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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
FEB 28 1995
' '
^x
, h
OFFCEOF .
' THE INSPECTOR GENERAL
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In accordance with EPA Order 2750, you are required to
.provide this office a written response to the audit report within
90 days of the final audit report date. For corrective actions
planned but not completed by the response date, reference to
specific milestone dates will assist Us in closing the report.
During our upcoming audit of the fiscal 1995 financial
statements, we will continue to work with your staff to assist
them in implementing corrective actions to improve the accuracy
and timeliness of EPA's financial information.
4 - " / "
Should you or your staff have any questions concerning this
report, please contact Melissa Heist, Divisional Inspector.
General, Financial Audit Division at (202) 260-1479, or Christine
Baughman of her staff at (202) 260-1480.
Attachment . . r
cc: See Report Distribution List
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EXECUTIVE SUMMARY
PURPOSE
As required by the Chief Financial Officers Act of 1990 (the CFO
Act), this report contains the results.of our audit of the
Environmental Protection Agency's fiscal 1994 financial
statements that cover the:
Hazardous Substance Superfund Trust Fund (Superfund Trust
Fund), .
Leaking Underground Storage Tank Trust Fund (LUST Trust Fund),
Oil Spill Trust Fund, \
Asbestos Loan Program, , .
Pesticides Reregistration and Expedited Processing,Fund (FIFRA
Fund), and the
Revolving Fund for Certification and other Services (Tolerance
% Fund).
Our objective in carrying out this audit was to express an
opinion on whether these financial, statements are fairly
presented. We also evaluated the adequacy of the internal
controls EPA had in place to ensure that losses, noncompliances
or misstatements that would materially impact the financial
statements would be prevented or detected. In addition, we
tested EPA's compliance with significant provisions of laws and
regulations that would materially affect the financial
statements. < '
RESULTS OF AUDIT
SUMMARY OF OPINIONS OR DISCLAIMERS
1994 AND 1993 FINANCIAL STATEMENTS
OF OPINION ON EPA'S FISCAL
During fiscal 1994, EPA continued to make improvements in its
financial systems and processes. As a result of these
improvements, and assistance projects completed by our office and
our contract independent public accounting firm, we are issuing
unqualified or qualified opinions on several financial statements
for which we disclaimed an opinion last year. The charts which
follow summarize the.opinions or disclaimers of opinion on the
fiscal 1994 and 1993 financial statements. Details about the
qualifications and disclaimers begin on page 5 of the audit
report. .
Audit Report E1SFL4-20-8001-5100192
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Opinions On Fiscal 1994 Financial Statements
PROGRAM
Superf und Trust Fund
LUST Trust Fund
Oil Spill Trust Fund
Asbestos Loans
V.' -,
'FIFRA Fund
Tolerance Fund
* \
FINANCIAL
POSITION
Disclaim
Qualified
Disclaim
Unqualified
Qualified
Unqualified
OPERATIONS
& CHANGES IN
NET POSITION
Disclaim
Qualified
Disclaim
Qualified*
Disclaim
Disclaim*
CASH
FLOWS
Disclaim
Qualified
Disclaim
Unqualified
Qualified
Unqualified
BUDGET '&
ACTUAL
EXPENSES
Disclaim
Qualified
Disclaim
Qualified*
Disclaim
Disclaim*,
Opinions On Fiscal 1993 Financial Statements
PROGRAM
Superf und .Trust Fund
LUST Trust Fund
Oil spill Trust Fund
Asbestos Loans
FIFRA Fund
Tolerance Fund
FINANCIAL-
POSITION
Disclaim
Qualified
Unqualified
Qualified
Qualified
Disclaim
OPERATIONS
& CHANGES IN
NET POSITION
Disclaim
Disclaim ,
Qualified*
Disclaim
Disclaim
Disclaim
CASH
FLOWS
Disclaim
Disclaim
Unqualified
Disclaim
Disclaim
Disclaim
BUDGET &
ACTUAL
EXPENSES
Disclaim
Disclaim
Qualified*
Disclaim
Disclaim
Disclaim
* Qualification or disclaimer is based solely on our decision
not to audit costs allocated to the fund from other
appropriations due to the substantial increased audit effort' that
would have been required. ,
RESULTS OF OUR EVALUATION OF INTERNAL CONTROLS
MATERIAL WEAKNESSES
In evaluating, the Agency's internal controls, we noted the
following material weaknesses which are described in more detail
in Attachment 1. OMB Bulletin 93-06, "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 or irregularities in amounts
Report B1SPL4-20-8001-5100192
ii
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material to the audited financial statements could occur and not
be detected in a timely manner by employees in the normal course
of performing their assigned functions. .
Additional Information And Reports Would Allow Agency Officials
To More Effectively Manage Financial Activities .
The*Agency's financial activities could be more effectively
"managed if additional information was available, and,if available
information was provided in more useful formats and was better
used to analyze the Agency's financial activity. Lack, of
adequate information and reports has resulted in Agency officials
being unable to effectively monitor some asset and liability
accounts. . in some cases, to obtain information needed in a
timely manner, Agency officials operate systems that require them
to enter information already in the accounting system. For a
number of years, Agency officials have acknowledged reporting
problems related to the accounting system in their annual report
to the President on Agency controls. Consequently, many of the
problems identified during this audit are being addressed by
Agency officials.
Property Balances Included In The Agency's Financial Statements
Could Not Be Audited
S '
The Agency's procedures, for capitalizing property do not identify
all property which/should be capitalized. In addition, property
that is capitalized in the accounting records is not reconciled
with the results of the Agency's physical inventory of property.
Instead, the results of the physical inventory,are reconciled to
-the Agency's Personal Property Accountability System (PPAS).
Consequently, when individual items of property are replaced,
transferred, or lost> these changes are reflected in PPAS, but
not in the accounting records. As a result, we were unable to
audit either the property balances or the related depreciation
reported in the Superfund, LUST, and FIFRA financial statements.
Improvements Needed In Recording Accounts Payable And Accrued '
Liabilities \ . . '
We examined the accounts payable and accrued liabilities balances
as of September 30, 1994, for 8 of EPA's 14 Financial Management
Centers (FMC). We found that Financial Management Officials*
generally followed instructions for calculating accounts payable
and accrued liabilities at year end. However, we did identify a
net $833,000 understatement affecting the financial statements of
the Superfund, LUST, and Oil Spill Trust Funds and the FIFRA
Fund. The misstatement was partly caused by problems with the
Commodity Tracking System, which was developed at Research
Triangle Park (RTP) and used to generate Commodities Accounts
Payable/Accrued Liability detail. Washington FMC officials also
misstated their accruals by relying on the system's inaccurate
.data. In addition, for. the six funds audited, we identified 34
Audit Report B1SFL4-20-8001-5100192 iii
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out of 336 liability accounts at the accounting point level that
carried debit balances at year end when they should have had a
credit or zero balance., .
Grantee Payment Requests Do Hot Provide Necessary Accounting
Information ' . , .
Recipients of EPA assistance agreements (grants) generally did
not provide accounting information on their requests for payment,
via electronic fund transfer. Some EPA grants for which l
recipients requested payment were funded from more than one
appropriation. Without information on which appropriation to
charge for the payments made, the Las Vegas FHC processed
disbursements on multi-funded grants using a first-in first-out
(FIFO) method. Under the FIFO method, the oldest available
* funding was used first regardless of which appropriation
benefitted from the work performed under the grant. Using the
FIFO method could result in a misstatement of expenses during the
fiscal year among the Agency's appropriations.
Accounting For Superfund Receivables Has Improved
f "
Emphasis by Agency management on accounting for accounts
receivable, and work performed by our contract independent public
accounting firm to identify unrecorded receivables, succeeded in
reducing the number of unrecorded accounts receivable we
identified .during our audit of the fiscal 1994 financial ,
statements. Unlike fiscal 1993, in which the auditors discovered.
material amounts of unrecorded Superfund receivables, the fiscal
1994 audit identified only five receivables that were not
recorded timely, including two valued at $4.7 million, that were
not initially included in the financial statements. We also
found the allowance for doubtful accounts was understated by
$346,701, and marketable.securities totaling $4.7 million
accepted in settlement of existing accounts receivable had not
been recorded. These errors indicate that management should
continue its emphasis on the recording of Superfund accounts
receivable and the related allowance for doubtful accounts.
EPA Needs To Record Superfund State Cost Share Credits
When EPA takes the lead in the cleanup of a Superfund site, it ,
enters into an agreement with the state, commonly referred to as
a Superfund state contract, for the state to share in the cost of
the cleanup. States can make payments to EPA for their share of
cleanup costs, or they can receive credits for the amounts they
incurred for remedial actions prior to entering into a Superfund
state contract with EPA. These credits were not being recorded
in IFMS when EPA entered into agreements with states. We believe
these credits are an economic event that should be reflected in
the accounting records and related financial statements. Agency
guidance also requires that the .credits be recorded in the
Integrated Financial Management System (IFMS), but
Audit Report E1SFL4-20-6001-5100192 iv
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'instructions nave not been provided to finance offices on how to
do so. - -i . - -
REPORTABLECONDITIONS ,
We also Identified the following reportable conditions during our
audit. These conditions are described in detail in Attachment 2.
OMB Bulletin 93-06 defines a reportable condition as an internal
control weakness that could adversely affect EPA's ability to
ensure: (1) obligations and costs are in compliance.with
applicable laws; (2) funds, property, and other assets are
safeguarded against unauthorized use or disposition; and
(3) transactions are properly recorded to permit the preparation
of reliable financial statements. < . . -
Processing Controls For The IFMS And The EPA Payroll
Not Be Assessed
Svstem Could
We could not assess the adequacy of the automated data processing
control structure as it relates to application processing .,
controls for IFMS and the EPA Payroll System (EPAYS) due to the
lack of technical system documentation. These applications have
a direct and material impact on the Agency's financial .
statements. Therefore, an assessment of each application's
automated input, processing, and output'controls, as well: as
compensating manual controls, was necessary to determine the
reliance we could place on the controls and the associated risk
of potential misstatements in the financial statements. Despite
the considerable amount of documentation which was delivered at
the time we performed our fieldwork, responsible Agency officials
were not able to provide us with technical system documentation
which adequately described the flow of transactional data within
either the IFMS or EPAYS. Without critically important system
documentation, we were unable to: (1) identify automated
processing controls; (2) assess their relative importance to
application processing; (3) determine their reliability; or
(4) plan substantive testing of selected processing controls. ,
More importantly, the absence of critical system documentation
increases the risk associated with maintaining complex
application systems, such as IFMS and EPAYS, and jeopardizes
their continuity. .
Controls Over Security And Data Integrity In The Asbestos ,^
Receivables Tracking Svstem Need To Be Strengthened -
Weaknesses exist in the general automated data processing
controls in the Asbestos Receivables Tracking System (ARTS) at
the Las Vegas FMC. ARTS is a personal computer based system for
managing approximately 1400 loans totaling approximately $139
million in support of the Asbestos Loan Program. ARTS provides
the subsidiary ledger for loans for the Integrated Financial
Management System (IFMS). Specifically, ARTS lacks: (1) adequate
security over computer programs and loan data, (2) a virus
Audit Report ElBFI.4-20-8001-5100192
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protection program, (3) standardized backup and recovery
procedures, (4) an IFMS interface, and (5) a problem/change
control log. These 'deficiencies could prevent EPA from:
(1) adequately maintaining the integrity of the loan data and .
programs; (2j providing timely backups; (3) eliminating duplicate
data entry, thereby reducing processing cost; and (4) adequately
monitoring system problems and requested program changes.
* j
ProjectOfficers Were Not Receiving Information Needed To Monitor
Interacrencv Agreements ,
^^ ^ : \
Project officers for three interagency agreements (lAGs) in our
disbursement sample were not receiving information they needed to
determine if payments they approved reflected costs incurred and
progress made by other Federal agencies performing work for EPA.
These project officers approved $30 million of Superfund and
FIFRA disbursements that we tested. Although Cincinnati FMC
ensured that payments made did not exceed authorized amounts,
they relied on the project officers to. ensure that the amounts
paid were correct. When project officers approve payments
without assurance of costs incurred and progress made, the Agency
could be paying for services, supplies or equipment it did not
receive. Further, it is important for EPA officials to receive
information about the costs and progress other agencies are
making in carrying out IAG work, so EPA can evaluate whether IAG
funding should ,be continued, or the funds should be used for
other program activities.'
/
Open Obligations Should Be More Aggressively Reviewed
Some Agency officials did not aggressively identify and -
deobligate unliquidated obligations that were no longer needed.
during fiscal 1994, allowance holders were asked to conduct a
mid-year review of older unliquidated obligations and a year-end
review of open obligations established in fiscal 1994. Despite
these reviews, we found approximately $4.8 million related to the
funds we audited that remained obligated for: (1) asbestos loans
that were completely or.partially declined; (2) goods and
services received over a year ago at EPA Headquarters; (3) grants
that were never executed; and (4) travel that was probably not
performed. Unless complete reviews are made of all unliquidated
obligations and unneeded funds are timely deobiigated, program
offices may not be able to put funds to the best use. This is
particularly true for programs using appropriated funds which
expire if not used within required timeframes. v
A Comprehensive Acrency-wide Policy On' Indirect Costs Should Be
Implemented . ,
Agency officials need to develop a comprehensive, Agency-wide
policy on indirect costs that clearly defines which Agency costs
should be considered direct costs, and which costs should be
considered indirect costs. The policy should also explain the
Audit Report E1SFL4-2O-8001-5100192 Vi
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methodologies to be followed in allocating the indirect costs. y
Currently, the Agency has policies and procedures for determining
the total direct and indirect costs of Superfund responses for
each Superfund site. These policies include identifying the
indirect costs which 'support the Superfund program, regardless of
the appropriation charged, and allocating the indirect costs to
Superfund sites. However, a comprehensive policy covering all
Agency .funds and programs is needed because of the number of '
different cost allocations performed for the various -
appropriations within the Agency, and the number of offices who
perform the allocations. During our audit, we found for those
costs allocated using the Agency's layoff process there were
differences concerning: (1) which costs were being allocated,
and (2) which funds were being allocated costs. A policy on
allocating indirect costs would help ensure that .indirect costs.
are allocated when appropriate, and that indirect costs are
allocated only once to activities. Determining the total cost of
Agency programs, both direct and indirect, is important not only
for financial statement purposes, but also for: (X) recovering
costs due from others, (2) establishing fees for services
provided to the public, (3) determining rates used internally to
charge working capital funds, and (4) comparing the costs of
Agency activities with environmental results achieved.
To correct .these material weaknesses and reportable conditions,
we are recommending that the Chief Financial Officer:
* provide finance offices with general ledger reports by
accounting point and hold them responsible for the accuracy
of their account balances; ,
determine why individual obligations in the Management and
- Accounting Reporting System do not match the IFMS amount and
take appropriate corrective action;
* . revise the Agency's Capitalization policy so that it covers
all disbursements necessitating capitalization;
emphasize to finance offices the heed to notify Headquarters
finance officials of accounts receivable identified after
the close of the accounting records for the year, and to
include potentially uncollectible receivables in the
calculation of the allowance for doubtful accounts;,
determine the reason some liability accounts have debit
balances and make necessary adjustments;
include a clause in multi-funded grants that specifies how
the payments should be charged to the various
appropriations. Require grant recipients to include
Audit Report B1SFW-20-8001-5100192
vii
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accounting information on payment requests, if work can only
be paid for from a specific appropriation;
determine if additional state cost share credits exist,
assure the credits are properly recorded, and develop
procedures for recording the credits in IFMS;
start preparing technical system documentation for
application systems' transaction processes;
'''*' i
install, on the ARTS personal computer, security and, virus
protection software; -
\ . s
develop written policies and procedures describing ARTS
backup, recovery and contingency planning techniques;
( -
implement the interface between ARTS and IFMS;
: , include clauses in lAGs that require other agencies to
provide EPA project officers with information on costs
incurred and progress on projects;
remind IA6 project officers that they should inform the
Grants Administration Division when required information is
not provided in a timely manner, and complete the approved
dollar amount section of the Project Officer Invoice
'Approval Form; and
* develop an Agency-wide policy for identifying and allocating
indirect costs.'.
In some cases, we have not made recommendations for corrective
action because recommendations made in prior audit reports, when
implemented, should correct the reported weaknesses. Attachment
3 contains a summary of the status of these prior audit report
recommendations.
We did not identify any Instances of noncompliance with .laws and
regulations that would materially affect the financial statements
we audited. However, we did identify the following issues'
concerning the Agency's compliance with laws and regulations that
.while not material to the financial statements are significant
issues that should be addressed by EPA's management. These
issues are discussed in more detail on page 16 of the audit
report. . ,
We found, as we have reported in .prior audit reports, that the
Agency had not allocated certain support costs to the Superfund,
Trust Fund. The Agency had not allocated these costs because
Superfund budgetary ceilings had been reached. In response to a
prior audit recommendation, the Chief Financial Officer has asked
Audit Report B1SFM-20-8001-5100192
viii
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the Office of General Counsel for an. opinion on whether it ,'is
proper for the Agency to charge Superfund support costs to ittie
Agency's support appropriation (Abatement, Control, and-
Compliance). A response from the Office of General Counsel has
not yet been received. .
Also, as discussed in prior audits, the Agency has not performed
the biennial reviews of fees that are required by the Chief
Financial Officers Act. By completing the .reviews, the Agency
might identify fees EPA could .increase which would generate
additional revenues. Performing reviews of fees is also
consistent with the President's National Performance Review
initiative, which encourages agencies to find better, more
efficient, and more effective ways to pay for their activities,
including increasing the. use of user fees.
N . . " " " v
AGENCY Cf^vrMEiyrS AND OUR EVALUATION
-. v'
In a memorandum dated February 15, 1995, the Chief Financial
Officer responded to our draft audit report. In the response, he
concurred with most of our draft report recommendations or
identified alternative corrective actions that would be taken to
resolve the issues discussed in'the audit report. He stated that
he was pleased with the progress made this .year in improving the
audit opinions on the Agency's financial statements. He also
commented that he believes this year's report reflects well on
the efforts of both his staff and our staff in meeting the new.
accelerated schedule for producing audited financial statements.
The CFO encouraged us to use alternative audit procedures when we
have problems obtaining sufficient audit evidence. To the extent
that it is practical to do this we will. However, when we are
unable to obtain sufficient audit evidence due to a weakness in
controls, and performing the necessary audit work to develop an
audit adjustment would require us to expend an inordinate amount
of our resources, we do not believe it would be an effective use
of our resources to do this. For example, in some cases to
develop an audit adjustment would require us to visit, each of
EPA's 14 finance offices. We will work with the CFO's staff to
see if.there are ways that we can efficiently work together to
obtain audit evidence to eliminate certain scope limitations.
To provide a balanced understanding of the issues, we have
summarized the Agency's'position .on each of the material
weaknesses and reportable conditions in the appropriate location
within the audit report and have included the complete response
as Appendix II.,
Audit Report B1SPL4-20-80O1-51001.92
ix
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Audit Report E1SFL4-20-8001-5100192
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TABLE OF
Page
EXECUTIVE SUMMARY ...................... i
PURPOSE i
RESULTS OF AUDIT .......:.. i ........... i
SUMMARY OF OPINIONS OR DISCLAIMERS OF OPINION ON
EPA'S FISCAL 1994 AND 1993 FINANCIAL STATEMENTS . . . i
RESULTS OF OUR EVALUATION OF INTERNAL CONTROLS . . . . ii
RECOMMENDATIONS ................... vii
RESULTS OF OUR TESTS OF COMPLIANCE WITH LAWS AND
REGULATIONS ...... viii
AGENCY COMMENTS AND OUR EVALUATION ........... ix
INTRODUCTION ................... 1
r PURPOSE .1
' BACKGROUND ON THE AUDITED TRUST FUNDS, REVOLVING FUNDS
AND COMMERCIAL ACTIVITY 2
PRIOR AUDIT COVERAGE ......... 4
AUDITORS' REPORT ON EPA'S FISCAL 1994 AND 1993
FINANCIAL STATEMENTS i .......... . . 5
SUPERFUND TRUST. FUND 5
LUST TRUST FUND .......... 6
1 OIL SPILL TRUST FUND . 7
ASBESTOS LOAN PROGRAM 8
FIFRA FUND ..... ............. 8
TOLERANCE FUND , .... 9
OVERVIEW SECTION OF FINANCIAL STATEMENTS 9
EVALUATION OF INTERNAL CONTROLS ....... 10
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS ... 16
RESPONSIBILITIES AND METHODOLOGY ..... . . . . . . . . . . 18
: EPA MANAGEMENT AND OIG RESPONSIBILITIES ........ 18
AUDIT METHODOLOGY . ... . . . . . . . 18
ATTACHMENT 1 - MATERIAL WEAKNESSES
ATTACHMENT 2 - REPORTABLE CONDITIONS
ATTACHMENT 3 > STATUS OF PRIOR AUDIT REPORT
RECOMMENDATIONS .
APPE1IDIX I ANNUAL FINANCIAL STATEMENTS FOR FISCAL
YEARS 1994 AND 1993
APPENDIX II AGENCY COMMENTS .
«.
APPENDIX III REPORT DISTRIBUTION LIST
Audit Report E1SPL4-20-8001-5100192
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Audit Report E1SFX.4-20-8001-5100192
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INTRODUCTION
PURPOSE. : - --..- ' .
The Chief Financial Officers Act of 1990 (the CFO Act) was
enacted in order to bring about improvements in agency accounting
* systems, financial management activities and internal controls.
In order to accomplish this objective, the CFO Act calls for the
preparation of annual financial statements. The .Environmental
Protection Agency (EPA or Agency), is currently required by the
CFO Act to prepare financial statements covering only its trust
funds, revolving funds and commercial activities. However, the
recently enacted Government Management Reform Act will require
EPA to prepare Agency-wide financial statements beginning with
fiscal 1996 financial activity.. The Agency plans to prepare
Agency-wide financial statements for fiscal 1995.
' * f .
.The CFO Act requires the Inspector General, or an independent
public accounting firm selected by the Inspector General, to
audit the financial statements. This report contains' the results
of our audit of EPA's fiscal 1994 financial statements that cover
the: ' ' ' . - .;
Hazardous Substance Superfund Trust Fund (Superfund Trust
Fund), .
Leaking Underground Storage Tank Trust Fund (LUST Trust
Fund), >.. ,
* . ". - , ..'"
Oil Spill Trust Fund,
Asbestos Loan Program,
Pesticides Reregistration and -Expedited Processing Revolving
Fund (FIFRA Fund), and the
Revolving Fund for Certification and Other Services
(Tolerance Fund).
The,objectives of our audit work were to determine if:
(i) the financial statements are'fairly presented;
'
(2) EPA management established an internal control structure
N which provides reasonable assurance that:
, ' . '.-''. "...''' .
. transactions are properly recorded and accounted for to
, permit the preparation of reliable financial statements
1 and to maintain accountability over assets;.
Audit Report B1SFL4-20-8001-5100192
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transactions, including those related to obligations
and costs, are executed, in compliance with applicable
laws and regulations; and , ~
' ' " .1 ' , '
funds, property, and other assets are safeguarded
against loss from unauthorized use or disposition;
(3) EPA management complied with applicable laws and regulations
which, if not followed, could have a material effect on the
financial statements, including any other laws and
regulations that the Office of Management and Budget (OMB)
or our office considered significant to the audit; and
(4) the information reported in the overview section of the
, financial statements is consistent with information
presented in the principal financial statements.
BACKGROUND ON THE AUDlTF> T^XJST FUNDS, REVOLVING
FUNDS AND COMM^CTAL ACTIVITY
TRUST
Congress established "the Superfund Trust Fund in 1980 to respond
to and clean up hazardous substance emergencies and abandoned
uncontrolled hazardous waste sites. The Superfund program is
primarily managed by the Off ice of Emergency and Remedial
Response within the Office of Solid Waste and Emergency Response.
Much of the day-to-day operation of the program is carried out in
EPA 's ten regional offices. The Office of Enforcement and
Compliance Assurance is also involved in obtaining commitments
from potentially responsible parties to perform cleanup work and
in recovering cleanup costs from responsible parties.
Superfund activities are financed primarily by taxes on crude and
petroleum oil, on the sale and use of certain chemicals, and an
environmental tax on corporations. Other sources of .funding
include general revenues; cleanup costs recovered from
responsible parties; and interest, fines and penalties paid by
individuals and entities, other Federal agencies also receive
funding for Superfund activities. EPA accounts for only the
Superfund activities which are funded from its appropriations.
LUST TRUST FTOD
In 1986, Congress established the LUST Trust Fund. The LUST
Trust Fund is financed by a tax on fuels. The Fund is used to
oversee cleanups by responsible parties or to clean up leaking
.underground storage tanks where the owner or operator cannot or
will not do so, or where an owner or operator cannot be found.
The Office of Underground Storage Tanks within the Office . of '
Audit Report E1SFL4-20-8001-5100192
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Solid Waste and Emergency Response is responsible for
implementation of the LUST program. The office relies primarily
on states and localities to carry out this program. EPA accounts
only for the LUST activities which are funded from its
appropriations.
OIL SPILL TRUST FUND
The oil Pollution Act of 1990 was passed in response to the
increasing frequency and severity of oil:spills, such as the .
Exxon Valdez spill. Under the Oil Pollution Act, EPA is ,
responsible for oil spill prevention, preparedness, response and
enforcement activities associated with non-transportation related
facilities. The Agency is provided funds from the Oil Spill
Trust Fund to finance the costs of these activities. The Office
of Emergency and Remedial Response within the office of Solid
Waste and Emergency Response has primary responsibility for EPA's
activities relating to the fund. . '
' , ' " ' f
ASBESTOS LOAN PROGRAM
The Asbestos Loan Program, established by the Asbestos School
Hazard Abatement Act, is administered primarily by. the Office of
Pollution Prevention and Toxics within the Office of Prevention,
Pesticides and Toxic Substances. This loan program was created
in 1984 to provide financial assistance, in the form of interest-
free loans, to public and private schools for the removal of
asbestos. Financial assistance is determined based on the level
of asbestos hazard and demonstrated financial need. In 1994,
Congress did not provide funds for EPA to make additional loans
to schools for asbestos abatement projects.
FIPRA FUND ','.' ' '
1 . "' ' A . '
"The 1988 amendments to the .Federal Insecticide,.Fungicide, and
Rodenticide Act (FIFRA) mandate the accelerated reregistration of
all pesticide products registered prior to November 1, 1984.
Specifically, the amendments require EPA to complete, over
approximately a nine-year, period, a reregistration review of each
pesticide product containing an active ingredient registered
prior to November 1, 1984. EPA is required to reregister these
products since they were originally registered when the standards
for, approval and test data were less stringent than they are
today. .',-,..
In order to accelerate the reregistration. process, Congress,,
authorized EPA to collect two types of fees; a one time
reregistration fee for each active ingredient, and an annual
registration maintenance fee to be paid for each registered
product. Fees collected are deposited into the FIFRA Fund. The
Office of Pesticide Programs within the Office of Prevention,
Audit Report BlSFX^-20-8001-5100192
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Pesticides and Toxic Substances is responsible for reregistering
pesticide products. , . ; '
TOLERANCE FUND . ,
The Tolerance Fund was authorized in 1963 for the deposit of fees
collected for establishing tolerances for residues of pesticide
chemicals in or on raw agricultural commodities. The Federal
Food, Drug, and Cosmetics Act authorizes EPA to promulgate
regulations to require companies to pay fees that will cover
EPA's costs for establishing tolerances for raw agricultural
commodities. ....'" ., ' s.
A tolerance is the maximum legal limit of a pesticide residue on
food commodities and animal feed. Tolerances .are established by
the Office of Pesticide Programs within the Office of Prevention,
Pesticides and Toxic Substances in order to prevent consumer
exposure to unsafe levels of pesticide residues. The Department
of Agriculture and the Food and Drug Administration are
.responsible for enforcing adherence to these tolerance levels.
PRIOR ATJP1T COVERAGE ,
During previous audits, weaknesses that impacted our audit ''
objectives were reported in the areas of: |
i
EPA's Integrated Financial Management System,
recording Superfund accounts receivable,
recognizing revenue for Superfund state cost- share
contracts, . ' _', ' M . ' .
accounting for grant payments, ' | .
capitalizing leases, ' .
maintaining documentation to support accounting
transactions, : . , , j .
recording accounts payable and accrued liabilities,
accounting for and controlling property,
tracking tolerance fees, ' . . <
reviewing unliquidated obligations, and
reviewing Agency fees.
Attachment 3 summarizes the status of the prior audit report
recommendations in each of these areas. In addition, the
sections of this report on internal controls and compliance with
laws and regulations provide additional details oh the current
status of the Agency's corrective actions. .
Audit Report E1SFL4-20-8001-5100192
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AUDITORS' REPORT ON EPA'S
FISCAL 1994 AND 1993 FINANCIAL STATEMENTS
The Administrator
U.S. Environmental Protection Agency: ; .
We audited the principal financial statements of the Oil Spill
Trust Fund, the Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund), and the Revolving Fund for
Certification and Other Services (Tolerance Fund), as of and for
the fiscal years ended September 30, 1994 and 1993. He also
audited the financial statements of the Hazardous Substance
.Superfund Trust Fund (Superfund Trust Fund), the Leaking
Underground Storage Tank Trust Fund (LUST Trust Fund), and the
Asbestos Loan Program as of
-------
anticipated for fiscal 1996. Net adjustments, if any, for these
costs would affect the Statements of Operations and Changes in
Net Position, and Budget and Actual Expenses. We also did not
audit the components of net position. ,
We could not audit the property and equipment balance of
$11,673,000 because the procedures for capitalizing property do
not identify all property that should be capitalized. In
addition, property that is capitalized cannot be uniquely
identified in the property accountability system. Therefore,
when property is taken out of service it is not deleted from the
accounting records. Adjustments, if any to the property and
equipment balance, would affect all of the financial statements.
We could not determine if accounts payable totaling
$235,021,000 were fairly presented because we identified
weaknesses in the recording of accounts payable and accrued
liabilities. In addition, we did not assess the reasonableness
of the Agency's estimate for accrued liabilities for grantee
expenses. Adjustments, if any, to the accounts payable and
accrued liabilities accounts would affect all of the financial
.statements. . ,
We could not determine if all liabilities related to Superfund
state cost share credits were recorded. The Agency did not have
procedures explaining how to record these credits in IFMS when it
entered into agreements with states.
We could not audit the expenses for grants funded from
multiple appropriations because recipients' drawdown requests did
not always identify to .which appropriation the expenses applied.
Adjustments, if any, to grant expenses would affect all of the
financial. statements.
The statement of financial position amounts as of
September 30, 1993, that the prior auditors were unable to audit
enter into the determination of results of operations and changes
in net position, cash flows, and budget and actual expenses for
the year ended September 30, 1994. ;
LUST TRUST FUND ,
.The independent public accounting firm that audited the fiscal
1993 LUST Trust Fund financial statements, qualified its opinion
on the Statement of Financial Position, and disclaimed an opinion
on the statements of Operations, and Changes in Net Position, Cash
Flows, and Budget and Actual Expenses. >
During our audit of the fiscal 1994 financial statements, we
could not determine if the accounts payable totaling $6,010,000
were fairly stated because we identified weaknesses in the
Audit Report K1SFL4-20-8001-5100192
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recording of accounts payable and accrued liabilities. In .
addition, we did not assess the reasonableness of the Agency's
' estimate for accrued liabilities for grantee expenses .
Adjustments, if any, to the accounts payable and accrued
liabilities accounts would affect all of the financial
statements. In our opinion, except .for the effects of any
.adjustments that might have been necessary to the accounts
payable balance, the financial statements fairly present the LUST
Trust Fund's:
financial position as of September 30, 1994, . -' .
results of operations and changes in net position,
cash flows, and , ,
budget and actual expenses for the year then' ended in
accordance with the basis of accounting described in Note
1 to the financial statements.
OIL SPlL
FUND
, .
In our. previous report on the oil Spill Trust Fund financial
statements, we issued an unqualified opinion on the Statements of
Financial Position and Cash Flows for fiscal 1993. We qualified
our opinion on the fiscal 1993 Statements of Operations and
Changes in Net Position, and Budget and Actual Expenses, only
because we decided not to audit the administrative costs that
were funded from other appropriations.
We are disclaiming an opinion on the fiscal 1994 Oil Spill Trust
Fund financial' statements because: . .-' . . ,
We again chose not to audit the $774,000 of administrative
costs that were funded from other appropriations because of the
substantial audit effort that would have been required.
Adjustments to these costs would affect the statements of
Operations and Changes in Net Position, and Budget and Actual
Expenses.
* We could not audit the expenses for grants funded from
multiple appropriations because recipients' drawdown requests did
not always identify to which appropriation the expenses applied.
Adjustment, if any, to grant expenses would affect all of the
financial statements.
- * n i
We did not assess the reasonableness of the Agency's estimate
for accrued liabilities for grantee expenses. Adjustments, if
any, to accrued liabilities would affect all of the financial
.statements. . _ ',
Audit Report E1SFL4-20-8001-51O0192
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j ;
We identified other general support services costs that were
not allocated from other appropriations to .the Oil Spill Trust
Fund. It was not practical to quantify the amount that>should
have been allocated at the sites where we did not perform audit
work. Adjustments, if any, for general support services costs
would affect all of the financial statements. ',
ASBESTOS LOAN PROGRAM
The independent public accounting firm that audited the fiscal
1993 Asbestos Loan Program financial statements, qualified its
opinion on the Statement of Financial Position, and disclaimed an
opinion on the Statements of Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expenses.
We chose not to audit the $1,163,000 of administrative costs
funded from other appropriations that .were included in the fiscal
1994 financial statements for the Asbestos Loan Program. We
'decided not to audit these costs because of the substantial audit
effort that would have been required. In our'opinion, except for
the effects of any adjustments that might have been necessary to
the Statements of Operations and Changes in Net .Position, and the
Budget and Actual Expenses had we audited these costs, the
financial statements fairly present the Asbestos Loan Program's:
'financial position as of September 30, 1994,
, it
results of operations and changes in net position,
' t , 5
cash flows, and ' .
\ > -
, budget and actual expenses for the year then ended in
accordance with the basis of accounting described in Note
1 to the financial statements. f
*
FiFKA FUND
~~^r , -
In our previous report, we qualified our opinion on the fiscal
1993 Statement of Financial Position and-disclaimed an opinion on
the fiscal 1993 Statements of Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expenses.
We could not audit the FIFRA property and equipment balance of
$353,000 as of September 30, 1994, because the Agency's
procedures for capitalizing property do not identify all property
which should be capitalized. In addition, property that is
capitalized in the accounting records cannot be uniquely
identified in the Agency's property accountability system. <
Therefore, when property is taken out of service it is not always
Audit Report E1SFL4-20-8001-S100192
8
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deleted from the accounting system. In our opinion, except for
the effects of any adjustments that might have been necessary had
.we been able/to audit the property and equipment balance, we
believe the fiscal 1994 statements of Financial Position and Cash
Flows are fairly presented. , .
We are disclaiming an opinion on the fiscal 1994 Statements of
Operations and Changes in Net Position, .and Budget and Actual
Expenses for the FIFRA Fund because we could not audit the '
property balance and because we chose not to audit the
$24,928,000 of fiscal 1994 costs shown as income from overhead,
allocation and as off setting expenses from overhead allocation.
As previously noted, we did not audit these costs because of the
substantial audit work that would have been required.
FUND / '
In bur previous audit report, we did not express an opinion on
the fiscal 1993 Tolerance Fund financial statements. As
> described in Note 16, the .Agency restated the deferred revenue
balance to reflect additional work performed subsequent to our
audit. This restatement, although significant, does not change
our previous disclaimer of opinion on the fiscal 1993 financial
statements.
In our opinion, , the fiscal 1994 financial statements fairly
present the Tolerance Fund's financial position and cash flows in
accordance with the basis of accounting described in Note 1 to
the financial, statements. . We are disclaiming an opinion oh the
fiscal 1994 Statements of operations and Changes in Net Position,
and Budget and Actual Expenses only because we decided not to
audit the costs allocated from other EPA appropriations to the
Tolerance Fund. These costs reported at $3,791,000 are shown for
financial statement purposes as income from overhead allocation
and as offsetting expenses from overhead allocation. ,
As described in Note 16, during fiscal 1994, the Agency adopted
the direct charge method for accounting for deferred tolerance
revenue; it previously had used a percentage of completion
method. Federal and generally accepted accounting principles do
not currently address the direct charge method. However, the
direct charge method of accounting is in conformity with federal
budgetary accounting and appropriation law.
OVERVIEW SECTION OF FINANCIAL STATEMENTS
' i- ,
Our audit work related to the information presented . in the
Overview of EPA and overview of Trust Funds. Revolving Funds and
Activities consisted primarily of comparing the
Audit Report E1SFL4-20-8001-5100192
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overview, information with information in EPA's principal
financial statements to ensure that it was consistent. We did
not audit the overview information, and are therefore not
expressing an opinion on it. / We did not identify any material
inconsistencies between the information presented in the overview
.and in the principal financial statements.
We also followed up on our previous recommendations for
strengthening the internal controls over Superfund performance
measurement information contained in the overview. Our followup
work showed that Agency officials had taken a number of steps to
implement our previous recommendations. Recommended corrective
actions had either been completed or were nearing completion.
The details of this followup work are reported in Follow-up
Review Report E1SFG5-11-5005-5400014, Superfund Performance
Measures, dated November 15, 1994.
EVALUATION OF INTERNAL
We evaluated the Agency's internal control"structure to:
(1) determine the audit procedures necessary to express an
opinion on the financial statements., and (2) assess whether the
internal controls provide reasonable assurance that the following
objectives are'met:
. transactions are properly recorded and accounted for to
permit the preparation of reliable financial statements and
to maintain accountability over assets;
transactions, including those related to obligations and
costs, are executed in compliance with applicable laws and
regulations; and ~
funds, property, and other assets are safeguarded against
. loss from unauthorized use or disposition.
The audit methodology section of this report provides further
details on the scope of our internal control audit work. Our
objective in evaluating controls was not to express an opinion on
controls, and 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 internal control structure, losses,
noncompliances, 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.
Audit Report E1SKL4-20-8001-5100192
10
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MATERIAL WEAKNESSES
In evaluating the Agency's internal control structure/ we noted
the following weaknesses that could materially affect the audited
financial statements;' OMB Bulletin 93-06, "Audit Requirements
for Federal Financial Statements," defines a material weakness as
a situation where internal control procedures do not reduce to a
relatively low level, the risk that errors or irregularities in
amounts material to the audited financial statements could occur
and not be detected in a timely manner by employees in the normal
course of performing their assigned functions. Attachment 1
describes each of these material weaknesses in more detail,
.including the Agency's actions to correct the weaknesses and any
additional corrective actions We are recommending.
Additional Information And Reports Would Allow Acrencv Officials
To More Effectively Manage Financial Activities
.The Agency's financial activities could be more effectively
managed if additional information was available, and if available
information was provided in more useful formats^and was better
used to analyze the Agency's financial activity. Lack of
adequate information and reports has resulted in Agency officials
being unable to effectively monitor some asset and liability
accounts. In some cases, to obtain information needed in a
timely manner, Agency officials operate systems that require them
to enter information already.in the accounting system. For a
number of years, Agency officials have acknowledged reporting
problems related to the accounting system in their annual report
to the President on Agency controls. Consequently, many of the
problems identified during this audit are being addressed by
Agency officials.
Property Balances Included In The Agency's Financial Statements
Could Not Be Audited
The Agency's procedures for capitalizing property do not identify
all property which should be capitalized. In addition, property
that is capitalized in the accounting records, is not reconciled
with the results of the Agency's physical inventory of property.
Instead, the results of the physical.inventory are reconciled to
the Agency's Personal Property Accountability System (PPAS).
Consequently, when individual items of property are replaced,
transferred, or lost, these changes are reflected in PPAS, but
not in the accounting records. As a result, we were unable to
audit either the property balances or the related depreciation
reported in,the Superfund, LUST, and FIFRA financial statements.
Audit Report E1SFL4-20-8001-5100192 11
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Improvements Heeded In Recording Accounts Payable And Accrued
Liabilities . .
We examined the accounts payable and accrued liabilities balances
as of September 30, 1994, for 8 of EPA's 14 Financial Management
Centers (FMC). We found that Financial Management Officials
generally followed instructions for calculating accounts payable
.and accrued liabilities at year end. However, we identified a
net $833,000 understatement affecting the financial statements of
the Superfund, LUST, and Oil Spill Trust Funds and the FIFRA
Fund. The misstatement was partly caused by problems with the
Commodity Tracking System, which was developed at Research
Triangle Park (RTF) and used to generate details on Commodities
Accounts Payable/Accrued Liabilities. Washington FMC officials
also misstated their accruals by relying on the system's
inaccurate data. In addition, for the six .funds audited, we
identified 34 out of 336 liability accounts at the accounting
point level that carried debit balances at year end when they
should have had a credit or zero balance. ,.
'Grantee Payment Requests Do Not Provide Necessary Accounting
Information . .
Recipients of EPA assistance agreements (grants) generally did
not provide accounting information on their requests for payment
via electronic fund transfer. Some EPA grants for which
recipients requested payment were funded from more than one
appropriation. Without information on which appropriation to
charge for the payments made, the Las Vegas FMC processed
disbursements on multi-funded grants using a firet-in first-out
(FIFO) method. Under the FIFO method, the oldest available
funding was used first regardless of which appropriation
behefitted from the work performed under the grant. Using the
FIFO method could result in a misstatement of expenses during the
fiscal year among the Agency's appropriations.
Accounting For Superfund Receivables Has Improved
Emphasis by Agency management on accounting for accounts
receivable, and. work performed by our contract independent public
accounting firm to identify unrecorded receivables, succeeded in
reducing the number of unrecorded accounts receivable we
identified during our audit of the fiscal 1994 financial
statements. Unlike fiscal 1993, in which the auditors discovered
material amounts of unrecorded Superfund receivables, the fiscal
1994 audit identified only five receivables that were not
recorded timely, including two valued at $4.7 million, that were
not initially included in the financial statements. We also
found the allowance for doubtful accounts was understated by
$346,701, and marketable securities totaling $4.7 million
accepted in settlement of existing accounts receivable had not
been recorded. These errors indicate that management should
Audit Report E1SFL4-20-8001-5100192 , 12
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continue its emphasis on the recording of Superfund accounts
receivable and the related allowance for doubtful accounts.
EPANeeds To Record Superfund State Cost Share Credits
"When EPA takes the lead in the cleanup of a Superfund site, it
enters into an agreement with the state, commonly referred' to as
a Superfund state contract, for the state to share in the cost of
the cleanup. States can make payments to EPA for their share of
cleanup costs, or they can receive credits fort the amounts they
incurred for remedial actions prior.to entering into a Superfund
state-contract with EPA. These credits were not being recorded
in ZFHS when EPA entered into agreements,with states. We believe
these credits are an economic event that should be reflected in
the accounting records and related financial statements. Agency
guidance also requires that the credits be recorded in the
Integrated Financial Management System (IFMS), but no
instructions have been provided to the finance offices on how to
do so. ,-.'..'
REPORTRBLE CONDITIONS
f , ', ' ' ,
We also identified the following reportable conditions. OMB
Bulletin 93-06 defines a reportable condition as an internal
control,weakness that could adversely affect EPA's ability to
ensure: (!) obligations and costs are in compliance with
applicable laws; (2) funds, property, and other assets are :
'safeguarded, against unauthorized use or disposition; and
(3) transactions are properly recorded to permit the preparation
of reliable financial statements. 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.
Processing Controls For The IFMS And The EPA Payroll System Could
Not Be Assessed ^
We could not assess the adequacy of the automated data processing
control structure as it relates to application processing
controls for IFMS and the EPA Payroll System (EPAYS) due to the
lack of technical system documentation. These applications have .
a direct and material impact on the Agency's financial
statements. Therefore, an assessment of each application's
automated input, processing, and output controls, as well as
compensating manual controls, was necessary to determine the .
reliance we could place on the controls and the associated risk
of potential misstatements in the financial statements. Despite
the .considerable amount of documentation which was delivered at
the time we performed our fieldwork, responsible Agency officials
were not able to provide us with technical system documentation
which adequately described the flow of transactional data within
Audit Report E1SFL4-20-8001-5100192
13
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either the IFMS or EPAYS. Without critically important system
documentation, we were unable to: (1) identify automated
processing controls; (2) assess their relative importance to
application processing, (3) determine their reliability, or
(4) plan substantive testing of selected processing controls.
More importantly, the absence of critical system documentation
increases the risk associated with maintaining complex
application systems, such as IFMS and EPAYS, and jeopardizes
their continuity.
* *- ! " *
Controls Over Security And Data Integrity In The Asbestos
Receivables Tracking System Need To Be Strengthened
Weaknesses exist in the general automated data processing
.controls in the Asbestos Receivables Tracking System (ARTS) at
the Las Vegas FMC. ARTS is a personal computer based system for
managing approximately 1400 loans totaling approximately $139
million in support of the Asbestos Loan Program. ARTS provides
the subsidiary ledger for loans for the IFMS. Specifically, ARTS
.lacks: (1) adequate security over computer programs and loan
data, (2) a virus protection program, (3) standardized backup and
recovery procedures, (4) an IFMS interface, and (5) a
problem/change control log. These deficiencies could prevent EPA
from: (1) adequately maintaining the integrity of the loan, data
and programs; (2) providing timely backups; (3) eliminating
duplicate data entry, .thereby reducing processing cost; and
(4) adequately monitoring system problems and requested program
changes. , ' ,
Project Officers Were Not Receiving Information Needed To Monitor
Interagency Agreements ' '
* 1
Project officers for three interagency agreements (lAGs) in our
disbursement sample were not receiving information they needed to
determine if payments they approved reflected costs incurred and
progress made by other Federal agencies performing work for EPA.
These project officers approved $30 million of Superfund and
FIFRA disbursements that we tested. Although,Cincinnati FMC
ensured that payments made did not exceed authorized amounts,
they relied on the project officers to ensure that the amounts
paid were, correct. When project officers approve payments
without assurance of costs incurred and progress made, the Agency
could be paying for services, supplies or equipment it did not
receive. Further, it is important for EPA officials to receive
information about the costs and progress other agencies are
making in carrying out IAG work, so EPA can evaluate whether IAG
funding should be continued, or the funds should be,used for
other program activities. ;
Audit Report B1SFL4-20-8001-5100192 14
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Open Obligations Should Be More Aggressively Reviewed
Some Agency officials did not aggressively identify and
deobligate unliquidated obligations that were no longer needed.
During fiscal 1994, allowance holders were asked to conduct a
mid-year review of older unliquidated obligations and a year-end
review of open obligations established in fiscal 1994. Despite
these reviews, we found approximately $4.8 million related to the
funds we audited that remained obligated for: (1)asbestos loans'
that were completely or partially declined; (2) goods and
services received over a year ago at EPA Headquarters; (3) grants
that were never executed; and (4) travel that was probably not
performed. Unless complete reviews are made of all unliquidated
obligations and unneeded funds are timely deobligated, program
offices may not be able to put funds to the best use. This is
particularly true for programs using appropriated funds which
expire if not used within required timeframes.
A Comprehensive Agency-wide Policy On Indirect Costs Should Be
'Implemented - . ' .
Agency officials need to develop a comprehensive, Agency-wide
policy on indirect costs that clearly defines which Agency costs
should be considered direct costs, and which costs should be
considered indirect costs. The policy should also explain the
methodologies to be followed in allocating the indirect costs.
Currently, the Agency has policies and procedures for determining
the total direct and indirect costs of Superfund response for
each Superfund site. These policies include identifying the
indirect costs which support the Superfund program, regardless of
the appropriation charged, and allocating the indirect costs to
'Superfund sites. However, a comprehensive policy covering all
Agency funds and programs is needed because of the number of
different cost allocations performed for the various
appropriations within the Agency, and the number of offices who
perform the allocations. For costs allocated using the Agency's
layoff process, we found differences concerning: (1) which costs
were being allocated, and (2) which funds were being allocated
costs. A policy on allocating indirect costs would help ensure
that indirect costs are allocated when appropriate, and that
indirect costs are allocated only once to activities.
Determining the total cost of Agency programs;'both direct and
indirect, is important not only for financial statement purposes,
but also for: (1) recovering costs due from others,
(2) establishing fees for services provided to the public,
(3) determining the rates used internally to charge working
capital funds, and (4) comparing the costs of Agency activities
with environmental results achieved. .
Audit Report E1SFL4-20-8001-5100192 15
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COMPARISON OF EPA'B FMFIA REPORT WITH OUR EVALUATION OF INTERNAL
CONTROLS ' - ' . _ . ' ' -
As required by OMB Bulletin 93-06, we compared EPA's Federal
'Managers' Financial Integrity Act (FMFIA) report to our
evaluation of the internal control systems for the funds and
commercial activity we audited. For: fiscal 1994, EPA continued
to report accounting system .problems as a high risk area and as a
material weakness. The Agency also reported accounts receivable
as a material weakness and non-confoinnance. in addition, it
continued ..to report as material non-conformances the need to:
(1) enhance the process for recording property in order to
improve the accuracy of the Agency's accounting records, and
(2) implement interfaces between IFMS and other administrative
systems.
Three of the. material weaknesses we identified that affected the
funds we audited were not reported in the Agency's FMFIA report.
These weaknesses pertained to: (l) recording accounts payable
and accrued liabilities, (2) grantees not providing necessary
accounting information, and (3) the Agency not recording
Superfund state cost share credits. j
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
'To help us to determine whether the financial statements were
free of material misstatements, we tested compliance with those
laws and regulations that either materially affect the financial
statements, or that OMB or we considered significant to the
audit. Our compliance testing did not disclose any material
instances of noncpmpliance. Also, nothing came to our attention
to indicate that material noncompliance with such provisions had
occurred. However, the objective of our audit, including our
tests of compliance with applicable laws and regulations, was not
to provide ah opinion on overall compliance with such provisions.
We did identify the following issues that, while not material to
the financial statements, are significant issues that should be
addressed by EPA's management. '
We found, as we have reported in prior audit reports (Fiscal 1992
Financial Statement Audit of the Superfund Trust Fund, LUST Trust
Fund and the Asbestos Loan Program, Audit Report P1SFL2-20-8001-
3100264 issued June 30, 1993, and Fiscal 1993 Financial Statement
Audit of the Superfund Trust Fund, LUST Trust Fund and the
Asbestos Loan Program, Audit Report P1SFL3-20-8003-4100231 issued
March 30, 1994), that .the Agency had not allocated certain
support costs to the Superfund Trust Fund: The.Agency had not
* allocated these costs because Superfund budgetary ceilings had
been reached. In response to a prior audit recommendation, the
Chief Financial Officer has asked the Office of General Counsel
for an opinion on whether it is proper for the Agency to charge
Audit Report E1SFL4-20-8001-5100192 16
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Superfund support costs to the Agency's support appropriation
(Abatement, .Control, and Compliance). A response from the Office
of General Counsel has hot yet been received.
Also, as discussed in prior audits (Fiscal 1992 Financial
Statement Audit of the Pesticides Revolving Funds, Audit Report
E1EPL2-20-7001-3100265 issued June 30, 1993, and Fiscal 1993
Financial Statement Audit of the .Pesticides Revolving Funds, and
the Oil Spill Trust Fund, Audit Report E1AML3-20-7001-4100230
issued March 31, 1994), the Agency has not performed the biennial
reviews of fees that are required by the Chief Financial Officers
'Act. In fact, the Agency's last review of the Tolerance fee was
done in 1983. This study resulted in a major adjustment to the
fee rates effective in 1986. Since that time annual adjustments
have been made to the fee rates based on the percentage change in
the Federal General Schedule pay scale. ,
r '
The CFO Act requires EPA review the fees it imposes and make
recommendations on revising the fees so that they adequately
reflect costs incurred in providing the services. By completing
the reviews, the Agency might identify fees EPA .could increase
which would generate additional revenues. Further, performing
reviews of fees is consistent with the President's National
Performance Review initiative, which encourages agencies to find
better, more efficient, and more effective ways to pay for their
activities, including increasing the use of user fees. We .are .
currently conducting an audit of EPA's collection of user fees.
As a part of that audit, we will be recommending corrective
actions concerning user.fees. ,
Audit Report B1SFL4-20-8001-5100192 . 17
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RESPONSIBILITIES AND METHODOLOGY
\ , * . ,
l '
EPA MANAGEMENT AND OIG RESPONSIBILITIES
. . f , i
EPA'e management is responsible for:' '.
preparing annual financial statements covering its trust
funds, revolving funds and commercial activities following
applicable, accounting principles;
establishing and maintaining a system of internal controls;
1 and ' ': . ' - ' ; _,
t * ' i1 i
'complying with applicable laws and regulations.
We are responsible for auditing the financial statements in order
.to determine if the statements are free of material misstatements
and presented fairly in accordance with the basis of accounting
described in Note 1 to the financial statements. We are also
responsible for 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 or disclaimers of opinion on the financial
statements, -we: ' , , .
examined on a test basis, evidence supporting the amounts
and disclosures in the 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
control structure policies and procedures and assessed the
level of control risk relevant to the following significant
cycles, classes of transactions, and account balances:
Receipts and Receivables :
Disbursements and Operating Expenses
Payroll
.Investments v
Property ' > '
Budget and Obligations .
General Accounting and Financial Reporting
Audit Report E1SFL4-20-8001-S100192
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Accounts Payable and Accrued Liabilities
' fund Balances
. ^ '
evaluated the. adequacy of ;the general automated data
processing controls affecting EPA's financial management
systems;
tested significant controls to determine whether the
controls were effective;
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; and
tested compliance with applicable sections of laws and
regulations that either materially affect the financial
statements or that OMB or our office considered significant
to the audit. "
In addition, we attempted to assess the adequacy of the automated
data processing control structure as it relates to the
application processing controls for IFMS and the EPA Payroll
System. As previously discussed, we were unable to review these
controls because we were not timely provided technical system
documentation.
We relied on audit work performed by Leonard G. Birnbaum and
Company, as follow-on projects to their audit of EPA's fiscal
1993 financial statements for the Superfund and LUST Trust Funds,
and the Asbestos Loan Program. This work consisted of performing
procedures designed to:
identify unrecorded Superfund accounts receivable as of
September 30, 1993; .. -
determine if the unliquidated obligation balance for the
Superfund and LUST Trust Funds, and the Asbestos Loan .
' Program were valid and fairly stated as of September 30,
1993; and
analyze equity accounts and propose necessary adjusting
»entries. -
We reviewed the firm's audit work and concluded that we could
.rely on it to augment our work.
The information presented in Management's Overview of EPA and
Overview of Trust Funds. Revolving Funds and CommercjlaJL
Activities is supplemental information required by OMB Bulletin
y
Audit Report K1SFL4-20-8001-5100192 19
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94-01 entitled "Form and Content of Agency Financial Statements.11
OMB Bulletin 93-06, "Audit Requirements for Federal Financial
Statements," requires that we obtain an understanding of the
internal control structure policies and procedures designed to
ensure that data supporting the measures are properly recorded
and accounted for to permit the preparation of reliable and
complete performance information. OMB Bulletin 93-06 also
requires us to-assess the risk that the controls in place would
not prevent, detect or correct a material misstatement of the
information. We limited our audit work in the area of
performance measures to:
comparing the financial information included in the overview
with information contained in the principal financial
statements, ' .
providing comments to management regarding the presentation
of the overview, and , " ., '"
, following up on our previous recommendations for.
strengthening the internal controls over Superfurid
performance measurement information.
We selected statistical and non-statistical samples from EPA's
detailed accounting records supporting various financial
statement accounts. 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.
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;, in Regions 4, 5,~ 6 and 10; by various offices within the
Office'of Administration and Resources Management; and by
Headquarters and regional program offices responsible for the
activities of the six audited funds. 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 non-statistical sample of
property items.
Our fieldwork for the audit of the fiscal 1993 financial
statements was performed from June 28, 1993, through January 31,
1994, and our fiscal 1994 audit work was performed from April 13,
Audit Report E1SFL4-20-8001-5100192 20
-------
1994, through January 27, 1995. The other auditors we contracted
with for audits of the fiscal 1993 Superfund and LUST Trust Funds
and Asbestos Loan Program conducted their audit work from
June 28, 1993, through January 28, 1994.
We conducted our audit work in accordance with Government
Auditing Standards, issued by the Comptroller General of the
United States, and OMB Bulletin 93-06, except as previously
discussed in this report. 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.
Kenneth A. Konz
Acting Deputy Inspector General
U.S. Environmental Protection Agency
January 27, 1995 .
Audit Report B1SFX.4-20-8001-5100192
21
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Audit Report E1SFL4-20-*001-5100192
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ATTACHMENT 1
MATERIAL WEAKNESSES
TABLE OF C<
" " < ..''..'. , . Pacre
ADDITIONAL INFORMATION AND REPORTS WOULD
ALLOW AGENCY OFFICIALS TO MORE EFFECTIVELY
MANAGE FINANCIAL ACTIVITIES 1-1
PROPERTY BALANCES INCLUDED IN THE AGENCY'S
FINANCIAL STATEMENTS COULD NOT BE AUDITED . '. . . .... . . 1-8
IMPROVEMENTS NEEDED IN RECORDING ACCOUNTS
.PAYABLE AND ACCRUED LIABILITIES ... .... . . .'.... 1-10
GRANTEE PAYMENT REQUESTS DO NOT PROVIDE
NECESSARY ACCOUNTING INFORMATION . . . . . 1-14
ACCOUNTING FOR SUPERFUND RECEIVABLES HAS IMPROVED ..... 1-17
""' *
" X' . ,
EPA NEEDS TO RECORD SUPERFUND
STATE COST SHARE CREDITS 1-21
Audit Report,B1SFL4-20-8001-5100192
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Audit Report B1SPL4-20-8001-5100192
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ADDITIONAL INFORMATION AND REPORTS WOULD
ALLOW AGENCY OFFICIALS TO MORE EFFECTIVELY
MANAGE FINANCIAL ACTIVITIES
The Agency's financial activities could be more effectively
managed if additional information was available, and if available
information was provided in more useful formats and was better
used to analyze the Agency's financial activity. Lack of .
adequate information and reports has resulted in Agency officials
.being unable to effectively monitor some asset and liability
accounts. In .some cases, to obtain information needed in a
timely manner, Agency officials operate systems that require them
to enter information already in the accounting system. For a
number.of years, Agency officials have acknowledged .reporting
problems related to the accounting system in their annual report
.to the President on Agency controls. As discussed below, many, of
the problems identified during this audit are being addressed by
Agency officials. , ,
The lack of financial information and reports has the greatest
impact on those general ledger accounts containing dollar amounts
that are carried forward from one year to the next. These
accounts pertain to assets (what the Agency owns or is owed),
liabilities (what the Agency owes), equity (net results of
operations), and the budget. One of the keys to managing these
accounts is being able to identify for.each finance office the
components or items included, and the total dollar value. During
the audit, we tested significant asset and liability accounts, as
well as the budgetary account for unliquidated obligations. We
concluded that the accounting system,' the Integrated Financial
Management system (IFMS), made it difficult for Agency officials
to manage activity related to some of these accounts because
'beginning account balances were not maintained by finance office,
and summary information on the items making up the balances was
not readily available.., Other systems provide some information
not available in IFMS,. but to maintain these systems, Agency
personnel must duplicate information contained in IFMS.
IFMS Beginning Account Balances Need To Be Maintained By Finance
Office . -
The IFMS general ledger does not maintain beginning of the year
account balances for each finance office. When transactions are
processed, information on which finance office entered the
transaction is recorded in IFMS. General ledger reports during
the year summarize the entries by finance office. However, when
the Agency closes its accounting records at the end of the year,
the Agency's automated procedures combine the amounts into one
figure. As a result, there are no beginning of the year account
balances for the individual finance offices. For fiscal 1994,
Headquarters finance staff determined the beginning balance by
Audit Report B1SFL4-20-8001-5100192 1-1
-------
finance office for each account, but the information did not
become part of the general ledger reports finance offices
received. Consequently, officials in the finance offices lacked
a valuable tool to help them manage their financial activities.
For example, account balances by finance office were needed to
ensure that documentation existed and supported the amounts in
the general ledger. Without a dollar amount to which the items
making up the balance could be tied, there was less assurance
that the information was complete and correct. This problem
caused an error, for example, with general ledger account 2312,
advances from non-Federal agencies, under the Superfund program.
This account is used to record costs a state has paid or agreed
to pay EPA for cleaning up a particular Superfund site. During
fiscal 1993, account 2312 was adjusted to remove $18 million from
the accounting records because the auditors and Agency officials
believed it was an error related to implementing IFMS in 1989.
We later found that at least part of the amount was valid.
.Although the financial aspects of this activity were originally
'managed by .Headquarters officials, it was transferred to the
regional finance offices in fiscal 1989. The regional officials
were told about the transfer, but the accounting records.were not
adjusted to reflect it. Thus, the amounts continued to be
associated with a Headquarters finance office and were mistakenly
removed from the Agency's accounting records.
Our audit reports on the financial statements for fiscal years
1993 and 1992 also noted a need for account balances by finance
office. Agency officials recognize the benefits of having such
account balances and are working toward obtaining the balances
during fiscal 1995. Our audit work showed, however, that they
may encounter problems determining the correct beginning balances
for each finance office. Using a report from Headquarters .
finance staff that showed the fiscal 1994 beginning balances by
finance office for each account, we determined what the ending
balance should be. When we compared these balances to the
supporting information at the finance offices where we performed
audit work, we found differences. One of the accounts with
significant differences was the above mentioned 2312 account for
Superfund. As shown below, of the three offices for which we
determined what the ending balance should be, two differed from
'the ending balance using IFMS information. We believe the
differences were due to unrecorded items and the $18 million
adjustment. -
Audit Report E1SFL4-20-8001-5100192 1-2
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FINANCE
OFFICE
Chicago
Seattle
Dallas
ACCOUNT 2312 ENDING BALANCE
IFMS
$-2,295,017.67
$873,270.51
$0.00
AUDITOR'S
CONCLUSION
$-10,508,994.00
$-648,234.49
$0.00
DIFFERENCE
$8,213,976.33
$1,521,505.00
$0.00
General LedgerBalance Information Could Be Used By Finance
Offices ' . '. :
j
Some information that is currently available could be used by
finance officials to evaluate activity, perform trend analysis,
and identify errors. Even without beginning balances, the
general ledger account information could be used by finance
officials for these purposes. For example, account balances from
one year could'be compared with the same account for the prior
year. Such comparisons would be helpful in tracking budgeted
versus actual amounts, identifying indicators of fraud, and
projecting workload. When we did comparisons of obligations and
disbursements for the first six months of fiscal 1993 to those
for 1994, we found that the finance officials were not required
to do such comparisons and could not explain significant
differences.
Accounts could also be analyzed for unusual activity that might
indicate a problem. For example, we noticed unusual activity in
general ledger account 1019 (payroll disbursements). In addition
to personnel compensation, amounts related to travel and grants
were also being recorded in this account. When we brought this
matter to the attention of Headquarters.finance officials, they
determined that staff from some of the finance offices were using
the wrong accounting entry for a particular type of transaction.
Consequently, account 1019 was. incorrectly impacted.. This
particular problem with recording transactions was corrected
during our audit, but it shows the need for ongoing monitoring of
accounting information. x <
Large, erroneous accounting entries could also be identified by
reviewing account balances. For example, one of the finance
offices made an entry to general ledger account 1314, unbilled
Federal reimbursements, under the Superfuhd program. This entry
caused an understatement of the account balance of $19.9 million.
A Headquarters finance official identified the error, so it was
corrected. However, by reviewing the account balances, the
originating finance office could have found and corrected the
error sooner.
Audit Report E1SFL4-20-8001-5100192
1-3
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IFMS Tables Do Not Provide All Needed Information . - . '
Tables in IFMS provide information on items that make up the
balances for some accounts that are carried over from one year to
the next. These tables show the items one at a time on the,
computer screen. The tables are updated when IFMS processes
transactions that,impact that table, consequently, the
information is current "as of" when the screen is viewed. The
screens are often related to each other so the user, with key
information, can find information about a particular item. These
,tables, while useful for researching individual items, are not
.always useful for identifying or summarizing all items making up
an account balance. '
Two problems exist with using table information for items in a
general ledger account with a beginning balance. First, only
specific types of transactions affect a table. Standard
vouchers, for example, affect the general ledger balance but are
not shown in the tables. Second, the tables are updated by all
transactions regardless of the accounting period in which the
transaction was processed. Consequently, if transactions, are
recorded when two accounting periods are open, the table
information will not match the general ledger ending balance for
the earlier period. . '
To supplement the information available through IFMS screens,
Agency personnel extract IFMS data and use it to prepare reports.
Agency officials are doing this for (1) the Management and
Accounting Reporting System (MARS), and (2) IFMS standard reports
about accounts receivable. For MARS, the data is obtained each
night and reconciled to IFMS to ensure accuracy.
During the audit, we found problems with the MARS information on
'open obligations. Agency program and finance officials rely .
greatly on MARS for a variety, of financial information. For
example, MARS was used by the finance officials to generate the
reports on open obligations that were verified by program
officials at the middle and end of fiscal 1994. However,
information from the document status files in MARS, which provide
the obligation information,, did not always match the amount in
IFMS. Generally, each obligation is identified with a unique
document control number (DCN), so it can be tracked through
disbursement. The MARS balance at this level, however, sometimes
did not match the IFMS balance. Further, MARS included numerous
obligations with a negative balance at the DCN level, indicating
that a reduction in the obligation was not correctly matched to
the original obligation. Consequently, the overall balance in
MARS generally matched the balance in IFMS, but individual items
did not. It is individual- items that should be monitored by the
program officials.
Audit Report E1SFL4-20-8001-5100192 1-4
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Supporting Systems Sometimes Duplicate IFMS Information
We noted that two systems, the Asbestos Receivables Tracking
System (ARTS) and.the Commodity Tracking System (CTS), contained
information also maintained in IFMS. Since there was no
mechanism to exchange data between these systems and IFMS, the
same or similar information was entered into two systems. Such
dual entry results in additional costs to the Agency and
increases the risk of data entry errors. '
Office of Management and Budget Circular A-127 prescribes
policies and standards to ensure financial management systems
provide effective and efficient interrelationships between
software, hardware/ personnel, procedures, controls, and data
contained within the systems. Financial system designs should
eliminate unnecessary duplication of transaction entry. Wherever
appropriate, data should be entered only once and other parts of
the system should be updated through electronic means.
ARTS is the system the Agency uses to track outstanding asbestos
loans. It resides on a personal computer at the Las Vegas.
finance office. Summary data from ARTS is manually entered into
IFMS, so there is dual entry of data. Under current Agency
plans, ARTS will have an interface with IFMS in 1995. For more
information about ARTS, see the reportable condition titled
. "Controls Over, Security And Data In the ARTS Need To Be
Improved". ,
/ . i
CTS which is used by the Research Triangle Park and. Washington
Financial Management Centers contains information about purchases.
under $25,000. The system was used to track information about
the stages of a purchase transaction, i.e., commitment,
obligation, and disbursement of the funds, information also
maintained in IFMS. The CTS also tracked when the goods or
services and related invoices were received. Information on the
receipt of goods and services was needed at the end of the year,
so the finance officials could record the cost of goods and
services received, but for which payment had hot been made.. .
Although some of the CTS data was not tracked in IFMS, the dual
entry and reconciliations of IFMS information needed to keep the
tracking system accurate was not efficient, and the CTS data
contained errors. Finance officials plan to review whether CTS
is still needed and, if so, whether it should be enhanced and
included as part of the Agency's official financial management
system. For more information about this system and the errors,
see the material weakness titled "Improvements Needed In
Recording Accounts Payable And Accrued Liabilities".
Audit Report E1SFL4-20-8001-5100192 . 1-5
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RECOMMENDATIONS . ,' ' ' '
.We recommend that the Chief Financial officer:
1. Provide financial management offices with general ledger
. > reports by accounting point and hold them accountable for
the accuracy of their account balances.
2. Determine why individual obligations in MARS do not match
the IFMS amount and take appropriate corrective action.
/ . '
AGENCY COMMENTS AND PIG EVALUATION
In his February 15, 1995, response to our draft report, the Chief
Financial Officer (CFO) offered an alternative to our draft
report recommendation related to detecting errors in accounts.
The CFO stated that by August 1995 the Agency plans to have
general ledger reports with account balances by finance office
(or accounting point). With these reports and some instructions,
the financial management officers should be able to detect
potential errors. They will be responsible for the accuracy and
reliability of their account balances. Furthermore, the revised
quality assurance program will emphasize testing account
balances. The CFO's proposed actions should improve the accuracy
'of the account balances. Therefore, we have revised our draft
report recommendation dealing with analyzing accounts to identify
potential errors.
' i %
,The CFO agreed to determine why individual obligations in MARS do
hot match the IFMS amount, and to take appropriate corrective
action. He indicated that the reasons for some of.the
discrepancies have already been identified, and his staff will
continue,their research. In addition, they are performing an
analysis to determine if alternative reporting methods can be
used to provide accurate listings of the outstanding obligations.
By August 30, 1995, they expect to finish the analysis and
determine the corrective action needed. ,
/ '. .
Finally, the CFO indicated that the problems related to the
Agency's reporting system were not significant enough to be
considered a material weakness, but rather should be considered a
reportable condition. We continue to believe these problems
should be reported as a material weakness. Although the general ,
ledger produces Agency-wide account balances, financial activity
is generally managed by the financial management officers and
.allowance holders throughout the Agency. These officials need
- accurate and reliable financial information concerning the
activities for which they are responsible. Further, we need
information by finance office since we usually limit our audit to
.selected locations. Thus, we must be able .to confirm the , -'
relationship of that location to the Agency as a whole. Also, in
the Administrator's letter to the President on 1994 internal
Audit Report E1SPL4-20-8001-5100192 1-6
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controls, at EPA, the problem appears as a material weakness.
Additionally, it contributes to the EPA financial system being on
the Office of Management and Budget high risk list.
Audit Report B1SFL4-20-8001-5100192 1-7
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PROPERTY BALANCES INCLUDED IN THE AGENCY'S
FINANCIAL STATEMENTS COULD NOT BE AUDITED
The Agency's procedures for capitalizing property do not identify
all property which should be capitalized. In addition, property
that is capitalized in the accounting records is not reconciled
with the results of the Agency's physical inventory,of property.
Instead, the results of the physical inventory are reconciled to
the Agency's Personal Property Accountability System (PPAS).
Consequently, when individual items of property are replaced,
transferred, or lost, these changes are reflected in PPAS, but
not in the accounting records. As a result, we were unable to
audit either the property balances or. the related depreciation
reported in the Superfund, LUST, and FIFRA financial statements.
This same .condition was also noted in audit reports on the
-Agency's fiscal years 1992 and 1993 financial statements.
In the 1992 audit report, we recommended that Financial .
Management Division (FMD) officials revise their capitalization
policy to include more detailed instructions for determining
which.Agency assets.should be capitalized: FMD officials
disagreed with the recommendation, stating that it would only
represent a stopgap approach to solving a complicated problem.
Instead, FMD preferred to implement a fully integrated fixed .
asset sub-system to the Integrated Financial Management System
(IFMS) to serve as a permanent solution. FMD officials also
stated that in order to implement the, new system, a complete
overhaul of their policies and procedures would be needed, and
any immediate changes in the current policies.and procedures
would be rendered obsolete. . . ,
In the 1993 audit report, we reported that FMD had not met target
dates.for implementing the fixed asset sub-system. In response
to the 1993 report, the Chief Financial Officer (CFO) agreed to
establish and track revised target dates.for,implementing the new
fixed asset sub-system. However, even though the CFO agreed in
principle that more comprehensive capitalization procedures were
.necessary, the CFO stated that it would be more effective to
implement these procedures once the new sub-system'was in place.
i
f
During fiscal '1994, the target dates continued to slip. An FMD
official indicated that the target date for implementing the new
sub-system has been moved back to the end of fiscal 1996. In
light of these delays, we believe proactive efforts are needed to
address the Agency's capitalization policy. The current policy
for capitalizing property only encompasses equipment (object
class 31.00 items), thereby excluding other^property such as:
property acquired by contractors, leasehold improvements, capital
leases, and software. A fundamental policy change made now will
not become obsolete when the new property system is put into
place. We believe such a policy change could help in
. . Audit Report E1SFL4-20-8001-5100192 1-8
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implementing the sub-system. Agency officials could ensure that
the module will handle all of the various assets,covered by the
'policy.
Further, property not capitalized between now and when the new
sub-system is implemented, will cause misstatements/in the
Agency's financial statements for the useful life of those
assets. This could cause an auditable account balance to become
misstated. For example, the beginning and ending property
balances,for the Oil Spill Trust Fund are currently auditable.
Since the Agency began preparing financial statements for the Oil
Spill Trust Fund in fiscal 1993, only one property item in excess
of $5000, the threshold for capitalization, was purchased. It
was acquired in fiscal 1994, is identified in both IFMS and PPAS,
and was appropriately capitalized. However, subjecting future
Oil Spill Trust Fund property purchases to the current
capitalization policies and procedures, in which contractor
property, capital leases, leasehold improvements, and ADP
software purchases are not capitalized, could ultimately result
in the property balance for the Fund becoming unauditable. We
believe this provides further justification to revise the
policies and procedures for capitalizing fixed assets now,
instead of waiting until the new sub-system is implemented.
» _ **
RECOMMENDATION
We recommend that the Chief Financial Officer revise the Agency's
capitalization policies and procedures to assure that
disbursements necessitating capitalization are being identified
and properly capitalized.
AGENCY' COMMENTS AND PIG EVALUATION
In his response to the draft report, the Chief Financial Officer
agreed that certain policy and procedural changes related to the
capitalization of property could be pursued prior to implementing
the new Integrated Fixed Asset System in July 1996. He noted
that currently his office plans to complete an analysis of the
property policy and procedural issues and issue revised policies
and procedures by December 1995. These planned actions address
our concerns in the property area. ,
Audit Report BlSFL4-20-8001-5100J.fi 1-9
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IMPROVEMENTS NEEDED IN RECORDING ACCOUNTS
PAY ABLE AND ACCRUED LIABILITIES
We examined the accounts payable and accrued liabilities balances
as of September 30, 1994, for 8 of EPA's 14 Financial Management
Centers (FMC). We found that FMC officials generally followed
instructions for calculating accounts payable and accrued
liabilities at year end. We did identify a net $833,000
understatement affecting the financial. statements of the
Super fund, LUST, and Oil Spill Trust Funds and the FIFRA Fund.
The misstatement was partly caused by problems with the Commodity
Tracking System, which was developed at Research .Triangle Park
(RTF) and used to generate Commodities Accounts Payable/Accrued
Liability detail. Washington FMC officials, also misstated their
accruals by relying on the system's inaccurate data. In
addition, for the six funds audited, we identified 34 out of 336
liability accounts at the accounting point level that carried
debit balances at year end when they should have had a credit or
zero balance. .
Commodity Tracking System Data Resulted In Deviations
From Year End Procedures . "
RTF FNC staff estimated the accrued liabilities for commodities
(items costing less than $25,000) by taking an average of accrued
liability balances for the preceding two years. Based on this
procedure, approximately $1.3 million was recorded as accrued
commodities liabilities . All FMCs were provided written guidance
on the year-end closing procedures for fiscal 1994. The guidance
stated that accrued liabilities should be/ established for that
portion of obligations where goods or services had been received,
.but for which invoices had not been received. The guidance also
provided that accrued liabilities could be 'estimated based on
historical data, but specif ied that they should be based on
specific, identifiable obligations where possible;
For fiscal years 1992 and 1993, RTF officials used data from the
Commodity Tracking System to determine accrued commodity
liabilities. For fiscal 1994, the computer-generated commodities
report from the system was not up to date. The official
responsible for calculating accrued liabilities concluded that it
was impractical to update -this report in time to use it in
determining the fiscal 1994 accrued liabilities. Therefore, the
official estimated the accrued liabilities as an average of the
two prior years' accruals.
Since the estimate was not tied to actual experience during
fiscal. 1994, we believe it may not be realistic. After comparing
average monthly disbursements to the accruals, we concluded that
RTF's averaging process probably overstated the accrued '
liabilities and operating expenses. Further, if the current
Audit Report E1SFL4-20-8001-5100192 \ 1-10
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procedure continues, the computation will get further and further
away from specific, identifiable obligations, and the probability
of misstated balances vill increase. A Financial Management
Division official agreed that the averaging procedures used did
not represent the most accurate method for computing accrued
liabilities. In addition, they do not intend to use this process
during fiscal 1995.
Reliance On The pQ^TRftditv Tracking System Resulted In Overstated
Accruals -..-..'. ' r . _ '' ...
. _ ' / ;
The aforementioned commodity tracking system was also used by
Washington FMC officials to prepare their year-end, accruals.
They relied solely on a detailed Commodities Accounts
Payable/Accrued Liabilities report which did not, match IFMS data.
When we tested the Commodities Accounts Payable/Accrued,
Liabilities report, we found a 46% error rate. By relying on
this erroneous data, Washington FMC overstated its year-end
accruals by approximately $302,000.
The Chief, Washington FMC, acknowledged the problem and indicated
quarterly reconciliations between IFMS data and the Commodity
Accounts Payable and Accrued Liabilities report would be
performed. The off icial also indicated that training would be
provided to personnel using the tracking system. Additionally,
we received assurance that any future correcting entries would be
made by, the end of the year, finally, according to a Financial
Management Division official, they plan to review whether CTS is
still needed and, if so, whether it should be enhanced and
included as. part of the Agency's official financial management
system; ' ,
Multiple Liability Accounts Had Debit Balances
i . . - .
For the six funds being audited, year-end accruals primarily
affected four general ledger accounts: Federal Accounts Payable
(2111) , Non-federal Accounts Payable (2 il2), Federal Accrued
Liabilities (2191), and Non-federal Accrued Liabilities (2192).
. Accruals for these accounts were entered at 14 FMCs :
Regions 1 through 10, RTP, Cincinnati, Las Vegas, and
Headquarters. , Thus, there were a total of 336 accrual accounts ,
(6 funds x 4 accounts x 14 accounting points) at the accounting
point level. We found that 34 of these 336 accounts (or about 10
percent) , had debit balances approximating $550,000 when they
should have had a credit or zero balance. The majority of these
34 accounts were for Superfund and LUST Federal Accounts Payable
and Accrued Liabilities. More importantly, 3 of 24 Agency level
accrual accounts had an overall debit balance. Two were FIFRA
accounts (Federal Accounts Payable and Federal Accrued
Liabilities) with the other being a LUST account (Federal
Accounts Payable). We believe the frequency of these occurrences
demonstrates a fundamental problem with accounting for accounts
Audit Report B1SPL4-20-8001-5100192 1-11
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payable and accrued liabilities, and therefore warrants
attention.
RECOMMENDATION
We recommend the Chief Financial Officer determine why liability
accounts, particularly Federal Accounts Payable and Federal
Accrued.Liabilities, had debit balances, and make any necessary
adjustments to the account balances.
AGENCY COMMENTS AND OIG EVALUATION
In his response to the draft report, the Chief Financial Officer
(CFO) agreed to determine why these liability accounts had debit
balances and to make necessary adjustments to the accounts. The
CFO's response mentions two causes for the debit balances and
. indicates that necessary corrective actions will be taken to
correct these problems.
The CFO did not fully agree with our draft report recommendation
that future year-end instructions provide guidance concerning:
(1) the appropriateness of using averages to obtain accrual
balances, and (2) the need to analyze unusual account balances
'(e.g. liability accounts with debit balances). Concerning the
use of averages to obtain accrual balances, the CFO stated that
the finance office involved has already indicated that the
questionable process used in fiscal 1994 will hot be used in
fiscal 1995. He stated that the other finance office that
misstated its accruals has indicated that it will conduct a
review to determine whether it should use the. Commodity Tracking
System in the future to determine accrual balances. Further, the
CFO did not believe that analyzing unusual account balances would
resolve the problems we identified.
We have dropped the recommendation concerning issuing guidance on
the use of averaging techniques since the CFO.stated that the
office where we found the averaging problems does not plan to use
the same technique in the future. We continue to believe that
performing analyses of unusual account balances is ah effective
means of improving the accuracy of the Agency's financial
information. The CFO, in responding to the material weakness on
financial reporting, stated that finance offices will be provided
general ledger reports by accounting point and will be held
.accountable for their account balances. In addition, a .
statistical sampling program has been developed to support
testing and .analyzing account balances to detect potential
errors. These planned actions meet the intent of our draft
report recommendation arid are already covered by a previous
recommendation in this report. Therefore, we have dropped our
original recommendation dealing with providing guidance in year-
Audit Report E1SFL4-20-8001-5100192 1-12
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end closing instructions on the need to analyze unusual account
balances. . ' .
Finally, the CFO indicated that the problems related to accounts
payable and accrued liabilities were not significant enough to be
considered a material weakness. . Instead, they should be
considered a reportable condition. We continue to believe,
primarily because of the widespread nature of the debit balances,
that these problems are a material weakness. For example, for
the Superfund Trust Fund, there were debit balances for one or
more of the four accrual accounts at 12 of the 14 finance
offices. Although the debit balances totaled only approximately
$550,000, this is only the amount required to bring the balances
back to zero. To determine the correct credit balances, would
have required us to visit all of the Agency's finance office
which would not have been an efficient use of our audit
resources. . .
Audit Report B1SFL4-20-8001-5100192 > 1-13
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GRANTEE PAYMENT REQUESTS DO NOT PROVIDE
NECESSARY ACCOUNTING INFORMATION
Recipients of EPA assistance agreements (grants) generally did
not provide accounting information on their requests for payment
via electronic fund transfer. Some EPA grants for which
recipients requested payment were funded from more than one
'appropriation. Without information on which appropriation to
charge for the payments made, the Las Vegas Financial Management
Center (FMC) processed disbursements on multi-funded grants, using
a first-in first-out (FIFO) method. Under the FIFO method, the
oldest available funding was used first regardless of which
appropriation benefitted from the work performed under the grant.
Using the FIFO method could result in a misstatement of expenses
during the fiscal year among the Agency's appropriations.
EPA Resource Management Directive 2520 states: "All expenditures
charged to an appropriation must be for the purpose of the
appropriation." Agency procedures for electronic payments
requested through the Automated Clearing House (ACH) provide a
mechanism for the recipient to submit this accounting
information, instructions in EPA's ACH Payment System
Recipient's Manual require the account number/activity code block
be used by recipients receiving assistance on special projects
such as LUST, Superfund, Endangered Species and Pesticide
Control. Recipients are directed to consult their assistance
agreement or contract conditions for specific information to be
used in this section.
We found that recipients did not identify the funding sources or
' benefiting appropriation on ACH payment requests because grant
terms and conditions, in general, neither provided the
information nor required that the information be included in the
payment requests. Las Vegas FMC officials stated that this
information was not required, except for,Superfund site-specific,
agreements. Without this accounting information. Las Vegas FMC
personnel could not be sure that grant payments were charged to
the benefiting appropriation.
Grants Administration Division (GAD) officials told us that the
FIFO method may not violate requirements because most of the work
performed by recipients could be paid for from any of the funding
appropriations. Thus, it did not matter which appropriation
funded a particular payment. Further, they believed that by the
end of the project when all funds had been expended, the work
performed would match the funding. Consequently, any imbalance
between work and funding during the project was temporary.
Finally, the GAD officials believed that requiring the recipient
to provide accounting information with payment requests was
contrary to the Office of Management and Budget (OMB) emphasis on
Audit Report E1SFL4-20-8001-5100192 '. 1-14
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streamlining. According to then, OMB preferred even less
information and paperwork related to payments.
r ' "* -" *
As previously noted, an appropriation may be used only for the
purposes for which the appropriation was made. Although
adjustments between appropriations are allowed during the year,
by the close of the fiscal year, the amounts paid must be
recorded against the benefitting appropriation. Thus, temporary
imbalances between work and funding must be corrected by
September 30. Therefore, despite,the streamlining efforts,
accounting information may be needed. We believe the accounting
information should be readily available to the recipients, and
should be provided,to EPA via the payment request. Further, it '
is only needed when (1) more than one appropriation funds the
grant, and (2) activity under the grant must be paid by one .
specific appropriation. Consequently, the grant should instruct
.. the recipient to provide the information in these situations. .
f ~
RECOMMENDATION
' ' . ' , \
We recommend that the 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.
' - ' - . "
AGENCY COMMENTS AND PIG EVALUATION
The Chief Financial Officer (CFO) offered an alternative to our
recommendation to include a clause in all assistance agreements
funded from multiple appropriations that specifies how payments
should be charged to the various appropriations. The CFO stated
that EPA will require grantees to provide special account
identification when mandated by statute or regulations. However,
in all other cases, the CFO stated that the individual finance
office will determine the method of accounting for .payments made
to the grantees. .Therefore, the CFO proposed preparing a policy
on how payments are to be charged to multiple appropriation
grants. In addition, the CFO asked us to recognize that
* identifying which appropriation should be charged when payments
are made is not only an EPA problem. Other agencies also have
this problem. Also, the CFO believed we should acknowledge that
the Agency has always made a special effort to correctly identify
specific Superfund funding in these types of grants.
We agree that the problem with identifying which appropriation to
charge when grants are funded With multiple appropriations is not
Audit Report E1SFL4-20-8001-5100192 1-15
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.limited -to EPA. Reports on audits of financial statements from
at least two other agencies also identified this problem. EPA
could resolve the problem since it already has procedures for
, obtaining and recording the accounting information related to
grant payments.,. As already mentioned above, EPA requires
accounting information oh payment requests for Superfund site-
specific agreements. This practice should be extended to all
multi-funded grants when work can only be paid for from a
specific appropriation. 'Without such accounting information.
Agency officials cannot comply with the existing statute on
accounting for appropriations. Further, to be enforced, we
believe the requirement must be in the grant agreement. .
Otherwise, the grantee will not have to submit the needed
information. Therefore, the proposed policy would have to
require a clause (or special condition) be included in the
'assistance agreement. Consequently, we have not revised our
draft report recommendation.
Audit Report E1SFL4-20-S001-S100192 1-16
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ACCOUNTING FOR SUPERFUND RECEIVABLES HAS IMPROVED
Emphasis by Agency management on accounting for accounts
receivable, and work-'performed by/our contract audit firm to
identify unrecorded receivables, succeeded in reducing the number
of unrecorded accounts receivable we identified during our audit
of the fiscal 1994 financial statements. Unlike fiscal 1993, in,
which the auditors discovered material amounts of unrecorded
Superfund receivables, the fiscal 1994 audit identified only five
receivables that were not recorded timely, including two valued
at $4.7 million that were not initially included in the financial
statements. We also found the allowance for doubtful accounts
was understated by $346,701, and marketable securities totaling
$4.7 million accepted in settlement of existing accounts
receivable had not been recorded. These errors indicate that
management should continue its emphasis on the recording of
Superfund accounts receivable and the related allowance for
doubtful accounts. ''..*
Statement of Federal Financial Accounting Standards No. 1; EPA's
Resources Management Directives System, Chapter 9, Receivables
.and Billings; and EPA's own supplemental year-end guidance all
require that accounts receivable (like other assets) be recorded
completely, promptly and at the appropriate value in the
accounting records. In addition, these standards and directives
require that collectibility be periodically assessed, and an
adequate allowance for receivables that may not be collected be
established. .The problems we identified in the recording of
receivables were primarily due to: (l) other organizations not
promptly sending documentation to Agency finance offices,
(2) lack of guidance related to marketable securities, and
(3) failure to properly follow .established guidance for
calculating the allowance for doubtful accounts. :
Accounts Receivable Were Not Recorded. Timely
Our audit work disclosed five receivables that were not recorded
in a timely manner: three at Chicago totaling $5,393,333; one at
Atlanta totaling $233,833; and one at Seattle totaling $43,200.
The items identified at Chicago related to recording the state's
share of the cost to cleanup a site. These receivables had not
been promptly recorded because there were delays in obtaining the
supporting documentation for the receivables from the regional
Superfund office. The item outstanding the longest totaled
"$4.2 million. The document establishing this receivable was
dated November 1993, but it was not given to the finance
officials to record until October 1994. That receivable and a
receivable totaling $493,333 were recorded as fiscal 1995
receivables, and were'not initially included in the financial
statements for-fiscal 1994. The third receivable, for $700,000
was recorded in the accounting system shortly before the books
for fiscal 1994 were closed.
'Audit Report B1SFL4-20-8001-5100192 1-17
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At Atlanta, an account receivable for $233,833 was not recorded
by September 30, 1994, although it had previously been identified
and reported to the EPA Comptroller on July 25, 1994. The ,'
receivable was. recorded in January 1995. We also identified a
$43,200 account receivable at Seattle which remained unrecorded
for at least one month. The item was initially recorded without
the normal documentation because cash was received from several
"of the potentially responsible parties. Two months later when
the supporting documentation was received from the Department of
Justice, the receivable was recorded again resulting in a double
posting of the receivable. Analysis and discussion with
accounting personnel at Seattle indicated that the double posting
was identified and reversed.. Thus,, the amount was properly
excluded from the accounts receivable balance as of September 30,
1994. This example shows the problems that occur, however, when
supporting documentation for accounts receivable is not received
timely.
Headquarters finance officials told us that the accuracy of the
year-end accounts receivable balance could be improved by
.alerting regional finance officials.to notify the Headquarters
Financial Management Division of accounts receivable identified
after the close of the fiscal year, so the necessary adjustments
can be made to the.financial statements. They plan to include
this guidance in future1 year-end closing instructions.
* >. . ;
Recorded
As of September 30, 1994, the Agency's general ledger excluded
$4.7 million of marketable securities received from parties in
bankruptcy to settle accounts receivable of approximately $19
million. According to Statement of Federal Financial Accounting
Standards No. 3 securities should be recorded in the Agency's
accounting records-at market value. Further, the accounts
receivable balance still included the $19 million, so receivables
were overstated. To summarize, when the marketable securities
were received, finance officials should have recorded them in the
accounting records and appropriately reduced the related accounts
.receivable. Officials in the region where, the accounts
receivable had been established said they were awaiting
instructions from Headquarters on how to record the security
transactions.
' ' ' ,
These securities were identified, previously in our audit report
on the fiscal1993 Superfund financial statements and in a
separate audit report "EPA's Handling; of Superfund Bankruptcy
Settlements? (Audit Report E1SFF3-20-8004-4100579) dated
September 30, 1994. Since management has prepared a response and
action plan for dealing with marketable securities and has
included the securities in the fiscal 1994 financial statements,
.we are making no additional recommendations in this area.
Audit Report E1SFL4-20-8001-5100192 1-18
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Allowance For Doubtful Accounts Did Not Include Some . .
Uncollectible Receivables >.,".
An allowance should be established to provide for the potential
.non-collection of accounts which nay .be in bankruptcy,
litigation, or are otherwise,impaired, due to age or other
reasons. We identified accounts receivable which should have
been (but were not) included in the calculations of the allowance
for doubtful accounts. For example, the allowance for doubtful
,tv accounts at Chicago was understated by $316,803. due to various
errors and omissions identified during our audit. As another
example, we identified one receivable totaling $29,900 at
Research Triangle Park which should have been included in the
allowance for doubtful accounts but was not even after the office
was notified, in March.1994, that it was uncollectible.
RECOMMENDATION
We recommend that the Chief Financial Officer emphasize to the
finance offices the importance of:
1. Notifying the Headquarters Financial Management Division if
receivables are identified after fiscal year end, so the
financial statements can be adjusted to reflect these
unrecorded receivables; and
* 2. Identifying potentially uncollectible receivables and
including these receivables in the calculation of the
allowance for doubtful accounts.
AGENCY COMMENTS AND QIC EVALUATION '
The Chief Financial Officer (CFO) noted that his staff had
suggested during the audit that the year-end instructions could
address the ,need for finance offices to notify the Financial
Management Division of accounting transactions posted in -the new
fiscal year which relate to accounts in the prior year. This
would allow receivables identified after the close of the year to
be properly classified in the financial statements. Accordingly,
the fiscal 1995 instructions that will be issued in August 1995
will include these special steps. We agree with the Agency's
proposed corrective action and have, therefore, included it as a
. recommendation in our report. ,
\
In our draft report, we recommended that the CFO emphasize in
year-end closing instructions the importance of identifying .,'.
* potentially uncollectible receivables and including these
'receivables in the calculation of the allowance for doubtful
accounts. The CFO disagreed with this recommendation stating
that the errors we identified at the two finance offices did not
make this a systemic issue. The CFO did agree that this is an
V| ' l
Audit Report B1SFI.4-20-8001-5100192 . 1-19
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<-'. ft
area where additional emphasis is needed. Therefore, in the
quarterly memo to the FHOs the importance of due professional
care In calculating the allowance for doubtful accounts will be
emphasized. We have revised our recommendation to incorporate
this proposed alternative corrective action since it meets the
intent of our original recommendation.
- l '
The CFO also stated that he did not believe that the problems we
identified in the accounts receivable area should be identified
as a material weakness, but rather they should be classified as a
reportable condition. We continue to believe that this area
should be reported as a material weakness for fiscal 1994. We
identified problems with the recording of accounts receivable at
three of the four regional, offices where we performed audit work.
In addition, the Agency reported accounts receivable as a .
material weakness in its fiscal 1994 report on internal controls.
Several of the Agency's proposed corrective actions in the area '
have-not been completed. '
Audit Report B1SFL4-20-8001-5100192
1-20
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TO RECORD SUPERFUND
STATE COST SHARE CREDITS , . -
When EPA takes the lead in the cleanup of a Superfund site,, it
enters into an agreement with the state, commonly referred to as
a Superfund state contract, for the state to share in the cost of
the cleanup, states can make payments to EPA for their share of
cleanup costs, or they can receive credits for the amounts they
incurred for remedial actions prior to entering into a Superfund
state contract with EPA. These credits were not being recorded
in IFMS when EPA entered into agreements with.states. We believe
these credits are an economic event that should be reflected in
the accounting records and related financial statements. Agency
guidance also requires that the credits be recorded in IFMS, but
no instructions have been provided to finance offices on how to
do so.
Statement of Federal Financial Accounting Standards, Number 1,
'defines a liability as a probable and measurable future outflow
of resources arising from past transactions or events. While a
state will not be paid for any amounts it receives as cost share
credits, EPA is liable to pay the state's share of costs. As
such, EPA is liable to pay these costs which EPA could have
expected to receive from the.states for the states' portion of .,
the cleanup cost., .
1 ' ' ^
EPA's Resource Management Directive 2550D, Chapter 9, states that
cost"share credits are to be entered into IFMS. According to the
policy, the Superfund program office, in conjunction with the
financial management office, is to request the Office of
Inspector General to verify the costs for which a state is
requesting credit. The amount entered into IFMS is to be based
on the results of the Office of Inspector General review. The
directive also recognizes the need for the financial management
office and Superfund program offices to ensure that complete
manual records are available of verified and unverified credits
and the use of credits.
Unrecorded State Cost Share Credits Mav Exist At Other Locations '
During our audit, we identified a state contract between Region 5
and Illinois in which Illinois used $1.4 million of a
$2.2 million approved credit as the state cost share. This
transaction was not recorded in IFMS. Program officials in
Region 5 told us they had approved other state cost share credits
in the past without informing finance officials. Thus,
.unrecorded credits may exist for other sites.
Audit Report Elsn.4-20-8001-5t00192 , 1-21
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Guidance Does Not Exist On RecordingState Cost Share Credits In
IFMS '-... .' ,'-.;''
EPA has not: issued procedures on how state cost share credits are
to be recorded in IFMS. The above mentioned directive, while
requiring that credits be recorded, does not describe how to do
so in the accounting records and financial statements. General
ledger accounts exist that could be used to capture the
transactions. Headquarters finance officials should consider
using these accounts as one possible way to record the credits.
Once Headquarters finance officials decide on the accounting .
treatment to be used for these credits, it should be conveyed to
the finance offices.
RECOMMENDATIONS
We recommend the Chief Financial Officer:
1. 'Determine if other state cost share credits exist, and
assure the credits are properly recorded; and
2. Develop procedures for recording Superfund state cost share
credits in IFMS.
AGENCY COMMENTS AND PIG EVALUATION ,
" In his response to the draft report, the Chief Financial Officer
(CFO) did not fully agree with our recommendations. The CFO does
not believe a liability exists for state cost share credits since
they do not effect EPA's financial liability to pay response
costs; EPA will pay all response costs regardless of the source
of funding. We believe a liability situation does exist at the
.time that a state cost share contract is established, and the
credit should be recorded. Recording the credits would be
consistent with the Agency's current practice of recording cash
payments received from states.- In addition, such credits were
recorded in the past. Two accounts exist in the general ledger
for recording Superfund state credits. These accounts had
.balances until the balances were removed in fiscal 1993.
The CFO agreed that state cost share credits should be tracked
and monitored and that the number, amount, and status of state
credits should be determined. The CFO plans to work with the
Office of Emergency and Remedial Response to determine whether
additional guidance is necessary. In addition, the CFO agreed to
analyze this issue to determine whether any accounting policy
changes are warranted considering the materiality of such credits
with respect to the financial statements. We believe policy
- currently exists that establishes that state cost share credits
are to be recorded in IFMS. We are not recommending a new or
revised policy, rather we are recommending that procedures be
Audit Report B1SFL4-20-8001-5100192 1-22
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developed to describe how Superfund state cost share credits are
to be recorded: in IFMS. Accordingly, we have clarified the
recommendation to highlight the need to develop procedures rather
than guidance for. recording Superfund state cost share credits.
Audit Report B1SFL4-20-8001-5100192
1-23
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ATTACHMENT 2
REPORT ABLE CONDITIONS
TABLE OF CONTENTS
, . . "v ' _ . . - Page
PROCESSING CONTROLS FOR THE INTEGRATED FINANCIAL
MANAGEMENT SYSTEM AND THE EPA PAYROLL
SYSTEM COULD NOT BE ASSESSED . 2-1
CONTROLS OVER SECURITY AND DATA INTEGRITY
IN THE ASBESTOS RECEIVABLES TRACKING SYSTEM
NEED TO BE STRENGTHENED 2-5
PROJECT OFFICERS WERE NOT RECEIVING INFORMATION
NEEDED TO MONITOR INTERAGENCY AGREEMENTS . . . . . . . ... 2-8
OPEN OBLIGATIONS SHOULD BE MORE
AGGRESSIVELY^REVIEWED ................... 2-11
' '
A COMPREHENSIVE AGENCY-WIDE POLICY ON
INDIRECT COSTS SHOULD BE IMPLEMENTED . . . . 2-14
Audit Report E1SFL4-20-8001-5100192
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Audit Report B1SFL4-20-8001-5100192
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PROCESSING CONTROLS FOR THE INTEGRATED FINANCIAL
MANAGEMENT SYSTEM AND THE EPA PAYROLL
SYSTEM COULD NOT BE ASSESSED
We could not assess the adequacy of the automated data processing
control structure as it relates to application processing
controls for the Integrated Financial Management system (IFMS)
and the EPA Payroll System (EPAYS) due to the lack of technical
system documentation. These applications have a direct and
material impact on the Agency's financial statements. Therefore,
an assessment of,each application's automated input, processing, ,
and output controls, as well as compensating manual controls, was
necessary to determine the reliance we could place on the
controls and the associated risk of potential missta'tements in
the financial statements. Despite the considerable amount of
documentation which was delivered at the time we performed pur ;
fieldwork, responsible Agency officials were not able to provide
us with technical system documentation which adequately described
the flow of transactional. data within either the IFMS or EPAYS.
Without critically important system documentation, we were unable
to: (1) identify automated processing controls, (2) assess their
relative importance to application processing, (3) determine
their reliability, or (4) plan substantive testing of selected .
processing controls. The lack of adequate system documentation
will also affect our ability to assess application processing
controls during the. financial statement audits performed in
fiscal 1995 and beyond. More importantly, the absence of
critical system documentation increases the risk associated with
maintaining complex application systems, such as IFMS and EPAYS,
and jeopardizes their continuity.
.Lack* Of Adequate System Documentation
Responsible Agency officials were unable to provide technical
system documentation related to EPAYS, as well as the accounts,
payable and accounts receivable processes within IFMS at the time
we performed our fieldwork. The complexity and criticality of
both EPAYS and IFMS demands that they be/sufficiently documented
at the program level. . '
Various documents require agencies to maintain technical system
documentation. In accordance with OMB Circular A-127, all
documentation, including technical system documentation, "shall'
be kept up-to-date and be readily available for examination." In
addition, OMB Circular A-130 mandates that agencies use the
Federal Information Processing (FIPS) and Telecommunication
Standards with limited exceptions. ,FIPS Publication 105,
Guideline for Software Documentation Management, provides
explicit advice on managing the planning, development, and
production of computer software documentation. It serves as a
basic reference for Federal personnel concerned with the
«, _ i
Audit Report E1SFL4-20-8001-5100192 2-1
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development, maintenance, enhancement, control, and management of
computer-based systems. It identifies several usual types of
"programmer documentation*1 which are essential for the
maintenance or enhancement of existing software programs.
Graphic representations, such as diagrams or flowcharts, are
identified as being especially advantageous, since they clearly
illustrate to maintenance programmers how each section of a
program works and relates to other programs or modules in the
system. The FIPS guidance specifically states "the more
elaborate the software product, the more heed there is for
formal, written system or program documentation." In addition,
EPA Directive 2100, the Information Resources Policy Manual,
requires program officials adhere to FIPS and guidelines as
published or adapted for the Agency in developing, documenting,
maintaining and using software applications.
Responsible program officials stated that technical system
documentation was not delivered when either the IFMS or EPAYS
.application systems were acquired by EPA. instead, reliance was
placed on contractor personnel to adequately understand, support,
and maintain these applications. EPAYS was acquired from the
Department of Interior in.1984, and, since that time, has
undergone significant customizing modifications. EPAYS is
maintained by contractor personnel. IFMS was purchased from a
contractor. It was delivered to the Agency without accompanying
system documentation of the nature described above. System
managers stated that considerable reliance is placed on the
supporting contractor's knowledge of its respective application's
processes. This reliance is especially the,case with regard to
IFMS, since the contractor dedicates a considerable number of
resources to the support of that application system.
Application System Maintainability At Risk
Technical documentation is important to system implementation and
software maintenance, since it enables current and future
programmers to clearly understand the purpose of each program
within the application system and its interface with other
application processes. Its existence is necessary to ensure
continued maintainability of an application system. Proper
documentation is especially critical.when an application system
is composed of a large number of software programs. 'Previously
provided system information indicated that EPAYS contains over "
400 program modules and that IFMS uses approximately 3350
computer programs to perform its various functions. Therefore,
the absence of such critical system documentation increases the
risk associated with maintaining these complex application
systems and jeopardizes their continuity.' Office of Information
and Resources Management officials told us that significant
resources would be needed to develop the technical system
documentation to support EPA's customized software. The
officials indicated that this would defeat the .cost advantages of
Audit Report E1SFL4-20-8001-5100192 2-2
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commercial software in that it relieves the purchaser of the
burden of preparing detailed documentation.
IFMS And EPAYS Documentation Subsequently Supplied
Subsequent to the completion of our audit fieldwork, additional
system documentation was provided. These documents will require
extensive review and analysis and, therefore, will have to be
evaluated during the fiscal 1995 financial statement audit.
Several major concerns will significantly influence the
usefulness of the additional IFMS documentation that has been
provided. These concerns include the facts that: (1) available
documentation pertains to outdated version(s) of the software;
(2) the documentation does not.identify which modules of the
software are active in current IFMS application processing; and
(3) the documentation does not address the Agency's extensive
customization of the software. , .
Other Federal Agencies Have Initiated Development Of The
Technical System Documentation .
' ^ * *
The Department of Interior (DOI), which also, uses highly-
customized software, has pursued a "through the computer" audit
approach for the last five years. During that time, DOI auditors
have worked extensively with DOI system personnel, as well as
.contractor programmers, to document the application controls
present in the financial processes. In addition, General
Accounting Office (GAO) auditors also recognized the need to
.identify, evaluate, and test automated application controls
though the use of ADP audit techniques. With the help of agency
system owners and software programmers, GAO isolated significant
sections of financial type functional processes and proceeded to
incrementally document the automated and compensating manual
application controls. , .
The QIG recognizes the fact that an overnight documentation of a
highly complex financial system is not entirely possible.
However, a cooperative effort must be undertaken, starting now,
in order to. anticipate and compensate for the inescapable
evolution of,the Agency's financial systems. Due to the size and
complexity of the financial systems and the anticipated resources
such effort will require', we suggest ah approach which identifies
and initiates documentation within-specific sections of each
application system which could assist in achieving full systems
documentation.
RECOMMENDATION
We recommend that the Chief Financial Officer make a commitment
to commence development of technical system documentation for its
application systems' transaction processes.
Audit Report E1SFL4-2O-1001-5100192 , . 2-3
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AGENCY COMMENTS AND PIG EVALUATION
In responding to our draft report, the Chief Financial Officer
(CFO) expressed concern that we based our disclaimer of opinion
on application processing controls on information which we
recognize will require extensive review and analysis* The CFO
also expressed concern about the cost effectiveness of haying to'
duplicate documentation of essentially the same system used by 30
other Federal agencies which has already met the Federal
requirements for commercial off-the-shelf software.' The CFO,
.nevertheless, agreed that documentation is an area for continuous
improvement and agreed to work cooperatively with the OIG on the
matter.
We continue to believe that the additional technical system
documentation provided after the disclaimer of opinion was issued
reflects outdated versions of the software, does not identify
which modules of the software are active, and does not reflect
EPA's extensive customization of the software. We will continue
to review this,additional information to determine if there is a
basis for modifying our opinion. We concur with the CFO's
cooperative approach for corrective action which includes
identifying specific documentation deficiencies and participating
in subrelease testing. .
' / ' l '
Finally, the CFO indicated that the problems related to IFMS and
EPAYS documentation do not warrant classification as a reportable
condition. Instead he believes they should be classified as
management letter items. We,believe, however, that these
problems should.be classified as a reportable condition because
they could adversely affect EPA's ability to properly record
transactions so .that reliable financial statements can be
..produced. As previously mentioned, technical system
documentation is necessary to ensure the continued
maintainability of the systems so transactions can be processed
and financial statements prepared.
Audit Report E1SFI4-20-8001-5100192 2-4
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CONTROLS OVER SECURITY AND DATA INTEGRITY
NEED TO BE STRENGTHENED
Weaknesses exist in the general automated data processing j
controls in the Asbestos Receivables Tracking System (ARTS) at
the Las Vegas Financial Management Center (FMC),. ARTS is a
personal computer (PC) based system for managing approximately
1400 loans totaling approximately $139 million in support of the
Asbestos Loan Program. ARTS is recognized as a major agency
information system and provides the subsidiary ledger for loans
for the Integrated Financial Management System (IFMS).
Specifically, ARTS lacks: (1) adequate security over computer
programs and loan data, (2) a virus protection program,
(3) standardized backup and recovery procedures, (4) an IFMS
interface, and (5) a problem/change control log. These
deficiencies could prevent EPA from: (1) adequately maintaining
the integrity of the loan data and programs; (2) providing timely
backups; (3) eliminating duplicate data entry, thereby reducing
processing .cost; and (4) adequately monitoring system problems
and requested program changes.
Access To The ARTS Loan Program And Loan Data Is Not Secure And
Lacks A Virus Detection Program. < . . '
We found.that access to the ARTS program and loan.data was not
password protected. Any individual with building access could
destroy or alter ARTS data. The alteration of loan data and
programs could be performed without detection thereby
compromising data integrity. Additionally, ARTS is located on a
PC which does not have a resident "virus" protection program. A
resident "virus" protection program is essential since this PC is
used for computer applications other than ARTS, without a
"virus" protection program a "virus" could render the ARTS
inoperable, or corrupt, delete, or alter data. Although the ARTS
program is not complete, the program is being used in a
production status. Most of the critical program modules have
been approved and are in use. Las Vegas FMC officials agree that
security for.the ARTS system should be strengthened. They are
assessing the most effective means to provide system security and
are working to strengthen their virus scanning capability.
Inadequate Policies And Procedures Regarding Backup And Recovery
No written policies and procedures exist for the backup of
.critical loan data and programs. Draft operator procedures exist
in the ARTS User Documentation Manual describing how to perform
backup and restoration of data files, but documentation does not
exist regarding the frequency of backup, number of generations to
be maintained, schedule for restoration, and procedures for
testing. Additionally, backups of ARTS application programs and
' '
Audit Report E1SFL4-20-8001-S100192 . 2-5
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loan data were maintained by the system administrator in an off-
. site location at the employee's home. Without a complete, :
.adequate backup and recovery plan, Las Vegas FMC may not be
prepared to adequately respond to unanticipated data processing .
interruptions which could severely impact EPA's financial -
operations related to the Asbestos Loan Program. Las Vegas FMC
officials told us that they plan to develop written policies and
procedures describing ARTS backup, recovery, and contingency
planning. Las Vegas FMC is also exploring possibilities for
easily accessible off-site storage of backups.
\ ' / . - *
LackOf Automated Interface Between ARTS And IFMS
i .
ARTS data is manually entered into IFMS. Las Vegas FMC developed
a process to electronically transmit data into IFMS, but it has
not,been tested. The dual entry method increases the risk of
data.entry error. This situation, in turn, provides a greater
risk of errors in the reporting of current, accurate, and
complete ARTS financial information in IFMS to support EPA's
financial statements. The Agency is aware of the need for this
interface between IFMS and ARTS and is working toward having it
in place by September 1995.
Absence Of Problem/Change Control Log '
/ . .
A log is not being used to record or track noted ARTS application
problems or requested software modifications. Problems
encountered were recorded on a "Service Application Request for
Support Form." This provided an effective means of communicating
a problem to the contractor, but did not provide an efficient,
practical method for facilitating management's review of
maintenance activity. A formal process should exist to ensure
that system problems and software change requests are reported
and documented in a standard manner. In addition, problem
reports and change requests should be tracked and categorized.
The data gathered by a change request and problem reporting
system can be used to track the changing quality of the system.
Our review also disclosed that ARTS managers did not periodically
review reported problems or requested software changes to discern
patterns or trends which might be indicative of: (1) repetitive
problems within their system; (2) inadequacies in the
contractor's performance; or (3) inadequacies in established
review procedures. Without routine and thorough reviews of the
changes processed to the application system, management cannot:
Determine existing maintenance trends or detect their
probable causes;
Assess the overall stability of the system;
Make informed decisions with regard to the future of the
system; or . -
Audit Report E1SFL4-20-8001-5100192 2-6
'
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- Assess whether unnecessary or inefficient effort was
expended or rework of previously reported problems is
evident which could contribute to excessive contract and
award fee costs.
When we brought this issue to the attention of Las Vegas FMC
officials, they told us that they planned to institute a system
change tracking system immediately.
\
>
RECOMMENDATIONS
' ,/ i ' .
We recommend that the Chief Financial Officer:
\ . . '
1. Install, on the ARTS PC, security software and a "virus"
protection program.
2. Develop written policies and procedures describing ARTS
backup, recovery, and contingency planning techniques to
conform with Federal Information Processing Standards;
establish procedures regarding regular backup of ARTS loan
data and programs; and maintain ARTS data and program
backups in a secure off-site location.
3; Provide for the testing and implementation of the electronic
interface between ARTS and IFMS. -
AGENCY COMMENTS AND PIG EVALUATION
In responding to our draft report, the Chief Financial Officer
(CFO) agreed to take corrective action on all of our
'recommendations, and outlined a number of corrective actions that
his office will initiate. The proposed corrective actions
satisfy the intent of our recommendations. In responding to our
proposed recommendation to establish and maintain a comprehensive
and cohesive change tracking system, the CFO noted that in
January 1995, a change request tracking system for ARTS was
implemented. Therefore,, we have deleted this recommendation and
will follow-up on the Agency's corrective action as a part of our
fiscal ,1995 financial statement audit.
Audit Report E1SFL4-20-8001-5100192 = 2-7
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PROJECT OFFICERS WERE NOT RECEIVING INFORMATION
NEEDED TO MONITOR INTERAGENCY
.Project officers for three interagency agreements (XAGs) in our
disbursement sample were not receiving information they needed to
determine if payments they approved reflected costs incurred and
progress made .by other Federal agencies performing work for EPA.
Additionally, the project, officers did not fill in the approved
dollar amount on the Project Officer Invoice Approval Forms they
received from the Cincinnati Financial Management Center (FMC).
Although Cincinnati FMC ensured that payments made did.not exceed
authorized amounts, they relied on the project officers to ensure
that the amounts paid were correct. The project officers, ,.
however, lacked the information and training needed to ensure
that the amounts paid were correct.
* * m i ' ~ ' '
The^EPA Resources Management Directive 2550C, chapter 4, requires
the project officer to monitor the agreements. It states:
This responsibility includes monitoring receipt of
goods or services to ensure their delivery in
/ accordance with the terms of the agreement, reviewing
detailed cost information required of the agency
providing the goods or services, and resolving any
differences which may arise.
' ' f '
Similar responsibilities are identified in the EPA Prelect
Officer Handbook. However, the project officers for the three
lAGs we reviewed told us that they had not received training in
the area of cost monitoring. When payments are made without
assurance of costs incurred and progress made, the Agency could
be paying for services, supplies or equipment it did not receive.
The project officer for an IAG with the, National Institute for
Environmental Health Sciences (NIEHS) was not provided detailed
cost support for amounts' invoiced by NIEHS. The Superfuhd
payments under this IA6 that were included in our sample totaled
$29.million. NIEHS billed costs for separate project areas such
as worker training and basic research in one lump sum, so the
project officer could not evaluate the costs of the projects
relative to the results or outcomes of the projects. The project
officer had made several unsuccessful attempts to obtain detailed
cost support from the National Institute of Health (NIH), which
administers twenty institutes such as the NIEHS. An NIH official
told the project officer that their accounting system does not
allow NIEHS to bill EPA in excess of costs claimed by their
grantees and that grantee costs are monitored by NIEHS project
officers. Nevertheless, it is important for EPA officials to
receive information about the cost and progress other agencies
are making in carrying out IAG work, so EPA can evaluate whether
Audit Report E1SFL4-20-8001-5100192 2*8
-------
IAG funding should be continued, or the funds should be used for
other program activities.
Similarly, under an IAG with the Food and Drug Administration
'(FDA), the project officer did not receive detailed cost support
for invoices. As a result, the project officer did not complete
the sections of the Project Officer Invoice Approval Form
requesting; information on total amount approved and Agency
accounts to be charged. Although the project officer received
test results from FDA, without detailed cost information, the
project officer could not monitor progress relative to cost. The
project officer thought that detailed cost support might be
provided after the multi-year project was closed out. However,
the project officer did not view monitoring costs or verifying
invoices as a project officer responsibility., We tested FIFRA
Fund payments under this IA6 totaling $35,000.
.Likewise, the project officer for an IA6 with the United States
Coast Guard did not receive essential information relating to the
payments requested. Total cost relative to progress was not
monitored by the project officer who was not advised of the
progress of work under the IAG. In addition, the dollar amount
approved was.left blank on the Project Officer Invoice Approval
Form. We tested Superfund payments under this IAG totaling $1.3
million.
According to a Grants Administration Division (GAD) official, the
project officers should have informed them if requested
information was not being provided in a timely manner. They . .
could then elevate the issue at the other agency. Also, the GAD
official stated that lAGs should include a clause requiring the
other agency to send progress reports and other needed
information to EPA. .
RECOMMENDATIONS .
We recommend the Chief Financial Officer:
_"''" ' ' - v(
1. . Ensure clauses are included in lAGs that require other
agencies to provide EPA project officers with information on
costs incurred and progress on proj ects.
2. Inform IAG project officers that they should:
a. inform the Grants Administration Division when required
information is not provided in a timely manner; and
b. complete the approved dollar amount section of the
Project Officer Invoice Approval Form.
Audit Report B1SFX.4-20-8001-91001.92 , 2-9
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AGENCY COMMENTS AND O^G EVALUATION ,
In our draft report, we recommended that the Chief Financial
Officer (CFO) ensure training on monitoring costs and reviewing
. invoices was provided to IAG project officers.. The CFO, in
responding to the draft report,, stated that the project officer's
training class developed by the Grants Administration Division
makes clear the need for project officers'to monitor costs and,
progress on grants and lAGs. Therefore, we are dropping the
recommendation concerning training that we included in our draft
report.
«' i * * j
.The CFO further indicated that clauses will be drafted and added
' to lAGs that will require other agencies to provide more detailed
information on the progress and cost of projects. The CFO also
plans to distribute .to project officers a fact sheet informing
project officers to: (1) notify the Grants Administration
Division when required information is not submitted by other
agencies in a timely manner, and (2) complete the approved dollar
amount section of the Project Officer Invoice Approval Forms.
These proposed corrective actions adequately address our
recommendations.
i . '
j- ,
The CFO disagreed that the issue of project officers not
receiving information on the costs incurred and progress made on
projects was a reportable condition. Rather he stated that this
issue should be reported in our management letter. He continue
to believe that this issue should be classified as a reportable
condition. OMB Bulletin 93-06 describes a reportable condition
as an issue that could adversely affect the Agency's ability to
ensure that transactions are properly recorded and accounted for
to permit, the preparation of reliable financial statements and to
maintain accountability over assets. We believe that when ,
.project offices do not receive and review information concerning
other agencies costs and progress on projects it affects the .
'Agency's ability to maintain accountability over its assets.
Audit Report B1SFL4-20-8001-S100192
2-10
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OPEN OBLIGATIONS SHOULD BE MORE
AGGRESSIVELY REVIEWED
Some Agency officials did not aggressively identify and
deobligate unliquidated obligations that were no longer needed..
.Obligations are transactions for bonafide needs existing during a
given period that will require payments during the same or a
future period. They remain recorded in the Agency's Integrated
Financial Management System (IFMS) until the final invoice is
paid or until the responsible EPA official notifies the
appropriate servicing finance office (SFO) to deobligate the
funds., Resources Management Directive 2520 requires allowance
holders (i.e., the head of an EPA region, office or division) to
monitor unliquidated obligations,, determine when all invoices
have been received, and ensure the appropriate SFO has received
all necessary final payment documentation. Further, finance
officials ask the allowance holders to: (1) periodically verify
that unliquidated obligations, including those from prior year
appropriations, are valid and supported, and (2) certify at the
end of the year that obligations for the current year are
correct. Such reviews are also required by the Treasury
Financial Manual to reasonably ensure that all and only those
transactions meeting the criteria of valid obligations remain
recorded.
During fiscal 1994, allowance holders were asked to conduct a ' .
mid-year review of older unliquidated obligations and a year-end
review of open obligations established in fiscal 1994. Despite
these reviews, we found approximately $4.8 million related to the
funds we audited that remained obligated for: asbestos loans
that were completely or partially declined; goods and services
received over a year ago at EPA Headquarters; grants that were
never executed; and travel that was probably not performed.
Unless complete reviews are made of all unliquidated obligations
and unneeded funds are timely deobligated,- program offices may
not be able to put program funds to the best use. This is
.particularly true for programs using appropriated funds which
expire if not used within required timeframes.
Unliquidated Obligations For Some Asbestos Loans Needed To ^e
Deobliqated
In reviewing eight outstanding asbestos loans, we determined that
three open obligations totaling $3,553,658 for loans should have
been deobligated in fiscal 1994. For one of these loans, Grants
Administration Division (GAD) officials were made aware before
the end of fiscal 1994 that the funds were no longer needed, but
they did not promptly initiate an amendment to deobligate the
funds. For the second loan, the amendment was processed and the
GAD staff received' the copy signed by the debtor on September 22,
1994. However, it was not received by the SFO until December 8,
Audit Report E1SFL4-20-8001-5100192 . 2-11
-------
i 1994. We believe these incidents occurred because. GAD staff were
.trying to obligate funds for interagency agreements before the ,
end of fiscal 1994.
For the third loan, no asbestos clean up activity had taken place
since the loan award was made in April 1989. .Because there had
been no clean up activity, Agency officials notified the
recipient that the loan would be terminated on April 15,- 1994.
However, the funds were not deobligated.
Obligations Remained Open Long After Goods Were Received
At EPA Headquarters, obligations remained recorded even though
some of the services were received more than three years ago. We
reviewed receiving reports for 36 obligations that were
outstanding at the end of fiscal ,1994 and found that, for 28 of
these obligations, 12 to 42 months had elapsed since services
appeared to have been received. These unliquidated obligations
/totaled $335,885.
Automated controls provide for unliquidated obligation balances .
in IFMS to be cleared at the time of .disbursement when."Final"
rather than "Partial Payment11 is entered. He found that because
vendors did not indicate final billing on their invoice or they
failed to bill the Agency, the unliquidated obligation remained.
We could find no indication that Agency officials were contacting
vendors to determine whether further invoices would be submitted.
/ ' '
Funds- For Unexecuted Grants Remained Obligated
Unlike prior years, few adjustments resulted from the mid-year
review of obligations for assistance agreements (e.g., grants)'.
Only one allowance holder requested GAD staff to make changes,
instead of the many that usually requested them. Because only a
few adjustments were requested, GAD officials believe the 1994
review was inadequate and are discussing with finance officials
changes to the procedures for the 1995 review. - '
During our audit work, we found obligations remained recorded for
eight grant actions that were never accepted by the,recipient.
Twice each month, Las Vegas SFO staff send .GAD a status report of
outstanding grant acceptances. This report ages the outstanding
offers by grant.specialist so that each specialist knows which of
his or her outstanding grant offers have been executed. As of
September 30, 1994, Las Vegas SFO staff reported eight grant
actions, whose Federal share amounted to $390,501, that were not
accepted although it was over 180 days since the grant offer. Of
this amount, $10,000 related to Superfund. .
GAD employees were not processing grant annulments for unexecuted
grant offers nor documenting approved extensions to the Las Vegas
SFO to support the validity of unliquidated obligations. Title
40 CFR 30.305(a) requires grantees to either sign and return a
Audit Report ElSFI^-20-8001-5100192 . 2-12
-------
grant agreement to EPA within three calendar weeks or request a
time extension for acceptance of the offer. The regulation
further states that if the grantee does not sign the grant offer
or request an extension,- the assistance agreement is null and
void. GAD officials stated that they did not process grant
annulments because of resource constraints in their office and
previous complaints from grantees when unsigned grants were
voided. ,
Fiscal 1994 Travel Obligations Should Be Deoblicrated . -
Finally, at the SFOs where we performed audit work, a large
number of travel obligations from fiscal 1994 or before remained
open as of January 1995. We believe this occurred (at least in
part), because, during their year-end certification of -
obligations, allowance holders did not aggressively identify and
deobligate travel that would not be completed prior to year end.
As of January 14, 1995,, for the funds we audited, six SFOs showed
open travel obligations of $924,137 for fiscal 1994 or before.
In summary, the reviews by some allowance holders were not
effective in eliminating invalid obligations. We believe these
officials should be held accountable for ensuring that only valid
obligations remain recorded. In our audit report on the fiscal
1993 financial statements, we recommended that the Chief
Financial. Officer include reviews of unliquidated, obligations as
a financial performance measure on which offices are evaluated.
Because corrective action on this recommendation has been
initiated, we are making no additional recommendations.
Audit Report E1SFL4-20-8001-5100192 . 2-13
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A COMPREHENSIVE AGENCY-WIDE POLICY ON
INDIRECT COSTS SHOULD BE IMPLEMENTED
Agency officials need to develop a comprehensive, Agency-wide *
policy on indirect costs that clearly defines which Agency costs
should be considered direct costs,: and which costs should be
considered indirect costs. The policy should also explain the
methodologies to be followed in allocating the indirect costs. .
Currently, the Agency has policies and procedures for determining
the total direct and indirect costs of Superfund response for
each Superfund site. These policies include identifying the
indirect costs which support the Superfund program, regardless of
the appropriation charged, and allocating the indirect costs to
.Superfund sites. " . ,
A comprehensive policy covering all Agency funds and programs is
needed because of the number of different cost allocations
performed for the various appropriations within the Agency, and
the number of offices who perform the allocations. During our
audit, we found for .those costs.allocated using the Agency's
layoff process there were differences concerning: (1) which
costs were being allocated,' and (2) which audited funds were
being allocated costs. A policy on allocating indirect costs
would help ensure that indirect costs are allocated when
appropriate, and that indirect costs are allocated only once to
activities. Determining the total costof Agency, programs, both
direct and indirect, is important not only for financial
statement purposes, but also for: - (1) recovering costs due from
others, (2) establishing fees for services provided to the '
public, (3) determining rates for internal charges from working
capital funds, and (4) comparing the costs of Agency activities
with environmental results achieved.
Currently, Agency offices perform two types of allocations of
indirect costs. First, the Agency allocates support costs for
.such things as rent and telephones. These support costs are.
charged to and paid for by those funds or activities to which
they are allocated. Of the five funds and one commercial
activity we audited, four (Superfund, LUST, Oil Spill and FIFRA)
were allocated support costs. .-
Second, the .Agency allocates other costs to all five of the
audited funds, as well as the commercial activity we audited.
This allocation is done for financial statement purposes, in
accordance with OMB Bulletin 94-01 which requires that financial
statements "include all material costs incurred by the Agency in
support of the activities of the revolving fund(s), trust
fund(s), or commercial function(s)." The allocation of these
other costs is not recorded in the accounting system since the
costs are not charged to or paid for by the funds or commercial
activity to which they are allocated. '
Audit Report E1SFL4-20-8001-5100192 2-14
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'SupportCosts Were Allocated In Various Ways
In auditing the support costs that were charged to the Superfund,
LUST, and Oil Spill Trust Funds, as well as the FIFRA Fund, we
identified differences in both the way costs were being'allocated
and the funds to which they were being allocated. Support costs
were recorded for the audited funds and programs in one of the
three ways described below. ' , '
First, support costs were paid for directly by the audited fund.
Examples of this are costs for; the alteration of work space or
the purchase of office furniture.
Second, part of the audited funds were provided up front to the
support organization, which then used the money at its
discretion. An example of this was Standard Level User Charges
(SLUG) for Agency facilities provided by the General Services
Administration. Part of the total charges were paid for using
monies from the Superfund, LUST, or Oil Spill Trust Funds, or the
FIFRA Fund. Another example of this was identified during our
audit of FIFRA costs. Seventeen percent ($2.7 million) of the
total FIFRA funds obligated ($16.1 million) went to the Office of
-Administration and Resources Management (OARH). OARM used
$33,759 of these obligated funds, for example, to buy window
miniblinds for sections of Waterside Mall not occupied by FIFRA
staff.
Third, costs were initially funded by the Agency's support
appropriation, Abatement, Control, and Compliance (AC&C). The
costs were then transferred to the Superfund, LUST or oil Spill
Trust Funds. ' The process used to transfer these costs from the
original appropriation to the benefitting appropriations, is
referred to as the cost allocation or layoff process. RMDS 2550D
(applicable to Superfund) and 2550E (applicable to LUST) provide
general guidance on the layoff procedures. The layoff procedures
used and the inconsistencies in the procedures are discussed in
.more detail below. . - ' 4
Layoff Procedures Varied Throughout The Aaencv
.Although overall .methods were similar, the specific procedures
used by the finance offices performing the layoff allocations
varied in several ways. The similarity was in the ratio used to
allocate .costs. In general, the basis for allocating support
.costs was staff time. The ratios for the allocations used hours
or full-time equivalents (FTEs) of Agency employees, based on
either the budget (authorized) or actual employee activity. The
most significant differences concerned: (1) how the pool of costs
to be allocated was defined, and (2) which of the audited funds
were allocated costs. We believe these problems provide insight
into areas that need to be addressed in developing an Agency-wide
policy on indirect costs. .'.-...
Audit Report E1SFL4-20-8001-5100192 , 2-15
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The layoff guidance in BUDS 255OD and 2550E indicates that the
pool of support costs to be allocated should be the costs
accumulated in selected program elements. Four program elements
are identified. However, none of the five finance offices whose
layoff procedures we'reviewed used .the entire program element as
the cost pool. Instead, they used only certain accounts within
the program elements, not the entire program elements. Further,
one finance office used program elements that were not identified
in the guidance. The inconsistent identification of support
costs increased the risk of duplicate charging of the support
costs. It also made it difficult for us to audit the cost pool
since we could not readily determine the universe of all support
costs. . '-. "-. ' '" ', . - ^
The audited funds to which costs were allocated also varied. The
finance offices in Chicago and Seattle allocated costs to the
Superfund, LUST and Oil Spill Trust Funds. The Dallas and
Atlanta finance offices allocated little or no costs to the Oil
Spill Trust Fund because, according to Dallas officials, support
costs were not budgeted for'the Oil Spill program. We determined
that the Dallas finance office should have allocated $49,600 of
support costs to the Oil Spill Trust Fund. This was not a
material amount for the Oil Spill program; however, our analysis
showed that five other .regions also did not allocate support
costs to the Oil Spill Trust Fund. Finally, at Headquarters, we
learned that costs were only allocated to the Superfund program,
and not to other programs and activities. According to a
Headquarters official, support costs were directly allocated to
the LUST and Oil Spill program.
; ' " . ' '.
We also found that Headquarters officials stopped allocating
support costs when the budgetary ceiling was reached.
Allocations that exceeded the ceiling were charged to the
Abatement, Control, and Compliance (AC&C) appropriation. In
September 1994, Headquarters had reached the Superfund ceiling, -
so Agency officials deobligated $1.4 million that had been
charged to Superfund and transferred that charge to the AC&C
appropriation. This practice prevents a complete accumulation of
Superfund support costs. The Office of General Counsel has been
asked.to provide an opinion oh whether it is proper to use the
AC&C appropriation to fund Superfund costs.
Other Costs-Were Also Allocated To The Funds
As previously mentioned; other costs were allocated to the funds
for,financial statement purposes in order to comply with OMB
requirements to identify the total costs incurred in support of
activities for which financial statements are prepared. We
evaluated the methods used to allocate these other costs, but we
did not audit the amounts allocated because many Of the costs
included in the calculations came from appropriations not
. included in our audit. In evaluating the methodologies, we found
that the calculations were prepared by three different offices
Audit Report E1SFL4-20-8001-5100192 2-16
-------
using four different procedures. Although more than one
procedure for allocating costs may be necessary due to the nature
of the audited funds, we believe this variety, emphasizes the need
for. some overall guidance to ensure that there are common
definitions and concepts throughout the Agency on what costs are
direct and indirect. , ' , . _.
In summary,! given the number of cost allocations performed in the
Agency and the number of offices performing the allocations, we
believe a comprehensive, Agency-wide policy for identifying and
allocating indirect costs is needed. The policy should take into
account ceilings on administrative costs that are imposed by
statute, as well as requirements on how specific funds may be
used. Finally, the policy should provide for calculating amounts
to be recovered from others for work performed by Agency staff.
As stated previously, there is policy for identifying and
allocating Superfund-related indirect costs to Superfund sites.
Similar policies and procedures are needed on an Agency-wide
basis.
RECOMMENDATION ;
We recommend that the Chief Financial Officer develop and
implement ah Agency-wide policy for identifying and allocating
indirect costs. '
AGENCY COMMENTS AND PIG EVALUATION
The Chief Financial Officer (CFO) agreed in principle with the
draft report recommendation to develop and implement an Agency-
wide policy for identifying and allocating indirect costs.
However, for several reasons listed in the memo, the CFO believed
it was premature, at this time, to commit to a corrective action
plan with specific milestones. The CFO plans to begin, in Hay
.1995, to develop a strategic action plan to determine and meet
cost accounting requirements. The plan will specifically
integrate system development, policy development, and user needs.
We agree that developing a policy on indirect costs will not be
an easy task. We believe, however, that the Agency needs to
begin development of the policy soon. This is particularly
important since the Agency plans to implement the Working Capital
Fund in fiscal 1996, and the policy should be in place prior to
implementation of the Fund. .
Audit Report B1SFL4-20-8001-5100192 2-17
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This Page Intentionally .Left Blank
Audit Report E1SKL4-20-8001-5100192
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APPENDIX I
ANNUAL FINANCIAL STATEMENTS FOR
FISCAL YEARS 1994 AND 1993
Audit Report E1SFL4-20-8001-5100192
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Audit Report B1SFL4-20-8001-5100192
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TABLE OF CONTENTS
MESSAGE FROM THE ADMINISTRATOR m
SECTION A
Overview of EPA 1
Overview of Trust Funds, Revolving 4
Funds and Commercial Activities
Superfund 7
Oil Pollution Prevention Program 19
Asbestos Loan and Grant Program 23
Pesticides Reregistration and Expedited 27
Processing Fund (FIFRA Fond)
Revolving Fond for Certification and 31
Other Services (Tolerance Fund)
,'. Leaking Underground Storage Tank (LUST) Program 33
SECTION B
Message from the Chief Financial Officer 39
Principal Financial Statements 41
EPA't PY 1994 Annul Bnntcul SB
Pagei
-------
Pageli
EPA's FY 1994 Anmial financial
-------
MESSAGE FROM THE ADMB^ISTRAf OR
I am pleased to present the Fiscal Year 1994 Annual Financial Statements for the U.S.
Environmental Protection Agency. These statements were prepared by the Agency's Chief
Financial Officer (CFO) and present a snapshot of the financial condition of EPA's trust funds,
revolving funds and commercial activities. .
This year we continued to nuke significant progress in preparing our financial statements.
Not only did we receive more favorable opinions from the auditors on several funds, but we also
began the critical integration of program performance reporting under bom the CFO and the
Government Performance and Results (GPRA) Acts. In addition, we were able to accelerate the
completion of the audited financial statements to meet the Office of Management and Budget's
ambitious schedule. - .
During my two years as Administrator of EPA, I have managed the Agency under the
operating principle mat we, as public servants, must be responsible stewards for bom the
environment and the financial resources entrusted to us by the American people. We must
achieve the greatest possible impact with our resources and also be responsive to the public's
demand for a government that works better and costs less. In mat vein, EPA's financial
statements are an integral step in reassuring the public of the integrity of EPA's programs,
management and. information.
As EPA embarks on its New Generation of Environmental Protection - me underlying
theme of our strategic plan - we recognize the many challenges we face to bring about effective
and sustainable environmental protection in the 21st century. If we are to achieve our mission
and goals, we must be creative and flexible not only in our programs, but also in our
management practices. . . . , , , .
To help achieve these ideals, we have taken the initial steps to construct a decision-
making infrastructure mat will effectively integrate Agency-wide strategic planning, budgeting,
financial management and program evaluation. By Uniting these key management functions, we
will be able to provide Agency managers with better program performance and financial
information, enabling us to make the most effective and efficient environmental investment
decisions with our limited resources.
The preparation of audited financial statements represents one of many actions the
Agency must take to achieve its long-term vision of results-oriented management and increased
accountability. The statements provide fundamental information for evaluating the strength and
effectiveness of the Agency's financial systems, processes and operations. As the Agency makes
its transition to Agency-wide financial statements for FY 1995, diese statements will serve as a
critical component of the Agency's future stakeholders report - an annual report mat will
summarize the Agency's mission and program accomplishments, assess its financial condition,
and identify significant management issues
EPA'* FY 1994 Animal financial StattmcBB Fag* Hi
-------
My vision for management at EPA puts comprehensive data into the hands of Agency,
managers at all levels as they make decisions that are fiscally sound, based on solid science
and reflective of common sense approaches. While we have made significant progress
already, we must continue bur efforts and strive to ensure that every tax dollar used by EPA
results in a tangible contribution to a better environment for ourselves and future generations.
Carol M. Browner
Pigeiv
EPA't FY. 1994 Annul fiaaacul
-------
OVERVIEW OF EPA
Mission. The U.S. Environmental Protection
Agency (EPA) was established in 1970 to guide
the nation's efforts to protect and preserve the
public health and the vitality of natural
ecosystems. EPA is committed to achieving
these goals by reducing risks to human health
and the environment, preventing pollution, and
fostering environmentally sound, sustainable
economic development in the most cost-
effective, efficient ways.
EPA's Challenge. Since the Agency was
established more than twenty years ago, EPA has
contributed heavily to improvements in both the
national and global environment The Agency's
efforts to implement and enforce its guiding
statutes have addressed many of the nation's
most visible environmental problems and
alleviated their impact.
Although significant progress has been made, the
increasing complexity of environmental problems
places in question whether programs and policies
that worked in the past will be as effective in the
future. Existing environmental statutes were
passed by Congress on an issue-by-issue, crisis-
by-crisis basis. The media-specific (e.g., air,
water) nature of these laws and the resultant
administrative structure have fragmented EPA's
response to environmental protection.
With our growing understanding of
environmental problems, EPA seeks an even
greater leadership role in anticipating and,
addressing current and future environmental
challenges. While renewing its dedication to
traditional environmental goals, the Agency
recognizes that the attainment of those goals
demands greater innovation, more flexibility and
continued management improvements. This
requires strong stewardship roles both for the
environment and for public resources.
Consistent with recent Congressional
Act), the Government Performance and Results
Act (GPRA) and the Government Management
Reform Act (GMRA) as well as
recommendations proceeding from the National
Performance Review, EPA has made progress in
its transition to managing for environmental^
results. . .
Integrating Key Decision Making Processes.
In the past year, EPA initiated its first steps
toward integrating and linking strategic planning,
budgeting, program evaluation and resource
management to optimize resource utilization.
The ultimate goal of integrating these key
decision making processes is to ensure that the
greatest positive impact is attained from the
Agency's environmental investments.
Accomplishments in FY 1994 include:.
Agencvwide Strategic Plan. EPA issued its first
five-year strategic plan, The New Generation of
Environmental Protection. This plan is viewed
as a blueprint for change at EPA and will guide
the Agency's planning, resource allocation, and
decision-making processes over the next five
years. The plan sets the vision and direction for
the changes that will shape EPA's environmental
agenda into the next century. The core of the
plan is a set of seven guiding principles that
govern how we conduct our programs and
activities. These include the following:
1. Ecosystem Protection - EPA will encourage
ecosystem management and economic
development that promotes the health and
productivity of natural systems.
2. Environmental Justice - EPA will work to
ensure that individuals and communities are
treated equitably under environmental laws,
policies, regulations, and that the benefits of
environmental protection are shared by everyone.
including the Chief Financial Officers Act (CFO
EPA's FY 1994 Annual Financial Statenmts
Page!
-------
3. Pollution Prevention - EPA will work to
. prevent pollution by: incorporating prevention
into the Agency's mainstream environmental
programs; strengthening partnerships with the
states, tribal, and local governments, the private
sector, and other federal agencies; providing
information to the public; encouraging
technology innovation and diffusion; and, where
necessary, working to change existing
environmental legislation.
4. Strong Science and Data - EPA will employ
the best possible science, invest strategically in
research and development for the future, foster a
productive dialogue with the public about
science and risk, and ensure that data are
integrated and information is available to support
comprehensive environmental protection. To be
credible and effective, EPA's policies, programs,
and actions will be based on sound data and
.research from the physical, biological, and social
sciences.
5. Partnerships - EPA will work in partnership
with its stakeholders - federal, tribal, state, and
local agencies, Congress, private industry, public
interest groups, and citizens ~ to develop the
technology and capacity for carrying out
environmental programs and policies that are
sensible, innovative, and flexible.
6. Reinventing EPA Management - EPA will
strive to make itself known as one of the best-
managed agencies in the federal .government. In
an era of rapid technological change and tight
budgets, the public expects EPA to manage its
resources, infrastructure, and processes with
integrity and maTimum effectiveness. The
Agency will emphasize employee development,
empowerment, and diversity.
7. Environmental Accountability - EPA will
stress that everyone in society is accountable for
protecting and preserving the environment The
cornerstone of EPA's effort will be a strong
enforcement and compliance program.
Setting National Environmental Goals. To
ensure that we focus on the critical objectives
and accomplish the broad purposes that Congress
has articulated, EPA began the process of
developing measurable environmental goals that
will define the environmental results it seeks and
the timetable for achieving them. Some of the
statutes and programs that EPA administers set
explicit environmental goals, while others did
not. Environmental goals that can be used to
measure success are an important part of EPA's
long-term planning, budgeting, and program
evaluation process. They will enable EPA and
others to measure the success of environmental
strategies.
To develop a full set of measurable goals, EPA
launched the National Environmental Goals
Project EPA expects to announce a full set of
measurable environmental goals by Earth Day
(April 22), 1995 for public review and comment
Because it shares the responsibility for
environmental protection with many others, the
Agency has worked closely with individuals and
organizations nationwide to develop these goals.
As included in The New Generation of
Environmental Protection, the following
preliminary list of topics has been developed by
the National Environmental Goals Project
National Environmental Goal Areas '
(In alphabetical order)
Clean Air
Climate Change Risk Reduction
Stratospheric Ozone Layer
Restoration
Clean Waters
Healthy Terrestrial Ecosystems
Safe Indoor Environments
Safe Drinking Water
Safe Food
Safe Workplaces
Preventing Spills and Accidents
*
Page 2
EPA's FY 1994 Annual Hi
-------
Preventing Wastes and Toxic
Products
Safe Waste Management
Restoration of Contaminated Sites.
Government Perfbr?"gngg_gyl Remits Act
(GPRA) Implementation. Although full
immplementation of GPRA begins in FY 1999,
strategic and program plans and budgets for FY
1999 will be due in FY 1997. EPA has taken
appropriate actions to ensure effective
implementation of this important management
initiative. Next steps for strategic planning will
include the development of program office long-
term plans that support the measurable
environmental goals the Agency has set
Planning, budgeting, and program staff from
across the Agency are working to develop a new
system of performance measurement that will
permit evaluation of the outcomes as well as the
outputs of EPA's activities.
EPA also supported government-wide efforts to
implement GPRA. The Agency nominated a set
of six performance pilots projects to the Office
of Management and Budget and participated
actively in a number of interagency groups
working to develop guidance on various aspects
of GPRA. Through the CFO Council, EPA's
representatives are working with other agencies
to mate sure that CFO and GPRA requirements
are effectively and efficiently, achieved.
The final section of this overview includes
performance measures for the Leaking
Underground Storage Tank Revolving Fund.
The program performance measures have been
prepared in accordance with and hi the format
specified by GPRA. The Agency will work
toward collecting and reporting all performance
measurement information in compliance with
these standards in future years!
Resource Management Improvements. The
Agency continued its extensive efforts to
strengthen its resource management functions as
required by the CFO Act, GPRA and the
GMRA. Accomplishments included:
Installed new software for the Agency's
accounting system to expand EPA's
capacity to provide timely, accurate and
Useful financial
Conducted a pilot program of financial
management performance measures to
assess the effectiveness of component
offices in carrying-out financial
management duties;
FiStaWishcd a committee of senior
managers from every EPA office to
provide input into the management of
resource management functions. The
scope of frig committee was expanded in
FY 1994 to include advising financial
management staff on how to implement
the CFO Act most effectively;
Developed and introduced a new model
for the Federal Managers' Financial
Integrity Act which will significantly
reduce the reporting burden on Agency
offices, while reinforcing standards of
accountability;
Expanded the use of electronic funds
technology to improve the management
of Agency funds; and
Initiated efforts to streamline and reinvent
key processes in both grants and contracts
management to increase efficiency
customer satisfaction.
EPA's FY 1994 Annual Financial
Page 3
-------
OVERVIEW OF TRUST FUNDS, REVOLVING FUNDS,
AND COMMERCIAL ACTIVITY
The CFO Act of 1990 placed new emphasis on
financial management in major federal agencies.
One of the major requirements of the Act is the
preparation of annual financial statements for
each of the Agency's revolving and trust funds,
and commercial operations.
EPA's financial statements for FY 1994 include
the following trust funds, revolving funds, and
commercial activities:
the Oil Pollution Prevention Program;
» Superfund; .
* the Loan Portion of the Asbestos Loan
and Grant Program; - .
the Pesticide Reregistratiori and Expedited
Processing Revolving Fund (FIFRA
Fund); .. . '
the Revolving Fund for Certification and
Other Services (Tolerance Fund); and
Leaking Underground Storage Tank
(LUST) Program.
EPA Financial Statements. Under the CFO
Act, financial statements are required to reflect
the .overall financial position of the funds, as
well as the results of the operations of the funds
and their activities or operations. Detailed
financial information on EPA's trust funds,
revolving funds and commercial activities is
contained in the Principal Statements section of
this report
*
The first part of the financial statements is this
overview prepared in accordance with OMB
guidance. It contains a separate section on each
of the six revolving fund, trust fund, and
commercial activity programs reported on,
including:
a description of each program,
a financial perspective of each program,
and '
a discussion of program performance.
For the years FY 1994-1996, the LUST program
also is a pilot program under the Government
Performance and Results Act of 1993. In order
to streammline and simplify reporting, the LUST
overview contained in these financial statements
satisfies both the performance measures
requirements of the CFOs Act and the animal
performance report requirement of GPRA. For
this reason, the LUST program performance
section differs in format from that of the other
funds and programs.
EPA's programs and activities not currently
covered by the CFO Act are not included in the
FY 1994 financial statements. The Agency plans
to expand annual financial statements in future
years to include additional EPA programs. The
Agency currently is investigating options for
tracking and n-poiting additional program
and financial information MI a
manner that would be useful to those interested
in knowing more about the results of EPA's
programs.
The following paragraphs provide an overview
of the 'organization, management, and authorizing
legislation for each of the six programs.
Trust Funds. A trust fund is a fund established
to account for receipts which are held in trust for
use in carrying out specific purposes and
programs in accordance with an agreement or
statute. Three of the EPA programs covered by
the CFO Act are trust funds and are housed
primarily in the Office of Solid Waste and
Emergency Response. These programs, which
use trust fund revenues to finance the cost of
cleaning up contaminated sites, are:
Page 4
EPA's FY 1994 Annual finantiarstatemento
-------
* the Superfund,
the Oil Pollution Prevention Program and
* the Leaking Underground Storage Tank
(LUST) Program.
These three programs are primarily managed by
the Office of Solid Waste and Emergency
Response (OSWER) and the Office of
Enforcement and Compliance Assurance
(OECA). Within OSWER, the Offices of
Emergency and Remedial Response (with
responsibility for Superfund and Oil Pollution
Prevention), Underground Storage Tanks (with
responsibility for LUST), and Solid Waste (with
responsibility for the solid and hazardous waste
programs under the Resource Conservation and
Recovery Act) manage the non-enforcement .
requirements of the three programs.
Until June 1994, the functions performed by
OECA were located in OSWER's Office of
Waste Programs Enforcement. (OWPE). .OECA's
reorganization now places these functions in
OECA's Offices of Regulatory Enforcement and
Site Remediation Enforcement
EPA has ten Regional offices which manage the
day-to-day operations of these three programs.
Over three quarters of the staff responsible for
carrying out the Superfund, Oil Pollution
Prevention and LUST programs reside in the
Regions. The three programs are located in the
Regional Waste Management Divisions (except
in Regions 4 and 10 where the LUST program is
in the Water Division and in Regions 1, 6 and 7,
where the Oil Pollution Program is located in the
Environmental Services Division).
While OSWER, OECA and the Regional Offices
have lead responsibility for the Superfund, Oil
Pollution Prevention and LUST programs, these
programs are supported by staff in other
Headquarters and Regional offices. These
offices charge appropriate administrative and
extramural expenses to the three programs^
In Headquarters, these support functions are
carried out primarily by the Offices of
Administration and Resources Management,
Inspector General and Research and
Development In the Regions, support is
provided by staff from the Office of Planning
and Management and the Environmental Services
Division. Other Federal Agencies are also
involved in Superfund activities. Funding for
these efforts is supported through an allocation
of trust fund resources.
\
Revolving Funds. A revolving fund is a fund
authorized by specific provisions of law to
finance a continuing cycle of operations with
receipts derived from such operations available
in then- entirety for use by the fund. Two EPA
programs, both located in Office of Prevention,
Pesticides and Toxic Substances (OPPTS), are
included in these statements:
* the Pesticides Reregistration and
Expedited Processing Fund (FIFRA
Fund), and
the Revolving Fund for Certification and
Other Services (Tolerance Fund)
These funds supplement appropriated resources
in support of EPA's pesticide program. The
mission of EPA's pesticide program is to
safeguard and preserve public health and the
environment from risks posed by pesticides. The
regulation of pesticides comes under the
authority of two laws: the Federal Insecticide,
Fungicide, and Rodenticide Act (FIFRA); and
the Federal Food, Drug and Cosmetic Act
(FFDCA).
EPA is charged by Congress with the job of
regulating the use of pesticides and balancing the
risks and benefits posed by pesticide use. The
Agency regulates the use of pesticides through
its Office of Pesticide Programs (OPP), within
OPPTS. OPP consists of seven divisions and a
staff office. FIFRA gives EPA the authority and
responsibility for registering pesticides for
EPA's FY 1994 Animal Financial Statements
PageS
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specified uses and the "-registration of existing
pesticides that were registered prior to
November 1, 1984. Pesticide regulatory
decisions are based primarily on EPA's
evaluation of the test data provided by
applicants. Tolerance residue setting activities -
are authorized by FFDC A. EPA's pesticide
regulations coven . -
20,500 pesticide products
2,200 registrants
3,300 formulators
29,000 distributors and other
establishments
40,000 commercial pest control firms
' 1 million farms
90 million households
Commercial Activities. The GFO Act requires
reporting on programs performing substantial
commercial functions and specifically identifies
the making of loans as such an activity. EPA is
reporting on one commercial activity which is
administered under the Office of Pollution
Prevention and Toxics (OPPT) within the Office
of Pollution Prevention and Toxic Substances:
the Asbestos Loan and Grant Program.
This overview covers the entire Asbestos Loan
and Grant Program. However, the loan portion
of the program is the only part that is a
commercial activity and is the only part of the
program covered by the audited financial
statements. In addition, no new asbestos loans
or grants have been awarded since 1993,
although collection activities will continue for
several more years.
The Asbestos School Hazard Abatement Act
(ASHAA) of 1984 directed EPA to create a loan
and grant program to financially assist Local
Education Agencies (LEAs) or school districts
with asbestos abatement projects in public and
nonprofit elementary and secondary schools.
The Act was subsequently reauthorized in 1990
for an additional five years. The ASHAA loan
grant iimgiam is administered in the
Chemical Management Division, Field Programs
Branch of OPPTS.
Page 6
EPA's FY 1994 Animal Financial Statements
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Super-fund
The Superfund program is administered under
the Comprehensive Environmental Response,
Compensation and Liability Act of 1980
(CERCLA) as amended by the Superfund
Amendments and Reauthorization Act, 1986
(SARA) and the Omnibus Budget Reconciliation
Act of 1990. The program is primarily managed
by the Office of Solid Waste and Emergency
Response (OSWER) and the Office of
Enforcement and'Compliance Assurance
(OECA).
OSWER's Superfund organization was
composed of the Office of Emergency and
Remedial Response (OERR) and the former
Office of Waste Programs Enforcement (OWPE).
When the Office of Enforcement was
reorganized on June 8, 1994, most of the
Superfund enforcement functions performed by
OWPE were moved under OECA. Within
OECA, the Office of Site Remediation
Enforcement has primary responsibility for
Superfund enforcement In this section.
Headquarters Superfund references will include
OSWER and OECA/OSRE unless otherwise
noted.
Program Description
CERCLA (Superfund) was enacted on
December 11, 1980 to address public health and
environmental threats from spills of hazardous
materials and from sites contaminated with
hazardous substances. It established a
comprehensive program to identify and. clean up
these spills and sites. EPA was authorized to
use a trust fund (the Hazardous Substance
Superfund) to pay for this work and to pursue
recovery of expenditures from parties responsible
for the contamination.
The law directs EPA to handle releases of
hazardous substances by either compelling
potentially responsible parties to respond or
conducting a removal, Early Action, or Remedial
Action using the Superfund. Removal actions
are short-term responses to an immediate threat
posed by the uncontrolled release of a hazardous
substance, such as from a transportation accident
or a fire. Early Actions are similar to removals
but are usually non-time critical and can be
performed under removal or remedial authority.
An example of an early action is implementing
interim groundwater plume control. Remedial
Actions are long-term, more permanent remedies
taken at those sites where the risk to human
health and the environment warrants placing the
site on the National Priorities List (NPL).
Cleaning up a Superfund site is a multi-stage and
multi-year process. In fact, the average site takes
seven to ten years from discovery to start of
cleanup. Prior to being placed on the NPL, EPA
conducts a preliminary assessment of the site.
Where warranted, this is followed by a site
investigation. While EPA continues to seek
ways to speed site cleanups, the work on
complex sites can stretch into decades especially
when ground water must be treated. EPA also
conducts removal actions at non-NPL sites.
Since 1980, more than 2,300 short-term removal
actions at 2,407 non-NPL sites have been started
(252 actions at 180 non-NPL sites in FY 1994
, alone, excluding federal facilities).
Once a site is listed on the NPL, EPA works
with the community around the site to plan the
long-term cleanup with a detailed,study of the
site and an evaluation of cleanup options. The
planning process can take up to four years with
an average cost of $1.35 million per site.
The actual cleanup (construction) work itself
averages $22 million per site. Because of the
high cost and limited Superfund resources,
EPA's Superfund, enforcement program
EPA's FY 1994 Annual Financial Statements
Page?
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Superfund Staff by Office-FY 94
-------
unable to contribute. PRPs' commitments to site
cleanup have exceeded $1 .billion per year three
of the past four years.
\
Superfund response program expenditures
through FY 1994 total $10.2 billion. In EPA's
most recent report to Congress, the Office of
Solid Waste and Emergency Response estimated
the remaining costs of cleaning up the 1,235
sites currently on the NPL to be $13.3 billion for
FY 1995 and beyond. This estimate does not
include the responsible party contribution.
In FY 1994, the Superfund program utilized
3,460 workyears, and total Superfund obligations
were approximately $1.6 billion. Further .
analysis of these numbers is provided in the
following sections.
Soperftmd by Activity. The Agency has
identified four major components of the .
Superfund program: Remedial Activities,
Removal Activities, Enforcement Activities, and
Other Activities. These activities were identified
based upon the "Superfund Activity Code",
which is the accounting process the Agency uses
to identify Superfund activities with accounting
transactions. Each of these components has
various activities which are identified below.
Remedial activities represent the long-term
response at a Superfund site and include the
Preliminary Analysis/ Site Investigation (PA/SI),
Remedial Investigation/Feasibility Study (RI/FS),
Remedial Design (RD), Remedial Action (RA),
associated oversight and laboratory analysis
activities, and remedial support and management.
f
Removal activities represent the short-term
response and stabilization of hazardous
substances and include the removal actions,
associated oversight and laboratory analysis
activities, early actions, Technical Assistance
Team activities, and removal support and
management
Enforcement activities represent the actions the
Agency takes hi the recovery of Superfund,
expenditures, settlement negotiations with
responsible parties, and associated oversight
Other activities represent activities of the
Agency in supporting the Superfund program as
a whole. These "Other" activities cross the
remedial, removal, and enforcement program
lines and are associated with remedial, removal
and enforcement "Other" activities include
.research and development, contract award and
management, financial management, human
resources activities, and rent and utility costs.
These charts provide a look at Agency spending
patterns for the current fiscal year and the past
three-year period. The spending patterns are
identified for both obligations and disbursements.
An obligation represents a commitment to
procure and pay, and is funding for an activity.
Obligations are -not the sarncr as actual cash
disbursements. Disbursements (outlays)
represent cash payments for products or services
rendered. In general, for any given fiscal year,
obligations are an indication of current and
future activities and disbursements are indicative
of completed activities.
""*
Superfimd Obligations by Activity. Direct
remedial activities account for more than 45
Superfund Obligations by Activity - FY94
EPA's FY 1994 Annual Financial Statements
Page 9
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Superfund Obligations by Activity - Trends
MOB
rtu
percent of the Superfund budget Remedial
Actions are taken at large sites requiring
complex cleanups.. Over 60 percent of the sites
on the NFL have had design or construction for
cleanup initiated, and most contract dollars
(more man 65 percent in FY 1994) go for
cleanup.
The "Other" category represents all infrastructure
.support costs, including rent and utilities, to both
cleanup and enforcement as well as funds for
other offices within EPA, such as Research and
Development, and for other Federal agencies .
which support the Superfund program.
The Superfund program conducts a large number
of short-term removal actions and early actions
each year to control immediate threats, with
more than 3,000 of these completed by the end
Superfund Disbursements by AetMiy - FY 04
00%)
(20%)
of FY 1994. Removals account for
approximately 24 percent of the FY 1994
Superfund cleanup costs.
The resources invested hi the enforcement
program have a large payoff. See Measures 6-9.
Superfund Disbursements by Activity.
Disbursements represent the actual payment for
services. How an obligation is disbursed
depends on the type of expense. For example,
payroll costs are obligated and disbursed at the
same point in time. The same holds for travel.
However, contract services, which are performed
over a period of time, may be obligated at one
point hi time and disbursed over the length of
the contract as services are performed. For mis
reason, the mix of payroll, travel, contracts, etc.,
will impact how closely obligations and
disbursements are aligned for an activity.
Ihi
Superfund Disbursements by Activity - Trends
wat
Sapertand by Location. Superfund activity can
be further broken down by location. Obligations
and disbursements are displayed by Region,
Headquarters (HQ) - Office of Solid Waste and
Emergency Response (OSWER), and HQ - All
Others. Much of the operational responsibility
resides in the EPA regions.
Superfund Staff by Location. Since most
operational activity occurs in the regions, the
Page 10
EPA's FY 1994 Annual Financial Statements
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Superfund Staff by Location-FY 94
<»*)
HQAIOtfttra (16%)
HOO6WB1(BH)
largest numbers of workyears are utilized by the
regional offices.
Superfund Obligations by Location. EPA
headquarters is further broken down between
Headquarters OSWER (Includes OSWER as well
as components of die Office of Enforcement and
Compliance Assurance formerly located in
OSWER) and all other remaining non-OSWER
offices.
Superfund Obligations by Location - FY 94
00%)
HQ-AIOOwn (12%)
HQ-OSWBl (18%)
Hie bulk of the obligations also occur in the
regions. This corresponds to the increasing
operational responsibility of regional offices in
the past few years. "
**>
Superfund Obligations by Location - Trends
IMP
1JOQ
rtm ntt
Superfund Disbursements by Location. Current
year disbursements follow die same pattern as
current year obligations: Regional disbursements
are the largest; HQ - OSWER disbursements are
second; and HQ - All Others are last
Disbursements closely minor obligations by
location except for the Regions.
Disbursements indicate completed activity while
obligations represent future activity. Since a <
large portion of Superfund Remedial activity is
long-term and is conducted in the Regions, all
current year obligations will not be disbursed in
the same fiscal year.
Superfund Disbursements by Location
ToM
FY94
HQOSWB)<21%)
EPA's FY 1994 Annual Financial Statements
Page 11
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Superfund Disbursements by Location - Trends
»M ' '
MOO-I
1400
PVM
Program Results
In FY 1994, more cleanups were completed than
in the entire first decade of the Superfund
program.
In 1991, cleanup systems had been constructed
and completed at a total of 60 Superfund sites.
Now, three years later, more than four times that
number, 276 non-federal facility sites, have been
completed by the end of FY 1994. In addition,
cleanup is now underway at 95 percent of the
sites on tiie National Priorities List (NFL).
/
The direct beneficiaries of the Superfund are
those people living'in the vicinity of the clean-up
sites. Indirect beneficiaries include those living
further from the sites who might suffer
degradation of their groundwater, drinking water,
or air if these programs did not alleviate the risk
of contamination before it became more
widespread. Early action to contain impacted
areas also lessens the potential liability of parties
responsible for the contamination.
The purpose of this section of the financial
statements is to relate program performance to
trust fund expenditures. Since the funds used to
cleanup Federal facility sites do not come from
the trust fund, accomplishments attributable to
EPA's Federal facilities program have been
excluded from this report
EPA's performance measures for the Superfund
program for FY 1994 fall into two categories:
site cleanup (Measures 1-5) and enforcement/cost
recovery (Measures 6-9).
Cleanup. For site cleanup we measure not only
the completion stage but also the critical steps in
the cleanup process. Because the cleanup
process can take a number of years, it is
important to look at the "pipeline" of activities to
get an accurate sense of progress .
Measure 1: Number of sites on the National
Priorities List (NFL) where cleanup or
investigation has started compared to the total
number of sites on tin* NPL.
Activities which count under this measure are
short-term removal actions and the remedial
investigation/feasibility study which assesses die
nature and extent of contamination at the site
and analyzes cleanup alternatives so that a
remedy can be selected.
Results: In FY 1994, cleanup was started at 20
sites. Cumulative performance to date is 1,144
cleanups begun compared to 1,195 NPL sites.
The number of cleanups started declined in FY
1991 through 1994 relative to earlier years as the
Superfund program's emphasis has shifted to the
later stages of the cleanup effort needed to
complete work at a site. Also, cleanup has now
begun at nearly all sites on the NPL. The 51
remaining sites have been evaluated for
immediate" th*, even though cleanup action lw?
not yet begun.
Measure 2: The number of non-NPL sites
with hazardous releases where EPA has begun
a cleanup action.
Page 12
EPA's FY 1994 Annual Financial S
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Sites with confirmed hazardous releases, which
do not score high enough to be included on the
NPL or where an emergency exists, are eligible
for a short-term Superfund removal action if they
meet certain regulatory criteria. This measure
counts the number of sites where a removal
action has started.
Results: hi FY1994, cleanup actions were
begun at 180 non-NPL sites, bringing the total
number of sites addressed through such actions
since program inception to 2,407 non-NPL sites.
Measure3: Hie number of sites on the NPL
where a decision has been made about bow to
proceed with the cleanup of at least a
significant portion of the site compared to the
total number of sites on the NPL.
Activities which count under this measure
include the documentation of how to proceed
with the remedial action - the signing of a
Record of Decision (ROD) - or the
documentation of the selection and authorization
of a removal - an Action Memorandum. The
ROD identifies the remedy that has been chosen
for remediating the site (or portion thereof) and
summarizes the site problems, the alternative
remedies considered, and the public's .
involvement in the decision. The Action
Memorandum substantiates the need for action,
identifies the proposed action, and explains the
rationale for the particular type of removal action
selected.
Results: Cleanup decisions were made for 63
sites in FY 1994, resulting in a total to date of
954 sites of the 1,195 sites on the NPL
Measure 4: Number of sites on the NPL
where Remedial Action has been completed
for at least a significant portion of die site
compared to the total number of sites on the
NPL.
This measure counts those NPL sites (or portions
thereof) which have progressed through the
Remedial Action phase. At this stage the
construction work to implement the remedy is
complete, and EPA has conducted a final
inspection to determine that the remedy is
functioning properly and performing as designed
As indicated above, a.site may have more than
one Remedial Action.
Results: In FY 1994, 42 sites (or significant
portions thereof) progressed through the
Remedial Action cleanup phase. This brings the
total number of such sites to 343 of the 1,195
sites on the NPL (excluding Federal facilities):
, N ' j
Measure 5: The number of sites on the NPL
where cleanup construction is completed
compared to the total number of sites on the
NPL.
This measure counts the sites for which EPA has
declared cleanup construction complete. Sites
qualify for construction completion when:
1) any necessary physical construction is
complete whether or not final cleanup levels
or other requirements have, been achieved;
2) EPA determines that the response action does
not involve construction; or
3) the site qualifies for deletion from the NPL.
Additional clarification on the definition of site
cleanup is described in the Federal Register,
March 2, 1993.
Results: During FY 2994, cleanup was
completed at 60 sites. The continuing
cumulative increases in completions reflect
management's increasing focus on completions,
the maturing of sites already in the pipeline, and
the streamlining of documentation requirements.
Cumulative results for the program to date are
EPA's FY 1994 Annual Financial Statements
Page 13
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NPL Sites with Construction Complete
tm
tl
276 sites with cleanup construction completed
of the 2,195 sites on the NPL (excluding federal
facilities).
In FY 1994, EPA's enforcement program
continued to seek settlement with those parties
potentially responsible for contaminating
Superfund sites and to pursue and address cost
recovery of monies EPA expends from the trust
fund.
Measure 6: The number of enforcement
actions EPA has taken at NPL sites (including
proposed sites) to have potential responsible
parties (PRPs) conduct or participate in
response activities compared to the total
number of sites (including proposed sites) on
the NPL.
This measure counts the number of legal
actions EPA has taken to involve PRPs in site
study and cleanup at NPL sites (including
proposed sites). This measure includes all
administrative and judicial settlements, judicial
actions, and administrative orders for removals,
site studies, and remedial design and remedial
actions (RD/RA). It includes both those
instances where parties have voluntarily entered
into a settlement, with EPA as well as those
where EPA uses its unilateral enforcement order
authority to compel PRPs to conduct work, and
the PRPs have agreed to comply with the order.
Results: During, FY 1994, 136 enforcement
actions for site study and cleanup were taken at
125 sites on the NPL Seventy of these actions
were settlements for RD/RA (35 consent decrees
referred to the Department of Justice (DOJ) and
35 unilateral administrative orders in
compliance).
Since the inception of the Superfund program,
EPA has achieved PRP commitments to site
response at 798 sites (67 percent) of the. 1,195
non-Federal Facility sites on the NPL with an
estimated cumulative value of over $9 billion. In
FY 1994, EPA achieved PRP commitments to
response work at. 136 (11 percent) of the 1,195
NPL sites, the estimated vabie of the FY 1994
PRP NPL cleanup commitment is more man $1
billion.
Measure?: The total value of cost r
settlements and Judicial actions achieved, and
past costs considered recoverable*
This measure provides the amount of cost
recovery that has been achieved to date. A
number of factors limit EPA's ability to recover
its past costs. The first limitation is that EPA
can only recover money that has been spent A
significant portion of EPA's budget is
obligations for future years. These funds will be
eligible for cost recovery after they are actually
expended. EPA's ability to recover money that
has been spent is also limited. A number of
factors, including bankruptcy of PRPs, other
litigation concerns, the inability to identify
financially viable PRPs, and the exclusion of
certain indirect costs make 100% cost recovery
not realistic.
Results: Through FY 1994, EPA has achieved
settlement for over $1.4 billion with over $206
million of mis amount achieved in FY 94 and is
seeking approximately an additional $1.0 billion
Page 14
EPA's FY 1994 Annual Financial Statements
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in ongoing cost recovery actions.: Also, through
FY 1994, of the $10.2 billion in total past costs,
$8.7 billion are considered potentially
recoverable. '
EPA has been very effective in addressing past
costs for Statute of Limitation (SOL) cases at
sites where the past costs exceeded $200,000.
The SOL requires EPA to address cases by
certain dates. EPA addresses these cases by
negotiating a settlement, referring the case to
DOJ for trial, or writing the case off when no
financially viable PRP can be found In FY
1994, the number of cost recovery cases
addressed was IK with a total value of $323
million. EPA has addressed 100 percent of the
FY 1994 SOL cases (where past costs
$200,000) prior to the expiration of foe SOL
Measures: The amount of money EPA has
collected from PRPs compared to the total
amount achieved in cost recovery settlements
and judicial actions*
This measure totals the value of cost recoveries,
penalties, and damages collected to date
compared to the amount of cost recoveries.
achieved through settlements and judicial
.actions.
There is frequently a delay between the date the
settlement is reached (the day cost recovery is
considered to be achieved) and the date the
funds are collected. Delays are not uncommon
because of the time required to file tile necessary
documents with the courts and because in some
cases settlement payments are received in
installments. As a result, settlements may be
reached in one fiscal year, and collected in a
later fiscal year.
Results: In FY 1994, the Agency collected over
$202 million in cost recovery and reached
settlements for the recovery of over $206 .million.
Since the inception of the program, the Agency
has collected over $934 million in cost
recoveries. This represents over 65 percent of
the total value of cost recovery settlements
reached by the program to date.
Measured: The estimated amount of money
PRPs have committed legally to site cleanup
compared to the total amount of funds
obligated by the Superfund enforcement
program. .
This measure compares the estimated dollar
value of cleanups PRPs have agreed to perform
at NPL and non-NPL sites to the enforcement
obligations EPA has incurred achieving
settlements. The estimate of the value of PRP
work to be performed is derived from sources
such as the Record of Decision, the Remedial
Design, enforcement settlement document (i.e.,
Administrative Order on Consent (AOQ,
Unilateral Administrative Order (UAO)), or other
relevant source (Le., Action Memorandum,
Engineering and Evaluation Cost Analysis
(EECA). This estimate of PRP work to be
performed is then compared to the amount of
funds obligated from the trust fund for
enforcement activities to provide an order-of-
contrast between EPA and DOJ
enforcement obligations versus the estimated
value of private party settlements for site
response (recognizing that the actual outlay of
funds by PRPs may take place over several
years). The resulting ratio is a measure of
enforcement effectiveness.
Results: in FY 1994, the Agency reached
settlements with PRPs valued at over $1.6 billion
(over $1.4 billion in response settlements and
over $206 million in cost recovery settlements)
for NPL and non-NPL sites. EPA's FY 1994
enforcement obligations (including DOJ
obligations) were $183.7 million. The resulting
ratio of approximately 9 to 1 indicates that PRPs
have committed approximately $9 00 for every
dollar obligated for Superfund enforcement.
EPA's FY 1994 Annual Financial Statements
Page 15
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Over the life of the Superfund program, the
Agency reached settlements with an estimated
value of over $11.4 billion (over $10 billion in
response settlements and over $1.4 billion in
cost recovery settlements) for NPL and non-NPL
sites. EPA's enforcement obligations over this
period were approximately $1.4 billion. The
resulting ratio of approximately 8 to 1 indicates
that PRPs have committed over $8.00 for every
dollar obligated for Superfund enforcement.
The Superfund program exceeded most of the
internal goals the Agency set for itself in FY
1994. The Agency exceeded its goal of 265
sites by the end of FY 1994 by achieving 276
construction completions and expects to achieve
a total of 650 by the year 2000.
_ i
,: The Superfund enforcement program also
compiled an excellent record in FY 1994. PRPs
^commitments continue to account for a majority
of the Superfund cleanup work. The estimated
-value of PEP settlements has remained
consistently high over the past years due to
EPA's efforts to maximize fund leverage, and
now comprise approximately 75 percent of the
remedial work initiated hi FY 1994. EPA
continued to seek enhanced enforcement fairness
via 43 de minimis settlements in FY 1994, and
by pursuing several other efforts such as the use
of alternative dispute resolution and cost
allocation assistance. <
Building on the momentum of the Superfund
revitalization effort, the Agency continued a
series of nine initiatives to improve the
Superfund program administratively. These
initiatives addressed enforcement fairness,
streamlining response actions, enhancing
environmental justice, community involvement,
and enhancing the' roles of the States in the
Superfund program.
Recently introduced legislation to reform
CERLA is designed to increase the program's
fairness, reduce the cost of cleanups, and
increase community participation in cleanup
decisions. These reforms will also emphasize
eliminating economic barriers to redevelopment
of abandoned hazardous waste sites.
In addition, the program continued its emphasis
on accelerating cleanups through the Superfund
Accelerated Cleanup Model, completing *
construction at NPL sites, and improving
Next Steps.
One critical area we will continue to focus on is
contracts management. Since the Superfund
program is highly contract leveraged, an efficient
and effectively managed contracts program is
integral to Superfund's success. The Agency is
implementing a long-term contracting strategy
that projects Superfund* s needs over the next
decade and redesigns our portfolio of contracts
to meet these. We are phasing in new contracts,
most of which will be managed by the Regional
offices. This strategy is now under Agency
review.
To substantially improve the Superfund program
prior to reauthorization, EPA established the
Superfund Administrative Improvements Task
Force. This task force took action to increase
enforcement fairness and reduce transaction
costs; improve cleanup effectiveness, and
consistency; expand meaningful public
involvement; and enhance the states' role hi the
Superfund program.
By the end of FY 1994, EPA had completed 90
action items, including the establishment of
annual national program management target
levels that encourage contractors cleaning up
sites to manage administrative costs wisely. The
target levels are set to encourage a reduction in
the ratio of administrative costs to total contract
costs. In FY 1994, EPA exceeded its 11 percent
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EPA'i FY 1994 Animal Financial St
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target level by .holding program management focus its efforts on improving program
costs .to 8.6 percent of the total contract performance by increasing its overall efficiency,
expenditures. In FY 1995, EPA will continue to effectiveness and fairness.
EPA's FY 1994 Annual Financial Statements Page 17.
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Page 18
EPA's PY 1994 Annual Financial Statements
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Oil Pollution Prevention Program (Oil Spill Trust Fund)
EPA's Oil Pollution Prevention program is
housed in die Office of Solid Waste and
Emergency Response (OSWER) and uses the Oil
Spill Trust Fund to finance die cost of cleaning
up spills. The Emergency Response Division
(ERD) within OSWER's Office of Emergency
and Remedial Response (OERR) provides
assistance to Regional On-Scene Coordinators
during oil spill incidents. Support for
enforcement activities is provided by EPA's
Office of Enforcement and Compliance
Assurance (OECA).
Program Description
The goal of the Oil Pollution Prevention
Program, which is authorized by the Clean Water
Act and has been in effect for over 20 years, is
to protect public health, welfare and the
environment from hazards associated with a
discharge, or a threat of a discharge, of oil or
hazardous substances into navigable waters. The
program was strengthened by the Oil Pollution
Act (OPA) of 1990 which was passed in
response to increasing frequency and seventy of
accidental oil discharges into the environment,
such as the Exxon-Valdez spill.
Under the Clean Water Act and OPA, EPA is
responsible for oil spill prevention, preparedness,
response, and enforcement activities associated
with non-transportation-related facilities. These
facilities, which range from hospitals and
apartment complexes to large tank farms, include
any storage facility with aboveground storage
capacity greater than 1,320 gallons, a single
aboveground storage tank larger than 660
gallons, or underground storage greater than
40,000 gallons.
The OPA requires area committees (comprised
of state, local and federal officials)'to develop
Area Contingency Plans which: detail the
responsibilities of those involved in planning the
response process; describe unique geographical
features of the area covered; and identify
available response equipment Certain high-risk
facilities must prepare facility response plans
which EPA must review and approve to: ensure
consistency with the National Contingency Plan;
identify and ensure the availability of resources
to respond to a worst case discharge; establish
communications; identify an individual with
authority to implement removal actions; and
describe training and testing drills at the facility.
' '
A current resource-intensive effort in the Oil
Pollution Prevention program is the review and
approval of the facility response plans (FRPs)
previously discussed. Over 2,000 FRPs are
currently under review by EPA, including
document reviews, site visits, and
correspondence with the facilities. These
reviews and approvals will be completed in FY
1995.
EPA has established the regulatory framework
under which it will proceed with its OPA-
manHatft^ responsibilities. This framework
includes the Oil and Hazardous Substances
National Contingency Plan (NCP 40 CFR Part
300) and the Oil Pollution Prevention regulation
(40 CFR Part 112). The NCP is the nation's
blueprint for responding to releases of oil and
hazardous substances. The Oil Pollution
Prevention program establishes requirements to
prevent and prepare to respond to spills at oil
storage facilities subject to the regulation. Both
the NCP and FRP regulations were published in
the Federal Register in mid-summer, 1994. .
Headquarters develops policy and program
guidance to: 1) prevent harmful releases of oil
and other petroleum products; 2) improve
nationwide capability to respond to threats of
discharge of oil or other petroleum products; 3)
improve nationwide capability for containment
EPA's FY 1994 Annual financial Statements
19
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and removal of releases that occur in navigable
waters; 4) coordinate with other federal agencies
on facility response plan requirements and
review and approval; 5) minimize the resulting
environmental damage from releases; and 6)
fully utilize enforcement authority to compel
responsible parties to clean up spills and to .
provide a strong economic incentive to invest in
preventive measures and comply with
regulations. . .- '
In addition. Headquarters supports field
operations through operational guidance,
technical bulletins, and demonstrations of new
technologies. Headquarters also supports the
OPA-mandated facility response plan process,
chiefly through the development of approval
criteria for the response plans.
The Regions conduct oil storage facility
inspections to ensure compliance with EPA's oil
pollution prevention regulation, also known as
the Spill Control and Countermeasures regulation
(SPCQ. Each regulated facility must have an
SPCC plan certified by a registered Professional
Engineer. EPA inspects hundreds of these
facilities each year, including site visits and/or
plan reviews. A major component of the
Regions' work is the monitoring, directing, or
performance of removal actions during oil spills.
They also conduct periodic equipment
inspections and unannounced area drills. The
Regions tafce administrative actions against
facility operators for failure to comply with
SPCC plans and new OP A requirements, and
refer a limited number of actions for judicial
action. Administrative and judicial actions also
are brought as a result of oil and hazardous
substance spills. Regions also assist the Federal
Emergency Management Agency 'at major
disasters and participate in response training of
State and local staff.
The beneficiaries of the Oil Pollution Prevention
program are those people living in the vicinity of
confirmed spills when cleanup actions are taken
either by EPA or the responsible party. People
living near regulated facilities benefit from the
increased safety measures incorporated into the
facilities' response plans. :
Financial Perspective
Since the beginning of the Oil Spill Trust Fund's
existence through FY 1994, Congress has
appropriated a total of $602 million to the
Agency. In FY 1994, EPA used 77.4 FIE anc
had budget authority of $212 million to
implement the Oil Pollution Prevention program
The Agency obligated $19.8 million, including
.48 million from the Mid-West Flood
Supplemental, for oil spill response activities in
FY 1994 and processed $20.1 million in net
outlays, including $.37 from the Mid-West Flood
Supplemental.
Pi
vgnun
Results
In the FY 1993 CFO Report, measure l(a) and
l(b) counted the number of oil facility response
plans received and extensions granted. By the
end of FY 1994, over 2,000 plans were received
and are pending final review and approval by
EPA. The reviews and approvals will be
completed in FY 1995.
While the review process is ongoing, the
Regions continue to conduct Spill Prevention
Control and Countermeasures (SPCC) plan
reviews and inspections to ensure compliance
with pollution prevention regulations. Since
prevention is a central part of the oil program, .
measure l(a) and l(b) in this year's report will
count the number of SPCC plans reviewed and
inspections completed.
Measure l(a) SPCC Plan Reviews and (b)
SPCC Inspections
This measure counts (a) the number of SPCC
Plans reviewed and (b) the number of SPCC
inspections completed. EPA inspects hundreds
Page 20
EPA's FY 1994 Annual Financial Statements
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of these facilities each year, including site visits
and/or plan reviews.
Results: In FY1994 in the oil program, 23
SPCC Plan reviews have been completed and
1,352 SPCC inspections have been completed...
Measure 2(a) Oil Spill Cleanups and (b) On-
Scene Monitoring of Potentially Responsible
Party (PR?) Lead Cleanups
This measure counts (a) the number of oil spills
cleaned up by EPA using OPA funds and (b) the
number of times EPA monitors a PRP's cleanup
actions. EPA monitors a cleanup when a .
Potentially Responsible Patty responds to the
spill to ensure adequate cleanup takes place.
v
Results: Forty oil spills were cleaned up in FY
1994 using OPA funds. EPA monitored 99
responsible party oil spill cleanups in FY 1994.
Through FY 1994, 164 oil spills have been
cleaned up using OP A funds. For that same
period, EPA monitored 771 responsible party
cleanups.
Measure 3(a) Administrative Actions for spill
violations and prevention regulation violations
and (b) Judicial Penalty Enforcement Actions
for spill violations and prevention regulation
violations.
This measure counts (a) the number of
administrative and (b) judicial enforcement
actions resulting from prohibited spills and
violations of the regulations of the Clean Water
Act as amended by the Oil Pollution Act These
two actions reflect a significant portion of the
resources used in the oil program and indicate
significant achievements in compliance. An
administrative complaint is counted on the date it
is issued to the respondent A judicial case is
counted on the date of the referral letter/cover =
memo to the Department of Justice.
Results: Thirty-four administrative cases were*
filed, and three judicial enforcement actions
were referred to the Department of Justice in FY
1994.
EPA's FY 1994 Annual Financial Statements
Pttge 21
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Page 22
EPA's FY 1994 Annual financial Statements
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Asbestos Loan and Grant Program
The Asbestos Loan and Grant Program was
administered under the Asbestos .School Hazard
Abatement Act (ASHAA) primarily by the
Office of Prevention, Pesticides and Toxic
Substances (OPPTS). This overview covers the
entire Asbestos Loan and Grant program.
However, the loan portion of the program is the
only part that is a commercial activity and is the
depending on certain characteristics of the
asbestos containing building materials (ACBM).
Only projects with friable ACBM and some
degree of damage are considered for financial
assistance. If the project has damaged friable
material, the ranking method next establishes
four categories based on the degree of damage to
the ACBM, and whether the material is exposed
only part of the program covered by the audited or located in an air plenum. The four categories
financial statements.
Program Description
The purpose of the ASHAA program is to
reduce risk to school children and employees
posed by asbestos. Since its inception, the
program has provided more than $420 million in
financial assistance to financially needy Local
Education Agencies (LEAs) with the most
hazardous asbestos abatement projects. During
this period, a significant amount of exposure to
asbestos fiber has been eliminated.
The Act envisions a three-step process. First,
EPA is to make applications available to public
and non-profit schools for completion and
submission to their State Governors (or the
Governor's Designee). Second, Governors (or
Designers) are responsible for collecting,
reviewing, and submitting applications to EPA.
Third, EPA receives and reviews all applications
and makes offers of financial assistance available
on the basis of the applicant's asbestos hazard
and demonstrated financial need. The
reauthorized statute mandates that awards of
financial assistance must be made by April 30 of
each year for which Congress appropriates
funding for the loan and grant program.
In making its award decisions, the ASHAA
legislation instructs EPA to generate its own
national priority list from applications received.
A ranking method is then employed to sort all
proposed abatement projects into categories
are:
Priority One - Significantly damaged friable
surfacing material which is exposed and/or
located in an air plenum.
Priority Two - friable asbestos containing
materials which are exposed or in an air plenum
and are defined by an AHERA accredited person
as one of the following:
Damaged or significantly damaged thermal
system insulation.
* Damaged surfacing material. '
* Damaged or significantly .damaged
miscellaneous material which has been
isolated to protect human health and the
environment. '
Priority Three - Damaged or significantly
damaged friable miscellaneous material which
does not necessitate isolation but is exposed
and/or located in an air plenum.
Priority Four - Any damaged or significantly
damaged friable material which is not exposed or
located in an air plenum.
i
Since the -inception of the program, only projects
within hazard categories one and two were
within reach for funding before funds were
expended.
EPA's FY 1994 Annual Financial Statements
Page 23
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While the condition of the asbestos-containing
materials determines the priority for
consideration of a project, financial need controls
whether an award is offered, the award amount,
.and the loan/grant composition of the award. In
accordance with the statute, monies are not made
available to any applicant which has sufficient
resources available to support an asbestos
abatement program. Financial indicators used to
determine eligibility for both private and public
schools include Budget per Pupil and the burden
of abatement costs on an LEA's operating
budget
Assistance may take the form of either a grant or
an interest-tree loan, or some combination of
both. Loans may include up to 100 percent of
abatement project costs and grants may cover up
to SO percent of costs. ASHAA does not require
that EPA provide recipients the total funding
necessary to complete an abatement project
Financial Perspective
Since 1985, the ASHAA Loan and Grant
program has awarded $422.3 million for asbestos
abatement projects. Approximately $310.7
million of these awards were for twenty-year
.loans.
Implementation of the Federal Credit Reform
Act of 1990 changed the way the Agency uses
appropriated funds for asbestos loans. Prior to
the Act, the total amount of the loan was funded
by the appropriation. As of FY 1992, only the
subsidy portion of the loan (actual cost to die
government) is funded by the appropriation. The
balance is funded with money borrowed from the
Treasury and repaid as EPA collects loan
repayments.
i
Although the statute was reauthorized through
1995, EPA has not included funding in any of its
recent budget requests to Congress. For several
years. Congress continued to add funding for the
program in its appropriations bill. However, in
its FY 1994 bill, Congress did not provide any
funding for ASHAA loans and grants, precluding
EPA from making additional awards. As a
result, the performance measures that follow
have been revised to reflect the progress of the
ongoing close-out process associated with
previously awarded projects. The close-out
process is expected to continue through FY
1995.
rvgrtun
Results
In 1994, ASHAA funds were not appropriated
for local education agencies asbestos abatement
projects. The performance measures for recent
award cycles were based on the total number of
estimated weekly exposure hours of asbestos
containing materials to .school children and
employees that will be reduced as a result of
allocated ASHAA funds. Since funds were not
awarded to LEAs in 1994, there are no exposure
hours to report when using the previous
performance measures.
However, because previously awarded projects
remain outstanding, EPA is still monitoring the
progress of these projects until they are
completed in accordance with the ASHAA
Program requirements. This activity is
anticipated to continue until the end of FY 1995.
The performance measures for FY 1994 reflect
the number of projects and estimated program
hours confirmed as being eliminated through the
ASHAA Program Office's approval of close out
inspection reports for projects completed in FY
1994. EPA's performance measures for the
ASHAA program include two measures:
Measure 1: Number of ASHAA awarded
projects closed out by the Program Office.
Results: In FY 1994, the Program Office
approved close out inspection reports for 145
projects out of the 471 outstanding projects.
Page 24
EPA's FY 1994 Annual Financial Statements
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Measure 2: Estimated exposure hours
confirmed reduced as a result of closed«out
projects.
Results: In FY1994, the total weekly exposure
hours confirmed reduced was 1,582,230 out of
4,982,636 outstanding in the. beginning of the
fiscal year.
ASHAA Project Summary
Asbestos Exposure Summary - FY 94
EPA's FY 1994 Annual Financial Statements
Page 25
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Page 26
EPA's FY 1994 Annual Financial Statements
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Pesticides Reregistration and Expedited Processing Fund
(FIFRA Fund)
The -Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund) is administered
under the Federal Insecticide, Fungicide, and
Rodenticide Act (FIFRA) primarily by the Office
of Prevention, Pesticides and Toxic Substances
Program Description
: ' ' '
As part of its authority to regulate pesticides,
EPA is responsible for reregistering existing
pesticides. The FIFRA legislation, requiring the
registration of pesticide products, was originally
passed in 1947. Since then, health and
environmental standards have become more
stringent and scientific analysis techniques are
much more precise and sophisticated. In the
1988 amendments to FIFRA (FIFRA '88),
Congress mandated the accelerated ^registration
of all products registered prior to November 1,
1984. The amendments established a statutory
goal of completing reregistration eligibility
decisions by 1997. The legislation allows for
various time extensions which can extend this
deadline by three years or more. Additional
resources, however, will be needed to meet these
goals/deadlines. It is now estimated that
reregistration eligibility decisions will not be
completed until 2004 and all products may not
be reregistered until 2006. :
Congress authorized the collection of two kinds
of fees until 1997 to supplement appropriated
' funds for the program - an annual Maintenance
Fee and a one-time Reregistration Fee.
Maintenance fees are assessed on registrants of
pesticide products and are structured to collect
approximately $14 million per year.
Reregistration fees are assessed on the
manufacturers of the active ingredients in
pesticide products and are based on the
manufacturer's share of the market for the active
ingredient. In fiscal years 1992, 1993, and 1994,
approximately 14 percent of Maintenance Fees
collected, up to $2 million each year, were used
for the expedited processing of old chemical and
amended registration applications. Fees are .
deposited to the FIFRA Revolving Fund. By
statute, excess monies in the FIFRA Fund may
be invested. Waivers and/or refunds are granted
for minor use pesticides, antimicrobial pesticides,
and small businesses.
In 1994, the Agency supported pesticide reform
legislation which included provisions for
additional tees to support reregistration activities.
Congress failed to act before adjourning. '
The reregistration process is being conducted.
through reviews of groupings of similar active
ingredients called cases. There are five (5)
major phases of reregistration: .
Phase 1 - Listing of Active Ingredients. EPA
publishes lists of active ingredients and asks
registrants whether they intend to seek
reregistration. Completed in FY 1989.
Phase 2 - Declaration of Intent and
Identification of Studies. Registrants notify
EPA if they intend to reregister and identify
missing studies. Completed in FY 1990.
Phase 3 - Summarization of Studies. .
Registrants submit required existing studies..
Completed in FY 1991.
Phase 4 - EPA Review and Data Call-Ins
(DCIs). EPA reviews the studies, identifies
and "calls-in" missing studies by issuing a
DCI. A "DCT is a request to a pesticide
registrant for scientific data
to assist the Agency in determining the
pesticide's eligibility for reregistration.
EPA's FY 1994 Annual Financial Statements
Page 27
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* Phase 5 - Reregistration Decisions. EPA
reviews all studies and issues a Reregistration
Eligibility Decision (RED) for the active
ingredient(s). A "RED" is a decision by the
Agency whether uses of a pesticide active
ingredient are eligible or ineligible for
rercgistration. The registrant complies with
the RED by submitting product specific data
and new labels. EPA reregisters or cancels
the product Pesticide products are
' reregistered; based on a RED, when it meets
all label requirements. This normally takes
14 to 20 months after issuance of the RED.
Financial Perspective
During FY 1994, the Agency's obligations
charged against the FIFRA Fund for the cost of.
the reregistration and expedited processing
programs were 1% FTEs and $16.1 million. Of
these amounts, the Office of Pesticide Programs
funded the 196 FTEs and obligated $13.4 million
of this cost _ .,-
*«». FIFRA Financial Trends
PVM
Appropriated funds are used in addition to
FIFRA revolving funds. In FY 1994,
approximately $25.0 million in appropriated
funds were obligated for reregistration and
expedited processing program activities. The
unobligated, balance in the fund at the end of FY
1994 was $9.6 million. This is a decrease of
$0.3 million compared to the FY 1993 year-end
balance of $9.9 million.
The fund has two types of receipts: fee
collections and interest earned on investments.
Of the $15.3 million in FY 1994 receipts,
approximately 97 percent was fee collections.
During the past two years, the fund balance and
corresponding investment earnings have
decreased because program expenses
(disbursements) exceeded collections, the fee
collections decreased by almost $1.1 million in
FY 1994 compared to FY 1993. The obligations
increased in FY 1994 because the use of FTEs
increased in FY 1994.
FIFRA Fund Receipts-FY 94
rugrum
Results
The following measures support the program's
strategic. goals of Food Safety and Safer
Pesticides as contained in the Pesticide Program
Strategy, 1994-1997.
Page 28
EPA'i FY 1994 Annual Financial Statements
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Measure 1: Number of Reregistration
Eligibility Documents (REDs) completed.
Results: The number of Registration Eligibility
Decisions (REDs) completed was 34 (versus a
target of38), an increase of 15 over FY 2993
when 19 were completed. There are
approximately 405 REDS of which 81 have been
completed.
Measure 2: Number of products reregistered,
canceled, or amended. Approximately 19,000
products are subject to reregistration. Many
products, however, contain more than one
active ingredient Since products are
reassessed separately for each active
ingredient, EPA will conduct approximately
38,000 product reviews.
Results: In FY 1994, 351 products were
reregistered and 338 were cancelled. The
combated 689 actions were achieved versus a
target of 903. The 689 actions is an increase
over FY 1993 when 665 actions were achieved.
In addition, 449 products were forwarded to the
EPA Office of Compliance Monitoring for
suspension. The cumulative totals at the end of
FY 1994 were 925 products canceled, 11
products amended, and. 601 products
reregistered.
EPA's FY 1994 Annual Financial Statements
Page 29
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30
EPA's FY 1994 Annual Financial Statements
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Revolving Fund for Certification and Other Services
(Tolerance Fund)
The Revolving Fund for Certification and Other
Services (Tolerance Fund) is administered under
"the .Federal Food, Drug and Cosmetic Act
(FFDCA) primarily by the Office of Prevention,
Pesticides and Toxic Substances (OPPTS).
Program Description
As part of its authority to regulate pesticides,
EPA is responsible for setting "tolerances". If
the pesticide is being considered for use on a
food or feed crop or as a food or feed additive,
the applicant must petition EPA for
establishment of a tolerance (or exemption from
a tolerance) under authority of FFDCA. A
tolerance is the tnaTimum legal limit of a
pesticide residue on food commodities and
animal feed. Tolerances are set at levels that
ensure that the public is protected from
unreasonable health risks posed by eating foods
that have been treated with pesticides in
accordance with label directions. The tolerance
program is a major part of the Agency's Food
Safety goals.
In 1954, Congress authorized the collection of
fees for'the establishment of tolerances for raw
agricultural commodities (section 408 of
FFDCA). Congress, however, did not authorize
the collection of fees for food additive
tolerances (section 409 of FFDCA). EPA,
therefore, does not collect fees for food additive
tolerances. The Agency also does not collect
fees for. Agency-initiated actions such as the
revocation of tolerances for previously canceled
pesticides. Fees collected for tolerances for raw
agricultural commodities were deposited to the
U.S. Treasury General Fund until 1963 when
Congress established the Tolerance Fund.
Specific fees are contained in 40 CFR 180.33
and range from $3,325 to $58,550, depending
on the type of tolerance action requested.
Waivers and/or refunds are granted for minor use
pesticides submitted under the Inter-Regional
Research Project Number 4 (IR-4 Program),
public interest, such as reduced-risk pesticides,
and economic hardship. The fees are updated
annually based on the cost-of-living adjustment
in Federal General Scale wage rates. Fees were
increased 4.23 percent in 1994. By statute,
monies in the Tolerance Fund may not be
invested.
In 1994, the Agency supported pesticide reform
legislation which included provisions to revamp
the tolerance program and institue new tolerance
fees. Congress failed to act before adjourning.
Financial Perspective
During FY 1994, the Agency's charges to the
Tolerance Fund for the cost of the tolerance
setting functions were $2.2 million. OPPTS
funded 31 FTEs in support of this activity.
Appropriated funds are used in addition to
revolving funds. In FY 1994, approximately
$3.9 million in appropriated funds were
obligated. The unobligated balance in the
Tolerance Fund Financial Trends
PVtl
rvo
EPA's FY 1994 Annual Financial Statements
Page 31
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revolving fund at the end of FY 1994 was $3.0
million. This is a decrease of $0.1 million
compared to the FY 1993 year-end balance of
$3.1 million.
Program Results
\
Tolerance fees collected in FY 1994 were '
approximately $2.1 million and obligations were
$2.2 million.
Measure 1: Number of permanent tolerance
petitions completed.
V
Results: The number of permanent tolerance
petitions completed for section 408 raw
agricultural commodities and section 409 food
additives was 70 compared to a target of 30.
This represents final determinations by the
Agency concerning permanent tolerance petition
requests for allowable levels of pesticide
residues on raw agricultural commodities and in
processed foods. This is an increase of 31
completions compared to the 39 in FY 1993.
The number of permanent tolerance petition
reviews ("cycles") completed was 391 compared
to a target of 284. The number of actions
pending at the beginning ofFY 1994 was 321
compared to 355 at the end of FY 1994. This
measure supports the strategic goals of Food
Safety and Safer Pesticides as contained in the
Pesticide Program Strategy, 1994-1997.
Tolerance Completions
FY91
FYK
PY93
FV94
Page 32
EPA's PY 1994 Annual Financial Statements
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Leaking Underground Storage Tank (LUST) Program
The Leaking Underground Storage Tank (LUST)
program was authorized by the Resource
Conservation and Recovery Act. The Office of
Solid Waste and Emergency Response (OSWER)
is responsible for implementation of the LUST
program.
Program Description
The Resource Conservation and Recovery Act
was amended in 1984 to give EPA the authority
to regulate underground tanks storing petroleum
products. In 1986, Congress set up a $500
Tallinn Leaking Underground Storage Tank
(LUST) Trust Fund which is financed by a 1/10
of a :cent tax ~on the sale of motor fuels. The
trust fund was reauthorized for five years in
1990 with no cap on funds collected. The fund
is used to oversee cleanups by responsible
parties or to clean up LUSTs where the
owner/operator cannot or will not do so, or
where no owner/operator can be found.
In 1988, it was estimated that the U.S. had 5-7
million underground tanks storing petroleum
products. Approximately 2.0 million of these
tanks were regulated by EPA; the rest, mainly on
farms and at other locations mat contain heating
oil for on-site consumption, were exempt by law.
Currently there are 1.2 million active regulated
underground storage tanks (USTs) and 900,000
tanks have been closed.
USTs are found at gas and service stations,
convenience stores and non-marketer locations
such as bus depots and government facilities.
An estimated 15-25 percent of regulated tanks
may be leaking. Leaks from USTs can cause.
fires or explosions, and some leaks contaminate
groundwater.
Financial Perspective
Since 1986, the Treasury managed LUST Trust
Fund has collected over $1.2 billion. This fund <
is the source of funding for EPA's LUST
account Through annual and supplemental
appropriations. Congress establishes the amount
of the fund that EPA may use. Congress has
appropriated a total of $475 million to EPA
through the end of FY 1994. At the end of FY
1994, the trust fund had a balance of $778.5
million. Congress could make these funds
available to EPA hi future appropriations.
The LUST program is primarily a state-run
program. Since the program's inception, 86
percent of EPA's appropriated funds have gone
to the States through cooperative agreements.
In FY 1994, EPA obligated 85.6 FTE and $83.7
million to implement the LUST program, of
which $8 million was provided for Midwest
Hood activities. OSWER supported the LUST
program with 67 FTE and $80.9 million, while
approximately 19 FTE and $2.8 million were
provided to non-OSWER offices in Headquarters
and the Regions. Responsible parties conducted
96 percent of the cleanups with State oversight
FY 1994 Performance Report for the Leaking
Underground Storage Tank rogram Pilot under
tile Government Performance Results Act ;
(GPRA)
The purpose of this section of the Overview is to
describe the results of the Leaking Underground
Storage Tank Program Pilot under the
Government Performance Results Act (GPRA) hi
FY1994.
EPA'i FY 1994 Annual Fin
iStuemeota
Page 33
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1. FY 1994 LUST Performance Goals.
Indicators and Results
Background: In FY 1994. the U.S.
Environmental Protection Agency (EPA)
proposed the Leaking Underground Storage Tank
(LUST) program as a performance pilot under
GPRA. The FY 1994 pilot performance plan
was submitted in accordance with OMB
Memorandum, M-94-15, and covered the period
April 1,1994 to September 30,. 1994.
The purpose of the LUST Trust Fund is to
ensure protection of human health and the
environment by paying for the oversight of
responsible parry cleanups or for the cleanup of
petroleum releases from underground storage
tanks when the owner or operator is unknown or
cannot or will not conduct the cleanup. The
LUST program is administered by the Office of
Underground Storage Tanks (OUST), Office of
Solid Waste and Emergency Response.
Performance Goal: The performance goal for
the LUST Program Pilot is to promote
scientifically-sound, rapid and cost-effective
action at all underground storage tank release
sites requiring corrective action through the use
of streamlined processes, effective technologies,
and improved cross-program coordination. This
goal is stated in the UST/LUST Program
Strategic Framework dated April 27, 1993.
Performance Indicators/Measures: OUST used
three performance measures to evaluate progress
in meeting its performance goal. These
performance measures are: confirmed releases,
cleanups initiated, and cleanups completed.
OUST has been tracking all three measures since
1990. The targets set for FY 1994 were for the
entire fiscal year, not just the six-month period
for the performance pilot.
1. Confirmed releases are the number of sites
where the owner/operator has identified a release
from a petroleum underground storage tank,
reported the release to the state/local or other
designated implementing agency, and the
implementing agency has verified the release.
The number of confirmed releases represents the
universe of petroleum leaking underground
storage tank sites that require corrective action.
This measure does not count releases from
heating oil tanks or other tanks exempted from
the federal underground storage tank regulations.
2. Cleanups initiated are the total number of
confirmed releases at which the state or
responsible party (under state supervision) has
initiated management of petroleum contaminated
soil, removal of free product, or management or
treatment of dissolved petroleum contamination
Cleanups can be conducted by .the responsible
party or the state (with or without LUST Trust
Fund money).
3. Cleanups completed are the total number of
confirmed, releases where cleanup has been
initiated and where the state has determined that
no further cleanup actions are necessary to
protect human health and the environment
Cleanups can be conducted by the responsible
party or the state (with or without LUST Trust
Fund money). '
Performance Targets and Results; For FY 1994,
OUST projected that the rate of cleanups
initiated would be 65% of the cumulative
number of confirmed releases. In FY 1994, the
rate of cleanups initiated was 77.5% of the
cumulative number of confirmed releases.
For FY 1994, OUST set a target of 25,000
cleanups to be completed by the end of FY
1994. In FY 1994, 20383 cleanups were
completed.
Background on Measures and Results; The
LUST program has initiated corrective actions
that are protecting hundreds of thousands of
people from the effects of leaking petroleum
storage tanks. As described previously, the FY
Page 34
EPA's FY 1994 Annual Financial Statements
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1994 performance measures count the number of
sites with confirmed releases of petroleum
products, the number of these where cleanup has
been initiated and the number where it has been
completed.
-- During FY 1994, 33,545 USTs were added to
the list of sites with confirmed releases. At
the end of the fiscal year, a total of 270,567
sites were on this list.
- In FY 1994, the program initiated actions at
approximately 38,715 sites. Cumulative
results to date: 209,797 cleanups initiated/a
total universe at the end of FY 1994 of
270,567 sites with confirmed releases.
- During FY 1994, cleanup was completed at
20,383 LUST sites. Total to date
completions is 107,448/a total universe at the
end of FY 1994 of 270,567 sites with
confirmed releases.
Over the next several years, the LUST program
will focus on preventing as well as remediating
releases; EPA will focus its efforts towards; 1)
encouraging early compliance with the December
1998 regulatory deadline for upgrading or
replacing underground storage tanks; and 2)
promoting the use of risk-based corrective
action, alternative technologies, streamlined
corrective action processes, and cost controls to
efficiently move all sites forward in the cleanup
process. EPA will continue efforts to ensure that
limited federal, state, local and tribal resources
are targeted to sites that pose the greatest risk to
human health and the environment
D. Success in and
to Achieving
Performance Goals
The Underground Storage Tank Program
exceeded its target of 65% for the rate of
cleanups initiated but, did not reach its target of
25,000 cleanups completed. In addition, the rate
of newly confirmed releases and cleanups .
initiated has been decreasing since 1993.
Cleanups completed decreased during FY 1994
(see attached chart on Tank History).
There are several reasons why the Underground
Storage Tank Program did not reach the target
set for cleanups completed. The core reasons
are twofold. First, even though the rate of newly
confirmed releases declined this past year, the
total number of confirmed releases still continues
to out pace the number of cleanups completed.
This means that states are faced with an ever
increasing workload and have less time to devote
to any one particular case. This also applies to
the decrease in cleanups initiated as well.
Second, many of the remaining cleanups are
more complicated (i.e., groundwater
contamination or complex hydrogeological
conditions) and therefore will take longer to
complete. ,
The number of confirmed releases declined in
1994 (33,545) compared to 1993 (52,565) and
1992(57,262). At the onset of the program,
many historical releases were being discovered
as tank owners and operators conducted
maintenance, began leak detection or performed
work related to the regulatory requirements at
their sites. Fewer new releases are occurring
because newer tanks, which are less likely to
leak, comply with the new tanks standards set by
the regulatory program.
However, EPA's Underground Storage Tank
Program expects that the number of confirmed
releases will begin to increase again as owners
and operators begin to upgrade, replace, or close
their tanks in compliance with the 1998 deadline.
Verification and Validation of
The Office of Underground Storage Tanks
(OUST) uses the following processes to verify
and validate the performance measures data.
EPA's PY 1994 Amnul Financial Statements
Page 35
-------
1. Designated state agencies submit quarterly
progress reports to the EPA regional offices,
which review, verity and then forward the data
to the OUST Headquarters office. OUST
Headquarters staff examine the data and resolve
any discrepancies with the regional offices.
Then OUST enters these data into the Strategic
Targeted Activities for Results (STARS)
database. The STARS database is a central EPA
management tool operated by the Office of
Policy, Planning and Evaluation, and is designed
to track the most important program activities.
The data are displayed on a region by region
basis, which allows regional staff to verify that
their data are the same as Headquarters'.
2. The performance results are also used in
OUST's Regional Strategic Overview (RSO)
Process to assess the status of State progress in
implementing the program. At Headquarters, the
Regional Desk Officers examine the performance
data for the States in the Region they are
responsible for, as an indication of whether the
States are progressing in implementing the LUST
program. This data is further verified in
discussions that Headquarters has with the
Regions and the Regions have with the States,
regarding how to continue to improve States'
performance. In the mid-year and end of year
state evaluations performed by the Regions, the
Regions discuss efforts by the States to update
and validate their data,
I. FY 1995 Performance plan Relative to FY
1994 Performance
For FY 1995, OUST anticipates that the rate of,
cleanups initiated will be at 70% of the
cumulative number of confirmed releases and
mat 20,000 cleanups will be completed.1 OUST
anticipates that the rate of cleanups initiated and
number of cleanups completed will decrease
relative to the FY 1994 targets because LUST
Trust Fund State Cooperative Agreement funding
has decreased from $65.8 million in FY 1994 to
$58.2 million in FY 1995.
Historically, as funding has decreased, so have
the number of cleanups initiated and completed.
The attached chart shows a comparison of LUST
Trust Fund Cooperative Agreement funding to
cleanups initiated and completed Over time, as
LUST Trust Fund support increases, cleanups
initiated and completed increase. Conversely, as
funding decreases, so do the number of cleanups
initiated and completed. However, when funding
remains static (as it has between 1992 and 1994)
States are faced with an ever increasing backlog
of cleanups to complete, since the cumulative
number of confirmed releases continues to
exceed States' ability to complete cleanups.
An additional factor to consider in the trend of -
decreasing numbers of cleanups initiated and
completed, is that as the 1998 H«nfltpfr for
upgrading or replacing f«"Vs approaches, the
number of confirmed releases should increase
substantially. This increase in the number of
confirmed releases could continue to out pace
and slow down the number of cleanups initiated
and completed, particularly if there is not
adequate funding to keep up with the increased
number of confirmed releases.
V. f T«» nf Managerial Flexibility Waiver
to Achieve Performance Goal
OUST has considered the possibility of using a
managerial flexibility waiver from reporting
requirements (e.g. to the Treasury Department or
OMB) in order to achieve greater program
results. However, at this time OUST does not
have a need to seek this type of waiver.
of Program
Evaluations Completed During FY 1994
No formal LUST Trust Fund Program
Evaluations were conducted by Headquarters
during FY 1994 as part of this pilot However,
OUST conducted its annual Regional Strategic
Overview Process whereby Headquarters and
Regions assessed the status of States' progress in
Page 36
EPA's FY 1994 Annual financial S
-------
implementing the program by analyzing the
number of cleanups initiated and completed for
each Slate over time and discussing these trends
with States that were not continuing to improve.
.In addition, the Inspector General conducted
audits of the Implementation of the Leaking
Underground Storage Tank Program on
American Indian Lands and Idaho's Leaking
Underground Storage Tank Program. The Indian
Lands audit resulted in recommendations to
establish a consistent nationwide LUST program
on Indian Lands and to require the development
of accurate annual, up-to-date regional
inventories of underground tanks and leaking
tanks on tribal lands. The audit of Idaho's
LUST program resulted in a recommendation
that Region 10 require Idaho to implement
procedures which ensure that LUST site activity
information maintained in the LUST Site data
base is reconciled to source documents at least
quarterly. OUST is currently working to
implement these recommendations.
VH. S"""nary of Accomplishments for
Resources Expended
Accomplishments for LUST Trust Fund
resources expended fall into two categories: first,
the amount of outputs (i.e. cleanups initiated and
completed) for the amount of funding spent and
.second, how LUST Trust Fund money is
effectively used to leverage the clean up of sites.
As mentioned in Section IV of this report, the
relationship between the amount of LUST Trust
Fund Cooperative Agreement funding and
cleanups initiated and completed is illustrated in
the attached chart which suggests a correlation
between the amount of LUST Trust Cooperative.
Agreement funding and cleanups initiated and
completed; when Cooperative Agreement
funding decreases, so do cleanups initiated and
completed. When funding remains about the
same, (approximately $65 million from FY 1992
through FY 1994), States cannot make progress
on the number of cleanups they complete
because the cumulative number of confirmed
releases continues to grow. In FY 1994, LUST
Trust Fund cooperative agreement support was
65.8 million and cleanups were initiated at
38,715 sites and completed at 20,383 sites.
The majority of cleanups (96 percent) are
conducted by responsible parties with State
oversight State oversight costs range from
$1,500 to $3,000 per site. EPA is saving
significant resources by requiring responsible
party cleanups because State lead cleanups range
from $10,000 to over $1 million depending on
the severity of the site.
EPA's FY 1994 Annual Financial Statements
Page 37
-------
TANK HISTORY
Annual Program Statistics
Year
FY 1990
FY 1991
FY1992
FY1993
FY1994
Confirmed Releases
Annual
71,087
39,667
57,262
52465
33,545
Cumulative
87,528
127,195
184,457
237,022
270,567
dfianiins Inlttatftt
Annual
35,620
27,736
49,568
42,008
38,715
f^imnlative
51,770
79,506
129,074
171,082
209,797
Cleanups
Annual
11,208
9,761
28,778
31,621
20,383
Completed
Cumulative
16,905
26,666
55,444
87,065
107,448
LUST TRUST FUND
Cleanups Initiated and Completed by Year with Funds AwanJed
00000
BOOQO
lor FT
torFYIMml
1987 1888 1
1880 1881 1882 1883 1884 1885*
<*«* Mted
1. Note that OUST was asked to set its FY 1995 taigets before it knew the FY 1995 LUST Trust Fund Cooperative Agreement
funding level Therefore, the targets established for PY 1995 may not be conservative enough given (bat FY 199S funding was
substantially reduced from FY 1994.
Page 38
EPA's FY 1994 Annual Financial Statements
-------
MESSAGE FROM THE CHIEF FINANCIAL OFFICER
As the Chief Financial Officer of the U.S. Environmental Protection Agency (EPA), I am
proud to present the EPA's Fiscal Year 1994 Annual Financial Statements: .-These statements
provide Agency managers with a tool for afffeyying the financial condition of EPA's trust and
revolving funds and its commercial activity., They are submitted in accordance with
requirements of the Chief Financial Officers (CFO) Act of 1990 and Office of Management and
Budget guidance.
EPA's financial statements present the financial position and results of operations of the
following six funds: the Superfund Trust Fund; the Leaking Underground Storage Tanks (LUST)
Trust Fund; the Oil Spill Trust Fund; the Loan Portion of the Asbestos Loan and Grant
Program; the Pesticides Reregistration and Expedited Processing Fund (FIFRA Fund); and the
Revolving Fund for Certification and Other Services (Tolerance Fund). The preparation of
financial statements and participation in the audit process provide useful information about EPA
programs and accounting systems and help us identify areas where improved information . ' *
systems, management controls and accountability are needed.
During the past year, EPA continued to make progress in refining the preparation of die
annual financial statements. The Agency accelerated its schedule for producing the financial
statements by 30 days, while making significant improvements to systems and operations.
integrating Agency efforts to implement both the GPO Act and me Government
Performance and Results Act (GPRA). The program overview for the Leaking
Underground Storage Tank Program includes program measurements mariA»tmA by the
CFO Act, while meeting the program performance reporting requirements of the GPRA;
correcting the FY 1993 audit finding regarding me timely recording of the equity section
of me balance sheet as required by OMB Circular 94-01;
receiving recognition from the audkors mat many.financial management operations issues
have been addressed (e.g., management of Superfund receivables);
issuing a new Superfund cost recovery procedures manual;
\ . ."'''' ' '
eliminating contractor retainages as an account mat the auditors could not audit; and
upgrading the auditors' overall opinions of the funds.
EPA't FY 1994 Annul Rnaneal Satemenn Age 39
-------
Although we have made discernible progress in the past few years. EPA still needs to
significantly improve its financial management systems and operations. Among my top
priorities as CFO are:
* developing an effective interface between the Integrated Financial Management
System (IFMS) and th.e Asbestos Receivable Tracking Systems; .
executing system enhancements to more effectively track Agency costs;
installing software to upgrade the Agency's accounting system to address Superfund
accounts receivable requirements;
, ' /
addressing property management issues by installing off-the-shelf fixed asset
management software; and
preparing Agency-wide financial statements.
These actions are among the many activities that comprise the Agency's overall
strategy for strengthening financial management functions at EPA. As CFO, I accept
responsibility for ensuring that these plans are executed. In addition, I wfll continue to
challenge managers throughout .the Agency to meet the highest possible standards of
efficiency and effectiveness.
The preparation of these financial statements represents a partnership between my
office and die Agency's program offices. I want to acknowledge the hard work and
commitment of all the employees throughout the Agency who contributed to this effort. In
particular, I appreciated the excellent support provided by: the Office of Solid Waste and
Emergency Response; die Office of Prevention, Pesticides and Toxic Substances; the Office
of Policy, Planning and Evaluation; the Office of Enforcement and Compliance Assui
the Office of the Inspector General; and of course, my own dedicated staff.
trance*
0
mtf»
Page 40
EPA'i FY 1994 Annual Fiaaacaal
-------
'Principal Financial Statements
Contents
Financial Statements
Statements of Financial Position
Statements of Operations and Changes in Net Position
Statements of Cash Flows
Statement of Budget and Actual Expenses
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balances with Treasury
Note ,3. Investments - Federal,
Note 4. Accounts Receivable
Note 5. Loans Receivable, Net Non-Federal
, Note 6. Plant, Property and Equipment - Net
Note?. Debt-Federal
NoteS. Other Liabilities - Federal
Note 9. Leases
Note 10. Total Net Position
Note 11. Program or Operating Expenses
Note 12. Other Expenses
Note 13. Prior Period Adjustments
Note 14. Non-Operating Changes
Note 15. Contingencies ,
Note 16. Restatement of Prior Year Financial
Statements
Note 17. State Cost Share Credits
EPA's FY 1994 Annual Financial Statements
. ." , Page41
-------
EPA Trait Funds, Revolving Fond* and Commercial Activity
iStitramtff nf Fhif ff^t*! PPBMBB Restated] (Note 16)
As of September 30,1994 and 1993 (Dalian in Thousands)
Superfund
Trust Fund
1994 1993
LUST
Trust Fund
1994 1993
ASSETS .
Entity Assets
In tragovenunental Assets
Balance With Treasury (Note 2)
Investments (Note 3)
Accounts Receivable. Net (Note 4)
Accounts Receivable, Net (Note 4) ' .
Credit Program Receivables, Net (Note 5) ;
Interest Receivable
Property and Equipment, Net (Note 6)
MftffcetaHe ^ecnffftie* Fmntv SNote \\
Apprppriated Amounts Held By Treasury (Note 1)
Total Entity Assets
Non-Entity Assets:
Total Non-Entity Assets
Total Assets . ,
LIABILITIES
Liabilities Coveted by Budgetary Resources
, Debt(Note7)
Governmental Liabilities:
Other Governmental Liabilities (Note 8)
Total Liabilities Covered by Budgetary Resources \
LiabiUties not Covered by Budgetary Resources:
Other Governmental Uabffitiei t(Note 8)
Total Liabilities not Covered by Budgetary Resources
Total Liabilities
.
NET POSITION (Note 10)
Unexpended Appropriations
Invested Capital
Cumulative Results of Operations
Other
Future Funding Requirements
Total Net Position
Total Inabilities and Net Position ,
V^^V|*^^B>
10,054
29,173
238,357
44,343
11,673
. 4,699
3.102.373
3,529,034
$3.529.034
$119,619
217,567
115,402
266.419
719,007
15.502
15,502
734,509
2,804,825
11,673
(6,471)
(15.502)
Z 794,525
$3.529.034
$11,485
7,955
208,272
133
14,030
4,699
3.173.380
3,419,954
$3.419.954
$105,541
220.901
112,057
228,450
666,949
11,556
11,556
678,505
2,717,381
14,030
21,594
(11,556)
2,741,449
$3.419.954 ]
$3,268
19
39
3.632
56
93.750
100,764
$100.764
$15
5,995
200
6,210
325
325
6,535
94,503
56
(5)
94,229
$100.764 m
$1.638
14
33
3,654
61
89,021
94,421
$94.421
1,749
157
1,906
-
1,906
92,410
61
44
92,515
$94.421
Page 42
EPA's FY 1994 Annual Financial Statements
-------
.EPA Trust Funds, Revolving Foods and Commercial Activity
Statements of Financial Position Restated (Note 16)
As of September 30.1994 and 1993 (Dollar* in Thousands)
ASSETS
Entity Assets
Intragovemmental Assets:
Balance With Tieasuiy (Note 2)
Investments (Note 3)
Accounts Receivable, Net (Note 4)
Advances and Prepayments
Govenunental Assets
Accounts Receivable, Net (Note 4)
Credit Program Receivables, Net (Note 5)
Interest Receivable
Advancesand Prepayments
Property and Equipment. Net (Note 6)
Marketable Securities Equity (Note 1)
Apprppriated Amounts Held By Treasury (Note 1)
Total Entity Assets
Non-Entity Assets
Total Non-Entity Assets
Total Assets
Oil Spill
Trust Fund
1994 1993
Asbestos
Commercial Activity
1994 1993
$15,547 $14,478 $51,563 $63,073
1,223 . -
- - 136,109 130,011
.-.--'. '1
34 - - -
16.804 14.478 187.675 193.088
$16.804 $14.478 $187.675 $193.088
LIABILITIES
Liabilities Covered by Budgetary Resources:
Accounts 'Payable
Debt(Note7)
mbcr inuagovemmentai i jafHiutMt (note oj
Accounts Payable
Other Governmental Lkbflities (Note 8) .
Total UabSities Covered by Budgetary Resources
Uabuitks not Covered by Budgetary Resources:
Other Governmental LJabilitks (Note 8)
Total Liabilities not Covered by Budgetary Resources
Total Liabilities
NET POSITION (Note 10)
Balances
Unexpended Appropriations
Invested Capital
Cumulative Results of Operations
Other
Future Funding Requirements
Total Net Position -
Total UabOitiesand Net Position
The accompanying notes are an integral part of these statements.
EPA'* FY 1994 Ammal Raan
$80
1,697
201
1,978
280
280
2,258
14,792
34
(280)
14,546
$16.804
aal Statements
$91
1,334
157
1.582
1.582
12,896
12.896
*14.478
$505
25,930
110,693
59
137,187
137,187
50,488
50.488
$187.675
Pa
12,172
117,634
66
129,672
129,872
63,216
63.216
$193.068
«43
-------
EPA Trust Fowls, Revolving Funds
id Co
rid Activity
Statements of Financial Positkn - Resitted (Note 16)
As of September 30,1994 and 1993 (Dollars in Thousands)
ASSETS ; -
Entity Assets
Intragovernmental Assets;
Balance With Treasury (Note 2)
Investments (Note 3)
Accounts Receivable, Net (Note 4)
Advancesand Prepayments.
Governmental Assets:
Accounts Receivable, Net (Note 4)
Credit Pragma Receivables, Net (Note 5)
Interest Receivable .
Advances and Prepayments
Property and Equipment, Net (Note 6)
Marketable Securities Equity (Note 1)
Appropriated Amounts Held By Treasury (Note 1)
Total Entity Assets
Noo-Entity Assets
Total Non-Entity Assets
Total Assets
FIFRA
Revolving Fund
1994 1993
$201 ,
9,723
17
20
1
353
$950
10,209
Tolerance
Revolving Fund
1994 1993
$3,124 $4,246
«
533
10.315 11.698
3.124
4.246
LIABILITIES
Liabilities Covered by Budgetary Resources: ,
lAUxgovemmeniai Liaoiinifir .
Accounts Payable . .
Debt (Note 7)
Other fotragoveramental Liabilities (Note 8) .
Governmental Liabilities: . '
Accounts Payable
Other Governmental Liabilities (Note 8)
Total Inabilities Covered by Budgetary Resources
LJabumes not Covered by Budgetary Resources:
Other Governmental Liabilities (Note 8)
Total LiabBitiesnot Covered by Budgetary Resources
Total Liabilities
NET POSITION (Note 10)
Balances:
Unexpended Appropriations
Invested Capital
Cumulative Results of Operations
Omer
riuure riBiumg Keouirements
Total Net Position
*Tnt«l T .i*ivlfffft*>« Mirf M*t Pruitarm
-u-njH j_rnr- n a mwm-m *nm m X.«^WM ^
95
4.719
4,814
1.112
1.112
5.926
353
5.148
(1.112)
4.389
$10.315
$73
357
6,015
6,445
6.445
534
4,719
5,253
jum*
3.124
3,124
178
178
3,302
(178)
(178)
$3.124
$1,164
3.082
4.246
-
4.246
- -
_
$4.246
" '" -' ' ^»
Page 44
EPA's FY 1994 Annul financial Statements
-------
EPA Trust Funds, Revolving Funds and Commercial Activity
Statement of Operations and Changes in Net Position
Restated (Note 16)
For the Years Ended September 30,1994 and 1993
(DoUanioTlioiuudi) ' '
REVENUE AND FINANCING SOURCES
Appropriated Capital Used
Revenues from Services to the Public
Interest and Penatities, Non-Federal
Interest Income, Federal
Income From Overhead Allocation
Otter Revenues
Less: Receipts Returned to Treasury
Tots! Revenues and Financing Sources
EXPENSES
Program or Operating Expenses (Note 11)
Depreciation and Amortization
Bad Debts and Writeoff
i Overhead Allocation
Interest from Treasury Borrowing
Other Expenses (Note 12)
Total Expenses
Excess (Shortage) of Revenues and .
Financing Sources Over Total Expenses
Plus (Moms) Unfunded Expenses.
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
NET POSITION
Net Position, Beginning Balancers
Previously Stated
Adjustments (Note 13)
Net Position; Beginning Balancers
Restated
Exeess (Shortage) of Revenues and
Financing Sources Over Total Expenses .
Plus (Minus) Non Operating Changes (Note 14)
Net Position, Ending Balance
Superfund
Trust Fund
1994 1993
LUST
Trust Fund
1994 1993
$1.207.754
107,297
11363
20,498
337367
202376
1.482.721
1.464332
5,759
45,705
20,498
1536.494
(58,778)
(1335)
O55.40B)
' $2.741,449
1324
2.743,373
(55,408)
106360
$2.794.525
$1343328
16,941
32395
22,257
397,253
185,859
1329315
1340,418
5316
161,463
22.257 _
1
1329.155
100,160
633
$100593
$2371388
17361
2388.444
100393
(47388)
$2.741.449
$73,337
. 656
74,193
73314
26 .
856
74.196
(3)
(325)
($328)
$92315
(3315)
69,000
028)
5357
$94229
.$75.137
827
75364
75,107
29
1
827
75364
,
$85323
85.901
6314
$92.515
The accompanying notes are an integral part of these statements.
EPA's FY 1994 Annual Financial Statements
Page 45
-------
EPA Trust Funds, Revolving Funds and Commercial Activity
Statement of Operations and Changes in Net Position
Restated (Note 1«)
For the Years Ended September 30,1904 and 1903
(Dalian in Thoosudi) :-
REVENUE AND FINANCING SOURCES
Appropriated Capita) Uied
Revenues from Services to the Public
Interest and Penalities, Non-Federal
Interest Income. Federal
Inccra From Overhead Allocation
OtherRevenues
Lett: Receipts Retunwd to Treasury
Total Re
lies and Financing Souices
EXPENSES
Program or Operating Expenses (Note 11)
Depreciation and Amortization
Bad Debts and Writeoff
Expenses From Overhead Allocation'
Interest from Treasury Borrowing
Other Expenses (Note 12)
Total Expenses
Excess portage) of Revenues and
t Over Total Expenses
Phis (Mimis) Unfunded TJTTT""
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
NET POSITION
Net Position, Beginning Balance,**
Previously Stated :
Adjustments (Note 13)
Restated
Excess (Shortage) of Revenues and
Financing Sources Over Total Expense*
Plus (Minus) Non Operating Changes (Note 14)
Net Portion, Ending Balance
OBSpHI
Asbestos
iiuwii
1994'
$19509
1,223
_
.
774
21506
20526
4
774
. -.
21508
runa
1993
$7504
.
_
755
_
8559
7504
755
6559
uomrr
1994
$12,722
_
1543
'
1,163
9
15519
12.722
.
_
1,163
1553
15538
nrcoiMcuvny
1993
$10,716
'
16
310
695
M
11.939
10,716
_
7
895
310
/ ^
11530
«eo)
$12596
$63^16
15
12596
(260)
1530
12.696
63491
(19)
(12.724)
$49^24
49^24
13.992
$50.468
$63.216
£06 ftCOGDUp]
notes are an integral part of these statements.
Page 46
EPA's PY 1994 Annual Financial Sfi
-------
EPA Trust Funds, Revolving Funds and Commercial Activity
Statement of Operations and Changes in. Net Position
Restated (Note 16) .
For the Years Ended September 30,1994 and 1993
. (DoUintaTfcoB«Bdi)
REVENUE AND FINANCING SOURCES
Appropriated Capital Used
Revenue from Services to the Public
Interest and Penalises, Non-Federal
Interest Income, Federal
Income From Overhead Allocation - '
Other Revenues
Lew Receipts Returned to Treasury
Total Re venues and Fmancmg Sources
EXPENSES
Program or Operating Expenses (Note 11)
Depreciation and Amortization
Bad Debts and WrheofiY
Interest from Treasury Borrowing
Oner Expenses (Note 12)
Total Expenses
Excess (Shortage) of Revenues and
Fmancmg Sources Ower Total Expenses
Phts (Minus) Unfunded Expenses
Excess (Shortage) of Revenues and
Fmancmg Sources Over Total Expenses
NET POSITION
Net Position. Beginning Balancers
Previously Stated
Adjustments (Note 13)
Net Position. Beginning Balance,**
Restated .
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
Phis (Minus) Non Operating Changes (Note 14)
Net Position, Ending Balance .
FIFRA
Revolving Fund
1994 1993
. Tolerance
Revolving Fund
1994 1993
10332
429
24,928
41,689
.10,113
219
<»
24,928
41560
429
0.112)
18,156
432
25,303
43.891
16,926
200
'«»
44.431
(540)
2,196.
3,791
5.967
2,198
3,791
5.967
0
(178)
965
4.474
5,439
965
4,474
5.439
' -'
$5,253
$4,862
971
5,253
(883)
(181)
5333
(540)
(40)
078)
The accompanying notes are an integral part of meat statements.
EPA's FY I994 Annual Financial Statements
Page 47
-------
EPA Trust Fmdsjlevolviag Funds and Coaunerdal Activity
Statements of Cash Flowi by Fund Activity
Restated (Note 16)
For the Yean Ended September 30,1994 and 1993
(Dalian is Taouiaads)
CASH FLOWS FROM OPERATING ACTIVITIES:
EXCESS (SHORTAGE) OF REVENUE AND FINANCING
SOURCES OVER TOTAL EXPENSES
Superfnod
Trait Fond
1994 1993
($35,408)
S100.993
LUST
Itust Fond
1994 1993
(S328)
ADJUSTMENTS AFFECTING CASH FLOW:
APPROPRIATED CAPITAL USED
DECREASE (INCREASE) IN MARKETABLE EQUITY SEC
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE
DECREASE (INCREASE) IN OTHER ASSETS
INCREASE (DECREASE) IN ACCOUNTS PAYABLE
INCREASE (DECREASE) IN OTHER LIABILITIES
DEPRECIATION AND AMORTIZATION
OTHER UNFUNDED EXPENSES
OTHER ADJUSTMENTS - .
TOTAL ADJUSTMENTS
; i
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF PROPERTY, PLANT
AND EQUIPMENT
SALE OF SECURITIES
CREATION OF LOANS RECEIVABLE
NET CASH PROVIDED (USED) BY INVESTING
. ACTIVITIES ' .
CASH FLOWS FROM FINANCING ACTIVITIES:
APPROPRIATIONS (CURRENT WARRANTS)
ADD: TRANSFERS OF CASH FROM OTHERS
DEDUCT: TRANSFERS OF CASH TO OTHERS
NET APPROPRIATIONS
BORROWINO.FROM THE TREASURY
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES ' ,
-
(1007,754)
-
(76427)
(29,040)
17,423
31481
3,759
1^35
(100,070)
(1356,993)
(MI2.401)
(3,401)
_'
-'
f3,401)
-
1451462
59,183
1,492479
1,492,679
(1443428)
(4.699)
(4,934)
345
(10,113)
(36,993)
5,016
4486
324)10
(1,437,830)
(1436437)
(2434)
- - - .
(2,934)
"
1455,215
69,139
L284076
1,286,076
(73437)
-
(«)
22
4461
368
26
325 .
(6426)
(74472)
(75/100)
(M)
-.
-
(20)
-
76430
-
76,630
.-
76430
(75,137)
-
4
<3.4W>
234
. -
29
-
fUTO)
(79427)
'
(79427)
(«)
-
l«
-
74,700
-
74,700
-
74,700
Page 48
EPA's PY 1994 Annual Financial Statements
-------
EPA Trut FDBds,Revolvnig Foods and Commercial Activity
Statement! of Cuh flows by Fund Activity
Restated (Note 16) . ,
Fof the Yean Ended September 30,1994 and 1993
(Dollars in Thowandi)
NET CASH PROVIDED (USED) BY OPERATING,
INVESTING AND FINANCING ACTIVITIES
FUND BALANCES WITH TREASURY, BEGINNINGv
FUND BALANCES WITH TREASURY, ENDING
> Trutt Fund
1994 1993
LUST
Trust Fund
1994 1993
76*77
11,485
(53,715)
65.200
1.630
1.638
(4.833)
6,471
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
/ ' «r ' '
TOTAL INTERESTPAED <
1994
1993
1994
1993
SUPPLEMENTAL SCHEDULE OF FINANCING
AND INVESTING ACTIVITY:
PROPERTY AND EQUIPMENT ACQUIRED UNDER
CAPITAL LEASE OBLIGATIONS .
PROPERTY ACQUIRED UNDER LONG-TERM
FINANCING ARRANGEMENTS
OTHER EXCHANGES OF NONCASH ASSETS OR
LIABILITIES
Tbe Moomfwiqriag notes we an integral put of U»
1994
1993
EPA's FY 1994 Annual Financial Statements
Page 49
-------
EPA Trust Eimds,Revolvuig Funds and Commercial Activity
.Statements of Cash Flows by Fund Activity
Restated (Note 16)
For the Years Ended September 30,1994 and 1993
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
EXCESS (SHORTAGE) OF REVENUE AND FINANCING '
SOURCES OVER TOTAL EXPENSES
Oil Spill
Trust Fund
1994 1993
($2801
Asbestos
Commercial Activity
1994 1993
($19)
ADJUSTMENTS AFFECTING CASH FLOW:
APPROPRIATED CAPITAL USED
DECREASE (INCREASE) IN MARKETABLE EQUITY SEC
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE
DECREASE (INCREASE) IN OTHER ASSETS
INCREASE (DECREASE) IN ACCOUNTS PAYABLE
INCREASE (DECREASE) IN OTHER LIABILITIES
DEPRECIATION AND AMORTIZATION
OTHER UNFUNDED EXPENSES
OTHER ADJUSTMENTS
TOTAL ADJUSTMENTS
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
(1023)
352
324
'. ' 4'
280
(2801
(7.804)
1,425
157
(12,722)
1
498
6*17
(39*75)
(»3S2)
(4022)
(45,081)
(10,718)
19,408.
13
5079
7
(6^31)
7.458
(20.132) (8Q22)
(45.100)
7.467
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF PROPERTY, PLANT
AND EQUIPMENT
SALE OF SECURITIES
CREATION OF LOANS RECEIVABLE
NET CASH PROVIDED (USED) BY INVESTING
. ACTIVITIES
(38)
(38)
(5.496)
(&098) (3.496)
CASH FLOWS FROM FINANCING ACTIVITIES:
APPROPRIATIONS (CURRENT WARRANTS)
ADD: TRANSFERS OF CASH FROM OTHERS
DEDUCT: TRANSFERS OF CASH TO OTHERS
NET APPROPRIATIONS
BORROWING FROM THE TREASURY
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES
21^39
20,700
13,758
21039
20.700
13,758
25.930
21Q39
20.700
39.688
31025
31025
Page 50
EPA's FY. 1994 Annual Financial Statements
-------
EPA Treat Fnnd*,Revolviiig Fund* and Commercial Activity
Statements of Cash Flows by Fond Activity
.Restated (Note 16)
For the Yean Ended September 30,1994 and 1993
(Dollars in Thousands)
NET CASH PROVIDED (USED) BY OPERATING,
INVESTING AND FINANCING ACTIVITIES
FUND BALANCES WITH TREASURY, BEGINNING
FUND BALANCES WITH TREASURY. ENDING
Oil Spill
frost Fund
1994 1993
Asbestos
Commercial Activity
1994 1993
1,069
14.476
14,478
(11410)
63,073
33,196
29,877
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
TOTAL INTEREST PAID
1994
1993
1994
1,653
1993
310
SUPPLEMENTAL SCHEDULE OF FINANCING
AND INVESTING ACTIVITY:
PROPERTY AND EQUIPMENT ACQUIRED UNDER.
CAPITAL LEASE OBLIGATIONS
PROPERTY ACQUIRED UNDER LONG-TERM
FINANCING ARRANGEMENTS
OTHER EXCHANGES OF NONCASH ASSETS OR
LIABILITIES
The accompanying note* an an integral put of these statements.
EPA's FY 1994 Annual Financial St
Page 51
-------
EPA Tkut Fudi,RevolviBg 'Pud* ud Conmercial Activity
SUtomeaU of Cart Flows by Fond Activity
Restated (Note 16)
For the Yean Ended September 30,1994 mnd 1993
.. ' (Dollar* in Iboauaiii) .
FIFRA
Revolving Fund '
1994 1993
Tolerance
Revolving Fond
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
EXCESS (SHORTAGE) OF REVENUE AND FINANCING
SOURCES OVER TOTAL EXFENSES
($683)
($540)
($178)
ADJUSTMENTS AFFECTING CASH FLOW:
APPROPRIATED CAPITAL USED
DECREASE (INCREASE) IN MARKETABLE EQUITY SEC
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE
DECREASE (INCREASE) IN OTHER ASSETS
INCREASE (DECREASE) IN ACCOUNTS PAYABLE
INCREASE (DECREASE) IN OTHER LIABILITIES
DEPRECIATION AND AMORTIZATION
OTHER UNFUNDED EXPENSES
OTHER ADJUSTMENTS
TOTAL ADJUSTMENTS
NET CASH PRO VIDEO (USED) BY OPERATING
ACTIVITIES ' .
(35)
3
(335)
(U96)
219
1,112
(25)
12
(485)
(4,121)
. 200
971
(1464)
42
178
LOU
(522)
(S12)
(3,449)
(944)
489
(U95)
0.989)
-------
EPA Triut Fnnds,Rcvotving Funds and Commercial Activity
Statements of Cash Flows by Fund Activity
Restated (Note 16)
For tke Yean Ended September 30,1994 and 1993
(Dollars in Tnotnaads) '
.NET CASH PROVIDED (USED) BY OPERATING,
INVESTING AND FINANCING ACTIVITIES
*
FUND BALANCES WITH TREASURY, BEGINNING
FUND BALANCES WITH TREASURY, ENDING
FIFRA
Revolving Fond
1994 1993
Tolerance
'Revolving Fund
1994 1993
(749)
930
885
65
(1422)
4.246
489
3.757
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
TOTAL INTEREST PAID , ,
1994
1993
1994
1993
SUPPLEMENTAL SCHEDULE OF FINANCING
AND INVESTING ACTIVITY:.
PROPERTY AND EQUIPMENT ACQUIRED UNDER
CAPITAL LEASE OBLIGATIONS
PROPERTY ACQUIRED UNDER LONG-TERM
FINANCING ARRANGEMENTS '
. OTHER EXCHANGES OF NONCASH ASSETS OR
LIABILITIES
Tnei
ipanyiag note* are M integral part of these statement*,
EPA's PY 1994 Annual Financial Statements
Page S3
-------
EPA Trait Fvods, Revolving Funds and Commercial Activity
Sutement of Budget and Actual Expense*
For the Year Ended September 30,1994
(DoUanin'nioaaiKb)
Progmn Name
Superfund
LUST
OaSpffl
FIFRA
Tolerance Fund
Total
Budset
Resources
$1,970,719
86,755
26,236
27,628
25,766
6,117
S2.143.221
Obligations
Direct
$1,598,176
83,749
21,083
979
922
$1.704.909
Reimbursed
$23,840
1,223
15,139
2.154
S42.356
Actual
$1,536,494
74,196
21,306
15,538
41,260
5.967
$1.694.781
Budget Reconciliation:
Total Expenses
Add:
Capital Acquisitions
Other Expended Budget Authority
Lets:
Depreciation and Amortization
Unfunded Annual Leave Expense
Interest Expense
Bad Debt Expense .
Accrued Expenditures
Lest Reimboraements
Accrued Expenditures, Direct
. Financial Statement Adjustments, not on SF-1
Overhead Expenses from ABocation, not on SF-133
Capitalized Expenses, not on SF-133
Openting Expenses; not on SF-133
Bad Debt Expense, on SF-133
SF-133 Adjustments, not on Financial Statement
Unreconciled Difference
Accrued Expenditures, Direct - per SF-133
$1,694,781
3,011
6,008
5,735
1,653
45,705
1,641,691
42.356
1i599,335
20,820
(52.010)
3.497
(24,680)
61
. (20,975)
42.081
$1.568.129
The accompanying notes are an integral part of this statement
Page 54
EPA's PY 1994 Annual Financial Si
-------
EPA Trot Fonda, Revolving Ponds ana* Commercial Activity
Statement of Budget and Actual Expenses
For the Year Ended September 30, 1993 Restated (Note 16)
Budget
Program Name
Superfond
LUST
OflSpffl
Asbestos Loan Program
FIFRA
Tolerance Fund
Total
Resources
$1,875,354
85,468
20,700
111,657
25,481
5.683
t2.124.353
Obligations
Direct
$1,587,754
74,451
18,225
90,908
(754)
$21,047
16,328
1.526
Actual
Expenses
$1,529,155
75,964
8.559
11,930
44,431
5.439
Budget Reconciliation!
Total Expenses
Add:
Capital Acquisitions
Other Expended Budget Authority
Leo:
Depreciation and Amortization
Unfunded Annual Leave Expense
Interest Expense '.
Bad Debt Expense
Accrued Expenditures
Less Reimbursements
Accrued Expenditures, Direct
Financial Statement Adjustments, not on SF-133
Oveifaead Expenses from Allocation, not on SF-133
Unreconciled Difference
. Accrued Expenditures, Direct-per SF-133
$1,675,478
3.119
5,245
310
161.471
1,510,738
38.901
1,471,837
.(486,100)
(54,511)
(32.813V
413
The accompanying notes are an integral part of this statement
EPA's FY 1994 Annual Financial Statements
Page 55
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies:
A. Basis of Presentation
These financial statements have been prepared to report the financial position and results
of operations of the Environmental Protection Agency (EPA) for the Hazardous
Substance Superfund (Superfund) trust Fund, Leaking Underground Storage Tank
(LUST) Trust Fund, Oil Spill Response Trust Fund, Asbestos Loan Program (a
commercial activity), Reregistration and Expedited Processing (FIFRA) Revolving Fund
and the Revolving Fund for Certification and Other Services (Tolerance), as required by
the Chief Financial Officers Act of 1990. the reports have been prepared from the books
and records of EPA in accordance with 'Form and Content for Agency Financial
Statements," specified by the Office of Management and Budget (OMB) in Bulletin 94-01
and EPA's accounting policies which are summarized in this note. These statements are
therefore different from the financial reports also prepared by EPA pursuant to OMB
directives that are used to monitor and control EPA's use of budgetary resources.
B. Reporting Entities
EPA 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.
In 1980, the Hazardous Substances Superfund, commonly referred to as the Superfund
Trust Fund, was established by the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) te provide resources needed to respond to
actual or threatened releases of hazardous substances, pollutants, or contaminants that
may endanger human health or the environment. The Superfund Trust Fund is financed
by: taxes on crude oil and certain chemicals, corporate environmental taxes, general
revenues, cost recoveries, fines and penalties, and interest from investments. The
Superfund Amendments and Reauthorization Act (SARA) of 1986 increased the funding
level of the Superfund Trust Fund, expanded the Superfund program, and reauthorized
the program for an additional five years. The Omnibus Reconciliation Act of 1990
increased the funding level of the Superfund Trust Fund and reauthorized the Superfund
program, without change, through September 30,1994. Although the Superfund
program's authorization expired on September 30,1994, the program received a $1.4
billion appropriation for FY 1995. Given the current appropriation level, a combination of
continued tax collections, other resources (e.g., general revenues and cost recoveries),
Page 56
EPA's FY 1994 Annual Financial Statements
-------
February 24,1!
and funds currently in the Trust Fund will provide sufficient resources to support the
Superfund program in FY 1995 and FY 1996. Despite the Superfund program's
expiration date, the program has statutory authority to continue taxing through December
31,1995. The Superfund program contains four basic components: enforcement, clean
up, response, and support. The support component consists of oversight of federal
facilities, general management, research and development, and other non-site-specific
work. These components are integrated and coordinated to ensure that Superfund
monies are used in a cost effective manner. Congress has authorized the transfer of
certain monies from EPA's appropriation to other federal agencies for activities supporting
the Superfund program. EPA does not report the other federal agency's use of the
appropriation transfer in the Superfund Trust Fund financial statements.
Each receiving agency is responsible for preparing these reports on their own. The
Superfund Trust is accounted for under Treasury symbol number 8145.
The LUST Trust Fund was authorized by the amendment of the Resource Conservation
and Recovery Act (RCRA) in 1986 to implement a comprehensive regulatory program for
underground storage tanks and to provide funds for responding to releases from leaking
, underground petroleum tanks. EPA oversees cleanup and enforcement programs which
are implemented by the States. Funds are allocated to the States through cooperative
agreements to dean 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 Trust Fund
also covers administrative expenses necessary to carry out the program. The program is
financed by a 0.1 cent a gallon tax on motor fuels, 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. EPA 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. EPA also 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 spiil cleanup actions is
provided through the Department of Transportation under the Oil Spill Liability Trust Fund.
The Oil Spiil Response Trust Fund is accounted for under Treasury symbol number 8221.
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 were not
appropriated for FY 1994; accordingly no new loan obligations occurred in FY 1994. For
FY 1993 and 1992 obligations, the program is funded by a subsidy appropriated from the
General Fund for the actual cost of financing the loans, and by borrowing from Treasury
EPA's FY 1994 Annual Financial Statements Page 57
-------
February 24,
f or the unsubsidized portion of the loan. The Program fund received the subsidy and
administrative appropriations, disburses the subsidy to the Financing fund, and disburses
administrative expenses to the providers. The Financing fund receives the subsidy
payment, borrows from Treasury and disburses and collects the asbestos loans. Loans
obligated before 1992 are maintained in a Liquidating fund and are disbursed from the
Liquidating fund. The loans receivable and collections on those loans are recorded in a
General Fund receipt account. Under provisions of the Federal Credit Reform Act, the
balance of any monies collected on loan repayments must be returned to the general
revenue fund at Treasury. 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, under
Treasury symbol 4321 for pre FY 1992 loan obligations and disbursements, and under
Treasury symbol 2917 for pre FY 1992 loans receivable and loan collections.
The FIFRA Revolving Fund was authorized in 1988 by amendments to the Federal
Insecticide, Fungicide and Rodenticide Act Hie 1988 amendments mandated the
accelerated reregistration of all products registered prior to November 1,1984. Congress
authorized the collection of fees to supplement appropriations to fund reregistration and to
fund expedited processing of pesticides. FIFRA also includes provisions for the
registration of new pesticides, monitoring the distribution and use of pesticides, issuing
civil or criminal penalties for violations, establishing cooperative agreements with the
states, and certifying training programs for users of restricted chemicals. Appropriated
funds, however, pay for these activities. 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.
A tolerance is the maximum legal limit of a pesticide residue on food commodities and
animal feed. Tolerances are established by EPA to prevent consumer exposure to
unsafe levels of pesticide residues. In 1954, Congress authorized the collection of fees
for raw agricultural commodities. Fees were deposited to the Treasury general fund until
1963 when Congress established the Revolving Fund for Certification and Other Services
(Tolerance Revolving Fund). The Department of Agriculture and the Food and Drug
Administration are responsible for enforcing adherence to these tolerance levels. Funding
is provided by fee collections and by appropriated funds for federal services in
establishing tolerances for residues of pesticide chemicals in or on raw agricultural
commodities. The Tolerance Revolving Fund is accounted for under Treasury symbol
number 4311.
The accompanying financial statements include the accounts of all funds described in this
note. Each of the funds included in the financial statements may charge some
administrative costs directly to the fund and charge the remainder of the administrative
costs to Agencywide appropriations. The following is a list of all the programs and the
corresponding administrative costs funded by Agencywide appropriations (unaudited):
Page 58
EPA's FY 1994 Annual Financial Statements
-------
February 24,15
.'
Superfund
LUST
Oil Spill
Asbestos
FIFRA
Tolerance
1994
$20,498
856
774
1,163
24,928
3,791
1993
$22,257
827
755
895
25,303
.4,474
These amounts are included in the Income from Overhead Allocation and the Overhead
Expenses from Allocation line items as shown in the financial statements. For FIFRA and
Tolerance these amounts reflect all appropriated funds used for program activities.
The Superfund and LUST Trust Funds are allocated general support services costs (such
as rent communications, utilities, mail operations, etc.) that were initially charged to the
Agency's Program and Research Operations (PRO) and Abatement, Control and Compliance
(AC&C) appropriations. During the year, these costs are allocated from the PRO and AC&C
appropriations to the Superfund and LUST Trust Funds based on a ratio of direct labor hours,
using budgeted or actual fulMime equivalent personnel charged to these appropriations, to
the total of ail direct labor hours. Agency general support services cost charges to the
Superfund and LUST Trust Funds may not exceed the ceilings established in the Superfund
and LUST Trust Fund appropriations. The related general support services costs charged
to the Superfund and LUST Trust Funds were $26,949 and $202, respectively, for FY 1994
and $25,146 and $216, respectively, for FY 1993.
C. Budgets and Budgetary Accounting
Congress adopts an annual appropriation amount to be available until expended for the
Superfund Trust Fund, for the LUST Trust Fund, and for the Oil Spill Response Trust Fund.
Transfer accounts for the Superfund and LUST Trust Funds have been established for the
purpose of carrying out the program activities. A Trust Fund account has been established
at Treasury for the purpose of carrying out the oil spill response program activities. As EPA
disburses obligated amounts from trie transfer accounts, EPA draws down monies from the
Superfund and LUST Trust Funds at Treasury to cover the amounts being disbursed. EPA
draws down all the appropriated monies from the Treasury1 s Oil Spill Liability Trust Fund to
the Oii Spill Response Trust Fund when Congress adopts the annual appropriation amount.
EPA'S FY 1994 Annual Finanfial
Page 59
-------
February 24,1!
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 Jong 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 FY1994; therefore, there
was no new financing available to the Asbestos Loan Program for FY 1994.
Funding of the FIFRA and the Tolerance Revolving Funds is provided by fees collected from
industry to offset costs incurred by EPA in carrying out these programs. Each year EPA
submits an apportionment request to OMB based on the anticipated collections of industry
fees. ...--'
D. Basis of Accounting
Transactions are recorded on an accrual accounting basis and a budgetary basis. 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. Ali
interfund balances and transactions have been eliminated. s
E. Revenues and Other Financing Source*
The Superfund, LUST, and Oil Spill Response Trust Funds receive the majority of 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 potentially responsible
parties.
Under Credit Reform provisions, the Asbestos Loan Program received funding to support the
subsidy cost of loans through appropriations which may be used within statutory limits. The
Asbestos Direct Loan Financing fund, an off-budget fund, receives 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. Since
Congress did not adopt an appropriation for FY 1994, no new funding was available to the
program. The Asbestos Direct Loan Liquidating fund received funding to support the pre-
Credit Reform loans through appropriations. . -
Page 60
EPA'a FY 1994 Ammal Financial Statements
-------
February 24,199!
The FIFRA and the Tolerance Revolving Funds receive funding through fees collected for
services provided. The FIFRA Revolving Fund also receives interest on invested funds.
Appropriations are recognized as revenues when earned, i.e., when services have been
rendered without regard to payment of cash. Appropriations expended for property and
equipment are recognized as expense and revenue when the asset is consumed in
operations. Other revenues are recognized when earned, i.e., when services have been
rendered.
F. Funds wtth the Treasury
EPA 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 Trust Funds. These funds have balances
available to pay current liabilities and finance authorized purchase commitments.
G. Investments in U. S. Government Securities
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 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
During FY 1993, the Agency received marketable equity securities, valued at $4,699 as of
September 30,1993, from a company in settlement of Superfund cost recovery actions. The
securities were also held at September 30.1994; however, the Agency does not intend to
exercise ownership rights related to these securities held by Treasury. Instead the Agency
win convert these securities to cash as soon as practicable.
I. Accounts Receivable
Both the Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA) and the Superfund Amendments and Reauthorization Act (SARA) provide for cost
recovery of costs from potentially responsible parties (PRPs). However, cost recovery
expenditures are expensed when incurred because there is no assurance that these funds
will be recovered.
It is EPA's policy to record accounts receivable from PRPs for Superfund site cleanup costs
when a consent decree, judgment, or other binding agreement is reached. These
agreements are generally obtained after site cleanup costs are incurred. It is EPA's position
EPA's FY 1994 Annual financial Statements Page 61
-------
Febiiuaiy24, ISSS^^^HMMHU^^^^H^HMMM^^^MI '
that until a consent decree is obtained, the amount recoverable should not be recorded. The
allowance for uncollectible PRP accounts receivable is determined on a specific identification
basis as a result of a case-by-case review of receivables at the regional level, and a general
reserve for those not'specifically identified.
EPA also records accounts receivable from states for a portion of Superfund site cleanup
actions within those states. Cost sharing arrangements vary according to whether a site was
privately or publicly operated at the time of hazardous substance disposal and whether the
EPA response action was removal or remedial. State cost share agreements are usually
10% to 50% of site cleanup cost. States may pay the full amount of state cost shares in
advance, or in incremental amounts throughout the cleanup project No allowances for
uncollectible state cost share receivables have been recorded, because EPA has not had
collection problems on these agreements.
H .
Other receivables for Asbestos and FIFRA represent interest receivable.
A summary of accounts receivable as of a September 30,1994 and September 30,1993 is
in Note 4.
J. Loans Receivable
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 5. No
allowance for uncollectible amounts has been established for loans obligated prior to October
1,1991 because there has never been a default and a review of outstanding amounts does
not indicate a potential default. 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
For the Superfund and LUST Trust Funds, cash available to EPA that is not needed
immediately for current disbursements remains in the respective Trust Funds managed by
Treasury. At the end of FY 1994 and FY 1993, approximately $3,102,373 and $3,173,380,
respectively, remained in the Treasury-managed Superfund Trust Fund and approximately
$93,750 and $89,021, respectively, remained in the LUST Trust Fund to meet EPA's
disbursement needs.
Page 62
EPA's FY 1994 Annual Financial
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February 24,11
L. Advances and Prepayments
EPA records the differences resulting from disbursements recorded by Treasury but not
recorded by EPA and the disbursements recorded by EPA but not by Treasury as advances
and prepayments. As a result of a data conversion error, the LUST Trust Fund has recorded
a prepayment of $3,540 which relates to prior years.
M. Property, Plant and Equipment
Real Property (land and buildings) used as office space for EPA employees in the course of
mission related activities and facility related services are provided by the General Services
Administration (GSA). QSA charges a Standard Level Users Charge that approximates the
commercial rental rates for similar properties. A small percentage of real property, such as
laboratories, is acquired by EPA using appropriated funds. Equipment purchases are
capitalized at cost if the initial acquisition cost is at least five thousand dollars. Equipment
with an acquisition cost of less than five thousand dollars is expensed when purchased.
Equipment is depreciated using a modified straight line method over a period of six years
depreciating 10% the first and last year and 20% in years 2 through 5.
N. Liabilities
Liabilities represent the amount of monies or other resources that are likely to be paid by
EPA as the result of a transaction or event that has already occurred. However, no liability
can be paid by EPA 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 EPA, arising from other than contracts, can be abrogated by the Government acting in its
.sovereign capacity.
i l
O. Borrowing Payable to the Treasury
Borrowing payable to Treasury result 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
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt
to Treasury. At the end of FY 1994 and FY 1993, there was no outstanding interest payable
to Treasury since payment was made on September 30.
EPA's FY 1994 Annual Financial Statements . Page 63
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February 24,1995i^iiHHiMHpHii^iMii^MHBi]ii^MMiiMiMiiiiM .
Q. Annual, Sick and Other Leave '
Annual leave is accrued as it is earned and the liability is reduced as leave is taken. Each
year, the balance in the accrued annual leave account is adjusted to reflect current pay rates.
To the extent current or prior year appropriations are not available to fund annual leave
earned but not taken, funding will be obtained from future financing sources. Annual leave
expense for the Superfund Trust Fund was $840 in FY 1994 and $833 in FY 1993. Annual
leave expense recorded for LUST, Oil Spill, FIFRA and Tolerance was $325, $280, $1,112,
and $178, respectively, for FY 1994. Prior to FY 1994, annual leave expense was not
allocated and charged to LUST, Oil Spill, FIFRA and Tolerance. Sick leave and other types
of nonvested leave are expensed when taken.
R. Retirement Plan '
The majority of EPA's employees participate in the Civil Service Retirement System (CSRS),
to which EPA makes matching contributions equal to 7% of 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 ft offers a savings plan to EPA 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, EPA also contributes
the employer's matching share for Social Security.
EPA does not report CSRS or FERS assets, accumulated plan benefits, or unfunded
liabilities, 'if any, applicable to its employees. Reporting such amounts is the responsibility
of the Office of Personnel Management. Such data is not allocated to individual departments
and agencies. .
Page 64
EPA's FY 1994 Annual financial Statements
-------
Note 2. Fund Balances with Treasury:
The Treasury maintains EPA's fund accounts and processes all of EPA's receipts and
disbursements. The available balances are for payment of EPA's obligations under its
various programs. The restricted balances pertain to expired appropriated authority and are
unavailable for future obligations.
Fiscal Year 1994:
Trust Funds:
Superfund
LUST
Oil Spill
Commercial Activities:
Asbestos Loan
Program
Revolving Funds:
FIFRA
Tolerance
Fiscal Year 1993:
'
Tnist Funds: . .
Superfund
LUST
OHSpffl
Contnwrdsl ActfvWss:
Asbestos Loan
Pfograiti
Revolving Funds:
FIFRA
Tolemnce
Total
$86.362
3.268
15.547
$51.563
I
$ 201
3.124
Total
$11486
1,638
14,478
$63,073
$ 950
4,246
Available
$88.362
3^68
15,547
j
$33,331
'
$ 201
3,124
*rtfW*t
$11/486
1,638
14,478
$44,836
Restricted
$
$18^32
$
- '
. s
^\ m -^ J ^m J
nomicMg
$ -
'
$18^38
$ 950 k
4^48 I
EPA's FY 1994 Annul Rnmdal
Pa«t65
-------
February 24,1
Note 3. Investments - Federal:
The FIFRA Revolving Fund invests monies in Federal securities that can be bought and sold
on the open market. The cost of the investments is recorded at face value less interest to
be earned over the term of the investment (unamortized discount). Invested amounts are
disinyested and become available for payment of EPA's obligations as needed.
Investments in Federal marketable securities were as follows:
Cantamhar 4A 1 QQ4
O6|)l6fliD0r JU, i Wt
Face Value
$ 9,755
$ 10,220
Unamortized Discount
$ 32
$ 11
Investments. Net
$ 9,723
$ 10,209
Note 4. Accounts Receivable:
Fiscal Year 1994:
ntergovemmentai Assets
Accounts Hecervatue
jess Allowance tor Qouonui Accounts
iovemmentai Assets
\ccountsHecervaDie
.ass Allowance for oouonui Accounts
Rscal Year 1983:
nttrgovemrnentai Assets
Leas Allowance tar Dourau
fTotal:
aovemmental Assets
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 general reserve on a
percentage basis for those not specifically identified.
Page 66
EPA'i Ft 1994 Annul Fmaociil
-------
Februaiy^, ISQSwB^i^HBHi^iMMBMBMBMHaMin^BMBivMBiB .
Note 5. Loans Receivable, Net - Non-Federal:
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 would
be reported 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 is
provided in the following sections.
Pra-credlt Reform Loans:
lor
Unootedfeto
Loans Receivable,
septemDer 3D, i
91UMHO
llU.
sepwnoef ou, isaa
3e*t Credit Retorm Loans:
tor
Loam Rentable,
Subsidy Cost
fDUMont value)
Loans Receivable,
septemDer 30,
$1
I MJST4\
$136.109
total 1993:
(J.74M
S130.011
BPA's FY 1994 Annual Rnncul Staieonti
Page 67
-------
Februaiy 24,1!
subsidy Expanses tor Post credit Reform Loans:
Current Years Loans;
nscai Year 1994:
-iscai Year 1993:
Total
S1.143 1
S 310 1
interest
Differential
S1.143
8 310
Expected
Defaults
*.;
*_:
Fee
Offsets
*-
*.:
Total Direct Loan Subsidy Expense:
-iscai Year 1994
'iscai Year 1993
58,958
58,054
-
.
Administrative Expenses for Pre and Post credit Reform Loans:
^haroed Directly to trio Asoostos Loan Program
Additional Administrative Support Expenses
Charged to Other Appropriations
rotai
19S4
5 12,722
1.163
513.885
. 1993
5 1,668
_8J5,
S2.5S3
Fiscal Year 1994 Other Information: $8,375 for obfloatkroeatabHsr^prtw to credit reform and $71,301
forobligattons established after credit reform remain unpaid. No expenses were incurred in FY1994 for
Page 68
EPA'» FY 1994 Annual Haancial Swements
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February 24,if
Note 6. Property, Plant, and Equipment - Net:
Equipment purchases are capitalized if the equipment is valued at five thousand dollars
or more and has an estimated useful life of at least 2 years. The Agency depreciates all
capitalized equipment on a modified straight-line basis over a period of 6 years,
depreciating 10% the first and last years and 20% in years 2 through 5; The Trust and
Revolving Funds normally do not reflect purchases of property other than equipment.
Schedule of Property, Plant, and Equipment by Fund:
-iscaJ Year 1994:
Acquisition Value
Accumulated Depreciation
Net Book value
riscal Year 1993:
- . '
Acquisition value
Accumulated Depreciation
«4et Book value
Superfund
$59,711
48.038
$ 11.673
supemmo
$56,310
42.280
$ 14J)30
LUST
$ 155
99
$ 56
LUST
$ 134
73
$ 61
Oil SDitlS
$38
_ii
$34
OH SDlllS
$ -
$ -
i
RFHA
$1,116
763
$_353
FIFRA
$ 1,076
543
$ 533
Note 7. Debt - Federal:
Under the provisions of the Federal Credit Reform Act, borrowing from Treasury represent
the portion of loan disbursements not subsidized by appropriated funds.
FY 94 and 93 borrowing from Treasury are:
ntragovemmentai Debt
Fiscal Year 1994 Borrowing
from Treasury
Fiscal Year 1993 Borrowing
From Treasury
Beginning
$12.172
$1.318
New
Boirowina
$13.758
$10.854
teDavments
$.
*±.
Ending
Balance
$25.930
$12.172
Refinandna
$
tli.
EPA's FY 1994 Annual Financial Statements
Page 69
-------
February 24,1
Note 8, Other Liabilities - Federal:
Fiscal Year 1994:
nongovernmental Liabilities * Funded
aovemmentai uaotmies - punoea:
Accrued punaea Payroll
Unearned Revenue:
state cost snares
Site Cleanup costs
Other
Governmental Liabilities - untunded
217,567"
266,419
8,bi4
38,523
21 £,082
3,780
15,502
LUSI
.-
ZOO
200
*
-.
325
Oil SDill
201
201
v
.
280
A8D8S1
110,69!
-
-
-
rlHSIA
*
/.
4,718
365
-
4,334
1,112
-
3,124
84
-
3,040
178
Fiscal Year 1993:
^
ntregovenvneraai Liabilities - Funded
aovemmentai Liabilities - Funded:
Accrued Funded Payroll
unearned Revenue:
state cost snares
Site Cleanup costs
other
aovemmentai uaoumes - untunded
220,901
226,450
7,686
65,742
135,010
-
"1 1,556
LUST
-
157
157
m-
-
'
OBSobl
157 .
157
- -
*
.-
-
Asbestos
117,634
' -
*
rlPRA
-
6,015
260
*
-
5,755 ,
-
Tolerance
-
3,082
- -
3,062
,
Standard General Ledger does not provide breakdown by current/non current
The Asbestos Intragovemmental Liabilities-Funded consists of precredtt reform debt and
represents the remaining principle to be paid back to Treasury. White the majority of this
balance is non-current, the currenl/non-curront breakdown cannot be reasonably
determined. -
the Governmental Liabilities-Unfunded consists of accrued unfunded leave and actuarially
unfunded liabilities related to workmens compensation.
Page 70
EPA's FY 1994 Annual Financial Statements
-------
Note 9. Leases:
Capital Leases:
* ' ' i
EPA is not under any material capital lease arrangements for the funds being
reported.
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 rites for similar
. properties.
\
A small percentage of real property, such as laboratories, is leased by EPA
using appropriated funds.
EPA'iFY 1994 Annual Hnntial Stuemena Pige71
-------
Note 10. Total Net Position:
The total net position of EPA's Trust and Revolving Funds and commercial activities
represents the financial position of these funds after consideration of the net effects
of operations in the current year and. the cumulative effects of alt prior years.
Unexpended Appropriations represents that portion of the funding authority provided
by Congress, net of interagency transfers, which has not reached the Accrued
Expenditure stage. Invested Capital represents the book value, net of depreciation,
of EPA resources invested in equipment. Cumulative Results of Operations represents
the cumulative deficit or surplus from the funds' operations. .
Fiscal Year 1994:
Ufl
Unavailable
UndetVaratf Otdara
I Capital
Cumulative Results of Operation
2,804,826
188,522
158,822
2.646,303
11,673
(6.471)
LUST
3.008
91,498
66
IB)
14,792
3,930
3,771
168
10,862
27,008
4
27,008
23,480
3*3
6,148
Future fundinQ requirements -
nun acimriit
Total Net
MB.B021 <32B1. (2801 ' tl.1121
«781
2.794.B2B . 94.229 »14.646 60.488 4.389
Fiscal Year 1993:
Unexpended Appropriatio
AvaftaWe
Unavaflable
Undelivered Orders
RMutts of
12.717,381
176,384
176,394
2,640,987
14,030
21,694
92v410
11X)17
11,017
81,393
61
44
12.886
2,476
2,476
10,421
- .
.
63.216
18^38
18^38
44,978
. .
-
-
634
4,719
niture fuiwiiiQ fejQub eiiiai ila
non-actuarial
Total Net
(11.666)
2.741.449 »92.B1S 12.896 63.216 »6.263 ^
EPA'f FV 19M Aaaual Ratocal
-------
Note 11. Program or Operating Expenses:
Fiscal Year 1994 Operating Expenses
by Object Classification:
(1) Personnel Services and Benefits
(2) Travel and Transportation
(3) Rental, Communication and Utilities
(4) Printing end Reproduction
(5) Contractual Services
(6) Supplies and Materials ..
(7) Equipment not Capitalized
(8) Land and Structures
(9) investments and Loans
(10) Grants, Subsidies end Contributions
(11) Insurance Claims and Indemnities
Total Expenses by Object Class
Suoerfimd
$226,046
10,041
31,624
771
989,648
4,259
7,244
116
194,447
336
« 5,441
495
413
17
2,132
50
263
Fiscal Year 1993 Operating Expenses
by Object Classification: *
(1) Personnel Services end Benefits
(2) Trevel end Transportation ,
(3) Rental, Communication and Utilities
(4) Printing and Reproduction
(5) Contractual Services
(6) Supplies end Materials
(7) Equipment not Capitalized
(8) Land and Structures
(9) Investments end Loans
(10) Grants, Subsidies and Contributions
(11) Insurance Claims and Indemnities
(12) Accrued Expenses*
Total Expenses by Object Class
Suberfund
$211,842
10,841
30,165
934
1,051,499
4,097
8,404
47
173,306
(3)
<150.7141
$1.340.418
LUST
$ 4,849
502
393
17
1,997
69
173
68,741
M.6341
$75.107
'Accrued expense* for FY 1992 were not reversed by object class due to the volume of data entry
required. Accrued expenses for FY 1993 ere recorded by object class.
EPA'* FY 1994 Amal Fimnctt]
Pt«e73
-------
QiLSDill
Asbestos
Tolerance
$ 5,208
271
499
37
12,092
33
139
' 3
; '
2.246
$ 20.528
Oil Spill
$ 4,488
133
443
22
x 2,669
37
8
m
4
m
$7.804
* -
.
-
248
.
5
3,458
9,011
$12.722
Asbestos
$ -
- --
- -' '.
-
2,657
' ' 7
*
8,054
$10.718
$13,421 $2,196
s 6
2,260
3
162
18 -
143 . -
'
.
100
$16.113 $2.196
.FIFRA Tolerance
$11,756 $965
62 -
2,291
160
4,661
49
688
""I .-' -\ '.
827 -
(1.566)
$18.928 $965
EPA'» FY 1994 Anmal
-------
Note 12. Other Expenses: ' > '
As a matter of policy, EPA expenses discounts lost during the fiscal year as interest expense.
EPA pays Treasury interest on the Asbestos loan borrowings. For FY 94, Interest Expense
paid to Treasury for Asbestos Loan Borrowings is shown on the Income Statement as a
separate line item. : :
Suoerfund Asbestos
Fiscal Year 1994
Discounts Lost $ - $ -
Interest Paid to Treasury _i _i
Total ' ' f ''.'..
-------
Note 14. Non-Operating Changes:
The Non-Operating Changes resulted from funds transferred-in from Treasury, funds
collected end returned to Treasury, statement of financial position ^classifications, and other
non-operating increases and decreases. .
Fiscal Year 1994
Increases:
Transfers-in
Other Increases
Total Increases
Total Decreases
Net Non-Operating
Changes
Superfund
1,465,853
1,465,853
1.369.293
LUST Oil Spill Asbestos
75,379 $21,239 -
75,379
69.822
Tolerance
21,239
19.309
12.724
Jfil _:
S.S67 1.930 112.724) (1811 -
Fiscal Year 1993:
Increases:
Transfers-in
Other Increases
Total Increases
Total Decreases
' Superfund
*f
1,573,528
1,573,528
1.621.616
Net Non-Operating
Changes >
LUST Oil Spill Asbestos
74,700 $20,700 131,226
FIFRA Tolerance
74,700 20,700 31,225
66.O86 ' 7.804 17.233
> (47.9B« > 6.614 »12.896 * 13.992
EPA'i FIT 1994 Annul Financial
-------
NotelS. Contingencies:
EPA is a party in various administrative proceedings, legal actions, and claims brought
by or against it. These include:
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 §106 (a), EPA issues administrative orders that require parties to
clean up contaminated sites. CERCLA 5 106 (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 S 1079(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 approximately twenty-three CERCLA S 106(b) administrative claims and a
number of pending lawsuits. If the claimants are successful, the total losses on the
administrative and judicial claims could amount to approximately $31,600 and
$2,964, respectively. The incurrance of a loss on these cases could be considered
to be reasonably probable, however, an accurate estimate of the amount of the
contingent loss cannot be made. As of September 30, 1994, no accruals have been
made for .these claims since losses have not yet been incurred.
In addition, EPA is a party to certain pending litigation upon which EPA believes it has
a reasonable legal position. No estimate has been provided for a loss.
Unassorted Claims and Assessments
\ . .
There are a number of outstanding CERCLA § 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 § 106(b) of its costs of responding to the. order once ft has completed the
ordered actions.
EPA'(FY1994AimiiklFmaiiculStueiiKOB FigeT?
-------
As of September 30,1994, there are no material pending claims or litigation involving
the LUST Trust Fund, the Asbestos Loan Program, the Re-registration and Expedited
Procession Revolving Fund (FIFRA), the Oil Spill Liability Trust Fund, and the Revolving
-fund for Certification and Other Services (Tolerance).
Total losses at the end of FY1993 on these administrative claims and litigations could
amount to approximately $ 35,400 and $ $4,800, respectively/ The ultimate
outcome of these claims and litigations cannot presently be determined. Accordingly,
no provision for any liability that may result in adjudication has been recognized in the
accompanying financial statements.
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.
At the end of FY 1993, the Superfund Trust Fund had $ 3.5 million in contract
obligations that were cancelled. These obligations were entered into in FY 1986.
Although these obligations were cancelled under the requirements of Public Law 101-
510 "M" Account Legislation, since these obligations related to valid contracts, there
is a potential that these obligations will become a liability that will require funding
from a future appropriation. During FY 1994, billings and outlays of 48 occurred
against obligations that were cancelled at the end of FY 1993.
Note 16. Restatement of Prior Year Financial Statements:
The financial statements for FY 1994 have been prepared in accordance with the
guidance provided in OMB Bulletin 94-01 "Form and Content for Agency Financial
Statements". The comparative date for FY 1993 therefore is formatted differently
than that presented in the FY 1993 statements, since the FY 1993 statements were
prepared in accordance with the format contained in OMB Bulletin 93-02.
«
in addition, subsequent to the issuance to the fiscal 1993 financial statements, a
special study determined that the Superfund Trust Fund Governmental Accounts
Receivable and Governmental Liabilities -Other as Well as the related Revenue and
Expense accounts, were understated by aaproximately $14,334 and $37,322,
respectively. The combined effect of these adjustments decreased the Excess of
Revenue and Financing Sources over Total Expenses from $123,981 to $100,993
for the year ended September 30, 1993.
Subsequent to the issuance of the fiscal 1993 financial statements, OPP performed
additional work to reconcile the Pesticide Programs' fee tracking system to the general
ledger. The result of this work determined that the fee tracking system was not
working property and should be replaced, and the deferred revenue balance as of
September 30, 1993, was overstated by approximately $1,075.
The overstatement came about due to: 1) timing difference in reconciling the OPP fee
tracking system and the general ledger; and 2) the agency's policy to cover shortfalls
PigeTS
EPA*« FY 1994 Annul Knttcal
J
-------
in current years revenues with appropriated funds. As a result, the $1,075 Was
returned by the fund to the agency and the deferred revenue balance as of September
30, 1993, has been restated to $3,082.
In order to avoid similar problems in the future, OPP has changed its method of
recognizing revenue to the direct charge method. The impact of this change in
accounting method has not been determined.. .
In addition to the above fiscal year 1994 adjustment for Superfund, a change in the
handling of assets returnable to the trust fund at Treasury for Superfund occurred as
a result of processing changes mandated by the Standard General Ledger Board. The
change requires all amounts for which there is an uncollected receivable be a
reduction in the net position of the entity to other intragovernmental liabilities of the
entity. The amount reclasstfied from net position to intragovernmental liabilities is
$216,389.
Note 17. State Cost Share Credits:
The authorizing Superfund statute and Federal regulations require States to share in
the costs of the Superfund program. The cost share requirements range from 0 to
60% of either remedial action costs only or total response costs depending on the
circumstances of the individual site. In some cases. States are permitted to fulfill the
cost share requirement through the provision of in-kind services or through credits
earned from the incurrence of response costs by the State using its own funds. For
a State to claim a credit, certain regulatory requirements must be met and EPA must
approve the credit on a site-specific basis. Once EPA grants a credit, any account
receivable which has been established will be adjusted since the State will not be
making a payment to EPA. While the States have most likely already incurred costs
that would lead to credits, the total amount can not be reasonably estimated.
EPA'» FY 1994 Annual Fmuriil Sawnoas
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Audit Report E1SFL4-20-8001-5100192
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APPENDIX
AGENCY COMMENTS
Audit Report E1SFL4-20-8001-5100192
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Audit Report E1SFL4-20-8001-5100192
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
15FE3199S
OFFItt OF
AOMMSTRATON
AND RESOURCES
MANAGEMENT
MEMO8ANDDM
SUBJECT: Response to the Draft Audit Report E1SFL4-20-8001:
Fiscal 1994 Financial Statement Audit of EPA1* Trust
>lving Funtts and, Commercial Activities
Cannon
ial Offi
FROM:,
(3101)
Michael Simons - ,
Deputy Assistant Inspector General for Internal and
Performance Audits (2421)
Thank you for the .opportunity to comment on the subject
draft report. Attachment A clarifies our position with respect
to some general issues raised in the draft report. Attachment B
contains the Agency's consolidated response to the
.recommendations made in the audit report. I agree in principle
with most of the recommendations, and my staff have already begun
to take appropriate action to resolve these issues.
However, in a number of cases, we have disagreed with the
report*s specific recommendations because we believe other
alternative actions will more appropriately resolve the issues
discussed in the audit report.
We are pleased with the progress made this year in improving
the audit opinions on,our financial statements. This is a step
in the right direction as we begin to make our plans to prepare
Agency-wide financial statements for FY 1995 in fulfillment of
the Government Management and Reform Act of 1994.
I believe that this year's report reflects well on the
efforts of both our staffs in meeting a new accelerated schedule
, for producing audited financial statements. We are committed to
addressing the issues raised in this year's report as well as
completing our work on the ongoing corrective actions.
To help us with these efforts, I am asking that our staffs
meet in the near future to explore new areas where we can work
together to improve our processes in order for us to achieve our
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goal of obtaining unqualified audit opinions on all of our
financial statements. After the completion of last year's audit,
the DIG provided valuable assistance in analyzing and correcting
various accounts, especially accounts receivable and unliquidated
obligations. I hope this type of cooperation can continue.
If you have any questions regarding our response, please -
contact Jack Shipley, Director of the Financial Management
Division at 260-5097.
Attachments
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cc: Assistant Administrator for Prevention, Pesticides and Toxic
Substances (7101)
Assistant Administrator for Solid Waste and Emergency
Response (5101) .'
Assistant Administrator for Enforcement and Compliance
Assurance (2211)
General Counsel, Office of General Counsel (2310)
Comptroller (3301) :
Director, Office of Acquisition Management (3S01F)
Director, Office of Grants and Debarment (39OIF)
Director, Office of Administration and Resources Management,
Cincinnati, OH
Director, office of Administration and Resources Management,
RTP, MC
Directors, Financial Management Centers at Cincinnati, Las
Vegas, and Research Triangle Park
Director, Office of Information Resources Management (3401)
Director,'Office of Pesticide Programs (7501C)
Director, Office of Site Remediation Enforcement (2244)
Director, Office of Underground Storage Tanks {5401W)
Director, Office of Pollution Prevention and Toxics (7401)
Director, Office of Emergency and Remedial Response (5201)
Director, Budget Division (3302)
Director, Contracts Management Division, RTP, NC
Director, Facilities Management and Services .Division (3204)
Director, Financial Management Division (3303F)
Director, Rational Data Processing Division, RTP, MC
Director, Program Management and Support Division (7502C)
Financial Management Officers, Regions 4, 5, 6 and 10
Divisional Inspectors General * Southern, northern and
Western Audit Divisions
Director, Quality Assurance Staff (3204)
Chief, Financial Compliance and Quality Assurance Staff
(3303F)
Chief, Financial Reports and Analysis Branch (3303F)
Chief, Financial Systems Branch (3303F)
Chief, Fiscal Policies and Procedures Branch (3303F)
Chief, Washington Financial Management Center (3303)
Chief, Policy and Special Projects Staff (7501C)
Chief,.Security and Property Management Branch (3204)
Agency Follovup official (3304)
Lore Culver, Audit Liaison for the Office of Administration
and Resources Management (3102)
Joyce Bay, Audit Liaison for the Office of Prevention,
Pesticides and Toxic Substances (7104)
Rebecca Brooks, Audit Liaison for the Office of Solid Waste
and Emergency Response (5101)
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be: Ron Bachand (3303F)
Beclcy PredricXs (8401)
Brae* Faldman (3901F)
Vine* Martin (3901F)
Tarry Overmen (3302)
Debbie Ingram (3303P)
Kan Wetzel (7502C)
Len Bechtal (3303F)
NatiTttftn Rose (3903F)
Tern Pastor* (3204)
Ann Linnertz (3204)
Dan Dallapenta (3204).
Hate Lewis (3204)
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ATTACHMENT A
GENERAL COMMENTS RAISED IN THE
DRAFT AUDIT REPORT E1S7L4-20-8001; PISCAL 1994
FINANCIAL STATEMENT AUDIT
OF EPA'S TRUST FlIUDS, REVOLVING FUNDS
AND COMMERCIAL ACTIVITY
Although we generally agree with many of the point*
contained in the draft audit report, we have four concern* that
we would like to chare with you. These are as follows:
Better explain the QIC's planned scops limitations,
Recognize that funding of grants with multiple
appropriations is a government-wide issue, . .
if ' '
Reclassify some material weaknesses and reportable
"' conditions, and . : .
Use alternative procedures to obtain required audit
evidence. "... "..''., _.- ' r
We believe the final report should clearly depict and better
explain the reasons for the planned audit scope limitations, such
as. not auditing cost allocations from other funds. We think this
is very important because, in Many instances these planned scops
limitations were the sole cause or a major cause for disclaiming
or qualifying an opinion on one or more financial statements for
each of the funds audited. Since many of the people who will
read this audit report may not be familiar with audit
requirements, they may incorrectly conclude that EPA's financial
management has major deficiencies, which is not the case. This
is, a very important concern to us. . .
With regards to grants that are funded by multiple . .
appropriations, we'believe the audit report should recognize that
identifying which appropriation should be charged when payments
are made is not only an EPA problem. Other agencies also have
this problem, as the OIG has acknowledged on several occasions
when we have discussed this issue. By recognising that this
issue is not a single agency issue, perhaps OMB and the affected
agencies can begin to work together to address this important
issue. Also, the OIG should acknowledge that we have always made
a special effort to correctly identify specific Superfund funding
in these types of grants.
1 We also think that the OIG did not always consistently apply
the criteria contained in OMB Bulletin J>3-06a Audit Regu.1 Founts'
for Federal Financial Statements in classifying internal control
weaknesses as either material weaknesses or reportable
-------
r
conditions. As a result, some items were classified as material
weaknesses when they should have been treated as reportable
conditions* such as the findings relating to accounts payable and
accrued liabilities and agency reporting systems. While we agree
that these two items warrant being treated as reportable
conditions, we do not think they are significant enough to be
considered material'weaknesses. :
In addition, some Items were classified as reportable
conditions that do not warrant such classification, in particular
the findings that XFM5 and EPAYS processing controls could not be
assessed, and that project officers are not receiving information
needed to monitor interagency agreements. In both of these
instances we do not think.the evidence supports these
conclusions, treating these two findings as Management Letter
points would seem more appropriate.
Finally,- we wish to encourage the OIQ to use alternative
audit procedures when it has problems obtaining sufficient audit
evidence. For example, for several funds* financial statements
the OI6 either disclaimed or qualified its opinions because it
believed the accrued liabilities and grantee expenses amounts .
were not fairly presented. We believe that If the DIG had
examined subsequent disbursements after year-end, it could have
obtained sufficient evidence to determine if the amounts were
fairly presented or recommended audit adjustments that would make
the amounts fairly presented. We hope that the OIO will consider
using such audit procedures next year..
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ATTACHMENT B
RESPONSE TO RECOMMENDATIONS
DRAFT AUDIT REPORT E1SFL4-20-80011
FISCAL.-1994 FINANCIAL STATEMENT AUDIT
OF EPA'S TRUST FUNDS, REVOLVING FUNDS
AND COMMERCIAL ACTIVITY -- .
The following represents the Office of Administration and
Resources Management (OARM), Office of Prevention, Pesticides,
and Toxic Substances (OPPTS), and Office of Solid Waste and
Emergency Response's (OSWER) consolidated response to
recommendations in the draft audit report of Fiscal 1994
Financial Statement Audit of BPA's Trust Funds, Revolving Funds
and Commercial Activity. We have grouped our comments and
responses to the recommendations as they appear in the report.
MCOMimroATTQHS/iaSPQIISg
r» Panai"£ on Tntaimal Control tMatari al
1.0 Additional Information and Reports Would Allow agemey
Officials to Mere Iffestively Manage Financial Activities
1.1 Recommend that the Chief Financial Officer provide fini
offices with procedures they can use to analyze account
balances to identify potential errors. .
We do not agree with this recommendation, we believe that
additional analytical procedures do not have to be developed for
the regions at this time given our planned actions, as described
below. ' .
Rather, we believe a general ledger report by accounting
point will enable resolution of such problems that have been
identified in the audit report. This type of report along with
the general instructions provided to the Financial Management
Officers (FMOs) should be sufficient to detect potential errors.
Once the FMOs have their own general ledger report by servicing
finance office (SFO), they.will be responsible for the accuracy
and reliability of their account balances. As discussed with the
OI6 staff, this action will be much more effective than the
proposed QIC recommendation. By August 1995, we plan to have the
general ledger report by SFO in place. Furthermore, the revised
Quality Assurance Program will emphasize the testing of account
balances. In fact, we have developed a statistical sampling
program to be used in support of testing and 'analyzing account
balances for the purposes of detecting any potential errors.
We would like to point out that the audit concentrated on a
limited number of accounts such as receivables (which was
corrected before year end), accounts payable and accrued
-------
liabilities. We do agree further communication between the SFOs
and headquarters needs to occur to assure the accuracy of the
liability accounts in question. We will address this issue
during fiscal year 1995. Further, once we have general ledger
reports by SFO, we believe that all the problems identified by
the audit will be more easily identifiable and addressed by the
FMOs where applicable without additional procedures from
headquarters.
1.2 Recommend that the Chief Financial officer determine why
individual obligations in MARS do not match the IFMS amount
and take appropriate corrective action.
We agree with this recommendation. We will perform further
analysis of the causes for the MARS individual- records not
matching the IFMS amount. However, our preliminary analysis .
provided to the auditors shows that MARS reconciles in total
MMfffc**0^ obligation balances frfc fch* fund level.
Individual record discrepancies are mitigated by adding
together several MARS records to produce the document totals
shown in IFMS. In the past, these discrepancies have been traced
to: -(I).having the obligation entered under one SFO code with the
disbursement occurring in a different SFO, (2) the absence of the
originating document control number from the commitment document,
or (3) another obligation document number used for contracts.
Much of the mismatched data seems also to be traceable to data
conversion problems from the FY 89 start-up documents. These
circumstances produce individual records within MARS, which when
.added together at the obligation document number, level, will
balance to the IFMS amounts. We will continue our.-research on
these discrepancies.
We are performing analysis of whether alternative reporting
methods can be used to provide accurate listings of the
outstanding obligations. After completion of this analysis, we
will determine an appropriate corrective action plan.
- Determine corrective action.
8/30/95
2.0 Property Balances included in the Agency's financial
Statements could Vet be Audited
2.1 Recommend that the Chief Financial Officer revise the
Agency's capitalization policies and procedures to assure
that disbursements necessitating capitalization are being
identified and properly capitalized.
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We agree with -the auditors that curtain policies and
procedural changes related to tha capitalisation of Agency
property can be pursued prior to implementing the new Integrated
Fixed Asset System. As noted by tha auditor*1 report, a Quality
Action Team (OAT) was formed to review currant policiea and
procedures and to develop a plan to resolve reconciliation
problems between tha Agency's financial accounting and property
accountability
, our current plan, which was submitted, to the Agency's Senior
- Resource Committee during June, 1994, is to complete an analysis
of the property policy and procedural issues, and to issue
revised policies and procedures by December, 1995. .The
implementation of the Fixed Asset System is scheduled for July,
1994V - . - " ' , ' - ; " . . ' - -
We believe this tlmeframe is reasonable to ensure that any
policy and procedural changes the Agency makes at this time will
.effectively address the longstanding issues in this area. We
have also considered the fact that the Financial Accounting
Standards Advisory Board (FASAB) is in tha process of issuing
revised standards for federal property accounting. The new FASAB
standards could establish major changes in current general
accepted government accounting principles* .
lotion ' ' . . * - -" "tenet Date
- Complete analysis of policy and procedural 07/31/95
- issue draft policy revisions. 10/31/95
- issue interim revised policy. 12/31/95
-Issue final policy directive. ; 09/30/96
3.0 improvements Heeded in Recording Accounts Payable and
Accrued Liabilities
3.1 Recommend that the Chief Financial Officer provide specific
guidance* in future year-end closing instructions concerning?
(1) the appropriateness of using averages to obtain accrual
balances, and (2) the need to analyze unusual account
balances (e.g., liability accounts with debit balances).
We do not fully agree with this recommendation. This issue
centers on actions taken by two finance offices that were not in
full compliance with the year-end closing instructions. One of
the finance offices has already indicated that tha questionable
process used in FY 1994 will not be used again in FY 1995. Tha
other finance office has indicated that it will conduct a review
to determine whether the Commodity Tracking System should be
-------
utilized for determining accrual balance*. Therefore, thi«
portion of the recommendation dealing with the use of average* is
a aoot point. .
Also, we do not believe that this issue is material. The
audit report cites a net $833,000 misstatement for. Superfnnd,
LOST, oil Spill, and FXFRA funds. Given that the problems
centered around the use of the Commodity Tracking 'System by the
two finance offices, we believe this problem is not applicable to
other finance offices. .
The portion of the recommendation requiring the Chief
Financial Officer, to provide specific guidance in future year-end
closing instructions concerning the need to analyse unusual
account balances (e.g., liability accounts with debit balances)
does not resolve the problem of unusual account balances. This
problem, and the appropriate action that we feel should be taken
to correct it, are addressed in recommendation 3.2. However, we
will continue to work to improve our accrual procedures.
t -
3.2 Recommend that the Chief Financial Officer determine why
liability accounts, particularly Federal Accounts Payable
and Federal Accrued Liabilities, had debit balances, and
make any necessary adjustments to the account balances.
We agree with this recommendation. However, the audit
finding does not provide us with an analysis of why there are
unusual account balances. The audit report suggests that the
problems are caused by users of IFMS during the input process.
We do not believe this is the case.
Our analyses at this time have indicated that the problem
was the result of incorrect mapping within IFMS and differences
between IFMS version 3.0 and 5.1. The federal accounts payable
account with a debit balance was the result of certain travel
vouchers'being correctly vouchered as a non-federal accounts
payable but being incorrectly certified by the Treasury schedule
confirmation process as a federal accounts.payable due to
erroneous mapping in IFMS. This problem has been 'corrected for
future transactions,' and actions are being taken to correct
historical general ledger data.
The other problem is in the handling of travel in IFMS due
to differences between IFMS version 3.0 and 5.1. To facilitate
conversion, a number of transactions were processed in ZFMS at
the time of 5.X conversion related to open travel documents in
3.0. These documents resulted in debit balances being entered
against federal accrued liabilities. This problem was identified
during fiscal year 1994 and we are now in the process of taking
irrective action.
Corrective Xotion Teroet
-------
- Reverse erroneous transactions processed to
facilitate 5.1 conversion.'
- Determine system fix to travel conversion.
- Determine IFMS transaction amounts for TP01
processed through 9/30/94 with ADO 1 mapping.
* Process corrections in IFMS.
- Make IFMS account
!tions between Federal
and Non Federal Accounts Payable.
- Review results of coi
rtions.
03/31/95
03/31/95
06/30/95
08/31/95
09/30/95
09/30/95
4.0 Grantee Payment Requests do not Provide
Information
veeessazj Aooouatiag
4.1 Recommend that the Chief Financial Officer require a clause
in 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, from any appropriation, the clause should state that
the finance off ice. 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.
We do not fully agree with this recommendation. EPA will
determine which grant awards need to have special accounting .
performed because of mandates by statute or regulation; in these
awards, EPA will require the grantee to provide special account
identification. Furthermore, we have always made a special
effort to correctly identify specific Superfund funding in these
types of grants. In all other cases, the individual finance
offices will determine the method of accounting for payment made
to the grantees. We will prepare a policy explaining this
procedure by September 1995.
lotion
Dati
09/30/95
- Prepare a policy on how payments are to be
charged to multiple appropriation grants. .
S.o accounting for superfund Receivables has Improved
5.1 Recommend that the Chief Financial Officer emphasize in
year-end closing instructions to the finance offices the,
importance of notifying the Headquarters Financial
Management Division if receivables are identified after
fiscal year end, so the financial statements can be adjusted
-------
to reflect these unrecorded receivables.
At a January 26, 1995 meeting with the OZ6 staff to discuss
the findings related to accounts receivable, we suggested that we
instruct the finance: offices to notify the Financial Management
.Division of accounting transactions posted in the new fiscal year
which relate to accounts in the prior year. Ibis will allow, for
.example, receivables identified after the close of the fiscal
year to be classified properly for the financial statements.
OI6 agreed with our planned action.
Corrective motlom '
- Include special steps in the year-end
instructions for FY 1995.
Ot/31/95
5.2 Recommend that the Chief Financial Officer emphasise in
year-end closing instructions to the finance offices the
importance of identifying potentially uncollectible
receivables and including these receivables in the
calculation of the allowance for doubtful accounts. .
We do not agree with, this recommendation. This is not a
systemic issue; 'rather, it is a case of errors and omission made
by two finance offices. In FY. 1994, we implemented a FY 1993 CFO
Financial Statement Audit recommendation made by the OIG staff to
change our procedure for calculating the allowance for doubtful
accounts. As a result, we required ail the Financial Management
Offices (FMOs) to do a quarterly review of their allowance for
doubtful accounts using the new procedure and to submit a
certification at year-end that they have complied with this
process. We did not find in the audit report any indication that
these procedures were inadequate; rather, only two finance
offices made "various errors and omissions*1 totaling $346,701
which is not a material amount given the allowance account
balance of $213 millon. However, we do believe that additional
emphasis is needed. . .
We also do not agree with the OIG's classification of this
issue as being a material weakness; rather, we believe it should
be classified as a reportable condition given the insignificant
amounts involved. ,
Date
03/15/95
- Emphasise in the quarterly memo to the
FMOs the importance of due professional
care and accuracy in their identification .
and calculation of the allowance for doubtful
accounts.
c.o BP& Meeds to Record superfund State Cost Share Credits
- ' . - ' 6 . ' . , '
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6.1 Recommend that the Chief Financial Officer determine if
other .state cost share credits exist, and assure the credits
are properly recorded.
6.2 Recommend that .-the Chief Financial Officer develop guidance
for recording Superfund state cost share credits in IFNS.
* /**.-
We do not fully agree with this recommendation. We do not
necessarily believe that a liability exists as described in the
audit report. A credit situation arises when a state seeks to
satisfy its cost share requirement using credits in lieu of
payment directly to EPA. Typically, a credit consists of a state
expending its own funds on a portion of the site response
activities. From EPA's financial perspective there is no
financial liability to the state; it is only a recognition that
the state cost share will be met using the credit* There is also
no effect on EPA's financial liability to pay response costs; EPA
will pay all response costs regardless of whether the source of
funding is 100% Superfund appropriated funds, or 90% appropriated
with 10% state funds either through state cash payments or
through state credits as described above.
However, we agree that.state credits' should be tracked and
monitored by the Agency to ensure that the state cost share
requirement is fulfilled. We will work with the Office of
Emergency and Remedial Response (OERR) to determine whether
additional guidance to this effect is necessary, m addition, we
agree to analyse this issue further to determine whether any
accounting policy changes are.warranted. Before committing to
any final decision we believe the materiality of such credits
with respect to the financial statements needs to be considered.
Accordingly, as recommended in the report, we will .determine the
number, amount, and status -of state credits.-
corrective Aetiom " Tifglt Pate
- Identify existing state credits. 06/30/95
- Determine need for policy. . 07/31/95
< / '
- Issue final guidance to regions if 03/31/96
necessary. ---. '
7*0 Processing controls for the integrated Financial manag<
system and the EPA Payroll system could mot be Assessed
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7.1 Recommend that the Chief Financial Officer make a commitment
to commence development of technical system documentation
for its application ay*terns' transaction processes.
Me do not fully agree with this recommendation. One of the
opinions expressed in the- draft audit report was that there was a
lack of technical system documentation" which adequately
described" data flow within the system. As the OXG staff
recognizes, we provided over 1,500 pages of technical system
documentation, including flow charts, during the course of the
investigation. We are especially concerned that the report
agrees that this documentation "will require extensive review and
analysis," yet the OXG has already disclaimed an opinion because
of "lack* of "adequate" documentation. .
Furthermore, we are concerned about the cost-effectiveness
of having 30 Federal agencies prepare documentation of
essentially, the same system. That software was warranted to
comply with GSA and JFHIP requirements before it became available
as Commercial Off the Shelf Software. We believe that we should
not duplicate the similar* efforts mentioned in the report (at Dol
and GAO).
Nevertheless, we understand that documentation for any
computer software is an area for continuous improvement. We are
encouraged by the OIG's offer to work cooperatively on the matter
and follow our suggestion of starting by narrowing the global
requirement to initiating documentation within specific
sections.11 . : - '
To that end, our Corrective Action involves OXG by asking
them to identify specific deficiencies in existing documentation.
It also uses a joint effort during subrelease testing to employ
self-documenting aspects of the software, such as program (source
code), documentation and system options tables, these additional
materials will help the Agency in reviewing the current .
documentation available for researching specific accounting
events. . ' ''"": : .
Corrective Action
- Meeting between OIG's ADP Audits staff, FMD,
ASD, and others to identify specific
deficiencies in existing documentation and
ensure that all documentation has been provided.
- Joint OIG-FMD documentation of a specific set
of accounting events using the Test environment
during subrelease testing. ' ' .
Pate
05/01/95
07/15/95
s.o Controls over Security and Data Integrity la the Asbestos
Receivables Tracking System Weed to be Strength
8
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8.1 Recommend that the Chief, Las Vegas Financial Management
Center install on the ARTS PC security software and a
virus* protection program.
We agree with this recommendation. We are currently
assessing the most effective means to provide system security
either through a software package, or user ID/password
capability. Also, we are in the process of obtaining a site
license for virus protection software. .
Corrective motion ' . >
- Obtain virus software and test it.
02/28/95
04/30/95
05/31/95
07/31/95
09/30/93
- implement virus software. -. ~ , .
- Evaluate appropriate security/data integrity
software.
- Obtain and test security software. '
-Implement security/data integrity software.
8.2 Recommend that the Chief, Las Vegas Financial
Center develop written policies and procedures describing
ARTS backup, recovery, and contingency planning techniques
to conform with Federal Information Processing Standardsi
establish procedures regarding regular backup of ARTS loan
data and programs r and maintain ARTS data and program
backups in a secure off-site location.
We agree with this recommendation. We believe that there is
a need for written policies and procedures for ARTS* and we are
incorporating the required procedures and policies in the ARTS
Users and Systems documentation currently under development.
This documentation will include the specifications/requirements
for regular backup, recovery, contingency plans, and security of
such backups and program data. ..
Corrective Action ' ' -
- Review and issue draft policies and
procedures..
- Implement: revised policies.and .
procedures..
Ttrget Pttf
10/31/95
01/31/^6
8,3 Recommend that the Chief, Las Vegas Financial Management
Center provide for the testing and implementation of the
electronic interface between ARTS and IFMS.
-------
We agree with this recommendation. The interface is
currently under development jointly with the Financial systems
Branch (FSB) with testing and implementation as described in the
revised EPA Financial Management Status Report and Five-Year
Plan.
corrective Action .
- Identify IFMS interface programming .
requirements.
- Complete redesign and programming. 03/31/95
- Develop additional reporting requirements. ' 04/30/95
- Complete programming including IFMS interface. 07/31/95
- Test and approve system operational 08/31/95
capability. .
- Implement ARTS. :-.. 09/30/95
8.4 Recommend that the Chief, Las Vegas Financial Management
Center establish and maintain a comprehensive and cohesive
change tracking system which will track all software changes
made to ARTS. The tracking system should sequentially
number all software change requests and ensure that requests
which are grouped together for subsequent implementation
maintain their individuality. Also, the software change
tracking system should require pertinent data* '-such as: (a)
change request number; (b) problem description/justification
for the change; (c) type of change; (d) date requested; (e)
date resolved; (f) affected programs/modules; and (g)
comments field for referencing associated change requests.
We agree with this recommendation. During January 1995, we
implemented a change request tracking system for ARTS.
9.0 Project officers were mot Receiving Information Weeded to
9.1 Recommend that the Chief Financial Officer ensure training
is provided to IAG project officers on monitoring costs and
reviewing invoices.
We agree with this' recommendation. The project officer's
training class developed by the Grants Administration Division
(GAD) made clear the need for project officers to monitor costs
and progress on grants and Interagency Agreements. The
Interagency Agreement module of the training course also
explained the statutory basis and special requirements applicable
to Interagency Agreements. Ho further action is necessary at
10
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' this time. '
9.2 Recommend that the Chief Financial Officer ensure clauses
are included in lAGs that require other agencies to provide
EPA project officers with information on costs incurred and
progress on projects.- . .
"* *
We agree with this recommendation. The.Director, Grants
Administration Division (GAD), will draft and distribute.to
project officers clauses which will be added to all Interagency
;V Agreements. These clauses will require other Agencies to provide
more detailed information on the progress on projects and costs
incurred.
Corrective Action 9
- Issue draft of clauses for comment. 05/05/95
1 *
- Issue completed version of clauses to project 07/07/95
officers.
9.3 Recommend that the Chief Financial Officer inform IAG
project officers that they should: ' \ .
*
a. inform the'Grants Administration Division when required
information is not provided in a timely Banner.
We agree with this recommendation. The Director, Grants
Administration Division (GAD), will distribute a "Fact Sheet*
which will inform all Agency project officers to notify GAD when
required information is not submitted in a timely manner.
Corrective Action . ' Target Pete
- Distribution of "Fact Sheet* to all 05/05/95
Agency project officers. . .
b. complete the approved dollar amount section of the
Project Officer Invoice Approval Form* ; .
We agree with this recommendation. The Director, Grants
Administration Division (GAD), will distribute a "Fact Sheet*
which will inform all Agency project officers to complete the
approved dollar amount section of the project officer invoice
approval foi
Corrective Action . Target Pate
- Distribution of "Fact Sheet* to all 05/05/95
Agency project officers.
10.0 A Comprehensive Agency-wide Policy OB Indirect Costs Should
N ' " . .
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be Impl
ited
10. 1 Recommend that the Chief Financial Officer develop and
implement an Agency-vide
allocating indirect coats
implement an Agency-vide policy for identifying and
ir
We agree in principle with this recommendation. We believe
there is a need to develop cost accounting policies for the
identification and allocation of indirect costs. However, for
the reasons listed below, we also believe it is premature at this
time to commit to a corrective action plan with specific
milestones: .
with respect to the Agency's method for assigning costs
to appropriation, BPA's appropriation structure imposes
statutory and budgetary requirements that preclude the use
of consistent cost allocation methods. Principles of
, appropriation lav, as veil as specific provisions contained
in ZPA's appropriations, may effectively prescribe
accounting methods which do not necessarily reflect
generally accepted cost accounting principles. As
acknowledged in the audit report, specific ceilings in EPA's
appropriation (such as the limit on .the amount of
administrative expenses paid out of the Suparfund
appropriation) also.govern how EPA must account for its
expenditures. , ' - -
* The audit recommendation focuses on.developing indirect
cost allocation policies. . The notion of what constitutes an
indirect cost is directly related to an organization's final
and intermediate cost objectives. A certain expense may be
considered a direct cost for one purpose and an indirect
cost for another. Therefore, we believe that before
indirect costs can be determined and allocated, the Agency
must first develop direct cost accounting by identifying its
final and intermediate cost objectives.
Any development of cost accounting - both direct and
indirect costs - must consider the requirements of the .
Government Performance and Results Act and EPA'i
of the Working Capital Fund as a new means of financing'
certain administrative functions. This was acknowledged in
the audit Position Papers but not in the draft audit report.
We have in place .a team working on developing a working
Capital Fund which is to address some of these issues. The
Working Capital Fund is scheduled to be implemented in FT
1996.
The Federal Accounting Standards Advisory Board (FASAS}
has recently issued an exposure draft on Managerial Cost
Accounting Standards for the Federal Government, and the
Joint Financial Management Improvement Program is in tne
12
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.process of developing cost accounting system requirements
which will support the FASAB standards.
In addition, the draft audit report does not sufficiently
acknowledge the policies and procedures in place for a number of
years to .account for direct and indirect costs of cleaning up
Superfund sites. This matter was previously discussed with the
DIG staff, and we believe that it should be mentioned in the
audit report. . . .
To conclude, 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 i*e update our Five-Year Plan.
corrective Action Target Date
- Begin development of a strategic 05/31/95
action plan to determine and meet cost .
accounting requirements. The plan will
specifically integrate system development,
policy development, and user needs.
- Complete and publish the action plan 09/30/95
in the CFO Financial Management Status . . . .
Report and Five-Year Plan. -
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