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Office of Inspector General
Audit Report
EPA's CHANGING BUDGET PROCESS:
OPPORTUNITY FOR IMPROVED
FINANCIAL MANAGEMENT
E1AMF5-07-0026-6100300
September 25,1996
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Inspector General Division
Conducting the Audit: Central Audit Division
Kansas City, Kansas
Regions Covered: Regions 2,4, 5, 7, and 8
Program Offices Involved: Office of Administration and
Resources Management
Office of Air
Office of Water
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
September 25, 1996
OFFICE Of
MEMORANDUM : THE .NSPECTOR GENERAL
SUBJECT: EPA's Changing Budget Process: Opportunity for Improved
Financial Management
Audit Report No.El AMF5-07-0026-6100300
FROM: Michael Simmons
Deputy Assistant Inspector General
for Internal and Performance Audits
TO: Sallyanne Harper
Acting Chief Financial Officer
We have completed our audit of the Environmental Protection Agency's (EPA) budget
process and are recommending actions that we believe will improve the accuracy and reliability
of personnel resources budget, and related cost information. We commend the Agency on its
ambitious Planning, Budgeting, and Accountability initiative to dramatically change the way
EPA does business. The findings in this report should be useful as EPA makes decisions
regarding the future direction of its budget process and related financial management activities.
This audit report contains findings that describe problems the Office of Inspector General
(OIG) identified and corrective actions OIG recommends. This audit report represents the
opinion of OIG and the findings contained in this audit report do not necessarily represent the
final EPA position. Final determinations on matters in this audit report will be made by EPA
managers in accordance with established EPA audit resolution procedures. We have no
objections to the further release of this report to the public.
In accordance with EPA Order 2750, please provide this office a written response to the
audit report within 90 days of the final report date. For corrective actions planned but not
completed by your response date, reference to specific milestone dates will assist us in deciding
whether to close this report.
We would also like to take this opportunity to thank your staff for their cooperation.
Should you or your staff have any questions about this report, please call Bennie Salem,
Divisional Inspector General for Audit, Central Audit Division, at (913) 551-7831.
Attachment
Recyctedfttecydabie
Printed with Soy/CanolB Ink on paper that
contains M tent SOK recycled fib«r
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EXECUTIVE SUMMARY
PURPOSE
The direction of today's Federal Government is toward improved
financial management. The Federal Government is fundamentally
changing the way it manages the public's resources. Recent
legislation has provided for improved .quality of financial
information. This legislation will improve the link between budget
and accounting information. The chief benefit of improving this
linkage will be to increase the reliability of the data on which
management and budgetary decisions are made.
The overall purpose of the audit was to determine if the
Environmental Protection Agency's (EPA) budget and related cost
information for personnel resources represented planned and actual
use. This report consolidates the findings of five regional and two
program office reviews and incorporates the findings from the
report issued July 9, 1996, titled Budget Process: The Activity
Structure. (Appendix I lists the reports, report dates, and office
locations.)
RESULTS IN BRIEF
EPA's budget practices and procedures were generally effective at
the appropriation level and ensured that EPA complied with the
statutory requirements for funds control. However, a pattern of
errors in EPA's budget practices and procedures indicated that
budget and cost information for program level personnel resources
was not valued as useful information and did not ensure that EPA
complied with congressional intent. As a result, Agency managers
relied on inaccurate information in developing budget requests.
Given the change in focus of the financial environment in the
Federal Government, EPA has an opportunity to make needed
improvements in its budget practices and procedures.
EPA has recognized this opportunity and launched a new initiative
to develop a Planning, Budgeting, and Accountability (PBA)
system. The PBA system is being developed to better link long-
term environmental planning with budget and accountability
systems. This initiative presents the Agency with an opportunity to
fundamentally change the way it plans, budgets, accounts for, and
manages activities performed. The Agency has recognized that two
critical elements for the PBA system's success are delegating
Report No. E1AMF5-07-0026-6100300
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performance and accountability throughout all levels of the Agency
and obtaining employee buy-in.
PRINCIPAL FINDINGS
Regional Personnel
Resource Budgets Did
Not Always Reflect
Planned Use
Reprogramming Errors
Diminished the
Usefulness of Program
Information
Regional Personnel Costs
Were Inaccurately
Accumulated and
Reported
Inconsistently Defined
Program Elements
Hampered the Usefulness
of EPA's Budget
Structure
EPA's regional personnel resources in the Agency's approved
budget did not always reflect planned use. Regions did not
reprogram personnel resources in their portion of the Agency's
budget. Further, EPA used outdated workload models to allocate
personnel resources to the regions. As a result, the regional
workyears and personnel funds were misstated in the Agency's
budget approved by Congress. National Program Managers (NPM)
then used the misstated budget information to develop future
budget requests.
The Budget Division had comprehensive reprogramming
procedures. However, EPA's reprogramming procedures did not
require NPM notification for changes to program budgets for which
the NPM had overall responsibility. Further, we noted several
errors in implementing the 1994 and 1995 reprogrammings.
Reprogramming justifications did not consistently identify the
program impact on the losing program. Regions monitored
personnel resources at the appropriation level rather than the
program level. EPA did not obtain required congressional approval
of one fiscal 1994 reprogramming. These errors diminished the
usefulness of the related program information.
The Agency's implementation of recent Integrated Financial
Management System updates and changes in Agency directives
increased the accuracy of personnel resource costs. However, we
noted significant errors in two of five regions' charging of
personnel costs which caused the misstatement of reported program
level personnel costs. The misstated program cost information was
used to develop subsequent program budgets.
EPA attempts to provide program cost information through the
budget structure. However, the realities of the budget process led
to inconsistencies in the budget structure and diminished the
comparability of program budget and cost information. The budget
structure is complex and has been hampered by the inconsistent
creation of program elements. Further, the current budget structure
cannot efficiently capture the information required to implement the
Government Performance and Results Act of 1993 as the activities,
for which goals and related measures are being proposed, are not
Report No. El AMF5-07-0026-6100300
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The Budget Division
Lacked Documentation
To Support
Congressional
Notification of Agency
Reserve for
Contingencies
always equivalent to existing program elements. The Agency
recognized this and is working on plans to restructure the program
elements. EPA plans to accomplish this restructuring as a part of
the new PBA system.
EPA held $53 million in reserve for contingencies and as fiduciary
reserves in the initial fiscal 1995 operating plan. Of this amount,
$28 million, in 11 accounts ranging from $71,000 to $6.6 million,
remained in reserve at the end of fiscal 1995. The Budget Division
was unable to provide support that Congress was notified of the
contingency reserve as required by the Impoundment Control Act.
The Budget Division, also, was not able to provide support for the
rationale and methodology for specific reserve calculations.
RECOMMENDATIONS
As a part of EPA's PBA initiative, the Acting Chief Financial
Officer (CFO) needs to ensure that the program budget and cost
information used for budgeting and performance measurement is
accurate, timely, and useful. The Acting CFO needs to ensure
EPA's budget practices and procedures address the need for
accurate and reliable program information, are consistently
implemented, and include controls to identify procedures not
followed.
AGENCY COMMENTS
AND OIG
EVALUATION
The Acting CFO generally agreed with the findings and provided
comments to clarify some issues. The Acting CFO agreed in part to
timely notify NPMs of reprogrammings for programmatic reasons.
We disagreed on the timing and method of this notification. The
Acting CFO also agreed with the recommendation to document the
rationale and related calculation of all funds held in reserve and
provided information to clarify the finding. However, the Acting
CFO did not provide information which disproved our position that
funds held in reserve for contingencies constitutes a deferral and
require congressional notification. Thus, we recommend the
Agency obtain an Office of General Counsel written opinion why
such a notification is not required.
Report No. E1AMF5-07-0026-6100300
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TABLE OF CONTENTS
EXECUTIVE SUMMARY i
CHAPTERS
1 INTRODUCTION 1
PURPOSE 1
BACKGROUND 1
SCOPE AND METHODOLOGY 4
PRIOR AUDIT COVERAGE 5
2 EPA HAS AN OPPORTUNITY TO MAKE NEEDED IMPROVEMENTS IN
BUDGET PROCEDURES 6
REGIONAL PERSONNEL RESOURCE BUDGETS DID NOT ALWAYS
REFLECT PLANNED USE 7
REPROGRAMMING ERRORS DIMINISHED THE USEFULNESS OF
PROGRAM INFORMATION 10
REGIONAL PERSONNEL COSTS WERE INACCURATELY
ACCUMULATED 14
USEFULNESS OF EPA'S BUDGET STRUCTURE IS HAMPERED BY
INCONSISTENCIES 17
DELEGATION OF PERFORMANCE ACCOUNTABILITY AND
EMPLOYEE BUY-IN ARE CRITICAL TO PBA SYSTEM SUCCESS .... 18
THE BUDGET DIVISION LACKED DOCUMENTATION TO SUPPORT
CONGRESSIONAL NOTIFICATION OF AGENCY RESERVE FOR
CONTINGENCIES 20
CONCLUSION 21
RECOMMENDATIONS 22
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AGENCY COMMENTS AND OIG EVALUATION 23
ATTACHMENTS
ATTACHMENT!:
ATTACHMENT 2:
APPENDICES
APPENDIX I:
APPENDIX II:
APPENDIX III:
APPENDIX IV:
FISCAL 1994 REPROGRAMMINGS GREATER THAN
$500,000 : 25
FISCAL 1995 REPROGRAMMINGS GREATER THAN
$500,000 26
PRIOR AUDIT COVERAGE 27
AGENCY COMMENTS 28
ABBREVIATIONS 33
DISTRIBUTION 34
Report No. E1AMF5-07-0026-6100300
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CHAPTER 1
INTRODUCTION
PURPOSE
The direction of today's
Federal Government is
toward improved financial
management. The Federal
Government is
fundamentally changing
the way it manages the
public's resources.
Recent legislation has
provided for improved
quality of financial
information. This
legislation will improve
the link between budget
and accounting
information. The chief
benefit of improving this
linkage will be the
increased reliability of the
data on which
management and
budgetary decisions are
made.
The overall purpose of the audit was to determine if the
Environmental Protection Agency's (EPA) budget and related cost
information for personnel resources represented planned and actual
use. This report consolidates the findings of five regional and two
program office reviews and incorporates the findings from the
report issued July 9, 1996, titled Budget Process: The Activity
Structure. (Appendix I lists the reports, report dates, and office
locations.)
Unfortunately, financial
accounting information to date
has not always been reliable
enough to use in federal decision-
making or }o provide the requisite
public accountability for the use
of taxpayers'money. Good
information on the fell cost of
federal operations isjreqitentfy
absent or eXtremefy[difficult to
reconstruct.. The good news is
that idols are nori:beingput in
place thai promise to get the
federal'government's'financial
house in order.
. Charles A. Bowsher
Comptroller General of the
United States
April 23,1996
BACKGROUND
Recent congressional actions have responded to the need for
fundamental changes in the financial management of the Federal
Government. The Chief Financial Officers Act of 1990 provided
for improved financial management and internal controls to assure
1
Report No. El AM F5-07-0026-6100300
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accurate, reliable, and timely financial information. In the same
year, the Federal Accounting Standards Advisory Board (FASAB)
was established by the Secretary of the Treasury, the Director of
the Office of Management and Budget (OMB), and the Comptroller
General. FASAB was created to consider and recommend
accounting principles for the Federal Government that will yield
more useful and relevant financial information. The Government
Performance and Results Act of 1993 (GPRA) will hold program
managers accountable for program results and improve
congressional decisionmaking by tying program budgeting and
spending to results.
Annually, Congress gives EPA a budget to operate programs that
protect human health and the environment. EPA derives its
spending authority from 10 appropriations which enable it to carry
out the missions specified in its authorizing legislation. EPA's
budget is a hierarchy with multiple levels including appropriations,
media (e.g., air, water quality, hazardous waste), and program
elements. Program elements identify funds for specific activities;
e.g., hazardous spill and site response and groundwater protection.
The budget is developed at the program level by individual object
class, and is the summarization of each allowance holder's budget.
An allowance holder generally heads an Agency region, office, or
division. Individual object classes are identified by a uniform
classification system throughout the Federal Government; e.g.,
personnel, compensation, and benefits (personnel), travel,
contracts, and grants.
National Program Managers (NPM) develop budget requests using
the current year budget and prior year, actual cost data for their
respective programs. The Budget Division consolidates the
program budget requests into the Congressional Budget
Justification (CBJ). Congress then uses CBJ and other information
provided by EPA to determine EPA's appropriations.
Upon the passing of EPA's appropriations law, the Agency has 30
days to provide Congress an operating plan (budget) which reflects
all congressional appropriation requirements. EPA's House and
Senate Appropriations Committees then approve EPA's budget.
The approved budget is the financial blueprint by which EPA
allowance holders operate.
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Congress recognized that program needs and priorities change after
it has approved the budget and provided-EPA authority, through
the annual appropriations act's legislative history, to reprogram
(move funds from one program to another). This reprogramming
authority is subject to congressional approval if the amount
reprogrammed into or out of a program exceeds $500.000.
EPA's Resources Management Directives (RMDS) 2510, Planning
and Budgeting, dated June 1987, and 2520, Administrative Control
of Appropriated Funds, dated June 1987 and revised exposure draft
dated February 1, 1995, guide EPA's budget formulation, review
and execution processes. These directives describe roles and
responsibilities for formulating and executing the budget and
provide guidance for carrying out those roles and responsibilities.
EPA recognized the need for a more stable and fully integrated
planning, budgeting, accountability, and evaluation system, and is
engaged in a far-reaching effort to fundamentally change the way
the Agency manages. In July 1995, EPA created a Planning,
Budgeting, and Accountability (PBA) Task Force to make
recommendations for such a change. EPA created this task force in
response to the congressionally commissioned National Academy of
Public Administration (NAPA) report, Setting Priorities, Getting
Results, which stated that EPA needed to change its planning,
budgeting, and accountability structure. NAPA recommended EPA
redesign and improve its management operations to support its new
directions in environmental protection. NAPA recommended the
Agency set priorities, allocate resources through both a budget
process and effective program management, ensure accountability
to Agency managers and Congress, and assess the results.
On March 5, 1996, EPA announced that it would develop a new
PBA system to dramatically improve the Agency's ability to
manage for environmental results. The PBA system will provide
information and structure for more informed decisions on
environmental priorities and the strategies that can best achieve
those results. The PBA system will link strategic planning, annual
performance planning, budgeting, and performance reporting. This
linkage will provide the Agency with the information needed to
focus efforts on the highest priority environmental issues and assure
efficient use of taxpayer dollars. This effort will take several years
to fully implement.
Report No. E1AMF5-07-0026-6100300
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The following chart illustrates EPA's $8.6 billion fiscal 1995
operating plan by major object class which includes $1.2 billion for
personnel resources. Our audit primarily focused on EPA's budget
processes related to personnel resources.
Fiscal 1995 Operating Plan
54.8% Grants
.6% Other
25.3%
Contracts
14.3% Personnel Resources
SCOPE AND
METHODOLOGY
We conducted our fieldwork between May 1995 and July 1996.
Our Headquarters fieldwork covered EPA's budget processes for
fiscal 1994 and 1995.
We interviewed responsible Agency officials in the Office of
Administration and Resources Management (OARM), the Office of
Air (OAR), and the Office of Water (OW), in Washington, D.C.
We reviewed applicable laws, regulations, directives, and other
Agency guidance. We reviewed various documents given to us
related to the Agency budget processes and activities, including
workload models, and PBA system announcements and task force
reports.
We obtained and analyzed resource information (both budgeted and
actual cost) from EPA's accounting system, the Integrated Financial
Report No. El AMF5-07-0026-6100300
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Management System (IFMS). However, we did not assess the
reliability of the computer processed data from the accounting
system and related reporting system (the Management and
Accounting Reporting System), since the assessment is made as
part of the audit of the Agency's financial statements.
We obtained a download of all Agency reprogramming transactions
for the audit periods and analyzed those reprogrammings which
individually met the congressional reprogramming requirements.
We performed our audit in accordance with Government Auditing-
Standards (1994 revision) for performance-related audits issued by
the Comptroller General of the United States. The findings in this
report include control weaknesses identified during the audit and
our recommendations to correct the weaknesses, when appropriate.
No other issues came to our attention which we believed were
significant enough to warrant expanding the audit scope.
We consolidated the findings of the five regional and two program
office reviews and incorporated the findings from the report issued
July 9,1996, titled Budget Process: The Activity Structure.
(Appendix I lists the reports, report dates, and office locations.)
PRIOR AUDIT Office of Inspector General (OIG) and the General Accounting
COVERAGE Office have not issued audit reports in this area prior to this
nationwide audit.
Report No. ElAMF5-07-0026-6100300
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CHAPTER 2
EPA HAS AN OPPORTUNITY TO MAKE NEEDED
IMPROVEMENTS IN BUDGET PROCEDURES
EPA's budget practices and procedures were generally effective at
the appropriation level and ensured that EPA complied with the
statutory requirements for funds control. However, a pattern of
errors in EPA's budget practices and procedures indicated that
budget and cost information for program level personnel resources
was not valued as useful information and did not ensure that EPA
complied with congressional intent. Regional personnel resource
budgets did not always reflect planned use. Reprogramming errors
diminished the usefulness of
program budget information.
Regional personnel costs were
inaccurately accumulated and
reported. The usefulness of
EPA's budget structure is
hampered by inconsistently
At the core of every.decision
made by the Agency is the
need for timely, accurate,
and meaningful information.
EPACFO
. Strategic Plan for
Resources Management
March 21,1996
defined program elements. As a
result, Agency managers relied
on inaccurate information in
developing budget requests.
Further, EPA had no
documentation to support that
Congress was notified of funds held in reserve for contingencies.
Given the change in focus of the financial environment in the
Federal Government, EPA needs to make changes in its budget
practices and procedures to emphasize and ensure the development
and reporting of accurate and reliable program level budget and
cost information.
A recent EPA initiative, development of the PBA system, is
addressing budget process improvements. The PBA system
initiative is being developed to better link long-term environmental
planning with budget and accountability systems. This initiative
presents the Agency with an opportunity to fundamentally change
the way it plans, budgets, accounts for, and manages activities
performed. The Agency has recognized that two critical elements
Report No. El AM F5-0 7-002 6-6100300
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to the PBA system's success are delegating performance and
accountability throughout all levels of the Agency and obtaining
employee buy-in.
REGIONAL
PERSONNEL
RESOURCE BUDGETS
DID NOT ALWAYS
REFLECT PLANNED
USE
EPA's regional personnel resources in the Agency's approved
budget did not always reflect planned use. Regions did not
reprogram personnel resources in their portion of the Agency's
budget. Further, EPA used outdated workload models to allocate
personnel resources to the regions. As a result, the regional
workyears and personnel funds Were misstated in'the Agency's
budget approved by Congress. NPMs then used the misstated
budget information to develop future budget requests.
The regions did not adjust their budgets to reflect planned use of
workyears prior or subsequent to congressional approval of the
budget. Workyears are used as the basis of the allocation of
personnel funds. Regional representatives said NPMs and budget
division representatives discouraged reprogramming workyears and
thus feared the region would lose workyears in total if the region
reprogrammed them. Budget Division representatives indicated
that Congress is concerned with level of effort and has purview
over dollars, not workyears, and were thus not concerned with the
reprogramming of workyears.
EPA distributed regional program workyears using outdated
workload models. EPA froze workload models in 1987, and for
the last 8 years prorated the 33.3 percent increase in workyears
using the workyear level for the prior year as the base. EPA froze
the workload models in 1987, because each year the Agency spent
an inordinate amount of time negotiating the distribution of
marginal workyear increases. As workload models were not
revised, they became outdated and could not be used to equitably
distribute regional workyears.
EPA budget directives provide guidance on allocating workyears to
the regions in developing the Agency budget. RMDS 25JO,
Chapter 2-2 states that EPA's budget justification is written at the
program level and not broken out by region. EPA then prepares
the regional distribution, using workload models, to develop the
Agency budget. EPA's structure requires some rational method for
deciding precisely how to equitably distribute workyears and funds
among the regions.
Report No. El AMF5-07-0026-6100300
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OARM did not use workload models to distribute regional
workyear changes from each prior year. Although OARM said it
had used workload models in prior years, it had no documentation
of 9 of its 10 workload models and could not have used its
workload models for regional distributions. Also, in 1995, OARM
did not develop a workload model for distributing 36 workyears
funded under the Regional Support Services program. These
workyears were converted from the non-ceiling stay-in-school and
intergovernmental personnel agreement (IPA) workyears to
permanent workyears. The Budget Division distributed the entire
36 workyears to Region 9, reasoning that Region'9 was the only
region using IPAs. No workyears were distributed to the regions
that had stay-in-school positions, and Region 9 only used 15 of the
36 workyears in fiscal 1995.
EPA's distribution of regional workyears resulted in the regions not
receiving resources where they planned to use them, as evidenced
by where the resources were actually used. For example, as shown
in Table 1, in fiscal 1991 to 1995 the regions collectively charged
more workyears to the regional management program elements for
both Program and Research Operations (PRO) and Superfund than
they received.
Table 1 - Fiscal 1991 to 1995 Regional Management Workyears
Comparison of Budget to Actual Usage
Yen
1991
1992
1993
1994
- 1993
PRO PRO Difference
Woikyor Wcnkjeu Ova
Budget ActmlUce -Under
199 246 47
203 238 35
195 258 63
200 250 50
252 269 17
SupcrfciKJ Sapetfimd Difference
Wnkyetr Woifcyou Ova
Budget Acbullfee -Under
68 97 29
70 107 ' 37
70 - 91 21
68 90 22
64 89 25
Total Total Difference
W«kyo» Wottyew Ova
Budget AetaiUte -Under
267 343 76
273 345 72
265 349 84
268 340 72
316 358 42
The allocation of regional management program workyears among
the regions did not reflect each region's needs as evidenced by their
fiscal 1995 actual usage, as shown in Table 2. The regional
differences between budget and actual use show that program
resources did not appear to be distributed to the regions based on
need. For example, Region 9 was allocated 30 of the PRO regional
management workyears and only used 20, while Region 6 received
only 20 workyears and used 34.
8
Report No. El AIMF5-07-0026-6100300
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Table 2 - Fiscal 1995 Regional Management Program Workyear Usage
Rcjioo
1
2
3
4
S
6
7
g
9
10
Total
PRO PRO DiSooHO
Wwijctr Wcdcyetr Over
Budget AauIUw -Under
30 . 36 6
25 32 7
34 28 -6
26 29 3
22 28 6
20 34 14
22 59 -3
22 21 -1
30 20 -10
21 22 1
252 269 17
Sopo&nd Supcrfbnd Diffataoe
Wockyew Wokjnr Ovar
BKfeM AdaiVm -Vain
S 6 1
9 14 5
8 13 5
7 16 9
11 10 -1
495
65-1
462
65-1
4 5 i
M 89 25
Total Told Difference
Wofcyesr Wmkytar Over
Bwfect Acted Uie -Under
35 42 7
34 46 12
42 41 -1
33 .45 12
33 38 5
24 43 19
28 24 -4
26 27 1
36 25 -11
25 27 2
116 ^58 42
EPA recognized the regional distributions were outdated due to the
significant shifts in regional workloads and revised the Agency's
five highest priority workload models for the fiscal 1996
distribution. We reviewed three of the revised workload models
and found two contained methodology weaknesses which could
bias the distributions. The workload models reviewed were
Wastewater Management and Technology; Superfund Contracts.
Grants, and Small Purchases; and Water Quality Financial
Assistance. The Wastewater Management and Technology
workload model did not contain apparent biases.
The revised Superfund Contracts, Grants, and Small Purchases
workload model contained methodology weaknesses in the
activities included in the model and the estimated resource
requirements for those activities. The workgroup which developed
the model did not do a review of program requirements to develop
the base level activities to be included in the model. A base review
of the program requirements could have identified other activities
which should have been included in the model.
The revised model did not use actual data to develop estimates of
resource requirements for each activity. The use of actual data
would identify inconsistencies among similar tasks. As an example,
Report No. El AM F5-07-0026-6100300
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one region noted that the model allowed 60 hours for an
enforcement work assignment and only 30 hours for a similar
remedial work assignment. While slight differences may exist
between the enforcement and remedial work assignment tasks, the
difference should not warrant twice the time requirements. Further,
this region did not believe that 30 hours for a remedial work
assignment was sufficient.
The workgroup did not consider non-productive time in estimating
workyear needs, thus underestimating the actual workyears
required to accomplish each task. The model equated a workyear .
to 2080 productive hours and did not consider non-productive time
such as annual leave, sick leave, and training. As a result, actual
workyear needs were underestimated. The use, and periodic
comparison, of actual to estimated workyears would highlight
workload model weaknesses of this type.
The revised Water Quality Financial Assistance model distributions
may be biased toward regions which do not complete projects. The
revised workload model allocated workyears using the quantity of
each activity for the whole program rather than the quantity to be
performed in the current year. For example, the Construction
Grants Program category was calculated based on the number and
value of projects remaining in the program rather than the number
and value of projects planned or expected to be worked on during
the fiscal year. As a result, distribution resulting from this portion
of the workload model could provide a disincentive for completing
projects.
REPROGRAMMING
ERRORS DIMINISHED
THE USEFULNESS OF
PROGRAM
INFORMATION
The Budget Division had comprehensive reprogramming
procedures. However, EPA's reprogramming procedures did not
require NPM notification for changes to program budgets for which
the NPM had overall responsibility. Further, we noted several
errors in implementing the 1994 and 1995 reprogrammings.
Reprogramming justifications did not consistently identify the
program impact on the losing program. Regions monitored
personnel resources at the appropriation level rather than the
program level. EPA did not obtain required congressional approval
of one fiscal 1994 reprogramming. These errors diminished the
usefulness of the related program information.
10
Report No. El AM F5-07-0026-6100300
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NPMs Did Not Believe
They Were Provided
Timely Access to Changes
in Program Budgets
Program Impact Was Not
Always Required For
Approved
Reprogrammings
The Budget Division's reprogramming procedures only required the
review and approval by a Budget Division Approval Official, and
did not require that the responsible NPM, who has overall
responsibility for the program, be notified of the reprogramming
action. Budget Division analysts, at their discretion, notified the
appropriate NPM of the reprogrammings. One NPM stated the
lack of involvement in this process made it difficult to estimate,
justify, and defend program budget information before Congress.
The failure to consistently notify NPMs of reprogrammings
magnified the NPMs' belief that they did not have timely access to
program budget information for program funds allocated to other
allowance holders. NPMs had responsibility for managing their
respective programs, as well as requesting and defending the
budgets; yet, they did not believe they had timely access to changes
in the portion of their program budgets allocated to other allowance
holders. For example, the OW NPM was allocated 3.8 percent of
the initial fiscal 1995 budget for water programs. The remaining
96.2 percent of the water programs budget was allocated to other
allowance holders; e.g., Office of Research and Development,
regions, and reserves. The OW NPM budget representatives
believed they did not have ready access to budget information for
this 96.2 percent of the water budget.
Budget Division representatives indicated that appropriate NPM
representatives can and did have access to all budget information
including other allowance holders' changes to their budgets.
However, the Budget Division did not communicate this access to
the NPMs or provide information on how to access the information.
NPMs believed they could only receive the reprogramming
information from the Budget Division; however, the NPM
representatives found this process to be cumbersome and time-
consuming.
The Budget Division did not always require the identification of the
program impact for approved reprogrammings. Revised draft
RMDS 2520. Chapter 3-II states that an important iactor in
whether or not a reprogramming is approved is the written
justification. According to the directive, this justification provides
the permanent audit trail of EPA's resources and protection for the
initiator whose rationale is documented. The justification should
state what the action is buying for the receiving program or office
and what the impact is for the losing program or office.
11
Report No. El AMF5-07-0026-6100300
-------
Personnel Funds Were
Monitored At The
Appropriation Level
Rather Than At The
Program Level
Information on the impact to both the receiving and losing program
or office is essential for informed decisionmaking. The program
impact for 93 percent of the fiscal 1994 and 79 percent of the fiscal
1995 reprogrammings sampled identified, in IFMS, what the action
was buying for the program or office receiving the resources. (See
Attachments 1 and 2.) However, none of these reprogrammings
identified, in IFMS, the impact for the program or office losing the
resources. The Budget Division had approved each of these
reprogrammings. Reprogrammings which did not properly identify
the impact for the losing program or office should not have been
approved. The program impact on both the receiving and losing
program was generally identified for reprogrammings included in
congressional reprogramming packages.
The Budget Division has recognized this problem and taken steps
to correct it. In the June 25, 1996 Advice of Allowance Letter, the
Budget Division Director required NPMs and Senior Budget
Officials to specifically identify the use of funds in the gaining
program and the impact on the losing programs or the
reprogramming would not be approved. The Budget Division
approval of reprogrammings will be contingent on complete, clear,
and descriptive purpose statements.
Regions monitored personnel funds at the appropriation level rather
than the program level and waited until the end of the year to
reprogram personnel funds to cover program over-obligations.
IFMS was set up to lock out improper spending at the
appropriations level rather than the program level. Revised draft
RMDS 2520, Chapter 3 required that all allowance holders were
responsible for monitoring their obligations at the program level
and reprogramming funds, when needed, in advance of
commitments and obligations. The regions monitored personnel
funds at the appropriation level and overspent personnel resources
for some programs and underspent for others. At the end of the
year, the regions reprogrammed personnel resources to reflect
actual spending. End of year reprogramming of personnel
resources circumvented the reprogramming requirement to ensure
program funds were available prior to the commitment and
obligation of those funds. Further, the effect of the end of year.
reprogrammings was not reflected in the current budget data used
by NPMs to develop future program budgets.
12
Report No. El AMF5-07-0026-6100300
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Congressional Approval The Budget Division did not obtain required congressional approval
Was Not Obtained For A for one fiscal 1994 reprogramming. In fiscal 1994, the Budget
Fiscal 1994 Division processed approximately 3,500 reprogramming
Reprogramming transactions, and 14 of these reprogramming transactions
individually met the congressional reprogramming approval
requirement.
The Budget Division did not obtain required congressional approval
for 1 of the 14 fiscal 1994 reprogrammings. The fiscal 1994
reprogramming moved $730,000 of Region 2 personnel resources
from the Hazardous Substance (Superfund) Technical Enforcement
program to administrative funds for the Hazardous Substance
(Superfund) Regional Support Services program. Region 2
initiated this reprogramming in August 1994 to cover the costs of
its Edison Laboratory. The shortfall in the Superfund support
account appeared to be a recurring problem. Budget Division
representatives stated that the failure to obtain congressional
approval was an oversight.
Also, the Budget Division was unable to provide a crosswalk of the
approved congressional reprogramming packages to the actual
reprogramming transactions. Congress provided oral approval of
reprogramming packages. A congressional reprogramming
package describes the Agency's requests and justifications to move
funds among programs and may include more than one
reprogramming. The Budget Division did not maintain a written
crosswalk of the congressionally approved reprogrammings to the
actual reprogramming transactions in IFMS. A written crosswalk
would provide a permanent trail linking the congressional approval
to the actual reprogramming transactions.
Additionally. EPA interprets reprogramming authority to apply to
distinct actions rather than the cumulative effect of individual
similar actions on a program. Revised draft RMDS 2520, Chapter
3-11 addresses EPA's interpretation of the reprogramming approval
requirements and states:
Through verbal negotiations with our
Appropriations Committees, it is understood that the
limitation is not cumulative for the year, but applies
incrementally to reprogramming activities
undertaken for a specific purpose. EPA has been
directed to notify the Appropriation Committees
13
Report No. El AMF5-07-0026-6100300
-------
prior to each reprogramming of funds in excess of
the limitation between programs (media) or program
elements.
An example of EPA's application of this interpretation would be an
OARM reprogramming of $600,000 within the Office of the
Comptroller from the Hazardous Substance Financial Management
Headquarters program element to the Hazardous Substance
Headquarters Nationwide Support Services program element. The
funds were reprogrammed to realign resources to support IFMS
operations and maintenance; Management and Accounting
Reporting System enhancements; and Combined Payroll
Redistribution and Reporting System operations, maintenance, and
enhancements. The Budget Division considered each item in the
stated reprogramming purpose as a separate and distinct action and
thus did not obtain congressional preapproval for the
reprogramming.
To ensure EPA's policies and procedures comply with
congressional guidelines, and given the continual changes in
congressional membership, EPA should periodically notify
Congress of this agreement and document this notification.
REGIONAL
PERSONNEL COSTS
WERE
INACCURATELY
ACCUMULATED
Program Level Personnel
Costs Were discharged
The Agency's implementation of recent IFMS updates and changes
in Agency directives increased the accuracy of personnel resource
costs. However, we noted significant errors in two of five regions'
charging of personnel costs which caused the misstatement of
reported program level personnel costs. The misstated program
cost information was used to develop subsequent program budgets.
The five regions we reviewed did not always correctly charge
workyears and personnel costs to the program element which
directly supported the
employee's activities.
The five regions charged
environmental programs
for management and
support activities;
however, the
mischarging in three of
five regions was not
significant to the regions'
Since PC&B (personnel
resources) is such a critical
expense in the management of
resources, controlling it
carefully is vital
Revised draft
JKMDS 2520, Chapter 4
14
Report No. El AMF5-07-0026-6100300
-------
budgets. In fiscal 1994, Regions 4 and 7 mischarged more than
41.7 workyears and $2.1 million, primarily charging management
and support costs to environmental programs. In fiscal 1995,
Region 4 also mischarged 21.6 workyears and $1.06 million. (Due
to the timing of the fieldwork, Region 7's fiscal 1995 charges were
not included in the scope of our review.) Possible incorrect
charging of management and support costs to environmental
programs also was indicated in four of the five regions we did not
review.
EPA provides program descriptions to Congress as part of its
annual budget justification. The program descriptions identify for
each program the authorizing legislation, program activities, and
goals and objectives for which EPA requests funding. EPA's
portion of the President's budget is written to the program level
and includes justifications for the funds requested. The program
descriptions and budget justifications identify, for Congress, the
types of activities that EPA plans to perform with the iunds
requested and are used by EPA's allowance holders to identify the
program which benefits from an employee's efforts. Allowance
holders use this information to determine where the personnel costs
of each employee should be charged.
Regions 4 and 7 supplemented their allocations of management and
support workyears with environmental program workyears. Both
regions used environmental workyears to provide additional
workyears for such activities as congressional liaison, public affairs,
grant specialists, and information management specialist supervisor.
Region 7 did not routinely change an employee's funding
designation when the employee was permanently transferred or
detailed from one office to another, thus charging the employee's
personnel costs and workyear to the wrong program.
A specific example of supplementing management and support
workyears was one region's charges of the cost of an information
management specialist supervisor to the Air Quality Management
Implementation program. The information management specialist
supervisor oversaw the regions' information resource division. The
activities performed in this division included maintaining,
supporting, and purchasing mainframe and personal computers,
providing telecommunication and local area network
administration, and maintaining the library, distribution system, and
graphics department. The information management specialist
15 Report No. El AMF5-07-0026-6100300
-------
Regions Could Not
Provide Support For
Allocation of Personnel
Resource Costs
supervisor's time should have been charged to the Administrative
Management-Region program element, a management and support
program; not the Air Quality Management Implementation program
element, an environmental program.
In this example, EPA requested funding for an Air Quality
Management Implementation workyear and related personnel costs.
EPA described, for Congress, activities to be performed in the Air
Quality Management Implementation program which did not
include maintaining a regional information resource division, and
received a workyear and funding for the Air Quality Management •
Implementation program. However, EPA used the workyear and
related funding for a supervisor information resource specialist who
oversaw the region's information resources division.
Regional management and support costs were understated and
regional environmental program costs were overstated as a result of
the mischarging. Furthermore, EPA management did not detect the
misstatement because it did not compare regional program costs
and performance to planned use. Regional performance plans,
where prepared, did not include budget and program costs.
Because performance plans were not prepared for regional
management and support functions, the significant misstatement of
two regional management and support cost categories included in
our review went undetected.
The regions did not always have support for their allocations of
workyears and related personnel costs among programs. Three of
our five regional reviews addressed regional workyear allocations.
One region had adequate, documentation supporting its basis for
allocating the personnel costs of appropriate employees in
management and support offices to environmental programs. The
region was able to demonstrate that the employees, while physically
located in an administrative or support office, performed work
covered under an environmental program.
One region did not have support for its allocation of personnel
costs among environmental programs for laboratory support
services and technical initiatives. Since these services benefitted a
number of programs, the cost for personnel services should have
been allocated in some equitable manner to the beriefitting
programs. Various allocation bases could have been used, such as
16
Report No. El AMF5-07-0026-6100300
-------
time expended or number of analyses performed. The objective is
to match the cost with the benefit received by the program.
Another region had not documented its basis for charging
management and support personnel costs to specific program
elements and appropriations. This region charged 100 percent of
the personnel costs of certain employees to specific administrative
and/or environmental program elements rather than allocating the
personnel costs among the regional programs which benefited from
the employees' efforts. The region considered it more cost effective
to charge employees to a specific program element, even though
100 percent of their work might not have been related to the
program element. The region contended that personnel costs of
these employees, in turn, would offset the personnel costs of
several employees who performed work related to the program
element but were charged to other program elements. The region
had no analysis or historical basis to document that the actual
workload averaged out among all employees. The region also did
not take advantage of the IFMS system capability of automatically
allocating an employee's time among three program elements.
USEFULNESS OF
EPA'S BUDGET
STRUCTURE IS
HAMPERED BY
INCONSISTENCIES
EPA attempts to provide program cost information through the
budget structure. However, the realities of the budget process led
to inconsistencies in the budget structure and diminished the
comparability of program budget and cost information. The
budget structure is complex and has been hampered by the
inconsistent creation of program elements. Further, the current
budget structure cannot efficiently capture the information required
to implement GPRA as the activities, for which goals and related
measures are being proposed, are not always equivalent to existing
program elements. The Agency recognized this and is working on
plans to restructure the program elements. EPA plans to
accomplish this restructuring as a part of the new PBA system. As
noted in the EPA Chief Financial Officer's June 26, 1996 letter to
OMB, the preliminary milestone for the completion of the draft
budget system (program element) restructuring is December 1996
and the final by September 1997. The Agency should address the
following problems in the budget restructuring.
EPA has not been consistent in creating program elements among
appropriations, locations, or functions. Historically, EPA used
program elements to identify funds for specific programs; e.g.,
17
Report No. E1AMF5-07-0026-6100300
-------
hazardous spill and site response, groundwater protection, and
human resources. However, this use changed through the years.
As interest was shown in an activity, either from an Agency official
or congressional staff, a program element was created. Program
elements were created to track data on customers, various
locations, different programs, and functions. EPA's inconsistent
creation of program elements over time reduced the consistency
and comparability of budget and financial data for internal
management purposes. :
EPA has not developed a common definition of management and
support activities to integrate information across the Agency to
evaluate and monitor performance. For example, personnel
resources for employees performing similar management and
support activities were budgeted and charged differently, depending
on the employee's physical location. EPA's definition of
management and support activities performed by Headquarters and
Headquarters field offices are defined by the office location of
employees. Whereas EPA's definition of management and support
activities for regional offices are defined by the activity performed
by employees.
EPA needs to clearly define the needs of all users in tracking
activities and resources, and then redesign the budget structure to
capture this information. The budget and accountbg structure
should be flexible to assist all levels of management. The system
should facilitate the capturing of budget information useful to the
unit managers and have the ability to summarize data at the regional
level, the program level, and the Agency level. Complete financial
information for a certain location or a particular program cannot
easily be developed from the current budget and accounting system.
The ability to accumulate the complete cost of a particular program
or location will enhance EPA's management capabilities and allow it
to move forward in meeting the intent of GPRA.
DELEGATION OF
PERFORMANCE
ACCOUNTABILITY
AND EMPLOYEE BUY-
IN ARE CRITICAL TO
PBA SYSTEM
SUCCESS
Two critical elements to the PBA systems' success are delegating
performance and accountability throughout all levels of the Agency,
and obtaining employee buy-in to the new system. Measuring .
performance and assigning related accountability leads to improved
program efficiency, effectiveness, and results. Program cost is a
necessary element of measuring performance. To obtain employee
buy-in, the PBA process must be useful to employees and
18
Report No. El AMF5-07-0026-6100300
-------
integrated into the daily management of the Agency. The Agency
has recognized the need for these critical elements and has created a
PDA accountability workgroup to design this part of the system.
However, the Agency will need to overcome current performance
measurement practices which do not link performance and budgets.
NPMs recognized the need for accountability and developed
regional performance agreements; however, these agreements do
not link performance and budgets. For example, OAR annually
negotiates regional performance agreements and developed a
tracking system to monitor the regions' performance. However, the
performance agreements and tracking system do not contain
regional budget information. The OW also developed a
Management Agreement (MA) for use in negotiating and evaluating
regional performance. However, the MA does not link
performance and resources requirements nor are the activities
linked with those in the workload models. As a result, activity
planning and resource allocations are still separate functions and
remain unconnected and should be corrected in the PBA
implementation.
One critical element to
the success of the PBA
system is the delegation
of financial and
performance
accountability to
appropriate levels
throughout the Agency.
The PBA system should
be designed to serve the
needs of all EPA
employees. EPA senior
management should use
the PBA system to
communicate and
delegate responsibility for
Agency goals and objectives, performance plans, and accountability
measures, throughout all levels of management. The system should
establish financial and performance accountability at levels for
which employees have the ability to respond. Employees will then
see where their actions contribute to the achievement of the Agency
mission.
The changes we make, some of
which will be immediate and others
which will evolve over time, will
help the Agency to better determine
and articulate its priorities and
ensure that our resources are
managed effectively,
Carol Browner
Administrator
on the PBA system
June 25, 1996
19
Report No. El AM F5-07-0026-6100300
-------
The Agency needs to obtain general employee buy-in into the new
PBA system. Employee buy-in, down to the program manager
level, is essential to ensure the new PBA process fundamentally
changes the way EPA manages. Absent this buy-in, the PBA
system may be destined to the same fete as the Agency's initial
implementation of the Federal Managers' Financial Integrity Act
(FMFIA). FMFIA implementation at EPA ran into problems
because it was centralized, did not have employee buy-in, and was
not used in the daily management of the Agency. Employees need
to understand how their actions affect the Agency's goals and
objectives. Further, the PBA system should include incentives for
good performance and consequences for poor performance. The
existence of incentives and consequences based on program
performance may encourage managers to correlate budget, cost,
and performance information.
THE BUDGET
DIVISION LACKED
DOCUMENTATION TO
SUPPORT
CONGRESSIONAL
NOTIFICATION OF
AGENCY RESERVE
FOR CONTINGENCIES
The Budget Division was unable to support that Congress was
notified of the fiscal 1995 contingency reserves. In the initial fiscal
1995 operating plan, EPA held $923 million in two accounts titled
EPA HQ Reserve and EPA Regional Reserve. Budget Division
representatives explained these funds were reserved for potential
liabilities, fiduciary or contingency needs, reimbursable authorities,
and protection against potential Antideficiency Act violations. The
Budget Division representatives, however, were not able to identify
the funds held for each of these reasons, or support the
methodology for the calculation of specific reserve amounts. Two
NPMs stated in planning their budgets, they were aware a portion
of their budget would be held in reserve.
We analyzed the $923 million held in reserve, and determined that
$870 million was held for reserves specifically provided for by law,
reimbursable authorities, or programmatic delay. By process of
elimination, we calculated that $53 million was held in reserve for
contingencies and as fiduciary reserves. Funds held in reserve for
contingencies or fiduciary responsibilities meet the Impoundment
Control Act (ICA) definition of a permitted deferral; however, the
ICA requires deferrals to be reported to Congress. Of this amount,
$28 million, in 11 accounts ranging from $71,000 to $6.6 million,
remained in reserve at the end of fiscal 1995. Although these funds
did not expire, they were not provided to program managers for use
in fiscal 1995. RMDS 2520 did not address Devaluating and
20
Report No. El AMF5-07-0026-6100300
-------
redistributing funds late in the fiscal year which were held in reserve
for contingencies.
The Budget Division representatives were unable to provide
supporting documents to indicate Congress was notified of the
fiscal 1995 contingency reserves. The representatives did provide
four documents of prior year correspondence between EPA and
congressional staffers which contained references to the existence
of reserves. However, none of the documents related to fiscal 1995
reserves. The Budget Division representatives said Congress is not
specifically notified of the funds held in reserve, but congressional.
staffers know how much money is put in reserve through
discussions with Agency personnel. The Budget Division
representatives added that holding funds in reserve is a prudent
management practice, common knowledge, and part of the budget
process.
CONCLUSION
EPA's budget practices and procedures for personnel resources
indicated that budget and cost information was not useful at the
program level. Further, EPA's written policies and procedures did
not directly address or emphasize the need for accurate and reliable
program level budget and cost information. EPA's practices have
developed over time and reflect EPA's efforts to ensure that the
Agency is in compliance with the statutory requirements for funds
control.
EPA recognized that timely, accurate, and meaningful program
level information is a key factor in assessing program performance
and has launched the PBA initiative to dramatically change the way
the Agency does business. The findings in this report should be
considered in the development of the PBA system initiative as EPA
makes decisions regarding the future direction of its budget and
related financial management activities. EPA will need to be able to
answer:
• What are you trying to accomplish?
• How well did you do?
• How do you know you accomplished what you said
you did?
• What did it cost?
Reliable and accurate personnel budget and cost information will be
essential to answer these questions.
21
Report No. El AMF5-07-0026-6100300
-------
RECOMMENDATIONS We recommend the Acting Chief Financial Officer (CFO):
1. Require regions to reprogram workyears and personnel
resources to reflect planned use. Require the regions to
monitor their use of personnel funds at the program level.
2. Advise NPMs to assess the equitability of the workyear
allocations of each program. Review and revise all regional
workload distributions as part of the PBA implementation -
and where needed thereafter. Annually distribute workyears
to regions based on current workload models. Negotiate
regional program performance based on these distributions.
Monitor regional planned against actual performance and
revise workload models based on actual results.
3. Require the new PBA organization to develop and issue
guidance on appropriate methodologies for developing
workload models. Assess whether the Superfund Contracts,
Grants and Small Purchases and Water Quality Financial
Assistance workload model methodology weaknesses bias
distributions and correct accordingly.
4. Require timely notification of reprogrammings for
programmatic or media reasons to the NPMs.
5. Communicate to NPMs that they do have access to
reprogramming information for their programs and provide
instruction on how to access the information.
6. Ensure the 1996 Advice of Allowance reprogramming
guidance requiring the identification of program impact in
reprogramming transactions is implemented.
7. Ensure that EPA obtains the required congressional
approvals for reprogramming transactions.
8. Prepare and maintain a crosswalk of all approved
congressional reprogramming packages to the actual
reprogramming transactions.
22 Report No. E1AMF5-07-0026-6100300
-------
9. Clarify with Congress that reprogramming authority applies
to separate and distinct actions for the same purpose rather
than the cumulative effect of individual actions.
10. Develop consistent definitions of program elements and
develop procedures to ensure the definitions are consistently
applied. Program element definitions should be consistent
either by activity or physical location, but not a combination
of the two. Defining program elements by activity is the
preferable approach.
11. Identify the budgetary and financial information needs of all
internal and external users. Design and structure a flexible
system which meets user needs, tracks information centrally,
and summarizes data.
12. Require regions to charge personnel costs to the program
which supports the employee's activities.
13. Require regions to develop and document the basis for
assigning and charging personnel costs to benefitting
programs.
14. Notify Congress, in writing, of funds held in reserve which
constitute a deferral, or obtain an Office of General Counsel
written opinion why such a notification is not required.
Document the rationale and related calculation of all fluids
held in reserve.
AGENCY COMMENTS
AND OIG
EVALUATION
The Acting CFO generally agreed with the findings and provided
comments to clarify some issues. We revised sections of the report
accordingly. The Acting CFO did not agree with the need to timely
notify NPMs of reprogrammings for programmatic reasons, the
need to prepare and maintain a crosswalk of all approved
congressional reprogramming packages to the actual
reprogramming transactions, and the assertion that Agency funds
held in reserve for contingencies constitutes a deferral.
The Acting CFO disagreed with the need to timely notify NPMs of
reprogrammings for programmatic reasons as the NPMs do not
have budget execution responsibilities for funds allocated to other
allowance holders. While the NPMs do not have funds control
23
Report No. E1AMF5-07-0026-6100300
-------
responsibilities, they have budget development and oversight
responsibilities for the programs. We believe implementation of the
recommendation would facilitate the management of these
programs by providing timely communication of changes in the
planned use of program budgets. However, the Acting CFO agreed
in substance to this recommendation when she did not disagree with
the NPMs' need for program budget information. The Acting CFO
indicated that the NPMs did in fact have access to information on
changes in program budgets; however, the Budget Division had not
communicated this ability to the NPMs. We believe that directly
notifying NPMs of changes in the program budgets provides the
most timely and efficient communication. However, the Budget
Division's communication to the NPMs of their access capabilities
and instruction on how to access the information should adequately
address the problem.
The Acting CFO did not agree with the need to prepare and
maintain a crosswalk linking all approved congressional
reprogramming packages to the actual reprogramming transactions
in IFMS. The Acting CFO indicated that current procedures
require the documentation of the congressional approval in IFMS.
However, the current procedures only provide for this one way
identification of the reprogrammings. Procedures do not require a
notation of the individual reprogramming transactions in the
congressional approval package. The recommendation would
provide for two way identification of reprogrammings and provide
the Budget Division the ability to determine if all congressionally
approved reprogrammings were actually accomplished.
The Acting CFO provided additional information on
reprogramming transactions which met the congressional approval
limitations and we revised the report accordingly. However, we did
not agree with the Acting CFO's assertion that the failure to obtain
congressional approval for one 1994 reprogramming should hardly
be considered material and did not delete this finding from the
report.
The Acting CFO agreed with the recommendation to document the
rationale and related calculation of all funds held in reserve and.
provided information to clarify the finding. We incorporated this
information in report. However, the Acting CFO did not provide
information which disproved our assertion that funds held in reserve
for contingencies constitute a deferral which requires congressional
notification. Thus, we recommend the Agency obtain an Office of
General Counsel opinion why such a notification is not required.
24 Report No. El AMF5-07-0026-6100300
-------
ATTACHMENT 1
FISCAL 1994 REPROGRAMMINGS
GREATER THAN $500,000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
REPROORAMMING #
RR024T024211
RP07040014X
RP264CT0565
RR264AN0885
RR264AQ0887
RR264AA0894
RR264AE0895
RR264AJ0896
RR264AU0897
RR264AH0898
RR264AC0900
RR264AF0901
RR264AV0902
RR77-4077-U
TOTAL YES
PERCENTAGE
TOTAL NO
PERCENTAGE
TOTAL
PURPOSE IN IFMS
STATES WHAT
ACTION IS BUYING OR
OFFICE IS RECEIVING
YES
YES
NO
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
13
93%
1
7%
14
PURPOSE IN IFMS
STATES IMPACT
TO OFFICE/PROGRAM
LOSING RESOURCES
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
0
0%
14
100%
14
Note: The program impact on both the receiving and losing program was generally clearly
identified in the congressional reprogramming package.
25
Report No. El AM F5-07-0026-6100300
-------
ATTACHMENT 2
FISCAL 1995 REPROG HAMMINGS
GREATER THAN $500,000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
REPROGRAMM3NG#
RP025B025225
RP025A025227
RP045T040194
RP055BUR075B
RPI15B037
RP305B300006
RPTERY5A/92
RR165AI60057
RR165B160017
RR165B 160049
RR165T1 60039
RR165B 160042
RR165B160043
RPBU5177
TOTAL YES
PERCENTAGE
TOTAL NO
PERCENTAGE
TOTAL
PURPOSE IN ffMS
STATES WHAT
ACTION IS BUYING OR
OFFICE IS RECEIVING
YES
YES
YES
YES
YES
YES
NO
YES
YES
YES
YES
NO
NO
YES
11
79%
3
21%
14
PURPOSE IN IFMS
STATES IMPACT
TO OFFICE/PROGRAM
LOSING RESOURCES
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
NO
0
0%
14
100%
14
Note: The program impact on both the receiving and losing program was generally clearly
identified in the congressional reprogramming package.
26
Report No. El AMF5-07-0026-6100300
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PRIOR AUDIT COVERAGE
APPENDIX I
Type of
Review
Audit
Audit
Audit
Audit
Survey
Special
Survey
Report Title
Region 7's Budget Execution Process
E 1 SFF4-07-0066-5 1 00250
Budget Process: The Activity Structure
E1AMF6-1 1-0003-6100246
Region 4's Budget Execution and Cost
Allocation Process
E 1 AMF5-04-0 112-61 00249
Review of Region 2's Budget Execution
Process
Memorandum
Budget Execution Process
E1AMB5-05-0053-5100372
Region 8's Budget Execution Process
E 1 AMB5-08-003 1 -6400042
Headquarters Budget Execution
E 1 AMB5- 11 -00 1 9-6700002
Report Date
March 31, 1995
July 9, 1996
July 12, 1996
July 29, 1996
June 26, 1995
March 22, 1996
January 24, 1996
Office Location
Kansas City, Kansas
Washington, D.C.
Atlanta. Georgia
New York, New
York
Chicago, Illinois
Denver, Colorado
Washington, D.C.
27 Report No. El AMF5-07-0026-6I00300
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\
APPENDIX II
Page 1 of 5
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
SEP 19S6
MEMORANDUM
SUBJECT: Draft Audit Report No. ELAMF5-07-0026-XXXX
EPA Budget Process
FROM:
TO:
allyanne Harper, Acting
Chief Financial Officer (3101
Michael D. Simmons
Deputy Assistant Inspector General
for Internal and Performance Audits (2421)
I am writing in response to the draft audit report entitled
EPA Budget Process. dated August 6, 1996. I appreciate the
efforts of your staff to work with us on understanding and
resolving the issues included in your report. Overall, we feel
that the revised draft report does better reflect the OIG's
appreciation for the efforts currently underway to improve the
Agency's budget processes. I do appreciate the opportunity to
comment on the draft audit report and have addressed each of the
Recommendations in the attachment. I believe that we all
recognize the tremendous challenge facing us as we move forward
in implementing a new planning, budgeting and accountability
system at EPA and I look forward to your support of this
important initiative.
I do have concerns that some of the "findings" in this audit
continue to be overstated and unfairly generalized, rather than
specifically focused on the problems actually uncovered in your
reviews. For example, in your Executive Summary, you refer to a
"pattern of errors in EPA's budget practices and procedures [that
indicates] that budget and cost information for program level
personnel resources was not valued as useful information and
[does] not ensure that EPA complied with congressional intent."
From the factual information presented in the audit, I simply do
not see this "pattern of errors" nor do I see evidence of any
attempt by the Agency to circumvent the intent of Congress.
Two of the "principle findings" concern regional budget
procedures: "Regional Personnel Resource Budgets Did Not Always
Reflect Planned Use" and "Regional Personnel Costs Were
Inaccurately Accumulated and Reported." It is my understanding
that the OIG conducted reviews of 5 regions and 2 program
28
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offices, and identified specific problems in 2 regions, yet many
of the statements in the audit seem to generalize the findings as
representative of all regions- This is a misstatement of the
facts and fa.ils to recognize all of the other Regions who are
doing an excellent job. Since this issue was discussed at
earlier meetings between OIG and the Office of the Comptroller, I
am disappointed that the draft audit does not reflect more
sensitivity to the wording of these statements* :
Please feel free to contact Beth Craig or Katy Schmoll if
you have any additional questions related to this audit.
Attachment
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ATTACHMENT
RECOMMEJCDATIONS
All of the recommendations in this audit are addressed to the
Chief Financial Officer for action. The CFO's response to each .
recommendation is indicated below:
1. .Require regions to reprogram workyears and personnel
resources to reflect planned use. .Require the regions to monitor
their use of personnel funds at the program level. The CFO
agrees with this recommendation and will take the necessary
action to ensure that these requirements are communicated to the
appropriate regional officials.
2. Advise NPMs to assess the equitability of the workyear
allocations of each program. Review and revise all regional
workload distributions as part of the PBA implementation and
where needed thereafter. Annually distribute workyears to
regions based on current workload models. Negotiate regional
program performance based on these distributions. .Monitor
regional planned against actual performance and revise workload
models based on actual results, The CFO agrees thac this
recommendation will be addressed as part of the implementation of
PBA.
3. Require the new PBA organization to develop and issue
guidance on appropriate methodologies for developing workload
models. Assess whether the Superfund Contracts, Grants and Small
Purchases and Water Quality Financial Assistance workload model
methodology weaknesses bias distributions and correct
accordingly- The CFO agrees that this recommendation will be
addressed as part of the implementation of PBA.
4, Require timely notification of reprogrammings for
programmatic or media reasons to the NPMs. The CFO disagrees
with this recommendation for a variety of reasons. The issue of
whether the Regional Administrator or the National Program
Manager controls regional resources was a specific Agency
management decision made by the Deputy Administrator in favor of
the Regional Administrators more than 10 years ago. While NPMs
do have overall responsibility for their media during budget
formulation, budget execution responsibilities rest solely with
the Allowance Holder to whom the resources have been issued.
NPMs currently negotiate Memoranda of Understanding with Regional
Administrators to ensure that program outcomes are achieved.
5. Provide timely read only access to NPMs for complete budget
information for their programs. While the CFO does not disagree
with this recommendation, it should be noted that read-only
access to IFMS reprogramming tables is already available to
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Senior Budget Officers, as well as a variety of NPM-level
Resource and Reprogramming Transaction History reports on the
Budget Division's IFMS Report Selection Menu.
5. Ensure the 1996 Advice of Allowance reprogramming guidance
requiring the identification of program impact in reprogramming
transactions is implemented. The CFO agrees with this
"recommendation and, as noted by the OiG. -it has indeed already
been implemented.
7. Ensure thac EPA obtains the required congressional approvals
for reprograiraning transactions. The CFO requests that this
recommendation and all of the associated narrative on this issue
be deleted from the audit. Sufficient documentation has been
provided by the Office of the Comptroller to resolve the OIG's
concern that the congressional approval process was not
consistently followed. The single reprogramming that was missed
in FY 1994 out of the approximately 3,500 that were processed
represents an error rate of less than three one-hundreths of a
percent (0.02857%) and should hardly be considered material.
8. Prepare and maintain a crosswal-k of all approved
congressional reprogramming packages to the actual reprogramming
transactions. The CFO disagrees with this recommendation.
Current procedures already require the documentation of the
approval of congressional reprogramming packages and all IFMS
reprogrammings processed as part of a congressional package are
properly identified as such.
9. Clarify with Congress that reprogramming authority applies to
separate and distinct actions for the same purpose rather than
the cumulative effect of individual actions. The CFC agrees to
this recommendation.
10. Develop consistent definitions of program elements and
develop procedures to ensure the definitions are consistently
applied. Program element definitions should be consistent either
by activity or physical location, but not a combination of the
two. Defining program elements by activity is the preferable
approach. The CFO agrees that this recommendation will be
addressed as part of the implementation of PBA and within the
confines of OMB and Congressional Appropriations Committee
requirements and direction.
11. Identify the budgetary and financial information needs of
all internal and external users. Design and structure a flexible
system which meets user needs, tracks information centrally, and
summarizes data. The CFO agrees that this recommendation will be
addressed as part of the implementation of PBA.
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12. Require regions to charge personnel costs to the program
which supports the employee's activities. The CFO agrees with
this recommendation and will take the necessary action to ensure
that these requirements are communicated to the appropriate
regional officials.
13, Require regions to develop and document the .basis for
assigning- and charging personnel costs to benefiting programs.
The CFO agrees with this recommendation and will take the
necessary action to ensure that these requirements are
communicated to the appropriate regional officials.
14. Notify Congress, in writing, of funds held in reserve which
constitute a deferral, or oJbtaia aa Office of General Counsel
opinion why such a notification is not required. Document the
rationale and related calculation of all funds held in reserve.
While the CFO agrees to the recommendation to document the
rationale and related calculations of Agency reserves, the CFO
does not agree with the OIG's assertion that Agency fiduciary
reserves constitute a reportable deferral. The Office of the
Comptroller has provided lengthy documentation on this issue,
including information as to the immediate availability of these
funds to be obligated to cover contingencies or to meet fiduciary
responsibilities of the Agency. The CFO is also concerned with
the audit's identification of a single reserve amount of $28
million, when in fact this figure consists of significantly
smaller amounts in 7 different appropriations which cannot be
merged. The fiduciary reserve in one appropriation cannot
protect another appropriation from an Antideficiency Act
violation in the event of upward adjustments to obligations
(overruns) either during the life of the appropriation or during
the five year period following expiration. Further, the largest
of the reserve amounts was in the Superfund program, with the
Agency designating $12.5 million out of. a $1.6 billion program
(0.78%). This is a conservatively appropriate amount given the
likelihood of costs overruns in a program which relies heavily on
contractor support.
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APPENDIX III
ABBREVIATIONS
CBJ Congressional Budget Justification
CFO Chief Financial Officer
EPA Environmental Protection Agency
FASAB Federal Accounting Standards Advisory Board
FMFIA Federal Managers' Financial Integrity Act
GPRA Government Performance and Results Act
ICA Impoundment Control Act
IFMS Integrated Financial Management System
IPA Intergovernmental Personnel Agreement
MA Management Agreement
NAPA National Academy of Public Administration
NPM National Program Manager
OAR Office of Air
OARM Office of Administration and Resources Management
OIG Office of Inspector General
OMB Office of Management and Budget
OW Office of Water
PBA Planning, Budgeting, and Accountability System
PRO Program and Research Operations
RMDS Resources Management Directives
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Report No. El AM F5-07-0026-6100300
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APPENDIX IV
DISTRIBUTION
Office of Inspector General
Inspector General (2410)
Headquarters Office
Acting Assistant Administrator for Administration and Resources Management (3101)
Assistant Administrator for Water (4101)
Assistant Administrator for Air and Radiation (6101)
Director, Resource Management Division (3304)
Agency Audit Followup Coordinator (3304)
Agency Audit Followup Official (3101)
Comptroller (3301)
Director, Budget Division (3302)
Associate Administrator for Regional Operations and State/Local Relations (1501)
Associate Administrator for Congressional and Legislative Affairs (1301)
Associate Administrator for Communications, Education and Public Affairs (1701)
Director, Financial Management Division (3303F)
Headquarters Library (3401 A)
34 Report No. El AM F5-07-0026-6100300
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