capital Budget Sub-
Object Class Code (BOC). After payment, NTSD had the RTP-FMC re-assign the payments to a capital BOC. However, the PMO was not made
aware of the subsequent adjustments to re-classify this purchase as a capital acquisition.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-11
-------
At RTF, we identified 34 WCF property items, including components that totaled $5,019,181, that
met the capitalization criteria, but were either not recorded in FAS and IFMS or were not recorded
timely or accurately. One of these items was recorded in RTP=s records, but physically located in
Region 9. This item was recorded in FAS four months after it was received and placed in service.
The item was not recorded timely in FAS because property personnel were not informed the
property had been received, and RTF did not provide them a copy of the delivery order. In
addition, property was not recorded accurately in FAS because procurement requests did not
contain accurate and complete accounting information. To correct the weaknesses with regards to
procurement requests, the Agency issued guidance during October 1998 on how to prepare
procurement requests for property. When property acquisitions are not recorded timely or
accurately in FAS, the property data available is not reliable.
As a result of the weaknesses in the Agency=s property accounting, FMD made prior period
adjustments to property and accumulated depreciation at year-end of $9.9 million and $1.1 million,
respectively (see table below). FMD called these prior period adjustments Found-on-Station
(FOS). FOS is considered prior year acquisitions entered into FAS in the current year. In other
words, the property was not entered into FAS timely. FMD made these adjustments so that
current year acquisitions would not be overstated. These adjustments were made to adjust
property at the following accounting points: Regions 1, 5, 6, 8, and 10, RTF, Cincinnati, Las
Vegas, and Headquarters. Because of the numerous adjustments, we do not have reasonable
assurance as to the accuracy and reliability of the Agency=s personal property balance.
Acquisition Date
FY1998
FY1989-1997
Total
Acquisition Amount
$5,513,407.00
$4,386,840.00
$9,900,247.00
Accumulated
Depreciation
$175,039.00
$938,629.00
$1,113,668.00
Property Was Not Properly Classified
SFFAS No. 6 defines PP&E as tangible assets, including land, which meet the following criteria:
(1) have an estimated useful life of two years or more; (2) are not intended for sale in the ordinary
course of operations; and (3) have been acquired or constructed with the intention of being used or
available for use by the entity. PP&E should be recorded at cost. In addition, any costs which
either extend the useful life of existing PP&E, or enlarge or improve its capacity should be
capitalized and depreciated over the remaining useful life of the asset. The Agency=s policy
requires personal property owned by EPA to be capitalized, if it costs $25,000 or more. The cost
of property not meeting the capitalization criteria is to be expensed in the period acquired.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-12
-------
At RTF, we identified WCF property items valued at $2,115,887, which were improperly classified.
Specifically, three WCF property items totaling $1,236,553 should have been capitalized, but were
not. In addition, WCF property items totaling $879,334 were capitalized when they should not
have been. For example, the payments for non-capital equipment items under two contracts were
incorrectly assigned to a capital property Budget Sub-object Class Code (BOC). As a result, the
net value of EPA=s WCF property and equipment was understated and its expenses were overstated.
These items were not properly classified because incorrect or incomplete accounting information
was included on the procurement requests. As mentioned earlier, the Agency issued guidance in
October 1998 to correct this problem.
Problems Were Experienced During the Reconciliation Process
To help ensure the general journal properly reflected the amount of Agency-held capital equipment,
FMD provided year-end instructions to the FMOs requiring them to reconcile capital equipment
transactions recorded in the IFMS general journal with the entries recorded in the Fixed Assets
(FA) tables (a part of the FAS). Any differences were to be corrected by adjusting entries. For
fiscal 1998, FMOs performed limited year-end reconciliation work. The FMOs were only required
to ensure that the capital equipment balances in FAS were as accurate and comprehensive as
possible. Headquarters: FMD staff reconciled the general journal to the fixed assets journal, making
the necessary adjusting entries. In fiscal 1999, FMD revised the year-end finance closing
instructions (dated August 18, 1999) placing responsibility back with the FMOs to ensure the
capital equipment balances in FAS were as accurate and comprehensive as possible; and to process
adjusting entries to reconcile the general journal to the FA tables.
We found problems with the year-end property reconciliations at RTF and WFMC. During fiscal
1999, including at year-end, RTF finance personnel did not reconcile the general journal to FAS for
WCF property purchases and other property purchases. At year-end, RTP=s general journal was
adjusted to agree with the property balances reflected in FAS. RTF finance personnel removed
payments, totaling $422,987, for capital property not recorded in FAS from the general journal so it
would agree with FAS without performing a reconciliation. RTF finance personnel did not perform
the reconciliations due to: (1) errors in the monthly reconciliation reports provided by FMD; (2)
the lack of reports for several months; and (3) the lack of a common data element between the
general journal and FAS reports that would allow them to match the property transactions.
WFMC finance personnel performed some year-end property reconciliation activities; however,
capital property payments were removed from the general journal that should not have been. For
example, in reviewing WFMC=s year-end reconciliation activities, we found payments totaling
$233,263 for capital scientific and technical equipment not recorded in FAS during fiscal 1999 that
were removed from the general journal property balance when they should not have been. During
the year-end reconciliation process, WFMC made numerous adjustments to reconcile the general
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-13
-------
journal to FAS. At the time of our audit, WFMC did not have adequate support available for the
adjustments made. The year-end instructions require that supporting documentation (e.g.,
reconciliation reports, obligating documents, screen prints, invoices, etc.) be maintained for any
FAS entries, corrections, etc., to ensure that there is an audit trail supporting the entries. Failure to
perform adequate reconciliations reduces our assurance about the accuracy of the Agency's
personal property balances.
RECOMMENDATIONS
We recommend the Acting Chief Financial Officer (CFO):
5.1 issue guidance clarifying the criteria for capitalizing an ADP system;
5.2 revise BOC definitions for capital equipment to be consistent with Agency policy for
capitalizing systems; and
5.3 improve the reconciliation process by: (1) ensuring FAS reconciliations are conducted monthly
and at year-end; (2) requiring FMOs to thoroughly research any discrepancies between the
general journal and FA tables in FAS; and (3) requiring the FMOs to certify the year-end
reconciliations.
We recommend the Acting CFO, in conjunction with the Assistant Administrator for Administration
and Resources Management, continue to work to strengthen controls designed to ensure that
property is timely and accurately recorded in the Agency=s property accountability system, FAS.
Specifically, reemphasize to the appropriate Agency personnel their responsibilities to:
5.4 ensure procurement requests are completed with the correct budget sub-object class code;
5.5 report receipt of accountable and capital property to the appropriate PMO in a timely
manner when property acquisitions are directly delivered to the ordering official, and
forward copies of appropriate documentation to the PMO; and
5.6 ensure that the appropriate personnel at EPA=s offices are trained on their roles and
responsibilities when property is delivered.
AGENCY COMMENTS AND PIG EVALUATION
The Acting CFO agreed with our recommendations concerning clarification of the criteria for
capitalizing ADP systems. The Agency plans to: (1) issue revised guidance on capitalization and
depreciation of WCF property, (2) revise the BOC definition for ADP equipment to be consistent
with Agency guidance for capitalizing systems, and (3) revise the definition for ADP equipment to
better reflect system purchases.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-14
-------
The Acting CFO also agreed to improve the reconciliation process by ensuring that FAS
reconciliations are conducted monthly and at year-end. Specifically, the OCFO plans to require
FMOs and FMCs to: (1) thoroughly research any discrepancies between the general journal and
fixed asset tables in FAS, (2) certify the year-end reconciliations, and (3) include a review of FAS
reconciliations in their quality assurance workplans.
During January 2000, OCFO provided training to NTSD staff on how to prepare capital property
purchase documents. Additional training will be provided during upcoming Agency conferences
that may include attendees who are responsible for property purchases.
OARM agreed with the recommendations directed to their office. A memorandum has been
forwarded to the Agency's Senior Resource Officials reminding them of their property management
responsibilities. It also requested their assistance in ensuring that property received by their offices
is timely reported to the respective property management officer. The memorandum will be
included on the Facilities Management Services Division web site. The Agency feels this
memorandum will also benefit laboratory personnel by reminding them to inform the property office
when accountable property is received.
We concur with the Agency=s planned and completed corrective actions.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-15
-------
AUTOMATED APPLICATION PROCESSING CONTROLS FOR THE
INTEGRATED FINANCIAL MANAGEMENT SYSTEM
COULD NOT BE ASSESSED
We continue to be unable to assess the adequacy of the automated internal control structure as it
relates to automated input, processing, and output controls for IFMS. IFMS applications have a
direct and material impact on the Agency=s financial statements. Therefore, an assessment of each
applications automated input, processing and output controls, as well as compensating manual
controls, was necessary to determine the reliance we could place on the financial statements.
During past financial statement audits, we attempted to evaluate controls without documentation,
but these alternatives proved to be inefficient and impractical considering available resources.
Program level transaction flowcharts or similarly descriptive narrative system documentation were
not available. Furthermore, we previously concluded that the IFMS Users= and other EPA
contractor baseline Federal Financial Systems (FFS) manuals did not contain the level of detail
necessary to construct tests of automated internal controls which would satisfy our field work
standards.
The Joint Financial Management Improvement Programs (JFMIP) Framework for Federal
Financial Management Systems (FFMSR-0), dated January 1995, requires systems documentation
include information necessary for a systems analyst or a programmer not familiar with the system to
learn and maintain the system in a timely and efficient manner. As a minimum, the Federal guidance
identifies three types of system documents as required: systems documentation, operations
documentation, and user documentation.
The OIG has been working with Agency officials to improve IFMS system documentation. Agency
officials disagreed with the conclusions and recommendations made in the OIG report, flFiscal 1995
Financial Statement Audit of the EPA=s Trust Funds, Revolving Funds and Commercial Activity,ฎ
dated May 3, 1996, and maintained that sufficient documentation existed in the Change
Management System (CMS). Furthermore, management stated that the OIG=s opinion was
restricted by its definition of acceptable documentation. In response to the OIG audit report,
AAudit of EPA=s Fiscal 1996 Financial Statements,ฎ issued March 24, 1997, the Agency completed a
system documentation analysis, developed updated accounts receivable documentation, and
completed an analysis for creating a comprehensive IFMS data dictionary. We concluded, as part
of our fiscal 1998 financial statement audit, that the accounts receivable documentation was not
adequate to establish the reliability of IFMS transaction processing controls.
In 1999, in response to our audit position, the Agency hired the Treasury=s Financial Management
Service (FMS) to evaluate EPA=s overall compliance with Federal financial systems: documentation
requirements. The Treasury report, dated September 1999, concluded that: (1) IFMS complied
overall with system documentation requirements in OMB Circular A-127, and in FFMSR - 0; (2)
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-16
-------
despite custom interfaces and other EPA system modifications, IFMS was still essentially off-the-
shelf software (FFS); and (3) FFS User documentation should be considered to be part of the IFMS
systems documentation. We do not agree that the report=s conclusions were adequately supported
because Treasury staff based their findings on the premise that IFMS was only 12 percent
customized. Treasury staff obtained the 12 percent figure from a contractor and disclosed that they
made no effort to validate the accuracy of the provided customization level. As a result, Treasury
concluded that IFMS documentation is basically the same as the commercial off-the-shelf FFS
software. As such, Treasury staff deemed that a combination of EPA=s user manuals and off-the-
shelf FFS documentation sufficiently met the criteria for Federal financial systems documentation
requirements.
In accordance with generally accepted government auditing standards, we needed to verify the
accuracy of critical data and review the adequacy of FMS=s work before placing reliance on it for
audit purposes. Our review disclosed a significant discrepancy which could not be adequately
explained or supported by Treasury=s review staff. Specifically, we could not place reliance on the
12 percent customization figure which formed the basis for Treasury=s report conclusions.
Therefore, we concluded that we could not rely on the report=s conclusions.
We question Treasury=s methodology for determining IFMS customization because it significantly
conflicts with other known facts. It is a generally accepted fact that automated software systems
tend to be more customized and costly to operate as they become older. Today, the average life of
a financial system in industry is approximately five years. IFMS is over 11 years old. Thus, one
would expect it to be highly customized and costly to operate. Treasury=s 12 percent customization
figure also differs significantly from prior audit information obtained from the same contractor in
1993. As of July 28, 1993, the contractor indicated that a 29 percent difference existed between the
FFS 5.1 baseline software and EPA=s version of FFS 5.1 software (i.e., a 29 percent customization
level). The 29 percent figure was the result of a thorough line-by-line comparison of EPA=s version
of FFS to comparable FFS baseline code. The latest 12 percent figure was not computed using
similar methodology, but rather only by counting the lines of code marked as IFMS enhancements.
We consider Treasury=s chosen methodology to be unreliable. While we concede that the level of
customization would have fluctuated since 1993, when the contractor performed a line-by-line
analysis, we do not think the evidence supports as significant a decrease as is implied by Treasury=s
report. Furthermore, after reviewing the supporting documents and work papers, we concluded
that no analysis was performed to verify the accuracy of the 12 percent figure. As one would
expect for an 11-year old system, IFMS is a very costly system to operate. A recent CFO study
concluded that EPA=s financial system costs are 38 percent higher than the average of other Federal
Government entities, and 9 percent higher than the average of private sector entities. If, as
Treasury proposes, the system was basically >off-the-shelf,= then one would expect these costs to be
below average, rather than above. For these reasons, we cannot place reliance on Treasury=s
findings for audit purposes.
The Agency repeatedly has indicated its plans to replace existing financial systems but in the
absence of tangible actions to do so, we believe the CFO should take positive steps to document
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-17
-------
system upgrades and new financial systems at the transaction level. We recognize that the Agency
has initiated a work group to replace the Agency payroll system, and that the Agency budget
request indicated a desire to replace IFMS in the near future. Also, in the Agency=s report to the
OMB, management indicated a desire to initiate actions to replace IFMS during fiscal 2000. OIG
staff continue to work with Agency officials to upgrade or replace existing financial systems, but all
parties expect that it will be several years before the Agency replaces the financial systems. In the
interim, we believe that the CFO should implement an active data dictionary for the existing IFMS.
The Treasury review indirectly supports this action by reporting that different data definitions are a
compliance issue under OMB Circular A-127. Also, our audit work regarding system interfaces
supports that an active data dictionary is needed to integrate IFMS with other financial systems.
We further believe that an active data dictionary would simplify conversion of data for any future
financial systems. In summary, we continue to believe new financial systems and system upgrades
should be documented at a transaction level, including flowcharts describing the transaction logic
and data flow diagrams. Since our prior financial audit reports contained recommendations dealing
with the need to develop a data dictionary and other IFMS systems documentation, we are not
making any additional recommendations at this time.
AGENCY COMMENTS AND OIG EVALUATION
OCFO disagrees with the OIG conclusion that automated application processing controls for IFMS
could not be assessed because of inadequate documentation. OCFO maintains that documentation
for the system meets the requirements for Federal financial systems. OCFO further maintains that
the benefits of additional documentation do not justify the costs to develop and maintain it. OCFO
notes that it would not be economical to make major IFMS cost investments which could not be
recovered within the next several years since they are initiating a system replacement effort. In
making these arguments, OCFO disputes several of the facts and conclusions the OIG presented.
The OIG stands behind the facts and conclusions presented. We continue to feel that inadequate
documentation is a problem and that the existing documentation does not meet the requirements for
Federal financial systems. We believe that risks of fraud, errors, and omissions are high. We also
believe that there are significant operational benefits and potential cost savings when IFMS is
replaced, if the data dictionary is upgraded now.
We note that OCFO has said for several years that it would not be worth investing in the
documentation OIG expects because a new system will be initiated. Attachment 4 of this report
presents a summary of OIG system documentation issues dating back to the FY 1995 report. The
OCFO indicated, in response to several of our prior reports, that paying for system documentation
would not be economical because a new system was contemplated. It may be considerably more
years before a replacement system is operational. Further, the costs to transition to a replacement
system will be much less if adequate documentation exists for the existing system than otherwise.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
2-18
-------
ATTACHMENT 3
COMPLIANCE WITH LAWS AND REGULATIONS
TABLE OF CONTENTS
7 - REVISED FINANCIAL SYSTEM SECURITY PLANS CONTINUE TO
BE IN SUBSTANTIAL NONCOMPLIANCE WITH FEDERAL FINANCIAL
MANAGEMENT SYSTEM REQUIREMENTS 3-1
8 - EPA WAS NOT ABLE TO ACCURATELY ACCOUNT FOR THE COST
TO ACHIEVE EACH OF ITS GOALS 3-3
9 - EPA WAS UNABLE TO PRESENT REQUIRED INFORMATION
ON ITS TRADING PARTNERS 3-9
10 - ADDITIONAL ACTION IS NEEDED TO BRING EPA INTO COMPLIANCE
WITH USER FEE REQUIREMENTS 3-10
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
REVISED FINANCIAL SYSTEM SECURITY PLANS CONTINUE TO
BE IN SUBSTANTIAL NONCOMPLIANCE WITH FEDERAL
FINANCIAL MANAGEMENT SYSTEM REQUIREMENTS
As of September 30, 1999, we concluded that the revised security plans for the core financial
systems7 continued to be substantially noncompliant with Federal financial management system
requirements and FFMIA. In our opinion, the Agency did not adequately address the systems:
operational security controls in its security plans. Our fiscal 1999 audit work followed-up on
planned actions outlined in the Agency=s remediation plan dated March 31, 1999. This plan was
developed to address weaknesses we identified during our audit of EPA=s fiscal 1998 financial
statements. We found that the security plans were improved from prior years, and the plans
identified additional action items needed to complete them. Nonetheless, the security plans still
lacked sufficient detail to document critical operational security controls and to implement Agency
related guidance.
Background
Progress is being made by the Agency to improve the financial and mixed financial systems' security
plans. For example, OCFO engaged the National Security Agency to study and help strengthen
system security at the Agency. In prior financial statement audits, we reported that EPA=s financial
management systems did not substantially comply with Federal system security requirements
because of either a lack of security plans or critical components of security plans were non-
compliant with requirements. As of September 30, 1997, we reported that the Agency core
financial systems did not have completed security plans.8 As of September 30, 1998, we reported
that the security plans for five core systems were lacking in several respects. We also reported that
for the remaining financial or mixed systems two had insufficient security plans and eight had no
security plans.9
Follow-up on FFMIA Remediation Plan, dated March 31. 1999
The Agency reported it had completed specific actions in its FFMIA remediation plan10 by revising
security plans for the core financial systems. However, based on our review of selected security
plans, we concluded that additional improvements are needed to document controls over
information resources. The Agency revised its core system security plans twice during fiscal 1999;
thus, remediation plan corrective actions were completed on schedule. We evaluated the adequacy
of these corrective actions by performing a desk review of the security plans for IFMS, MARS,
CPARS and EPAYS, as approved on September 30, 1999. We found that the security plans were
7 The Agency systems security plans dated September 30, 1999, that we included in our review were the IFMS, CPARS, MARS, and EPAYS.
8 Audit of EPA=s Fiscal 1997 and 1996 Financial Statements (Audit Report No. E1AML7-20-7008, dated March 2, 1998).
9 Audit of EPA=s Fiscal 1998 Financial Statements (Audit Report No. 99B0003, dated September 28, 1999).
10 FFMIA requires the preparation of a remediation plan when there is a finding of substantial noncompliance with FFMIA requirements.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-1
-------
improved, but that they still lacked significant detail to document critical operational security
controls, identify audit trails, and implement system-related guidance. However, the plans did
include a target date for identifying detailed security controls.
To illustrate our point, we offer the following examples from the IFMS security plan:
$ The plan section entitled Application Rules lacked sufficient details, stating that it was not
possible to identify roles by job and function to specific security access.
$ The plan stated that a user may be granted access to more than one function, if approved by
a coordinator and a security administrator. However, the plan did not address the need for
compensating controls to mitigate this control weakness (i.e., a person granted access to
multiple functions).
$ The plan discussed IFMS maintenance controls and stated that standard procedures will be
followed; however, specific controls were not mentioned nor were references made to
management approved policies, procedures or systems used for maintenance.
The system security plans meet the administrative requirements (i.e., they contain the proper
headings and approval signatures, etc.), but they do not adequately document OMB, National
Institute of Standards and Technology (NIST), or Agency system security requirements. Instead,
the plans document the lack of understanding regarding many operational security controls and
identify a number of control weaknesses. Upon completion of the action items listed in the system
security plans, management should have adequate information to establish an operational security
program to minimize risk and revise the security plans.
While we commend management for making continued improvements to their security programs
and system security plans (as of September 30, 1999), we believe that the plans we reviewed still
need substantial improvements. Actions already identified in system security plans should address
most of our concerns regarding compliance with security requirements under OMB Circular A-130.
Our comments on the state of compliance as of September 30, 1999 must rely on our audit analysis
as of that point in time. Thus, we believe the reported audit findings are appropriate, and the
Acting CFO should establish during fiscal 2000, a new remediation plan to incorporate needed
corrective actions.
RECOMMENDATION
We recommend the Acting Chief Financial Officer (CFO):
7.1 incorporate planned fiscal 2000 security plan actions for financial systems (IFMS, CPARS,
MARS and EPAYS) into a formal remediation plan.
AGENCY COMMENTS AND PIG EVALUATION
OCFO agreed to develop a formal remediation plan by March 31, 2000.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3 -2
-------
EPA WAS NOT ABLE TO ACCURATELY ACCOUNT FOR
THE COST TO ACHIEVE EACH OF ITS GOALS
A recent management reform initiative, the Government Performance and Results Act (GPRA or
the Results Act), holds EPA accountable for using resources wisely and achieving program results.
The Results Act requires EPA to develop plans on intended accomplishments, measure how well it
is doing, make appropriate decisions based on the information gathered, and communicate
information about performance to Congress and to the public. To do this, EPA developed a
strategic plan with ten goals and during fiscal 1999 began tracking the cost to achieve each of these
goals. We found that the Agency=s methodology for accumulating costs by the Agency=s ten
strategic goals could not be relied upon to fairly state costs by goal.11 Weaknesses in this area also
affect the quality of cost accounting data Agency managers have for decision making. In addition,
the Agency is not in compliance with Statement of Federal Financial Accounting Standards
(SFFAS) No. 4, "Managerial Cost Accounting Concepts and Standards for the Federal
Government," that requires EPA to: (1) determine the full cost of its activities, (2) accumulate and
report cost of activities on a regular basis for management information purposes, and (3) use
appropriate costing methodologies to accumulate and assign costs to outputs.12
Accounting for Resources Under the Agency=s New GPRA Structure
One of the keys to managing for results at EPA is determining the full cost of Agency programs. In
order to link the resources EPA actually used to the results achieved, beginning in fiscal 1999, EPA
changed the way it budgeted and accounted for its resources. The fiscal 1999 Annual Performance
Plan and Budget link resources to the Agency's strategic goals and objectives. This structure is
intended to provide managers with cost information they can use to assess how resources are spent
to achieve expected results and to help them make future budgeting decisions. In developing this
new GPRA based structure, the Agency attempted to align its costs to its outputs.13
Effective October 1, 1998, all new obligational authority was accounted for using a program results
code (PRC) instead of a program element (PE), as was done in prior years. The PRC allows the
Agency to account for results by goal, objective, subobjective and National Program Manager. For
budget execution purposes, the Agency issued resources to allowance holders at the appropriation,
allowance holder and objective levels, while accounting for new obligational authority at the goal,
objective and subobjective level. During fiscal 1999, costs related to prior year obligational
authority continued to be accounted for using the old PE structure which did not include fields for
goal, objective and subobjective. After the end of fiscal 1999, EPA used a crosswalk to convert
11 The Agency had originally planned to present its Statement of Net Cost by goal. After we expressed concern about the Agency's ability to fairly
present its costs by the ten strategic goals, Agency management decided to present EPA=s costs by Superfund and All Other Appropriated Funds rather
than by goal.
12 Our audit work was performed to determine whether the Statement of Net Cost fairly presented the Agency=s costs by goal and whether the Agency
complied with SFFAS No. 4. After we determined that the Agency=s cost accounting process could not be relied upon to fairly present EPA=s costs by
goal and that the Agency did not comply with SFFAS No. 4, we did not perform additional audit work. Further audit work could disclose other issues
regarding the Agency=s ability to fairly present the Statement of Net Cost by goal or the Agency=s compliance with SFFAS No. 4 in addition to those
discussed above.
13 The Agency considers its subobjectives as it outputs.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-3
-------
$4.4 billion of costs recorded under the PE structure to a goal. The $4.4 billion represents 59
percent of EPA=s total costs of $7.5 billion for fiscal 1999. In future years, a substantial portion of
costs will continue to be accounted for under the PE structure since only obligational authority for
fiscal 1999 and subsequent years is accounted for using the PRC.
Crosswalk Used to Assign Agency Costs to Goals
In June 1999, the Agency began to develop a crosswalk to assign its fiscal 1999 costs recorded
using a PE to the appropriate goal, so the Agency could report its costs by goal in the fiscal 1999
Statement of Net Cost. We could not find adequate support for the crosswalk to allow us to opine
on the Statement of Net Cost. While the crosswalk provided some assurance that costs for PEs
assigned to a single goal were reasonably stated, we found that when PEs were allocated to multiple
goals the percentage allocations were, in many cases, based on budget estimates or professional
judgement rather than actual cost information. Budget estimates were derived from the Agency's
budget submission or the approved operating plan used to allocate funds to various programs and
activities. In effect, the crosswalk allocated PE costs to multiple goals based on planned or
budgeted allocations without assurance the costs were actually spent in this manner. The Agency
allocated $674 million of costs recorded using PEs to multiple goals.
The crosswalk was used after the end of the fiscal year to develop costs by goal for financial
statement presentation purposes. The crosswalk did not provide a means of accumulating and
reporting costs by goal on an ongoing basis throughout the year. Thus, Agency managers did not
have cost information by goal to use during the year in planning, budgeting and evaluating their
programs. Improvements are needed in the Agency=s process for accumulating and reporting costs
by goal so that timely, reliable, and accurate information is available for managers on an ongoing
basis throughout the year.
Allocating Costs Under the PRC Structure
In some cases, when the Agency established an obligation using the PRC structure the amounts
obligated for each PRC were determined based on budget estimates or management's professional
judgement or discretion. These problems usually occurred in financial assistance agreements such
as Performance Partnership Grants (PPGs) and grants whose costs were assigned to multiple goals;
however, this situation could occur for other financial instruments whose costs are allocated to
multiple goals. As costs were incurred, they were allocated to goals, objectives and subobjectives
based on the percentage allocations used to establish the obligation rather than actual cost
information. When costs are allocated to multiple goals based on obligated or budgeted amounts,
we have no assurance that the amounts reported by goal are fairly stated.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3 -4
-------
Presentation of Statement of Net Cost
OMB Bulletin 97-01, "Form and Content of Agency Financial Statements," notes that the Agency's
Statement of Net Cost is designed to show the components of net cost of the reporting entity's
operation for the period by major program and activities. The bulletin notes that reporting by major
program and activities may require supporting schedules to supplement the information in the
statement and such information shall be included in the notes to the financial statements. In
addition, the bulletin states the Agency should decide on its major programs to report based on the
missions and outputs described in its GPRA strategic and annual plans and the entity=s budget
structure.
The bulletin allows agencies flexibility in how they present the Statement of Net Cost in order for
them to be able to best present the information in a manner that is useful to Congress, agency
managers and the public. The Agency defined its ten strategic goals as major programs, however,
the Agency did not report its major programs in its financial statements. Neither the Statement of
Net Cost nor the related footnotes include cost information for the Agency's major programs. The
Agency's draft Statement of Net Cost was prepared to report costs by the Agency's ten strategic
goals. However, when our audit work indicated that the Agency could not provide adequate
evidence that the statement fairly presented the Agency's costs by goal, the Agency modified the
statement to show only the costs charged to the Superfund appropriation and the costs charged to
All Other appropriations.
Noncompliance with Managerial Cost Accounting Standard
During fiscal 1999, EPA did not comply with SFFAS No. 4, "Managerial Cost Accounting
Concepts and Standards for the Federal Government." Specifically, EPA did not comply with the
requirements to: (1) determine the full cost of its activities, (2) accumulate and report cost of
activities on a regular basis for management information purposes, and (3) use appropriate costing
methodologies to accumulate and assign cost to outputs.
$ Determining Full Cost of EPA Activities. SFFAS No. 4 requires EPA to measure and
report the full cost of its outputs in its general purpose financial reports. SFFAS No. 4 states "the
full cost of an output produced by a responsibility segment is the sum of (1) the costs of resources
consumed by the segment that directly or indirectly contribute to the output, and (2) the costs of
identifiable supporting services provided by other responsibility segments within the reporting
entity, and by other reporting entities."
EPA established the GPRA structure (goal, objective, subobjective) as the "unit" for resources
accounting and for implementing the SFFAS No. 4 requirement to account for the "full cost" of its
outputs. In implementing SFFAS No. 4, EPA planned to account for the costs of its "outputs" at
the subobjective level. EPA identified 124 subobjectives, and therefore planned to fully cost each of
its subobjectives.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-5
-------
However, as previously noted, costs obligated under the PE structure were only crosswalked to the
Agency's goals. The crosswalk was not designed to enable the Agency to align costs at the
objective or subobjective level. Therefore, during fiscal 1999 the Agency did not have a process in
place to measure and report the full costs of its outputs.
$ Accumulating and Reporting Cost of Activities on a Regular Basis for Management
Information Purposes. SFFAS No. 4 requires EPA to accumulate and report the cost of its
activities on a regular basis for management information purposes. In order to perform managerial
cost accounting on a "regular basis," entities should establish procedures to accumulate and report
cost continuously, routinely, and consistently for management information purposes. Information
should be provided to help the user determine the costs of providing specific programs and
activities. SFFAS No. 4 further notes that cost information should be reported in a timely manner
and on a regular basis consistent with the needs of management and the requirements of both
budgetary and financial reporting.
As previously noted, during fiscal 1999 Agency managers did not have accurate and reliable
information by goal, objective and subobjective. In particular, Agency managers need timely,
reliable and accurate information on costs expended for its outputs within strategic goals. EPA
plans to integrate cost information from the Agency's accounting system, IFMS, with budget
information in its Budget Automation System (BAS). This approach is a step in the right direction.
However, until necessary improvements are made in the Agency's cost accounting practices,
managers will not have the information they need to monitor their programs and outputs.
$ Using Appropriate Costing Methodologies to Accumulate and Assign Cost to Outputs.
SFFAS No. 4 requires EPA to accumulate the cost of its outputs by the type of resource, and if
practicable, measure outputs in units. SFFAS No. 4 states 'the full cost of resources that directly or
indirectly contribute to the production of outputs should be assigned to outputs through costing
methodologies or cost finding techniques that are most appropriate to the segment's operation
environment and should be followed consistently." SFFAS No. 4 notes that costs should be
assigned to outputs in preference order of: (1) direct tracing of costs wherever economically
feasible, (2) assigning cost on a cause and effect basis, and (3) allocating cost on a reasonable and
consistent basis. Further, SFFAS No. 4 states that some responsibility segments of an entity may
provide supporting services to other segments within the same entity. The costs of the supporting
services should be assigned to the segments that receive the services.
EPA=s GPRA structure does not allocate indirect costs to the Agency's environmental activities.
Instead of allocating these costs (such as general administrative services, security, and rent) over all
outputs, EPA treats these costs as an Agency output. For example, costs for the design,
construction, repair and improvements of buildings occupied by EPA were assigned to EPA
subobjective "Facilities Operations" rather than being accumulated and allocated to EPA's
environmental outputs. Therefore, EPA is not providing Agency managers with information about
the true cost of their programs. Providing Agency managers with information about the total cost
of their programs would allow them to better manage their resources to most efficiently achieve
environmental results.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-6
-------
RECOMMENDATIONS
We recommend the Acting Chief Financial Officer (CFO):
8.1 establish, for both PEs and PRCs, procedures to identify actual costs by goal, objective
and subobjective at the time the costs are recorded;
8.2 develop timely, reliable, accurate cost reports to enable managers to monitor, on an
ongoing basis, the total costs of their programs, including indirect/support costs; and
8.3 develop a Statement of Net Cost with accurate and reliable cost information by goal which
can be used for external reporting purposes.
AGENCY COMMENTS AND PIG EVALUATION
The OCFO believes that EPA was able to properly account for the cost to achieve each of its goals
and that EPA met the criterion for the Managerial Cost Accounting Standard. In establishing the
Goal-Objective-Subobjective account structure, the Agency made the decision not to formally
"recast" resources under the old PE structure by converting PE-funded obligations and expenses to
the PRC format. While agreeing that the fundamental requirement of SFFAS 4 is to account for the
costs of EPA's outputs, products, and services, OCFO believes that the standard allows the
flexibility to use their approach.
While acknowledging that EPA is not accounting for PE-funded expenses by PRC and that
improvements can be made in cost accounting, OCFO believes that they are following both the
spirit and letter of the Managerial Cost Accounting Standard. They note that it is necessary to
weigh cost/benefit considerations that include:
Practicality of data collection;
Cost of installing, operating, and maintaining the cost accounting process; and
Precision desired and needed.
The OIG believes that both the spirit and letter of the Managerial Cost Accounting Standard require
OCFO to produce timely cost per unit of output information as well as cost per goal information.
We further believe that there is a compelling need to produce this information. To effectively
manage and to make informed decisions about the merits of EPA programs, this information needs
to be provided routinely throughout the year, as well as at year-end for the annual financial
statement. Utilizing a year-end crosswalk, rather than a costing system, wherein 59 percent of
EPA's total costs are allocated to goals, does not provide accurate cost information by goal or
satisfy the standard. At best, this is a once a year rough estimating technique, and it is at the more
macro, goal level, than at the needed micro, or output (subobjective) level. Utilizing this gross
estimating technique to calculate the cost of goals precludes any possibility of accurately deriving
cost of unit of output information. The annual crosswalk does not make accurate cost of output
information available during the year. One requirement of the Managerial Cost Accounting
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-7
-------
Standard is for the Agency to have a costing system that produces cost of output information timely
for use in decision making. Once a year gross estimates of the cost of goals fail to meet the need
for timely cost of output (subobjective) information relative to the goals.
Relative to OCFO concerns over whether there are sufficient benefits to having an accurate, timely,
costing system, that produces cost of goal and output information, OIG believes that such a system
is essential to properly manage the Agency's resources and programs. Making management
decisions without cost of output information, is a very expensive way to operate.
We feel the Agency is not complying with the standard, and will not comply with the standard, until
it accurately produces cost per unit of output information periodically throughout the year.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-C
-------
EPA WAS UNABLE TO PRESENT REQUIRED
INFORMATION ON ITS TRADING PARTNERS
The January 7, 2000, technical amendments to OMB Bulletin 97-01, require agencies to report
intra-governmental assets and liabilities by federal trading partner. This information is to be
included in the financial statements as Required Supplemental Information and should agree with
the line items reported on the balance sheet. The Treasury Financial Manual (TFM) also requires
agencies to report intra-governmental assets and liabilities by trading partner in their Federal
Agencies' Centralized Trial-Balance System (FACTS) transmissions. Treasury needs the trading
partner information so it can eliminate intra-governmental transactions when it prepares the
Financial Report of the United States Government. Agencies need trading partner information, so
they can manage their assets and liabilities.
EPA was only able to report the trading partner information for $206,000 of its $104,176,000 total
intra-governmental accounts receivable and $31,992,000 of its $401,371,000 total intra-
governmental liabilities. Since EPA was unable in most cases to provide the trading partner
information required by OMB Bulletin 97-01 and the TFM, we consider this to be a FFMIA
noncompliance. Agency financial managers believe their system can accommodate the requirement
for reporting trading partners; however, finance offices have not been coding transactions to show
the trading partner. FMD staff plan to issue a policy to require all finance offices to expedite their
review of transactions and the input of the trading partner information into the system.
RECOMMENDATIONS
We recommend the Acting Chief Financial Officer (CFO):
9.1 issue an OCFO policy to require all finance offices to expedite the review of trading
partner transactions and the input of the trading partner information into IFMS to ensure
that the Agency can track and report trading partner information, and
9.2 establish quality control procedures to ensure the trading partner information is entered
into IFMS timely, accurately, and reliably to meet applicable reporting requirements.
AGENCY COMMENTS AND PIG EVALUATION
The Acting CFO agreed with our recommendations. The Acting CFO plans to issue Comptroller
policy announcements on: (1) coding trading partner information in IFMS, (2) confirming and
reconciling balances with trading partners, and (3) establishing accounting entries for trading
partners. We concur with the Agency's planned corrective actions.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-9
-------
ADDITIONAL ACTION IS NEEDED TO BRING EPA INTO
FULL COMPLIANCE WITH USER FEE REQUIREMENTS
In our fiscal 1993 financial audit report on the Pesticides Revolving Funds and the Oil Spill Trust
Fund14, under a caption Higher Priority Needs To Be Placed On Completing Required Reviews Of
User Fees, we recommended that the CFO include timely review of user fees as one of the financial
management performance measures used to evaluate program offices in the future. In our fiscal
1998 audit report, Audit of EPA's Fiscal 1998 Financial Statements15, we updated the status for this
recommendation in Attachment 4, Status Of Prior Audit Report Findings. Our updated status
included additional corrective actions that we believed were necessary in order for EPA to comply
with OMB Circular A-25, AUser Charges.ฎ The additional actions needed were provided in an OIG
Note as follows: On November 5, 1997, the Acting CFO provided the Administrator with a
biennial fee review report. The report shows five current fees, four proposed fees, and eight
exceptions. The Agency still needs to follow through and either institute, revise, or update all user
fees or obtain exceptions from OMB as OMB Circular A-25 requires. We also noted that the next
biennial review of user fees was scheduled to be completed by September 1999.
We discussed this matter with senior officials from the Office of Planning, Analysis and
Accountability (OPAA) on January 13, 2000. OPAA is responsible for overseeing EPA=s follow-up
on audit findings and recommendations, including resolution and implementation of corrective
actions for the OCFO. At this meeting, we were advised that the biennial review of user fees,
scheduled for completion by September 1999, was still being reviewed by the Comptroller and had
not yet been issued. We were also advised that the status of the additional actions we provided in
our note would be determined and provided to us at a later date.
RECOMMENDATION
We recommend that the Acting Chief Financial Officer (CFO):
10.1 follow through and either institute, revise, or update all user fees or obtain exceptions from
OMB as required by OMB Circular A-25, "User Charges."
AGENCY COMMENTS AND OIG EVALUATION
In his February 24, 2000 response to the draft report, the Acting CFO informed us that the OCFO
recently completed a biennial review of the Agency's user fee systems which was performed in
accordance with the CFO Act and provisions set forth in OMB Circular A-25, "User Charges."
During the 1999 review, the Agency examined all six existing fee systems and implemented
appropriate revisions. The review also identified potential new fee systems. The Agency is now in
14 Audit Report E1AML3-20-7001-4100230, issued March 31, 1994.
15 Audit Report 99B0003, issued September 28, 1999.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-10
-------
the process of updating the eight special benefit services for exceptions requests that were identified
in the 1997 review. The final report is expected to be issued in March 2000.
We acknowledge recent Agency actions concerning the 1999 review of user fees and encourage the
Acting CFO, when responding to our final audit report, to provide us with corrective action plans
and milestones to ensure full compliance with the provisions of OMB Circular A-25.
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231 3-11
-------
ATTACHMENT 4
STATUS OF PRIOR AUDIT REPORT FINDINGS
TABLE OF CONTENTS
AUDIT OF EPA'S FISCAL 1998 FINANCIAL STATEMENTS 4-1
AUDIT OF EPA'S FISCAL 1997 FINANCIAL STATEMENTS 4-14
AUDIT OF EPA'S FISCAL 1996 FINANCIAL STATEMENTS 4-20
FISCAL 1995 FINANCIAL STATEMENT AUDIT OF EPA'S TRUST FUNDS,
REVOLVING FUNDS AND COMMERCIAL ACTIVITY 4-21
FISCAL 1994 FINANCIAL STATEMENT AUDIT OF EPA'S TRUST FUNDS,
REVOLVING FUNDS AND COMMERCIAL ACTIVITY 4-23
FISCAL 1993 FINANCIAL AUDIT; PESTICIDES REVOLVING FUNDS AND
THE OIL SPILL TRUST FUND 4-25
FISCAL 1992 FINANCIAL AUDIT; SUPERFUND, LUST AND ASBESTOS
LOAN PROGRAM 4-25
FISCAL 1992 FINANCIAL AUDIT; PESTICIDES REVOLVING FUNDS 4-25
FISCAL 1991 FINANCIAL AUDIT; HAZARDOUS SUBSTANCE SUPERFUND 4-26
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
AUDIT OF EPA'S FISCAL 1998 FINANCIAL STATEMENTS
(Audit Report 99B0003, Issued 09/28/99)
EVALUATION OF INTERNAL CONTROLS - MATERIAL
WEAKNESSES:
1.0
IMPROVEMENTS NEEDED IN THE AGENCY'S PROCESS
FOR PREPARING FINANCIAL STATEMENTS
We recommend the Chief Financial Officer (CFO):
1.1
evaluate the OCFO's process for preparing the financial
statements, including the OCFO resources assigned, necessary
improvements to IFMS, contol processes within the Financial
Reports and Analysis Branch, and the Year-End Closing
Process,
1.2
update the Agency's policies and procedures for preparation of
annual financial statements to reflect the new legislative
requirement, new accounting standards, and new format and
presentation requirements. The procedures should include
milestone dates and activities for completion, OCFO and other
offices' roles and responsibilities, descriptive processes for
preparing the financial statements, and plans for obtaining the
needed information and providing reliable supporting
documentation, and
establish a quality review process to ensure that the draft
financial statements including the footnotes, supplemental
information, and overview are complete and reliable, and the
Director, FMD, certifies such documents prior to submittal for
audit.
OIG Note: We again reported a material weakness in the Agency's
process for preparing financial statements. Please refer to our FY 99
report, Attachment 1, for additional comments on this issue.
1.3
OIG Comments: The following management comments and corrective action plans are based on the
OCFO's August 16,1999 response to the draft fiscal 1998 audit report and as supplemented by the OCFO's
February 24, 2000 response to our draft fiscal 1999 audit report. The comments and corrective action plans
for the fiscal 1998 recommendations may be further revised based on the OCFO's response to the final
report issued on September 28,1999. The response to the final report was due by December 27,1999. As of
the date of the fiscal 1999 audit report, we had not received the OCFO's response to the final fiscal 1998
audit report.
The CFO disagreed with our categorization of the OCFO financial statement preparation process as a
material weakness.
1.1 Complete evaluation of the OCFO process for preparing financial statements
OIG
Comments
Implement the new automated reporting process using the Standard General Ledger for the SF-133 and Statement of
Budgetary Resources
OIG Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report indicated that
action was completed on this recommendation. We have not received or reviewed the final evaluation of the OCFO
process for preparing financial statements. We have not received a written certification from the Action Official, or
delegated program manager, that action was complete for this item as is required by EPA Order 2750 (Chapter 9,
paragraph 3, Implementation of Corrective Actions, subparagraph e, Certifying Final Action).
08/31/99
10/30/99
1.2 Issue Final Policies and Procedures on Preparing Financial Statements
03/31/00
Open
Open
OIG
Comments
Open
1.3 Establish Quality Control Group
12/03/99
OIG Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report indicated that
action was completed for this recommendation. We have not received a written certification from the Action Official,
or delegated program manager, that action was complete for this item as is required by EPA Order 2750 (Chapter 9,
paragraph 3, Implementation of Corrective Actions, subparagraph e, Certifying Final Action).
Open
OIG
Comments
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 1
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
2.0 AGENCY ENCOUNTERED SIGNIFICANT DIFFICULTIES
IN PREPARING THE STATEMENTS OF BUDGETARY
RESOURCES AND FINANCING
We recommend the Chief Financial Officer:
2.1
review all fiscal year 1989 and prior unliquidated obligation
and authority balances and make any necessary adjustments,
2.2
2.3
2.4
develop reports for the annual review of unliquidated
obligations which highlight older open unliquidated
obligations,
require responsible officials to justify unliquidated obligation
balances whose period of performance has ended, if the
balances are not deobligated,
follow up on responsible officials' deobligations to verify
appropriate actions were taken,
2.1 We agree with this recommendation and have already implemented it (in April 1999) as part of the FY 1999
Review of Unliquidated Obligations. OCFO/FMD provided guidance to all offices regarding identification and
correction of erroneous unliquidated obligation balances from BFY 1989 and prior. By August 20, 1999, FMD will
distribute to the FMOs a list of BFY 1989, and prior open obligations in IFMS and request that they work with the
appropriate offices to ensure that any erroneous balances are properly removed from the books by September 30,
1999. We also plan to initiate a review of the IFMS budget authority balances for these fiscal years and make any
necessary adjustments. We anticipate completing this process in mid-FY 2000. OIG staff previously agreed with
FMD's approach and timing for dealing with these issues
2.2 We do not agree with this recommendation because OCFO provides the responsible officials with reports listing
all inactive obligations (no activity for 180 days) grants, contracts and lAGs for the annual review of unliquidated
obligations. OCFO requires officials to review all inactive obligations including older open unliquidated obligations.
Thus, the Agency maximizes its ability to efficiently use resources available and identify, deobligate and reuse these
funds. The reports that OCFO provides comply with EPA and GAO review requirements
2.3 We do not agree with this recommendation since FMD has already implemented more stringent requirements.
The March 25, 1999, guidance memorandum forthe FY 1999, "Review of Unliquidated Obligations," requires
responsible Agency officials to maintain documentation in their office's files justifying all unliquidated balances
retained on the inactive obligation lists, as defined in the response to 2.2 above, that will be available for audit review.
2.4 While we agree with the thrust of this recommendation, we want to clarify the roles and responsibilities for the
verification process. Verification of deobligations requires two action plans: one forthose identified during FMD's
special analysis and another for deobligations identified by the allowance holders during the annual review of
unliquidated obligations.
Follow up with the appropriate procurement and/or finance office(s) regarding any unneeded funds that have not been
deobligated,
Monitor the document's fund status in IFMS (or CPS for contracts) until the deobligation has been processed, and
Provide FMD at year end with the document number and funding information for any unneeded funds identified
during the review that were not deobligated
OIG Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report indicated that
action was completed for this recommendation. We have not received a written certification from the Action Official,
or delegated program manager, that action was complete for this item as is required by EPA Order 2750.
Mid-2000
None - due to
disagreement.
OCFO provides
reports listing
all inactive
obligations
None - more
stringent
requirements
already
implemented
Open
Ongoing
Ongoing
10/30/99
OIG
Comments
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-2
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
2.5 prepare the SF-133s from the general ledger,
2.6 prepare and retain support for all journal entries and
adjustments made to produce the SF-133s, and
2.7 require evidence of supervisory approval to help ensure that
procedures have been followed.
OIG Note: For FY 99, we had a Reportable Condition concerning the
Agency's review of unliquidated obligations. Please refer to our audit
report, Attachment 2, for additional comments and recommendations.
2.5 We agree with the recommendation because beginning in FY 1999, we began preparing the SF133 report directly
from the General Ledger. We are now well underway in automating this process and plan to implement this process
by October 30, 1999
2.6 We agree with this recommendation as all the above referenced documentation is maintained by FRAB. It is
Agency policy to prepare and retain support for all journal entries and adjustments to the SF-133's. Beginning in
FY99, we will reflect all SF-133 adjustments in the General Ledger
2.7 We disagree with this recommendation. Hard copies of the SF-133s are produced after they are electronically
transmitted for post review purposes. The present electronic format, unlike previous years, does not provide for the
supervisors' signature before transmission. Supervisory certification will be incorporated in the new FACTS II
transmission (which will include the SF -133 and year end close-out reports). We will ensure that we annotate hard
copies maintained within FRAB
10/30/99
Action already
implemented
None - due to
disagreement
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-3
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
EVALUATION OF INTERNAL CONTROLS - REPORTABLE
CONDITIONS:
3.0
AGENCY NEEDS TO ESTABLISH PROCEDURES FOR
TRACKING UNILATERAL ADMINISTRATIVE ORDERS
We recommend the Chief Financial Officer:
3.1 track in IFMS all demands for payment issued under UAOs,
3.2 determine if other demands for payment are issued by the
Agency, the respective amounts demanded, and whether a need
exists to track the amounts demanded in IFMS, and
3.3 revise RMDS to clearly differentiate between administrative
orders (particularly administrative orders on consent and
UAOs), describe when the administrative orders need to be
established as an accounts receivable in IFMS or separately
tracked as a demand for payment in IFMS, and describe all
other demands for payment that need to be tracked in IFMS.
3.1 We partially agree with this recommendation. We believe that this recommendation should only refer to the
tracking of Superfund UAOs, and not all UAOs. Our partial disagreement is due to our understanding of the
conclusions reached at the March 9, 1999, meeting between the OIG, OGC, OECA, and OCFO that Agency efforts
should be focused on tracking Superfund UAOs only at this time.
Issue Final Policy for Tracking UAOs. Comptroller Transmittal 00-05, dated 1/11/2000 outlines procedures for
recording and tracking Superfund UAOs
9/30/99
1/11/00
OIG Note: The OCFO's February 24, 2000 response to our draft FY 99 audit report indicated that action was
completed for this recommendation on 1/11/00. In our final FY 98 report, we concurred with the Agency's planned
corrective actions for Superfund unilateral administrative orders. However, we disagreed that the Agency's corrective
actions should be restricted to only Superfund unilateral administrative orders. Sound financial management
practices should cover the identification, tracking and control of all demands issued similar to the Superfund
unilateral administrative orders. Since the CFO's corrective actions are only designed to resolve an existing problem
for Superfund unilateral administrative orders, there could be problems with the demands for other payments that are
not addressed. Therefore, in responding to the report, we requested the Acting CFO provide specific corrective
actions and target dates for addressing all demands for payment.
Implement and Monitor Policy
3.2 We partially agree with this recommendation. We believe that this recommendation should refer to other
Superfund Demands and not "other Demands" for the same reasons discussed in our response to recommendation 3.1
above. The OCFO will address and determine other Superfund Demands which may or may not require tracking.
Determine other Superfund Demands that may or may not require Tracking
See OIG
Notes below
Open
OIG Note
Ongoing
4/1/00
3.3 We partially agree with this recommendation. We believe that "other Demands" for payments should be deleted
from this recommendation for the same reasons discussed under 3.1 above. The OCFO has already taken steps to
clearly differentiate between Superfund administrative orders and describe when they need to be tracked in IFMS.
This will be addressed after proper coordination with OECA, OSWER, and OGC taking into consideration the
varying levels of enforcement tools available to the Agency. A final draft policy is in place which will supplement
RMDS and includes: a clarification of the difference between Administrative Orders on Consent and Unilateral
Administrative Orders (UAOs), and a discussion if these documents can be used to record accounts receivable; and
guidelines for separately recording oversight accounts receivable to enhance the Agency's ability to track oversight
amounts for management and reporting purposes.
Open
See OIG
Note below
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-4
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
We recommend the Assistant Administrator for Enforcement and
Compliance Assurance:
3.4 develop guidance for ORCs, program offices and finance
offices regarding the types of instruments used in the
Superfund enforcement process. For each instrument,
describe when to establish an accounts receivable or separately
track as a demand for payment, and describe the Agency's
basis for legal liability under each instrument, and
3.5 clarify the model language to be used by ORCs, program
offices and finance offices to clearly differentiate between
demands for payment and bills for payment used in the
Superfund enforcement process.
Issue Final Policy. Comptroller Transmittal 00-05, dated 1/11/2000 outlines procedures for recording and tracking
Superfund UAOs
OIG Note: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report indicated that action was
completed for this recommendation. In our final report, we concurred with the Agency's planned corrective actions
for Superfund unilateral administrative orders. However, we disagreed that the Agency's corrective actions should be
restricted to only Superfund unilateral administrative orders. Sound financial management practices should cover the
identification, tracking and control of all demands issued similar to the Superfund unilateral administrative orders.
Since the CFO's corrective actions are only designed to resolve an existing problem for Superfund unilateral
administrative orders, there could be problems with the demands for other payments that are not addressed.
Therefore, in responding to the report, we requested the CFO provide specific corrective actions and target dates for
addressing all demands for payment.
Update policy to for tracking other Superfund Demands, if needed
3.4 OSRE/OECA previously responded to these audit recommendations 3.4 and 3.5 in memoranda dated February
17 and February 26, 1999.
OIG Comments: The memoranda dated February 17 and February 26, 1999, responded to audit recommendation
3.5. However, Comptroller Transmittal 00-05, dated 1/11/2000, outlines procedures for recording and tracking
Superfund UAOs which responds to audit recommendations 3.4 and 3.5. The OCFO's February 24, 2000 response
to our draft fiscal 1999 audit report indicated that action was completed for this recommendation. Please refer to our
OIG Note below for additional action needed to complete corrective action on our recommendations.
3.5 See response to 3.4 above.
OIG Note: In our final report, we concurred with the Agency's planned corrective actions for Superfund unilateral
administrative orders. However, we disagreed that the Agency's corrective actions should be restricted to only
Superfund unilateral administrative orders. Sound financial management practices should cover the identification,
tracking and control of all demands issued similar to the Superfund unilateral administrative orders. Since the CFO's
corrective actions are only designed to resolve an existing problem for Superfund unilateral administrative orders,
there could be problems with the demands for other payments that are not addressed. Therefore, in responding to the
report, we requested the CFO provide specific corrective actions and target dates for addressing all demands for
payment. We also requested the Office of Enforcement and Compliance Assurance, in responding to the report,
provide specific corrective actions and target dates for recommendations addressed to that office.
9/30/99
1/11/2000
Open
OIG Note
5/31/00
Open
Open
OIG
Comments
Open
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-5
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
4.0
FURTHER IMPROVEMENTS NEEDED IN MANAGING
EPA'S ACCOUNTS RECEIVABLE
We recommend the Chief Financial Officer (CFO):
4.1 continue to provide training on calculating the allowance for
doubtful accounts, particularly in the area of developing the
percentage portion of the allowance and maintaining proper
supporting documentation,
4.2 review finance offices' management and accounting for
accounts receivable during regularly scheduled Quality
Assurance Reviews to ensure FMOs understand and are
following guidance on accounts receivable, and
4.3 instruct the FMOs to follow-up with ORCs and program
offices when responses to requests for receivable collectability
information are not received timely; instruct the FMOs to
assess how communication with the ORCs and the program
offices can be improved; and reemphasize FMOs'
responsibilities in ongoing training sessions.
We recommend the Assistant Administrator for Enforcement and
Compliance Assurance:
4.4 continue to work to improve the Regional process for meeting
guidelines in the July 16,1998, memo to Regional Counsels
entitled "Effective Debt Management," and
4.1 Provide Training on Calculating Allowances for Doubtful Accounts
4.2 Determine which regions require quality assurance reviews
Conduct FMO training
Conduct quality assurance reviews to ensure FMOs are properly following accounting guidance.
Ongoing
Annually
As needed
As needed
4.3 The Agency continuously emphasizes the need for more effective accounts receivable and collections
management. We continue to make improvements in this area and believe that we are doing a better job of managing
our accounts receivable and collections. Numerous actions taken during fiscal 1999 included discussing policy and
procedures during a June 1999 Superfund Cost Recovery and Financial Management Training Conference,
periodic meetings with DOJto improve accounts receivable recording and discuss status of collections, issuing ajoint
OCFO and OECA memorandum dated July 26, 1999, entitled Superfund Accounts Receivable Collections, to
emphasize collection of outstanding accounts receivable and OECA and OCFO discussions concerning the
establishment of a Superfund collections workgroup.
Provide periodic training and workshops on the management of accounts receivable and collections
Meet with DOJ
4.4 We disagree with this recommendation. OSRE and FMD began this review by issuing a memorandum dated July
26, 1999, to the Regional Comptrollers, Waste Division Directors, and the Office of Regional Counsel Branch Chiefs
addressing Superfund Accounts Receivable Collections. The memorandum requires each region to prepare and
submit to Headquarters, within a month of the receipt of the memorandum, a plan to address overdue receivables. As
a coordinated effort among the financial management offices, offices of regional counsel, program offices and the
DOJ, each plan should define the roles and responsibilities of each organization in performing the steps in addressing
overdue receivables, the estimated time frames to complete these steps, and a primary regional contact. OSRE and
FMD will continue to work with the regions to monitor their progress in addressing the overdue receivables
Annually
Ongoing
None due to
disagreement
and ongoing
activities
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-6
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
4.5 revise the Department of Justice interagency agreement to
require DOJ to directly transmit to the ORCs and Regional
finance offices copies of final source documents (i.e. Consent
decrees, judgements) required to establish the recording of
accounts receivable within 7 days of entry by the courts, and
notify both the ORC and finance offices of any changes in the
status of the collectability of the debt within 30 days of such
determinations.
We recommend the CFO and the Assistant Administrator for
Enforcement and Compliance Assurance work together to:
4.6 assure the roles and responsibilities of offices involved in the
oversight billing process are maintained so that the Agency can
sustain its emphasis on timely billing and collection of
oversight costs, and
4.7 develop and implement performance measures for the Senior
Resource Officials to assess how well the regions are managing
their oversight cost billings and other cost recovery activities.
Tie the performance measures into EPA Goal 10, Effective
Management, which calls for EPA to "establish a management
infrastructure that will set and implement the highest quality
standards for effective internal management and fiscal
responsibility."
OIG Note: We again noted a Reportable Condition for accounts
receivable in our FY 99 audit. Please refer to our FY 99 Attachment 2
and FY97 recommendations under 2.0, Further Improvements Needed In
Managing EPA's Accounts Receivable, pages 4-13 and 4-14 below, for
additional comments and current status on this issue. For many years,
management has been working to improve its management of accounts
receivable. Starting with FY 83, our audit reports (of the Hazardous
Substance Superfund obligations and disbursements) consistently
identified improvements needed in the three phases of a receivable:
recording the amount due, monitoring the status of the receivable and
recording the funds collected. While we acknowledge many actions and
initiatives have been taken to resolve these problems, management should
continue its emphasis in this area.
4.5 We agree with this recommendation and OSRE, FMD, and DOJ have been working to implement an electronic
network to satisfy the requirements for establishing the recording of accounts receivables. Data management
personnel have acquired the necessary software to implement this electronic system. We believe that this system will
be more effective and prompt in transmitting the source documents. After addressing any initial system problems and
ensuring the effectiveness of the electronic system, the Department of Justice IAG will be revised
Date not
provided
Open
4.6 The roles and responsibilities of the regional offices in carrying out the oversight billing process were documented
by each region in April 1998. The roles and responsibilities vary among regions, and the OCFO will continue to
emphasize the need to have clear regional roles and responsibilities for this process.
Maintain roles and responsibilities for the regional oversight billing process
4.7 This was completed in July 1999. The OCFO has implemented the recently developed SRO Performance
Measure on Superfund oversight billing. The first measurement period will be FY 2000. We also have developed a
new Financial Management Core Measure on Oversight billing which automatically ties in to Goal 10, Objective 2,
and Subobjective 1. Within Subobjective 1, annual performance goal # 2 requires core finance activities meet OCFO
Core Financial Management Performance Measures.
Develop and Implement the SRO Measure on Superfund oversight billing
Ongoing
7/28/99
Completed
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-7
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
5.0
ADDITIONAL CONTROLS NEEDED IN INTERAGENCY
AGREEMENT INVOICE APPROVAL PROCESS
We recommend the Director, Grants Administration Division (GAD):
5.1
develop a fact sheet for Agency managers explaining the
invoice approval requirements to help ensure responses are
provided timely,
5.2
5.3
consider expanding the IAG portion of the project officer
training/refresher course to place more emphasis on the
importance of timely and properly completing the approval
form. Consider having an official from CFMC present this
portion of the course or prepare the materials to be used, and
work with the Director, Financial Services Division, to have the
Chief, CFMC notify the IAG approving officials when project
officers are delinquent or not timely in completing and
returning the LAG invoice approval forms.
We recommend the Director, Financial Services Division direct the
Chief, CFMC:
5.4 to notify IAG approving officials when project officers are
delinquent or not timely in completing and returning IAG
invoice approval forms, such as by sending the second request
to approving officials, and
5.1 The OCFO did not agree with the initial OIG recommendation and, instead, indicated it would be more beneficial
for the Grants Administration Division to develop and issue a GAD Fact Sheet for Agency Managers explaining the
requirement and the need for timely responses.
OIG comments: The OIG concurs with the GAD proposal. The fact sheet can also be a useful tool to alert
managers to related concerns about timely return of the approval form, completeness and the need for cost details to
support the invoice.
Issue GAD Fact Sheet
5.2 We share your views on the need to continue to emphasize the importance of timely and accurately completing the
invoice approval form. Beginning in FY 2000, Grants Administration Division will place additional emphasis on the
importance of timely, proper completion of the payment approval form. We will also add a copy of the form to the
IAG appendix. CFMC is willing to participate in the project officer training courses as the Division's travel budget
will allow each year. During fiscal year 1999, CFMC attended the Region III project officer training course. CFMC
reviewed the responsibilities of the project officers for the timely processing of IAG invoice approval forms.
Participate in GAD Project Officer Training Course
5.3 It would take considerable research to determine delinquent project officers' supervisors, so GAD proposes that
the CFMC instead send notices to the approval official who signed the agreement. Generally, approval officials will
be in the chain of command of project officers, although in many cases not the project officers' immediate supervisors.
In order to determine whether this will be acceptable, we will present it as a recommendation to the Grants Customer
Relations Council (GCRC). If they have significant objections, we will work with the GCRC members to develop an
alternative approach and notify the Inspector General's office of the change in approach and put the final approach in
place by March 31, 2000.
OIG comment: GAD proposed acceptable alternative corrective actions
Work with GCRC members to develop an alternative approach and notify OIG office of change in approach
5.4 While we agree in principle with the initial OIG recommendation, identifying the project officers' supervisor and
keeping that information current is a huge undertaking. The Grants Management Division and CFMC feel that the
IAG approving official could be sent the follow up letters on the late invoice approval forms. As described in the
response to the previous recommendation, CFMC will work with the Grants Administration
3/31/00
OIG
Comments
Completed
2/07/00
Ongoing
3/31/00
OIG
Comment
Open
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-8
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
5.5 to compile a list of project officers with outstanding, late or
incomplete invoice approval forms and forward to the Senior
Resource Officials on a semiannual basis, asking for their
assistance in getting project officers to timely and properly
complete the forms.
OIG Note: This issue was first reported by us in our FY 94 financial
statement audit of EPA's Trust Funds, Revolving Funds and Commercial
Activity. Please refer to our FY 99 report, Attachment 2, for additional
comments on this issue.
6.0
CONTINUED IMPROVEMENTS NEEDED IN
ACCOUNTING FOR CAPITALIZED PROPERTY
We recommend the Chief Financial Officer, in conjunction with the
Assistant Administrator for Administration and Resources Management:
6.1 continue to work to strengthen controls designed to ensure that
property is timely and accurately recorded in the Agency's
property accountability system, FAS. Specifically,
reemphasize to the appropriate Agency personnel their
responsibilities to:
provide descriptive information about an existing
parent property item in the procurement request
for capital improvements; and
report receipt of accountable and capital property
to the appropriate PMO in a timely manner when
property acquisitions are directly delivered to the
ordering official, and forward copies of appropriate
documentation to the PMO.
Division to use the IAG approving official for second requests. Once the Grants Management Division has cleared
the use of the approving official with the GCRC, CFMC will begin sending the approving official the second requests
for invoice approval. Also see response to 5.3 above
5.5 We agree in principle with this recommendation. We agree to provide the SROs a list of the delinquent project
officers, but propose to send the list semiannually rather than quarterly. Initially CFMC plans to provide the SROs
the names of project officers who have been chronically delinquent in returning the invoice approval form. This list
will be provided to the SROs semiannually in November and April. We believe the recommendation to provide this
information to the SROs quarterly is overly burdensome. While CFMC does have an automated system to produce
the invoice approval forms, the system does not track statistics on the submission of the approval forms. At this time,
the data for such reports have to be accumulated manually. It is more reasonable from a workload prospective to
provide the listings semiannually. Semiannual reports will decrease manual workload while providing the SROs the
information they need. Furthermore, the reports should raise the level of awareness and accountability the OIG and
OCFO wish to achieve
OIG comment: We revised our initial recommendations as the OCFO/GAD proposed acceptable alternative
corrective actions.
6.1 We concur with the above recommendation. We believe it important to emphasize, however, that the appropriate
Agency personnel who need to be reminded of their property management responsibilities are not necessarily Property
or Financial Management personnel. Users of Agency property, such as custodial officers, project officers, funds
certifying officers and managers, and other ordering officials, must be made aware of Agency property management
requirements. To correct this problem OARM's role in this effort will be to coordinate with specific organizations
when property records indicate they are not complying with Agency property management policy. In addition to site
visits performed by OARM's Facilities Management Services Division (FMSD), FMSD in conjunction with FMD,
plans to take every opportunity to present briefings, conduct training sessions (such as the Fixed Asset Subsystem
training conducted February 2-4, 1999), attend organizational meetings, and participate in any way to disseminate
information and guidance concerning accurate documentation and timely processing of required receiving documents.
As mentioned in the Audit report, during October 1998, the Financial Management Division (FMD) issued
Transmittal Notice (TN) 99-03, "Guidelines on Preparing Requisitions for Property and Related Goods." This
guidance provided detailed instruction on preparing purchase requests for capital improvements. The instructions
give examples of how to prepare requisitions for capital improvements when descriptive information concerning an
existing parent property is required. FMSD will issue a memorandum to Agency Senior Resources Officials: (1)
reminding them of their responsibility to follow Agency property management policy along with a copy of the FMD
TN 99-03 and (2) requesting that they distribute it to their respective project officers, ordering, and funds certifying
officers.
3/31/00
Open
Date not
provided
OIG Note
OIG
Comment
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-9
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
OIG Note: We again noted a Reportable Condition for accounting for
capitalized property in our FY 99 audit. Please refer to our FY 99 audit
report, Attachment 2, for additional comments and recommendations.
We have reported property issues since our first financial statement audit
of the Superfund in FY 92 and other financial related audits of the
Superfund since FY 82. Since that time, we have reported continuing
problems with accounting for and controlling property. Management
should continue its emphasis in this area.
7.0
REVENUE WAS NOT PROPERLY RECORDED ON
SUPERFUND STATE CONTRACTS
We recommend the Chief Financial Officer (CFO):
7.1 assist the regions in identifying and correcting problems
causing errors in their advances and unbilled accounts
receivable, and
7.2 continue to emphasize the need for regional personnel to
perform analytical reviews of their account balances.
OIG Note: We first reported this issue in our FY 92 financial statement
audit of the Superfund Trust Fund, LUST Trust Fund and Asbestos Loan
Program.
8.0 AUTOMATED APPLICATION PROCESSING CONTROLS
FOR THE INTEGRATED FINANCIAL MANAGEMENT
SYSTEM COULD NOT BE ASSESSED
No new recommendations.
Finally, ETSD is scheduling a joint review session with RTF FMSD, RTF OAM and FMD to address WCF property
accounting problems. At the conclusion of this session, ETSD expects to have a plan of action for correcting
problems before the end of this fiscal year.
Issue memorandum to Agency Senior Resource Officials
Implement an action plan to correct WCF property accounting problems
7.1 We agree with this recommendation. During the FY 1998 SSC revenue recognition process, there were problems
with the spreadsheet formulas relative to State Cost Share (SSC) Credits. This problem has been corrected for the FY
1999 spreadsheets. We will work with individual regions in FY 1999 to assure SSC revenue has been properly
recorded and to assure related account balances are correct
7.2 We agree with the recommendation. We conducted a workshop in June 1999 in which one of the sessions dealt
specifically with the General Ledger and the need for continual account analysis. In addition, we have performed
account analysis here at headquarters
We have identified accounts that need to be analyzed and have communicated this information to the regions. We
will continue to analyze the accounts and work with regions in getting account balances corrected
8.0 In her response to the draft report, the Chief Financial Officer stated that her office continues to believe that IFMS
documentation is sufficiently detailed in the context of their legacy system. Whereas management acknowledges that
the IFMS dictionary could be improved, they maintain that the data dictionary enhancements and ongoing
maintenance would not be cost effective considering the system's maturity and life-cycle stage.
OIG Note: This issue has been reported since our FY 94 financial statement audit of EPA's Trust Funds, Revolving
Funds and Commercial Activity. Please refer to our FY 99 final report, Attachment 2, Reportable Conditions, for our
current comments on this issue. In conclusion, we maintain our position that IFMS systems data dictionary and other
technical systems documentation do not meet Federal systems documentation requirements for an integrated financial
management system, and continue to believe that IFMS systems documentation is a reportable condition.
9/30/99
9/30/99
Completed
01/12/00
Open
OIG Note
Date not
provided
6/30/99
Date not
provided
Completed
December
1999
Completed
OIG Note
Completed
December
1999
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 10
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
COMPLIANCE WITH LAWS AND REGULATIONS
9.0 EPA IS NOT IN SUBSTANTIAL COMPLIANCE WITH
FEDERAL FINANCIAL MANAGEMENT SYSTEM
REQUIREMENTS
Because the organizational responsibility for the financial and mixed-
financial systems varies, we are directing our recommendations to
multiple action officials. The following recommendations intentionally
address corrective actions at a high level, because it would be too
prescriptive and voluminous to elaborate on corrective actions for each
system within the confines of this final report. Furthermore, we believe
managers should be responsible for determining minimum security
controls, based on the risk associated with system operations. For more
specific information, managers should refer to the detailed evaluations
which we previously forwarded to system owners.
We recommend the Chief Financial Officer:
9.1 develop an overall remediation plan which specifies resources,
remedies and intermediate target dates associated with
bringing CPARS, CPS, EPAYS, IFMS, MARS, TM+ and BAS
systems into substantial compliance with OMB, NIST and
Agency requirements, and addresses the critical security
controls shown in Table 2.
In the CFO's 8/16/99 response to the draft report, she stated: With respect to compliance with the Federal Financial
Management Improvement Act, we continue to believe that we are substantially in compliance with the requirements
of that law. In those areas where the audit cites deviations from procedural requirements, we have documented the
steps we have taken to remedy those findings.
9.1 We do not agree with this recommendation. We believe that the Agency financial systems cited above (in FY 98
report) are substantially in compliance with OMB, NIST and Agency requirements. See FY 98 report, Appendix II,
pages 14-25 for detail discussions supporting the CFO position on this recommendation.
OIG Comment: Based on our review of evidence provided to us at the time of the audit, and subsequently, we
have not changed our position on the need to develop an overall remediation plan.
Additional Agency Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report
indicated "The report notes (page 3-1, last paragraph) that the Agency revised its core system security plans during
1999. Thus the "remediation plan corrective actions were completed on schedule." The auditors evaluated the
adequacy of the security plans for IFMS, MARS, CPARS, and EPAYS, as approved in 1999. A revised security plan
for CPS was approved May 26, 1999, and a new security plan for TM+ was approved on September 13, 1999.
Copies of both security plans were furnished to the OIG auditors and the auditors did not request any additional
information. Since the auditors report no adverse findings with respect to these security plans, we believe that no
further remediation under this recommendation is necessary."
Additional OIG Comments: As also stated in our fiscal 99 report, page 3-1, we performed a follow up review of
security plans prepared as a result of our FY 98 audit recommendations. We found that the security plans were
improved, but that they still lacked significant detail to document critical operational security controls, identify audit
trails, and implement system-related guidance. For fiscal 1999, we again reported a Noncompliance with Laws and
Regulations for federal financial management system requirements in fiscal 1999. In responding to our fiscal 1999
draft audit report, the OCFO agreed to develop a formal remediation plan by March 31, 2000. Please refer to ourFY
99 audit report, Attachment 3, for additional comments and our audit recommendation resulting from our FY 99
audit.
OIG Note: In a February 2, 2000, exit briefing, GAO reported to senior EPA officials that the Agency's financial
systems security plans were inadequate. We understand that GAO will be issuing a report by June 2000.
Accordingly, additional corrective actions may be needed based on GAO's recommendations.
OIG
Comment
Additional
Agency
Comments
Additional
OIG
Comments
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 11
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
We recommend the Director for Acquisition Management:
9.2 develop security plans for CDOTS, ICMS, SPEDI, and CIS
which address the critical security controls depicted in Table 2
above, and bring these systems into compliance with OMB
Circular A-130, NIST and Agency requirements.
9.2 We do not agree with this recommendation. We believe that the Agency procurement systems cited above are
substantially in compliance with OMB, NIST and Agency requirements. Also in support of our position, the facts
related to this issue are as follows:
The Contracts Information System (CIS) has been in operation for a number of years and has had an approved
Security Plan in the past. Although security controls for CIS have not changed, security information for this system is
being incorporated into the ICMS Security Plan
Additional Agency Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report
indicated that the Contracts Information System (CIS) was retired on December 31, 1999. Therefore, a security plan
for CIS is no longer needed.
OIG Comment: As this system was retired, we concur that a security plan for CIS is no longer needed. However,
we have not received or reviewed documentation from the system manager about the decision to retire this system . .
A Security Plan for the ICMS family of applications, which includes ICMS, SPEDI and CDOTS, was approved
by the Security Information Resources Management Officer (SIRMO). The SIRMO has directed OAM to address
issues brought up in an extensive critique of the Security Plan by OIRM's IRM Policy and Evaluation Division to
add information to specific sections of the plan.
Additional Agency Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report
indicated that the ICMS Security Plan will be largely rewritten to incorporate changes in the system and its operating
environment required for Year 2000 compliance and migration to Lotus Notes electronic mail. As issues brought up
in the critique of the existing Security Plan by OEI's sections are completed, they will be forwarded to OARM's
Senior Information Resource Management Officer (SIRMO).
Complete full Security Plan
OIG Comment: This corrective action meets the intent of our recommendation for ICMS
OAM's Office Director, as owner of these applications, has been briefed on the status of the ICMS Security Plan,
has assigned the responsibility for system security to OAM's Technical Information Officer, and has granted
authorization to operate these systems, with direction to the Technical Information Officer to comply with
the SIRMO's instructions and guidance.
OIG Comments: We commend management's decision to revise the ICMS Security Plan by addressing issues
which OIRM staff raised during a recent critique of the plan. Whereas OAM management delegated the task to their
Technical Information Officer, their response did not indicate an expected completion date for complying with the
SIRMO's instructions and guidance.
Completion
date not
provided
No longer
applicable
Additional
Agency
Comments
OIG
Comment
Additional
Agency
Comments
09/30/00
Completion
date not
provided.
OIG
Comment
OIG
Comments
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 12
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
We recommend the Director, Grants Administration Division:
9.3 address the critical security controls, as indicated in Table 2,
needed to bring the P2000 security plan into compliance with
OMB Circular A-130, NIST and Agency requirements, and
9.4 coordinate with GICS data owners and address the critical
security controls, shown in Table 2, necessary to bring the
GICS security plan into compliance with OMB Circular A-130,
NIST and Agency requirements.
We recommend the Region 5 Assistant Regional Administrator for
Resources Management:
9.5 develop a security plan for the CTS financial system which
addresses the critical security controls shown in Table 2 and
makes the system compliant with OMB Circular A-130, NIST,
and Agency requirements.
OIG Note: We reported a Noncompliance with Laws and Regulations
for federal financial management system requirements since our FY 97
audit. Please refer to our FY 99 audit report, Attachment 3, for
additional comments and our audit recommendation resulting from our
FY 99 audit.
9.3 We disagree with this recommendation. The GAD Systems Security Plan as of September 30, 1998, represents a
sufficient level of detail as required by EPA guidelines. A revised Security Plan is under review as part of our
ongoing reviews and is expected to be completed by June 2000 to include requirements for the operation of the
Partnership 2000/Integrated Grant Management System, which is under development.
Issue P2000/IGMS Security Plan
9.4 We disagree with this recommendation. The GAD Systems Security Plan as of September 30, 1998, represents a
sufficient level of detail as required by EPA guidelines. GAD agrees to coordinate with the Office of Water, the co-
owner of GICS data, and jointly address the additional critical security controls necessary to keep the GICS Security
Plan in compliance with OMB, NIST and Agency requirements. The Plan has already been revised as part of our
ongoing reviews to incorporate a sufficient level of detail as required by OMB and NIST standards and arrangements
are being made to conduct an independent audit of the system.
Issue Revised GICS Security Plan
9.5 Issue CTS Security Plan.
6/30/00
Open
OIG Comment: The actions for recommendations 9.3 through 9.5 satisfies the intent of our recommendations..
3/31/00
3/31/00
Additional Agency Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report
indicated that OARM and OGD was on target to meet the corrective action due dates for recommendations 9.3, 9.4
and 9.5.
Open
Open
Additional
OIG and
Agency
Comments
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 13
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
AUDIT OF EPA'S FISCAL 1997 FINANCIAL STATEMENTS
(Audit Report E1AML7-20-7008-8100058, Issued 03/2/98)
EVALUATION OF INTERNAL CONTROLS - MATERIAL
WEAKNESSES:
1.0 IMPROVEMENTS NEEDED IN AGENCY'S ACCOUNTING
FOR UNBILLED SUPERFUND OVERSIGHT COSTS
1.1 The Acting Chief Financial Officer (CFO) develop a plan with
goals and milestones that will ensure all oversight billings are
current by the end of fiscal year 1998.
OIG Note: This issue, which was also reported in our FY 96 financial
statement audit report, was also discussed as a FY 98 Reportable
Condition on accounts receivable.
EVALUATION OF INTERNAL CONTROLS - REPORTABLE
CONDITIONS:
2.0
FURTHER IMPROVEMENTS NEEDED IN MANAGING
EPA'S ACCOUNTS RECEIVABLE
We recommend that the Acting CFO:
2.1. provide detailed training to regional finance personnel on how
to calculate an allowance for doubtful accounts,
2.2. conduct site visits to regional finance offices and perform
quality assurance reviews to ensure FMOs are properly
following accounting guidance,
2.3. develop procedures that require FMOs to follow-up with
ORCs and program offices when responses to their requests
for receivable collectibility information are not received
timely, and
1.1 OCFO and OECA establish a plan with goals and milestones for oversight billings.
OIG Note: Please refer to our FY 98 recommendations 4.6 and 4.7 on page 4-7 above for management comments
and corrective action plans on the Agency's accounting for unbilled Superfund oversight costs.
2.1 Conduct training at a technical workshop.
2.2 In a 9/30/98 memo, the CFO informed us that they performed quality assurance reviews in prior years, and in FY
1998, conducted such reviews in Regions I, IV, and V. The CFO further informed us that, on an as needed basis in
future years, the CFO would: 1) determine which regions require quality assurance reviews; 2) conduct FMO
training; and 3) conduct quality assurance reviews to ensure FMOs are properly following accounting guidance
2.3 In a 9/30/98 memo, the CFO informed us that, based on discussions (with Regional Program Offices and Offices
of Regional Counsel), there was a need to clarify the management of oversight bills. Guidance was provided by the
Financial Management Division in April 1998. The CFO also recognized a need to continue providing periodic
training and workshops on the management of accounts receivable and collections to further improve performance in
this area. Accordingly, the OCFO will annually provide training and workshops on the management of accounts
receivable and collections and will meet monthly with the Department of Justice (which began in April 1998)
04/30/98
Completed
06/09/98
OIG Note
06/12/98
Completed
09/30/98
Completed
06/12/98
Completed
09/30/98
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 14
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
2.4. work with the Assistant Administrator for Enforcement and
Compliance Assurance to implement guidance that will ensure
Offices of Regional Counsel and program offices timely
provide financial management offices with the supporting
documents they need to record and write off accounts
receivable.
2.5 We recommend the Assistant Administrator for Enforcement
and Compliance Assurance emphasize to ORCs:
2.5.1. the need to forward to FMOs within 3 workdays, copies of all
source documents that are required to establish accounts
receivable, and
2.5.2. the need to respond back to FMOs within 30 days concerning
receivable collectibility determinations.
OIG Note: We again noted a Reportable Condition for accounts
receivable in our FY 99 audit. Please refer to our FY 99 Attachment 2
and FY98 recommendations under 4.0, Further Improvements Needed In
Managing EPA's Accounts Receivable, pages 4-6 and 4-7 above, for
additional comments and current status on this issue. For many years,
management has been working to improve its management of accounts
receivable. Starting with FY 83, our audit reports (of the Hazardous
Substance Superfund obligations and disbursements) consistently
identified improvements needed in the three phases of a receivable:
recording the amount due, monitoring the status of the receivable and
recording the funds collected. While we acknowledge many actions and
initiatives have been taken to resolve these problems, management should
continue its emphasis in this area.
2.4 Issue Cross Servicing Policy Announcement on delinquent debts
Issue Revised RMDS 2540, Chapter 9 (11/22/99 update - comments being reviewed).
Additional Agency Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report
indicated that the target publication date was changed to 3/31/00, due to amount of comments and changes that have
to be incorporated into the RMDS 2540 Chapter 9.
2.5 In a 9/30/98 memo, the CFO informed us that, on July 26, 1998, the Assistant Administrator for Enforcement and
Compliance Assurance issued a memorandum entitled "Effective Debt Management" to the Regional Counsels. The
purpose of that memo was to reiterate and reinforce the Agency's policy regarding the Regional Counsels'
responsibility in the identification and collection of accounts receivable
03/30/98
06/30/98
07/30/98 (rev)
12/15/98 (rev)
04/30/99 (rev)
08/30/99 (rev)
01/31/00 (rev)
03/31/00 (rev)
03/31/98
06/30/98 (rev)
Completed
06/09/98
Open
Completed
07/26/98
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 15
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
3.0 CONTINUING EFFORTS NEEDED TO IMPROVE THE
ACCOUNTING FOR CAPITALIZED PROPERTY
3.1 We recommend that the Acting CFO, in conjunction with the
Acting Assistant Administrator for Administration and
Resources Management, continue to jointly work to strengthen
controls designed to ensure that property is timely and
accurately recorded in the Agency's accounting system.
Specifically, additional training should be provided to property
and finance personnel addressing the roles, responsibilities,
and requirements for processing and recording capital asset
transactions in IFMS FAS.
3.2 We recommend that the Acting Assistant Administrator for
Administration and Resources Management encourage PMOs
to establish property records in a timely manner once
supporting documentation is received from the FMO during
the reconciliation process.
OIG Note: We have reported property issues since our first financial
statement audit of the Superfund in FY 92 and other financial related
audits of the Superfund since FY 82. Since that time, we have reported
continuing problems with accounting for and controlling property.
Management should continue its emphasis in this area. Please refer to
our FY 99 Attachment 2 and our FY 98 recommendations under 6.0,
Continued Improvements Needed In Accounting For Capitalized
Property, pages 4-9 and 4-10 above, for additional comments and
corrective action plans for this issue.
5.0 GRANT ACCRUAL PROCEDURES NEEDED
5.1 We recommend that the Acting Chief Financial Officer
develop guidance for determining the grant accrual amounts
for future financial statements. The procedures should
consider the impact of implementing OMB Bulletin 97-01 and
should be supported by a verifiable rational analysis.
OIG Note: This issue was also reported in our FY 96 financial statement
audit report.
3.1 Conduct property training session.
Conduct joint property/finance training.
03/09/98
06/30/98
08/30/98 (rev)
Completed
06/09/98
Completed
08/19/98
3.2 Above actions are also applicable to recommendation 3.2.
OIG Note
5.1 In a 9/30/98 memorandum, the CFO informed us that they had been working with the OIG to develop draft
procedures and reached an agreement on the procedures. We selected 3 samples of grants and forwarded the sample
selection to the OIG for their concurrence. We received the OIG's concurrence on September 2, 1998, and e-mailed
the grants in our samples to our finance offices.
Pending
Completed
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 16
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
6.0 CONTROLS FOR APPROVING INTERAGENCY
AGREEMENT INVOICES NEED TO BE IMPROVED
No new recommendations.
OIG Note: This issue was first reported by us in our FY 94 financial
statement audit of EPA's Trust Funds, Revolving Funds and Commercial
Activity. Please refer to our FY 98 recommendations under 6.0,
Additional Controls Needed In Interagency Agreement Invoice Approval
Process, pages 4-8 and 4-9, for corrective actions on this reportable
condition and to our FY 99 Attachment 2 for additional comments on this
7.0 PROCEDURES NEED TO BE ESTABLISHED FOR
IDENTIFYING, TRACKING AND REPORTING EPA'S
ENVIRONMENTAL LIABILITY
7.1 We recommend that the Acting CFO work with the Assistant
Administrator for Enforcement and Compliance Assurance,
Acting Assistant Administrator for Administration and
Resources Management, and the Office of General Counsel to
jointly develop policies and procedures for tracking and
annually reporting the Agency's environmental liability.
8.0 REVENUE WAS NOT PROPERLY RECORDED ON
SUPERFUND STATE CONTRACTS
8.1 We recommend the Acting CFO continue working with
regional finance officials to further their understanding of the
adjustments and how to utilize the spreadsheet analysis as a
tool for determining necessary adjustments.
OIG Note: We first reported this issue in our FY 92 financial statement
audit of the Superfund Trust Fund, LUST Trust Fund and Asbestos Loan
Program. Please refer to our FY 98 recommendations under 7.0,
Revenue Was Not Properly Recorded On Superfund State Contracts,
page 4-10, for additional comments and current status on this reportable
condition.
OIG Note: Although corrective actions had been implemented, our audit work continued to find that project officers
were not receiving required information and payment requests were not timely approved.
OIG Notes
7.1 Jointly draft policies and procedures for tracking and annually reporting EPA's environmental liability.
Jointly finalize policies and procedures for tracking and annually reporting EPA's environmental liability. (11/22/99
update - In Comptroller's office for review)
Additional Agency Comments: The OCFO's February 24, 2000 response to our draft fiscal 1999 audit report
indicated that this action was completed on 1/13/00, with the issuance of Policy Announcement No. 00-02.
8.1 Conduct a SSC training session.
04/30/98
07/15/98 (rev)
07/31/98
08/31/98 (rev)
10/30/98 (rev)
03/31/99 (rev)
05/31/99 (rev)
08/31/99 (rev)
01/31/00 (rev)
07/31/98
Completed
07/31/98
Completed
01/13/00
Completed
07/23/98
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 17
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
9.0 AUTOMATED APPLICATION PROCESSING
CONTROLS FOR THE INTEGRATED FINANCIAL
MANAGEMENT SYSTEM COULD NOT BE ASSESSED
No new recommendations.
OIG Note: This issue has been reported since our FY 94 financial
statement audit of EPA's Trust Funds, Revolving Funds and Commercial
Activity. Please refer to our FY 98 Reportable Condition, 8.0 page 4-10,
and to our FY 99 report, Attachment 2, Reportable Conditions, for
additional comments by us and the OCFO on this issue.
In the OCFO's February 20, 1998 response to the draft FY 97 report, the OCFO responded that existing
documentation was sufficient to support ongoing operation and maintenance of IFMS. From a functional and
operational perspective, the benefits of this additional documentation do not justify the costs to develop and maintain
it. IFMS is a mature system and OCFO will be initiating a system replacement project, so it would not be economical
to make major IFMS cost investments that could not be recovered within the next several years.
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 18
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
COMPLIANCE WITH LAWS AND REGULATIONS:
10.0 EPA IS NOT IN SUBSTANTIAL COMPLIANCE WITH
FEDERAL FINANCIAL MANAGEMENT SYSTEM
REQUIREMENTS
We recommend that the Acting CFO direct the Director, Financial
Management Division (FMD) to:
10.1 develop a remediation plan which includes resources,
remedies and intermediate target dates to bring the Agency
into substantial compliance with Agency, OMB and FFMIA
requirements,
10.2 follow existing EPA policy for System Life Cycle Management,
10.3 with the assistance of the Office of Information Resources
Management, ensure that application security plans are
developed, approved and implemented for all of the OCFO's
financial management systems,
10.4 implement policies and procedures where necessary to ensure
appropriate FMD oversight of system planning, and upgrade
and maintenance operations for financial systems,
10.5 ensure that the financial systems annual inventory data
required by OMB is consistent, comparable and accurate, and
10.6 ensure that the annual update of the CFO Financial
Management Report and Five Year Plan submitted to OMB
includes all significant system changes in the financial systems
inventory.
OIG Note: We also noted a Noncompliance with Laws and Regulations
for federal financial management system requirements in our FY 98 audit
and again in our FY 99 audit. Please refer to our FY 98
recommendations under 9.0, pages 4-11 through 4-13 above, for
corrective actions, and Attachment 3 for comments and an additional
recommendation resulting from our FY 99 audit.
10.1 - EPA submitted a remediation plan to OMB on 3/31/99. In this plan, the Comptroller advised OMB that all
corrective actions were completed concerning the five core financial management systems
10.2 - OCFO and OIRM Approval of IFMS and EPAYS Decision Paper; - Complete EPAYS Year 2000 Decision
Paper
10.2 - Implement EPAYS/TAPP Year 2000 modifications
OIG Note: Although FMD has addressed implementing Agency Systems Development Life Cycle (SDLC) policies
for the core financial systems, we believe the OCFO needs to address implementing standard SDLC policies or
procedures for all Agency financial systems.
10.3 - Prepare IFMS, MARS, CPARS, EPAYS & Employee Express application security plans
10.3 - Develop & Finalize Travel Manager + Security Plan
10.4 - Review and update SMG & EMG Charters / Establish SMG/EMG or alternative groups
OIG Note: The Comptroller decided to eliminate the SMG and EMG rather than update their charters.
10.4 - Issue internal operating procedures for IFMS oversight
OIG Note: The new FMD policies and procedures are limited in scope and only apply to three of the eight OCFO
financial systems. We believe that there is a need to establish improved controls through formal oversight policies
and procedures applicable to all financial systems under the OCFO.
10.5 - Improve guidance for OMB Inventory update
10.6 - Include system inventory in CFO Five-Year Plan. In a 9/30/98 memorandum, the CFO advised us that "We
are providing more guidance to the system managers to improve the accuracy of the inventory data, which will be
completed by October 15, 1998. The guidance will emphasize the need to accurately report systems inventory data
and have supporting documentation for the responses on the inventory. FMD plans to use the new process in the FY
1998 annual update. Additionally, we will reflect all changes to the system inventory in the 1998 CFO Five-Year
Plan by October 30, 1998."
OIG Note: OMB Circular A-l 1 changed the CFO Five-Year Plan reporting requirements. EPA discussed its
financial systems structure and future plans as part of its FY 2001 OMB A-l 1 Section 52.2 submission.
10/31/98
02/28/99 (rev)
03/31/98
01/30/99
02/20/98
12/31/98
03/31/99 (rev)
09/30/99 (rev)
03/31/98
09/30/98 (rev)
12/31/98
09/30/98
10/30/98
02/26/99 (rev)
Completed
03/31/99
Completed
Completed
OIG Note
Completed
01/15/98
Completed
09/13/99
Completed
02/02/99
OIG Note
Completed
02/02/99
OIG Note
Completed
10/15/98
Completed
11/05/99
OIG Notes
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4- 19
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
11.0 EPA IS NOT COMPLYING WITH APPROPRIATIONS
LAW WHEN DISBURSING GRANTS FUNDED WITH
MULTIPLE APPROPRIATIONS
11.1 We recommend that the Acting CFO and Acting Assistant
Administrator for Administration and Resources Management
finalize and implement guidance for awarding and disbursing
multiple-funded grants that complies with Title 31 U.S.C. 1301.
OIG Note: This noncompliance with appropriations law was first
reported by us in our FY 94 financial statement audit of EPA's Trust
Funds, Revolving Funds and Commercial Activity and was again
mentioned in our FY 98 and 99 reports. We note that the Agency has
been slow to complete corrective actions for this noncompliance issue.
AUDIT OF EPA'S FISCAL 1996 FINANCIAL STATEMENTS
11.1 In a 9/30/98 memorandum, the CFO provided the following status "The determination of whether our
accounting practices violate Appropriations Law remains under OGC review. We will continue to encourage them
to issue an OGC decision as soon as possible, so we can resolve this issue."
OGC opinion requested from OGC
Obtain OGC opinion
03/06/96
To be
determined
Implement accounting changes dependent on OGC opinion. Target date will be established after OGC opinion is
received
To be
determined
Completed
Completed
01/13/00
OIG Note
Open
(Audit Report E1AML6-20-7001-7100120, Issued 03/24/97)
EVALUATION OF INTERNAL CONTROLS - MATERIAL
WEAKNESSES:
2.0
COMPONENTS OF SUPERFUND NET POSITION COULD
NOT BE AUDITED
EVALUATION OF INTERNAL CONTROLS - REPORTABLE
CONDITIONS:
OIG Note: Repeat finding from our FY 95 financial statement audit. Corrective action plans already established
based on prior OIG recommendations. Corrective action not completed. See top of page 4-22 below for remaining
corrective action for fiscal 1995 recommendation 5.1.
Closed
Analysis
complete
June, 1999
OIG Note
9.0
AUTOMATED APPLICATION PROCESSING CONTROLS
FOR THE IFMS COULD NOT BE ASSESSED
OIG Note: Repeat finding from our FY 95 financial statement audit
recommendation 8.0, page 4-21. Because corrective actions on this issue
were underway, we did not make additional recommendations. Please
refer to our FY 98 audit recommendation 8.0, page 4-10, and to our FY
99 report, Attachment 2, for additional comments on this issue.
OIG Note: Please refer to our FY 98 audit finding 8.0 and FY 97 audit finding 9.0, above, for additional comments
on this issue and to our FY 95 audit finding 8.0, below, for planned corrective actions that have not been completed.
Open
OIG Notes
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-20
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
FISCAL 1995 FINANCIAL STATEMENT AUDIT OF EPA's TRUST
FUNDS, REVOLVING FUNDS AND COMMERCIAL ACTIVITY
(Audit Report E1SFL5-20-8001-6100200, Issued 5/3/96)
3.0
3.1
EXPENSES FOR MULTI-FUNDED GRANTS NEED TO BE
ADJUSTED TO REFLECT WHICH APPROPRIATION
BENEFITTED FROM THE WORK PERFORMED
Recommend that the Chief Financial Officer obtain a legal
opinion from the Office of General Counsel regarding
whether: (a) it is proper to use the FIFO grant disbursement
method, and (b) if it is, whether adjustments are needed at
year-end.
3.2
Use the Office of General Counsel opinion to develop and
implement policies and procedures for accounting for
disbursements for multi-funded grants.
OIG Note: Please refer to our FY 97 audit finding 11.0, page 4-20 (EPA
Is Not Complying With Appropriations Law When Disbursing Grants
Funded With Multiple Appropriations) for an additional
recommendation and corrective actions on this issue.
5.0 COMPONENTS OF NET POSITION ARE NOT
RECONCILABLE
5.1 The CFO should make the completion of any Superfund
analysis and the resulting reallocation of funds a priority for
fiscal 1996. In addition, reconcile any remaining material
differences for the fiscal 1996 financial statements.
3.1 AGENCY COMMENTS: In a 07/02/96 response, the Agency stated: We agree with this recommendation. On
March 6, 1996 we requested a legal opinion from our Office of General Counsel (OGC) on the propriety of the FIFO
method. In a 12/30/96 update, the Agency stated: We have now decided, on a prospective basis, to phase out the
FIFO grant disbursement method for charging payments on multi-funded grants. In lieu of this FIFO method, a
workgroup, organized by GAD and including OIG representation, agreed to take the actions described in our response
to recommendation 3.2 presented below.
Also, for the existing multi-funded grants, we will ensure that each appropriation is appropriately charged with the
respective benefits from the work performed by developing an allocation method for adjusting total payments to each
appropriation at year-end. This adjustment will reflect the original funding allocation justifying the obligation to each
appropriation benefitting from the work performed and will reflect the proper costs to each appropriation in our fiscal
year-end financial statements. The OIG has concurred with our proposed methodology.
In a 12/30/96 update, the Agency stated: We worked with OGC and have now decided on an appropriate course of
action. The GAD will develop and issue a policy that clearly defines the appropriate use of multi-funded grants and
will also provide the grantee with instructions for requesting payment to ensure proper accounting by each
appropriation. The OIG representatives have concurred with this action.
3.2 Develop draft policies and procedures
Circulate draft policy to the appropriate offices and receive comments
Revise draft and issue policy. FMD issued Transmittal 97-08 "Expense Allocation Methodology for Multi-Funded
Assistance Agreements" on 01/03/97.
5.1 Issue guidance on Superfund State Contract and Cash Out billings and collections recorded in Superfund.
Develop report and issue guidance for interest recorded incorrectly in FY 1994 and prior
Correct interest activity
Move SSC and Cash Out billings and collections to SSC and Cash Out funds
Analyze pre-1996 Cash Outs recorded in the reimbursable funds and adjust revenue and advances as required.
N/A
N/A
01/30/97
03/15/97
N/A
N/A
01/31/97
04/30/97 (rev)
02/28/97
04/30/97 (rev)
04/30/97
Closed
12/30/96
Completed
12/30/96
Completed
OIG Note
Completed
01/03/97
Completed
12/30/96
Completed
12/30/96
Completed
04/30/97
Completed
04/30/97
Completed
04/30/97
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-21
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
8.0 AUTOMATED APPLICATION PROCESSING CONTROLS
FOR THE INTEGRATED FINANCIAL MANAGEMENT
SYSTEM COULD NOT BE ASSESSED
8.1 Require minimum IFMS technical documentation which would
include a system design, development plan, test plan, test
results and other appropriate documents for future
enhancements and upgrades.
OIG Note: Please refer to our FY 99 audit report, Attachment 2,
Reportable Conditions, for additional comments on this issue. We also
disclosed a reportable condition in our FY 96 (finding 9.0), FY 97 (finding
9.0), and FY 98 (finding 8.0) audit reports, because the automated
processing controls were not sufficiently documented for us to audit
them.
8.2 Establish a plan and schedule to implement a comprehensive
data dictionary.
OIG Note: This issue has been reported since our FY 94 financial
statement audit of EPA's Trust Funds, Revolving Funds and Commercial
Activity. Please refer to our FY 99 report, Attachment 2, Reportable
Conditions, for our current comments on this issue. In conclusion, we
maintain our position that IFMS systems data dictionary and other
technical systems documentation do not meet Federal systems
documentation requirements for an integrated financial management
system, and continue to believe that IFMS systems documentation is a
reportable condition.
Analyze SSC and Cash Out funds, Superfund and the Superfiind equity and prepare adjustments.
AGENCY COMMENTS: In a 07/02/96 response, the Agency stated: We believe that we have sufficient
documentation to meet the intent of the OIG recommendation. However, we will continue to work with the OIG staff
to resolve our differences on this issue. We have accepted the OIG's request to participate in the testing of our next
IFMS subrelease scheduled for July 1996. We have also requested that our programming contractor review the
"model" documentation provided by the OIG to determine whether such documentation could also be developed for
IFMS.
In a 12/30/96 update, the Agency stated: We are pleased that your staff has agreed to work with us on a project to
develop additional system documentation for your staff to use in evaluating the automated application controls in the
IFMS. While we believe we have demonstrated that we have sufficient documentation to operate IFMS effectively to
meet the Agency's needs, we also acknowledge the OIG's needs to fully understand and develop a working knowledge
of IFMS. Due to delays in the EPA FY96 budget and in issuing the FY96 operating plan, funding for the system
documentation analysis had been delayed; however, funding has now been made available by the CFO, and we have
established milestones for completing this activity.
8.1 Complete system documentation analysis
Draft Accounts Receivable documentation completed by AMS
Final Accounts Receivable documentation approved by OIG and FMD
OIG Note: Please refer to FY 98 finding 8.0 above, for additional comments on this issue.
Documentation for OIG selected transactions in other modules completed by contractor. . . .
OIG Note: FMD closed this recommendation in its audit tracking system because Agency management did not
believe it was cost effective to develop additional documentation.
AGENCY COMMENTS: In a 12/30/96 update, the Agency stated: The Enterprise Information Management
Division has established, at the agency level, a Data Register for program system metadata that would be accessible
via the World Wide Web on the Internet. It is our intention to place the IFMS metadata into the EPA Data Register.
We believe that this is a viable alternative solution for our data dictionary needs, for both the short and long term. It
also broadens our view and interpretation on what a data dictionary is, and moves us closer to what the agency is
doing, in the area of integrated agency level metadata sharing on the EPA Register. This activity will put us at the
forefront as the agency evolves in this new direction.
8.2 Completion of scope and responsible party definition
Completion of associated cost estimates
Entry of IFMS metadata into EPA Data Register
06/30/97
08/30/97 (rev)
11/23/97 (rev)
Completed
June, 1999
12/31/96
01/30/97
09/30/97 (rev)
03/15/97
11/15/97 (rev)
09/30/97
TBD
OIG Note
Completed
03/07/97
Completed
09/30/97
OIG Note
Closed
04/10/98
OIG Note
12/30/96
02/15/97
09/30/97
OIG Note
Open
Open
Open
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-22
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
FISCAL 1994 FINANCIAL STATEMENT AUDIT OF EPA's TRUST
FUNDS, REVOLVING FUNDS AND COMMERCIAL ACTIVITY
(Audit Report E1SFL4-20-8001-510192, Issued 2/28/95)
1.0
1.1
1.2
4.0
4.1
ADDITIONAL INFORMATION AND REPORTS WOULD
ALLOW AGENCY OFFICIALS TO MORE EFFECTIVELY
MANAGE FINANCIAL ACTIVITIES
We recommended that the Chief Financial Officer:
Provide financial management offices with general ledger
reports by accounting point and hold them accountable for the
accuracy of their account balances.
Determine why individual obligations in MARS do not match
the IFMS amount and take appropriate corrective action.
GRANTEE PAYMENT REQUESTS DO NOT PROVIDE
NECESSARY ACCOUNTING INFORMATION
Chief Financial Officer require a clause in all assistance
agreements funded from multiple appropriations that specifies
how the payments should be charged to the various
appropriations. If, for example, all work can be paid for from
any appropriation, the clause should state that the finance
office may charge any appropriation. However, if certain work
should be paid for from a specific appropriation, the clause
should require the recipient to include accounting information
with each payment request.
1.1 FMO's scheduled receipt of general ledger reports by accounting point.
1.2 Determine corrective action
Develop IFMS reports for outstanding obligations
Modify MARS to incorporate the contract order number on contract obligation data.
OIG Note: FMD closed this recommendation in its data base as this recommendation will be superseded by an
updated recommendation concerning obligations in the FY 98 financial statement audit. Please refer to finding 2.0,
Agency Encountered Significant Difficulties in Preparing the Statements of Budgetary Resources and Financing
(page 4-2 above) for additional recommendations and corrective action plans for this issue.
Prepare a draft policy on split funded projects.
Circulate to Grants Customer Relations Counsel for comment.
Enter the policy into the Green Border process.
Finalize and issue the policy.
OIG Comments: On 12/14/99, a GAD representative provided us with the following update: "Based on the
response received under the Green Border Review, specifically regarding the additional burdens the Policy placed on
grantees and EPA, GAD requested a legal opinion from the Office of General Counsel (OGC). The Policy has been
revised, but has not been finalized pending OGC's opinion. OGC estimates that it's final opinion
08/31/95
08/31/95
03/31/96
10/01/96
07/30/97 (rev)
07/30/98 (rev)
8/15/95
08/31/95
09/30/95
01/97 (rev)
11/30/95
Completed
06/26/95
Completed
10/31/95
Completed
03/31/96
Closed
04/14/99
OIG Note
Completed
12/96
Completed
12/96
Completed
2/12/97
Open
OIG
Comments
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-23
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
10.0 A COMPREHENSIVE AGENCY-WIDE POLICY ON
INDIRECT COSTS SHOULD BE IMPLEMENTED
10.1 Chief Financial Officer develop and implement an Agency-
wide policy for identifying and allocating indirect costs.
will be issued within the next few weeks. GAD has worked closely with OGC and the Financial Management
Division (FMD) to modify the Multiple Appropriations Awards Policy. Once OGC issues its opinion, GAD will
finalize the Policy to coincide with the opinion and proceed with implementation." On 1/13/00, OGC issued its
opinion.
10.1 Identify the major tasks and requirements associated with implementing Agency-wide cost accounting based on
FASAB managerial cost accounting standard, the provisions of GPRA and other applicable considerations.
Commence development of detailed cost accounting policy including financial system requirements analysis.
OIG Note: FMD indicated that the two milestones above were completed on 3/15/97 and 8/28/97 respectively and
closed this recommendation in its audit tracking system on 9/4/97. FMD closed this recommendation upon the
issuance of a 8/28/97 memorandum to the Office of Site Remediation Enforcement which discussed a preliminary
methodology for developing Superfund "full cost" indirect cost rates. FMD also indicated that their goal is to develop
and implement the new Superfund indirect methodology by fiscal year 1999. Upon closing this recommendation in
its audit tracking data base, FMD officials provided a number of reasons why they believed it is premature at this time
to commit to a corrective action plan with specific milestones. These reasons included EPA's appropriation structure;
principles of appropriation law, as well as specific provisions in EPA's appropriations, may effectively prescribe
accounting methods which do not necessarily reflect generally accepted cost accounting principles; and specific
ceilings in EPA's appropriation (i.e. Superfund administrative expenses) also govern how EPA must account for its
expenditures. FMD officials also mentioned the Working Capital Fund (implemented in FY 96), would address some
of the cost accounting issues for certain administrative functions. In conclusion, FMD officials indicated that". . . the
development and implementation of an EPA-wide comprehensive cost accounting system will require a long term
plan that coordinates system development, policy considerations, and user needs. The integration of these
requirements are complex, and a simple corrective action plan at this time is insufficient. Therefore, we will address
this issue when we update our Five-Year Plan." During FY 98, EPA developed detailed cost accounting procedures
for implementation in FY 99.
OIG Note: Fiscal 1999 update: EPA discussed its Goals and Strategies to Support Federal Financial Management
Priorities as part of its FY 2001 OMB A-l 1 Section 52.2 submission to OMB on November 5, 1999. The goals and
strategies included six priorities, two of which discussed Improving Financial Accountability and Improving Financial
Management Systems. Neither of these two discussion topics mentioned the development or the implementation of an
agency-wide indirect cost policy. We acknowledge that the discussion did mention the accomplishment of
implementing the five basic accounting standards and the cost accounting standard issued by the Federal Accounting
Standards Advisory Board (FASAB) as well as developing related policy announcements. The CFO should identify
additional corrective action plans and milestones to implement our recommendation. We believe an Agency-Wide
Indirect Cost Policy should identify what costs should be consistently included to recover its "full cost" when
determining the appropriate level of user fees for programs that receive fees for services provided by EPA, costs for
billing other government agencies for work performed by EPA, and
06/30/96
03/01/97 (rev)
10/31/96
03/01/97 (rev)
09/30/97
Open
Open
OIG Note
OIG Note
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-24
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
FISCAL YEAR 1993 - FINANCIAL AUDIT - PESTICIDES
REVOLVING FUNDS AND THE OIL SPILL TRUST FUND
(Audit Report E1AML3-20-7001-4100230, Issued 3/31/94)
7.0 HIGHER PRIORITY NEEDS TO BE PLACED ON
COMPLETING REQUIRED REVIEWS OF USER FEES
7.1 CFO include timely review of user fees as one of the financial
management performance measures used to evaluate program
offices in the future.
FISCAL YEAR 1992 - FINANCIAL AUDIT - SUPERFUND, LUST AND
ASBESTOS LOAN PROGRAM
(Audit Report P1SFL2-20-8001-3100264, Issued 6/30/93)
4.0 ACCOUNTING FOR GRANT DRAWDOWNS DOES NOT
PROVIDE REQUIRED ACCOUNT INFORMATION
4.1 CFO review the results of the Quality Action Team's analysis
of this issue and determine if additional procedures need to be
developed to account for grant drawdowns.
FISCAL YEAR 1992 - FINANCIAL AUDIT - PESTICIDES
REVOLVING FUNDS
(Audit Report E1EPL2-20-7001-3100065, Issued 6/30/93)
6.0 TOLERANCE FEES COLLECTED DID NOT COVER
EPA'S COSTS
6.1 CFO, in coordination with the Director, OPP, conduct a
comprehensive review of tolerance program costs to
Superfund Indirect Costs to be included in billings to responsible parties for site cleanups, etc. A cost accounting
system, by itself, is not sufficient to take the place of an agency-wide indirect cost policy. Such a policy would help
ensure costs are consistently identified for inclusion in determining the "full cost" of conducting agency programs and
activities.
7.1 Implement financial management performance measures in the program offices.
OIG Note: On 11/5/97, the Acting CFO provided the Administrator with a biennial fee review report. The report
shows five current fees, four proposed fees, and eight exceptions. The Agency still needs to follow through and either
institute, revise, or update all user fees or obtain exceptions from OMB as OMB Circular A-25 requires. The next
biennial review of user fees was scheduled to be completed by September 1999. Fiscal 1999 update: Please refer to
our FY 99 report, Attachment 3, Compliance with Laws and Regulations, for an additional recommendation on this
4.1 Establish QAT to review the procedures, establish milestones, report to process owners, and implement changes. .
OIG Note: Our FY 94 audit report also discussed this issue. For a current status on corrective actions, please refer to
our FY 94 audit finding 4.0 above on page 4-23.
6.1 Develop methodology for conducting review of tolerance program costs.
12/01/94
04/01/95 (rev)
07/31/97 (rev)
9/30/99 (rev)
Open
OIG Note
N/A
Open
OIG Note
10/31/93
Completed
12/15/93
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-25
-------
STATUS OF PRIOR AUDIT REPORT FINDINGS
Report Findings
and Recommendations
Management Comments and Corrective Action Plans
Target
Date
Status
determine how much tolerance fees should be raised, and take the
necessary steps to make appropriate changes in the fees charged.
6.2 CFO conduct the required biennial review of other Agency
user fees, and institute the necessary policies and procedures to
ensure that these reviews will be conducted in a timely manner
in the future.
FISCAL YEAR 1991 - FINANCIAL AUDIT - HAZARDOUS
SUBSTANCE SUPERFUND
(Audit Report P1SFF1-11-0026-2100660, Issued 9/30/92)
3.0 CERTAIN ALLOCABLE COSTS WERE NOT ALLOCATED
TO SUPERFUND
3.1 Obtain a written opinion from the OGC on the legal basis for
charging Superfund administrative expenses to the Salaries
and Expenses Appropriation. If the OGC determines that the
Agency's current practice of charging the S&E appropriation
for Superfund administrative expenses after the Superfund
administrative ceiling is reached is improper, then the OGC
should provide guidance on appropriate corrective action.
OIG Note: The proposed rule for recovering the aggregate cost of the tolerance program through fees was published
in the Federal Register on June 9, 1999 (Vol. 64, Number 110, pages 31039-31050). The FY 99 Appropriations Act
prohibits the Agency from using FY 2000 appropriated dollars to promulgate a Final Rule increasing tolerance fees.
However, the Appropriations Act authorizes EPA to proceed with the development of such a rule. Accordingly, we
encourage the Agency to proceed with the development of a Final Rule to ensure the Tolerance Fees reflect the costs
for the services provided.
6.2 Complete review and submit to CFO with recommendations
OIG Note
OIG Note: In its FY 97 Integrity Act report, EPA reported a corrected Agency-level weakness for user fees.
FY 93 audit report also discussed this issue. Please refer to our FY 93 audit finding 7.0 above for additional
comments and the current status for this issue.
Our
3.1 Request a legal opinion from OGC to reaffirm the legality of charging Superfund expenses to the S&E
appropriation
OIG Note: OGC issued a memo to the Comptroller on 7/11/96 reaffirming prior OGC opinions concerning the
charging of Superfund administrative expenses to other appropriation accounts. Specifically, a 1984 Associate
General Counsel opinion on the subject stated that under applicable GAO precedent, once the Agency elects the type
of costs to charge to Superfund and the types of costs to charge to S&E, it is bound by its election. Based on this
OGC decision, on 8/9/96, we asked the Comptroller to provide a work sheet or schedule that clearly identifies each
fiscal years' understatement (from FY91-95). On 9/17/96, the Comptroller sent us a memo advising us that they are
not planning to move S&E charges to the Superfund account for FY91 or subsequent years. The OC and OGC are
examining the application of the statute for allocating costs between appropriations. The OC believes that the history
behind the administrative expense ceiling in Superfund may permit EPA to appropriately discontinue allocating costs
once the ceiling limitation has been reached. As of the date of this report, final resolution by the Comptroller and the
OGC has not been reached on this issue.
OIG Note: FY99 update: In a January 13, 2000 meeting, the Director, APBD, advised us that they were discussing
this issue with an appropriations committee and were hoping to resolve this issue through legislative action.
OIG Comments: We continue to encourage the Comptroller to make every attempt to resolve this long standing
issue. If the Comptroller is aware of reasons that would prevent taking action suggested by OGC, we suggest that a
decision memorandum be prepared by the CFO and the OGC to resolve this issue.
01/31/94
Completed
11/5/97
OIG Note
02/15/93
06/30/95 (rev)
Open
OIG Note
OIG Note
OIG
Comments
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
4-26
-------
APPENDIX I
EPA'S FISCAL 1999 FINANCIAL STATEMENTS
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
February 2000
FY1999
AUDITED FINANCIAL
STATEMENTS
s^t0 ^
Produced by the U.S. Environmental Protection Agency
Office of the Chief Financial Officer
Financial Management Division
-------
-------
TABLE OF CONTENTS
Management's Discussion and Analysis 1
Principal Financial Statements 17
Acronyms 63
EPA's FY 1999 Annual Financial Statements Page i
-------
-------
MANAGEMENT'S DISCUSSION
AND ANALYSIS (MD&A)
EPA's FY 1999 Annual Financial Statements
-------
U,S, ENVIRONMENTAL PROTECTION AGENCY
(EPA)
0ฅP!CEQP
.
OFFICE Of
WA3
(OW>
ai iMiiri vii
'M vjir
lEfBiTir. CD1
RBRUiH X
(Sullfe. WAI
Note: This FY 1999 Organization Chart does not reflect the Office of Environmental
Infnrmiitmn (Ol h which w:-is i<.hiMiv}u,t m FY 2(Kป0.
EPATs FY 199"* Annual Financial Statements
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
The Environmental Protection Agency (EPA) was established to lead the nation's efforts to protect
human health and safeguard the environment. EPA continues to work in partnership with local, state,
tribal, federal and global communities to protect the air, water, land, and public health for all
generations. This section contains an overview of the initiatives taken to ensure that all citizens have
a clean environment and presents the key financial management highlights of the Agency. [For more
detailed information on environmental initiatives, see EPA's FY 1999 Annual Performance Report
(APR), to be issued in March 2000.]
EPA's Mission and Strategic Goals
The Agency's mission statement encompasses all of the legislative mandates of its programs and
serves as a guidepost for all activities. Our strategic planning framework comprises ten strategic
long-term goals that support the Agency's mission. We have articulated a set of objectives for each
strategic goal, as well as performance goals to identify the progress we aim to make each year
towards longer-term commitments.
Mission
"The mission of the U.S. Environmental Protection Agency is to protect human health and to safeguard
the natural environment - air, water, and land - upon which life depends."
Strategic Goals
EPA has ten strategic goals to fulfill this mission. The Agency's Strategic Goals are:
1. Clean Air
2. Clean and Safe Water
3. Safe Food
4. Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces, and
Ecosystems
5. Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency
Response
6. Reduction of Global and Cross-Border Environmental Risks
7. Expansion of Americans' Right to Know About Their Environment
8. Sound Science, Improved Understanding of Environmental Risk, and Greater Innovation to
Address Environmental Problems
9. A Credible Deterrent to Pollution and Greater Compliance with the Law
10. Effective Management.
EPA's FY 1999 Annual Financial Statements Page 3
-------
Overview of FY1999 Results
EPA is proud of its FY 1999 contributions to establishing a cleaner, healthier environment. The
results presented in this report demonstrate continued progress and reveal a mix of tools and
approaches used to protect public health and promote environmental protection. Throughout the
year, the Agency maintained close contact with its primary partners-states, tribes, and other federal
agencies-whose involvement contributed significantly to the annual accomplishments discussed in this
report and progress toward the longer-term environmental results.
For FY 1999, EPA can report significant accomplishments that contributed to cleaner air and land
and safer food and water, meeting the majority of the 69 annual performance goals (APGs) to which
the Agency committed in its FY 1999 Annual Plan. The Agency is also on track to achieve several
APGs with targets that fall beyond F Y 1999. Final results are not yet available for a number of APGs
due to differences in reporting schedules. Owing to a variety of factors, EPA did not achieve some
of the accomplishments it had planned for FY 1999. A table showing detailed results for EPA's 69
APGs is included in the Appendix of the FY 1999 APR.
Selected Accomplishments
Innovative Approaches to Environmental Problems
EPA is taking a fresh look at environmental problems and their solutions. We are devising more
efficient and effective regulatory programs, expanding cooperative partnerships, and building simpler
and more flexible processes for rule-making and permitting. We have some exciting results to report.
A 25-Percent Reduction in Acid Rain. In the Northeast and Mid-Atlantic regions of the United
States, where ecosystems are most prone to acidification, acid deposition has declined by up to 25
percent through the efforts of the acid rain program, which implements a system of emissions trading
known as "cap and trade." This successful, market-based program was established by the Clean Air
Act to control emissions of sulfur dioxide (SO2) from electric power plants that cause acid rain and
other environmental and public health problems. The "cap and trade" system is innovative in its use
of the market to achieve greater environmental results for a given cost than are possible through
traditional approaches. The program places a mandatory ceiling, or cap, on emissions nationwide
from electric utilities, and allocates emissions to these pollution sources in the form of allowances.
At the end of the year, sources must hold one allowance for each ton of SO2 they emitted. Extra
allowances may be banked (or carried over) for future use, or sold to other companies. This
flexibility gives utilities the opportunity to find cost efficiencies while ensuring that overall emission
reductions are achieved. Estimates by Edison Electric Institute in 1989 of estimated costs under
traditional approaches were $7.4 billion by 2010, versus EPA's initial estimate of $4.6 billion under
"cap and trade." Based on recent compliance cost information, a 1998 Resources for the Future
report estimated costs of SO2 emissions reductions to be less than $1 billion by 2010.
Page 4 EPA's FY 1999 Annual Financial Statements
-------
Early Progress in Food Safety. EPA is piloting a new approach to broaden public participation in
decision-making on older agricultural pesticides. We are confronted with a large number of pesticides
that were registered, or licensed for use, before tough standards for food safety were enacted into
law. EPA is required by statute to evaluate these pesticides to set safe limits for their residues on
foods, also called "food tolerances." Our new approach to reassessment makes the process more
transparent to the agricultural community, whose members are most directly affected by Agency
findings. We are pleased to report that, as of September 30, 1999, EPA exceeded the statutory
requirement of evaluating 33 percent of the 9,721 existing pesticide food tolerances, completing a
net total of 3,430 reassessments (over 35%).
Regulations that Produce Better Environmental Results. One of EPA's boldest innovations, Project
XL ("excellence and Leadership") was created through the President's Reinventing Environmental
Regulation Initiative. In FY 1999, EPA approved five more regulatory pilot proj ects through Project
XL, bringing the number of pilot experiments in the implementation stage to 15. An additional 36
XL proposals were either under development or in negotiation, bringing the total number of projects
to 51, meeting the Agency's goal for FY 1999. To date, these pilots have revealed over 40
opportunities for improving environmental regulations, and eight innovations have already been
incorporated into EPA regulations, permitting, and stakeholder involvement approaches. Project XL
gives approved regulated sources the flexibility to develop alternative strategies to replace or modify
specific regulatory requirements, contingent upon the production of greater environmental benefits.
Innovative Partnerships for Environmental Results
EPA could not have achieved the results described in this document during FY 1999 without forging
innovative partnerships with many different governments, groups, and agencies. The Agency
operates with the active participation of state and local agencies, tribes, community leaders,
businesses, and private citizens to develop the most effective standards for public health and
environmental protection.
Targeting Clean Water Efforts, from Coast to Coast. EPA's Strategic Plan includes a commitment
to expand our focus on watersheds in pursuit of our goal for Clean and Safe Water. FY 1999
brought to fruition a cooperative, intergovernmental process to assess the condition of the nation's
watersheds. For the first time, all 50 states, the District of Columbia, five territories, and numerous
tribes each completed a comprehensive, nationwide assessment of watersheds within their
boundaries, with guidance from EPA, the U.S. Department of Agriculture, and other federal
agencies. The results incorporate water quality data, habitat conditions, endangered species listings,
and other environmental factors. Taken together, this information helps all agencies identify the
aquatic resources in greatest need of restoration and/or protection under the Clean Water Action
Plan.
A Cleaner Environment, a Stronger Economy. During FY 1999, EPA's government/industry
partnership programs contributed to the reduction of annual greenhouse gas emissions in total by 35
metric tons in carbon equivalent. The Agency's climate change efforts are part of the President's
EPA's FY 1999 Annual Financial Statements Page 5
-------
five-year Climate Change Technology Initiative included in the 1999 Budget and are designed to
overcome barriers to investments in more efficient technologies by consumers, businesses, and
others. EPA promotes energy-efficient technologies through programs such as the Energy Star
Labeling Program and the Voluntary Aluminum Industry Partnership. Our support for innovation
enables industries to limit greenhouse gas emissions and at the same time improve local air quality,
save money for consumers and businesses, and enhance overall economic productivity.
Making the Most of our Land. In FY 1999, EPA demonstrated its commitment to Brownfields
redevelopment by meeting its goal to provide funding and technical support to 80 communities,
bringing the total communities served to 307. The Brownfields Assessment and Development
Program supports the assessment, cleanup, and redevelopment of industrial and commercial
properties that have been abandoned or underutilized due to real or perceived environmental
contamination. Redevelopment efforts are designed to empower states, communities, and other
stakeholders to work together on Brownfields proj ects. EPA and its partners also met the Agency' s
goal to complete construction at 85 Superfund sites in FY 1999. Major administrative reforms in
the Superfund program have enabled us in the past seven years to complete construction at over three
times the number of sites achieved during the first twelve years of the program.
Managing and Improving Environmental Information
EPA is working to assemble and manage more precise information about the environment to present
a more complete picture to the public and to enhance Agency decision-making. During FY 1999,
EPA made notable advances in the quality of data being produced and the availability of
environmental information to all partners and stakeholders. When all of us-state and tribal
governments, non-governmental and private organizations, communities, and individual
citizens-have access to valid, consistent, and comprehensible data about environmental conditions,
we can work together more effectively to address environmental problems and reduce exposure to
harmful substances.
Establishing Common Data Standards. The State/EPA Information Management Workgroup,
founded to promote compatible data standards and systems designs, has negotiated a common vision
and operating principles for managing environmental information. Although EPA and state
agencies are committed to sharing environmental data, the variety of data standards currently in use
makes it difficult to integrate information or create accurate composites of environmental conditions.
The workgroup has established multi-party action teams to identify and promulgate joint
environmental data standards. In FY 1999, the teams completed standards for facility identification
and standard date, and work is currently underway on standards for latitude/longitude, industrial
classification, chemical identity, and biological classification.
Putting Information into the Hands of the Public. The Agency recognizes that making
environmental and public health information available to local residents is one of the most effective
ways to reduce local pollution and prevent it from happening in the future. EPA, the Environmental
Defense Fund, and the Chemical Manufacturers Association achieved considerable success in FY
Page 6 EPA's FY 1999 Annual Financial Statements
-------
1999 during the first phase of the Chemical Right-to-Know Initiative. The focus was on 2,800
chemicals produced and imported at volumes exceeding one million pounds per year which,
therefore, present significant chance of public and environmental exposure. The Right-to-Know
initiative aims to identify and make public basic screening-level information on these chemicals,
including some that may present particular concerns for children's health. Over 200 companies
committed voluntarily to provide screening level toxicity information on over 1,150 of the chemicals
in question.
New Information about Human Health and the Environment. Research and development programs
at EPA seek out more innovative, effective ways to gather and distribute information about
environmental health risks. The endocrine disrupters research program is producing important
results by expanding our knowledge of how exposure to certain chemicals can affect human
endocrine systems. In FY 1999, the Agency initiated a study to examine children for the effects of
two endocrine-disrupting chemicals (EDCs). This study will help to characterize the key factors that
influence human exposures to these chemicals and other persistent pesticides, toxics, and metals.
It will also help produce a field exposure study protocol to support a follow-on larger-scale study
to begin in FY 2000. The data from these studies will teach us more about where, when, and how
children and other sensitive sub-populations are exposed to these kinds of environmental
contaminants.
Transforming Information Management for the Next Century. During FY 1999, EPA laid the
groundwork for a new office dedicated to information and information access issues. Formally
established in FY 2000, EPA's Office of Environmental Information (OEI) will play a significant role
to advance the creation, management, and use of data as a strategic resource. OEI will work closely
with EPA's external partners to meet their data needs, develop appropriate policies regarding data
protection and information security, create and oversee information standards and records
management policies, and enhance the security and reliability of EPA's information infrastructure.
The office supports the Agency's mission by integrating quality environmental information to
maximize its usefulness for decision-makers.
Year 2000 (Y2K) Activities
In FY 1999, EPA positioned the Agency's information technology assets to successfully transition
to the upcoming calendar year change. All 50 EPA mission critical systems were assessed, renovated,
and certified through an independent certification program. In addition, the Agency's major
computing platforms (mainframe, client/server, supercomputer) and wide area telecommunications
networks were 100 percent compliant. EPA also completed assessment and renovation of its 1,475
non-mission critical systems, as well as renovations to 28 data exchanges, which are a combination
of mission critical and non-mission critical systems. Currently, the Agency is monitoring the post
Y2K transition testing process for mission critical and non-mission critical systems. This will enable
EPA to determine whether or not the moratorium on modifications to information technology assets
is needed through March 15, 2000.
EPA's FY 1999 Annual Financial Statements Page 7
-------
EPA assessed all leased and owned buildings for Y2K compliance. The Agency received written
confirmation from the General Services Administration (GSA) on March 1, 1999, that all EPA space
was successfully evaluated and compliant. To address any adverse impact of the century change on
EPA facilities, the Agency prepared guidance for all facility managers and coordinated the
preparation of facility contingency plans specifically addressing building systems. The Agency
completed testing facility contingency procedures and identified corrective actions.
To address worst case scenarios of the Y2K transition and ensure continuity of the core business
processes, the Agency developed procedures to respond to threats and risks of the calendar year
change. Through careful business process analysis, the Agency's Business Continuity and
Contingency Planning (BCCP) methodology includes state and local interfaces, where appropriate.
The Agency's BCCP also includes cross-cutting programmatic threats that may affect the continuity
of business operations.
Within the Agency's BCCP methodology, EPA formed business resumption teams (BRTs) for each
of the following nine core business processes:
Protection of Air Quality
Protection of Water Quality
Safe Disposal of Waste Products
Regulation of Pesticides and Toxic Substances
Emergency Response to Environmental Emergencies
Research and Development to Improve the Understanding of Environmental Risks
A Credible Deterrent to Pollution and Greater Compliance with the Law
Expansion of Americans' Right-to-Know About Their Environment
Financial/Administrative Management of Agency Operations
The overall goals of the BRTs are to: 1) identify threats/risks and business priorities for its own core
business process; 2) develop and embellish a set of contingency procedures; 3) review and rehearse
procedures; and 4) enhance and implement procedures. EPA's BCCP Life Cycle includes milestones
for corrective actions for identified contingencies and procedures through a series of workshops,
rehearsals, and follow-up meetings.
The following table represents the historical and estimated future costs for Agency Y2K activities:
Fiscal Year
Cost (in Millions)
1996
$0.8
1997
$5.3
1998
$11.5
1999
$22.3
2000
$1.0
Total
$40.9
Building on Lessons Learned
As a learning year, FY 1999 provided EPA many opportunities to identify and develop the
capabilities essential for results-based management. The Agency knows that future successes will
EPA's FY 1999 Annual Financial Statements
-------
depend in large measure on its ability to set quantifiable, attainable goals and targets; to forecast
external factors that may have an impact on program planning; to measure performance and results
more precisely; and to analyze more accurately the relationships among costs, activities, and results.
For a variety of reasons that affected the Agency's ability to accomplish what it had planned, EPA
achieved less than full performance for several of its 69 FY 1999 APGs discussed in the Agency's
FY 1999 APR. The Agency does not expect the shortfall in meeting these annual performance
targets, however, to compromise its progress toward the long-range goals to which they contribute.
For example, the Agency met the statutory and cumulative goal of reassessing existing tolerances
for pesticide food uses, but missed its annual target due to efforts to strengthen involvement of the
agricultural community in the reassessment process. In another case, the Agency added only four
states (out of the eight that were planned) to the One Stop Reporting program in FY 1999.
However, EPA did develop a technology transfer activity to support states= efforts to increase their
level of information integration. While they may not have resulted in the performance planned for
FY 1999, these and other such efforts build a strong foundation for longer-term progress towards the
Agency's goals.
In some cases, external factors affected the Agency=s ability to achieve planned APGs. For example,
due to difficulties reaching agreements with developing nations, EPA delivered 16 international
training modules instead of the 30 originally planned. Similarly, the Agency's decision to relinquish
interest in the Wilson Building so that the District of Columbia Government could return to its
historic home delayed the consolidation of EPA Headquarters offices at the Federal Triangle.
Looking Ahead
In addition to the missed APGs, other program issues will need careful attention by the Agency and
our partners if we are to maintain progress towards the achievement of long-term performance
results. The Agency is working to address these challenges as we continue to strive for
environmental outcomes.
Air Court Case: Implications for Future of EPA 's Regulations. In May 1999, in a split decision (2
to 1), a panel of judges on the U.S. Court of Appeals for the D.C. Circuit held that the Clean Air Act,
as applied in setting the new public health air quality standards for ozone and particulate matter,
represents an unconstitutional delegation of legislative authority. The Court's decision calls into
question these important new health air standards for ozone and particulate matter, which would
protect the health of 125 million Americans, including 35 million children. Ozone and particulate
matter are harmful pollutants that together contribute to acute health effects ranging from premature
death to asthma and other respiratory problems. The Court's decision stands in the way of EPA's
public health protection efforts and carries with it long-term implications not only for these new air
quality standards, but also for many other federal regulations containing broad grants of authority to
executive branch agencies. In January 2000, the Administrator filed a cetiorari petition seeking
Supreme Court review of key aspects of the Court's opinion.
EPA's FY 1999 Annual Financial Statements Page 9
-------
Nonpoint Source Pollution. Nonpoint source (NFS) pollution is the nation's largest contributor to
water quality problems. There are literally millions of diffuse sources of polluted runoff from
agricultural lands, residential areas, city streets, and forests, and from pollutants settling out of the
air. A key challenge for the future is to foster a national commitment to preventing nonpoint source
pollution, assuring adequate investments by federal, state, tribal and local governments to fund
projects to address these problems.
Performance Information: Need for Improved Data Quality and Availability. EPA gathers much
of its data on the environment from sources outside the Agency, whose reporting cycles and data
standards vary widely. For this reason, EPA has concerns about data quality, availability, and
measurability. In a few instances, data relevant to F Y 1999 performance are either lacking or of poor
quality. We need accurate baseline data to measure performance effectively. EPA goal
teams-bringing together representatives from all Agency offices whose work contributes to progress
on our strategic goals-are working to determine what data are needed to set the baselines so that we
can assess results over the long term. We are also working to develop performance measures that
focus more on the outcomes of our work than on our programmatic outputs.
Needfor ImprovedandMore Accessible Information. EPA, in cooperation with the states and tribes,
must advance efforts to reinvent environmental information by adopting formal data standards,
providing universal access to electronic reporting, and re-engineering the Agency's national data
systems. EPA must use efforts such as joint EPA/state/tribal information activities, Environmental
Monitoring for Public Access and Community Tracking (EMPACT), Environmental Justice grants,
and drinking water Consumer Confidence Reports (CCRs) to help provide communities and
individuals with the information and tools they need to address environmental problems. EPA is
striving to provide information in simpler, clearer terms and make it more accessible to states and
local governments, the regulated community, and the public.
Future Trends
A number of current trends, which are likely to continue into the future, will have implications for the
success of EPA's programs. The increasing likelihood of climate-change-driven weather extremes,
such as more frequent hot, dry summers, may make it increasingly difficult to reach attainment with
air quality standards, despite the full implementation of emission control plans. Similarly, droughts
and floods, such as those that occurred in 1999, can significantly impact the success of the Agency's
water and waste programs. As evidenced by the nation's recent experience, flood waters can disrupt
hazardous waste sites and spread animal and other wastes. Drought conditions can preclude reliance
on dilution to improve water quality. The Agency and its partners have established some pollution
control strategies predicated upon fairly typical temperature and precipitation regimes; however, these
control strategies may be less likely to succeed, as we are exposed to increasing climate and weather
extremes.
Population growth, and the attendant development of suburban and urban areas, pose further
implications for environmental protection programs. Sprawl places increased demands on
Page 10 EPA's FY 1999 Annual Financial Statements
-------
transportation, and can result in more people relying heavily on private vehicles. The need to drive
more, coupled with the trend towards larger vehicles such as sports utility vehicles, can contribute
to increased emissions of conventional pollutants and greenhouse gases such as carbon dioxide. In
addition to air quality concerns, population growth places increased pressure on the nation's
infrastructure for providing clean and safe water. This concern is especially apparent as the U.S.
population grows in southern and southwestern states with fewer water resources and often less
highly-developed water and wastewater treatment infrastructures.
The current trend of general economic growth and increased consumer demands will also bear upon
the success of EPA's programs across all media. If domestic manufacturing and production rise to
meet the demands of wealthier, more prosperous consumers, waste streams and air and greenhouse
gas emissions are likely to increase.
Financial Analysis Highlights
Financial Trends
Appropriation Levels for FY1996-1999. For Fiscal Year 1999, Congress appropriated a total of
$7.9 billion to the Agency. A comparison of total Agency appropriations for Fiscal Years 1996
through 1999 is provided in the following chart:
Appropriations by Fiscal Year
LI Superfund
D STAG
D All Other
The chart is categorized by Superfund, State and Tribal
Assistance Grants (STAG), and All Other. The
Superfund appropriation category is net of transfers to
the Science and Technology (S&T) and Office of
Inspector General (OIG) appropriations. The All Other
category includes appropriations for OIG, Oil, Leaking
Underground Storage Tank (LUST), Buildings and
Facility, Environmental Program and Management
(EPM), and S&T.
FY 1999 Expenses. In Fiscal Year 1999, EPA expended $7.7
billion using current and prior year appropriation authority.
Of this amount, as depicted, 74.9 percent was expended for
contracts, inter-agency agreements, and grants.
Superfund Financial Trends. The U.S. Congress passed the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA) (P.L. 96-510), which
formally established the Superfund program and the
Hazardous Substance Response Trust Fund, now known as
the Hazardous Substance Superfund (Trust Fund). Although CERCLA has not been reauthorized
FY 1999 EPA
All Other _^*~-
25.6% ~^y
1
r\
Contracts & \AGsy^- J-
27.7%
Expenditures
GrantsD Grants
46.8% D Contracts & lAGs
All Other
EPA's FY 1999 Annual Financial Statements
Page 11
-------
since 1995, the Superfund program continues to operate each year by way of annual Congressional
appropriations.
The Trust Fund, which is administered by the Bureau of Public Debt, U.S. Department of the
Treasury (Treasury), is the primary financing source for the Superfund program. For FY 1999,
Treasury reports that the Trust Fund received $889.5 million in receipts from the revenue sources
shown in the following chart:
Superfund Trust Fund Revenue Sources
FY 1999
Investment Income
24.7%
General Fund Transfer
36.5%
Cost Recoveries
36.0%
Fines & Penalties
0.4%
The Superfund program's authority to tax expired on
December 31, 1995. Consequently, tax revenues have
diminished and the remaining revenue sources for the Trust
Fund are: cost recoveries; interest, fines, and penalties;
interest from TrustFund investments; and general revenues.
Due to diminishing revenues, EPA has increased its efforts
to conserve existing Trust Fund balances and replenish the
Trust Fund with all eligible revenues. Specifically, EPA has
done the following to accomplish these goals:
Reemphasized its "enforcement first" philosophy to compel Potentially Responsible Parties
(PRPs) to clean up their sites. By having PRPs perform clean-ups, EPA can reduce related
response and legal enforcement costs which result in cost savings to both the taxpayer and
the Trust Fund.
2000
ป 1500
o
^ 1000
500
1995 1996 1997
Accelerated efforts to pursue cost recovery
(see chart). During FY 1999, EPA recovered
$319.7 million the largest cost recovery
amount for a one year period to date.
Placed increased emphasis on debt collection
activities to pursue unpaid debts owed EPA.
Diversified the Trust Fund's investment
portfolio, with direction from Treasury, to
return a higher rate of interest to the Fund.
Office of the Chief Financial Officer's (OCFO's) Accomplishments
Financial Performance Measures. OCFO tracks nine Core Financial Management Performance
Measures for monitoring the key functions in EPA's 14 finance offices. The measures cover the
timeliness of processing of payments (commercial, grant, travel, payroll), recording of contract
obligations and accounts receivable, and reconciling cash as well as the use of electronic payments
for travel and payroll. The Agency improved its performance compared to FY 1998 and exceeded
the performance goals for all the measures during FY 1999.
Cumulative Superfund Trust Fund Cost
Recoveries
FY 1994 thru FY 1999
Page 12
EPA's FY 1999 Annual Financial Statements
-------
Benchmarking. EPA, as a CFO Council member agency, participated in a Benchmarking project
sponsored by The Hackett Group, an organization that conducts benchmarking studies for the private
sector. EPA's business processes were compared to other government agencies and to private sector
companies in areas such as transaction processing, control and risk management, decision support
and finance function management. EPA compared very favorably against both government and
private sector averages in the number of finance FTEs per billion dollars of appropriations (equated
to revenues for private sector comparison) and the FTE staff time allocated to processing financial
transactions (lowest among both government and private sector).
One area of concern that the study revealed was the overall cost of EPA's financial systems. OCFO
is evaluating replacement systems and other measures to bring these costs in line with government
and private sector averages.
Integration of Planning, Budgeting, and Accounting. EPA prepared its FY 1999 Annual Plan and
Budget by linking resources to the Goals and Obj ectives in the Agency's Strategic Plan in accordance
with the requirements of the Government Performance and Results Act (GPRA) and other related
management reform initiatives. The General Accounting Office (GAO) commended EPA for being
the first Agency to succeed at full integration of budget requests and annual performance plans.
During the year, substantial enhancements were made to the Agency's Budget Automation System
(BAS) to allow the resource community greater flexibility in formulating their budgets. The GPRA
structure is used to account for the costs of our programs and meets the requirements of the
Statement of Federal Financial Accounting Standards No. 4, Managerial Cost Accounting Concepts
and Standards for the Federal Government, that requires Agencies to account for the "full costs" of
their outputs.
Working Capital Fund. In 1999, the Working Capital Fund (Fund) completed its third year of
providing administrative support services to Agency offices on a fee-for-service basis and ended its
protected status as a mandatory source for services provided to internal Agency customers. The
Fund is expected to demonstrate additional savings through increased efficiencies driven by market
forces.
In 1999, the Fund operated two successful business activities, providing customers postage services
and an array of telecommunications and data processing services. As expected, the Fund has
promoted effective resource utilization Agency-wide by more clearly identifying to Agency
managers, who must now account for the cost of administrative services in their budget planning,
both the resources their organizations consume and the cost of those resources. EPA has experienced
a 20 percent reduction in its postage costs, a savings of approximately $1 million annually, simply
through reduced internal demand. Similarly, EPA experienced significant savings in its
telecommunications and data processing operations. For FY 1996, the year before the Fund
commenced operations, these activities consumed approximately $114 million of the Agency's
appropriated budget. Actual costs for these operations dropped to approximately $102 million in
FY 1997 (first year of Fund's operations). Costs were $114.1 million and $127.8 million in Fiscal
Years 1998 and 1999, respectively. Fund administrators are currently examining a business case
EPA's FY 1999 Annual Financial Statements Page 13
-------
analysis for including certain payroll services within the Fund, and additional expansions are
contemplated within the next several years.
FY1999 BiennialReview of EPA User Fee Systems. The Chief Financial Officers Act of 1990 (CFO
Act), Section 902(a)(8), directs EPA's Chief Financial Officer to: "review on a biennial basis, the fees,
royalties, rents and other charges imposed for services and things of value it provides, and make
recommendations on revising those charges to reflect costs incurred by it in providing those services
and things of value."
The Agency's FY 1999 review was conducted in accordance with the CFO Act and provisions set
forth in Office of Management and Budget Circular A-25, "User Charges." During this review
process, the Agency assessed its existing fee systems, made necessary revisions and identified
potential new fee systems. EPA has six existing fee systems: Motor Vehicle and Engine Compliance
Fee, National Radon Proficiency Program Fee, Maintenance Fee, Tolerance Fee, Premanufacture
Notice Fee, and Lead Accreditation and Certification Fee. The Agency is also proposing several new
fees: Outside User Fee, Tolerance Fee, Registration "Fee for Service," Registration Review, and
Registration Fee.
The preliminary results of the review reveal that the Agency is taking reasonable and appropriate
actions to ensure that fees reflect costs where it would not adversely affect the service provided and
where EPA has the statutory authority to do so. A formal report is being prepared and is expected
to be completed by March 2000.
Re-engineered and Streamlined Payment Processes. In 1999, the Agency successfully re-engineered
and/or streamlined several payment processes to ease the burden on external and internal customers,
reduce the reliance on paper documents, and
help the Agency take advantage of rebates
and discounts for prompt payment. The
benefits from these efficiencies flow back to
EPA's program offices and are used to
further the Agency's mission.
For small purchase payments, the Agency
worked closely with its new credit card
issuer to streamline invoicing and recording
of accounting data. The Agency also
developed new intranet-based reporting
tools to facilitate cost allocation and
expanded the use of automated tools to
reduce duplicate data entry. The bank card
effort alone allowed EPA to earn about $365
thousand in rebates in 1999.
Bankcard Program
Six Year Comparison of Total Number of Purchases
In Thousands
90.0
80.0
70.0
60.0
50.0
1994
D1995
D1996
D1997
D1998
D1999
40.0
30.0
20.0
10.0
Page 14
EPA's FY 1999 Annual Financial Statements
-------
For travel and transportation payments, EPA implemented a new credit card to offer over 16,000
Agency employees a way to better manage their accounts and to provide the Agency with rebates and
new administrative tools.
For contractor payments, the Agency moved aggressively to use electronic imaging of contracts to
make information more accessible while reducing the use of paper. EPA introduced a new release
of the Electronic Approval System (EASY) and expanded the use of the system to 94 proj ect officers,
up from 20 in 1998. EASY provides project officers a streamlined on-line invoice approval process.
This re-engineering enabled EPA to pay 99.9 percent of invoices on time and earn over $344
thousand in discounts in 1999.
Payment Related Initiatives Under Way. Three initiatives are under way to re-engineer and automate
payment processes. First, by the end of September 2000, all EPA grant payment offices will have
implemented Treasury's Automated Standard Application for Payments (ASAP) which standardizes
federal payment request procedures for grant recipients. Second, a dedicated team thoroughly
analyzed alternatives for replacing the aging EPA Integrated Payroll and Personnel System (EPAYS)
and recommended a product that will interface easily with other agency software, automate a number
of tasks, and provide high quality information to employees. Third, in 1999, the Agency obtained a
new intranet-based release of Travel Manager Plus (TM+) software that allows travel documents to
be prepared, processed, and approved on-line. TM+ will interface with the Agency's Integrated
Financial Management System (IFMS) to allow the automatic obligation and disbursement of funds
from fully approved documents.
EPA's FY 1999 Annual Financial Statements Page 15
-------
-------
PRINCIPAL
FINANCIAL
STATEMENTS
EPA's FY 1999 Annual Financial Statements
Page 17
-------
-------
CONTENTS
Financial Statements
Consolidating Balance Sheet
Consolidating Statement of Net Cost
Consolidating Statement of Changes in Net Position
Combined Statement of Budgetary Resources
Combined Statement of Financing
Statement of Custodial Activity
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balances with Treasury
Note3. Cash
Note 4. Investments
Note 5. Accounts Receivable
Note 6. Loans Receivable, Net - Non-Federal
Note 7. Inventory and Related Property
Note 8. General Plant Property and Equipment - Net
Note 9. Debt
Note 10. Other Liabilities
Note 11. Leases
Note 12. Pensions and Other Actuarial Benefits
Note 13. Unexpended Appropriations
Note 14. Amounts Held by Treasury
Note 15. Commitments and Contingencies
Note 16. Grant Accrual
Note 17. Environmental Cleanup Costs
Note 18. Superfund State Credits
Note 19. Superfund Preauthorized Mixed Funding Agreements
Note 20. Income and Expenses from Other Appropriations
Note 21. Custodial Non-Exchange Revenues
Note 22. Statement of Budgetary Resources
Note 23. Adjustments
Note 24. Unobligated Balances Available
Note 25. Obligated Balance, Net - End of Period
Note 26. Difference in Outlays between Statement of Budgetary Resources and SF-133
Note 27. Statement of Financing
Note 28. Other Financing Sources
EPA's FY 1999 Annual Financial Statements Page 19
-------
Supplemental Information Requested by OMB
Required Supplemental Information
Deferred Maintenance (Unaudited)
Intra-governmental Assets (Unaudited)
Intra-governmental Liabilities (Unaudited)
Supplemental Statement of Budgetary Resources (Unaudited)
Working Capital Fund Supplemental Balance Sheet (Unaudited)
Working Capital Fund Supplemental Statement of Net Cost (Unaudited)
Working Capital Fund Supplemental Statement of Changes in Net Position (Unaudited)
Required Supplemental Stewardship Information
Annual Stewardship Information (Unaudited)
Page 20 EPA's FY 1999 Annual Financial Statements
-------
Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 1999
(Dollars in Thousands)
Superfund All Combined Intra-agency
Trust Fund Others Totals Eliminations
ASSETS
Intragovernmental :
Fund Balance with Treasury (Note 2)
Investments (Note 4)
Accounts Receivable, Net (Note 5)
Other
Total Intragovernmental
Accounts Receivable, Net (Note 5)
Loans Receivables, Net - Non Federal (Note 6)
Cash (Note 3)
Inventory and Related Property, Net (Note 7)
Marketable Securities Equity (Note 4)
$ 20,069 $ 10,794,978 $
4,417,886 1,398,005
48,982 55,194
3,037 7,801
4,489,974 12,255,978
643,255 88,565
101,312
55
237
5,146
General Property, Plant and Equipment, Net (Note 8) 13,407 385,968
Other
Total Assets
LIABILITIES
Intragovernmental :
Accounts Payable
Debt (Note 9)
Environmental and Disposal Costs (Note 17)
Other (Note 10)
Total Intragovernmental
Accounts Payable
Pensions and Other Actuarial Liabilities (Note
Other (Note 10)
Total Liabilities
Commitments and Contingencies (Note 15)
NET POSITION
Unexpended Appropriations (Note 13)
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
835 2,668
$ 5,152,617 $ 12,834,783 $
$ 89,594 $ 2,737 $
37,922
14,321
96,746 174,372
186,340 229,352
47,945 75,241
12) 5,826 23,987
611,256 752,651
851,367 1,081,231
2,656,831 10,076,964
1,644,419 1,676,588
4,301,250 11,753,552
$ $5,152,617 $ 12,834,783 $
The accompanying notes are an integral part of these
10,815,047 $
5,815,891
104,176 (2,513)
10,838 (2,638)
16,745,952 (5,151)
731,820
101,312
55
237
5,146
399,375
3,503
17,987,400 $ (5,151)
92,331 $
37,922
14,321
271,118 (5,151)
415,692 (5,151)
123,186
29,813
1,363,907
1,932,598 (5,151)
12,733,795
3,321,007
16,054,802
17,987,400 $ (5,151)
statements.
Consolidated
Totals
$ 10,815,047
5,815,891
101,663
8,200
16,740,801
731,820
101,312
55
237
5,146
399,375
3,503
$ 17,982,249
$ 92,331
37,922
14,321
265,967
410,541
123,186
29,813
1,363,907
1,927,447
12,733,795
3,321,007
16,054,802
$ 17,982,249
EPA's FY 1999 Annual Financial Statements
Page 21
-------
Environmental Protection Agency
Consolidating Statement of Net Cost
For the Year Ended September 30,1999
(Dollars in Thousands)
COSTS:
Intragovernmental
With the Public
Expenses from Other Appropriations (Note 20)
Total Costs
Less:
Earned Revenues
Total Revenue
Superfund All Combined Intra-agency Consolidated
Trust Fund Others Totals Eliminations Totals
$ 454,791 $ 607,490 $ 1,062,281
1,254,104 5,764,882 7,018,986
35,664 (35,664)
(344,375) $ 717,906
7,018,986
1,744,559 6,336,708 8,081,267 (344,375) 7,736,892
707,674 212,904 920,578 (19,375) 901,203
707,674 212,904 920,578 (19,375) 901,203
NET COST OF OPERATIONS
$ 1,036,885 $ 6,123,804 $ 7,160,689 $ (325,000) $ 6,835,689
The accompanying notes are an integral part of these statements.
Page 22
EPA's FY 1999 Annual Financial Statements
-------
Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Year Ended September 30,1999
(Dollars in Thousands)
Net Cost of Operations
Financing Sources (Other Than Exchange Revenues):
Appropriations Used
Taxes (and Other Non-Exchange Revenues)
Trust Fund Appropriations Received (Note 14)
Imputed Financing
Income from Other Appropriations (Note 20)
Transfers-In/Out
Other Financing Sources (Note 28)
Net Results of Operations
Prior Period Adjustments
Net Changes in Cumulative Results of Operations
Increase (Decrease) in Unexpended Appropriations
Change in Net Position
Net Position - Beginning of Period
Net Position - End of Period
Superfund
Trust Fund
$ 1,036,885
1,549,960
25,169
325,000
31,437
35,664
(1,524,112)
(593,767)
(20,122)
(613,889)
(149,129)
(763,018)
5,064,268
$ 4,301,250
All
Others
$ 6,123,804
6,150,746
225,275
_
165,232
(35,664)
206
(75,179)
306,812
12,481
319,293
249,165
568,458
11,185,094
$ 11,753,552
Combined Intra-agency
Totals Eliminations
$ 7,160,689 $ (325,000)
7,700,706
250,444
325,000 (325,000)
196,669
206
(1,599,291)
(286,955)
(7,641)
(294,596)
100,036
(194,560)
16,249,362
$ 16,054,802 $
Consolidated
Totals
$ 6,835,689
7,700,706
250,444
_
196,669
206
(1,599,291)
(286,955)
(7,641)
(294,596)
100,036
(194,560)
16,249,362
$ 16,054,802
The accompanying notes are an integral part of these statements.
EPA's FY 1999 Annual Financial Statements
Page 23
-------
Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Year Ended September 30,1999
(Dollars in Thousands)
Superfund
Trust Fund
All
Others
Combined
Totals
Budgetary Resources:
Budget Authority
Unobligated Balances -Beginning of Period
Spending Authority from Offsetting Collections
Adjustments (Note 23)
Total Budgetary Resources
$ 1,410,708
701,468
139,421
(59,368)
$2,192,229
$6,447,893
1,717,941
276,342
(81,848)
$ 7,858,601
2,419,409
415,763
(141,216)
$8,360,328 $10,552,557
Status of Budgetary Resources:
Obligations Incurred $ 1,709,357 $6,685,653 $ 8,395,010
Unobligated Balances - Available (Note 24) 482,872 1,567,142 2,050,014
Unobligated Balances - Not Available _ 107,533 107,533
Total, Status of Budgetary Resources $ 2,192,229 $ 8,360,328 $ 10,552,557
Outlays:
Obligations Incurred $ 1,709,357 $6,685,653 $ 8,395,010
Less: Spending Authority from Offsetting Collections
and Adjustments 326,851 427,091 753,942
Obligated Balance, Net -Beginning of Period 2,550,841 8,750,289 11,301,130
Less: Obligated Balance, Net - End of Period (Note 25) 2,433,861 9,153,233 11,587,094
Total Outlays $ 1,499,486 $5,855,618 $ 7,355,104
The accompanying notes are an integral part of these statements.
Page 24
EPA's FY 1999 Annual Financial Statements
-------
Environmental Protection Agency
Combined Statement of Financing
For the Year Ended
(Dollars in
Obligations and Nonbudgetary Resources
Obligations Incurred
Less: Spending Authority for Offsetting
Collections and Adjustments
Recoveries
Financing Imputed for Cost Subsidies
Income from Other Appropriations (Note 20)
Transfers-In/Out
Exchange Revenue Not in the Budget
Nonexchange Revenue Not in the Budget
Other
Total Obligations as Adjusted and
Nonbudgetary Resources
Resources that Do Not Fund Net Cost of Operations
Change in Amount of Goods, Services, and
And Benefits Ordered but Not Yet Received or
Provided
Change in Unfilled Customers Orders
Costs Capitalized on the Balance Sheet
Financing Sources that Fund Costs of Prior Periods
Trust Fund Outlays Not Affecting Net Cost
Total Resources that Do Not Fund Net
Costs of Operations
Costs that Do Not Require Resources
Depreciation and Amortization
Bad Debt Expense from Non-Credit
Reform Receivables
Loss on Disposition of Assets
Total Costs That Do Not Require Resources
Financing Sources Yet to be Provided (Note 27)
Net Costs of Operations
The accompanying notes are an
September 30, 1999
Thousands)
Superfund
Trust Fund
$ 1,709,357 !
(139,421)
(205,200)
31,437
35,664
(612,898)
(4,150)
241
815.030
156,635
49,033
(9,510)
74
196,232
2,595
18,316
477
21,388
4,235
$ 1,036,885 !
All
Others
S 6,685,653
(276,342)
165,232
(35,664)
206
(73,735)
40,351
6.505.701
(280,131)
19,440
(162,028)
9,628
(413,091)
13,481
894
884
15,259
15,935
56,123,804
Combined
Totals
$ 8,395,010
(415,763)
(205,200)
196,669
206
(686,633)
(4,150)
40,592
7.320,731
(123,496)
68,473
(171,538)
9,628
74
(216,859)
16,076
19,210
1,361
36,647
20,170
$ 7,160,689
integral part of these statements.
EPA's FY 1999 Annual Financial Statements
Page 25
-------
Environmental Protection Agency
Statement of Custodial Activity
For the Year Ended September 30,1999
(Dollars in Thousands)
All Others
Revenue Activity:
Sources of Collections:
Fines and Penalties $ 126.996
Total Cash Collections 126,996
Accrual Adjustment 4.679
Total Custodial Revenue 131.675
Disposition of Collections:
Transferred to Others (by Recipient) 116,151
Increase (Decrease) in Amounts To Be Transferred 15.524
Total Disposition of Revenue 131 675
Net Custodial Revenue Activity $
The accompanying notes are an integral part of these statements.
Page 26 EPA's FY 1999 Annual Financial Statements
-------
Environmental Protection Agency
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Basis of Presentation
These consolidating financial statements have been prepared to report the financial position and results of
operations of the Environmental Protection Agency (Agency) for the Hazardous Substance Superfund
(Superfund) Trust Fund and All Other Funds, as required by the Chief Financial Officers Act of 1990 and the
Government Management Reform Act of 1994. The reports have been prepared from the books and records
of the Agency in accordance with "Form and Content for Agency Financial Statements," specified by the Office
of Management and Budget (OMB) in Bulletin 97-01, and the Agency's accounting policies which are
summarized in this note. These statements are therefore different from the financial reports also prepared by
the Agency pursuant to OMB directives that are used to monitor and control the Agency's use of budgetary
resources.
B. Reporting Entities
The Environmental Protection Agency was created in 1970 by executive reorganization from various
components of other Federal agencies in order to better marshal and coordinate Federal pollution control
efforts. The Agency is generally organized around the media and substances it regulates ~ air, water, land,
hazardous waste, pesticides and toxic substances. For FY 1999 the reporting entities are grouped as
Hazardous Substance Superfund and All Other Funds.
Hazardous Substance Superfund
In 1980, the Hazardous Substance Superfund, commonly referred to as the Superfund Trust Fund, was
established by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) to provide resources needed to respond to and clean up hazardous substance emergencies and
abandoned, uncontrolled hazardous waste sites. The Superfund Trust Fund financing is shared by Federal and
state governments as well as industry. The Agency allocates funds from its appropriation to other Federal
agencies to carry out the Act. Risks to public health and the environment at uncontrolled hazardous waste sites
qualifying for the Agency's National Priorities List (NPL) are reduced and addressed through a process
involving site assessment and analysis, and the design and implementation of cleanup remedies. Throughout
this process, cleanup activities may be supported by shorter term removal actions to reduce immediate risks.
Removal actions may include removing contaminated material from the site, providing an alternative water
supply to people living nearby, and installing security measures. NPL cleanups and removals are conducted
and financed by the Agency, private parties, or other Federal agencies. Through 1999, construction of cleanup
remedies were completed at a total of 670 NPL sites (includes Federal and non-Federal sites). Superfund
includes the Treasury collections and investment activity. The Superfund Trust Fund is accounted for under
Treasury symbol number 8145.
EPA's FY 1999 Annual Financial Statements Page 27
-------
All Other Funds
All Other Funds include Trust Fund appropriations, General Fund appropriations, Revolving Funds, Special
Funds, the Agency Budgetary Clearing accounts, Deposit Funds, General Fund Receipt accounts, the
Environmental Services Special Fund Receipt Account, the Miscellaneous Contributed Funds Trust Fund,
and General Fund appropriations transferred from other Federal agencies as authorized by the Economy Act
of 1932. Trust Fund appropriations are to the Leaking Underground Storage Tank (LUST) Trust Fund and
the Oil Spill Response Trust Fund. General Fund appropriations are to State and Tribal Assistance Grants
(STAG), Science and Technology (S&T), Environmental Programs and Management (EPM), Office of
Inspector General (IG), Buildings and Facilities (B&F), and Payment to the Hazardous Substance Superfund.
General Fund appropriations that no longer receive current appropriations but have unexpended authority
are the Asbestos Loan Program, Program and Research Operations (PRO), and Energy, Research and
Development. Revolving Funds include the FIFRA Revolving Fund and Tolerance Revolving Fund which
receive no direct appropriations; however, they do collect fees from public industry as a source of
reimbursement for the services provided. In addition to FIFRA and Tolerance, a Working Capital Fund
(WCF) was established and designated as a franchise fund to provide computer operations support and
postage service for the Agency. A Special Fund was established to collect the Exxon Valdez settlement as a
result of the Exxon Valdez oil spill. All Other Funds are as follows:
The LUST Trust Fund was authorized by the Superfund Amendments and Reauthorization Act of 1986
(SARA) as amended by the Omnibus Budget Reconciliation Act of 1990. The LUST appropriation provides
funding to respond to releases from leaking underground petroleum tanks. The Agency oversees cleanup
and enforcement programs which are implemented by the states. Funds are allocated to the states through
cooperative agreements to clean up those sites posing the greatest threat to human health and environment.
Funds are used for grants to non-state entities including Indian tribes under section 8001 of the Resource
Conservation and Recovery Act. The program is financed by a 0.1 cent a gallon tax on motor fuels which
will expire in 2005, and is accounted for under Treasury symbol number 8153.
The Oil Spill Response Trust Fund was authorized by the Oil Pollution Act (OPA) of 1990. The Oil Spill
Response Trust Fund was established in FY 1993 and monies were appropriated to the Oil Spill Response
Trust Fund. The Agency is responsible for directing, monitoring and providing technical assistance for
major inland oil spill response activities. This involves setting oil prevention and response standards,
initiating enforcement actions for compliance with OPA and Spill Prevention Control and Countermeasure
requirements, and directing response actions when appropriate. The Agency carries out research to improve
response actions to oil spills including research on the use of remediation techniques such as dispersants and
bioremediation. Funding of oil spill cleanup actions is provided through the Department of Transportation
under the Oil Spill Liability Trust Fund and reimbursable funding from other Federal agencies. The Oil Spill
Response Trust Fund is accounted for under Treasury symbol number 8221.
The State and Tribal Assistance Grants (STAG) appropriation provides funds for environmental programs
and infrastructure assistance including capitalization grants for State revolving funds and performance
partnership grants. Environmental programs and infrastructure supported are Clean and Safe Water;
Capitalization grants for the Drinking Water State Revolving Funds; Clean Air; Direct grants for Water and
Wastewater Infrastructure needs, Partnership grants to meet Health Standards, Protect Watersheds, Decrease
Wetland Loss, and Address Agricultural and Urban Runoff and Storm Water; Better Waste Management;
Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces and Ecosystems; and
Page 28 EPA's FY 1999 Annual Financial Statements
-------
Reduction of Global and Cross Border Environmental Risks. STAG is accounted for under Treasury symbol
0103.
The Science and Technology (S&T) appropriation finances salaries; travel; science; technology; research and
development activities including laboratory and center supplies; certain operating expenses; grants; contracts;
intergovernmental agreements; and purchases of scientific equipment. These activities provide the scientific
basis for the Agency's regulatory actions. In FY 1999, Superfund research costs were appropriated in
Superfund and transferred to S&T to allow for proper accounting of the costs. Scientific and technological
activities for environmental issues include Clean Air; Clean and Safe Water; Americans Right to Know About
Their Environment; Belter Waste Management; Preventing Pollution and Reducing Risk in Communities,
Homes, Workplaces, and Ecosystems; and Safe Food. The Science and Technology appropriation is accounted
for under Treasury symbol 0107.
The Environmental Programs and Management (EPM) includes funds for salaries, travel, contracts, grants,
and cooperative agreements for pollution abatement, control, and compliance activities and administrative
activities of the operating programs. Areas supported from this appropriation include Clean Air; Clean and
Safe Water; Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces, and Ecosystems;
Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency Response; Reduction
of Global and Cross Border Environmental Risks; Americans' Right to Know About Their Environment; Sound
Science, Improved Understanding of Environmental Risk, and Greater Innovation to Address Environmental
Problems; a Credible Deterrent to Pollution and Greater Compliance with the Law; and Effective Management.
The Environmental Programs and Management appropriation is accounted for under Treasury symbol 0108.
The Office of Inspector General appropriation provides funds for audit and investigative functions to identify
and recommend corrective actions on management and administrative deficiencies that create the conditions
for existing or potential instances of fraud, waste and mismanagement. Additional funds for audit and
investigative activities associated with the Superfund Trust Fund and the Leaking Underground Storage Tank
Trust Fund are appropriated under those Trust Fund accounts and are transferred to the Office of Inspector
General account. The audit function provides contract audit, internal and performance audit, and financial and
grant audit services. The Office of Inspector General appropriation is accounted for under Treasury symbol
0112 and includes expenses incurred and reimbursed from the appropriated trust funds being accounted for
under Treasury symbols 8145 and 8153.
The Buildings and Facilities appropriation provides for the construction, repair, improvement, extension,
alteration, and purchase of fixed equipment or facilities that are owned or used by the Environmental Protection
Agency. The Buildings and Facilities appropriation is accounted for under Treasury symbol 0110.
The Paymentto the Hazardous Substance Superfund appropriation authorizes appropriations from the General
Fund of the Treasury to finance activities conducted through Hazardous Substance Superfund. Payment to
the Hazardous Substance Superfund is accounted for under Treasury symbol 0250.
The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act of 1986 to
finance control of asbestos building materials in schools. Funds have not been appropriated for this Program
since FY 1993. For FY 1993 and FY1992, the program was funded by a subsidy appropriated from the
General Fund for the actual cost of financing the loans, and by borrowing from Treasury for the unsubsidized
portion of the loan. The Program fund disbursed the subsidy to the Financing fund as loans were made, and
EPA's FY 1999 Annual Financial Statements Page 29
-------
disbursed administrative expenses to the providers. The Financing fund received the subsidy payment,
borrowed from Treasury and disbursed loans and collects the asbestos loans. The Asbestos Loan Program
is accounted for under Treasury symbol 0118 for the subsidy and administrative support, under Treasury
symbol 4322 for loan disbursements, loans receivable and loan collections on post FY 1991 loans, and under
Treasury symbol 2917 for pre FY 1992 loans receivable and loan collections.
The Program and Research Operations appropriation provides salaries and travel associated with administering
the operating programs within the Environmental Protection Agency. It incorporated personnel, compensation
and benefit costs and travel, exclusive of the Hazardous Substance Response Trust Fund, the Leaking
Underground Storage Tank Trust Fund, the Office of Inspector General and the Oil Spill Response Trust Fund.
In fiscal year 1996, Congress restructured the Agency's accounts. The Program and Research Operations
appropriation was eliminated. Activity remaining from prior fiscal year appropriations is accounted for under
Treasury symbols 0200 and 0201.
The FIFRA Revolving Fund was authorized by the Federal Insecticide, Fungicide and Rodenticide Act
Amendments of 1998, as amended by the Food Quality Protection Act of 1996. Fees are paid by industry to
offset costs of accelerated reregistration, expedited processing of pesticides, and establishing tolerances for
pesticide chemicals in or on food and animal feed. The FIFRA Revolving Fund is accounted for under
Treasury symbol number 4310.
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees are paid by
industry for Federal services of pesticide chemicals in or on food and animal feed. Effective January 2,
1997, fees collected are now being collected and deposited in the Reregistration and Expedited Processing
Revolving Fund (4310). The fees collected prior to this date are accounted for under Treasury symbol
number 4311.
The Working Capital Fund (WCF) includes two activities: computer support services and postage. WCF
derives revenue from these activities based upon fee for services. WCF's customers currently consist solely
of Agency program offices. Accordingly, revenue generated by WCF and expenses recorded by the program
offices foruse of such services, along with the related advances/liabilities, are eliminated on consolidation. The
WCF is accounted for under Treasury symbol 4565.
The Exxon Valdez Settlement Fund has funds available to carry out authorized environmental restoration
activities. Funding is derived from the collection of reimbursements under the Exxon Valdez settlement as a
result of the oil spill. The Exxon Valdez Settlement fund is accounted for under Treasury symbol number
5297.
Appropriations transferred to the Agency from other Federal agencies include funds from the Appalachian
Regional Commission and the Department of Commerce which provide economic assistance to state and local
developmental activities, the Agency for International Development which provides assistance on environmental
matters at international levels, and from the General Services Administration which provides funds for rental
of buildings, and operations, repairs, and maintenance of rental space. The transfers appropriations are
accounted for under Treasury symbols 0200, 1010, 1021, 2050, and 4542.
Clearing Accounts include the Budgetary suspense account, Deposit in Transit differences, Unavailable
Check Cancellations and Overpayments, and Undistributed and Letter of Credit differences. Clearing
accounts are accounted for under Treasury symbols 3875, 3878, 3879, and 3880.
Page 30 EPA's FY 1999 Annual Financial Statements
-------
Deposit funds include Fees for Ocean Dumping, Nonconformance Penalties, Suspense and payroll deposits for
Savings Bonds, and State and City Income Taxes Withheld. Deposit funds are accounted for under Treasury
symbols 6050, 6264, 6265, 6275, and 6875.
General Fund Receipt Accounts include Hazardous Waste Permits; Miscellaneous Fines, Penalties and
Forfeitures; General Fund Interest; Interest from Credit Reform Financing Accounts; Fees and Other Charges
for Administrative and Professional Services; and Miscellaneous Recoveries and Refunds. General Fund
Receipt accounts are accounted for under Treasury symbols 0895, 1099, 1435, 1499, 2410, 3200, and 3220.
The Environmental Services Receipt account was established for the deposit of fee receipts associated with
environmental programs, including radon measurement proficiency ratings and training, motor vehicle engine
certifications, and water pollution permits. Receipts in this special fund will be appropriated to the S&T
appropriation and to the EPM appropriation to meet the expenses of the programs that generate the receipts.
Environmental Services are unavailable receipts accounted for under Treasury symbol 5295.
The Miscellaneous Contributed Funds Trust Fund includes gifts for pollution control programs that are usually
designated for a specific use by the donor and deposits from pesticide registrants to cover the costs of petition
hearings when such hearings result in unfavorable decisions to the petitioner. Miscellaneous Contributed Funds
Trust Fund is accounted for under Treasury symbol 8741.
The accompanying financial statements include the accounts of all funds described in this note. The expense
allocation methodology is a financial statement estimate that presents EPA's programs at full cost. Superfund
may charge some costs directly to the fund and charge the remainder of the costs to the All Other Funds in the
Agency-wide appropriations. These amounts are presented as Expenses from Other Appropriations on the
Statement of Net Cost and as Income from Other Appropriations on the Statement of Changes in Net Position
and the Statement of Financing.
The Superfund Trust Fund is allocated general support services costs (such as rent, communications, utilities,
mail operations, etc.) that were initially charged to the Agency's S&T and EPM appropriations. During the
year, these costs are allocated from the S&T and EPM appropriations to the Superfund Trust Fund based on
a ratio of direct labor hours, using budgeted or actual full-time equivalent personnel charged to these
appropriations, to the total of all direct labor hours. Agency general support services cost charges to the
Superfund Trust Fund may not exceed the ceilings established in the Superfund Trust Fund appropriation.
The related general support services costs charged to the Superfund Trust Funds was $48.3 million for FY
1999.
C. Budgets and Budgetary Accounting
Superfund
Congress adopts an annual appropriation amount to be available until expended for the Superfund Trust Fund.
A transfer account for the Superfund Trust Fund has been established for purposes of carrying out the program
activities. As the Agency disburses obligated amounts from the transfer account, the Agency draws down
monies from the Superfund Trust Fund at Treasury to cover the amounts being disbursed.
EPA's FY 1999 Annual Financial Statements Page 31
-------
All Other Funds
Congress adopts an annual appropriation amount for the LUST Trust Fund and for the Oil Spill Response
Trust Fund to remain available until expended. A transfer account for the LUST Trust Fund has been
established for purposes of carrying out the program activities. As the Agency disburses obligated amounts
from the transfer account, the Agency draws down monies from the LUST Trust Fund at Treasury to cover
the amounts being disbursed. The Agency draws down all the appropriated monies from the Treasury's Oil
Spill Liability trust fund to the Oil Spill Response Trust Fund when Congress adopts the appropriation amount.
Congress adopts an annual appropriation for STAG, Buildings and Facilities, and for Payments to the
Hazardous Substance Superfund to be available until expended; adopts annual appropriation for S&T, EPM
and for the Office of the Inspector General to be available for two fiscal years. When the appropriations for
the General Funds are enacted, Treasury issues a warrant to the respective appropriations. As the Agency
disburses obligated amounts, the balance of funds available to the appropriation is reduced at Treasury.
The Asbestos Loan Program is a commercial activity financed by a combination from two sources: one for
the long term cost of the loan and another for the remaining non-subsidized portion of the loan. Congress
annually adopts a one year appropriation, available for obligation in the fiscal year for which it is appropriated,
to cover the estimated long term cost of the Asbestos loans. The long term costs are defined as the net present
value of the estimated cash flows associated with the loans. The portion of each loan disbursement that does
not represent long term cost is financed under a permanent indefinite borrowing authority established with the
Treasury. The annual appropriation bill limits the amount of obligations that can be made for direct loans.
A permanent indefinite appropriation is available to finance the costs of subsidy re-estimates that occur after
the year in which the loan is disbursed. No appropriation was adopted by Congress for FY 1999; therefore,
there was no new financing available to the Asbestos Loan Program for FY 1999.
Funding of the FIFRA and the Tolerance Revolving Funds is provided by fees collected from industry to offset
costs incurred by the Agency in carrying out these programs. Each year the Agency submits an apportionment
request to OMB based on the anticipated collections of industry fees.
Funding of the WCF is provided by fees collected from other Agency appropriations collected to offset costs
incurred for providing the Agency administrative support for computer support and postage.
Funds transferred from other Federal agencies is funded by a non expenditure transfer of funds from the other
Federal agencies. As the Agency disburses the obligated amounts, the balance of funding available to the
transfer appropriation is reduced at Treasury.
Clearing accounts, Deposit accounts, and Receipt accounts receive no budget. The amounts are recorded to
the Clearing and Deposit accounts pending further disposition. Amounts recorded to the Receipt accounts
capture amounts receivable to or collected for the General Fund of the U.S. Treasury.
Page 32 EPA's FY 1999 Annual Financial Statements
-------
D. Basis of Accounting
Superfund and All Other Funds
Transactions are recorded on an accrual accounting basis and on a budgetary basis (where budgets are issued).
Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability
is incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates compliance with
legal constraints and controls over the use of Federal funds. All interfund balances and transactions have been
eliminated.
E. Revenues and Other Financing Sources
Superfund
The Superfund receives most funding needed to support the program through appropriations that may be used
within statutory limits, for operating and capital expenditures (primarily equipment). Additional financing for
the Superfund Trust Fund is obtained through reimbursements from other Federal agencies, from States for
State Cost Share, and from potentially responsible parties (PRPs) for future costs. Revenues collected through
cost recovery are deposited with the Trust fund at Treasury.
All Other Funds
The majority of All Other Funds appropriations receive funding needed to support programs through
appropriations, which may be used, within statutory limits, for operating and capital expenditures. Under
Credit Reform provisions, the Asbestos Loan Program received funding to support the subsidy cost of loans
through appropriations which may be used with statutory limits. The Asbestos Direct Loan Financing fund,
an off-budget fund, receives additional funding to support the loan disbursements through collections from the
Program fund for the subsidized portion of the loan and through borrowing from Treasury for the non-
subsidized portion. The last year Congress provided appropriations for this fund was 1993, accordingly no
new funding has been available for this program. The FIFRA and the Tolerance Revolving Funds receive
funding, which is now deposited with the FIFRA Revolving Fund, through fees collected for services provided.
The FIFRA Revolving Fund also receives interest on invested funds. The WCF receives revenue through fees
collected for services provided to Agency program offices. Such revenue is eliminated with related Agency
program expenses on Consolidation. The Exxon Valdez Settlement Fund received funding through
reimbursements.
Appropriations are recognized as Other Financing Sources when earned, i.e., when goods and services have
been rendered without regard to payment of cash. Other revenues are recognized when earned, i.e., when
services have been rendered.
F. Funds with the Treasury
Superfund and All Other Funds
The Agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements are
handled by Treasury. The funds maintained with Treasury are Appropriated Funds, Revolving Funds and
EPA's FY 1999 Annual Financial Statements Page 33
-------
Trust Funds. These funds have balances available to pay current liabilities and finance authorized purchase
commitments.
G. Investments in U.S. Government Securities
All Other Funds
Investments in U.S. Government securities are maintained by Treasury and are reported at amortized cost net
of unamortized discounts. Discounts are amortized over the term of the investments and reported as interest
income. The FIFRA Revolving Fund, which is included in All Other Funds, holds the investments to maturity,
unless they are needed to finance operations of the fund. No provision is made for unrealized gains or losses
on these securities because, in the majority of cases, they are held to maturity.
H. Marketable Equity Securities
Super fund
During FY 1993 and FY 1996, the Agency received marketable equity securities, valued at a total $5.1 million,
which are still held, from a company in settlement of Superfund cost recovery actions. The Agency records
marketable securities at cost as of the date of receipt. Marketable securities are held by Treasury, and reported
at their cost value in the financial statements until sold.
I. Accounts Receivable and Interest Receivable
Superfund
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as amended by
the Superfund Amendments and Reauthorization Act (SARA) provides for the recovery of costs from
potentially responsible parties (PRPs). However, cost recovery expenditures are expensed when incurred since
there is no assurance that these funds will be recovered.
It is the Agency's policy to record accounts receivable from PRPs for Superfund site response costs when a
consent decree, judgment, administrative order, or settlement is entered. These agreements are generally
negotiated after site response costs have been incurred. It is the Agency's position that until a consent decree
or other form of settlement is obtained, the amount recoverable should not be recorded.
The Agency also records accounts receivable from states for a percentage of Superfund site remedial action
costs incurred by the Agency within those states. As agreed to under Superfund State Contracts (SSCs), cost
sharing arrangements under SSCs may vary according to whether a site was privately or publicly operated at
the time of hazardous substance disposal and whether the Agency response action was removal or remedial.
SSC agreements are usually for 10% or 50% of site remedial action costs. States may pay the full amount of
their share in advance, or incrementally throughout the remedial action process. Allowances for uncollectible
state cost share receivables have not been recorded, because the Agency has not had collection problems with
these agreements.
Page 34 EPA's FY 1999 Annual Financial Statements
-------
All Other Funds
The majority of receivables for All Other Funds represent interest receivable for Asbestos and FIFRA and both
accounts receivable and interest receivable to the General Fund of the Treasury.
J. Loans Receivable
All Other Funds
Loans are accounted for as receivables after funds have been disbursed. The amount of Asbestos Loan
Program loans obligated but not disbursed are disclosed in Note 6. Loans receivable resulting from obligations
on or before September 30, 1991 are reduced by the allowance for uncollectible loans. Loans receivable
resulting from loans obligated on or after October 1, 1991 are reduced by an allowance equal to the present
value of the subsidy costs associated with these loans. The subsidy cost is calculated based on the interest rate
differential between the loans and Treasury borrowing, the estimated delinquencies and defaults net of
recoveries offset by fees collected and other estimated cash flows associated with these loans.
K. Appropriated Amounts Held by Treasury
Superfund and All Other Funds
For the Superfund and LUST Trust Funds, and for amounts appropriated to the Office of Inspector General
from the Superfund and LUST Trust Funds, cash available to the Agency that is not needed immediately for
current disbursements remains in the respective Trust Funds managed by Treasury. At the end of FY 1999
approximately $2.9 billion remained in the Treasury managed Superfund Trust Fund and approximately $82.6
million remained in the LUST Trust Fund to meet the Agency's disbursement needs.
L. Advances and Prepayments
Superfund and All Other Funds
Advances and prepayments represent funds advanced or prepaid to other entities both internal and external to
the Agency for which a budgetary expenditure has not yet occurred.
M. Property, Plant, and Equipment
Superfund and All Other Funds
The Fixed Assets Subsystem (FAS) implemented in FY 1997 maintains EPA-held personal and real property
records. The FAS automatically generates depreciation entries monthly based upon the acquisition date.
Purchases of EPA-held and contractor-held personal equipment are capitalized if the equipment is valued at
$25 thousand or more and has an estimated useful life of at least two years. Prior to implementing FAS,
depreciation was taken on a modified straight-line basis over a period of six years depreciating 10% the first
and sixth year, and 20% in years two through five. All EPA-held personal equipment purchased before the
implementation of FAS was assumed to have an estimated useful life of five years. New acquisitions of EPA-
held personal equipment are depreciated using the straight-line method over the specific assets' useful lives,
ranging from two to 15 years.
EPA's FY 1999 Annual Financial Statements Page 35
-------
Real property consists of land, buildings, and capital and leasehold improvements. Real property, other than
land, is capitalized when the value is $75 thousand or more. Land is capitalized regardless of cost. Buildings
are valued at an estimated original cost basis, and land is valued at fair market value. Depreciation for real
property is calculated using the straight-line method over the specific assets' useful lives, ranging from 10 to
102 years. Leasehold improvements are amortized over the lesser of their useful lives or the unexpired lease
terms. In addition to property and improvements not meeting the capitalization criteria, expenditures for minor
alterations, and repairs and maintenance are expensed as incurred.
N. Liabilities
Superfund and All Other Funds
Liabilities represent the amount of monies or other resources that are likely to be paid by the Agency as the
result of a transaction or event that has already occurred. However, no liability can be paid by the Agency
without an appropriation or other collection of revenue for services provided. Liabilities for which an
appropriation has not been enacted are classified as unfunded liabilities and there is no certainty that the
appropriations will be enacted. Liabilities of the Agency, arising from other than contracts, can be abrogated
by the Government acting in its sovereign capacity.
O. Borrowing Payable to the Treasury
All Other Funds
Borrowing payable to Treasury results from loans from Treasury to fund the Asbestos direct loans described
in part B and C of this note. Periodic principal payments are made to Treasury based on the collections of
loans receivable.
P. Interest Payable to Treasury
All Other Funds
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt to Treasury. At
the end of FY 1999, there was no outstanding interest payable to Treasury since payment was made through
September 30.
Q. Accrued Unfunded Annual Leave
Superfund and All Other Funds
Annual, sick and other leave is expensed as taken during the fiscal year. Sick and other leave earned but not
taken is not accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is
accrued as an unfunded liability. Accrued unfunded annual leave is included in the Statement of Financial
Position as a component of "Other Liabilities-Governmental". As of September 30, 1999, the unfunded
annual leave liability for the Superfund Trust Fund was $18.4 million and for All Other Funds was $86.4
million.
Page 36 EPA's FY 1999 Annual Financial Statements
-------
R. Retirement Plan
Superfund and All Other Funds
The majority of the Agency's employees participate in the Civil Service Retirement System (CSRS), to which
the Agency contributes 8.51% and employees contribute 7.25% of base pay.
On January 1, 1987, the Federal Employees Retirement System (FERS) went into effect pursuant to Public
Law 99-335. Most employees hired after December 31, 1983, are automatically covered by FERS and Social
Security. Employees hired prior to January 1, 1984 were allowed to either join FERS and Social Security or
remain in CSRS. A primary feature of FERS is that it offers a savings plan to the Agency employees which
automatically contributes 1 percent of pay and matches any employee contribution up to an additional 4 percent
of pay. For most employees hired after December 31, 1983, the Agency also contributes the employer's
matching share for Social Security.
With the issuance of "Accounting for Liabilities of the Federal Government" (SFFAS-5), which was effective
forthe FY 1997 financial statements, accounting and reporting standards were established for liabilities relating
to the Federal employee benefit programs (Retirement, Health Benefits and Life Insurance). SFFAS-5 requires
that employing agencies recognize the cost of pensions and other retirement benefits during their employees'
active years of service. SFFAS-5 requires that the Office of Personnel Management, as administrator of the
Civil Service Retirement and Federal Employees Retirement Systems, the Federal Employees Health Benefits
Program, and the Federal Employees Group Life Insurance Program, provide EPA with the 'Cost Factors' to
compute EPA's liability for each program.
Note 2. Fund Balances with Treasury
Fund Balances with Treasury as of September 30, 1999, consists of the following (in thousands):
Entity Assets Non-Entity Assets Total
Trust Funds:
Superfund
Lust
Oil Spill
Revolving Funds:
FIFRA
Tolerance
Working Capital Fund
Appropriated Funds
Other Fund Types
Total
$ 20,069
30
(9,320)
7,319
22
37,066
10,694,125
63,480
$ 10,812,791
$ $ 20.069
30
(9.320)
7.319
22
37.066
10,694.125
2,256 65,736
$ 2,256 $ 10,815,047
EPA's FY 1999 Annual Financial Statements Page 37
-------
Entity fund balances includes balances which are available to pay current liabilities and to finance authorized
purchase commitments. Also, entity assets, Other Fund Types consist of the Environmental Services Receipt
account. The Environmental Services Receipt account is a special fund receipt account. Upon Congress
appropriating the funds, EPA will use the receipts in the Science and Technology appropriation and the
Environmental Programs and Management appropriation.
The non-entity Other Fund Type consist of deposits. The deposit accounts are awaiting documentation for the
determination of proper accounting disposition.
NoteS. Cash
In All Others, as of September 30, 1999, Cash consisted of imprest funds totaling $55 thousand.
Note 4. Investments
As of September 30, 1999, investments consisted of the following:
Amounts for Balance Sheet Reporting
Unamortized
(Premium) Investments,
Cost Discount Net Market. Value
Superfund
Intragovernmental
Securities:
Non-Marketable $ 4.593.183 $ 175.297 $ 4.417.886 $ 4.417.886
Other Securities:
Marketable $ 5.146 $ $ 5.146 $ 11.525
All Others
Intragovernmental
Securities:
Non-Marketable $ 1461697 $ 63692 $ 1398005 $ 1398005
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from
responsible parties (RP). Some RP's file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy
settlements, EPA is an unsecured creditor and is entitled to receive a percentage of the assets remaining after
secured creditors have been satisfied. Some RPs satisfy their debts by issuing marketable securities in the
reorganized company. The Agency does not intend to exercise ownership rights related to these securities, and
instead will convert these securities to cash as soon as practicable.
The other securities represent assets received during a bankruptcy proceeding.
Page 38 EPA's FY 1999 Annual Financial Statements
-------
Note 5. Accounts Receivable
The Accounts Receivable for September 30, 1999, consist of the following:
1999
$
$
$
$
Superfund
48.982
48,982
75,721
927,758
(360.224)
643,255
$
$
$
$
All Others
55.194
55,194
149,250
(60.685)
88,565
Intragovernmental Assets:
Accounts & Interest Receivable
Total
Governmental Assets:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Doubtful Accounts
Total
Accounts receivable due from other Federal agencies are considered fully collectible.
The Allowance for Doubtful Accounts is determined on a specific identification basis as a result of a case-by-
case review of receivables at the regional level, and a reserve on a percentage basis for those not specifically
identified.
Note 6. Loans Receivable, Net - Non-Federal
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 are net of an allowance for
estimated uncollectible loans, if an allowance was considered necessary. Loans disbursed from obligations
made after FY 1991 are governed by the Federal Credit Reform Act. The Act mandates that the present value
of the subsidy costs (i.e., interest rate differentials, interest subsidies, anticipated delinquencies, and defaults)
associated with direct loans be recognized as an expense in the year the loan is made. The net present value
of loans is the amount of the gross loan receivable less the present value of the subsidy.
An analysis of loans receivable and the nature and amounts of the subsidy and administrative expenses
associated entirely with Asbestos Loan Program loans as of September 30, 1999, is provided in the following
sections.
EPA's FY 1999 Annual Financial Statements
Page 39
-------
1999
Loans Value of
Receivable, Assets Related
Gross Allowance* to Direct Loans
Direct Loans Obligated Prior to FY 1992 $ 67,441 $ $ 67,441
Direct Loans Obligated After FY 1991 51.960 (18.089) 33.871
Total $ 119,401 $ (18,089) $ 101,312
* Allowance for Pre-Credit Reform loans (Prior to FY 1992 ) is the Allowance for Estimated
Uncollectible Loan and the Allowance for Post Credit Reform loans (After FY 1991) is the Allowance
for Subsidy Cost (present value).
Subsidy Expenses for Post Credit Reform Loans:
Interest Expected Fee Offsets
Differential Defaults
$ 109 $
$ $
$
Total
109
2,507
Current Year's Direct Loan
Direct Loan Subsidy Expense
Note 7. Inventory and Related Property
The Inventory and Related Property at September 30, 1999, consisted of the following:
1999
Superfund All Others
Operating Materials and Supplies Held for
Use in Normal Operations $ $ 237
Total $ _ $ 237
Note 8. General Plant Property and Equipment
Superfund property, plant and equipment, consists of personal property items held by contractors and the
Agency. EPA also has property funded by various other Agency appropriations. The property funded by these
appropriations are presented in the aggregate under "All Others" and consists of real, EPA-Held and
Contractor-Held personal, and capitalized-leased property.
Purchases of EPA-Held and Contractor-Held personal property are capitalized if the equipment is valued at
$25 thousand or more and has an estimated useful life of at least two years. The Agency depreciates EPA-
Held personal property using a straight-line method over the asset's useful life ranging from two to 15 years.
Page 40 EPA's FY 1999 Annual Financial Statements
-------
Contractor-Held personal property is depreciated over five years using a modified straight-line method. Real
property, other than land, is capitalized when the value is $75 thousand or more and is depreciated using the
straight-line method overthe specific asset's useful life ranging from lOto 102 years. Leasehold improvements
are amortized over the lesser of their useful lives or the unexpired lease term.
As of September 30, 1999, Plant, Property and Equipment consisted of the following:
EPA-Held
Equipment
Contractor-
Held
Equipment
Land and
Buildings
Capital Leases
Total
Superfund
All Others
Acquisition Accumulated Net Book Acquisition Accumulated Net Book
Value Depreciation Value Value Depreciation Value
22,983 $ (15,734) $ 7,249
8,271
(2,113) 6,158
31,254 $ (17,847) $ 13,407
129,555 $ (85,676) $ 43,879
86,504
(75,090)
11,414
370,102
40,992
627,153
(70,643)
(9,776)
$ (241,185)
299,459
31,216
$ 385,968
Note 9. Debt
The Debt consisted of the following as of September 30, 1999:
All Others
Other Debt:
Debt to Treasury
Classification of Debt:
Intra-governmental Debt
Total
Beginning
Balance
37,922
Net
Borrowing
Ending
Balance
$ 37,922
$ 37.922
$ 37,922
Note 10. Other Liabilities
The Other Liabilities Covered by Budgetary Resources and Not Covered by Budgetary Resources for
September 30, 1999, are as follows:
EPA's FY 1999 Annual Financial Statements
Page 41
-------
Other Liabilities Covered by Budgetary Resources:
Non-Current
Intra-governmental - Superfund
Accrued Liabilities $
FECA Accrued Liability 73 1
Other 1.256
Total Intra-governmental $ 1,987
Intra-sovernmental - All Other
Accrued Liabilities $
FECA Accrued Liability 1,048
WCF Advances
Other 64
Total Intra-governmental $ 1,112
Superfund
Cash Out - Non Federal $ 90
Accrued Liabilities
Accrued Funded Payroll and Benefits
Other 3
Total $ 93
All Other
Accrued Funded Payroll & Benefits $
Accrued Liabilities
Other Liabilities 335
Total $ 335
Current
$ 91,389 $
485
2.885
$ 94,759 $
$ 55,214 $
4,496
2,637
a 04)
$ 62,243 $
$ 457,706 $
97,477
15,243
21.647
$ 592,073 $
$ 65,974 $
553,443
8.291
$ 627,708 $
Total
91,389
1,216
4.141
96,746
55,214
5,544
2,637
(40)
63,355
457,796
97,477
15,243
21.650
592,166
65,974
553,443
8.626
628,043
Page 42
EPA's FY 1999 Annual Financial Statements
-------
Other Liabilities Not Covered by Budgetary Resources:
Non-Current Current
Intra-governmental - All Other
Custodial Liability $ _ $ 111.017
Total Intra-governmental $ _ =^_ $ 111,017 $ 111,017
Superfund
Accrued Unfunded Annual Leave
Contingent Liabilities - Unfunded
Total
All Others
Accrued Unfunded Annual Leave
Capital Lease Liability
Total
$ $ 86,430
38.178
$ 38,178 $ 86,430
Note 11. Leases
The Capital Leases as of September 30, 1999, consist of the following:
Capital Leases:
Summary of Assets Under Capital Lease:
Land, Buildings and Personal Property
Accumulated Amortization
Total
111.017
$ 18,415 $ 18,415
675 675
$ 19,090 $ 19,090
86,430
38.178
$ 124,608
All Others
$ 40.992
$ 9.776
EPA has three capital leases for land and buildings housing scientific laboratories and/or computer facilities.
All of these leases include a base rental charge and escalator clauses based upon either rising operating costs
and/or real estate taxes. The base operating costs are adjusted annually according to escalators in the
Consumer Price Indices published by the Bureau of Labor Statistics (U.S. Department of Labor). These leases
terminate in fiscal years 2010, 2013 and 2025. The charges are expended out of the Environmental Programs
and Management appropriation. EPA has one capital lease for a xerox copier that expires in FY 2002. The
total future minimum lease payments of the capital leases are listed below.
EPA's FY 1999 Annual Financial Statements
Page 43
-------
Future Payments Due: All Others
Fiscal Year
2000 $ 6,314
2001 6,314
2002 6,303
2003 6,295
2004 6,295
After 5 Years 102.489
Total Future Minimum Lease Payments 134,010
Less: Imputed Interest (95.832)
Net Capital Lease Liability $ 38,178
Liabilities not Covered by
Budgetary Resources $ 38,178
Operating Leases:
The General Services Administration (GSA) provides leased real property (land and buildings) as office space
for EPA employees. GSA charges a Standard Level Users Charge that approximates the commercial rental
rates for similar properties.
EPA has five direct operating leases for land and buildings housing scientific laboratories and/or computer
facilities. Most of these leases include a base rental charge and escalator clauses based upon either rising
operating costs and/or real estate taxes. The base operating costs are adjusted annually according to escalators
in the Consumer Price Indices published by the Bureau of Labor Statistics (U.S. Department of Labor). Three
leases terminate in fiscal year 2000. In fiscal 1997 and 1998, EPA entered into two leases, which terminate
in fiscal 2017 and 2003 respectively. The charges are expended out of the EPM appropriation. The total
minimum future costs of the operating leases are listed below.
Fiscal Year
2000
2001
2002
2003
2004
Beyond 2004
Total Future Minimum
Lease Payments
Superfund All Others
$ $ 6,109
36
34
34
24
310
$ $ 6,547
Total Land
& Buildings
$ 6,109
36
34
34
24
310
$ 6,547
Page 44 EPA's FY 1999 Annual Financial Statements
-------
Note 12. Pensions and Other Actuarial Benefits
FECA provides income and medical cost protection to covered Federal civilian employees injured on the job;
employees who have incurred a work-related occupational disease; and beneficiaries of employees whose death
is attributable to a job-related injury or occupational disease. Annually, EPA is allocated the portion of the
long term FECA actuarial liability attributable to the entity. The liability is calculated to estimate the expected
liability for death, disability, medical and miscellaneous costs for approved compensation cases. The liability
amounts and the calculation methodologies are provided by DOL.
The FECA Actuarial Liability at September 30, 1999, consisted of the following:
Superfund All Other
FECA Actuarial Liability $ 5,826 $ 23,987
The FY 1999 present value of these estimates was calculated using a discount rate of 5.5 percent in years 1
and 2, 5.55 percent in year 3 and 5.6 percent in year 4 and thereafter. The estimated future costs are recorded
as an unfunded liability.
Note 13. Unexpended Appropriations
As of September 30, 1999, the Unexpended Appropriations consisted of the following:
Unexpended Appropriations: Superfund All Others Total
Unobligated
Available $ 473,194 $ 1,277,839 $ 1,751,033
Unavailable 88,054 88,054
Undelivered Orders 2.183.637 8.711.071 10.894.708
Total $ 2,656,831 $ 10,076,964 $ 12,733,795
Note 14. Amounts Held by Treasury
Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship by the U.S.
Department of Treasury in the "Hazardous Substance Superfund Trust Fund" (Superfund) and the "Leaking
Underground Storage Tank Trust Fund" (LUST).
Superfund (Audited)
Superfund is supported primarily by an environmental tax on corporations, cost recoveries of funds spent to
clean up hazardous waste sites, and fines and penalties. Prior to December 31, 1995, the fund was also
supported by other taxes on crude and petroleum and on the sale or use of certain chemicals. The authority
to assess those taxes and the environmental tax on corporations also expired on December 31, 1995, and has
not been renewed by Congress. It is not known if or when such taxes will be reassessed in the future.
EPA's FY 1999 Annual Financial Statements Page 45
-------
The following reflects the Superfund Trust Fund as maintained by the U.S. Department of Treasury as of
September 30, 1999. The amounts contained in these statements have been provided by the Treasury and are
unaudited. Outlays represent appropriations received by EPA's Superfund Trust Fund, such funds are
eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
EPA
Treasury
Combined
Undistributed Balances
Available for Investment
Unavailable for Investment
Total Undisbursed Balance
Investments, Net of Discounts
Total Assets
Liabilities & Equity
Debt
Equity
Total Liability and Equity
Receipts
Crude and Petroleum
Certain Chemicals
Corporate Environmental
Cost Recoveries
Fines & Penalties
Total Revenue
Appropriations Received
Interest Income
Total Receipts
Outlays
Transfers to EPA
Total Outlays
Net Income
$ $ 1,262
1,262
2.894.095 1.523.791
$ 2.894.095 $ 1.525.053
-------
these statements have been provided by Treasury and are unaudited. Outlays represent appropriations received
by EPA's LUST Trust Fund, such funds are eliminated on consolidation with the LUST Trust Fund maintained
by Treasury.
EPA Treasury Combined
Undisbursed Balances
Available for Investment $
Unavailable for Investment
Total Undisbursed Balance
Investments. Net of Discounts 82,594
Total Assets $ 82n594
Liabilities & Equity
Debt $
Equity 82,594
Total Liability and Equity $ 82,594
Receipts
Highway TF Tax $
Airport TF Tax
Inland TF Tax
Gross Revenue
Less: Reimbursement to G/F
Net Revenue
Interest Income
Net Receipts
Outlays
Transfers to EPA $ (60,783)
Total Outlavs (60.783)
Net Income $ 60,783
Note 15. Commitments and Contingencies
EPA is a party in various administrative proceedings, legal actions,
include:
$ 10
10
1.312.103
$ 1.312.113
$
1,312,113
$ 1,312,113
$ 199,333
18,270
1.024
218,627
(3.091)
215,536
57.789
273.325
$ 60,783
60.783
$ 212.542
and claims brought by
$ 10
10
1.394.697
$ 1.394.707
$
1,394,707
1,394,707
$ 199,333
18,270
1.024
218,627
(3.091)
215,536
57.789
273.325
-------
- Various personnel actions, suits, or claims brought against the Agency by employees and others.
- Various contract and assistance program claims brought against the Agency by vendors, grantees and others.
- The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include the
collection of fines and penalties from responsible parties.
- Claims against recipients for improperly spent assistance funds which may be settled by a reduction of
future EPA funding to the grantee or the provision of additional grantee matching funds.
Superfund
Under CERCLA f 106 (a), EPA issues administrative orders that require parties to clean up contaminated sites.
CERCLA f 106(b) allows a party that has complied with such an order to petition EPA for reimbursement from
the Fund of its reasonable costs of responding to the order, plus interest. To be eligible for reimbursement, the
party must demonstrate either that it was not a liable party under CERCLA f 107 (a) for the response action
ordered, or that the Agency's selection of the response action was arbitrary and capricious or otherwise not in
accordance with law.
There are currently nine CERCLA f 106(b) administrative claims and four pending lawsuits. If the claimants
are successful, the total losses on the administrative and judicial claims could amount to approximately $32.4
million and $13.7 million, respectively. The Environmental Appeals Board has not yet issued final decisions
on the administrative claims; therefore a definite estimate of the amount of the contingent loss cannot be made.
The claimants' chance of success in eight of these outstanding claims is characterized as reasonably possible.
The outcome of the remaining claim is considered probable and the expected liability is $50 thousand. The
claimants'chance of success in three of the four pending lawsuits is also reasonably possible. The outcome
of the remaining lawsuit is considered remote.
There are a number of outstanding CERCLA f 106(a) cleanup orders where the recipients of the orders have
not yet completed the ordered response actions. Each such recipient could potentially file a claim with EPA
for reimbursements under CERCLA f 106(b) of its costs of responding to the order once it has completed the
ordered actions.
EPA is responsible to indemnify response action contractors (CERCLA f 119) for legal costs that will
eventually exceed or have exceeded the deductible specified in the current indemnification agreements. Such
payments by the United States would be recoverable government response costs. EPA has only one claim
which is considered remote.
EPA contractors have submitted response action contractor claims. No claims were material.
All Other
There were no material litigation, asserted or unasserted claims or assessments involving all other appropriated
funds of the Agency.
Page 48 EPA's FY 1999 Annual Financial Statements
-------
Judgement Fund
In cases which are paid by the U.S. Treasury Judgement Fund, the Agency must recognize the full cost of a
claim regardless of who is actually paying the claim. The Agency is involved in various other actions that in
the aggregate do not exceed $3.4 million.
In addition, EPA is party to certain pending litigation upon which EPA believes it has a reasonable legal
position. No estimate has been provided for a loss.
In the opinion of EPA's management and General Counsel, the ultimate resolution of any legal actions still
pending will not materially affect EPA's operations or financial position.
Note 16. Grant Accrual
Grant accruals represent Grantee expenses that were not reported to EPA for reimbursement as of September
30, 1999.
EPA selected a statistical sample of grant recipients from our grantee universe to use as our basis to calculate
our accrual. EPA sent confirmation letters to the sample grantees, asking them to provide the amount of
unbilled grant expense at September 30, 1999. We then aggregated up the unbilled grant expense rates.
Finally, we used these two weighted-average rates to compute the overall unbilled grant expense accruals.
1999
Superfund Trust Fund $ 13.981
All Others $ 430.299
Note 17. Environmental Cleanup Costs
EPA has three sites that require clean up stemming from its activities. Two of these sites will be paid from the
Treasury Judgement Fund amounting to $105 thousand. EPA estimates that clean up on the other site will be
approximately $1 thousand. EPA also holds title to a site in Edison, New Jersey, which was formerly an Army
Depot. While EPA did not cause the contamination, the Agency could potentially be liable for a portion of the
clean up costs. However, it is expected that the Department of Defense and the General Services
Administration will bear all or most of the cost of remediation.
Accrued Clean-up Cost
EPA has sixteen sites that will require future clean up associated with permanent closure. The estimated cost
will be approximately $14.3 million. Since the clean up costs associated with permanent closure are not
primarily recovered though user fees, EPA has elected to recognize the estimated total cleanup cost as a liability
upon implementation and record changes in estimate in subsequent years. The FY 1999 estimate decreased
by approximately $.2 million for unfunded clean-up costs over FY 1998. There was an increase of $20
thousand for funded clean-up costs for FY 1999. EPA could also be potentially liable for cleanup costs at a
GSA-leased sites; however, the amounts are not known.
EPA's FY 1999 Annual Financial Statements Page 49
-------
Of the nearly $14.3 million in estimated clean up costs, approximately $11.3 million represents the estimated
expense to close the current RTF research facility. These costs will be incurred within the next three years.
The remaining amount represents the future decontamination and decommissioning costs of EPA's research
facilities.
Note 18. Superfund State Credits
Authorizing statutory language for Superfund and related Federal regulations require States to enter into
Superfund State Contracts (SSCs) when EPA assumes the lead for a remedial action in their State. The SSC
defines the State's role in the remedial action and obtains the State's assurance that they will share in the cost
of the remedial action. Under Superfund's authorizing statutory language, States will provide EPA with a ten
percent cost share for remedial action costs incurred at privately owned or operated sites, and at least fifty
percent of all response activities (i.e., removal, remedial planning, remedial action, and enforcement) atpublicly
operated sites. In some cases, States may use EPA approved credits to reduce all or part of their cost share
requirement that would otherwise be paid by the States. Credit is limited to State site-specific expenses EPA
has determined to be reasonable, documented, direct out-of-pocket expenditures of non-Federal funds for
remedial action. Once EPA has reviewed and approved a State's claim for credit, the State must first apply
the credit at the site where it was earned. The State may apply any excess/remaining credit to another site when
approved by EPA. As of September 30, 1999, total outstanding State credits has been estimated at $7.3
million.
Note 19. Superfund Preauthorized Mixed Funding Agreements
Under Superfund Preauthorized Mixed Funding Agreements, settling Potentially Responsible Parties (PRPs)
agree to perform response actions at their sites with the understanding that EPA will reimburse the PRPs a
percentage of their total response action costs. EPA's authority to enter into mixed funding agreements is
provided under Section 11 l(a)(2) of the Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA) of 1980. Under Section 122(b)(l) of CERCLA, as amended by the Superfund Amendments
and Reauthorization Act (SARA) of 1986, a PRP may assert a claim against the Superfund Trust Fund for a
portion of the costs they incurred while conducting a preauthorized response action as agreed to under a mixed
funding agreement. As of September 30, 1999, EPA had 13 outstanding preauthorized mixed funding
agreements with obligations totaling $50 million. A liability is not recognized for these amounts until the PRP's
work has been performed and has been approved by EPA for payment. EPA will not disburse any funds under
these agreements, however, until the PRP's application, claim, and claims adjustment processes have been
reviewed and approved by EPA.
Note 20. Income and Expenses from other Appropriations
The Statement of Net Cost reports program costs that include the full costs of the program outputs and consist
of the direct costs and all other costs that can be directly traced, assigned on a cause and effect basis, or
reasonably allocated to program outputs.
During Fiscal Year 1999, EPA had three appropriations which funded a variety of programmatic and non-
programmatic activities across the Agency, subject to statutory requirements. The Environmental Programs
and Management (EPM) appropriation was created to fund personnel compensation and benefits, travel,
procurement, and contract activities. Two prior year appropriations, Program and Research Operations
Page 50 EPA's FY 1999 Annual Financial Statements
-------
(PRO) and Abatement Control and Compliance (AC&C) generated expenses. PRO funded travel, personnel
compensation and benefits. AC&C funded procurement and contract activities.
All of the expenses from EPM, PRO and AC&C were distributed among EPA's two Reporting Entities:
Superfund and All Others. This distribution is calculated using a combination of specific identification of
expenses to Reporting Entities, and a weighted average that distributes expenses proportionately to total
programmatic expenses.
As illustrated below, this estimate does not impact the net effect of the Statement of Net Costs.
1999
$
$
35,664
G5.664}
$
$
(35,664)
35.664
Income From Expenses From
Other Appropriations Other Appropriations Net Effect
Superfund
All Others
Total
Note 21. Custodial Non-Exchange Revenues
EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous receipts.
Collectability by EPA of the fines and penalties is based on the responsible parties' willingness and ability to
pay.
1999
Fines, Penalties & Misc Revenue (EPA) $ 128,176
Accounts Receivable for Fines, Penalties
& Miscellaneous Receipts 1999
Accounts Receivable $ 66,750
Less: Allowance for Doubtful Accounts 36.265
Total $ 30,485
Note 22. Statement of Budgetary Resources
A reconciliation of budgetary resources, obligations incurred, and outlays, as presented in the audited Statement
of Budgetary Resources, to amounts included in the Budget of the United States Government for the year ended
September 30, 1999, is as follows:
EPA's FY 1999 Annual Financial Statements Page 51
-------
Budgetary Obligations
Resources Incurred Outlays
Superfund
Statement of Budgetary Resources
Allocated to Other Agencies
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other
Budget of the United States Government
$ 2,192,229 $ 1,709,357 $ 1,499,486
97,741 80,789 77,029
(31,240)
(26,489)
$ 2,258,730 $ 1,763,657 $ 1,576,515
All Other
Statement of Budgetary Resources
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other
Budget of the United States Government
$ 8,360,328 $ 6,685,653 $ 5,855,618
77,806
9,411
(1,260)
$ 8,438,134 $ 6,695,064 $ 5,854,358
Note 23. Adjustments
During FY 1999, there is a reduction in the Superfund Trust Fund authority available of $262.9 million
between the beginning available and ending available authority. This amount represents amounts that were
overstated in the beginning FY 1999 authority available resulting from anticipated reimbursable funding that
was not decreased prior to the close of FY 1998. This amount is reflected as part of the $59.3 million
Adjustments on the Statement of Budgetary Resources. The remaining amount of the Adjustments is for
Recoveries of prior year obligations of $205.2 million and the Canceled Authority of $1.6 million.
Note 24. Unobligated Balances Available
The Superfund Trust Fund has an unobligated balance of $483 million in unexpired authority. All Others has
an unobligated balance of $1,675 million which includes $1,567 million in unexpired authority and $108
million in expired authority. The unexpired authority is available to be apportioned by the Office of
Management and Budget for new obligations at the beginning of FY 2000. Unobligated balances of expired
authority is not available for new obligations. However, the expired authority is available for upward
adjustments of obligations incurred as of the end of the fiscal year.
Note 25. Obligated Balance, Net - End of Period
Undelivered Orders at the end of the period are $2.4 million for the Superfund Trust Fund and $9.2 million for
All Others.
Page 52
EPA's FY 1999 Annual Financial Statements
-------
Note 26. Difference in Outlays Between Statement of Budgetary Resources and SF-133
Outlays between the Statement of Budgetary Resources and the SF-133 differ by an unidentified $1 million
for All Others.
Note 27. Statement of Financing
Increases in Unfunded Liabilities relate to unfunded annual leave, environmental liabilities, contingent liabilities
and the Federal Employees Compensation Act (FECA) special benefit fund. For Superfund and All Others,
the amounts totaled $4.2 million and $15.9 million, respectively and is reflected in Financing Sources Yet to
Be Provided.
Note 28. Other Financing Sources
Consists primarily of Appropriations to EPA from the Superfund and LUST Trust Funds held at Treasury
(Treasury Trust Funds). Such appropriations are reported as non expenditure transfers on the financial
statements of the respective Treasury Trust Funds. Upon consolidation with Trust funds held by EPA, the
Treasury Trust Fund Appropriation non expenditure transfers are reported as Other Financing Sources to offset
Appropriations Used and Trust Fund revenues.
1999
Trust Funds Superfund LUST
Treasury Trust Fund Transfers $ (1,545,851) $ (60,783)
Custodial Liability Reclassification 22,718
Other (979) (14.396)
Total $ (1,524,112) $ (75,179)
EPA's FY 1999 Annual Financial Statements Page 53
-------
Environmental Protection Agency
Required Supplemental Information
As of September 30,1999
(Dollars in Thousands)
(Unaudited)
Deferred Maintenance
The EPA classifies property, plant, and equipment as follows: 1) EPA-Held Equipment, 2) Contractor-Held
Equipment, 3) Land and Buildings, and, 4) Capital Leases. The condition assessment survey method of
measuring deferred maintenance is utilized. The Agency adopts requirements or standards for acceptable
operating condition in conformance with industry practices.
One deferred maintenance project was identified in the Land and Buildings category, with an estimated total
cost of $325,000. This project included repairing and resurfacing weathered and cracked parking lots and
driveways. No deferred maintenance was reported for the other three categories.
Intra-governmental Assets
Intra-governmental assets represent transactions between all federal departments and agencies.
Accounts Receivable
Agency Superfund All Others
Dept. of the Army $ 34 $
Dept. of Interior 143
Dept. of Energy 24
Dept. of the Air Force 5
Unassigned 48.948 55.022
Total $ 48,982 $ 55,194
Intra-governmental Liabilities
Intra-governmental liabilities represent transactions between all federal departments and agencies.
Accounts Payable Other Liabilities Debt
Agency Superfund All Other Superfund All Other All Other
Dept. of Agriculture $ $ (3) $ $ (759) $
Library of Congress 66
US Postal Service 11
Page 54 EPA's FY 1999 Annual Financial Statements
-------
Intra-governmental Liabilities - continued
Accounts Payable
Other Liabilities
Debt
Superfund All Other
Government Printing
Office
Dept. of the Army
Government
Accounting Office
OPM
Executive Office of the
President
Dept. of the Treasury
Dept. of Commerce
Dept. of Justice
Dept. of the Interior
Secretary of Defense
Dept. of Air Force
Dept. of Labor
Tennessee Valley
Authority
Small Business
Administration
Dept. of Health and
Human Services
NASA
Housing and Urban
Development
Dept. of Energy
National Labor Relations
Board
Dept. of Transportation
Agency for International
Development
Government Services
Administration
National Science
Foundation
Superfund
34
(12)
498
425
1,216
All Other
82
26
(1)
98
46
(8)
(994)
(203)
(5,043)
5
4,649
1
(185)
6,073
67
100
(1,282)
(2)
(1,049)
431
(10,248)
38
All Other
37,922
EPA's FY 1999 Annual Financial Statements
Page 55
-------
Intra-governmental Liabilities - continued
Accounts Payable Other Liabilities Debt
Agency Superfund All Other Superfund All Other All Other
Dept. of State (11)
Unassigned 89,582 2,749 94,573 182,475
Total $ 89,594 $ 2,737 $ 96,746 $ 174,372 $ 37,922
Page 56 EPA's FY 1999 Annual Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
Supplemental Statement of Budgetary Resources
As of September 30,1999
(Dollars in Thousands)
Unaudited
Environmental Miscellaneous Consolidated
Programs* Science* LUST All All
STAG Management Technology FIFRA Trust Fund Others Others
Budgetary Resources:
Budget Authority
Unobligated Balances - Beginning of
the Period
Spending Authority from Offsetting
Collections
Adjustments
Total Budgetary Resources
3,408,050 $ 1,853,150 $ 660,672 $ $ 72,500 $ 453,521 $ 6,447,893
1,159,696 202,100 143,627 15,342 2,733 194,443 1,717,941
6,595
120,791
48,159
(11,035)
50,802 18,400
(908) 35
1 152,385
(434) (190,297)
276,342
(81,848)
4,695,132 $ 2,092,374 $ 854,193 $ 33,777 $ 74,800 $ 610,052 $ 8,360,328
Status of Budgetary Resources:
Obligations Incurred
Unobligated Balances - Available
Unobligated Balances-Not Available
Total Status of Budgetary Resources
Outlays:
Obligations Incurred
Less: Spending Authority from
Offsetting Collections and Adjustments
Obligated Balance, Net - Beginning
of Period
Less: Obligated Balance, Net - End
3,430,652
1,264,480
4,695,132
3,430,652
127,386
7,012,337
7,570,173
2,745,430
$ 1,858,653
146,973
86,748
$ 2,092,374
$ 1,858,653
64,263
873,197
794,380
$ 1,873,207
$ 692,256
139,411
22,526
$ 854,193
$ 692,256
55,514
481,875
511,824
$ 606,793
$ 22,225 $ 71,230
11,552 3,570
$ 33,777 $ 74,800
$ 22,225 $ 71,230
18,435 1,898
(627) 74,552
(926) 79,306
$ 4,089 $ 64,578
$ 610,637
1,156
(1,741)
$ 610,052
$ 610,637
159,595
308,955
198,476
$ 561,521
$ 6,685,653
1,567,142
107,533
$ 8,360,328
$ 6,685,653
427,091
8,750,289
9,153,233
$ 5,855,618
of the Period
btal Outlays
7,570,173 794,380 511,824 (926) 79,306 198,476 9,153,233
$ 2,745,430 $ 1,873,207 $ 606,793 $ 4,089 $ 64,578 $ 561,521 $ 5,855,618
EPA's FY 1999 Annual Financial Statements
Page 57
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Balance Sheet
As of September 30,1999
(Dollars in Thousands)
ASSETS
Intragovernmental
Fund Balance With Treasury
Advances and Prepayments
Total Intragovernmental
Advances and Prepayments
Operating Materials and Supplies, Net
General Property Plant and Equipment
Other
Total Assets
Unaudited
$ 37,066
443
37,509
5
13
17,184
15.559
$ 70,270
LIABILITIES
Intragovernmental
Accounts Payable
Other
Total Intragovernmental
Accounts Payable
Other
Total Liabilities
$ 1,500
23.293
24,793
13,165
1.171
39,129
NET POSITION
Cumulative Results of Operations
Total Net Position
31.141
31,141
Total Liabilities and Net Position
$ 70,270
Page 58
EPA's FY 1999 Annual Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Net Cost
For the Year Ended September 30,1999
(Dollars in Thousands)
Unaudited
COSTS:
Intragovernmental $ 15,177
With the Public 112,629
Total 127,806
Less: Earned Revenues 119,972
Net Cost of Operations $ 7,834
EPA's FY 1999 Annual Financial Statements Page 59
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Changes in Net Position
For the Year Ended September 30,1999
(Dollars in Thousands)
Unaudited
Net Cost of Operations $ 7,834
Financing Sources (Other Than Exchange Revenues)
Imputed Financing 5,937
Transfers-In 4,160
Transfers-Out (4,160)
Other (952)
Net Results of Operations (2,849)
Prior Period Adjustments (5,535)
Net Changes in Cumulative Results of Operations 2,686
Net Position-Beginning of Period 28,455
Net Position-End of Period $ 31,141
Page 60 EPA's FY 1999 Annual Financial Statements
-------
Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30,1999
(Dollars in Thousands)
INVESTMENT IN THE NATION'S RESEARCH
AND DEVELOPMENT:
Public and private sector institutions have long been
significant contributors to our nation's environment
and human health research agenda. EPA's Office of
Research and Development, however, is unique
among scientific institutions in this country in
combining research, analysis, and the integration of
scientific information across the full spectrum of
health and ecological issues and across both risk
assessment and risk management. Science enables us
to identify the most important sources of risk to
human health and the environment, and by so doing,
informs our priority-setting, ensures credibility for
our policies, and guides our deployment of resources.
It gives us the understanding and technologies we
need to detect, abate, and avoid environmental
problems. Science provides the crucial underpinning
for EPA decisions and challenges us to apply the best
available science and technical analysis to our
environmental problems and to practice more
integrated, more efficient, and more effective
approaches to reducing environmental risks.
Among the Agency's highest research priorities is a
program to expand the understanding of near- and
long-term effects of the environment on children.
Another priority is the Particulate Matter (PM)
research program, which focuses on review,
implementation, and eventual attainment of the
National Ambient Air Quality Standards (NAAQS).
For FY 1999, the full cost of the Agency's Research
and Development activities totaled $603 million. A
breakout of the expenses is below (Dollars in
thousands):
FY 99 Programmatic Expenses: $543,777
Allocated Expenses: $ 58,728
FY98 Programmatic Expenses: $507,828
Allocated Expenses: $ 53,322
INVESTMENT IN THE NATION'S
INFRASTRUCTURE
The Agency makes significant investments in the
Nations's drinking water and clean water
infrastructure. The investments are the result of
three programs: The Construction Grant Program
which is being phased out, and two State Revolving
Fund (SRF) programs.
Construction Grants Program: During the 1970s
and 1980s, the Construction Grants Program was a
source of Federal funds, providing more than $60
billion of direct grants for the construction of public
wastewater treatment projects. These projects,
which constituted a significant contribution to the
nation's water infrastructure, included sewage
treatment plants, pumping stations, and collection
and intercept sewers, rehabilitation of sewer
systems, and the control of combined sewer
overflows. The construction grants led to the
improvement of water quality in thousands of
municipalities nationwide.
Congress set 1990 as the last year that funds would
be appropriated for Construction Grants. Projects
funded in 1990 and prior will continue until
completion. Beyond 1990, EPA shifted the focus of
municipal financial assistance from grants to loans
that are provided by State Revolving Funds.
State Revolving Funds: The Environmental
Protection Agency provides capital, in the form of
capitalization grants, to state revolving funds
which state governments use to make loans to
individuals, businesses, and governmental entities
for the construction of wastewater and drinking
water treatment infrastructure. When the loans are
EPA's FY 1999 Annual Financial Statements
Page 61
-------
repaid to the state revolving fund, the collections are
used to finance new loans for new construction
projects. The capital is reused by the states and is
not returned to the Federal Government.
The Agency is also appropriated funds to finance the
construction of infrastructure outside the Revolving
Funds. These are reported below as Other
Infrastructure Grants.
The Agency's expenses related to investments in the
Nation's Water Infrastructure are outlined below:
FY99
Construction Grants: $ 414,528
Clean Water SRF: $ 925,744
Safe Drinking Water SRF: $ 387,429
Other Infrastructure Grants: $ 245,606
Allocated Expenses: $213,117
FY98
Construction Grants: $ 444,817
Clean Water SRF: $1,109,017
Safe Drinking Water SRF: $ 94,936
Other Infrastructure Grants: $ 138,363
Allocated Expenses: $ 187,649
STEWARDSHIP LAND
The Agency acquires title to certain land and land
rights under the authorities provided in Section 104
(J) CERCLA related to remedial clean-up sites. The
land rights are in the form of easements to allow
access to clean-up sites or to restrict usage of
remediated sites. In some instances, the Agency
takes title to the land during remediation and returns
it to private ownership upon the completion of
clean-up.
As of 9/30/99, the Agency possesses the following
land and land rights:
Superfund Sites with Easements
Beginning Balance
Additions
Withdrawals
Ending Balance
Superfund Sites with Land
Beginning Balance
Additions
Withdrawals
Ending Balance
HUMAN CAPITAL
18
2
0
?o
Agencies are required to report expenses incurred to
train the public with the intent of increasing or
maintaining the nation's economic productive
capacity. Training, public awareness, and research
fellowships are components of many of the
Agency's programs, and are effective in achieving
the Agency's mission of protecting public health and
the environment, but the focus is on enhancing the
nation's environmental, not economic, capacity.
FY99
Training and Awareness Grants $46,630
Fellowships $10,239
Allocated Expenses $ 6,142
FY98
Training and Awareness Grants $39,131
Fellowships $11,084
Allocated Expenses $ 5,273
Page 62
EPA's FY 1999 Annual Financial Statements
-------
EPA's FY 1999 Annual Financial Statements
Page 63
-------
-------
ACRONYMS
AC&C
APGs
APR
ASAP
B&F
BAS
BCCP
BRTs
CCRs
CERCLA
CFO Act
CSRS
EASY
EDCs
EMPACT
EPA
EPM
EPAYS
FAS
FASAB
FECA
FERS
FFMIA
FTE
FY
GAO
GMRA
GPRA
GSA
IFMS
LUST
MD&A
NAAQS
NPL
Abatement Control and Compliance
Annual Performance Goals
Annual Performance Report
Automated Standard Application for Payments
Buildings and Facilities
Budget Automation System
Business Continuity and Contingency Planning
Business Resumption Teams
Consumer Confidence Reports
Comprehensive Environmental Response, Compensation, and Liability Act
Chief Financial Officers Act of 1990
Civil Service Retirement System
Electronic Approval System
Endocrine-disrupting Chemicals
Environmental Monitoring for Public Access and Community Tracking
Environmental Protection Agency
Environmental Program and Management
EPA Integrated Payroll and Personnel System
Fixed Assets Subsystem
Federal Accounting Standards Advisory Board
Federal Employees Compensation Act
Federal Employees Retirement System
Federal Financial Management Improvement Act
Full-time Equivalents
Fiscal Year
General Accounting Office
Government Management and Reform Act of 1994
Government Performance and Results Act of 1993
General Services Administration
Integrated Financial Management System
Leaking Underground Storage TankFebruary 27, 200044
Management's Discussion and Analysis
National Ambient Air Quality Standards
National Priorities List
EPA's FY 1999 Annual Financial Statements
Page 65
-------
NFS Nonpoint Source
OCFO Office of the Chief Financial Officer
OEI Office of Environmental Information
OIG Office of Inspector General
OMB Office of Management and Budget
OPA Oil Pollution Act
PM Particulate Matter
PRO Program and Research Operations
PRPs Potentially Responsible Parties
RP Responsible Parties
S&T Science and Technology
SARA Superfund Amendments and Reauthorization Act of 1986
SO2 Sulfur Dioxide
SRF State Revolving Fund
SSCs Superfund State Contracts
STAG State and Tribal Assistance Grants
TM+ Travel Manager Plus
UAOs Unilateral Administrative Orders
WCF Working Capital Fund
XL excellence and Leadership
Y2K Year 2000
Page 66 EPA's FY 1999 Annual Financial Statements
-------
For more information, contact:
Financial Management Division
U.S. Environmental Protection Agency
Ariel Rios Building
1200 Pennsylvania Avenue, N.W. (2733R)
Washington, DC 20460
EPA's FY 1999 Annual Financial Statements Page 67
-------
APPENDIX II
AGENCY'S RESPONSE TO THE DRAFT REPORT
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
February 24, 2000
MEMORANDUM
SUBJECT: Response to "Draft Audit Report on EPA's Fiscal 1999 Financial Statements"
FROM: Michael W. S. Ryan Isignedl
Acting Chief Financial Officer (2710 A)
TO: James O. Rauch
Assistant Inspector General for Audit (2421)
Thank you for providing us the opportunity to comment on and provide our consolidated
response to the findings and recommendations made in the "Draft Audit Report on EPA's Fiscal
1999 Financial Statements." Attachment I contains our response to specific audit findings and
recommendations. Attachment II is an update to your report on the Status of Prior Audit
Findings.
We appreciate your consideration of our comments on your position papers that preceded
the draft report. We also appreciate the cooperation of you and your staff as we prepared the
financial statements for audit to resolve outstanding issues.
If you have any questions regarding our response please contact Juliette McNeil, Acting
Director of the Financial Management Division, at (202) 564-4905.
Attachments
-------
ATTACHMENT I
RESPONSE TO SPECIFIC AUDIT FINDINGS AND RECOMMENDATIONS
AUDIT REPORT ATTACHMENT 1 - MATERIAL WEAKNESS
1 - Further Improvements Needed in the Agency's Process for Preparing Financial
Statements
The OIG offered no recommendations in this section. However, the draft report provided a
discussion on pages 1-1 through 1-7 of the reasons for their categorizing Financial Statement
Preparation as a material weakness. We agree with the OIG that further improvements need to
be made to the process for preparing financial statements.
The Draft Audit Report includes an addendum of financial statement findings as evidence for the
proposed material weakness which supports the need for improved quality control processes. As
noted in the Table below, we agreed with and made several of the proposed audit changes. In
some instances, the Agency's original presentation was correct and in these cases, the findings are
not errors in underlying accounting data, but differences in professional judgment on the
application of accounting standards. For example, the presentation of the Expense Allocation is
presented as an error in the Addendum under the heading, "Statement of Net Cost, Statement of
Financing, and Statement of Net Position." We believe the Agency's presentation is appropriate;
it is also consistent with prior year audited financial statements. We are willing to collaborate
with the OIG to improve the presentation and usefulness of our financial statements, but do not
believe that these differences in judgment should be characterized as chronic Agency weaknesses.
We further disagree with the audit conclusion that the findings listed in the Addendum are
indicative of the Agency's inability to "provide Agency managers with information that is accurate
and reliable for use on a day-to-day basis to manage Agency programs," as stated in the Draft
Audit Report. The majority of these findings relate to issues pertinent to year-end audited
financial statement presentation only. These issues do not reflect upon the reliability of the
Agency's underlying accounting data which is provided to Agency managers through a variety of
management reports and ad hoc reporting tools, enabling officials to manage their programs on an
on-going basis.
As indicated in the draft report, the Agency declared the financial statement process as an
Agency-level weakness in the annual Integrity Act report. However, we do not believe the
conclusions in this report rise to the level of a material weakness. Through the existing process
(while not without some challenges), we have been successful in producing reliable financial
statements that have achieved unqualified opinions for the past three years. However, we
recognize there is a need to improve both the overall efficiency and the control of various stages
in the preparation process.
-------
TABLE: Response to Addendum of "Significant Deficiencies'
OIG Position
Balance Sheet
The Intra-governmental Trust Fund activity
was not properly eliminated in the 12/3/99
statements and footnotes. This resulted in:
(1) a $2.9 billion overstatement of the
Superfund "Accounts Receivable" balance,
and (2) a $134 million overstatement in the
All Other "Accounts Receivable" balance.
This issue is now resolved.
There is still an outstanding balance of
$52.2 million for All Other "Accounts
Receivable" on the 1/19/00 statements for
which an adjustment is needed.
The Working Capital Fund activity was not
eliminated on the 12/3/99 consolidated
financial statements. This issue was
corrected on the 1/19/00 statements.
EPA Responses
Adjusting entries were made subsequent to the December 3,
1999 statements.
We believe this issue is resolved.
The $52.2 million for All Others "Accounts Receivable" was
eliminated (AJE 900) on the financial statements of 2-12-00.
We believe this issue is resolved.
Working Capital Fund activity for All Other was eliminated on
the 1-19-00 financial statements. (AJE 32 and 34).
We believe this issue is resolved.
Statement of Net Cost
Intra-agency Working Capital Fund
revenues and expenses were not eliminated
on the 12/3/99 statements. An adjustment
was made to thel/19/00 statements which
correctly eliminated Superfund and All
Other at the consolidated level. However,
All Other on a stand alone basis was
misstated.
We revised the WCF elimination entry to show the offset of
costs and revenue in the All Other column for just the All Other
portion of costs and in the Intra- Agency Elimination column of
the statement for the Superfund portion of costs and revenue.
We believe this issue is resolved.
Statement of Net Cost
"Intra-governmental" costs of $7.2 billion
and "With the Public" costs of $843 million
on the 1/19/00 statements were reversed.
Adequate support was not provided for the
crosswalk used to align costs to the
Agency's strategic goals as the approach
used did not provide adequate audit
evidence of actual expenditure by goal.
Adequate support has not been provided for
the Superfund account 5990 balance of
$364 million and its classification on the
We corrected the sequencing of the titles.
We believe this issue is resolved.
Management does not agree that the crosswalk support was
inadequate. Management elected to not report costs by goal for
1999.
This account will be reduced to zero through a final adjusting
entry and will not be included in the Statement of Net Costs.
-------
Statement of Net Cost, Statement of Financing, and Statement of Net Position
The presentation of the 1/19/00 Statements
of Net Cost, Financing and Net Position did
not properly present the "Income/Expenses
from Other Appropriations" balance of
$35.7 million. The cost was properly
reported on the Statement of Net Cost to
reflect the total cost of the fund. However,
the Agency improperly included "Income
from Other Appropriations" on the
Statement of Net Cost. This caused the "Net
Cost of Operations" to be understated. Such
income should be disclosed on the Statement
of Changes in Net Position and should be
shown as a financing source on the
Statement of Financing. This change also
impacts the footnote.
The Agency's 12-3-99 and 1-19-00 presentation was consistent
with the FY-1998 financial statements.
The OIG proposed a new approach to OCFO after the 1-19
financial statements. We believe the prior year presentation and
OIG-proposed presentation both have merit, and agreed to the
change on the 2-11-00 financial statements.
We believe this issue is resolved.
Statement of Budgetary Resources
Adequate documentation was not provided
to support the Superfund "Unobligated
Balance - Beginning of Period" on the
1/19/00 statements and the amount reported
to OMB on the SF-133. Upon obtaining
OMB assistance, the Agency will adjust the
fiscal 1999 statements to agree with the SF-
133.
Material differences exist between the
general ledger and the amounts reported to
OMB on the SF-133.
The requested documentation has been provided.
We believe this issue is resolved.
Material differences do not exist between the EPA General
Ledger and the SF-133. The difference existed between the
Statement of Budgetary Resources and the EPA General Ledger
and SF 133. We believe this issue is resolved.
-------
Statement of Custodial Activity
The 12/3/99 statement contained material
misstatements. The statement's format was
inconsistent with last year's presentation.
Errors made in the 12/3/99 statements have been corrected.
This year's statement format is essentially the same as last year.
The only change was to one line on the statement to more
accurately describe the activity.
We believe this issue is resolved.
The statement incorrectly listed "Tax
Revenues," and showed a material amount
as "Miscellaneous." Excise tax revenue for
LUST was incorrectly included as "Tax
Revenues."
The correction was made on the 1-19-00 financial statement.
We believe this issue is resolved.
"Miscellaneous" contained fines and
penalties that were reported separately last
year and the supporting schedule for the
miscellaneous amount did not foot.
The formula was corrected to calculate "Miscellaneous" revenue
for the 1-19-00 financial statements.
We believe this issue is resolved.
"Increase (Decrease) in Amounts Yet to be
Transferred" was mathematically incorrect
and materially misstated.
Management reported correctly the "(Increase) Decrease in
Amounts to be Transferred." The amount represents current-
year activity, and is taken directly from the Custodial Liability
general ledger account as required by the SGL Crosswalk.
We believe this issue is resolved.
The 1/19/00 statement also contained
material misstatements. The "Retained by
the Reporting Entity" balance of $267
million is mathematically incorrect,
materially misstated and does not belong on
the statement. The "Increase (Decrease) in
Amounts to be Transferred" balance of $8.6
million is mathematically incorrect and
materially misstated.
The 1/19/00 statements have been revised.
We believe this issue is resolved.
-------
Statement of Changes in Net Position
"Other Financing Sources" amount on the
12/3/99 statements was a positive rather
than a negative amount. This issue was
corrected on the 1/19/00 statements.
The "Other Financing Sources" amount was positive on the 12-
3-99 financial statement because the eliminating entries had not
been reflected in the financial statements.
The amount became negative after the eliminating entries were
posted. This issue was corrected in the 1-19-00 Statement of
Changes in Net Position.
We believe this issue is resolved.
Superfund "Increase (Decrease) in
Unexpended Appropriation" balance of
$93.4 million on the 1/19/00 statements
does not agree to the general ledger detail.
The Superfund "Increase (Decrease) in Unexpended
Appropriation" was miscalculated because management used
balances from the Accounting System rather than adjusted
ending balances from the prior year's financial statements. This
was corrected and shown in the 1-19-00 financial statement.
We believe this issue is resolved.
All Other "Transfers-Out" balance of $25
million on the 1/19/00 statements was a
positive rather than a negative amount
accordingly the account needs to be
reclassified as "Transfers-In."
We reclassified the $25 million for the 2-11-00 financial
statements.
We believe this issue is resolved.
Superfund "Other Financing Sources"
balance of $1.6 billion on the 1/19/00
statements contains an unsupported amount
of $23.9 million; similarly the LUST portion
of the All Other "Other Financing Sources"
balance is not supported.
OCFO and the OIG continue to work together to resolve the
amount for Superfund. We agree that the LUST portion of all
other is immaterial.
Statement of Financing
Superfund "Other Resources" balance of
$334 million on the 1/19/00 statements is
material and requires classification.
We reclassified the entry making up the large dollar amount to a
more descriptive line item.
We believe this issue is resolved.
Superfund "Transfers-In" balance of $325
million on the 1/19/00 statements does not
belong on the statement.
We made this adjustment that related to the transfer between "All
Other" and "Superfund."
We believe this issue is resolved.
Superfund "Loss on Disposition of Assets"
balance of $477 thousand on the 1/19/00
statements does not agree with support of
$483 thousand.
The OIG agreed these amounts are immaterial.
We believe this issue is resolved.
-------
Superfund "Depreciation and Amortization"
balance of $319 thousand on the 1/19/00
statements does not agree with support of
$2.595.
The OIG agreed these amounts are immaterial.
We believe this issue is resolved.
"Change in Amount of Goods, Services and
Benefits Ordered but Not Yet Received or
Provided" for All Other on the 1/19/00
statements is not properly supported and
may contain misstatements.
"Costs Capitalized on the Balance Sheet" on
the 1/19/00 statements is misstated for
Superfund and All Other and does not agree
to changes in property accounts.
"Financing Sources that Fund Costs of
Prior Periods" on the 1/19/00 statements is
listed, but without balances.
"Loss on Disposition of Assets" for All
Other on the 1/19/00 statements does not
agree to the general ledger detail by
approximately $3 million.
We prepared the Statement of Financing by focusing on
transactions rather than account balances. The transaction
approach is much more labor intensive, but more thoroughly
reconciles the Statements of Budgetary Resources and Net Cost.
We believe these issues are resolved.
-------
Grant Accruals
The grant accrual amount was not provided
by December 15, as difficulties existed in
obtaining the needed information from
grantees. The Agency also misstated the
total grant expenditures in calculating the
grant accrual. This issue was corrected on
the 1/19/00 statements.
We believe this issue is resolved.
Trading Partners
Omitted from the 12/3/99 statements. This
issue was corrected on the 1/19/00
statements.
The trading partners' information included
as Required Supplemental Information on
the 1/19/00 statements did not agree with
the line item reported on the balance sheet
as required by OMB Bulletin 97-01. This
issue was subsequently resolved.
Intra-governmental trading partner
information for accounts receivable and
liabilities cannot be identified as required by
OMB Bulletin 97-01 and the Treasury
Financial Manual.
Reliable data were not available on 12-3-99.
We believe this issue is resolved.
This Required Supplemental Information schedule was
corrected to agree with the Balance Sheet.
We believe this issue is resolved.
The Agency is working to identify Intra-governmental trading
partner information for accounts receivable and liabilities to
comply with OMB 97-01 and Treasury FACTS.
Expense Allocation
The expense allocation is an estimate of the
expenses reallocated from the All Other
fund to Superfund and FIFRA to show the
full cost of these funds' activities. The
calculation was affected by input errors,
unsupported spreadsheet balances, and OPP
support which was not properly applied.
This issue is now resolved.
The Expense Allocation model is complex and data intensive.
We concur there were a few minor errors in the model, and
OCFO and OIG staff collaborated to correct the errors.
We believe this issue is resolved.
-------
Deferred Maintenance
This information was omitted from 12/3/99
statements. This issue was corrected on the
1/19/00 statements.
We believe this issue is resolved
Pension and Other Post-retirement Benefits
OCFO staff correctly computed the imputed
costs and revenues for Pension and Other
Post-retirement Benefits for All Other Funds
(Non-Superfund) as per OMB guidance.
Originally these amounts were entered
correctly in the All Other portion of the trial
balance. These amounts were subsequently
backed out and a new amount, without the
portion attributable to FIFRA was re-
entered. FIFRA amounts should be included
as part of the All Other portion of the
financial statements as well as presented in
the stand alone financial statements for this
Fund. The total amount of the difference is
$2,047,766.
The OIG reviewed their documentation and subsequently
determined that there was no audit finding or $2 million error
related to Pension and Other Post-retirement Benefits.
We believe this issue is resolved.
Footnotes were omitted or incomplete
The Statement of Budgetary Resources
footnote was omitted from the 12/3/99
statements to describe a material amount
shown as "Adjustments." This issue was
corrected on the 1/19/00 statements.
Unfunded Liabilities footnote on the 12/3/99
Statement of Financing was omitted. This
issue was corrected on the 1/19/00
statements.
Payroll footnote #1R on both 12/3/99 and
1/19/00 included the wrong contribution
and/or withholding rates.
All required footnotes for the Budgetary Resources were
provided; we are not required by OMB's 97-01 to include a
footnote for the "Other" line item but agreed with the OIG's
recommendation to define this line by major element.
We believe this issue is resolved.
We prepared the footnote on Unfunded Liabilities for the
Statement of Financing.
We believe this issue is resolved.
Management updated the footnote with new rates for the 1-19-
00 financial statements footnotes.
We believe this issue is resolved.
-------
AUDIT REPORT ATTACHMENT 2 - REPORTABLE CONDITIONS
2 - Further Improvements Needed in EPA's Process for Reviewing its Unliquidated
Obligations
2.1 We recommend the Acting Chief Financial Officer (CFO) incorporate the same
analysis of individual obligations applied in the "special" year-end review into the
annual review in order to perform one, thorough annual review. For example, the
Agency should develop reports which emphasize older, open unliquidated
obligations;
We agree that the annual review should be thorough. We also believe the current process is very
thorough in that it requires the responsible office to review all inactive obligations (no activity for
90 days if travel, 180 days for all other obligations) and annotate their files with a justification for
retaining the unliquidated obligation funds. By requiring review of all inactive obligations, OCFO
maximizes EPA's ability to efficiently use resources available and identify, deobligate and reuse
these funds.
The special review is geared to financial statement presentation and is "point-in-time." Its purpose
is to identify the amount of unliquidated obligations which are candidates for deobligation as of
September 30.
Regarding OIG's reference to reports emphasizing "older, open obligations," the current reports
provide the budget fiscal year and last action date for each open obligation, thus enabling the
responsible official to identify older obligations.
2.2 We recommend the Acting Chief Financial Officer (CFO) require FMD to verify that
deobligations requests have been processed in the IFMS and that prescribed annual
review and deobligation processes are implemented at each location.
We believe that our current procedures address the OIG's concerns raised in the draft report.
FMD has a procedure in place for following up on deobligations identified for the on-top
adjustment to the financial statements. During the brief period of time between the final resolution
of the FY 1998 on-top adjustments and the end of FY 1999 (approximately three months), over
90% of the dollars identified were deobligated. With six months for the follow-up procedure this
year, we anticipate that all documents identified in the FY 1999 on-top adjustment will be
deobligated by the end of FY 2000. For all other obligations, we implemented a procedure
requiring the responsible officials to follow up to make sure that deobligations requested are in fact
processed in the financial system. This procedure was implemented by the March 25, 1999
guidance memorandum for the annual review of unliquidated obligations. In August 1999, we
provided the responsible officials with reports showing documents with changed unliquidated
obligation balances for their review and follow-up to assure the deobligation action was taken.
-------
In addition, the FY 2000 Quality Assurance Workplan guidance memorandum, issued on February
2, 2000, instructs Regional Comptrollers and Financial Management Officers to include
unliquidated obligations in their review plans.
3 - Further Improvement Needed in Managing EPA's Accounts Receivable
3.1 We recommend the Acting CFO revise RMDS 2540 Chapter 10 to include a time
frame for clearing balances held in suspense accounts.
We agree with the recommendation and will include a timeframe for clearing balances in suspense
accounts. However, we do not believe that accounts receivable issues are of major significance to
merit specific attention in the financial statement audit report. Accordingly, we believe that this
finding, "Further Improvement Needed in Managing EPA's Accounts Receivable" should be
removed from the audit report.
During FY 1999 we continued to refine our accounts receivable management practices and believe
that the Agency is more effectively managing its receivables. In fact, we are currently addressing
several accounts receivable issues that relate to the audit findings made in this report. With respect
to the specific audit findings, we would like to address the Region 2 finding which cites the Region
for failing to timely record ten Superfund accounts receivables valued at $60.9 million. Of these
ten receivables, we have determined that two receivables valued at $43.3 million were recorded
three days late and two receivables valued at $3.5 million were recorded seven days late. These
four receivables alone represent approximately 77% of the $60.9 million amount cited in your
report. We agree that constant vigilance and continued improvements are needed to ensure that all
documents establishing accounts receivable are provided within the three day standard to the
FMOs by the program offices, regional counsel offices, and DOJ. However, we do not believe
that the findings cited are sufficient to conclude a chronic timeliness problem exists within the
Agency.
4 - Additional Improvements Needed in EPA's Interagency Agreement Invoice Process
4.0 Additional Improvements Needed in EPA's Interagency Agreement Invoice
Approval Process
We generally agree with the audit findings in this area and as a corrective action, we agree to send
the Senior Resource Officials a list of "chronically" delinquent project officers on a routine basis.
5 - Continued Improvements Needed in Accounting for Capitalized Property
5.1 We recommend the Acting CFO issue guidance clarifying the criteria for capitalizing
an ADP system; and . . .
We agree with this recommendation. The OCFO is developing WCF guidance which clarified
10
-------
criteria for capitalizing ADP Systems.
Corrective Action Target Date
Issue revised guidance on capitalization 4/17/00
and depreciation of WCF property
5.2 We recommend the Acting CFO revise BOC definitions for capital equipment to be
consistent with Agency policy for capitalizing systems.
We agree with this recommendation. The OCFO will revise the current budget sub-object class
codes' definition of "ADP Equipment" to make it consistent with Agency guidance on accounting
for systems accordingly.
Corrective Action Target Date
Issue revised definition 2/28/00
for ADP equipment to
better reflect system purchases
5.3 We recommend the Acting CFO, in conjunction with the Assistant Administrator
for Administration and Resource Management, ensure procurement requests are
completed with the correct budget sub-object class code.
We agree with the OIG's recommendation. In January 2000, the CFO began providing training to
Agency staff who routinely prepare procurement requests (PRs) for property purchases. An initial
course was provided to the National Technical Services Division who purchases the greatest
volume of capital equipment on January 12, 2000. Additional training will be provided during
upcoming Agency conferences that may include attendees who are responsible for property
purchases.
Corrective Action Target Date
Conduct training on preparing PRs Ongoing during 2000
5.4 We recommend the Acting CFO, in conjunction with the Assistant Administrator for
Administration and Resources Management, emphasize to appropriate Agency
personnel their responsibilities to report receipt of accountable and capital property
to the appropriate PMO in a timely manner when property acquisitions are directly
delivered to the ordering official, and forward copies of appropriate documentation
to the PMO.
11
-------
We agree with the recommendation. The Office of Administration and Resources Management
(OARM) forwarded a January 12, 2000, memorandum to the SROs reminding them of their
property management responsibilities. It also requests their assistance in ensuring that property
received by their offices are reported to their respective property management officer timely. The
memorandum will also be placed on the FMSD web site.
Corrective Action Target Date
Memorandum to SROs Completed 1/20/00
5.5 We recommend the Acting CFO, in conjunction with the Assistant Administrator for
Administration and Resource Management, ensure that the appropriate personnel at
EPA's laboratories are trained on their roles and responsibilities when property is
directly delivered to a laboratory.
OARM agrees with the recommendation. We agree that EPA laboratories experience the same
type of problem as stated in Recommendation 5.4. However, we feel that the recent memorandum
issued to EPA SROs will also benefit laboratory personnel by reminding them to inform the
property office when accountable property is received.
5.6 We also recommend the Acting CFO, in conjunction with the Assistant
Administrator for Administration and Resources Management, improve the
reconciliation process by: (1) ensuring FAS reconciliations are conducted monthly
and at year-end; (2) requiring FMOs to thoroughly research any discrepancies
between the general journal and FA tables in FAS; and (3) requiring the FMOs to
certify the year-end reconciliations.
We agree that the CFO needs to improve the reconciliation process by ensuring that the Fixed
Assets Subsystem (FAS) reconciliations are conducted monthly and at year-end. We will require
the Financial Management Offices (FMO)s and Centers to thoroughly research any discrepancies
between the general journal and Fixed Assets tables in FAS. We will also will require the Financial
Management Officers to certify the year-end reconciliations. In addition, in our FY 2000 Quality
Assurance Workplan instructions, we instructed Finance Offices and Centers to include a review of
FAS reconciliations in their workplans to ensure they are performed timely and accurately. The
following action plan will be implemented to ensure that the above items are carried out:
Corrective Action Target Date
Send Finance Offices and Centers Completed
QA workplan instructions
Send Finance Offices and Centers On-going
reconciliation reports by the 15th of
each month requesting them to research
12
-------
discrepancies.
Send Finance Offices and Centers
Year-End reconciliation reports 10/16/00
Receive Finance Officers and Centers'
certification of year end reconciliations 11/15/00
6 - Automated Application Processing Controls for the Integrated Financial Management
Systems Could Not Be Assessed
The OIG made no new recommendations in this section. However, the OIG provided a discussion
of the reasons why this is still an issue for them. Our response to Pages 2-15 through 2-17 follows:
Page 2-15, Fourth Paragraph
The Audit Report stated:
"In response to the OIG audit report, Audit of EPA's Fiscal 1996 Financial
Statements, issued March 24,1997, the Agency completed a system documentation
analysis, developed updated Accounts Receivable documentation, and completed an
analysis for creating a comprehensive IFMS data dictionary. We concluded, as part
of our fiscal 1998 financial statement audit, that the Accounts Receivable
documentation was not adequate to establish the reliability of IFMS transaction
processing controls."
We believe it is important to recognize that the system documentation analysis and accounts
receivable documentation that American Management Systems (AMS) prepared was the result of a
Change Management System request that was prepared jointly with OIG staff.
Page 2-16, Second Paragraph (the next 6 quotations and responses apply to this paragraph)
"Treasury staff obtained the 12 percent figure from a contractor and disclosed that
they made no effort to validate the accuracy of the provided customization level."
We believe it is important to note that the "contractor" mentioned in this sentence was AMS, the
vendor for the software which also produced the 1993 estimates of "customization" that the OIG
mentions later in this section.
"We question Treasury's methodology for determining IFMS customization because
it significantly conflicts with other known facts. It is a generally accepted fact that
automated software systems tend to be more customized and costly to operate as they
become older. Today, the average life of a financial system in industry is
approximately five years. IFMS is over 11 years old. Thus, one would expect it to be
13
-------
highly customized and costly to operate."
Although IFMS came into use in 1989, we have continued to upgrade the system, integrating AMS
baseline code wherever possible. For example, since 1993 we have implemented seven IFMS
subreleases, among which was the major 1994 subrelease of IFMS 5.1e, which incorporated the
most recent AMS features and brought IFMS current with agencies who were adopting FFS at
that time as new financial management software. EPA has made a conscious effort to avoid
customization but rather to rely on baseline functionality wherever possible. Integrating baseline
code is definitely more cost effective than developing custom code. For example, we implemented
the FFS baseline Project Cost Accounting Module without any customization. We have also
incorporated a number of significant cost-saving features for the operation of IFMS over the years.
The generalizations cited by the OIG may be appropriate for the software industry do not fit the
actual experience with IFMS.
"Treasury's 12 percent customization figure also differs significantly from prior
audit information obtained from the same contractor in 1993. As of July 28, 1993,
the contractor indicated that a 29 percent difference existed between the FFS 5.1
baseline software and EPA's version of FFS 5.1 software (i.e., a 29 percent
customization level). The 29 percent figure was the result of a thorough line by line
comparison of EPA's version of FFS to comparable FFS baseline code."
We disagree with the statement that the 1993 estimate was based on a thorough line by line
comparison. The OIG's notes from 1993 indicate that the methodology was based on total lines of
code:
"Specifically, as of July 28, 1999, Ms. Firth indicated that the AMS FFS 5.1 Baseline
consisted of 866,750 lines of code and EPA 's version of FFS 5.1, the IFMS 5. le
Release, consisted of 1,216,089 total lines of code. Based on a comparison of the
lines of code, Ms. Firth indicated that the IFMS upgrade represented an
approximately 71 percent base lined system in terms of total lines of code, or an
approximately 29 percent customized system in terms of lines of code. "
Based on the OIG's notes, it would appear that the percentages were calculated by dividing total
lines in each version, not "line by line." However, we recently asked AMS for any records about
the 1993 methodology or results, but they were unable to find any documentation. We are also
unaware of any validation by the OIG or any other party of the 1993 percentages.
"The latest 12 percent figure was not computed using similar methodology, but
rather only by counting the lines of code marked as IFMS enhancements. We
consider Treasury's chosen methodology to be unreliable. While we concede that the
level of customization would have fluctuated since 1993, when the contractor
performed a line by line analysis, we do not think the evidence supports as significant
a decrease as is implied by Treasury's report."
14
-------
We believe the 1999 methodology is an appropriate approach, and arguably more accurate than the
apparent 1993 methodology, for estimating the percentage of "customized" code. Further, as
noted above, we do believe the evidence supports a significant decrease over the years in the
percentage of customized code. As we stated, since 1993 EPA has consciously used baseline
functionality wherever possible.
"Furthermore, after reviewing the supporting documents and work papers, we
concluded that no analysis was performed to verify the accuracy of the 12 percent
figure"
As noted above, we are unaware of any validation of the 1993 percentages, so those numbers
appear to have the same caveats attached to their reliability.
"As one would expect for an 11 year old system, IFMS is a very costly system to
operate. A recent CFO study concluded that EPA's financial system costs are 38
percent higher than the average of other Federal Government entities, and 9 percent
higher than the average of private sector entities. If, as Treasury proposes, the
system was basically 'off-the-shelf,' then one would expect these costs to be below
average, rather than above."
The referenced study was actually performed for a number of federal agencies by a consulting firm
known as the "Hackett Group." The study was performed in a very brief period of time and the
Hackett Group relied primarily on self-reporting by the participating agencies. There was no
rigorous analysis to ensure that the numbers being reported were derived in a consistent and
comparable way. We viewed the Hackett Group's results as indicating a need to look further into
our systems costs compared to other organizations, not as rigorously derived statistics that one
could rely on for specific actions or conclusions. Again, for the reasons stated earlier, we also do
not believe that the number of years since IFMS was installed is a basis for concluding that IFMS
has become more costly to maintain and operate.
"For these reasons, we cannot place reliance on Treasury's findings for audit
purposes."
We disagree with the OIG's conclusion. Instead, based on the information presented above, we
concur with Treasury FMS's conclusion that the combination of the AMS baseline FFS
documentation and EPA's user manuals meet sufficiently the criteria for Federal financial systems
documentation requirements.
Page 2-17, first paragraph
"In the interim, we believe that the CFO should implement an active data dictionary
for the existing IFMS. The Treasury review indirectly supports this action by
reporting that different data definitions are a compliance issue under OMB Circular
A-127."
15
-------
We believe that this is an incorrect interpretation of what Treasury FMS stated in the report. The
Treasury report stated:
"Although the Center believes the existing IFMS data dictionary is adequate for
operating and maintaining IFMS and its interface, the Center recommends that a
more comprehensive data dictionary be developed for a new replacement
financial system when EPA migrates from IFMS."
Treasury is referring to a data dictionary for the new system - not IFMS. As we have indicated in
our response to the 1997 and 1996 Financial Statements audit, we do not believe that the benefits
of additional documentation justify the costs to develop and maintain it. IFMS is a mature system
which has been in operation since 1989. Further, it would not be economical to make major IFMS
cost investments which could not be recovered within the next several years since OCFO will be
initiating a system replacement project for IFMS. We earlier stated to the OIG that it would
probably cost about $1,000,000 to document the IFMS modules, $250,000 to create a data
dictionary, and additional cost to maintain this documentation.
AUDIT REPORT ATTACHMENT 3 - COMPLIANCE WITH LAWS AND
REGULATIONS
7 - Revised Financial System Security Plans Continue to Be in Substantial Noncompliance
with Federal Financial Management System Requirements
7.1 The Acting CFO should incorporate planned fiscal 2000 security plan actions for
financial systems (IFMS, CPARS, MARS and EPAYS) into a formal remediation
plan.
OCFO agrees to develop a formal remediation plan. Incidentally, it's important to note that the
NSA study referenced in the Audit Report was requested by OCFO management to further
strengthen our system's security.
Corrective Action Target Date
Completion of Remediation Plan 3/31/00
8 - EPA Was Not Able to Accurately Account for the Cost to Achieve Each of Its Goals
As stated in previous correspondence to OIG, we continue to disagree with OIG's position and
believe we are in compliance with the Managerial Cost Accounting Standard (SFFAS 4) and the
Federal Financial Management Improvement Act (FMFIA). We consider SFFAS 4 a flexible
document which gives federal agencies broad discretion to interpret and implement the Standard in
a manner best suited to the Agency's needs and operating environment. Accordingly, we believe
EPA followed a reasonable, sound methodology to develop its cost accounting policies and
procedures.
16
-------
We readily acknowledge that cost accounting improvements can be made. However, the question
is whether our alleged shortcomings are so significant as to render us noncompliant with SFFAS 4
and, consequently, FFMIA. While we believe we meet the letter and the spirit of SFFAS 4, we
look forward to working with OIG to improve EPA's cost accounting capabilities including the
preparation of the FY 2000 Statement of Net Costs.
9 - EPA Was Unable to Present Required Information on Its Trading Partners
We recommend the Acting CFO:
9.1 issue an OCFO policy to require all finance offices to expedite the review of trading
partner transactions and the input of the trading partner information into IFMS to
ensure that the Agency can track and report trading partner information, and
9.2 establish quality control procedures to ensure the trading partner information is
entered into IFMS timely, accurately, and reliably to meet applicable reporting
requirements.
We agree with the recommendations. We are currently drafting, and plan to issue in the near
future, Policy Announcements on the trading partner requirements.
Corrective Action Target Date
Issue Policy Announcements on:
Coding trading partners transactions in IFMS March 15, 2000
Confirming and Reconciling Balances
with Trading Partners April 1, 2000
Accounting Entries for Trading Partners April 30, 2000
10 - Additional Action is Needed to Bring EPA into Compliance with User Fee
Requirements
We recommend that the Acting Chief Financial Officer follow through and either
institute, revise, or update all user fees or obtain exceptions from OMB as required
by OMB Circular A-25, " User Charges."
OCFO recently completed a Biennial Review of the Agency's user fee systems. The review was
performed in accordance with the CFO Act and provisions set forth in Office of Management and
Budget (OMB) Circular A-25, "User Charges."
During the 1999 Review, the Agency examined all six existing fee systems: Motor Vehicle and
17
-------
Engine Compliance Fee, National Radon Proficiency Program Fee, Maintenance Fee, Tolerance
Fee, Premanufacture Notice Fee, and Lead Accreditation and Certification Fee, and implemented
appropriate revisions. The review also identified potential new fee systems. The Agency is now in
the process of updating the eight special benefit services for exceptions requests that were
identified in the 1997 review.
A draft report on the 1999 Biennial Review of the Agency's user fee systems will be sent to the
OIG under separate cover; we expect to issue the final report by March 15, 2000.
18
-------
ATTACHMENT II
OCFO UPDATE TO AUDIT REPORT ATTACHMENT 4 - STATUS OF PRIOR AUDIT
REPORT FINDINGS
We reviewed Attachment 4 and have the following updates to the status of corrective actions in
response to specific audit recommendations:
Audit of EPA's Fiscal 1998 FS (Audit Report 99B0003, issued 9/28/99)
1.1 Completed.
1.3 Completed.
2.4 Completed.
3.1 Completed.
3.3 Completed.
3.4 Completed.
5.1 Completed.
5.2 Ongoing. Recommendation should be closed in OIG tracking system.
6.1 Memorandum to SROs issued 1/12/2000.
7.2 Completed.
9.1 The report notes (page 3-1, last paragraph) that the Agency revised its core system security
plans during 1999. Thus the "remediation plan corrective actions were completed on
schedule." The auditors evaluated the adequacy of the security plans for IFMS, MARS,
CPARS, and EPAYS, as approved in 1999. A revised security plan for CPS was approved
May 26, 1999, and a new security plan for TM+ was approved on September 13, 1999.
Copies of both security plans were furnished to the OIG auditors and the auditors did not
request any additional information. Since the auditors report no adverse findings with
respect to these security plans, we believe that no further remediation under this
recommendation is necessary.
9.2 Corrective Action: The Contracts Information System (CIS) has been in operation for a
number of years and has had an approved Security Plan in the past. Although security
controls for CIS have not changed, security information for this system is being
incorporated into the ICMS Security Plan.
19
-------
OARM Comment: The Contracts Information System (CIS) was retired on December 31,
1999. Therefore, a security plan for CIS is no longer needed.
Corrective Action: A Security Plan for the ICMS family of applications, which ICMS,
SPEDI and CDOTS, was approved by the Security Information Resources Management
Officer (SIRMO). The SIRMO has directed OAM to address issues brought up in a
extensive critique of the Security Plan by OIRM's IRM Policy and Evaluation Division to
add information to specific sections of the plan.
OARM Comment: The ICMS Security Plan will be largely rewritten to incorporate
changes in the system and its operating environment required for Year 2000 compliance
and migration to Lotus Notes electronic mail. As issues brought up in the critique of the
existing Security Plan by OKI's sections are completed, they will be forwarded to OARM's
Senior Information Resource Management Officer (SIRMO).
Target Date: Complete full Security Plan by September 30, 2000.
9.3,9.4
9.5 GAD Systems Security Plans will be completed as follows:
Issue P200/IGMS Security Plan, due date June, 30, 2000.
Issue Revised GICS Security Plan, due March 31, 2000.
OARM Comment: OARM/OGD is on target to meet the corrective action due dates.
Audit of EPA's Fiscal 1997 Financial Statements (Audit Report E1AML7-20-7008-810058,
issued 3/2/98)
2.4 Target publication date changed to 3/31/00, due to amount of comments and changes that
have to be incorporated into the RMDS 2540 Chapter 9.
7.1 This was completed on 1/13/00, with the issuance of Policy Announcement No. 00-02.
20
-------
APPENDIX III
REPORT DISTRIBUTION LIST
Acting Chief Financial Officer (2710 A)
Inspector General (2410)
Assistant Administrator for Administration and Resources Management (3101 A)
Assistant Administrator for Solid Waste and Emergency Response (5101)
Assistant Administrator for Enforcement and Compliance Assurance (2201 A)
General Counsel (2310A)
Acting Comptroller (2731 A)
Deputy Assistant Administrator for Environmental Information (2810)
Director, Office of Policy and Resources Management, OARM (3102 A)
Director, Office of Administration (3201 A)
Director, Office of Acquisition Management (3801R)
Director, Office of Grants and Debarment (3901R)
Director, Office of Administration and Resources Management, Cincinnati, OH
Director, Office of Administration and Resources Management, RTF, NC
Director, Office of Technology Operations and Planning (2810)
Director, Office of Site Remediation Enforcement (2271 A)
Director, Office of Emergency and Remedial Response (5201G)
Director, Annual Planning and Budget Division (2732A)
Director, Grants Administration Division (3903R)
Director, HQ and Desktop Services Division, OTOP (2832)
Director, Facilities Management and Services Division (3204R)
Acting Director, Financial Management Division (2733R)
Director, Financial Services Division (2734R)
Director, National Technology and Services Division, OTOP, RTF, NC
Financial Management Officers at Regions 2, 3, 4, 5, and 6, Cincinnati, Las Vegas, and RTF
Divisional Inspectors General for Audit
Chief, Financial Reports and Analysis Branch (2733R)
Chief, Program and Cost Accounting Branch (2733R)
Chief, Financial Systems Branch (2733R)
Chief, Financial Policies, Procedures and Compliance Branch (2733R)
Chief, Washington Financial Management Center (2734R)
Acting Chief, Security and Property Management Branch (3204R)
Kathy Sedlak O=Brien, Agency Audit Follow-up Coordinator (2724A)
Brigid Rapp, Audit Liaison for the Office of the Chief Financial Officer (2710A)
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
-------
Saundra Womack-Butler, Audit Liaison for the Office of Administration and Resources
Management (3102A)
Elizabeth Harris, Audit Liaison for the Office of Solid Waste and Emergency Response (5103)
Tom Pastore, Audit Liaison for the Office of Administration (3201 A)
Jeff Worthington, Audit Liaison for the Office of Environmental Information (2812R)
Greg Marion, Audit Liaison for the Office of Enforcement and Compliance Assurance (2201 A)
John Showman, Audit Liaison for the Grants Administration Division (3901R)
Pat Gilchriest, Audit Liaison for the Administrators Office (1104)
Al Demarcki, Audit Liaison for the Financial Management Division and Financial Services
Divisions (2733R)
William Stewart, Audit Liaison for the Office of General Counsel (2311 A)
Roland Cyr, Audit Liaison for the Financial Audit Division (2422)
EPA's Fiscal 1999 Financial Statements
Audit Report 00100231
------- |