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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, DC 20460
September 28, 1999
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OFFICEOF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: EPA's Fiscal 1998 Financial Statements
Audit Report No. 99B0003
FROM: James O. Rauch (signed)
Assistant Inspector General for Audit (2421)
TO: Sallyanne Harper
Chief Financial Officer (2710)
Romulo L. Diaz, Jr.
Assistant Administrator for
Administration and Resources Management (3101)
Steven A. Herman
Assistant Administrator for
Enforcement and Compliance Assurance (2201A)
Attached is our audit report on the Agency's fiscal 1998 financial statements. The report
recognizes the efforts that were made to implement the many new accounting and reporting
requirements that became effective in fiscal 1998. These efforts resulted in us being able to render
a clean opinion on EPA's Agency-wide financial statements. However, Agency management
needs to place a high priority on resolving those issues that prevented the Agency from meeting
the Government Management Reform Act requirement to provide the Agency's fiscal 1998
audited financial statements to the Office of Management and Budget by March 1,1999.
Improvements in these areas will also result in more timely and reliable information for the day to
day management of the Agency's environmental programs.
In this particular audit, the OIG did not measure the audited offices' performance against
the standards established by the National Contingency Plan (NCP). The findings contained in this
audit report are not binding in any enforcement proceeding brought by EPA or the Department of
Justice under Section 107 of the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) to recover costs incurred not inconsistent with the NCP.
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In accordance with EPA Order 2750, the primary action official is required to provide us
with a written response to the audit report within 90 days of the final audit report date. Since this
report deals primarily with financial management issues, we are requesting the Chief Financial
Officer, as the primary action official, take the lead in coordinating and providing us a written
response to this report. For corrective actions planned but not completed by the response date,
reference to specific milestone dates will assist us in deciding whether or not to close this report in
our audit tracking system.
This audit report contains findings that describe problems the Office of Inspector General
has identified and corrective actions the OIG recommends. This audit report represents the
opinion of the OIG, and the findings contained in this 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. Accordingly, the findings
described in this audit report are not binding upon EPA in any enforcement proceeding brought by
EPA or the Department of Justice. We have no objections to the further release of this report to
the public.
Should you or your staff have any questions about the report, please contact Melissa
Heist, Divisional Inspector General for Audit, Financial Audit Division, at 260-1479, or
Alan Bogus of her staff at 260-4943.
Attachment
cc: See Report Distribution List
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EXECUTIVE SUMMARY
INTRODUCTION
We performed this audit in accordance with the Government Management Reform Act which
requires the Environmental Protection Agency (EPA or the Agency) prepare, and the Office of
Inspector General (OIG) audit the Agency's financial statements each year. The requirement for
audited financial statements was enacted to help bring about improvements in agencies' financial
management practices, systems and controls so that timely, reliable information is available for
managing Federal programs.
OBJECTIVES
Our primary objectives were to determine whether:
• EPA's principal financial statements are fairly presented,
* information presented in the EPA Overview section of the financial statements is
consistent with the principal financial statements,
• adequate internal controls related to the principal financial statements were in place, and
• the Agency complied with applicable laws and regulations that could materially affect the
principal financial statements.
RESULTS IN BRIEF
Opinion on EPA's Fiscal 1998 Financial Statements
In our opinion, the Agency's fiscal 1998 financial statements are fairly presented. However, as
discussed below, we noted material weaknesses in the Agency's processes for preparing financial
statements. These weaknesses prevented the Agency from producing reliable financial statements
in a timely manner.
Review of the Agency's Overview
We did not identify any material inconsistencies between the information presented in the
Overview and in the financial statements.
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Evaluation of Internal Controls
Material Weaknesses
The Agency was unable to meet the legislatively mandated March 1 deadline for submitting its
audited financial statements to the Office of Management and Budget (OMB) due to difficulties in
obtaining information from various Agency offices and external sources, and problems in
implementing new accounting standards and OMB reporting requirements. In particular, the
Agency encountered significant difficulties in preparing the Statements of Budgetary Resources
and Financing due to weaknesses in the Agency's deobligation process, conversion of accounting
information from EPA's predecessor accounting system, and errors in recording various
accounting transactions. These issues highlight the need for the Agency to strengthen its
coordination and quality control processes to ensure accurate data is available to prepare the
annual financial statements and to manage the Agency's program activities on an ongoing basis.
Further, improvements in the Agency's deobligation process would result in additional funds being
made available to be used in support of EPA's environmental goals.
We consider the weaknesses we identified in the Agency's financial statement processes to be
material weaknesses. The OMB defines a material weaknesses as a situation where internal
controls do not reduce to a relatively low level, the risk that errors, fraud or noncompliance in
amounts material to the audited financial statements or Required Supplemental Stewardship
Information may occur and not be detected in a timely manner by employees in the normal course
of performing their assigned functions.
Reportable Conditions
Reportable conditions are significant internal control weaknesses that could adversely affect EPA's
ability to ensure: (1) transactions are executed in accordance with applicable laws;
(2) assets are safeguarded against loss from unauthorized acquisition, use, or disposition; and
(3) transactions are properly recorded, processed, and summarized to permit the preparation of
reliable financial statements and Required Supplemental Stewardship Information in accordance
with Federal accounting standards. The reportable conditions we identified involved the need for
improvements in: (1) tracking unilateral administrative orders, (2) managing accounts receivable,
(3) approving interagency agreement invoices, (4) accounting for capitalized property,
(5) recording Superfund State Contract revenue, and (6) documenting automated controls within
the Agency's accounting system.
Tests of Compliance with Laws and Regulations
We did not identify any instances of noncompliance with laws end regulations that would result in
material misstatements to the audited financial statements. However, we did note the following
two significant noncompliance issues.
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EPA makes disbursements for grants that are funded from more than one appropriation using the
oldest available funding (appropriation) first which may or may not be the appropriation that
benefitted from the work performed. Thus, EPA is not complying with Title 31 U.S.C. 1301
which requires EPA to match disbursements to the benefitting appropriation. Even though this
instance of noncompliance did not result in a material misstatement of EPA's financial statements,
it is a significant issue the Agency must address. In addition, as previously noted, the Agency did
not meet the Government Management and Reform Act's March 1 deadline for submission of its
financial statements to OMB.
Compliance with the Federal Financial Management Improvement Act
The Federal Financial Management Improvement Act (FFMIA) requires that, as a part of our
annual financial statement audits, we determine whether EPA's financial management systems
substantially comply with Federal financial management system requirements, applicable
accounting standards, and the Standard General Ledger at the transaction level. In addition to the
previously discussed material weaknesses in the Agency's processes for preparing financial
statements, we also identified the following instance of noncompliance with FFMIA system
requirements.
Our review of Agency financial management systems under development or operational, as of
September 30,1998, found that management had not approved security plans for seven financial or
mixed financial systems, and the approved security plans for the remaining eight systems did not
comply with the requirements of OMB Circular A-130, Management of Federal Information
Resources. As a result, the Agency did not have reasonable assurance that existing controls would
prevent unauthorized disclosure or manipulation of data, or the loss of data in the event of a
disaster or accidental or intentional damage. The Agency also reported information security
planning as a material weakness hi its fiscal 1998 Integrity Act Report.
RECOMMENDATIONS
To improve the Agency's financial reporting processes, we are recommending the CFO:
• evaluate the current processes for preparing the annual financial statements, update
procedures to reflect new accounting guidance and standards, and establish quality review
processes to help ensure the preparation of timely, complete and reliable financial
statements; and
• develop reports for the annual review of unliquidated obligations which highlight older
obligations, require responsible officials to justify why unliquidated obligations exist if the
period of performance has ended, and follow-up to verify thav invalid obligations were
deobligated.
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To improve the security over EPA's financial systems, we are recommending the CFO:
• develop a remediation plan which -- (1) specifies resources, remedies, and intermediate
target dates to bring the Agency's financial systems into compliance with applicable
requirements, and (2) addresses the critical security controls outlined in this report.
Our report also contains recommendations related to the other internal control and compliance
issues we identified during this audit
AGENCY COMMENTS AND OUR EVALUATION
In a memorandum dated August 16,1999, the CFO responded to our draft report. In the
response, she indicated that her office believes some of the issues we identified as material
weaknesses and reportable conditions were not properly categorized. The CFO agreed with many
of the recommendations and indicated corrective actions are planned or ongoing to implement
these recommendations. The CFO noted her office is committed to continued improvements in
financial management with specific emphasis on improving the process that produces the Agency's
financial statements. Management's goal is to prepare reliable, timely financial statements. The
CFO appreciated the cooperation from our office over the past several months to resolve the
outstanding issues. With respect to compliance with the Federal Financial Management
Improvement Act, the CFO believes the Agency is in substantial compliance, and steps are being
taken to remedy the deviations with the procedural requirements we noted. The Agency's
complete response is included as Appendix n to this report.
We will continue to support the Agency's efforts to improve its processes for preparing reliable,
timely financial statements. We look forward to working with the Agency to bring about process
improvements in financial practices, systems and controls for future financial statements. We have
not changed the classification of the reported weaknesses, nor have we changed our conclusion
about the Agency's noncompliance with FFMIA. The rationale for our conclusions is included in
the appropriate sections of this report.
IV
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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY i
INTRODUCTION i
OBJECTIVES i
RESULTS IN BRIEF i
RECOMMENDATIONS iii
AGENCY COMMENTS AND OUR EVALUATION iv
ABBREVIATIONS
INTRODUCTION 1
PURPOSE 1
BACKGROUND 1
PRIOR AUDIT COVERAGE 2
INSPECTOR GENERAL'S REPORT ON EPA'S FISCAL 1998
FINANCIAL STATEMENTS 4
OPINION ON EPA'S FISCAL 1998 FINANCIAL STATEMENTS 4
OVERVIEW SECTION OF THE FINANCIAL STATEMENTS 5
EVALUATION OF INTERNAL CONTROLS 6
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS 12
RESPONSIBILITIES AND METHODOLOGY 14
EPA MANAGEMENT RESPONSIBILITIES 14
OIG RESPONSIBILITIES 14
AUDIT METHODOLOGY 14
ATTACHMENT 1 - MATERIAL WEAKNESSES
ATTACHMENT 2 - REPORTABLE CONDITIONS
ATTACHMENT 3 - COMPLIANCE WITH LAWS AND REGULATIONS
ATTACHMENT 4 - STATUS OF PRIOR AUDIT REPORT RECOMMENDATIONS
APPENDIX I EPA'S FISCAL 1998 FINANCIAL STATEMENTS
APPENDDC H AGENCY'S RESPONSE TO THE DRAFT REPORT
APPENDK m ADDITIONAL OIG COMMENTS ON THE AGENCY'S RESPONSE
APPENDIX IV REPORT DISTRIBUTION LIST
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ABBREVIATIONS
APF Authorized Program Facility
ARTS Asbestos Retrieval Tracking System
BAS Budget Automation System
BCCP Business Continuity and Contingency Planning
CDOTS Contract Delivery Order Tracking System
CERCLA Comprehensive Environmental Response, Compensation and Liability Act
CFMC Cincinnati Financial Management Center
CFO Chief Financial Officer
CIO Chief Information Officer
CIS Contract Information System
CPARS Combined Payroll Redistribution Reporting System
CPS Contracts Payment System
CTS Superfimd Cost Recovery Collection Tracking System
DOJ Department of Justice
DOPO Delivery Order Project Officer
EAD Environmental Accountability Division
ESD Enterprise Systems Division
EPA Environmental Protection Agency
EPAYS EPA Payroll and Personnel System
ERRD Emergency Remedial and Response Division
ETSD Environmental Technology Services Division
FAS Fixed Assets Subsystem
FFMIA Federal Financial Management Improvement Act
FMD Financial Management Division
FMFIA Federal Managers' Financial Integrity Act
FMOs Financial Management Offices or Officers
FMSD Facilities Management and Services Division
FSB Financial Systems Branch
GAD Grants Administration Division
GAO General Accounting Office
GICS Grants Information and Control System
GMRA Government Management Reform Act
lAGs Interagency Agreements
ICMS Integrated Contract Management System
BFMS Integrated Financial Management System
MARS Management Accounting and Reporting System
OAM Office of Acquisition Management
OARM Office of Administration and Resources Management
OC Office of the Comptroller
OCFO Office of the Chief Financial Officer
OIG Office of Inspector General
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ABBREVIATIONS
OERM Office Of Information Resources Management
OMB Office of Management and Budget
OP AC On-Line Payment and Collection System
ORC Office of Regional Counsel
P2000 Partnership 2000
PMO Property Management Officer
PDD Presidential Decision Directive
PP&E Property, Plant, and Equipment
RMDS Resources Management Directives System
RSSI Required Supplemental Stewardship Information
RTP Research Triangle Park
SARA Superfund Amendments and Reauthorization Act
SFFAS Statement of Federal Financial Accounting Standards
SIRMO Senior Information Resources Management Officer
SPEDI Small Purchase Electronic Data Interchange
SSC Superfund State Contract
TM Travel Manager
UAO Unilateral Administrative Order
WCF Working Capital Fund
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INTRODUCTION
PURPOSE
We performed this audit in accordance with the Government Management Reform Act which
requires the Environmental Protection Agency (EPA or the Agency) prepare, and the Office of
Inspector General (OIG) audit the Agency's financial statements each year. The objectives of our
audit work were to determine if:
(1) EPA's principal financial statements1 are fairly presented;
(2) the information reported in the EPA Overview section of the financial statements is consistent
with information presented in the principal financial statements;
(3) adequate internal controls related to the principal financial statements were in place; and
(4) EPA management complied with applicable laws and regulations which, if not followed, could
have a direct and material effect on the principal financial statements.
The Superfund Amendments and Reauthorization Act (SARA) of 1986 requires an audit of
obligations and disbursements of the Superfund Trust Fund. Our financial statement audit work
encompassed the SARA audit requirements.
BACKGROUND
EPA's financial statements include two major components - the Superfund Trust Fund and All
Other Appropriated Funds. These two components are described below.
Superfund Trust Fund
Congress established the Superfund Trust Fund in 1980 to identify and clean up spills of
hazardous materials and sites contaminated with hazardous substances. The Superfund program
is primarily managed by the Office of Solid Waste and Emergency Response and the Office of
Enforcement and Compliance Assurance. Much of the day-to-day operation of the program is
carried out in EPA's ten regional offices. Other Federal agencies also receive funding to carry out
Superfund activities.
1 EPA's principal financial statements consist of the Balance Sheet. Statement of Net Cost Statement of Changes in Net Position, Statement of
Budgetary Resources, Statement of Financing. Statement of Custodial Activity, and the Notes to the Principal Statements.
1 Audit Report 99B0003
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All Other Appropriated Funds
AM Other Appropriated Funds consists of the State and Tribal Assistance Grants Appropriation
which provides financial assistance to help states and tribes develop the technical, managerial and
enforcement capacity to operate environmental programs that monitor drinking water systems,
implement water quality standards, combat air pollution, promote the use of safer pesticides,
manage hazardous waste, and assure compliance with Federal environmental laws. It also
includes the Asbestos Loan Program, Leaking Underground Storage Tank Trust Fund, the Oil
Spill Trust Fund, the Agency's Working Capital Fund, and the Environmental Program and
Management, Science and Technology, Program Research and Operations, and Building and
Facilities Appropriated Funds, as well as other miscellaneous funds of EPA.
PRIOR AUDIT COVERAGE
During previous financial audits, weaknesses that impacted our audit objectives were reported in
the areas of:
recording unbilled Superfund oversight costs,
accounting for and managing Superfund accounts receivable,
accounting for and controlling property,
analyzing Agency financial activities,
recording accrued liabilities for grants,
approving payments for interagency agreements,
identifying, tracking and reporting EPA's environmental liabilities,
recording revenue for Superfund state contracts,
documenting EPA's Integrated Financial Management System,
complying with federal financial management system requirements,
accounting for payments for grants funded from multiple appropriations,
reconciling the components of Superfund net position,
identifying and allocating indirect costs,
reviewing Agency fees, and
allocating costs to the Superfund Trust Fund.
Attachment 4 summarizes the status of the prior audit report recommendations in each of these
areas. Other sections of this report on internal controls and compliance with laws and regulations
provide additional details on the current status of the Agency's corrective actions.
The Chief Financial Officer (CFO), as the Agency's Audit Follow-up Official, oversees EPA's
follow-up on audit findings and recommendations, including resolution and implementation of
corrective actions. For these prior audits, final action occurs when the Agency completes
implementation of the corrective actions to remedy weaknesses identified in the audit.
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We acknowledge that many actions and initiatives have been taken to resolve prior financial
statement audit issues. We also recognize that the issues we have reported are complex, and
require extensive, long-term corrective actions and coordination by the CFO with various
Assistant Administrators, Regional Administrators and Office Directors before they can be
completely resolved. A number of issues have been unresolved for a number of years. Our office
will continue to work with the CFO in helping them to resolve these issues.
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INSPECTOR GENERAL'S REPORT ON EPA'S
FISCAL 1998 FINANCIAL STATEMENTS
The Administrator
U.S. Environmental Protection Agency:
In accordance with the requirements of the Government Management Reform Act (GMRA), we
audited EPA's fiscal 1998 financial statements. As described in Note 1, these financial statements
were prepared in accordance with provisions of OMB Bulletin 97-01, entitled "Form and Content
of Agency Financial Statements," which is considered a comprehensive basis of accounting other
than generally accepted accounting principles.
The financial statements include expenses of grantees, contractors and other Federal agencies.
Our audit work pertaining to these expenses included testing only within EPA. Audits of grants,
contracts and interagency agreements performed at a later date may disclose questioned costs of
an undeterminable amount at this time.
In addition, the United States Treasury collects and accounts for excise taxes that are deposited
into the Superfund and Leaking Underground Storage Tank Trust Funds.2 The United States
Treasury is also responsible for investing amounts not needed for current disbursements and
transferring funds to EPA as authorized in legislation. Since the United States Treasury, and not
EPA, is responsible for these activities our audit work did not cover these activities.
The Office of Inspector General (OIG) is not independent with respect to amounts pertaining to
its operations that are presented in the financial statements. The amounts included for the OIG
are not material to EPA's financial statements. The OIG is organizationally independent with
respect to all other aspects of the Agency's activities.
EPA's Required Supplemental Information and the Annual Stewardship Information are presented
for purposes of additional analysis. We reviewed this information to determine if it was consistent
with the information in the principal financial statements, but our audit was not designed to
express, and we are not expressing an opinion on it.
OPINION ON EPA'S FISCAL 1998 FINANCIAL STATEMENTS
In our opinion, the financial statements fairly present the:
• assets, liabilities, and net position;
• net costs;
• changes in net position;
2 The Leaking Underground Storage Tank Trust Fund is included in the All Other Appropriated Funds column of the financial statements.
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• budgetary resources;
• reconciliation of net costs to budgetary obligations; and
• custodial activity
for the Superfund Trust Fund, All Other Appropriated Funds and the Agency as a whole as of and
for the year ended September 30,1998, in accordance with the basis of accounting described in
Note 1 to the financial statements. As described in Note 1, these financial statements were
prepared in accordance with applicable provisions of OMB Bulletin 97-01, "Form and Content of
Agency Financial Statements," as amended November 20,1998, which is considered a
comprehensive basis of accounting other than generally accepted accounting principles.
OVERVIEW SECTION OF THE FINANCIAL STATEMENTS
We did not identify any material inconsistencies between the information presented in the
Overview and in the financial statements. During this audit, we did not perform sufficient audit
work to express an opinion on the performance information included in the Overview. Our audits
of EPA's programmatic areas have identified weaknesses in the environmental data information
systems used to generate data used for managing the Agency's environmental programs and
presented in the Overview. The Agency has taken steps to enhance data quality, but recognizes
major challenges still exist. The Agency has several initiatives underway to address data quality
and ensure that environmental data systems contain timely and accurate data.
The Overview also contains information on the state of readiness of the Agency's systems to deal
with the Year 2000. EPA reports that its mission critical financial and mixed financial systems are
already Year 2000 compliant. The Agency also reports that its core financial systems have
addressed both internal and external data exchanges. EPA has implemented an independent
certification program administered through an interagency agreement with the Department of
Transportation to test all mission critical systems. To date, the results of independent verification
tests on financial systems have not been formally reported.
In addition, the Agency still needs to address the issue of establishing required contingency plans
to ensure uninterrupted financial operations in the case of unexpected technical difficulties. All
regional and Headquarters offices are required to develop Continuity of Operations Planning
(COOP) plans. Following completion of individual COOP plans, an overarching Agency plan will
be developed in accordance with Presidential Decision Directive #67 which requires EPA to have
an Agency plan by October 1999. As a part of this process EPA expects to develop Business
Continuity and Contingency Planning (BCCP) for the Year 2000 program. The Agency's Year
2000 Senior Council has directed that an interdisciplinary team be formed to develop the Year
2000 BCCP that will be an addendum to the overarching COOP Agency plans.
Lastly, the Agency is reassessing its non-mission critical systems, central and local infrastructure,
and buildings and facilities, and will develop remediation plans to address noted weaknesses.
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EPA expects to closely monitor progress in these areas and will receive monthly status reports
from various regional and program offices starting in July 30,1999.
EVALUATION OF INTERNAL CONTROLS
We evaluated the Agency's internal control structure: (1) to determine the audit procedures
necessary to express an opinion on the financial statements, and (2) to determine whether the
internal controls provide reasonable assurance that:
• transactions are properly recorded, processed, and summarized to permit the preparation
of reliable principal financial statements in accordance with Federal accounting standards;
• financial transactions are executed hi compliance with applicable laws and regulations; and
• assets are safeguarded against loss from unauthorized acquisition, use or disposition.
Our objective in evaluating controls was not to express an opinion on controls. Accordingly, we
do not express such an opinion. Our evaluation would not necessarily disclose all matters in the
internal control structure that might be reportable conditions or material weaknesses. Because of
inherent limitations in any internal control structure, losses, noncompliance, or misstatements
could occur and not be detected. Also, projecting our evaluation of internal controls to future
periods is subject to the risk that controls may become inadequate because of changes in
conditions, or the degree of compliance with such controls may deteriorate.
Material Weaknesses
OMB Bulletin 98-08, "Audit Requirements for Federal Financial Statements," defines a material
weakness as a situation where internal controls do not reduce to a relatively low level, the risk
that errors, fraud or noncompliance in amounts material to the audited financial statements or
Required Supplemental Stewardship Information may occur and not be detected in a timely
manner by employees in the normal course of performing their assigned functions. In evaluating
the Agency's internal control structure, we identified the following material weaknesses.
Although CFO staff and managers committed to meeting the March 1 deadline for submitting
EPA's audited financial statements to OMB, they were unable to meet the deadline due to
difficulties in obtaining information from other Agency offices and external sources, and
problems in implementing the new financial standards and OMB reporting requirements. In
particular, the Agency encountered significant difficulties in preparing the Statements of
Budgetary Resources and Financing due to weaknesses in the Agency's deobligation process,
conversion of accounting information from EPA's predecessor accounting system, and errors in
recording various accounting transactions. These issues highlight the need for the Agency to
strengthen its coordination and quality control processes to ensure accurate data is available to
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prepare the annual financial statements and to manage the Agency's program activities on an
ongoing basis. Further improvements in the Agency's deobligation process would result in
additional funds becoming available to be used in support of EPA's environmental programs.
Attachment 1 describes weaknesses in the Agency's financial statement processes in more detail,
including the Agency's ongoing and planned corrective actions and additional corrective actions
we are recommending.
Reportable Conditions
We also identified the following reportable conditions. OMB Bulletin 98-08 defines a reportable
condition as an internal control weakness that could adversely affect EPA's ability to ensure:
(1) transactions are executed in accordance with applicable laws; (2) assets are safeguarded
against unauthorized acquisition, use, or disposition; and (3) transactions are properly recorded,
processed, and summarized to permit the preparation of reliable financial statements and Required
Supplemental Stewardship Information in accordance with Federal accounting standards.
Attachment 2 describes each of these reportable conditions in more detail.
• EPA's regions are not consistently tracking demands for payment made under Comprehensive
Environmental Response, Compensation and Liability Act Section 106 Unilateral Administrative
Orders (UAOs).3 Amounts demanded under UAOs are significant and need to be tracked and
controlled. In three regions, we identified $11 million in demands made under UAOs. Other
regions either had no record of the amounts demanded under UAOs, or the amounts were not
demanded because the UAOs did not include a provision to request reimbursement of oversight
costs. When amounts are not tracked in IFMS they cannot be followed up on. Also, the potential
exists for multiple demands to be issued for the identical cost to the same or different parties
resulting in duplicate collections. Tracking the amounts demanded in IFMS would allow the
Agency to maintain better control over the amounts demanded and collected.
• During fiscal 1998, the Agency continued its efforts to improve controls in the accounts
receivable area by issuing additional guidance and instructing Financial Management Offices
(FMOs) to conduct quality assurance reviews covering this area. We continued to find some
accounts receivable, including those for oversight costs, that were not timely recorded and billed;
outstanding receivables that were not timely followed up on and written off; and allowances for
doubtful accounts that were not properly computed. Consequently, some accounts receivable
may not have been correctly valued and timely collected. These problems were caused primarily
by Offices of Regional Counsel and program offices not timely forwarding documentation to
Agency FMOs, and FMO staff being unsure about the methodology they were to use to compute
the allowance for doubtful accounts.
3 Unilateral Administrative Orders are one of the Agency's primary enforcement tools to compel responsible parties to conduct response actions. The
Agency may demand payment for costs it incurs in overseeing the response actions.
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* Some Agency project officers were not fulfilling one of their program oversight duties, that of
reviewing invoices for interagency agreements. In addition, some project officers were not
obtaining and reviewing supporting cost information for amounts billed by other agencies. The
Agency needs to continue making improvements in this area, so that it can be assured that
payments are only made for costs billed that are valid and allowable under the terms of its
interagency agreements.
* For a number of years, we have reported on the need for the Agency to make improvements
in accounting for its property. The Agency has taken actions to permanently resolve these issues,
and we commend the Agency for its continuing efforts to correct weaknesses in this area. The
results of this audit show there are still issues remaining where additional improvements are
needed. We again found property that was not recorded timely or accurately, and property that
was capitalized when it should have been expensed. In addition, we found weaknesses in the
reconciliation of property information in the Agency's accounting system with information
contained in the property subsystem. Such weaknesses impact the quality of data available to
manage the Agency's resources and increase the risk of theft, loss or misuse of the property.
• During fiscal 1998 and prior years, EPA did not properly recognize revenue on its Superfund
State Contracts. Although significant progress has been made in resolving problems that have
existed in this area, we found a few issues remained, primarily at three of the six FMOs where we
tested these accounts. Consequently, material adjustments were needed to fairly present the
financial statements. If regional FMOs had been performing analytical reviews of these accounts,
these errors could have been identified and corrected before becoming an audit issue.
• We continue to be unable to assess the adequacy of the automated internal control structure
for accounting transactions contained in the Agency's Integrated Financial Management System.
During past audits, we reported that the Agency's documentation for the system did not contain
the level of detail necessary to construct tests of automated controls necessary for a financial
statement audit. Agency management acknowledged that the IFMS data dictionary could be
improved. However, management also believes that data dictionary enhancements would not be
cost effective considering the system's maturity, and concurs with a recent Department of
Treasury review which recommends that the Agency defer development of a detailed data
dictionary until it is ready to transition to a new system. We will obtain and assess the Treasury
review team's analysis concerning documentation requirements, as a part of our fiscal 1999
financial statement audit. In addition, we will continue to participate as a consultant on the
Agency's workgroup to replace the payroll system.
In addition to the above reportable conditions resulting from our audit of the Agency's financial
statements, our office completed an audit to determine the adequacy of critical mainframe
operating system software controls. We identified the following weaknesses:
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• EPA is not maintaining and reviewing Authorized Program Facility (APF) libraries4 in a
timely manner. Specifically, we identified libraries that no longer require APF
authorization. Without effectively managing the contents of the APF, EPA management
cannot be assured programs running in an authorized state will adhere to system integrity5
requirements or Agency integrity guidelines.
• EPA is not adequately controlling the number of users who have ALTER and/or
UPDATE access capabilities to APF libraries. Specifically, we identified users that no
longer needed this type of access to perform their current jobs. Also, we identified user
IDs assigned to positions and not individuals. Without effective access controls to the
APF, a knowledgeable user could circumvent or disable security mechanisms and/or
modify programs or data files on the computer without leaving an audit trail.
• EPA is not maintaining Program Property Tables (PPT) or Exits. In addition, EPA is
using nonstandard Supervisor Calls (SVCs). Full implementation of prior APF-related
recommendations should resolve these weaknesses. Furthermore, because these
deficiencies do not significantly put the operating system at risk, we only made
suggestions for improving the PPT, SVC and EXIT controls.
Our office also conducted follow-up audits of physical and environmental information systems
general controls at a number of EPA regions. The follow-up audits assessed the implementation
of corrective actions to improve physical and environmental controls, thereby ensuring the
security and reliability of regional computer faculties and data. We also evaluated the adequacy of
approved security plans for regional general support systems. The following matrix summarizes
continuing security concerns:
| Regional Follow-up Audits: Physical, Environmental, and Disaster Recovery Controls
1 CRITICAL
1 SECURITY
1 CONTROLS
1. Independent review of
1 current security
operations completed. •
1 (OMB A- 130)
Region
1
no
Region
2
no
Region
3
yes
Region
4
no
Region
5
yes
Region
9
no
Cincinnati
yes
4 AD operating system mechanism for identifying and specifically authorizing programs which are to process in an unrestricted or privileged
instruction mode.
5 System integrity is the ability of the system to protect itself against unauthorized user access to the extent that security controls cannot be
compromised.
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Regional Follow-up Audits: Physical, Environmental, and Disaster Recovery Controls
CRITICAL
SECURITY
CONTROLS
2. Security Plan level of
detail was sufficient to
adequately address
required subjects.
(OMB A-130) *
3. Contingency/disaster
recovery plan existed
and was acceptable.
(OMB A-130, & NIST
guides)
4. Security training was
adequate. (OMB A- 130
& Security Act of 1987)
Region
1
no
no
no
Region
2
no
no
no
Region
3
no
no
no
Region
4
no
no
no
Region
5
no
no
no
Region
9
no
no
no
Cincinnati
no
no
no
Although we have issued separate audit memorandums containing our recommendations to
correct these remaining deficiencies, we believe these matters are significant enough to warrant
mention in this report because they relate to the Agency's financial statements. Specifically,
general support systems, regardless of the regional location, support and help control access to
EPA's financial systems. If general controls over EPA's regional general support systems are
adequate, then these systems help provide reasonable assurance that the financial data, used to
prepare the financial statements, is sufficiently protected from unauthorized access or abuse.
Conversely, control deficiencies related to general support systems weaken the first line of
defense and reduce the assurance which can be placed on the integrity of financial data. We will
also report these continuing weaknesses to the Agency's Director for Information Resources
Management
Comparison of EPA'S FMFIA Report with Our Evaluation of Internal Controls
As required by OMB Bulletin 98-08, we compared EPA's Federal Managers' Financial Integrity
Act (FMFIA or the Integrity Act) Report with our evaluation of the Agency's internal control
systems. For reporting under FMFIA, material weaknesses are defined differently than they are
defined for financial statement audit purposes. OMB Circular A-123, "Management
Accountability and Control" defines a material weakness under FMFIA as a deficiency that the
6 A security plan should include the following detailed information:
• description of security related controls used by the system.
• adequacy and effectiveness of those security controls,
• internal control weaknesses identified,
• controls planned to correct each identified weakness with milestone dates for their implementation.
• compensating controls, and
• standard operating procedures for subjects required by OMB A-130.
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Agency head determines to be significant enough to be reported outside the Agency. OMB
Bulletin 98-08 defines a material weakness for financial statement audit purposes as a weakness in
controls that creates a risk that errors, fraud or noncompliance in amounts material to the financial
statements could occur and not be timely detected.
As a part of the fiscal 1998 Integrity Act process, the Agency reported the following three
material weaknesses that relate to the Agency's financial statements.
• Construction Grants Close Out. Of the more than $50 billion in construction grants
awarded in the last 20 years, grants totaling $6.3 billion remained to be closed out at the
end of fiscal 1998. In 1992, EPA designated this area as an Agency weakness and in 1996
reclassified it as a material weakness due to the concern that lack of Agency-wide
attention might result in the loss of resources to properly complete the program. In
addition, there were concerns that millions of dollars in potentially ineligible program costs
might not be available for reuse on other high priority state clean water projects. The
Agency projects that it will close out all construction grants by 2002.
• Grants Close Out and Oversight of Assistance Agreements. Our audits have shown
that Agency staff have not adequately managed assistance agreements. Agency project
files lacked documentation to show that EPA monitored progress on the projects or
required recipients to complete projects and submit the required close out documentation.
This lack of oversight resulted in a significant backlog of assistance agreements to be
closed out. As of the end of fiscal 1998, EPA reported that it had closed out 16,700 of
the original 20,000 backlog of grants to be closed.
• Information Systems Security Plans. Our audits have found deficiencies in the
Agency's information security planning. Information security programs must include the
development and maintenance of information security plans, and a strategy to conduct
management reviews. To date, this has not occurred. At risk, is the possible unauthorized
access, use, modification or destruction of EPA information resources that could result
from these vulnerabilities. The Agency is in the process of implementing corrective action
strategies. We consider this weakness a Federal Financial Management Improvement Act
noncompliance. The following section of this report discusses weaknesses in this area as
they relate to the Agency's financial systems.
As a part of the Agency's Integrity Act process, the Agency did not identify and report material
weaknesses in its financial statement preparation process. Also, the CFO's March 15,1999,
management representation letter to the GAO, OMB and Treasury, in conjunction with the
Government-wide financial statement audit, did not identify weaknesses in the Agency's financial
statement preparation process. We believe the lack of identification and reporting of weaknesses
in rhis area represents a material weakness in the Agency's Integrity Act process.
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TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
We tested compliance with those laws and regulations that could either materially affect the
financial statements or Required Supplemental Stewardship Information, or that OMB or we
considered significant to the audit. Our compliance testing did not disclose any material
misstatements to the financial statements as a result of noncompliance with laws and regulations.
However, the objective of our audit, including our tests of compliance with applicable laws and
regulations, was not to provide an opinion on overall compliance with such provisions.
Accordingly, we do not express such an opinion. There are a number of ongoing investigations
involving EPA's grantees and contractors which could reveal violations of laws and regulations,
but a determination about these cases has not been made.
Federal Financial Management Improvement Act Compliance
As required by the Federal Financial Management Improvement Act (FFMLA), as a part of our
audit, we assessed whether EPA's financial management systems substantially complied with
Federal financial management systems requirements, applicable accounting standards, and the
Standard General Ledger at the transaction level. In planning, performing and reporting on our
tests of compliance, we followed OMB Bulletin 98-08, "Audit Requirements For Federal
Financial Statements."
We found EPA was not in substantial compliance with the FFMIA requirements because of
weaknesses in the Agency's financial statement preparation process. In addition, the following
issues related to the Agency's financial management systems that were operational or under
development, caused the Agency to be in substantial noncompliance with FFMIA as of September
30,1998. Specifically, we found that approved security plans for eight financial or mixed
financial systems did not comply with the requirements of OMB Circular A-130, "Management of
Federal Information Resources," and management had not approved security plans for the
remaining seven financial or mixed systems, as required by OMB Circular A-130. As a result, the
Agency does not have reasonable assurance that existing controls would prevent unauthorized
disclosure or manipulation of data, or the loss of data in the event of a disaster or accidental or
intentional damage. For additional information concerning these security plan issues, please refer
to Attachment 3.
Other Noncompliance Issues
We also identified the following noncompliance issue that did not cause a material misstatement
to the financial statements, but is nonetheless significant. EPA is not complying with
appropriation law when making disbursements for grants funded with more than one
appropriation. Disbursements for these grants are made using the oldest available funding
(appropriation) first which may or may not be the appropriation that benefitted from the work
performed. Thus, EPA is not complying with Title 31 U.S.C. 1301 which requires EPA to match
disbursements to the benefitting appropriation. We have reported on this noncompliance issue in
Audit Report 99B0003
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prior financial statement audit reports. Attachment 4, Status of Prior Audit Report
Recommendations, page 4-7, provides the current status of the ongoing corrective actions.
In addition, as previously noted, the Agency did not meet the Government Management and
Reform Act's March 1 deadline for submission of its audited financial statements to OMB.
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RESPONSIBILITIES AND METHODOLOGY
EPA MANAGEMENT RESPONSIBILITIES
EPA's management is responsible for:
* preparing annual financial statements and Required Supplemental Stewardship
Information;
* establishing and maintaining a system of internal controls; and
• complying with applicable laws and regulations.
OIG RESPONSIBILITIES
We are responsible for:
• auditing the financial statements to determine if they are free of material misstatements and
presented fairly in accordance with Federal accounting standards, and
• evaluating related internal controls and testing compliance with applicable provisions of
laws and regulations.
AUDIT METHODOLOGY
In order to fulfill our responsibilities, except as described in our opinion on the financial
statements, we:
• examined on a test basis, evidence supporting the amounts and disclosures in the principal
financial statements;
• assessed the accounting principles used and significant estimates made by management;
• evaluated the overall presentation of the financial statements;
• obtained an understanding of the significant internal control structure policies and
procedures, determined whether they had been placed in operation, and assessed the level
of control risk relevant to the following significant cycles, classes of transactions, and
account balances:
• Receivables and Collections
• Disbursements and Operating Expenses
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• Payroll
• Investments
• Property
• Budget and Obligations
• Accounts Payable and Accrued Liabilities
• Fund Balances
• General Accounting and Financial Reporting
gained an understanding of the significant internal control policies and procedures related
to the Annual Stewardship Information;
tested significant manual controls to determine whether the controls were effective;
evaluated the adequacy of: (1) the general automated data processing control structure for
backup and disaster recovery, (2) physical and environmental security controls,
(3) regional security plans, and (4) the software maintenance processes affecting EPA's
financial management systems;
evaluated the adequacy of controls over critical operating systems libraries;
evaluated the adequacy of security plans and disaster recovery plans for the Agency's
financial and mixed financial systems;
evaluated the controls over EPA's technical support and maintenance contract for the
Agency's core financial systems;
evaluated operational controls separate from other compliance reviews, as outlined in our
multi-year plan to review ADP general controls which was endorsed by General
Accounting Office representatives;
evaluated the adequacy of the accounts receivable systems documentation for the
Integrated Financial Management System;
followed-up on findings and recommendations from previous audits that could materially
affect the financial statements;
obtained an understanding of management's process for evaluating and reporting on
internal controls and accounting systems, as required by FMFIA;
compared the material weaknesses reported in the Agency's FMFIA report to the material
weaknesses we found;
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Audit Report 99B0003
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• tested compliance with applicable sections of laws and regulations that either materially
affect the financial statements or that OMB or our office considered significant to the
audit; and
• performed sufficient tests to report whether EPA's financial management systems
substantially comply with Federal financial management systems requirements, applicable
accounting standards, and the Standard General Ledger at the transaction level.
Detailed system documentation was not available that would have allowed us to develop an
understanding of the IFMS automated control structure and to test these controls.
The information presented in Management's Overview of EPA and EPA Programs is supplemental
information required by OMB Bulletin 97-01, entitled "Form and Content of Agency Financial
Statements." OMB Bulletin 98-08, "Audit Requirements for Federal Financial Statements,"
requires that we obtain an understanding of the internal controls designed to ensure that data
supporting the measures are properly recorded and accounted for to permit the preparation of
reliable and complete performance information. Our audit work in the area of performance
measures was limited to comparing the financial information included in the overview with
information contained in the principal financial statements.
Details of Audit Field Work
We selected statistical and non-statistical samples from EPA's detailed accounting records
supporting various financial statement amounts. .We tested these sample transactions to determine
if they were adequately supported by documentation and were recorded in accordance with
internal control policies and procedures and applicable laws and regulations. We also reviewed
other supporting documentation, such as worksheets and schedules, that the Agency used in
preparing its financial statements. In addition, we applied certain analytical review procedures to
account balances.
The financial management records and supporting documentation we reviewed were maintained
by Financial Management Centers in Washington, D.C., Research Triangle Park, Cincinnati and
Las Vegas; Financial Management Offices in EPA's regional offices; the Office of the Chief
Financial Officer; various offices within the Office of Administration and Resources Management;
and by Headquarters and regional program offices. To gain an understanding of established
internal control procedures, and to evaluate these controls, we also interviewed personnel in these
offices and reviewed applicable policies and procedures. In addition, we conducted a physical
inventory of a sample of property items, and we observed the Agency's physical inventory of its
property.
Our fieldwork for the audit vas performed fronrMay 29, 1998 through July 8,1999.
Except as previously discussed in this report, we conducted our audit work in accordance with:
generally accepted auditing standards; the standards applicable to financial audits contained in the
Government Auditing Standards (1994 Revision), issued by the Comptroller General of the
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United States; and OMB Bulletin No. 98-08, as amended January 25,1999. These standards
require that we plan and perform our audits to obtain reasonable assurance that the financial
statements are free of material misstatement. We believe that our audit provides a reasonable
basis for our opinions.
James O. Rauch (signed)
Assistant Inspector General for Audit
U.S. Environmental Protection Agency
July 8,1999
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ATTACHMENT 1
MATERIAL WEAKNESSES
TABLE OF CONTENTS
Page
1 - IMPROVEMENTS NEEDED IN THE AGENCY'S PROCESS FOR PREPARING
FINANCIAL STATEMENTS 1-1
2 - AGENCY ENCOUNTERED SIGNIFICANT DIFFICULTIES IN PREPARING THE
STATEMENTS OF BUDGETARY RESOURCES AND FINANCING 1-5
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IMPROVEMENTS NEEDED IN THE AGENCY'S PROCESS
FOR PREPARING FINANCIAL STATEMENTS
Substantial planning and coordination is needed to ensure audited financial statements can be
provided to the Office of Management and Budget (OMB) by March 1 of each year, as
established by the Government Management Reform Act (GMRA). OMB Bulletin 98-08 requires
that audited financial statements be prepared and submitted to the agency head in sufficient time
to enable the agency head to meet the GMRA due date. To ensure timely completion of the fiscal
1998 audited financial statements, our office and the Office of the Chief Financial Officer (OCFO)
agreed that the OCFO would provide us a complete set of draft financial statements with related
footnotes and overview information by November 17,1998, with the exception of selected items
that would be provided no later than December 31, 1998. We jointly agreed that November 17
would allow the OCFO enough time to prepare the financial statements, and our office sufficient
time to perform our audit work and issue our final audit report by February 24,1999.
Although committed to the above milestones, the OCFO encountered difficulties in preparing
timely, reliable financial statements and footnotes and did not meet the March 1 report issuance
date. On November 17,1998, we received five of the six Agency-wide and FIFRA principal
statements and the two Working Capital Fund principal statements. The statements we received
included some line items that were incomplete and amounts that were based on IFMS general
ledger data which did not include some adjusting journal entries, the general ledger did not
properly crosswalk to some line items, and all Treasury symbols were not reflected. Footnotes
were also missing. OCFO staff were still obtaining information needed to finalize the financial
statements and providing supporting documentation to us in July 1999. The OCFO's current
process for preparing financial statements needs to be improved, so the Agency can submit
audited financial statements to OMB by March 1 of each year, and so Treasury can submit the
Government-wide statements to the President and the Congress by March 31, as required by
GMRA.
In contrast, the timely completion of the Overview demonstrated the OCFO's ability to work
cooperatively with program offices and take a proactive approach. OCFO staffs advanced
planning and coordination assisted in the Overview's completion. Contacts were established early
on within program offices, basic instructions and interim time frames were discussed, concerns
were resolved and agreements reached. Program offices timely submitted information to the
OCFO for inclusion in the Overview. Once consolidated, the program offices were given the
opportunity to review the Overview's content prior to submission for audit.
The difficulties encountered by the OCFO staff in providing us with complete and reliable
financial statements and supporting documentation by the mutually agreed upon dates included:
delays in obtaining information from other Agency offices and external sources, and problems
implementing new financial accounting standards and OMB guidance. These issues highlight the
need for the Agency to strengthen its coordination and quality control processes to ensure
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accurate data is available on a timely basis to prepare the financial statements and key financial
statement preparation milestones are met. Additional details are provided below.
Information from Other Agency Offices and External Sources
Delays in obtaining information from various entities inside and outside the Agency prevented the
timely calculation of the grant accrual, deferred maintenance, and environmental liability amounts.
In order for the Agency to determine the amount of the grant accrual liability to be presented on
the financial statements, selected grantees must provide EPA with information on the amount of
expenses they have incurred but not billed as of September 30. Although grantee responses were
due by November 30,1998, the OCFO did not receive all grantee responses until January 11,
1999. The final grant accrual calculation was not completed until late-February 1999. To
improve the timeliness of this calculation, the Agency would like to move from grantee
confirmations to reliance on internal analyses to calculate the grant accrual amount. We also
found the Agency experienced difficulties in identifying and obtaining deferred maintenance and
environmental liability amounts and supporting documentation from the various EPA facilities and
laboratories who were required to compile this information. Responses were due by September
28,1998, but all responses were not obtained until February 11,1999. OCFO staff provided us
information as they received it, so we could audit it. However, the associated footnotes were not
completed and the amounts to be recorded on the financial statements were not known until late-
February 1999.
Implementing New Financial Accounting Standards and OMB Financial Statement Guidance
The need to implement, during fiscal 1998, new federal financial accounting standards along with
new OMB financial statement presentation requirements also impacted the Agency's ability to
timely prepare its financial statements. For example, the Required Supplemental Stewardship
Information (RSSI) was delayed in order to resolve an issue dealing with the presentation for the
investment in human capital. The RSSI was completed December 6,1998, but the supporting
documentation was not made available for us to audit until January 6,1999. In addition, we
found the Agency was not sufficiently prepared to deal with the new requirements for reporting
budgetary accounts in the Statement of Budgetary Resources and Statement of Financing. The
Agency concurred that the preparation of. these statements posed significant challenges. (Details
on the Agency's preparation of these two new statements are included in the material weakness
entitled, "Agency Encountered Significant Difficulties in Preparing the Statements of Budgetary
Resources and Financing.") Considering all of the new requirements for the presentation of
financial statements and the accounting standards which have recently become effective, the
Agency agreed its guidance for preparing annual financial statements needed to be updated.
Performing Quality Control Reviews of Financial Statement Information
Regional finance offices' miscalculation of the allowance for doubtful accounts required a
subsequent recalculation. We are concerned that the Agency had not reviewed the allowance
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calculation results nor recognized the discrepancies. We also found some journal entries for the
revenue recognition on State Cost Shares were incorrectly made, and numerous adjustments were
needed to the draft financial statements. Given the completeness and accuracy of the information
contained in the draft financial statements and related footnotes, the Agency should establish and
implement a quality review process including managerial sign-off to assure the preparation of
complete and reliable financial statements.
RECOMMENDATIONS
We recommend the Chief Financial Officer (CFO):
1.1 evaluate the OCFO's process for preparing the financial statements, including the OCFO
resources assigned, necessary improvements to IFMS, control processes within the
Financial Reports and Analysis Branch, and the Year-End Closing process,
1.2 update the Agency's policies and procedures for preparation of annual financial statements
to reflect the new legislative requirement, new accounting standards, and new format and
presentation requirements. The procedures should include milestone dates and activities
for completion, OCFO and other offices' roles and responsibilities, descriptive processes
for preparing the financial statements, and plans for obtaining the needed information and
providing reliable supporting documentation, and
1.3 establish a quality review process to ensure that the draft financial statements including the
footnotes, supplemental information, and overview are complete and reliable, and the
Director, FMD, certifies such documents prior to submittal for audit
AGENCY COMMENTS AND PIG EVALUATION
In responding to the draft report, the CFO disagreed that the financial statement preparation
process should be categorized as a material weakness. Even though the Agency made a
conscious decision to delay the final preparation to address issues to ensure unqualified opinions,
the CFO noted that reliable financial statements were prepared. The CFO agreed with our
recommendations and (1) has prepared a draft planning document with milestones and
responsibilities for the fiscal 1999 audit, (2) plans to update the policies and procedures on
preparing financial statements, and (3) is formalizing a financial statement Quality Control Group.
The CFO did not agree with our draft report recommendation that the Comptroller should certify
the financial statements prior to submittal for audit. Rather the CFO believes that certification by
the Director of the Financial Management Division (FMD) is appropriate.
We believe that the cited weaknesses in the Agency's financial statement processes are significant
enough to be reported as a material weakness, as reliable financial statements could not be
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prepared by March 1. The requirement for audited financial statements was enacted to bring
about improvemenb in agencies' financial practices, systems, and controls so that timely, reliable
information is available for managing Federal programs. We previously raised this weakness in
our management letter that was issued at the conclusion of the fiscal 1997 audit.
We concur with the Agency's planned corrective actions, but note the planned target dates should
be revised to allow for earlier implementation, so they will be in place for the fiscal 1999 audit.
We revised the recommendation to state that the Director, FMD, rather than the Comptroller
should certify documents submitted for audit.
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AGENCY ENCOUNTERED SIGNIFICANT
DIFFICULTIES IN PREPARING THE STATEMENTS
OF BUDGETARY RESOURCES AND FINANCING
EPA encountered significant difficulties in preparing its fiscal 1998 Statements of Budgetary
Resources and Financing. First, EPA was not timely identifying and deobligating obligations for
some of its inactive grants, contracts and interagency agreements (lAGs), as required by GAO,
OMB, Department of Treasury and EPA policies. As a result, after the close of the fiscal year the
Agency performed an additional review of its open obligations to help ensure open obligations
reported on the Statements of Budgetary Resources and Financing were fairly presented. This
review identified $99.6 million of open obligations that needed to be deobligated. This review
also identified a problem with incorrect conversion during 1989 of accounting transactions from
the predecessor accounting system to IFMS. Consequently, the unliquidated obligation balance of
$12.8 million and the authority balance of $43.5 million from 1989 and prior may be misstated.
Finally, significant differences existed between the Agency's general ledger, the numerous drafts
of its Statement of Budgetary Resources, and the budgetary reports submitted to OMB. These
differences existed due to prior period posting errors, reimbursable transactions, posting of
activities to improper accounts, and various other unidentified transactions. All of these
weaknesses prevented the Agency from preparing timely and accurate Statements of Budgetary
Resources and Financing.
Weaknesses in EPA's Deobligation Process
Weaknesses in EPA's deobligation process have been previously documented by both internal and
external reports. Since 1996, EPA has reported in its annual Integrity Act Report, two material
weaknesses related to the closeout of grants. In addition, EPA has a substantial backlog of
inactive contracts awaiting closeout.7 Significant unliquidated obligation balances remain for
these inactive grants and contracts. GAO reported that as of June 30,1998, inactive
nonconstruction grants and contracts accounted for approximately $428.9 million in unliquidated
obligations. Inactive construction grants had unliquidated obligations of about $183.2 million as
of March 30,1998.8 Other reports have also documented these problems.9 The Agency is taking
steps to correct weaknesses in its close out of grants and contracts.
EPA Office of the Comptroller Policy Announcement No. 96-04 and OMB guidance require EPA
to review unliquidated obligations at least once a year to ensure that transactions are valid. As a
7 EPA's Progress in Closing Completed Grants and Contracts (GAO/RCED-99-27, November 1998)
8 GAO used the following criteria for identifying inactive giants and contracts: (1) nonconstruction giants -180 days after all terms and conditions
are completed; (2) construction grants - 6 months after the last grant action; and (3) contracts - contractor has delivered all goods or performed all
services as required, or EPA has notified the contractor of contract termination.
9 Region 2's Deobligation and Closeout of Construction Grants (EPA-OIG. Report No. E1FWF7-02-0011-8100037, January 1998) and Funds
Obligated for Completed Superfund Projects (GAO/RCED-98-232. July 1998)
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part of the annual review of obligations, the Financial Systems Branch and both Cincinnati and
Research Triangle Park Financial Management Centers send reports to each responsible office.
These reports identify items for review. For travel obligations, the reports include items with no
activity hi the last three months. For all other obligations, the reports include items with no
activity in the last six months. EPA's policy requires responsible officials to review these reports
for the purpose of identifying unneeded funds and then initiating deobligation of the funds. Once
this work is completed, responsible officials are required to certify that a review of unliquidated
obligations has been completed. These certifications are then sent to the Financial Reports and
Analysis Branch for review. We performed audit work on these reviews in five regional offices
and one Headquarters office.
Our work discovered problems with obligation reviews in the areas of identifying and deobligating
unneeded obligations. Our audit work discovered a total of $7.1 million of unneeded obligations
which were either not identified by the Agency's annual review or when identified were not
deobligated. In one region, we found a contract with an unliquidated obligation balance of $1.8
million which was identified, but not deobligated. The project officer did not process this
deobligation because he was unsure of the procedures. In another region, reviews in fiscal years
1996,1997 and 1998 identified a contract that needed to be deobligated, but the funds were not
deobligated on this contract until July 1998.
Agency's Actions to Correct Weaknesses in the Fiscal 1998 Deobligation Process
To correct weaknesses we identified in this area, the Financial Management Division (FMD)
initiated an additional review, after fiscal year-end, to identify unneeded unliquidated obligations
as of September 30,1998. FMD selected older obligations and requested responsible officials to
again review these items. For each item reviewed, officials were required to deobligate the
unneeded unliquidated obligation or report the reason for keeping it open. They reviewed
unliquidated obligation balances of $150 million for lAGs, $45 million for contracts, $698.5
million for nonconstruction grants and $283.3 million for construction grants. The review
identified unneeded obligations of $20.2 million for lAGs, $6.6 million for contracts, $7.4 million
for nonconstruction grants and $65.4 million for construction grants. FMD used this information
to adjust the Statements of Budgetary Resources and Financing.
The current review requires personnel to examine travel and all other obligations with no activity
hi the last three and six months, respectively. We believe the Agency's year-end obligation review
work confirms the need for annual obligation reviews to focus on older open unliquidated
obligation balances. Additionally, the OCFO should perform follow up work to verify that all
obligations identified as being invalid are deobligated.
Until EPA improves its process for reviewing its unliquidated obligations, it will have limited
assurance of the validity of its unliquidated obligation balances. Consequently, unliquidated
obligations reported on both the Statement of Budgetary Resources and the Statement of
Financing may be materially misstated. In addition, the Agency is missing opportunities to
deobligate and use funds for other approved projects in support of EPA's environmental goals.
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Data Conversion Errors
Although the Agency's subsequent review of open obligations was successful in identifying
unneeded unliquidated obligations, it identified an additional problem. Unsupported obligations
were identified for 3 construction grants and 3 nonconstruction grants. These errors were caused
by problems with conversion of accounting data when EPA implemented a new accounting
system, DFMS, in 1989. The change in accounting systems required EPA to convert accounting
data into IFMS compatible format. The conversion included information used to calculate
obligation balances. IFMS calculates unliquidated obligation balances by adding up obligation
transactions and subtracting out payments and other adjustments. For the unsupported
unliquidated obligations, we found that obligation transactions were properly converted, but
payments made in 1989 and prior were not This problem may have occurred in all unliquidated
obligation balances appropriated in 1989 and prior. As a result, EPA has no assurance of the
validity of obligation balances of $12.8 million appropriated in fiscal year 1989 and prior years.
FMD informed us that they had identified this problem shortly after the system change and
provided finance officers with instructions to fix this problem. When finance officers found
unliquidated obligation balances with missing payment information, they were instructed to record
the missing payments against the obligation. This transaction would correct unliquidated
obligation balances but would overstate cash disbursements. To correct cash disbursements,
finance officers were instructed to decrease the current year's cash disbursements for the
corresponding amount. FMD personnel believed that all conversion errors were identified and
fixed as a result of these instructions. They stated that unrecorded payments from 1989 and prior
have not been identified in the last several years.
The unliquidated obligation balance may not be the only account misstated. The problem would
have been isolated to obligations, if a finance officer correctly identified a conversion error in an
unliquidated obligation balance and processed FMD's correcting accounting entries. However, if
a finance officer incorrectly identified a conversion error obligation and decreased the
unliquidated obligation balance against an increase to the authority balance, the mistake would
have been transferred to the authority balance. FMD believes that this problem has not occurred,
but also conceded that IFMS did not contain a control that would have prevented the transfer.
Consequently, EPA's authority balance of $43.5 million from fiscal year 1989 and prior may be
overstated.
Differences Existed Between EPA's General Ledger and Its Budgetary Reports
Material differences existed between EPA's general ledger, the numerous draft versions of its
Statement of Budgetary Resources, and the Reports on Budget Execution (SF-133s) submitted to
OMB. The differences arose due to prior period posting errors, reimbursable transactions,
posting of activities to improper accounts, and various other unidentified transactions. In
addition, the Agency prepared the SF-133s by manually entering various entries and adjustments
into its worksheets that were not posted in the general ledger. The Agency prepared the first
draft of the Statement of Budgetary Resources by compiling the SF-133s. However, since the
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SF-133s did not agree to the general ledger, the resulting Statement of Budgetary Resources also
did not agree to the general ledger. From the initial draft, numerous versions of the Statement of
Budgetary Resources, supporting worksheets, and general journal entries were prepared in an
effort to reconcile the Statement of Budgetary Resources, SF-133s, and the general ledger. The
numerous versions were the result of changes in the Agency's approach to preparing supporting
schedules, changes in general ledger account groupings in the statement crosswalks, subsequent
analyses of budgetary accounts, worksheet errors, journal entry errors, inclusion and removal of
Treasury symbols, inclusion and removal of proprietary accounts, and reconciliations between the
general ledger and draft statements. After months of revisions, the Agency was finally able to
prepare the Statement of Budgetary Resources by reducing the number of adjustments to the
general ledger and by preparing the statement using the general ledger rather than trying to
reconcile the statement to the SF-133s.
RECOMMENDATIONS
We recommend the Chief Financial Officer (CFO):
2.1 review all fiscal year 1989 and prior unliquidated obligation and authority balances and
make any necessary adjustments;
2.2 develop reports for the annual review of unliquidated obligations which highlight older
open unliquidated obligations;
2.3 require responsible officials to justify unliquidated obligation balances whose period of
performance has ended, if the balances are not deobligated;
2.4 follow up on responsible officials' deobligations to verify appropriate actions were taken;
2.5 prepare the SF-133s from the general ledger;
2.6 prepare and retain support for all journal entries and adjustments made to produce the
SF-133s; and
2.7 require evidence of supervisory approval to help ensure that procedures have been
followed. *
AGENCY COMMENTS AND PIG EVALUATION
The CFO agreed with our recommendation and plans to take corrective action to review all fiscal
year 1989 and prior unliquidated obligations and authority balances and make any adjustments.
The CFO disagreed with the recommendation to develop reports for the annual review of
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unliquidated obligations which highlight older open unliquidated obligations. The CFO believes
her office already provides responsible officials with reports listing all inactive obligations (no
activity for 180 days) as a part of the annual review of unliquidated obligations, and this list
includes the older open obligations. The CFO also disagreed with the recommendation to justify
unliquidated obligation balances whose period of performance has ended since her office has
recently implemented more stringent requirements. Finally, the CFO agreed with the thrust of our
recommendation to follow-up on responsible officials deobligations to verify appropriate actions
were taken.
Our audit work shows the Agency needs to perform more aggressive reviews of its open
obligations than it has performed in the past. We believe our recommendation to highlight older
unliquidated open obligations would allow the Agency to concentrate its efforts on those open
obligations most likely to be invalid. We are not recommending the Agency discontinue its
current practices of reviewing all inactive obligations, rather the recommended process
improvements are intended to help ensure the validity of obligations. The requirements for
documenting unliquidated obligation reviews that are set forth by the March 25,1999,
memorandum "Review of Unliquidated Obligations" are similar to the requirements of Office of
the Comptroller Policy Announcement No. 96-04 "Review of Unliquidated Obligations."
Although we recognize that the CFO has taken some corrective action, we maintain the
recommendation dealing with justifying unliquidated obligations is still needed to correct
weaknesses in the Agency's process for reviewing open obligations. We concur with the
Agency's planned corrective actions to review all fiscal year 1989 and prior unliquidated
obligation and authority balances and to follow up on responsible officials' deobligations.
In responding to the draft report, the CFO also agreed with our recommendations to prepare the
SF-133 from the general ledger and retain support for all journal entries and adjustments.
However, the CFO disagreed with our recommendation that supervisory approval be required,
evidenced by a signature and date, to help ensure that procedures have been followed. The
Agency intends to implement an automated process which by its nature does not allow for the
supervisor's signature before transmission. Supervisory certification will be incorporated in the
new FACTS n transmission and annotated copies maintained. We concur that the Agency's
approach for supervisory certification would suffice as evidence of approval.
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ATTACHMENT 2
REPORTABLE CONDITIONS
TABLE OF CONTENTS
Page
3 - AGENCY NEEDS TO ESTABLISH PROCEDURES FOR TRACKING UNILATERAL
ADMINISTRATIVE ORDERS 2-1
4 - FURTHER IMPROVEMENTS NEEDED IN MANAGING EPA'S
ACCOUNTS RECEIVABLE
2-4
5 - ADDITIONAL CONTROLS NEEDED IN INTERAGENCY AGREEMENT INVOICE
APPROVAL PROCESS 2-9
6 - CONTINUED IMPROVEMENTS NEEDED IN ACCOUNTING
FOR CAPITALIZED PROPERTY
2-12
7 - REVENUE WAS NOT PROPERLY RECORDED ON SUPERFUND
STATE CONTRACTS
2-16
8 - AUTOMATED APPLICATION PROCESSING CONTROLS FOR THE INTEGRATED
FINANCIAL MANAGEMENT SYSTEM COULD NOT BE ASSESSED 2-18
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AGENCY NEEDS TO ESTABLISH PROCEDURES FOR TRACKING
UNILATERAL ADMINISTRATIVE ORDERS
EPA's regions are not consistently tracking demands for payment made under Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA) Section 106,
Unilateral Administrative Orders (UAOs). UAOs are one of the Agency's primary enforcement
tools to compel responsible parties to conduct response actions. The Agency may demand
payment for costs it incurs in overseeing the response actions. Some regions tracked the amounts
demanded under UAOs in the Integrated Financial Management System (IFMS), but subsequently
reversed them out; other regions tracked amounts demanded under UAOs but did not record
them in IFMS; and other regions had no system for tracking amounts demanded under UAOs.
Consequently, improvements are needed in Agency controls designed to ensure funds are
safeguarded against unauthorized use or disposition.
Regions were not consistently tracking amounts demanded under UAOs because they did not
consistently interpret and apply Agency guidance. Agency policy for recording and establishing
Superfund accounts receivable contained in RMDS 2550D, requires clarification to prevent
misinterpretation. Agency policy addresses recording, as a receivable, bills incurred under
administrative orders. While RMDS 2550D does not distinguish between Administrative Orders
on Consent or Unilateral Administrative Orders, Chapter 14, paragraph 1 notes that "EPA
generally records accounts receivable and collects payment, when it enters into a consent decree,
administrative order, settlement, court order, judgement, agreement, or Superfund State
Contract." Chapter 14, paragraph 5 notes that accounts receivable can be established and
recorded when "an administrative order or settlement agreement has been issued in final by the
Regional Administrator, or his/her designee, and has been filed in Superfund docket" or "a legal
claim for SSC or oversight payments exist and a bill for collection has been issued." Some
regional Financial Management Offices recorded demands under UAOs as receivables when
collected; however, this is not clearly stated in Agency guidance. Further, current Agency
guidance does not address how to track and control demands under UAOs prior to their
collection.
Amounts demanded under UAOs are significant and need to be tracked and controlled. In three
regions, we identified $11 million in demands made under UAOs. Other regions either had no
record of the amounts demanded under UAOs, or the amounts were not demanded because the
UAOs did not include a provision to request reimbursement of oversight costs. When amounts
are not tracked in IFMS they cannot be followed up on. Also, the potential exists for multiple
demands to be issued for the identical cost to the same or different parties resulting in duplicate
collections. Tracking the amounts demanded in IFMS would allow the Agency to maintain better
control over the amounts demanded and collected.
We also found differences in the language regions used to demand payments under UAOs because
of unclear Agency guidance for establishing a legal liability under the different Superfund
instruments. Consequently, it was difficult to differentiate between demands for payment and
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other bills for payment used in the Superfund enforcement process. The responsibilities for
determining the need to demand payment, identifying the demand amount, issuing the demand,
controlling and tracking the demand amount, and handling the eventual collection also varied by
region. Therefore, the language used in a demand for payment must be clear to ensure UAOs can
be easily identified and properly controlled and tracked hi IFMS.
RECOMMENDATIONS
We recommend the Chief Financial Officer (CFO):
3.1 track in IFMS all demands for payment issued under UAOs,
3.2 determine if other demands for payment are issued by the Agency, the respective amounts
demanded, and whether a need exists to track the amounts demanded hi IFMS, and
3.3 revise HMDS to clearly differentiate between administrative orders (particularly
administrative orders on consent and UAOs), describe when the administrative orders
need to be established as an accounts receivable in IFMS or separately tracked as a
demand for payment in IFMS, and describe all other demands for payment that need to be
tracked hi IFMS.
We recommend the Assistant Administrator for Enforcement and Compliance Assurance:
3.4 develop guidance for ORCs, program offices and finance offices regarding the types of
instruments used in the Superfund enforcement process. For each instrument, describe
when to establish an accounts receivable or separately track as a demand for payment, and
describe the Agency's basis for legal liability under each instrument, and
3.5 clarify the model language to be used by ORCs, program offices and finance offices to
clearly differentiate between demands for payment and bills for payment used in the
Superfund enforcement process.
AGENCY COMMENTS AND PIG EVALUATION
In response to the draft report, the CFO partially agreed with our recommendations. The CFO
agreed to track only Superfund unilateral administrative orders and disagreed with our
recommendation that all other demands for payment should be tracked. The Office of
Enforcement and Compliance Assurance did not disagree with our recommendations, but
indicated that the model language for billing oversight costs under unilateral administrative orders
is not mandatory.
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We concur with the Agency's planned corrective actions for Superfund unilateral administrative
orders. However, we disagree that the Agency's corrective actions should be restricted to only
Superfund unilateral administrative orders. Sound financial management practices should cover
the identification, tracking and control of all demands issued similar to the Superfund unilateral
administrative orders. Since the CFO's corrective actions are only designed to resolve an existing
problem for Superfund unilateral administrative orders, there could be problems with the demands
for other payments that are not addressed. Therefore, in responding to this report, we request the
CFO provide specific corrective actions and target dates for addressing all demands for payment.
We also request the Office of Enforcement and Compliance Assurance, in responding to this
report, provide specific corrective actions and target dates for recommendations addressed to that
office.
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FURTHER IMPROVEMENTS NEEDED IN
MANAGING EPA'S ACCOUNTS RECEIVABLE
During prior financial statement audits, we reported weaknesses in the Agency's management of
its accounts receivable. The Agency took action to improve controls in this area by issuing
additional guidance and instructing Financial Management Offices (FMOs) to conduct quality
assurance reviews covering this area. However, we continued to find accounts receivable,
including those for oversight costs, that were not recorded and billed timely; accounts receivable
balances in IFMS that did not reconcile to the manual subsidiary records; outstanding receivables
that were not timely followed up on and written off; and allowances for doubtful accounts that
were not properly computed. Consequently, some accounts receivable may not be correctly
valued and timely collected. These problems were primarily due to Offices of Regional Counsel
(ORC) and program offices not timely forwarding documentation and other information needed to
manage accounts receivable to Agency FMOs, and FMO staff being unsure about the
methodology they were to use to compute the allowance for doubtful accounts.
Some Accounts Receivable Were Not Timely Recorded and Billed
The Statement of Federal Financial Accounting Standards Number 1, "Accounting for Selected
Assets and Liabilities;" EPA's Resources Management Directives System (RMDS) 2540, Chapter
9, "Receivables and Billings;"10 and the Financial Management Division's year-end guidance all
require accounts receivable to be recorded in the accounting system completely, promptly and at
the appropriate value. In Regions 1,2,4, and 9, we identified 21 receivables, valued at
$23,920,790, that were not recorded in IFMS within the established time frames. These
receivables were recorded from 2 days to 2 years beyond the time frames established by the
Agency. In some cases, we could not determine if the receivables were recorded timely because
the documents establishing the receivable were not date stamped by the ORC when received. The
untimely recording of these receivables was attributed to the ORC11 and program offices not
promptly forwarding the appropriate documentation to the FMO. During any lapse of time when
valid receivables are not recorded, the debtor may not be appropriately billed, interest may not
accrue, and EPA may not be paid the debt owed.
In addition, we found that responsible parties were not timely billed for Superfund oversight
costs.12 For example, it took more than 9 years for Region 2's Emergency Remedial and
Response Division (ERRD) to issue a bill for oversight costs valued at $985,558 for one site. For
another site in Region 2, it took more than 4 years to issue a bill for $185,610. The delays in
billing responsible parties resulted from competing priorities, lack of resources, delays in receiving
10 RMDS 2550D. Chapter 14 contains similar guidance applicable for Superfund Accounts Receivable.
11 In Region 4, the Environmental Accountability Division (HAD) is responsible for forwarding the appropriate documentation to the FMO.
12 We also discussed weaknesses in the billing of oversight costs in the audit of Region 9's Controls Over Superfund Oversight Cost Billings, Audit
Report Number E1SFF8-09-0022-8100259, issued on September 30, 1998: and Region 2's Billing of Superfund Oversight Costs, Audit Report
Number EISFF8-02-0007-8100206, issued on August 13,1998.
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documentation from program offices, and an inadequate tracking system. After this area was
identified as a material weakness in our fiscal 1997 financial statement audit report, the OCFO and
the Office of Enforcement and Compliance Assurance emphasized the need to issue oversight
billings in fiscal 1998 and defined roles and responsibilities of offices involved in the process. As
a result the amount of unbilled oversight costs accrued at year end was reduced from $162 million
to $62 million. However, this is still a material amount of dollars that the Agency could either
currently bill or bill during the next billing cycle. When oversight costs are not billed timely, it
jeopardizes the recovery of funds for the Superfund Trust Fund and the availability of resources to
clean up other contaminated sites.
Accounts Receivable Were Not Properly Reconciled to Subsidiary Records
RMDS 2540, Chapter 9, "Cash Management: Receivables and Billings," paragraph 9.f.(2)
requires the reconciliation of accounts receivable between the general ledger (IFMS) and the
manual subsidiary records. Chapter 14 of RMDS 2550D contains similar requirements for
Superfund accounts receivable. Further, the Agency's Fiscal 1998 Year End Finance Closing
Instructions state that "FRAB will provide the FMOs with the DOT Listing of Outstanding Debts
for FMO review for the period ending August 31....adjustments resulting from the review must be
recorded in IFMS by September 30."
Our audit work found that accounts receivable recorded in IFMS did not always reconcile to the
manual subsidiary records because: (1) in one region, the FMO did not consistently record
accumulated interest on delinquent accounts receivable; and (2) regions did not complete required
reconciliations. Reconciliations are designed to identify receivables that have not been recorded
or recorded at the correct amount The untimely or incorrect recording of receivables could
result in inaccurate or understated information recorded in both the financial statements and
internal EPA reports used for monitoring and managing account receivables.
Outstanding Accounts Receivable Were Not Always Properly Managed
According to RMDS 2540, Chapter 9, paragraph 9.b.(3), the FMO is responsible for performing
a quarterly review of accounts receivable files and disposing of uncollectible receivables. RMDS
2550D, Chapter 14, paragraph 10 states that any changes affecting amounts due, status of debts,
and information on cases closed by the Department of Justice (DOJ) or bankruptcy court should
be communicated between the FMO and ORC. Once notified by the FMO that a debt is 120 days
in arrears, RMDS 2540, Chapter 9 requires the ORC to notify the FMO in writing within 30 days
of their decision to: (1) recommend the uncollected debt be referred to DOJ for the initiation of a
judicial action, (2) recommend additional FMO collection procedures such as referral to a private
collection agency, or (3) recommend write-off of the debt.
During our audit, we found that uncollectible accounts receivable were not timely written off due
to communication problems between FMOs and ORCs. In some cases, ORCs were aware of
certain actions initiated by DOJ but did not provide FMOs with available information about the
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status of overdue receivables or collection actions initiated. ORC attorneys indicated that
overdue receivables, especially those with small dollars and/or those deemed uncollectible, were
not a high priority. Also, some ORC attorneys were not aware of the RMDS requirement.
In Region 5, we found five accounts receivable, totaling $5,033,631, that were more than 4 years
overdue and still outstanding in IFMS. This occurred because the Region's Comptroller Branch
did not regularly analyze accounts receivable and follow up with the ORC to determine the
collectability of delinquent accounts receivable. When the Comptroller Branch did follow up, the
ORC did not always respond timely to the request for information on the collectability of accounts
receivable. Additionally, we found two accounts receivable, totaling $6,091,581 that were not
written off when the Comptroller Branch was notified the debts were uncollectible.
Additionally, in Region 4 we found five accounts receivable, totaling $6,384,602, that remained in
IFMS because the Environmental Accountability Division (EAD) was waiting for an official
status/close out decision on the accounts from DOJ before they could be removed by the FMO.
This problem was also identified during the fiscal 1997 audit. While DOJ was ultimately
responsible for the collection of these receivables, EAD should have provided the FMO a
quarterly update on the status of the DOJ debt collection.
Timely follow up on accounts receivable is particularly important in Superfund cost recovery
cases. Since the Superfund Trust Fund is a revolving fund, collection of money from responsible
parties is necessary to replenish the Fund. When debts are not collected timely, continuation of
the Fund is jeopardized, and resources are not available to clean up other contaminated sites.
Without aggressive follow up action, the chances of collecting all amounts owed decreases.
Debtors may not be reachable and/or not hi business or assets may be diverted.
Allowances For Doubtful Accounts Were Improperly Calculated
RMDS 2540, Chapter 9, instructs FMOs to: (1) perform quarterly reviews of the allowance for
doubtful accounts and the percentages used to calculate the percentage analysis portion of the
allowance, and (2) update percentages as necessary. Our review of the allowance for doubtful
accounts calculations in Regions 1, 5 and 9 disclosed that the FMOs did not perform quarterly
reviews, update the percentages quarterly based on a historical analysis of the receivables during
fiscal 1998, and maintain adequate documentation to support the percentages. This occurred
because there was confusion about the methodology to be used to compute the allowance for
doubtful accounts. By not calculating an accurate allowance for doubtful accounts, receivables
are not properly valued. Once we brought this issue to the attention of the FMOs, the Region 5
and 9 FMOs performed the necessary analysis. The Region 1 FMO agreed to follow the guidance
in the future.
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RECOMMENDATIONS
We recommend the Chief Financial Officer (CFO):
4.1 continue to provide training on calculating the allowance for doubtful accounts,
particularly in the area of developing the percentage portion of the allowance and
maintaining proper supporting documentation,
4.2 review finance offices' management and accounting for accounts receivable during
regularly scheduled Quality Assurance Reviews to ensure FMOs understand and are
following guidance on accounts receivable, and
4.3 instruct the FMOs to follow-up with ORCs and program offices when responses to
requests for receivable collectability information are not received timely; instruct the
FMOs to assess how communication with the ORCs and the program offices can be
improved; and reemphasize FMOs' responsibilities in ongoing training sessions.
We recommend the Assistant Administrator for Enforcement and Compliance Assurance:
4.4 continue to work to improve the Regional process for meeting guidelines in the July
16,1998, memo to Regional Counsels entitled "Effective Debt Management," and
4.5 revise the Department of Justice interagency agreement to require DOJ to directly transmit
to the ORCs and Regional finance offices copies of final source documents (i.e. Consent
decrees, judgements) required to establish the recording of accounts receivable within 7
days of entry by the courts, and notify both the ORC and finance offices of any changes hi
the status of the collectability of the debt within 30 days of such determinations.
We recommend the CFO and the Assistant Administrator for Enforcement and Compliance
Assurance work together to:
4.6 assure the roles and responsibilities of offices involved in the oversight billing process are
maintained so that the Agency can sustain its emphasis on timely billing and collection of
oversight costs, and
4.7 develop and implement performance measures for the Senior Resource Officials to assess
how well the regions are managing their oversight cost billings and other cost recovery
activities. Tie the performance measures into EPA Goal 10, Effective Management, which
calls for EPA to "establish a management infrastructure that will set and implement the
highest quality standards for effective internal management and fiscal responsibility."
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AGENCY COMMENTS AND PIG EVALUATION
In response to the draft report, the CFO agreed to provide ttaining on calculating the allowance
for doubtful accounts, conduct quality assurance reviews to ensure FMOs are properly following
accounting guidance for accounts receivable, and continue to emphasize the need for more
effective accounts receivable and collections management. The CFO's actions to date have
included a Superfund Cost Recovery and Financial Management Training Conference in June
1999, periodic meetings with the Department of Justice to improve accounts receivable recording
and to discuss the status of collections, and a July 1999 OCFO/Office of Enforcement and
Compliance Assurance (OECA) Superfund Accounts Receivable Collections memorandum to
emphasize collection of outstanding accounts receivable. The CFO also noted that the OIG, as
part of the Agency's internal controls for the financial statements, demonstrated that the system of
controls worked well, as the OIG identified weaknesses in the calculation of the allowance for
doubtful accounts.
The Assistant Administrator for Enforcement and Compliance Assurance agreed with the
recommendation to revise the interagency agreement with the Department of Justice to help
ensure source documents are submitted timely to ORCs and finance offices. However, the
Assistant Administrator disagreed with the recommendation to conduct regional reviews of ORCs
to assure compliance with receivable practices since a coordinated effort is already ongoing to
address overdue receivables. The Assistant Administrator also disagreed with the
recommendation to provide additional training to assist in assuring accounts receivables are
established timely as training was held in June 1999. The Agency agreed with our
recommendations to assure that improvements to the oversight cost billing process are sustained
and to develop and implement a performance measure to assess how well the regions are
managing their oversight cost billings and other cost recovery activities.
We recognize the numerous actions that the Agency has taken to further improve management of
accounts receivable. We concur with the planned corrective actions designed to improve the
recording of accounts receivable and the follow up on outstanding accounts receivable.
Accordingly, we modified our recommendation which required OECA to conduct periodic
regional reviews since the Agency's ongoing efforts will include monitoring regions' progress in
addressing overdue receivables. In addition, we have deleted the recommendation for the Office
of Enforcement and Compliance Assurance to discuss the timely establishment of accounts
receivable at an upcoming cost recovery conference as the corrective action has been completed.
We disagree with the Agency's depiction of the OIG's responsibilities over the allowance for
doubtful accounts. We maintain that the Agency is ultimately responsible for determinuig
accurate allowance amounts and maintaining adequate support. The OIG may suggest
improvements to Agency practices, but the Agency is responsible for establishing and maintaining
a system of internal controls that provides accurate, reliable and timely financial information.
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ADDITIONAL CONTROLS NEEDED IN INTERAGENCY
AGREEMENT INVOICE APPROVAL PROCESS
Some EPA project officers were not fulfilling one of their program oversight duties, that of
reviewing and approving invoice payment requests for interagency agreements. In our fiscal
1994,1996 and 1997 financial statement audits, we reported that project officers were not timely
approving interagency agreement (TAG) invoices. We also reported that some project officers
were not obtaining and reviewing supporting documentation for IAG invoices. The Agency has
acknowledged these weaknesses and implemented some corrective actions. However, during our
fiscal 1998 financial statement audit, we continued to find that project officers were not properly
reviewing and timely approving IAG invoices. Project officers were waiting months for
supporting cost documents, or the project officers were absent from the office for extended
periods of time with no one assigned to temporarily oversee project administration. Consequently,
EPA's Financial Management Center at Cincinnati (CFMC) recorded the transactions in the
accounting system, with limited assurance that invoices were valid, appropriate and allowable
under the terms of the lAGs.
EPA and other non-DOD agencies use Treasury's OPAC (On-line Payment and Collection)
system to pay IAG invoices. Through OPAC, CFMC identifies all billings charged to EPA and
records the payment in a "suspense" appropriation until the correct appropriation is identified.
CFMC then sends a copy of the invoice and the project officer approval form to the project
officer for approval. Within 5 working days of receiving the approval form, the project officer
must approve the bill or note discrepancies, and return it to CFMC. With a signed approval form,
CFMC can confirm that payments are allowable; if the project officer approves only partial
payment (or none), CFMC has 90 days from the original OPAC bill date to process a "charge
back" through OPAC. The Resources Management Directives System, Section 2550C, Chapter
4, Interagency Agreements, states that it is the project officer's responsibility to: (1) receive and
review detailed cost information submitted by other agencies, (2) approve vouchers and OPAC
billings received from other agencies after determining that performance is in accordance with the
agreement, and (3) forward approved vouchers to CFMC for payment within five days after
receipt. EPA's training manual for project officers, Managing Your Financial Assistance
Agreement, Module VIE, 3rd edition, October 1996, also contains guidance on project officer
responsibilities.
During fiscal 1998, we found situations where project officers in Regions 2,4, 5, 9, RTF,
Cincinnati and Headquarters were not:
• Obtaining and reviewing detailed cost information before approving IAG invoices. Some
project officers were still unaware that cost information could or should be requested from
the other agency.
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• Completing the approval forms timely. We found instances where invoices were not
certified because the project officers were either on leave, away on travel, reassigned, or
handling other priority matters. In some cases, project officers did not believe
they were required to approve the invoices.
• Completing all appropriate sections of the approval form, such as the "account
information" or "amount approved" portion.
As a result of our prior audit recommendations, the Agency:
• Updated the project officer training information to instruct project officers to call the
Grants Administration Division, if they had problems obtaining cost information from
other agencies;
* Included this information in a 1998 training manual revision;
• Requires new lAGs to include a clause/condition requiring the other agency to provide the
EPA project officer with information on costs incurred; and
• Requires EPA project officers to suspend or "charge back" the payment, if the information
is not provided.
We found, however, that corrective actions implemented have not in all cases resulted in the
improvements anticipated. Therefore, we are making the following recommendations.
RECOMMENDATIONS
We recommend the Director, Grants Administration Division (GAD) to:
5.1 develop a fact sheet for Agency managers explaining the invoice approval requirements to
help ensure responses are provided timely.
5,2 consider expanding the IAG portion of the project officer training/refresher course to
place more emphasis on the importance of timely and properly completing the approval
form. Consider having an official from CFMC present this portion of the course or
prepare the materials to be used, and
5.3 work with the Director, Financial Services Division, to have the Chief, CFMC notify the
IAG approving officials when project officers are delinquent or not timely in completing
and returning the IAG invoice approval forms.
We recommend the Director, Financial Services Division to direct the Chief, CFMC:
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5.4 to notify IAG approving officials when project officers are delinquent or not timely in
completing and returning IAG invoice approval forms, such as by sending the second
request to approving officials.
5.5 to compile a list of project officers with outstanding, late or incomplete invoice approval
forms and forward to the Senior Resource Officials on a semiannual basis, asking for their
assistance in getting project officers to timely and properly complete the forms.
AGENCY COMMENTS AND PIG EVALUATION
In responding to the draft report, the Agency disagreed with our recommendation to provide
project officers a checklist on the process to be followed when an invoice approval form is
received, stating that the invoice approval form is self-explanatory. Instead, GAD plans to issue
a fact sheet to EPA's managers to explain the invoice approval requirements. Accordingly, we
have revised the recommendation. We concur with the planned corrective actions and target
dates. The fact sheet can also be a useful tool to alert managers to related concerns about timely
return of the approval form, completeness and the need for cost details to support the invoice.
The Agency agreed with our recommendation to consider expanding the IAG portion of the
project officer training course. The Agency partially agreed with the other recommendations,
offering an alternative that the approving official rather than the projects officers' supervisor
should be notified when IAG approval forms are not completed and returned timely. Also, the
Agency suggested we revise our recommendation to compile a list of project officers with
outstanding, late or incomplete invoice approval forms and forward to the Senior Resource
Officials on a semiannual rather than quarterly basis. Accordingly, we have revised the
recommendations. We concur with the planned corrective actions and target dates.
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CONTINUED IMPROVEMENTS NEEDED IN
ACCOUNTING FOR CAPITALIZED PROPERTY
For a number of years, we have reported that EPA needs to make improvements in its accounting
for property. The Agency has taken aggressive actions to permanently resolve these issues. We
commend the Agency for its continuing efforts to correct weaknesses in the property area. In late
fiscal 1997, the Agency implemented the Fixed Assets Subsystem (FAS), which is integrated with
IFMS, the Agency's accounting system. During fiscal 1998, the Agency provided additional
training to property and finance personnel on their roles and responsibilities for accounting for
property in FAS. The results of this year's audit show the Agency needs to continue its efforts to
improve its accounting for property. We found property that was not recorded or not recorded
timely or accurately in FAS, and property that was capitalized when it should have been expensed.
This occurred because property was delivered directly to its destination, and Property
Management Officers (PMO) were not notified of its receipt; and inaccurate or incomplete
property and accounting information was included on procurement requests. In addition, we
found weaknesses in the Agency's process for reconciling property information contained in
IFMS with that contained in FAS. When property is not accurately accounted for, it impacts the
quality of data available to manage EPA's resources and increases the risk of theft, loss, or misuse
of the property.
Property Was Not Always Recorded Timely or Accurately in FAS
OMB Circular A-123, "Management Accountability and Control," requires that transactions be
promptly recorded, properly classified and accounted for in order to prepare timely accounts and
reliable financial and other reports. The Statement of Federal Financial Accounting Standards
(SFFAS) Number 6, Accounting for Property. Plant and Equipment (PP&E) and the Agency's
policy require that PP&E be recognized when title passes to the acquiring entity or when the
PP&E is delivered to the entity or to an agent of the entity.
At Research Triangle Park (RTF), we identified 36 Working Capital Fund (WCF) property items
including components, totaling $5,961,980 and meeting the capitalization criteria, that were either
not recorded in FAS or were not recorded timely or accurately in FAS. In addition, at RTF we
found a total of 10 items of accountable property,13 $11,395 of Superfund property and $109,270
of WCF property, which were not recorded timely in FAS. In Region 9, we identified both
accountable and capital property acquired for the Region 9 laboratory, which were recorded in
FAS 9 months after it was received and placed in service. When property acquisitions are not
recorded timely or accurately hi FAS, the property data available is not reliable. Items were not
recorded timely in FAS because the property was delivered directly to a location where there was
no designated receiving personnel, and property personnel were not informed the property had
been received. In addition, property was not recorded accurately in FAS because procurement
13 Accountable property is non-expendable property with an original acquisition cost of 55,000 or more.
Audit Report 99B0003
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requests did not contain accurate and complete accounting information, and procurement requests
for component pieces of equipment did not include information on the parent property items.
To correct the weaknesses with regards to procurement requests, the Agency issued guidance
during October 1998 on how to prepare procurement requests for property, which was effective
immediately. We commend the Agency for establishing detailed instructions and examples on
preparing procurement requests to remedy this problem.
Property Was Not Properly Classified
SFFAS Number 6 defines PP&E as tangible assets, including land, which meet the following
criteria: (1) have an estimated useful life of 2 years or more; (2) are not intended for sale in the
ordinary course of operations; and (3) have been acquired or constructed with the intention of
being used or available for use by the entity. PP&E should be recorded at cost. In addition, any
costs which either extend the useful life of existing PP&E, or enlarge or improve its capacity
should be capitalized and depreciated over the remaining useful life of the asset The Agency's
policy requires personal property owned by EPA to be capitalized if it costs $25,000 or more. The
cost of property not meeting the capitalization criteria is to be expensed in the period acquired.
At RTP, we identified WCF property items totaling $188,360, which were improperly capitalized
when they should have been expensed. As a result, the value of EPA's WCF property and
equipment was overstated and its expenses were understated. These items were not properly
expensed because incorrect or incomplete accounting information was included on the
procurement requests. As mentioned above, the Agency issued guidance in October 1998 to
correct this problem.
Problems Were Experienced During the Year-End Reconciliation Process
Property balances reported in the fiscal 1997 financial statements were derived from the EFMS
general journal balances. To ensure the general journal properly reflected the amount of Agency-
held capital equipment, the Financial Management Division (FMD) provided guidance and year-
end instructions to the Financial Management Officers (FMOs) requiring them to reconcile capital
equipment transactions recorded in the IFMS general journal with the entries recorded in the fixed
assets journal (a part of the FAS). Any differences between the journals were to be corrected by
adjusting entries. For fiscal 1998, the FMD's year-end instructions (dated September 9, 1998)
changed the process for performing year-end reconciliations. The FMOs were only required to
ensure that the capital equipment balances in FAS were as accurate and comprehensive as possible
by performing limited reconciliation work. Headquarters' FMD staff were to reconcile the general
journal to the fixed assets journal, making the necessary adjusting entries.
Although FMD reconciled the general journal to the fixed assets journal, we found discrepancies
between the two balances. Year-end balances in the fixed assets journal and the general journal
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Audit Report 99B0003
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did not reconcile at RTF and Cincinnati even though adjustments were made. We found
approximately $1.2 million14 in WCF capital property at RTF that was not recorded in FAS. In
Cincinnati, we found that the capital equipment balance in the general journal was understated by
$252,124. Differences were noted between the general journal and the fixed assets journal,
totaling $985,754, due primarily to partial payments on capital property items not placed in
service or operational as of year-end and capital property that was not recorded in FAS.
We also found problems with the year-end property reconciliations at Region 5 and RTF. Region
5 did not perform the required year-end property reconciliation activities because they did not
receive the year-end instructions. At RTF, finance personnel created their own reports to
reconcile the general journal and fixed assets journal because the reports provided by FMD did
not contain a common data element that allowed them to match transactions.
FMD staff adjusted the general journal, removing approximately $14.4 million of property at year-
end so that it would reconcile with balances in the fixed assets journal. As a result, property
balances were understated. For example, the payments for capital property not recorded in FAS
at RTF, totaling $1.2 million, were removed from the general journal property balances during the
year-end reconciliation process. In Cincinnati, payments for capital property, totaling $317,000,
were removed from the general journal property balances during the year-end reconciliation
process when they should not have been. FMD personnel adjusted the general journal to match
FAS because they felt the FAS tables were the best source of data about the Agency's property.
Even though these transactions have no material effect on the Agency-wide financial statements,
failure to accurately record these items in the Agency's property accountability system in a timely
manner increases the risk of theft, loss, or misuse of the property.
RECOMMENDATIONS
We recommend the Chief Financial Officer, in conjunction with the Assistant Administrator for
Administration and Resources Management:
6.1 continue to work to strengthen controls designed to ensure that property is timely and
accurately recorded in the Agency's property accountability system, FAS. Specifically,
reemphasize to the appropriate Agency personnel their responsibilities to:
• provide descriptive information about an existing parent property item in the
procurement request for capital improvements; and
14 The S1.2 million in WCF capital property was also included in the S5.9 million of WCF property reported as either not recorded in FAS, or as not
recorded timely or accurately in FAS.
Audit Report 99B0003
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• report receipt of accountable and capital property to the appropriate PMO in a
timely manner when property acquisitions are directly delivered to the ordering
official, and forward copies of appropriate documentation to the PMO.
AGENCY COMMENTS AND PIG EVALUATION
The Agency agreed with our recommendations, and emphasized that all property users, such as
custodial officers, project officers, funds certifying officers, managers, and other ordering officials,
must be made aware of Agency property management requirements. Therefore, the Office of
Administration and Resources Management (OARM) will coordinate with specific organizations
when property records indicate non-compliance with Agency property management requirements.
In addition, OARM's Facilities Management and Services Division (FMSD), in conjunction with
FMD, plans a more proactive approach to disseminate property information and guidance
concerning accurate documentation and timely processing of required receiving documents.
FMSD will issue a memorandum to remind Agency Senior Resources Officials: (1) to follow
Agency property management policy, and (2) to distribute Transmittal Notice No. 99-03,
"Guidelines on Preparing Requisitions for Property and Related Goods and Services," to their
respective project officers, ordering, and funds certifying officers. Also, the Enterprise
Technology Services Division (ETSD) is scheduling a joint review session with RTP-FMSD,
RTP-OAM, and FMD to address Working Capital Fund property accounting problems. ETSD
expects to have a-plan of action for correcting problems before the end of this fiscal year. We
concur with the Agency's planned corrective actions in the property area.
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Audit Report 99B0003
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REVENUE WAS NOT PROPERLY RECORDED
ON SUPERFUND STATE CONTRACTS
Dining fiscal 1998 and prior years, EPA did not properly recognize revenue on Superfund State
Contracts (SSC). We audited the state cost share analysis and year-end adjusting entries at 6 of
EPA's 10 regional finance offices. Although significant progress was made toward resolving
problems that have existed in this area, we found a few issues remained that caused SSC accounts
to be misstated by $16 million, primarily at 3 regions. Material adjustments were needed to fairly
present the financial statements. If thorough analytical reviews of regional account balances had
been performed, these errors could have been identified and corrected more timely.
When EPA assumes the lead for a Superfund remedial action, a state's role in the action is set
forth in an SSC. The SSC is a contract that ensures state involvement and obtains state
assurances as mandated under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA). CERCLA, as amended by the Superfund Amendments and
Reauthorization Act of 1986, requires the state to provide a 10 percent cost share for remedial
actions at privately owned sites and at least a 50 percent cost share for all response activities at
publicly operated sites. In accordance with Agency policy, EPA must bill the state for its cost
share as provided by the SSC. At the time of the hilling, EPA records an advance (unearned
revenue). As EPA expends efforts to clean up the SSC sites, the unearned revenue should be
reduced and revenue should be recognized.
Comptroller Policy 95-06, EPA Accounting Policies and Procedures for Superfund State
Contracts, and the Financial Management Division's fiscal 1998 Year-end Closing Instructions,
prescribe recognizing revenue on the state cost share as a percentage of expended dollars to
estimated total costs as indicated in the SSC. Officials in each finance office should calculate a
completion ratio (site expenditures as a percentage of the SSC) for each SSC and apply the ratio
to each state cost share to determine the amount of each share that has been earned. The finance
personnel should record year-end adjusting entries to recognize revenue for the appropriate
amount of each state cost share that has been earned. The offset to the revenue recognition
should be a decrease in the advance (unearned revenue) account, to the extent available, or
unbilled accounts receivable if the earnings have not been billed or collected.
Significant progress has been made in addressing the issues that have complicated accounting for
SSCs in the past. During the past few years, FMD updated policies and procedures that guide
regional personnel through this revenue recognition process. They also developed a standard
report to summarize SSC disbursement data needed to more accurately determine completion
percentages on each SSC site. During 1998, FMD also conducted a training workshop for
regional personnel to address past difficulties and discuss proposals for future procedures.
Additionally, FMD refined a spreadsheet program that was originally designed to be an analytical
tool, so it could be used to compute adjusting entries the regions should record.
Audit Report 99B0003
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Despite the Agency's progress in the SSC area, a few issues caused material errors in the general
ledger. An error in FMD's SSC program, related to the accounting for Superfund state credits,
caused an overstatement of unbilled accounts receivable and an understatement of advances.
Additionally, the reversing effect of prior years' entries, in addition to unrecorded corrections of
prior years' entries, adversely impacted the current year's balances. Material adjustments were
made to fairly present the financial statements; however, 2 of the 6 regions we audited continue to
have several million dollars of unreconciled differences in their SSC accounts.
RECOMMENDATIONS
We recommend the Chief Financial Officer (CFO):
7.1 assist the regions in identifying and correcting problems causing errors in their advances
and unbilled accounts receivable, and
7.2 continue to emphasize the need for regional personnel to perform analytical reviews of
their account balances.
AGENCY COMMENTS AND PIG EVALUATION
The CFO agreed with our recommendations. The CFO's staff has already identified and
corrected errors in the SSC spreadsheet program utilized by the regions to calculate SSC revenue.
Further, FMD conducted a workshop during June 1999 for the regions. One of the workshop
sessions specifically dealt with the general ledger and the need for continued account analysis.
We concur with the corrective actions the Agency implemented.
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Audit Report 99B0003
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AUTOMATED APPLICATION PROCESSING CONTROLS
FOR THE INTEGRATED FINANCIAL MANAGEMENT SYSTEM
COULD NOT BE ASSESSED
We continue to be unable to assess the adequacy of the automated internal control structure as it
relates to automated input, processing, and output controls for the Integrated Financial
Management System (IFMS). IFMS applications have a direct and material impact on the
Agency's financial statements. Therefore, an assessment of each application's automated input,
processing and output controls, as well as compensating manual controls, was necessary to
determine the reliance we could place on the financial statements.
During past financial statement audits, we attempted to evaluate controls without documentation,
but these alternatives proved to be inefficient and impractical considering available resources.
Program level flowcharts or similarly descriptive narrative system documentation were not
available. The IFMS Users' and other EPA contractor baseline Federal Financial Systems (FFS)
manuals did not contain the level of detail necessary to construct tests of automated internal
controls which would satisfy our field work standards.
Agency officials disagreed with the conclusions and recommendations made in the OIG report,
"Fiscal 1995 Financial Statement Audit of the EPA's Trust Funds, Revolving Funds and
Commercial Activity," dated May 3,1996, and maintained that sufficient documentation existed
in the Change Management System (CMS). Furthermore, management stated that the OIG's
opinion was restricted by its definition of acceptable documentation. As a result of the fiscal 1995
report, the OIG provided samples of documentation and flowcharts for two other EPA systems to
Financial Management Division (FMD) and Enterprise Systems Division (ESD) representatives.
The Agency, in turn, requested the programming contractor to review the "model" documentation
and determine whether such documentation could also be developed for IFMS. The Agency also
requested the contractor survey the IFMS data and evaluate the scope of data elements to include
in a data dictionary.
The Agency subsequently agreed to complete several corrective action items by September 30,
1997, in response to the OIG audit report, "Audit of EPA's Fiscal 1996 Financial Statements,"
issued March 24, 1997. The action items were: completing a system documentation analysis,
developing draft Accounts Receivable documentation, obtaining OIG approval of the draft
documentation, and providing documentation for OIG selected transactions in other modules.
The Agency also agreed to take actions to conduct an analysis and estimate costs associated with
implementing a comprehensive data dictionary. During fiscal 1997, the contractor completed the
analysis for a comprehensive IFMS data dictionary and developed documentation for the IFMS
Accounts Receivable module.
We evaluated the IFMS Accounts Receivable documentation, as part of our fiscal 1998 financial
statement audit, to determine its adequacy as a model for developing systems documentation for
Audit Report 99B0003
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the remainder of IFMS. We concluded that the Accounts Receivable documentation was not
adequate to establish the reliability of IFMS transaction processing controls. The Joint Financial
Management Improvement Program's (JFMEP) Framework for Federal Financial Management
Systems (FFMSR-0), dated January 1995, requires systems documentation include information
necessary for a systems analyst or a programmer not familiar with the system to learn and
maintain the system in a timely and efficient manner. FFMSR-0 is intended to be used by senior
systems analysts, systems accountants, and their immediate supervisors as a reference to
understand concepts and requirements in other FFMSRs, which the Federal government is
required to implement for an integrated financial management system. The Accounts Receivable
documentation did provide a high level overview, but a systems analyst unfamiliar with the system
could not have assessed the logic or embedded system controls related to accounts receivable
transactions. In addition, no information was included to define the data elements and the related
edits in the data dictionary; thereby, preventing us from identifying key fields used for the
transactions.
AGENCY COMMENTS AND PIG EVALUATION
In her response to the draft report, the Chief Financial Officer stated that her office continues to
believe that IFMS documentation is sufficiently detailed in the context of their legacy system.
Whereas management acknowledges that the JPMS dictionary could be improved, they maintain
that the data dictionary enhancements and ongoing maintenance would not be cost effective
considering the system's maturity and life-cycle stage,
In response to years of internal discussion between EPA's Financial Management Division and the
Office of Inspector General on this issue, the Agency requested the Department of Treasury
Financial Management Service Center for Applied Financial Management (Center) to perform an
independent review of IFMS system documentation, including its data dictionary. The Center's
operations staff performed the review and concluded that IFMS documentation complies with
OMB, JFMIP and GAO requirements. Despite their conclusions, the Center's report also
recommended that a more comprehensive data dictionary be developed, suggesting that such
action be deferred until EPA migrates from IFMS to a new replacement financial system.
Furthermore, the Center's report emphasized that a real-time, distributed database replacement
system would necessitate developing data standards. Therefore, the Center's recommendation
appears to endorse the benefits of both products while, at the same time, echoing Agency
concerns that it would not be economical to make major IFMS cost investments, if management
intends to replace the financial systems within the next several years.
We appreciate management's desire to minimize expenditures for its legacy systems, but remain
concerned because IFMS could easily remain operational for five or more years before a
replacement system is funded, developed and put into operation. Almost one and a half years
ago, management first reported its intent to replace all or part of the Core financial systems;
however, they have taken little action to make that goal a reality. The Agency only recently
began the formal process to replace its payroll system, and that project is still in the initial stages
2-19 Audit Report 99B0003
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of the system development life cycle. To the best of our knowledge, Agency management has not
initiated a tangible action plan to replace IFMS. If the Agency is serious regarding their decision,
then we would expect the CFO's office to formally set up a system replacement project by: (1)
assigning staff and establishing a schedule, (2) preparing an information technology capital
investment budget request, and (3) approving a formal decision paper. We are confident that a
cost benefit analysis of the core financial systems would support the need for a more efficient and
economical system, but without such analysis we cannot agree that it would not be economical to
make further major investments in the existing system.
At this time, we cannot rely on the Center's conclusions regarding the adequacy of IFMS system
documentation. Auditing standards require that we satisfy ourselves as to the work of others
before placing reliance on it for audit purposes. While we reviewed the Center's report, we found
that it only presented the issue at a high level, and was ambiguous because the recommendations
seemed to contradict the report's conclusions. Moreover, the Center's report did not provide
details which would allow us to understand: (1) which specific portions of the IFMS "user"
manuals adequately described automated system control processes, and (2) the thought process
used to arrive at the report's conclusion. In addition, the Center's report presented data that
contradicted facts which we previously obtained from the same source, e.g., percentage of IFMS
customization. We requested clarification and access to the review team's working papers on July
13,1999, but have not received any supporting materials to date. Until such time as we are
allowed to evaluate the team's detailed findings and assess analytical support associated with their
conclusions, we will continue to consider system documentation a reportable condition.
In conclusion, we maintain our position that IFMS systems data dictionary and other technical
systems documentation do not meet Federal systems documentation requirements for an
integrated financial management system, and continue to believe that IFMS systems
documentation is a reportable condition.
Audit Report 99B0003
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ATTACHMENT 3
COMPLIANCE WITH LAWS AND REGULATIONS
TABLE OF CONTENTS
Page
9 - EPA IS NOT IN SUBSTANTIAL COMPLIANCE WITH FEDERAL
FINANCIAL MANAGEMENT SYSTEM REQUIREMENTS
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Audit Report 99B0003
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EPA IS NOT IN SUBSTANTIAL COMPLIANCE WITH FEDERAL
FINANCIAL MANAGEMENT SYSTEM REQUIREMENTS
In last year's audit report, EPA's Fiscal 1997 and 1996 Financial Statements (Audit Report No.
El AML7-20-7008-8100058, dated March 2, 1998), we reported that, as of September 30,1997,
EPA's financial management systems did not substantially comply with certain federal financial
management system requirements. One major problem was the lack of completed security plans
for each of the core financial systems.
In the Agency's remediation plan, dated March 31,1999, EPA's Comptroller advised OMB that
all corrective actions were completed concerning the financial management systems. Agency
management contend that their financial application system security plans substantially comply
with requirements. Management primarily bases its position on several reviews which were
performed subsequent to the end of the reporting period, September 30,1998. We acknowledge
that the Agency has been working aggressively to improve security planning for their financial
systems, and we realize that the Agency's sources may have considered improvements made since
September 30,1998. However, such improvements would have no bearing on the state of
compliance during fiscal 1998. Our fiscal 1998 audit work identified numerous weaknesses in the
Agency's security planning for its financial systems.
We concluded that financial systems were substantially noncompliant with federal financial
management systems requirements because our audit work found that: (1) numerous systems had
one or more critical security components which were "substantially" noncompliant with
requirements, (2) a considerable number of critical security components were noncompliant15 in
most systems, and (3) security plans did not exist for some financial systems. In our opinion, the
cumulative effect of the noncompliant and substantial noncompliant areas warranted classifying
EPA's financial systems as substantially noncompliant.
Our fiscal 1998 audit work included a follow up of actions taken concerning the five core financial
systems,16 as well as a review of the additional ten financial and mixed-financial management
systems. For the security plans that were completed for the core systems, we found them lacking
in several respects. Additionally, we found security plans for the ten additional systems either did
not exist, or the plans were inadequate or incomplete. Therefore, we concluded that EPA's
financial systems were substantially noncompliant because the number and type of noncompliance
and substantial noncompliance issues reflected a cumulative state of risk with regards to security.
IS Noncompliant means thai pans of a critical security control may have been compliant, although other aspects were missing or needed
improvement.
16 The Cote Financial System consists of the Integrated Financial Management System (IFMS), the Combined Payroll Redistribution and Reporting
System (CPARS), and the Management Accounting and Reporting System (MARS). The other principal financial systems in the financial system
inventory are the EPA Payroll and Personnel System (EPAYS) and the Contract Payment System (CPS).
Audit Report 99B0003 3-1
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In responding to our fiscal 1998 FFMIA findings, senior management disagreed with our
conclusion that EPA is again in substantial noncompliance with financial management systems
requirements. While management agreed that additional corrective actions are needed, they do
not agree that the actions warrant classification as "substantial" and are not planning to prepare
another remediation plan, as is required under FFMIA. FFMIA requires the preparation of a
remediation plan when an audit determines there is substantial noncompliance with FFMIA. We
believe that security concerns are of a paramount nature, and EPA needs to take reasonable
corrective actions to mitigate the threat of financial data being intentionally or accidently
compromised by either external or internal sources.
We met numerous times with senior Financial Management Division, Financial Services Division
and Grants Administration Division officials (the owners of the financial management systems we
reviewed) and provided them additional information which explained how we assessed the degree
of FFMIA non-compliance and clarified our overall audit position. We are presenting our findings
below along with proposed recommendations. Following our recommendations, which include
the preparation of another remediation plan, we provide detailed management comments and our
evaluation of those comments.
Fiscal 1998 Audit Results
EPA is not in substantial compliance with Federal financial management systems requirements
under the Federal Financial Management Improvement Act (FFMIA). Our review of Agency
financial management systems under development or operational, as of September 30,1998,
found that:
• Approved security plans for eight financial or mixed-financial systems did not comply with
the requirements of OMB Circular A-130, Management of Federal Information
Resources, Appendix in (February 1996), and
• Management had not approved security plans for the remaining seven financial or mixed-
financial systems, as required by OMB Circular A-130.
In the fall of 1998, the Chief Information Officer (CIO) declared Information Systems Security
Plans a carryover material weakness under the Integrity Act. The CIO recognized the need to
(1) finalize guidance, (2) strengthen and revise the National Security Center's Security Plans,
(3) strengthen and revise the EPA Network Security Plan, and (4) provide assistance to managers
to update their security plans. The CIO declared this a continuing material weakness under the
Integrity Act, only after it became apparent that many Agency systems did not have updated plans
or the existing plans were deficient.
In order to be in substantial compliance with the Federal financial management system
requirements, Agencies were to comply with:
• Office of Management and Budget (OMB) Circular A-127 requirements;
3-2 Audit Report 99B0003
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• Joint Financial Management Improvement Program's (JFMIP) Federal Financial
Management System Requirements series;
• OMB Circular A-130, Appendix HI; and
OMB Bulletin 98-08 ".
Our review of compliance with OMB Circular A-130 was limited to evaluating the approved
system security plans and supporting documentation for financial or mixed-financial management
systems under development or operational as of September 30, 1998 (Table 1). We compiled the
list of systems from the Agency financial and mixed-financial systems inventory reported to OMB
in October 1997 and October 1998. We included the: (1) Superfund Cost Recovery Collection
Tracking System because it is a major regional financial system, and (2) Partnership 2000 because
it is a major Agency development project to replace the Grants Information and Control System.
We reviewed but have not reported findings associated with the Electronic Time and Attendance
Data Collection System (ETAMS), because the Agency is in the process of replacing its payroll
system and decided not to expend any additional resources on developing this particular system.
In addition, the Agency recently ^classified the Asbestos Receivable Tracking System (ARTS)
from a major to a non-major application. Nevertheless, we included ARTS in our evaluation
because it was categorized as a major application during the period under review. However, due
to its reclassification, we excluded ARTS from recommended corrective actions in this report
TABLE 1
EPA's FISCAL 1998 FINANCIAL AND
MIXED-FINANCIAL SYSTEMS INVENTORY
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Asbestos Receivable Tracking System (ARTS)
Combined Payroll Redistribution Reporting System (CPARS)
Contracts Payment System (CPS)
EPA Payroll & Personnel System (EPAYS)
Integrated Financial Management System (IFMS)
Management Accounting and Reporting Systems (MARS)
Travel Manager Plus (TM+)
Budget Automation System (BAS)
Grants Information and Control System (GICS)
Partnership 2000 (P2000)
Status (9/30/98)
Operational
Operational
Operational
Operational
Operational
Operational
Phased Development
Phased Development
Operational
Development
17 Internal controls, as they relate to the principal statements and required supplemental stewardship information, are designed to provide reasonable
assurance that financial reporting is reliable: the Agency is in compliance with applicable laws and regulations; and performance reporting is reliable.
Audit Report 99B0003
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TABLE 1
EPA's FISCAL 1998 FINANCIAL AND
MIXED-FINANCIAL SYSTEMS INVENTORY
11.
12.
13.
14.
15.
Integrated Contracts Management System (ICMS)
Small Purchase Electronic Data Interchange (SPEDI)
Contract Information System (CIS)
Contract Delivery Order Tracking System (CDOTS)
Superfund Cost Recovery Collection Tracking System (CTS)
Status (9/30/98) ||
Operational
Operational
Operational
Operational
Operational
With regards to complying with FFMIA requirements, we did not verify that the security controls
identified in the system security plans were operational. Operational security controls are being
examined under several, separate ADP general control audits. We defined this audit approach in a
multi-year audit plan which was endorsed by General Accounting Office representatives. We will
conduct one or more audits of operational security controls during fiscal 2000.
We reported the weaknesses found during our evaluation of the individual security plans to the
applicable Senior Information Resource Management Officer (SERMO) and the responsible
system manager.
Security Plans Not In Compliance
As of September 30,1998, none of the existing eight, approved security plans for Agency
financial or mixed-financial systems adequately addressed compliance with OMB Circular A-130,
Appendix in (see Table 2). Seven of the eight financial or mixed-financial systems which had an
approved security plan were operational systems: IFMS, CPARS, MARS, EPAYS, ARTS, CPS
and GICS. The other system with a final security plan, P2000, was under development
We continue to report on ARTS because, as of September 30,1998, it still was classified as a
major application system. However, ARTS will not be included in our fiscal 1999 assessment
regarding FFMIA compliance, because the system owner subsequently reclassified ARTS to a
non-major application. Due to its reclassification, we excluded ARTS from recommended
corrective actions in this final report.
The OIG considers the following five security controls to be critical for creating and approving
comprehensive system security plans that comply with OMB's major control requirements. A
notation of 'SUB' indicates that we consider the particular noncompliance to be of substantial
nature. The designation 'NC' indicates that a system was noncompliant in some respects with
requirements for the critical control, but we did not consider the critical control substantially
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Audit Report 99B0003
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noncompliant. Therefore, an 'NC' denotes that parts of a critical security control may have been
compliant, although other aspects were missing or needed improvement. A 'YES' indicates that a
system was compliant with all aspects of the required, critical security control. 'N/A' indicates
that the particular control was not applicable, because the system was under development.
| TABLE 2
1 Major Financial and Mixed Systems Security Plans
| As of September 30, 1998
I CRITICAL
I SECURITY
I CONTROLS
f | -
mmmmmjjjjjjmg^^^^^^^^^^^^^^^^^^^^^^^^^—
\ 1. Independent review
I of current security
1 operations completed.
12. Security Plan level of
1 detail was sufficient to
J adequately address
1 required subjects. 18
13. Contingency/disaster
1 recovery plan existed
I and adequately
| addressed required
1 subjects.
1 4. Security training was
1 adequate.
15. Management
1 approval to operate was
1 properly authorized by
| the owner.
EFMS
_ m—
YES
SUB
NC
SUB
YES
CPARS
mSSm
YES
SUB
NC
SUB
YES
MARS
YES
SUB
N/A
SUB
YES
EPAYS
^— — - — —
••^•^^H
YES
SUB
NC
SUB
YES
ARTS
NC
SUB
SUB
NC
YES
CPS
YES
NC
NC
SUB
YES
P2000
N/A
SUB
N/A
N/A
sp
GICS
SUB
SUB
SUB
SUB
SP
Number of
Substantially
Non-Compliant
Systems
^ ^_
1
7
2
6
2
Critical Security Control #1 - Independent Reviews: We considered a system to be in compliance
with OMB Circular A-130, if an independent review or audit of security operations had been
completed during the three years prior to September 30, 1998. For example, the OIG conducted
an independent review of CPS controls, including security, in 1996. On the other hand, we could
not recognize contractor-performed risk assessments of MARS and CPARS (dated June 3, 1996,
18 Using OMB Circulars, NIST guidance and Agency guidance, we evaluated the system security plans' detailed infoimition. We provided copies
of our detailed comments to the appropriate managers.
19 The security plan was approved by an Office of Information Resources Management (OIRM) manager, but the development project should be
approved by the system owners). Grants Administration Division program manager is the primary owner.
20 The security plan was approved by OIRM, rather than the system owner(s).
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and July 1,1996, respectively), because these assessments did not include a review or audit of
operational security controls.21 These formal assessments were based on interview and survey data
and did not include actual system testing. Neither could we view SIRMO-performed desk reviews
of security plans as an independent assessment of an application's operational security controls.
In 1994 and 1995, management hired a contractor (i.e, Booz-AUen & Hamilton, Inc.) to review
operational systems and security controls for IFMS, EPAYS, MARS and CPARS. The contractor
issued a report to the Agency in December 1995. Management made significant revisions to the
contractor's 1995 report and re-issued the report during 1996. We have allowed the contractor's
report to serve as the independent assessment of operational controls for these systems, although
we remain concerned that Agency management negated some of the report's "independence" by
downgrading/excluding several of the reported nonconformances from their internal report and
subsequent corrective action plan.
We downgraded ARTS to a noncompliance standing with respect to Critical Control #1. We took
this action on the basis that the OIG's independent review of this application: (1) addressed some
of the security functions addressed in OMB Circular A-130, and (2) was issued within three years
prior to the period under review. However, we reiterate that the OIG's review did not cover many
areas which would be expected of an independent audit or review under current OMB Circular A-
130 requirements. Also, the system owner reclassified ARTS to a non-major application on July
29,1999. Due to its rectification, we concur that ARTS no longer requires an independent
assessment of security controls. Still, we expect management to assess the ARTS operational
security controls on a regular basis and to revise the ARTS security plan based on such
assessments. We did not include ARTS in our recommendations to management, and it will not be
included in our fiscal 1999 audit regarding FFMIA compliance.
Critical Security Control #2 - Security Plan Level of Detail: A security plan's detail was not
considered acceptable unless it addressed functional and other requirements found in the current
OMB Circular A-130, Appendix JH. Section A.3.b. of the Circular specifically requires that major
application security plans be consistent with NIST's guidance. Therefore, we also used MIST
security guidance, Agency Directives on security and Agency interim guidance on security plans to
judge the adequacy and acceptability of approved security plans. Regarding MIST guidance, we
used two publications regarded as generally accepted security principles and practices for the
Federal government: (1) Publication 800-12, An Introduction to Computer Security: The NIST
Handbook, and (2) Special Publication 800-14, Generally Accepted Principles and Practices for
Securing JT Systems. Lastly, we considered a security plan to be noncompliant if it was
21 The risk assessments cited the following limitations:
• The ability to gather data from all users regarding the efficiency and effectiveness of controls is limited. In particular, due to
budget constraints, regional users of MARS and CPARS were not included in the survey group.
• Data regarding the exact implementation status for each control was not available so an assumption was made that all partially
implemented controls were at least SO percent implemented.
* This risk assessment was based on interview and survey data and did not include actual system testing.
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formulated solely an outdated requirements (e.g.,versions of Circular issued prior to February 8,
1996).
Our review found that none of the plans referenced operational security problems identified by
independent reviews or audits of security controls. The security plan should recognize security
problems reported in the last independent review, identify planned corrective actions, and
acknowledge any compensating operational controls. Unless known security problems are
addressed in the security plan, management cannot properly utilize the security plan as a basis to
assess risks and authorize the system for operation. Furthermore, the security plan formally
establishes management's accountability to manage risks associated with system operations.
We provided detailed comments to management for security control deficiencies, noting each
category required to be documented by OMB Circular A-130. These detailed comments identified
specific OMB, NIST or Agency requirements, and were provided separately because they were
voluminous. For example, we determined that the security plans for IFMS, CPS and EPAYS did
not describe, or summarize and reference in an addendum, a minimum set of specific controls for:
(1) requesting, establishing, issuing, and closing user accounts; (2) tracking users and their
respective access authorizations; and (3) managing these functions. In addition, these same
security plans did not describe or summarize and reference, in an attached addendum, specific
controls used to ensure the timely and proper handling of friendly terminations, unfriendly
terminations, and changes in job responsibilities. Furthermore, the security plans for IFMS, CPS
and EPAYS, for example, did not reference or describe specifically how then' respective
application rules/controls were implemented for changing data, searching databases, or divulging
information. These requirements are identified hi NIST Publications 800-12 and 800-14, as a
standard minimum set of generally accepted practices to be employed in an effective computer
security program.
The absence of details in the security plans gains significance because, in most instances, OCFO
does not have formal policies or procedures which define security control processes for the
financial systems. Formalizing control processes, whether in policies or in the form of security
plans, ensures that everyone understands and can consistently apply the required controls. To
further clarify how existing security plans lack sufficient details, we offer the following examples
for two control topics required under OMB Circular A-130, Personnel Security and Access
Security:
Personnel Security Controls:
• The IFMS security plan prefaces its "Personnel Security" section by stating that the
application system processes confidential or sensitive information and contains information
requiring high availability and integrity controls. While the plan lists three implemented
areas of personnel security (i.e., Separation of Duties, Least Privilege, and User
Accountability), each area is described in minimalist terms. For example, the Least
Privilege subsection makes a blanket statement that Financial Systems Branch personnel
performing maintenance may also need to process documents. This subsection does not
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specify what types of processing might be performed by maintenance personnel or identify
compensating controls which might be applicable under the circumstances. Similarly, the
User Accountability subsection briefly refers to established audit trails, but does not specify
what reports are generated to the security officer. Nor does this subsection identify if
specific files are retained or for how long.
• Furthermore, the IFMS security plan does not recognize or define personnel screening
requirements for Agency employees. The plan recognizes that personnel screening policies
and procedures should be developed (sometime in the future) to govern contractor access
to IFMS, and that these procedures should include non-disclosure agreements and be
completed prior to granting system access. As a minimum, the security plan should address
specific requirements in EPA Directives 2195 and 2100. For example, the plan should
describe minimum screening requirements and procedures for both employees and
contractor personnel performing comparable work. Intentional misuse and destruction of
data can be committed by either type of user if given sufficient access.
• The EPAYS security plan addresses "personnel security" in a similar manner, but is more
liberal because it does not address the need for non-disclosure agreements for contractor
personnel. EPAYS, like IFMS, contains sensitive information which could be
compromised by improper disclosure. Agency management needs to establish a policy and
outline procedures which require both employees and contractor personnel to complete a
screening prior to being granted access to these sensitive systems.
Access Security Controls:
* The IFMS security plan only briefly addresses "Access Security" controls, focusing
primarily on how local area network userids and passwords form the first line of defense
for the application system. Although the IFMS plan assigns security responsibilities to the
IFMS Coordinator and system users, it does not identify or reference minimum policies and
procedures that could ensure access is properly and consistently controlled. Furthermore,
this section of the plan does not address control processes associated with employees who
change jobs or leave the Agency. Rather, under the section entitled "Password Rules," the
plan states that "IFMS users are responsible for informing the designated EFMS
coordinator of any changes in duties or termination." Making users responsible for
initiating changes to their personal access authorities may seriously undermine access
controls, because users could intentionally refrain from notifying the IFMS Coordinator,
thereby retaining special access privileges long after they no longer require those access
rights. Under the described circumstances, users intent on misusing or destroying system
data at a later date would have the upper hand. Furthermore, even if 100 percent of users
notify the IFMS Coordinator regarding impending changes, no formal process exists to
ensure that appropriate actions will be taken in a consistent and timely manner.
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• Similarly, the CPS security plan addresses access controls at a very high and general level.
It states that access is maintained by: (1) IBM mainframe userids and passwords,
(2) ADABAS Natural security, and (3) an individual user profile which allows specific
functions in CPS. Whereas the security plan mentions mainframe security, it does not
specify how the security software (i.e., RACF) is implemented. Also, the plan does not
elaborate on Natural security procedures other than to state that a person's userid must be
added to a main CPS "group." The plan does not expand on the number and types of
"groups" available. The plan states that supervisors should decide which runction(s) a user
should be given access to, but the plan does not identify how the supervisor is to make that
determination or what functions are available.
• Both BFMS and CPS contain sensitive and confidential information requiring access
restrictions. Therefore, the security plans for these systems should identify a minimum set
of policies and procedures for granting user access. For example, the plans should
distinguish specific access rights/privileges which apply to predefined user groups or
functional job titles. Furthermore, incompatible duties should be segregated into separate
access groups. The security plans should define access rights/privileges for each group,
and individuals should be granted access to one group based on their job - no more and no
less. This approach is discussed in NIST Publication 800-12.
Critical Security Control #3 - Contingency Plan: Contingency planning was not considered
acceptable unless the security plan addressed related requirements found in OMB Circular A-130
Appendix ffl, OMB Memorandum M-98-12, NIST guidance and Agency requirements.
Furthermore, OMB Memorandum M-98-12 required that agencies use the GAO document entitled
Year 2000 Computing Crisis: Business Continuity and Contingency Planning as a guide to ensure
the continuity of core business functions. This GAO document required contingency plans for
mission-critical systems to address contingencies for Year 2000 failures. As a result, we
considered a security plan to be inadequate whenever the application's contingency plan:
• was inconsistent with its corresponding security plan,
• did not include a prioritized list of program-critical functions and the effect that the inability
to perform each program-critical function would have on the organization,
• did not address contingencies and related disaster scenarios,
• did not address resource requirements and related time frames for continuity of operations
related to the application,
* did not contain the application schedule and procedures for backup,
• did not assign or document specific procedures (e.g., initial response, Back Up Operations
and Recovery) to be followed in response to each contingency and related disaster
scenario, or
• had not been tested.
Furthermore, if the contingency plan did not mention Year 2000 contingencies as a risk or the
security plan did not address the issue under continuity of operations, then we did not consider the
plan specific enough to address OMB's requirement.
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Some financial management systems only addressed contingency plans as part of the general
support system's continuity of support plan. In such cases, we considered the general support
system's continuity of support plan to be adequate only if it specifically and reasonably addressed
the application system. Our review disclosed that CPS, DFMS, CPARS, and EPAYS were the only
financial management systems included in Enterprise Technology Services Division (ETSD) NCC
Critical Applications Disaster Recovery Plan. Management provided applicable portions of the
ETSD NCC Critical Applications Disaster Recovery Plan in lieu of contingency plans specific to
these four applications. While other financial management applications also reside on the
mainframe, they were not included in NCC's DRP focused on critical applications. These other
applications also lacked adequate contingency plans. However, the Agency adequately justified
that the MARS application is not essential for producing standard reports and that management
could also use other tools to create ad-hoc reports. These alternative reporting methods equated
to a lower risk and, therefore, MARS did not need to meet this requirement. However, if MARS
is not an essential system, we question why the Agency continues to classify it as a "core" financial
system. Furthermore, the referenced alternative reporting methods should be referenced and tested
as part of the other core financial systems' contingency plans.
Critical Security Control #4 - Security Training: In evaluating security training, we used various
criteria from the Computer Security Act of 1987; OMB Circular A-130, Appendix HI; EPA
Directive 2100, IRM Policy Manual; and EPA Directive 2195, Information Security Manual. In
each security plan, we expected to find a description of an operational security training program
which addressed general and application-specific security. If the security training program was
scheduled for development and not operational during fiscal 1998, then we looked for more
rigorous system controls to compensate for the lack of security training. The security plan was
considered acceptable when it documented an operational training program that addressed
application-specific security policies, procedures and system requirements. For example, MARS
identified a schedule to establish user and training manuals by January 2000, but compensating
controls did not exist to mitigate the risk incurred during the interim period. An acceptable
compensating control would have been to provide interim training to users before they were
granted access to the application. Furthermore, as pan of an effective security training program,
we would have expected management to address a schedule for future user training, as well as
document system-specific security training provided during the past three years.
Agency management acknowledged they need a formal security training program, and stated that
they have taken steps towards that goal since the end of the period under review. We commend
management for making continued improvements to their security training program, but reiterate
that this particular report must judge the state of compliance as of September 30,1998. We will
evaluate recent improvements during the fiscal 1999 audit of FFMIA compliance.
Critical Security Control #5 - Approval Authorization: We considered approval authorization to
be in compliance with Federal regulations and Agency policy if: (1) the security plan was
approved by the program management official responsible for the system and related program data,
and (2) responsible management authorized the application for operation on or before September
30,1998. We reviewed the documentation for approving financial systems security plans and
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program management's authorization to operate financial and mixed-financial systems using the
security controls identified in the security plan. In our analysis, we used requirements outlined in
the Computer Security Act of 1987, OMB Circular A-130, MIST Pub 800-14, and Agency
policies. For example, the program manager responsible for the GICS and P2000 systems had not
signed the security plan or authorized the systems operation. Instead, the service center manager
approved the security plan and authorized its operation. We did not consider this to be a proper
approval, because a major application must be authorized by the management official responsible
for the function supported by the application.
Systems Security Plans Not Approved
As of September 30,1998, seven EPA financial or mixed-financial systems lacked an approved
system security plan, as required by OMB Circular A-130. Five of the seven financial or mixed-
financial systems without an approved security plan were operational: CDOTS, ICMS, SPEDI,
CIS and CTS. The other two systems without a final security plan (BAS22 and TM+) were under
development
Management Is Not Treating Security Plans as Prioritv Tasks
In our opinion, the primary reason contributing to deficient and missing security plans was that
responsible financial and mixed-financial systems managers did not take timely actions to treat the
completion of a review of operational security controls and development of security plans as a
priority. The February 1996 revision of OMB Circular A-130 significantly expanded Agency
security requirements for application systems and general computer environments. Previously,
only a periodic risk assessment of security controls was required. To adequately address and
implement the new OMB requirements, management needed to commit additional resources to:
• incorporate the results of independent reviews/audits of security controls into the approved
security plans; and
• authorize, in writing, the use of the application by confirming that the implemented security
plan would adequately secure the application.
In fiscal 1997, the CIO recognized the significance of these policy changes when he declared
security plans an Agency material weakness. The CIO established short deadlines to revise
existing security plans, and expected system managers to provide the resources necessary to
implement the new security requirements. However, it takes significant time and resources to
perform an independent security review and subsequently develop a comprehensive security plan.
As of September 30,1997, neither EPA's core financial systems nor EPAYS had application
security plans. To quickly meet the CIO's deadline, in fiscal 1998, system managers either:
(1) revised older security plans without addressing the new requirement for an independent review
of operational security controls, (2) delayed revising the security plans until resources became
22 BAS, a system under development, had an approved security plan which expired on June 30, 1998. The BAS security plan was not reauthorized;
therefore, we did not perform a detailed review of the plan.
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available, or (3) composed a bare bones document which modeled the format and content of the
generic example attached to the Agency guidance. Each of these tactics appeared to meet the
CIO's mandate, while allowing scarce resources to be used for completing other priorities, such as
implementing systems upgrades to achieve Year 2000 compliance.
In their response to the draft report, management asserted that considerable staff time was devoted
to identifying security requirements and documenting security controls in their security plans.
Furthermore, OCFO management stated that they added staff in the OCFO immediate office to
assist the SIRMO with security plan development, review and coordination. We commend
management for taking more aggressive action to improve and approve security plans, but suggest
that many measures were taken too late to affect the state of compliance as of September 30,
1998. Management's investments towards improving compliance with FFMIA requirements will
be evaluated during the fiscal 1999 financial statement audit.
Responsible Management Did Not Take Accountability for Risk of System Operations
There was also general confusion regarding which managing official should "approve" security
plans and authorize systems to operate. For example, OIRM management approved the GIGS
security plan and authorized the system for operation, even though they did not own the system or
its data. Grants Administration Division (GAD) management maintained that this happened
because there was confusion about who owned GICS. GAD was recognized as the system's
primary owner, but other program offices also owned GICS data. For example, the Office of
Water used GICS for the Construction Grant Program. In our opinion, GAD management needs
to reach an agreement with the other program offices regarding who should be responsible for
approving the GICS security plan and authorizing the system for operation. GAD management has
already reached such an agreement for the P2000 system, which is being developed and will be
piloted as a replacement system for GICS. GAD will be the official owner of the P2000 system
and other secondary owners agreed that GAD should be responsible for approving the system's
security plan.
Financial Systems' Security Does Not Provide Reasonable Assurance of Data Integrity
We found that specific system controls were not adequately described in the security plans to
provide management with a reasonable basis for adequately considering the risks to financial data
integrity. In addition, management's decision to forego completion of independent reviews or
audits of current security controls did not provide management with reasonable assurance that
operational and compensatory security controls existed or would prevent:
• unauthorized disclosure or manipulation of data;
• inconsistent application of security controls and procedures;
• the loss of data integrity in the event of a disaster, accidental damage, or intentional
damage; and
• loss of audit trails concerning changes to the data.
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Therefore, we believe management does not have an adequate basis to evaluate current risk to
financial data and accounting operations.
EPA's financial systems are a complex combination of off-the-shelf applications, in-house
developed legacy systems, and in-house client-server systems which do not use standard data
definitions. EPA also uses complex multi-platform, multi-protocol, and multi-vendor open
systems. The financial systems and their platforms are integrated, and management needs to
understand the operational controls and risks as part of the entire financial process. Therefore,
management must ensure that the controls which secure this financial data from loss or alteration
are thoroughly identified, assessed, strengthened when necessary, and documented to make certain
that staff understand the relevance of such controls and are able to provide for their continuance.
Comprehensive security plans provide a structured approach for documenting specific controls that
provide management reasonable assurance that Agency data will be secure from unexpected or
intentional threats in EPA's complex, decentralized architecture. For this reason, management
needs to make it a priority to develop financial and mixed-financial systems security plans which
fully address the requirements outlined by the Computer Security Act of 1987, OMB, MIST and
Agency policies.
RECOMMENDATIONS
Because the organizational responsibility for the financial and mixed-financial systems varies, we
are directing our recommendations to multiple action officials. The following recommendations
intentionally address corrective actions at a high level, because it would be too prescriptive and
voluminous to elaborate on corrective actions for each system within the confines of this final
report. Furthermore, we believe managers should be responsible for determining minimum security
controls, based on the risk associated with system operations. For more specific information,
managers should refer to the detailed evaluations which we previously forwarded to system
owners.
We recommend the Chief Financial Officer:
9.1 develop an overall remediation plan which specifies resources, remedies and intermediate
target dates associated with bringing CPARS, CPS, EPAYS, IFMS, MARS, TM+ and
BAS systems into substantial compliance with OMB, NIST and Agency requirements, and
addresses the critical security controls shown in Table 2.
We recommend the Director for Acquisition Management:
9-2 develop security plans for CDOTS, ICMS, SPEDI, and CIS which address the critical
security controls depicted in Table 2 above, and bring these systems into compliance with
OMB Circular A-130, NIST and Agency requirements.
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We recommend the Director for Grants Administration:
9-3 address the critical security controls, as indicated in Table 2, needed to bring the P2000
security plan into compliance with OMB Circular A-130, NIST and Agency requirements,
and
9-4 coordinate with GICS data owners and address the critical security controls, shown in
Table 2, necessary to bring the GICS security plan into compliance with OMB Circular A-
130, NIST and Agency requirements.
We recommend the Region 5 Assistant Regional Administrator for Resources Management:
9-5 develop a security plan for the CTS financial system which addresses the critical security
controls shown in Table 2 and makes the system compliant with OMB Circular A-130,
NIST, and Agency requirements.
AGENCY COMMENTS AND PIG EVALUATION
The Chief Financial Officer provided a coordinated response for the four action officials identified
in the draft report. For the most part, the Office of Chief Financial Officer, the Office of
Acquisition Management and the Grants Administration Division disagreed with the overall audit
findings, stating that they believe EPA financial systems substantially comply with FFMIA
requirements for financial management systems. Management stated that the Agency completed
the security plans called for in the remediation plan which addressed fiscal 1997 FFMIA
noncompliance issues. In addition, management disregarded some of the Federal and Agency
criteria cited in this audit report, and maintained that the contents of completed security plans
substantially complied with "applicable" requirements. Region 5 management agreed with our
recommendation and subsequently submitted a security plan for review and approval.
Throughout their response, Agency management referred to a recent independent assessment
performed by the Department of Treasury's Financial Management Service Center for Applied
Financial Management (Center). According to the Agency, the Center's review team issued three
reports which concluded that: (1) the technical system documentation for EPA's financial
systems met FFMIA requirements, (2) nine of EPA's financial systems met OMB A-127
requirements "in all material respects," and (3) nine of EPA's financial systems met OMB A-130
requirements" in all material respects." EPA management also cited an ongoing review by the
National Security Agency as a basis for concluding that EPA substantially complied with FFMIA
requirements.
Agency management further supported their position by stating:
• NIST Publication 800-18 should not be used to evaluate the security plans because it
postdated the period covered in the 1998 Financial Statement Audit;
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• MIST Publications 800-12 and 800-14, and GAO Year 2000 guidance were not
appropriate criteria for evaluating security plans;
• audit staff inappropriately used OMB requirements for general support systems to
evaluate major application system security plans;
• security plans were not required to contain the level of detail called for in the draft report;
• Agency officials intentionally excluded details from financial security plans because they
thought offering too much detail was a security risk; and
• sufficient security controls actually existed for EPA's financial systems, although these
controls were not always formally documented in system security plans, policies or
procedures.
In those instances where Agency officials acknowledged that: (1) systems were technically
noncompliant with requirements, or (2) control weaknesses existed, management contended that
the operational risk was minimal and such weaknesses did not warrant a substantial
noncompliance opinion. Furthermore, in their response, Agency management raised many issues
which they believed had not been duly considered by audit staff in reaching a conclusion regarding
the degree of FFMIA noncompliance. In particular, management asserted that:
• the "yes/no" indicator used in Table 2 of the draft report did not accurately reflect the
degree of noncompliance in each critical security control area;
• some systems, such as ARTS, CTS, and TM+ did not require security plans;
• Booz-AUen and Hamilton (BAH) issued an assessment report on EPA's financial systems
within the three year period preceding the period being audited;
• the credibility of BAH's report was .not diminished by the fact that EPA subsequently
"reclassified" some of the review findings and issued a revised version of the report in
1996; and
• audit conclusions regarding security controls were too strong given that auditors only
evaluated controls documented in security plans, policies or other documentation, and did
not observe or test operational security controls. Management also asserted that audit
staff did not adhere to auditing standards because we did not review operational controls
as part of our review of security documentation.
Agency management also suggested that: (1) the auditor's standard for contingency planning was
substantially more stringent in the draft report than it had been in prior formal position papers, (2)
in the draft report, audit staff expanded the criteria for contingency planning compliance in two
instances and also added three new requirements, (3) the audit criteria was not consistently
applied from system to system, and (4) our criteria for evaluating contingency plans contained
requirements associated with the preparation of Continuity of Operations Plans (COOP).
The Agency's response repeatedly emphasized that security is a high priority item to them and
thai:, in the months since the end of the reporting period, they have continued to improve the
content of security plans, as well as other noted control weaknesses. With regard to security
plans, management stated that they devoted considerable staff time to identifying security
requirements and documenting security controls. For example, OCFO added additional staff to
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its immediate office to assist the SIRMO with security plan development, review and
coordination.
In concluding, OCFO management disagreed with report recommendation 9.1, but suggested that
the OIG report include more specific recommendations by addressing specific deficiencies which
needed correction.
OAM, GAD and Region 5 management also provided comments regarding their respective report
recommendation(s). Specifically:
• OAM management disagreed with report recommendation 9.2, citing that the Agency's
procurement systems were substantially compliant with OMB, NIST and Agency
requirements. In addition, they stated that:
• The Contracts Information System has been in operation for a number of years and
has had an approved security plan in the past. However, they noted that security
information for this system is being incorporated into the ICMS Security Plan.
The SIRMO directed OAM to revise the ICMS Security Plan23 to address issues
which OIRM's IRM Policy and Evaluation Division raised in connection with their
recent extensive critique of the plan. OAM's Office Director was briefed on the
status of the ICMS Security Plan and granted authority to operate these systems,
with direction that OAM's Technical Information Officer comply with the
SIRMO's instructions and guidance.
• GAD management disagreed with report recommendations 9.3 and 9.4, stating that the
GAD Systems Security Plan, as of September 30,1998, was sufficiently detailed to meet
EPA guidelines. However, GAD management also added that:
• they are currently revising the plan which should be completed by June 2000. The
revised plan will include requirements for the operation of the Partnership
2000/Integrated Grants Management System, which is under development (9.3).
• they will coordinate with the Office of Water, the co-owner of GICS data, and
jointly address the additional critical security controls necessary to keep the GICS
Security Plan in compliance with OMB, NIST and Agency requirements (9.4).
Furthermore, management is arranging for an independent audit of the system.
• Region 5 management agreed with report recommendation 9.5. They developed and
submitted a CTS Security Plan to the SIRMO for review and approval by March 31, 2000.
21 The ICMS family of applications includes ICMS, SPEDI and CDOTS.
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In the following paragraphs, we have attempted to address all of the Agency's aforementioned
concerns:
The Agency based its position mainly on two sources, which were issued after the end of the
reporting period, September 30, 1998. Auditors have not had the opportunity to review products
issued from these sources. For example, the National Security Agency's (NSA) review is ongoing
and, to date, NSA has not taken a stance on any issue by releasing a draft or final written product.
Similarly, whereas the Center issued three draft reports, audit staff were given access only to one
draft report. As of August 16, 1998, (i.e., date of the Agency's formal response to the draft audit
report), two Center reports were still in draft format. At that time, Center staff had finalized their
report addressing system documentation; however, management still has not provided auditors
access to the report's supporting analytical work papers. We acknowledge that the Agency has
been working aggressively to improve security planning for its financial systems, and we realize
that these two sources may have considered improvements made since the end of the reporting
period. Nevertheless, such improvements would have no bearing on the state of compliance
during fiscal 1998. Furthermore, auditing standards require that we satisfy ourselves as to the
work of others before placing reliance on it for audit purposes. Therefore, until we can review
the referenced reports, evaluate related analytical work papers and weigh other review
procedures, we must continue to place reliance on our own audit analysis in determining FFMIA
compliance. Although we cannot use these products as a basis for our 1998 audit opinion, we
will consider them as part of our fiscal 1999 audit work.
Based on the Agency's response to the draft report, we made several major revisions to the audit
findings in the final report. Most notably, we removed the "yes/no" indicators from Table 2 of the
report and replaced them with indicators which denote either full compliance, noncompliance or
substantial noncompliance. In addition, we allowed the Booz-Allen and Hamilton final report to
serve as the independent assessment of operational controls, although we remain concerned that
Agency management negated some of the report's "independence" by excluding several of the
reported nonconformances from the Agency's corresponding internal report and subsequent
corrective action plan. As a result, we revised findings associated with this particular security
control for the following systems: IFMS, MARS, CPARS and EPAYS. Also, we removed
ETAMS from the list of financial systems, based on the Agency's response that "because the
Agency's payroll system is to be replaced, management decided to not expend any additional
resources on this system." We modified the final report to reflect the exclusion of ETAMS.
With one exception, we maintain that the Federal and Agency criteria used in our evaluation are
appropriate for identifying required security controls and evaluating the content of major
application security plans. The one exception is MIST Publication 800-18. Prior to the issuance
of the draft report, we agreed with Agency managers that NIST 800-18 should not be applied for
compliance purposes because it became effective after the period under review. We emphasized
to Agency management that this particular criteria only affected one element within one of the
five, identified critical security controls (depicted in Table 2), specifically Control Item # 2. Upon
re-evaluation, we concluded that the degree of noncompliance for that critical control did
Audit Report 99B0003
3-17
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not materially change when we excluded the questioned guidance. The findings depicted in both
draft and final reports did not include the requirements of NIST 800-18.
Based on the current security risk to EPA systems, we did not agree with the Agency's logic for
excluding the other referenced criteria. We attempted to hold a meeting with the various financial
system managers and staff, and EPA's National Program Manager for Security, to discuss both
Federal and Agency requirements for security plans. We thought such a meeting was necessary,
because OCFO representatives stated that criteria such as NIST 800-12, NIST 800-14, EPA
Directives 2100 (IRM Policy Manual) and 2195 (Information Security Manual) were not
applicable to the evaluation of their application system security plans. OCFO management
subsequently postponed the scheduled joint meeting, stating that NSA staff should also attend the
meeting but would not be available until sometime after August 25,1999. To date, Agency
security personnel have not been able to meet with NSA representatives to discuss minimum
security controls for sensitive financial systems. Furthermore, to our knowledge, OCFO
management has not received a waiver or special dispensation from responsible Agency officials
which would have excluded financial systems from the requirements stated in EPA Directives
2100 and 2195.
Despite management's comments, they were not able to provide support which specifically
identified parts of our analysis where criteria was inappropriately applied. In its response, the
Agency referenced Section B of OMB Circular A-130, Appendix ffl, to support its position.
However, Section B only contains explanatory, descriptive language which is included merely to
assist users in understanding the requirements outlined in Section A of the Circular. Rather,
Section A.3.b, Controls for Major Applications, is the section which identifies applicable
requirements and states that security plans should be consistent with guidance issued by NIST.
Agency management stated that security control details were intentionally excluded from security
plans to protect sensitive information from unauthorized individuals. However, we noted that,
except for CPS, management could not provide audit staff with the other documents which
supplemented or supported their security plans (e.g., incident handling plans, accreditation
statements, training programs, contingency plans, etc.). After repeated attempts to obtain any
documents fitting this description, we concluded that no such documentation existed, at least
during the period under review. Consequently, management maintained that: (1) security plans
were not required to contain the level of detail called for in the draft report; (2) management was
able to rely on other information it received on financial system security; and (3) security controls
actually existed, although they may not have been formally documented.
In response, we maintain that the security plan is the recognized vehicle under which
management is obligated to weigh, in the aggregate, reported system strengths and risks, and
approve or disapprove system operations. When management formally approves (i.e., signs) a
system security plan, they provide tangible assurance that they: (1) are aware of particular
control deficiencies, (2) knowingly accept the risk of operations during the interim, and (3) have
adequate compensating controls to mitigate the risk or action plans to address the reported
weaknesses in a timely manner. Other documents, although related, are not recognized as
3-18
Audit Report 99B0003
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providing the same level of accountability and "tangible assurance" as the security plan. For this
reason, a security plan needs to include or reference any report findings which play a part in
management's decision to authorize operations. Whereas the Agency may have addressed
findings through other documents, they did not reference or include important review findings in
the security plan; therefore, the plan could not provide tangible assurance that management fully
understood and evaluated the risks of operation before granting that authorization.
Despite Agency comments to the contrary, we continue to believe that security plans should have
been in place for ARTS, CTS and TM+, during the period under review. We based our
conclusions on the following facts:
• ARTS was classified as a major application system during the period under review, as well
as the preceding years. Although it is only a microcomputer database application, ARTS
electronically transmits information to IFMS. We support the concept of a risk
assessment which ensures that the cost of controls do not exceed the expected benefits,
and concur that ARTS no longer requires an independent assessment of security controls.
Still, we expect management to assess the ARTS operational security controls on a regular
basis, revise the ARTS security plan based on such assessments, and maintain appropriate
cost-effective security controls. Although we continue to report ARTS-related findings
associated with the period under review, we will exclude ARTS from our report
recommendations.
• CTS may be a regional program, but it is a major Agency system. CTS also played a
major role in accounting for Region 5 Superfund receivables. In fact, CTS was used for
over $100 million or about 11 percent of Agency Superfund receivables. Although
Region 5 is the only region using CTS, and no direct interface exists to IFMS, we believe
CTS is a major subsystem to IFMS with regard to the accounting process.
• The Agency has been reporting TM+ as a pilot to OMB. TM+ was under "phased
development" as part of that pilot, as the Agency indicated. However, the application was
being piloted in several organizations such as Region 5, Region 7, RTF and Financial
Management Centers. Although TM+ has yet to be adopted Agency-wide, travel
documents are being processed and approved by this system. For years, systems under
development have been required to address security under the Computer Security Act of
1987 and OMB Bulletin 90-08. Therefore, we believe TM+ should be listed as a system
under development in the financial inventory, unless a formal decision is made, using
EPA's Directive 2100 system development process, to stop system development.
We disagreed with management's contentions that our audit work was inconsistent with
applicable audit standards, because we limited our audit to evaluating controls documented in
security plans, policies and other documentation. As previously discussed, operational security
controls are being examined under several, separate ADP general control audits. We defined our
audit approach in a multi-year audit plan which was endorsed by the General Accounting Office.
We will conduct one or more audits of operational security controls during fiscal 2000.
Audit Report 99B0003
3-19
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Furthermore, our audit intentionally focused on the contents of security plans, among other
critical security controls, because such plans are intended to document existing operational
controls, recognize control weaknesses, and identify compensating controls which could be used
to temporarily mitigate those risks until additional controls could be put in place. In most
instances, we found that specific controls were either absent or insufficiently described in the
plans. Moreover, our analysis demonstrated that many critical security controls were either
moderately noncompliant or severely lacking to the point that they were substantially
noncompliant with the stated requirements. As such, we maintain that the audit findings are
appropriately reported.
With respect to our standard for evaluating contingency planning (i.e., Critical Security Control
#3), audit staff neither expanded the criteria for compliance in the draft report nor added three
new requirements for evaluation purposes. The draft report language was more explicit than that
included in prior position papers, because audit staff believed OCFO management needed
additional examples to show the extent of the noncompliance in that area. At no time during the
review, did audit staff expand or adjust the evaluation criteria in order to make compliance more
difficult
The Agency believed that we inconsistently applied criteria to our examinations of disaster
recovery plans. Our evaluation comments for CPS and DFMS differed because the IFMS
contingency plan was better in two major respects than the corresponding CPS disaster recovery
plan. Therefore, we wanted to inform RTF management that off-site storage and information on
testing should be incorporated into the CPS Disaster Recovery Plan.
With regards to our examination of contingency plans, we did not use the requirements for a
COOP plan as part of the review criteria. As the Agency pointed out, this was not an official
requirement until after September 30, 1998. We expected the Agency to address multiple
contingencies as part of security plan requirements to address continuity of operations. EPA
Directive 2195 requires a disaster recovery plan to identify the kinds of events as limited
(temporary disruption), major (serious disruption) or catastrophic. Therefore, situations such as
electrical power outages (limited), destruction of computer facilities due to fire (major) and
software failure due to year 2000 problems (catastrophic) would require different types of
response actions. Emergency procedures should then address disruption of business operations.
Currently, contingency plans only address catastrophic events.
In their response, management emphasized that they continue to devote resources to improving
the content of system security and contingency plans and the state of their security programs. We
commend OCFO management for making continued improvements to their security programs and
system plans, but this particular report must judge the state of compliance as of September 30,
1998. The referenced Center reports may reflect improvements made subsequent to the end of
fiscal 1998, but these reports were not provided to audit staff for evaluation. Therefore, recent
application system improvements will be evaluated during the fiscal 1999 audit of FFMIA
compliance.
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Audit Report 99B0003
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As shown in Table 2 of the report, the state of FFMIA critical security controls ranged from
compliance to substantial noncompliance, depending on the system and the particular critical
security component. Moreover, we considered each system which did not have an approved
security and contingency plan in place, at the end of the review period, to be substantially
noncompliant in all respects with the five, listed critical security controls. For purposes of the
audit report, we needed to deliver one, overall opinion regarding the state of compliance with
FFMIA financial system requirements as of September 30,1998. We maintain that the number
and type of noncompliance and substantial noncompliance issues have a cumulative effect which
reflect the state of security, as a whole, with regards to EPA's financial systems. Therefore, in the
aggregate, EPA's financial and mixed-financial systems were substantially noncompliant with
FFMIA requirements for financial management systems.
In both the draft and final reports, we intentionally address corrective actions at a high level
because we believe it would be too prescriptive and voluminous to elaborate on specific
corrective actions for each system in this report. Furthermore, we believe management should be
responsible for determining minimum security controls, based on the risk associated with system
operations. For more specific information, managers should refer to the detailed evaluations
which we previously forwarded to system owners. As needed, audit staff will meet with system
owners, responsible managers, and security personnel to further explain: (1) the kind of
information expected in a major application system security plan, and (2) the level of detail which
would satisfy OMB, NIST and Agency requirements.
OAM, GAD and Region 5 management provided the following responses to their respective
report recommendation(s):
• OAM management formally disagreed with report recommendation 9.2, citing that the
Agency's procurement systems were substantially compliant with Federal and Agency
requirements. Although management maintained that the Contract Information System
had an approved security plan in the past (1992), they could not locate a copy of the
referenced plan for our review. As a result, we saw no evidence that an approved security
plan existed for CIS. Therefore, we endorse OAM's commitment to revise the ICMS
Security Plan to include security controls for CIS. Likewise, we commend management's
decision to revise the ICMS Security Plan by addressing issues which OIRM staff raised
during a recent critique of the plan. Whereas OAM management delegated the task to
their Technical Information Officer, their response did not indicate an expected completion
date for complying with the SIRMO's instructions and guidance.
• GAD management formally disagreed with report recommendations 9.3 and 9.4, stating
that the GAD Systems Security Plan, as of September 30,1998, was sufficiently detailed
to meet EPA guidelines. Despite then- formal position, GAD management added that they
will:
• revise the plan to include requirements for the operation of the Partnership
2000/Integrated Grants Management System. Management expects to complete
Audit Report 9980003 3-21
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the task by June 2000. This corrective action satisfies the intent of report
recommendation 9.3.
• coordinate with the Office of Water, the co-owner of GIGS data, and jointly
address the additional critical security controls necessary to keep the GICS
Security Plan in compliance with OMB, NIST and Agency requirements.
Management expects to complete the task by March 31, 2000. Furthermore,
management is arranging for an independent audit of the system. We anticipate
that this action will satisfy the intent of report recommendation 9.4.
Region 5 management agreed with report recommendation 9.5. They developed and
submitted a CTS Security Plan to the SIRMO for review and approval by March 31, 2000.
In prior communications with Region 5, management indicated their intent to
simultaneously develop a security plan for the Chicago Accounts Receivable Management
System (CHARMS), which will eventually replace CTS.
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Audit Report 99B0003
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ATTACHMENT 4
STATUS OF PRIOR AUDIT REPORT FINDINGS
TABLE OF CONTENTS
AUDIT OF EPA'S FISCAL 1997 FINANCIAL STATEMENTS
Page
. 4-1
AUDIT OF EPA'S FISCAL 1996 FINANCIAL STATEMENTS 4-7
FISCAL 1995 FINANCIAL STATEMENT AUDIT OF EPA'S TRUST FUNDS,
REVOLVING FUNDS AND COMMERCIAL ACTTVITY
4-8
FISCAL 1994 FINANCIAL STATEMENT AUDIT OF EPA'S TRUST FUNDS,
REVOLVING FUNDS AND COMMERCIAL ACTIVITY
4-10
FISCAL 1993 FINANCIAL AUDIT; PESTICIDES REVOLVING FUNDS AND
THE OIL SPILL TRUST FUND
4*12
FISCAL 1992 FINANCIAL AUDIT; SUPERFUND, LUST AND ASBESTOS
LOAN PROGRAM
4-12
FISCAL 1992 FINANCIAL AUDIT; PESTICIDES REVOLVING FUNDS 4-12
FISCAL 1991 FINANCIAL AUDIT; HAZARDOUS SUBSTANCE SUPERFUND 4-13
Audit Report 99B0003
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APPENDIX I
EPA'S FISCAL 1998 FINANCIAL STATEMENTS
Audit Report 99B0003
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-------
September 1999
FY1998
AUDITED FINANCIAL
STATEMENTS
Produced by the U.S. Environmental Protection Agency
Office of the Chief Financial Officer
Financial Management Division
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TABLE OF CONTENTS
Overview of EPA 1
EPA Programs - Descriptions and Highlights/Accomplishments and Future Trends
-Air 13
-Radiation 21
-Drinking Water 23
-Water Quality 28
-Toxic Substances 35
-Hazardous Waste 41
-Superfund 49
-Oil Spills 62
-Leaking Underground Storage Tank 66
-Pesticides 68
-Water Infrastructure Financing 73
Principal Financial Statements 77
Acronyms 115
EPA's FY 1998 Annual Financial Statements
Pagei
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OVERVIEW OF EPA
Background
The U.S. Environmental Protection Agency (EPA) was established in 1970 to lead the Nation's efforts to protect and
preserve human health, and to safeguard the natural environment EPA is working to achieve this mission by reducing risks
to human health and the environment, preventing pollution, and simultaneously promoting economic development in an
environmentally sound and cost-effective manner. EPA has made significant strides during the past 25 years towards
achieving these goals, but the Nation still faces critical environmental challenges. Americans continue to live in areas where
the soil is contaminated and is unsuitable to live or play on, the water is unsafe to drink, and the air is dangerous to breathe.
Despite these challenges, EPA is committed to ensuring that the Nation's environment is made safe and clean for our next
generation.
Congress provided EPA with $7.6 billion and 17,975 workyears for FY 1998. During FY 1998, the Agency began
advancing me environmental commitments made by the President and began implementing new environmental and public
health standards. For example, EPA issued guidance and worked with states on implementing the improved air quality
standards for ozone and paniculate matter (July 1997 standards). EPA also accelerated Superfund cleanups of hazardous
waste sites, and expanded Brownfields redevelopment efforts under the Brownfields Redevelopment Initiative. The Agency
improved access to information about pollution in local communities consistent with its commitment to the public's right-to-
know about toxic and hazardous chemicals in their neighborhoods. EPA increased assessments of health risks to children
who may be vulnerable to the effects of toxic substances. The Agency assisted in the revitalization of urban areas, applied
new research tools to the stale of the environment, and ensured the safety of the Nation's water and food supplies. Also, EPA
continued to promote environmental justice and urban environmental quality; improve Federal environmental management;
empower states, tribes, communities, and the university research community; and develop a more dynamic enforcement
program to enhance compliance, regulatory, and voluntary activities.
GPRA Implementation
In September 1997, EPA issued its first Strategic Plan required by the Government Performance and Results Act
(GPRA). This plan describes EPA's mission, long-term goals, and identifies specific objectives the Agency would meet
in achieving these goals. The Plan also serves as the framework by which the Agency is transitioning to performance-based
planning and budgeting. EPA's FY 1999 Annual Performance Plan and Budget integrates resource requests with annual
performance goals and measures. The performance results for these annual goals and measures will then be used to assess
the contributions of the FY 1999 accomplishments towards achieving EPA's longer-term goals and objectives.
During FY 1998, EPA continued to develop other key mechanisms to strengthen the Agency's planning, budgeting,
analysis, and accountability framework in cooperation with its partners and stakeholders. First, EPA initiated a new multi-
year planning process in January 1998 to examine the links between the Annual Performance Goals (APGs) identified in
EPA's FY 1999 Annual Performance Plan and Budget and the longer-term goals and objectives outlined in the Strategic
Plan. Goal Teams, having a Regional Administrator and a National Program Manager as co-leaders, discussed plans with
EPA's Deputy Administrator to improve the availability and quality of environmental information, and their plans for
achieving environmental and programmatic results. For the first time, EPA's planning focus was based on the Agency's
strategic goals and objectives rather than on the activities of individual program offices.
Second, EPA reviewed its FY 1999 APGs and Performance Measures and began work to improve its APGs and
Performance Measures for the FY 2000 Annual Performance Plan and Budget. The Office of the Chief Financial Officer
(OCFO) developed the criteria for establishing APGs and Performance Measures, and evaluated the Agency's ability to
measure progress against its strategic objectives and sub-objectives.
EPA's FY 1998 Annual Financial Statements
Page 1
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Third, EPA developed the FY 1999 performance accountability process with advice from a broad range of partners and
stakeholders including representatives of states and tribes. Approved by EPA's Deputy Administrator in June 1998, the FY
1999 process is centered on the creation of a basic framework to support the development of EPA's first Annual
Performance Report under GPRA — due to Congress in March 2000. The initial accountability process is pan of a two-track
strategy that recognizes FY 1999 as a learning year that will ultimately contribute to the development of a long-term
accountability process for FY 2000 and beyond. Accomplishments to date include the development of an initial outline on
the form and content of the Annual Performance Report, and the design and testing of a central accountability database to
record performance information on APGs and Performance Measures.
Finally,EPA developed a major outreach effort to communicate the Agency's need and capacity to implement the GPRA.
Accordingly, the OCFO conducted regional workshops to provide regional employees and managers with information
concerning the Agency's planning, budgeting, analysis, and accountability processes. The OCFO also presented briefings
to a number of EPA headquarters offices and to several external stakeholders.
Protecting Communities from Toxic Pollution
The President made a national commitment to protect our Nation's communities from the dangers of toxic pollution.
Accordingly, EPA began carrying out this promise by addressing four key areas:
• Began efforts to accelerate toxic waste cleanups at 900 of the Nation's worst toxic waste sites.
• Expanded the Brownfields Redevelopment Initiative to increase the number of grants provided by EPA to
communities for site assessments, cleanups, and redevelopment planning of contaminated and abandoned urban
properties.
• Enhanced the availability of right-to-know information to our Nation's citizens and communities by working with
federal, state, and local agencies to develop a nationwide network that monitors key environmental health indicators
relating to air, land, and water. Americans will have the ability to access timely health-related data needed to make
informed choices affecting their health and information concerning the possible links between toxics and
environmental health risks (e.g., cancer and reproductive risks).
• Continued to get tough on criminal polluters by helping prosecutors, police, and investigators develop better tools
to protect our communities from the threat of toxic pollution. EPA also provided state and local law enforcement
officers with training to enhance their abilities to investigate and detect environmental crimes.
Implementing New Environmental Laws
EPA continued to implement new requirements under the Safe Drinking Water Act (SDWA) Amendments of 1996
to ensure that our Nation's public water system provides safe drinking water. To achieve this goal, EPA has improved the
way drinking water safety standards are established and regulations are developed, emphasized prevention programs such
as protecting source waters, set regulatory priorities based on risk, and expanded consumer
information about contaminants found in drinking water. EPA also provided technical and
financial assistance to state and local governments to assist them in the operation of small
drinking water systems, and EPA capitalization grants were issued to states for loans to
local municipalities to improve their drinking water systems. EPA's drinking water
research efforts strengthened the scientific basis for drinking water standards through the
use of improved methods and new data to better evaluate the risks associated with exposure
to chemical and microbial contaminants in drinking water.
EPA implemented the requirements of the Food Quality Protection Act (FQPA) of
1996 created to improve the safety of our Nation's food supply. To ensure that pesticides
are safer, EPA reassessed existing pesticide tolerances, streamlined reviews of safer
Page 2
EPA's FY 1998 Annual Financial Statements
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pesticides, reviewed pesticide registration for new health concerns such as endocrine disrupters, and accelerated die review
of existing pesticides. EPA also developed and distributed more useful information to the public to inform them of the risks
posed from exposures to adverse pesticides. To help finance these new requirements, EPA increased the pesticide
reregistrauon and tolerance fees. Finally, EPA initiated a major research effort to address critical science needs, such as
cumulative exposure, identified under Titles IH and IV of the Act
Protecting Children from Environmental Threats
Assessing the health risks of our children from environmental pollutants is a primary concern of the President In
support of this policy, EPA initiated a research program to improve understanding of the unique health risks children face
when exposed to pesticides and other environmental pollutants. Accordingly, EPA's Administrator established policy
ensuring that all environmental health risks to children are explicitly and consistently evaluated as part of the Agency' s risk
assessments, risk characterizations, and environmental and public health standards pursuant to EPA's national agenda on
children's environmental health issued in 1996. EPA continues to increase families' awareness of possible health threats
to their children by way of public information and education under the Right-to-Know program. Also, EPA's enforcement
efforts have focused on children through coordinated initiatives, case development, and litigation to protect them from the
dangers of lead-based paint To fulfill the President's commitment, EPA reassessed existing information and approaches
used to determine health risks to children, and began revising national standards to provide our children with greater
protection.
Revitalizing Cities
EPA is committed to making America's cities more livable through effective environmental protection. EPA continued
to build new partnerships with urban communities by increasing urban revitalization efforts through an expanded
Brownfields Redevelopment Initiative which promotes cleanup and redevelopment of abandoned and contaminated industrial
and commercial properties (i.e., brownfields) across the Nation. In addition to redeveloping contaminated properties, the
Brownfields Initiative provides communities with an increased tax base, creates additional jobs, and improves the overall
quality of urban environments.
EPA produced guidelines for preventing polluted runoff that could threaten urban drinking water sources and for
improving air quality in urban communities. EPA also provided support to cities for pilot projects in waste minimization
outreach and through coordinated pollution prevention goals that reduce waste generation, energy usage, and water usage.
Applying Advanced Technology to Environmental Management
Recent technological developments in remote sensing, information systems, and computer technologies have created
new and more effective ways for EPA to monitor and manage the environment The Advanced Measurement Initiative
(AMI) has enabled the identification, research, and application of advanced monitoring tools and technologies that provide
more timely, accurate, comprehensive, and cost-effective monitoring information for assessing the status of the environment,
human health, and ecosystems. Fundamental to AMI is the demand for effective partnerships with intra-agency and inter-
agency (e.g., NASA and the Departments of Defense, Energy, Interior, and Commerce) organizations, including
partnerships with communities, academia, and private industry. EPA will continue to leverage these vital partnerships while
matching specific environmental monitoring needs with the appropriate technological solutions.
Regulatory Reinvention
EPA continued to support high-priority reinvention activities such as Project XL {i.e., excellence and leadership), the
Common Sense Initiative (CSI), and the Sustainable Development Challenge Grant Program, while seeking alternatives to
the current regulatory system.
Under Project XL, companies, states, and localities may redesign current EPA rules if rney can formulate alternative
systems mat are both cheaper and cleaner for the environment. Through Project XL, EPA has successfully forged new and
EPA's FY 1998 Annual Financial Statements
Page3
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challenging partnerships with businesses and communities interested in contributing new and innovative strategies for
efficient and effective environmental management
The CSI is central to EPA's ongoing efforts to improve the way it undertakes environmental missions. The CSI has
enabled EPA to find cleaner, cheaper, and smarter solutions to help overcome the Nation's environmental problems. The
CSI concept is based on the understanding that EPA should be uncompromising in achieving its health and environmental
objectives, but flexible enough to provide regulated entities with cost-effective ways to meet their environmental regulatory
objectives.
The Sustainable Development Challenge Grant Program awards funds to projects that leverage public and private
community investment for the purpose of developing comprehensive environmental management plans. The program is
designed to improve environmental quality and economic prosperity. Through open community involvement and investment,
this program has challenged communities to meet their present environmental and economic needs without compromising
the needs of future generations.
Finally, EPA's Environmental Leadership Program continued to work with Federal and state partners to initiate projects
that will provide new and innovative approaches to compliance. EPA has provided funding to assist small businesses,
including Small Business Compliance Assistance Centers that help small businesses in specific industries, comply with their
environmental requirements. EPA's compliance with the Small Business Regulatory Enforcement Fairness Act has steadily
increased the amount of consideration and accommodation afforded small business concerns in regulatory matters.
Strengthening State and Tribal Partnerships
EPA continued its efforts to build and support state, local, and tribal environmental protection programs. Since effective
Federal/state/local/tribal partnerships are essential to fully realize our Nation's environmental laws, EPA continues to
enhance its partnership efforts to implement, operate, and enforce these laws.
EPA continued to provide state and tribal governments with technical and financial assistance. Additional resources
were provided to states for their air, water, and multimedia enforcement programs to assist them in addressing growing
program requirements created by the FQPA, new clean air standards, and the need to review the quality of surface waters
for Total Maximum Daily Loads. Increased resource levels also were provided to tribes to help diem continue developing
their own environmental protection programs. For example, resources were provided to tribes through Indian General
Assistance Program grants. These resources enabled tribes to identify the scope of their environmental management needs,
establish their program development priorities, and to continue building their individual environmental programs. These
grants have provided EPA with its most effective means for building the tribal capacity necessary for making and
implementing environmental management decisions.
Under the National Environmental Performance Partnership System, EPA has recognized the states' increasing capacity
to operate their own environmental programs. Accordingly, EPA continued to explore new approaches that would provide
its state and tribal partners with more flexibility in managing their environmental programs. For example, the Agency is
attempting to formalize Tribal/EPA Environmental Agreements with every Federally recognized Indian tribe. Through these
agreements, EPA can support its Indian partners in a manner that is consistent with both tribal priorities and various statutory
requirements.
Performance Partnership Grants and Agreements
In 1996, Congress enacted the President's proposal to establish permanent authority for EPA to enter into Performance
Partnership Grants with states and tribes. During 1998, EPA continued to work with states and tribes to combine individual
categorical grants (e.g., air, water, hazardous waste, etc.) into one or more consolidated grants. Consolidating several
individual grants into one has helped to streamline administrative burdens and has enabled states and tribes to direct valuable
resources to their most pressing environmental problems. As states and tribes begin to realize the major benefits of these
combined grants, a further increase in state and tribal participation is anticipated. Also, Performance Partnership Grants,
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EPA's FY 1998 Annual Financial Statements
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which ate closely tied to the National Environmental Performance Partnership System (NEPPS), have allowed states to sign
agreements with EPA which reduce oversight in exchange for strong state performance.
Enforcement and Compliance Assurance
EPA's enforcement program continued to emphasize a balanced approach between traditional activities of compliance
monitoring, civil and criminal enforcement actions, and more recent approaches such as compliance assistance and
compliance incentives. In 1998, the Agency carefully invested and redirected resources to support its dual role which
requires the use of enforcement and compliance tools to ensure adherence to environmental regulations, particularly in high
risk areas. Resources were subsequently redirected from relatively low risk areas, such as Hazardous Waste Enforcement,
to programs that protect children's health from lead-based paint and pesticide misuse. The enforcement program also
provided additional resources to protect public water systems and to address unique water pollution problems associated
with concentrated animal feedlot operations.
Although the amount of Federal compliance assistance resources has been reduced as states assume greater
responsibility, the enforcement program provided additional resources for compliance incentives to the regulated community.
During 1998, the enforcement program emphasized and provided increased resources to establish the new self-audit policy
as a way of achieving greater compliance levels at a lower cost to the public and private sectors, including industry and
Federal agency partnerships.
EPA continues to direct resources to multimedia compliance. Hie enforcement program is enhancing compliance by
providing compliance assistance to the regulated community, including Federal facilities, and by developing and
implementing ways to encourage voluntary compliance with environmental regulations. One example of developing
assistance tools for the regulated community is the Small Business Compliance Assistance Centers. These Centers provide
one-stop shopping for all regulations for a given industry
sector such as printing or metal finishing. The Centers
provide plain-English guides to compliance requirements and
technical assistance resources, assistance and training on
treatment technologies, and methodologies for self-audits and
compliance surveys.
The enforcement program completed the pilot phase of
the Sector Facility Indexing Project (SFIP). The pilot SFIP
makes it easier for the public to access a wide range of
environmental information about regulated facilities. In the
past, these records, although public, were very difficult for
government and public users to access because they were
spread across many different databases. Under SFIP, the
Agency has integrated this information so that it can be
viewed in one place, and can be used to better understand
overall facility environmental records. SFIP, in its current pilot stage, will allow EPA to gauge the level of public interest
in examining records regarding government oversight of regulated facilities, facility compliance with environmental laws,
and the overall pollutant releases that are reported. SFIP currently contains records for five industry sectors that consist of
a total of 653 facilities. The Agency publicly released the SFIP data on May 1, 1998, via the Internet. In September 1998,
EPA made available a hard copy report of SFIP for those who do not have ready access to the Internet. In FY 1999, the
Agency will evaluate the SFIP to determine future directions of the project
The primary goal of EPA's Federal Facility Compliance Program is to ensure that all agencies reach a level of
compliancy with environmental requirements that equals or surpasses the rest of the regulated community. EPA uses a three-
pronged approach: training and compliance assistance; compliance oversight and enforcement; and review of federal agency
environmental plans and programs. This comprehensive approach is designed to help federal agencies develop appropriate
compliance strategies and to request adequate funding to carry out those strategies. Environmental Reviews and multimedia
inspections continue to be used for compliance assistance at federal facilities.
EPA's FY 1998 Annual Financial Statements
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In FY1998, the Environmental Justice Program (EJP) continued to emphasize public outreach efforts and focused on
disadvantaged communities with a disproportionate number of polluting sources. A total of $2.5 million in small grants up
to $20,000 each were awarded to 123 community organizations seeking solutions to local environmental problems. Also,
a total of $500,000 was awarded to states and tribes to provided financial assistance to state and environmental departments
to address environmental justice issues. Finally, the National Environmental Justice Advisory Council held 18 meetings in
FY 1998. The EJP will continue to develop tools for identifying impacted communities and to target enforcement actions
in areas with the greatest risk from environmental hazards.
The enforcement and compliance assurance program continued to emphasize the review of environmental impacts of
proposed major federal actions as required by the National Environmental Policy Act (NEPA); Section 309 of the Clean Air
Act; Executive Order on Environmental Justice; Antarctic Science, Tourism, and Conservation Act. The program also
focused on EPA's compliance with NEPA, the Endangered Species Act, the National Historic Preservation Act, and other
relevant executive orders. EPA continued to fulfill the Nation's commitments under the legislation implementing the North
American Free Trade Agreement, other international trade and environmental agreements and treaties, such as the General
Agreement on Tariffs and Trade, and other international commitments.
The enforcement and compliance assurance programs continue to support the expansion of the American public's right-
to-know by providing the public with access to information through a variety of avenues: 1) the enforcement DOCKET, a
physical and electronic site where the public can access policies, guidance documents, and legal interpretations; 2) Integrated
Data for Enforcement Analysis (IDEA) which integrates compliance data from individual databases available nationally in
an interactive, on-line mode; and 3) the Sector Facility Indexing Project (SFJP), implemented in FY 1998, which provides
the public with profiles of major regulated industries and information on industry demographic processes, pollution
emissions, compliance history, pollution prevention, and regulatory requirements.
The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed. The program
used the following performance measures for assessing success in FY 1998:
Key Performance Measures
Hits to Several Web Sites
Lab Integrity Inspections
Lab Integrity Audits
Import/Export Notifications
Multimedia Inspections - Headquarter
Federal Faculty Inspections
Other EPCRA Inspections
Administrative Orders Issued
Number of Small Entities Receiving Relief
under Small Business Policy
Compliance Assistance Centers, in Operation
Compliance Tools Development
NEPA Compliance Actions
1998 Goal
67,400 Documents
86 Inspections
230 Audits
2,300 Notices
15 Inspections
2$ Inspections
700 Inspections
90 Administrative Orders
10 Entities
8 Centers
7 Sector Notebooks
100% Documented
1998 Actual
80,000 Documents
96 Inspections
277 Audits
1,700 Notices
23 Inspections
82 Inspections
700 Inspections
84 Administrative Orders
5 Entities
8 Centers
3 Sector Notebooks
100% Documented
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Key Perfhrmanrw MMSUTCS
Major Proposed Federal Actions, Draft
Environmental Impact Statement (DEIS) Filed
DEIS Requiring EPA Follow-up
Impacts Requiring EPA Follow-up Successfully
Mitigated
Federal Facilities Management Reviews
Environmental Justice Grants
CERCLA Environmental Justice Grants
Multimedia Inspections - Regions
Documents included in EnviroSenSe
Specialized Assistance and Training
Administrative Cases Concluded
Civil Judicial Cases Concluded
Criminal Cases Referred
Compliance Tools Development
Facilities that Self Disclosed Potential Violations
as a Result of Targeted Agency Action
Facilities that Self Disclosed Potential Violations
Single Media Inspections - Field
Multimedia Inspections - Field
1998 Goal
325 DEIS
650 Impacts
70% of Impacts
15 Reviews
100 Grants
27 Grants
120 Inspections
4,200 Documents
100 Courses
80 Administrative Cases
2 Civil Cases
3 10 Cases
4 Sector Guides
75 Facilities
330 Facilities
14 Inspections
15 Inspections
1998 Actual
273 DEIS
655 Impacts
62% of Impacts
26 Reviews
114 Grants
20 Grants
41 Inspections
4,126 Documents
72 Courses
97 Administrative Cases
2 Civil Cases
266 Cases
4 Sector Guides
7 10 Facilities
954 Facilities
23 Inspections
10 Inspections
The criminal provisions of the nation's environmental statutes are enforced by EPA's criminal investigators. These
special agents, located nationwide, conduct criminal investigations, support Department of Justice (DOJ) prosecutors, and
coordinate with other law enforcement agencies to present a highly visible and effective component in the Agency's
enforcement strategy. The goal of the criminal enforcement program is to bring to bear the most serious sanctions for the
most significant environmental violations. By demonstrating to the regulated community that serious, knowing statutory
violations will be met with harsh sanctions in terms of both fines and jail sentences, the program acts to forcefully deter
violations of environmental laws and regulations in a way that civil judicial and administrative enforcement rarely can. Cases
are referred to the U.S. Attorneys' Offices or DOJ for prosecution, with special agents serving as key witnesses in the judicial
proceedings.
Performance Measures: Criminal cases, in all media, referred for prosecution.
This measure provides the number of criminal cases referred by EPA to the United States Attorneys and/or DOJ for
prosecution. EPA is responsible for criminal investigations, while any decisions of a prosecutorial nature are made by DOJ
in cases referred by EPA.
EPA's FY 1998 Annual Financial Statements
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Results: In FY1998, 266 cases were referred to DOJ, This number is lower than the estimated number of 310
referrals. This is due to two factors, an increase in the number of complex cases, consistent with program guidance, and
the development of new agents hired at the end ofFY 1997. The program had anticipated hiring all 200 agents, as
mandated by the Pollution Prosecution Act. However, delays in hiring during FY 1997 meant that a portion ofFY 1998
was spent training new staff. Now that the program is fully staffed and trained, it is anticipated that the Agency will be
able to make the projected number in the future.
Reducing Uncertainties Through Research
During 1998, EPA continued its support of a vigorous research and development program focused on strengthening
the Agency's understanding in areas having major environmental and human health uncertainties. Research priorities were
developed by the Agency in accordance with the Office and Research Development's strategic plan which uses a risk-based
priority process. One particular area identified as having great risk and major uncertainty is Paniculate Matter (PM). PM
is probably the largest single contributor to the adverse health effects caused by air pollution and cause, within an estimated
range, thousands to tens of thousands of premature deaths each year. PM research has focused on mortality risks, exposure,
and the mechanisms by which the panicles affect human health.
EPA conducted research, in response to growing scientific concerns, on the unknown effects of environmental exposure
to substances that interact with the endocrine system. Research in this area has characterized the effects of environmental
exposure to various chemicals in two target populations, humans and wildlife. EPA also conducted research to gain a better
understanding of the potential health risks associated with human exposure to drinking water disinfection by-products and
microbial pathogens. EPA research developed a rapid response measure for recreational water quality. Typically, it takes
48 hours to estimate whether recreational water is contaminated with gastrointestinal bacteria. If contamination is present,
mis time period carries a high risk for illness, especially for children. EPA developed a method that only takes 24 hours,
thereby cutting the time at risk in hah7.
Additional research focused on EPA's Mid Atlantic Integrated Assessment (MAIA), a cooperative geographic study
conducted under the Environmental Monitoring and Assessment Program. The MAIA program has generated a number
deliverables, including An Inventory of Existing Programs, An Ecological Assessment of the United States Mid Atlantic
Region: A Landscape Atlas, and the State of Estuaries Report for Mid Atlantic Estuaries.
EPA's research program also includes the Superfund Innovative Technology and Evaluation (SITE) program.
Recognizing the movement towards remediation and away from the removal of soil and groundwater (ex-situ), the SITE
program has emphasized the development of technologies that treat contamination in place (in-situ). In FY 1998, in-situ
groundwater, vadose zone-in-situ remediation, and containment technologies were developed. Work continued in
phytoremediation evaluation processes along with system cost documentation.
Climate Change Action Plan
EPA continued to support the implementation of the Climate Change Action Plan (CCAP). The actions taken under
the CCAP are die means by which the U.S. is striving to meet its commitment to reduce annual greenhouse gas emissions
to 1990 levels by the year 2000. The heart of the CCAP relies heavily on voluntary partnerships between EPA and
organizations, or individuals, that join to save energy and/or increase productivity while reducing greenhouse gases. EPA
continued to develop new partnerships and to strengthen its on-going partnerships with entities such as states, cities, farmers,
and large and small businesses.
Year 2000 fY2K} Activities
FY 1998 was a critical year in positioning the Agency's information technology assets to successfully transition to the
next millennium. The Agency strategy was to address mission critical assets first and systematically devolve through the
remaining assets. EPA is on schedule to meet the government-wide compliance deadline of March 31, 1999 for mission
critical systems — already completed the Assessment, Renovation, and Validation phases. The agency has also implemented
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EPA's FY 1998 Annual Financial Statements
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an independent certification program: six systems have successfully completed third parly review/testing, another eight are
being reviewed/tested and therest are being scheduled. Hie Agency also has made major progress in addressing potential
Y2K vulnerabilities of servers, personal computers, networks, scientific equipment, and our base computing environments
(i.e., mainframe, client/server, supercomputer), and our other than mission critical application systems. We are confident
that all EPA-leased and owned buildings will be compliant by February 1999 and will request written confirmation of Y2K
compliance from GSA for each building leased through them by no later than March 1,1999.
The Agency has greatly expanded outreach efforts to ensure continuity of environmental services to the public. EPA
is responsible for coordination and outreach for three sectors identified by the President's Council on Year 2000 Conversion:
Water, Waste, and Chemicals. As the "sector coordinator," EPA coordinates federal agency efforts to address the Y2K issue
with federal, state, local, and private sector organizations whose activities affect the protection of public health and the
environment EPA also has established internal environmental sectors for Air, Water, Waste, Chemicals, Pulp and Paper,
Manufacturing/Metals, and Regulatory Compliance and Enforcement EPA also developed detailed outreach plans that
clearly identify constituent organizations/key stakeholders, define specific awareness raising events and opportunities, and
developed plans to promote awareness and encourage assessment EPA has issued a Y2K enforcement policy designed to
encourage prompt testing of computer related equipment to ensure that environmental compliance is not impaired by the
Y2K issue.
EPA's primary vehicle to ensure continuity of its core business functions is the Continuity of Operations Planning
(COOP) process. EPA has an internal Agency Order which requires Regional and Headquarters offices' plans to address
essential functions, safety and security, vital records, primary and alternate COOP planners, and responsibility for exercising
and implementing the plans. Following completion of individual office plans, EPA will develop an overarching Agency plan
in accordance with Presidential Decision Directive (FDD) #67 which addresses the need for Continuity of Operations
Planning, and requires department and agencies to have an Agency COOP plan completed by October 1999. As part of
this process we will be performing Business Continuity and Contingency Planning (BCCP) for our Y2K program. The
Agency's Year 2000 Senior Council has directed that an interdisciplinary team be formed to develop the Y2K BCCP that
will be an addendum to our overarching COOP Agency plans. Additionally, the Agency is coordinating milestones and
activities of PPD #67 and Y2K to enhance the Critical Infrastructure Protection Plan (CIPP) required by PDD #63 - Critical
Infrastructure Protection. Coordinating these concurrent efforts will eliminate redundancy and ensure that the Agency can
meet its obligations to protect people and the environment
The agency's schedule for BCCP development was:
Date
1/26/99
3/15/99
4/22/99
4/30/99
5/31/99
9/30/99
Activities
Establish BCCP Project Group
Determine High-Level Core Business Functions
Set Master Schedule and Milestones
Complete Initial Prioritzation of Areas
Assess Criticality of Potential Disruptions
Critical Infrastructure Protection Plan (PDD #63)
Perform Business Impact Analysis
Assess Infrastructure Risks
Define Minimum Acceptable Levels of Performance
Develop contingency Plans and Implementing Triggers
Prepare Contingency Test Plans
Establish Business Resumption Teams
Prepare and Execute Tests
Update Disaster Recovery Plans and Procedures
Individual system specific plans will be developed as neccessary consistent wth the outcome of the above analysis.
EPA's FY 1998 Annual Financial Statements
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The worst case scenario for Y2K is that all or many systems will not work and we will have have to implement the
procedures currently being developed in EPA's contingency plans (COOP, BCCP). The use of COOP plans to continue
the Agency's essential functions in response to a Y2K failure is recognized by the Agency and we will continue to examine
the use of this vehicle for Y2K contingencies. In the area of buildings and facilities, we are preparing contingency plans for
each facility. We also are exploring the need for a contingency plan to support EPA programs if state data exchange partners
are unable to provide data electronically and must resort to paper reporting of regulated environmental information.
The agency estimates total expenditures of S37.2M from FY 1996 through FY 2000 to support the Y2K program.
Summary
EPA is committed to protecting our Nation from environmental threats. EPA's increased focus on toxic pollution in
1998 has effectively paved the way for future generations of Americans to grow up in a cleaner and safer environment. By
targeting those geographical areas hardest hit by pollution, EPA will ensure that the families living in environmentally
disadvantaged communities have hope for a better future. Through these initiatives and programs, EPA continues to
demonstrate that its investments are in tune with America's most demanding environmental priorities — including a
government that works for its people.
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EPA's FY 1998 Annual Financial Statements
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EPA's FY 1998 Annual Financial Statements
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U.S. ENVIRONMENTAL PROTECTION AGENCY
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AIR
Under the Clean Air goal, the Agency protects public health and the environment through programs to attain federal
clean air standards, reduce air toxics emissions, and control acid rain. Under the Reducing Global Environmental Risks goal,
the Agency develops and implements programs to help reduce greenhouse gas emissions and to return the stratospheric
ozone layer to levels found prior to the development of the Antarctic ozone hole. Lastly, under the Preventing Pollution and
Reducing Risk goal, the Agency works to ensure healthier indoor environments.
Air Program Description
EPA is required to set National Ambient Air Quality Standards (NAAQS) for air pollutants that endanger public health
and welfare. EPA has set NAAQS for six air pollutants (paniculate matter, sulfur dioxide, ozone, carbon monoxide, lead,
and nitrogen dioxide). EPA strives to reduce these air pollutants in all areas of the country as well as to maintain clean air
in areas that comply with the NAAQS. The NAAQS are attained and maintained primarily through state and local air
pollution control programs aimed at controlling stationary and mobile source emissions. EPA directly provides emission
controls for many of these sources, primarily through federal standards for motor vehicles, fuels, and new stationary sources.
EPA also is required to review the NAAQS every five years and revise them as
necessary. The review process includes risk, health, and benefits analyses. In July 1997,
EPA promulgated a new standard for fine paniculate matter (PMU) and revised the
standards for ozone and coarse paniculate matter (PMIO) after an extensive review of the
science. FY 1998 was the first full year in which the new standards were in effect
After a NAAQS is set, states are responsible for monitoring ambient air quality and
developing state implementation plans (SIPs) to reduce pollution and bring areas into
NAAQS attainment EPA provides policy, guidance, and technical assistance for
modeling and monitoring air quality and devising strategies available to states to include
in their SIPs. EPA also plays a major role in helping states achieve the NAAQS through
standard setting for vehicles, non-road engines, fuels, and stationary sources.
To determine whether areas are attaining the new PMW standards, EPA is funding a 1,500 site PM^ monitoring
network. By the end of FY 1998, grants were approved for 940 sites to be established by the end of calendar year 1998 .
By the end of calendar 1999, all sites will be established and fully instrumented. Three years of data will be available from
the earliest monitors in the spring of 2001 and three years of data will be available from all monitors in 2004. Following
this monitoring schedule and allowing time for data analysis, governors and EPA will be able to make the first determinations
as to which areas should be designated non-attainment with the new PM2.5 standards in 2002. The data from the monitoring
network also will provide the basis for EPA and states to further and better characterize the PM^ problem which in turn will
help states develop attainment strategies.
To reduce emissions of hazardous air pollutants, EPA develops technology-based standards known as Maximum
Achievable Control Technology (MACT) standards for 188 hazardous air pollutants from 174 industry categories. The
standards are being developed on a phased schedule through die year 2000.. After standards are implemented, EPA will
determine whether the residual public health risk warrants additional regulation. EPA is developing other air toxic rules for
combustion sources and developing and implementing strategies to reduce public health risk in urban areas, as well as
reducing atmospheric deposition of toxic compounds to the Nation's water bodies, including the Great Lakes.
Title V of the CAA establishes an operating permit program in which a single permit contains all the applicable
requirements for a major source of air pollution. Major industrial sources must file periodic reports identifying how they
have complied with the requirements. These sources pay fees to the states and the fee revenues are to cover die cost of the
state air pollution control program. EPA provides guidance and assistance to those states and tribes developing and
EPA's FY 1998 Annual Financial Statements
Page 13
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implementing permit programs. In FY 1998, EPA issued periodic monitoring guidance to aid state and local permitting
authorities in evaluating whether each facility's air operating permit contained sufficient monitoring to assure compliance
with regulations developed to meet CAA requirements; a Fugitive Emissions policy; and guidance on tracking Regional
Office Federal Operating Permit Program Costs. A cross-agency workgroup completed work on the Indian Country Part
71 final rule.
The Agency pursues protection of human health and the environment in Indian country equal to that provided in state
and local territories. The actions undertaken, in 1998, include working with tribes to assess air quality conditions in Indian
country, and providing technical and financial support for the development of tribal capacity to address potential problems.
A significant component of this capacity building is a training program, developed through a cooperative agreement with
Northern Arizona University, that prepares tribal environmental professionals to take on the responsibility of air quality
management in Indian country. In addition, EPA is drafting guidance documents to encourage tribes to develop their own
tribal air programs. To support federal implementation of the CAA in Indian country in the interim, EPA began developing
a number of regulatory tools, including a federal permitting rule to regulate construction and modifications of minor sources
of air pollution in Indian country.
The Acid Rain Program, in Title IV, is a market-based incentive program for reducing annual sulfur dioxide (SO2)
emissions by ten million tons from 1980 levels (a 40% reduction). Title IV, along with efforts under Titles I and n, also will
reduce nitrogen oxide (NO,) emissions by over two million tons below 1980 levels. The Agency already has achieved
significant SO? emission reductions of nearly five million tons of SO 2 annually from 1980 levels. These reductions were
achieved by die 263 units affected by Phase I of the innovative market-based program that provides affected sources with
flexibility in meeting required emission reductions at least cost (both to industry and government). The program features
iradeable SO2 allowances composed of one ton units. It ensures accurate and verifiable measurement of emissions, and a
cap on total SO2 emissions. The Acid Rain Program is a model for market-based efforts to control pollutants here and
abroad. For example, die states in the Ozone Transport Region (OTR) have asked EPA to help develop and administer a
NO. emissions trading program for large combustion sources in the OTR. EPA offers a similar program to assist states in
meeting their summertime NO, emission budgets developed in the recent NO, SIP call.
To restore the stratospheric ozone layer, EPA focuses on four areas: domestic and international phase-out of ozone-
depleting chemicals (chlorofluorocarbons [CFCs], halons, and methyl chloroform), implementation of limitations on other
ozone depleters (hydrofluorocarbons [HCFCs] and methyl bromide), more intensive recycling programs in the U.S. and
abroad, and earlier voluntary phase-out of CFCs and HCFCs in developing countries.
To stabilize greenhouse gases, EPA promotes voluntary, partnership programs to prevent and reduce emissions of air
pollution. By demonstrating the pollution prevention benefits of energy efficiency, the program educates manufacturers,
designers, and consumers on the purchase, installation and use of energy efficient products in a manner that benefits the
environment without imposing net costs on participating organizations. The Climate Change Action Plan also expands
cooperative, non-regulatory programs to profitably capture and use methane and emissions of other potent greenhouse gases.
Furthermore, EPA is working with the U.S. automobile industry to develop a "clean car," an affordable vehicle that would
have three times the fuel efficiency of today's cars (representing a 67% reduction in carbon dioxide emissions) while
preserving utility and comfort features and emitting very low levels of other air pollutants.
The Agency's primary strategy to reduce exposure to indoor air pollutants is to use voluntary partnerships to educate
audiences from consumers to building managers about indoor air problems and solutions. The Agency develops guidance
about ways to reduce the risk of indoor contaminants (such as radon, moisture and mold, environmental tobacco smoke, and
emissions from building and consumer products) and works through partner organizations to create awareness and to
influence consumer and institutional behavior.
Three program laboratories supported the Air Program. The Ubs carried out a broad range of policy, regulatory, and
compliance functions needed to implement the CAA and fuel economy statutes. In addition, they provided technical
understanding related to Agency responsibilities under the Indoor Radon Abatement and the CAA.
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EPA's FY 1998 Annual Financial Statements
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Research and Development Program Description
The Air Research and Development Program supports the development of air criteria and standards, as well as public
policy decisions required for EPA to implement the CAA. The components of this program in FY 1998 included Air Toxics
Research, Criteria Air Pollutants Research, and Global Change Research.
Air Toxics Research was conducted to address risks associated with major sources of hazardous air pollutants and their
presence in the urban environment, address air toxics deposition to Great Waters, address the environmental risk to human
health associated with indoor air pollution, and support motor vehicle emission characterization for exposure assessments.
The Criteria Air Pollutants Research Program supported EPA in its mandatory review of the NAAQS for ambient
exposures to certain widespread air pollutants. The research pertained to the effects, exposure, risk assessment and risk
management aspects of two major criteria air pollutants: paniculate matter (PM) and
tropospheric ozone.
The Global Change Research Program supported the Agency by providing research
into the magnitude, timing, and regional patterns of climate change. As part of the effort to
further understand global climate change, research was aimed at reducing uncertainties
associated with ecosystem vulnerabilities to climate change and related impacts, such as the
possible spread of waterborne diseases from changing climate patterns.
Enforcement and Compliance Assurance Program Description
The Stationary Source Enforcement and Compliance Assurance Program supports a national air enforcement and
compliance assurance program. In FY 1998, Air Enforcement and Compliance Assurance Program priorities included
implementation of the Title V operating permit program, carrying out the Title E hazardous air pollutant programs,
enforcing the CFC program, evaluation of synthetic minor permits, and enforcement of the New Source Review/Prevention
of Significant Deterioration (NSR/PSD) program.
There also is a national enforcement and compliance program for mobile sources. In FY 1998, the program continued
to focus on all the Title D statutory provisions under its responsibility for fuels, vehicles and engine compliance with
applicable federal requirements. While maintaining a federal presence in all statutory areas remained a priority for the
program, mere was one major compliance/enforcement action that dominated for much of the year which involved nearly
industry-wide noncompliance by the manufacturers of heavy duty diesel engines. The emissions consequence of this
noncompliance was enormous. Initial resolution of that action will occur in early FY 1999 although oversight will continue
for several years.
Future Enforcement Trends
In FY 1999 and FY 2000, EPA will continue its commitment to maintaining a strong compliance and enforcement
presence. In addition, EPA will continue to support compliance'assistance activities to educate state and local permitting
authorities on new requirements, educate and provide technical assistance to aid industries in achieving compliance, and
target enforcement actions to deter noncompliance. EPA regions also will continue to implement strategies for addressing
multi-state and multi-program violators and for corporate-wide patterns of noncompliance. Specific Agency enforcement
and compliance priorities for FY 1999 and FY 2000 include Title V permits, synthetic minors, air toxics, CFC program
enforcement, and NSR/PSD enforcement. In addition, air compliance and enforcement activities will concentrate on
industries in the following sectors: coal-fired utilities, petroleum refineries, wood product facilities, and pulp and paper
facilities.
In FY 1999 and FY 2000, the mobile source program will continue its range of compliance and enforcement activities
under Title n of the Act. In addition to the early implementation and oversight of the agreements in the actions discussed
above, there will continue to be a focus on the actual compliance of vehicles and engines with applicable emissions
EPA's FY 1998 Annual Financial Statements
Page 15
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standards. In addition to the existing vehicles and engines currently regulated, a new range of engines not previously
regulated will be subject to emissions requirements and will be monitored closely over the next few years. These include
lawn and garden machinery, marine and construction engines and locomotives. More stringent standards also will apply for
existing motor vehicles and motor vehicle engines. With regard to motor vehicle fuels, the program will be monitoring
industry closely for compliance with the new complex model requirements under the federal reformulated gasoline program
utilizing sources of industry compliance data not previously scrutinized. The program also will review foreign refiner
baseline petitions received pursuant to the World Trade Organization ruling and EPA's subsequently revised regulations,
work with other agency offices in the development of an enforceable gasoline sulfur program to meet the new Tier 2 vehicle
emissions requirements, and continue to enforce the gasoline and diesel fuel requirements through its nationwide program
of downstream fuels inspections and refinery audits.
Highlights and Accomplishments
The Air Program regularly tracks real world accomplishments.
FY 1998 highlights include:
Environmental Results/Reduced Health Risks
* Through the combined efforts of EPA and the states, 62 (22 in FY
1998) of the original 100 ozone (smog) classified areas have been
redesignated to attainment or revoked (met original standard)
ensuring an additional 7.9 million people in FY 1998 now breathe
clean air. Additionally, nine of the 43 carbon monoxide non-
attainment areas have been redesignated, providing healthier air
hi FY 1998 for nine million people.
AIR Program Obligations - FY 98
Total Obligations - $910 Million
Air Pollution Control
15.7%
State/Local
Assistance
15.7%
12.9%
Air Quality Stds.
18.6%R&D
20.7% .
' Tspfienc
Air Quality Mgt. I-4.7% Atmosp'Seric Programs
Trends Monitoring
• Underthe Acid Rain Program, SO, emissions from the 263 Phase
I units have been reduced dramatically to 4.8 million tons, or 32% below the 1996 allowable emission limit of 7.1
million tons. The SOj, reduction by these sources from their 1980 baseline level (9.4 million tons) is about 4.6 million
tons (48%). In addition, NO, mass emissions, from sources affected by Title IV, decreased by about 180,000 tons from
1995 to 1996, despite the increase in fuel utilization.
4 The over 2,700 participants in EPA's Energy Star Buildings and Green Lights Partnership have prevented the emission
of 1.8 million metric tons of carbon equivalent (mmtce) during the past year, which is equivalent to taking over 1.4
million cars off the road. In FY 1998, these program partners also saved over S580 million on their energy bills.
4 As part of EPA's contribution to the Partnership for a New Generation of Vehicles, EPA has demonstrated preliminary
results of fuel economy better than 60 miles per gallon (MPG).
4 As a result of the Radon Program, 70% of the public is aware of the health risks from radon and ten million homes have
been tested. About 1.5 million homes have reduced radon levels either through mitigation efforts or use of radon-
resistant construction techniques.
4 We have reached millions of people with the message of preventing involuntary exposure to Environmental Tobacco
Smoke (ETS) and 83% of Americans know that ETS is harmful.
New Approaches
* In October 1997, EPA provided eastern states widi proposed targets for reducing the emissions that create smog
problems throughout the eastern United States. The new strategy was developed cooperatively with the members of
die Ozone Transport Assessment Group (OTAG), 37 states and the District of Columbia. The final NO, SIP call was
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EPA's FY 1998 Annual Financial Statements
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signed by the Administrator on September 24, 1998. It sets individual reduction targets for NO, reductions for 22
eastern states ranging from a few percent to about half compared with projected emission levels in the year 2007.
* EPA stakeholders such as the Environmental Council of the States (ECOS), the National Governors Association (NGA),
the State and Territorial Air Pollution Program Administrators (STAPPA), and the Association of Local Air Pollution
Control Officials (ALAPCO) continue to be integral partners as we develop innovative ways to address environmental
problems. In addition, die Federal Advisory Committee Act (FACA) process was used extensively in FY 1998 to gain
stakeholder input and acceptance of rulemakings and implementation processes.
• EPA began approaching its air toxics program with a different strategy by gradually changing its emphasis from specific
source category emission reductions to a health risk orientation. This new risk-based strategy will center on identifying
the human health risks associated with individual toxic substances and establishing priorities for reducing those risks.
• EPA continues to work with industry, state, and local representatives to collect information on emissions and controls
used by sources to determine what MACT would be if it were based on this information. EPA, state and local
representatives, industry and environmentalists then determine if the information at hand is sufficient or if there is
additional information needed If the information is sufficient a Presumptive MACT is determined. On a limited basis,
state and local partners can take the lead to complete a MACT standard which EPA subsequently approves or through
a cooperative process EPA provides leaders in the development of a standard with one or more partners providing
assistance.
• EPA also undertook another effort to simplify and streamline the MACT standard development process by developing
procedures for generic MACT rules. The generic rule specifies MACT floor control levels for a broad range of
pollutant scenarios thus establishing generic MACT groups into which individual source categories would be placed.
Using these innovative approaches, EPA has initiated over 20 partnerships in FY 1998 to collaborate in MACT
standard development
* EPA solicited comments on two aspects of the New Source Review (NSR) Reform rulemaking: an alternative for
determining the applicability of NSR to modifications under NSR and Prevention of Significant Deterioration (PSD);
and review of plant-wide applicability limits (PALs). In addition, EPA issued the NSR Transitional Strategy Concept
paper, guidance on interim implementation for PMU, a potential to emit guidance (for major sources with the potential
to emit large amounts of pollutants), and guidance on crediting MACT reductions for NSR netting and offsets were all
issued.
* The Plain English regulation writing program continued. Three MACT rules and a guide to Title V Operating Permits
were put into "Plain English" format Teams working on rules took the Plain English course so that they could
immediately apply the techniques.
Rulemakings/Standard Setting
+ This year, EPA proposed 14 MACT standards and promulgated five MACTs. The MACT standards, once they are
all implemented, are expected to reduce air toxic emissions by 13 % from 1993 levels.
4 The Tribal Authority Rule implements die requirements of Section 301(d) of the CAA that authorize the Administrator
of EPA to treat tribes in a manner similar to states. The rule identifies those provisions of the CAA for which it is
appropriate to treat tribes as states, establishes eligibility requirements for tribes to be created as states, and lays out
procedures for approving tribal ah- programs. The rule was promulgated on February 12, 1998 and became effective
on March 16,1998.
* The Office of Mobile Sources finalized 13 rules during FY 1998 and proposed an additional nine new rules dealing with
areas such as emissions standards, fuel and fuel additives, and on-board diagnostic devices. Some notable examples
are listed below:
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Final Rulemaking (FRM) (April 16,1998) - Emission Standards for Locomotives and Locomotive Engines. This
rule marks the first time in the history of the CAA that regulations are established to control emissions from
locomotive engines.
Advanced Notice of Proposed Rulemaking (ANPRM) (May 22,1998) - Control of Emissions of Air Pollution from
New Compression Ignition (CI) Marine Engines at or Above 37 Kilowatts.
FRM ( May 4, 1998) - Inspection and Maintenance (IM) Program Requirement-On-Board Diagnostic Checks:
Amendment to the Final Rule.
Modifications to Standards and
• FRM (December 31, 1997) - Regulation of Fuels and Fuel Additives:
Requirements for Reformulated and Conventional Gasoline.
Clean Air Program Implementation
• Work on enhancement of the air toxics infrastructure continued, including the completion of the national inventory for
40 urban Hazardous Air Pollutants (HAPs) to support the Urban Area Source Project In addition, air toxics monitoring
and emission inventory guidance for FY 1999 for regions and
states was developed and communicated. A baseline inventory
for MACT Emission Reduction Tracking was compiled.
• EPA continued transition to the new and revised Ozone &
Paniculate Matter Standards. The Office of Air Quality
Planning and Standards (OAQPS) finalized the ozone
revocation notice and proposed a second notice. Interim
Implementation Guidance was issued for the states to implement
the one-hour ozone standard and the pre-existing PM10 NAAQS
in order to make the transition to the new eight-hour ozone
standard and the new PMU standard. Of the 52 NAAQS
implementation actions in die matrix of implementation actions
(not all scheduled for FY 1998 completion), 25 have been
issued and 6 have been proposed, working cooperatively with
EPA regional offices, the state and local air agencies, and the
stakeholder community. Examples of guidance developed
include: guidance on attainment demonstrations for paniculate
maner and ozone, judging compliance with the new ozone
standard, and data handling guidance for both the new ozone and paniculate matter standards.
Education/Outreach/InformationSharing
• EPA's Radon Public Service Announcement campaign reached several million people this year. In addition, hotlines
for radon and Indoor Air Quality (IAQ) fielded 125,000 calls and distributed over one million informational brochures
this year.
* EPA's Office of Air and Radiation (OAR) has extensive information on its activities on the World Wide Web. The
homepages for OAR and its program offices deal with issues that affect the quality of air including indoor and outdoor
air quality, stationary and mobile sources of air pollution, radon, acid rain, stratospheric ozone depletion, global
wanning and pollution prevention. These web pages (see table below) and associated links contain a wealth of
informaion of value for those affected directly by EPA regulations and EPA's partners as well as the general public.
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Office Webpage
Address
OAR Main Homepage
Office of Air Quality Planning and Standards
Office of Atmospheric Programs: Acid Rain
Ozone Depletion
Global Wanning
Office of Radiation and Indoor Air Indoor Air
Radiation
Office of Mobile Sources
http://www.epa.gov/oar/oazliome.html
http://www.epa.gov/oar/oaqps
http://www.epa.gov/acidrain/ardhome.html
http://www.epa.gov/ozone
http://www.epa.gov/globalwarming
http://www.epa.gov/iaq
http://www.epa.gov/radiation
http://www.epa.gov/OMSWWW/omshome.htm
Strengthening Air Research and Regulatory Programs
• EPA's National Vehicle and Fuels Emissions Laboratory (NVFEL) continued to upgrade its equipment and other testing
capabilities as part of a multi-year update program. This program is aimed at assuring that the NVFEL keeps up to date
with the rapidly changing testing technology associated with changed emissions, emissions control technology, and its
mission focus aimed at assuring in-use compliance with emission standards and advancing the state of the art for
emissions reduction.
• EPA's analysis of Southern Oxidant Study (SOS) data from 1995 programs in the Nashville, Tennessee Region resulted
in methods to measure and model ozone and its precursors. This research resulted in the publication of 31 journal
articles, and provided observation-based methods to be used in planning FY 2000-2001 State Implementation Plans
(SIPs). SIPs are required to carry out the new NAAQS for ozone.
• EPA released Models-3, the next generation of atmospheric chemistry models, with meteorological and emissions
modules, to the public in June 1998. It is the first air quality modeling system to simulate the dynamics of different
pollutants simultaneously. In addition, it will provide environmental managers greater speed and flexibility in finding
solutions to environmental problems.
f The Agency identified and will continue to study in detail a hypothesis related to the role of transition metals in
producing reactive oxygen species that produce oxidative stress and an inflammatory response, leading in turn to
cardiopulmonary stress and, potentially, sudden death. The identification of biologically plausible hypotheses will
improve confidence in the 2002 review of the NAAQS for paniculate matter, leading to an improved basis for risk
assessment and management of paniculate matter.
* EPA completed risk assessments for beryllium, chromium, bentazon, and acetonitrile.
4 In December 1997, EPA released an eight-volume report to Congress that evaluates the impacts of air emissions of
mercury on human health and the environment.
* The Agency published The Carcinogenic Effects of Benzene: An Update (EPA/600/P-97/001F) in April 1998.
* EPA delivered the draft Health Risk Assessment Document for Diesel Engine Emissions to the Science Advisory Board
and held a public review meeting on the document in May 1998.
* As part of the U.S. Global Change Research Program's National Assessment of "The Potential Consequences of
Climate Change and Climate Variability on the United States," the Agency held regional workshops as a first step in
conducting a regional assessment. The EPA held a Gulf Coast Workshop in Baton Rouge, LA in February 1998, a
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Great Lakes Workshop in Ann Arbor, MI in May 1998, and a "problem formulation" workshop at Penn State University
in June 1998 to begin the Mid-Atlantic Regional Assessment
Enforcement and Compliance Assurance Program Performance Measures
Hie enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed. The program
used the following performance measures for assessing their success in FY 1998:
Key Performance Measures
Mobile Sources Inspections
Stationary Source Inspections
Stationary Source Civil Referrals
Stationary Sources APO Complaints
Stationary Sources Compliance Orders
1998 Goal
2,250 Inspections
2,100 Inspections
70 Case Referrals
90 APO Complaints
155 Compliance Orders
1998 Actual
2,665 Inspections
2,722 Inspections
113 Case Referrals
156 APO Complaints
273 Compliance Orders
(Note: APO is Administrative Penalty Order.)
Diesel Engine Industry Enforcement
EPA and the Department of Justice settled with seven heavy duty engine diesel manufacturers in what is the largest
Clean Air Act enforcement action in history. The manufacturers were charged with violating the Clean Air Act by installing
devices that defeat emission controls in an estimated 1.3 million engines. In addition, the manufacturers, which comprise
95 percent of the U.S. heavy duty diesel engine market — will spend more than one billion dollars and will pay an $83.4
million civil penalty to settle charges mat they illegally poured millions of tons of pollution into the air.
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RADIATION
The EPA program to protect public health and the environment from adverse effects of radiation exposure is grounded
in the following statutes: die Indoor Radon Abatement Act; the Clean Air Act (CAA) Amendments of 1990; the Waste
Isolation Pilot Plant Land Withdrawal Act of 1992; Robert T. Stafford Disaster Relief and Emergency Assistance Act of
1998; Title XIV of the National Defense Authorization Act of 19% (Nunn-Lugar H); the Energy Policy Act of 1992; the
Atomic Energy Act; the Public Health Service Act; the Uranium Mill Tailings Radiation Control Act; the Marine Protection,
Research, and Sanctuaries Act; and the Superfund Amendments and Reauthorization Act These laws authorize a wide range
of regulatory, assessment, assistance, and research activities.
Radiation Program Description
The Radiation Program helps carry out the major environmental goal of Better Waste Management and Restoration
of Abandoned Waste Sites. EPA's Radiation Program has two main objectives:
• Reducing adverse health effects and environmental impacts from radiation exposure through a program of standards
and guidelines.
• Responding to radiation issues of serious public concern while maintaining the capability to respond to radiological
emergencies, including collaborating on the development and testing of federal, state, and local plans for emergency
response.
To accomplish these objectives, EPA assesses and regulates sources of airborne radionuclides, evaluates and regulates
radioactive waste disposal, provides site assessments and radiochemical analyses of environmental samples, operates the
Environmental Radiation Ambient Monitoring System, develops radiation cleanup and waste management standards, and
responds to radiological emergencies.
Two program laboratories supported the Radiation Program by providing technical understanding related to Agency
responsibilities under the Indoor Radon Abatement Act, the Waste Isolation Pilot Plant Land Withdrawal Act, the Energy
Policy Act, and the Atomic Energy Act
Highlights and Accomplishments
Highlights and accomplishments of this program in FY 1998 include the following:
EPA certified that the Department of Energy's (DOE) Waste
Isolation Pilot Plant (WIPP) in Carlsbad, NM, is a safe disposal
sits for defense-related nuclear waste and meets health-based
environmental protection standards that will protect public
health and the environment
EPA conducted three inspections of DOE waste generator sites
to comply with the conditions of the WIPP certification in
preparation for shipment to WIPP.
The Agency currently is developing environmental radiation
protection standards for the disposal of radioactive wastes at
Yucca Mountain, NV, a potential site for a geologic repository
for spent nuclear fuel and high-level radioactive waste.
RADIATION Program Obligations - FY 98
Total Obligations - $47.9 Million
Program Implementation
3.8%
Waste 20.3%
Isolation Pilot Plant
Implementation
Radiation Criteria, Standards
40.9% & Guidelines
34.9%
Radiation Environmental Impact
Assessment
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• As part of its ongoing radiological and emergency response program, EPA maintained its unique capability to respond
to radiological events through participation in national and international exercises. EPA also provided radiation
emergency response and counter-terrorism training courses for states and EPA regional offices. EPA conducted a Post-
Emergency Response Recovery Conference which attracted over 300 participants from the U.S. and other nations.
• EPA in partnership with other federal agencies published a site assessment manual, Multi-Agency Radiation Survey
and Site Investigation Manual (MARSSIM), and conducted training for federal and state employees involved in the
cleanup of radioactively contaminated sites.
• EPA published Draft Federal Guidance Technical Report No. 13 (Part 1) which provides consistency in assessments
by federal agencies and others of the risks to health from radiation. This helps ensure that such assessments are based
on sound scientific information.
4 In conjunction with the Conference of Radiation Control Program Directors,
managers of the state radiation protection programs, EPA developed a program
for the safe disposal of lost or abandoned industrial sources of radioactive
materials to mitigate the potential detrimental health effects.
• EPA participated in the successful launch of the plutonium-bearing Saturn Probe.
EPA staff supported DOE's Advance Launch Support Group to prepare for the
possibility of an accident and an EPA staff member served as a Senior Official
at the Launch Support Center assisting the operation from the EPA perspective.
• Office of Radiation and Indoor Air's (ORIA's) National Air and Radiation
Environmental Laboratory (NAREL) provided analytical support to 16
Superfund sites via over 4,000 site clean-up and radiological analyses.
Approximately 70% were independent analyses and 30% were for quality assurance. Approximately 80% were
radiological and 20% dealt with mixed waste. This work was done for EPA's Regions 2,4,5,8,9, and 10.
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DRINKING WATER
The Drinking Water Program was established to ensure that public water supplies are free of contaminants that may
pose unacceptable human health risks and to protect our ground water resources. Safe drinking water is essential to human
health. Contaminated drinking water can cause illness and even death as was the case in Milwaukee in 1993 as well as more
recent occurrences in Las Vegas, NV; Austin, TX ; and Alpine, WY. Furthermore, contaminated drinking water poses a
special risk to such populations as children and people with compromised immune systems. In 1994, 23 million people were
provided water that violated drinking water health standards at least once during the year. An additional 23 million people
were placed at increased risk because they were served by systems that had inadequate or no filtration treatment
The Drinking Water Program was reauthorized on August 6, 1996 with the passage of the Safe Drinking Water
Amendments of 1996, which further amended Tide XIV of me Public Health Service Act (commonly known as the "Safe
Drinking Water Act").
Drinking Water Program Description
The responsibility for ensuring that 240 million Americans have safe drinking water rests with EPA and the states as
mandated by the Safe Drinking Water Act (SDWA) and its 19% Amendments. To carry out its portion of the responsibility,
EPA must work with die states and tribes to provide protection for drinking water during each phase of the drinking water
cycle - the raw source water, die water treatment plant, and the pipes that deliver the finished water from the treatment plant
to the tap.
The 1996 SDWA Amendments improve the ability of states, water suppliers, and EPA to prepare for future drinking
water safety challenges and assure sustained availability of safe drinking water. The Amendments center around four major
areas of change:
1) improving the way that EPA sets drinking water safety standards and develops regulations that are based on good
science and data, prioritization of effort, sound risk assessment, and effective risk management;
2) establishing new prevention approaches, including provisions for operator certification, capacity development, and
source water protection;
3) providing better information to consumers, including consumer confidence/"right-to-know" reports; and
4) expanding funding for states and communities through the Drinking Water State Revolving Fund (DWSRF).
In addition, the 1996 Amendments increase the states' flexibility to focus on public health-based priorities and make better
use of resources, recognize the problems facing small systems and establish appropriate cost-effective approaches for such
systems, and emphasize the role of stakeholders and partnerships as a key aspect of an effective national drinking water
program.
Research Program Description
The occurrences of waterbome disease outbreaks demonstrate that drinking water supplies are still vulnerable to
contamination. Drinking water research evaluates the effects of die pathogenic bacteria, parasites, and viruses that can cause
serious illness and death. The SDWA Amendments of 1996 mandate mat the EPA identify and regulate contaminants which
may threaten human health. Among these contaminants are by-products formed during disinfection (disinfection by-products
[DBPs]) by chlorination or alternative practices. Drinking water research also focuses on determining what levels of
exposure to arsenic in drinking water are dangerous to human health.
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Several detailed health effects studies have been initiated to determine the overall human risk from exposure to
waterbome pathogens, DBFs, and arsenic, as well as the ability to reduce any determined danger through effective risk
management. These studies are critical in order to promulgate regulations that provide citizens with clean and safe drinking
water.
Enforcement and Compliance Assurance Program Description
EPA is committed to a strong compliance and enforcement presence to ensure that drinking water supplies meet SDWA
requirements and that underground injection practices are conducted in accord with applicable regulations to ensure the
safely of underground sources of drinking water. In FY 1998, in the Public Water System Supervision (PWSS) Program,
EPA continued to enforce the SDWA requirements and national primary drinking water regulations, with priority given to
the Surface Water Treatment Rule (SWTR), total coliform, and lead and copper regulations. In die Underground Injection
Control (UIC) Program, EPA enforced against all classes of wells, giving priority to those situations where there was
endangerment or potential endangerment of groundwater. In addition, EPA worked to implement the 1996 SDWA
amendments, including developing and promulgating the variance and exemption regulation by the statutory deadline of
August 1998, and developing with the states-and other stakeholders the first National Public Water System (PWS)
Compliance Report
Highlights and Accomplishments
DRINKING WATER Obligations - FY 98
Total Obligations - $335.7 Million
Water Criteria. Standards
& Guidelines
34.5%
.6%
R&D
State Program 27.9%
Resource Assistance
4.2%
11.9%
Ground Water
Protection
In FY 1998, EPA continued its many implementation activities
related to me 1996 SDWA Amendments. The partnership process,
which the Agency instituted in 1997, with its drinking water
program stakeholders is considered a model within the Agency and
the federal government and has been strengthened and expanded.
EPA held over 60 formal stakeholder meetings on regulatory
development issues for specific contaminants, including unregulated
contaminants, as well as on the science and data needed to support
the regulation of these contaminants. For Stage 1 Disinfection By-
Products (DBFs) and the Interim Enhanced Surface Water
Treatment (IESWT) rules that will be promulgated by November
1998, the Agency held both informational and public comment
meetings on the final drafts. Moreover, a safewater web site has
been created and provides to drinking water stakeholders the single
best source of information about drinking water rules. In addition,
two new stakeholder workgroups have been created under the auspices of the National Drinking Water Advisory Council.
One has been established to focus on Class V underground injection wells/source water protection and one that will help
us implement die right-to-know provisions of SDWA.
In the second year of its implementation, the Agency has strengthened the scientific underpinnings for its
statutorily-required rulemaking by conducting studies focusing on health risks to sensitive subpopulations, such as children.
EPA also developed risk assessment methodologies applicable to infants, children, pregnant and lactating women, and
individuals with chronic disease as consumers of drinking water. In addition, EPA has continued to be successful in meeting
all of its statutory deadlines. The Agency completed the following activities:
1) published the Contaminant Candidate List (CCL), die basis for which regulatory determinations on at least five
contaminants will be made by August 6,2001, as mandated by die 1996 SDWA amendments;
2) collaborated with the Centers for Disease Control and Prevention and issued studies on waterborne disease
occurrence;
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EPA's FY 1998 Annual Financial Statements
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3) promulgated the consumer confidence report regulations that require public water systems to issue an annual right-
to-know repent to all their customers (these reports must contain information on the source of public water systems'
supply, the level of detected contaminants, data on the health effects of contaminants found above the drinking water
standard, as well as information on unregulated contaminants in the water supply);
Safe and Unsafe Disposal of Industrial Waste
4) issued the variances and exemptions rule;
5) published operator certification requirements;
6) provided Public Water System (PWS) definitions
guidance;
7) disseminated information to assist states in
developing affordability criteria;
8) reviewed existing monitoring requirements;
9) circulated guidance on capacity development;
10) published the annual national compliance report;
and
11) issued a small system technologies list
Furthermore, the Agency completed the supporting risk
analyses for promulgation of the Stage 1 DBF and the
IBSWT rules, published Notices of Data Availability in the
Federal Register, and promulgated these rules in November
1998, as stipulated by the 1996 SDWA amendments. The
Agency completed supporting risk and risk-reduction benefit
analyses for radon levels in drinking water.
All FY1997 DWSRFs, which totaled over $ 1.2 billion,
were awarded to the 50 states and Puerto Rico before the
September 30, 1998 deadline for these funds to be
committed/obligated. In addition, 30 awards were made in
FY 1998 using FY 1998 funds.
The first state source water assessment program
(SWAP) was approved in September 1998 (six months
before the deadline for state submittal) after EPA
successfully negotiated revisions with State of Kentucky
officials. SWAPs are the centerpiece of the 1996 SDWA
Amendment's preventive focus. They give states and communities the tools they need to prevent contamination in the source
of the drinking water supply, and thus comprise one of the multiple barriers'to drinking water contamination, along with
treatment. Source water assessments identify the source(s) of a community's drinking water and the potential threats to
which a source is susceptible.
The preamble and regulatory language for the proposed Class V underground injection control (UIC) rule was published
in July 1998, meeting its court-imposed deadline. Also, final drinking water primacy regulations were promulgated in April
1998.
Unsafe disposal of waste
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Drinking Water Research
EPA's research and development program increased the Agency's understanding of environmental processes and our
capability to assess environmental risks - not only to human health, but also to ecosystems. This research supported EPA
efforts to identify the most important sources of risk to human health and the environment, and thereby guides priorities,
policies, development of environmental regulations, and deployment of resources. In addition, Agency research endeavored
to provide the understanding and technologies needed to detect, abate, and avoid environmental problems. In die future,
environmental problems will be dealt with using those features of the current system that have proven effective and by
designing and testing fundamentally new tools and approaches that utilize the latest advances in scientific knowledge and
technology.
• EPA developed methods for two disinfection by-products classes, aldehydes and bromates, culturable viruses and
Cryptosporidium, and investigated the occurrence of Mycobacterium in drinking water to assess the risk due to
exposure.
• EPA issued a report on the evaluation of membrane technology to control oocysts. The data indicate that this type of
technology has the potential to control Cryptosporidium oocysts.
• EPA issued a report on Meta-Analysis of Epidemiologic Studies on Cancer and Chlorinated Drinking Water which will
be used in support of the development of the Regulatory Impact Analysis (RIA) for addressing the costs and benefits
of Stage I of the DBP Rule. This report provides information on the appropriateness of using these published studies
as the basis for a risk assessment when analyzed via a meta-analysis method.
Drinking Water Enforcement Performance Measures
The enforcement and compliance assurance program deters and reduces noncompliance and achieves environmental
and human health improvements by maintaining a strong, timely and active enforcement presence. EPA directs enforcement
actions to maximize compliance and address human health problems. Specific measures include noncompliance rates,
measurement of average length of time for violators to return to compliance or enter enforceable agreements, and the number
of administrative, civil, and criminal judicial actions. The data for some of these measures is reported in the Water Quality
Enforcement Performance Measures section. (See page33.)
These measures count the number of enforcement actions in the drinking water program and also measure how
successful compliance and enforcement programs have been by looking at the length of time for significant noncompliers
to return to compliance or have an enforcement action taken against them. Addressing significant noncompliers constitutes
a major portion of the base program. Moreover, dealing with priority regulations (SWTR, total coliform, and lead and
copper) will result in improvements to human health as these contaminants have the greatest potential for direct health
effects.
Future Trends
With its partners, EPA will continue to implement the 1996 SDWA Amendments. Requirements that will be met in
FY 1999, in accordance with statutory deadlines are:
* Promulgate Stage I Disinfectants and Disinfection By-Products and Interim Enhanced Surface Water Treatment rules.
• Publish health risk reduction benefits and cost analysis for potential radon standards.
* Propose radon standard.
* Publish Final Class VUIC rule.
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EPA's FY 1998 Annual Financial Statements
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• Publish unregulated contaminant monitoring rule.
• Establish National Occurrence Database. Solicit recommendations for inclusion of additional contaminants.
• Publish guidelines specifying minimum standards for certification and recertification of operators.
* Complete UIC study on remaining Class V wells.
• Determine if states have legal authorities or other means in place to ensure new system capacity.
• Complete sulfate study with the Centers for Disease Control (CDC) to establish a reliable dose-response relationship.
> Evaluate state ground water protection programs.
In addition, the Agency will continue to focus on Right-to-Know activities. This includes working with water systems
to develop consumer confidence reports, developing tools to increase consumer knowledge of drinking water issues, and
proposal of revisions to the Public Notification Rule. Also, the Agency will implement various components of the data
reliability action plan to address data quality issues in the Safe Drinking Water Information System (SDWIS) and ensure
mat SDWIS provides the best source of national compliance information on the supply of drinking water to all Americans.
EPA will continue its commitment to maintaining a strong compliance and enforcement presence. Agency priorities
for FY1999 and FY 2000 include compliance assistance/enforcement for the microbial and lead/copper regulations, follow-
up on die recommendations in the Compliance Report, SDWIS support and implementation (critical for compliance analysis
and for measuring progress in meeting environmental and public health goals), implementation of SDWA Amendments of
1996, and compliance monitoring/enforcement against owners and operators of Class V wells. In addition, the compliance
and enforcement program will develop compliance and enforcement strategies and implement appropriate
compliance/enforcement activities for die regulations promulgated in FY 1998, the Consumer Confidence Rule, and the FY
1999 Interim Enhanced SWTR and Disinfection By-Products rules.
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WATER QUALITY
Since the passage of the Clean Water Act (CWA) in 1972, the United States has had tremendous success in reducing
pollution entering our surface waters from factories and municipal sewage plants. However, in spite of the great strides that
have been made, more than six billion pounds of toxic industrial pollution are still being discharged annually into our rivers,
lakes and streams. The National Water Quality Inventory 1996 Report to Congress indicates that 16% of assessed rivers
and streams and 35% of assessed lake acres are not safe for fish consumption; 20% of assessed rivers and streams and 25%
of lake acres are not safe for recreational activities (e.g, swimming); and 16% of assessed rivers and streams and 8% of lake
acres are not meeting drinking water uses. While this is a dramatic improvement over conditions thirty years ago, much work
remains before we meet our long-term goal of clean and safe water for all Americans.
The Water Quality Program is mandated by the CWA, as amended. Major amendments to the CWA were enacted in
the Water Quality Act of 1987. This Act enhanced water quality management and improved the Agency's partnerships with
the states. This Act also authorized the development of new standards and guidelines to prevent and control water quality
pollution and authorized new approaches to deal with nonpoint sources of pollution. Other statutory mandates for this
program are in the Great Lakes Critical Programs Act (GLCPA); Water Resources Development Act (WRDA); the Marine
Protection, Research and Sanctuaries Act (MPRSA); the Shore Protection Act (SPA); the Marine Plastics Pollution Research
and Control Act (MPPRCA); and the Coastal Zone Act Reauthorization Amendments (CZARA).
Water Quality Program Description
The Water Quality Program has broadened its emphasis over the years to consider all sources of water quality pollution
by looking at entire watersheds, including oceans, which are the ultimate receiving waters for all watersheds. This broader
"place-based" approach considers critical ecosystems affected, stakeholders involved, strong science and data available, and
pollution prevention strategies in developing effective solutions. In this way, both point source and nonpoint source
problems — such as wet weather runoff from farms, streets, lawns, construction sites, and atmospheric deposition of
pollutants - will be addressed. This is critical since nonpoint source pollution has become the Nation's most significant
remaining water quality problem.
EPA's Water Quality Program faces three main challenges: improving the quality of our surface water, protecting
groundwater resources, and reducing wetlands loss. First, the Agency seeks to prevent surface water pollution, control
pollution sources, and restore degraded areas. Second, the Agency must protect groundwater from pollution and help the
public better understand the ways to prevent the groundwater from becoming polluted. Finally, EPA is seeking to continue
the trend toward reduced wetlands loss, with the long-term goal of ultimately realizing a net gain in wetland acreage through
efforts to create new wetlands and protect, improve, and better understand wetlands conditions.
Research Program Description
The Water Quality Research Program develops and analyzes scientific data and technologies to protect and enhance
the designated uses of our Nation's waters and related ecosystems by providing technical assistance to EPA regulatory
programs, states, and municipalities. The goal of the program is to minimize environmental risks from pollutant discharges,
environmental stressors and disturbances. Scientific understanding and techniques are being developed for integrated
ecological risk assessment and ecosystem protection for fresh, estuarine and marine waters, wetlands, contaminated
sediments, aquatic ecocriteria, nonpoint sources, habitat/biodiversity, wastewater, and sludge. This requires improving
analytical methods for quantifying pollutants. EPA's Ecosystem Protection Research Program also contributes to these
efforts by focusing on areas such as measuring and reporting on surface water quality, including research on the further
development of ecological and biological criteria; improved designs for monitoring surface water quality; new indicators
to assist in diagnosing degraded streams, rivers and estuaries; and better measures of condition to report on success.
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Enforcement and Compliance Assurance Program Description
In FY1998, EPA promoted a comprehensive watershed approach to water quality compliance and enforcement The
Water Quality Enforcement and compliance assurance program ensures compliance with permits issued under National
Pollutant Discharge Elimination System (NPDES) as well as taking actions for discharges into U.S. waters without a permit.
In FY 1998, EPA targeted its resources on wet weather discharges (e.g., sanitary sewer overflows, combined sewer
overflows, and stormwater). In addition, EPA focused attention on the development and implementation of the Concentrated
Animal Feeding Operations (CAPO) Compliance Assurance Implementation Plan and participated in the development of
the draft Unified Strategy for Animal Feeding Operations (APO). These areas pose substantial risks to human health and
the environment Moreover, the program emphasizes the importance of identifying significant noncompliers and taking an
appropriate enforcement action or returning them to compliance in a timely manner.
Highlights and Accomplishments
The Agency continued to place a heavy emphasis in FY 1998 on
expanding efforts to promote understanding of the condition of
aquatic resources in geographic terms — on a watershed basis. The
President's Clean Water Action Plan, announced in February 1998,
calls for more than 100 specific key actions by EPA and by many
other federal agencies with either water quality responsibilities or
activities mat have an impact on water quality. These key actions
cover most aspects of the water program at EPA. The Action Plan
mobilizes federal, state, and local agencies to achieve the Nation's
clean water goals through the watershed approach; brings a sharp
focus to the critical actions that are required; and establishes
deadlines for meeting these commitments over the next several years.
WATER QUALITY Obligations - FY 98
Total Obligations - $789.4 Million
Grants Assistance Prog.
8.9%
40.6%
Strategies
Implementation
Engineering & Analysis
5.4% Grants Prog.
.8.7% MgL
6.8%
R&D
6.7%
Enforcement
22.9%
Water Quality Monitoring
& Analysis
The Action Plan calls upon states and tribes to work in
cooperation with federal, interstate, and local agencies, watershed-based organizations, and the public to identify watersheds
most in need of restoration and to develop watershed restoration action strategies. In June, EPA, U.S. Department of
Agriculture (USDA), and other federal agencies developed a framework to assist states and tribes in preparing their
watershed assessments. States were encouraged to draw from existing water quality data in assessing overall watershed
conditions. Forty-six states and territories and 44 tribes submitted draft Unified Watershed Assessments (UWAs) on August
1. After receiving feedback from an interagency workgroup and the public, 54 states/territories and the District of Columbia
as well as 13 tribes submitted final UWAs as of October 9. A key next step will be to map the results of these UWAs.
In support of these efforts, the Agency strengthened the Watershed Academy to provide training for watershed managers
and others implementing the watershed approach. The Academy includes training courses, state facilitations in which the
Academy assists states and tribes in reorienting their programs to implement watershed approaches, an information transfer
series, and a web site. In FY 1998, the Watershed Academy also developed numerous Internet distance learning training
modules to serve those who cannot attend the live courses.
EPA completed a number of efforts to provide to states and tribes improved tools with which to carry out their water
quality standards programs. The Agency published guidance documents on a methodology for deriving ambient water
quality criteria for the protection of human health and completed water quality criteria documents for four chemicals of
concern - Ammonia-revision, 1,3-Bichloropropne (1,3-BCP), Hexachlorobutadiene (HCBD), and Acrylonitrile. EPA
published a National Strategy for the Development of Regional Nutrient Criteria and began to assist states and tribes in
adopting numeric nutrient criteria in their water quality standards. The Agency also published a national Contaminated
Sediment Management Strategy and submitted the National Sediment Inventory to the Congress.
The Agency reviewed and approved state and tribal standards submissions and provided guidance, technical assistance,
and training to states and tribes. In FY 1998, EPA promulgated federal water quality standards for two states, Alabama and
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California. Due to state action, EPA was able to withdraw the federal human health criteria for arsenic in the State of
Alaska. EPA enhanced its user-friendly geographic information system, BASINS, with additional geo-referenced data and
released a sediment quality modeling package to enable states, tribes, and local agencies to conduct watershed-based
environmental assessments. Training and on-line user support services, including a BASINS web site, further increased
access to and use of the model. The Agency also began design of a nationwide survey to identify the presence and extent
of persistent bioaccumulative toxics in fish tissue.
EPA continued its efforts to look at die future direction of the water quality criteria and standards program by publishing
an Advance Notice of Proposed Rulemaking (ANPRM) to consider revisions to the existing water quality standards
regulations. The ANPRM seeks feedback on changes that would allow states and tribes to tailor their own regulations to
local conditions and to address biological health as well as human health in developing solutions to water quality problems.
EPA conducted two of three large public meetings to encourage public dialogue and nationwide consistency in water quality
standards programs.
EPA launched a new program to support states, tribes, and local communities in assessing water quality at bathing
beaches. The Beaches Environmental Assessment, Closure, and Health (BEACH) Program, designed ultimately to reduce
exposure to microbial contamination at bathing beaches, will assist states and local governments to better monitor and inform
the public of risks associated with exposure to contaminated waters at beaches. EPA made information on specific beaches
available on the BEACH Watch web site that includes beach monitoring and closure information for the public to use in
assessing risks that selected beaches may pose.
The Total Maximum Daily Load (TMDL) Program is authorized by Section 303(d) of the CWA. Section 303(d)
requires states to identify and list waters for which existing pollution controls are not stringent enough to achieve state water
quality standards, and to establish TMDLs for these waterbodies. A TMDL specifies the amount of a particular pollutant
mat may be present in a waterbody such that water quality standards still are attained or maintained, and allocates allowable
pollutant loads among sources, thus providing the basis for taking actions needed to restore impaired waterbodies. During
FY1998, the TMDL Federal Advisory Committee Act (FACA) committee completed its deliberations and submitted a final
report to the EPA Administrator containing over 100 recommendations for improving the effectiveness and efficiency of the
TMDL program.
Also during FY 1998, EPA initiated efforts to propose revisions to the current TMDL program regulations and
guidance. EPA will consider the TMDL FACA committee recommendations as it develops these proposed revisions. The
proposed regulatory revisions are scheduled for publication in the Federal Register in the Spring of 1999. Consistent with
the current TMDL program regulations, states were required to submit lists of impaired and threatened waters to EPA in
April 1998. As of the end of the fiscal year, most states had submitted final lists to EPA for review and approval/disapproval
action; other states were in the process of developing final lists for submission to EPA. The EPA Regions, in consultation
with Headquarters, are carefully reviewing the final state lists and making appropriate approval/disapproval decisions.
#-;----*ti
The Agency made significant advances toward the goal of providing to our state,
local, and private partners accurate information on the quality of our Nation's waters.
EPA's efforts to develop appropriate indicators of environmental health, to support
monitoring programs, and to store and provide data are critical to maintaining the
ability to identify and understand remaining high-risk problems, develop appropriate
solutions, and evaluate if and when environmental results are being achieved.
The Agency continued to improve and update the Index of Watershed Indicators
(TWI), a major project intended to facilitate decision-making within the watershed
protection framework. IWI configures existing information from multiple sources to
display the condition and vulnerability of the Nation's 2,111 watersheds. Many of the original 15 indicators have been
updated with more recent data. Additionally, new candidate indicators dealing with living resources (e.g., biological integrity
and terrestrial condition), ground water, and air deposition have been added to the redesigned web site. IWI is available
on Surf Your Watershed, an Internet community-based information system for organizing, locating, and sharing water quality
information critical for understanding problems and developing solutions.
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The team tasted with development of a new generation STORET, the Nation's primary water quality data storage and
retrieval system, roDed out Version 1.0 of the production system on September 3,1998. Since the release, approximately
300 copies of the system have been distributed. The system is available for either the desktop or a Local Area Network
(LAN) application. EPA initiated a training program for using the new system.
EPA is placing increased emphasis on protecting ocean and coastal waters. The Agency was a key participant in the
National Oceans Conference, held in June 1998 in recognition of the International Year of the Ocean. At the conference the
President made numerous commitments mat will involve EPA action, including efforts to protect coral reefs, improve beach
and coastal water quality, ready our ports for expanded use in the 21st century, and develop recommendations for a federal
ocean policy.
The Agency also worked on several fronts to build partnerships to more effectively protect and restore coastal
ecosystems. The Partners for Smart Growth Conference succeeded in bringing developers, local government officials, and
financiers together to discuss how growth and development can complement environmental protection efforts and can create
more liveable communities. EPA and the National Oceanic and Atmospheric Administration (NOAA) held a meeting with
state coastal program managers and National Estuary Program directors to discuss common issues such as habitat loss and
nutrient over-enrichment EPA has been working with NOAA and other federal agencies to provide technical assistance
to states responding to and mitigating the impacts of toxic Pfiesteria outbreaks and other harmful algal blooms. A national
contingency plan has been prepared to provide emergency federal response to Pfiesteria outbreaks and other harmful algal
blooms in cases where state response capabilities are exceeded. Our National Estuary Program is one of the Water Quality
Program's foremost community-based, stakeholder-oriented efforts, with 17 programs successfully implementing their
Comprehensive Conservation and Management Plans.
The Water Program continued to examine the effects of air deposition of chemicals, heavy metals, nutrients, and other
pollutants in the Nation's surface waters. EPA's goal is to characterize and manage air deposition effects on downwind
waters by building upon ongoing programs, primarily under the Clean Air Act (CAA) and the CWA. Studies have confirmed
the need for more stringent air controls by demonstrating residual benefits to water quality. The Office of Water (OW) Air
Deposition Initiative partnered with the Office of Air and Radiation (OAR) to ensure the effective use of CAA tools to
protect water quality by incorporating water quality benefits and issues into air regulations and policy. In 1998, this included
analysis of the benefits to certain water bodies as a result of the NOx State Implementation Plan (SEP) Call rule issued by
OAR. The partnership also has expanded, with more joint meetings held and being planned for the future. In addition, the
Initiative has launched an effort to pilot the development of a TMDL under the CWA that considers the air loadings of
mercury to the impaired water body.
The Agency continued its approach to protecting the environment from urban wet weather pollution sources. Following
the Phase I Storm Water rule covering industries and large municipalities, EPA published a proposed rule to regulate smaller
municipalities and construction storm water sources. This rule was based on detailed discussion with the Urban Wet
Weather Flows Federal Advisory Committee, other outside stakeholders, and internal EPA stakeholders. In addition, EPA
continued to work with stakeholders on ways to incorporate controls on combined sewer overflows, sanitary sewer
overflows, and storm water into a watershed approach, in order to better control those sources. This approach recognizes
the need for flexibility in implementing any controls that go beyond a minimum set of technology-based controls, identifies
the relative roles of government in implementing a watershed approach, and recognizes that monitoring on a watershed basis
is an important focus of the effort
As part of the effort to reduce nutrient loadings, the Agency began to more actively address issues related to animal
agriculture. EPA published a draft "Strategy for Addressing Environmental and Public Health Impacts from Animal Feeding
Operations." This draft strategy delineates EPA's short-term and long-term efforts to comprehensively address the
environmental and public health problems associated with animal feeding operations. Later in the year, EPA and the USD A
published a draft "Unified National Strategy for Animal Feeding Operations." The draft strategy is one of more than 100
actions President Clinton directed as part of the Clean Water Action Plan, and proposes a variety of voluntary and regulatory
approaches for minimizing environmental threats posed by animal agriculture. EPA also participated in dialogues with
representatives of the poultry and hog production industry, state agricultural and environmental agencies, local communities
and USDA to find ways to improve environmental controls applicable to poultry and hog production.
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The Agency also conducted training in its permitting programs. EPA continued its partnership with the Water
Environment Federation to present wastewater pretreatment training in five cities. EPA also continued providing the basic
NPDES permit writers course, which was offered more frequently and to a much wider audience due to agreements with
the Department of die Navy and Department of Energy. EPA also funded eight whole effluent toxicity training courses
through a cooperative agreement with the Society for Environmental Toxicology and Chemistry.
The Agency continued its reinvention of the NPDES permitting program. EPA published a rule to streamline the State
Sewage Sludge Management regulations. EPA also published a notice requesting proposals for pretreatment pilot programs
based on environmental results, and received eight applications. Within the Metal Finishing sector of the Common Sense
Initiative (CSI), EPA developed training videos that focus on program implementation, inspections, and sampling; developed
innovative measures to increase environmental compliance; and addressed innovative ways to decrease reporting burden.
In FY 1998, the Water Program completed "modernization" of the Clean Water Needs Survey which is the
government's primary gauge of national wastewater infrastructure needs. The survey will now facilitate the collection of
information on a watershed and estuary basis including needs for Publicly Owned Treatment Works to control traditional
"point" source pollution, and needs for control of storm water and "nonpoint" source pollution such as agricultural runoff.
The survey will now link to other agency databases such as "STORET," and will enable states to more holistically assess
their water quality pollution control needs and prioritize them.
The Water Program also issued guidelines for water conservation plans for water conservation systems. States may
require water systems to submit a water conservation plan consistent with these guidelines as a condition of receiving a loan
from the Drinking Water State Revolving Fund (DWSRF).
The Water Program developed an agreement with the states on a major new direction in the national Nonpoint Source
(NPS) program. The states agreed to review and upgrade their NPS programs to assure that they address critical elements,
while EPA committed to streamlining and refocusing the grants issuance and reporting process to maximize efficiency.
EPA continued to carry out the Administration's commitment to protect and manage the
Nation's wetland resources during FY 1998. As part of the President's Plan to make the
federal wetlands program more flexible, fair, and effective, EPA worked with the U.S. Army
Corps of Engineers and other agencies to develop appropriate revisions to the Section 404
Nationwide Permit program. EPA also continued to spearhead the interagency development
of a new Agricultural Wetlands Memorandum of Agreement, to provide farmers with clear and
reliable wetland determinations for CWA and Food Security Act purposes. The Inland Testing
Manual was issued, which is used to evaluate proposed discharges of dredged material. The
Agency is working to implement the wetlands and water provisions of the Transportation
Equity Act for the 21 st Century (TEA-21). A study of locally sponsored wetlands mitigation
banks was undertaken in order to provide technical assistance to local governments. The
Agency continued to promote development of the hydrogeomorphic approach for assessing wetland functions. As pan of
our wetlands restoration commitments under the Clean Water Action Plan, the Agency initiated the Five Star Restoration
Program to provide challenge grants, facilitate technology/information transfer and partner collaboration, and support peer-
to-peer communication programs in an effort to promote community-based wetland and restoration projects.
Water Quality Research
The Water Quality Research Program increased understanding of landscape characteristics and ecosystem structure
and function, and supported EPA efforts to reduce uncertainty surrounding the effects of chemical, biological, and physical
stressors on aquatic ecosystems. In addition, this research endeavored to develop diagnostic tools to evaluate the exposures
to *oxic constituents of wet weather flows, and develop and validate effective watershed management strategies for
controlling these flows. Water quality research also sought to develop and provide effective beach evaluation tools necessary
to make timely and informed decisions on beach advisories and closures. One goal of EPA's water quality research is to
develop and release the Multimedia Integrated Modeling System (MIMS), a common software framework for computation
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EPA's FY 1998 Annual Financial Statements
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of nutrient, toxics, pesticides, sediments, and pathogen loadings into surface waters for determination of TMDLs including
alternative management solutions.
• EPA developed a rapid response measure for recreational water quality. Typically, it takes 48 hours to estimate whether
recreational water is contaminated with gastrointestinal bacteria. If contamination is present, this time period carries
a high risk for illness, especially for children. The Agency developed a method that only takes 24 hours, thereby cutting
the time at risk in half.
• EPA published the Landscape Atlas of the mid-Atlantic region. The Adas ranks 125 watersheds based on patterns of
land cover and land use.
* EPA published reports on Big Darby Watershed (located in central Ohio) - Phase 1 Analysis and Problem Formulation.
Specific case studies developed for Big Darby will have application for other watersheds and regional assessments of
ecological impacts. This information will provide data and methods for conducting regional ecological risk assessments
and setting risk management options.
Water Quality Enforcement Performance Measures
The enforcement and compliance assurance program deters and reduces noncompliance and achieves environmental
and human health improvements by maintaining a strong, timely and active enforcement presence. EPA directs enforcement
actions to maximize compliance and address human health problems. Specific measures include noncompliance rates,
measurement of average length of time for violators to return to compliance or enter enforceable agreements, number of
administrative, civil, and criminal judicial actions.
These measures count the number of enforcement actions and the number of inspections in the Water Quality
Enforcement and Compliance Assurance Program and also measure how successful compliance and enforcement programs
are by looking at the length of time for significant noncompliers to return to compliance or have an enforcement action taken.
Addressing significant noncompliers is a major portion of the base program. Moreover, dealing with priority areas (wet
weather, CAFOs) will result in improvements to human health and the environment as these sources are some of die most
significant uncontrolled water quality areas.
The program used the following performance measures for assessing their success in FY 1998:
Key Performance Measures
NPDES Inspections
UIC/PWSS Inspections
CWA Section 313 Inspections
NPDES Civil Referrals
UIC/PWSS Civil Referrals
NPDES APO Complaints
UIC/PWSS APO Complaints
NPDES Compliance Orders
UIC/PWSS Compliance Orders
Wetlands Compliance Orders
1998 Goal
2,400 Inspections
5,700 Inspections
600 Inspections
50 Case Referrals
20 Case Referrals
150 APO Complaints
60 APO Complaints
505 Compliance Orders
300 Compliance Orders
40 Compliance Orders
1998 Actual
2,135 Inspections
7,760 Inspections
500 Inspections
53 Case Referrals
14 Case Referrals
227 APO Complaints
65 APO Complaints
770 Compliance Orders
287 Compliance Orders
74 Compliance Orders
(Note: APO is Administrative Penalty Order.)
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Future Trends
The Water Quality Program will continue to build on the approaches described in the Clean Water Action Plan. New
resources provided in 1999 for Plan support will be available to implement watershed restoration action strategies targeted
to watersheds not meeting clean water and other natural resource goals. Watershed strategies will be developed for priority
watersheds to invest new spending in appropriate and cost-effective projects. A key source of funding for action strategy
implementation will be the CWA Section 319 nonpoint source state grant program. EPA will work with states to upgrade
their nonpoint source pollution control programs to ensure effective use of the funds.
EPA and many other federal agencies are conducting critical research which will help us understand the human health
and environmental effects ofPfiesteria outbreaks and the environmental factors (nitrogen, phosphorous, and other factors)
which contribute to Pfiesteria outbreaks. Further reducing the levels of nitrogen and phosphorous hi our Nation's waters
is imperative in order to prevent risks to human health, as well as the associated environmental degradation and economic
impacts, caused by Pfiesteria outbreaks and other harmful algal blooms (HABs). EPA will continue to work with states and
tribes to collect data and develop site-specific control strategies for nutrients, which will result in control of these HAB
outbreaks.
The Agency will continue its longstanding trend toward common sense, place-based approaches that build on the solid
foundation for the basic water programs. In keeping with the commitments in the Clean Water Action Plan, EPA will work
with stakeholders to assure that water quality standards and fish consumption advisory programs are implemented
consistently across die country. In particular, we will revise existing water quality criteria and encourage states and tribes
to adopt and implement biocriteria that enhance acquatic life.
EPA will continue to assist stakeholders in incorporating a risk-based approach, investigate newly-identified
environmental problems, and provide increased support for tribal water quality programs. The Agency will also issue
guidance and informational materials to provide the public and responsible officials with accurate up-to-date information
about the risks, especially to children, from consuming contaminated fish and exposure to contaminated recreational waters.
The Administration and both houses of Congress support the development of a National Ocean Policy - a coherent,
comprehensive, and long-range national policy regarding the exploration, protection, and use of ocean and coastal resources.
Implementation of activities stemming from the National Oceans Conference will continue. In addition, the Agency is
developing a Coastal Watershed Protection Strategy to more effectively protect and restore coastal ecosystems by transferring
the lessons learned and experiences from the National Estuary Program to other coastal watersheds. We intend to work with
regions and states to encourage the use of Comprehensive Conservation and Management Plans as Clean Water Action Plan
Watershed Restoration Action Strategies, and to target our resources and activities to the needs identified by coastal states.
Interagency coastal monitoring and coastal research strategies will also be developed, consistent with the Clean Water Action
Plan.
Finally, through state and tribal program assistance, EPA will continue to pursue its strategy of building state and local
capacity to implement and enforce the Nation's environmental laws. One approach will be to encourage states and tribes,
under the new authority of Performance Partnership Grants (PPGs), to group categorical grant funds into PPGs so they can
address their own unique environmental priorities. EPA's role will be to help those who need our assistance and strive to
make sure that federal financial assistance brings the Nation the best possible return on its investment in a cleaner, safer
environment
EPA will continue its commitment to maintaining a strong compliance and enforcement presence. Priority areas for
FY 1999 and FY 2000 include implementation of the enforcement commitments in the Clean Water Action Plan.
Specifically, EPA will focus additional resources on wet weather discharges (CSOs, SSOs, and stormwater) as well as on
implementing the CAFO Compliance Assurance Implementation Plan and the draft national Unified AFO Strategy. EPA
will continue to emphasize a strong base enforcement program focusing on conducting inspections and talcing timely and
appropriate action against significant noncompliers.
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TOXIC SUBSTANCES
The Toxic Substances Program, administered by the Office of Pollution Prevention and Toxics (OPPT), is responsible
for environmental programs carried out under six major statutes. The Toxic Substances Control Act (TSCA) is designed
to protect human health and the environment from risks associated with the manufacture, processing, distribution, use, or
disposal of toxic chemical substances. Title X of the Residential Lead-based Paint Hazard Reduction Act of 1992, now
codified as Section IV of TSCA, requires EPA to provide a comprehensive national approach to dealing with lead-based
paint in the Nation's housing stock. The Pollution Prevention Act of 1990 (PPA) encourages cooperative efforts between
EPA and the private and public sectors to prevent toxic chemical pollution. Section 313 of Title HI of the Emergency
Planning and Community Right-to-Know Act of 1986 (EPCRA) requires facilities that emit certain toxic materials to report
those emissions to EPA and requires EPA to collect and provide the data to the public. The Asbestos Hazard Emergency
Response Act (AHERA) requires inspection for and abatement of asbestos in all public and private schools, and directs EPA
to examine asbestos exposure issues in public and commercial buildings. Finally, the Asbestos School Hazard Abatement
Act (ASHAA) authorizes EPA to provide loans or grants to local education agencies to conduct asbestos abatement projects
hi public and private school buildings.
A key feature of the Toxic Substances Program is the concept of pollution prevention. Preventing'pollutants from
entering the environment, as compared to costly risk management and remediation efforts that deal with pollutants already
in die environment, has provided society with an effective, cost-conscious approach to protecting public and environmental
health. The pollution prevention program concentrates on eliminating or reducing the use of toxic substances hi chemical
manufacturing processes and reducing other downstream uses of such chemicals. In cooperation with various stakeholders,
OPPT proposes or develops strategies incorporating market incentives, technological innovation, and other assistance to
help die adoption of pollution prevention practices. However, to be most effective, the pollution prevention ethic must be
applied voluntarily by industry, business, and consumers.
Toxic Substances Program objectives involve identifying chemicals that may be harmful to human health or the
environment, preventing these chemicals from reaching the marketplace, and the mitigating harmful effects of toxic
chemicals already present in commerce. The Toxic Substances Program strives to accomplish this without impeding or
creating unnecessary barriers to technological innovation. The traditional regulatory approaches of the core TSCA programs
(i.e., the New and Existing Chemicals programs) to managing chemical risks are increasingly being complemented by
voluntary compliance and market based programs emphasizing pollution prevention as the strategy of first choice. Chemical
testing and scientific analysis, used to gain knowledge about the environmental and health effects of toxic chemicals, promote
sound chemical assessment and management.
Within the context of the Government Performance and Results Act (GPRA), the Toxic Substances Program is
organized around three of the Agency's primary environmental goals: Preventing Pollution and Reducing Risk hi
Communities, Homes, Workplaces and Ecosystems; Reduction of Global and Cross-Border Environmental Risks; and
Expansion of Americans' Right to Know About Their Environment. The principal programs found under these three goals
are described below.
Toxic Substances Program Description
Preventing Pollution and Reducing Risk in Communities. Homes. Workplaces and Ecosystems
Key areas under mis goal are the New and Existing Chemicals Programs, the Lead Program, National Chemicals
Program (e.g., asbestos, polychlorinated biphenyls [PCBs], and dioxin), and the Pollution Prevention Program.
The New Chemicals Program, which includes biotechnology-based applications, identifies and manages the risk of
new chemicals entering the market place. Manufacturers must submit a premanufacture notice (PMN) to EPA for evaluation
before new chemical substances and biotechnology products can be manufactured commercially. EPA may prohibit or
EPA's FY 1998 Annual Financial Statements
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restrict the commercial manufacture and use of the chemical or request additional
information from the manufacturer if it determines the chemical or product may present
unreasonable risks to human health or the environment There are several exemptions to
the FMN process, including those for low volume production quantities and polymers.
EPA collects fees up to 52,500 ($100 for small businesses) for each PMN submission,
generating annual revenues of about $2 million which are deposited into the General Fund
of the U.S. Treasury.
The Existing Chemicals Program identifies risks associated with the approximately
70,000 chemicals currently in commerce, assesses alternative chemicals, and identifies
pollution prevention opportunities through the screening of chemicals, groups of similar
chemicals (clusters), processes and use patterns. The program emphasizes both voluntary
agreements with industry and, if necessary, regulatory approaches to mitigate risk.
Serious health effects can result from exposure to lead contamination in paint, dust, soil and drinking water. The Lead
Program seeks to reduce lead exposure, especially for children, and to identify the most serious exposure sources. The Lead
Program addresses past, current and new uses of lead and educates the public about the dangers of lead exposure. The
Agency is responsible for administering over 30 mandates contained in the Lead-Based Paint Hazard Reduction Act of 1992
('Title X"). '
The National Chemicals Program concentrates on risk management activities for asbestos, PCBs, dioxin, and other toxic
chemicals of national concern and impact Asbestos and other hazardous fibers are commonly found as indoor air
contaminants. The National Chemicals program supports the development and implementation of asbestos control and
management programs by the federal, state, and local governments and the private sectors. PCB efforts work to reduce the
risks from PCB contaminants in residential, school, and workplace settings. The program regulates PCB use in electrical
equipment and other products; directs appropriate clean-up of spills, leaks and other releases of PCBs to the environment;
and approves permits for facilities for the storage and disposal of PCB wastes. The program ensures PCBs are managed
in an environmentally sound manner while they are in use and requires the safe disposal of PCBs. OPPT continues to
address the health and environmental hazards of and exposures to dioxin, a toxic chemical that accumulates in the
environment
Reduction of Global and Cross-Border Environmental Risks
Pollution has no respect for political boundaries and many risks to human health
and the environment in die U.S. originate outside our borders. Chemicals that are
persistent, toxic, and bioaccumulative and that pose threats to human health and the
environment are of particular concern to OPPT when these chemicals cross
international borders. OPPT is actively involved in an international cooperative effort
to harmonize test guidelines, i.e., coordinating and standardizing methods for testing
chemicals and chemical substances to assess hazard or toxicity. Test guideline
harmonization reduces the burden on domestic chemical companies of repetitive or
duplicative testing requirements and expands the universe of toxic chemicals for which
testing information is available. Harmonization also encourages international information exchange and mutual international
acceptance of test data. OPPT also contributes to international efforts to establish emissions inventories, genetically termed
pollutant release and transfer registries (PRTRs), similar to EPA's Toxic Release Inventory (TRI).
Expansion of Americans' Right to Know About Their Environment
An essential component cf a comprehensive national approach to environmental protection is the full participation by
the American public in environmental priority-setting, risk reduction and remediation, and short- and long-term
environmental planning. Informed citizens are better equipped to consider the relative severity of environmental risks, the
opportunities for prevention or remediation, and the trade-offs and uncertainties that accompany many environmental
decisions.
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The TRI administered by OPPT, provides the public with valuable information about chemical releases in their
communities. Mandated by Section 313 of EPCRA, the TRI program collects and provides the public with information
annually about releases of certain toxic chemicals at manufacturing and federal facilities. Section 6607 of PPA expanded
the type of pollution prevention information included in TRI reports. OPPT makes TRI information available to the public
in various formats, including via the Internet
Research Program Description
Toxic substances research provides an understanding of basic mechanisms and processes that are useful to regulatory
program analysts in the interpretation of data submitted by industry in response to TSCA regarding risks arising from the
manufacture, processing, distribution, and use or disposal of new or existing chemical substances. In addition, research
efforts as part of the Children's Agenda focused on assessing children's health risks from exposure to toxic chemicals and
other toxic substances. The products of these research efforts are intended to support human and environmental risk
assessments, which are the basis for implementation of these laws. Toxic substances research was carried out in such areas
as ecosystems protection, human exposure, health effects, and health risk assessment methods. The information developed
from application of these methods will significantly improve our understanding of the extent of human exposure to specific
toxic substances. The Agency will incorporate these methods into its battery of testing guidelines under which industry will
be required to submit data to the Agency on toxic substances as regulated under TSCA.
Enforcement and Compliance Assurance Program Description
The Toxic Substances Enforcement and Compliance Assurance Program conducts compliance monitoring inspections,
with emphasis on asbestos worker protection and high-risk PCB's. EPCRA has emphasized data quality. EPA also is
promoting compliance and enforcement of Section 1018 of TSCA, the lead-based paint notification and disclosure
requirements.
EPA's grant support to states' toxic substances program emphasizes meeting asbestos worker protection safety
standards and PCB standards, and managing state lead risk reduction and abatement programs. In FY 1998, states continued
to conduct compliance monitoring inspections on toxic substances requirements. During 1998, EPA emphasized continuing
partnerships with the states to foster comprehensive toxic substances enforcement authorities at the state level.
EPA will continue its commitment to maintaining a strong compliance and enforcement presence in the core TSCA
program and other programs under TSCA. Agency priorities for FY 1999 and FY 2000 include compliance
assistance/enforcement for lead based paint (including the Real Estate Notification and Disclosure Rule and the lead
abatement, certification, and training requirements in TSCA Sections 402/404/406) and commencement of the national PCB
phase-out initiative. This PCB initiative targets facilities voluntarily removing PCB containing transformers and capacitors.
The TSCA Enforcement and Compliance Assurance Program will continue to use EPA incentive policies to increase the
number of facilities that self-police and self-correct environmental problems.
The EPCRA Program targets inspections and enforcement actions at companies with data quality and data reporting
violations. The program also conducts compliance inspections to detect companies and federal facilities that have failed to
report toxic chemical emissions. Executive Order 12856 authorizes EPA to conduct reviews and inspections to monitor
compliance with EPCRA Sections 301 and 313 at federal facilities. Agency priorities for FY 1999 and FY 2000 will include
targeting sector or "priority pollutants", inspecting and enforcing for violations of TRI data quality, and leading a national
enforcement initiative for high risk chemicals of concern or priority sectors for the Community Right to Know, EPCRA
Sections 311 and 312. The EPCRA Enforcement and Compliance Assurance Program will continue to use EPA incentive
policies to increase the number of facilities that self-police and self-correct environmental problems.
EPA's FY 1998 Annual Financial Statements
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Highlights and Accomplishments
TOXIC SUBSTANCES Obligations - FT 98
Total Obligations - $175.7 Million
Toxic Substances Strategics
50.3%
Enforcement
9.1%
27.5%
Emergency Planning & Community
Right to Know
Preventing Pollution and Reducing Risk in Communities,.
Homes. Workplaces and Ecosystems
During FY 1998, OPPT received 1,553 TSCA Section 5
notices, including PMNs, low-volume exemptions and test
marketing exemptions. The number of notices received is about
10% greater than in recent years. OPPT's scientific staff continued
to develop assessment tools, collect data, and issue guidance for the
New Chemicals and Biotechnology Program.
The Existing Chemicals Program continued initial chemical
screening to determine the potential human health and environmental
effects posed by chemicals currently in commerce. Additionally, the
program examined control options, conducted detailed risk
management reviews, and implemented risk control measures where appropriate. OPPT continued its chemical testing
activities as part of the overall Existing Chemicals Program, concentrating both on chemicals designated by the Interagency
Testing Committee (TTC) and also on multi-chemical rules identified through non-ITC sources. The continued use of multi-
chemical test rulemaking resulted in an acceleration of the number of chemicals handled in the rulemaking process.
Additional testing candidates were identified for inclusion on the Agency's Master Testing List The chemical testing
program continues to play a major international role in the accumulation of test data for high production volume chemicals.
An important new and developing component of this program is the Community Right to Know concept In this area, EPA
seeks to find ways to share its broad knowledge of chemical toxicity and exposure with citizens and communities, fostering
better public understanding of environmental risk and facilitating well-informed local decisions on environmental quality
and protection.
The Lead Program made important progress in the development of lead regulations during FY 1998. OPPT published
die final TSCA Section 406(b) rule, involving lead abatement activities in housing renovation; promulgated the renovation
information rule; and developed a rule establishing the fee charged by EPA to accredit training providers and to certify lead-
based paint professionals. OPPT also proposed a rule under TSCA Section 403 establishing regulatory standards for
identifying lead-based paint hazards, lead-contaminated dust, and lead-contaminated soil; and forwarded to the Office of
Management and Budget for review a proposed rule under TSCA Section 402 establishing management and disposal
standards for lead-based paint debris. The Lead Program also published an important new resource document for parents
concerned about lead and their children entitled Lead In Your Home: A Parent's Reference Guide.
In FY 1998, OPPT published a final rule on PCB disposal. OPPT continued to assist the states in improving their
asbestos accreditation programs, as required under the AHERA, and completed evaluations of awarded ASHAA loan and
grant projects.
OPPT continued its dioxin assessment activities in FY 1998. Assessment findings support scientific evidence that
dioxin is a major environmental pollutant although OPPT still has insufficient knowledge of dioxin sources, transport, and
exposure to support sound policy and program development OPPT continued its cross-media efforts to characterize human
exposure to, and sources of, dioxin through a variety of surveys, studies, and tests to determine the level of dioxin exposure
in the United States. OPPT completed and published the results of surveys for dioxin in milk and food, and implemented
the first phase of a national monitoring network to detect dioxin in ambient air.
Reduction of Global and Cross-Border Environmental Risks
In FY 1998, OPPT continued its involvement in negotiations to complete a legally binding protocol for the elimination
and/or control of specified persistent organic pollutants. These negotiations are being conducted under the auspices of the
United Nations Economic Commission for Europe (UNECE) Convention on Long-Range Transboundary Air Pollution.
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EPA's FY 1998 Annual Financial Statements
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OPPT similarly participated in the process of completing a legally binding convention, known as Prior Informed Consent,
that will delineate requirements for the export and import of selected banned or restricted chemicals. Serving as a major
source of scientific expertise and review in updating guidelines, OPPT continued its close cooperation with other federal
agencies and the Organization for Economic Cooperation and Development (OECD) in test guideline harmonization
activities. OPPT also provided financial and technical assistance to support the development of PRTRs.
Expansion of Americans' Right to Know About Their Environment
The original TRI reporting requirements were limited to the manufacturing sector, and included approximately 320
chemicals and chemical categories. The list of chemicals subject to TRI reporting has more than doubled since 1986 to
600-plus chemicals, with over 31,000 facilities now submitting annual TRI reports. This total includes federal facilities that
became subject to TRI reporting under Executive Order 12856. Reporting facilities submitted a total of 101,145 TRI reports
in FY 1998.
An important accomplishment for the TRI program in FY 1998 was the development of a rule to add certain persistent
bioaccumulative toxics (PBTs) to the TRI reporting list In addition, the TRI program lowered reporting thresholds for new
PBTs, as well as for PBTs already on the reporting list Work is underway to expand TRI reporting requirements to
additional industries, specifically the oil and gas industries, and airports. Other key activities in FY 1998 included
conducting public outreach meetings on the use of TRI reporting forms and developing new industry sector technical
guidance manuals to assist me regulated community. OPPT continues to review comments received during 1997 as a result
of an Advance Notice of Proposed Rulemakjng on the possible expansion of the types of data collected under TRI to
determine whether to collect materials accounting data, worker exposure information and data on toxic chemicals in
products.
Also in FY 1998, OPPT produced the annual national TRI data release, which included expanded data analyses. OPPT
information management activities concentrated on data quality, public data access, and expansion of the use of TRI data
by state and local governments, other EPA offices, private industry, and the general public. OPPT continues to develop tools
to facilitate public access to, and the use of, chemical information and strives to put in place improved technology which will
ease the reporting burden on industry for submitting TRI reports.
Within the overall framework of the Right to Know goal, OPPT actively promotes the concept of community-based
environmental programs (CBEP). CBEP is a community-based approach to environmental protection and economic
development in which environmental issues are addressed from the perspective of the local neighborhood. CBEP fosters
consideration of a detailed level of information often missed when policy is made at national or state levels, incorporating
the community's knowledge and thereby making it possible to address effects on the local environment from multiple
sources. CBEP empowers local communities to take the lead in addressing environmental issues while utilizing government
as a source of information and technical assistance. Building consensus at the local level unites the community around
voluntary pollution prevention efforts that may go beyond statutory requirements.
Reducing Exposure through Human Health Protection Research
EPA's research and development program increased the Agency's understanding of environmental processes and our
capability to assess environmental risks - not only to human health, but also to ecosystems. This research supported EPA
efforts to identify the most important sources of risk to human health and the environment, and thereby guide priorities,
policies, development of environmental regulations, and deployment of resources. In addition, Agency research sought to
provide the understanding and technologies needed to detect, abate, and avoid environmental problems. In the future,
environmental problems will be dealt with using those features of the current system that have proven effective and by
designing and testing fundamentally new tools and approaches that utilize the latest advances in scientific knowledge and
technology.
4 EPA continued to develop and evaluate biologically based dose response (BBDR) models to describe the underlying
mechanisms of toxicity and to facilitate extrapolation from animal studies. These models will foster improved estimation
of human risks from exposure to compounds such as methanol, dibromochloromethane, arsenic, acrylamide, and dioxin.
EPA's FY 1998 Annual Financial Statements Page 39
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• EPA published the Exposure Factors Handbook (paper copy). The Internet version was available in April 1998. The
Exposure Factors Handbook is the primary reference in the Agency for information on factors used in exposure
assessment relating to human characteristics and behaviors.
• EPA performed research that will lead to the development of improved testing guidelines for predicting the human
health effects of prenatal and perinatal exposures to toxic substances. Improved testing guidelines and health effects
methods and models will enhance the Agency's ability to characterize toxic effects in children.
• EPA continued research that provides data needed to develop and further define models that predict the human health
outcome of exposures to toxicants, including pesticides and industrial chemicals. These models are used by the Agency
to screen and prioritize new and existing chemicals and toxic substances for further regulatory action.
Enforcing Toxic Substances and EPCRA Laws
4 In FY 1998, EPA Headquarters issued 15 administrative complaints to companies for TSCA violations. Two of the
complaints were for penalties of over $1 million. Also, approximately 700 compliance inspections were conducted
under the EPCRA Enforcement and Compliance Assurance Program and compliance assistance outreach was provided
to chemical facilities that use, manufacture or process potentially harmful chemicals.
• The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed. The
program used the following performance measures for assessing their success in FY 1998:
Kev P»rfftrmance Measures
Toxic APO Complaints
TSCA Inspections
State Toxics Inspections
Toxics Civil Referrals
EPCRA Civil Referrals
EPCRA APO Complaints
EPCRA Compliance Orders
1998 Goal
185 APO Complaints
1,1 00 Inspections
1,000 Inspections
2 Case Referrals
10 Case Referrals
200 APO Complaints
3 Compliance Orders
1998 Actual
214 APO Complaints
1,542 Inspections
1,136 Inspections
0 Case Referrals
11 Case Referrals
233 APO Complaints
4 Compliance Orders
(Note: APO is Administrative Penalty Order.)
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EPA's FY 1998 Annual Financial Statements
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HAZARDOUS WASTE
The Hazardous Waste Program was established to address the prevention, management and disposal of hazardous and
municipal solid wastes generated nationwide. Hazardous wastes are produced by large businesses and industries, such as
chemical and manufacturing plants, and small businesses. The Resource Conservation and Recovery Act (RCRA) of 1976,
as revised by the Hazardous and Solid Waste Amendments (HSWA) of 1984, provides the legislative mandate for a
nationwide program to protect human health and the environment from the risks of improper management of hazardous and
solid wastes. The goals of the Act are to minimize the generation of waste, ensure adequate and safe management practices
from generation to disposal of wastes, and prevent and detect leakage from underground storage tanks.
CEPPO Program Description
Title HI of the Superfund Amendments and Reauthorization Act (SARA) of 1986, also known as the Emergency
Planning and Community Right-to-Know Act (EPCRA), helps state and local officials address risk posed by hazardous
chemicals present in their communities. This program gives state and local governments tools they need to develop response
plans to protect and inform the public in the event of a chemical release emergency. The Clean Air Act (CAA) of 1990
accidental release provisions require facility owner/operators to prepare risk management plans to prevent, detect, and
respond to chemical accidents. These CAA provisions also mandate the investigation of major chemical accidents to assess
root causes.
Public awareness of the potential danger of accidental releases
of hazardous substances has increased over the years as serious
chemical accidents have occurred around the world. In response to
public concern about chemical accidents, in 1986, EPA integrated
its Chemical Accident Prevention and Chemical Emergency
Preparedness programs into the Chemical Emergency Preparedness
and Prevention Office (CEPPO). CEPPO is responsible for
implementing Tide in of SARA, as well as Section 112(r) of the
CAA.
Tide in requires states to establish State Emergency Response
Commissions (SERCs) and Local Emergency Planning Committees
(LEPCs) to develop emergency response plans for each community.
Tide m also requires chemical facilities to provide information on
hazardous chemicals to the public. - -
Section 112(r) of the CAA requires facilities that produce, process, handle or store certain hazardous substances to
prepare and submit risk management plans (RMPs) to EPA by June 1999. The RMPs will contain very specific information
on the risks of chemicals in communities. CEPPO has established a strategy to provide facilities with the information needed
to meet the Section 112(r) requirements and ensure public access to useful information about chemical risks.
UST Program Description
The goal of me Underground Storage Tank (UST) Program is to prevent, detect, and address leaks from underground
storage tanks containing petroleum and hazardous substances. The UST program objectives are to stimulate development
and implementation of comprehensive state, local and tribal regulatory programs with prevention requirements (i.e.,
installation, upgrade, leak detection, and technical operating standards); improve implementation and enforcement
performance; develop effective state corrective action programs; and provide ongoing technical information, assistance, and
training. These objectives directly support the Agency's guiding principle of partnerships through building strong state,
local, and tribal UST programs.
CEPPO works to prevent accidents like this
EPA's FY 1998 Annual Financial Statements
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RCRA Program Description
The Agency continues to refine program strategies to direct both private and public resources towards the greatest
environmental risk in all areas of the program, including corrective action stabilization and permit work. Additionally, the
RCRA program will continue ongoing efforts to develop risk-management standards for hazardous waste.
Large and small businesses and manufacturers annually generate approximately 270 million tons of hazardous waste,
including wastewater, and more than 7.6 billion tons of industrial non-hazardous waste. The U.S. generates about 210
million tons of municipal solid waste per year, or 4.3 pounds per person per day. Without proper management and disposal,
hazardous, non-hazardous industrial, and municipal solid wastes pose short- and long-term environmental and human health
hazards.
EPA's Office of Solid Waste (OSW) continues to direct its resources to address the greatest environmental and human
health risks. In this regard, the RCRA Program seeks to correlate the stringency of waste management and disposal
standards with the degree of risk posed by individual wastes. Regulatory improvements include more tailored and flexible
standards and reduced reporting burden on industry while still targeting priority sites. For example, the proposed combustion
rule will reduce amounts of priority contaminants, such as heavy metals and dioxins, that enter die air when hazardous wastes
are burned. Permitting and corrective action increasingly are risk-based. The permit program is developing streamlined
procedures for regulating lower risk facilities, and the corrective action program continues its strong commitment to
addressing highest risk releases first OSW also is working with states to develop comprehensive guidance on the proper
management of non-hazardous industrial solid wastes.
Research Program Description
The Agency's research objective seeks to reduce uncertainties in the risk analyses used in environmental management
decisions. In the RCRA Program, research was targeted at reducing uncertainties in exposure estimates and providing
technical assistance to regional and headquarters scientists.
The primary functions of Waste Risk characterization research are predicting the fate and transport of hazardous waste
constituents and estimating exposure. Special emphasis will be placed on providing technical support.
Enforcement and Compliance Assurance Program Description
In support to EPA's goals of reducing noncompliance in priority areas of the program, EPA continues its commitment
to maintaining a strong compliance monitoring and enforcement program with a particular emphasis on demonstrated
patterns of national noncompliance by particular companies or industrial sectors. EPA uses its audit and small business
policies to provide incentives to businesses to bring their facilities into compliance as well as supporting compliance
assistance activities to educate small businesses on achieving compliance.
In support of the Agency's goal to prevent waste and harmful chemical releases, EPA continues to use all available tools
to ensure that facilities managing hazardous waste and other hazardous chemicals (including hazardous waste combustion
and recycling facilities) are operated safely and in compliance with all applicable requirements. The enforcement and
compliance assurance program continues to use enforcement and compliance tools to ensure that federal, state, and locally
owned facilities mat store, treat, and/or dispose of hazardous wastes are in compliance with federal environmental laws. The
enforcement and compliance assurance program continues to work with states to enhance their inspection and enforcement
activities and to develop voluntary compliance programs. In addition, we will provide resources to tribal governments to
assist in building their capability to enforce solid waste regulations.
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EPA's FY 1998 Annual Financial Statements
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Highlights and Accomplishments
CEPPO
HAZARDOUS WASTE Obligations - FY 98
Total Obligations • $413.7 Million
Waste Mgt Regulations,
Guidelines & Policies
Financial Assistance
14.6%
26.3%
Mgt. Strategies
Implcnicntiition
30.0%
6.9%
Enforcement
16.7%
5.6%
Emergency Planniite/Commimity
Right to Know
Worked to Ensure Access to Chemical Risk Information
CEPPO has continued developing computer systems to
facilitate collection and provision of RMP information to the public.
"RMP*Info" is a central database of RMP information.
"RMP*Submit" is a user-friendly system designed for industry to
submit its RMPs. In FY 1998, the beta version of die RMP*
systems was available for review and comment Also, definitions
and design documents for RMP*Info and RMP*Submit were
completed. At the 1998 Hazardous Materials Spills Conference, the
prototype of the RMP*lnfo and RMP*Submit were demonstrated
along with RMP*Comp. RMP*Comp is an electronic tool used to
perform the off-site consequence analysis required under the Risk
Management Program rule.
Facilitated Implementation of RMPs by Industry
The RMP Implementation Workgroup continued its role of reviewing and commenting on tools currently available to
assist industry in developing RMPs and developing recommendations for additional tools needed to implement the RMP
program. In FY 1998, CEPPO, working with appropriate stakeholders, published and distributed RMP Implementation
Guidance to assist states implement the RMP program. CEPPO also completed over 100 outreach and technical assistance
workshops to states, LEPCs, and industry to assist mem in understanding and implementing die RMP program. As a result
of this and other CEPPO efforts with the states, a total of 15 states agreed to implement the RMP program. CEPPO also
worked with states and industry associations to developed industry guidance and five model RMPs to assist industry in
meeting Section 112(r) requirements. CEPPO also published and distributed a factsheet on Funding Sources for RMP
implementation.
Provided Information Resources to the Public
In FY 1998, CEPPO approved grants to 34 states to implement RMP programs and integrate preparedness and
prevention activities at the state and local level. CEPPO also is revising their web page to ensure that SERCs, LEPCs, and
other stakeholders have easy and continuous access to EPA's emergency planning and accident-risk information. CEPPO
also developed and posted on the web site, an RMP matrix to explain existing and planned tools. Additionally, CEPPO
provided hardcopies of emergency planning and accident risk information directly to those SERCs and LEPCs that do not
have access to the Internet. EPA distributed Computer Aided Management of Emergency Operations (CAMEO) to SERCs
and LEPCs, through a cooperative agreement with the George Washington University. CAMEO assists SERCs and LEPCs
to organize the information collected under community right-to-know regulations and coordinate activities. A survey of
CAMEO users found that 70% of die SERCs and LEPCs are using the system and find it very beneficial and efficient in
meeting their needs. The survey also determined that many of the non-users intend to implement CAMEO when they have
the proper hardware and training.
Established and Conducted EPAJOSHA Accident Investigation Activities
In FY 1998, CEPPO completed and issued four final chemical accident investigation reports: Napp; Pennzoil; PowelJ-
Duffryn; and Shell Surpass Chemical. In addition, CEPPO published and distributed chemical alerts for ammonium nitrate
and ammonia refrigeration based on information discovered from EPA/OSHA accident investigations.
EPA's FY 1998 Annual Financial Statements
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Also, in FY 1998, the Chemical Accident Investigation Board was established. Since that time, CEPFO has been
working closely with the Board to establish appropriate roles and responsibilities and exchange expertise and lessons
learned.
Prepared State and Local Governments for Counter-Terrorism
Recent legislation (Nunn-Lugar II) authorized the federal government to assist state and local governments to address
potential terrorist incidents that may involve weapons of mass destruction (i.e. nuclear, biological, and chemical). EPA,
through the leadership of CEPPO, has been recognized as one of the six federal agencies to design and implement this newly
created Counter-Terrorism program in the United States. Additionally, CEPPO and the Defense Department visited 21 cities
to determine their training needs to respond to such incidents and established a program to provide that training. These
federal agencies also provided training to 31 cities as well as completed chemical weapons table-top exercises in 30 cities,
chemical weapons functional exercises in five cities, and biological weapons table-top exercises in ten cities. CEPPO also
chairs and manages an Anti-Terrorism Strategy Workgroup, utilizing the Agency's National Incident Coordination Team,
which developed an Agency Anti-Terrorism Strategy and leveraged resources across Office of Solid Waste and Emergency
Response (OSWER) and the Agency to ensure the overall success of the program using existing agency emergency planning
and response structures (National Response System) for implementation.
VST
Assisting State UST Programs
The Office of Underground Storage Tanks (OUST) is working with states to ensure
that all owners and operators of USTs comply with EPA requirements as quickly as
possible. EPA's goal is to prevent and detect releases of petroleum products and certain
hazardous substances from USTs to the environment In order to achieve this goal, one
of EPA's objectives has been and will continue to be to ensure that UST
owners/operators comply with the requirements to close, upgrade, or replace older tanks
as of December 1998. As of the end of FY 1998, approximately 55% of UST systems
were equipped to meet EPA/State 1998 requirements for spill containment, overfill
prevention, and corrosion protection.
States have the primary responsibility for ensuring that UST facilities (except those
in Indian country) are brought into compliance. EPA provides several kinds of technical
and financial support to state UST programs. In FY 1998, OUST:
4 Provided more man 270,000 documents in both printed and electronic form to help educate UST owners and operators
(the OUST web site generated an average of 2,000 hits per month);
• Conducted UST inspection and enforcement initiatives jointly with states, and provided technical materials and training
programs to help state inspectors assess compliance with requirements for leak detection and corrosion protection;
4 Developed an EPA enforcement strategy and worked with states to develop state-specific enforcement plans;
• Worked with states to assess the validity of third-party evaluations of leak detection methods;
• Supported information exchange among states;
• Helped states explore and use alternatives to traditional inspection programs; and
* Provided financial support to states through UST state grants and supported improvements to state programs including
inspection and enforcement, data collection and management, and staff development and training.
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EPA's FY 1998 Annual Financial Statements
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EPA has been working with states over the past several years to reduce cleanups yet to be completed. The Agency
helped states streamline their corrective action processes; educated state staff about appropriate uses of innovative cleanup
technologies; and provided technical manuals, computer software, and other tools and training. In FY 1998, the Agency
continued its efforts to help states design and implement risk-based corrective action (RBC A) programs. As of October
1998, 14 states were implementing RBCA programs and 27 were designing such programs. For the 14 states that are
implementing RBCA programs, EPA's focus is to assist in the refinement and documentation of the corrective action
process, as well as to assist the states in streamlining their corrective action programs. EPA also is assisting the 27 states
in the design phase of their corrective action programs. A public-private partnership involving EPA, states, the American
Society for Testing and Materials, and six petroleum industry sponsors provides most of the training and implementation
assistance to states. The six companies have contributed significant financial and technical resources to the undertaking.
EPA is working with five states to establish RBCA performance measures. Pilot projects began in 1998. EPA and
these five states have established pre-RBCA baselines and RBCA performance measures. EPA will analyze each program
after one or two years to measure the extent to which RBCA improves their performance.
Helping UST Owners and Operators Comply with the 1998 Deadline
As of December 22,1998, USTs installed before December 22,1998 that do not comply with EPA technical standards
aimed at preventing releases must be upgraded, replaced, or closed. In 1998, the EPA Administrator confirmed that the
Agency would not extend this deadline.
Throughout FY 1998, OUST continued its efforts to educate UST owners and operators about the December 1998
deadline. OUST provided compliance assistance materials in response to requests, and conducted mass mailings to trade
associations that serve UST owners and operators. OUST also prepared letters from the OUST Director to state governors
as well as owners and operators to remind them of the 1998 deadline and to emphasize that it will not be extended.
In May 1998, EPA regions and states conducted inspections to confirm compliance with existing release detection
requirements, and to remind owners and operators about the 1998 requirements. In August 1998, EPA, after consultation
with the states, publicly issued its enforcement strategy for the 1998 deadline.
Indian Country
EPA has the primary responsibility for implementation of the UST program in Indian country. In FY 1998, EPA
regional offices continued to educate owners and operators about the UST requirements, conduct inspection and enforcement
activities, and maintain a database of information on USTs located in Indian country. OUST continued to use demonstration
grants under RCRA Section 8001 to help tribes develop the capability to administer UST programs.
RCRA
OSW works to achieve two of the Agency goals as outlined in the new Strategic Plan: better waste management and
pollution prevention. Measuring environmental progress achieved in the RCRA Program has been the primary focus of
OSW's strategic planning effort. OSW's FY 1998 accomplishments substantially advanced EPA's efforts to achieve these
two goals.
Targeting Risk
The corrective action program supports the waste management goal by cleaning up releases of waste from active
hazardous waste facilities, reducing current exposure risks to people and to the environment. In FY 1998, the program
continued to stabilize (prevent from further contamination) releases at high-priority sites. By the end of FY 1998,
stabilizations were implemented at 704 sites or units; human exposures were controlled at 290 sites or units; and
groundwater releases were controlled at 234 sites or units. Further, the corrective action program sponsored a substantial
number of RCRA's community-based environmental projects. Regulatory and policy efforts in FY 1998 centered on a final
EPA's FY 1998 Annual Financial Statements
Page 45
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Hazardous Waste Identification Rule for Media, a final Post Closure rule; and examination by EPA and stakeholders of ways
to streamline corrective action procedures.
OSW targets the control of contamination from hazardous and non-hazardous industrial waste management facilities
by defining the pollutants and the appropriate management and disposal standards. Furthering the goal of better waste
management means establishing standards based on multipathway risk assessment. Multipathway risk assessment considers
not only pollutants and their environmental and health impacts, but also the amount of the pollutants, risk of exposure, and
specific industry practices. OSW has been working with the Office of Research and Development (ORD) to develop a multi-
media/multiple pathway model to characterize human and ecological health risks of exposure to hazardous constituents. In
FY 1998, OSW and ORD completed die analytical strategy for the Hazardous Waste Identification Rule (HWIR) rulemaking
effort and initiated the multi-faceted peer review steps for the model and its application. The model is an integral part of the
HWIR, a major reinvention effort intended to exempt low-risk wastes from RCRA regulation.
The Air Characteristics Study is a new area of risk analysis for the RCRA Program, addressing the questions of whether
some industrial wastes should be classified as hazardous because of risks posed by their air emissions. Other efforts to
improve the Agency's understanding of risk include RCRA's portion of the initiative to improve the Integrated Risk
Information System (IRIS) database and an exploration of mercury treatment standards and alternatives to the Land Disposal
Restrictions (LDR) program.
Significant FY 1998 Rulemaldngs
In FY 1998, the RCRA Program promulgated several key environmentally protective rulemakiags, including the final
rule on the management of used oil and the completion of Phase IV of the LDR which addressed treatment standards for
newly identified toxicity characteristic metal wastes and formerly exempt mineral processing wastes. The Post Closure rule
will provide flexibility to EPA and authorized states by eliminating the requirement to obtain a permit for the post-closure
period and allowing the use of other available authorities to address post-closure needs.
Under the Hazardous Minimization and Combustion Strategy, EPA is working on two rulemakings that will address
hazardous waste combustion in incinerators, boilers, and industrial furnaces and also will address the risks posed by indirect
exposure to dioxins, furans, and toxic metals. To reduce burden on the regulated industry, both of these rules will be
promulgated under both the Clean Air Act and RCRA. In 1998, significant progress was made on the Phase I combustion
rule; this rule will be finalized in 1999. The proposed rule provides for public involvement and allows for extensions of the
compliance period to promote the use of cost-effective pollution prevention technologies. The proposal also exempted
waste-derived fuels from RCRA, an example of regulatory reinvention
OSW provided several Notices of Data Availability (NODAs) that provide public access to information and analysis
being used in ongoing development of regulatory alternatives. OSW also issued rules in 1998 addressing regulatory
alternatives under the definition of Solid Waste for the petroleum listings and for the primary metal processing industry. The
RCRA Program participated in a number of important Common Sense Initiatives hi support of EPA efforts to make
complying with environmental requirements a more holistic process for a particular industry or business. Examples of these
efforts include the successful completion of an agreement on Cathode Ray Tube recycling and the issuance of a proposed
rule on extended generator storage limits for metal-finishers who employ pollution prevention techniques.
Increased Safety. Flexibility. Efficiency
The RCRA Program is working to have approved controls in place at 95% of the hazardous waste facilities by 2005.
A total of 992 operating hazardous waste permits were issued by the end of September 1998 out of a universe of 1,480
operating facilities. OSW, EPA regions, and states are continuing to work together to enter additional activities and ensure
accuracy in these numbers. The pace of ongoing permitting efforts will be enhanced by improvements to the permit process.
In FY 1998, the focus was on the development of Standardized Permits, as recommended by the Permits Improvement Team,
as well as participation in Project XL proposals.
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For facilities that produce industrial non-hazardous waste, pollution controls will be based on voluntary guidance rather
than permits. OSW is writing the voluntary guidance in partnership with states, based on input from stakeholders including
industry, environmental groups, and tribes. In FY 1998, OSW also focused on individual chapters and development of a
CD-ROM that will be used as one of the electronic means of distribution, along with the Internet Electronic distribution
will allow industry easy access to the tools and reference materials associated with the guidance that will streamline
implementation. These voluntary guidelines are expected to be issued in FY 1999 and will address a range of issues,
including groundwater contamination, air emissions, and alternatives to waste disposal.
The Municipal Waste Landfill Permit Program is administered by the states, with a target of 100% of facilities having
approved controls in place by 2005. OSW also promulgated the Flexibility Rule for Small Municipal Solid Waste Landfills,
which will assist the states in implementing landfill controls. The majority of the Agency's efforts in the Municipal Solid
Waste Program, as well as some work under the Hazardous Waste Program, contribute to the pollution prevention goal and
center on source reduction and recycling. The RCRA Program continued its support for the Jobs Through Recycling
program, issuing $1.4 million in grants to regional and local organizations to build markets for reusables and recyclables.
The Waste Wise program continued its effort to build innovative voluntary partnerships to assist and encourage businesses
in taking cost-effective action to reduce solid waste. WasteWise successfully expanded in FY 1997 to include states and
local governments. Currently, WasteWise has over 800 partners plus an additional 60 endorser organizations which promote
the program to their members. In the program's fourth year, WasteWise partners prevented 816,000 tons of waste and
recycled nearly 6.9 million tons, in addition to saving many millions of dollars through their solid waste reduction efforts.
The Hazardous Waste Minimization Program saw a significant accomplishment in FY 1997 when the Waste
Minimization Prioritization Tool (WMPT) was made available for public and industry use. This software tool assists
interested businesses in ranking chemicals to establish priorities for waste minimization programs according to persistence,
bioaccumulation and toxicity. During FY 1998, OSW worked with EPA regions and states to provide technical assistance
in working with the WMPT. Encouraging and assisting voluntary waste minimization programs, as well as those established
as part of permitting, is the main vehicle for achieving the program's target of a 50% reduction in the most persistent,
bioaccumulative, and toxic chemicals in hazardous waste streams by 2005. A draft list of the RCRA Waste Minimization
Persistent, Bioaccumulative and Toxic (PET) Chemical List will be issued in early FY 1999.
The Waste Information Needs initiative is another major reinvention effort that seeks to streamline and screen the data
collected by the states and EPA for purposes of hazardous waste program management. In FY 1998, significant progress
was made on migrating two major databases (Resource Conservation and Recovery Information System [RCRIS] and
Biennial Reporting Systems [BRS]) from Focus to Oracle. The majority of this work was done in-house. Additionally, the
first program area under Waste Information Needs (WINyiNFORMED completed its data gathering and analysis. EPA will
issue the final report in the first quarter of FY 1999. This report will identify data elements needed for planning and
evaluation and will include recommendations for business process improvements. Other information management
accomplishments include redesigning the permitting program accomplishments report to make the report easier to read and
more useful, deciding to privatize the BRS implementer software, and developing a prototype of WEB software.
Research
Reducing Uncertainties Through Waste Risk Characterization Research
* EPA produced research results, models, and reports on innovative surface-based geophysical characterization
technologies for predicting location and migration of contaminants. These new technologies permit more rapid,
accurate, cost-effective characterizations and subsequent cleanups of waste sites.
* The Agency provides technical support to regional permit writers and risk assessors through the Combustion Technical
Assistance Center (CTAC).
* EPA's Hazardous Waste Identification Rule (HWER) research teams have developed a number of draft products,
including a research plan, assessment strategy, technology design document, modeling components (for an open
architectural, object-oriented, multimedia modeling system framework — FRAMES), and several volumes of the
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15-volume set describing die HWER-FRAMES Technology Software System. These products are intended to develop
a systems approach to modeling and data management in order to facilitate the consistent and scientifically credible
assessment of multimedia-based human and ecological exposure to chemical stressors.
Enforcement
Enforcement Performance Measures
The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed. The program
used the following performance measures for assessing their success in FY 1998:
Key Performance Measures
RCRA Inspections
RCRA Civil Referrals
RCRA APO Complaints
RCRA Compliance Orders
1998 Goal
1,1 00 Inspections
12 Case Referrals
64 APO Complaints
20 Compliance Orders
1998 Actual
2,659 Inspections
49 Case Referrals
155 APO Complaints
49 Compliance Orders
(Note: APO is Administrative Penalty Order.)
EPA will continue its commitment to maintaining a strong compliance and enforcement presence. In FY 1999, we will
conduct over 1,100 inspections, bring over 64 administrative penalty actions, and refer at least 12 actions to the Department
of Justice for filing in federal district court We also expect to issue at least 20 administrative orders designed to abate
conditions that may present an imminent and substantial endangerment to human health and the environment. In addition,
the Hazardous Waste Enforcement and Compliance Assurance Program will make significant contributions to the Agency's
goal of obtaining 75 self-disclosed violations from targeted programs and 330 overall voluntary disclosures.
Agency priorities for FY 1999 compliance assistance, monitoring and enforcement activities include facilities generating
hazardous waste in priority sectors and community-based areas, combustion/fuel blenders, volatile organic air emissions
from RCRA regulated facilities, and RCRA Subtitle I facilities (Underground Storage Tanks).
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SUPERFUND
EPA administers the Superfund Program under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA) as amended by the Superfund Amendments and Reauthorization Act, 1986 (SARA) and
the Omnibus Budget Reconciliation Act of 1990. The Office of Solid Waste and Emergency Response (OSWER) and the
Office of Enforcement and Compliance Assurance (OECA) provide primary management of the program. In this section,
Headquarters Superfund references will include OSWER and OECA unless otherwise noted.
Superfund Program Description
The Superfund Program was enacted on December 11,1980 to address public health and environmental threats from
spills of hazardous materials and from abandoned hazardous waste sites. It established a comprehensive program to identify
and clean up these spills and sites.
The law also created the "Hazardous Substance Response Trust Fund" known now as the Hazardous Substance
Superfund or Superfund. CERCLA is predicated on a "polluter pays" principle. As such, EPA works first to compel
potentially responsible parties (PRPs) to respond and conduct site cleanups. When this is not possible because an agreement
cannot be reached or because of an emergency, EPA may use the Trust Fund dollars to address and clean up hazardous waste
sites.
Cleaning up a Superfund site is often a multi-stage and multi-year process. In
fact, it takes seven to ten years after site discovery to start cleanup at the average
site. Superfund site cleanup includes site assessment, removal, remedial, and
enforcement activities. Prior to placing a site on the National Priorities List (NPL),
EPA conducts a preliminary assessment of the site. This is the beginning of the site
assessment phase of site cleanup. Where warranted, this is followed by a site
investigation. The conclusion of mis phase of site cleanup could be a removal
action to stabilize the site and/or listing the site on the NPL.
Removal actions are a critical phase of addressing and cleaning up sites. They
are conducted at NPL and at non-NPL sites. Since 1980, EPA has started more than
3,600 short-term removal actions at 3,167 non-NPL sites (238 actions at 191
non-NPL sites in FY 1998 alone, excluding federal facilities). These short-term responses address an immediate threat
posed by the uncontrolled release of a hazardous substance, such as from a newly discovered dump, transportation accident,
or fire.
Early actions also are a part of the overall removal action phase of site cleanup. Early actions are similar to removals
but are usually non-time critical and can be performed under removal or remedial program authority. An example of an
early action is implementing interim controls to contain/stabilize a plume of contamination in groundwater.
Sites that require a long-term, permanent cleanup remedy become part of the remedial action pipeline and enter the
remedial phase of cleanup. These sites represent circumstances where the risk to human health and the environment also
warrants placing the site on the NPL. Once a site is listed on the NPL, EPA works with responsible parties, the community,
and other stakeholders around the site to plan the long-term cleanup with a detailed study of the site and an evaluation of
cleanup options. The planning process can take up to four years with an average cost of S1.4 million per site.
The actual cleanup (construction) work itself averages between $12 and $13 million per site. Because of tho high cost
of construction and limited Superfund resources, EPA's Superfund Enforcement and compliance assurance program
emphasizes compelling PRPs to conduct a majority of the cleanup actions and to reimburse the federal government for
cleanup actions financed by the Trust Fund. PRPs currently fund approximately 72% of new remedial actions at NPL sites.
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While Superfund responsibilities cannot be delegated, at some sites the state or local government or Indian tribe takes
the lead in managing the site cleanup. At other sites, the state or local agency cooperates with EPA on handling a site
cleanup.
Superfund Federal Facilities Program Description
Across the country-, thousands of federal facilities are contaminated with hazardous waste, unexploded ordnance,
radioactive waste, fuels and a variety of other toxic contaminants. These facilities include many different types of sites, such
as abandoned mines, nuclear weapons production plants, fuel distribution areas, and landfills. The Superfund Federal
Facilities Response Program is responsible for providing oversight of Superfund environmental restoration work at federal
facilities on the NPL. At the end of FY 1998, there were 162 proposed and final federal facility NFL sites.
Brownfields Program Description
Through its Brownfields Program, EPA's Outreach and Special Projects Staff (OSPS) promotes cleanup and
redevelopment of abandoned and contaminated industrial and commercial properties (Brownfields). Across the country
Brownfields sites plague virtually every community in the Nation. The Administration believes strongly that environmental
protection and economic progress are inextricably linked, and has designed a comprehensive program based on community
empowerment and strong partnerships among all stakeholders.
The initial Brownfields Action Agenda outlined four key areas for returning Brownfields to productive reuse:
1) awarding Brownfields Assessment Demonstration Pilots,
2) building partnerships and expanding outreach,
3) clarifying liability and cleanup issues, and
4) fostering local workforce development and job training initiatives.
In addition to these four key areas, EPA's new Action Agenda for FY 1998 and FY 1999 continues to focus on
partnerships between EPA and fifteen other federal agencies. These partnerships are designed to leverage resources from
nonprofit and private organizations, and eliminate duplicative efforts at the local level. EPA has established partnerships
with nonprofit groups, such as the Trust for Public Land and the U.S. Conference of Mayors, and with private organizations,
such as the Heinz Endowments and the James T. Irvine Foundation. These partnerships will further identify, strengthen, and
improve the commitments EPA and its colleagues can make to Brownfields communities across the country. Sixteen
Showcase Communities were selected to serve as models of Brownfields success as a result of these partnerships in FY
1998. In addition, 11 job training pilots were selected to enhance workforce development in Brownfields communities.
Research Program Description
Improved assessments of the potential threats to human health posed by each waste site is a goal prescribed by
Superfund. Superfund research attempts to improve our understanding of the underlying science of exposure, risk
assessment, and remediation. Risk management techniques are utilized to focus on the remediation of both surface and
subsurface contaminated soils, sludge, sediments, and groundwater.
The focus of Waste Management and Site Remediation research is groundwater treatment, bioremediation, and the
Superfund Innovative Technology Evaluation (SITE) Program. These efforts involve fundamental research to understand
the processes that influence soil and groundwater contaminants, the initiation of development and testing of new remediation
methods, and process evaluation research to evaluate the cost-effectiveness of full-scale remediation technologies.
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Enforcement and Compliance Assurance Program Description
The Superfund Enforcement and Compliance Assurance Program seeks to maximize PEP participation in conducting
and/or funding response actions while working to assure fair treatment for all PRPs. PRPs are financing approximately 72%
of new remedial actions at NPL sites, thereby conserving the Superfund Trust Fund for sites at which there are no liable,
viable responsible parties.
Nationally, the Superfund Enforcement and Compliance Assurance Program is implementing a series of reforms to
improve Superfund by increasing enforcement fairness and reducing transaction costs. These reforms include compensating
settlors for a portion of the orphan share at a site; reducing PRP oversight, where appropriate; settling with small volume
contributors of waste; and using special accounts which ensure that settlement funds will be dedicated to specific sites.
Highlights and Accomplishments
Financial Perspective
At the end of FY 1998, the Trust Fund reflected an
unappropriated balance of $2.1 billion. In FY 1998, Congress
appropriated $1.5 billion for the Superfund Program. Superfund
Response Program disbursements through FY 1998 total $16 billion.
Parties responsible for contaminating Superfund NPL sites are
conducting and paving for more of the cleanup work at their sites,
reserving the Trust Fund resources for those sites where parties are
unable to contribute. Approximately 72% of new remedial actions
are now financed by PRPs. The Agency's goal is to maintain or
increase that level of
participation.
Supeifnnd Obligations
by Location - FY 15)98
74.5%
\
17.0%
8.6%
HQ-AdO&m
SUPERFUND Obligations - FY 98
Total Direct Obligations - $15 Billion
Hazardous Substance Response
73.0%.
3.8%
R&D
5.6%
Hazardous Substance Response -
Interagency
. 8.9%
Management
8.7% & Support
Enforcement
Much of the operational responsibility for direct Superfund activities resides in
the EPA Regions. The chart depicts FY 1998 obligations broken out by Regions,
Headquarters (HQ)-OSWER, and HQ-A11 Others.
The line chart depicts Superfund financial trends from FY 1993 through FY
1998. The appropriation line reflects new obligational authority only and does not
include prior year carryover of
appropriations. Appropriations
for Superfund, as specified in the
Millions of S
appropriating language, are No-
Year Appropriations which are available for obligation without fiscal year
limitation. They remain available until expended, rescinded, or otherwise
withdrawn. In FY 1998, EPA processed almost $1.5 billion in direct
obligations (against appropriated funds) and $72 million in reimbursable
obligations.
Superfund
As part of measuring the impact of site cleanup efforts, EPA
established Environmental Indicators for the Superfund Program to
document its progress in protecting people and the environment. These
indicators serve to describe the condition of the environment before,
during and after cleanup. There are three indicators: A, B, and C. Indicator A, Populations Protected, measures the
program's efforts to protect people and the environment from immediate threats. The indicator measures the number of sites
Superfund Financial Trends
FY94
FY96
FY98
FY95
FY97
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and people served by the following actions at NPL and non-NPL sites: site security, populations relocated, alternate water
supplied, and immediate actions (removals). Indicator B, Progress Toward Cleanup, measures the program's incremental
progress to clean up sites and to address persistent threats. The indicator measures sites where cleanup goals as listed in
the ROD have been fully, or partially achieved; sites with direct contact threats addressed; and possible site candidates for
partial deletions. Indicator C, Cleanup Technologies Applied, measures the program's efforts to apply appropriate or
innovative treatment and containment technologies to clean up sites. The indicator measures the following at NPL and non-
NPL sites technology counts, organized by treatment and containment, and volumes of wastes handled as a result of using
these technologies. By combining the level of goal attainment with the volume of waste handled, the public can achieve a
better sense on the extent of work that needs to be done to make diem safe from pollution at the site.
These Environmental Indicators show mat in FY 1998 EPA continued making progress in hazardous waste cleanup.
Data gathered through June 1998 shows that Superfund continues to fulfill its environmental mission and is gradually
reducing the risks to human and ecological health posed by dangerous chemicals in the air, soil, and water.
Through 1991, cleanup systems had been constructed and completed at a total of 61 Superfund NPL sites. By the end
of FY 1998, more man nine times that number, 568 non-federal facility sites, have been completed. There were 84
non-federal facility construction completions in FY 1998. In addition, assessment and cleanup is now underway at 663 sites
on the NPL.
The Superfund Program addresses both immediate threats to populations living near hazardous waste sites as well as
long-term cleanup actions at these sites. To address immediate threats, short-term (removal) actions often are taken to
control critical situations and ensure die safety of communities until long-term (remedial) actions can remove or permanently
clean up hazardous contamination. The critical actions that Superfund takes to protect public health are:
• Emergency removals of contaminated materials or media;
• Permanent and temporary alternative drinking water supplies;
• Permanent and temporary population relocation;
• Institutional controls (deed restrictions, restrictions on fishing); and
• Site security (including fences and guards) to restrict access to the site.
The Superfund Program has conducted response actions (remedial or removal) at 3,019 non-NPL sites to ensure the
safety of the surrounding community from critical emergencies caused by hazardous waste. Since inception of the Superfund
Program in 1980, EPA has achieved all cleanup goals for all media (groundwater, soil, surface water, etc) at 179 sites. In
addition, the Agency has* achieved all cleanup goals for at least one medium at 165 sites. Sites where all cleanup goals for
all media have been achieved are candidates for deletion from the NPL. At some sites, remediation of specific media is fully
completed before cleanup for die entire site is finished. When a medium at a site requires no further cleanup activity, the
site is a candidate for partial deletion.
Through June 1998, the Superfund Program has supplied over 350,000 people at NPL and non-NPL sites with
alternative water supplies in order to protect them from contaminated groundwater and surface water. Over 14,300 people
at NPL and non-NPL sites have been relocated in instances where contamination posed the most severe immediate threats.
To prohibit certain types of land uses at sites, institutional controls such as deed and fishing restrictions, have been
implemented at over 800 NPL sites. Site security measures, such as fencing and guards, to restrict access have been
implemented at over 560 NPL sites.
Through June 1998, the Superfund program has cleaned over 132 million cubic yards of hazardous soil, solid
waste, and sediment and over 341 billion gallons of hazardous waste liquid-based waste, groundwater, and surface water.
Each year the program has increased the total number of Superfund sites that had their cleanup goals met through
remediation activities. In the last seven years, the total number of NPL sites achieving all cleanup goals for at least one area
of contamination has more than tripled. A great deal has been learned about the nature and extent of contamination, the risk
to human health and the environment, and die technologies necessary to reduce the risks. Widi further development of
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initiatives such as innovative technologies and presumptive remedies, the Superfund Program can make even greater strides
in meeting the challenges of the future.
The direct beneficiaries of Superfund cleanups are those people living in the vicinity of the cleanup sites. Indirect
beneficiaries include those living further from the sites who might suffer degradation of their groundwater, drinking water,
or air if these programs did not alleviate the risk of contamination before it became more widespread. Early action to contain
impacted areas also lessens the potential liability of parties responsible for the contamination.
During FY 1998, the Superfund Program spent approximately $6.5 million to respond to ongoing efforts to address
methyl paramion misuse. This supplements past expenditures of $65 million spent in FY 1997 in Mississippi and Louisiana,
and $19.1 million spent for the Lorain County, OH, and Detroit, MI, responses during FY 1994/95. EPA does not anticipate
spending any resources on remediation in FY 1999. EPA is planning outreach and communication programs with pesticide
applicators, the agricultural community, and residential and small business communities. For 1999, EPA is requesting $1
million for EPA regions to implement a multimedia initiative focusing on these issues. The regions will enlist the
cooperation of manufacturers, distributors, producers, and state certification officials.
The Superfund Program is working to ensure the most efficient, most protective response within limited resources. EPA
continued its effort to protect human health and the environment through both the second and third rounds of Administrative
Reforms. There were many noteworthy Administrative Reform achievements in FY 1998 which include:
I) archiving over 30,900 CERCLIS sites;
2) issuing notices of intent to delete clean parcels at one site and deleting clean parcels at 11 sites;
3) establishing Community Advisory Groups (CAGs) at 43 sites;
4) publishing CAG Guidance/Reference sheet in English and Spanish;
5) issuing final guidance on implementing the risk sharing initiative;
6) signing Memorandum of Agreement (MOA) for State/EPA cooperation with 11 states under the Voluntary Cleanup
Program;
7) signing agreements with 12 states under the Integrated Federal/State/Tribal Site Management Program;
8) issuing annual progress report for the National Remedy Review Board;
9) issuing Technical Approach to Risk Assessment for planning, reporting, and reviewing risk assessments;
10) issuing final guidance on lead regulator for federal facilities;
11) conducting ongoing public outreach and mediation training; and
12) issuing final report documenting obstacles in awarding and utilizing Superfund resources for the State/Tribal
Superfund Block Funding. Class regulatory deviations have been requested to fully implement this reform. Twelve
pilots are underway.
The successes realized throughout Superfund during FY 1998 place the Agency in a uniquely positive position to achieve
and expand Superfund accomplishments in FY 1999.
To meet die requirements of the Government Performance and Results Act (GPRA) of 1993, the Superfund Program
established 11 goals to assess performance in its major program areas: response, enforcement, federal facilities, and
Brownfields redevelopment. The goals will enable the program to align planning, budgeting, and accountability functions
for better management for environmental outcomes.
Performance Measures
Under the Superfund Response Program's sub-objective Respond to Superfund Hazardous Waste Sites, by 2005, EPA
and its state, tribal, and federal partners will reduce the risks that Superfund sites pose to public health and the environment
by: completing construction at a total of 1.200 NPL sites; conducting 2,400 additional removal actions; determining if
Superfund cleanup is needed at 85% of the sites entered into the Superfund site data base (CERCLIS); maximizing PRP
participation in conducting/funding response actions; and meeting statutory deadlines for federal facility activities. EPA will
collaborate with states and Indian tribes to enhance the federal, state, and tribal Superfund program, reduce overlap among
the programs, and leverage public and private resources to promote cost-effective, efficient cleanups of Superfund sites.
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Under this sub-objective, three key performance measures were developed which are measurable and quantifiable. The
performance measures are:
• Site Assessment The number of final Superfund site assessment decisions to: place a site on the NPL; defer a site to
another federal program, state, or tribe for action under their legal authority; take no further remedial action at a site
based on current information; or aggregate a site into an existing NPL site. In FY 1998, the Superfund Response
program made 471 site assessment decisions.
* Removal: The number of removal response action starts per year. In FY 1998, die Superfund Response program
conducted 286 removal response actions.
• Construction Completions: The number of construction completions per year (this represents all program
accomplishments, including federal facilities). In FY 1998, the Superfund Response Program achieved 87 construction
completions for a total of 585.
The purpose of this section of the financial statements is to relate program performance to Trust Fund expenditures.
Since the funds used to clean up federal facility sites do not come from the Trust Fund, accomplishments attributable to
EPA's Federal Facilities Program have been excluded from this section.
OSWER has used the following five performance measures for assessing the success of the Superfund Program during
FY 1998.
Cleanup: For site cleanup we measure not only the completion stage but also the critical steps in the cleanup process.
Because the cleanup process can take a number of years, it is important to look at die "pipeline" of activities to get an
accurate sense of progress. Note that in Cleanup/Response Measures 1-5, the cumulative totals reflect current information
and methodology refinements and may not reconcile with previous annual reports. Pan of this difference in comparing
cumulative totals is attributable to the conversion of a site from Fund-lead to state-lead and the point in time when that
conversion is captured in the state and Agency systems.
Cleanup/Response Measure 1: Number of non-federal sites on the NPL where EPA has started the first
cleanup or investigation compared to the total number of non-federal sites on the NPL.
Activities captured under this measure are short-term removal actions and the remedial investigation/feasibility study
which assesses the nature and extent of contamination at die site and analyzes cleanup alternatives so that a remedy can be
selected.
Results: In FY 1998, EPA started the first cleanup or investigation at nine sites. Cumulative performance to date is
1,181 cleanups or investigations begun compared to 1,265 non-federal NPL sites.
The number of cleanups started to decline in FY 1991, relative to earlier years, as the Superfund Program's emphasis
shifted to the later stages of die cleanup effort needed to complete work at a site. Also, cleanup has begun at nearly all sites
on the NPL. The remaining sites have been evaluated for immediate threat, even though cleanup action has not yet begun.
Cleanup/Response Measure 2: The number of non-NPL sites with hazardous releases where EPA has begun
a cleanup action.
Sites with confirmed hazardous releases, which do not score high enough to be included on the NPL or where an
emergency exists, are eligible for a short-term Superfund removal action if they meet certain regulatory criteria. This
measure counts the number of sites where EPA has started a removal action.
Results: In FY 1998, EPA began cleanup actions at 191 non-NPL sites, bringing the total number of sites addressed
through such actions since program inception to 3,167 non-NPL sites.
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Cleanup/Response Measure 3: The number of non-federal sites on the NPL where EPA made a decision about
how to proceed with the cleanup of at least a significant portion of the site compared to the total number of non-
federal sites on the NPL.
Activities counted under this measure include the documentation of how to proceed with the remedial action — the
signing of a Record of Decision (ROD) — or the documentation of the selection and authorization of a removal — an Action
Memorandum. The ROD identifies die remedy that has been chosen for remediating the site (or a portion of die site) and
summarizes the site problems, die alternative remedies considered, and the public's involvement in die decision. The Action
Memorandum substantiates the need for removal action, identifies the proposed action, and explains the rationale for die
particular type of removal action selected.
Results: EPA made cleanup decisions for 26 sites in FY1998, resulting in a total to date of 1,049 sites of the 1,265
non-federal sites on the NPL
Cleanup/Response Measure 4: Number of non-federal sites on the NPL where EPA completed remedial action
for at least a significant portion of the site compared to the total number of non-federal sites on the NPL.
This measure counts those NPL sites (or portions thereof) which have progressed through die remedial action phase.
At this stage, die construction work to implement the remedy is complete, and EPA has conducted a final inspection to
determine that the remedy is functioning properly and performing as designed.
As indicated above, a site may have more than one remedial action.
Results: In FY 1998, 32 sites (or significant portions thereof) progressed through the Remedial Action cleanup
phase. This brings the total number of such sites to 502 of the 1,265 non-federal sites on the NPL.
Cleanup/Response Measure 5: The number of non-federal sites on the NPL where cleanup construction is
completed compared to the total number of non-federal sites on the NPL.
This measure counts die sites for which EPA has declared cleanup construction complete. Sites qualify for construction
completion when:
• any necessary physical construction is complete whether or not final cleanup levels or other requirements have been
achieved,
• EPA determines that the response action does not involve construction, or
• the site qualifies for deletion from the NPL.
Additional clarification on die definition of site cleanup is described in die Federal Register, March 2,1993.
Results: During FY 1998, EPA completed cleanup at 84 non-federal facility sites. The continuing cumulative
increases in completions reflect management's increasing focus on completions, the maturing of sites already in the
pipeline, and the streamlining of documentation requirements. Cumulative results for the program to date are 568 sites
with cleanup construction completed of the 1,265 non-federal sites on the NPL
OECA has used the following five enforcement/cost recovery performance measures for assessing the success of die
Superfund Enforcement and compliance assurance program during FY 1998.
Enforcement; In FY 1998,EPA's enforcement and compliance assurance program continued seeking settlement with
those parties potentially responsible for contaminating Superfund sites and pursuing recovery of monies EPA expended from
die Trust Fund.
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Under the Enforcement Program's sub-objective, EPA will continue to maximize the participation of potentially
responsible parties in conducting/funding response actions at Superfund sites while promoting fairness during the
enforcement process. Based on the urgency of the situation and/or the capabilities of the PRPs, EPA will optimize PRP
removals. More than 70% of die long-term cleanup actions are now financed by PRPs, and EPA's goal is to maintain or
increase that level of participation. EPA will do this through orphan share compensation, de minimis settlements, cash-out,
mixed funding, mixed work, alternative dispute resolution, ability-to-pay settlements, PRP oversight, and interest bearing
special accounts where applicable. At sites where EPA decides to issue unilateral administrative orders (UAOs), EPA will
issue, or document non-issuance of UAOs, to 100 percent of non-settling parties (except UAOs for time critical or
emergency removal actions). In addition, EPA will address cost recovery at 100 percent of all NPL and non-NPL sites with
total past costs equal to or greater than $200,000 which need to be addressed prior to the expiration of the Statute of
Limitations (SOL). Under this subobjective die following performance measures were developed which are measurable and
quantifiable:
4 Maintain 70% PRP participation in the long-term cleanup actions: In FY1998, approximately 72% of new remedial
action starts at NPL sites were initiated by potentially responsible parties.
4 Orphan Share Offers: In FY 1998, EPA made offers at all eligible RD/RA and removal sites.
4 De Mimmis Setdements: In FY 1998, EPA negotiated 34 de minimis setdements to resolve the potential liability of
over 2,200 small parties.
4 Cost Recovery: Address cost recovery at all SOL sites with total past costs > S2QOK. In FY 1998, EPA addressed all
of die FY 1998 SOL cases (where past costs exceeded $200,000) prior to die expiration of the SOL.
4 Prospective Purchaser Agreement Requests Assessed: EPA signed 24 Prospective Purchaser Agreements in FY 1998.
The Superfund Enforcement Program used the following five enforcement/cost recovery performance measures for
assessing die success of the program during FY 1998.
Cleanup/Enforcement Measure 1: The number of enforcement actions taken at NPL sites to have PRPs
conduct or participate in response activities compared to the total number of sites on the NPL. The percentage and
estimated value of PRP commitments to response activities at non-federal facility sites on the NPL.
This measure counts the number of legal actions taken to involve PRPs in site study and cleanup at NPL sites (including
proposed sites). This measure includes all administrative and judicial setdements, judicial actions, and administrative orders
for removals, site studies, and remedial design and remedial actions (RD/RA). It includes those instances where parties have
voluntarily entered into a settlement, as well as those instances where unilateral enforcement order authority was used to
compel PRPs to conduct work and die PRPs have agreed to comply widi die order.
Results: During FY 1998,110 enforcement actions for site study and cleanup were taken at 88 sites on the NPL 63
of these actions were settlements for RD/RA (37 consent decrees referred to the Department of Justice (DOJ) and 26
unilateral administrative orders in compliance).
Since the inception of the Superfund Program, PRPs have committed to conduct site response at 856 sites (68%) of
the 1,265 non-federal facility sites on the NPL, with an estimated cumulative value of over $11.6 billion. In FY 1998,
PRPs committed to conduct response work at 88 (7%) of the 1,265NPL sites, with an estimated value of approximately
$694 million.
Cleanup/Enforcement Measure 2: The total value of cost recovery settlements and judicial actions achieved.
This measure provides me amount of cost recovery mat has been achieved to date. A number of factors limit EPA's
ability to recover its past costs. The first limitation is that EPA only can recover money diat has been spent. A significant
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portion of EPA's budget is obligations for future years. These funds will be eligible for cost recovery after they are actually
expended EPA's ability to recover money that has been spent is also limited. A number of factors, including bankruptcy
of PRPs, other litigation concerns, die inability to identify financially viable PRPs, and the exclusion of certain indirect costs
make 100% cost recovery not realistic.
Results: Through FT 1998, EPA has achieved settlement for approximately $2.4 billion with $230 million of this
amount achieved in FY1998 and is seeking an additional $1.8 billion in ongoing cost recovery actions.
EPA has been very effective in addressing past costs for Statute of Limitation (SOL) cases at sites where the past costs
exceeded $200,000. The SOL requires EPA to address cases by certain dates. EPA addresses these cases by negotiating
a settlement, referring the case to DOJ for trial, or writing the case off when no financially viable PRP can be found. In
FY 1998, the number of cost recovery cases addressed was 194 with a total value of $378 million. EPA addressed all of
the FY 1998 SOL cases (where past costs exceeded $200,000) prior to the expiration of the SOL
Cleanup/Enforcement Measure 3: The amount of money EPA has collected from PRPs compared to the total
amount achieved in cost recovery settlements and judicial actions.
This compares the total value of cost recoveries, penalties, and damages collected to-date to the total amount of cost
recoveries achieved through settlements and judicial actions.
There is frequently a delay between the date the settlement is reached (the day cost recovery is considered to be
achieved) and the date the funds are collected. Delays are not uncommon because of the time required to file the necessary
documents with the courts, and because in some cases settlement payments are received in installments. As a result,
settlements may be reached in one fiscal year, and the settlement payment collected in a later fiscal year.
Results: In FY 1998, the Agency collected approximately $320 million in cost recovery and reached settlements for
the recovery of $230 million. Since the inception of the program, the Agency has collected approximately $2.1 billion
in cost recoveries. This represents approximately 87% of the total value of cost recovery settlements (approximately $2.4
billion) reached by the program to-date.
Cleanup/Enforcement Measure 4: The estimated amount of money PRPs have committed legally to site
cleanup compared to the total amount of funds obligated by the Superfund Enforcement and Compliance
Assurance Program.
This measure compares die estimated dollar value of cleanups PRPs have agreed to perform at NPL and non-NPL sites
to the enforcement obligations EPA has incurred achieving settlements. The estimate of the value of PRP work to be
performed is derived from sources such as the Record of Decision, the Remedial Design, enforcement settlement document
(i.e., Administrative Order on Consent [AOC], Unilateral Administrative Order [UAO]), or other relevant source (i.e.,
Action Memorandum, Engineering and Evaluation Cost Analysis). The estimate of PRP work to be performed is then
compared to the amount of funds obligated from the Trust Fund for enforcement activities. This provides an order-of-
magnitude contrast between EPA and DOJ enforcement obligations versus the estimated value of private party settlements
for site response (recognizing that the actual outlay of funds by PRPs may take place over several years). The resulting ratio
is a measure of enforcement effectiveness.
Results: In FY 1998, the Agency reached settlements with PRPs valued at over $1 billion ($806 million in response
settlements and $230 million in cost recovery settlements) for NPL and non-NPL sites. EPA's FY 1998 enforcement
obligations (including DOJ obligations) were $173.5 million. The resulting ratio of approximately 6 to I indicates that
PRPs have committed approximately $6 for every dollar obligated for Superfund enforcement. This ratio varies from year
to year for a variety of reasons, such as the number and/or value of the settlements completed in a given year.
Over the life of the Superfund Program, the Agency reached settlements with an estimated value of $15.5 billion
($13.1 billion in response settlements and $2.4 billion in cost recovery settlements) for NPL and non-NPL sites. EPA's
EPA's FY 1998 Annual Financial Statements
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enforcement obligations over this period were approximately $2.3 billion. The resulting ratio of approximately 7 to L
indicates that PRPs have committed $7 for every dollar obligated for Superfund enforcement.
Cleanup/Enforcement Measure 5: The number of de_ minimis settlements, potential value of these settlements,
and the estimated number of settlors.
EPA continues to seek enforcement fairness by entering into de minimis settlements with PRPs who have contributed
only a very small amount of waste to a site. EPA may consider parties who have contributed only a small amount of waste
to a site to be de minimis parties if their contribution of waste is minimal compared to the other waste at the site. In
recognition of their relatively small contribution of waste, and to help ensure that these de_ minimis parties do not get drawn
into lengthy and expensive private party lawsuits, EPA may offer a special type of settlement to these parties known as a de
minimis settlement Although the amount a de minimis settlor may pay varies from site to site, in general, the amount paid
in the settlement is a combination of a basic payment (based on cleanup costs and waste contribution by the de minimis party)
and a premium payment
This measure counts the total number of administrative and judicial settlements reached with PRPs that qualify as de
minimis settlors under Section 122(g) of SARA. This measure also counts the potential value of these settlements and the
estimated number of settlors.
Results: In FY1998, the Agency achieved 34 de minimis settlements valued at approximately $60 million with over
2,200 de minimis settlors at 26 sties. Through FY 1998, the Agency achieved over 400 de_ minimis settlements with over
18,000 seniors.
Superfund Federal Faculties
In FY 1998, mere were 162 NPL federal facilities. The program started 31 Remedial Investigation and Feasibility
Studies, signed 81 Records of Decision, started 60 Remedial Actions, completed 68 Remedial Actions, started 47 Removals,
and completed 46 Removals. By the end of FY 1998,17 federal facilities achieved site construction completions.
Brownfields
Brownfields Pilots are Encouraging Redevelopment Through Site Assessment
The Brownfields Assessment Demonstration Pilots form a major component of the Brownfields Action Agenda. EPA
increased the number of site assessment pilots to a total of 227 at the end of FY 1998. Grantees may use up to $200,000
for site characterization, site assessment, and site inventory work. These activities help communities determine if a property
is contaminated and the extent of the contamination.
Brownfields Revolving Loan Fund Pilots Boost Cleanup
The Brownfields Revolving Loan Fund (BRLF) Pilots enable eligible states, cities, towns, counties, territories, and
Indian tribes to capitalize revolving loan funds to safely cleanup and sustainably reuse Brownfields. In FY 1997, EPA
awarded 23 demonstration pilots to Brownfields site assessment demonstration pilot "graduates." In FY 1998, EPA was
restricted from signing cooperative agreements to capitalize BRLFs. This restriction has been lifted for FY 1999.
Brownfields National Partnership Leverages Resources
4 The Brownfields National Partnership represents a $300 million investment in Brownfields communities including more
than 100 commitments from more than 15 federal agencies. This Partnership will help communities cleanup and
redevelop up to 5,000 properties by leveraging $5 billion in public funds to attract $28 billion in private investment.
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• The Centerpiece of die Brownfields National Partnership was the selection of 16 Brownfields Showcase Communities
in FY1998. Showcase Communities serve as national models to demonstrate successful public-private partnerships
in support of the Brownfields Program.
• Federal resources include additional Brownfields pilots from EPA; redevelopment funds from Housing and Urban
Development (HUD) and Economic Development Administration (EDA); job training efforts by Labor, Health and
Human Services (HHS), Education, and Veterans Affairs.
Supported Department of Treasury's Efforts on Brownfields Tax Incentive
This three-year tax incentive plan will reduce the cost of cleaning up thousands of contaminated, abandoned sites in
economically distressed areas. It is anticipated that this SI.5 billion tax incentive will leverage more than $6 billion in
privately funded cleanups at an estimated 14,000 Brownfields sites.
Local Job Training Efforts Support Brownfields Pilot Communities
Through its cooperative agreement with EPA, the Hazardous Materials Training Institute conducted workshops on how
to implement environmental training programs in over 20 community colleges located near Brownfields pilot sites as of the
end of FY 1997. These workshops enable local communities to participate in the cleanup process. In FY 1998, EPA
selected 11 job training pilots which are designed to enhance workforce development in Brownfields communities.
Released Draft Voluntary Cleanup Guidance
To encourage partnerships with states and tribes, EPA issues draft guidance to promote state voluntary cleanup
programs. The draft guidance sets out baseline criteria that EPA will use to evaluate state voluntary cleanup programs. In
FY 1998, EPA funded cooperative agreements with approximately 45 states to support new and existing state voluntary
cleanup programs.
Sponsored Sixth Annual EPA Teachers Institute at Morgan State University
Experts taught over 40 teachers from across the U.S. how to be effective community advocates. These teachers live
or teach near contaminated property in minority or disadvantaged neighborhoods, representing over 20 Superfund and
Brownfields sites.
Building Tribal Capacity
In FY 1998, EPA funded a cooperative agreement with die Tribal Association on Solid Waste and Emergency
Response. The Association uses the funds to build tribal capacity and assist tribes in establishing and managing their
environmental programs. Furthermore, EPA continued to provide technical and financial assistance to the four tribal
integrated waste pilots, and selected six tribal applications for Brownfields assessments.
Brownfields Success Stories
In Emeryville, CA, S644 million in private investment has been leveraged so far, while 10,600 jobs are expected to be
created over the next five years. Local tax coffers have increased by S6.4 million as a result of their Brownfields Pilot and
other public and private activities.
Dallas, TX, enjoys new prosperity, thanks in part to its Brownfields efforts. Private investment has increased $43.5
million through $8.4 million leveraged by the public sector. Tax base improvements reflect a $32 million increase, with
163 jobs created so far and 700 jobs total anticipated. Sports figure Larry Johnson donated SI million to create a youth
activity center on a Brownfields site in his old neighborhood.
EPA's FY 1998 Annual Financial Statements
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Bridgeport, CT, a community devastated by high unemployment and a lack of economic vitality, is turning itself around
with the help of its EPA Brownfields demonstration pilot and other state and federal agencies. At this very early stage in
its cleanup and redevelopment process, Bridgeport has already attracted $15 million in private investment and SI33 million
in public investment This investment has created 400 jobs and led to a S250 thousand increase in the tax base.
Research
Improving Science Through Waste Management and Site Remediation Research
• EPA completed the SITE Annual Report and submitted it to Congress in September 1998. This report is required in
the SARA legislation, which authorizes the SITE Program.
• The Agency and it;; external research partners completed a draft project report that covers performance aspects of
RCRA-compliant waste containment facilities, focusing on hydraulic containment, physical stability, and long-term
performance, and will be published under EPA title in 1999.
Reducing Uncertainties Throueh Waste/Site/Risk Characterization Research
• The Agency developed research results and reports on how to evaluate the toxicological properties of complex mixtures
of contaminants, along with an upgrade of the Exposure Factors Handbook. These references will provide up-to-date
scientific data on key characteristics of potentially exposed populations.
• EPA produced research results on innovative geophysical characterization technologies for determining subsurface
structure and location of contaminants, especially non-aqueous phase liquids (NAPLs). These new technologies permit
more rapid and cost-effective characterizations and subsequent cleanups of Superfund and other hazardous waste sites.
Enforcement
Parties responsible for contaminating Superfund sites continue to conduct and pay the cost of cleanup, preserving the
Trust Fund monies for those sites where parties are unable to contribute. While implementing previous Administrative
Reforms, EPA continues to improve the Superfund Enforcement and Compliance Assurance Program.
Policy for Municipality and Municipal Solid Waste CERCLA Settlements at NPL Co-Disposal Sites
(Februarys, 1998)
This document states EPA's continued policy of not generally identifying generators and transporters of municipal solid
waste (MSW) as potentially responsible parties at NPL sites. In recognition of the strong public interest in reducing
contribution litigation, however, the policy identifies a settlement methodology for MSW generators and transporters who
seek to resolve with the U.S. their CERCLA liability, thereby protecting themselves from third party litigation. In addition,
the MSW policy identifies a presumptive settlement range for municipal owners and operators of co-disposal sites on the
NPL who desire to settle their Superfund liability. This policy is intended to reduce transaction costs, including those
associated with third party litigation, and to encourage global settlements at sites.
Memorandum of Understanding among the Environmental Protection Agency. United States Coast Guard.
Department of Commerce. Department of the Interior. Department of Agriculture. Department of Defense.
Department of Energy, and Department of Justice Concerning the Exercise of Authority under Section 106
of the Comprehensive Environmental Response. Compensation, and Liability Act (February 10, 1998)
In addition to EPA and the Coast Guard, other federal agencies have significant responsibilities and substantial programs
for responding, or requiring others to respond, to releases and threatened releases of hazardous substances. Such agencies
include the Departments of Agriculture, Commerce, Defense, Energy, and Interior ("Federal Resource Managers"). The
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Federal Resource Managers have been delegated the authority under Section 106 of CERCLA to issue administrative orders
or seek judicial relief with respect to a release or threatened release of a hazardous substance affecting either natural
resources under a Federal Resource Manager's trusteeship, or a vessel or facility subject to the Federal Resource Manager's
jurisdiction, custody, or control Federal Resource Managers are required to obtain EPA or the Coast Guard's concurrence
before each use of Section 106 authority. Federal Resource Managers also are prohibited from using this authority at any
vessel or facility where EPA or the Coast Guard is the lead federal agency for the conduct or oversight of a response action.
This Memorandum of Understanding is intended to ensure that the signatories exercise their authority in a cooperative and
integrated fashion, and in a manner to ensure interagency coordination that enhances efficiency and effectiveness.
Fact Sheet: Using Supplemental Environmental Projects to Facilitate Brownfields Redevelopment (Issued
September 1998)
In April 1998, EPA issued the final "Supplemental Environmental Projects (SEPs) Policy." In that policy, EPA
encourages the use of SEPs in the settlement of environmental enforcement actions. In September EPA issued a fact sheet,
entitled "Using Supplemental Environmental Projects to Facilitate Brownfields Redevelopment," to address specifically the
use of SEPs at Brownfields. The fact sheet explains how the legal requirements identified in the SEP Policy relate to SEPs
performed at Brownfields, and describes the two categories of SEPs that are appropriate for use at Brownfields:
environmental quality assessments and environmental restoration. The fact sheet includes an analysis of two hypothetical
projects submitted for Brownfield sites.
Guidance on Administrative Response Cost Settlements under Section 122 (h) of CERCLA and
Administrative Cashout Settlements with Peripheral Parties under Section 122 (h) of CERCLA and
Attorney General Authority (March 24, 1998)
EPA and the Department of Justice (DOJ) jointly issued the CERCLA §122(h) guidance and five model settlement
documents. The guidance announces a new type of expedited "cashout" settlement for "peripheral parties." Peripheral
parties are those parties who, although not technically de minimis or de micromis, are not the focus of CERCLA enforcement
activities. They include ability to pay parties, parties for whom unresolved CERCLA liability is an "extreme burden," and
other parties as defined on a case-by-case basis. For qualifying "peripheral parties," a "cashout" settlement that resolves
the settlor's liability at the site is possible under the terms outlined in the guidance. The guidance and model agreements
offer the possibility of increasing the efficacy and consistency of CERCLA administrative settlements nationally.
Guidance for Implementing Superfund Reform Initiative 9a: Risk Sharing (March 24, 1998)
Estimates of the eventual cost of cleaning up the Nation's hazardous waste sites highlight the need to support the
development of more cost-effective cleanup technologies. PRPs are sometimes reluctant to implement new technologies
due to concerns about having to "pay twice" if the innovative approach fails to achieve the required levels of cleanup. As
part of the Superfund Reform Initiatives, EPA's guidance identifies a program designed to share the risk of using selected
innovative technologies. The purposes of this initiative are: 1) to encourage the demonstration and use of innovative
technologies with the potential to lower costs and/or improve performance at a particular site and at other Superfund sites,
and to document these early applications to assist future selection of response actions; 2} to support developers of promising
technologies, especially small businesses, by enhancing contracting opportunities with PRPs; and 3) to encourage PRPs to
assume a more active role in the development of new technologies for site remediation.
Superfund Oversight Billing
Under Superfund, the Agency is required to monitor the cleanup of hazardous waste sites by responsible parties. Any
oversight costs incurred by the Agency are recoverable from the responsible parties. In FY 1998, the Agency made billing
of oversight a priority. EPA implemented actions to improve the management and timeliness of oversight billings and to
become current in oversight billings by the end of the fiscal year. The Office of Site Remediation Enforcement (OSRE) and
the Office of the Comptroller (OC) developed a methodology to resolve this issue and to improve oversight billing efficiency.
EPA's FY 1998 Annual Financial Statements
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OIL SPILLS
EPA's CHI Program is administered by me Office of Solid Waste and Emergency Response (OSWER) and uses the Oil
Spill Liability Trust Fund (OSLTF) to finance the cost of cleaning up spills and damages in cases where die responsible party
cannot or will not pay for the cleanup. OSWER's Office of Emergency and Remedial Response (OERR) provides assistance
to Regional On-Scene Coordinators during oil spill incidents and for implementation of the Oil Program. Support for
enforcement activities is provided by EPA's Office of Enforcement and Compliance Assurance (OECA).
Oil Program Description
The goal of the Oil Program, which is authorized by the Clean Water Act (CWA) and has been in effect for over twenty
years, is to protect public health and the environment from hazards associated with a discharge or substantial threat of a
discharge of oil or hazardous substances into navigable waters, adjoining shorelines, and exclusive economic zones of the
United States. The program was strengthened fay the Oil Pollution Act of 1990 (OPA) which was passed in response to
increasing frequency and severity of accidental oil discharges into the environment, such as the Ashland Tank Collapse and
the Exxon- Valdez spill.
Under the CWA and OPA, EPA protects inland waterways through oil spill
prevention, preparedness, response, and enforcement activities associated with about
450,000 non-transportation-related oil storage facilities. These facilities, which
range from hospitals and apartment complexes storing heating oil to large tank farms,
include any oil storage facility wim a single aboveground storage tank larger than 660
gallons, total aboveground storage capacity greater than 1,320 gallons, or
underground storage greater than 42,000 gallons.
The Oil Program establishes requirements to prevent and prepare for spills at
oil storage facilities subject to its regulations, and respond to all spills to inland
waterways. EPA has established the regulatory framework under which it will
proceed with its OPA-mandated responsibilities. This framework includes the Oil
and Hazardous Substances National Contingency Plan (40 CFR Part 300); the Oil Pollution Prevention regulation or Spill
Prevention, Control and Countermeasures (SPCC) regulation (40 CFR Pan 112); and the Facility Response Plan (FRP)
regulation.
All regulated oil storage facilities must prepare SPCC plans. In addition, certain high-risk oil storage facilities must
prepare Facility Response Plans (FRPs) to identify and ensure the availability of resources to respond to a worst case
discharge, establish communications, identify an individual with authority to implement removal actions, and describe
training and testing drills at the facility. In the event of a spill the National Contingency Plan (NCP) is the Nation's blueprint
for the federal response to releases of oil and hazardous substances. Both the revised NCP and FRP regulations were
published in the Federal Register in mid-summer 1994.
The OPA also requires area committees (comprised of state, local and federal officials) to develop Area Contingency
Plans (ACPs). These plans detail the responsibilities of those parties involved in planning the response process, describe
unique geographical features of the area covered, and identify available response equipment and its location.
Current Oil Program prevention efforts focus on continued implementation of SPCC regulations. Preparedness efforts
focus on periodic review of FRPs and on development of ACPs. Response efforts include monitoring or responding to all
spills within the inland waterways.
Headquarters efforts include strengthening the response infrastructure and policy and program guidance development
for preventing harmful releases of oil and other petroleum products; improving nationwide capability to respond to threats
of discharge of oil or other petroleum products; improving nationwide capability for containment and removal of releases
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EPA's FY 1998 Annual Financial Statements
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that occur in navigable waters; coordinating with other federal agencies on Facility Response Plan (FRP) requirements,
review, and approval; minimizing the resulting environmental damage from releases; and fully utilizing enforcement authority
to compel responsible parties to clean up spills, provide a strong economic incentive to invest in preventive measures, and
comply with regulations.
In addition, Headquarters supports field operations through operational guidance, technical bulletins, and demonstrations
of new technologies. Headquarters also supports the OPA-mandated FRP process, chiefly through the development of
approval criteria for the responsible parties.
A major component of the regions' work is monitoring, directing, or performing oil spill cleanups. In addition to
responding to oil spills, the EPA regions conduct oil storage facility inspections to ensure compliance with the SPCC
regulations. EPA inspects hundreds of these facilities each year, including site visits and/or plan reviews. EPA regions also
conduct periodic equipment inspections and unannounced area drills. The regions take administrative actions against facility
operators for failure to comply with SPCC and FRP requirements, and refer a limited number of actions for judicial action.
Administrative and judicial actions also are brought as a result of oil and hazardous substance spills. EPA regions also assist
the Federal Emergency Management Agency (FEMA) at major disasters and participate in response training of state and
local staff.
The beneficiaries of the Oil Pollution Prevention Program are those people living in the vicinity of confirmed spills when
cleanup actions are taken either by EPA, state or local responders, or the responsible party (RP). People living near
regulated facilities benefit from the increased safety measures incorporated into the FRPs which quicken response time for
spills and lessen the resulting environmental damage done by a spill.
Research Program Description
For the Agency's Oil Spill Prevention and Response Program, the Office of Research and Development conducts
research on new approaches to cleaning up oil spills. As a member of the International Coordinating Committee on Oil Spill
Research, as mandated by OPA, the Agency has primary responsibility for research on the use of bioremediation to remediate
spilled oil, the use of dispersarits and other chemical agents, mechanical cleanup on fast flowing streams, and debris disposal.
Bioremediation is the primary focus. The goal of this research program is to provide the federal on-scene coordinators with
the technical information they require to allow diem to make decisions on the best cleanup procedure to be used on any given
spill. Additionally, the information produced is required by EPA to periodically revise the NCP and its annexes.
Enforcement and Compliance Assurance Program Description
The Oil Spills Enforcement and Compliance Assurance Program's primary focus is petroleum storage facilities that fail
to comply with oil pollution SPCC regulations and facility response plan requirements as well as those facilities which had
a spill of oil or hazardous materials. The Agency's enforcement and compliance assurance program provides national
guidance and direction in implementing enforcement, regulations, and strategies for civil, administrative, and criminal
enforcement responses, including cost recovery and inspection issues; spill prevention penalty policies, and enforcement
and compliance agreements with the U.S. Coast Guard. The program brings civil judicial enforcement case referrals and
administrative actions against faculties for failure to comply with oil pollution SPCC regulations and with FRP regulations.
The program also provides assistance to help facilities comply with these regulations.
The enforcement and compliance assurance program will continue to maintain a strong presence. Since this is a
federally run program, EPA will emphasize enforcement of the SPCC regulations and will work with the regions to
streamline processes, where possible, for taking enforcement actions. In addition, EPA will develop an enforcement
management system for CWA Section 311 violations. This system will set out the appropriate enforcement actions and
timeframes. This infrastructure improvement will make this program more consistent with the other programs under the
CWA.
EPA's FY 1998 Annual Financial Statements
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Highlights and Accomplishments
Financial Perspective
Since the beginning of the Oil Spill Trust Fund's existence
through FY 1998, Congress has appropriated a total of S125.2
million to the Agency. In FY 1998, EPA received a budget authority
of S15 million to implement the Oil Pollution Prevention Program.
In FY 1998, the Agency processed $16.4 million in direct
obligations (against appropriated funds) and $25.4 million in
reimbursable obligations for oil spill response activities and $16
million in net disbursements.
Performance Measures
OIL SPILLS RESPONSE Obligations - FY 98
Total Direct Obligations - 516.4 Million
Environmental Emergency
Resp. & Prevention
79.0%
R&D
7.5%
Support
3.8% Services
9.7%
Enforcement
Since last year, EPA has introduced a new Oil Program
measure, "Facilities Brought Into Compliance", to reflect more
accurately program accomplishments as required by the Government Performance and Results Act (GPRA).
Measure 1: FRP Reviews, SPCC Inspections, and Facilities Brought into Compliance
To ensure continued compliance with the OP A and consistency with the FRP regulation, EPA will continue to review
FRPs on a periodic basis. This typically includes review of written plans, evaluation of response resources, communication
with facilities, and site visits, leading to an overall evaluation of plan adequacy and facility preparedness. To ensure
compliance with the prevention portions of the SPCC regulation, EPA conducts inspections of SPCC-regulated facilities
each year. This typically includes review of written SPCC plans, interviews of facility personnel, and inspection of facilities
and equipment on site.
Facilitites brought into Compliance is a new measure, this is a transition year, but it will include verification of SPCC
compliance by the facility as a result of the EPA interaction either through enforcement action or compliance assistance and
outreach.
Results: About 150 facilities received FRP approval in FY 1998, and a few additional facilities were identified or
received approval since then. In FY 1998, EPA conducted about 750 reviews of Facility Response Plans. EPA regulates
about 450,000 facilities under the SPCC regulation. In FY 1998, EPA inspected about 1,060 SPCC-regulated facilities.
Over 300 facilities were brought into compliance in FY 1998.
Measure 2: Oil Spill Cleanups and On-Scene Monitoring of Potentially Responsible Party (PRP) Lead
Cleanups.
This measure counts the number of oil spills cleaned up by EPA using OPA funds and the number of times EPA
monitors cleanup actions done by state or local responders, or the RP. EPA monitors a cleanup when another party such
as a state or local government, or the RP responds to the spill to ensure adequate cleanup takes place.
Results: 127 oil spills cleanups were started in FY 1998 using OPA funds. EPA monitored 165 responsible-party
oil spill cleanups in FY 1998. Since program inception through FY 1998, 418 oil spills have been cleaned up using OPA
funds. For that same period, EPA monitored 1,487 responsible-party cleanups.
Measure 3: Administrative Actions and Judicial Penalty Enforcement Actions for spill violations and
prevention regulation violations.
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EPA's FY 1998 Annual Financial Statements
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This measure counts the number of administrative and judicial enforcement actions resulting from prohibited spills and
violations of the regulations of the CWA as amended by OP A, These two actions account for a significant portion of the
resources used in the Oil Program and indicate significant achievements in compliance. An administrative complaint is
counted on the date it is issued to the respondent A judicial case is counted on the date of the referral letter/cover memo
to the Department of Justice (DOT).
Results: 84 administrative cases were filed and 16 judicial enforcement actions were referred to the DOJ in FY1998.
Improving Science Through Waste Management and Site Remediation Research
The Agency continued efforts on the evaluation of screening tests for oil spill chemical countermeasures, including
dispersant agents. This was used towards improving the protocols, thereby assuring better oil spill response decisions.
EPA's FY 1998 Annual Financial Statements
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LEAKING UNDERGROUND STORAGE TANK
Subtitle I of die Resource Conservation and Recovery Act of 1984 (RCRA) established a State-EPA program to
prevent, detect, and clean up leaks from underground storage tanks (USTs). EPA estimates
that there are about 900,000 regulated USTs buried at about 300,000 sites nationwide.
Regulated USTs contain petroleum products (except heating oil for on-premise consumption)
or potentially hazardous substances. Leaking underground storage tanks (LUSTs) can cause
contamination of soil and groundwater, endangering human health and the environment.
LUSTs may also ignite or explode.
In 19S6, to support LUST cleanup programs, Congress established the LUST Trust
Fund, financed by a 0.1 cent tax on each gallon of motor fuel sold in the U.S. Taxing
authority for the Trust Fund expired December 31, 1995, but Congress reinstated it on
October 1,1997, with a new expiration date of March 31,2005. As of the end of FY 1998,
the Trust Fund had accumulated about $1.8 billion in taxes and interest (on unappropriated
funds). Congress establishes the amount of the Fund that EPA may use by issuing annual
and supplemental appropriations. Through FY 1998, the Congress appropriated $730.8
million to EPA, 87% of which was provided to the states. At the end of FY 1998, the Trust
Fund reflected a balance of $1.2 billion, a portion of which is available for future
Congressional appropriation.
LUST Program Description
EPA supports state programs through cooperative agreements funded by the LUST Trust Fund. States use LUST Trust
Fund dollars largely to administer their corrective action programs, oversee cleanups by responsible parties, and undertake
necessary enforcement actions. States also may use the Trust Fund money to pay for cleanups in cases where a responsible
party cannot be found or is unwilling or unable to pay fora cleanup. Such cases have accounted for less than 1 % of all LUST
releases.
Research Program Description
Research to support the LUST Program is authorized under Subtitle I of the Hazardous and Solid Waste Amendments
of 1984, as amended by the Superfund Amendments and Reauthorization Act of 1996. The Office of Research and
Development conducts research on new approaches for leak detection and remediation at LUST sites. This includes
identifying information needed on the subsurface environment, released petroleum products therein, and how the information
can be used to select appropriate corrective action technologies. Technical support is provided to the Office of Underground
Storage Tanks, EPA regions, state and local agencies, and practicing professionals implementing the LUST Program. This
effort includes providing scientific expertise on low-cost approaches for the assessment of site contamination and evaluation
of remedial technologies.
Enforcement and Compliance Assurance Program Description
The LUST Enforcement and Compliance Assurance Program continues to target responsible parties to finance or
conduct corrective actions. Agency staff provides assistance to state personnel to enhance voluntary compliance with
corrective actions and financial responsibility requirements.
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Highlights and Accomplishments
Financial Perspective
LUST Obligations - FY 98
Total Obligations - $65 Million
Guidelines & Implementation
95.4%
R&D
1.0%
li0.7%Enfolt*'
12 g% mart
Management
& Support
In FY 1998, EPA obligated approximately $65 million to
implement the LUST Program. The Office of Solid Waste and
Emergency Response (OSWER) supported the LUST Program by
obligating $62.1 million, while approximately $2.9 million was
obligated by non-OSWER offices in Headquarters and the Regions.
Responsible parties conducted nearly all of the cleanups with state
oversight
Protecting Human Health and the Environment Through
Cleanups
Under the supervision of state or local agencies (or EPA in
Indian country), UST owners and operators undertake nearly all
corrective action. EPA's performance goal for the LUST cleanup
program is to ensure that UST releases are detected and cleaned up promptly and cost effectively to protect human health
and the environment
Progress in the LUST Program is measured by comparing the number of cleanups initiated and cleanups completed to
the number of confirmed releases. Cumulatively, through FY 1998, there were 371,387 confirmed releases; 314,965
cleanups initiated; and 203,247 cleanups completed.
For FY 1998, EPA's performance goals were to initiate 24,000 cleanups and complete 20,000 cleanups. During FY
1998, 29,614 LUST releases were confirmed; 22,519 cleanups were initiated; and 24,950 cleanups were completed.
Indian Country
Through FY 1998, the cumulative total of LUST activity on Indian lands came to 1,024 confirmed releases, 767
cleanups initiated, and 427 cleanups completed. EPA anticipates that it will take several more years to clean up all known
and undiscovered releases in Indian country. In collaboration with tribes, EPA is developing a risk-based corrective action
(RBCA) process for LUST sites in Indian country.
Improving Science Through Waste Management and Site Remediation Research
EPA provided recommendations on improvements to the risk-based corrective action (RBCA) approach to remediation
option selection. These recommendations helped to insure optimal application of available LUST corrective action
remediation alternatives.
EPA's FY 1998 Annual Financial Statements
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PESTICIDES
Hie Agency's Pesticides Program was established pursuant to the Federal Insecticide, Fungicide and Rodenticide Act
(FERRA) to protect public health and the environment. The law requires the Agency to balance public health and
environmental concerns with the expected economic benefits derived from pesticides. The guiding principles of the
Pesticides Program are to reduce risks from pesticides in food, the workplace, and other exposure pathways and to prevent
pollution by encouraging me use of new and safer pesticides.
In accordance with FTFRA and the Federal Food, Drug and Cosmetic Act (FFDCA), the Pesticides Program administers
me Revolving Fund for Certification and Other Services (Tolerance Fund) and the Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund).
Tolerance Program Description
As part of its authority to regulate pesticides, EPA is responsible for setting "tolerances." If the pesticide is being
considered for use on a food or feed crop or as a food or feed additive, the applicant must petition EPA for establishment
of a tolerance (or exemption from a tolerance) under authority of the FFDCA. A tolerance is the maximum legal limit of a
pesticide residue on food commodities and animal feed. Tolerances are set at levels that ensure that the public is protected
from health risks posed by eating foods mat have been treated with pesticides in accordance with label directions.
In 1954, Congress authorized the collection of fees for the establishment of tolerances for raw agricultural commodities
(Section 408 of FFDCA). Congress, however, did not authorize the collection of fees for food additive tolerances (Section
409 of FFDCA). EPA, therefore, does not collect fees for food additive tolerances. The Agency also does not collect fees
for Agency-initiated actions such as the revocation of tolerances for previously canceled pesticides. Fees collected for
tolerances for raw agricultural commodities were deposited to the U.S. Treasury General Fund until 1963 when Congress
established the Tolerance Fund Specific fees are contained in 40 CFR 180.33 and range from $3,725 to $65,600 depending
on the type of tolerance action requested. Waivers and/or refunds are granted for minor use pesticides submitted under die
Inter-Regional Research Project Number 4 (IR-4 Program), public interest, such as reduced-risk pesticides, and economic
hardship. The fee schedule is changed annually by the same percentage as the percent change in the federal General
Schedule (GS) pay scale. Fees were increased 2.45% in 1998.
In 1996, the Agency supported pesticide reform legislation which included provisions for additional fees to support
reregistration activities. Passage of the Food Quality Protection Act (FQPA) of 1996 requires tolerances to be reassessed
as part of the reregistration program. Effective January 1997, all fees related to tolerance activities are deposited in the
FIFRA Fund.
Pesticide Reregistration Program Description
As part of its authority to regulate pesticides, EPA is responsible for re-registering existing pesticides. The FIFRA
legislation, requiring the registration of pesticide products, was originally passed in 1947. Since then, health and
environmental standards have become more stringent and scientific analysis techniques are much more precise and
sophisticated. In the 1988 amendments to FIFRA (FIFRA '88), Congress mandated the accelerated reregistration of all
products registered prior to November 1,1984. The amendments established a statutory goal of completing reregistration
eligibility decisions by 1997. The legislation allows for various time extensions which can extend the deadline by three years
or more. The current goal for the completion of reregistration is 2002.
Congress authorized the collection of two kinds o; fees to supplement appropriated funds for the program: an annual
maintenance fee and a one-time reregistration fee. Maintenance fees are assessed on registrants of pesticide products and
are structured to collect approximately $14 million per year. Reregistration fees are assessed on the manufacturers of the
active ingredients in pesticide products and are based on the manufacturer's share of the market for the active ingredient.
In fiscal years 1992 through 1998, approximately 14% of maintenance fees collected, up to 52 million each year, were used
Page 68 EPA's FY 1998 Annual Financial Statements
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for the expedited processing of old chemical and amended registration applications. Fees are deposited to the HFRA
Revolving Fund. By statute, excess monies in the F1FRA Fund may be invested. Waivers and/or refunds are granted for
minor use pesticides, antimicrobial pesticides, and small businesses.
In 1996, the Agency supported pesticide reform legislation which included provisions for additional fees to support
reregistration activities. Passage of the FQPA of 1996 implements the following changes in the Pesticide Reregistration
Program: reauthorizes collection of fees through 2001 to complete the review of older pesticides to ensure they meet current
standards (increases annual fees from $14 million to $16 million per year for 1998, 1999, and 2000 only); requires
tolerances to be reassessed as part of the reregistration program. Tolerance fees received will be deposited and reported hi
die FIFRA Fund.
The reregistration process is being conducted through reviews of groupings of similar active ingredients called cases.
There are five major phases of reregistration:
• Phase 1 - Listing of Active Ingredients. EPA publishes lists of active ingredients and asks registrants whether they
intend to seek reregistration. Completed in FY 1989.
• Phase 2 - Declaration of Intent and Identification of Studies. Registrants notify EPA if they intend to reregister and
identify missing studies. Completed in FY 1990.
• Phase 3-Summarization of Studies. Registrants submit required existing studies. Completed in FY 1991.
• Phase 4 - EPA Review and Data Call-ins (DCIs). EPA reviews the studies, identifies and "calls-in" missing studies by
issuing a DO. A "DCI" is a request to a pesticide registrant for scientific data to assist the Agency in determining the
pesticide's eligibility for reregistration. Completed in FY 1994.
• Phase 5 - Reregistration Decisions. EPA reviews all studies and issues a Reregistration Eligibility Decision (RED) for
the active ingredient(s). A "RED" is a decision by die Agency defining whether uses of a pesticide active ingredient
are eligible or ineligible for reregistration. The registrant complies with die RED by submitting product specific data
and new labels. EPA reregisters or cancels die product. Pesticide products are re-registered, based on a RED, when
it meets all label requirements. This normally takes 14 to 20 months after issuance of die RED.
Research Program Description
Pesticides research focused on providing scientifically valid, cost effective methods for evaluating risks associated with
pesticide use, manufacture, and release into the environment These research efforts included studying the effects of
environmental stressors on human health and ecosystems, measuring the exposure of children to pesticides, elucidating the
mechanisms of neurotoxicity, and assessing the immunotoxicity and reproductive toxicity risks presented by pesticides. The
information developed from application of these methods will significantly improve our understanding of die extent of human
exposure to specific pesticides. The Agency will incorporate these methods into its battery of testing guidelines under which
industry will be required to submit data to the Agency on pesticides as regulated under FIFRA. In addition, efforts included
research on agricultural and residential exposure and effects, with particular emphasis on research in support of the
Children's Agenda, which included efforts to assess children's risk from exposure to pesticides and other toxins, and
research on the special susceptibilities of infants and children from exposure to pesticides. The products of these research
efforts are intended to support human and environmental risk assessments.
Enforcement and Compliance Assurance Program Description
The Pesticides Enforcement and Compliance Assurance Program focuses on problems relating to urban pesticide
misuse, ineffective antimicrobial products, food safety, adverse effects, and pesticide worker safety protection. The
enforcement and compliance assurance program provides compliance assistance to the regulated community through
EPA's FY 1998 Annual Financial Statements
Page 69
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seminars, guidance documents, brochures, and other forms of communication to ensure knowledge of and compliance with
environmental laws.
EPA's grant support to states' pesticides programs emphasizes pesticide worker protection standards, high risk pesticide
activities including antimicrobials, pesticide misuse in urban areas, and the misapplication of structural pesticides. In FT
1998, states continued to conduct compliance monitoring inspections on core pesticides requirements.
EPA will continue its commitment to maintaining a strong compliance and enforcement presence. Agency priorities
for FY1999 and FY 2000 include enforcement for products making illegal public health claims, including unregistered and
ineffective products, such as ineffective hospital disinfectants; enforcement of worker protection standards, including
inspecting and enforcing against misuse violations and labeling requirements violations; and continued focus on urban
pesticides control and enforcement.
Highlights and Accomplishments
PESTICIDES Obligations - FY 98
Total Obligations - $262.1 Million
Generic Chemical Review
47.0%
24.6%
Registration. Special
Registration, & Toku-aaos
Tolerance Performance Measures
Tolerance fees collected in FY 1998 were approximately $1.6
million and obligations were $2.5 million.
Measure: Tolerance re-evaluations.
Results: In FY 1998, EPA set 258 tolerances and exemptions
from tolerance. Of these, 240 were for conventional pesticides, 16
were for biopesticides, and 2 were for antimicrobial pesticides. In
FY 1998, 1,646 tolerances were re-evaluated, of which 821 were
revoked, 486 reassessed as part of reregistration, and 339
reassessed for registration actions.1 FQPA requires that EPA
reassess within ten years over 9,700 tolerances to ensure that the
tolerances meet the federal safety standard of a reasonable
certainty of no harm, hi developing the reassessment schedule, EPA is placing a priority on pesticides that appear to pose
the greatest potential risk to the public (these include organophosphate, carbamates, probable and possible human
carcinogens, organochhrine pesticides, and high-hazard inert ingredients).
ReregistrationJFIFRA) Financial Perspective
During FY 1998, the Agency's obligations charged against the FIFRA Fund for the cost of the reregistration and
expedited processing programs were almost $18.2 million and 202 workyears. Of these amounts, the Office of Pesticide
Programs obligated $16.8 million of this cost and funded the 202 workyears.
Appropriated funds are used in addition to FIFRA revolving funds. In FY 1998, approximately $19.1 million in
appropriated funds were obligated for reregistration and expedited processing program activities. The unobligated balance
in the Fund at the end of FY 1998 was $15.5 million. This is a decrease of $500,000 compared to the FY 1997 year-end
balance of $ 16 million
The Fund has two types of receipts: fee collections and interest earned on investments. Of the $17.2 million in FY 1998
receipts, approximately 96% were fee collections. The fee collections are slightly more in FY 1998 compared to FY 1997.
1 A tolerance is considered scientifically reassessed and counted the day a RED or other decision document is
signed, and in most cases when there is a revocation, the day the final rule is signed. A final FR notice to implement
698 of the 821 tolerance revocations was published in FY 1999 (October 26, 1998).
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EPA's FY 1998 Annual Financial Statements
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Rereeistration Program (FIFRA) Performance Measures
The following measures support die program's strategic goals of Food Safety and Safer Pesticides as contained in the
FY 1998 President's budget
Measure 1: Number of Reregistration Eligibility Documents (REDs) completed.
Results: The number of Reregistration Eligibility Decisions (REDs) completed was 13, a decrease of 10 from FY
1997 when 23 were completed. This decrease is the result of adapting the reregistration and tolerance reassessment
process to the more stringent requirements realized with the passing of the FQPA. There are approximately 382 chemical
cases (representing 3,822 chemicals), of which 184 REDs have been completed.
Measure 2: Number of products reregistered, canceled, or amended. Approximately 19,000 products are
subject to reregistration. Many products, however, contain more than one active ingredient Since products are
reassessed separately for each active ingredient, EPA will conduct approximately 38,000 product reviews.
Results: FY 1998, 221 products were reregistered2,53 were amended and 337 were cancelled. The combined 611
decisions were achieved versus a target of 750. In addition, 135 products were forwarded to the EPA Office of Compliance
Monitoring for suspension. The cumulative totals at the end of FY 1998 were 2,020 products cancelled3, 109 products
amended, and 1,152 products reregistered.
Reducing Exposure through Human Health Protection Research
• EPA completed analysis of data from the National Human Activity Patterns Survey (NHAPS). NHAPS addresses a vital
human exposure research need by providing comprehensive activity and location information on a national level. In
addition to providing robust data, NHAPS will be especially valuable to exposure modelers who previously had to rely
on assumed exposure scenarios rather than on distributions of reported data.
• EPA completed the National Human Exposure Assessment Survey (NHEXAS)
pilot scale multipathway studies. These studies measured human exposures to
multiple chemicals, and human exposures from multiple pathways and media, for
representative population samples. These studies provide unique information on
die ranges of actual exposures in the general population for use as benchmarks for
site-specific investigations and for health risk assessments.
* The Agency completed a peer-reviewed protocol for the Agricultural Health Study.
A series of statistical design analyses were performed and a draft revised protocol
was developed for internal review. From this study, farmer-applicators will be
selected for exposure measurements and to determine the most significant exposure factors resulting from pesticides
handling and application practices. Spouse and child biomarker measurements will be performed to measure the extent
to which these practices result in exposure to applicator family members.
Product reregistrations include federally registered products and special local needs registrations issued by
states pursuant to Section 24(c) of FIFRA.
o
A product cancellation is reported as a reregistration decision when a voluntary cancellation request is
received, when the annual maintenance fee is not paid, or when a notice of intent to cancel due to unreasonable adverse
effects is issued. In the case of a voluntary cancellation request, the process of finalizing the cancellation required by
Section 6(f) of FIFRA may take about six months after receipt of the request to complete.
EPA's FY 1998 Annual Financial Statements
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• EPA assembled children's activity pattern data for incorporation into the first generation exposure model. The
Consolidated Human Activity Database (CHAD) provides consistent, comprehensive, and quality-assured activity data,
facilitating assessments by providing more than 17,000 person-days of activity to modelers in an easy-to-use format This
data will be used to support the effort to reduce the risks to children1 s health caused by exposure to environmental toxics.
* EPA continued to develop and evaluate biologically based dose response (BBDR) models to describe the underlying
mechanisms of toxirity and to facilitate extrapolation from animal studies. These models will foster improved estimation
of human risks from exposure to compounds such as methanol, dibromochloromethane, arsenic, acrylamide, and dioxin.
• The Agency's research on biomarkers resulted in the validation of the use of single strand DNA breaks as a marker for
oxidant exposure, use of mutation spectra from short-term tests for common mechanisms, development of markers of
toxicity for use in low dose effects, and development of a consistent approach for measuring cholinesterase.
Development of biomarkers provides validation of exposure and also provides for a more biologically defensible
approach to quantifying risk of cancer and non-cancer health effects.
Pesticides Enforcement Performance Measures
The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed. In FY 1998,
EPA Headquarters issued 14 administrative penalty complaints for HFRA violations, including several for violations of
labeling for making false public health claims. The program used the following performance measures for assessing then-
success in FY 1998:
Kev Performance Measures
FIFRA APO Complaints
FTFRA Inspections
FIFRA Civil Referrals
FIFRA Compliance Orders
1998 Goal
80 APO Complaints
125 Inspections
3 Case Referrals
10 Compliance Orders
1998 Actual
187 APO Complaints
237 Inspections
4 Case Referrals
18 Compliance Orders
(Note: APO is Administrative Penalty Order.)
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EPA's FY 1998 Annual Financial Statements
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WATER INFRASTRUCTURE FINANCING
The Gcan Water State Revolving Fund (CWSRF) Program provides financial assistance to states, localities, and Indian
tribes to protect the Nation's water resources by meeting the requirements of the Federal Water Pollution Control Act
(FWPCA), commonly known as the Clean Water Act (CWA). With the passage of the Safe Drinking Water Amendments
of 1996, the Drinking Water State Revolving Fund (DWSRF) has been authorized at $9.6 billion. This fund is designed to
provide federal financial assistance to die states, localities, and Indian tribes to protect the Nation's drinking water resources.
The DWSRF provides capitalization grants to state and tribal governments, funding low-interest loans for local drinking water
systems that need to install or improve their drinking water treatment facilities. The fund is also used for source water
protection, operator certification, and other priority activities.
Program Description
Water Infrastructure Financing consists of Ihe following: the CWSRF, DWSRF, the U.S./Mexican Border Integrated
Border Environmental Plan, grants for communities facing extraordinarily high needs and user charges, and wastewater
infrastructure needs of Alaskan Native Villages. The State Revolving Fund (SRF) Programs provide federal financial
assistance to states, localities, and Indian tribes to protect the Nation's water resources by providing funds for the construction
of wastewater treatment and drinking water facilities. The SRFs are two of the Agency's premier tools for building the
financial capacity of our partners.
The Special Needs Program provides focused grant assistance to areas facing extraordinarily high needs in relation to
household income (e.g., Boston Harbor and New Orleans), while Ihe U.STMexican Border Program provides funds to support
the planning, design and construction of high priority wastewater treatment projects along the U.S./Mexican Border and in
the U.S. Colonias - low-income communities located within 100 kilometers of the border, which are generally unincorporated
and lack basic services (i.e., safe drinking water, wastewater treatment facilities). The goal of this program is to reduce the
incidence of waterbome diseases along the Mexican border and in the U.S. Colonias.
Highlights and Accomplishments
In FY 1998, the Agency obligated $2.8 billion for Water Infrastructure Financing. Under the CWSRF Program, EPA
provides grants or "seed money" to all SO states and Puerto Rico to capitalize state loan funds. The states, in turn, make loans
to communities, individuals, and others for high-priority water quality activities. As money is paid back into the revolving
fund, new loans are made to other recipients that need help in maintaining the quality of their water. States have contributed
the required 20% match and, in some cases, leveraged their funds in the bond market to increase the total amount available
for loans. Because of the funds' revolving nature, the federal investment can result hi the construction of up to four times as
many projects over a 20-year period as a one-time grant. Through 1998 , EPA has invested approximately $15 billion to
capitalize the 51 CWSRFs. As of June 30, 1998, states reported they had issued 6,806 loans worth $22.9 billion for
wastewater, storm water, combined sewer overflow, and nonpoint source projects. This includes approximately 800 loans
to communities with populations of more than 100,000. In addition, states have issued approximately 6,000 loans to medium
and small communities.
A major benefit for municipalities and other loan recipients is the substantial financial savings they realize. When funded
by a loan from mis program, a project typically costs much less than it would if funded through the bond market Many states
offer low-interest loans to small and disadvantaged communities, providing an additional boost to get projects started. For
example, a state can make a zero-percent loan to a community for 20 years, saving the community 50% of the total project
costs over a similar loan at 7.5 %. The SRF Program's primary mission is to promote water quality. Aside from the financial
savings, loan recipients realize significant environmental benefits, including protecnoi; of public health and conservation of
local watersheds.
The Safe Drinking Water Act (SDWA) Amendments of 1996 (Public Law 104-182) authorize a DWSRF to assist public
water systems to finance the cost of infrastructure needed to achieve or maintain compliance with SDWA requirements and
EPA'sFY 1998 Annual Financial Statements Page73
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protect public health. Section 1452 authorizes the Administrator of EPA to award capitalization grants to states, which in
turn can provide low cost loans and other types of assistance to eligible systems.
In addition to authorizing the infrastructure fund, the SDWA Amendments also place strong emphasis on preventing
contamination problems through source water protection and enhanced water systems management That emphasis transforms
the previous law from a largely after-the-fact regulatory oriented program into a statute that can provide for the sustainable
use of water. Central to this emphasis is the development of state prevention programs, including source water protection,
capacity development and operator certification. States may use a portion of their capitalization grants to fund these eligible
activities. The success of these activities will act to safeguard the DWSRF funds that are provided for improving system
compliance and public health protection and help determine whether the new law's potential as a preventive environmental
statute is realized.
The DWSRF program will help ensure mat the nation's drinking water supplies remain safe and affordable, that drinking
water systems that receive funding will be properly operated and maintained, and that permanent institutions will exist in each
state to provide financial support for drinking water needs for many years to come. Congress has placed particular emphasis
on assisting smaller drinking water systems and those serving less affluent populations by providing greater funding flexibility
for these systems under the DWSRF, to ensure that these systems have adequate technical, managerial, and financial resources
to come into or maintain compliance and provide safe water.
All FY1997 DWSRF monies, which totaled over $1.2 billion, were awarded to the 50 states and Puerto Rico before the
September 30,1998 deadline for these funds to be committed/obligated. In addition, 30 awards were made in FY 1998 using
FY 1998 funds.
Special Infrastructure projects were appropriated $393 million in FY 1998, including
$253 million for Special Infrastructure Needs, $15 million for Rural and Alaskan Native
Villages, $50 million for Colonias, and $75 million for the Mexican Border. The Agency
has developed and issued guidance on how to award the $253 million in Special
Infrastructure Needs funding for the 68 special projects authorized by the Department of
Veterans Affairs, Housing and Urban Development, and Independent Agencies
Appropriations Act of 1998, and awarded grants for approximately half of the projects by
the end of the fiscal year.
To support wastewater infrastructure development on Indian Lands, the Agency
allocated an additional $12 million to the Border Region for tribal water and wastewater
projects along the Mexican border for a total of $22 million. In addition, EPA continues to use Indian Health Services (IHS)
as a primary mechanism of field level support for many Indian Lands projects.
Future Trends
To further the Agency's goal of providing an economical source of capital for the states to address their environmental
problems, EPA proposes continued capitalization of the CWSRF at a level that will enable states to finance $2 billion annually
in loan activity for several more decades. This level of funding helps to ensure that a long-term, low-cost source of financing
is available to meet the $139.5 billion in wastewater infrastructure needs that have been documented throughout the United
States.
EPA will continue to encourage states to expand the availability of their CWSRF for a broader array of water quality
infrastructure projects. EPA also will continue to encourage states to provide loans to small and disadvantaged communities
which have difficulty constructing complex infrastructure projects or participating in the financial markets. One of EPA's
efforts to assist small communities, such as tribes, is the Indian Set-Aside Program, funded through the CWSRF, which helps
address the serious health problems some tribes face due to the lack of basic sewage treatment. EPA will continue to work
with the Council of State Community Development Agencies and other federal agencies to facilitate the use of the CWSRF
by small communities.
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EPA's FY 1998 Annual Financial Statements
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Serious public health problems due to water contamination and communicable waterbome diseases continue to be
prevalent along the U.S7Mexican Bonier, as untreated domestic and industrial wastes flow into the rivers contaminating both
sides of the Border. EPA will continue to support the USTMexican Border Plan and North American Free Trade Agreement
(NAFTA) through wastewater treatment projects along the U-STMexican Border. In cooperation with the NAFTA Border
Environment Cooperation Commission (BECC), EPA will heip set priorities for funding wastewater infrastructure projects
along the Border. In addition, EPA is working to provide the final appropriations provided in FY 1998 to the State of Texas
to help finance wastewater projects in U.S. Colonias communities. EPA also will provide federal grants to the State of
Alaska, subject to an appropriate cost share as determined by the Administrator, for necessary wastewater infrastructure
projects in Native Alaskan Villages.
In addition, EPA proposes continued capitalization of the DWSRF at a level that will enable states to finance $500
million annually in loan activity over the long term. This level of funding helps to ensure that a long-term, low-cost source
of financing is available to meet the $138 billion in drinking water infrastructure needs that have been documented throughout
the United States.
EPA's FY 1998 Annual Financial Statements
Page 75
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PRINCIPAL
FINANCIAL
STATEMENTS
EPA's FY 1998 Annual Financial Statements
Page 77
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CONTENTS
Financial Statements
Consolidating Statement of Financial Position
Consolidating Statement of Net Cost
Consolidating Statement of Changes in Net Position
Combined Statement of Budgetary Resources
Combined Statement of Financing
Statement of Custodial Activity
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balances with Treasury
Note 3. Cash, Foreign Currency and Other Monetary Assets
Note 4. Investments
Note 5. Accounts Receivable
Note 6. Loans Receivable, Net - Non-Federal
Note 7. Inventory and Related Property
Note 8. Property, Plant and Equipment - Net
Note 9. Debt
Note 10. Other Liabilities
Note 11. Leases
Note 12. Federal Employee and Veterans' Benefits
Note 13. Unexpended Appropriations
Note 14. Amounts Held by Treasury
Note 15. Contingencies
Note 16. Grant Accrual
Note 17. Environmental Cleanup Costs
Note 18. Superfund State Credits
Note 19. Superfund Preauthoriized Mixed Funding Agreements
Note 20. Deferred Maintenance
Note 21. Income and Expenses from Other Appropriations
Note 22. Working Capital Fund Rebate
Note 23. Custodial Non-Exchange Revenues
Note 24. Statement of Budgetary Resources
Note 25. Adjustments
Note 26. Unobligated Balances Available
Note 27. Obligated Balance, Net - End of Period
Note 28. Difference in Outlays between Statement of Budgetary Resources and SF-133
Note 29. Statement of Financing
EPA's FY 1998 Annual Financial Statements Page 79
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Note 30. Other Financing Sources
Supplemental Information Requested by OMB
Supplemental Statement of Budgetary Resources (Unaudited)
Working Capital Fund Supplemental Statement of Financial Position (Unaudited)
Working Capital Fund Supplemental Statement of Operations and Changes in Net Position
(Unaudited)
Annual Stewardship Information
Page 80
EPA's FY 1998 Annual Financial Statements
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EPA Hazardous Substance Superfund Trust Fund and All Other Funds
Consolidating Statement of Financial Position
As of September 30,1998
(Dollars in Thousands)
ASSETS
Entity Assets:
Intnagovemmental Assets:
Fund Balance with Treasury (Note 2 and Note 3)
Investments (Note 4)
Accounts Receivable, Net (Note 5)
Advances and Prepayments
Total Intragovemmental Assets
Accounts Receivable, Net (Note 5)
Advances and Prepayments
Loans Receivables and Related Foreclosed Property, Net (Note 6)
Cash and Other Monetary Assets (Note 3)
inventory and Related Property, Net (Note 7)
Marketable Securities Equity (Note 4)
General Property, Plant and Equipment, Net (Note 8)
Total Entity Assets
Total Assets
LIABILITIES
Liabilities Covered by Budgetary Resources:
Ihtragovennnental Liabilities:
Accounts Payable
Debt (Note 9)
Other (Note 10)
Total Intragovemmental Liabilities
Accounts Payable
Other (Note 10)
Total Liabilities Covered by Budgetary Resources
Liabilities not Covered by Budgetary Resources:
Lease Liabilities (Note 11)
Federal Employee and Veterans' Benefits (Note 12)
Other (Note 10)
Total Liabilities not Covered by Budgetary Resources
Total Liabilities
NET POSITION
Unexpended Appropriations (Note 13)
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
Superfund
Trust Fund
$ 43,693
5,074,520
53,406
2.448
5.174.067
592,065
—
—
—
—
5,146'
6.560
5.777.838
$5.777.838
$ 159,299
—
3.606
162,905
134,252
394.516
691.673
—
5,279
16.618
21.897
713.570
2.805,960
2.258.308
5,064.268
$3.777.838
All
Others
$10,227,484
1,191,538
71,880
72.353
11.563.255
99,160
2.088
111,821
4,964
74
—
266.511
12.047.873
$12.047.873
$ 39,569
37,922
8.335
85.826
424,815
198.449
709.090
38,653
21,497
93.539
153.689
862.779
9,827,800
1.357.294
11.185.094
$12.047.873
Combined Intra-agency Consolidated
Totals Eliminations Totals
$10,271,177
6,266,058
125,286
74.801
16.737.322
691,225
2,088
111,821
4,964
74
5,146
273.071
17,825.711
$17.825.711
$ 198,868
37,922
11.941
248.731
559,067
592.965
1.400.763
38,653
26,776
110.157
175.586
1.576.349
12,633,760
3.615.602
16.249.362
$17.825.711
S — $10,271,177
— 6,266,058
— 125,286
(2.181) 72,620
(2.181) 16,735.141
— 691,225
- 2,088
- 111,821
— 4,964
— 74
— 5,146
— 273.071
(2.181) 17^,823^540
($2.181) £17.823.530-
$ — $ 198,868
— 37.922
(2.181) 9.760
(2.181) 246.550
- 559,067
- 592.965
(2.181) L398482
— 38,653
— 26,776
— 110.157
0 175.586
(2.181) 1.574.168
— 12,633,760
— 3.615.602
0 16.249.362
(S2.181) S17.823.530
NOTE: The accompanying notes are an integral part of these statements.
EPA's FY 1998 Annual Financial Statements
Page 81
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EPA Hazardous Substance Superfund Trust Fund and All Other Funds
Consolidating Statement of Net Cost
As of September 30,1998
(Dollars in Thousands)
Superfund All Combined Infra-agency Consolidated
Trust Fund Others Totals Eliminations Totals
COSTS:
Intragovernmenta]
With the Public
Expenses from Other Appropriations (Note 21)
Expenses of the Trust Fund Incurred by Treasury (Note 14)
Total
$ 429,357 $ 346,182
1,071,029 5,249,111
(3,542)
(125)
5,542
$ 775,539 $ —
6,320.140 (265,699)
0 -
(90) —
1.505.963 5.589.626 7J)95.589
(265.699)
$ 775,539
6,054,441
0
(90)
6.829.890
Less:
income from Other Appropriations (Note 21)
Earned Revenues
Total
Net Program Costs
5,542
538.903
544.445
961^18
(5,542)
157.054
_1S1.S12
0
695.9S7
695.957
(15.699)
(15.699)
0
680.258
680.258
5.438.114 6.399.632 (250.000) 6.149.632
DEFERRED MAINTENANCE (Note 20)
NET COST OF OPERATIONS
NOTE: The accompanying notes are an integral part of these statements.
Page 82
EPA's FY 1998 Annual Financial Statements
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EPA Hazardous Substance Superfund Trust Fund and All Other Funds
Consolidating Statement of Changes inNet Position
As of September 30, 1998
(Dollars in Thousands)
Net Cost of Operations
Financing Sources (Other Than Exchange Revenues):
Appropriations Used
Taxes (and Other Non-Exchange Revenues)
Trust Fund Revenue Collected by Treasury (Note 14)
Turst Fund Income Earned by Treasury (Note 14}
Trust Fund Appropriation Received (Note 14)
Donations (Non-Exchange Revenue)
Imputed Financing
Transfers-ID
Other Interest
Other Financing Sources (Note 30)
Net Results of Operations
Prior Period Adjustments
Net Changes in Cumulative Results of Operations
Increase (Decrease) in Unexpended Appropriations
Change in Net Position
Net Position - Beginning of Period
Net Position - End of Period
SlllMfftlllu
Trust Fund
$ 961.518
1,407,531
81,658
5,044
291,816
250,000
—
30,155
—
1,473
(1.623.3931
(517,234)
257
(516,977)
(68.285)
(585,262)
5.649.530
All
Others
S 5.438.114
5,381,299
88,515
136,213
60,935
—
44
161,853
32
(1 09,501)
281,276
28.645
309,921
752.735
1,062,656
10.122.438
Combined Intra-ageocy Consolidated
Totals Eliminations Totals
$ 6.399.632
6,788,830
170,173
141,257
352,751
250,000
44
192,008
32
1,473
(1.732.894)
(235,958)
28.902
(207,056)
684.450
477,394
15,771,968
U6249302
(5250.000) S 6,149.632
6,788,830
~ 170,173
- 141,257
- 352,751
(250,000) 0
— 44
- 192,008
— 32
— 1,473
— ( 1.732.894)
0 (235,958)
28.902
0 (207,056)
- 684.450
0 477,394
— 15.771.968
$ Q S16.249.362
NOTE: The accompanying notes are an integral part of these statements.
EPA*s FY 1998 Annual Financial Statements
Page 83
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Hazardous Substance Superfund Trust Fund and All Other Funds
Combined Statement of Budgetary Resources
As of September 30,1998
(Dollars in Thousands)
Superfund
Trust Fund
All
Others
Combined
Totals
Budgetary Resources:
Budget Authority
Unobligated Balances - Beginning of Period
Spending Authority from Offsetting Collections
Adjustments (Note 25)
Total Budgetary Resources
$1,421,999
805,627
(30,225)
$6,142,594
1,948,038
283,984
(64.140^1
$ 7,564,593
2,753,665
253,759
(64.5
$10.507.502
Status of Budgetary Resources:
Obligations Incurred
Unobligated Balances - Available (Note 26)
Total, Status of Budgetary Resources
51,495,558
701.468
$6,592,535
1.717.941
$ 8,088,093
2.419.409
$10.507.502
Outlays:
Obligations Incurred
Less: Spending Authority from Offsetting Collections
and Adjustments
Obligated Balance, Net - Beginning of Period
Less: Obligated Balance, Net - End of Period (Note 27)
Total Outlays (Note 28)
$1,495,558
104,403
2,536,709
2.550.841
$6,592,535
257,694
7,950,031
8.750.289
$ 8,088,093
362,097
10,486,740
11.301.130
NOTE: See Note 24 for reconciliation of the Statement of Budgetary Resources to the Budget of the United States.
NOTE: The accompanying notes are an integral part of these statements.
Page 84
EPA's FY 1998 Annual Financial Statements
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EPA Hazardous Substance Superfund Trust Fund and All Other Funds
Combined Statement of Financing
As of September 30,1998
(Dollars in Thousands)
Superfund
Trust Fund
All
Others
Combined
Totals
Obligations and Nonbudgetaiy Resources
Obligations Incurred
Less: Spending Authority for Offsetting
Collections and Adjustments
Financing Imputed for Cost Subsidies
Transfers-In (Out) and Donations
Exchange Revenue Not in the Budget
Total Obligations as Adjusted and
Nonbudgetaiy Resources
$1,495,558
(104,403)
30,155
(434.500)
S 986.810
$ 6,592,535
(257,694)
161,853
76
86.746
$ 8,088,093
(362,097)
192,008
76
C347.754')
S 6.583.516 S 7.570.326
Resources that Do Not Fund Net Cost of Operations
Decrease (Increase) in Amount of Goods, Services, and
Benefits Ordered but Not Yet Received or Provided
Costs Capitalized on the Balance Sheet
Loans Receivable
Inventory
O abilities (If Net Decrease) (Note 29)
Financing Sources that Fund Costs of Prior Periods
Total Resources that Do Not Fund Net
Cost of Operations
Costs that Do Not Require Resources
Depreciation and Amortization
Bad Debt Expense (Note 5)
Other Gains and Losses
Loss on Disposition of Assets
Other
Total Costs that Do Not Require Resources
Financing Sources Yet To Be Provided (Note 29)
Net Cost Of Operations
($ 24,870)
(2,479)
—
—
—
(3,517}
f$ 30.866-)
S 2,403
324
—
—
(999)
S 1,728
S 3.846
S 961 518
(S 729,505)
(92,995)
12,737
117
(23,853)
(326.3121
-
fSl.159.811t
$ 21,170
11,729
(1)
392
f!8.88n
S 14.409
S 0
S 5.438,114
($ 754,375)
(95,474)
12,737
117
(23,853)
(329.8291
(Sl.190.6771
S 23,573
12,053
(1)
392
(1 9.880}
$ 16.137
S 3.846
S 6.399.632
NOTE: The accompanying notes are an integral part of these statements.
EPA's FY 1998 Annual Financial Statements
Page 85
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EPA Hazardous Substance Superfund Trust Fund and All Other Funds
Statement of Custodial Activity
As of September 30,1998
(Dollars in Thousands)
All Others
Agencv-\Vide
Sources of Collections:
Cash Collections (by Type of Tax or Duty)
Interest and Penalties, Net
Other Custodial Revenue
Net Collections
Accural Adjustments
Total Revenue
Disposition of Collections:
Transferred to Others Net of Refunds (by Recipient)
Increase (Decrease) in Amounts To Be Transferred
Retained by the Entity
Total Disposition of Revenue
Net Custodial Activity
($77,184)
74.752
(2,432)
1.063
H.369)
(12,481)
(92,258)
103.370
ri. 369)
$ 0
($77,184)
74.752
(2,432)
1,063
H.369}
(12,481)
(92,258)
103.370
a. 369^
S J>
NOTE: The accompanying notes are an integral part of these statements.
Page 86
EPA's FY 1998 Annual Financial Statements
-------
EPA Hazardous Substance Superfund Trust Fund and All Other Funds
Notes to Financial Statements
(Dollars in Thousands)
Note L Summary of Significant Accounting Policies:
A. Basis of Presentation
These consolidating financial statements have been prepared to report the financial position and results of operations of
the Environmental Protection Agency (Agency) for the Hazardous Substance Superfund (Superfund) Trust Fund and All
Other Funds, as required by die Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994.
The reports have been prepared from the books and records of the Agency in accordance with "Form and Content for Agency
Financial Statements," specified by the Office of Management and Budget (OMB) in Bulletin 97-01, and the Agency's
accounting policies which are summarized in this note. These statements are therefore different from the financial reports
also prepared by the Agency pursuant to OMB directives that are used to monitor and control the Agency's use of budgetary
resources.
B. Reporting Entities
The Environmental Protection Agency was created in 1970 by executive reorganization from various components of other
Federal agencies in order to better marshal and coordinate Federal pollution control efforts. The Agency is generally
organized around the media and substances it regulates — air, water, land, hazardous waste, pesticides and toxic substances.
For FY 1998 the reporting entities are grouped as Hazardous Substance Superfund and All Other Funds.
Hazardous Substance Superfund
In 1980, the Hazardous Substance Superfund, commonly referred to as the Superfund Trust Fund, was established by
the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) to provide resources
needed to respond to and clean up hazardous substance emergencies and abandoned, uncontrolled hazardous waste sites. The
Superfund Trust Fund financing is shared by Federal and state governments as well as industry. The Agency allocates funds
from its appropriation to other Federal agencies to carry out the Act Risks to public health and the environment at
uncontrolled hazardous waste sites qualifying for the Agency's National Priorities List (NPL) are reduced and addressed
through a process involving site assessment and analysis, and the design and implementation of cleanup remedies.
Throughout this process, cleanup activities may be supported by shorter term removal actions to reduce immediate risks.
Removal actions may include removing contaminated material from the site, providing an alternative water supply to people
living nearby, and installing security measures. NPL cleanups and removals are conducted and financed by the Agency,
private parties, or other Federal agencies. Through 1998, construction of cleanup remedies were completed at a total of 585
NPL sites (includes Federal and non-Federal sites). Superfund includes the Treasury collections and investment activity. The
Superfund Trust Fund is accounted for under Treasury symbol number 8145.
All Other Funds
All Other Funds include Trust Fund appropriations, General Fund appropriations, Revolving Funds, Special Funds, the
Agency Budgetary Clearing accounts, Deposit Funds, General Fund Receipt accounts, the Environmental Services Special
Fund Receipt Account, the Miscellaneous Contributed Funds Trust Fund, and General Fund appropriations transferred from
other Federal agencies as authorized by the Economy Act of 1932. Trust Fund appropriations are to the Leaking Underground
Storage Tank (LUST) Trust Fund and the Oil Spill Response Trust Fund General Fund appropriations are to State and Tribal
Assistance Grants (STAG), Science and Technology (S&T), Environmental Programs and Management (EPM), Office of
Inspector General (IG), Buildings and Facilities (B&F), and Payment to the Hazardous Substance Superfund. General Fund
EPA's FY 1998 Annual Financial Statements Page 87
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appropriations that no longer receive current appropriations but have unexpended authority are the Asbestos Loan Program,
Program and Research Operations (PRO), and Energy, Research and Development Revolving Funds include the FIFRA
Revolving Fund and Tolerance Revolving Fund which receive no direct appropriations; however, they do collect fees from
public industry as a source of reimbursement for the services provided. In addition to FIFRA and Tolerance, a Working
Capital Fund (WCF) was established and designated as a franchise fund to provide computer operations support and postage
service for the Agency. A Special Fund was established to collect the Exxon Valdez settlement as a result of the Exxon
Valdez oil spill. All Other Funds are as follows:
The LUST Trust Fund was authorized by the Superfund Amendments and Reauthorization Act of 1986 (SARA) as
amended by the Omnibus Budget Reconciliation Act of 1990. The LUST appropriation provides funding to respond to
releases from leaking underground petroleum tanks. The Agency oversees cleanup and enforcement programs which are
implemented by the states. Funds are allocated to the states through cooperative agreements to clean up those sites posing
the greatest threat to human health and environment Funds are used for grants to non-state entities including Indian tribes
under section 8001 of the Resource Conservation and Recovery Act The program is financed by a 0.1 cent a gallon tax on
motor fuels which will expire in 2005, and is accounted for under Treasury symbol number 8153.
The Oil Spill Response Trust Fund was authorized by the Oil Pollution Act (OPA) of 1990. The Oil Spill Response
Trust Fund was established in FY 1993 and monies were appropriated to the Oil Spill Response Trust Fund. The Agency
is responsible for directing, monitoring and providing technical assistance for major inland oil spill response activities. This
involves setting oil prevention and response standards, initiating enforcement actions for compliance with OPA and Spill
Prevention Control and Countermeasure requirements, and directing response actions when appropriate. The Agency carries
out research to improve response actions to oil spills including research on the use of remediation techniques such as
dispersants and bioremediation. Funding of oil spill cleanup actions is provided through the Department of Transportation
under die Oil Spill Liability Trust Fund and reimbursable funding from other Federal agencies. The Oil Spill Response Trust
Fund is accounted for under Treasury symbol number 8221.
The State and Tribal Assistance Grants (STAG) appropriation provides funds for environmental programs and
infrastructure assistance including capitalization grants for State revolving funds and performance partnership grants.
Environmental programs and infrastructure supported are Clean and Safe Water, Capitalization grants for the Drinking Water
State Revolving Funds; Clean Air; Direct grants for Water and Wastewater Infrastructure needs, Partnership grants to meet
Health Standards, Protect Watersheds, Decrease Wetland Loss, and Address Agricultural and Urban Runoff and Storm Water;
Better Waste Management; Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces and Ecosystems;
and Reduction of Global and Cross Border Environmental Risks. STAG is accounted for under Treasury symbol 0103.
The Science and Technology (S&T) appropriation finances salaries; travel; science; technology; research and
development activities including laboratory and center supplies; certain operating expenses; grants; contracts;
intergovernmental agreements; and purchases of scientific equipment These activities provide the scientific basis for the
Agency's regulatory actions. In FY 1998 Superfund research costs were appropriated in Superfund and transferred to S&T
to allow for proper accounting of the costs. Scientific and technological activities for environmental issues include Clean Air;
Clean and Safe Water; Americans Right to Know About Then- Environment; Better Waste Management; Preventing Pollution
and Reducing Risk in Communities, Homes, Workplaces, and Ecosystems; and Safe Food. The Science and Technology
appropriation is accounted for under Treasury symbol 0107.
The Environmental Programs and Management (EPM) includes funds for salaries, travel, contracts, grants , and
cooperative agreements for pollution abatement, control, and compliance activities and administrative activities of the
operating programs. Areas supported from this appropriation include Clean Air; Clean and Safe Water; Preventing Pollution
and Reducing Risk in Communities, Homes, Workplaces, and Ecosystems; Better Waste Management, Restoration of
Contaminated Waste Sites, and Emergency Response; Reduction of Global and Cross Border Environmental Risks;
Americans' Right to Know About Their Environment; Sound Science, Improved Understanding of Environmental Risk, and
Greater Innovation to Address Environmental Problems; a Credible Deterrent to Pollution and Greater Compliance with the
Law; and Effective Management. The Environmental Programs and Management appropriation is accounted for under
Treasury symbol 0108.
Page 88
EPA's FY 1998 Annual Financial Statements
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The Office of Inspector General appropriation provides funds for audit and investigative functions to identify and
recommend corrective actions on management and administrative deficiencies that create the conditions for existing or
potential instances of fraud, waste and mismanagement. Additional funds for audit and investigative activities associated with
die Superfund Trust Fund and the Leaking Underground Storage Tank Trust Fund are appropriated under those Trust Fund
accounts and are transferred to the Office of Inspector General account. The audit function provides contract audit, internal
and performance audit, and financial and grant audit services. The Office of Inspector General appropriation is accounted
for under Treasury symbol 0112 and includes expenses incurred and reimbursed from the appropriated trust funds being
accounted for under Treasury symbols 8145 and 8153.
The Buildings and Faculties appropriation provides for the construction, repair, improvement, extension, alteration, and
purchase affixed equipment or facilities that are owned or used by the Environmental Protection Agency. The Buildings and
Facilities appropriation is accounted for under Treasury symbol 0110.
The Payment to die Hazardous Substance Superfund appropriation authorizes appropriations from the General Fund of
the Treasury to finance activities conducted through Hazardous Substance Superfund. Payment to the Hazardous Substance
Superfund is accounted for under Treasury symbol 0250.
The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act of 1986 to finance control
of asbestos building materials in schools. Funds have not been appropriated for this Program since FY 1993. For FY 1993
and FY1992, the program was funded by a subsidy appropriated from the General Fund for the actual cost of financing the
loans, and by borrowing from Treasury for the unsubsidized portion of the loan. The Program fund disbursed the subsidy to
the Financing fund as loans were made, and disbursed administrative expenses to the providers. The Financing fund received
the subsidy payment, borrowed from Treasury and disbursed loans and collects the asbestos loans. The Asbestos Loan
Program is accounted for under Treasury symbol 0118 for the subsidy and administrative support, under Treasury symbol
4322 for loan disbursements, loans receivable and loan collections on post FY 1991 loans, and under Treasury symbol 2917
for pre FY 1992 loans receivable and loan collections.
The Program and Research Operations appropriation provides salaries and travel associated with administering the
operating programs within die Environmental Protection Agency. It incorporated personnel, compensation and benefit costs
and travel, exclusive of the Hazardous Substance Response Trust Fund, the Leaking Underground Storage Tank Trust Fund,
the Office of Inspector General and the Oil Spill Response Trust Fund. In FY 1996, Congress restructured the Agency's
accounts. The Program and Research Operations appropriation was eliminated. Activity remaining from prior fiscal year
appropriations is accounted for under Treasury symbols 0200 and 0201.
The FIFRA Revolving Fund was authorized by the Federal Insecticide, Fungicide and Rodenticide Act Amendments of
1988, as amended by the Food Quality Protection Act of 1996. Fees are paid by industry to offset costs of accelerated
reregistration, expedited processing of pesticides, and establishing tolerances for pesticide chemicals in or on food and animal
feed. The FIFRA Revolving Fund is accounted for under Treasury symbol number 4310.
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees are paid by industry for
Federal services of pesticide chemicals in or on food and animal feed Effective January 2,1997, fees collected are now being
deposited in the Reregistration and Expedited Processing Revolving Fund (4310). The fees collected prior to this date are
accounted for under Treasury symbol number 4311.
The Working Capital Fund (WCF) includes two activities: computer support services and postage. WCF derives
revenue from these activities based upon fee for services. WCF's customers currently consist solely of Agency program
offices. Accordingly, revenue generated by WCF and expenses recorded by the program offices for use of such services, along
with the related advances/liabilities, are eliminated on consolidation. The WCF is accounted for under Treasury symbol 4565.
The Exxon Valdez Settlement Fund has funds available to carry out authorized environmental restoration activities.
Funding is derived from the collection of reimbursements under the Exxon Valdez settlement as a result of the oil spill. The
Exxon Valdez Settlement fund is accounted for under Treasury symbol number 5297.
EPA's FY 1998 Annual Financial Statements
Page 89
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Appropriations transferred to the Agency from other Federal agencies include funds from the Appalachian Regional
Commission and the Department of Commerce which provide economic assistance to state and local developmental activities,
the Agency for International Development which provides assistance on environmental matters at international levels, and
from the General Services Administration which provides funds for rental of buildings, and operations, repairs, and
maintenance of rental space. The transfers appropriations are accounted for under Treasury symbols 0200,1010,1021,2050,
and 4542.
Clearing Accounts include the Budgetary suspense account, Deposit in Transit differences, Unavailable Check
Cancellations and Overpayments, and Undistributed and Letter of Credit differences. Clearing accounts are accounted for
under Treasury symbols 3875,3878,3879, and 3880.
Deposit funds include Fees for Ocean Dumping, Nonconformance Penalties, Suspense and payroll deposits for Savings
Bonds, and State and City Income Taxes Withheld. Deposit funds are accounted for under Treasury symbols 6050,6264,
6265, 6275, and 6875.
General Fund Receipt Accounts include Hazardous Waste Permits; Miscellaneous Fines, Penalties and Forfeitures;
General Fund Interest; Interest from Credit Reform Financing Accounts; Fees and Other Charges for Administrative and
Professional Services; and Miscellaneous Recoveries and Refunds. General Fund Receipt accounts are accounted for under
Treasury symbols 0895,1099, 1435,1499, 2410, 3200, and 3220.
The Environmental Services Receipt account was established for the deposit of fee receipts associated with environmental
programs, including radon measurement proficiency ratings and training, motor vehicle engine certifications, and water
pollution permits. Receipts in this special fund will be appropriated to the S&T appropriation and to the EPM appropriation
to meet the expenses of die programs that generate the receipts. Environmental Services are unavailable receipts accounted
for under Treasury symbol 5295.
The Miscellaneous Contributed Funds Trust Fund includes gifts for pollution control programs mat are usually designated
for a specific use by the donor and deposits from pesticide registrants to cover the costs of petition hearings when such
hearings result in unfavorable decisions to die petitioner. Miscellaneous Contributed Funds Trust Fund is accounted for under
Treasury symbol 8741.
The accompanying financial statements include the accounts of all funds described in this note. Superfund may charge
some administrative costs directly to the fund and charge the remainder of the administrative costs to the All Other Funds in
the Agency-wide appropriations. The administrative costs funded by Agency-wide appropriations for Superfund for FY 1998
was $5.5 million. These amounts are included in the Income from Other Appropriations and Expenses from Other
Appropriations on the Statement of Net Cost.
The Superfund Trust Fund is allocated general support services costs (such as rent, communications, utilities, mail
operations, etc.) that were initially charged to the Agency's S&T and EPM appropriations. During the year, these costs are
allocated from the S&T and EPM appropriations to the Superfund Trust Fund based on a ratio of direct labor hours, using
budgeted or actual full-time equivalent personnel charged to these appropriations, to the total of all direct labor hours. Agency
general support services cost charges to the Superfund Trust Fund may not exceed the ceilings established in the Superfund
Trust Fund appropriation. The related general support services costs charged to the Superfund Trust Funds was $47.5 million
for FY 1998.
C. Budgets and Budgetary Accounting
Superfund
Congress adopts an annual appropriation amount to be available until expended for the Superfund Trust Fund. A transfer
account for the Superfund Trust Fund has been established for purposes of carrying out the program activities. As the Agency
disburses obligated amounts from the transfer account, the Agency draws down monies from the Superfund Trust Fund at
Treasury to cover the amounts being disbursed.
Page 90
EPA's FY 1998 Annual Financial Statements
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All Other Funds
Congress adopts an annual appropriation amount for the LUST Trust Fund and for the Oil Spill Response Trust Fund
to remain available until expended. A transfer account for the LUST Trust Fund has been established for purposes of carrying
out the program activities. As the Agency disburses obligated amounts from the transfer account, the Agency draws down
monies from the LUST Trust Fund at Treasury to cover the amounts being disbursed. The Agency draws down all the
appropriated monies from the Treasury's Oil Spill Liability trust fund to the Oil Spill Response Trust Fund when Congress
adopts the appropriation amount Congress adopts an annual appropriation for STAG, Buildings and Facilities, and for
Payments to the Hazardous Substance Superfund to be available until expended; adopts annual appropriation for S&T, EPM
and for the Office of the Inspector General to be available for two fiscal years. When the appropriations for the General Funds
are enacted, Treasury issues a warrant to the respective appropriations. As the Agency disburses obligated amounts, the
balance of funds available to the appropriation is reduced at Treasury.
The Asbestos Loan Program is a commercial activity financed by a combination from two sources: one for the long term
cost of the loan and another for the remaining non-subsidized portion of the loan. Congress annually adopts a one year
appropriation, available for obligation in the fiscal year for which it is appropriated, to cover the estimated long term cost of
the Asbestos loans. The long term costs are defined as the net present value of the estimated cash flows associated with the
loans. The portion of each loan disbursement that does not represent long term cost is financed under a permanent indefinite
borrowing authority established with the Treasury. The annual appropriation bill limits the amount of obligations mat can
be made for direct loans. A permanent indefinite appropriation is available to finance the costs of subsidy re-estimates that
occur after the year in which die loan is disbursed. No appropriation was adopted by Congress for FY 1998; therefore, there
was no new financing available to the Asbestos Loan Program for FY 1998.
Funding of the FDFRA and the Tolerance Revolving Funds is provided by fees collected from industry to offset costs
incurred by the Agency in carrying out these programs. Each year the Agency submits an apportionment request to OMB'
based on the anticipated collections of industry fees.
Funding of the WCF is provided by fees collected from other Agency appropriations collected to offset costs incurred
for providing the Agency administrative support for computer support and postage.
Funds transferred from other Federal agencies is funded by a non expenditure transfer of funds from the other Federal
agencies. As the Agency disburses the obligated amounts, the balance of funding available to the transfer appropriation is
reduced at Treasury.
Clearing accounts, Deposit accounts, and Receipt accounts receive no budget. Rather amounts are recorded to the
Clearing and Deposit accounts pending further disposition. Amounts recorded to the Receipt accounts capture amounts
receivable to or collected for the General Fund of the Treasury.
D. Basis of Accounting
Superfund and All Other Funds
Transactions are recorded on an accrual accounting basis and on a budgetary basis (where budgets are issued). Under
the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without
regard to receipt or payment of cash. Budgetary accounting facilitates compliance with legal constraints and controls over
the use of Federal funds. All interfund balances and transactions have been eliminated.
EPA's FY 1998 Annual Financial Statements
Page 91
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E. Revenues and Other Financing Sources
Superfund
The Superfund receives most funding needed to support the program through appropriations that may be used within
statutory limits, for operating and capital expenditures (primarily equipment). Additional financing for the Superfund Trust
Fund is obtained through reimbursements from other Federal agencies, from States for State Cost Share, and from potentially
responsible parties (PRFs) for future costs. Revenues collected through cost recovery are deposited with the Trust fund at
Treasury.
Att Other Funds
The majority of All Other Funds receive funding needed to support programs through appropriations, which may be used,
within statutory limits, for operating and capital expenditures. Under Credit Reform provisions, the Asbestos Loan Program
received funding through appropriations to support the subsidy cost of loans which may be used within statutory limits. The
Asbestos Direct Loan Financing fund, an off-budget fund, receives additional funding to support the loan disbursements
through collections from the Program fund for the subsidized portion of the loan and through borrowing from Treasury for
the non-subsidized portion. The last year Congress provided appropriations for this fund was 1993, accordingly no new
funding has been available for this program. The FIFRA and the Tolerance Revolving Funds receive funding, which is now
deposited with the FIFRA Revolving Fund, through fees collected for services provided. The FIFRA Revolving Fund also
receives interest on invested funds. The WCF receives revenue through fees collected for services provided to Agency
program offices. Such revenue is eliminated with related Agency program expenses on Consolidation. The Exxon Valdez
Settlement Fund received funding through reimbursements.
Appropriations are recognized as Other Financing Sources when earned, i.e., when goods and services have been
rendered without regard to payment of cash. Other revenues are recognized when earned, i.e., when services have been
rendered.
F. Funds with the Treasury
Superfund and All Other Funds
The Agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements are handled by
Treasury. The funds maintained with Treasury are Appropriated Funds, Revolving Funds and Trust Funds. These funds have
balances available to pay current liabilities and finance authorized purchase commitments.
G. Investments in U.S. Government Securities
All Other Funds
Investments in U.S. Government securities are maintained by Treasury and are reported at amortized cost net of
unamortized discounts. Discounts are amortized over the term of die investments and reported as interest income. The FIFRA
Revolving Fund, which is included in All Other Funds, holds the investments to maturity, unless they are needed to finance
operations of the fund. No provision is made for unrealized gains or losses on these securities because, in the majority of
cases, they are held to maturity.
H. Marketable Equity Securities
Superfund
During FY 1993 and FY 1996, the Agency received marketable equity securities, valued at a total S5.1 million, which
are still held, from a company in settlement of Superfund cost recovery actions. The Agency records marketable securities
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EPA's FY 1998 Annual Financial Statements
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at cost as of the date of receipt Marketable securities are held by Treasury, and reported at their cost value in the financial
statements until sold.
L Accounts Receivable and Interest Receivable
Superfund
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as amended by the Superfund
Amendments and Reauthorization Act (SARA) provides for die recovery of costs from potentially responsible parties (PRPs).
However, cost recovery expenditures are expensed when incurred since there is no assurance that these funds will be
recovered.
It is the Agency's policy to record accounts receivable from PRPs for Superfund site response costs when a consent
decree, judgment, administrative order, or settlement is entered. These agreements are generally negotiated after site response
costs have been incurred. It is the Agency's position that until a consent decree or other form of settlement is obtained, the
amount recoverable should not be recorded The allowance for uncollectible PRP accounts receivable is determined on a
specific identification basis as a result of a case-by-case review of receivables at the regional level, and a general reserve for
those not specifically identified.
The Agency also records accounts receivable from states for a percentage of Superfund site remedial action costs incurred
by the Agency within those states. As agreed to under Superfund State Contracts (SSCs), cost sharing arrangements under
SSCs may vary according to whether a site was privately or publicly operated at the time of hazardous substance disposal and
whether the Agency response action was removal or remedial. SSC agreements are usually for 10% or 50% of site remedial
action costs. States may pay the full amount of their share in advance, or incrementally throughout the remedial action
process. Allowances for uncollectible state cost share receivables have not been recorded, because the Agency has not had
collection problems with these agreements.
All Other Funds
The majority of receivables for All Other Funds represent interest receivable for Asbestos and FBFRA and both accounts
receivable and interest receivable to the General Fund of the Treasury.
A summary of accounts receivable as of September 30,1998 is contained in Note 5.
J. Loans Receivable
All Other Funds
Loans are accounted for as receivables after funds have been disbursed. The amount of Asbestos Loan Program loans
obligated but not disbursed are disclosed in Note 6. Loans receivable resulting from obligations on or before September 30,
1991 are reduced by the allowance for uncollectible loans. Loans receivable resulting from loans obligated on or after
October 1,1991 are reduced by an allowance equal to the present value of the subsidy costs associated with these loans. The
subsidy cost is calculated based on the interest rate differential between the loans and Treasury borrowing, the estimated
delinquencies and defaults net of recoveries offset by fees collected and other estimated cash flows associated with these loans.
K. Appropriated Amounts Held by Treasury
Superfund and All Other Funds
For the Superfund and LUST Trust Funds, and for amounts appropriated to the Office of Inspector General from the
Superfund and LUST Trust Funds, cash available to the Agency that is not needed immediately for current disbursements
remains in the respective Trust Funds managed by Treasury. At the end of FY 1998 approximately S2.9 billion remained
EPA's FY 1998 Annual Financial Statements
Page 93
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in die Treasury managed Superfund Trust Fund and approximately $73.2 million remained in the LUST Trust Fund to meet
the Agency's disbursement needs.
L. Advances and Prepayments
Superfund and All Other Funds
Advances and prepayments represent funds advanced or prepaid to other entities both internal and external to the Agency
for which a budgetary expenditure has not yet occurred.
M. Property, Plant, and Equipment
Superfund and All Other Funds
The Fixed Assets Subsystem (FAS) implemented in FY 1997 maintains EPA-held personal and real property records.
The FAS automatically generates depreciation entries monthly based upon the acquisition date. Purchases of EPA-held and
contractor-held personal equipment are capitalized if the equipment is valued at $25 thousand or more and has an estimated
useful life of at least two years. Prior to implementing FAS, depreciation was taken on a modified straight-line basis over a
period of six years depreciating 10% the first and sixth year, and 20% in years two through five. All EPA-held personal
equipment purchased before the implementation of FAS was assumed to have an estimated useful life of five years. New
acquisitions of EPA-held personal equipment are depreciated using the straight-line method over the specific assets' useful
lives, ranging from two to IS years.
Real property consists of land, buildings, and capital and leasehold improvements. Real property, other than land, is
capitalized when the value is $75 thousand or more. Land is capitalized regardless of cost Buildings are valued at an
estimated original cost basis, and land is valued at fair market value. Depreciation for real property is calculated using the
straight-line method over the specific assets' useful lives, ranging from 10 to 102 years. Leasehold improvements are
amortized over the lesser of their useful lives or the unexpired lease terms. In addition to property and improvements not
meeting the capitalization criteria, expenditures for minor1 alterations, and repairs and maintenance are expensed as incurred.
N. Liabilities
Superfund and All Other Funds
Liabilities represent the amount of monies or other resources that are likely to be paid by the Agency as the result of a
transaction or event that has already occurred. However, no liability can be paid by the Agency without an appropriation en-
other collection of revenue for services provided. Liabilities for which an appropriation has not been enacted are classified
as unfunded liabilities and there is no certainty that the appropriations will be enacted. Liabilities of the Agency, arising from
other than contracts, can be abrogated by the Government acting in its sovereign capacity.
O. Borrowing Payable to the Treasury
All Other Funds
Borrowing payable to Treasury results from loans from Treasury to fund the Asbestos direct loans described in part B
and C of this note. Periodic principal payments are made to Treasury based on the collections of loans receivable.
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EPA's FY 1998 Annual Financial Statements
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P. Interest Payable to Treasury
All Other Funds
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt to Treasury. At the end of
FY 1998, there was no outstanding interest payable to Treasury since payment was made through September 30.
Q. Annual, Sick and Other Leave
Superfund and All Other Funds
Annual, sick and other leave is expensed as taken during the fiscal year. Sick and other leave earned but not taken is not
accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is accrued as an unfunded liability.
Accrued unfunded annual leave is included in the Statement of Financial Position as a component of ''Liabilities not Covered
by Budgetary Resources: Other Governmental Liabilities". As of September 30,1998 the unfunded annual leave liability for
the Superfund Trust Fund was $16.6 million and for All Other Funds was S78.8. The difference in the year-end accruals for
unfunded annual leave is reported as "Unfunded Expense" in the Statement of Net Cost
R. Retirement Plan
Superfund and AH Other Funds
The majority of the Agency's employees participate in the Civil Service Retirement System (CSRS), to which the Agency
makes matching contributions equal to 7% of pay.
On January 1,1987, the Federal Employees Retirement System (FERS) went into effect pursuant to Public Law 99-335.
Most employees hired after December 31,1983, are automatically covered by FERS and Social Security. Employees hired
prior to January 1,1984 were allowed to either join FERS and Social Security or remain in CSRS. A primary feature of FERS
is that it offers a savings plan to the Agency employees which automatically contributes 1 percent of pay and matches any
employee contribution up to an additional 4 percent of pay. For most employees hired after December 31,1983, the Agency
also contributes the employer's matching share for Social Security.
With the issuance of "Accounting for Liabilities of the Federal Government" (SFFAS-5), which was effective for the FY
1997 financial statements, accounting and reporting standards were established for liabilities relating to the Federal employee
benefit programs (Retirement, Health Benefits and Life Insurance). SFFAS-5 requires that employing agencies recognize
the cost of pensions and other retirement benefits during their employees' active years of service. SFFAS-5 requires that
the Office of Personnel Management, as administrator of the Civil Service Retirement and Federal Employees Retirement
Systems, the Federal Employees Health Benefits Program, and the Federal Employees Group Life Insurance Program, provide
EPA with the 'Cost Factors' to compute EPA's liability for each program.
Note 2. Fund Balances with Treasury:
The Treasury maintains EPA's fund accounts and processes all of EPA's receipts and disbursements.
Entity Assets Non-Entity Assets Total
Trust Funds:
Superfund . $43,693 $ — $43,693
Lust 4,203 — 4,203
Oil Spill . 62 — 62
EPA's FY 1998 Annual Financial Statements
Page 95
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Revolving Funds:
FIFRA
Tolerance
Working Capital Fund
Appropriated Funds
Other Fund Types
Total
Entity Assets Non-Entity Assets
5,216 —
155 —
41,040 —
10,180,516 —
(3.708^ —
Total
5,216
155
41,040
10,180,516
(3.708^
$10.271.177
Note 3. Cash, Foreign Currency and Other Monetary Assets:
Cash:
Superfund
All Others
Total Cash
Entity Assets
S 43,693
10.227.484
$10.271.177
Non-Entity Assets
$_0
Other Monetary Assets:
All Others
Total Other Monetary Assets
Total Cash and Other Monetary Assets
Note 4. Investments:
$ 4.964
S 4.964
S —
$ 0
$ 0
Superfund
Intragovemmental
Securities:
Governmental
Securities:
UniroyalTech
All Others
Intragovemmental
Securities:
Amounts for Balance Sheet Reporting
Unamortized Required
Amortized (Premium) Market Investments, Market Value
Cost Method Discount Value Net Disclosure
55,295,501 3220,981 $5,074,520 $5.074,520
S 5,146 S — $ 3,615 S 3,615 53,615
51,243,052 S 51,514 1,191,538 SI.191,538
Page 96
EPA's FY 1998 Annual Financial Statements
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CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from responsible parties
(HP). Some RFs file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy settlements, EPA is an unsecured creditor
and is entitled to receive a percentage of the assets remaining after secured creditors have been satisfied. Some RPs satisfy
their debts by issuing marketable securities in the reorganized company. The Agency does not intend to exercise ownership
rights related to these securities, and instead will convert these securities to cash as soon as practicable.
Note 5. Accounts Receivable:
Intergovernmental Assets:
Accounts & Interest Receivable
Less: Allowance for Doubtful Accounts
Total
Governmental Assets:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Doubtful Accounts
Total
Superfund
$ 53,406
All Others
$ 71,880
$ 80,483
861,225
C349.6431
$ 8
166,644
(67.492^
The agency has incurred bad debts in relation to it's collection efforts for Superfund and All Others as follows:
Bad Debt Expense
Contra Bad Debt Expense
Net Bad Debt Expense
All Others
S 12,035
(306)
The Allowance for Doubtful Accounts is determined on a specific identification basis as a result of a case-by-case review
of receivables at the regional level, and a reserve on a percentage basis for those not specifically identified.
Note 6, Loans Receivable, Net - Non-Federal:
For the Asbestos Loan Program, loans disbursed from obligations made prior to FT 1992 are net of an allowance for
estimated uncollectible loans, if an allowance was considered necessary. Loans disbursed from obligations made after FY
1991 are governed by the Federal Credit Reform Act The Act mandates that the present value of the subsidy costs (i.e.,
interest rate differentials, interest subsidies, anticipated delinquencies, and defaults) associated with direct loans be recognized
as an expense in die year the loan is made. The net present value of loans is the amount of the gross loan receivable less the
present value of the subsidy.
An analysis of loans receivable and the nature and amounts of the subsidy and administrative expenses associated entirely
with Asbestos Loan Program loans is provided in the following sections.
EPA's FY 1998 Annual Financial Statements
Page 97
-------
Pre-Credit Reform
Post Credit Reform
Total
Loans
Receivable,
Grass. 1998
$ 76,074
56.086
Allowance
for 1998 *
(20.339)
Loans
Receivable,
Net -1998
$ 76,074
35.747
Allowance for Pre-Credit Reform loans = Allowance for Estimated Uncollectible Loan
Allowance for Post Credit Reform loans = Allowance for Subsidy Cost (present value)
Subsidy Expenses for Post Credit Reform Loans:
Current Year's Loans:
Total
S121
Interest
Differential
Expected
Defaults
Fee
Total Direct Loan Expenses: S2.731 $2.731
Other Information: At the end of FY 1998, $4.4 million for loan obligations established after credit reform remained
unpaid and were canceled, because the subsidy appropriated for these loans was also canceled. No expenses were incurred
for subsidy reestimates.
Note 7. Inventory and Related Property:
Superfund All Others
Operating Materials and Supplies Held for Use in Normal Operations S — S 74
Note 8. Property, Plant and Equipment - Net
Superfund properly, plant and equipment, consists of personal property items held by contractors and die Agency. EPA
also has properly funded by various other Agency appropriations. The property funded by these appropriations are presented
in the aggregate under "All Others" and consists of real, EPA-Held and Contractor-Held personal, and capitalized-leased
property.
Purchases of EPA-Held and Contractor-Held personal property are capitalized if the equipment is valued at $25 thousand
or more and has an estimated useful life of at least two years. The Agency depreciates EPA-Held personal property using
a straight-line method over the asset's useful life ranging from two to 15 years. Contractor-Held personal property is
depreciated over five years using a modified straight-line method. Real property, other than land, is capitalized when the value
is S75 thousand or more and is depreciated using the straight-line method over the specific asset's useful life ranging from
10 to 102 years. Leasehold improvements are amortized over the lesser of their useful lives or the unexpired lease term.
Late in fiscal 1997, the Agency implemented a new property -accounting and accountability system entitled the "Fixed
Assets Subsystem (FAS)". FAS replaced the Personal Property Accountability System (PPAS) and manually-maintained
spreadsheets to account for EPA-held personal and real property respectively. Historical data was converted to the FAS. In
fiscal 1998, a mass transfer of property was executed to the WCF from other appropriations.
Page 98
EPA's FY 1998 Annual Financial Statements
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The fiscal 1997 ending balances for real property was adjusted because an accounting omission in fiscal 1997 caused
real property to be understated by $435 thousand for die All Others appropriation. This resulted in an adjustment to property,
plant and equipment for All Others, with a corresponding adjustment to the capital asset component of equity. There was no
effect to the Statement of Operations and Changes in Net Position.
EPA-Held Equipment
Contractor-Held Equipment
Land and Buildings
Capital Leases (Note 1 1 }
Total PP&E
Note 9. Debt-
Schedule of Property, Plant, and Equipment by Fund
Superfund
All Others
Acquisition Accumulated Net Book Acquisition Accumulated
Value Depreciation Value Value Depreciation
$21,191
10,179
...
...
$(16,981) $4,210 $136,372
(7,829) 2,350 48,780
258,367
40,913
S6.560
$(97,462)
(44,240)
(68,142)
(8,077)
Net Book
Value
$38,910
4,540
190,225
32,836
$266.511
Other Debt - All Others
Debt to Treasury
Classification of Debt:
Intragovernmental Debt
Total Debt
10. Other Liabilities:
Beginning Balance
22
Net Borrowing Ending Balance
$ — S 37.922
Other Liabilities Covered by Budgetary Resources:
Intragovernmental -AllOthers
WCF Advances
Other
Total
Intragovernmental -Superfund
Other
Total
Non-Current
S —
I fi
Current
$2,181
6.154
S3.606
Total
$2,181
6.154
33.606
$3.606
EPA's FY 1998 Annual Financial Statements
Page 99
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All Others
Accrued Funded Payroll & Benefits
Custodial Liability
Other Liabilities
Total
Superfund
Cash Out - Non Federal
Resources Payable to Treasury
Other
Total
Other Liabilities Not Covered by Budgetary Resources:
All Others
Contingent Liabilities - Unfunded
Accrued Clean-up Costs - Unfunded
Accrued Unfunded Annual Leave
Total
Superfund
Accrued Unfunded Annual Leave
Total
Note 11. Leases:
Capital Leases:
Summary of Assets Under Capital Lease:
Land and Buildings
Accumulated Amortization
Non-Current
$46,258
129,304
$324,622
10,872
13.784
Non-Current
$335
74.209
$74.544
$ 0
Current
$10,254
944
11.689
$57,899
2,321
(14.982^
$45.238
Current
($128)
14,505
4.618
Total
$56,512
130,248
11.689
$382,521
13,193
H.198)
Total
$207
14,505
78.827
$16.618
$16.618
All Others
840,913
$8,077
EPA has three capital leases for land and buildings housing scientific laboratories and/or computer facilities. All of these
leases include a base rental charge and escalator clauses based upon either rising operating costs and/or real estate taxes. The
base operating costs are adjusted annually according to escalators in the Consumer Price Indices published by the Bureau of
.Labor Statistics (U.S. Department of Labor). These leases terminate in fiscal y-^ars 2010,2013 and 2025. The charges are
expended out of the EPM appropriation. The total future minimum lease payments of the capital leases are listed below.
Page 200
EPA's FY 1998 Annual Financial Statements
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Future Payments Due: All Others
Fiscal Year
1999 56,295
2000 6,295
2001 6,295
2002 6,295
2003 6,295
AfterS Years 108.785
Total Future Minimum Lease Payments 140,260
Less: Imputed Interest • (101.607")
Net Capital Lease Liability 38.653
Liabilities not covered by Budgetary Resources $ 38.653
Operating Leases:
Hie General Services Administration (GS A) provides leased real property (land and buildings) as office space for EPA
employees. GSA charges a Standard Level Users Charge mat approximates the commercial rental rates for similar properties.
EPA has five direct operating leases for land and buildings housing scientific laboratories and/or computer facilities.
Most of these leases include a base rental charge and escalator clauses based upon either rising operating costs and/or real
estate taxes. Hie base operating costs are adjusted annually according to escalators in the Consumer Price Indices published
by the Bureau of Labor Statistics (U.S. Department of Labor). Three leases terminate in 2000. In fiscal 1997 and 1998, EPA
entered into two leases, which terminate in fiscal 2017 and 2003 respectively. The charges are expended out of the EPM
appropriation. The total minimum future costs of the operating leases are listed below.
Fiscal Year
1999
2000
2001
2002
2003
Beyond 2003
Total Futoe Minimum Lease Payments
Note 12. Federal Employee and
FECA Accrual - Unfunded
FECA Liability - Unfunded
Total
All Others Superfund
S6,139 S —
6,109 —
36 —
34 —
34 —
334 -
S 12.686 S —
Veterans' Benefits:
Superfund
51,404
3.875
S5.279
EPA's FY 1998 Annual Financial Statements
Total Land & Buildings
56,139
6,109
36
34
34
234
512.686
All Others
56,398
15.099
521,497
Page 101
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Note 13. Unexpended Appropriations:
Unexpended
Appropriations:
Unobligated
Available
Unavailable
Undelivered Orders
Total
Super-fund
$ 220,352
2.585.608
All Others
S 1,376,968
99,362
8.351.470
S 9.827.800
Total
$ 1,597,320
99,362
10.937.078
Note 14. Amounts Held by Treasury:
Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship by the U.S. Department
of Treasury in the "Hazardous Substance Superfund Trust Fund" (Superfund) and the "Leaking Underground Storage Tank
Trust Fund" (LUST).
Superfund (Audited)
Superfund is supported primarily by an environmental tax on corporations, cost recoveries of funds spent to clean up
hazardous waste sites, and fines and penalties. Prior to December 31,1995, the fund was also supported by other taxes on
crude and petroleum and on the sale or use of certain chemicals. The authority to assess those taxes expired on December
31,1995 and has not been renewed by Congress. It is not known if or when such taxes will be reassessed in the future.
The following reflects the Superfund Trust Fund as maintained by the U.S. Department of Treasury. The amounts
contained in these statements have been provided by the Treasury. Outlays represent appropriations received by EPA's
Superfund Trust Fund, such funds are eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
Undistributed Balances:
Available for Investment
Unavailable for Investment
Total Undisbursed Balance
Investments, Net of Discounts
Total Assets
Liabilities & Equity
Debt
Equity
Total Liability and Equity
Combined
$ 980
S 980
5.074.520
S —
5.075.500
EPA
2.949.665
S 2.949.665
S —
2.941665
S 2.949.665
Treasury
S 980
Page 102
EPA's FY 1998 Annual Financial Statements
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Combined
EPA
Treasury
Receipts
Crude and Petroleum
Certain Chemicals
Corporate Environmental
Cost Recoveries
Fines & Penalties
Total Revenue
Appropriations Received
Interest Income
Total Receipts
Outlays
Return of Appropriations
Transfers to EPA
Total Outlays
Net Income
S (2,604)
2,413
79,060
319,605
S.044
403,518
250,000
291.816
S 945.334
$ (2,604)
2,413
79,060
319,605
5.044
403,518
250,000
291.816
$ 945.334
$ 35
1.473.197
1.473.232
LUST (Unaudited)
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. The following represents LUST
Trust Fund as maintained by the U.S. Department of Treasury. The amounts contained in these statements have been provided
by Treasury and are unaudited. Outlays represent appropriations received by EPA's LUST Trust Fund, such funds are
eliminated on consolidation with the LUST Trust Fund maintained by Treasury.
Undisbursed Balances
Available for Investment
Unavailable for Investment
Total Undisbursed Balance
Investments, Net of Discounts
Total Assets
Liabilities & Equity
Debt
Equity
Total Liability and Equity
Combined
126
S —
1.182.165
EPA
73.207
S —
73.207
Treasury
$ 126
126
1.108.832
1.108.958
S 1.108.958
EPA's FY 1998 Annual Financial Statements
Page 103
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Combined
EPA
Treasury
Receipts
Highway IF Tax
Airport TF Tax
Inland TF Tax
Gross Revenue
Less: Reimbursement to G/F
Net Revenue
Interest Income
Net Receipts
Outlays
Treasury Operating Expenses
Transfers to EPA
Total Outlays
Net Income
S 126,232
11,791
844
138,867
(2.6S4>
136,213
60.935
S 197.148
$ 126,232
11,791
844
138,867
(2.654)
136,213
60.935
$ 197.148
$ 125
(62.7581
(62.6331
Note 15. Contingencies:
EPA is a party in various administrative proceedings, legal actions, and claims brought by or against it These include:
Various personnel actions, suites, or claims brought against the Agency by employees and others.
Various contract and assistance program claims brought against the Agency by vendors, grantees and others.
The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include the collection of fines
and penalties from responsible parties.
Claims against recipients for improperly spent assistance funds which may be-settled by a reduction of future EPA
funding to the grantee or the provision of additional grantee matching funds.
Superfund
Under CERCLA /106 (a), EPA issues administrative orders that require parties to clean up contaminated sites. CERCLA
/106(b) allows a party mat has complied with such an order to petition EPA for reimbursement from the Fund of its reasonable
costs of responding to the order, plus interest To be eligible for reimbursement, the party must demonstrate either that it was
not a liable party under CERCLA /107 (a) for the response action ordered, or that the Agency's selection of the response
action was arbitrary and capricious or otherwise not in accordance with law.
There are currently thirteen CERCLA / 106(b) administrative claims and four pending lawsuits. If the claimants are
successful, the total losses on the administrative and judicial claims could amount to approximately $54,9 million and S5.3
million, respectively. The Environmental Appeals Board has not yet issued final decisions on the administrative claims;
therefore a definite estimate of the amount of the contingent loss cannot be made. The claimants chance of success in these
outstanding cases is characterized as reasonably possible. The claimants chance of success in three of the four pending
Page 104
EPA's FT 1998 Annual Financial Statements
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lawsuits is also reasonably possible. The outcome of die remaining lawsuit is considered as probable for the claimant totaling
$185 thousand.
There are a number of outstanding CERCLA i 106(a) cleanup orders where the recipients of the orders have not yet
completed the ordered response actions. Each such recipient could potentially file a claim with EPA for reimbursements
under CERCLA / 106(b) of its costs of responding to the order once it has completed the ordered actions.
EPA is responsible to indemnify response action contractors (CERCLA / 119) for legal costs that will eventually exceed
or have exceeded the deductible specified in the current indemnification agreements. Such payments by the United States
would be recoverable government response costs. EPA has only one claim which is considered remote.
EPA contractors have submitted response action contractor claims. No claims were material.
All Others
There were no material litigation, asserted or unasserted claims or assessments involving all other appropriated funds
of the Agency.
Judgement Fund
In cases which are paid by the U.S. Treasury Judgement Fund, the Agency must recognize the full cost of a claim
regardless of who is actually paying the claim. The Agency is involved in various other actions that in the aggregate do not
exceed $1.2 million. EPA also has one probable claim that is not estimable.
In addition, EPA is party to certain pending litigation upon which EPA believes it has a reasonable legal position. Ho
estimate has been provided for a loss.
In the opinion of EPA's management and General Counsel, the ultimate resolution of any legal actions still pending will
not materially affect EPA's operations or financial position.
Note 16. Grant Accrual:
Grant accruals represent grantee expenses that were not reported to EPA for reimbursement as of September 30,1998.
We selected a statistical sample of grant recipients from our grantee universe to use as our basis to calculate our accrual.
We sent confirmation letters to the sample grantees, asking them to provide the amount of unbilled grant expenses as of
September 30, 1998. We calculated the unbilled grant expense rates. Finally, we used weighted-average rates to compute
the overall unbilled grant expense accruals.
Superfund
All Others
S 22,867
$212,157
Note 17. Environmental Cleanup Costs:
EPA has five sites that require clean up stemming from its activities. Four of these sites will be paid from the Treasury
Judgement Fund amounting to $206 thousand. EPA estimates that clean up on the other site will be approximately one
thousand dollars. EPA also holds title to a site in Edison, New Jersey, which was formerly an Army Depot While EPA did
not cause the contamination, the Agency could potentially be liable for a portion of the clean up costs. However, it is expected
that the Department of Defense and the General Services Administration will bear all or most of the cost of remediation.
EPA's FY 1998 Annual Financial Statements
Page 105
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Future Clean up Cost
EPA has nine sites that require future clean up associated with permanent closure. The estimated cost will be
approximately $14.5 million. Since the clean up costs associated with permanent closure are not primarily recovered though
user fees, EPA has elected to recognize the estimated total cleanup cost as a liability upon implementation. EPA could also
be potentially liable for cleanup costs at two GSA-leased sites; however, the amounts are not known.
Of the $14.5 million, SI 1.9 million represents the estimated expense to close the current RTP research facility. These
costs will be incurred within the next three years. The $2.6 million represents the future decontamination and
decommissioning costs of EPA's research facilities.
Note 18. Superfund State Credits:
Authorizing statutory language for Superfund and related Federal regulations require States to enter into Superfund State
Contracts (SSCs) when EPA assumes the lead for a remedial action hi their State. The SSC defines the State's role in the
remedial action and obtains the State's assurance that they will share in the cost of the remedial action. Under Superfund's
authorizing statutory language, States will provide EPA with a ten percent cost share for remedial action costs incurred at
privately owned or operated sites, and at least fifty percent of all response activities (i.e., removal, remedial planning, remedial
action, and enforcement) at publicly operated sites. In some cases, States may use EPA approved credits to reduce all or part
of their cost share requirement that would otherwise be paid by the States. Credit is limited to State site-specific expenses
EPA has determined to be reasonable, documented, direct out-of-pocket expenditures of non-Federal funds for remedial
action. Once EPA has reviewed and approved a State's claim for credit, the State must first apply the credit at the site where
it was earned. The State may apply any excess/remaining credit to another site when approved by EPA. As of September
30,1998, total outstanding State credits has been estimated at $11 million.
Note 19. Superfund Preauthorized Mixed Funding Agreements:
Under Superfund Preauthorized Mixed Funding Agreements, settling Potentially Responsible Parties (PRPs) agree to
perform response actions at their sites with the understanding that EPA will reimburse the PRPs a percentage of their total
response action costs. EPA's authority to enter into mixed funding agreements is provided under Section 11 l(a)(2) of the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980. Under Section 122(b)(l)
of CERCLA, as amended by the Superfund Amendments and Reaumorization Act (SARA) of 1986, a PRP may assert a claim
against the Superfund Trust Fund for a portion of the costs they incurred while conducting a preauthorized response action
as agreed to under a mixed funding agreement As of September 30,1998, EPA had 12 outstanding preauthorized mixed
funding agreements with obligations totaling $44.5 million. A liability is not recognized for these amounts until the PRP's
work has been performed and has been approved by EPA for payment EPA will not disburse any funds under these
agreements, however, until the PRP's application, claim, and claims adjustment processes have been reviewed and approved
by EPA.
Note 20. Deferred Maintenance:
The EPA classifies property, plant, and equipment as following: 1) EPA-Held Equipment, 2) Contractor-Held
Equipment, 3) Land and Buildings, and, 4) Capital Leases. The condition assessment survey method of measuring deferred
maintenance is utilized. The Agency adopts requirements or standards for acceptable operating condition in conformance
with industry practices.
One deferred maintenance project was identified in the Land and Buildings category, with an estimated total cost of S325
thousand. This project included repairing and resurfacing weathered and cracked parking lots and driveways. In addition,
one deferred maintenance project was identified in the EPA-Held Equipment category with an estimated cost of S45 thousand.
Maintenance for gas chromatograph system was postponed until 1999. No deferred maintenance was reported for the other
two categories.
Page 106
EPA's FY 1998 Annual Financial Statements
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Note 21, Income and Expenses from other Appropriations:
The Statement of Net Cost reports program costs that include the full costs of the program outputs and consist of the
direct costs and all other costs that can be directly traced, assigned on a cause and effect basis, or reasonably allocated to
program outputs.
During FY1998, EPA had three appropriations which funded a variety of programmatic and non-programmatic activities
across the Agency, subject to statutory requirements. The Environmental Programs and Management (EPM) appropriation
was created to fund personnel compensation and benefits, travel, procurement, and contract activities. Two prior year
appropriations, Program and Research Operations (PRO) and Abatement Control and Compliance (AC&C) generated
expenses. PRO funded travel, personnel compensation and benefits. AC&C funded procurement and contract activities.
All of the expenses from EPM, PRO and AC&C were distributed among EPA's two Reporting Entities: Superfund and
All Others. This distribution is calculated using a combination of specific identification of expenses to Reporting Entities,
and a weighted average that distributes expenses proportionately to total programmatic expenses.
As illustrated below, this estimate does not impact the net effect of the Statement of Net Costs.
Superfund
All Others
Income From Other
Appropriations
$ 5,542
.(5,542)
Expenses From Other
iriations
($5,542)
5,542
Net Effect
S 0
0
Note 22. Working Capital Fund Rebate:
The Working Capital Fund's (WCF) net revenue of SI 11.6 millions is comprised of $3.9 million from postage operations
and S107.7 million from Enterprise Technology Services Division (ETSD). The WCF revenue reflects a $6.7 million rebate
mat was included in the September billing cycle. This was the result of an analysis of potential revenue versus projected cost
anticipated through the end of the year. The rebate was made during FY 1998 as the WCF refined its revenue to meet
appropriation requirements.
Note 23. Custodial Non-Exchange Revenues:
EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous receipts.
Collectability by EPA of the fines and penalties is based on the responsible parties' willingness and ability to pay.
Fines, Penalties & Miscellaneous Receipts
Fines, Penalties & Miscellaneous Revenue (EPA)
Accounts Receivable Fines, Penalties & Miscellaneous Receipts
Accounts Receivable
Less: Allowance for Doubtful Accounts
Accounts Receivable (Net)
$92.132
EPA's FY 1998 Annual Financial Statements
Page 107
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Note 24. Statement of Budgetary Resources:
A reconciliation of budgetary resources, obligations incurred, and outlays, as presented in the audited Statement of
Budgetaiy Resources, to amount included in the Budget of the United States Government for the year ended September 30,
1998, is as follows:
Audited Superfund Statement of Budgetaiy Resources
Restatement of Available Authority based on budget controls
Restatement of Reimbursable Authority
Recoveries netted with obligations
Receivables excluded from Statement of Budgetary Resources
Adjustments to Unliquidated Obligations results from audit review
Other (Note 25)
Budget of the United States Government
Budgetary
Resources
$2,197,026
(517,910)
1,536
175,925
375
Obligations
Incurred
51,495,558
(175,925)
41,364
83.917
Outlays
$1,377,023
(2,919)
614
Audited All Others Statement of Budgetary Resources $8,310,476
Restatement of Available Authority based on budget controls (83,980)
Restatement of Reimbursable Authority ' 12,244
Recoveries netted with obligations 48,808
Receivables excluded from Statement of Budgetary Resources
Adjustments to Unliquidated Obligations results from audit review
Other (Note 25) (28n
Budget of the United States Government S8.287.267
$6,592,535 $5,534,583
(48,808)
(69,987)
119,279
2.327 (1.504)
Note 25. Adjustments:
Includes a $375 thousand difference in Superfund and a $281 thousand difference in All Others.
Note 26. Unobligated Balances Available:
The Superfund Trust Fund has an unobligated balance of S701 million in unexpired authority. All Odiers has an
unobligated balance of $1.7 billion which includes SI.6 billion in unexpired authority and $99 million in expired authority.
The unexpired authority is available to be apportioned by nV. Office of Management and Budget for new obligations at die
beginning of FY1999. Unobligated balances of expired authority is not available for new obligations. However, the expired
authority is available for upward adjustments of obligations incurred as of the end of the fiscal year.
Page 108
EPA's FY 1998 Annual Financial Statements
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Note 27, Obligated Balance, Net - End of Period:
Undelivered Orders at the end of the period are $Z6 billion for the Superfund Trust Fund and $8.8 billion for All Others.
These amounts include adjustments of $16 million to die Superfund and $216 million to All Others. These adjustments are
primarily for additional grant accruals related to unbilled liabilities at the end of the fiscal year and for deobligations of
Undelivered Orders diat are no longer needed. These adjustments were not included in the Budget of the United States
Government
Note 28. Difference in Outlays Between Statement of Budgetary Resources and SF-133:
Outlays between the Statement of Budgetary Resources and the SF-133 differ by $2 million for Superfund and $72
million for All Others. Of the difference, $3 million for Superfund and $70 million for All Others is represented by the
exclusion of refunds receivable from the Obligated Balance, Net Beginning of Period on the Statement of Budgetary
Resources, whereas receivables had been included on the SF-133. The different presentations result from a change in policy
effective March 1, 1998, wherein receivables are not a budgetary resource until collected. Other outlay differences of $1
million for Superfund and $2 million for All Others are unidentified.
Note 29. Statement of Financing:
Increases in Unfunded Liabilities relate to unfunded annual leave and Federal Employees Compensation Act (FECA)
special benefit fund For Superfund, the amount totaled $3.8 million and is reflected in Financing Sources Yet To Be
Provided. For All Others, the amount was $7.9 million, which is included in the total Net Decrease in liabilities of $23.9
million.
Note 30. Other Financing Sources:
Consists primarily of Appropriations to EPA from the Superfund and Lust Trust Funds held at Treasury (Treasury Trust
Funds). Such appropriations are reported as non expenditure transfers on the financial statements of the respective Treasury
Trust Funds. Upon consolidation with Trust funds held by EPA, the Treasury Trust Fund Appropriation non expenditure
transfers are reported as Other Financing Sources to offset Appropriations Used and Trust Fund revenues.
Treasury Trust Fund Transfers
Other
Total
Superfund
$1,473,232
150.161
Lost
S 62,633
46.868
EPA's FY 1998 Annual Financial Statements
Page 109
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EPA Required Supplemental Information
Hazardous Substance Superfund Trust Fund and AD Other Funds
Supplemental Statement of Budgetary Resources (Unaudited)
As of September 30,1998
(Dollars in Thousands)
Environmental Miscellaneous Consolidated
Programs & Science & LUST All All
STAG Management Technology FTFRA Trust Fund Others Others
Budgetary Resources:
Budget Authority
Unobligated Balances - Beginning of
the Period
Spending Authority from Offsetting
Collections
Adjustments
Total Budgetary Resources
Status of Budgetary Resources:
Obligations Incurred
Unobligated Balances - Available
Total, Status of Budgetary Resources
Outlays:
Obligations Incurred
Less: Spending Authority from
Offsetting Collections and Adjustments
Obligated Balance, Net - Beginning
of Period
Less: Obligated Balance, Net - End
of the Period
Total Outlays
$3,213,125 $1,803,600 $631,000 $ — $65,000 $429,869 $6,142494
1,351,061
17,040
280,942 131,989
15,928
2,542 165^76 1,948,038
17,040 48,651 50,414 18,828 6 149,045 283,984
— (2.7041 9.614 §g 181 J7L32Q) .__flt4.14Ql
$823.017 $34.845 $67.729
$3,442,416
1.138.810
$1,884,842
245,647
$678328
144.489
$19,344
15.501
1.170 $8.310^76
$64,978 $502,427 $6,592,535
2.751 170.743 1.717.941
$823.017 $34.845 $67.729 $673.170
$3,442,416 $1,884,842 $678,528 $19,344 $64,978 $502,427 $6392335
74,074 45,485 18,917
187 101,991 257,694
6,185,434 974,037 411,169 1,493 71,167 306,731 7,950,031
7.013.753 944.098 517.570 1.517 74.687 198.664 8.750.289
$2.597.057 $1.840.707 $526.642 $ 403 SJJJL27J SSQSjOj
Page 110
EPA's FY 1998 Annual Financial Statements
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EPA Required Supplemental Information
Working Capital Fund
Supplemental Statement of Financial Position (Unaudited)
As of September 30,1998
(Dollars in Thousands)
ASSETS
Entity Assets:
Intragovemmental Assets:
Balance With Treasury
Avances and Prepayments
$41,040
1
Governmental Assets:
Operating Materials and Supplies, Net
Avances and Prepayments
Property and Equipment, Net
Other Governmental Assets
13
3
15,379
5.319
Total Assets
LIABILITIES
Intragovemmental Liabilities:
Accounts Payable
Other Intragovemmental Liabilities
$ 1,303
12,962
Governmental Liabilities:
Accounts Payable
Other Governmental Liabilities
Total Liabilities
33.300
NET POSITION
Balances:
Paid in Capital
Cumulative Results of Operations
23,293
5.162
Total Net Position
Total Liabilities and Net Position
28.455
S61.755
EPA's FY 1998 Annual Financial Statements
Page 111
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EPA Required Supplemental Information
Working Capital Fund
Supplemental Statement of Operations and Changes in Net Position (Unaudited)
As of September 30,1998
(Dollars in Thousands)
REVENUE AND FINANCING SOURCES
Revenues from Services to the Public
Other Revenues and Financing Sources
Less: Rebate - WCF
Total Revenues and Financing Sources
$118,309
6,584
6.696
118.197
EXPENSES
Program or Operating Expenses
Imputed Expenses
Depreciation and Amortization
Funded Accrued Annual Leave
Loss on Sale of Assets
Total Funded Expenses
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
98,748
6,584
8,570
135
53
114.090
$ 4.107
NET POSITION
Net Position, Beginning Balance
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
Plus (Minus) Non Operating Changes
$ 20,550
4,107
3.798
Net Position, Ending Balance
Page 112
EPA's FY 1998 Annual Financial Statements
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EPA Required Supplemental Information
Annual Stewardship Information
For the Fiscal Year Ended September 30,1998
INVESTMENT IN THE NATION'S RESEARCH
AND DEVELOPMENT:
Public and private sector institutions have long been
significant contributors to our nation's environmental and
human health research agenda. EPA's Office of Research
and Development, however, is unique among scientific
institutions in this country in combining research,
analysis, and the integration of scientific information
across the full spectrum of health and ecological issues
and across both risk assessment and risk management
This broad scope has resulted in scientific and
engineering expertise, physical facilities, and equipment
that permit and encourage integrated multimedia and
multidisciplinary research on environmental issues. As
pan of a regulatory Agency mat establishes national
priorities and sets national standards, ORD research is
conducted to protect human and ecosystem health in a
cost-effective manner and to provide a firm scientific and
technical foundation for environmental decisions and
standards.
Among the Agency's highest research priorities is a
program to expand the understanding of near- and long-
term effects of the environment on children. Another
priority is the Paniculate Matter (PM) research program,
which focuses on review, implementation, and eventual
attainment of the National Ambient Air Quality Standards
(NAAQS). For FY 1998, the full cost of the Agency's
Research and Development activities totaled $561
million. A breakout of the expenses is below (Dollars in
thousands):
Programmatic Expenses:
Allocated Expenses:
INVESTMENT IN
INFRASTRUCTURE:
$507,828
$ 53,322
THE NATION'S
The Agency makes significant investments in the
Nations's drinking water and clean water infrastructure.
The investments are the result of three programs: The
Construction Grant Program which is being phased out,
and two State Revolving Fund programs.
Construction Grants Program: During the 1970s and
1980s, the Construction Grants Program was a source of
federal funds, providing more than $60 billion of direct
grants for the construction of public wastewater treatment
projects. These projects, which constituted a significant
contribution to the nation's water infrastructure, included
sewage treatment plants, pumping stations, and collection
and intercept sewers, rehabilitation of sewer systems, and
the control of combined sewer overflows. The
construction grants led to the improvement of water
quality in thousands of municipalities nationwide.
Congress set 1990 as the last year that funds would be
appropriated for Construction Grants. Projects funded in
1990 and prior will continue until completion. Beyond
1990, EPA shifted the focus of municipal financial
assistance from grants to loans mat are provided by State
Revolving Funds.
State Revolving Funds: The Environmental Protection
Agency provides capital, in the form of capitalization
grants, to state revolving funds which state governments
use to make loans to individuals, businesses, and
governmental entities for the construction of water
treatment infrastructure. When the loans are repaid to the
state revolving fund, the collections are used to finance
new loans for new construction projects. The capital is
reused by the states and is not returned to the Federal
Government.
The Agency is also appropriated funds to finance the
construction of infrastructure outside the Revolving
Funds. These are reported below as Other Infrastructure
Grants.
The Agency's expenses related to investments in the
Nation's Water Infrastructure are outlined below:
Construction Grants:
Clean Water SRF:
Safe Drinking Water SRF:
Other Infrastructure Grants:
Allocated Expenses:
$ 444,817
$1,109,017
S 94,936
S 138,363
S 187,649
EPA's FY 1998 Annual Financial Statements
Page 113
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STEWARDSHIP LAND
The Agency holds title to certain land and land rights
related to remedial clean-up sites. The land rights are in
the form of easements to allow access to clean-up sites or
restrict usage of remediated sites. In some instances, the
Agency takes title to the land during remediation, and
returns it to private ownership upon the completion of
clean-up.
As of 9/30/98, the Agency possesses the following land
and land rights:
Superfund Sites with Easements 22
Superfund Sites with Land acquired 18
HUMAN CAPITAL
Agencies are required to report expenses incurred to train
the public with the intent of increasing or maintaining the
nation's economic productive capacity. Training, public
awareness, and research fellowships are components of
many of the Agency's programs, and are effective in
achieving the Agency's mission of protecting public
health and the environment, but the focus is on enhancing
the nation's environmental, not economic, capacity.
Training and Awareness Grants S39,131
Fellowships $11,084
Allocated Expenses S 5,273
Page 114
EPA's FY 1998 Annual Financial Statements
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EPA's FY 1998 Annual Financial Statements
Page 115
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ACRONYMS
ACPs
AFO
AHERA
ALAPCO
AMI
ANPRM
AOC
APGs
APO
ASHAA
BBDR
BCCP
BEACH
BECC
B&F
BRLF
BRS
CAA
CAFO
CAGs
CAMEO
CBEP
CCAP
CCL
CDC
CEPPO
CERCLA
CFCs
CFO Act
CHAD
CI
CDPP
COOP
CSI
CSRS
CTAC
CWA
CWSRF
Area Contingency Plans
Animal Feeding Operations
Asbestos Hazard Emergency Response Act
Association of Local Air Pollution Control Officials
Advanced Measurement Initiative
Advanced Notice of Proposed Rulemaking
Administrative Order on Consent
Annual Performance Goals
Administrative Penalty Order
Asbestos School Hazard Abatement Act
Biologically Based Dose Response
Business Continuity and Contingency Planning
Beaches Environmental Assessment, Closure, and Health
Border Environment Cooperation Commission
Buildings and Facilities
Brownfields Revolving Loan Fund
Biennial Reporting Systems
Clean Air Act
Concentrated Animal Feeding Operations
Community Advisory Groups
Computer Aided Management of Emergency Operations
Community Based Environmental Programs
Climate Change Action Plan
Contaminant Candidate List
Centers for Disease Control
Chemical Emergency Preparedness and Prevention Office
Comprehensive Environmental Response, Compensation and Liability Act
Chlorofluorocarbons
Chief Financial Officers Act of 1990
Consolidated Human Activity Database
Compression Ignition
Critical Infrastructure Protection Plan
Continuity of Operations Planning
Common Sense Initiative
Civil Service Retirement System
Combustion Technical Assistance Center
Clean Water Act
Clean Water State Revolving Fund
EPA's FY 1998 Annual Financial Statements
Page 117
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CZARA
Coastal Zone Act Reauthorization Amendments
DBFs
DCIs
DEIS
DOE
DOJ
DWSRF
ECOS
EDA
EJP
EPA
EPCRA
EPM
ETS
ETSD
FACA
FAS
FASAB
FEMA
FERS
FFDCA
FFMIA
FIFRA
FIFRA'88
FMFIA
FQPA
FRM
FRP
FWPCA
FY
GLCPA
GMRA
GPRA
GS
GSA
Disinfection By-Products
Data Call-ins
Draft Environmental Impact Statement
Department of Energy
Department of Justice
Drinking Water State Revolving Fund
Environmental Council of the States
Economic Development Administration
Environmental Justice Program
Environmental Protection Agency
Emergency Planning and Community Right-To-Know Act
Environmental Programs and Management
Environmental Tobacco Smoke
Enterprise Technology Services Division
Federal Advisory Committee Act
Fixed Assets Subsystem
Federal Accounting Standards Advisory Board
Federal Emergency Management Agency
Federal Employees Retirement System
Federal Food, Drug and Cosmetic Act
Federal Financial Management Improvement Act
Federal Insecticide, Fungicide and Rodenticide Act
1988 Amendments to FJFRA
Federal Managers Financial Integrity Act
Food Quality Protection Act
Final Rulemaking
Facility Response Plan
Federal Water Pollution Control Act
Fiscal Year
Great Lakes Critical Protection Act
Government Management Reform Act of 1994
Government Performance and Results Act of 1993
General Schedule
General Services Administration
HABs
HAPs
HCBD
HCFCs
Harmful Algal Blooms
Hazardous Air Pollutants
Hexachlorobutadiene
Hvdrofluorocarbons
Page 118
EPA's FY 1998 Annual Financial Statements
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HHS
HQ
HSWA
HUD
HWIR
IAQ
IDEA
ffiSWT
IG
fflS
IM
IR-4 Program
IRIS
ITC
IWI
LAN
LDR
LEPCs
LUST
MACT
MAIA
MARSSIM
MIMS
MMTCE
MOA
MPG
MPPRCA
MPRSA
MSW
NAAQS
NAFTA
NAPLs
NAREL
NCP
NEPA
NEPPS
NGA
NHAPS
NHEXAS
NO,
Health and Human Services
Headquarters
Hazardous and Solid Waste Amendments
Housing and Urban Development
Hazardous Waste Identification Media and Process Rule
Indoor Air Quality
Integrated Data for Enforcement Analysis
Interim Enhanced Surface Water Treatment
Inspector General (also Office of Inspector General)
Indian Health Services
Inspection and Maintenance
Inter-Regional Research Project Number 4
Integrated Risk Information System
Interagency Testing Committee
Index of Watershed Indicators
Local Area Network
Land Disposal Restrictions
Local Emergency Planning Committees
Leaking Underground Storage Tank
Maximum Achievable Control Technology
Mid Atlantic Integrated Assessment
Multi-Agency Radiation Survey and Site Investigation Manual
Multimedia Integrated Modeling System
Million Metric Tons of Carbon Equivalent
Memorandum of Agreement
Miles Per Gallon
Marine Plastics Pollution Research and Control Act
Marine Protection, Research and Sanctuaries Act
Municipal Solid Waste
National Ambient Air Quality Standards
North American Free Trade Agreement
Non-Aqueous Phase Liquids
National Air and Radiation Environmental Laboratory
National Contingency Plan
National Environmental Policy Act
National Environmental Performance Partnership Program
National Governors Association
National Human Activity Patterns Survey
National Human Exposure Assessment Survey
Nitrogen Oxide
EPA's FY 1998 Annual Financial Statements
Page 119
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NOAA
NODAs
NPDES
NPL
NFS
NSR
NSR/PSD
NVFEL
OAQPS
OAR
OC
OCFO
OECA
OECD
OERR
OIG
OMB
OPA
OPPT
ORD
OSLTF
OSPS
OSRE
OSW
OSWER
OTAG
OTR
OUST
OW
PALs
PBTs
PCBs
PDD
PM
PM2.5
PM10
PMN
PPA
PP&E
PPAS
PPGs
PRO
National Oceanic and Atmospheric Administration
Notices of Data Availability
National Pollutant Discharge Elimination System
National Priorities List
Nonpoint Source
New Source Review
New Source Review/Prevention of Significant Deterioration
National Vehicle and Fuel Emissions Laboratory
Office of Air Quality Planning and Standards
Office of Air and Radiation
Office of the Comptroller
Office of the Chief Financial Officer
Office of Enforcement and Compliance Assurance
Organization for Economic Cooperation and Development
Office of Emergency and Remedial Response
Office of Inspector General
Office of Management and Budget
Oil Pollution Act
Office of Pollution Prevention and Toxics
Office of Research and Development
Oil Spill Liability Trust Fund
Outreach and Special Projects Staff
Office of Site Remediation Enforcement
Office of Solid Waste
Office of Solid Waste and Emergency Response
Ozone Transport Assessment Group
Ozone Transport Region
Office of Underground Storage Tanks
Office of Water
Plant-wide Applicability Limits
Persistent Bioaccumulative Toxics
Polychlorinated Biphenyls
Presidential Decision Directive
Paniculate Matter
Fine Particulate Matter
Coarse Particulate Matter
Premanufacture Notice
Pollution Prevention Act
Property, Plant and Equipment
Personal Property Accountability System
Performance Partnership Grants
Program and Research Operations
Page 120
EPA's FY 1998 Annual Financial Statements
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PRPs
PRTRs
PSD
PWS
PWSS
RBCA
RCRA
RCRIS
RD/RA
RED
RIA
ROD
RMPs
RP
SARA
SDWA
SDWIS
SEPs
SERCs
SFFAS
SHP
SIPs
SITE
SPA
SO2
SOL
SOS
SPA
SPCC
SRF
SSCs
S&T
STAPPA
STAG
SWAP
SWTR
Potentially Responsible Parties
Pollutant Release and Transfer Registries
Prevention of Significant Deterioration
Public Water System
Public Water System Supervision
Risk-Based Corrective Action
Resource Conservation and Recovery Act
Resource Conservation and Recovery Information System
Remedial Design and Remedial Actions
Reregistration Eligibility Decision
Regulatory Impact Analysis
Record of Decision
Risk Management Plans
Responsible Party
Superfund Amendments and Reauthorization Act
Safe Drinking Water Act
Safe Drinking Water Information System
Supplemental Environmental Projects
State Emergency Response Commissions
Statement of Federal Financial Accounting Standard
Sector Facility Indexing Project
State Implementation Plans
Superfund Innovative Technology Evaluation
Shore Protection Act
Sulfur Dioxide
Statute of Limitation
Southern Oxidant Study
Shore Protection Act
Spill Prevention Control and Countermeasures
State Revolving Fund
Superfund State Contracts
Science and Technology
State and Territorial Air Pollution Program Administrators
State and Tribal Assistance Grants
Source Water Assessment Program
Source Water Treatment Rule
TEA-21
TMDL
TRI
TSCA
Transportation Equity Act for the 21st Century
Total Maximum Daily Load
Toxic Release Inventory
Toxic Substances Control Act
EPA's FY 1998 Annual Financial Statements
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UAOs
UIC
UNECE
USDA
UST
UWAs
WCF
WIN
WIPP
WMPT
WRDA
Y2K
1,3-BCP
Unilateral Administrative Orders
Underground Injection Control
United Nations Economic Commission for Europe
U.S. Department of Agriculture
Underground Storage Tank
Unified Watershed Assessments
Working Capital Fund
Waste Information Needs
Waste Isolation Pilot Plant
Waste Management Prioritization Tool
Water Resources Development Act
Year 2000
1,3-Bichloropropne
Page 122
EPA's FY 1998 Annual Financial Statements
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For more information, contact:
Financial Management Division
U.S. Environmental Protection Agency
401M Street, SW (2733R)
Washington, DC 20460
EPA's FY 1998 Annual Financial Statements
Page 123
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APPENDIX II
AGENCY'S RESPONSE TO THE DRAFT REPORT
Audit Report 99B0003
-------
August 16, 1999
MEMORANDUM
SUBJECT: Audit of EPA's Fiscal 1998 Financial Statements
Draft Audit Report No. El AML8-20-7017
FROM: Sallyanne Harper /s/
Chief Financial Officer (2710)
TO: James O. Rauch
Assistant Inspector General for Audit (2421)
Thank you for providing us the opportunity to comment on and provide our consolidated
response to the recommendations made in the draft Fiscal 1998 Financial Statement audit report.
Attachment I contains both the general and specific comments on the draft audit report.
Attachment n contains the Agency's consolidated response to the report's recommendations.
We appreciate the cooperation of you and your staff over the past several months to
resolve outstanding issues. We also appreciate your offers to participate with us on various
workgroups, such as the systems replacement workgroup, to address a number of issues raised in
the audit.
As you know, we are committed to continued improvements in financial management,
with specific emphasis on improving the process that produces the Agency's financial statements.
We have provided, in Attachment JJ, information on the actions that are planned or are already
underway to implement improvements in the areas cited in your draft report. However, there are
several recommendations that the draft audit report classified under reportable conditions that we
believe should not be included in this category. The basis for our opinion on their classification is
described in the Attachments. With respect to compliance with the Federal Financial Management
Improvement Act, we continue to believe that we are substantially in compliance with the
requirements of that law. In those areas where the audit cites deviations from procedural
requirements, we have documented the steps we have taken to remedy those findings.
If you have any questions regarding our response, please contact Jack Shipley, Director of
the Financial Management Division, at 202-564-4905.
Attachments
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Steven A. Herman, Assistant Administrator for Endorsement and Compliance
Assurance (2201 A)
Romulo L. Diaz, Assistant Administrator for Administration and Resources
Management (3101)
Inspector General (2410)
Assistant Administrator for Administration and Resources Management (3101)
Acting Assistant Administrator for Solid Waste and Emergency Response (5101)
Assistant Administrator for Enforcement and compliance Assurance (2201 A)
General Counsel (2310)
Comptroller (2731)
Director, Office of Administration (3201)
Director, Office of Acquisition Management (3801R)
Director, Office of Grants and Debarment (3901R)
Director, Office of Administration and Resources Management, Cincinnati, OH
Director, Office of Administration and Resources Management, RTF, NC
Acting Director, Office of Information Resources Management (3401)
Director, Office of Site Remediation Enforcement (2271 A)
Director, Office of Emergency and Remedial Response (5201G)
Director, Annual Planning and Budget Division (2732)
Director, Grants Administration Division (3903R)
Director, Enterprise Systems Division (3409)
Director, Facilities Management and Services Division (3204)
Director, Financial Services Division (2734R)
Director, Enterprise Technology Services Division, OIRM, RTF, NC
Financial Management Officers at Regions 1,2,3,4, 5, and 9, Cincinnati, Las Vegas, and
Research Triangle Park
Divisional Inspectors General for Audit
Chief, Financial Reports and Analysis Branch (2733R)
Chief, Program and Cost Accounting Branch (2733R)
Chief, Financial Systems Branch (2733R)
Chief, Financial Policies, Procedures and Compliance Branch (2733R)
Chief, Washington Financial Management Center (2734R)
Acting Chief, Security and Property Management Branch (3204)
Kathy Sedlak O'Brien, Agency Audit Follow-up Coordinator (2724)
Brigid Rapp, Audit Liaison for the Office of the Chief Financial Officer (2710)
Saundra Womack-Butler, Audit Liaison for the Office of Administration and Resources
Management (3102)
Gwendolyn Spriggs, Audit Liaison for Office of Acquisition Management (3802R)
Elizabeth Harris, Audit Liaison for the Office of Solid Waste and Emergency Response (5103)
Tom Pastore, Audit Liaison for the Office of Administration (3201)
Linda Garrison, Audit Liaison for the Office of Information Resources Management (3401)
Greg Marion, Audit Liaison for the Office of Enforcement and Compliance Assurance (2201 A)
John Showman, Audit Liaison for the Grants Administration Division (3901R)
Pat Gilchriest, Audit Liaison for the Administrator's Office (1104)
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Al Demarcki, Audit Liaison for the Financial Management Division and the Financial Services
Division (2733R)
William Stewart, Audit Liaison for the Office of General Counsel (2311)
Roland Cyr, Audit Liaison for the Financial Audit Division (2422)
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ATTACHMENT I
GENERAL AND SPECIFIC COMMENTS ON THE DRAFT AUDIT REPORT
E1AML8-20-7017
FISCAL YEAR 1998 FINANCIAL STATEMENTS AUDIT
EXECUTIVE SUMMARY
Evaluation of Internal Control
Page ii. Material Weakness. Second Paragraph. Second Sentence
The draft audit report points out difficulties in preparing the financial statements and notes
"conversion of accounting information from EPA's predecessor accounting system" as one of the
weaknesses. The OIG found only six grants in error out of the numerous open obligations
converted, and the balances for these six grants were not material to the financial statements. In
addition, SFOs received procedures on how to review the converted data and enter any missing
obligations. Based on these considerations, we believe that the presentation of the 1989 data
conversion as a serious weakness is not warranted. [See Appendix HI, Note 1 for additional
OIG Comments]
Page ii. Reportable Conditions
The report includes documenting automated controls within the Agency's accounting system as a
reportable condition. The accounting system documentation is in compliance with the applicable
Federal financial system requirements as determined by a recent independent review conducted
by the Department of Treasury's Financial Management Service Center for Applied Financial
Management. Consequently, the accounting system documentation should not be considered a
reportable condition. [See Appendix HI, Note 2 for additional OIG Comments]
Page U last paragraph. Page iii. First Paragraph, and on Pages 12 and 13. "Other
Noncompliance Issues."
"EPA is not complying with appropriation law when making disbursements for
grants funded with more than one appropriation."
The report recognizes that this finding did not cause a material misstatement to the financial
statements nor was it a substantial noncompliance. Nonetheless, the audit report describes the
issue as "significant." Regarding current status, for the past few months, we have been
providing information to OGC so that OGC can finalize its legal opinion on our accounting
practices with respect to grants funded with multiple appropriations. While we expect this
process to proceed expeditiously, and we will make changes in our accounting practices if
required as a result of OGC's opinion, we disagree with the classification of this issue. First,
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only a very small percentage of Agency grants currently have balances of unliquidated
obligations from more than one appropriation-we estimate 1% or less now, and declining (see
second point below). The Grants Adrninistration Division has acted to discourage multiple
appropriation funded grants in response to the OIG's recommendations on this issue in prior
reports, which has reduced the number of affected grants. And as we have noted in earlier
communications, the OIG's concerns are about a temporary charging situation, and when grants
are closed, charges would have been made to the appropriate accounts. Second, and very
important, Policy Announcement 98-10, Accounting for Resources under the Government
Performance and Results Act (GPRA), changed the way that grants, as well as other Agency
transactions, are charged. For all grants funded with FY99 and later funds, obligations and
payments are allocated to PRCs, which are appropriation specific, and therefore the temporary
charging practices that were of concern are resolved. Because of the changes in grant award
practices and the very major change in accounting policies and procedures, we believe the
residual of multiple appropriation funded grants does not merit reporting as a significant finding
and should be excluded from the final report [See Appendix in, Note 3 for additional OIG
Comments]
Compliance with the Federal Financial Management Improvement Act
Page iii. Second Paragraph
While we agree with the audit that we are, to a degree, in non-compliance with the Federal
Financial Management Improvement Act (FFMIA), we disagree that our systems are in
substantial non-compliance. We requested the Department of Treasury's Financial Management
Service Center for Applied Financial Management to review EPA's financial and "mixed"
systems. After a review of both our documentation and actual procedures, Treasury has
informed us that these systems meet OMB Circulars A-127 and A-130 in all material respects.
Based on this review and the preliminary conclusions from a separate review conducted by the
National Security Agency (NSA), we disagree with the audit's finding that these systems are in
substantial non-compliance with the FFMIA. [See Appendix HI, Note 4 for additional OIG
Comments]
Page iv
The draft report recommends we develop a remediation plan to address the Federal Financial
Management Improvement Act (FFMIA) audit issues and recommendations. We will prepare
action plans to address security weaknesses and areas of non-compliance, as appropriate.
However, a remediation plan is unnecessary based on our position that the financial systems are
in substantial compliance with FFMIA requirements. [See Appendix HI, Note 5 for additional
OIG Comments]
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INTRODUCTION
EVALUATION OF INTERNAL CONTROL
Page 6. Material Weaknesses, Second Paragraph, Second Sentence
The report points out difficulties in preparing the financial statements and notes "conversion of
accounting information from EPA's predecessor accounting system" as one of the weaknesses.
The OIG found only six grants in error out of the numerous open obligations converted, and the
balances for these six grants were not material to the financial statements. In addition, SFOs
received procedures on how to review the converted data and enter any missing obligations.
Based on these considerations, we believe that the presentation of the 1989 data conversion as a
serious weakness is not warranted. [See Appendix 1H, Note 1 for additional OIG
Comments]
Page 8. fourth bullet item, third sentence.
"Agency management believes the documentation is sufficiently detailed, but
acknowledges the IFMS data dictionary should be upgraded.*'
We acknowledge that the IFMS data dictionary could be improved, but also believe that the
recommended IFMS data dictionary enhancements and related on-going maintenance would only
be cost effective, given the system's maturity and life-cycle stage, in the context of the
replacement of our legacy systems. [See Appendix m, Note 6 for additional OIG
Comments]
Pages 8-10. starting with the fifth bullet item
The draft audit report discusses controls and processes managed by OIRM. The OIG issued
specific audit reports covering these issues to the Director for Information Resources
Management, and we recognize that OIRM will respond directly to these issues.
Page 10, First Sentence
The report states that the systems issues addressed to the Director for Information Resources
Management "warrant mention in this report because they relate to the Agency's financial
statements." Although this appears to be a statement of the obvious interrelationships of all parts
of a "system," we have not had a detailed discussion of this issue. We request the audit report
elaborate on how the issues raised on the regional systems and with OIRM on pages 8-10 relate
to the financial statements. Because of OCFO's responsibility for the integrity of all Agency
financial systems, we are eager to work with OIRM and OIG to address any and all systems
issues related to financial statements. [See Appendix in, Note 7 for additional OIG
Comments]
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Page 10. Second to last Paragraph
The report discusses an audit of the contract covering the operations, maintenance, and
enhancement of IFMS, MARS, and CPARS. We recommend that this discussion be removed
from this section since it appears to address a different topic and does not relate to the financial
statements. [See Appendix IH, Note 8 for additional OIG Comments]
Page 11. third bullet
This section of the report discusses deficiencies in the Agency's security planning. With regard to
financial systems, we believe the financial and "mixed" systems are in substantial compliance with
the applicable requirements of FFMIA, as we discussed previously in this Attachment. [See
Appendix m, Notes 4 and 5 for additional OIG Comments]
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
Page 12. Federal Financial Management Improvement Act Compliance Section
"We found EPA was not in substantial compliance with the FFMIA requirements
because of weaknesses in the Agency's financial statement preparation process."
We agree that the Agency's financial statement process needs improvements to ensure timeliness.
However, as we note in our "General Comments" below, we do not agree that the financial
statement process is hi substantial non-compliance with FFMIA.
We also disagree with the following sentence: "As a result, the Agency does not have reasonable
assurance that existing controls would prevent unauthorized disclosure or manipulation of data,
..." As noted above, Treasury's Financial Management Service Center for Applied Financial
Management recently issued reports on nine EPA financial and "mixed" systems. These systems
were found to meet OMB Circular A-127 and A-130 requirements "in all material respects." [See
Appendix HI, Note 9 for additional OIG Comments]
MATERIAL WEAKNESSES
IMPROVEMENTS NEEDED IN THE AGENCY'S PROCESS FOR PREPARING
FINANCIAL STATEMENTS AND AGENCY ENCOUNTERED SIGNIFICANT
DIFFICULTIES IN PREPARING THE STATEMENTS OF BUDGETARY RESOURCES
AND FINANCING
GENERAL COMMENT
This is a consolidated response to the two proposed material weaknesses entitled
'Improvements Needed in the Agency's Process for Preparing Financial Statements" and
"Agency Encountered Significant Difficulties in Preparing the Statements of Budgetary
Resources and Financing." The first finding addresses financial statement preparation in
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general, and the second addresses difficulties specific to the preparation of one statement, the
Statement of Budgetary Resources. We found many of the reported issues and recommendations
overlapped, and believe a comprehensive analysis will be more beneficial for the Agency.
Management's goal is to prepare reliable, timely Financial Statements. The unqualified audit
opinions on the FY 1998 Financial Statements demonstrates the accomplishment of our reliability
objective. The primary focus of both audit findings was on making improvements to accomplish
our timeliness objective. We agree with the draft report that the financial statement preparation
and audit processes require substantial coordination among EPA offices. We have developed a
comprehensive strategy for FY 1999 which will facilitate our offices' accomplishment of meeting
the March 1,2000, deadline. We are finalizing our FY 1999 financial statement preparation and
audit action plan and will discuss it with the OIG for their concurrence upon review and approval
by OCFO.
Several of the delays cited in the two findings highlight the need for improved coordination and
cooperation between our offices. We should note that in all instances our Offices reached
agreement prior to the delay, and some delays, such as with the Required Supplemental
Stewardship Information, were at the OIG's request. [See Appendix m, Note 10 for additional
OIG Comments]
Page 1-1, paragraph 1
"...our Office and the Office of the Chief Financial Officer agreed that the OCFO
would provide us a complete set of draft financial statements...by November 17,
1998,.. Although committed to the above milestones, the OCFO encountered
difficulties in preparing, reliable, financial statements...and did not meet the March
1 report issuance date/'
In the planning phase of the audit, our offices agreed that it was not prudent to delay the
submission of draft financial reports until all external data components were available to
management and incorporated into the draft. The incomplete line items and footnotes cited in the
Draft Audit Report were covered by this agreement. The supporting schedules provided to the
OIG in July 1999 were the result of audit inquiries arising from the field audit work being done at
that date. While this audit process was marked by a high degree of cooperation between our
Offices, we recognize there is always room for improvement and that improved coordination
would have likely prevented much of the confusion that caused the delays. [See Appendix HI,
Note 11 for additional OIG Comments]
Page 1-2, Paragraph 1, Obtaining Information from Other Agency Offices and External
Sources
'Delays in obtaining information from various entities inside and outside the
Agency prevented the timely calculation of the grant accrual, deferred maintenance,
and environmental liability amount.*'
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We agree that the current process is cumbersome and imposes undue reporting requirements on
the public. We are hopeful that we can reach agreement on a more efficient methodology for FY
1999 such as an analytical approach to compute this accounting estimate without sending
questionnaires to the Agency's grantees . We plan to meet with the OIG soon on this issue.
Page 1-2. Paragraph 2, Implementing New Financial Accounting Standards and OMB
Financial Statement Guidance
The discussion in the draft audit report of the implementation of the Supplementary Stewardship
Reporting is factually inaccurate in several key regards. A draft of the report was provided to the
OIG on November 17,1998, along with the Agency's draft financial statements. This draft
included complete data for investment in non-federal property, investment in research and
development, and stewardship land. As agreed, human capital was not included in the draft
because there were questions about the applicability of the standard to EPA's training and
awareness grant programs.
To help resolve the question of applicability, the OIG committed to perform additional research
that supported their position and to provide a fact sheet for FMD to review by October 31,1998.
If there was still disagreement, the parties agreed to discuss the matter with the Executive
Director of the FASAB. The OIG's fact sheet was not completed until November 14, 1998,
which delayed the meeting with FASAB until November 19.
After the meeting with FASAB, FMD agreed to include human capital in the 1998 Stewardship
Report. FMD issued a second draft of the Stewardship Report on December 6 which included
human capital. In October 1998, FMD and the OIG agreed that the activities in question of being
human capital investment could be captured by running a simple report for two grant sub-object
classes. This data was available for audit in October 1998, but we did not receive audit questions
until December 1998, when the audit began. [See Appendix m, Note 12 for additional OIG
Comments]
Page 1-4. First Paragraph
OIG staff agreed that the BFY 1989 and prior balances for unliquidated obligations and budget
authority are not materially misstated. Therefore, the reference to conversion problems should be
deleted from the audit report — in the first paragraph of page 1-4 of the draft report, and also in
the "Data Conversion Errors" section of page 1-6. Since only $7.5M of the $239.9 M
unliquidated obligations from BFY 1989 and prior where conversion errors, there is concrete
evidence that this problem could not "have occurred in all unliquidated obligation balances
appropriated in 1989 and prior."
The draft audit report includes incorrect amounts on page 1-5. "Agency's Actions to Correct
Weakness in the Fiscal 1998 Deobligation Process," understates the amounts of unliquidated
obligations reviewed. The correct amounts are as follows: $153.9M for lAGs, $45.8M for
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contracts, $704.4M for nonconstruction grants, and $324.8M for construction grants. [See
Appendix ID, Note 13 for additional OIG Comments]
Page 1-5. First and Second paragraphs
Unliquidated Obligation (ULO) balances were reported in the CFO Financial Statements for the
first time in FY 1998. The Agency reviews inactive unliquidated obligation balances annually, and
program managers are instructed to initiate deobligation action for all unneeded balances.
After audit field work began, the OIG raised two distinct issues: 1) ULO balances at year end
were significantly overstated; and 2) the beginning balance at 10/1/98 must be reviewed to ensure
an accurate beginning balance.
Management developed methodologies to resolve the issues, developed corrective action plans,
and agreed with the OIG on time frames to resolve the issues for the FY 1998 Financial
Statements. Management and the OIG met with GAO and OMB on January 27,1999, and
agreed EPA would proceed with a special review to ensure fair presentation of ULO balances.
The sentiment among all parties was that it was better for EPA to submit financial statements with
unqualified audit opinions after March 1, 1999, than to submit unreliable statements on time.
EPA's financial managers completed the ambitious action plan and delivered the final piece of the
completed analysis to the OIG on March 10,1999. The OIG performed its field audit between
March and June 1999, and concurred with the adjustments on June 28,1999.
Page 1-6, Last Paragraph through Page 1-7, First Paragraph. Difference Existed Between
EPA's General Ledger and Its Budgetary Reports
Material differences existed between EPA's general ledger, the numerous draft
versions of its Statement of Budgetary Resources, and the reports on Budget
Execution (SF-133s) submitted to OMB."
Regarding the SF-133 adjustments, many adjustments were not posted into the FY 1998
Agency's core financial system because management decided it was not prudent to hold open the
General Ledger until the completion of the SF-133. To do so would have caused serious delays
for the other financial statements. We are expediting the preparation of the SF 133 through
automation beginning in FY 1999; this will allow us to keep the prior year books open for a
reasonable time to ensure all SF-133 adjustments are posted to the General Ledger.
Budgetary reporting has changed significantly over the past three years due to changes hi OMB
requirements and budget execution. In 1996, OMB Circular A-34 was modified to require that
budgetary reports be produced using entirely different sets of General Ledger accounts. This
change required significant modifications and additions to the budgetary General Ledger, which
were not completed until Fiscal Year 1998. Also, budget execution process changes were not
completely implemented until Fiscal Year 1998. These significant changes made preparing the
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SF-133 directly from the budgetary General Ledger impossible. General Ledger balances were
adjusted to ensure the accuracy of the reports.
Management and the OIG agreed the Statement of Budgetary Resources would be prepared using
the actual SF-133s submitted to OMB, and copies of the SF-133s were provided to the OIG for
review in June 1998. Numerous technical factors prevented a complete reconciliation between
the SF 133s and the General Ledger, and instead, management agreed to produce the Statement
of Budgetary Resources from the General Ledger.
Through a compromise of alternatives and cooperative efforts with the OIG, there were a number
of iterations of the Statement of Budgetary Resources before arriving at a final Statement. Some
of the iterations were a result of approaches to the presentation of the Statement, whereas other
iterations were a result of the special review to arrive at an acceptable adjustment to unliquidated
obligations.
The Statement of Financing is a reconciliation between the Statement of Net Cost and the
Statement of Budgetary Resources; this statement could not be finalized until the Statement of
Budgetary Resources was finalized. Completion of this report was prepared timely when
considering the fact that the Statement of Financing could not be derived directly from a standard
U.S. General Ledger crosswalk because such a crosswalk was not available throughout the
Federal Government for the FY 1998 reports. Additional reporting was required on some
General Ledger accounts in order to arrive at various components that impacted either the
Statement of Net Cost or the Statement of Budgetary Resources. We are automating this process
for the FY 2000 statements, and we do not anticipate having a similar problem with preparing a
timely FY 1999 Statement of Financing. [See Appendix IH, Note 14 for additional OIG
Comments]
REPORTABLE CONDITIONS
AGENCY NEEDS TO ESTABLISH PROCEDURES FOR TRACKING
UNILATERAL ADMINISTRATIVE ORDERS
Page 2-1, First Paragraph. Last Sentence
The statement that reads "Consequently, regions were circumventing controls designed to ensure
funds are safeguarded against unauthorized use or disposition" should be deleted. This
statement's reference to circumventing of controls is misleading. In the first place, UAO's were
not covered in existing financial management policies because they were not seen as events
leading to financial transactions. Rather, UAOs were enforcement tools designed to compel
Responsible Parties to undertake site clean-up. A demand for payment of oversight or
enforcement costs under a UAO is not sufficient itself to recognize an accounts receivable.
Secondly, the report's reference to "ensure funds are safeguarded against unauthorized use or
disposition" is not germane to this issue. The question here involves whether a UAO event
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triggers a financial transaction to establish an account receivable, not how funds are used or
disposed of. [See Appendix EH, Note 15 for additional OIG Comments]
FURTHER IMPROVEMENTS NEEDED EN MANAGING EPA'S ACCOUNTS
RECEIVABLE
Specific Comments: (These comments directly coincide with the Agency responses to OIG
recommendations. Please note the changes proposed to the OIG
recommendations.)
Page 2-3. First Paragraph
It is not clear to us why the issue of timely billing of Superfund oversight costs and the unbilled
oversight accrual reductions are included in this reportable condition. We strongly believe that
this portion of the reportable condition should be eliminated. The Agency, as reported and
certified by the regional offices, has achieved an up-to-date billing status and also has had an
accepted unbilled accrual methodology in place for 3 years. The regional certifications and
schedules on the up-to-date billing status were given to the OIG for review in December 1998.
OCFO staff were never advised that OIG had any issues or problems regarding their review of the
regional submissions. When the billing issue was raised in the FY 1997 audit, the CFO responded
with appropriate corrective action, and the desired results achieved. [See Appendix ED, Note 16
for additional OIG Comments]
Some Accounts Receivable Were Not Timely Recorded and Billed
Page 2-3. Second Paragraph
We believe the OIG reference of two late billing scenarios for oversight costs are anecdotal
situations which do not reflect on the Agency's current billing of oversight costs. Putting these
amounts in the report would lead a reader to believe those situations were the norm and reflective
of the Agency's billing practices, when these were unique scenarios and do not represent Agency
practices. These scenarios should be eliminated entirely. [See Appendix HE, Note 16 for
additional OIG Comments]
Page 2-3 and 2-4. Second paragraph
Modify the sentence that starts "As a result the amount from $162 million to $71 million",
to read "from $162 million to $62 million." The 16th month general ledger reflects $71 million,
however the detail which supports the Consolidated Statement of Financial Position for FY 1998,
dated April 15, 1999, reflects $61,837,454 in the unbilled oversight account (acct. 132C). The
difference is due to regional adjustments accepted and approved by the OIG. Accordingly, this
change should be implemented.
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We are concerned by this statement as it implies that there are oversight dollars that we can bill
and have not done so. This is either a mis-wording or a possible misunderstanding by the OIG
regarding unbilled oversight costs. There will always be a balance for unbilled oversight Since
the Agency bills on a yearly basis (a practice required under most Consent Decrees), it is fully
expected that every site, at some point, will have eleven months of outstanding costs that have not
been billed. Accordingly, the subject sentence should be eliminated entirely to avoid the potential
for misinterpretation. [See Appendix HI, Note 16 for additional OIG Comments]
AUTOMATED APPLICATION PROCESSING CONTROLS FOR THE INTEGRATED
FINANCIAL MANAGEMENT SYSTEM COULD NOT BE ASSESSED
Page 2-16. Paragraph 2. Second Sentence
"We continue to believe that systems documentation is a reportable condition,
because it does not comply with Federal systems documentation requirements for an
integrated financial management system, as stated in JFMD?'s Framework for
Federal Financial Management Systems.
The IFMS systems documentation is in compliance with applicable requirements, as supported by
a recent in-depth independent review by the Department of Treasury's Finance Management
Service Center for Applied Financial Management (Center). The Center assessed IFMS
documentation as of September 30,1998 for compliance with the following OMB, JFMIP, and
GAO guidance:
OMB Circular A-127, "Financial Management Systems,
JFMDP's Framework for Federal Financial Management Systems (FFMSR-0,
January 1995),
GAO's Framework for Federal Financial Management System Checklist Systems
Reviewed Under the Federal Financial Management Improvement Act of 1996
(GAO Financial Management Series, May 1998), and
GAO's Assessing the Reliability of Computer Processed Data (GAO, April 1991).
In their May 24,1999 report, the Center concluded that the IFMS documentation is in compliance
with OMB Circular A-127 Financial Management Systems, JFMIP requirements and GAO
guidance. We provided the OIG with a copy of this report and suggested the auditors
acknowledge the report and consider the report findings. [See Appendix HI, Note 2 for
additional OIG Comments]
Page 2-16, Paragraph 2, Third sentence
"Office of the Comptroller (OC) managers continue to believe that IFMS
documentation is sufficiently detailed, but acknowledge the IFMS data dictionary
should be upgraded."
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We believe the IFMS documentation is sufficiently detailed in the context of our legacy system,
but the second part of that sentence should be clarified. The Center's review of our
documentation recommended that when we transition to a new system we should prepare a
detailed data dictionary. We concur with that recommendation and do not believe the current
data dictionary needs to be upgraded for the existing IFMS system. [See Appendix HI, Note 6
for additional OIG Comments]
COMPLIANCE WITH LAWS AND REGULATIONS
EPA IS NOT IN SUBSTANTIAL COMPLIANCE WITH FEDERAL FINANCIAL
MANAGEMENT SYSTEM REQUIREMENTS
Page 3-1, Second Paragraph
'In the Agency's remediation plan, dated March 31,1999, EPA's Comptroller
advised OMB that all corrective actions were completed«.To the contrary, our fiscal
1998 audit work again identified weaknesses in the Agency's security planning..."
The Agency completed the security plans called for in our remediation plan. As of March 31,
1999, the date the memo was signed, the memo accurately portrayed the status at the time.
During Fiscal Year 1999 the auditors reviewed our completed security plans. These security
plans substantially comply with applicable requirements. [See Appendix m, Note 17 for
additional OIG Comments]
Page 3-1, Paragraph 4. Last Sentence
"We believe that the security concerns are of a paramount nature, and EPA need to
take reasonable corrective actions to mitigate the threat of financial data being
intentionally or accidently compromised by either external or internal sources."
We agree that security is an important, high priority item, and have controls hi place to mitigate
the threat of the compromise of financial data. [See Appendix m, Note 18 for additional OIG
Comments]
Page 3-1. Fifth Paragraph
"We have been diligently meeting with senior Financial Management Division,
Financial Services Division and Grants Administration Division officials...and have
provided additional information to them..."
OIG did not consider much of the additional information provided by FMD and FSD
management.
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Before the issuance of the Draft Audit Report No. El AML8-20-7017, dated July 30,1999, the
OIG provided some of the Report's findings to OCFO in their draft (January 1999) and final
(March 9,1999) AAAS Position Paper #1, EPA is not in Substantial Compliance with System
Requirements under the Federal Financial Management Improvement Act of 1996 (AAAS #1).
OCFO provided OIG with written responses to both the draft and the final versions of AAAS #1.
The response to the January 26,1999, draft of AAAS #1, was signed by both the Director,
Financial Management Division (FMD) and the Director, Financial Services Division (FSD) on
February 8,1999. The response to the March 9,1999, final AAAS #1, was signed by the
Director, FSD, on June 3,1999. Both responses offered general information about system
security and detailed information about specific systems. The report does not appear to have
considered this information, especially the June 3,1999, response.
As another example, OCFO provided a copy of the independent review final report from Booz-
Allen Hamilton dated December 15,1995. As issued, this Booz-Allen Hamilton report fulfills the
independent review requirements of both A-127 and A-130, yet the draft report does not mention
nor acknowledge the importance of the report. [See Appendix m, Note 19 for additional OIG
Comments]
Page 3-2. First Paragraph. First Sentence
"EPA is not in substantial compliance with..."
We disagree with this statement. We believe that EPA's financial systems are in substantial
compliance with the FFMIA (the Brown Bill). We have implemented the OMB and JFMtP
requirements. This was confirmed by the independent Treasury review and the ongoing NSA
security assessment. [See Appendix HI, Notes 4 and 5 for additional OIG Comments]
Page 3-2. Second Bullet
"Management had not approved security plans..."
This sentence is misleading. The chart below shows the security plan approval status as of
September 30,1998.
Plan
CDOTS
ICMS
Owner
OAM
OAM
Approval Status as of 9/30/98
Security plan was completed and approved by the
SIRMO and system owner. The word "draft" was
mistakenly not removed from the plan document, and
the SIRMO did not formally sign the plan until mid-
October 1998.
Same as CDOTS.
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SPEDI
OAM
Same as CDOTS.
CIS
OAM
Same as CDOTS.
CTS
Region 5
No security plan. However, CTS is not an Agency-
wide system. CTS has no interface to IFMS, and no
systems issues related to Region 5 receivables were
identified during the audit.
ETAMS
OCFO
Security plan was under development at the time OCFO
placed the system "on hold" in early 1998. The project
was placed "on hold" due to significant security
concerns raised during system development.
Subsequently, because the Agency's payroll system is
to be replaced, management decided to not expend any
additional resources on this system.
BAS
OCFO
Plan approval expired on 6/30/98. Open action items
remained for the security training/handbook, continuity
planning (LAN), risk assessment, and revised incident
reporting. The system operated while the open items
were being addressed.
TM+
OCFO
Security plan was under development, and TM+ was
under phased development. At 9/30/98 TM+ was
functioning as a forms generator on a pilot basis.
While the above plans were not formally approved, two of the systems were not operational and
posed no security risk. The four OAM systems were approved but the documentation was not
timely. One system had a recently expired security plan. Only one system lacked a security plan
altogether, and this system was a regional system not interfaced to the core financial system.
Although these systems are not technically in compliance, the risks posed by these
noncompliances is minimal and do not support an opinion of substantial noncompliance. [See
Appendix HI, Note 20 for additional OIG Comments]
Page 3-2. Fourth Paragraph
"Our review of compliance with OMB Circular A-130 was limited to evaluating the
approved system security plans and supporting documentation from financial or
mixed-financial management system under development or operational as of
September 30,1998..." On page 3-3, immediately following Table 1, the auditors
state, "We did not verify the security controls identified in the system security plans
were operational."
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In essence, the OIG limited its review to security documentation and did not review, observe, or
otherwise test actual security operating controls. This scope limitation appears to be in conflict
with the statements made on page 15 that the OIG (among other things) "tested significant
controls to determine whether the controls were effective," and on page 16 that it interviewed
personnel and reviewed applicable policies and procedures. Apparently, this actual testing and
interviewing was not performed with respect to system security controls. [See Appendix IH,
Note 21 for additional OIG Comments]
Page 3-4. Table 2
The "yes/no" indicator does not accurately reflect the degree of noncompliance. An area can have
only minor noncompliances and still receive a "no" response in Table 2. [See Appendix HI,
Note 22 for additional OIG Comments]
Page 3-5. First and Second Paragraphs
The discussion does not accurately reflect the facts. For IFMS, MARS, CPARS, EPAYS, and
GIGS, the final report issued by Booz-Allen & Hamilton, Inc. is dated December 15,1995. This
makes the report less than three years old as of September 30,1998, and thus within the
requirements of OMB Circular A-130. While EPA questioned the classification of review findings
included in the report, and in 1996 issued a revised version indicating management's classification
of the findings, this does not impair the original final report issued by Booz-Allen & Hamilton.
In addition to this independent review, EPA had contractors conduct formal risk assessments for
MARS and CPARS (dated June 3,1996, and July 1, 1996, respectively). These risk assessments
were to complement, not replace, the independent assessments required by OMB Circulars A-127
and A-130.
With respect to ARTS, we maintain that the OIG reviews represent at least a partial independent
review of ARTS within three years of September 30, 1999. In addition, ARTS does not meet the
definition of a major application, and was a stand-alone data base until 1996.
Since six of the eight systems clearly meet the requirement for an independent review every three
years, with one system under development (and, therefore, classified as A"N/A" in Table 2), and
the remaining system in at least partial compliance, we strongly believe that the Agency is in
substantial compliance with regard to the independent review requirements. [See Appendix HI,
Note 23 for additional OIG Comments]
Page 3-5, Third Paragraph
"none of the plans, including CPS, had referenced operational security problems
identified by an independent review..."
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While we agree that the security plans should reference the findings included in the independent
reviews, and at least reference the action plans developed to address the findings, the findings
have been addressed in separate documents and these documents have been reviewed and
accepted by management. Management considered these documents, as well as the security plans,
when authorizing the systems for operation. We believe, then, that the omission of the
independent review findings from the security plans is a technical noncompliance, but poses little
security risk since management is fully aware of the independent review findings, action plans, and
status. [See Appendix m, Note 24 for additional OIG Comments]
Page 3-5. Fourth Paragraph. Last Sentence
"Furthermore, we considered security plans which used older criteria (i.e., prior to
the February 1996 version of OMB Circular A-130) to be based on outdated
requirements."... "In the interim, agencies should continue to use the Appendix of
OMB Bulletin No. 90-08 as guidance for the technical portion of then* security
plans."
OMB Circular A-130, Appendix HI, B.a.2. directs NIST to update and expand security guidance.
NIST did not issue security plan guidance (NIST 800-18) in final until December 30,1998.
Therefore, as of September 30,1998, agencies were instructed to use OMB Bulletin 90-08 for
security plan guidance. All plans used the 1996 EPA OIRM Security Planning guidance document
as their security plan guide. This guide incorporates OMB circulars and NIST Guidance. [See
Appendix m, Note 25 for additional OIG Comments]
Page 3-5. Fifth Paragraph.
"We provided detailed comments to management for security control deficiencies,
noting each category to be documented by OMB Circular A-130. These detailed
comments identified specific OMB, NIST or Agency requirements, and were
provided separately because they were voluminous."
We reviewed each of the detailed comments provided by the auditors, and noted a number of
disagreements with the auditor's findings.
Comment Classification
Disagreement with auditors on the applicable requirements, based on
OMB Circular A-130 Appendix m "general" system vs. "major"
application requirements. EPA complies.
Number of
Specific
Audit
Findings
95
II- 18
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NIST 800-18 used as security plan guidance criteria; NIST 800-18 was
not issued in final until 12/30/98. OMB Bulletin 90-08 was the security
plan guidance in effect as of 9/30/98. EPA complies.
EPA and auditors disagree on whether the content of EPA provided
documentation complies with Federal requirements.
Subtotal - EPA concludes the Agency is in compliance
NIST 800-12, 800-14, and GAO Y2K guidance used by auditors as
criteria for security plan content. EPA concludes these documents do not
specifically apply to security plan content. EPA, however, concludes that
in some of these cases, documentation could be improved.
EPA agrees that the Agency is not in compliance
Subtotal - EPA not in full compliance
Total specific IG findings
7
43
145
62
27
89
234
The 89 specific findings where EPA is not in full compliance fall into three major areas:
• EPA needs to implement general and application specific training. While this is a control
weakness, EPA believes the risk is not substantial due to informal on-the-job training and
built-in system controls.
• Security plans need to better identify the system interfaces and specific edits or other
reconciliation controls. Documentation exists, but can be expanded and better
consolidated and referenced.
• Security plans need to better reference disaster recovery plans.
EPA recognizes these control weaknesses, but does not believe they warrant a substantial
noncompliance opinion.
In addition, our February 1999 and June 1999 memos address this point. The security plans in
place on September 30,1998, are the first security plans developed by FSD. These security plans
carefully considered the requirements from OMB and NIST that were in effect at that time, and
attempted to strike a balance between providing enough detail for proper evaluation, and
protecting sensitive information from unauthorized eyes. Additional information is available to
authorized persons on request from the system managers. [See Appendix III, Note 26 for
additional OIG Comments]
Page 3-6. First Paragraph
"For example,... we determined that the security plans for IFMS,..."
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The draft report criticizes the security plans for not describing or referencing "a minimum set of
specific controls used for managing user accounts." The plans do, in fact, describe the overall
controls, and this meets the OMB and NIST requirements in effect as of September 30,1999.
Moreover, the draft report confuses requirements for system security with guidelines for the
contents of security plans. For example, the report cites NIST Publication 800-14. NIST 800-14
sets forth a framework for system security in the federal government (See NIST 800-14, §1.4).
However, as we pointed out in our June memo, a guidance framework is quite distinct from the
requirements for a written security plan. NIST security plan guidance is in NIST Publication 800-
18, which postdates the 1998 Financial statement Audit. The level of detail in the CPS security
plan meets the OMB and NIST requirements that were in effect on September 30,1998.
Although our revised security plan for CPS, approved by the SIRMO May 27,1999, adds
somewhat more detail to comply with the new NIST guidance, we continue to believe that
offering too much detail in a security plan is in itself a security risk. In addition, the auditors make
strong conclusions regarding security controls given that the auditors "did not verify the security
controls identified in the system security plans were operational." In essence, the auditors limited
then* review to security documentation and did not review, observe, or otherwise test actual
security operating controls. This does not appear to be consistent with the applicable auditing
standards.
At the end of Fiscal Year 1998, EPA established an interagency agreement with the Treasury
Department's Financial Management Service Center for Applied Financial Management to
perform independent reviews of nine financial or mixed-financial systems as required by OMB
Circulars A-127 and A-130. The reviews tested how well these systems complied with OMB
Circulars A-127 and A-130, and JFMIP Core Financial and Personnel & Payroll requirements.
These reviews concluded that these nine systems met the above requirements "in all material
respects." The systems reviewed included:
• the Integrated Financial Management System (IFMS),
• EPA's Payroll & Personnel System (EPAYS),
• the Combined Payroll Redistribution & Reporting System (CPARS),
• the Management Accounting & Reporting System (MARS),
• the Asbestos Receivable Tracking System (ARTS),
* the Contracts Payment System (CPS),
• the Grants Information & Control System (ICMS), and
• the Small Purchase Electronic Data Interchange (SPEDI) system.
[See Appendix IH, Note 26 for additional OIG Comments]
Page 3-6. Third Paragraph
The OIG found seven out of eight systems deficient in this area. Both our February and June
memos address our contingency and disaster recover plans in detail. Contrary to the assertions in
the Report, our contingency and disaster recovery plans meet all requirements in effect on
II-20
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September 30,1998. To summarize:
• Contingency and disaster recovery planning is well coordinated between divisions.
Systems that interface with each other have related plans that are tested jointly, and
systems at RTF are included in ETSD's plans for the mainframe and the NCC facility.
OCFO and ETSD plans were provided to the auditors.
• The report states that the OIG review of compliance with OMB's system security
requirements was limited to evaluating approved security plans. We find no government-
wide or EPA requirement that a security plan address (or, for that matter cross reference)
specific disaster scenarios or document each and every procedure.
• In addition, the auditors' standard for contingency planning in this draft report is
substantially more stringent in this report than in AAAS #1 dated March 9,1999. AAAS
#1 has four requirements for contingency plans. This report expanded the criteria for
compliance for two of these requirements, and adds three new requirements.
Following the standards in AAAS #1 and this draft report, OIG considered a security plan to be
inadequate whenever any one of the following was applicable to the disaster recovery or
contingency plan.
AAAS #1 Standard
(P-7)
OIG considers the security plan
inadequate "whenever the system-
specific disaster recovery plan:"
• was inconsistent with its
corresponding security plan
• did not address specific disaster
scenarios
• did not address specific system
requirements for continuity of
operations
-
July 30 Report Standard
(P 3-6)
OIG considers a security plan to be
inadequate "whenever the application's
contingency plan:"
• was inconsistent with its corresponding
security plan
• did not include a prioritized list of program-
critical functions and the effect that the
inability to perform each program-critical
functions would have on the organization
• did not address contingencies and related
disaster scenarios
• did not address resource requirements and
related time frames for continuity of
operations related to the application
• did not contain the application schedule and
procedures for backup
II-21
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• had not been tested
• did not assign or document specific
procedures (e.g., initial response, back up
operations and recovery) to be followed in
response to each contingency and related
disaster scenario
• had not been tested
Neither the AAAS #1 requirements nor this draft report's requirements match the requirements
for contingency planning in the OIG's original comments on our security plans. In addition, and
the requirements for contingency planning in the OIG's original comments on these security plans
are not consistent from system to system. For example, the auditors comments on CPS require
seven separate items for a contingency/disaster recovery plan. The comments on IFMS identify
require only five of the items required.
In addition, the OIG does not cite any specific instances of "violations" of its standards. For
example, although the first item cited in the report mentions inconsistencies between security
plans and contingency plans, it is silent about instances of inconsistencies.
Finally, the requirement to have a Continuity of Operations Plan (COOP) was not in effect
September 30,1998, and should not be considered in the audit of FY 1998 financial statements.
OCFO, in fact, issued its COOP in March 1999, in time to meet the established deadline.
While the security plans did not specifically document the steps covered in GAO's Year 2000
Computing Crisis: Business Continuity and Contingency Planning, dated August 1998, the
financial systems were either Year 2000 compliant or on schedule to be Year 2000 compliant, and
the schedules met OMB guidance. Subsequent independent testing verified the completeness and
sufficiency of the Agency's Year 2000 remediation. In addition, all required Y2K plans and
updates have been prepared and submitted to OMB in timely fashion. While the Agency is in the
process of preparing a formal Business Continuity and Contingency Planning (BCCP) document,
the document merely formalizes the steps the Agency already planned to take.
Contrary to the assertions in the draft report, procedures in effect as of September 30,1998,
protect OCFO applications against a wide range of contingencies and disasters and include
procedures for a wide range of testing and verification, as well as for reversal of disaster recovery
when the situation returns to normal. As the report correctly points out, the procedures for
OCFO applications, except for MARS, are included in the Enterprise Technology Systems
Division (ETSD) disaster recovery plan for NCC as of September 30,1999 (report, pages 3-7).
The contingency plans are reviewed frequently, and disaster recovery drills take place twice a
year. During Fiscal Year 1998, these plans were successfully tested, such that EPA's core
financial systems were operational at the test site, ready for EPA use.
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While the MARS application was not specifically mentioned in the ETSD plan, MARS is, in fact,
an ad-hoc reporting tool, and its omission would not diminish the Agency's ability to run standard
reports nor limit the Agency's ability to produce ad-hoc information through other tools (such as
SAS). The MARS application itself was included in the ETSD plan, though it was not specifically
labeled. While the MARS data base was not part of the disaster recovery plan, we did not
consider its omission serious as its data is derived from other data bases which are covered in the
ETSD plan. Subsequent to September 30,1998, EPA decided to also include the MARS data
base in the disaster recovery plan to make ad-hoc reporting immediately easier should a disaster
occur. The absence of the MARS data base from the disaster recovery plan as of September 30,
1998, did not pose a serious risk to EPA, but more of a potential inconvenience, had a disaster
occurred. [See Appendix HI, Note 26 for additional OIG Comments]
Page 3-7. Third Paragraph
"If the security training program was scheduled for development and not
operational during fiscal 1998, then we looked for more rigorous system controls to
compensate for the lack of security training."
As the OIG notes on page 3-3, "We did not verify the security controls identified in the system
security plans were operational." In essence, the auditors limited their review to security
documentation and did not review, observe, or otherwise test actual security operating controls.
Other compensating controls were in effect, as we pointed out to the auditors. For example, the
systems themselves require periodic password changes. Users typically receive on-the-job
security training. While we recognize the need for more formal security training, and have taken
steps to provide such training, we feel the weaknesses noted in the security training area do not
warrant a substantial noncompliance finding. Indeed, when Treasury's Center for Applied
Financial Management independently reviewed this area during early Fiscal Year 1999 (when our
training program had not been changed substantially) they did not consider our security training to
be a serious weakness. [See Appendix ffl, Note 26 for additional OIG Comments]
Page 3-7. Fourth Paragraph
"We considered approval authorization to be in compliance with Federal
regulations and agency policy if... the program manager responsible for the GICS
and P2000 systems had not signed the security plan..."
The P2000 system was not yet operational, and the plans were approved by the SIRMO. The
Grants Administration Division management was aware of the security plan and its contents, and
approved the GICS application operation. The fact that the "wrong" system owner approved the
plan resulted in little, if any, security risk to EPA, and we feel this finding is not, and should not,
be considered a "substantial noncompliance" finding. [See Appendix EH, Note 26 for additional
OIG Comments]
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Page 3-8. First Paragraph
See our comment for Page 3-2 above.
Page 3-8. Second Paragraph
"responsible financial and mixed-financial systems managers did not treat the
completion of a review of operational controls and development of security plans as
a priority."
As noted in our comments for page 3-5 above, six of the eight financial and mixed-financial
systems reviewed were in compliance with the independent review requirement, one system was
under development (therefore the requirement did not apply), and one system was in partial
compliance. With regard to security plans, we devoted considerable staff time to identifying
security requirements and documenting security controls in our security plans. For example, we
added additional staff in the OCFO immediate office to assist the SIRMO with security plan
development, review, and coordination. Management reviewed and approved the plans, and
received numerous briefings regarding system security measures.
Page 3-8. Fourth Paragraph
This paragraph should have a separate heading. It is not part of the "priority task" issue.
Page 3-9. Second Paragraph
We maintain the security plans are not required to contain the level of detail called for in the draft
report. The plans do contain discussions of authorization/access controls, integrity controls, audit
trails, confidentiality controls, application controls, etc., sufficient to meet the applicable security
plan requirements and sufficient for management to consider the risks and controls over the
various financial systems, hi addition, management receives other information on financial
systems security. For example, management received and reviewed the action plans addressing
the findings from the December 1995 Booz-Allen Hamilton independent review.
Management takes these other sources of information into account as well when evaluating the
appropriate level of systems security. [See Appendix HI, Note 26 for additional OIG
Comments]
Page 3-10. RECOMMENDATIONS
The draft report makes only very general recommendations (e.g., "develop an overall remediation
plan," "develop security plans ... which address the critical security controls...and bring these
11-24
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systems into compliance..."). We request that the OIG provide specific recommendations that
address the specific deficiencies it believes need to be addressed.
Page 3-10, Agency Comments and OIG Evaluation
We suggest the auditors also consider the comments made in the June 3, 1999 memorandum from
FSD and consider the other documents (e.g., the Booz-Allen Hamilton final report dated
December 15,1995) provided by EPA.
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ATTACHMENT H
RESPONSE TO RECOMMENDATIONS
DRAFT AUDIT REPORT E1AML8-20-7017
FISCAL 1998 FINANCIAL STATEMENTS AUDIT
RECOMMENDATIONS/RESPONSE
The next several pages are responses and corrective actions to specific OIG's recommendations
to the Draft Audit Report.
MATERIAL WEAKNESSES
IMPROVEMENTS NEEDED IN THE AGENCY'S PROCESS FOR PREPARING
FINANCIAL STATEMENTS
1.18 We recommend the Chief Financial Officer evaluate the OCFO's process for
preparing the financial statements, including the OCFO resources assigned,
necessary improvements to IFMS, control processes within the Financial Reports
and Analysis Branch, and the Year-End Closing process;
RESPONSE: We disagree with the. categorization of the OCFO financial statement
preparation process as a material weakness. We believe that the recommendation is
primarily based on the fact that our process did not produce timely financial statements to
meet the March 1, 1999, deadline.
EPA made a conscious decision to delay the final preparation to address issues to ensure
unqualified opinions. There were delays this year as both the OIG and OCFO worked to
identify and develop the means to implement and audit new reporting requirements. In
the final analysis, we prepared reliable statements but were not timely in doing so. We
believe that the facts do not support a material weakness as defined by auditing
standards. We do agree this was a compliance issue that should be included in the audit
report.
We prepared a draft Planning Document for the FY 1999 audit with specific time frames
and proposed roles and responsibilities. This effort will also evaluate the controls
process not just within FRAB but within the OCFO. OCFO management is currently
evaluating resource needs for the process. Concerning IFMS improvements, we are
working to automate the Sr 133 and anticipate that this automation along with FACTS n
will streamline the preparation of the Statement of Budgetary Resources and the
Statement of Financing. We plan to complete these efforts by October 30,1999, which
will enable us to meet the FY 1999 reporting requirements. We will brief the OIG by
n-26
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1.2
September 30,1999, on our time frame to ensure the deliver of the audited financial
statements to OMB by the March 1,2000, deadline.
Corrective Action
Complete evaluation of the OCFO process for
preparing financial statements
Implement the new automated reporting process
using the Standard General Ledger for the SF-133
and Statement of Budgetary Resources.
Target Date
August 31,1999
October 30,1999
We recommend the Chief Financial Officer update the Agency's policies and
procedures for preparation of annual financial statements to reflect the new
legislative requirements, new accounting standards, and new format and
presentation requirements. The procedures should include milestone dates and
activities for completion, OCFO and other offices' roles and responsibilities,
descriptive processes for preparing the financial statements, and plans for
obtaining the needed information and providing reliable supporting
documentation;
RESPONSE: We agree with this recommendation and are initiating a project to update
the Agency's policies and procedures for accounting functions related to the financial
statements. The types of information described in the recommendation would be the
types of material that we would include in the policies and procedures. Although the
preparation of the update will occur concurrent with the work on the FY 1999 financial
statements, many of the actual process steps have already been reviewed and accepted by
the OIG as part of their reports issued for the fiscal years 1997 and 1998 financial
statements. In many instances, this will be a matter of putting existing information
together in one document.
Corrective Action
Issue Final Policies and Procedures on Preparing
Financial Statements
Target Date
March 31, 2000
We recommend the Chief Financial Officer establish a quality review process to
ensure that the draft financial statements including the footnotes, supplemental
information, and overview are complete and reliable, and the Comptroller certifies
such documents prior to submittal for audit;
RESPONSE: We agree that the quality review process can be strengthened and are now
formalizing a Financial Statement Quality Control Group within FMD. We are also
developing an approach to ensure consistency, accuracy, and, among other things, our
compliance with new requirements in OMB Circular 97-01 (Form and Content and Audit
n-27
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Requirement). However, we do not agree that the Comptroller should certify the
documents prior to submittal for audit. We believe the certification of the Director,
FMD, is appropriate. This approach will be implemented beginning with the FY 1999
statements.
Corrective Action
Target Pate
Establish Quality Control Group December 3,1999
AGENCY ENCOUNTERED SIGNIFICANT DIFFICULTIES IN PREPARING THE
STATEMENTS OF BUDGETARY RESOURCES AND FINANCING
2.1 We recommend the Chief Financial Officer review all fiscal year 1989 and prior
unliquidated obligation and authority balances and make any necessary
adjustments;
RESPONSE: We agree with this recommendation and have already implemented it (in
April 1999) as part of the FY 1999 Review of Unliquidated Obligations. OCFO/FMD
provided guidance to all offices regarding identification and correction of erroneous
unliquidated obligation balances from BFY 1989 and prior. By August 20,1999, FMD
will distribute to the FMOs a list of BFY 1989, and prior open obligations in DFMS and
request that they work with the appropriate offices to ensure mat any erroneous balances
are properly removed from the books by September 30,1999. We also plan to initiate a
review of the BFMS budget authority balances for these fiscal years and make any
necessary adjustments. We anticipate completing this process in mid-FY 2000. OIG
staff previously agreed with FMD's approach and timing for dealing with these issues.
2.2 We recommend the Chief Financial Officer develop reports for the annual review
of unliquidated obligations which highlight older open unliquidated obligations;
RESPONSE: We do not agree with this recommendation because OCFO provides the
responsible officials with reports listing all inactive obligations (no activity for 180 days)
grants, contracts and lAGs for the annual review of unliquidated obligations. OCFO
requires officials to review all inactive obligations including older open unliquidated
obligations. Thus, the Agency maximizes its ability to efficiently use resources available
and identify, deobligate and reuse these funds. The reports that OCFO provides comply
with EPA and GAO review requirements.
23 We recommend the Chief Financial Officer require responsible officials to justify
unliquidated obligation balances whose period of performance has ended, if the
balances are not deobligated;
RESPONSE: We do not agree with this recommendation since FMD has already
implemented more stringent requirements. The March 25,1999, guidance memorandum
for the FY 1999, "Review of Unliquidated Obligations," requires responsible Agency
n-28
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officials to maintain documentation in their office's files justifying all unliquidated
balances retained on the inactive obligation lists, as defined in the response to 2.2 above,
that will be available for audit review.
,-•
2.4 We recommend the Chief Financial Officer follow up on responsible officials'
deobligations to verify appropriate actions were taken;
RESPONSE: While we agree with the thrust of this recommendation, we want to clarify
the roles and responsibilities for the verification process. Verification of deobligations
requires two action plans: one for those identified during FMD's special analysis and
another for deobligations identified by the allowance holders during the annual review of
unliquidated obligations.
FMD is maintaining a list of deobligation actions identified during the special analysis and
audit of unliquidated obligations. In August 1999, we will contact the responsible FMOs
if these deobligation entries have not been entered into EFMS. We share OIG's goal of
ensuring that these are processed prior to FY 99 year end.
The approach for documents identified during the annual review is different. As stated in
our February 9,1999, response to the original draft position paper, OC PA No. 96-04,
"Review of Unliquidated Obligations," requires the responsible officials to certify that
their office completed the annual review and to take appropriate action to deobligate
unneeded funds. The policy does not require them to report proposed deobligations to
OCFO staff. The responsible officials have the responsibility for verifying the
deobligation of unneeded funds.
OIG and OCFO were previously informed that finance office staff plans to assist the
responsible officials by providing follow-up reports that show documents with changed
unliquidated obligation balances. These reports will be produced after all review
certifications are received in FMD and the finance offices have completed processing
deobligation requests. The reports will be distributed to the responsible offices so they
can verify that all unneeded funds actually have been deobligated. (This information was
included in the March 25,1999, guidance for the annual review.) When we distribute
these reports, by August 31,1999, we will instruct the responsible offices to:
Corrective Action
Follow up with the appropriate procurement
and/or finance office(s) regarding any unneeded
funds that have not been deobligated,
Monitor the document's fund status in EFMS
(or CPS for contracts) until the deobligation has been
processed, and
Target Date
On-Going
On-Going
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Provide FMD at year end with the document number
and funding information for any unneeded funds identified
during the review that were not deobligated
October 30,1999
2.5 We recommend the Chief Financial Officer prepare the SF-133s from the general
ledger;
RESPONSE: We agree with the recommendation because beginning in FY 1999, we
began preparing the SF133 report directly from the General Ledger. We are now well
underway in automating this process and plan to implement this process by October 30,
1999.
2.6 We recommend the Chief Financial Officer prepare and retain support for all
journal entries and adjustments made to produce the SF-133s;
RESPONSE: We agree with this recommendation as all the above referenced
documentation is maintained by FRAB. It is Agency policy to prepare and retain support
for all journal entries and adjustments to the SF-133's. We believe that the OIG is
referring to those entries made to the SF-133's after the FY98 General Ledger was closed
and these adjustments were manually reflected in the next year's beginning balances.
This was the result of our decision not to hold the General Ledger open until November
when the SF-133s were due. However, beginning in FY99, we will reflect all SF-133
adjustments in the General Ledger.
2.7 We recommend the Chief Financial Officer require supervisory approval,
evidenced by a signature and date, to help ensure that procedures have been
followed;
RESPONSE: We disagree with this recommendation. Hard copies of the SF-133s are
produced after they are electronically transmitted for post review purposes. The present
electronic format, unlike previous years, does not provide for the supervisors' signature
before transmission. Supervisory certification will be incorporated in the new FACTS n
transmission
(which will include the SF -133 and year end close-out reports). We will ensure that we
annotate hard copies maintained within FRAB.
AGENCY NEEDS TO ESTABLISH PROCEDURES FOR TRACKING UNILATERAL
ADMINISTRATIVE ORDERS
3.1 We recommend the Chief Financial Officer track in DJMS all demands for
payment issued under UAOs
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3.2
3.3
RESPONSE: We partially agree with this recommendation. We believe that this
recommendation should only refer to the tracking of Superfund UAOs, and not all UAOs.
Our partial disagreement is due to our understanding of the conclusions reached at the
March 9,1999, meeting between the OIG, OGC, OECA, and OCFO that Agency efforts
should be focused on tracking Superfund UAOs only at this time.
The OCFO has already taken steps to address the tracking of Superfund UAOs.
Currently, the OCFO has a draft policy in place that will be effective at the beginning of
fiscal year 2000. The policy requires regional offices to use IFMS to track as an Agency
general ledger memo entry, all Superfund UAO Demands. This procedure will allow the
Agency to track the UAO Demands and to continue the practice and policy of not
recognizing these Demands as accounts receivable.
Corrective Action
Issue Final Policy for Tracking UAOs
Implement and Monitor Policy
Target Date
September 30,1999
Ongoing
We recommend the Chief Financial Officer determine if other demands for
payment are issued by the agency, the respective amounts demanded, and whether
a need exists to track the amounts demanded in IFMS.
RESPONSE: We partially agree with this recommendation. We believe that this
recommendation should refer to other Superfund Demands and not "other Demands" for
the same reasons discussed in our response to recommendation 3.1 above. The OCFO
will address and determine other Superfund Demands which may or may not require
tracking.
Corrective Action
Determine other Superfund Demands
that may or may not require Tracking
Target Date
April 1, 2000
We recommend the Chief Financial Officer revise RMDS to clearly differentiate
between administrative orders (particularly administrative orders on consent and
UAOs), describe when the administrative orders need to be established as an
accounts receivable in IFMS or separately tracked as a demand for payment in
EFMS, and describe all other demands for payment that need to be tracked hi
IFMS.
RESPONSE: We partially agree with this recommendation. We believe that "other
Demands" for payments should be deleted from this recommendation for the same
reasons discussed under 3.1 above. The OCFO has already taken steps to clearly
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differentiate between Superfund administrative orders and describe when they need to be
tracked in EFMS. This will be addressed after proper coordination with OECA, OSWER,
and OGC taking into consideration the varying levels of enforcement tools available to
the Agency. A final draft policy is in place which will supplement RMDS and includes:
• a clarification of the difference between Administrative Orders on Consent and
Unilateral Administrative Orders (UAOs), and a discussion if these documents
can be used to record accounts receivable; and
• guidelines for separately recording oversight accounts receivable to enhance the
Agency's ability to track oversight amounts for management and reporting
purposes.
Corrective Action
Issue Final Policy
Update policy to for tracking other
Superfund Demands, if needed
Target Date
September 30,1999
May 31, 2000
3.4 We recommend the Assistant Administrator for Enforcement and Compliance
Assurance develop guidance for ORCs, program offices and finance offices
regarding the types of instruments used in Superfund enforcement process. For
each instrument, describe when to establish an accounts receivable or separately
track as a demand for payment, and describe the Agency's basis for legal liability
under each instrument, describe when to establish an accounts receivable or
separately track as a demand for payment, and describe the Agency's basis for
legal liability under each instrument, and
RESPONSE: OSRE/OECA previously responded to these audit recommendations 3.4
and 3.5 in memoranda dated February 17 and February 26,1999.
3.5 We recommend the Assistant Administrator for Enforcement and Compliance
Assurance Clarify the model language to be used by ORCs, program offices and
finance offices to clearly differentiate between demands for payment and bills for
payment used in the Superfund enforcement process.
RESPONSE: See response to Recommendation 3.4
FURTHER IMPROVEMENTS NEEDED IN MANAGING EPA'S ACCOUNTS
RECEIVABLE
4.1 We recommend the Chief Financial Officer continue to provide training on
calculating the allowance for doubtful accounts (ADA), particularly in the area of
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developing the percentage portion of the allowance and maintaining proper
supporting documentation,
RESPONSE: We agree with this recommendation. OIG personnel worked with OCFO
staff to develop a method to simplify the calculations on the ADA and alleviate the
workload. We agreed to conduct a pilot program on the OIG recommended method, a
modified approach on collection history, to test the effectiveness of the new method.
However, the method recommended by the OIG resulted in the percentages increasing
dramatically to unacceptable levels, and we then directed the FMOs to recalculate the
percentages in accordance with established procedures in RMDS-2540, Chapter 9.
Unfortunately, three regions did not follow HQ's instructions for the recalculation. The
auditors discovered and reported on the non- compliance by the three regions. We took
prompt action to have these regions comply with these instructions. Considering the OIG
as part of our internal controls, we believe that these actions clearly demonstrate that our
internal control system worked well, as planned. We will continue to provide training in
this area during our annual workshops.
Corrective Action
Provide Training on
Calculating Allowances
for Doubtful Accounts
Target Date
Ongoing
4.2 We recommend the Chief Financial Officer review finance offices' management
and accounting for accounts receivable during regularly scheduled Quality
Assurance Reviews to ensure FMOs understand and are following guidance on
accounts receivable,
RESPONSE: We concur that quality assurance reviews are useful in assisting FMOs to
comply with accounting guidance. When we conduct quality assurance reviews, we tailor
the topics covered to specific issues of concern at the location being visited. We also
consider training as part of our quality assurance program to help ensure FMOs
understand guidance on financial management and accounting. During the June 14-18,
1999, Superfund Cost Recovery and Financial Management Training Conference in
Alexandria, VA, accounts receivable was the central focus of several sessions and was
discussed during a number of other sessions.
Corrective Action
Determine which regions require quality
assurance reviews
Conduct FMO training
Target Pate
Annually
As needed
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Conduct quality assurance reviews to
ensure FMOs are properly following
accounting guidance.
As needed
43 We recommend the Chief Financial Officer instruct the FMOs to follow-up with
ORCs and program offices when responses to requests for receivable collectibility
information are not received timely; instruct the FMOs to assess how
communication with the ORCs and the program offices can be improved; and
reemphasize FMOs' responsibilities in ongoing training sessions;
RESPONSE: The Agency continuously emphasizes the need for more effective
accounts receivable and collections management. We continue to make improvements in
this area and believe that we are doing a better job of managing our accounts receivable
and collections. Specifically, we have taken the following actions:
(a) During our Superfund Cost Recovery and Financial Management Training
Conference held in Alexandria, VA on June 14-18,1999, Headquarters, Regional
Program Office, Office of Regional Counsel, and Financial Management Office
attendees were provided with accounts receivable training for addressing these
issues and participated hi group discussions concerning these areas. During these
sessions, accounts receivable policy and procedures were reviewed and discussed,
and the need for timely preparation and/or transmission of source documents
(e.g., Consent Decrees, Administrative Orders on Consent, bills, etc.) by the RPO
and ORC to the FMOs was reemphasized. We will continue to provide training
and workshops each year.
(b) FMD continues to meet periodically with the Department of Justice (DOJ) to
discuss the status of EPA's settlement collections made by DOJ and the timely
transmission of entered Consent Decrees (CDs) needed by the Agency to record
accounts receivable. During these meetings, we continue to emphasize the
importance of DOJ providing EPA with entered CDs in a timely manner. As part
of our ongoing efforts to improve the timeliness of receiving entered CDs, we are
currently working with DOJ and OECA to develop a process whereby DOJ can
electronically notify (i.e., e-mail) the respective FMO when a CD has been
entered. Timely notification of entered CDs would enable FMOs to record
corresponding accounts receivable more efficiently. Also, in the future, FMOs
may be able to record accounts receivable upon receipt of DOJ's notification.
Work is currently ongoing in this area.
(c) OECA and the OCFO prepared a joint memorandum entitled Superfund Accounts
Receivable Collections, dated July 26, 1999, asking the regions to place more
emphasis on collecting outstanding accounts receivable. The memo tasked the
regions to review their outstanding accounts receivable to:
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determine if any debts can be referred to Treasury or DOJ for enforcement
and debt collection;
determine the status of any debts referred to DOJ for enforcement;
determine the status of any bankruptcies to ensure that proofs of claim
have been filed and amounts are reduced (i.e., written-off) where
appropriate based on bankruptcy judgments;
determine the collectibility of all outstanding debts;
update accounts receivable status codes to ensure that the current
disposition of outstanding receivables is accurately reflected in BFMS;
ensure that dunning letters have been issued where appropriate; and
determine if penalties have accrued as a result of any overdue receivables
and to pursue them where appropriate.
The regions also have been asked to prepare a plan within one month of this memo that
includes the:
steps that will be taken to address overdue receivables;
roles and responsibilities of each organization performing these tasks;
estimated time frames for completing these steps; and
primary regional contact for this effort
(d) OECA and OCFO met in July 1999 to discuss the establishment of a Superfund
collections workgroup. The planned workgroup would consist of representatives
from OECA, OCFO, FMO, ORC, OGC, FMD, DOJ, and Treasury. The
workgroup would reevaluate the Agency's accounts receivable process and how
it currently handles delinquent debts, and reexamine the roles and responsibilities
of those offices and agencies (i.e., DOJ and Treasury) involved in these processes.
The Information collected by the workgroup would be used to determine: if
duplicative efforts could be eliminated; if additional policy and guidance, or
clarification is needed; areas where improvements and streamlining can be made.
Also, the workgroup would reevaluate how and when the Agency refers debts to
DOJ or Treasury for enforcement and debt collection.
Corrective Action
ftovide periodic training and workshops on
the management of accounts receivable and
collections
Target Date
Annually
Meet with DOJ
Monthly
4.4 We recommend the Assistant Administrator for Enforcement and Compliance
Assurance conduct periodic regional reviews and/or site visits to assess the Regional
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process for meeting guidelines in the July 16,1998, memo to Regional Counsels
entitled "Effective Debt Management,''
RESPONSE: We disagree with this recommendation. OSRE and FMD began this
review by issuing a memorandum dated July 26,1999, to .the Regional Comptrollers,
Waste Division Directors, and the Office of Regional Counsel Branch Chiefs addressing
Superfund Accounts Receivable Collections. The memorandum requires each region to
prepare and submit to Headquarters, within a month of the receipt of the memorandum, a
plan to address overdue receivables. As a coordinated effort among the financial
management offices, offices of regional counsel, program offices and the DOJ, each plan
should define the roles and responsibilities of each organization in performing the steps in
addressing overdue receivables, the estimated time frames to complete these steps, and a
primary regional contact OSRE and FMD will continue to work with the regions to
monitor their progress in addressing the overdue receivables.
4.5 We recommend the Assistant Administrator for Enforcement and Compliance
Assurance discuss the issues raised in the July 16,1998, memo, particularly the
need for timely establishment of accounts receivable at the upcoming cost recovery
conference;
RESPONSE: We disagree with this recommendation. OECA provided a detailed
presentation on these issues at the Cost Recovery Conference that was held the week of
June 14,1999. Moreover, region-specific aging accounts receivable analyses were
provided to each Division Director and Office of Regional Counsel at the Policy
Managers Meeting that was held March 23-25,1999.
4.6 We recommend the Assistant for Administrator for Enforcement and Compliance
Assurance revise the Department of Justice IAG to require DOJ to directly
transmit to the ORCs and Regional finance offices copies of final source documents
(i.e., Consent decrees, judgements) required to establish the recording of accounts
receivable within seven days of entry by the courts, and notify both the ORC and
finance offices of any changes in the status of the collectibility of the debt within 30
days of such determinations;
RESPONSE: We agree with this recommendation and OSRE, FMD, and DOJ have
been working to implement an electronic network to satisfy the requirements for
establishing the recording of accounts receivables. Data management personnel have
acquired the necessary software to implement this electronic system. We believe that this
system will be more effective and prompt in transmitting the source documents. After
addressing any initial system problems and ensuring the effectiveness of the electronic
system, the Department of Justice IAG will be revised.
4.7 We recommend the Chief Financial Officer and the Assistant Administrator for
Enforcement and Compliance Assurance work together to assure the roles and
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responsibilities of offices involved in the oversight billing process are maintained so
that the Agency can sustain its emphasis on timely billing and collection of
oversight costs;
RESPONSE: We agree with this recommendation. The roles and responsibilities of the
regional offices in carrying out the oversight billing process were documented by each
region in April 1998. The roles and responsibilities vary among regions, and the OCFO
will continue to emphasize the need to have clear regional roles and responsibilities for
this process.
Corrective Action
Maintain roles and responsibilities
for the regional oversight billing process
Target Date
Ongoing
4.8 We recommend the Chief financial Officer and Assistant Administrator for
Enforcement and Compliance Assurance work together to develop and implement
performance measures for the Senior Resource Officials to assess how well the
regions are managing their oversight costs billings and other cost recovery
activities. Tie the performance measures into EPA Goal 10, Effective Management,
which calls for EPA to "establish a management infrastructure that will set and
implement the highest quality standards for effective internal management and
fiscal responsibility;
RESPONSE: This was completed in July 1999. The OCFO has implemented the
recently developed SRO Performance Measure on Superfund oversight billing. The first
measurement period will be FY 2000. We also have developed a new Financial
Management Core Measure on Oversight billing which automatically ties in to Goal 10,
Objective 2, and Subobjective 1. Within Subobjective 1, annual performance goal # 2
requires core finance activities meet OCFO Core Financial Management Performance
Measures.
Corrective Action
Develop and Implement the SRO Measure
on Superfund oversight hilling
Target Date
Completed 7/28/99
ADDITIONAL CONTROLS NEEDED IN EVTERAGENCY AGREEMENT INVOICE
APPROVAL PROCESS
5.1 We recommend the Director, Grants Administration Division provide each
certified project officer a concisely worded (one page so that it can be posted in
their work space) checklist on the process to be followed when they receive an
approval form;
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5.2
RESPONSE: We do not agree with this recommendation. We believe the Invoice
Approval form to be generally self-explanatory. It would be more beneficial for the
Grants Administration Division to develop and issue a GAD Fact Sheet for Agency
Managers explaining the requirement and the need for timely responses.
Corrective Action
Issue GAD Fact Sheet
Target Date
March 31,2000
We recommend the Director, Grants Administration Division consider expanding
the IAG portion of the project officer training/refresher course to give more
emphasis to the importance of timely and properly completing the approval form.
Consider having an official from CFMC present this portion of the course or
prepare the materials to be used;
RESPONSE: We share your views on the need to continue to emphasize the
importance of timely and accurately completing the invoice approval form. Beginning in
FY 2000, Grants Administration Division will place additional emphasis on the
importance of timely, proper completion of the payment approval form. We will also add
a copy of the form to the IAG appendix. CFMC is willing to participate in the project
officer training courses as the Division's travel budget will allow each year. During fiscal
year 1999 CFMC attended the Region HI project officer training course. CFMC
reviewed the responsibilities of the project officers for the timely processing of IAG
invoice approval forms.
Corrective Action
Participate in GAD
Project Officer Training
Course
Target Pate
Ongoing
We recommend the Director, Grants Administration Division consult with the
Director, Financial Services Division, on ways to identify for the CFMC the project
officer's supervisor, so the supervisor can be notified when the project officer has
not completed and returned the approval forms;
RESPONSE: We partially agree with this recommendation. It would take considerable
research to determine delinquent project officers' supervisors, so GAD proposes that the
CFMC instead send notices to the approval official who signed the agreement.
Generally, approval officials will be in the chain of command of project officers, although
in many cases not the project officers' immediate supervisors. In order to determine
whether this will be acceptable, we will present it as a recommendation to the Grants
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Customer Relations Council (GCRC). If they have significant objections, we will work
with the GCRC members to develop an alternative approach and notify the Inspector
General's office of the change in approach and put the final approach in place by March
31,2000.
Corrective Action
Work with GCRC members to develop an
and alternative approach and notify OIG
office of change in approach
Target Date
March 31, 2000
5.4 We recommend the Director, Financial Services Division direct the Chief,
Cincinnati Financial Management Center to notify the project officer's supervisor
if the invoice approval form is not returned promptly, so the supervisor can
forward the form to an alternate project officer if the primary project officer is on
extended leave; or hold the project officer accountable if the form has not been
returned timely.
RESPONSE: While we agree in principle with this recommendation, identifying the
project officers' supervisor and keeping that information current is a huge undertaking.
The Grants Management Division and CFMC feel that the IAG approving official could
be sent the follow up letters on the late invoice approval forms. As described in the
response to the previous recommendation, CFMC will work with the Grants
Administration Division to use the IAG approving official for second requests. Once the
Grants Management Division has cleared the use of the approving official with the
GCRC, CFMC will begin sending the approving official the second requests for invoice
approval.
5.5 We recommend the Director, Financial Services Division direct the Chief
Cincinnati Financial Management Center compile a list of project officers with
outstanding, late or incomplete invoice approval forms and forward to the SROs on
a quarterly basis, asking for their assistance in getting project officers to timely and
properly complete the forms.
We agree in principle with this recommendation. We agree to provide the SROs a list of
the delinquent project officers, but propose to send the list semiannually rather than
quarterly. Initially CFMC plans to provide the SROs the names of project officers who
have been chronically delinquent in returning the invoice approval form. This list will be
provided to the SROs semiannually in November and April. We believe the
recommendation to provide this information to the SROs quarterly is overly burdensome.
While CFMC does have an automated system to produce the invoice approval forms, the
system does not track statistics on the submission of the approval forms. At this time the
data for such reports have to be accumulated manually. It is more reasonable from a
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workload prospective to provide the listings semiannually. Semiannual reports will
decrease manual workload while providing the SROs the information they need.
Furthermore, the reports should raise the level of awareness and accountability the OIG
and OCFO wish to achieve.
CONTINUED IMPROVEMENTS NEEDED IN ACCOUNTING FOR CAPITALIZED
PROPERTY
6.1 We recommend the Chief Financial Officer, in conjunction with the Assistant
Administrator for Administration and Resources Management continue to work to
strengthen controls designed to ensure that property is timely and accurately
recorded in the Agency's property accountability system, FAS. Specifically,
reemphasize to the appropriate Agency personnel their responsibilities to:
provide descriptive information about an existing parent property item in
the procurement request for capital improvements; and
report receipt of accountable and capital property to the appropriate PMO
in a timely manner when property acquisitions are directly delivered to the
ordering official, and forward copies of appropriate documentation to the
PMO.
RESPONSE: We concur with the above recommendation. We believe it important to
emphasize, however, that the appropriate Agency personnel who needs to be reminded
of their property management responsibilities are not necessarily Property or Financial
Management personnel. Users of Agency property, such as custodial officers, project
officers, funds certifying officers and managers, and other ordering official, must be made
aware of Agency property management requirements. To correct this problem OARM's
role in this effort will be to coordinate with specific organizations when property records
indicate they are not complying with Agency property management policy. In addition to
site visits performed by OARM's Facilities Management Services Division (FMSD),
FMSD in conjunction with FMD, plans to take every opportunity to present briefings,
conduct training sessions (such as the Fixed Asset Subsystem training conducted
February 2-4, 1999), attend organizational meetings, and participate in any way to
disseminate information and guidance concerning accurate documentation and timely
processing of required receiving documents.
As mentioned in the Audit report, during October 1998, the Financial Management
Division (FMD) issued Transmittal Notice (TN) 99-03, "Guidelines on Preparing
Requisitions for Property and Related Goods." This guidance provided detailed
instruction on preparing purchase requests for capital improvements. The instructions
give examples of how to prepare requisition for capital improvements when descriptive
information concerning an existing parent property is required. FMSD will issue a
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memorandum to Agency Senior Resources Officials: (1) reminding them of their
responsibility to follow Agency property management policy along with a copy of the
FMD TN 99-03 and (2) .requesting that they distribute it to their respective project
officers, ordering, and funds certifying officers.
Finally, ETSD is scheduling a joint review session with RTF FMSD, RTF OAM and
FMD to address WCF property accounting problems. At the conclusion of this session,
ETSD expects to have a plan of action for correcting problems before the end of this
fiscal year.
Corrective Action
Issue a memorandum to
Senior Resource Officials
EPA-wide distribution.
Implement Action Plan
to Correct WCF Property
Accounting Problems
Target Date
September 30,1999
September 30,1999
REVENUE WAS NOT PROPERLY RECORDED ON SUPERFUND STATE
CONTRACTS (SSCs)
7.1 We recommend the Chief Financial Officer assist the regions in identifying and
correcting problems causing errors in their advances and unbilled accounts
receivable, and
RESPONSE: We agree with this recommendation. During the FY 1998 SSC revenue
recognition process, there were problems with the spreadsheet formulas relative to State
Costs Share (SSC) Credits. This problem has been corrected for the FY 1999
spreadsheets. We will work with individual regions in FY 1999 to assure SSC revenue
has been properly recorded and to assure related account balances are correct.
7.2 We recommend the Chief Financial Officer continue to emphasize the need for
regional personnel to perform analytical reviews of their account balances.
RESPONSE: We agree with the recommendation. We conducted a workshop in June
1999 in which one of the sessions dealt specifically with the General Ledger and the need
for continual account analysis. In addition, we have performed account analysis here at
headquarters. We have identified accounts that need to be analyzed and have
communicated this information to the regions. We will continue to analyze the accounts
and work with regions in getting account balances corrected.
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AUTOMATED APPLICATION PROCESSING CONTROLS FOR THE INTEGRATED
FINANCIAL MANAGEMENT SYSTEM COULD NOT BE ASSESSED
8.0 (NO RECOMMENDATIONS RECEIVED)
EPA IS NOT IN SUBSTANTIAL COMPLIANCE WITH FEDERAL FINANCIAL
MANAGEMENT SYSTEM REQUHIEMENTS
9.1 We recommend the Chief Financial Officer develop an overall remediation plan
which specifies resources, remedies and intermediate target dates associated with
bringing ARTS, CPARS, CPS, EPAYS, D7MS, MARS, ETAMS, TM+ and BAS
systems into substantial compliance with OMB, NIST and Agency requirements,
and addresses the critical security controls shown in Table 2.
RESPONSE: We do not agree with this recommendation. We believe that the Agency
financial systems cited above are substantially in compliance with OMB, NIST and
Agency requirements. See Attachment I, pages 11-22 for detail discussions supporting
the CFO position on this recommendation.
9.2 We recommend the Director for Acquisition Management develop security plans
for CDOTS, ICMS, SPEDI, and CIS which address the critical security controls
depicted in Table 2 above, and bring these systems into compliance with OMB
Circular A-130, NIST and Agency requirements
RESPONSE: We do not agree with this recommendation. We believe that the Agency
procurement systems cited above are substantially in compliance with OMB, NIST and
Agency requirements.
Also in support of our position, the facts related to this issue are as follows:
— The Contracts Information System (CIS) has been in operation for a number of years
and has had an approved Security Plan in the past. Although security controls for CIS
have not changed, security information for this system is being incorporated into the
ICMS Security Plan.
- A Security Plan for the ICMS family of applications, which includes ICMS, SPEDI
and CDOTS, was approved by the Security Information Resources Management Officer
(SIRMO). The SIRMO has directed OAM to address issues brought up in an extensive
critique of the Security Plan by OIRM's IRM Policy and Evaluation Division to add
information to specific sections of the plan.
— OAM's Office Director, as owner of these applications, has been briefed on the status
of the ICMS Security Plan, has assigned the responsibility for system security to OAM's
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9.3
9.4
9.5
Technical Information Officer, and has granted authorization to operate these systems,
with direction to the Technical Information Officer to comply with the SIRMO's
instructions and guidance.
We recommend the Director for Grants Administration address the critical security
controls, as indicated in Table 2, needed to bring the P2000 Security Plan into
compliance with OMB Circular A-130, NIST and Agency requirements.
RESPONSE: We disagree with this recommendation. The GAD Systems Security Plan
as of September 30,1998, represents a sufficient level of detail as required by EPA
guidelines. A revised Security Plan is under review as part of our ongoing reviews and is
expected to be completed by June 2000 to include requirements for the operation of the
Partnership 2000/Integrated Grant Management System, which is under development.
Corrective Action
Issue P2000/IGMS Security Plan
Target Date
June 2000
We recommend the Director for Grants Administration coordinate with GICS data
owners and address the critical security controls, shown in Table 2, necessary to
bring the GICS Security Plan into compliance with OMB A130, NIST and Agency
requirements.
We disagree with this recommendation. The GAD Systems Security Plan as of
September 30,1998, represents a sufficient level of detail as required by EPA guidelines.
GAD agrees to coordinate with the Office of Water, the co-owner of GICS data, and
jointly address the additional critical security controls necessary to keep the GICS
Security Plan in compliance with OMB, NIST and Agency requirements. The Plan has
already been revised as part of our ongoing reviews to incorporate a sufficient level of
detail as required by OMB and NIST standards and arrangements are being made to
conduct an independent audit of the system.
Corrective Action
Issue Revised GICS Security Plan
Target Date
March 31, 2000
We recommend the Region 5 Assistant Regional Administrator for Resources
Management develop a Security Plan for the CTS financial system which addresses
the critical security controls shown in Table 2 and makes the system compliant with
OMB Circular A-130, NIST, and Agency requirements.
RESPONSE: We agree with this recommendation and have subsequently submitted a
Security Plan to our SIRMO for review and approval.
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Corrective Action
Issue CTS Security Plan
Target Date
March 31,2000
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APPENDIX in
ADDITIONAL OIG COMMENTS ON THE AGENCY'S RESPONSE
1. The CFO agreed that problems occurred in converting data from EPA's predecessor
accounting system and that the result of these problems may still exist. Accordingly, the CFO
agreed to take corrective action in fiscal 1999. Since the facts of this situation are not in dispute
and no evidence can be provided that the problem has been resolved, we will continue to include
this issue in the report.
2. We acknowledge that operations personnel from the Department of Treasury's Financial
Management Service Center for Applied Financial Management (Center) reported that EPA's
"accounting system documentation" was compliant with Federal financial system requirements.
However, the Center's report only addressed the issue at a high level; thereby, not providing
details which would allow us to understand (1) which specific portions of the IFMS "user"
manuals adequately depicted automated system control processes, and (2) the thought process
used to arrive at the report's conclusion. In addition, the report presented data that contradicted
facts which we previously obtained from the same source, e.g., percentage of IFMS
customization. Therefore, on July 13,1999, we requested access to the review team's working
papers. To date, we have not received materials which could explain the review team's logic or
support their conclusions. Auditing standards require that we satisfy ourselves as to the work of
others before placing reliance on it for audit purposes. Therefore, until we can assess the review
team's analysis, we cannot place reliance on the Center's findings. As a result, we will continue
to consider system documentation a reportable condition. We plan on evaluating the basis for
the Center's report findings as a part of our fiscal 1999 audit work.
3. Since the Agency has not finalized its legal position, formally revised its grant awarding
practices, nor instituted guidance to provide assurance its internal control practices would not
violate 31 USC 1301, we continue to believe this issue is a significant noncompliance.
4. The Agency bases its position on two sources, which occurred after the end of the reporting
period. Auditors have not had the opportunity to review products issued from these sources.
Auditing standards require that we satisfy ourselves as to the work of others before placing
reliance on it for audit purposes. Therefore, we must continue to rely on our own analysis in
determining the degree of FFMIA non-compliance until we can access the referenced reports
and, if necessary, evaluate analytical work papers associated with the findings.
5. The Agency's declaration that its financial systems are substantially compliant with FFMIA
requirements is based primarily on products developed after the end of the reporting period.
These products were not available for OIG review and evaluation. As previously stated, auditing
standards require that we assess any work products before we rely on them for audit purposes.
ffl- 1
Audit Report 99B0003
-------
Therefore, we cannot place reliance on the Agency's position. We recommend that management
develop a remediation plan which includes action plans to address security weaknesses.
6. We have revised this paragraph to more clearly explain the Agency's current position on
developing technical system documentation and a data dictionary. However, we will continue to
consider system documentation a reportable condition until such time as we can assess the
Center review team's analysis.
7. We have revised this paragraph of the report to explain how general control deficiencies
associated with regional general support systems could impact the integrity of financial data and,
therefore, affect data presented in EPA's financial statements.
8. We removed all references to our audit of EPA's management of the technical support
contract for its Core financial systems because the report findings addressed issues which did not
directly relate to the financial statements.
9. As of the date of the CFO's response, August 16, 1999, Treasury's Financial Management
Service Center for Applied Financial Management had not issued final reports on EPA financial
or mixed systems with regard to compliance with OMB Circular A-127 and A-130 requirements.
As such, audit staff could not obtain copies of the reports nor gain access to supporting
analytical work papers. Auditing standards require that we satisfy ourselves as to the work of
others before placing reliance on it for audit purposes. Therefore, at this time, we cannot agree
that these systems meet the referenced requirements. During the fiscal 1999 financial statement
audit, we plan on assessing Treasury's detailed findings and analytical support. As part of that
assessment, we will determine whether the operations personnel who performed the reviews (1)
fully understood the implications of inadequately documented security controls, and (2) formed
reasonable opinions regarding which controls were "material" in determining such compliance,
10. We believe that these findings address two separate issues, one dealing with the controls
over the overall financial statement preparation process and the other with the Agency's
budgetary accounting practices. Agency management is ultimately responsible for the timely and
reliable preparation of the financial statements. Delays in the timely issuance of the financial
statements were the result of Agency management's efforts to attain an unqualified opinion. We
continued our efforts in cooperation with the Agency so that impediments to the preparation of
the financial statements could be identified and process improvements could be made for the
preparation of future financial statements.
11. Agency management is responsible for establishing and maintaining effective internal
controls over financial reporting and financial reports, including providing reliable information to
support the financial statements. Our audit work continued into July 1999 as additional, reliable
information was provided to support the financial statements.
12. Since Agency management disagreed with the need to report investment in human capital as
Stewardship Information per the accounting standard for Supplementary Stewardship Reporting,
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we performed additional audit work to support our position. On November 19,1998, the issue
was resolved based on discussions with FASAB staff. We continue to maintain our position that
the facts as presented are accurate. As we cooperatively worked with the Agency to resolve this
issue and made numerous attempts to obtain supporting documentation, we are unclear as to the
Agency's statement that "this data was available for audit in October 1998, when the audit
began;" however, the data was not provided to us sooner.
13. We believe our amounts for unliquidated obligations reviewed are correct and have
documentation to support these numbers.
14. The CFO plans to expedite the preparation of the SF-133 through automation beginning in
fiscal 1999. The SF-133 will be prepared directly from the general ledger without manual
adjustments. We concur with the Agency's planned corrective actions in this area.
15. Effective funds control practices should require all unilateral administrative orders and all
other demands for payment to be tracked and controlled to ensure funds are properly
safeguarded against unauthorized use or disposition. Regardless of whether the Agency
establishes a receivable when a UAO is issued, Agency guidance in this area that is not clear or
subject to interpretation represents a weakness in controls over Agency assets that we have a
responsibility to report to management.
16. We agree that the reference to the fiscal 1998 unbilled oversight cost balance should be
changed from $71 million to $62 million. Audit adjustments approximating $9 million were
posted to the trial balance after the general ledger closed.
We believe that the unbilled oversight cost issue, as it pertains to an ongoing series of accounts
receivable issues, warrants reportable condition status. The OIG has consistently communicated
any issue that requires material adjustments to the financial statement as a reportable condition,
at a minimum. As mentioned above, audit adjustments approximating $9 million were necessary
to fairly present the financial statements. Further, we believe that part of the reported $62
million of fiscal 1998 unbilled oversight costs could have been billed. Per a memo issued in April
1998 by the Office of Comptroller and Office of Enforcement and Compliance Assurance, pre-
fiscal 1998 oversight costs incurred on sites with anniversary dates between June 1 and
September 30 were not required to be billed in order to become "current" on oversight billings.
The Agency's self-imposed definition of being "current" was arbitrary and not supported by an
official performance measure. Being "current" does not directly impact the financial statement
opinion. Nevertheless, any implications that part of the $62 million unbilled oversight costs
could have been billed in fiscal 1998 or prior, are valid and not misleading.
17. We modified the paragraph to include Agency management's belief that the completed
security plans substantially comply with requirements. We have continued to emphasize that our
audit work identified numerous weaknesses deficiencies and demonstrated that, from a content
perspective, the security plans did not sufficiently address controls issues for the financial
management systems. We credited the Agency's efforts to improve security planning for the
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financial systems, but stated that recent improvements would have no bearing on compliance
during fiscal 1998.
18. If security controls and procedures are in place to protect financial data, they have not been
adequately documented in the security plans as required by Federal requirements. Security plans
must adequately define security controls and procedures, because it is through this vehicle that
management is obligated to evaluate system strengths, threats and vulnerabilities, calculate risks,
and ensure that the proper level of protection is provided. Otherwise, neither management nor
audit staff can be reasonably assured that operational threats to financial data have been
minimized. Accordingly, no change has been made to the report.
19. Agency comments do not negate the validity of the paragraph in question, i.e., (paraphrased)
audit staff discussed these issues with Agency managers on numerous occasions and provided
additional information to clarify our findings. Furthermore, Attachment 3 of the draft report
included a three page "Agency Comments and OIG Evaluation" section, in which we
summarized the prior comments of all four action officials, by recommendation, and provided
our evaluation of those comments. This entire section has been modified to reflect the Agency's
formal response to the draft audit report and our subsequent position regarding FFMIA
compliance with Federal financial management system requirements.
20. The Agency's response supported our conclusion that, as of September 30,1998,
"management had not approved security plans for the remaining eight financial or mixed financial
systems." Agency management acknowledged that: (1) OAM's SIRMO did not finalize four
system security plans (CDOTS, ICMS, SPEDI, CIS) until mid-October; (2) OCFO management
continued to operate the Budget Automation System even though its security plan expired on
June 30, 1998, as a result of unfulfilled action items; (3) no security plan existed for a major
regional system used to track recovered Superfund costs; and (4) a system being developed for
Agency-wide deployment (TM+) did not have an approved security plan. We decided to remove
ETAMS from the list of financial systems, based on the Agency's statement that "because the
Agency's payroll system is to be replaced, management decided to not expend any additional
resources on this system." We modified the report to reflect the exclusion of ETAMS.
21. We revised the methodology section of the report to clarify that financial audit staff tested
significant manual controls to determine whether such controls were effective. Therefore, the
scope limitation mentioned in reference to the review of system security documentation does not
conflict with the extent of control tests performed by financial audit staff. Moreover, GAO
endorsed our multi-year plan for auditing ADP general controls in support of financial statement
audits. In the plan, we scheduled separate audits to address the adequacy of operational security
controls because GAO wanted agencies to thoroughly examine all major categories of ADP
general controls. One audit report was issued in fiscal 1999, while at least two more audits will
begin hi the current and upcoming fiscal year.
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22. We modified Table 2 of the report to more accurately reflect the degree of noncompliance
found with regard to the five critical security controls. Moreover, we modified the paragraph
preceding the referenced table, clarifying that "the designation 'NC' indicates that a system was
noncompliant in some respects with requirements for the critical control, but we did not consider
the critical control substantially noncompliant. Therefore, an 'NC' denotes that parts of a critical
security control may have been compliant, although other aspects were missing or needed
improvement."
23. We have allowed the Booz-Allen & Hamilton, Inc. final report to serve as an independent
assessment of operational controls, although we remain concerned that Agency management
negated some of the report's "independence" by excluding several of the reported
nonconformances from the Agency's corresponding internal report and subsequent corrective
action plan. As a result, we have revised the findings associated with this particular security
control for the following systems: IFMS, MARS, CPARS and EPAYS.
We continue to report on ARTS because, as of September 1998, it still was classified as a major
application system. However, we downgraded ARTS to a noncompliance standing with respect
to Critical Control #1. We took this action on the basis that the OIG's independent review of
this application (1) addressed some of the security functions addressed in OMB Circular A-130,
and (2) was issued within three years prior to the period under review. We reiterate that the
OIG's review did not cover many areas which would be expected of an independent audit or
review under current OMB Circular A-130 requirements. However, ARTS will not be included
in our fiscal 1999 audit regarding FFMIA compliance because the system owner subsequently
reclassified ARTS as a non-major application.
24. The security plan is the vehicle under which management is obligated to weigh, hi the
aggregate, reported system strengths and risks, and approve or disapprove system operations.
When management formally approves (i.e., signs) a system plan, they provide tangible assurance
that they: (1) are aware of particular control deficiencies, (2) knowingly accept the risk of
operations during the interim, and (3) have practical plans to address the reported weaknesses in
a timely manner. Other documents, although related, are not recognized as providing the same
level of "tangible assurance." For this reason, a security plan needs to include or reference any
report findings which play a part in management's decision to authorize operations. Whereas the
Agency may have addressed findings through other documents, they did not reference or include
important review findings in the security plan; therefore, the plan could not provide tangible
assurance that management fully understood and evaluated the risks of operation before granting
that authorization. Therefore, we still believe that operational security problems should be
included or referenced hi the security plan. Accordingly, we moved portions of the referenced
paragraph to the section entitled Critical Security Control #2 - Security Plan Level of Detail.
25. In its response, the Agency quotes Section B.a.2. of OMB Circular A-130, Appendix HI, to
justify using the Appendix of OMB Bulletin No. 90-08 as guidance for the technical portion of
its security plans. Section B.a.2 applies to security plans for "general support systems" and,
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therefore, is inapplicable guidance for the review of major application system security plans.
Moreover, Section B of Appendix ffi only contains "explanatory" and "descriptive language"
meant to assist readers in "understanding the requirements of the Appendix," which are found
under Section A. In fact, Section A.3.b., Controls for Major Applications, does not mention the
interim use of Bulletin 90-08, and the corresponding section (that is, B.b.2.) under Section B,
Descriptive Information, limits its reference to the Bulletin. Specifically, Section B.b.2 only
states that (1) technical security controls (e.g., tests to filter invalid entries) defined in the
Bulletin will continue until that guidance is replaced by NIST's security planning guidance
[B.b.2.e)]; and (2) the system test and certification processes, previously required in connection
with independent reviews or audits of application controls, will remain in Bulletin 90-08, and can
be used to supplement the current review process, whenever appropriate (B.b.3). Also, we note
that EPA Directives specifically mention adherence to NIST guidance in the preparation of
system security plans. We have made a minor change to the report to clarify our meaning.
26. Agency management provided many pages of response related to our FFMIA findings, and
disregarded the majority of our specific audit findings for the following, primary reasons:
• they generally disagreed with audit staffs interpretation of the Federal requirements,
• they believed that certain Federal and Agency criteria were not applicable either to the
contents of security plans or to the period under review,
• the Center's review, performed by operations rather than audit personnel, concluded that
nine financial systems met Federal requirements "in all material respects," or
• they made additional improvements to security plans/programs in the months since our
review.
At this time, we cannot place reliance on the Agency's general assertions because:
• management has not provided reasonable support to justify a different interpretation or
exclusion of Federal and Agency criteria,
• the Center's reports and supporting analytical work papers were not available to audit
staff for assessment purposes, and
• improvements made subsequent to the end of the reporting period do not affect
compliance as of September 30,1998.
Furthermore, OCFO management canceled the meeting we had scheduled between our office,
their staff and Agency security managers to discuss the applicability of NIST, OMB and EPA
Directives to the evaluation of security plans. Lastly, while we commend management for
making continued improvements to their security programs and system security plans, we
reiterate that this particular report must comment on the state of compliance as of September 30,
1998. Subsequent improvements will be evaluated during the fiscal 1999 audit of FFMIA
compliance.
In addition, we plan to review the Center's reports and supporting analytical work papers during
our review of the fiscal 1999 financial statements. In the interim, auditing standards prohibit us
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from relying on the work of others unless we first satisfy ourselves as to the quality and
acceptability of such products. Therefore, we must continue to rely on our audit analysis, and
will report the resulting audit findings to Agency officials and the Office of Management and
Budget. Where appropriate, we revised the report and our recommendations to reflect
management's position and acknowledge ongoing efforts to improve compliance with Federal
requirements.
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APPENDIX IV
REPORT DISTRIBUTION LIST
Chief Financial Officer (2710)
Inspector General (2410)
Assistant Administrator for Administration and Resources Management (3101)
Acting Assistant Administrator for Solid Waste and Emergency Response (5101)
Assistant Administrator for Enforcement and Compliance Assurance (2201 A)
General Counsel (2310)
Comptroller (2731)
Director, Office of Administration (3201)
Director, Office of Acquisition Management" (3801R)
Director, Office of Grants and Debannent (3901R)
Director, Office of Administration and Resources Management, Cincinnati, OH
Director, Office of Administration and Resources Management, RTF, NC
Acting Director, Office of Information Resources Management (3401)
Director, Office of Site Remediation Enforcement (2271 A)
Director, Office of Emergency and Remedial Response (5201G)
Director, Annual Planning and Budget Division (2732)
Director, Grants Administration Division (3903R)
Director, Enterprise Systems Division (3409)
Director, Facilities Management and Services Division (3204)
Director, Financial Management Division (2733R)
Director, Financial Services Division (2734R)
Director, Enterprise Technology Services Division, OIRM, RTF, NC
Financial Management Officers at Regions 1, 2,3,4,5, and 9, Cincinnati, Las Vegas, and Research Triangle
Park
Divisional Inspectors General for Audit
Chief, Financial Reports and Analysis Branch (2733R)
Chief, Program and Cost Accounting Branch (2733R)
Chief, Financial Systems Branch (2733R)
Chief, Financial Policies, Procedures and Compliance Branch (2733R)
Chief, Washington Financial Management Center (2734R)
Acting Chief, Security and Property Management Branch (3204)
Kathy Sedlak O'Brien, Agency Audit Follow-up Coordinator (2724)
Brigid Rapp, Audit Liaison for the Office of the Chief Financial Officer (2710)
Saundra Womack-BuUer, Audit Liaison for the Office of Administration and Resources Management (3102)
Elizabeth Harris, Audit Liaison for the Office of Solid Waste and Emergency Response (5103)
Tom Pastore, Audit Liaison for the Office of Administration (3201)
Linda Garrison, Audit Liaison for the Office of Information Resources Management (3401)
Greg Marion, Audit Liaison for the Office of Enforcement and Compliance Assurance (2201 A)
John Showman, Audit Liaison for the Grants Administration Division (3901R)
Pat Gilchriest, Audit Liaison for the Administrator's Office (1104)
Al Demarcki, Audit Liaison vor the Financial Management Division and Financial Services Division (2733R)
William Stewart, Audit Liaison for the Office of General Counsel (2311)
Roland Cyr, Audit Liaison for the Financial Audit Division (2422)
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