Review of Region 5 Accounts Receivable Process
January 2001 ' _
SUPERFUND PROGRAM REVIEW
Accounts Receivable Process
Region 5
Joint OECA/OCFO/OIG Review
Review # 2001-S-4
January 2001
EPA
350
2001.9
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Review of Region 5 Accounts Receivable Process
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
; WASHINGTON, D.C. 20460
JAN 1 9 2001
MEMORANDUM
SUBJECT: Superfund: Joint OECA/OCFO/OIG Review
Region 5 Final Report on Superfund Accounts Receivable Management
FROM:
•fl/Paul N. Connor, Director A/ ,
Policy and Program Evaluation Divisior
Office of Site Remediation Enforcement
Office of Enforcement and Compliance Assurance
te McNeil, Acting Director
Financial Management Division
Office of the Comptroller
Office of the Chief Financial Officer
John T. Walsh, Divisional Inspector General
Headquarters Audit Division ff
Office.of Inspector General, *
TO: William E. Muno, Director
Superfund Division, Region 5
Gail C. Ginsberg, Regional Counsel
Office of Regional Counsel, RegionS 'J
Cyprian Ejiasa, Comptroller
Region 5
The purpose of this memorandum is to transmit our attached "Superfund: Regional
Accounts Receivable Management Practices" Region 5 final report. As you know, a headquarters
team from the Office of Enforcement and Compliance Assurance (OECA), the Office of the Chief
Financial Officer (OCFO), and the Office of Inspector General (OIG) jointly conducted the review
in your region. This final report incorporates comments received from your staff. It cites several .
areas where the Region could improve their Superfund accounts receivable process and also
- includes recommendations to address areas heeding improvement.
1>M3 code 3201
O Pennsylvania fl*»*
'
Internet Address (URL) • http://www.epa.gov
.Printed wth Vegetate CM Based Inks en Recycled Paper (Minimum 25% Postconsumer)
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We thank you for your time and attention during our visit and your comments and actions
taken as a result of this review. Should you or your staff have any further questions or concerns
about this report, please contact Bruce Pumphrey on 202-564-6076.
Attachment
cc: Norm Neidergang (R5)
Howard Levin (R5)
Douglas Ballotti (R5)
Anthony Audia (R5)
Tom Marks (R5)
Peter Feiitti (R5)
Thomas Krueger (R5)
Sandra Otaka (R5)
Bill Messenger (R5)
Greg Marion (2201 A)
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Review of Region 5 Accounts Receivable Process
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TABLE OF CONTENTS
CHAPTER 1 1
INTRODUCTION ' 1
BACKGROUND 1
PURPOSE , 2
SCOPE AND METHODOLOGY 3
Interviews with Program, ORC and FMO Staff '. 3
Site Specific Review of Selected Accounts Receivable 3
RECONCILIATION OF REGIONAL DATA IN IFMS
AND DOJ TRACKING SYSTEMS 4
CHAPTER2 5
ROLES AND RESPONSIBILITIES 5
CHAPTER 3 8
SUPERFUND ACCOUNTS RECEIVABLE MANAGEMENT
PROCESS IN REGION 5 8
SUPERFUND ACCOUNTS RECEIVABLE TRACKING 9
SUPERFUND ACCOUNTS RECEIVABLE BILLING
AND COLLECTION PROCESS 11
RESULTS FROM JOINT REVIEW CASE SPECIFIC ANALYSIS OF OVERDUE
ACCOUNTS RECEIVABLE 13
RECOMMENDATIONS : 15
CONCLUSION ." 19
APPENDIX A 20
Summary of Issues At Selected Sites 20
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Review of Region 5 Accounts Receivable Process
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CHAPTER 1
INTRODUCTION
This report summarizes the results of our review of Region 5's procedures for managing
Superfund accounts receivable from establishment through collection. The review focused on
tracking and collection of overdue accounts receivable, and was conducted as a joint effort
involving three EPA offices: the Office of Enforcement and Compliance Assurance's Office of
Site Remediation Enforcement (OSRE), the Office of the Chief Financial Officer's Financial
Management Division (FMD), and the Office of Inspector General (OIG).
The review highlights the importance that the Agency, as well as the Department of
Justice (DOJ), places on the management of its Superfund accounts receivable, and the many
issues challenging both Headquarters and Regional offices. The results of this review will
benefit the EPA Superfund and financial management programs by highlighting the issues raised
by representative Headquarters and Regional EPA managers and staff, reinforcing positive
existing practices and proposing recommendations for improving future collection activities.
BACKGROUND
In 1980, Congress established the Superfund program by passing the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) and amended it in 1986
with the Superfund Amendments and Reauthorization Act (SARA.) The Superfund program
provides Federal clean-up authority and funds to address the problems posed by abandoned or
uncontrolled hazardous waste sites. Under CERCLA, a Trust Fund (Superfund Trust Fund) was
established to help finance the costs of cleaning up these sites. CERCLA also provides the
President with authority to pursue Potentially Responsible Parties (PRPs) to perform or pay for
the study and clean up of Superfund sites.
Section 107 of CERCLA gives EPA the authority to recover all Federal costs (including
oversight) associated with cleaning up a Superfund site. This authority is instrumental in
replenishing the Trust Fund and also provides incentives to PRPs to perform the cleanup
themselves. Recovery is initiated through negotiation with or legal action against a Superfund
PRP. DOJ has responsibilities for entering into cost recovery settlements on behalf of the United
States, as well as enforcing and collecting debts arising from Superfund cost recovery actions.
Since the beginning of the Superfund program, EPA has obtained approximately $4
billion in commitments/settlements from PRPs or court-ordered judgments against PRPs to
reimburse the Agency for past costs, bills to pay oversight costs, fines, penalties and cash-out
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settlements for future response work. Of that amount, over $2.8 billion has been collected and
returned to the Superfund Trust Fund. Approximately $200 million has been written off as
uncollectible, primarily the result of judgements against insolvent parties. Approximately $976
million remains uncollected, some of which has yet to come due.
PURPOSE
The Agency is currently working on several initiatives to improve its fiscal management
of the Superfund enforcement program. During 1998-1999, both OSRE and FMD made a
concerted effort to achieve an up-to-date billing for Superfund oversight costs to be paid to EPA
pursuant to settlement agreements. After improving the billing process, their attention shifted to
the collection of outstanding accounts receivable (i.e., cost recovery, fines and penalties, and
cashouts) to return monies to the Superfund Trust Fund to make more funds available for future
site cleanups.
In April 2000, an analysis based on data in EPA's Integrated Financial Management
System (IFMS) indicated that nationally there was approximately $527.0 million in total
outstanding accounts receivable greater than!20 days delinquent ($125.6 million at EPA and
$401.4 million at DOJ). Of that total amount, $252.2 million was considered potentially
collectible, $206.2 million was under appeal at DOJ, and $68.6 million was doubtful for
collection. At that time Region 5 reported approximately $63.3 million in total accounts
receivable greater than 120 days delinquent.
Because of the importance of the Superfund program and the large amount of dollars
involved in cost recovery, the OIG, at the request of OSRE, joined with OSRE and FMD to
review EPA's Superfund accounts receivable management process. The purpose of this review
was to identify accounts receivable management issues and best practices that facilitate the
management and collection of outstanding Superfund receivables, and to develop
recommendations for improving the process at EPA Regions, EPA Headquarters, and DOJ.
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SCOPE AND METHODOLOGY
• To accomplish the review objectives, OSRE,*FMD, and the OIG formed a team1 to
develop a methodology for the joint review. The team concluded that the most effective
approach for accomplishing the objectives would be to conduct on-site reviews in several
regions. Specifically, the intent of the on-site reviews was (1) to determine the effectiveness of
the region's policies and procedures for managing Superfund accounts receivable and
collections, and (2) to identify areas in the regional and national process which could be
improved, including areas in which Headquarters could provide better guidance and support.
The team selected three regions to review, Regions 1,5, and 6. Region 5 was selected because it
manages a large number of Superfund accounts receivable compared with the other regions. The
review results for Regions 1 and 6 will be reported separately and a consolidated report •
summarizing the results in ail three Regions will be distributed to all Regions as well as DOJ. .
Interviews with Program, ORC and FMO Staff
The team held a meeting with personnel within the Superfund Division (referred to herein
as the Regional Program Office (RPO)), the Superfund Branch of the Office of Regional Counsel
(ORC), and the Financial Management Office (FMO) to discuss the overall polices and
procedures supporting the regional Superfund accounts receivable process. Prior to our visit, we .
provided the Region with a questionnaire which' formed the basis of our discussions. The
questionnaire was a global survey regarding the accounts receivable process with subjects
ranging from establishing and recording accounts receivable through billing and handling of
overdue and uncollectible debts.
Site Specific Review of Selected Accounts Receivable
To further facilitate the analysis of regional policy for handling of accounts receivable,
we selected a representative sample of overdue accounts receivable for site-specific reviews. We
included at least one receivable from each IFMS status code category entered by the region,
focusing on those having large past due amounts that were also significantly overdue.
Our interviews were conducted with the staff responsible for tracking and collection
follow up activities for receivables, -in most cases the ORC and FMO. Our expectations were to
This Joint Management Review was conducted by a team of Agency personnel not all of whom were auditors, 'and
subsequently, was not done according to generally accepted government auditing standards as described in the June 1994
Revision of GAO's Government Auditing Standards. However, some auditing techniques were used by the joint management
review team. . .
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identify the reasons for the delinquency, actions taken by the Region to obtain payment or
resolution, and any future efforts to be undertaken. In addition, we hoped to identify common
problems across the range of delinquent receivables which could be addressed and improved
through future EPA, DOJ, and regional actions. The results of our review are discussed in
Chapters.
RECONCILIATION OF REGIONAL DATA IN IFMS AND DOJ TRACKING SYSTEMS
As part of this initiative, EPA is working in conjunction with DOJ to reconcile all
Superfund open accounts receivable information (i.e. cost recovery, fines and penalties, and
cashouts) recorded in IFMS with the data found in DOJ's tracking systems. This will determine
if amounts EPA has determined as DOJ's collection responsibility are consistent with those
recorded in DOJ's tracking systems and to ensure that there is mutual understanding of each
agency's respective collection responsibilities. Discussions held with Region 5 staff in April
2000 identified nine cases totaling $847,000 in receivables that, based on information from DOJ,
could be closed out in IFMS. We also identified 16 cases totaling $5.8 million in IFMS in which
we could not reconcile with reports generated from DOJ systems. We referred the discrepancies
to DOJ and they have researched them. The result was then provided to Region 5 for their
information and review. ;
Over the next year EPA intends to conduct this same reconciliation between IFMS and
DOJ data systems for all of the regions. Upon completion of the national reconciliation, we will
present the results of the review to DOJ and work with them to develop procedures for enhancing
the tracking of Superfund receivables. •
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CHAPTER2
ROLES AND RESPONSIBILITIES
In Region 5, the Program Office (RPO), Office of Regional Counsel (ORC), and
Financial Management Office (FMO) have responsibilities for Superfund accounts receivable.
Through interviews and the site-specific reviews, we learned that each office has a distinct role in
ensuring that accounts receivable documentation is prepared and/or forwarded timely; accounts
receivable are properly recorded and tracked; changes in accounts receivable status are
communicated among offices; and proper follow-up actions for disputed and delinquent accounts
receivable are initiated, as required.
In March 3990, Region 5 adopted a Memorandum of Understanding (MOU) to formalize
the accounts receivable establishment, cost recovery, and collection process between the ORC,
RPO, and FMO. The latest amendments to the MOU were incorporated in October 1997. While
this MOU establishes roles and responsibilities for each office with respect to cost recovery, the
MOU primarily addresses areas related to preparation of cost and work performed documentation
in support of litigation, settlement negotiations, and oversight bills. The MOU also contains
provisions related to post settlement/judgement accounts receivable management and collections.
The MOU places responsibility oh ORC to provide the FMO source documents necessary to
establish a receivable and to accept referrals for collection of debts greater than 120 days
delinquent The FMO-is primarily responsible for establishment of the receivable, tracking
payments, issuance of dunning letters for overdue receivables, and referral of uncollected debts
to ORC for collection". Based on our discussions with each office and review of the above
reference 1997 MOU, the roles and responsibilities in the accounts receivable process are as
follows:
Office of Regional Counsel
• When received from DOJ, forwards copies of judicial consent decrees and judicial
orders to the Program Accounting and Analysis Section (PAAS) in FMO and to
the Remedial Enforcement Support Section (RESS) in RPO for eventual
receivable establishment.
Follows up with DOJ to determine the status of delinquent judicial debts.
Follows up on bankruptcy cases, and cases where DOJ files proof claim on behalf
of EPA.
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• Makes decisions concerning the referral of delinquent debts to DOJ for
enforcement/collection.
• Develops and assesses liability evidence.
Evaluates cost documentation to provide advice on redaction requirements.
• Reviews draft dunning letters.
Accepts referrals for collection of accounts receivable greater than 120 days
delinquent for enforcement decision.
• Notifies FMO of enforcement/collection activities taken as follow up of referral.
Program Office
Forwards copies of Administrative Orders originating within the Agency to FMO
for eventual receivable establishment.
• . Reviews and approves oversight bills for collection.
• • Follows up with delinquent parties on an as-needed basis. (Dunning letters are
issued in accordance with FMD's guidance and do not ordinarily require
approval).
• Documents work performed on site.
• Keeps cost recovery targets on schedule.
• Assists ORC with settlement negotiations, and assess ability-to-pay claims.
Reviews and approves cost recovery packages.
• Issues demand letters and information requests.
Provides FMO with current status of all outstanding cases to enable the FMO to
record allowances for doubtful accounts.
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Financial Management Office
• Provides accounting information and documentation pertinent to cost recovery
actions.
• Coordinates the establishment of accounts receivable, prepares and tracks the
billings, tracks payments, and issues dunning notices as needed.
• Provides financial expert witness services as necessary.
• Works with ORC and RPOto support the financial aspects of the negotiation and
settlement processes.
• Tracks and reports cost-recovery-related activities.
• Assigns accounts receivable status codes and updates codes, as appropriate.
• Researches unidentified payments that come in prior to receiving the source
documents necessary to establish accounts receivable, and procures those
documents.
*
• Forwards all collections to Headquarters within 24 hours.
While Region 5 officials were able to identify the respective roles and responsibilities of
the RPO, FMO and ORC, their MOU tended to only establish the framework for the accounts •
receivable process with respect to Superfund cost recovery. The content for the vast majority of
the information documented in the MOU related only to the roles and responsibilities for the
preparation of cost and work performed documentation in support of cost recovery negotiations,
litigation, and issuance of bills for "future response costs" (e.g., oversight costs).
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CHAPTER 3
SUPERFUND ACCOUNTS RECEIVABLE MANAGEMENT PROCESS IN REGION 5
The Region 5 MOU indicated that its accounts receivable process follows procedures
outlined in EPA Management Directives 2540, Chapter 9, Receivables and Billings and Directive
2550D, Chapter 14, Superfund Accounts Receivable and Billings. Although Chapter 14
specifically addresses the management of Superfund accounts receivable, the document cross
references applicable sections in Chapter 9.
ESTABLISHMENT OF SUPERFUND ACCOUNTS RECEIVABLE
Accounts receivable arise from claims to cash or other assets. Although the Agency
establishes and records many types of accounts receivable, typical Superfund receivables consist
of either cost recoveries/past cost, future response costs, or cashout settlements. Under the
accrual basis of accounting, accounts receivable may be recorded as an asset from the time of the
event establishing a legally enforceable claim to cash or other assets against other entities until
such time as the amount claimed is either collected or determined to be uncollectible.
The Agency does not record Superfund accounts receivable in its accounting system (i.e.,
the Integrated Financial Management System (IFMS)) until legal liability has been
proven/established in the form of a settlement agreement or judgment. Accordingly, accounts
receivable may be recorded in IFMS upon receiving one of the following documents: (1) an
Entered Consent Decree (CD) approved by a judge which establishes a PRP's liability to EPA for
past costs, future costs, and/or cashouts; (2) a Judgment or unilateral decision made by a judge
which formally establishes a PRP's liability to EPA for certain costs or punitive damages that
compels a PRP to perform a certain action; (3) an Administrative Order on Consent (AOC)
similar to CDs, when a PRP agrees in writing to undertake certain actions and/or pay EPA for past
costs, future costs, and cashouts; and, (4) a Bill for Collection when future costs (e.g., oversight
costs) are owed EPA, and a bill with corresponding cost summary is sent to the PRP.
Region 5 expressed concern over delays in receiving documentation from DOJ. Delays in
receiving this information can have the following impact on the accounts receivable process:
• Accounts receivable are not established/recorded in a timely manner.
• Payment may be received by the Region, but due to the delay in establishing the
receivable there is no record against which to post payment. The payment will then go
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into EPA's "Suspense account" until the supporting documentation is received to establish
the account receivable. While these amounts are in suspense, they cannot be deposited in
the Superfund Trust Fund and do not accrue interest.
• Where source documents are not provided in a timely manner, the Region may be unaware
that a receivable exists and is already delinquent; consequently, they cannot accurately
calculate interest related to the delinquency.
In addition, on occasion, DOJ has failed to forward sufficient documentation or
correspondence advising the Agency of changes in the status of debts or closeouts. When DOJ
fails to notify EPA of changes in the status of debts or when they close their claims files, these
debts will continue to languish unnecessarily on the Agency's books and accrue compounded
interest which then inflates the Agency's assets as reported in its financial statements.
SUPERFUND ACCOUNTS RECEIVABLE TRACKING
•The ORC, RPO, and FMO share responsibility for coordinating the administration of
Superfund accounts receivable within Region 5. The Region uses two separate information
systems to track aging accounts receivables. The primary tracking system is EPA's IFMS located
at EPA Headquarters, and the Region's Cost Recovery Collection Tracking System (CTS) which
tracks all open receivables. As described in Chapter 2, receivables are established in IFMS by the
Financial Management Officer arid his staff in the Resource Management Division. As the
Agency's official accounting system, IFMS is also the Agency's official system for tracking
accounts receivable. However, retrieving data from IFMS in a report format that meets the
Region's accounts receivable tracking needs is difficult. Although the OCFO has made
substantial strides in this area by making accounts receivable data available through the Data
Warehouse on EPA's" Intranet site, additional work in this area would be helpful in meeting the
Region's data needs. • -
The Region has started tracking the status of receivables which includes providing a
quarterly report to ORC of payments and open receivables that are over 120 days old. The
accounts receivable status codes are periodically reviewed and updated at ad hoc reviews by using
FMO's 120-day accounts receivable report. In addition, FMO tracks the overall receivables and
routinely updates the status codes when notified by ORC when there has been a change in the
status of a receivable. The FMO also tracks payment of enforcement obligations and informs
both ORC and RPO of PRP failures to make timely payments. While the RPO does not do any
separate tracking of accounts receivable, the Region, through its MOU, established a Superfund
Cost Recovery Task Force that includes members from all three offices. Through the Task Force,
the Region plans to: (a) meet and identify sites that require cost recovery actions; (b) identify and
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discuss programmatic and site specific problems; and, (c) use the task force to focus on accounts
receivable issues and concerns. However, the Task Force had only met once prior to our review,
and had been inactive for quite some time prior to our visit.
Maintaining a separate system to meet the Region's needs can result in the inefficiency of
all of the regional systems and may result in data quality problems inherent with duplicative or
parallel data entry. The Region requires information from all of these systems in order to
effectively track and report on Superfund accounts receivable. Although these systems generally
contain a common identifier (i.e., EPA SSID number) that could be used to link the data, the data
resides on different platforms and is written in different software applications making it difficult
to integrate. Although the ability to use the common identifier exists, it has not always been
required in DOJ's systems and is not necessarily available when trying to reconcile data.
During our site specific interviews, we found several instances where the IFMS status
codes were coded incorrectly or receivables had not been reviewed and were no longer valid. For
example, Waste Inc. RD/RA Group (Case #6 - Appendix A) represented a demand for payment
under an Unilateral Administrative Order (UAO) and should not have been recorded as a
receivable in IFMS. In accordance with OCFO policy, demands for payments under UAOs
should be recorded in IFMS as memo entries and not as accounts receivable. The review also
identified cases where the receivable was no longer valid because the debt had been discharged as
the result of bankruptcy proceedings (Case #10 - Paste, Swift, Collins and Srnith/Verona Well
Field) or the outstanding receivable had been subsumed within a subsequent settlement.
In addition, other cases (refer to individual write-ups in Appendix A, i.e. Case #11 - Town
of Onalaska) were identified that have incorrect status codes such as instances where a receivable
was recorded as overdue when it was, in fact, an installment payment that was not yet due. Based
on our review, we believe that the Region needs to conduct a detailed review of all codes to
ensure that the correct codes are assigned. According to Regional officials, a review was initiated
on all overdue accounts receivable.
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SUPERFUND ACCOUNTS RECEIVABLE BILLING
AND COLLECTION PROCESS
Accounts Receivable Based on a Sum Certain Due'
on a Certain Date and Future Response Costs
Amounts collectable under judicial settlement agreements which specify a sum certain
which is due by a specific date are-not billed since the settlement document acts as the billing .
document. It is DOJ's Financial Litigation Unit's responsibility to enforce and collect these sums
without notice from EPA. Similarly, when an accounts receivable based on a sum certain due on
a certain date arising from an administrative action is established, the administrative order serves
as official notice of payment obligation. It is EPA's-responsibility to initiate enforcement and
collection of these administrative debts by first issuing warning letters to the debtors and then
referring the debts for collection to DOJ. (See "Interim Guidance on the Referral Process and
Timing for Collection of Delinquent Debts Arising under Superfund Judicial or Administrative
Settlements" dated April 6, 2000). >.
For consent decrees and administrative settlements which have a future response cost
reimbursement provision, it is EPA's responsibility to create the accounts receivable, establish the
amount due, and prepare and send a bill to the settling parties. Region 5 sends out approximately
160 oversight.bills per year averaging between $60,000 and $70,000 each. For ongoing oversight
work, the FMO is responsible for tracking when a bill is to be sent out and preparing the bill to
send to the PRPs. - For newly settled cases, the process for establishing an accounts receivable for
these bills starts when the RPO forwards the appropriate billing documents which are required to
establish the accounts receivable. The FMO establishes a receivable and assigns an status code
based on documents provided by'the program office. These codes are periodically reviewed and
updated at ad hoc reviews and included in the 120-day report. Under the current MOU, the ORC
is responsible for notifying FMO when there is a change in the status of an open accounts
receivable. ORC also resolves disputes with PRPs and solicits assistance from the DOJ to enforce
Consent Decrees. If there are disputes from previous bills, the Region should continue to bill the
PRPs. ... . ' '
- The FMO is responsible for .tracking overdue receivables and issuing the quarterly reports
on the status of aging accounts receivable. The ORC is responsible for notifying the FMO i^there
is a change in the status of an accounts receivable (per DOJ referrals), which is addressed in
general terms in the MOU. The Region uses coding sheets to reflect changes in IFMS and CTS
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on the status of overdue accounts receivable, and information included in the two systems are
reconciled to ensure the accuracy of the information being recorded.
The FMO issues a 120-day tracking report on aging accounts receivable based on
information recorded in both the Agency's IFMS and the Region's CTS. The information
includes narrative comments by the attorney assigned to the account receivable. Region 5
officials stated that while attempts are periodically made to reconcile billing and collections
information recorded between EPA's and DOJ's respective systems, presently there is no clear
way to identify differences between the agencies' accounting data. We were also told by
Regional officials that, currently, there is limited communication and followup with DOJ on the
status of overdue accounts receivable, and that discussions are .generally held on a case-by-case
basis involving staff attorneys.
Dispute Resolution
When a settling party formally invokes the dispute resolution provision under a settlement
agreement, the agreement will usually control the length of time and the manner in which the
parties have to dispute the issue. In Region 5, the most common types of disputed receivables are
contractor costs and state cooperative agreements.
Region 5 officials stated that most dispute resolutions are informal with the ORC
resolving disputes directly with the PRP. However, if the dispute cannot be resolved in this
manner, the PRP can invoke a formal dispute. Once the formal dispute has been invoked, the
PRP has a set period, usually 10 days, to file a written statement of position. If a cost dispute is
resolved, adjustments are then made to the outstanding bill. The length of time that it takes to
resolve a dispute usually varies on a case-by-case basis.
Writing off Delinquent Accounts Receivable
Region 5 follows the guidance described in ROMS 2540 for writeoffs of uncollectible
accounts receivable. The local threshold for writeoffs is $13,000, and the Director of EPA's FMD
can authorize writeoffs between $13,000 and $20,000. An EPA claims officer is authorized to
write off amounts from $20,000 to $100,000. We were informed by regional officials that write
offs for judicial actions require DOJ approval. We identified overdue accounts which needed to
be written off during our case specific reviews; the results of which are discussed on the following
page.
Both FMO and ORC officials acknowledged the need for a more collaborative effort in
order to generate and maintain an accurate status of delinquent and aging accounts receivable.
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The Region 5 FMO Chief stated that his office will be working towards determining which -
overdue accounts receivable are legitimate versus those which need to be written off the books,
referred to DOJ, or are under appeal. However, he indicated the need for documentation from
ORC to support writing off the remaining balances for some of the delinquent accounts receivable
and issuing an IRS form 1099 to the debtor for the remaining balance. The ORC indicated that an
assertive effort will be made to inform FMO of referrals status and internal actions generated
within the Region, which may require adjustments to the Region's accounts receivable ledger.
Since we found many of our 21 site specific cases which needed some action from regional
officials, we believe the Region should examine all outstanding receivables to determine what
additional actions are necessary.
RESULTS FROMJOINT REVIEW CASE SPECIFIC ANALYSIS OF OVERDUE
ACCOUNTS RECEIVABLE
We obtained information from the IFMS data warehouse (data as of 04/06/00) to select a
sample of overdue accounts receivable to discuss with the Region. Our intentions were to discuss
our sample cases with Region 5 officials in order to make recommendations, where necessary, for
improvements to EPA's collection of Superfund cost recoveries, cashouts, and fines and penalties.
Region 5's total outstanding accounts receivable amount was $63,331,196, of which $51,326,569
were reported as outstanding receivables that were EPA's collection responsibility and
$12,004,626 were reported as DOJ's collection responsibility. In addition, $36,615,823 (58%) of
the cases identified were categorized as doubtful outstanding receivables, $16,310,412 (25.7%)
were listed as collectible at EPA, $10,333,595 (16.0%) were listed as collectible at DOJ, and
$71,366 (0.-1%) were under judicial appeal.
We selected 21 overdue receivable cases that totaled about $37.8 million. Our selections
included cases from a majority of the accounts receivable status codes, focusing mainly on those
receivables having large past due'amounts that were significantly overdue. The age of the
receivables ranged from 309 days to 2,744 days delinquent, and the amounts outstanding from
$13,786 to $10,541,462. We interviewed regional staff responsible for overseeing accounts
receivable within ORC and FMO to determine the causes for the overdue accounts and/or action
that may have been taken by the region to either obtain payment or resolve outstanding issues.
Appendix A contains the case summaries of the delinquent accounts receivable we reviewed.
Overall, the results indicated a need for better coordination and communication between
FMO and ORC to ensure the status of the collectibility of accounts receivable (i.e., what is a
legitimate outstanding accounts receivable versus what needs to be written off the books as an
uncollectible account) is known to all parties and is accurately reported in IFMS. We also noted
the need for the Region to ensure that information which changes the status of an accounts
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receivable based on a decision by DOJ be disseminated from ORC to the FMO for timely
processing. Furthermore, our case specific reviews revealed the need for the region to make
adjustment to the total balance of overdue accounts receivable. Our conclusions for the cases
reviewed were based on (1) the PRPs inability to pay, (2) subsequent judicial enforcement actions
(e.g. Bankruptcy Discharges, delinquent costs rolled over into subsequent consent decree), or (3)
oversight costs demanded under Unilateral Administrative Orders (UAO's) that were mistakenly
established as accounts receivable.
Some notable issues identified during our case specific reviews were:
An overdue receivable for costs incurred at the Twin City Army Ammunition Plant
(TCAAP) has not been resolved. This case is based on an Office of Management and
Budget (OMB) ruling which the Army cites as reason why they are not obligated to pay an
outstanding accounts receivable because it would constitute an unauthorized augmentation
of EPA's appropriation (Case #13 - Appendix A). Thus, the Army contends that the OMB
ruling precludes them from paying the $7,170,718 in costs owed to EPA.
• Three separate accounts receivable totaling $ 1,113,578 and another receivable under
dispute (with a yet to be determined amount) which resulted from demands for payment
under a UAO, but which were carried on the books as overdue accounts receivable:
Waste Inc. RD/RA Group $540,018 (Case # 6 - Appendix A)
McBride, Baker & Coles 328,565 (Case #7)
Allied Chemical/Coke 244.995 (Case #18)
$1,113,578
Since demands made under UAOs are not legally binding claims, they are tracked in IFMS
as memo entries and not as receivables. Region 5 shoujd void these receivables and
establish the receivable amounts as memo entries within IFMS.
• Five cases totaling $24,797,141 which, based on the debtor's insolvency or inability to
pay, should be written off (see Appendix A).
MacGillis & Gibbs
Fast, Swift, Collins & Smith.
Brighton Township
JohnC. Haines
MacGillis & Gibbs
$13,365,831 (Case #4 - Appendix A)
10,541,462 (Case #10)
490,948 (Case #14)
148,900 (Case #15)
250.000 (Case
$24,797,141
14
-------
Review of Region 5 Accounts Receivable Process
January 2001
Based on these case-specific reviews, it was determined that a number of cases totaling
over $25 million were erroneously coded in IFMS and should be closed out or written off. These
cases were easily identified during the case specific discussions with the Regional staff involved,
however it was clear that prior discussions on these receivables had not occurred or were not
effective. More routine case specific discussions focused on overdue receivables amongst the
FMO, ORC and RPO may have identified these issues earlier and would be useful in the future.
In addition, having these receivables which are invalid or no longer collectable, may inadvertently
focus the Regions' attention on that which is not collectible and divert attention away from
receivables with a greater potential for collection.
In addition, while the joint review team in conjunction with the Region identified about
$26 million in receivables during our visit to the region, the data in IFMS does not reflect a
commensurate reduction in their delinquent receivables balance as of yet. Rather preliminary data
indicates that the Regions total delinquent receivables balance actually increased by $3 million.
This reflects a need by Region 5 to further address this issue.
RECOMMENDATIONS
Region 5
The Region should establish a process in their MOU that provides for notification to ORC
of delinquent accounts receivable more frequently than every 6 months.
• The Region should provide for more frequent, direct communications between the RPO,
ORC and FMO to discuss delinquent accounts receivable and evaluate whether the terms
and conditions of the MOU are being met.
• More direct involvement and frequent discussions with all three Region 5 offices on aging
accounts receivable should occur to coordinate and resolve any concerns. This could be
done at the Cost Recovery Task Force meetings. While the Region has re-established its
Cost Recovery Task Force to focus on accounts receivable issues, it had only met one time
prior to the review. It is imperative that this Task Force meet frequently to discuss
outstanding accounts receivable until such time as the Region's balance of overdue .
receivables has been substantially reduced or action taken to enforce (i.e. referral to DOJ)
or write off the delinquent debts.
• Based on information obtained through routine communications during meetings of the
Cost Recovery Task Force, the FMO should update IFMS to reflect changes in the status
15
-------
Review of Region 5 Accounts Receivable Process
January 200]
of the collectibility of debts and close out debts that have been discharged through
bankruptcy proceedings or written off or subsumed with subsequent settlements. During
the site specific reviews, the Region indicated that receivables established under UAOs
would be removed from the IFMS and that bankruptcies that had been discharged would
be closed out. However, previous data from IFMS indicated that one bankruptcy that was
discharged remains open in IFMS (Shenango Group Inc. - Buckeye Reclamation) and a
demand to pay oversight costs issued under a UAO remains coded as a receivable
(McBride, Baker and Coles - BD05299T065A) arid not a memo entry per OCFO policy.
Finally, the receivable for the Town of Onalaska remains reported as overdue when the
Region indicated that this is an installment payment and is current. Based on these
examples, the Region must make extra effort to review their overdue receivables
frequently and ensure that their correct status is accurately reflected in IFMS in a timely
fashion.
Conduct annually a comprehensive review of open accounts receivable. The Region
should ensure that allowances for doubtful accounts are established and/or revised, as
needed. This action requires the FMO and RPO to review the status of delinquent
accounts receivable to determine the likelihood of collecting and establishing, or adjusting,
allowances for amounts deemed to be uncollectible.
Where needed, ORC and RPO should provide timely information to FMO through the
review of the 120 day tracking report so that necessary changes can be made on the status
codes for overdue accounts receivable.
The Regional MOU should be updated to accurately reflect current roles and
responsibilities and actions among the three offices.
RPO, FMO, and ORC should research the availability and access to other accounts
receivable reporting resources such as the Data Warehouse and other reporting tools to
supplement existing reporting capabilities.
Make necessary adjustments to the outstanding accounts receivable ledger to reflect
overdue amounts discovered that need to be written off or adjusted due to the debtors'
inability to pay.
Establish more communication with DOJ on the status of delinquent accounts receivable.
16
-------
Review of Region 5 Accounts Receivable Process
January 2001
Implement Headquarters "Interim Guidance on the Referral Process and Timing for
Collection'of Delinquent Debts Arising under Superfund Judicial or Administrative
Settlements" dated April 6,2000.
Headquarters - OCFO/OSRE
Revise provisions of the EPA/DOJ Memorandum of Understanding (and associated
portions of the EPA/DOJ IAG) to ensure that documents necessary to establish accounts
receivable and update changes in the status are transmitted to EPA by DOJ in a timely .
fashion. ., , - . .
.-Conduct an analysis of the lag time between: 1) the entry of the consent decree and receipt'
of the documentation by EPA and 2) the receipt of the consent decree by EPA and the
establishment of the associated account receivable in order to identify specific instances
where accounts receivable are not being established in a timely manner.
Examine the resulting information to identify: 1) which accounts receivable are not being
established in a timely manner because EPA or DOJ did not provide the necessary
documentation 2) any EPA regions or U.S. Attorneys Offices regularly experiencing
significant delays. Provide the findings to FMD for review and discussion with DOJ at
quarterly meetings.
Explore the options and legal ramifications of establishing accounts receivable through the
electronic notification process or other alternative means (e.g., electronic facsimile of info,
email). Region 5 reported that the information currently provided in electronic form at
(the DOJ "Debts Assessed Report") has been useful.
Examine the feasibility of integrating data from existing information systems (i.e., IFMS,
CERCLIS, and DOJ systems) to meet Regional information needs for effective receivables
management... •
«*
Headquarters - OCFO
Based on input from Regions and existing Regional practices, identify and implement
short term enhancements to the IFMS Data Warehouse that would facilitate and enhance
accounts receivable management in the regions.
Review existing IFMS accounts receivable status codes to eliminate any overlap and
ambiguity in interpretation. Add new or revised codes, as necessary. Review existing
17
-------
Review of Region 5 Accounts Receivable Process
January 2001
accounts receivable Status Code definitions to determine if it is necessary that they be
clarified or revised to ensure that they can be properly applied and recorded in IFMS.
• Revise Chapter 14 - Superfund Accounts Receivable and Billing to conform to the April 6,
2000 Guidance.
Department of Justice
• Notify EPA in writing (e.g., Debt Closeout and Surveillance Letters) and provide source
documents (e.g., bankruptcy settlements and associated discharge notices) concerning
changes affecting the collectibility or final disposition of debts. EPA recommends that the
IAG be modified to require DOJ to provide such documents to the ORC and FMO within
30 days of any action which formally changes the status of the collectibility of the debt.
• Establish single point of contact for judicial source documents at DOJ.
• Provide the Region with the newly created payment report on a quarterly basis.
• Determine if DOJ would provide EPA to access its TALON and CLASS systems similar
to, its now defunct Lands Docket Tracking System in order to facilitate regional access to
DOJ receivable and payment information.
• When an adjustment is made that reflects a change in a receivable, DOJ needs to provide
information, such as CDs and Court Orders, to ORC and FMO in a more timely basis and
to share decree tracking information as needed.
• Establish better communication with regional offices on overdue receivables.
• Provide the region with timely reports on payments. .
Headduarters-OCFO/OSRE/OGC/DOJ
• Develop a policy on the authorities and procedures for writing-off CERCLA debt. OSRE
is currently researching this issue. Guidelines should also be developed to specifically
address procedures for writing off de minimis amounts of unpaid interest.
18
-------
Review of Region 5 Accounts Receivable Process
January 2001
CONCLUSION
While the Region has taken steps to improve accounts receivable, in Chapter 3 we have
identified additional actions the Region can take to further improve the overall management of its
accounts receivable. For example, the Region could significantly improve the way it manages its
accounts receivable by simply improving the way the offices involved in the accounts receivable
process interact and communicate. The ability to establish, track, and effectively communicate
and discuss changes concerning the status of accounts receivable is the key to successfully
managing accounts receivable. Without routine communication, open accounts receivable that
should be closed or referred to DOJ might languish unnecessarily for extended periods of time
and will subsequently inflate Agency assets as reported in its annual financial statements. These
accounts also could divert attention from receivables that are truly collectible.
With this thought in mind, we believe that the three Region 5 offices should engage in
routine discussions concerning changes in accounts receivable and .the status of delinquent debts
to determine appropriate follow up actions of any uncollectible amounts. Routine follow up on
these delinquencies will enable the Agency to enforce and collect debts when possible, and to
more accurately report the status of its assets.
19
-------
Review of Region 5 Accounts Receivable Process
January 2001
APPENDIX A
Summary of Issues At Selected Sites
20
-------
RESOLUTION
ISSUES
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This receivable was comprised of amounts from
CDs. The original CD was entered in 1992 and
two more CDs were entered in 1996 and in 1997.
A total of $1,129,837 has been collected for the
Trust Fund. The regional attorney concluded tha
the amount currently outstanding is valid and
collectable. According to the attorney, collectior
is being held up due to a diminimis PRP situatior
CM
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clarification was provided; an
this erroneous receivable has
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would be submitted for write- |
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RESOLUTION
The $800,000 receivable
amount should be removed
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Finance, these amounts wi
moved from receivable
amounts to memo entries
within IFMS for internal
o
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tracking purposes, and wil
be reflected as receivables
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These actions include oversight
The Region sent a bill in 1989 ^
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agreement and obtain DOJ
concurrence since this will
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finalized. This amount, approx
would cover all response costs.
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payment plus interest. Becaus
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proceeds, the balance of the
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decision document is required:
the 10-point settlement
document addressed the
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unrecovered amount.
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RESOLUT1
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remaining. Upon <
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region used to continue insurance litigation.
Lawsuit #2 settled with Grand Trunk for $4.71*
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(a de minimis settlement with 65 parties and 4
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against some generators/transporters for Raym
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court on arranger issues.
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performed contractor costs documents. The ORC
requested work performed documents from FMO
several months ago. Work performed documents
should come from the program office, not FMO.
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costs from another Government agency (the
Army) because it would constitute an
unauthorized augmentation of the former's
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appropriation. However, some Agency officials
believe this situation is similar to when EPA
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RESOLUTION
ISSUES
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township for income) for recovery of response
costs. In i 995, Jack Collet filed for bankruptcy.
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township appealed the ruling and the case went to
the Sixth Circuit Court of Appeals in 1997, which
til
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again ruled that the Brighton Township was liable
00
solve the outstandi
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vacated the original judgement against the
Brighton Township. In March 2000, Mr. Collet
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a responsible party in the judgement for $490,000.
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RESOLUTION
ISSUES
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revised; and Hawthorne paid the first $200,000
installment in April 2000. Therefore, this
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a civil action (code 1 07) resulting in two consent
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decrees in which the Agency agreed to settlement
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bankruptcy items together totaling $6.7 million.
A total of $4.9 million remains from the original
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Gibbs company (Central Labs) have rendered
them insolvent and unable to pay on the
outstanding balance of $4.9 million. The ORC
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