LU
o
Office of Inspector General
Report of Audit
Region 5fs Billing and Collection
of Accounts Receivable
Audit Report No. E1AMB6-05-0079-7100139
MARCH 26,1997
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Inspector General Division
Conducting the Audit:
Northern Audit Division
Chicago, Illinois
Region Covered:
Region 5
Program Offices Involved:
Resource and Management Division
Office of Regional Counsel
Office of Superfund
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03
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL
NORTHERN DIVISION
77 WEST JACKSON BOULEVARD
CHICAGO, IL 60604-3590
March 26,1997
MEMORANDUM
SUBJECT: Audit Report E1AMF6-05-0079-7100I39
Region 5's Billing and Collection of Accounts Receivable
FROM: Anthony C. Carrollo
Divisional Inspector
Northern Division
TO:
Valdas V. Adamkus
Regional Administrator
Region 5
Attached is the report on our review of Region 5's accounts receivable billing and collection. The
purpose of our audit was to evaluate the Region's current process and make recommendations for
improvements. We concluded that Region 5's procedures for billing and collecting accounts
receivable contained weaknesses which hindered its ability to timely recover debts owed the Federal
government
This report contains findings that describe problems the Office of Inspector General (OIG) has
identified and corrective actions Region 5 has proposed. The audit report represents the opinion of
the OIG. Final determinations on matters in this audit report will be made by EPA managers in
accordance with established EPA audit resolution procedures. Accordingly, the findings described
in the audit report do not necessarily represent the final EPA position and are not binding upon EPA
or the Department of Justice in any enforcement proceeding.
We have no objection to further release of this report to the public.
ACTION REQUIRED
In responding to the draft report, Region 5 provided corrective actions, including milestone dates,
for each recommendation. Therefore, no further response is required, and we are closing the report
in our tracking system. Please track all planned corrective actions in the Management Audit
Tracking System.
We appreciate the cooperation we received from your staff in conducting the audit. The open lines
of communication with the Region throughout this effort have enabled us to agree upon
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recommendations that will benefit the Region. Should you or your staff have any questions, please
contact Charles Allberry, Audit Manager, at (312) 353-4222 or Edward Baldinger, Team Leader, at
(312)353-1769.
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Region 5's Billing and Collection of Accounts Receivable
EXECUTIVE SUMMARY
AGENCY COMMENTS
AND ACTIONS
Region 5's procedures for billing and collecting accounts
receivable contained weaknesses which hindered its ability to
timely recover debts owed the Federal Government. For
Superfund oversight costs, Region 5 did not (1) promptly send
initial billings, (2) timely send follow-up notices on unpaid
balances, or (3) include delinquent amounts on subsequent billings.
Billing and collection delays were caused by reliance on manual
processes, prolonged review and approval procedures, and
inconsistent follow-up strategies. As a result, the Superfund Trust
Fund was not timely replenished.
Also, Region 5 was not able to timely record numerous accounts
receivable which were established through judicial actions.
Critical information on judicial orders did not promptly pass from
the Department of Justice to Environmental Protection Agency
(EPA) attorneys and ultimately to EPA financial managers. The
establishment of accounts receivable was sometimes delayed to the
extent that payments were received before judicial orders had been
entered in Region 5's accounting records. As a result, Region 5's
accounts receivable records were incomplete and the Comptroller's
Office was not able to match collections to the related receivable.
This latter issue was originally reported to Region 5 as a result of
the Office of Inspector General's (OIG) Fiscal Year 95 Financial
Statement Audit. Although some corrective actions have been
taken by the Regional Comptroller and the Regional Counsel,
ongoing procedural weaknesses persist.
The Regional Administrator, Region 5, has acted or agreed to act
to address the findings in our report. The corrective actions
include:
1. Developing and implementing specific timeframes for the
Regional Comptroller's Office to prepare and forward
annual oversight bills to the Office of Regional Counsel,
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the Superfund Program Office, and Responsible Parties for
payment.
2. Emphasizing timely issuance of dunning letters through
changes to the Collection Tracking System (CTS).
3, Recording contacts between the Regional Comptroller
Office, other Region 5 offices, and Responsible Parties
regarding collection efforts.
4. Modifying the CTS to .include outstanding unpaid balances
in annual billing and dunning letters.
5. Requiring the Regional Counsel to (a) provide the Regional
Comptroller with judicial orders, so that the Comptroller
can record the amounts in the Agency's financial
accounting system, and (b) continue to emphasize to staff
attorneys the importance of providing judicial orders timely
to the Regional Comptroller's Office.
Additional recommendations are included at the end of each
chapter, beginning with chapter 2. For details on the purpose and
background of the report, see page 1.
OIG EVALUATION
Region 5 provided corrective actions, including milestone dates,
for each of our recommendations. These actions, when completed,
will address our findings and recommendations.
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Table of Contents
EXECUTIVE SUMMARY i
CHAPTERS
1 INTRODUCTION 1
Purpose 1
Background 1
Scope and Methodology 2
Prior Audit Coverage 3
2 SUPERFUND OVERSIGHT COSTS WERE NOT TIMELY COLLECTED 4
Oversight Receivables Were Not Timely Recorded or Billed 4
Follow-up on Unpaid Receivables Was Not Effective 6
CTS Will Facilitate the Billing and Collection Process 7
Conclusion 8
Recommendations and Agency Actions 8
OIG Evaluation 8
3 REGION 5 DID NOT BILL SUPERFUND ACCOUNTS RECEIVABLE
ON A CUMULATIVE BASIS 9
Region 5's Current Practice Does Not Include Cumulative Billings 9
CTS Has the Capability of Generating Cumulative Billings 10
Conclusion 11
Recommendations and Agency Actions 12
OIG Evaluation 12
4 PAYMENTS WERE OBTAINED FOR UNRECORDED RECEIVABLES 13
Accounts Receivable Are Not Recorded Timely 13
Conclusion 15
Recommendations and Agency Actions 15
OIG Evaluation 16
EXHIBIT
1 Number of RCO Requests for Unrecorded Receivable Documentation 17
in
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APPENDICES
REGION 5's RESPONSE TO DRAFT REPORT 18
ABBREVIATIONS 23
DISTRIBUTION 24
IV
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CHAPTER 1
Introduction
PURPOSE
BACKGROUND
We performed an audit of Region 5's billing and collection
activities for Superfund oversight accounts receivable. The purpose
was to provide the Region with an evaluation of the current process
and recommendations for improving their procedures. Our specific
objectives were to determine if Region 5 was:
• timely billing the responsible party for annual Superfund
oversight costs, and
• effectively pursuing the collection of past due accounts
receivable.
In 1980, Congress passed the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA),
commonly known as Superfund. The law established, in the
Department of the Treasury, the "Hazardous Substance Response
Trust Fund" (Superfund Trust Fund). Congress initially authorized
funding for five years totaling $1.6 billion. Congress reauthorized
the program for another five years in 1986 and provided an
additional $8.5 billion of funding. In 1990, Congress, through the
Omnibus Budget Reconciliation Act, extended the program for
another five years and provided an additional $5.1 billion in
authorized funding. Through appropriations, Congress establishes
the amount of funds that the Environmental Protection Agency
(EPA) may use. EPA withdraws monies from the trust fund as
needed to cover disbursements.
The Superfund Trust Fund is primarily supported by taxes on crude
and petroleum oil, on the sale or use of certain chemicals, and an
environmental tax on corporations. Other sources of funding
include cleanup costs recovered from responsible parties, interest,
fines, and penalties paid by individuals and entities who violate the
terms of the CERCLA provisions, and general revenues.
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To ease pressure on the Federal budget, lawmakers have focused
more efforts on collecting money already owed to the government.
It is estimated that more than $50 billion in past due debts (not
including taxes) is owed to the U.S. government. A portion of
these receivables has been created by various EPA programs,
Superfund being the most significant.
An important objective of the Superfund program is to recover
funds that EPA spends cleaning up a Superfund site. Recovery
may be accomplished through negotiation with or legal action
against Responsible Parties (RPs). The costs EPA tries to recover
may be for (1) past expenditures, (2) future work that EPA will do
at the site, or (3) EPA overseeing cleanup work that the RP
performs under contract at the site. These funds are used to
replenish the Superfund Trust Fund.
EPA's enforcement responsibility does not end with establishing
the debtor's financial obligation. EPA's financial, legal, and
program personnel must work together to bill and collect the debts
that have been established. Region 5 is responsible for billing and
collecting accounts receivable resulting from oversight activity at
sites it monitors.
SCOPE AND
METHODOLOGY
Our audit focused on the billing and collection processes of
Superfund oversight accounts receivable in Region 5. The audit
objectives did not include determining the reliability of the
Region's financial accounting system, billing statements, or
amounts recovered.
Our first objective determined whether Region 5 timely issued
annual Superfund oversight bills to responsible parties. We
discussed with Regional personnel the billing process. We
reviewed billing documents in a random sample of 24 Superfund
site files, calculated the length of time taken to issue an initial
billing statement, and identified reasons for delays.
Our second objective determined whether the Region had
effectively pursued the collection of unpaid Superfund oversight
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bills. We discussed with Regional personnel the collection
process. We reviewed dunning letters in a random sample of 24
Superfund site files, calculated the time interval between the initial
billing and each dunning letter, and obtained explanations for
delays or missing letters.
We conducted our fieldwork from December 1,1995 to October
30,1996. We discussed position papers with Region 5
Comptroller's Office (RCO) officials on October 23 and 29,1996.
Their comments were considered in developing the draft report.
On November 18,1996, we issued our draft. The RCO requested
an extension to formally responding. During January and February
1997, we held discussions with RCO about their proposed changes
to the draft report. On February 26,1997 we issued a revised draft
report. We held an exit conference with the Region staff on March
25. The Region 5 Administrator provided a response on March 24,
1997. We made appropriate changes to the final report based on
the exit conference and written response. The Regional
Administrator's response is included as appendix 1.
We performed our audit in accordance with the Government
Auditing Standards. 1994 Revision, issued by the Comptroller
General of the United States.
PRIOR AUDIT
COVERAGE
In January 1990, the Office of Inspector general (OIG) issued a
report on Region 5's Superfund Cost Recovery Accounts
Receivable Establishment and Collection (E1SJF9-05-0274-
0100126). According to this report, the Region did not record all
Superfund cost recovery amounts due on the Region's financial
records and did not make timely collections.
In May 1996, the OIG issued a management letter to the Regional
Comptroller on the Fiscal Year 95 Financial Statements.
According to this letter, RCO did not have procedures to follow up
on its requests to obtain judicial decrees from the Office of
Regional Counsel (ORC).
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CHAPTER 2
Superfund Oversight Costs
Were Not Timely Collected
OVERSIGHT
RECEIVABLES
WERE NOT TIMELY
RECORDED OR
BILLED
Region 5 did not timely establish and collect accounts receivable
for Superfund site oversight costs. RCO did not promptly (1)
send initial billings or (2) follow-up on unpaid accounts. Thus,
the Superfund Trust Fund was not timely replenished to support
Superfund activities.
An important objective of the Superfund program is to recover
funds that EPA spends in cleaning up a Superfund site. This
includes costs which EPA incurs to oversee clean-up activities.
Recovery is initiated through negotiation with or legal action
against a Superfund RP. Judicial and non-judicial actions (orders)
establish EPA's legal right to be reimbursed by the RP for
oversight costs. Based on these orders, the RCO prepared
oversight bills and established an accounts receivable.
EPA's Resources Management Directives on cash management
include specific policies and procedures for follow-up on
uncollected accounts receivable. If an RP does not make a timely
payment after receiving the initial billing, the Region is required
to make additional collection efforts. The RCO is required to
send out 3 dunning letters1 30,60, and 90 days after the initial
billing. After 120 days, RCO must refer the bill to ORC for
further collection actions.
Region 5 often took months to establish receivables for oversight
costs and bill RPs. In some cases, even years after costs were
incurred, Region 5 had not established a receivable or billed the
RP. Of 24 cases reviewed, 17 had late billings2 and 4 had
'Reminder nonces.
2We defined a late billing as 90 days after the end of the annual billing period.
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oversight costs which had not been billed at all. Reliance on
manual procedures - including tracking billing periods,
accumulating oversight costs, and preparing bills - contributed to
the length of time needed to issue a bill. Also, the regional
Superftmd Program Office (program office) and ORC did not
promptly review bills prior to issuance.
Regional Comptroller
Office Manually
Generated Billings
RCO manually maintained a listing of billing periods for
Superfund sites in the region. It used this information to
determine which billings were due and to track the status of
billings in process. However, competing priorities hindered
RCO's timely completion of these determinations. Thus, delays
occurred before the RCO determined that a billing was needed.
Once the RCO determined that a bill needed to be prepared, it (1)
manually accumulated and reconciled costs from Region 5
accounting records and (2) prepared a draft bill. This was a labor
intensive process which further lengthened the billing process. As
a result, bills were prepared months, and sometimes years, after the
end of the billing period.
For the 24 Superfund site files reviewed, 17 were billed late and
four were not billed. For example:
• Region 5 and settling RPs (Site No. D7) signed an order
effective June 1991. Each of the four annual bills were
about eight months late. The RPs paid each bill within two
months of receipt. For the last billing period, ending
September 1995, the Region expended about $178,000 in
oversight efforts that the RCO had not billed.
• Region 5 and an RP (Site No. 4X) signed an order effective
January 1988. Through January 1996, seven billing periods
have elapsed and the Region has incurred $674,000 in
oversight costs. RCO had not sent any billings to the RP.
The RCO often untimely initiated annual billings for oversight
costs. The manual billing system and allocation of resources to
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Program Office and ORC
Reviews Delayed Billings
higher priority activities delayed the process. This delayed the
return of funds to the Superfund Trust Fund.
Routing bills through ORC and the program office, for review and
and approval prior to issuance, added to the time required to bill
RPs. Existing workloads and competing priorities prevented ORC
and the program office from promptly reviewing and forwarding
bills. Before sending bills to RPs, the RCO routes the bill and
supporting documentation to the program office's Superfund
Remedial Project Manager (RPM) and the assigned ORC attorney
for review and approval. The RPM reviews the oversight costs for
reasonableness. The ORC attorney reviews the bill for compliance
with the terms of the order. If the RPM or ORC attorney identified
errors, the billing was returned and the RCO prepared a revised
billing. RPMs and ORC attorneys stated that reviewing a bill
usually did not take more than a few hours. However, ORC
officials stated that competing priorities often prevented immediate
review. Thus, a billing may wait weeks before being reviewed.
FOLLOW-UP ON
UNPAID RECEIVABLES The Region's efforts to collect delinquent accounts receivable were
WAS NOT EFFECTIVE untimely. The RCO efforts to collect unpaid account balances
consisted of sending a series of dunning letters to the RP. Even
when using dunning letters, the RCO often did not send them
according to the prescribed schedule.
Dunning Letters
Were Untimely
Dunning letters were not always sent 30,60, and 90 days after the
initial bill as prescribed by EPA guidance. For 24 cases reviewed,
two percent (3/130) of the dunning letters were sent timely, thirty
six percent (47/130) were late and sixty two percent (80/130) were
not sent at all. These follow-up problems resulted from (1) a
reliance on a manual process to identify, prepare, and send dunning
letters and (2) an emphasis on initial billings.
The RCO's procedures for sending dunning letters on unpaid
accounts were time consuming and labor intensive. RCO manually
reviewed receivable reports to decide which accounts required
dunning letters. Once identified, the RCO calculated the additional
interest due and updated the receivable balance. The RCO
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manually prepared the dunning letter before sending it to the RP.
Region 5's manual process delayed its collection and recovery
efforts. Also, RCO staff time was directed first at preparation of
initial billings. Remaining time was then available for preparation
of dunning letters.
For the 24 Superfund site files reviewed, 98 percent of the
scheduled dunning letters were either late or not sent. For
example:
• In February 1995, the RCO issued a $42,640 oversight
billing to an RP (Site 1U). Ten months later (December
1995), the RCO sent its only dunning letter. The RP paid
the bill six months after the dunning letter (June 1996).
Since calendar year 1990, the RCO issued 6 bills to an RP
(Site B6). The RP made one partial payment on the first
oversight bill. No payments were made on subsequent
billings. For the unpaid balance on each billing, the RCO
was required to send 3 dunning letters (18 letters total).
Fourteen dunning letters were late and four were never sent.
CTS WILL FACILITATE
THE BILLING AND
COLLECTION
PROCESS
Region 5 recently developed the Cost Recovery Collection
Tracking System (CTS) to provide comprehensive billing and
tracking capabilities for EPA receivables. When fully
implemented, CTS has the capability to improve the timely billing
of accounts receivable. CTS can provide expanded billing and
receivable functions which would streamline the current manual
system. CTS also maintains information that would enhance
reporting for regions and headquarters. Specifically, CTS has the
capability to (1) determine when annual billings are due, (2)
generate annual oversight billing statements, and (3) issue timely
dunning letters.
Although CTS can speed the billing and collection process, it does
not address delays resulting from (1) manually accumulating and
reconciling oversight costs and (2) untimely review of billing
documents. CTS also does not resolve the need for increased
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emphasis on the billing and collection of receivables and the need
to increase personal interaction with RPs.
CONCLUSION
RECOMMENDATIONS
AND
AGENCY ACTIONS
OIG EVALUATION
Region 5's billing and collection process for Superfund oversight
costs is untimely. As a result, the Superfund Trust Fund was not
timely replenished. The RCO must bill and send dunning letters
promptly.
We recommended and the Regional Administrator, Region 5,
agreed that the RCO would:
2-1. Develop and implement specific timeframes for preparing
and forwarding annual oversight bills to ORC, the program
office, and RPs for payment. A Region 5 Superfund Cost
Recovery Taskforce has started this work and expects to
provide a new Memorandum of Understanding (MOU) by
September 30,1997.
2-2. Work with ORC and the program office to establish
standard timeframes for reviewing proposed annual
oversight billing before the RCO sends the RP the bill. The
recommendations would be implemented as part of the
Region's effort to update the MOU.
2-3. Emphasize timely issuance of dunning letters 30,60, and
90 days following the issuance of the annual oversight
billings. Changes will be implemented in CTS, effective
April 1,1997.
2-4 Record contacts with other Region 5 offices and RPs
regarding collection efforts. Written instructions will be
provided to all staff by March 31,1997.
Region 5's actions, when completed, will address our findings and
recommendations.
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CHAPTER 3
Region 5 Did Not Bill Superfund Accounts
Receivable On A Cumulative Basis
REGION 5's CURRENT
PRACTICE DOES NOT
INCLUDE
CUMULATIVE
BILLINGS
Region 5's annual Superfund billings to RPs included only that
year's charges; previously unpaid balances were excluded. Since
collection of unpaid receivables and the related interest charges
impact Agency financial records, cumulative billing is a sound and
appropriate business practice. However, Resource Management
Directives (RMDs) and the region's current billing process do not
encourage the Region to send cumulative billings. Region 5's
billing practice hindered collection and accounting efforts.
Although EPA's new Collection Tracking System contains the
necessary data, current plans do not include producing cumulative
billing statements. Region 5's billings should reflect the total debt
owed by an RP with enough detail to permit reconciliation to
accounting records.
Region 5's billings did not include unpaid balances or the
accumulated interest charges from site's prior billing cycles.
Instead, the costs related to each billing cycle (usually annually)
were accumulated, recorded, and tracked as separate, stand-alone
activities. Region 5's current system does not encourage
cumulative billing. Under the current system, developing a
complete payment history for a specific site requires manually
collecting and totaling previous billings and payments. Region 5
collection efforts focused on individual billing periods rather than
the cumulative debt owed by an RP.
Orders establish the region's ability to recover and bill future
oversight costs. The order also defines the annual billing period.
RMDs, issued through EPA's Office of the Comptroller, provide
EPA regions with instructions on how to establish and collect a
receivable. The RMDs, however, are silent on the issue of
cumulative billing. Cumulative billing, including related interest
charges, emphasizes to the RP its total financial obligation to EPA.
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It also allows EPA to evaluate the entire debt when assessing
future collection efforts.
After the completion of each billing period, RCO summarized the
costs incurred in the billing period, prepared a billing statement,
assigned a unique billing document (BD) number for identification,
and mailed the statement to the RP. If the amount was not paid on
time, the region was required to send 3 dunning letters at 30,60,
and 90 days. After the third dunning letter, RCO is required to
refer the receivable to ORC for further action. Once a receivable
was referred to ORC, RCO did not send any additional billings or
dunning letters to the RP related to that billing period.
We reviewed Region 5's billing statements for 24 Superfund sites.
In six cases, previously billed costs had not been paid in full before
the next billing cycle was completed. In all six cases, however, the
region did not include the unpaid amounts or related interest
charges on the next year's billing statement.
Region 5's billing practice does not provide it or the RP with the
magnitude of the entire unpaid balance. If cumulative billings
were provided, ORC would have information to identify and
pursue RPs with the highest total debt. This would provide ORC
with a tool to prioritize resources to aid in the collection of unpaid
balances.
CTS HAS THE
CAPABILITY OF
GENERATING
CUMULATIVE
BILLINGS
Region 5 developed CTS to provide comprehensive billing and
tracking capabilities for EPA receivables, nation-wide. CTS
provides expanded billing and receivable functions to streamline
manual processes. CTS maintains information to enhance
reporting for both the regions and headquarters. Specifically, CTS
• establishes new receivable accounts by BD number and
site;
• tracks enforcement information specific to the settlement
document;
• maintains billing schedules and open account information
to simplify account and collections tracking;
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• calculates interest due on late payments or as part of an
installment plan; and
• automatically generates billings and dunning letters.
CTS would facilitate inclusion of an unpaid amount in a current
billing statement, since it is capable of identifying and bringing
forward an unpaid balance from one billing period to the next. The
tracking system would have to match a prior year BD number with
the current year number. Unpaid balances could then be included
in the current billing statement. The inclusion of the unpaid
amount with the current bill would provide both the Region and
the RP with a cumulative account receivable.
Region 5 is in the process of entering data for open accounts
receivable, and plans to have all open accounts receivable in the
system by the end of this calendar year. Once completed, this will
give the Region a history of an RP's unpaid amounts. Currently,
the planned modifications of the system do not include providing
cumulative billings. In order to use CTS for cumulative billings,
some system modifications would be necessary.
When CTS has been fully-developed, tested, and implemented, all
EPA regions could have the capability to generate cumulative
billings. As of August 1996, Region 5 has trained staff and
installed this system in Regions 7 and 8. The system is currently
available to all remaining regions. Some of the Regions plan to
wait for additional modifications to be made. These changes
should be in place by June 1997.
CONCLUSION
Region 5 did not include unpaid balances from the site's prior
years in its annual billings to RPs. Cumulative billing is a sound
and appropriate business practice, since unpaid receivables are
interest producing assets. Region 5's manual billing process and
RMDs did not encourage cumulative billings. As a result, EPA
could not make management decisions based on a complete
understanding of an RP's debt to the Agency. Also, RCO did not
make further attempts to collect past due balances that remained on
the accounting records for extended periods of time.
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Region 5's billing statements should reflect the total financial
obligation owed by the RP with sufficient detail to permit
reconciliation to accounting records. Since EPA's new Collection
Tracking System contains all the necessary data, it should be used
to prepare cumulative billings.
RECOMMENDATIONS
AND
AGENCY ACTIONS
We recommended and the Regional Administrator, Region 5,
agreed that the RCO would:
3-1. Modify GTS to prepare the site's annual billing and
dunning letters to include unpaid balances. The new
modification will be implemented is approximately six
months.
OIG EVALUATION
Region 5's actions, when completed, will address our findings and
recommendation.
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CHAPTER 4
Payments Were Obtained For
Unrecorded Receivables
ACCOUNTS
RECEIVABLE WERE
NOT RECORDED
TIMELY
RCO received payments for accounts receivable which did not
exist in its accounting records. This occurred because Region 5's
ORC did not timely forward a number of judicial actions to the
RCO. EPA's Resources Management Directives, make ORC
responsible for forwarding all orders to the RCO. However, some
ORC attorneys were not aware of this requirement. Also,
appropriate follow-up was not conducted to resolve unrecorded
receivables. As a result, Region 5's accounts receivable records
were incomplete and the RCO was not able to match collections to
the related receivable.
This issue was originally reported to Region 5 as a result of the
OIG's Fiscal Year 95 Financial Statement Audit. The Regional
Comptroller and the Regional Counsel responded that they would
work together to resolve problems with accounts identified in that
report. However, our review found that the ongoing procedural
weaknesses persist.
Region 5's procedure for recording receivables did not ensure that
all receivables were established timely. ORC did not timely
forward orders to the RCO, even when RCO staff made multiple
requests. Some ORC attorneys were unfamiliar with the
requirement to forward these documents to the RCO. Also, ORC
did not track or follow-up on RCO document requests to ensure
timely response. As a result, the Region's accounting records were
incomplete and the RCO could not match some collections to the
appropriate accounts receivable.
The Department of Justice (DOJ) litigated cases for EPA. In some
instances, the resulting court order obligated an RP to pay the
government for past costs, fines, and penalties. DOJ, under a
Memorandum of Understanding, provided ORC with a copy of the
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court order and collected the monies owed. ORC is responsible for
forwarding to the RCO a copy of all orders that establish a debt.
When DOJ subsequently collected the money, it notified EPA
Headquarters, who provided payment information to the RCO.
When the RCO received payment information that it could not
match to an existing receivable, its liaison requested the supporting
court documents through the designated ORC liaison. The ORC
liaison contacted the ORC attorney responsible for the case and
directed the attorney to provide a copy of the court order to the
RCO. Our review identified 15 non-Superfund collections
received since September 1995, for which the RCO had not
established a receivable. Six of these cases had been reported in
the OIG's FY 1995 Financial Statement Audit (January 1996), but
were still unresolved. According to some ORC attorneys, they
were not aware that they were required to forward the orders to the
RCO.
The ORC liaison did not follow-up with attorneys to determine if
requests from RCO had been answered. The ORC liaison expected
that the ORC attorneys would respond to the RCO and resolve the
problems. He was unaware there were still open requests for
consent orders. If the RCO liaison did not receive the
documentation, it continued to make requests, but she did not
notify her supervisor of the problem. For 11 of the 15 cases in our
review, the RCO made 4 or more requests to ORC for the
information needed to create the account receivable (See Exhibit
1). As of August 1996, they were still unresolved. Subsequently,
after our discussions with ORC attorneys, they provided the RCO
with 8 of 15 cases. As a result, receivables were not entered timely
in the accounting records and the RCO was not able to match
collections to its accounts receivable records.
ORC has taken actions to improve the timeliness of forwarding
orders to RCO. In April 1996 the Regional Counsel directed ORC
attorneys to send the orders to RCO. Also, the Deputy Regional
Counsel stated that he had assigned the liaison responsibility to
respond to RCO's requests for orders to a specific individual.
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Region 5's Billing and Collection of Accounts Receivable
Also, he will personally follow-up on any RCO second requests for
orders.
Region 5 convened a workgroup to standardize the Regional
offices' responsibilities for reporting orders to RCO. In August
1996, the Office of Enforcement Compliance Assurance issued
"Procedures for Enforcement Tracking" to all Regional
enforcement personnel, including ORC attorneys. The procedures
further enforced the importance of providing the orders to RCO.
CONCLUSION
RECOMMENDATIONS
AND
AGENCY ACTIONS
Region 5 received payments against unrecorded accounts
receivable because ORC did not timely forward the court
documents that the RCO needed to create the receivable. Some
ORC attorneys are not aware of their responsibility to forward debt
related information to the RCO. Also, there is no follow-up
system to ensure that RCO's requests for supporting
documentation are timely answered. As a result, Region 5's
accounts receivable records were incomplete and the RCO was not
able to match collections to its accounts receivable records.
We recommended and the Regional Administrator, Region 5,
agreed that:
4-1. The Regional Comptroller would issue internal operating
procedures for RCO staff to routinely notify management
when repeated requests to ORC for the orders are not
resolved. Written procedures will be issued by March 31,
1997.
4-2. ORC would locate and provide the RCO with the orders
listed in Exhibit 1, so that the RCO can record the amounts
in the Agency's financial accounting system.
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Region 5's Billing and Collection of Accounts Receivable
4-3. ORC would implement improved procedures for its liaison
to routinely follow-up with staff about the RCO's requests
for documentation. The Region 5 Superfund Cost
Recovery Taskforce will make recommendations to
improve these procedures. Also, the Deputy Regional
Counsel has been instructed to personally follow-up on any
matter where ORC staff has been requested by RCO to staff
to provide documents but has not done so for two reporting
periods.
OIG EVALUATION
Region 5's actions, when completed, will address our findings and
recommendations.
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1
Region 5's Billing and Collection of Accounts Receivable
Exhibit 1
Pagel ofl
Number of RCO Requests for Unrecorded
Receivable Documentation
CASE
NAME
Euclid City (1) (2)
Insulation & Environmental
MI Dept. of Corrections (1) (2)
Industrial Services Rust (1) (2)
Menominee Paper (1) (2)
Grosse He Township(l)
Willard Garwood (1)
Lenior Alvin
Graff Enterprises
Siddiqui Parvez
General Electric (2)
Lloyd Lagow Construction (2)
Paul Reger
PMC Specialities Group (2)
Slagle Gary
One Hundred Fifteeth St.Co (2)
AMOUNT
$ 3,500
$ 1,000
$ 5,000
$ 12,420
$ 340,000
$ 5,000
$ 2,500
$ 282
$ 50
$ 12,500
$ 5,026
$ 150,000
$ 9,000
$ 25,000
$1,711,276
$ 10,000
$1,645,000
NUMBER
OF
REQUESTS
4
4
4
4
4
4
5
4
4
4 ..
4
2
2
2
1
DATE OF
FIRST
REQUEST
09/23/95
09/23/95
09/23/95
09/23/95
09/23/95
09/23/95
09/23/95
09/23/95
09/23/95
09/23/95
09/23/95
03/05/96
03/28/96
03/28/96
05/24/96
(1) Previously identified in our 1995 Financial Statement Audit, Position Paper #4
(2) RCO received the orders as a result of audit efforts.
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Region 5's Billing and Collection of Accounts Receivable
Appendix 1
Page 1 of5
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION 5
77 WEST JACKSON BOULEVARD
CHICAGO, IL 60604-3590
MAR 25 1997
REPLY TO THE ATTENTION OF:
MEMORANDUM
SUBJECT: Revised Draft Audit Report E1AMF6-05-0079
Region 5's Accounts Receivable Billing and Collection
tivotJxc 0 kctJ_A^~
FROM: "^ Valdas V. Adamkus J^^-^-r-^
Regional Administrator
TO: Anthony C. Carrollo
Divisional Inspector General for Audits
Northern Division
Thank you for the opportunity to comment on the subject revised draft audit report.
Attached is the Region's response to the report. If you have any questions, please contact Karen
Vasquez, Acting Regional Comptroller at 6-7560.
Attachment
. Adamkus
Recycled/Recyclable • Primed with Vegetable Oil Based Inks on 100% Recycled Paper (40% Posteonsumer)
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Region 5's Billing and Collection of Accounts Receivable
Appendix 1
Page 2 of5
Attachment
Region 5 Response to the Office of Inspector General Audit Report on
Accounts Receivable Billing and Collection
We agree with the findings in the February 26,1997 revised draft audit report. Listed below are
Region 5's specific responses to the report's findings and recommendations, including our planned
and completed corrective actions.
Chapter 2 - Superfund Oversight Costs Are Not Timely Collected
Recommendation 2-1: Develop and implement specific time frames for preparing and
forwarding annual oversight bills to ORC, the program office, and RPs for payment.
Region 5 Response:
The Region agrees with the recommendation. We will include specific time frames for preparing
and reviewing oversight bills in a new Superfund Cost Recovery Memorandum of Understanding
(MOU). The Superfund Cost Recovery Taskforce has a workgroup with representatives from the
program office, the RCO and ORC. We also will invite the Office of Inspector General, Northern
Division, to nominate a member of their staff to participate in this workgroup. The workgroup
will revise the MOU that has been in effect since 1990 to reflect organizational and process
changes and to add new time frames to effect more timely billings. The workgroup began
working on January 28, 1997. It will provide a new MOU to the program office, the RCO, and
ORC by September 30, 1997.
The billing of Superfund oversight costs is a complex process involving analysis by the RCO,
ORC, the program office, and the RPs. The RCO accesses multiple data information systems to
assemble, reconcile, and document oversight costs. Each billing may have unique requirements
requiring special consideration.
Current CFO performance guidelines established by Headquarters indicate when annual oversight
billings are to be prepared. The guidelines call for the RCO to prepare oversight bills within 120
days of the anniversary date of the consent decree or administrative order on consent, or within
the time frame specified in the document, or as directed by the program office, whichever is
applicable. Implementing specific time frames set by the Taskforce workgroup will enhance our
ability to timely execute the complex billing process and meet the performance guidelines.
Recommendation 2-2: Work with ORC and the program office to establish standard time
frames for reviewing proposed annual oversight billing before the RCO sends the RP the bill.
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Region 5's Billing and Collection of Accounts Receivable
Appendix 1
Page 3 of5
Region 5 Response:
The Region concurs with the recommendation that it develop standard time frames for reviewing
proposed annual oversight billings prepared by the RCO. This recommendation can also be
implemented as part of the effort to update and revise the Superfund Cost Recovery MOU.
However, the Region believes that most Superfund oversight bills are reviewed promptly. The
process of defining which costs can be billed requires considerable research and refinement.
Occasionally, there are valid reasons for delaying an oversight bill. Although ORC staff attorneys
handle many additional responsibilities, they give appropriate priority to oversight bills.
Recommendation 2-3: Emphasize timely issuance of dunning letters 30, 60, and 90 days
following the issuance of the annual oversight billings.
Region 5 Response:
We agree with this recommendation and we will implement this function in the new accounts
receivable Collection Tracking System (CTS) effective April 1,1997.
Recommendation 2-4: Record contacts with other Region 5 offices and RPs regarding
collection efforts.
Region 5 Response:
We agree with this recommendation. We understand the importance for staff to document efforts
to collect past due accounts, including dunning letters and referrals to ORC. We have already
orally informed our staff that they are to document in detail all contacts with regional attorneys,
program staff, and responsible parties in order to provide a complete audit trail for all files.
Written instructions to the staff to officially notify them of this requirement will be distributed by
the end of this month.
Chapter 3 - Region 5 Did Not Bill Superfund Accounts Receivable on A Cumulative Basis
Recommendation 3-1: Modify CTS to prepare the site's annual billing and dunning letters to
include outstanding unpaid balances.
Region 5 Response:
We agree with the recommendation regarding cumulative billings and have initiated discussions
with the designers of CTS to incorporate this concept into the system so that as each new bill is
generated, a statement of past due amounts will be provided. This new modification will be
implemented in approximately six months.
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1
Region 5's Billing and Collection of Accounts Receivable
Appendix 1
Page 4 of 5
We believe it is important that a cumulative billing process include some flexibility to adjust for
unique, case-specific factors. Settling parties may not have paid their bills for a valid reason.
Superfund is a dynamic process where: (1) some oversight bills are disputed in whole or in part
(which is permitted as a matter of fairness because future oversight costs are not known at the
time of settlement); and (2) some bills may be superseded by, or merged into, subsequent
settlement agreements for later phases of the cleanup at the same site.
Chapter 4 - Payments Obtained for Unrecorded Receivables
Recommendation 4-1: Implement an internal operating procedure for (RCO) staff to routinely
notify management when repeated requests to ORCfor the orders are not resolved.
Region 5 Response:
We agree with this recommendation. Written procedures will be prepared by March 31, 1997.
Recommendation 4-2: (ORC should) Provide the RCO with the orders listed in Exhibit I, so
that the RCO can record the amounts in the Agency's financial accounting system.
Region 5 Response:
The Region concurs with this recommendation, and will continue working to locate and provide
the outstanding items listed in Exhibit 1.
As a threshold matter, the Region must rely on the DOJ, which must in turn rely on the local U.S.
Attorney's Offices to obtain and provide copies of the final orders and decrees. While EPA's
MOU provides that DOJ will promptly provide copies of these documents to the Region, this
does not always happen in practice. For example, in two of the cases in Exhibit I—Siddiqui
Parvez and Grosse Isle Township-totaling $7526, it appears that ORC has never received the
relevant final decrees from the DOJ.
Four matters totaling $35,332 (Garwood, Lenoir, Reger and Slagle) appear to be restitution
matters which are handled autonomously by U.S. Attorney's offices or by the OIG's office. It
appears that DOJ does not have knowledge or information about these cases either. ORC plans
to raise this matter with DOJ management so they can work on ways of making sure these
documents are provided to the Region. The basis for one payment of $12,500 (Graff Enterprises)
is still under investigation.
Recommendation 4-3: (ORC should) Establish and implement internal control procedures for
the liaison to routinely follow~up with staff about the RCO's requests for documentation. Also,
continue to emphasize to staff attorneys the importance of providing orders timely to the RCO.
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Region 5's Billing and Collection of Accounts Receivable
Appendix 5
Page 5 of 5
Region 5 Response:
The Region concurs with this recommendation. The workgroup, referred to in our response to
Recommendation 2-1, will make recommendations on improving this process.
To reinforce the Region's commitment to making this process work, the Deputy Regional
Counsel has been instructed to personally follow-up on any matter where a staff attorney has
been asked to provide documents to the RCO contact but has not done so for more than two
reporting periods. In addition, the Deputy Regional Counsel has formally assigned the liaison
responsibility to a person who has more day-to-day involvement with ORC's compliance tracking
efforts than the attorney who had been informally serving in this role for the past several years.
The ORC, the RCO, and other program offices have been working together to reinforce the
importance of providing copies of decrees and orders to the RCO. On April 17, 1996, ORC
issued "Revised ORC Case Reporting and Tracking Procedures." That memorandum provides a
comprehensive reference for staff attorneys on their document submission responsibilities at all
stages of the enforcement process. The memorandum reinforces the need to provide copies of
entered decrees and orders to the RCO. On August 6, 1996, the Office of Enforcement and
Compliance Assurance issued "Procedures for Enforcement Tracking" to all enforcement
personnel in the Region, including the ORC attorneys. Those procedures further reinforce the
importance of providing copies of entered decrees and orders to the RCO. In addition, ORC has
recently revised its Case Conclusion Data sheet (a form that must be completed at the time any
Consent Decree is entered, per the April 17, 1996, memo) to include a specific reminder that a
copy of all final decrees and orders must be provided to the RCO and another copy to ORC's
Docket Analyst. ORC believes these measures will increase awareness of, and compliance with,
the requirement to promptly provide documents to the RCO.
ORC has also been working with die RCO to identify missing documents either before payments
are received, or as soon as possible afterward. ORC's Management Analyst now provides to the
RCO contact a monthly report of final judicial decrees and orders entered in ORC's tracking
system. This report will permit the RCO to assure that it has copies of the relevant documents
and has established receivables. In the event the RCO is missing documents, it can request
documents from the ORC Docket Analyst's master file (or if the document is not there either, the
Management Analyst can identify the assigned attorney and have them forward the relevant
documents).
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BD
CERCLA
CIS
DOJ
EPA
MOU
OIG
ORC
Orders
Program Office
RCO
RMDs
RP
RPM
Appendix 2
Page 1 of 1
ABBREVIATIONS
Billing Document
Comprehensive Environmental Response, Compensation, and
Liability Act
Cost Recovery Collection Tracking System
Department of Justice
Environmental Protection Agency
Memorandum of Understanding
Office of Inspector General
Office of Regional Counsel
Judicial and Non-Judicial Orders
Superfund Program Office
Regional Comptroller's Office
Resource Management Directives
Superfund Responsible Party
Superfund Remedial Project Manager
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Region 5's Billing and Collection of Accounts Receivable
Appendix 3
Page 1 of 1
DISTRIBUTION
Region 5
Regional Administrator (R-19J)
Senior Leadership Team
Assistant Regional Administrator, Resources Management Division (M-14J)
Deputy Regional Counsel (C-29A)
Acting Regional Comptroller (MF-10J)
Director, Office of Superfund (S-6J)
Regional Enforcement Coordinator (R-19J)
Team Leader CAST-PAAS (Follow-up Coordinator) (MFA-10J)
Library (PL-12J)
Headquarters
Assistant Administrator for Sold Waste and Emergency Response (5101)
General Counsel, Office of General Counsel (2310)
Acting Chief Financial Officer (3101)
Acting Assistant Administrator for
Administration and Resources Management (3101
Comptroller (3301)
Agency Follow-up Official (3101)
Attn: Assistant Administrator, OARM
Agency Follow-up Coordinator (3304)
Attn: Direction Resources Management Division
Headquarters Library (3401)
Office of Inspector General
Inspector General (2410)
Regional Offices
Regional Comptrollers
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