UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL
NORTHERN DIVISION
77 WEST JACKSON BOULEVARD
CHICAGO. IL 60604-3590
June 26, 1995
MEMORANDUM
SUBJECT: Report No. E1AMB5-05-0053-5100372
Region 5's Budget Execution Process
FROM: Anthony C. Carrollo / (
Divisional Inspector^eneral ror Audits
Northern Division
TO: Valdus V. Adamkus
Regional Administrator
Region 5
We have completed our survey of Region 5's budget
execution process. EPA's National Performance Review (NPR)
team visualized an EPA where managers understand the link
between strategic planning, budget formulation, and the
operating plan; know early in the fiscal year what resources
are available to operate their programs; and are involved in
the budget execution process. We believe Region 5's budget
formulation and execution process meets these goals.
Region 5's Reinvention Implementation Plan identifies
the budget process and narrowly defined program elements as a
key barrier to organizational design flexibility. As part of
its reorganization, Region 5 is committed to creating cross-
regional teams. As the report recognizes, cross-regional
teams do not fit neatly into the current budget program
element structure. As part of its implementation plan,
Region 5 needs to work with Headquarters on how resources
should be allocated for cross-regional teams.
PURPOSE AND OBJECTIVES
Federal spending practices are receiving increased
scrutiny and criticism. The Vice President's Report of the
NPR of 1993 called for improved budgeting through linking
spending with program priorities and performance. Recent
Congressional actions, including the Chief Financial Officers
Act of 1990 and the Government Performance and Results Act of
1993, have also responded to the need for more accurate
financial reporting and more efficient program and financial
management in the Federal Government.
ury
Printed oa Recycled Paper
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Region 5*s Budget Execution Process
The objectives of our survey were to obtain an
understanding of how Region 5 managed the budget execution
process and to determine whether resources were used in
accordance with Congressional intent and Agency requirements.
BACKGROUND
More than a year and a half before a fiscal year begins,
EPA plans activities and calculates how much money it will
need to carry them out. The EPA national program offices,
with input from the regions, formulate the overall budget
request for accomplishing EPA's environmental program goals.
(Exhibit 1 contains a flowchart of the budget process,
focusing on the development and execution of the budget at
Region 5.) After the President and the Office of Management
and Budget (OMB) have reviewed the budget request, it goes to
Congress, usually in the December or January before the
fiscal year.
While Congress is reviewing the budget, EPA is
developing an operating plan. The budget request indicates
the aggregate amount of resources for the EPA regional
offices. The operating plan allocates resources to the
individual regions. In developing the operating plan,
Headquarters notifies Region 5 of the number of workyears it
may receive in each program for the upcoming fiscal year, as
well as the total amount of funding. Region 5 uses this
information to develop its part of the EPA operating plan.
The operating plan divides funds by program element and
budget object class. Program elements identify funds for
specific activities, such as indoor air program, regional
management, and hazardous substance spill and site response.
The budget object class describes what type of expenses the
funds are to be used for, such as personnel, travel,
administration, grants, etc. In developing the operating
plan, EPA may make changes to the original budget request.
These changes are approved by OMB and Congress during the
budget review process.
Congress passes an EPA budget, usually between October 1
and January 1 of the fiscal year. OMB provides the budgeted
funds to EPA by quarters. EPA Headquarters distributes funds
to Headquarters offices and the regions according to the
operating plan. Headquarters Budget Division provides Region
5 spending authority in an advice of allowance letter. This
advice of allowance, along with the operating plan, is the
basis for Region 5's budget.
REPORT No. E1AMB5-05-0053-5100372
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Region 5'a Budget Execution Process
During the fiscal year, Region 5 may find that certain
programs do not have sufficient funds to cover all expected
needs. Region 5 may reprogram resources between programs
within an appropriation. However, EPA as a whole must obtain
Congressional approval to reprogram funds into or out of any
program in excess of $500,000.
SCOPE AND METHODOLOGY
We conducted our survey fieldwork from January through
April 1995 at Region 5 in Chicago. Our survey covered the
Region 5 budget execution process for fiscal years 1994 and
1995. We also met with EPA auditors from the Office of
Inspector General's Central Audit Division to review their
workpapers and discuss their findings in an audit of Region
7's budget execution process. Details of our scope and
methodology are included in exhibit 2.
We performed our evaluation in accordance with the
Government Auditing Standards, 1994 Revision, issued by the
Comptroller General. We reviewed internal controls related
to Region 5's budget execution and its compliance with
Federal regulations. As part of our evaluation, we reviewed
the Region 5 Comptroller Branch's fiscal year 1994 Federal
Managers' Financial Integrity Act (FMFIA) report.
We issued a draft report to the Regional Administrator,
Region 5, on April 25, 1995. The Regional Adminstrator's
response, dated June 6, 1995, is incorporated into the report
and included as Appendix 1.
RESULTS OF REVIEW
Region 5's internal controls over the budget process
were effective. There was an open process of budget review
and negotiation through which Region 5 arrived at the
allocation of funds and workyears for each division. Region
5 used the Integrated Financial Management System (IFMS) to
record transactions and track the actual use of funds against
the budget. The Budget Section in the Planning and
Management Division provided the divisions periodic budget
reports from IFMS to reconcile with their supporting records
and to control their spending. Region 5 assigned employee
fixed account numbers that reflected the employees' work
activities, and personnel costs and workyears were charged to
the proper program elements.
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REPORT No. E1AMB5-05-0053-5100372
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Region 5' * Budget Execution Proce»
Budget Controls Were Effective
The internal controls over Region 5's budget process
were effective. The Region 5 budget process allowed for all
divisions to provide input and assume accountability for how
funds were budgeted and used. Region 5 tracked spending
against the budget in IFMS. Controls within IFMS prevent
Region 5 from spending more than its budget. The Region 5
divisions used periodic IFMS reports from the Budget Section
to reconcile budget and spending actions with their own
records. Effective internal controls over the budget process
reduce the likelihood that Region 5 will spend funds in
excess of its budget or for purposes not intended by
Congress.
Region 5 divisions made decisions on how workyears and
funds would be allocated. (See flowchart in exhibit 1.)
Workyears were allocated to the divisions based on the
results of national workload model distributions, inter-
divisional negotiations, and special regional needs. The
National Program Managers, working with the Deputy Regional
Administrators, used workload models to distribute workyears
to the regions. Within Region 5, the division directors
negotiated the movement of the workyears between divisions.
For example, the Office of Superfund gives workyears to other
media divisions to provide assistance in conducting Superfund
work. The Deputy Regional Administrators resolved any
disagreements on workyear negotiations.
The Deputy Council, consisting of the deputy directors
from each Region 5 division, was responsible for developing
Region 5's operating plan. The Deputy Council made decisions
on how personnel, travel, and other funds would be
distributed to the divisions. Funds were distributed to the
divisions based on workyear allocations and historical costs.
The Region 5 Deputy Council also decided on special regional
"tap" positions. These consisted of positions that were not
included in the national workload models, such as the State
Coordinators and the Regional Hearing Clerk. Region 5 taps
workyears from the divisions to cover these positions.
Region 5 inputs the operating plan into IFMS, which is
the official mechanism for recording transactions and
tracking the actual utilization of funds against the budget.
Controls within IFMS prevent any commitment of funds that
would create a deficiency in an appropriation. The Budget
Section monitored IFMS on a daily basis to ensure that Region
5 did not exceed its budget. For fiscal year 1994, Region 5
4
REPORT NO. E1AMB5-05-0053-5100372
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Region 5'» Budget Execution Process
obligations and expenditures did not exceed budgeted
appropriations.
The divisions remained involved in budget execution
throughout the year. The Budget Section provided the
divisions with monthly status reports from IPMS. The
divisions used these reports to reconcile with their records
and control their spending.
Region 5 Was Controlling Funds at the
Program Element Level
Congress approves EPA's budget at the program element
level, and EPA directives require control of funds at the
program element level. Resource Management Directive 2520
states that:
The amount of money allocated to one program
element determines how much the Allowance Holder
may commit or obligate for that program. The Funds
Certifying Officer should not certify funds if
processing an action would exceed the limit on a
program element.
However, Region 5 budget officials told us that
Headquarters Budget Division verbally instructed them to
monitor funds at the appropriation level. The fiscal year
1993 advice of allowance letter also stated that allowance
holders would be held accountable at the appropriation level,
rather than the program element level.
Based on Headquarters instructions. Region 5 implemented
procedures to monitor funds at the appropriation level.
During most of fiscal year 1994, Region 5 was not verifying
that funds were available in the program element before
committing funds for use. In the last quarter of fiscal year
1994, Headquarters Budget Division sent a memo to allowance
holders informing them that they should monitor at the
program element level. The Headquarters Budget Division
instructed Region 5 to move funds as necessary to cover any
overobligations of program elements. Region 5 Budget Section
was unable to balance all program elements by the end of the
fiscal year because Headquarters closed IFMS to all but
emergency reprogrammings. As of September 30, 1994, Region 5
had 22 program elements that were over-committed and
obligated. (See exhibit 3 for a comparison of budgeted and
actual costs for 1994.) However, none of these
overobligations violated the Congressional reprogramming
limitation of $500,000.
5
REPORT No. E1AMB5-05-0053-5100372
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Region 5's Budget Execution Process
For fiscal year 1995, Region 5 was monitoring funds at
the program element level, as required by EPA policy. Region
5 verified that funds were available in the program element
before committing funds for use.
Region 5 Allocation of Workyears Was Reasonable
During the divisional workyear negotiations, the program
divisions provided the Office of Public Affairs (OPA) and the
Information Management Branch (1MB) with additional
workyears. Each of these offices provided direct support for
program divisions and, therefore, charged program specific
program elements. We believe that based on how Region 5 is
organized, it was reasonable for personnel in these offices
to charge program specific program elements.
OPA coordinates public affairs for each division in
Region 5. Personnel in OPA generally charge their time to
regional management. However, OPA personnel who work for a
specific program charge their time to a program element
associated with that program. For instance, the public
affairs specialist that works with the air program charges
their time to the stationary sources enforcement program
element. An important part of an effective enforcement
program is communicating to the public EPA's activities. OPA
has a separate Superfund Community Relations Branch, which
provides community relations at Superfund sites. These
personnel charge their time to Superfund. Based on how
Region 5 has organized its public affairs activities, it is
reasonable OPA personnel to charge media specific program
elements.
1MB provides information management support to Region 5
divisions. In the FY 1994 Program Element Descriptions,
information management services are included under an
administrative management program element. However, Region 5
charged some information management personnel to program
specific account numbers. During fiscal year 1995, Region 5
divisions requested additional information management support
than was provided for in the administrative management
program element. The divisions provided 12.4 environmental
program workyears to 1MB to cover the additional information
management services. Region 5 analyzed what activities 1MB
employees were performing and assigned program specific
account numbers to personnel based on this analysis. We
believe Region 5's allocation of program specific account
numbers to personnel in 1MB was reasonable since 1MB was
providing direct support to the program divisions.
Information management support is needed to efficiently carry
6
REPORT No. E1AMB5-05-0053-5100372
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Region 5's Budget Execution Proceaa
out the activities described in the program elements 1MB
personnel are charging.
Employee Activities Were Accurately Recorded
Employee time was generally charged to program elements
that corresponded to the work the employee performed. We
tested a statistical sample of 33 Region 5 employees. (See
Exhibit 2, Scope and Methodology, for details of the
sampling.) We interviewed the employees as to their work
activities. We obtained employee fixed account numbers from
the Time and Attendance, Payroll, Personnel System (TAPPS)1
and from the EPA Payroll System (EPAYS)2. For each employee
in our sample, we compared the program element description
for the fixed account number to the activities the employee
was performing. The program element description agreed with
the employee activities for 32 of 33 employees. One employee
was not charging to the correct fixed account number. The
employee's supervisor was aware of the problem and was taking
action to correct the fixed account number.
Employee fixed account numbers are included in three
different information systems: TAPPS, EPAYS, and the
Electronic Timesheet System (ETS).3 The Budget Section
inputs changes in fixed account numbers into EPAYS. However,
changes were not reflected in the other two systems. Of
1,373 Region 5 employees listed in TAPPS, 105 {8 percent)
were missing fixed account numbers. In our sample of 33
employees, we also found that:
TAPPS did not have the correct fixed account number for
5 (15 percent) employees; and
ETS did not have the correct fixed account number for
one employee.
1 TAPPS is a subsystem of EPAYS used for data entry
into EPAYS.
2 EPAYS is the automated system for computing payroll.
It is used to upload payroll actions to IFMS as summary
transactions for inclusion in the general ledger and budget
tables.
3 ETS is a system that allows employees to complete
their payroll distribution timesheets on the computer.
REPORT No. E1AMB5-05-0053-5100372
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Region 5'B Budget Execution Proceaa
Ideally, these systems should be linked, and changes in
one system should be automatically reflected in the other two
systems. However, the systems were not designed to transfer
information. Therefore, the Budget Section needs to
systematically notify the Human Resource Branch, where TAPPS
is maintained, and the Superfund Accounting Section, where
ETS is maintained, of fixed account number changes.
Incorrect fixed account numbers in these systems could cause
an employee's payroll to be charged to the wrong program
element or appropriation.
DRAFT REPORT RECOMMENDATION
We recommended that the Regional Administrator, Region
5, implement procedures to ensure that fixed account numbers
are consistent in all information systems.
AGENCY COMMENTS
The Regional Administrator, Region 5, agreed with the
conclusions in our report. Region 5 agreed with the
recommendation and was formulating a plan for corrective
action.
ACTION REQUIRED
In accordance with EPA Order 2750, please provide this
office with a written response to the report within 90 days.
The response should include a corrective action plan, with
milestone dates, for implementing the draft report
recommendation.
This audit report contains findings that describe
problems the OIG has identified, and corrective actions the
OIG recommends. This audit report represents the opinion of
the OIG. Final determinations on matters in this report will
be made by EPA managers in accordance with established EPA
audit resolution procedures. Accordingly, the findings
described in this audit report do not necessarily represent
the final EPA position.
Should you or your staff have any questions, please
contact Charles Allberry, Audit Manager, at 353-4222.
Exhibits (3)
Appendix (2)
8
REPORT No. E1AMB5-05-0053-5100372
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Region 5*a Budget Execution Proceaa
EXHIBIT 2
Page 1 of 2
SCOPE AND METHODOLOGY
To gain an understanding of the budget process, we
reviewed laws, directives, policies, and procedures that
relate to the budget execution process, including: (1)
.Resource Management Directives 2510 and 2520, (2) Fiscal 1994
Appropriations Act, (3) advice of allowance letters, and (4)
EPA Budget Division Policy Statements.
To understand Region 5's budget process, we interviewed
officials in all divisions throughout Region 5 and in the
Comptroller Branch, Budget Section. We discussed how Region
5 formulated, executed, and monitored the budget. We
examined documents and reports that were part of the budget
execution process. We also reviewed Region 5's internal
controls over the commitment and obligation of funds, as well
as budget controls in the Integrated Financial Management
System {IFMS) . We did not perform any tests of controls
within IFMS.
To determine if Region 5 used resources in accordance
with Congressional intent and Agency requirements, we
assessed Region 5's compliance with its budget. We reviewed
Region 5's operating plans and reprogrammings of funds for
compliance with Congressional requirements and EPA
directives. We compared budgeted amounts of appropriations,
program elements, and workyears to the actual results.
We matched the National Program Manager-Deputy Regional
Administrator (NPM-DRA) Consensus Distribution of
workyears and the Region 5 operating plan to determine
if there were significant differences.
We compared the Region 5 budgeted funds and the actual
obligations to determine whether Region 5 exceeded its
portion of the budget at appropriation and program
element levels.
We compared the workyear and expense ceilings provided
in the fiscal year 1994 advice of allowance and the
actual use of resources to determine whether Region 5
exceeded ceilings.
To determine whether Region 5 was charging workyears and
personnel costs to the proper program elements, we tested a
10
REPORT No. E1AMB5-05-0053-5100372
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Region 5'a Budget Execution Process
EXHIBIT 2
Page 2 of 2
statistical sample of Region 5 employees. Our sample size
was 33 from a universe of 1,373 employees in all divisions.
The sample was based on an anticipated error rate of 3
percent, a desired precision of error rate of 10 percent, and
a desired confidence level of 85 percent. Prior to testing
the sample, we discussed our sample methodology with Region 5
management. We verified the accuracy of personnel charges
through tests of personnel records and payroll supporting
documentation. We interviewed the Region 5 employees in our
sample regarding their activities to determine whether the
fixed account numbers they were assigned properly reflected
their work activities.
11
REPORT No. E1AMB5-05-0053-5100372
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Region 5'm Budget Execution Proc<»»
EXHIBIT 3
Page 1 of 1
Comparison of Actual and Budgeted Costs *
Fiscal 1994
Program Element Detcription
1 Air Quality Management Implementation
2 Ambient Air Quality Monitoring
3 Radiation Program Implementation
4 Radon Action Program Implementation
5 Petticidet Enforcement
6 Pesticide* Program Implementation
7 Resource Management - Regions
g Administrative Management - Regions
9 Regional Support Services (Abatement, Control,
A Compliance)
10 Regional Support Services (Program and
Research Operation!)
11 Regional Counsel
12 Drinking Water Implementation (Midwest Hood)
13 Toxic Substances Enforcement
14 Hazardous Waste Management Regional
Strategy Implementation
15 Enforcement Policy ft Operation!
16 Military Base Closures - Nonsite
17 Wetlands Protection
18 Great Lake* Program
19 Water Quality Criteria, Satndards. and
Applications
20 Municipal Pollution Control
21 Hazardous Substance Spin A Site Response
22 Hazardous Substance Response - Office of
Air and Radiation
TOTAL
Approved
Annual Plan
$3,524,100
1,049,000.00
50,100.00
230300.00
688,400.00
344.200.00
244.200.00
28.703.00
5,687,206.00
53.000.00
1,073^00.00
138.900.00
1479300.00
3,562,100.00
39,919.00
115400.00
1,002300.00
3,227.300.00
5224WO.OO
279.793JOO
20341.101.00
224,257.00
J44.007.279
Cumulative Amount Over-
commitments Committed/ Percent Over
+ Obligation Obligated Annual Plan
$3437.191
1,0514)19.00
62068.00
234,818.00
709.241.00
352,068.00
244436.00
30,046.00
5.788312.00
57309.00
1.078335.00
148355.00
1481.194.00
3470^75.00
41.029.00
166300.00
1,004469.00
3.2344W8.00
561318.00
281320.00
20377,492.00
233,091.00
S44J47.474
113,091
24119,00
12.168.00
4418.00
20341.00
7368.00
336.00
1343.00
101,106.00
4309.00
4,935.00
9,455.00
1394.00
8,175.00
U 10.00
51400.00
1,769.00
7,688.00
384*18.00
1427.00
36391.00
8334.00
S340.195
0.4
03
243
2.0
3.0
23
0.1
4.7
13
8.1
04
63
0.1
02
23
44.7
0.2
02
7.4
OS
02
3.9
* Table lists only those program elements that were over -committed or obligated
This represented 22 out of 171 program dements.
12
REPORT No. E1AMB5-05-0053-5100372
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Region 5's Budget Execution Process
APPENDIX 1
Page 1 of 1
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGIONS
77 WEST JACKSON BOULEVARD
CHICAGO. IL 60604-3590
JUN 06 1985
KavTOTIC ATTENTION OF
R-19J
MRMORAKPUX
SUBJECTt Region 5 Response to the Office of Inspector General
Draft Report on Region 5's Budget Execution Process
ntOMi Valdas V. Adamkus
Regional Administrator
TOs Anthony C. Carrollo, Divisional Inspector General
for Audits, Northern Division
Thank you for the opportunity to respond to the draft report on Region
5's budget execution process. We found the report to be very
informative. We agree with the recommendation and are presently
formulating our plan for corrective action.
If you have any questions concerning these comments, please call
Howard Levin, Chief, Financial Analysis Section, at (312) 886-7522.
Valdas V. Adamkus
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REPORT No. E1AMB5-05-0053-5100372
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Region 5'a BudgetExecution Process
APPENDIX 2
Page 1 of 1
DISTRIBUTION
Region 5
Regional Administrator
Audit Followup Coordinator (MFA-10J)
Headquarters
Agency Followup Official;
Attention: Assistant Administrator for Office of
Administration and Resources Management (3101)
Agency Followup Coordinator;
Attention: Director, Resource Management Division {3304)
Director, Financial Management Center (3303-F)
Headquarters Library (3401)
Office of Inspector General
Inspector General
Deputy Inspector General
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