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United States Administration And
Environmental Protection Resources Management April 1994
Agency (3303F)
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EPA'SFY1993
ANNUAL FINANCIAL
STATEMENTS
EPA Headquarters library .
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TABLE OF CONTENTS
MESSAGE FROM THE ADMINISTRATOR
SECTION A
Overview of EPA
Overview of Trust Funds, Revolving
Funds and Commercial Activities"
Superfund
Leaking Underground Storage Tank (LUST) Program
Oil Pollution Prevention Program
Asbestos Loan and Grant Program
Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund)
Revolving Fund for Certification and
Other Services (Tolerance Fund)
SECTION B
1
4
7
18
21
24
27
30
Message from the Chief Financial Officer
Principal Financial Statements
SECTION C
33
35
Office of the Inspector General Reports
73
EPA's FY 1993 Annual Financial Statements
Page i
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Page ii
EPA's FY 1993 Annual Financial Statements
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MESSAGE FROM THE ADMINISTRATOR
I am pleased to present the Fiscal Year 1993 Annual Financial Statements for the U.S.
Environmental Protection Agency. These statements were prepared by the Agency's Chief
Financial Officer (CFO) and present a snapshot of the financial condition of EPA's trust
funds, revolving funds and commercial activities. Since the financial statements help to
evaluate the effectiveness of the Agency's systems and operational weaknesses, I consider
them to be an integral part of my strategy for increasing accountability and strengthening
management practices throughout the Agency.
This year we made considerable progress in preparing our financial statements. We
reduced the timeframe for producing the statements by three months. In addition, as a direct
result of improvements we made, EPA received more favorable opinions from the auditors
on several of its funds, including an unqualified opinion on its newest fund, the Oil Spill
Trust Fund. .
The overall results of the audits attest to the continuing improvements in the Agency's
internal controls, financial management and accounting practices. The audit results also
measure our performance against the baseline we established last year. Finally, the
partnership formed between our finance and program offices in preparing these financial
statements has strengthened financial management and improved program performance
throughout the Agency.
The requirement to produce annual financial statements provides the Agency with an
opportunity not only to examine its financial systems and operations, but also to begin linking
financial data with program performance information. We plan to use the financial
statements as the foundation for achieving our long-term vision of results-oriented
management and increased accountability. The statements play a key role in our ultimate
goal of developing and implementing an integrated approach to Agency-wide strategic
planning, budgeting, financial management and program evaluation. This approach will
guide the Agency's program and investment decisions.
To implement this vision consistently across the Agency, we plan to integrate and
coordinate key management initiatives including the CFO Act, new guidelines for the Federal
Managers' Financial Integrity Act, provisions of the Government Performance and Results
Act (GPRA) and the recommendations of the National Performance Review (NPR). In
addition, we must ensure the availability of timely, reliable, accurate and useful financial and
program information. At EPA, we recognize the value of this information and are putting in
place the necessary infrastructure to improve our ability to measure program performance,
track program costs and evaluate financial management practices. .
EPA's FY 1993 Annual Financial Statements
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As Administrator, I personally am dedicated to developing the most effective and
responsive organization possible in order to meet the immense challenges set forth by our
environmental mandate. Our goal is an integrated management system that supports effective
environmental decision making. The production of these audited financial statements is an
important step, among many, that will move us toward this goal.
In the last year, we took our first steps toward a new way of doing business, to
management that focuses our resources most effectively on producing a cleaner, healthier
environment. While I am extremely pleased with the progress we have made, what appeals
to me even more is the promise of the coming years.
Carol M. Browner
5 1
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EPA's FY 1993 Annual Financial Statements
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1
OVERVIEW OF EPA
ission. Stated broadly, the job of the U.S.
Environmental Protection Agency (EPA) is to
improve and preserve the quality of the
environment, both national and global. EPA
works to protect human health and the natural
resources on which all human activity depends.
America's continuing growth and prosperity
depend on its ability to find effective, creative
solutions to environmental problems.
A Complex Growing Agency. When it was
formed in 1970, EPA employed 5,400 people. It
had a budget of approximately $1 billion and
was responsible for a handful of major
environmental laws. Today more than 17,000
highly skilled, culturally diverse people work for
EPA; and the Agency has a budget of
approximately $6 billion parceled out among
programs implementing 16 major laws that
Congress has passed to protect the environment:
The Clean Air Act
The Clean Water Act
The Safe Drinking Water Act
The Comprehensive Environmental
Response, Compensation and Liability
Act (CERCLA, or "Superfund")
The Emergency Planning and Community
Right-To-Know Act
The Resource Conservation and Recovery
Act
The Federal Insecticide, Fungicide, and
Rodenticide Act
The Toxic Substances Control Act
«
The Marine Protection, Research, and
Sanctuaries Act
The Uranium Mill Tailings Radiation
Control Act
The Indoor Radon Abatement Act
The Ocean Dumping Ban Act
The Coastal Zone Management Act
The Pollution Prevention Act
The Federal Facilities Compliance Act
The Oil Pollution Act.
EPA Workyears
20.000
18,000 i
12.000
1.000
4,000
1MB 1WO 1M1
t«K 1883
EPA's FY 1993 Annual Financial Staiemems
Page 1
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9,000
4.000
3.000
2JXO
1.000
EPA Budgets
BtdiKtH Construction Grants
Problems and New Solutions. Many of
EPA's responsibilities originated in response to a
new generation of environmental problems which
surfaced in the 1980s. Most notable is the
whole range of global environmental concerns:
climate change, stratospheric ozone depletion,
rainforest destruction, and acid rain. Also
important are such domestic issues as pollution
prevention, radon contamination of homes, food
safety, and pollution carried by run-off from
' lawns, farms, and highways. In many ways,
these new problems are both more widespread
1 and more complex than those of the past.
EPA has responded to emerging environmental
problems in bold and creative ways. In addition
to its traditional regulatory approaches, the
Agency is addressing environmental concerns by
creating market incentives and encouraging
voluntary actions. The Agency's goal is to
anticipate the environmental needs of the next
century and develop new policies and programs
that will meet those needs.
In the last four years, EPA experienced an
unprecedented amount of change. There has
been increased emphasis on risk to human health
and the ecology as one of the factors in
environmental protection decisions. Both
budget and workforce resources for the Agency's
environmental programs have experienced
growth. This expansion primarily has been
accomplished in the air, water, hazardous waste,
pesticides, enforcement and multimedia
programs.
Effective Resource Management. One of the
most significant areas of change in recent years
has been in the management of the Agency's
resources. Managers throughout the Agency
directed their attention and support toward
strengthening resources management.
Improvements resulting from this concerted
effort include:
Strengthening accountability for resource
management functions by designating
Senior Resource Officers in each
Headquarters and Regional office, who
are responsible not only for procurement
but other aspects of financial resource
management as well;
Continuing to diversify the Agency's
workforce to ensure the greatest possible
range of talent managing our resources;
Providing additional funds in FY 1993 to
strengthen our Integrated Financial
Management System (EFMS) and
allocating funds to correct the weaknesses
. identified in our FMFIA reporting.
Page 2
EPA's FY 1993 Annual Financial Statements
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Reorganizing the Office of
Administration and Resources
Management (OARM) to increase
accountability and control;
Increasing emphasis on effective contracts
management including substantially
elevating the level of resources devoted
to that effort;
Proceeding with plans to correct our
material weaknesses in financial
management as well as nonconformances
in our accounting system;
Improving audit follow up and
implementation by issuing, in conjunction
with the General Accounting Office and
the Inspector General, an early warning
report of high priority audits requiring
EPA action.
To the extent possible, EPA has implemented
hese changes in recent years in conjunction with
establishing the structure and accountability
measures required under the Chief Financial
Officers (CFO) Act. The Agency CFO program
accomplishments include the following:
» Issuing a comprehensive Financial
Management Five-Year Plan which
provides a blueprint for improving
financial management throughout the
Agency, complete with specific activities
and milestones;
Developing financial management
performance measures for an FY 1994
pilot program in six offices for traditional
financial management functions, including
accounting operations, budget execution
and management controls;
Working with program office staff to
continue the development of the program
performance measures which are
discussed in this report; and
Preparing the CFO's Annual Report
which highlights the financial status of
the Agency and identifies existing and
potential areas of concern.
EPA's FY 1993 Annual Financial Statements
Page 3
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OVERVIEW OF TRUST FUNDS, REVOLVING FUNDS,
AND COMMERCIAL ACTIVITIES
The CFO Act of 1990 placed new emphasis on
financial management in major federal agencies.
One of the major requirements of the Act is the
preparation of annual financial statements for
each of the Agency's revolving and trust funds,
and commercial operations.
EPA's financial statements for FY 1993 include
the following trust funds, revolving funds, and
commercial activities:
the Oil Pollution Prevention Program;
Superfund;
Leaking Underground Storage Tank
(LUST) Program;
the Loan Portion of the Asbestos Loan
and Grant Program;
the Pesticide Reregistration and Expedited
Processing Revolving Fund (FIFRA
Fund); and
the Revolving Fund for Certification and
Other Services (Tolerance Fund).
Of these, Superfund is by far the largest, as
measured by monies spent (obligations) and EPA
workyears used by the funds. The Oil Pollution
Prevention Program will be included in the
financial statements for the first time this year.
EPA Financial Statements. Under the CFO
Act, financial statements are required to reflect
the overall financial position of the funds, as
well as the results of the operations of the funds
and their activities or operations. Detailed
financial information on EPA's trust funds,
revolving funds and commercial activities is
contained in the Principal Statements section of
this report
The first part of the financial statements is this
overview prepared in accordance with OMB
guidance. It contains a separate section on each
of the six revolving fund, trust fund, and
commercial activity programs reported on,
including:
a description of each program,
a financial perspective of each program,
and
a discussion of program performance.
EPA's programs and activities not currently
covered by the CFO Act are not included in the
FY 1993 financial statements. The Agency plans
to expand annual financial statements in future
years to include additional EPA programs. The
Agency currently is investigating options for
tracking and reporting additional program
performance and financial information in a
manner that would be useful to those interested
in knowing more about the results of EPA's
programs.
The following paragraphs provide an overview
of the organization, management, and authorizing
legislation for each of the six programs.
Trust Funds. A trust fund is a fund established
to account for receipts which are held in trust for
use in carrying out specific purposes and
programs in accordance with an agreement or
statute. Three of the EPA programs covered by
the CFO Act are trust funds arid are housed
primarily in the Office of Solid Waste and
Emergency Response. These programs, which
use trust fund revenues to finance the cost of
cleaning up contaminated sites, are:
the Superfund,
the Oil Pollution Prevention Program and
the Leaking Underground Storage Tank
(LUST) Program.
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EPA's FY 1993 Annual Financial Statements
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K(
m
The Office of Solid Waste and Emergency
Response (OSWER) is headed by an EPA
ssistant Administrator who is responsible for
:he Agency's waste management programs. The
offices within OSWER are: Emergency and
Remedial Response (with responsibility for
Superfund and Oil Pollution Prevention),
Underground Storage Tanks (with responsibility
for LUST), Solid Waste (with responsibility for
the solid and hazardous waste programs under
the Resource Conservation and Recovery Act),
and Waste Programs Enforcement (with
responsibility for enforcement for all of
OSWER's programs).
EPA has ten Regional offices which manage the
day-to-day operations of these three programs.
Over three quarters of the staff responsible for
carrying out the Superfund, Oil Pollution
Prevention and LUST programs reside in the
Regions. The three programs are located in the
Regional Waste Management Divisions (except
in Regions 4 and 10 where the LUST program is
in the Water Division and in Regions 1, 6 and 7
here the Oil Pollution Program is located in the
nvironmental Services Division).
While OSWER and the Regional Waste
Management, Water and Environmental Services
Divisions have lead responsibility for the
Superfund, Oil Pollution Prevention and LUST
programs, these programs are supported by staff
in other Headquarters and Regional offices.
These offices charge administrative and
extramural expenses to the three programs, but
primarily to Superfund.
In Headquarters, these support functions are
carried out primarily by the Offices of
Administration and Resources Management,
Enforcement, Inspector General and Research
and Development. In the Regions, support is
provided by staff from the Office of Planning
and Management and the Environmental Services
Division, as well as in other Federal Agencies in
the case of Superfund. Funding for these efforts
is supported through an allocation of trust fund
resources.
Revolving Funds. A revolving fund is a fund
authorized by specific provisions of law to
finance a continuing cycle of operations with
receipts derived from such operations available
in their entirety for use by the fund. Two EPA
programs covered by the CFO Act are revolving
funds and both of these are housed primarily in
the Office of Prevention, Pesticides and Toxic
Substances (OPPTS). These programs are:
the Pesticides Reregistration and
Expedited Processing Fund (FIFRA
Fund), and
the Revolving Fund for Certification and
Other Services (Tolerance Fund)
EPA is charged by Congress with the job of
regulating the use of pesticides and balancing the
risks and benefits posed by pesticide use. The
Agency regulates the use of pesticides through.
its Office of Pesticide Programs (OPP), within
OPPTS. OPP consists of seven divisions and a
staff office. Both appropriated and revolving
funds are utilized by OPP in accomplishing its
mission. The two revolving funds which
supplement appropriated resources for OPP are:
The Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund) and The
Revolving Fund for Certification and Other
Services (Tolerance Fund).
The mission of EPA's pesticide program is to
serve the nation by safeguarding public health
and the environment-from risks posed by
pesticides. The regulation of pesticides comes
under the authority of two laws - the Federal
Insecticide, Fungicide, and Rodenticide Act
(FIFRA) and the Federal Food, Drug and
Cosmetic Act (FFDCA). FIFRA gives EPA the
authority and responsibility for registering
pesticides for "Specified uses and the
reregistration of existing pesticides that were
registered prior to.November 1, 1984. Pesticide
EPA's FY 1993 Annual Financial Statements
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regulatory decisions are based primarily on
EPA's evaluation of the test data provided by
applicants. Tolerance residue setting activities
are authorized by FFDCA. EPA's pesticide
regulations cover:
20,000 pesticide products
2,200 registrants
3,300 formulators
29,000 distributors and other
establishments
40,000 commercial pest control firms
1 million farms
90 million households
Commercial Activities, The CFO Act requires
reporting on programs performing substantial
commercial functions and specifically identifies
the making of loans as such an activity. EPA is
reporting on one commercial activity which is
administered under the Office of Pollution
Prevention and Toxics (OPPT) within the Office
of Prevention, Pesticides and Toxic Substances:
the Asbestos Loan and Grant Program.
This overview covers the entire Asbestos Loan
and Grant Program. However, the loan portion
of the program is the only part that is a
commercial activity and is the only part of the
program covered by the audited financial
statements. The Asbestos School Hazard
Abatement Act (ASHAA) of 1984 directed EPA.
to create a loan and grant program to financially
assist Local Education Agencies (LEAs) or
school districts with asbestos abatement projects
in public and nonprofit elementary and
secondary schools. The Act was subsequently
reauthorized in 1990 for an additional five years.
The ASHAA loan and grant program is
administered in the Chemical Management
Division, Field Programs Branch of OPPTS.
.'A
'!*
Page 6
EPA's FY 1993 Annual Financial Statements
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Superfund
e Superfund program is administered under
the Comprehensive Environmental Response,
Compensation and Liability Act of 1980
(CERCLA) as amended by the Superfund
Amendments and Reauthorization Act, 1986
(SARA) and the Omnibus Reconciliation Act of
1991. The program is primarily managed by the
Office of Solid Waste and Emergency Response.
Program Description
CERCLA (Superfund) was enacted on December
11, 1980 to address public health and
environmental threats from spills of hazardous
materials and from sites contaminated with
hazardous substances. The Superfund law
established a comprehensive program to identify
and clean up these spills and sites. EPA was
authorized to use a trust fund (the Hazardous
Substance Superfund) to pay for this work and to
iursue recovery of expenditures from parties
sponsible for the contamination.
The .law directs EPA to handle releases of
hazardous substances by either compelling
potentially responsible parties to respond or
conducting a removal or Remedial Action using
the Superfund. Removal actions are short-term
responses to an immediate threat posed by the
uncontrolled release of a hazardous substance,
such as from a transportation accident or a fire.
Remedial Actions are long-term, more permanent
remedies taken at those sites where the risk to
human health and the environment warrants
placing the site on the National Priorities List
(NPL).
Cleaning up a Superfund site is a multi-stage and
multi-year process. In fact, the average site takes
seven to ten years from discovery to start of
cleanup. Prior to being placed on the NPL, EPA
conducts a preliminary assessment of the site.
Where warranted, this is followed by a site
investigation. While EPA continues to seek
ways to speed site cleanups, the work on
complex sites can stretch into decades especially
when ground water must be treated. EPA also
conducts removal actions at non-NPL sites.
Since 1980, approximately 3,400 short-term
removal actions have been started (270 in FY
1993 alone), with the majority at non-NPL sites.
Once a site is listed on the NPL, EPA works
with the community around the site to plan the
long-term cleanup with a detailed study of the
site and an evaluation of cleanup options. The
planning process can take up to four years with
an average cost of $1.35 million per site.
The actual cleanup (construction) work itself
averages $22 million per site. Because of the
high cost and limited Superfund resources,
EPA's enforcement program emphasizes
compelling responsible parties to conduct the
cleanup actions. Responsible parties currently
fund approximately 72 percent of NPL sites.
While the Superfund responsibilities cannot be
delegated, at some sites the State, 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.
Financial Perspective
In 1980, the Congress established in the
Department of the Treasury a trust fund entitled
the "Hazardous Substance Response Trust Fund",
which is known now as the Hazardous Substance
Superfund. Congress also appropriated funding
for five years totalling $1.6 billion. As the
long-term nature and expense of site cleanup
EPA's FY 1993 Annual Financial Statements
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became more evident, Congress reauthorized the
program in 1986 and the taxing authority for an
additional five years of EPA funding totalling
$8.5 billion. In 1990, Congress extended taxing
authority for an additional three years adding
$5.1 billion to EPA's funding.
The Department of Treasury's Hazardous
Substance Superfund Trust Fund is the source of
funding for EPA's Superfund account. Through
annual and supplemental appropriations,
Congress establishes the amount of the fund that
EPA may use. EPA withdraws monies from the
trust fund as needed to cover disbursements. At
the end of FY 1993, the trust fund reflected an
unappropriated balance of $2.1 billion. Congress
could make these funds available to EPA in
future appropriations.
The Superfund trust fund is supported primarily
by taxes on crude and petroleum, on the sale or
use of certain chemicals,
and an environmental tax
on corporations. Other
sources of funding for
1 Superfund include
cleanup costs recovered
from responsible parties,
interest,: fines and
penalties paid by
individuals and entities
who violate the terms of
the CERCLA provisions,
and by general revenues.
Superfund Staff by Location - FY 93
Total FTEs-3,509
Regions (75%)
HQ-A1I Others (16%)
HQ-OSWER (10%)
mqr m «) 100 pmn.
ril
2.000
1.800
1,200
100
Superfund response program expenditures
through FY 1993 total $8.7 billion. In EPA's
most recent report to Congress, the Office of
Solid Waste and Emergency Response estimated
the remaining costs of cleaning up the 1,177
sites currently on the
NPL to be $14.3
billion for FY 1994
and beyond. This
estimate does not
include the
responsible party
contribution.
Superfund Financial Trends
OMgMton*
KOuUyt
FYCO
Parties, responsible for
contaminating Superfund
NPL sites are
increasingly paying the
cost of cleanup, saving the fund for those sites
where parties are unable to contribute.
Responsible party commitments to site cleanup
have exceeded $1 billion in each of the past
three years. In FY 1993, EPA achieved
settlements for response actions at NPL sites
valued at $910.3 million.
FY»1
FY82
FY43
Superfund
appropriations,
obligations and
outlays have
remained fairly
'constant from 1990
through 1993 as can
be seen on the
financial trends chart.
In FY 1993, the Superfund program was staffed
by a total of 3,509 FTEs, and total Superfund
obligations were approximately $1.6 billion. .
Further analysis of these numbers is provided in
the following sections.
Page 8
EPA's FY 1993 Annual Financial Statements
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Superfund by Activity. The Agency has
identified four major components of the
uperfund program: Remedial Activities,
emoval Activities, Enforcement Activities, and
Other Activities. These activities were identified
based upon the "Superfund Activity Code",
which is the accounting process the Agency uses
to identify Superfund activities with accounting
transactions. Each of these components has
various activities which are identified below.
Remedial activities represent the long-term
response at a Superfund site and include the
Preliminary Analysis/Site Investigation (PA/SI),
Remedial Investigation/ Feasibility Study
(RI/FS), Remedial Design (RD), Remedial
Action (RA), associated oversight and laboratory
analysis activities, and remedial support and
management.
Removal activities represent the short-term
response and stabilization of hazardous
substances and include the removal actions,
associated oversight and laboratory analysis
.ctivities, expedited response actions, Technical
Assistance Team activities, and removal support
and management.
Enforcement activities represent the actions the
Agency takes in the recovery of Superfund
expenditures, settlement negotiations with
responsible parties, and associated oversight.
Other activities represent activities of the
Agency in supporting the Superfund program as
a whole. These "Other" activities cross the
remedial, removal, and enforcement program
lines and are associated with remedial, removal
and enforcement. "Other" activities include
Research and Development, contract award and
management, financial management, personnel
activities, and rent and utility costs.
These charts provide a look at Agency spending
patterns for the current fiscal year and the past
three-year period. The spending patterns are
identified for both obligations and disbursements.
An obligation represents a commitment to
procure and pay, and is funding for an activity.
Obligations are not the same as actual cash
disbursements. Disbursements (outlays)
represent cash payments for products or services
rendered. In general, for any given fiscal year,
obligations are an indication of current and
future activities and disbursements are indicative
of completed activities.
Superfund Obligations by Activity - FY 93
Total obligations $1.6 Billion
Remedial (42%)
_ Enforcement (12%)
Other ,
Removal (18%)
On ID ran*e. tm mm a f» tmnarroqm m*f ra tqutl 100 garon
Superfund Obligations by Activity. Remedial
activities account for more than 40 percent of the
Superfund Obligations by Activity Trends
tlnMWOf*
2.000
1.200
FYM FY«1 FYM FYM
EPA's FY 1993 Annual Financial Statements
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Superfund budget. Remedial Actions are taken
at large sites requiring complex cleanups. Over
60 percent of the sites on the NPL have had
design or construction for cleanup initiated, and
most contract dollars (more than 60 percent in
FY 1993) go for cleanup.
The "Other" category represents all infrastructure
support costs, including rent and utilities, to both
cleanup and enforcement as well as funds for
other offices within EPA, such as Research and
Development, and for other Federal agencies
which support the Superfund program.
The Superfund program conducts a large number
of short-term removal actions each year to
control immediate threats, with over 2,500 of
these completed by the end of FY 1993.
Removals account for approximately 18 percent
of the FY 1993 Superfund cleanup costs.
While enforcement represents the smallest part
of the Superfund budget, the resources invested
there have a large payoff. See Measures 6-9 and
the summary discussion which follows. .
The four-year trend chart of Superfund
obligations indicates an increase in support
Bother) spending in FY 1993. Total funding has'
remained relatively constant.
Superfund Disbursements by Activity.
Disbursements represent the actual payment for
Superfund Disbursements by Activity - PY 93
Tenl Obtamtmtnta -11.3 BUkm
Remedial (37%)
Other (30%)
Enforcement (14H)
Removal (18*)
Superfund Disbursements by Activity - Trends
FV90 PTtt ' FYK FYM
services; The type of expense (activity) will
have an impact on how quickly an obligation is
actually disbursed. For example, payroll costs
are obligated and disbursed at one time. The"
same holds for travel. Contract activities are
obligated at one time. However, the service may
be performed over a period of time. The mix of
payroll, travel, contracts, etc., will determine
how closely obligations and disbursements
match.
Superfund by Location. Superfund activity can
be further broken down by location. Obligations
and disbursements are displayed by Region,
Headquarters (HQ) - Office of Solid Waste and
Emergency Response (OSWER), and HQ - All
Others. Much of the operational responsibility
resides in the EPA regions. HQ - OSWER
ns Superfund Staff by Office - FY 93
xooo
tsoo
1JOO
tea
1
1
«.' 'H.I
OA OARU 000 OAR OW COC OPPE OSWER OE FtagkXM
Page 10
EPA's FY 1993 Annual Financial Statements
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represents the Office of Emergency and
Remedial Response and Office of Waste
grams Enforcement here at headquarters. HQ
- All Others represents all other offices such as
the Office of Enforcement, Office of Research
and Development, and other offices which
provide support to the Superfund program.
Superfund Staff by Location. Since most
operational activity occurs in the regions, the
largest numbers of staff positions are located in
the regions.
Superfund Obligations by Location - FY 93
Total Obligation* - $1.6 Billion
Regions (70%)
HQ-AII Others (10%)
HQ-OSWER (20%)
Superfund Obligations by Location. EPA
headquarters is further broken down between
Headquarters OSWER (Immediate Office -
OSWER, Office of Emergency and Remedial
Response, and Office of Waste Programs
Enforcement) and all other remaining non-
OSWER offices.
The bulk of the obligations occur in the regions.
Agency strategy, in the past few years, has been
to place more of the operational responsibility in
the regions. As a result, most obligations occur
in the regions.
Superfund Disbursements by Location. Current .
Superfund Disbursements by Location FY 93
Total OiafautMRMnt* (1.3 Billion
Regions (65%)
HQ-AII Ottiars (12%)
HO-OSWEH (22%)
, « ram a M pworaeM m«» fat (qua! MS sunn.
year disbursements follow the same pattern as
current year obligations: Regional disbursements
are the largest; HQ - OSWER disbursements are
second; and HQ - All Others are last.
Superfund Obligations by Location - Trends
thMIOora
2.0001
veoo
1.200
400
FY«0
FY« FVM
Superfund Disbursements by Location - Trends
fin Maura
8.0001
1.600
too
400
pvao
MQ.CBW
EPA's FY 1993 Annual Financial Statements
Page 11
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Disbursements closely mirror obligations by
location except for the Regions.
Disbursements indicate completed activity while
obligations represent future activity. Since a
large portion of Superfund Remedial activity is
long-term and is conducted in the Regions, all
current year obligations will not be disbursed in
the same fiscal year.
Program Results
The direct beneficiaries of the Superfund are
those people living in the vicinity of the sites
this cleanup program addresses. Indirect
beneficiaries include those living further from
the sites who might suffer degradation of their
groundwater, drinking water, or air if these
programs did not alleviate the risk of
contamination before it became more
widespread. Early action to contain impacted
areas also lessens the potential liability of parties
responsible for the contamination.
. The net result of Superfund cleanup work at sites
1 on the NPL has been to reduce risk from
, exposure to hazardous waste for approximately
25 million people who live within a four mile
radius of these sites. For one million of these
people, the program has eliminated threats posed
by direct contact with hazardous substances.
The Superfund cleanup program to date has
made significant strides in reducing risk from
exposure to hazardous waste. Over 340 million
gallons of liquid waste and 330 million gallons
of surface water have been treated by the
Superfund program. Seventy-five billion gallons
of groundwater also have been treated in cleanup
work. In addition, 23 million cubic yards of
solid waste, 12 million cubic yards of soil and
200,000 cubic yards of sediment have been
treated in conjunction with the thousands of
persons that have been relocated from the
vicinity of hazardous waste sites and supplied
with alternative water.
Superfund program performance measures
reported in the Agency's FY 1992 CFO Report
included accomplishments attributable to the
Federal facilities program. For FY 1993,
accomplishments claimed by that program have
been removed, and Federal facility sites are not
included in the NPL universe. Since the purpose
of the CFO Report is to relate program
performance to the trust fund and the funds used
to cleanup these sites do. not come from the trust
fund, this data has not been included in the .
report.
EPA's performance measures for the Superfund
program for FY 1993 fall into two categories:
site cleanup (Measures 1-5) and enforcement/cost
recovery (Measures 6-9).
Cleanup. For site cleanup we measure not only
the completion stage but also the critical steps in
the cleanup process. Because the cleanup
process can take a number of years, it is
important to look at the "pipeline" of activities to
get an accurate sense of progress .
Measure 1: Number of sites on the National
Priorities List (NPL) where cleanup has
started/total number of sites on the NPL.
, )
Activities which count under this measure are
short-term removal actions and the remedial
investigation/feasibility study which assesses the
nature and extent of contamination at the site
and analyzes cleanup alternatives so that a
remedy can be selected.
Results: In FY 1993, cleanup, was started at 21
sites. Cumulative performance to date is 1,124
cleanups begun/1,177 sites on the NPL.
The number of cleanups started declined in FY
1991 through 1993 relative to earlier years as the
Superfund program's emphasis has shifted to the
later stages of the cleanup effort needed to
complete work at a site. Also, cleanup has now
begun at nearly all sites on the NPL. The 53
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EPA's FY 1993 Annual Financial Statements
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remaining sites have been evaluated for
icdiate threat, even though cleanup action has
lot yet begun.
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 a removal
action has started.
Results: In FY 1993, cleanup actions were
begun at 198 non-NPL sites, bringing the total
number of sites addressed through such actions
since program inception to 2,227.
[easure 3: The number of sites on the NPL
here a decision has been made about how to
proceed with the cleanup of at least a
significant portion of the site/the total number
of sites on the NPL.
Activities which count under this measure
include the documentation of how to proceed
with the remedial action - the signing of a
Record of Decision (ROD) - or the
documentation of the selection and authorization
of a removal - an Action Memorandum. The
ROD identifies the remedy that has been chosen
for remediating the site (or portion thereof) and
summarizes the site problems, the alternative
remedies considered, and the public's
involvement in the decision. The Action
Memorandum substantiates the need for action,
identifies the proposed action, and explains the
rationale for the particular type of removal action
selected. Action Memoranda were not included
as measures in the FY 1992 financial statements;
however, they are significant measures in the
documentation of removal action progress and
are included in this report for increased data
accuracy.
Results: Cleanup decisions were made for 59
sites in FY 1993, resulting in a total to date of
891 sites of the 1,177 sites on the NPL.
Measure 4: Number of sites on the NPL
where Remedial Action has been completed
for at least a significant portion of the site/the
total number of sites on the NPL.
This measure counts those NPL sites (or portions
thereof) which have progressed through the
Remedial Action phase. At this stage the
construction work'to implement the remedy is
complete, and EPA has conducted a final
inspection to determine that the remedy is
functioning properly and performing as designed.
As indicated above, a site may have more than
one Remedial Action.
Results: In FY 1993, 73 sites (or significant
portions thereof) progressed through the
Remedial Action cleanup phase. This brings the
total number of such sites to 301 of the 1,177
sites on the NPL [In the FY 1992 financial
statements, seven of the sites that were reported
as reaching remedial action were Federal
facilities. This year's report excludes Federal
facilities.
Measure 5: The number of sites on the NPL
where cleanup construction is completed/the
total number of sites on the NPL.
This measure counts the sites for which EPA has
declared cleanup construction complete. Sites
qualify for construction completion when:
1) any necessary physical construction is
complete whether or not final cleanup levels
/ or other requirements have been achieved;
EPA's FY 1993 Annual Financial Statements
Page 13
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200
180
120
10
NPL Sites with Construction Complete
Cumulative Sites to Dal*
M IS M 17
91 02 KI
2) EPA determines that the response action does
not involve construction; or
3) the site qualifies for deletion from the NPL.
Additional clarification on the definition of site
cleanup is described in the Federal Register,
March 2, 1993.
Results: During FY 1993. cleanup was
completed at 68 sites. The substantial 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 216 sites with
cleanup construction completed of the 1,177 sites
on the NPL. {In the FY 1992 financial
statements, one site cleanup was attributable to
a Federal facility. Federal facilities are
excluded from this year's report.]
Enforcement
EPA's enforcement program seeks to involve
those responsible for contaminating the
Superfund site in its cleanup and pursues cost
recovery of monies EPA expends from the trust
fund.
Measure 6: The number of enforcement
actions EPA has taken at sites on the NPL
against the Potentially Responsible Parties
(PRPs) for contaminating the site/the total
number of sites on the NPL.
This measure counts the number of legal actions
EPA has taken to involve responsible parties in
site study and cleanup. These actions include
administrative and judicial settlements, injunctive
referrals and administrative orders for removal,
site study, and Remedial Design and Remedial
Action (RD/RA). It includes both those
situations where parties voluntarily entered into a
settlement with EPA and those where EPA uses
its enforcement authority to- compel responsible
parties to conduct work. .
Results: During FY 1993, 127 enforcement
actions for site study and cleanup were taken at
115 sites of the 1,177 sites on the NPL. Seventy-
eight of these actions were settlements for
RD/RA (36 consent decrees and 42 unilateral
administrative orders).
Since the inception of the Superfund program,
EPA has achieved responsible party (RP)
commitments to site response at 748 sites (64
percent) of the 1,177 non-Federal facility sites
on the NPL with an estimated cumulative value
of over $7.9 billion. In FY 1993, EPA achieved
RP commitments to response work at 115 (10
thiMtom
300
Cost Recoveries - By Year
1 *2 « M is. W
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EPA's FY 1993 Annual Financial Statements
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percent) of the 1,177 NPL sites. The estimated
yalue of the FY 1993 RP NPL cleanup
omrnitment is $841.6 million.
Measure 7: Past costs achieved in settlement.
This measures provides the amount of cost
recovery that has been achieved to date. A
number of factors limit Superfund's ability to
recover its past costs, including bankruptcy of
PRPs, other litigation concerns, involvement of
other Federal agencies as PRPs, the inability to
identify financially viable PRPs, and the
exclusion of certain indirect costs from cost
recovery. Of the $8.7 billion in past costs, $4.8
billion are considered recoverable.
Cost Recoveries - Cumulative
Results: Through FY 1993, Superfund has
achieved settlement for $1.033 billion and is
seeking another $944 million in ongoing cost
recovery actions. Also, through FY 1993,
Superfund has incurred approximately $4.8
billion in past costs which are considered
recoverable.
Future cost recovery actions will seek additional
portions of the $4.8 billion in recoverable past
costs. Cost recovery actions for individual sites
are generally initiated in the year prior to ilie
expiration of the statute of limitations.
Measure 8: The amount of money EPA has
collected from parties responsible for
contaminating sites on the NPL/the total
amount achieved in settlements and judicial
actions.
This measure totals the value of cost recoveries,
penalties and damages collected during the fiscal.
year compared to the amount of cost recoveries
actually achieved (assessed) in 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. Because of the time
required to file the necessary documents with the
courts, delays of three months and longer are not
uncommon. As a result, settlements reached in
the second half of one fiscal year are frequently
collected in the following year.
Results: In FY 1993, the Agency collected over
$185 million in cost recoveries and reached
settlements for the recovery of $221.7 million.
Since the inception of the program, the Agency
has collected over $731.7 million in cost
recoveries. This represents 71 percent of the
total value of cost recovery settlements reached
by the program to date. .
PRP Response Settlements
TOM
ROM
2.000
tO II 12 13 *t IS M §7 H » W »1 02 83
EPA's FY 1993 Annual Financial Statements
Page 15
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Measure 9: The estimated amount of money
parties responsible for contaminating
Superfund sites legally have committed to
spend on site cleanup/the total amount of
money spent by the Superfund on site
cleanup.
This measure estimates the dollar value of
cleanups responsible parties have agreed to
perform at NPL and non-NPL sites. The
estimate is derived from the Remedial Design or,
where this is not available, from the Record of
Decision. This estimate is then compared to the
amount of funds expended from the trust fund to
provide an order-of-magnitude contrast between
EPA expenditures for site response versus
private party expenditures for site response,
recognizing that the actual outlay of funds takes
place over several years. The resulting ratio is a
measure of cost avoidance to the fund.
Results: In FY 1993, the Agency reached 199
settlements (NPL and non-NPL) for responsible
party response worth an estimated $910.3
million. Response settlements may be broken out
.' as follows:
Remedial Design/Remedial Action
' settlements- $811.0 million
*. - Consent decrees referred to the -.
Department of Justice - $366.3 's
million.
unilateral administrative orders -
$420.6 million
Administrative Orders on Consent -
$24.1 million
Settlements for removal and site evaluation -
$99.3 million.
When the value of FY 1993 response settlements
is added to the cost recovery settlements
achieved of $221.7 million, the total ($1.13
billion) represents the amounts for which private
parties committed to pay for site response. FY
1993 Superfund obligations totaled $1.6 billion.
Compared to Superfund enforcement
expenditures in FY 1993 ($189 million), these
results represent a ratio of $6.00 in settlements
for each dollar spent on enforcement.
Summary. The Superfund program exceeded
most of the internal goals the Agency set for
itself in FY 1993. The Agency exceeded its goal
of 200 total sites by the end of FY 1993 by
achieving 216 construction completions and
expects to achieve a total of 650 by the year
2000. . .
The Superfund enforcement program also
compiled an enviable record in FY 1993.
Responsible parties contributions now account
for a majority of the Superfund cleanup work.
The value of responsible party settlements has
risen dramatically in the past few years due to
EPA's enhanced enforcement authorities and an
"enforcement first" policy and now comprise 79
percent of the remedial actions initiated in FY
1993.
Building on the momentum of the Superfund
revitalization program, in FY 1993 the Agency
initiated a series of nine initiatives to improve
the Superfund program without changing the
current statute. These initiatives address
enforcement fairness, streamlining response
actions, enhancing environmental justice,
community involvement, and enhancing the roles
of the States in the Superfund program.
In addition, the program wilt continue its
emphasis in accelerating cleanups through the
Superfund Accelerated Cleanup Model,
completing construction at NPL sites, pursuing
cleanups done by PRPs and improving contract
management.
Next Steps. One critical area we will continue
to focus on is contracts management. Since the
Superfund program is highly contract leveraged,
an efficient and effectively managed contracts
program is integral to Superfund's success. The
Agency is implementing a long-term contracting
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EPA's FY 1993 Annual Financial Statements
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^0CO1
strategy that projects Superfund's needs over the
next decade and redesigns our portfolio of
ntracts to meet these. We are phasing in new
'ontracts, most of which will be managed by the
Regional offices. This strategy is now under
Agency review.
*
EPA's Alternative Remedial Contracting Strategy
(ARCS) Task Force recommended improving
cost control in the ARCS contracts to reduce
administrative expenditures. The ARCS Task
Force recommended a target ratio be set at 20
percent for program management costs against
total contract expenditures. This target was
subsequently lowered by Congress in the VA-
HUD appropriations bill language to 15 percent
for FY 1992, 12 percent for FY 1993 and 11
percent for FY 1994. EPA's actions to control
costs resulted in EPA achieving the program
management Congressional targets for FY 1992
(with an actual ratio of 13.9 percent) and again
in FY 1993 (with an actual ratio of 11.5
percent). The national target continues to
decrease each year, encouraging contractors
leaning up sites to manage administrative costs
isely.
EPA also must continue to address weaknesses
in our contracts program. Although the Agency
has contracted substantially for policy and
regulatory development support, this has been
done out of necessity rather than choice. The
Agency would prefer to have this work done by
government employees. Due both to limits in
staff resources and to the availability of contract
funds, the Agency has contracted out these
activities.
EPA also enhanced enforcement fairness via
approximately 43 de minimis settlements in FY
1993 and by pursuing several other efforts such
as the use of alternative dispute resolution to
assist in cost allocation issues at approximately
35 sites. EPA also plans to issue guidance on
soil screening levels for approximately 90
chemicals commonly found at Superfund sues
and issue a policy regarding future land use of
Superfund sites. The first 30 soil screening
guidances are in draft and being piloted in the
regions; the remaining 60 are in development.
Additional guidance will also be issued for
certain types of sites for presumptive/
standardized remedies which should speed the
selection of remedies. In addition, 14 sites, 2
areas and 5 region-wide areas have been
identified as pilots for special environmental
justice emphasis.
EPA's efforts to convert base extramural
resources to Agency FTE to perform these types
of functions have been unsuccessful thus far. In
lieu of substituting Agency staff for contractors
to perform sensitive work, we are instituting
more stringent Agency contracting procedures.
However, as long as we continue to use
contractors to handle such a large portion of the
Superfund work, we remain vulnerable to
potential problems.
EPA's FY 1993 Annual Financial Statements
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Leaking Underground Storage Tank (LUST) Program
The Leaking Underground Storage Tank (LUST)
program was authorized by the Resource
Conservation and Recovery Act. The Office of
Solid Waste.and Emergency Response is
responsible for implementation of the LUST
program.
Program Description
The Resource Conservation and Recovery Act
was amended in 1984 to give EPA the authority
to regulate underground tanks storing petroleum
products. In 1986, Congress set up a S500
million Leaking Underground Storage Tank
(LUST) Trust Fund which is financed by a 1/10
of a cent tax on the sale of motor fuels. The
trust fund was reauthorized for five years in
1990 with no cap on funds collected. The fund
is used to oversee cleanups by responsible
parties or to clean up LUSTs where the
owner/operator cannot or will not do so, or
where no owner/operator can be found.
The.U.S. has 5-7 million underground tanks
storing petroleum products. Approximately 1.3
million of these are regulated by EPA; the rest -
mainly on farms and at other locations that
contain heating oil for on-site consumption - are
exempt by law.
Underground storage tanks (USTs) are found at
gas and service stations, convenience stores and
non-marketer locations such as bus depots and
government facilities. An estimated 15-25
percent of regulated tanks may be leaking.
Leaks from USTs can cause fires or explosions,
and some leaks contaminate groundwater.
Due to the large size and diverse nature of the
regulated universe, EPA has set up a
decentralized UST program. The Agency relies
primarily on States and localities to carry out the
underground storage tank program. EPA has
formal agreements with all States to operate the
UST program as EPA's agent (including
inspections and enforcement). At the end of FY
1993, EPA had delegated program authority to
13 States, granting them formal approval to
regulate USTs in lieu of EPA.
Financial Perspective
Since 1986, the Treasury managed LUST Trust
Fund has collected $1.1 billion. This fund is the
source of funding for EPA's LUST account.'
Through annual and supplemental appropriations,
Congress establishes the amount of the fund that
EPA may use. Congress has. appropriated a total
of $410 million to EPA through the end of FY
1993. EPA withdraws monies from the trust
fund as needed to cover disbursements. At the
LUST Projects - FY 93
Total EPA Funding $83 Million
State Managed (97%)
EPA Managed (3%)
end of FY 1993, the trust fund had an
unappropriated balance of $675 million.
Congress could make these funds available to
EPA in future appropriations.
Due to the decentralized nature of the LUST
program, EPA has awarded 86 percent of its
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EPA's FY 1993 Annual Financial Statements
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LUST Financial Trends
100
to
20
PC 90
FYK FYM
appropriated funds to the States, since the
program's inception.
In FY 1993, EPA utilized 82.7 FTE and $83
million to implement the LUST program.
OSWER supported the LUST program with 67
FTE and $73 million, while approximately 16
and $10 million were used by non-OSWER
offices in Headquarters and the Regions.
Responsible parties conducted 97 percent of the
cleanups with State oversight.
The appropriated funds increased by $10 million
in FY 1992 compared to FY 1991. The FY
1993 Appropriations Act kept funding at the
same level as FY 1992, but a Midwest Flood
Supplemental Appropriation provided an
additional $8 million. Obligations decreased by
almost $1 million in FY 1993 after an $8.6
million increase in FY 1992. However, net
outlays continued to increase from FY 1990
through FY 1993. Since the LUST program is
funded by no-year appropriations, obligations
and outlays are funded by current-year
appropriations as well as prior-year unobligated
and unexpended balances respectively.
Program Results
The LUST program has initiated corrective
actions at over 171,000 sites as of the end of
FY 1993. These cleanup actions are protecting
hundreds of thousands of people from the effects
of leaking petroleum storage tanks.
For the LUST program, the FY '1993
performance measures count the number of sites
with confirmed releases of petroleum products, .
the number of these where cleanup has been
initiated and the number where it has been
completed.
Measure 1: The number of sites nationwide
where EPA and the States have found a
petroleum leak from an underground storage
tank.
This measure counts those sites where a release
has been identified and confirmed by EPA or the
, designated State agency. It represents the
potential universe of sites for cleanup by the
LUST program. This measure does not count
tanks on farms and at other locations exempted
by law from the LUST program.
Results: During FY 1993, 53,000 USTs were
added to the list of sites with confirmed releases.
At the end of the fiscal year, a total of 237,000
sites were on this list.
Measure 2: The number of sites with
petroleum leaks from an underground storage
tank where cleanup has been initiated/the
total number of known sites with leaking
tanks.
This measure counts those LUST sites where
action has been initiated to remediate or clean up
the contamination, and compares that number to
the universe of sites with known releases.
Cleanups may be initiated by a State (with or
without LUST trust fund money) or by the
responsible party.
EPA's FY 1993 Annual Financial Statements
Page 19
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Results: In FY1993, the program initiated
actions at 42,000 sites. Cumulative program to
date: 171,000 cleanups initiated/a total universe
at the end ofFY 1993 of 237,000 sites with
confirmed releases.
Measure 3: The number of sites with
petroleum leaks from an underground storage
tank that have been cleaned up/the total
number of known sites with leaking tanks.
.This measure counts those sites where the State
has determined that no further cleanup is
necessary, and compares this number to the
universe of sites with known releases. The
cleanup can be led by the State or the
responsible party and State cleanups may or may
not have used trust fund money.
LUST National Corrective Action Activity
-340
200
FY«0 FY»< FYM FYS3
Results: During FY 1993, cleanup was
completed at 32,000 LUST sites. Total to date
completions is 87,000/a total universe at the end
ofFY 1993 0/237,000 sites with confirmed
releases.
The FY 1993 LUST data indicates a continuing
increase in the number of confirmed releases
from underground tanks. This is not surprising
as many tanks which were installed 20 to 30
years ago are now corroding and leaking. We
anticipate that the rate of confirmed releases will
continue at a rate of about 50,000 per year for
the next several years.
The numbers of cleanups initiated and completed
are also on the upswing, due to the growth of
State programs and EPA's efforts to speed up
site assessments and get the cleanups underway
quickly. EPA also has worked with States to
quicken the pace of cleanups and make them as
least costly as possible.
Over the next several years, the LUST program
will focus on preventing as well as remediating
releases. By December 1993, all owners must
utilize an accepted method of leak detection on
all existing systems. In addition, the program
will expand its efforts to ensure that new tanks
are properly installed and that old ones are
properly close. Proper tank installation and
closure and careful monitoring of tanks in use
will minimize future problems with leaking
underground storage tanks.
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EPA's FY 1993 Annual Financial Statements
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Oil Pollution Prevention Program (Oil Spill Trust Fund)
PA's Oil Pollution Prevention program is-
housed in the Office of Solid Waste and
Emergency Response (OSWER) and uses the Oil
Spill Trust Fund to finance the cost of cleaning
up spills. The Emergency Response Division
(ERD) within OSWER's Office of Emergency
and Remedial Response (OERR) provides
assistance to Regional On-Scene Coordinators
during oil spill incidents. Support for
enforcement activities is provided by OSWER's
Office of Waste Programs Enforcement (OWPE).
Program Description
The Oil Pollution Act (OPA) of 1990 was passed
in response to increasing frequency and severity
of accidental oil discharges into the environment,
such as the Exxon-Valdez spill The goal of the
Oil Pollution Prevention Program is to protect
public health, welfare and the environment from
hazards associated with a discharge, or a threat
f a discharge, of oil and other petroleum
iroducts or hazardous substances into navigable
waters.
Under the OPA, EPA is responsible for oil spill
prevention, preparedness, response, and
enforcement activities associated with non-
transportation-related facilities. These facilities,
which range from hospitals and apartment
complexes to large tank farms, include any
storage facility with aboveground storage
capacity greater than 1,320 gallons, a single
aboveground storage tank larger than 660
gallons, or underground storage greater than
40,000 gallons.
The OPA requires area committees (comprised
of state, local and federal officials) to develop
Area Contingency Plans which: detail the
responsibilities of those involved in planning the
response process; describe unique geographical
features of the area covered; and identify
available response equipment. EPA must review
and approve facility response plans which:
ensure consistency with the National
Contingency Plan; identify and ensure the
availability of resources to respond to a worst
case discharge; establish communications;
identify an individual with authority to
implement removal/actions; and describe training
and testing drills at the facility.
The most resource-intensive and time critical ,
requirements are those related to facility
response plan reviews and approvals. Of the
4,074 facility response plans submitted to the
Agency, 2,300 facilities pose a significant or
substantial threat to the environment and will
require Agency approval by February 1995, or
the requesting facility must cease operations.
EPA is establishing the regulatory framework
under which it will proceed with its OPA-
mandated responsibilities. This framework
includes the Oil and Hazardous Substances
National Contingency Plan (NCP 40 CFR Part
300) and the Oil Pollution Prevention regulation
(40 CFR Part 112). The NCP is the nation's
blueprint for responding to releases of oil and
hazardous substances. The Oil Pollution
Prevention program establishes requirements to
prevent and prepare to respond to spills at oil
storage facilities subject to the regulation.
Headquarters develops policy and. program
guidance to: 1) prevent harmful releases of oil
and other petroleum products; 2) improve
nationwide capability to respond to threats of
discharge of oil or other petroleum products; 3)
improve nationwide capability for containment
and removal of releases that occur in navigable
waters; 4) coordinate with other federal agencies
on facility response plan requirements and
review and approval; 5) minimize the resulting
environmental damage from releases; and
EPA's FY 1993 Annual Financial Statements
Page 21
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6) fully utilize enforcement authority to compel
responsible parties to clean up spills and to
provide a strong economic incentive to invest in
preventive measures and comply with
regulations.
In addition, Headquarters supports field
operations through operational guidance,
technical bulletins, and demonstrations of new
technologies. Headquarters also supports the
OPA-mandated facility response plan process,
chiefly through the development of approval
criteria for the response plans.
The Regions conduct oil storage facility
inspections to ensure compliance with EPA's oil
pollution prevention regulation, also known as
the Spill Control and Countermeasures regulation
(SPCC). A major component of the Regions'
work is the monitoring, directing, or performance
of removal actions during oil spills. They also
conduct periodic equipment inspections and
unannounced area drills. The Regions take
administrative actions against facility operators
for failure to comply with SPCC plans and new
. OPA requirements, and refer a limited number of
actions for judicial action. Administrative and
I judicial actions also are brought as a result of oil
and hazardous substance spills. Regions also
assist the Federal Emergency Management
Agency at major disasters and participate in
response training of State and local staff.
The: beneficiaries of the Oil Pollution Prevention
program are those people living in the vicinity of
confirmed spills when cleanup actions are taken
either by. EPA or the responsible party. People
living near regulated facilities benefit from the
increased safety measures incorporated into the
facilities' response plans.
Financial Perspective
Since the beginning of the Oil Spill Trust Fund's
existence through FY 1993, Congress has
appropriated a total of $39 million to the
Agency. In FY 1993, EPA used 75.5 FTE and
had budget authority of $20.7 million to
implement the Oil Pollution Prevention program.
The $20.7 million sum includes $700,000
received as a result of a Midwest Flood
Supplemental Appropriation. The Agency
obligated $18.2 million for oil spill response
activities in FY 1993 and processed $6.2 million
in net outlays.
Program Results
Measure l(a) Oil Facility Response Plans
Received and (b) Extensions Granted
This measure counts (a) the number of oil
facility response plans received and (b) the
number of extensions granted to facilities for
submitting response plans. Under the Oil
Pollution Act (OPA), facilities which store oil
and have the potential to cause "substantial
harm" to the environment must prepare a
response plan for the worst case discharge.
Results: To date, 4,074 facility response plans
have been received and 2,378 extensions have
been granted.
Measure 2(a) Oil Spill Cleanups and (b) On-
Scene Monitoring of Potentially Responsible
Party (PRP) Lead Cleanups
This measure counts (a) the number of oil spills
cleaned up by EPA using OPA funds and (b) the
number of times EPA monitors a PRP's cleanup
actions. EPA monitors a cleanup when a
Potentially Responsible Party responds to the
spill to ensure adequate cleanup takes place.
Results: Twenty-five oil spills were cleaned up
in FY 1993 using OPA funds. _ EPA monitored
170 responsible party oil spill cleanups in FY
1993.
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EPA's FY 1993 Annual Financial Statements
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[easure 3(a) Administrative Actions for spill
iolations and prevention regulation violations
and (b) Judicial Penalty Enforcement Actions
for spill violations and prevention regulation
violations.
This measure counts (a) the number of
administrative and (b) judicial enforcement
actions resulting from prohibited spills and
violations of the regulations of the Clean Water
Act as amended by the Oil Pollution Act. These
two actions reflect a significant portion of the
resources used in the oil program and indicate
significant achievements in compliance. An
administrative complaint is counted on the date it
is issued to the respondent. A judicial case is
counted on the date of the referral letter/cover
memo to the Department of Justice.
Results: Eleven administrative cases were filed,
and four judicial enforcement actions were
referred to the Department of Justice in FY
1993.
EPA's FY 199? Annual Financial Statements
Page 23
-------
Asbestos Loan and Grant Program
The Asbestos Loan and Grant Program is
administered under the Asbestos School Hazard
Abatement Act (ASHAA) primarily by the
Office of Prevention, Pesticides and Toxic
Substances (OPPTS). This overview covers the
entire Asbestos Loan and Grant program.
However, the loan portion of the program is the
only part that is a commercial activity and is the
only part of the program covered by the audited
financial statements.
Program Description
The purpose of the ASHAA program is to
reduce risk to school children and employees
posed by asbestos. Since its inception, the
program has provided more than $420 million in
financial assistance to financially needy Local
Education Agencies (LEAs) with the most
hazardous asbestos abatement projects. During
this period, a significant amount of exposure to
, asbestos fiber has been eliminated. Although the
. statute was reauthorized through 1995, EPA has
not included funding in any of its recent budget
requests to Congress. Each year, new funding
has been dependent on Congress adding
. resources, in varying amounts, to the Agency's
budget request. The 1994 Appropriations Bill
did not contain any funding for ASHAA loans
and grants. The State designee and educational
organizations have been notified of this reduction
, in the ASHAA program.
The Act envisions a three-step process. First,
EPA is to make applications available to public
and non-profit schools for completion and
submission to their State Governors (or the
Governor's Designee). Second, Governors (or
Designees) are responsible for collecting,
reviewing, and submitting applications to EPA.
Third, EPA receives and reviews all applications
and makes offers of financial assistance available
on the basis of the applicant's asbestos hazard
and demonstrated financial need. The
reauthorized statute mandates that awards of
financial assistance must be made by April 30 of
each year for which Congress appropriates
funding for the loan and grant program.
In making its award decisions, the ASHAA
legislation instructs EPA to generate its own
national priority list from applications received.
A ranking method is then employed to sort all
proposed abatement projects into categories
depending on certain characteristics of the .
asbestos containing building materials (ACBM).
Only projects with friable ACBM and some
degree of damage are considered for financial
assistance. If the project has damaged friable
material, the ranking method next establishes
four categories based on the degree of damage to
the ACBM, and whether the material is exposed
or located in an air plenum. The four categories
are:
Priority One - Significantly damaged friable
surfacing material which is exposed and/or
located in an air plenum.
Priority Two - Friable asbestos containing
materials which are exposed or in an air plenum
and are defined by an AHERA accredited person
as one of the following:
Damaged or significantly damaged thermal
system insulation.
Damaged surfacing material.
Damaged or significantly damaged
miscellaneous material which has been
isolated to protect human health and the
environment. "
Priority Three - Damaged or significantly
damaged friable miscellaneous material which
Page 24
EPA's FY 1993 Annual Financial Statements
-------
does not necessitate isolation but is exposed
,nd/or located in an air plenum.
Priority Four - Any damaged or significantly
damaged friable material which is not exposed or
located in an air plenum.
Since the inception of the program, only projects
within hazard categories one and two were
within reach for funding before funds were
expended.
While the condition of the asbestos-containing
materials determines the priority for
consideration of a project, financial need controls
whether an award is offered, the award amount,
and the loan/grant composition of the award. In
accordance with the statute, monies are not made
available to any applicant which has sufficient
resources available to support an asbestos
abatement program. Financial indicators used to
determine eligibility for both private and public
schools include Budget per Pupil and the burden
:f abatement costs on an LEA's operating
udget.
Assistance may take the form of either a grant or
an interest-free loan, or some combination of
both. Loans may include up to 100 percent of
abatement project costs and grants may cover up
Asbestos Fund Awards - FY 93
Total Award* - $54.5 Million
Loans (93%)
Grants (7%)
to 50 percent of costs. ASHAA does not require
that EPA provide recipients the total funding
necessary to complete an abatement project.
Financial Perspective
Since 1985, the ASHAA Loan and Grant
program has awarded $422.3 million for asbestos
abatement projects. Approximately $310.7
million of these awards were for twenty-year
loans.
»«». Asbestos Fund Financial Trends
100,
BO
luni
I
20-
- Qrtna
FY90
FYW
Implementation of the Federal Credit Reform
Act of 1990 changed the way the Agency uses
appropriated funds for asbestos loans. Prior to
the Act, the total amount of the loan was funded
by the appropriation. As of FY 1992, only the
subsidy portion of the loan (actual cost to the
government) is funded by the appropriation. The
balance is funded with money borrowed from the
Treasury and repaid as EPA collects loan
repayments.
In FY 1993, grant^and loan awards totalled to
$76.2 million, an increase of $21.7 million over
FY 1992 awards. Of the 1993 awards, 93
percent were loans and 7 percent were grants.
This is a 20 percent decrease in the ratio of
program grants versus loans compared to the FY
.1992 ratio. By decreasing grants relative to
EPA's FY 1993 Annual Financial Statements
Page 25
-------
loans, EPA lowers the Federal government's
costs for reducing asbestos exposure hours. Both
loan obligations and loan repayment collections
continued to increase from FY 1990 through FY
1993.
During FY 1993, the Agency collected $10.4
million in loan repayments. Based on loan
disbursement and collection history, the Agency
projects collecting $10.5 million in loan
repayments in FY 1994.
Program Results
EPA's performance measures for the ASH A A
program include two measures:
Meaasure 1: Number of AS HA A awarded
projects.
Results: In FY 1993-, the ASHAA program
funded 305 projects in 156 LEAs across the
country,
Measure 2: Elimination of Exposure Hours.
Results: When the-projects currently funded are
completed, EPA estimates that 3.2 million
exposure hours will be eliminated per week.
Asbestos Exposure Hours Eliminated per Week
IMS 1M* 1M7 1tM 1M* 1MO 1991 1992 1903
900
«00
200
ASHAA Projects Awarded
(Two rounds of awards in FY 87)
IMS 19H 1M7 ISM t999 IMO 1991 1992 1993
Page 26
EPA's FY 1993 Annual Financial Statements
-------
JPesticides Registration and Expedited Processing Fund
"FIFRA Fund)
The Pesticides Reregistration and Expedited
Processing Fund (FEFRA Fund) is administered
under the Federal Insecticide, Fungicide, and
Rodenticide Act (FIFRA) primarily by the Office
of Prevention, Pesticides and Toxic Substances
Program Description
As part of its authority to regulate pesticides,
EPA is responsible for reregistering existing
pesticides. The FIFRA legislation, requiring the
registration of pesticide products, was originally
passed in 1947. Since then, health and
environmental standards have become more
stringent and scientific analysis techniques are
much more precise and sophisticated. In the
1988 amendments to FIFRA (FIFRA '88),
Congress mandated the accelerated reregistration
of all products registered prior to November 1,
984. The amendments established a statutory
;oal of completing reregistration eligibility
decisions by 1997. The legislation allows for
various time extensions which can extend this
deadline by three years or more. Additional
resources, however, will be needed to meet these
goals/deadlines.
Congress authorized the collection of two kinds
of fees until 1997 to supplement appropriated
funds for the program - an annual Maintenance
Fee and a one-time Reregistration Fee.
Maintenance fees are assessed on registrants of
pesticide products and are structured to collect
approximately $14 million per year.
Reregistration fees are assessed on the
manufacturers of the active ingredients in
pesticide products and are based on the
manufacturer's share of the market for the active
ingredient. In fiscal years 1992, 1993, and 1994,
approximately 14 percent of Maintenance Fees
collected, up to $2 million each year, are to be
used for the expedited processing of old
chemical and amended registration applications,
Fees are deposited to the FIFRA Revolving
Fund. By statute, excess monies in the FIFRA
Fund may be invested. Waivers and/or refunds
are granted for minor use pesticides,
antimicrobial pesticides, and small businesses.
The reregistration process is being conducted
through reviews of groupings of similar active
ingredients called cases. There are five (5)
major phases of reregistration:
Phase 1 - Listing of Active Ingredients. EPA
publishes lists of active ingredients and asks
registrants whether they intend to seek
reregistration. Completed in FY 1989.
Phase 2 - Declaration of Intent and
Identification of Studies. Registrants notify
EPA if they intend to reregister and identify
missing studies. Completed in FY 1990.
Phase 3 - Summarization of Studies.
Registrants submit required existing studies.
Completed in FY 1991.
Phase 4 - EPA Review and Data Call-Ins
(DCIs). EPA reviews the studies, identifies
and "calls-in" missing studies by issuing a
DCI. A "DCI" is a request to a pesticide
registrant for scientific data to. assist the
Agency in determining the pesticide's
eligibility for reregistration.
Phase 5 - Reregistration Decisions. EPA
reviews all studies and issues a Reregistration
Eligibility Document (RED) for the active
ingredient(s). A "RED" is a determination
by the Agency whether products containing a
pesticide active .ingredient are eligible for
reregistration. The registrant complies with
the RED by submitting product specific data
EPA's FY 1993 Annual Financial Statements
Page 27
-------
and new labels. EPA reregisters or cancels
the product. Pesticide products are
reregistered, based on a RED eligibility
determination, when it meets all label
requirements. This normally takes 14 to 20
months after issuance of the RED.
Financial Perspective
During FY 1993, the Agency's obligations
charged against the FIFRA Fund for the cost of
the reregistration and expedited processing
programs were 192 FTEs and $15.6 million. Of
these amounts, the Office of Pesticide Programs
funded the 192 FTEs and obligated $12.3
million of this cost.
IM_ FIFRA Financial Trends
«o
30
i
2D-
> to
FMHfcotpB
""M*- >^ __~^
x~- ~^--
t
FV90 FT91 FY92 FYM
Appropriated funds are used in addition to
FIFRA revolving funds. In FY 1993,
approximately $25.3 million in appropriated
funds were obligated for reregistration and
expedited processing program activities. The
unobligated balance in the fund at the end of FY
1993 was $9.92 million. This is an increase of
$0.94 million compared to the FY 1992 year-end
balance of $8.98 million.
The fund has two types of receipts: fee
collections and interest earned on investments.
Of the $16.3 million in FY 1993 receipts,
approximately 97 percent was fee collections.
During the past two years, the fund balance and
corresponding investment earnings have
decreased because program expenses
(disbursements) exceeded collections. The fee
collections decreased by almost S0.4 million in
FY 1993 compared to FY 1992. The obligations
decreased in FY 1993 because the Office of the
General Counsel and other Agency offices no
longer make direct charges to the fund.
FIFRA Fund Receipts - FY 93
Total Receipts - $18.3 Million
Fees (97%)
: Investment Earnings (3%)
Program Results
The following measures support the program's
strategic goals of Food Safety and Safer
Pesticides as contained in the Pesticide Program
Strategy, 1994-1997. The product reregistration
measure is different from the measure reported
in FY 1992, It has been changed to remain
consistent with the definition of the performance
indicators being tracked by the Strategic
Targeted Activities for Results System (STARS).
In FY 1992, STARS measured only the number
of reregistrations, while in 1993, it counted the
number of products reregistered, canceled and
amended. This figure more accurately reflects
program effort based on a RED eligibility
determination.
Page 28
EPA's FY 1993 Annual Financial Statements
-------
Measure 1: Number of Reregistration Measure 2: Number of products reregistered,
ligibility Documents (REDs) completed. canceled, or amended.
'Results: The number of Reregistration Eligibility Results: In FY 1993, 219 products were
Documents (REDs) completed was 19 (versus a reregistered, 434 cancelled (111 of which for
target of 20), an increase of 4 over FY 1992 nonpayment of fees) and 12 amended. The
when 15 were completed. There are combined 665 actions were achieved versus a
approximately 405 REDS of which 47 have been target of 1122. In addition, 423 products were
completed. forwarded to the EPA Office of Compliance
Monitoring for suspension.
EPA's FY 1993 Annual Financial Statements Page 29
-------
Revolving Fund for Certification and Other Services
(Tolerance Fund)
The Revolving Fund for Certification and Other
Services (Tolerance Fund) is administered under
the Federal Food, Drug and Cosmetic Act
(FFDCA) primarily by the Office of Prevention,
Pesticides and Toxic Substances (OPPTS).
Program Description
As part of its authority to regulate pesticides,
EPA is responsible for setting "tolerances". If
the pesticide is being considered for use on a
food or feed crop or as a food or feed additive,
the applicant must petition EPA for
establishment of a tolerance (or exemption from
a tolerance) under authority of FFDCA. A
tolerance is the 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
unreasonable health risks posed by eating foods
, that have been treated with pesticides in ;
.-. accordance with label directions. The tolerance
program is a major part of the Agency's Food
-Safety goals.
. In 1954, Congress authorized the collection
of fees for the establishment of tolerances for
raw agricultural commodities (section 408 of
FFDCA). Congress, however, did not authorize
the collection of fees for food additive
tolerances (section 409 of FFDCA). EPA,
therefore, does not collect fees for food additive
tolerances. The Agency also does not collect
fees for Agency-initiated actions such as the
revocation of tolerances for previously canceled
pesticides. Fees collected for tolerances for raw
agricultural commodities were deposited to the
U.S. Treasury General Fund until 1963 when
Congress established the Tolerance Fund.
Specific fees are contained in 40 CFR 180.33
and range from $3,200 to $56,175, depending
on the type of tolerance action requested.
Waivers and/or refunds are granted for minor use
pesticides submitted under the Inter-Regional
Research Project Number 4 (IR-4 Program),
public interest, such as reduced-risk pesticides,
and economic hardship. The fees are updated
annually based on the cost-of-living adjustment
in Federal General Scale wage rates. Fees were .
increased 3.7 percent "in FY -1993. By statute, .
monies in the Tolerance Fund may not be
invested.
Financial Perspective
During FY 1993, the Agency charges to the
Tolerance Fund for the cost of the tolerance
setting functions were $0.9 million.
Appropriated funds are used in addition to
revolving funds. In FY 1993, approximately
$4.5 million in appropriated funds were
obligated. The unobligated balance in the
revolving fund at the end of FY 1993 was $4.25
million. This is an increase of $0.5 million
compared to the FY 1992 year-end balance of
$3.75 million.
Tolerance Fund Financial Trends
FYW
F₯»l
FYM
FVM
Page 30
EPA's FY 1993 Annual Financial Statements
-------
1
The fund balance remained about the same in
FY 1991 and FY"1992 then increased by almost
0.5 million in FY 1993. This fund balance
ncrease mainly resulted from fee collections
which rose by $0.4 million in FY 1993
compared to FY 1992. Earnings (obligations)
decreased from FY 1992 to FY 1993 primarily
as a result of the decrease in the number of
permanent tolerance petition completions.
Program Results
Tolerance fees collected in FY 1993 were
approximately $1.5 million and "earnings" in FY
1993 were approximately $0.9 million. Earnings
represent the value of petitions that are 80
percent or more completed. In 1993, EPA could
not use the tolerance fees in the revolving fund
until the work on a petition was at least 80
percent completed.
Measure 1: Number of permanent tolerance
petitions completed.
Results: The number of pertnanent tolerance
petitions completed for section 408 raw
agricultural commodities and section 409 food
additives was 39 compared to a target of 50.
This represents final determinations by the
Agency concerning permanent tolerance petition
requests for allowable levels of pesticide
residues on raw agricultural commodities and in
food additives. This is a decrease of 23
completions compared to the 62 in FY 1992.
The number of permanent tolerance petition
reviews ("cycles") completed was 385 compared
to a target of 413. This measure supports the
strategic goals of Food Safety and Safer
Pesticides as contained in the Pesticide Program
Strategy, 1994-1997.
Tolerance Completions
60
FY90
FY91
FY92
FY93
EPA's FY 1993 Annual Financial Statements
Page 31
-------
Page 32
EPA's FY 1993 Annual Financial Statements
-------
MESSAGE FROM THE CHIEF FINANCIAL OFFICER
As the Chief Financial Officer of the U.S. Environmental Protection Agency (EPA), I
am proud to present EPA's Fiscal Year 1993 Annual Financial Statements. These statements
provide our Agency managers with an assessment of the financial condition of our trust
funds, revolving funds and commercial activities. They are submitted in accordance with
requirements of the Chief Financial Officers (CFO) Act of 1990 and Office of Management
and Budget guidance.
EPA's financial statements present the financial position and results of operation of
the following six funds: Superfund Trust Fund; Leaking Underground Storage Tanks (LUST)
Trust Fund; Oil Spill Trust Fund; Loan Portion of the Asbestos Loan and Grant Program;
Pesticides Reregistration and Expedited Processing Fund (FIFRA Fund); and Revolving Fund
for Certification and Other Services (Tolerance Fund). The preparation of financial
statements and participation in the audit process provide useful information about our
programs and accounting systems and help us identify areas where improved information
systems, management controls and accountability are needed.
EPA accelerated the submission of its annual financial statements by 90 days this
year. In addition to the abbreviated timeframe, we were able to make significant
improvements in a number of areas. These include:
completing the reconciliation of long-standing conversion errors resulting from the
installation of our integrated financial management system (IFMS) in 1989;
receiving a more favorable opinion on the FIFRA fund. This year the auditors
expressed a qualified opinion as opposed to the disclaimer we received in FY 1992;
and
receiving an unqualified opinion on the Oil Spill Trust Fund, which was added to our
financial statements for the first time this year.
I am encouraged by the progress we have made as well as by the auditors' overall
recognition of management's commitment to identify and resolve EPA's financial
management problems.
While I am pleased with these improvements, much work still needs to be done, since
a number of the auditors' findings from last year's statements remain. While we will not be
able to resolve all of these issues immediately, among my top priorities are to: improve the
management of our accounts receivable; establish a property tracking system; and resolve
financial management systems documentation, interface and reporting problems. In many
cases, corrective actions are well underway, and I anticipate that our progress will be
reflected in next year's financial statements.
EPA's FY 1993 Annual Financial Statements Page 33
-------
EPA's Financial Management Five-Year Plan outlines our strategy for strengthening
accountability and financial management practices throughout the Agency. The plan
establishes benchmarks, goals and specific milestones by which our progress can be
measured in future years. By following our plan, consistent with available resources, I
believe we will meet our critical resource management needs and position the Agency to
achieve its environmental mission.
I am confident that we at EPA are on the right track for restoring public trust in the
Federal government as responsible financial stewards. I strongly believe the recent financial
reform efforts, which the federal government has undertaken via the National Performance
Review and various legislative efforts, will go a long way toward resolving common
problems faced by the Federal financial community.
On a personal note, I want to acknowledge the hard work of the employees
throughout the Agency who contributed to the production of these financial statements. I am
especially indebted to the excellent support provided by EPA's Office of Solid Waste and
Emergency Response; Office of Prevention, Pesticides and Toxic Substances; Office of
Policy, Planning and Evaluation; Office of the Inspector General; and my own dedicated
staff.
/,
F
onathan Z Cannon
Page 34
EPA's FY 1993 Annual Financial Statements
-------
Principal Financial Statements
Contents
Financial Statements
Statements of Financial Position
Statements of Operations and Changes in Net Position
Statements of Cash Flows
Statements of Budget and Actual Expenses
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balances with Treasury
Note 3. Investments - Federal
Note 4. Loans Receivable, Net Non-Federal
Note 5. Property, Plant and Equipment - Net
Note 6. Debt - Federal
Note 7. Other Funded Liabilities - Federal
Note 8. Total Net Position
Note 9. Program or Operating Expenses
Note 10. Other Expenses
Note 11. Prior Period Adjustments
Note 12. Non-Operating Changes
Note 13. Contingencies
Note 14. Restatement of Prior Year Financial
Statements
EPA's FY 1993 Annual Financial Statements Page 35
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Financial Position - Restated (Note 14)
As of September 30, 1993 and 1992 (Dollars in Thousands)
Assets
Financial Resources:
Fund Balances With Treasury (Note 2)
Investments - Federal (Note 3)
Marketable Equity Securities (Note 1)
Accounts Receivable, Federal, Net (Note 1)
Accounts Receivable, Non-Federal, Net (Note 1)
Loans Receivable, Non-Federal, Net (Note 4)
Appropriated Amounts Held by Treasury (Note 1)
Non-Financial Resources:
Advances and Prepayments, Non-Federal
Property, Plant and Equipment, Net (Note 5)
Total Assets
Liabilities and Net Position
Liabilities
Accounts Payable, Non-Federal
Accounts Payable, Federal
Accrued Payroll and Benefits
Deferred Revenue, Non-Federal (Note 1}
Deferred Revenue - Federal (Note 1) ^
Debt - Federal (Note 6)
Other Funded Liabilities - Federal (Note, 7)
Accrued Leave - Unfunded
Total Liabilities
Net Position
Trust Fund Balances
Commercial Activities
Revolving Fund Balances
Less Future Funding Requirements
Total Net Position (Note 8)
Total Liabilities and Net Position
1993
$ 11,485
4,699
7,955
193,938
3,173,380
133
14.030
$3.405.620
Superfund
Trust Fund
$ 112,057
105,541
7,698
183,430
4,511
11.556
424,793
2,992,383
(11.556)
2.980.827
$3.405.620
1992
$ 65,200
8,958
122,315
2,967,460
. 678
16.094
$3.180.705
$ 102,212
126,733
6,464
248,561
14,929
10.723
509,622
2,681,806
(10.723)
2.671.083
$3.180.705
Page 36
EPA's FY 1993 Annual Financial Statements
-------
LUST
Trust Fund
1993 1992
1,638
6,471
Oil Spill
Trust Fund
1993 1992
$ 14,478 $
14
33
89,021
51
80,722
3,654
61
$ 94.421
247
84
$ 87.575
$ 14.478
1,749
157
1,503
5
144
$ 1,334
91
157
1,906
1,652
1,582
92,515
85,923
12,896
92.515
94.421
85.923
$ 87.575
12.896
$ 14.478
(Continued)
EPA's FY 1993 Annual Financial Statements
Page 37
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Financial Position - Restated (Note 14}, Continued
As of September 30, 1993 and 1992 (Dollars in Thousands)
Assets
Financial Resources:
Fund Balances With Treasury (Note 2)
Investments - Federal (Note 3)
Marketable Equity Securities (Note 1)
Accounts Receivable, Federal, Net (Note 1)
Accounts Receivable, Non-Federal, Net (Note 1)
Loans Receivable, Non-Federal, Net (Note 4)
Appropriated Amounts Held by Treasury (Note 1)
Non-Financial Resources:
Advances and Prepayments, Non-Federal
Property, Plant and Equipment, Net (Note 5)
Total Assets
Liabilities and Net Position
Liabilities
Accounts Payable, Non-Federal
Accounts Payable, Federal
Accrued Payroll and Benefits
Peferred Revenue, Non-Federal
Deferred Revenue - Federal
Debt'- Federal (Note 6)
Other Funded Liabilities - Federal (Note 7)
Accrued Leave Unfunded
Total Liabilities
Net Position
Trust Fund Balances
Commercial Activities
Revolving Fund Balances
Less Future Funding Requirements
Total Net Position (Note 8)
Total Liabilities and Net Position
Asbestos
Commercial Activity
1993 1992
$ 63,073
4
130,011
$193,088
66
12,172
117,634
129,872
63,216
63.216
$193.088
$ 29,877
19,400
12
124,515
$173.804
53
1,318
123,209
124,580
49,224
49.224
$173.804
The accompanying notes are an integral part of these statements.
Page 38
EPA's FY 1993 Annual Financial Statements
-------
FIFRA
Revolving Fund
1993 1992
Tolerance
Revolving Fund
1993 1992
$
950
10,209
2
4
533
$ 11.698
$
$=
357
73
260
5,755
6,445
5,253
5.253
11.698
$ 65 $ 4,246 $ 3,757
15,243
28
15 - -
574
$ 15925 $ 4.246 $ 3.757
$ 1,428 $ 89 $ 153
209 466
457
8,917 3,691 3,604
11.011 4,246 3,757
4,914
4.914
$ 15,925 $ 4.246 $ 3.757
. -
EPA's FY 1993 Annual Financial Statement?
Page 39
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Operations and Changes in Net Position
Restated (Note 14)
For the Years Ended September 30, 1993 and 1992
(Dollars in Thousands)
Superfund
Trust Fund
Revenues and Financing Sources
Appropriations Expensed
Revenues from Services to the Public
Interest and Penalties, Non-Federal
Interest Income, Federal
Income From Overhead Allocation
Fines, Penalties and Other Revenues
Less: Receipts Returned to Treasury
Total Revenues and Financing Sources
'Expenses
Program or Operating Expenses (Note 9)
Depreciation and Amortization
Bad Debts and Writeoffs
Overhead Expenses from Allocation
Other ExpensesHNote 10)
Total Expenses. :
Excess of Revenues and Financing Sources
Prior Period Adjustments (Note 11)
Excess of Revenues and Financing Sources
Over Total Expenses
Plus: Unfunded Expenses
Excess of Revenues and Financing Sources
Over Funded Expenses
Changes in Net Position
Net Position, Beginning Balance
Excess of Revenues and Financing Sources
Non-Operating Changes (Note 12)
Net Position, Ending Balance
1993
1992
$1,343,528 $1,40.8,040
18,941
32,695 4,514
22,257
420,242
(185.359)
17,586
200,596
(184.639)
1.652.304 1.446.097
1,340,418
5,016
161,463
22,257
1
1.529.155
123,149
17.361
140,510
833
i 141.343
1,408,582
520
5,455
17,586
2
1.432.145
13,952
3.574
17,526
1,092
$ 18.618
$2,671,083 $2,146,393
141,343 18,618
168.401 506.072
$2.980.827 $2.671.083
Page 40
EPA's FY 1993 Annual Financial Statements
-------
LUST
Trust Fund
1993
1992
Oil Spill
Trust Fund
1993
. .1992
$ 75,137
$ 69,153
$ 7,804
827
238
755
75.964
75,107
29
1
827
75.964
69.391 8.559
69,117 7,804
19
17
238 755
69.391 8,559
(22) - - -
(22)
$
$
$
(22)
85,923
(22)
6.614
92.515
$ $ * '
$ 80,077 $ - , $ -
-
5.846 12.896
$ 85.923 $ 12.896 ._ - $ ' -
(Cont
EPA's FY 1993 Annual Financial Statements
Page 41
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Operations and Changes in Net Position
Restated (Note 14), Continued
For the Years Ended September 30, 1993 and 1992
(Dollars in Thousands)
Revenues and Financing Sources
Appropriations Expensed
Revenues from Services to the Public
Interest and Penalties, Non-Federal
Interest Income, Federal
Income From Overhead Allocation
Fines, Penalties and Other Revenues
Less: Receipts Returned to Treasury
Total Revenues and Financing Sources
'Expenses
Program or Operating Expenses (Note 9)
Depreciation and Amortization
Bad Debts and Writeoffs
Overhead Expenses from Allocation
Other Expenses (Note 10)
Total Expenses
Excess of Revenues and Financing Sources
Prior Period Adjustments (Note 11)
Excess of Revenues and Financing Sources
Over Total Expenses
Plus: Unfunded Expenses
Excess of Revenues and Financing Sources
Over Funded Expenses
Changes in Net Position
Net Position, Beginning Balance
Excess of Revenues and Financing Sources
Non-Operating Changes (Note 12)
Net Position, Ending Balance
Asbestos
Commercial Activity
1993
16
310
895
11.939
10,718
7
895
310
11.930
$ 49,224
13.992
$ 63.216
The accompanying notes are an integral part of these statements.
1992
$ 10,718 $ 3,395
13
7
902
4.317
3,395
902
7
4.304
13
13
Page 42
EPA's FY 1993 Annual Financial Statements
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FIFRA
Revolving Fund
Tolerance
Revolving Fund
1993
1992
1993
1992
I
$
$
$
18,156
432
25,303
43.891
18,928
200
25,303
44.431
(540)
971
431
431
4,862
431
(40)
5.253
24,690 926
783
22,811 4,474
48.284 5.400
24,517 926
172
22,811 4,474
47.500 5.400
784
3.699
4,483
$ 4.483 $
$ 627 $
4,483
(196)
$ 4.914 $
1,200
3,532
4.732
1,200
3,532
4.732
*
-
$
$ -
$ -
EPA's FY 1993 Annual Financial Statements
Page 43
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Cash Flows by Fund Activity
Restated (Note 14)
For the Years Ended September 30, 1993 and 1992
(Dollars in Thousands)
Cash Flows from Operating Activities:
Excess - Revenues and Financing Sources
Over Total Expenses
Adjustments Affecting Cash Flow:
Appropriations Expensed
Decrease (Increase) in Marketable Equity Securities
Decrease (Increase) in Accounts Receivable
Decrease (Increase) in Loans Receivable
Decrease (Increase) in Other Assets
Increase (Decrease) in Accounts Payable
Increase (Decrease) in Other Liabilities
Depreciation and Amortization
Bad Debt Expense
Other Unfunded Expenses
Other Adjustments
Total Adjustments
Net Cash Provided (Used) by Operating Activities
" Cash Flows from Investing Activities:
Proceeds from 'Sales of Investments
; Purchase of Equipment
t
.Net Cash Provided (Used) by Non-Operating Activities
' Cash Flows from Financing Activities:
Appropriations (Current Warrants)
Transfers of Cash from Others
Deduct:
Withdrawals
Transfers of Cash to Others
Net Appropriations
Borrowing from the Treasury
Net Cash Provided (Used) by Financing Activities
Net Cash Provided (Used) - Total
Fund Balances with Treasury, Beginning
Fund Balances with Treasury, Ending
Superfund
Trust Fund
1993
$ 140,510
(1,343,528)
(4,699)
(70,620)
545
(10,113)
(75,549)
5,016
4,053
833
16.715
(1,477,347)
(1,336,837)
(2.954)
(2,954)
1,355,215
69.139
1,286,076
1,286,076
(53,715)
65.200
S 11.485
1992
$ 17,526;
(1,408,040)
. (45,595)
(13,605)
39,546
175,395
520
1,092
(1.719)
(1,252,406)
(1,234,880)
1.316
1,316
1,295,639
49.720
1,245,919
1,245,919
12,355
52.845
$ 65.200
Page 44
EPA's FY 1993 Annual Financial Statements
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LUST
Trust Fund
1993
1992
Oil Spill
Trust Fund
1993
1992
(22)
(75,137)
4
(3,407)
254
29
(69,153)
(290)
(223)
2,279
(153)
19
$ - $
(7,804)
1,425
157
(1.248)
(79,505)
(79.527)
17
(67,504)
(67,504)
(6,222)
(6,222)
16)
(6)
(47)
(47)
74,700
80,500
20,700
$
74,700
74,700
(4,833)
6,471
1.638
80,500
80,500
12,949
(6.478)
$ 6.471
20,700
20.700
14,478
$ 14,478
.
-
$
(Continued)
1
EPA's FY 1993 Annual Financial Statements
Page 45
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Cash Flows by Fund Activity
Restated (Note 14), Continued
For the Years Ended September 30, 1993 and 1992
(Dollars in Thousands)
Cash Flows from Operating Activities:
Excess - Revenues and Financing Sources
Over Total Expenses
Adjustments Affecting Cash Flow:
Appropriations Expensed
Decrease (Increase) in Marketable Equity Securities
Decrease (Increase) in Accounts Receivable
Decrease (Increase) in Loans Receivable
Decrease (Increase) in Other Assets
Increase (Decrease) in Accounts Payable
Increase (Decrease) in Other Liabilities
Depreciation and Amortization
Bad Debt Expense
Other Unfunded Expenses
Other Adjustments
Total Adjustments
Net Cash Provided (Used) by Operating Activities
Cash Flows from Investing Activities:
Proceeds from Sales of Investments \
Purchase pf Equipment
Net Cash Provided (Used) by Non-Operating Activities
Cash Flows from Financing Activities:
Appropriations (Current Warrants)
Transfers of Cash from Others
Deduct:
Withdrawals
Transfers of Cash to Others
Net Appropriations
Borrowing from the Treasury
Net Cash Provided (Used) by Financing Activities
Net Cash Provided (Used) - Total
Fund Balances with Treasury, Beginning
Fund Balances with Treasury, Ending
The accompanying notes are an integral part of these statements.
Asbestos
Commercial Activity
1993
$ 9
(10,718)
19,408
(5,496)
13
5,279
7
(6.531)
1,962
1,971
31,225
31,225
31,225
33,196
29,877
$ 63.073
1992
$ 13
(3,395)
(19,406)
(13,379)
53
13,412
(734)
(23,449)
(23,436)
53,313
53,313
53,313
29,877
$ 29.877
Page 46
EPA's FY 1993 Annual Financial Statements
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FIFRA
Revolving Fund
1993
1992
Tolerance
Revolving Fund
1993
1992
$ 431
$ 4,483
(26)
12
(485)
(4,121)
200
(27)
(16,799)
183
(17,584)
172
(41)
89
441
(6)
(4,420)
(3,989)
5,033
(1591
4,874
(162)
(34,217)
(29,734)
6,638
(119)
6,519
489
489
(6)
(6)
885
65
950
196
(196)
(196)
(23,411)
23.476
65
489
3.757
4,246
(6)
3.763
3.757
EPA's FY 1993 Annual Financial Statements
Page 47
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EPA Trust Funds, Revolving Funds and Commercial Activities
Statement of Budget and Actual Expenses
For the Year Ended September 30, 1993
(Dollars In Thousands)
Budaet
Actual
Obliaations
Resources
$
$
1,875,354
85,468
20,700
111,657
25,491
5.683
2.124.353
Direct
1,587,754
74,451
18,225
90,906
(754>
.
$ 1.770.582
Reimbursed
$ 21,047
-
-
-
16,328
1.526
$ 38.901
Expenses
$ 1,529,155
75,964
8,559
11,930
44,431
5.400
$ 1,675,439
Program Name
Superfund
LUST
Oil Spill
Asbestos Loan Program
FIFRA
Tolerance Fund
Total
Budget Reconciliation:
Total Expenses
Add:
Capital Acquisitions
Other Expended Budget Authority
Less:
Depreciation and Amortization
Unfunded Annual Leave Expense
Interest Expense
: ' Bad Debt Expense
AccFued'Expenditures
Less Reimbursements
Accrued Expenditures, Direct
Financial Statement Adjustment, not on SF-133
Overhead Expenses from Allocation, not on SF-133
Unreconciled Difference
Accrued Expenditures, Direct - per SF-133
$1,675,439
3,119
5,245
833
310
161.471
1,510,699
38.901
1,471,798
(486,061)
(54,511)
(32.8131
$ 898.413
The accompanying notes are an integral part of this statement.
Page 48
EPA's FY 1993 Annual Financial Statements
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EPA Trust Funds, Revolving Funds and Commercial Activities
Statement of Budget and Actual ExpensesRestated (Note 14)
For the Year Ended September 30, 1992
'Dollars in Thousands)
Budaet
Actual
Obliaations
Resources
$1,944,698
76,966
109,509
30,873
4.820
Direct
$1,729,094
75,403
100,071
4,821
Reimbursed
$ 10,156 .
17,071
1.104
Expenses
$l',432,145
69,391
4,304
47,500
4.732
Program Name
Superfund
LUST
Oil Spill
Asbestos Loan Program
FIFRA
Tolerance Fund
Totals $2.166.866 $1.909.389
Budget Reconciliation:
Total Expenses
Add:
Capital Acquisitions
Other Expended Budget Authority
Less:
Depreciation and Amortization
Unfunded Annual Leave Expense
Interest Expense
Bad Debt Expense
.Accrued Expenditures
Less Reimbursements
Accrued Expenditures, Direct
Financial Statement Adjustment, not on SF-133
Overhead Expenses from Allocation, not on SF-133
Unreconciled Difference
Accrued Expenditures, Direct - per SF-133
$1.558.072
$1,558,072
1,150
123,707
711
1,092
7
5.472
1,675,647
28.331
1,647,316
(12,816)
(45,069)
13.554
$1.602.985
The accompanying notes are an integral part of this statement.
EPA's FY 1993 Annual Financial Statements
Page 49
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EPA Trust Funds, Revolving Funds and Commercial Activities
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies:
A. Basis of Presentation
These financial statements have been prepared to report the financial position and results
of operations of the Environmental Protection Agency (EPA) for the Hazardous Substance
Superfund (Superfund) Trust Fund, Leaking Underground Storage Tank (LUST) Trust Fund,
Oil Spill Response Trust Fund, Asbestos Loan Program (a commercial activity), Reregistration
and Expedited Processing (FIFRA) Revolving Fund and the Revolving Fund for Certification
and Other Services (Tolerance), as required by the Chief Financial Officers Act of 1990. The
reports have been prepared from the books and records of EPA in accordance with "Form
and Content for Agency Financial Statements," specified by the' Office of Management and
Budget (OMB) in Bulletin 93-02 and applicable provisions of Bulletin 94-01 and EPA's
accounting policies which are summarized in this note. These statements are therefore
different from the financial reports also prepared by EPA pursuant to OMB directives that are
used to monitor and control EPA's use of budgetary resources.
B. Reporting Entities
EPA was created in 1970 by executive reorganization from various components of other
Federal agencies in order to better marshal and coordinate federal pollution control efforts.
The Agency is generally organized around the media and substances it regulates air,
water, land,, hazardous waste, pesticides and toxic substances.
The Hazardous Substance Superfund Trust Fund was authorized by the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) to respond to hazardous
:substance situations or sites which threaten human health and the environment. The
Superfund Amendments and Reauthorization Act (SARA) increased funding and gave the
program new responsibilities and authorities. There are three basic components to the
Superfund program: site assessment and cleanup activities; enforcement; and support.
Support includes facilities and management, research and development and other non-direct
site work. These components are integrated and coordinated to ensure the most cost
effective use of Superfund monies in order to achieve the greatest possible cleanup. The
program is funded from monies appropriated from general furrd tax collections, interest on
investments, fines and cost recoveries. As authorized by Congress, Superfund Trust Fund
appropriations include certain amounts that are transferred to other Federal agencies for
authorized activities in support of the Superfund program. The uses of these transfer
appropriations are not reported in the Superfund Trust Fund financial statements. Rather,
they are reported by the specific agencies that receive the transfer amount. The Superfund
Trust Fund is accounted for under Treasury symbol number 8145.
The LUST Trust Fund was authorized by the amendment of the Resource Conservation and
Recovery Act (RCRA) in 1986 to implement a comprehensive regulatory program for
underground storage tanks and to provide funds for responding to releases from leaking
underground petroleum tanks. EPA oversees cleanup and enforcement programs which are
implemented by the States. Funds are allocated to the States through cooperative
Page 50 EPA's FY 1993 Annual Financial Statements
-------
greements to clean up those sites posing the greatest threat to human health and
environment. The program is financed by a 0.1 cent a gallon tax on motor fuels, and is
accounted for under Treasury symbol number 8153.
The Oil Spill Response Trust Fund was authorized by the Oil Pollution Act of 1990. In FY
1992, monies were included in the Agency's Salary and Expense appropriation in the amount
of $4,951, Abatement, Control and Compliance appropriation in the amount of $ 10,982, and
Research and Development appropriation in the amount of $2,500, for carrying out oil spill
response activity. The Oil Spill Response Trust Fund was established in fiscal year 1993 and
monies were appropriated to the Oil Spill Response Trust Fund. EPA.is responsible for
directing, monitoring and providing technical assistance for major inland oil spill response
activities. Funding of oil spill cleanup actions is provided through the Department of
Transportation under the Oil Spill Liability Trust Fund. FY 1993 is the first year for audit of
the Oil Spill Response Trust Fund and, accordingly, no comparative data is available for FY
1992. The Oil Spill Response Trust Fund is accounted for under Treasury symbol number
8221.
The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act
of 1986 to manage asbestos building materials in schools, is reported in accordance with the
Federal Credit Reform Act of 1990. For FY 1992 and 1993 obligations, the program is
funded by a subsidy appropriated from the General Fund for the actual cost of financing the
loans, and by borrowings from Treasury for the unsubsidized portion of the loan. The
Program fund receives the subsidy and administrative appropriations, disburses the subsidy
the Financing fund, and disburses administrative expenses to the providers. The Financing
und receives the subsidy payment, borrows from Treasury and disburses and collects the
asbestos loans. Loans obligated before 1992 are maintained in a Liquidating fund and are
disbursed from the Liquidating fund. The loans receivable and collections on those loans are
recorded in a General Fund receipt account. Under provisions of the Federal Credit Reform
Act, the balance of any monies collected on loan repayments must be returned to the general
revenue fund at Treasury. Accounting activity for the Asbestos Loan Program is accounted
for under the 0118, 4321, 4322 and 2917 Treasury symbols.
The FIFRA Revolving Fund was authorized in 1988 by amendments to the Federal
Insecticide, Fungicide and Rodenticide Act. The 1988 amendments mandated the
accelerated reregistration of all products registered prior to November 1, 1984. Congress
authorized the collection of fees to supplement appropriated funds for reregistration and to
fund expedited processing of certain pesticides. FIFRA also includes provisions for the
registration of new pesticides, monitoring the distribution and use of pesticides, issuing civil
or criminal penalties for violations, establishing cooperative agreements with the states, and
certifying training programs for users of restricted chemicals. Appropriated funds, however,
pay for these activities. The FIFRA Revolving Fund is accounted for under Treasury symbol
number 4310.
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. A
tolerance is the maximum legal limit of a pesticide residue or}, food commodities and animal
feed. Tolerances are established by EPA to prevent consumer exposure to unsafe levels of
pesticide residues. In 1954, Congress authorized the collection of fees for raw agricultural
commodities. Fees were deposited to the Treasury general fund until 1963 when Congress
EPA's FY 1993 Annual Financial Statements Page 51
-------
established the Revolving Fund for Certification and Other Services (Tolerance Revolving
Fund). The Department of Agriculture and the Food and Drug Administration are responsible
for enforcing adherence to these tolerance levels. Funding is provided by fee collections and
by appropriated funds for federal services in establishing tolerances for residues of pesticide
chemicals in or on raw agricultural commodities. The Tolerance Revolving Fund is accounted
for under Treasury symbol number 4311.
The accompanying financial statements include the accounts of all funds described in this
note. Each of the funds included in the financial statements charge some administrative
costs directly to the fund and charge the remainder of the administrative costs to
Agency wide appropriations. The following is a list of all the programs and the corresponding
administrative costs funded by Agency wide appropriations (unaudited):
Superfund
LUST
Oil Spill
Asbestos
FIFRA
Tolerance
1993
$ 22,257
827
755
895
25,303
4,474
. 1992
$ 17,586
238
902
22,811
3,532
.These amounts are included in the Income from Overhead Allocation and the Overhead
Expenses from Allocation line items as shown in the financial statements.
/The Superfund and LUST Trust Funds are allocated general support services costs (such as
.rent, communications, utilities, mail operations, etc.) that were initially charged to the
Agency's Program and Research Operations (PRO) and Abatement, Control and Compliance
(AC&C) appropriations. During the year, these costs are allocated from the PRO and AC&C
appropriations to the Superfund and LUST Trust Funds based on a ratio of direct labor hours,
using budgeted or actual 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 and LUST Trust Funds may not exceed the ceilings established in the Superfund
and LUST Trust Fund appropriations. The related general support services costs charged to
the Superfund and LUST Trust Funds were $25,146 and $216 for FY 93.
C. Budgets and Budgetary Accounting
Congress adopts an annual appropriation amount to be available until expended for the'
Superfund Trust Fund, for the LUST Trust Fund, and for the Oil Spill Response Trust Fund.
Transfer accounts for the Superfund and LUST Trust Funds have been established for the
purpose of carrying out the program activities. A Trust Fund account has been established
at Treasury for the purpose of carrying out the oil spill response program activities. As EPA
disburses obligated amounts from the transfer accounts, EPA draws down monies from the
Superfund and LUST Trust Funds at Treasury to cover the amounts being disbursed. EPA
Page 52 . EPA's FY 1993 Annual Financial Statements
-------
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 annual appropriation amount.
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 that can be made for direct loans. A permanent indefinite appropriation is
available to finance the costs of subsidy re estimates that occur after the year in which the
loan is disbursed. . .
Funding of the FIFRA and the Tolerance Revolving Funds is provided by fees collected from
industry to offset costs incurred by EPA in carrying out these programs. Each year EPA
submits an apportionment request to OMB based on the anticipated collections of industry
fees.
D. Basis of Accounting
Transactions are recorded on an accrual accounting basis and a budgetary basis. Under the
accrual method, revenues are recognized when earned and expenses are recognized when
a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting
facilitates compliance with legal constraints and controls over the use of Federal funds. All
interfund balances and transactions have been eliminated.
E. Revenues and Other Financing Sources
The Superfund, LUST, and Oil Spill Response Trust Funds receive the majority of funding
needed to support the program through appropriations that may be used, within statutory
limits, for operating and capital expenditures (primarily equipment). Additional financing for
the Superfund Trust Fund is obtained through reimbursements from potentially responsible
parties.
Under Credit Reform provisions, the Asbestos Loan Program receives funding to support the
subsidy cost of loans through appropriations which may be used.within statutory limits. The
Asbestos Direct Loan Financing fund, an off-budget fund, receives funding to support the
loan disbursements through collections from the Program fund for the subsidized portion of
the loan and through borrowing from Treasury for the non-subsidized portion. The Asbestos
Direct Loan Liquidating fund received funding to support the pre-Credit Reform loans through
appropriations.
The FIFRA and the Tolerance Revolving Funds receive funding through fees collected for
services provided. The FIFRA Revolving Fund also receives interest on invested funds.
Appropriations are recognized as revenues at the time they are used to pay program or
administrative expenses. Appropriations expended for property, and equipment are
EPA's FY 1993 Annual Financial Statements Page 53
-------
recognized as expenses when the asset is consumed in operations. Other revenues are
recognized when earned, i.e., when services have been rendered.
F. Funds with the Treasury
EPA does not maintain cash in commercial bank accounts. Cash receipts and disbursements
are handled by Treasury. The funds maintained with Treasury are Appropriated Funds,
Revolving Funds and Trust Funds. These funds have balances available to pay current
liabilities and finance authorized purchase commitments.
G. Investments in U. S. Government Securities
Investments in U. S. Government securities are maintained by Treasury and are reported at
amortized cost net of unamortized discounts. Discounts are amortized over the term of the
investments and reported as interest income. The FIFRA Revolving Fund holds the
investments to maturity, unless they are needed to finance operations of the fund. No
provision is made for unrealized gains or losses on these securities because, in the majority
of cases, they are held to maturity.
H. Marketable Equity Securities
During fiscal year 1993, the Agency received marketable equity securities, valued at $4,699
as of September 30, 1993, from a company in settlement of Superfund cost recovery
actions. The Agency does not intend to exercise ownership rights related to these securities,
held by Treasury, but instead will convert these securities to cash as soon as practicable.
in prior similar transactions, this has been accomplished in less than one year.
I. Accounts Receivable
Both the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
and the Superfund Amendments and Reauthorization Act (SARA) provide for cost recovery
of costs from potentially responsible parties (PRPs). However, cost recovery expenditures
are expensed when incurred because there is no assurance that these funds will be
recovered.
It is EPA's policy to record accounts receivable from PRPs for Superfund site cleanup costs,
incurred by EPA, when a consent decree, judgment, or other binding agreement is reached.
These agreements are generally obtained after site cleanup costs are incurred. It is EPA's
position that until a consent decree is obtained, the amount recoverable should not be
recorded. The allowance for uncollectible PRP accounts receivable is determined on a
specific identification basis as a result of a case-by-case review of receivables at the regional
level, and a general reserve for those not specifically identified.
EPA also records accounts receivable from states for a portion of Superfund site cleanup
actions within those states. Cost sharing arrangements vary according to whether a site
was privately or publicly operated at the time of hazardous substance disposal and whether
the EPA response action was removal or remedial. State cost share agreements are usually
10% to 50% of site cleanup cost. States may pay the full amount of state cost shares in
Page 54
EPA's FY 1993 Annual Financial Statements
-------
dvance, or in incremental amounts throughout the cleanup project. No allowances for
uncollectible state cost share receivables have been recorded, because EPA has not had
collection problems on these agreements.
Other receivables for Asbestos and FIFRA represents interest receivable.
A summary of non-federal accounts receivable as of a September 30, 1993 and September
30, 1992 is as follows:
Fiscal Year 1993 Non-Federal Accounts Receivable.
Superfund LUST Asbestos
PRP receivables (including interest) $ 336,638 $
$
10
State cost share receivables 20,156 33
Other receivables 55
Allowance for uncollectible receivables (162,911) -
$ 193.938 $ 33
Fiscal Year 1992 Non-Federal Accounts Receivable
PRP receivables (including interest)
State cost share receivables
Other receivables
Allowance for uncollectible receivables
(5.926I
$ 122.315
$ 51
FIFRA
$ -
Superfund
$
80,920
47,317
4
LUST
$
-
51
.
Asbestos
$
-
-
12
FIFRA
$
-
28
12
$ 28
EPA's FY 1993 Annual Financial Siatements
Page 55
-------
Accounts Receivable - federal result primarily from interagency agreements for services
performed and receivables from EPA funds other than Trust or Revolving Funds or
Commercial Activities.
Interagency agreements
Intraagency receivables
Other
Accounts Receivable - Federal
Superfund
1993 1992
$7,955 $2,695
LUST
1993 1992
$ 5 $ -
Asbestos
1993 199;
$ - $
$ 14 $
J. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. The amount of
Asbestos Loan Program loans obligated but not disbursed are disclosed.in Note 4. No
allowance for uncollectible amounts has been established for loans obligated prior to October
1, 1991 because there has never been a default and a review of outstanding amounts does
not indicate a potential default. Loans receivable resulting from loans obligated on or after
October 1, 1991 are reduced by an allowance equal to the present value of the subsidy
costs associated with these loans. The subsidy cost is calculated based on the interest rate
differential between the loans and Treasury borrowings, the estimated delinquencies and
defaults net of recoveries offset by fees collected and other estimated cash flows associated
with these loans.
K. < Appropriated "Amounts Held by Treasury
For the Superfund and LUST Trust Funds, cash available to EPA that is not needed
immediately for current disbursements remains in the respective Trust Funds managed by
Treasury. At the end of fiscal years 1993 and 1992, approximately $3,173,380 and
$2,967,460, respectively, remained in the Treasury-managed Superfund Trust Fund and
approximately $89,021 and $80,722, respectively, remained in the LUST Trust Fund to
meet EPA's disbursement needs.
L. Advances and Prepayments
EPA records the differences resulting from disbursements recorded by Treasury but not
recorded by EPA and the disbursements recorded by EPA but npt by treasury as advances
and prepayments. As a result of the correction of a data conversion error, the LUST Trust
Fund has recorded a prepayment of $3,540 which related to prior years and will reverse
during fiscal year 1994.
Page 56
EPA's FY 1993 Annual Financial Statements
-------
M. Property, Plant and Equipment
The land and buildings which EPA uses are provided by the General Services Administration,
which charges a Standard Level Users Charge (SLUG) that approximates the commercial
rental rates for similar properties. Equipment purchases are capitalized at cost if the initial
acquisition cost is at least five thousand dollars. Equipment with an acquisition cost of less
than five thousand dollars is expensed when purchased. Equipment is depreciated using a
modified straight line method over a period of six years depreciating 10% the first and last
year and 20% in years 2 through 5.
N. Liabilities
Liabilities represent the amount of monies or other resources that are likely to be paid by EPA
as the result of a transaction or event that has already occurred. However, no liability can
be paid by EPA without an appropriation or other collection of revenue for services provided.
Liabilities for which an appropriation has not been enacted are classified as unfunded
liabilities and there is no certainty that the appropriations will be enacted. Liabilities of EPA,
arising from other than contracts, can be abrogated by the Government acting in its
sovereign capacity.
0. Accounts Payable - Federal
The Superfund Trust Fund contracts for a wide range of goods and services through
interagency agreements with other federal agencies. As of September 30, 1993 and 1992,
the balance of Accounts Payable - Federal of $105,541 and $126,733, respectively,
represents interagency agreements payable. The balance of Accounts Receivable - Federal
as of September 30, 1993 and 1992 includes $7,955 and $2,695, respectively, relating to
interagency agreements. Accounts Payable - Federal includes $20,704 which is due to the
Abatement, Control and Compliance appropriation and $84,837 which is payable to other
federal agencies.
Accounts Payable - Federal for the Tolerance Revolving Fund includes $466 of application
fees for Tolerance Petitions. Agency policy is to record fees as earned after specific
processing milestones, and then use the earnings to reimburse appropriated funds used to
pay expenses. EPA earned the fees in prior years, but did not record the earnings or
reimburse the appropriated funds.
**
P. Deferred Revenue
Superfund deferred revenue represents amounts paid to EPA by states, for state cost share
arrangements, or by other entities, for site cleanup costs or other services, in advance of
EPA's performing the services. Such amounts may have been paid voluntarily or under
protest. Deferred revenue is reduced and is recognized as £he related services are incurred.
However, amounts paid in protest are not recorded as income until the protest is resolved.
EPA's FY 1993 Annual Financial Statements Page 57
-------
FIFRA Revolving Fund deferred revenue represents fees collected in advance of services
being performed for the reregistration of existing pesticides and for the registration of new
pesticides. Tolerance Revolving Fund deferred revenue represents fees collected in advance
of services being performed for the establishment of tolerances for residues of pesticide
chemicals in or on raw agricultural commodities.
Components of deferred revenue as of September 30, 1993 and 1992 are as follows:
Non-Federal:
State cost share
arrangements
Site cleanup costs
Other
Federal:
Interagency
agreements
Fiscal Year 1993 Deferred Revenue
Superfund FIFRA
135,011
'Tolerance
$ 48,419
$183.430
$ 4.511
$
5.755
$5.755
$ -
$
3.691
$3.691
$ ;
Non-Federal:
State cost share
arrangements
Site cleanup costs
Other
Federal:
Interagency
agreements
Fiscal Year 1992 Deferred Revenue
Superfund FIFRA
133,142
$115,419 $
: 8.917
$8.917
$ 14.929 $ -
Tolerance
$
3.604
$3.604
Page 58
EPA's FY 1993 Annual Financial Statements
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Q. Borrowings Payable to the Treasury
Borrowings payable to Treasury result from loans from Treasury to fund the Asbestos direct
loans described in part B of this note. Periodic principal payments are made to Treasury
based on the collections of loans receivable.
R. Interest Payable to Treasury
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt
to Treasury. At the end of fiscal year 1993 and 1992, there was no outstanding interest
payable to Treasury because payment was made on September 30.
S. Annual, Sick and Other Leave
Annual leave is accrued as it is earned and the liability is reduced as leave is taken. Each
year, the balance in the accrued annual leave account is adjusted to reflect current pay rates.
To the extent current, or prior year appropriations are not available to fund annual leave
earned but not taken, funding will be obtained from future financing sources. Annual leave
expense for the Superfund Trust Fund was $833 in FY 1993 and $1,092 in FY 1992. Sick
leave and other types of nonvested leave are.expensed were taken.
T. Retirement Plan
The majority of EPA's employees participate in the Civil Service Retirement System {CSRS},
to which EPA makes matching contributions equal to 7% of pay.
On January 1, 1987, the Federal Employees Retirement System (FERS) went into effect
pursuant to Public Law 99-335. Most employees hired after December 31, 1983, are
automatically covered by FERS and Social Security. Employees hired prior to January 1.
1984 were allowed to either join FERS and Social Security or remain in CSRS. A primary
feature of FERS is that it offers a savings plan to EPA employees which automatically
contributes 1 percent of pay and matches any employee contribution up to an additional 4
percent of pay. For most employees hired after December 31, 1983, EPA also contributes
the employer's matching share for Social Security.
EPA does not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities,
if any, applicable to its employees. Reporting such amounts -is the responsibility of the
Office of Personnel Management. Such data is not allocated to individual departments and
agencies.
EPA's FY 1993 Annual Financial Statements Page 59
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Note 2. Fund Balances with Treasury:
The Treasury maintains EPA's fund accounts and processes all of EPA's receipts and
disbursements. The available balances are for payment of EPA's obligations under its various
programs. The restricted balances pertain to expired appropriated authority and are
unavailable for future obligations.
Fiscal Year 1993:
Trust Funds:
Superfund
LUST
Oil Spill
Commercial Activities:
Asbestos Loan
Program
Revolving Funds:
FIFRA
Tolerance
Fiscal Year 1992:
-. Trust Funds:
Superfund
LUST
Oil Spill
Commercial Activities:
Asbestos Loan
Program
Revolving Funds:
FIFRA
Tolerance
Total
$ 11,485
1,638
14,478
$ 63,073
$ 950
4,246
Total
$ 65,200
6,471
$ 29,877
$ 65
3,757
Available
$ 11,485
1,638
14,478
$ 44,835
$ 950
4,246
Available
$ 65,200
6,471
$ 20,439
$ 65
3,757
Restricted
$
$ 18,238
Restricted
$
$ 9,438
$
Page 60
EPA's FY 1993 Annual Financial Statements
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Note 3. Investments - Federal:
The FIFRA Revolving Fund invests monies in Federal securities that can be bought and sold
on the open market. The cost of the investments is recorded at face value less interest to
be earned over the term of the investment (unamortized discount). Invested amounts are
disinvested and become available for payment of EPA's obligations as needed.
Investments in Federal marketable securities were as follows:
Face Unamortized Investments,
Value Discount Net
September 30, 1993 $10,220 $11 $10,209
September 30, 1992 $15,285 $42 " $15,243
Note 4. Loans Receivable, Net - Non-Federal:
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 would be
reported net of an allowance for estimated uncollectible loans, if an allowance was
considered necessary. Loans disbursed from obligations made after FY 1991 are governed
by the Federal Credit Reform Act. The Act mandates that the present value of the subsidy
costs (i.e., interest rate differentials, interest subsidies, anticipated delinquencies, and
defaults) associated with direct loans be recognized as an expense in the year the loan is
made. The net present value of loans is the amount of the gross loan receivable less the
present value of the subsidy.
An analysis of loans receivable and the nature and amounts of the subsidy and administrative
expenses associated entirely with Asbestos Loan Program loans is provided in
the following sections.
EPA's FY 1993 Annual Financial Statements . Page 61
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Pre-Credit Reform Loans:
Loans Receivable,
Gross
Allowance for
Estimated Loans Receivable,
Uncollectible Loans Net
September 30, 1993
September 30, 1992
Post Credit Reform Loans:
$ 117,631
$ 123,197
$ 117,631
$ 123,197
September 30, 1993
September 30, 1992
Total 1993:
Total 1992:
Loans Receivable,
Gross
$ 21,129
$ 2.323
Allowance for
Subsidy Cost
(present value)
$ (8,749)
$ (1.005)
Loans Receivable,
Net
$12,380
$130.011
$124,515
Subsidy Expenses for Post Credit Reform Loans:
Current Year's Loans:
Fiscal Year 1993:
FiscalYear 1992:
Total Direct Loan Subsidy Expense:
Fiscal Year 1993
Fiscal Year 1992
$ 8,054
$ 1,012
Administrative Expenses for Pre and Post Credit Reform Loans:
1993 1992
Charged Directly to the Asbestos Loan Program $2,664 $ 2,383
Additional Administrative Support Expenses
Charged to Other Appropriations
Total
895
$3.559
Total
$8,054
$1.012
Interest
Differential
$8.054
$1.012
Expected
Defaults
$ -
$ -
Fee
Offsets
$ -
$~
Fiscal Year 1.993 Other Information: $13,000 for obligations established prior to Credit
Reform and $108,600 for obligations established after Credit Reform remain unpaid. No
expenses were incurred in FY 1993 for subsidy reestimates.
Page 62
EPA's FY 1993 Annual Financial Statements
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Note 5. Property, Plant, and Equipment - A/ef:
Real Property (land and buildings) used as office space for EPA employees in the course of
mission related activities and facility related services are provided by the General Services
Administration (GSA). GSA charges a Standard Level Users Charge that approximates the
commercial rental rates for similar properties.
A small percentage of real property, such as laboratories,.is acquired by EPA using
appropriated funds.
Equipment purchases are capitalized if the equipment is valued at five thousand dollars or
more and has an estimated useful life of at least 2 years. The Agency depreciates all
capitalized equipment on a modified straight-line basis over a period of 6 years, depreciating
10% the first and last years and 20% in years 2 through 5. The Trust and Revolving Funds
normally do not reflect purchases of property other than equipment.
Schedule of Property, Plant, and Equipment by Fund:
Fiscal Year 1993:
Acquisition Value
Accumulated Depreciation
Net Book Value
Fiscal Year 1992:
Acquisition Value
Accumulated Depreciation
Net Book Value
Superfund
$56,310
42.280
$14.030
Suoerfund
$53,357
37.263
$16.094
LUST
$134
73
$ 61
EPA's FY 1993 Annual Financial Statements
Page 63
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Note 6. Debt - Federal:
Under the provisions of the Federal Credit Reform Act, borrowings from Treasury represent
the portion of loan disbursements not subsidized by appropriated funds.
FY 93 and 92 borrowings from Treasury are:
Intragovernmental
Debt: .
Fiscal Year 1993
Borrowing from
Treasury
Fiscal Year 1992
Borrowing from
Treasury
Beginning New
Balance Borrowings Repayments Ending Balance Refinancing
$1.318 $10.854
$ 1.318 $-
$-
$ 1.318 $-
Note 7. Other Funded Liabilities - Federal:
Resources payable to Treasury consist of all the precredit reform debt. This amount
represents the remaining principle not collected and paid back to Treasury.
Resources Payable to Treasury are:
1992
$123.209
Note 8. Total Net Position:
The total net position of EPA's Trust and Revolving Funds and commercial activities
represents the financial position of these funds after consideration of the net effects of
operations in the current year and the cumulative effects of all prior years.
Appropriated/Subsidy Capital represents the funding authority provided by Congress, net of
Page 64
EPA's FY 1993 Annual Financial Statements
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interagency transfers. Invested Capital represents the book value, net of depreciation, of
EPA resources invested in equipment. Cumulative Results of Operations represents the
cumulative deficit or surplus from the funds' operations.
Fiscal Year 1993:
Appropriated/Subsidy
Capital
Invested Capital
Cumulative Results of
Operations
Future funding
requirements - non-
actuarial
Total Net
Position
Suoerfund LUST Oil Spill Asbestos FIFRA
$2,767,175 $95,972 $12,896 $63,216 $" -
14,030
(11.556)
61
211,178 (3,518)
533
4,720
$92.515 . $12,896 $63,216
$5.253
Fiscal Year 1992:
Appropriated/Subsidy
Capital
Invested Capital
Cumulative Results of
Operations
Future funding
requirements -
non-actuarial
Total Net
Position
Superfund LUST
$2,154,509 $34,551
16,094 84
511,203 51,288
110.723) -
Oil Spill Asbestos FIFRA
$ - $49,224 $
574
4,340
$2.671.083 $8
$49.224 $4.914
EPA's FY 1993 Annual Financial Statements
Page 65
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Note.9. Program or Operating Expenses:
Fiscal Year 1993 Operating Expenses
by Object Classification:
(1) Personnel Services and Benefits
(2) Travel and Transportation
(3) Rental, Communication and Utilities
{4} Printing and Reproduction
(5) Contractual Services
(6) Supplies and Materials
(7) Equipment not Capitalized
(8) Land and Structures
{9J Investments and Loans
{10} Grants, Subsidies and Contributions
{11) Insurance Claims and Indemnities
(12) Accrued Expenses*
Total Expenses by Object Class
Superfund
$211,842
10,841
30,165
934
1,051,499
4,097
8,404
47
173,306
(3)
(150.714)
$1.340.418
LUST
$ 4,849
502
393
17
1,997
69
173
68,741
11.634)
$75.107
"Accrued expenses for FY 1992 were not reversed by object class due to the volume of data entry required.
Accrued expenses for FY 1993 are recorded by object class.
Fiscal Year 1992 Operating Expenses
by Object Classification:
(1) Personnel Services and Benefits
(2) Travel and Transportation
(3) Rental, Communication and Utilities
{4) Printing and Reproduction
(5) Contractual Services
(6) Supplies, and Materials
(7) Equipment not Capitalized
(8) Grants, Subsidies and Contributions
(9) Insurance Claims and Indemnities
(10) Accrued Expenses"
Total Expenses by Object Class
Superfund
$ 201,285
10,064
26,831
1,436
955,390
3,610
11,489
158,794
15
39.668
$1.408.582
LUST
$ 4,558
536
554
49.
2,253
53
227
60,832
55
$69.117
Accrued expenses are not recorded by object class in the accounting system due to the volume of data entry
required. Accrued expenses are the net of the reversal of FY 1991 accruals and FY 1992 accruals.
Page 66
EPA's FY 1993 Annual Financial Statements
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Oil Spill
Asbestos
FIFRA
Tolerance
$4,488 $
133
443
22
2,669 2,657
37
8 7
4 8,054
$7.804 $10.718
Oil Spill Asbestos
$ - $ 53
1
2,329
1,012
$ ; $3.395
$11,756
62
2,291
160
4,661
49
688
827
(1.5661
$18.928
FIFRA
$14,261
198
2,049
68
6,108
193
505
1,378
(24.3)
$24.517
$926
$926
Tolerance
$1,200
$1.200
EPA's FY 1993 Annual Financial Statements
Page 67
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Note 10. Other Expenses:
As a matter of policy, EPA expenses discounts lost during the fiscal year as interest expense.
EPA pays Treasury interest on the Asbestos Loan borrowings.
Suoerfund Asbestos
Fiscal Year 1993:
Discounts Lost
Interest Paid to Treasury
Total
$ 1
$JL
310
Fiscal Year 1992:
Discounts Lost
Interest Paid to Treasury
Total
Superfund Asbestos'
$ 2
$ 2
$ -
7
$ 7
Note 11, Prior Period Adjustments:
Fiscal Year 1993:
Effective September 30, 1993 unreconciled and unidentified general ledger balances, in
addition to those identified in the 1992 audit, and resulting from the 1989 financial
accounting system conversion, were removed from the general ledger as adjustments to prior
period. Unreconciled cash differences for FY's 1989 through 1991 were also removed from
the general ledger as adjustments to prior period effective September 30, 1993. The
amounts removed were as follows:
Superfund Trust Fund
LUST Trust Fund
FIFRA
$17,361
(22)
971
Page 68
EPA's FY 1993 Annual Financial Statements
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Fiscal Year 1992:
Prior to FY 1992, interest earnings on investments for FIFRA were included as part of
unearned advances. Effective October 1, 1991, these earnings were reclassified to
Cumulative Results of Operations.
Reclassification of Interest Earnings - FIFRA Revolving Fund
$ 3,699
In addition, unrecognized prior year earnings for reimbursable work, were recorded as an
adjustment effective October 1, 1991.
Earnings on Reimbursable Activity - Superfund Trust Fund
3,574
Effective October 1, 1991, the Superfund and LUST Trust Funds removed unreconciled and
unidentified general ledger balances resulting from the 1989 financial accounting system
conversion by recording adjustments to equity accounts.
Correction, system conversion errors - Superfund Trust Fund 26,044
Correction, system conversion errors - LUST Trust Fund 4,704
Note 12. Non-Operating Changes:
The Non-Operating Changes resulted from funds transferred-in from Treasury, funds
collected and returned to Treasury, statement of financial position reclassifications, and other
non-operating increases and decreases.
Fiscal Year 1993:
Increases:
Transfers-in
Other Increases
Total Increases
Total Decreases
Superfund
$1,573,528
1,573,528
1.405.127
Net Non-Operating
Changes $ 168.401
LUST
$74,700
74,700
68.086
$ 6.614
Oil Spill
$20,700
20,700
7.804
$12.896
Asbestos
$31,225
31,225
17.233
$13.992
FIFRA
$ -
-40
$(40)
EPA's FY 1993 Annual Financial Statements
Page 69
-------
Fiscal Year 1992:
Increases:
Transfers-in
Other Increases
Total Increases
Total Decreases
Net Non-Operating
Changes
Superfund
$512,852
7.128
519,980
13.908
$506.072
75,000
69.154
$ 5.846
Oil Spill Asbestos
$ - $19,400
: 53.163
- . 72,563
- 134.481
FIFRA
196
$(196)
Note 13. Contingencies
EPA is a party in various administrative proceedings, legal actions, and claims brought by or
against it. These include:
Various personnel actions, suits, or claims brought against the Agency by
employees and others.
Various contract and assistance program claims brought against the Agenc
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.
These matters, affecting the Superfund Trust Fund, range individually up to several million
dollars. If such claims are successfully asserted against EPA, they could have a material
impact on the Superfund Trust Fund financial statements. Total losses at the end of FY
1993 on these administrative claims and litigation could amount to approximately $ 35,400
and $ 4,800, respectively. Total losses at the end of FY 1992 on these administrative
claims and litigations could amount to approximately $ 18,700 and $ 5,000, respectively.
The ultimate outcome of these claims and litigations cannot presently be determined.
Accordingly, no provision for any liability that may result in adjudication has been recognized
in the accompanying financial statements.
Page 70
EPA's FY 1993 Annual Financial Statements
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In the opinion of EPA's management and General Counsel, the ultimate resolution of any
legal actions still pending will not materially affect EPA's operations or financial position.
At the end of FY 1993, the Superfund Trust Fund had $ 3.5 million in contract obligations
that were cancelled. These Obligations were entered into in FY 1986. Although these
obligations were cancelled under the requirements of Public Law 101-510 "M" Account
Legislation, since these obligations related to valid contracts, there is a potential that these
obligations will become a liability that will require funding from a future appropriation. -No
obligations were cancelled at the end of FY 1992. ' '
Note 14. Restatement of Prior Year Financial Statements
Due to a change in defining the reporting entity, the Superfund Trust Fund and the LUST
Trust Fund Statements of Financial Position have been restated. As of September 30, 1992,
EPA included amounts held by the U.S. Treasury not yet appropriated as an asset and
offsetting the liability on the Statements of Financial Position. EPA has no control over these
balances, which may be appropriated to EPA or to other Federal agencies in the future. As
a result, EPA has determined that this balance should not be included on the Superfund Trust
Fund or LUST Trust Fund financial statements. The Statements of Financial Position, as of
September 30, 1992, have been restated for consistency.
Additionally, due to an error in the Superfund Trust Fund Appropriations Expensed balance
on the September 30, 1992, Statement of Cash Flows, this amount has been restated.
Finally, EPA has changed its method of accounting for pre-credit reform loan balances, to
comply with the Credit Reform Act of 1990. As a result, loan activity as of and for the year
ending September 30, 1992, has been restated in all financial statements of the Asbestos
Loan Program.
EPA's FY 1993 Annual Financial Statements Page 71
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Page 72
EPA's F\: 1993 Annual Financial Statements
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 30 1994
OFFICE Of
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT
Auditors' Report on the Fiscal 1993 Financial
Statements for the Superfund Trust Fund, Leaking
Underground Storage Tank Trust Fund and the
Asbestos Loan Program
Audit Report. PlSFL3-20-a003-4ttX>231
FROM:
TO:
Kenneth A. Konz
Assistant Inspe,
Jonathan Z. Cannon
Chief Financial Officer (3101)
Audit (2421)
Attached is our Independent Public Accounting firm's report
ummarizing the results of the engagement to audit the fiscal
1993 financial statements for the Superfund Trust Fund, Leaking
Underground Storage Tank (LUST) Trust Fund and Asbestos Loan
Program. The firm's objectives were to determine if the
financial statements were fairly presented, adequate internal
controls were in place, and the Agency complied with relevant
laws and regulations.
Results of Financial Statement Audit
The firm qualified its opinion on the Statements of
Financial Position for the LUST Trust Fund and the Asbestos Loan
program; and disclaimed an opinion on the other financial
statements for the LUST Trust Fund and the Asbestos .Loan Program.
In addition, the firm disclaimed an opinion on all of the
Superfund financial statements. The qualified opinions and the
disclaimers of opinion were due in part to weaknesses in the .
following areas:
r
recording and reconciling of Superfund accounts
receivable,
recording of accounts payable and accrued liabilities,
reporting of net position components, and
the lack of an integrated property system.
EPA's FY 1993 Annual Financial Statements
Page 73
-------
The results of the compliance tests for each fund indicated that,
for the items tested, EPA management had complied with applicable
laws and regulations that, might have a material effect on the
financial statements.
Action Required
In accordance with EPA Order 2750, as the action official
you are required to provide this office a written response to the
audit report within 90 days of the final audit report date. For
corrective actions planned but not completed by your response
date, reference to specific milestone dates will assist us in
closing the report. We will work with your staff during our
upcoming audit of the fiscal 1994 financial statements to assist
them in implementing corrective actions to improve the accuracy
and timeliness of EPA's financial information.
This audit report contains findings that describe problems
the Office of Inspector General (OIG) identified and corrective
actions the OIG recommends. This report represents the opinion
of the OIG. Final determinations on matters in this report will
be made by EPA managers in accordance with established. EPA audit
resolution procedures. Accordingly, the findings described in
this report do not necessarily represent the final EPA position.
We have no objection to the further release of this report to the
public.
Audit of Superfund Performance Measures
In addition to the financial statement audit work performed
by our independent public accounting firm, our office audited the
Superfund performance measures contained in the financial state-
ments. The overall objective of this work, performed in Regions
1, 5, 6 and 7, was to determine whether data reported by the
regions was reliable. In addition, since most of the information
on which the measures are based comes from the Comprehensive
Environmental Response, Compensation and Liability Information
System (CERCLIS), we assessed the adequacy of the internal
controls over CERCLIS data entry and quality in these regions.
In summary, we determined the risk that material errors in
the CERCLIS data would occur, and not be promptly detected,
varied from low to moderate in the regions where audit work was
performed. A low score in the risk assessment process indicated
good controls and a low risk of material misstatement. A
moderate score indicated weaker controls and a moderate risk of
material misstatement.
Page 74
EPA's FY 1993 Annual Financial Statements
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We were able to verify 91 percent of the recorded
accomplishments and settlement actions which we reviewed in the
regions. These accomplishments and settlement actions
represented the following performance measures included in the
overview section of the financial statements.
o Measure 1 - Number of sites on the National Priority List
where cleanup has started
o Measure 2 - Number of non-National Priority List sites
with hazardous releases where ~PA has begun a
cleanup action .
o Measure 3 - Number of sites on the National Priority List
where a decision has been made about how to
proceed with the cleanup of at least a
significant portion of the site
o Measure 4 - Number of sites on the National Priority List
where remedial action has been completed for
at least a significant portion of the site
o Measure 5 - Number of sites on the National Priority List
where cleanup construction is complete
o Measure 6 - Number of enforcement actions EPA has taken at
sites on the National Priority List against
the parties potentially responsible for
contaminating the site
o Measure 7 - Past costs achieved in settlement
o Measure 9 - Estimated amount of money parties responsible
for contaminating Superfund sites have
committed to spend on site cleanup
We also confirmed that the amount reported for Performance
Measure 8, amount of money EPA has collected from parties
responsible for contaminating sites on the National Priority
List, was the amount reported by the Department of the Treasury.
Concerning Performance Measures 7 and 9, we found that the
estimated settlement amounts recorded were not always
sufficiently documented and the source of the documented
estimates varied significantly. Therefore, we were unable to
assess the reasonableness of the estimated settlement amounts
that were reported. Guidance has not been issued to the regions
on preparing estimated response settlement amounts and requiring
that the basis for the estimated settlement.amounts be
documented. Officials in the Office of Waste Programs
Enforcement agree that guidance on preparing and documenting
settlement amounts is necessary and as a result, have taken
action to develop such guidance.
EPA's FY 1993 Annual Financial Statements Page 75
-------
The results of our audit work related to the Superfund
performance measures are further discussed in a separate audit
report entitled "Reliability of CERCLIS Data: Superfund
Performance Measures for Fiscal 1993" (Audit Report E1SFF3-11-
0029-4100229). Should you or your staff have questions about
that report, please contact Edward Gekosky, Divisional Inspector
General for Audit, Headquarters Audit Division, or Frances Tafer
of his staff, on (703) 308-8222. Should you or your staff have
any questions concerning the attached report, please contact
Melissa Heist, Divisional Inspector General, Financial Audit
Division on 260-1479, or Drusilla Yorke of her staff on 260-9628,
Attachment
cc: See Attached Report Distribution List
Page 76
EPA's FY 1993 Annual Financial Statements
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Report Distribution List
Assistant Administrator for Solid Waste and Emergency
Response (5101)
Assistant Administrator for Prevention, Pesticides and Toxic
Substances (7101)
Assistant Administrator for Enforcement (2211)
General Counsel, Office of General Counsel (2310)
Regional Administrators, Regions 1 through 10
Director, Office of Waste Programs Enforcement (5501)
Director, Office of Emergency and Remedial Response (5201)
Director, Office of Underground Storage Tanks '(5401W)
Director, Office of Pollution Prevention and Toxics (7401)
Comptroller (3301)
Director, Office of Grants and Debarment (3901F)
Director, Office of Acquisition Management (3801F)
Director, Office of Information Resources Management (3401)
Director, Office of Administration and Resources Management,
RTP, NC (MD-20)
Director, Office of Administration and Resources Management,
Cincinnati, OH
Director, Financial Management Division (3303F)
Director, Budget Division (3302)
Director, Facilities Management and Services
Division (3204)
Director, National Data Processing Division, RTP, NC (MD-34)
Director, Contracts Management Division, RTP, NC (MD-33)
Director, Superfund Enforcement Division (2243)
Financial Management Officers, Regions 1 through 10,
Research Triangle Park, Cincinnati and Las Vegas
Chief, Fiscal Policies and Procedures Branch (3303F)
Chief, Superfund Accounting Branch (3303F)
Chief, Headquarters Accounting Operations Branch (3303)
Chief, Financial Systems Branch (3303F)
Chief, Financial Reports and Analysis Branch (3303F)
Chief, Financial Compliance and Quality Assurance Staff (3303F)
Chief, Security and Property Management Branch (3204)
Agency Followup Official (3304)
Carolyn Levine, Audit Liaison for the Office of Administration
and Resources Management (3102)
Charlene Dunn, Audit Liaison for the Office of 'Solid Waste
and Emergency Response (5103)
Joyce Hay, Audit Liaison for the Office of Prevention, Pesticides
and Toxic Substances (7104)
EPA's FY 1993 Annual Financial Statements
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EPA's FY 1993 Annual Financial Statements
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The United States
Environmental Protection Agency
Independent Auditors' Reports
on the
Annual Financial Statements of EPA's
Superfund Trust Fund
Leaking Underground Storage Tank Trust Fund
Asbestos Loan Program
For the years ended September 30, 1993 and 1992
Audit Assignment Number P1SFL3-20-S003
Contract Number 6&-W2-0020
Leonard G. Birnbaum and Company
Alexandria, Virginia
January 28, 1994
EPA's FY 1993 Annual Financial Statement!
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EPA's FY 1993 Annual Financial Statements
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LEONARD G. BIRNBAUM AND COMPANY
CEflTIFMED PUBLIC ACCOUNTANTS
WASHINGTON OFFICE
S2BS FBANCONIA 30AO
ALEXANDRIA. VA. 22310
(701) 922-7822
FAX: (703) 922-ma
LEONARD a 31RN3AUM
LESUS A. LglPEfl
OAVtO SAKOFS
CAROL A. SCHNEIDER
MEMBERS OP THE
AMERICAN INSTITUTE
OF C?A'S
WASHINGTON. 3.C.
SUUUIT. NEW .£?S£Y
'.os ALTOS. CALJFOSNIA
SAN OIEGO. CALIFORNIA
Independent Auditors' Report on Financial Statements - Superfund Trust Fund
The Inspector General
U.S. Enviionmentai Protection Agency:
1. We were engaged to audit the accompanying statements of financial position of the
Superfund Trust Fund of the U.S. Environmental Protection Agency (EPA) as of September
30, 1993 and 1992, and the related statements of operations and changes in net position, cash
flows, and budget and actual expenses for the years then ended. These financial statements
are the responsibility of EPA's management,
Basis of Accounting
2. As described in Note 1 to the financial statements, these financial statements were
prepared in conformity with the applicable accounting practices prescribed or permitted by
OMB Bulletin 93-02 and applicable provisions of OMB Bulletin 94-01, Form and Content of
Agency Financial Statements, which is a comprehensive basis of accounting other than
generally- accepted accounting principles.
Planned Exclusions
3. . We did not audit the 1993 or 1992 financial statement amounts discussed in
paragraphs 4 and 5 of this report. It was impracticable to extend our procedures sufficiently
to determine the extent to which the financial statements as of and for the years ended
September 30, 1993 and 1992 may have been affected by these amounts.
EPA's FY 1993 Annual Fuunciil Statement!
Page 31
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4. Administrative costs of 522,257,000 and 517,586,000, for the years ended September
30, 1993 and 1992, respectively, we're funded from other EPA appropriations and were
recorded as income from overhead allocation and offsetting overhead expenses from
allocation for financial statement purposes. Administrative costs funded from other EPA
' appropriations do not affect net position. We were unable to audit the administrative costs
funded, from other EPA appropriations because the audit of these appropriations for
ailowability and alienability of such costs was not within the scope of these audits.
Adjustments, if any, to administrative costs funded by other EPA appropriations would affect
the statements of operations and changes in net position.
5. Prior to October 1, 1991, EPA was not required to prepare financial statements for
the Superfund Trust Fund in conformance with OMB Bulletin 93-02, Form and Content of
Agency Financial Statements, nor was EPA required to have such statements audited..
Accordingly, the statement of financial position as of September 30, 1991, has not been
audited. Statement of financial position amounts as of September 30, 1991, enter into the
determination of results of operations and changes in net position, cash flows, and budget
and actual expenses for the year ended September 30, 1992. Similarly, our disclaimer of
opinion on the September 30, 1992 statement of financial position affected our ability to
report on the fiscal year 1993 results of operations and changes in net position, cash flows,
and budget and actual expenses.
6. In our report on the fiscal year 1992 financial statements, dated April 7, 1993, we
reported that we were unable to audit the balance of amounts held by the U.S. Treasury for
future appropriations because that balance is maintained and controlled by the U.S. Treasury
and the audit of such amounts was not included in the scope of our engagement. As
-described in Note 14 to the financial statements, EPA changed its method of reporting
amounts held by the U.S. Treasury for future appropriations and no longer reports these
amounts in its financial statements. Accordingly, the 1992 financial statements have been
restated and our present planned exclusions on the 1992 financial statements, as presented
herein, differ from those in our previous report.
Limitations
7. We were unable to satisfy ourselves regarding the 1993 and 1992 financial statement
amounts discussed in paragraphs 3 through 16 of this report. It was impracticable to extend
our procedures sufficiently to determine the extent to which the financial statements as of and
for the years ended September 30, 1993 and 1992, may have been affected by these
conditions.
8. ' We were unable to determine if accounts receivable - non-federal, net, stated at
5193,938,000 and 5122,315,000 as of September 30, 1993 and 1992, respectively, have been
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EPA's FY 1993 Annual Financial Statement*
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recorded for all cost recovery actions, because EPA personnel did not fully comply with
policies and procedures for recording accounts receivable; adequately document
reconciliations of accounts receivable; and perform such reconciliations timely. Adjustments,
if any, to the balance of accounts receivable would affect all of the financial statements for
the years ended September 30, 1993 and 1992.
9. We were unable to audit the property, plant and equipment, net, stated at
314,030,000 and 316,094,000 as of September 30, 1993 and 1992, .respectively, because
EPA did not have adequate detailed schedules to support the financial statement amounts.
EPA's supporting property records did not identify all the property' and equipment acquired.
Property and equipment acquired by contractors and through interagency agreements had not
been recorded. Certain property and equipment disposed of had not been removed from the
accounting records. Adjustments, if any, to the property, plant and .equipment, net, balance
would affect all of the financial statements for the years ended September 30, 1993 and
1992.
10. We were unable to audit accounts payable, non-federal, stated at 3112,057,000 and
5102,212,000 as of September 30, 1993 and 1992, respectively, because accruals for grant
expenses of grant recipients that used the ACH payment system were not made. We were
unable to determine the amounts that should have been recorded for these liabilities.
Adjustment, if any, for accrued liabilities to grant recipients would affect ail of the financial
statements for the years ended September 30, 1993 and 1992.
11. We were unable to audit the retainages payable to contractors. EPA did not maintain
sufficient accounting records for such amounts and, therefore, did not record these liabilities
in the financial statements. Adjustment, if any, for retainages payable to contractors would
affect all of the financial statements for the years ended September 30, 1993 and 1992.
12. We were unable to audit deferred revenue, non-federal, stated at 3183,430,000 and
3248,561,000 as of September 30, 1993 and 1992, respectively, because EPA did not have
policies and procedures in place to adjust deferred revenue from state cost share contracts as
revenues were earned and to maintain adequate accounting records to properly support the
financial statement amounts. Adjustments to deferred revenue from state cost share contracts
would affect all of the financial statements for the years ended September 30, 1993 and
1992.
13. We were unable to audit net position, stated at 32,980,827,000 and 32,671,083,000,
as of September 30, 1993 and 1992, respectively, and the changes in net position for the
years then ended, because (a) EPA contracting officers or responsible officials were unable to
confirm unliquidated obligation balances, a component of net position, and we were unable to
perform alternative procedures, and (b) EPA did not maintain sufficient accounting records to
EPA'* FY 1993 Annual Financial Statement*
Page 83
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provide the net position disclosures in conformance with OMB Bulletin 93-02, Form and
Consent of Agency Financial Statements. Adjustments, if any, to the components of net
position would affect all of the financial statements for the yean ended September 30, 1993
and 1992.
14. We were unable to audit expenses for grants because grant drawdown requests from
certain recipients did not identify the appropriation or account information to which the
expenses related. Adjustments, if any, to grant expenses would affect all of the financial
statements for the yean ended September 30, 1993 and 1992.
15. We were unable to audit general support service costs allocated from other EPA
appropriations, because for our fiscal year 1993 engagement, EPA could not provide the
details of supporting accounting transactions in a timely manner. We were unable to audit
these costs for fiscal year 1992 because the audits of these costs were not included within the
scope of our audit. Adjustments, if any, to the amount of expenses allocated from other
appropriations would affect all of the financial statements for the years ended September 30,
1993 and 1992.
16. We were unable to audit capital and operating leases because EPA did not identify,
and the notes to the financial statements do not disclose, capital or operating lease
commitments as of September 30, 1993 and 1992, in accordance with OMB Bulletin 93-02,
Form and Content of Agency Financial Statements. The bulletin requires disclosure of the
capital and.operating lease arrangements including the basis for contingent rentals, terms of
renewal or purchase options, escalation clauses, and restrictions imposed.
Disclaimer of Opinion
17. Because of the matten discussed in paragraphs 3 through 16 of this report, the scope
of our work was not sufficient to enable us to express, and we do not express, an opinion on
the financial statements of the Superfund Trust Fund for the years ended September 30, 1993
and 1992.
Emphasis Matters
18. The Comprehensive Environmental Response Compensation and Liability Act of 1980
(CERCLA) and its amendments authorized EPA to respond to releases of hazardous
substances which threaten human health and the environment EPA is responsible for
identifying and prioritizing waste sites and ensuring that the nation's most hazardous sites are
cleaned up. Those sites posing the most serious threat are placed on the National Priorities
List (NPL). EPA is authorized to recover, from responsible parties, cleanup costs paid from
the Superrund Trust Fund. Since the inception of Superfund, Congress has authorized S15.2
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EPA's FY 1993 Annual Financial Statements
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billion to be made available to EPA in appropriations through fiscal year 1994. In the
Overview section of the accompanying financial statements, EPA has reported that 58.7
billion has been spent for Superfund response program expenses through fiscal year 1993.
The current authorization expires September 30, 1994. Congressional hearings concerning
the reauthorization of Superfund are scheduled throughout fiscal year 1994 and beyond.
19. la the Overview section, EPA indicated 1,177 non-federal sites on the NPL as of
September 30, 1993. EPA estimates that the remaining costs of cleaning up these 1,177 sites
will be S14.3 billion for fiscal year 1994 and beyond, not including the responsible parties'
contributions. However, in a U.S. General Accounting Office (GAO) report titled Superftuid
Program Management, dated December 1992, EPA estimated the remaining costs to clean up
the 1,275 federal and non-federal sites remaining on the NPL as of September 30, 1992,
would be S40 billion. The financial statements do not include an accrual for any estimated
cleanup costs, because no costs have been incurred for these future cleanup actions. To
accomplish the cleanup of all remaining sites on the NPL, future -funding and rime, beyond
that currently authorized, will be needed.
Supplementary Information
20. The financial information presented in Management's Overview of EPA and Overview
of Trust Funds, Revolving Funds and Commercial Activities is not a required part of the
financial statements but is supplementary information required by OMB Bulletin 93-02, Form
and Content of Agency Financial Statements. We have read this information and considered .
whether it is materially inconsistent with the financial statements. Such information has not
been subjected to auditing procedures and, accordingly, we express no opinion on it.
Distribution
21. This report is intended for the information of Congress, OMB, and EPA. This
restriction is not intended to limit the distribution of this report, which is a matter of public
record.
LEONARD G. BIRNBAUM & COMPANY
Alexandria, Virginia
January 28, 1994
EPA's FY 1993 Annual Financial Statement*
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EPA'i FY 1993 Annual Financial Statements
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LEONARD G. BIRNBAUM AND COMPANY
PUBLIC ACCOUNTANTS
WASHINGTON OFFICE
3265 rRANCONIA flOAO
ALEXANDRIA. 7*. J2310
1703) 92
AX: (7031 922-325*
LEONARD a 3IRN9AUM
'.£SU£ A. VSI1»E«
OAVID SAKQFS
CAROL A. SCHNEIDER
MEMBERS OP THE
AMERICAN INSTITUTE
N. D.C.
SUMMIT. M6W ,£3S£Y
'.OS iLTOS. CACFCRNIA
SAN DIEGC. CAUlfORNIA
OP C?*'S
Independent Auditors* Report on Internal Control - Saaerfund Trust Fund
The inspector General
U.S. Environmental Protection Agency:
1. We were engaged to audit the financial statements of the Superfund Trust
Fund, of the U.S. Environmental Protection Agency (EPA), as of and for the year
ended September 30, 1993. We have issued our report thereon dated January 28,
1994, in which we disclaimed an opinion on the financial statements.
2. In planning and performing our engagement for the year ended September 30,
1993, we considered EPA's internal control structure in order to determine our audit
procedures and to determine whether the internal control structure meets the
objectives identified in the fourth paragraph. This consideration included obtaining
an understanding of the internal control policies and procedures and assessing the
level of control risk relevant to all significant cycles, classes of transactions, or
account balances.
3. Performance measures present the financial and program accomplishments of
the reporting entity's activities. We did not review the data, that support reported
performance measures or the internal control structure, policies and procedures
designed to ensure the existence and completeness of such information, as required
by OMB Bulletin 93-06, Audit Requirements for Federal Financial Statements, .
because this work was performed and reported on by EPA's OIG.
4. . The management of EPA is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and judgments
EPA'* FY 1993 Annual Financial Statements
Page 87
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by management are required to assess the expected benefits and related costs of
internal control structure policies and procedures. The objectives of an internal
control structure are to provide management with reasonable, but not absolute,
assurance that transactions, including obligations and costs, are executed in
compliance with laws and regulations that could have a direct and material effect on
the financial statements, and any other laws and regulations that OMB, EPA
management, or EPA's OIG have identified as being significant and for which
compliance can be objectively measured and evaluated. The objectives of an internal
control structure are also to provide management with reasonable, but- not absolute,
assurance that funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition; and transactions applicable to EPA operations are
properly recorded and accounted for to permit the preparation of reliable financial
statements and to maintain accountability over assets, in accordance with, the
accounting principles described in Note 1 to the financial statements. Because of
inherent limitations in any internal control structure, errors or irregularities may
nevertheless occur and not be detected. Also, projection of any evaluation of the
structure to future periods is subject to the risk that procedures may become
inadequate because of changes in conditions or that the effectiveness of the design
and operation of policies and procedures may deteriorate.
5. For the purpose of this report, we have classified the significant internal
control structure policies and procedures in the following categories:
-. General accounting and financial reporting
'- Receivables and collections
Property
Accounts payable and accrued liabilities
Fund balance
Obligations
,.. Disbursements and operating expenses
6. For all of the internal control structure categories listed above, we obtained
an understanding of the design of relevant policies and procedures, determined
whether they have been placed in operation, assessed control risk, and performed
tests of the control procedures.
"7. We noted certain matters involving the internal control structure and its
operation that we consider to be material weaknesses and reportable conditions under
. standards established by the American Institute of Certified Public Accountants and
OMB Bulletin 93-06.
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EPA's FY 1993 Annual Financial Statements
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8. A material weakness is a rqportable condition in which the design or
operation of the specific internal control structure elements does not reduce to a
relatively low level the risk that errors or irregularities in amounts that would be
material in relation to the financial statements being audited may occur and not be
detected within a timely period by employees in the normal course of performing
their assigned functions. Reportable conditions involve matters coming to our
attention relating to significant deficiencies in the design or operation of the internal
control structure that, in our judgment, could adversely affect EPA's ability to
ensure that obligations and costs are in compliance with applicable laws; funds,
property, and other assets are safeguarded against unauthorized use or disposition;
'and transactions applicable to EPA operations are properly recorded, to .permit the
preparation of reliable financial statements in accordance with accounting principles
described in Note 1 to the financial statements.
t
9. Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be reportable
conditions and, accordingly, would not necessarily disclose all reportable conditions
that are also considered to be material weaknesses. Those conditions that we
consider to be material weaknesses are included in Attachment 1 of this report. The
conditions that we consider to be reportable conditions are included in Attachment 2
of this report. Attachment 3 presents the status of known but uncorrected prior year
audit findings.
10. We also rioted other less significant matters involving the internal control
structure and its operation that we will report to the management of EPA in a
separate management letter.
11. ' This report is intended for the information of Congress, OMB, and EPA.
This restriction is not intended to limit the distribution of this report, which is a
matter of public record.
LEONARD G. BERNBAUM & COMPANY
Alexandria, Virginia
January 28, 1994
<*
EPA'i FY 1993 Annual Financial Submenu
Page 89
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Superfund Trust Fund
Attachment 1 - Material Weaknesses
1. Improvements In Financial and Budgetary Accounting and Reporting Are
.Needed
EPA needs to make improvements in its financial and budgetary accounting and
reporting systems and procedures. We noted that interagency activity is not fully
accounted for in the budgetary accounts. We also found that the proprietary
accounts for the components of net position are not properly maintained and do not
disclose the correct amounts. Further, we noted that the financial system does not
maintain beginning account balances at the regional finance office level.
EPA management reported in its 1993 FMFIA report that systems-related problems
: of the Integrated Financial Management System (IFMS) impair EPA's ability to
provide complete, reliable, and timely data for decision making and control of assets.
These problems include: (a) incomplete users manual and systems documentation;
(b) inadequate automated project cost accounting capability; (c) incomplete interfaces
with programmatic and administrative systems; and (d) inadequate financial
management reports. The IFMS reporting-system weaknesses also impose significant
constraints on EPA's ability to perform its financial reporting duties in an effective,
efficient, and timely manner. EPA financial management personnel spend a
significant amount of resources reconciling and correcting information for reporting
purposes.
Certain Budgetary Accounts Were Not Utilized
EPA has not established the required budgetary Standard General Ledger (SGL)
accounts to record reimbursable authority received by EPA as a result of interagency
agreements. The SGL accounts that have not been utilized to record interagency
agreement activities include Reimbursable Orders Accepted, Unfilled Customer
Orders-Unobligated, Unfitted Customer Orders-Obligated, and Reimbursements and
Income Earned. These accounts are needed and should be used in the preparation of
OMB standard forms.
EPA is currently preparing che required OMB standard forms using proprietary
accounts that provide lower levels of detail. This process is inefficient and results in
a lack of budgetary control over reimbursable work, a budgetary resource. This has
occurred because not all of the required budgetary entries to account for interagency
reimbursements have been consistently made. Like an appropriation, reimbursable
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EPA'i FY 1993 Annual Financial Statements
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work is subject to fund control and can be apportioned, allotted, committed,
obligated, and expended.
We noted that EPA's current process causes an out of balance condition in the
interagency budgetary accounts of 353,255,615 as of September 30, 1993. This
error is offset in the non-interagency budgetary accounts as evidenced by the fact
that the budgetary accounts are in balance. EPA needs to establish the proper
budgetary accounts to account for and exert budgetary control over the reimbursable
agreements.
Understatement of Accrued Expenditures on SF-133
We noted that the SF-133, Report on Budget Execution, for the year ended
September 30, 1993 contained an understatement of 5486,061,000 in accrued
expenditures. The accrued expenditures reported on the SF-133 were 5818,444,909
and should have been $1,304,505,909. The understatement was caused by an
adjustment, to accounts payable as of September 30, 1992 that was recorded for
financial statement purposes but was not reflected in EPA's preparation of
subsequent SF-133s.
EPA personnel did not adjust the SF-133 for adjustments made after year end in
1992, which resulted in inaccurate reports being submitted to OMB during fiscal
year 1993.
Proprietary Accounts Do Not Correaty Disclose Net Position
EPA's proprietary SGL accounts do not correctly disclose the components of net
position because the automated year end closing process in the IFMS is incorrect.
This is evidenced by the fact that certain account balances that should equal other
accounts do not. For example, net property in the proprietary accounts does not
equal invested capital, cumulative results does not equal the balance of accounts
related to receipts to be returned to U.S. Treasury plus the net effect of reimbursable
interagency agreements. Also, beginning net position plus current appropriations
less appropriations expensed and the net change in invested capital and unfunded
activities do not equal ending net position. As a result, EPA financial management
personnel spent significant time and resources to develop net position financial
information for footnote disclosure. Manual adjustments were recorded for financial
statement purposes. However, the components of net position as required by OMB
Bulletin 93-02 still could not be properly disclosed.
EPA'* FY 1993 Annual Financial Statements
Page 91
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Regional Account Balances Were Not Maintained
We noted that the JFMS general ledger does not maintain beginning account balances
at the regional finance office level. EPA's automated closing procedures close all
assets and liabilities recorded by the regions to a combined amount by account at the
headquarters level. As a result, regional account balances for die subsequent year
- begin with a zero balance and the account balance at headquarters represents all
~ finance offices. This procedure makes it difficult to determine "and reconcile the
actual asset and liability account balances with detail records at die regional level.
Although a supplemental reporting system, the Management Accounting and
Reporting System (MARS), contains historical information by regional office, MARS
does not include all entries recorded in IFMS. Therefore, manual reconciliation
procedures are necessary to obtain account balances at die regional level. EPA is
planning to change the automated closing procedures in the IFMS in fiscal year 1994'
so that regional balances will be maintained.
EPA. Actions
In our fiscal year 1992 report, we recommended that EPA's CFO: (1) continue
efforts to change the automated closing procedures to retain regional account
balances; (2) establish SGL budgetary accounts and implement transaction codes to
properly account for reimbursable authority using these accounts; and (3) review and
.correct the automated closing procedures. The CFO agreed with our
^.recommendations and provided EPA's plans for corrective actions that would be
ataken during fiscal years 1993 through 1995. Since these EPA corrective action
/plans are;still in process, we are not making any new recommendations in these
areas.
In its 1993 FMFIA report, EPA management reported its financial systems,
specifically IFMS, as an OMB High Risk Area. EPA also reported accounting
system-related financial management problems as a material weakness. EPA's
corrective action plans include: 1) implementing a new version of IFMS including
user manuals and system documentation; 2) completing enhancements to produce
complete and accurate OMB and Treasury reports and financial statements; 3)
conducting training; and 4) issuing guidance on reporting enhancements. These
.corrective actions are scheduled to be completed during fiscal year 1994. EPA
management believes that diese actions will resolve many of these weaknesses.
Therefore, we are making no additional recommendations in diese areas at this time.
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EPA'i FY 1993 Annual Financial Statement!
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2. Improvements An Needed in Recording Accounts Receivable
EPA has several types of Superfund receivables, the most significant resulting from
cost recovery actions from individuals and businesses that EPA has determined were
responsible for causing hazardous waste sites. EPA identifies these potentially
responsible parties during site-specific enforcement procedures. It is EPA's policy to
record accounts receivable from these responsible parties when'consent decrees,
judgments, or other binding agreements are reached, that authorize EPA to recover
site cleanup costs incurred by EPA. The amounts collectible as a result of consent
decrees, judgments or agreements, include the site-specific cleanup costs and general
and administrative costs incurred by EPA related to the site cleanup. EPA also has
agreements with states to share in the costs of site cleanups. These agreements are
known as Superfund State Contracts (SSCs) and provide for EPA to-collect a portion
of cleanup costs from the states.
We tested a statistical sample of accounts receivable balances from EPA's records as
of September 30, 1993; a nonstatistical sample of accounts receivable transactions
recorded during fiscal year 1993; and a nonstatistical sample of EPA cost recovery
cases tracked by the Department of Justice (DOJ). The results of our tests indicated
that there were significant delays in recording accounts receivable. As a result, we
found material amounts of unrecorded receivables. We also found that EPA bad
recorded receivables for Superfund State Contracts which were conditional upon
future events. Further, we found that EPA had not recorded marketable securities
received in payment of accounts receivable. Finally, we noted that EPA had not
established an adequate allowance for uncollectible accounts.
Material Amounts of Accounts Receivable Were Not Recorded
We tested the completeness of accounts receivable from potentially responsible
parties by reviewing EPA's reconciliations of accounts receivable per IFMS with the
EPA Outstanding Balances for Debts Owed U.S. FY 89 - Present per the Department
of Justice (DOJ). We obtained supporting documentation from DOJ, provided this
information to EPA regional financial management offices (FMOs), and requested
explanations of significant differences.
We found that S57,005,700 of accounts receivable had not been recorded in IFMS as
of September 30, 1993. These unrecorded receivables resulted primarily from
EPA's Offices of Regional Counsel (ORCs) not forwarding documentation to the
finance offices timely or when ORCs believed that collectibility was hampered,
because an appeal had been filed or the responsible parry was in bankruptcy. We
noted' that some of the receivables were recorded in fiscal vear 1994 because the
EPA1* FY 1993 Annual Financial Statements Page 93
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r.
it
FMOs did not receive the documentation from ORCs until after September 30, 1993.
EPA recorded adjustments in .the financial statements based upon our :est work.
However, our test work only encompassed a non-statistical sample and die results
indicate that there may be other unrecorded accounts receivable.
EPA policy states that the FMO should establish accounts receivable for judgments
and should maintain these receivables while under appeal until the case is resolved or
the status has changed. The FMOs stated that the ORCs had, in some cases, advised
the FMOs not to record certain receivables because of the uncertainty of collecting
.;the amounts. ORCs should forward documents to finance offices timely and provide
assessments regarding the coilectibility of these accounts. EPA finance offices
should record receivables, in accordance with EPA policy, assess che status, and
.provide for an adequate allowance for uncollectibility based upon the status of these
.receivables.
.Accounts Receivable Were Not Recorded Timely
' Our tests of receivables disclosed that 26 accounts receivable, totaling $15,366,734,
."from our nonstatistical sample of 52 receivables, totaling $208,098,207, were not
'recorded timely. Nine of these receivables, totaling $5,665,387, should have been
recorded as of September 30, 1993, but were not recorded until fiscal year 1994.
. For the 26 receivables tested, an average of 51 days elapsed from execution of the
consent decree or other judgment creating the debts, to recording the receivables in
IFMS. Also, we found that two accounts receivable amounting to $903,750 had not
been recorded in the IFMS until after the collections were received. Because of
delays such as these, there may have been additional accounts receivable as of
September 30, 1993, that were not recorded. This likelihood is further supported by
our tests of completeness, discussed above, where we found additional receivables
that were not recorded until fiscal year 1994 thai should have been recorded as of
.. September 30, 1993.
EPA policy states that Regional Superfund Branch Chiefs should ensure that any
demand letter, consent decree, EPA order, or other notice requiring payment is
forwarded to the Regional FMO within one work day of final signature. We found
that receivables were not recorded timely because ORCs often did not forward
settlement documents and orders to the FMOs within one day of final signature, as
required by this policy. Also, ORCs did not promptly receive or forward judicial
orders from the DOJ.
-The failure to record receivables timely causes inaccurate external reports and
financial statements, as well as internal EPA reports used for monitoring and
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EPA's FY 1993 Annual Financial Statements
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managing accounts receivable. This could also result in die loss of interest and
penalties and contribute to the uncoilectibiiiry of receivables.
Marketable Equity Securities Received In Payment Of Receivables Were Not
Recorded
We identified 34,698,756 in marketable equity securities collected from parries in
bankruptcy, for payment of an accounts receivable of approximately 319,000,000.
These securities had been received by EPA and were held at the U.S. Treasury as of
September 30, 1993, but had not been recorded in EPA's general ledger. Instead,
the entire accounts receivable remained in EPA's general ledger receivable balance,
even though securities had been received in payment.
OMB Bulletin 93-02 requires disclosure of marketable securities at acquisition cost
or market value. We believe that marketable equity securities received by EPA in
settlement of accounts receivable should be recorded at fair market value when
received. The accounts receivable balance should be adjusted when the securities are
received and recorded. EPA agreed to record the marketable securities noted above
in the financial statements at our request.
Certain State Cost Share Contracts Were Inappropriately Recorded as Receivables
During our review of the Superfund State Contracts (SSCs) at Regions 2, 4, 5 and 9,
we noted the SSCs have varying terms regarding payment. Some of these contracts
require partial payments of the states' share only after specific events occur. These
partial payments per the SSCs are not billable or collectible until the occurrence of
future events. We noted that Regions 2 and 4 had recorded accounts receivable for
the total amount of these SSCs when the contracts were signed regardless of payment
terms, based on EPA's policy. We did not note these types of SSCs at Regions 5 or
9.
Accounts receivable should not be recorded until such amounts are billabie or events
occur that entitle EPA to receive cash or other assets. EPA's current treatment of
these SSCs resulted in an overstatement of accounts receivable of 337,322,273 as of
.September 30, 1993, at Regions 2 and 4. Based upon our test'work, EPA recorded
an adjustment to accounts receivable for this amount. However, these types of SSCs
may exist at other regional offices where we did not perform these tests.
EPA's FY 1993 Aflnuai Financial Statements
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Adequate Allowance For Uncolkaible Accounts Was Not Recorded
We identified accounts receivable from parties in bankruptcy for which no allowance
for uncollectible accounts had been established. An allowance should be established
vto provide for the potential uncollectibility of these accounts. Our analyses also
indicated that coilectibility is impaired on a portion of the older accounts receivable.
We calculated an allowance based on (1) specific identification of debtors in
bankruptcy in Regions 2, 5 and 9; (2) identification of debtors in bankruptcy who are
transferring marketable securities to EPA as settlement for accounts receivable; (3)
' accounts receivable which were established prior to 1990; and (4) a reserve upon the
remaining population of accounts not specifically identified. We believe an 8%
general reserve is necessary, in addition to specific identification allowances, based
on our detailed analysis of collection activity and receivable turnover. EPA
increased its allowance by 5153,364,836 as of September 30, 1993, based on our test
work.
EPA Actions .
Weaknesses in EPA's management of accounts receivable have existed and have been
reported by the OIG since 1987. EPA management recognizes that improvements
:are still needed in managing and recording accounts receivable. In the 1993 FMFIA
report, EPA reported a material weakness in the accounts receivable area including
deficiencies such as technical shortfalls in the accounts receivable module, non-
current policies and procedures, inaccurate and incomplete reports, and insufficiently
£ trained personnel. EPA management also reported as a material nonconformance,
.a thai there, have been several instances of unrecorded accounts receivable as a result
^of untimely notification of finance offices by program officials. In addition, EPA
' reported that the EFMS accounts receivable module includes erroneous calculation of
interest and penalties and is unable to automatically process installment receivables.
EPA's corrective action strategy for fiscal year 1994 includes: 1) implementing a
new version of the IFMS core software to provide new accounts receivable
functionalities, system documentation and user manuals; 2) completing enhancements
to produce needed accounts receivable reports; 3) conducting jaining classes on
accounting for and managing accounts receivable; and 4) issuing and updating policy
guidance on systems enhancement to produce complete and accurate reports. We
recognize management's efforts to take corrective action for these accounts
receivable issues.
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EPA'* FY 1993 Annual Financial Statements
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Draft Report Recommendations
We recommended in our draft report that the CFO, in conjunction with the Assistant
Administrator for Solid Waste and Emergency Response, supplement existing
policies and procedures to improve the coordination between Offices of Regional
Counsel and Financial Management Offices for:
(1) timely forwarding of documents;
(2) recording and reconciliation of accounts receivable for cost recovery actions;
and
(3) identification of uncollectible accounts and recording an adequate allowance
for these accounts.
,
We also recommended that the CFO establish or modify policies and procedures to:
(1) account for and record receipts and sales of marketable securities received in
exchange for accounts receivable; and
(2) account for receivables arising from Superfund State Contracts when the
events occur that entitle EPA to bill and collect amounts due.
EPA's Response to Draft Report Recommendations and Our Evaluation
The CFO stated in his response to our draft report that, since 1990, his staff has
worked with the Assistant Administrators for Solid Waste and Emergency Response
(OSWER) and Office of Enforcement (OE) to improve the coordination between the
Offices of Regional Counsel (ORCs) and the Financial Management Offices (FMOs)
in the area of recording and accounting for accounts receivable. While substantial
improvements have been made, the CFO agreed that additional improvements are
warranted. The CFO stated that the FMOs should do a better job of documenting
the reconciliations of accounts receivable with ORCs and program offices. Further,
the CFO indicated that corrective actions have previously been taken, in the form of
memorandums and on-site reviews, to emphasize the importance of timely flow of
documents for recording receivables and to provide a monitoring strategy to ensure
coordination between offices in this area.
The CFO also agreed with our recommendation to establish or modify, policies and
procedures for accounting for and recording marketable securities received in
exchange for accounts receivable and receivables arising from Superfund State
Contracts (SSCs). The CFO indicated that EPA has already started working to
resolve these issues.
EPA'J FY 1993 Annual Financial SUtementi
Page 97
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The CFO provided a corrective action plan to strengthen incernal controls by
updating Superfund accounts receivable policies and procedures and providing
training to regional finance office personnel. The C?0 also indicated a corrective
plan to develop a new strategy with OE, OSWER, the Office of the Comptroller,
and Department of Justice to address the timely recording of receivables. These
corrective actions are scheduled to be implemented during nscai year 199.4 and be
completed by September 30, 1994.
The CFO's proposed corrective actions are generally responsive to our
recommendations. However, we would like to point out that'we recommended in
our fiscal year 1991 Superfund financial audit report that EPA ensure tha: financial
policies and procedures for accounts receivable and collections were updated. EPA-'s
corrective action plan to issue a revised RMD 2550D was originally scheduled to be
completed by December 31, 1993.
We noted that, in the CFO's response and corrective action' plan, this target date has
been changed to July 31, 1994 for a revised draft RMD 2550D or draft Comptroller
Policy Announcement. This plan provides for a Green Border review of RMD
2550D or Comptroller Policy Announcement to be issued by September 30, 1994.
Our review of FMD's Followup Tracking System during 1993 indicated that the date
for issuance of RMD 2550D had been revised to November 30, 1994. We urge the
CFO to monitor the progress of these corrective actions to ensure that these revised
target dates for completion are met.
We also noted that the corrective actions did not specifically address marketable
"securities and SSCs. We believe that these issues should be included in the revised
'RMD 2550D and Comptroller Policy Announcements to be issued in conjunction
with the policies and procedures addressing accounting and reconciliation issues.
Recommendation
We recommend that the CFO ensure that policies and procedures for recording
marketable securities received in payment of accounts receivable and accounting for
Superfund State Contracts are included in the revised RMDS.
J. Property and Equipment Records Need to Be Integrated, with the General
Ledger
EPA does not have an integrated property system chat records and accounts for
' capitalized property and equipment at the time of acquisition. EPA uses two systems
to account for and control property: 1) the Personal Property Accountability System
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EPA'i FY 1993 Annual Financial Statements
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(PPAS) and 2) spreadsheets prepared from manual adjusting entries which capitalize
property in EFMS. However, neither of the systems contains complete historical cost
data and information to support and identify all capitalized property.
EPA maintains spreadsheets to summarize the'property and equipment items
capitalized in the general ledger. These spreadsheets identify the type of assets
acquired, dates of acquisition, and original cost, but do not include property
identification numbers that could be used to identify the assets.' Each month, FMOs
prepare listings of property and equipment that meet EPA's capitalization criteria
based on detailed reviews of disbursements for property and equipment originally
recorded as operating expenses. The FMOs then prepare manual general ledger
journal entries to capitalize these amounts.
EPA uses the listings to update the detailed property spreadsheets that are used as the
basis for calculating and- recording depreciation. However, contractor-acquired EPA
property and EPA property purchased under interagency agreements was not
capitalized or recorded in the property spreadsheets or in EPA's general ledger.
Additionally, EPA generally did not remove property items disposed of from the
general ledger.
EPA maintains a separate system, PPAS, to control property. Annual physical
inventories are required to be taken and be reconciled to the PPAS. However, the
PPAS was not designed to support the capitalized amount of property and equipment
in EPA's accounting records. For example, the PPAS does not identify the original
cost of property owned. Instead, property is valued in the PPAS at the purchase
requisition or obligated amount. Such amounts do not reflect actual cost, including
the effect of discounts, installation charges, and trade-in values. Additionally, the
PPAS does not currently have the capability to calculate depreciation expense or
maintain accumulated depreciation amounts. The PPAS does identify
contractor-acquired property, based on information provided from contractors.
However, PPAS does not record or identify EPA property purchased under
interagency agreements.
An integrated property system should provide both accountability for and control
over property recorded in EPA's general ledger. The system should provide
information such as type of asset, date of acquisition, original, cost, estimated useful
life, depreciation, physical location, and identity of custodial officers. The system
should eliminate duplication of effort in recording and accounting for property, as
well as identify all EPA property, including that held by contractors and other
agencies.
EPA's FY 1993 Annual Financal Statements Page 99
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As a result of the system differences, EPA could not reconcile the spreadsheets
supporting the general ledger balance of property and equipment to the PPAS or to
the physical inventories. Further, the general ledger balance does not contain
property held by contractors and other agencies that should have been capitalized.
Because the detailed accounting records supporting the financial statement balance of
property and equipment were inadequate and incomplete, we were unable to audit
'. this account balance in the statement of financial position.
EPA Actions
EPA's accounting system problems for property are not new. The OIG and contract
auditors have reported these issues since 1981. In.its initial FMFIA report, covering
fiscal year 1983, EPA identified the need for an accounting system enhancement to
. integrate its accounting and property management systems. In fiscal year 1993, this
. need for an integrated property system still existed, and is reported as a part of the
-.material weakness under accounting system-related financial management problems.
We also noted that EPA reported, as a material conformance, problems with the
manual reconciliation of information in the IFMS, which is supported by
spreadsheets, and property data in PPAS.
We recognize management's initiative in forming a Quality Action Team (QAT) in
March 1993 to take corrective action for property issues. EPA is considering
implementing an IFMS property module, however it is waiting until another
'-'' .government agency completes the testing of the module before EPA decides to
implement it. EPA believes that implementation could not begin until fiscal year
.4995. Because of the ongoing effort, we are not making "further recommendations in
this report.
4. Accounts Payable, Accrued Liabilities And OPAC Payments Should Be Properly
Recorded
We identified a potential material understatement of accounts payable and accrued
liabilities as of September 30, 1993, which resulted from a lack of effective controls
to identify and record these liabilities. EPA did not properly estimate and record
unpaid and unbilled grant expenses as accrued liabilities. EPA does not have
procedures to specifically identify accounts payable related to contractor retainages.
In addition, EPA recorded payments made to other federal agencies through the U.S.
^.Treasury's On-line Payment and Collection (OPAC) System as prepaid adjustments in
the Abatement Control and Compliance Appropriation (AC&C), although the
payments applied to other appropriations. Adjustments to properly distribute these
payments to the correct appropriation were act made at year end.
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EPA's FY 1993 Annual Financial Statements
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Error In Accounts Payable and Accrued Liabilities
We identified a $20,802,824 understatement of accounts payable at September 30.
1993 at the Research Triangle Park - Financial Management Center (FMC-RTP).
This error resulted from the omission of contract payments made from October I
through October 15, 1993 from a detailed report used to record accounts payable at
the FMC-RTP. These contract payments related to services provided prior to year
end, and should have been recorded as accounts payable. We'also found that FMC-
RTP misclassified certain accounts payables amounting to 37,328,394 as accrued
liabilities. EPA made an adjustment to record these payables as of September 30,
1993 at our request.
Contractor Retainages Were Not Recorded As Payables
, *
We 'found that EPA had not recorded accounts payable for contractor retainages.
Retainages have occurred in previous fiscal years when contractors submitted
invoices for payments related to services performed and EPA withheld portions of
the amount due. Retainages may be held until EPA is,satisfied that the contractor
has met all contractual requirements pertaining to a contract. The policy of holding
retainages was changed in fiscal year 1992 so that retainages were no longer
withheld from contractor invoices. However, all previously withheld retainages were
not returned to contractors at that time.
Contract payments for EPA were made primarily by FMC-RT? officials through the
Contract Payment System (CPS). EPA did not determine the amount of outstanding
contract retainages as of September 30, 1993 and 1992. FMC-RTP officials believe
that they have accounted for an estimated amount of retainages in calculating accrued
liabilities as of September 30, 1993 and 1992. Accrued liabilities were calculated as
one-twelfth of the total contract disbursements for fiscal years 1993 and 1992. This
calculation provides an accrual for anticipated contractor expenses for services
performed before year end that were not billed until the following fiscal year.
Because the amounts included in this calculation included any disbursements made in
fiscal years 1993 and 1992 for retainages, the accrual would include some provision
for retainages.
Although we agree that this calculation of accrued liabilities may include some
provision for contract retainages, because of the lack of detailed information on
retainages paid during these years or owed at each year end, we were unable to
determine if the accruals were sufficient to account for retainages withheld by EPA
as of September 30, 1993 and 1992. Because EPA has contracts extending as long-
as five to ten years, retainages may be withheld for considerable periods before they
EPA's FY 1993 Annual Financial Statements
Page 101
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are paid. Further, we believe that these retainages should be identified and classified
as accounts payable instead of accrued liabilities. Under accrual accounting,
payables and expenses should be recorded for the entire amount for the services
rendered, prior to deducting any retainages. The unpaid balances of retainages
should have been recognized by EPA as accounts payable as of September 30, 1993
and 1992.
As a result of our 1992 report recommendation, FMC-RTP officials initiated a
review of contract closeouts in fiscal 1993 to attempt to determine the amounts of
.contract retainages paid during the year. Based on the results of this-review, which
was not completed during our fieidwork, EPA expects to use this data to estimate the
materiality of retainages payable. Because of this ongoing review, we are making no
further recommendations at this time.
Accrued Liabilities For Grant Expenses Were Not Recorded
EPA awards grants to state and local governmental units and other entities, primarily
nonprofit organizations, for research and other support activities that benefit ail EPA
programs. The grantees perform the work and request reimbursements from EPA
through the Automated Clearing House (ACE) Payment System or by using other
payment request documents. EPA's Fiscal Year 1993 Year-end Closing Procedures
require each regional office to record accrued liabilities for the estimated amount of
grant expenses through September 30, 1993, where the grantee has performed the
work but not yet submitted the grant payment requests to EPA. The procedures state
mat these accrued liabilities should be based on historical data and past experience.
We performed testwork at Regions 2, 5 and 9 and Las Vegas - Financial
Management Center (FMC-LV) to determine if these liabilities had been recorded.
At Region 2, we found that accrued liabilities were not recorded at year end for
grant expenses that were being reimbursed through the ACH payment system. We
found one ACH request received at Region 2 on October 22, 1993, totaling
57,283,994. Based on our discussion with Region 2 officials, we concluded that the
payment related to services performed and costs incurred prior to September 30,
1993. We noted that Region 2's average monthly ACH payments during 1993
amounted to $1,190,977. These payments are typically made for expenses incurred
in previous months. However, due to significant fluctuations in the timing and
amount of various grantees' drawdowns, we could not determine the costs incurred
for which an accrual should have been recorded. Because no accrual was made, we
believe that accrued liabilities were significantly understated. No adjustment was
proposed because we were unable to determine the amounts that should have been
recorded.
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EPA'i FY 1993 Annual Financial Statement*
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At Region 5, we also noted that no accrued liabilities were recorded at year end for
grant expenses that were incurred but not yet reimbursed through che ACH payment
system. We noted chat Region 5's average monthly ACH payments during nscai
year 1993 were 32,407,328. These payments are typically made for expenses
incurred in previous months. We concluded that an accrual should have been
recorded for the estimated costs incurred before year end. Because no accrual was
made, we believe that accrued liabilities were significantly understated. No
adjustment was proposed because we were unable to determine the amounts that
should have been recorded.
At Region 9, we found that accrued liabilities for grant expenses (except ACH
payments) were recorded for one-twelfth of the unliquidated obligation balance as of
September 30, 1993. This resulted in an estimated accrual of 52,299,829. This
methodology is improper because it does not represent a reasonable estimate of
expenses incurred at year end. Such expenses are not necessarily incurred
proportionately over a given period of time and may have no direct relationship with
the amounts of outstanding obligations. However, we were unable to determine the
actual amount that should have been accrued by Region 9 for non-ACH grants.
We also found that no accrued liabilities were recorded at Region 9 for grant
expenses that were being reimbursed under the ACH payment system. We noted
that the average monthly payments made to recipients during 1993 were 3674,485.
These payments are typically made for expenses incurred in previous months. We
concluded that an accrual should have been recorded for the estimated costs incurred
before year end. Because no accrual was made, we believe that accrued liabilities
were significantly understated. No adjustment was proposed because we were unable
to determine the amounts that should have been recorded.
At FMC-LV, we also noted that no accrued liabilities were recorded for grant
recipients being reimbursed through the ACH payment system. According to Las
Vegas officials, the year end closing procedures stated that no accrued liability
should be established where there was no evidence that goods or services were
delivered or performed. We noted that Las Vegas' average monthly ACH payments
were 32,746,513. These payments are typically made for expenses incurred in
previous months. We concluded that an accrual shbuid have been recorded for the
estimated costs incurred before year end. Because no accrual was made, we believe
that accrued liabilities were significantly understated. No adjustment was proposed
because we were unable to determine the amounts that should have been recorded.
None of EPA's finance offices where we reviewed accrued liabilities had recorded
proper accruals for grant expenses incurred by recipients prior to year end. Because
EPA's FY 1993 Annual Financial Statements
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these expenses occur on a continuing basis and there are normally delays in
requesting reimbursement, we believe based upon our analysis of average monthly
payments, that the amounts of unrecorded liabilities at all EPA finance offices are
likely to be material to the financial statements.
OPAC Payments Were Not Charged To The Correct Appropriations At Year End
:EPA reimburses other Federal Agencies for work performed on behalf of EPA via
the U.S. Treasury's OPAC system. These payments relate to.work performed under
various EPA appropriations. In order for EPA's disbursements to balance to
Treasury, EPA records these OPAC payments in EFMS as prepaid adjustments under
! ;the AC&C appropriation. Upon confirmation that another Federal Agency has
« -charged EPA via OPAC, Cincinnati Financial Management Center (CFMC) forwards
''< a form to the project officer for approval of the payment. This completed form,
'when returned, identifies the interagency agreement and appropriation accounts to be
charged. However, we noted that these project officer approval forms may be
.outstanding as long as 6 months before they are returned to CFMC,
: We found at September 30, 1993, that approximately S20 million of the S26 million
tji. of OPAC payments recorded as prepayments in the AC&C appropriation related to
I Superfund work. However, we also noted that when calculating year end accrued
.«.. liabilities, CFMC did not take into effect these OPAC payments in estimating costs
-- .incurred but not billed on the related interagency agreements. As a result, the
-------
(4) establish procedures to account for OPAC payments in a timely manner under
the appropriations to which the payments apply.
EPA's Response to Draft Report Recommendations ard Our Evaluation
The CFO agreed with our recommendation for requiring supervisory review of
supporting data and reports used to identify and record accounts payable and accrued
liabilities. The CFO stated that FMD's year end closing instructions to the finance
offices will include this requirement as well as more specific guidance for accounting
for accounts payable and accrued liabilities. The CFO's corrective action plan for
developing year end closing procedures and revising year end closing instructions to
incorporate supervisory review requirements indicated target dates of June 30 and
July 31, 1994.
The CFO also agreed with our recommendation to issue specific guidance for
calculating and recording accounts payable and accrued liabilities for grant expenses.
The CFO stated mat specific guidance is already included in year end closing
instructions. However, he indicated that this guidance will be expanded to' include
more detailed procedures to accurately calculate and record payables and liabilities.
The guidance will also include supervisory review and approval requirements. The
CFO provided corrective action plans to contact FMOs regarding suggestions for
accounting for these payables and accruals and to expand the year end instructions to
include more specific guidance. The target dates for these corrective actions are
June 30 and July 31, 1994.
The CFO agreed with our recommendation to ensure consistent application of year
end closing instructions among finance offices for recording accounts payable and
accrued liabilities. The CFO stated that his staff will conduct frequent follow-up
communications with all finance offices to ensure consistency. The CFO provided a
corrective action plan to reemphasize to ail finance offices to follow the written year
end instructions. The target date for this action is September 30, 1994.
The CFO agreed with our recommendation to establish procedures to account for
OPAC payments in a timely manner under the appropriation's to which the payments
apply. The CFO stated that his staff will be reviewing the use of the prepaid
account for recording OPAC payments at year end. The CFO provided a corrective
action plan to determine if charges need to be made using the prepaid account for.
OPAC payments, and to expand year end instructions to provide specific guidance on
accounting for OPAC payments. The target dates for these corrective actions are
May 30 and July 31, 1994.
EPA's FY 1993 Annual Financial Statements
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The CFO's proposed corrective actions are generally responsive to our
recommendations. However, we noted that the policies and procedures for
calculating, documenting, reviewing, approving, and recording accounts payable,
accrued liabilities and OPAC payments are proposed to be included in the year end
closing instructions. We believe that the Office of Comptroller's Resources
Management Directives System (RMDS) is the appropriate and more effective
method to establish Agency financial policies and procedures. RMDS was designed
to provide all such guidance in one unified system, through which comprehensive
.and current financial guidance would be provided to all Agency offices.
Recommendation .
We recommend that the CFO instruct the Comptroller to develop and establish
'Agency policies and procedures in RMDS for accounting for and recording accounts
, payable, accrued liabilities and OPAC payments, including specific guidance to
address, each of the various types of these transactions.
>5. State Cost Share Revenue Should Be Properly Recognized
State cost share contracts are agreements between EPA and states to share in the
costs of Superfund site cleanups at specified ratios of costs incurred. We noted
Xduring our test work that EPA recorded receivables on state cost share contracts and
corresponding deferred revenue when these contracts were signed. We also found
that the deferred revenue was not reduced and recognized as earned revenue as site
cleanup work occurred, which entitled EPA to earn a portion of the states' cost
.Region' 2 -began a pilot program in fiscal year 1993 to develop procedures to adjust
the deferred revenue account and record earned revenue by cost share contract and to
determine the amount of deferred state cost share revenue that should have been
recognized to date. Region 2 had determined the site project costs incurred to date
and percentages of project completion for each related cleanup, action. Using this
information at Region 2 and based on the terms of the cost share contracts, we
calculated the amount of deferred 'revenue for each state cost share contract that
\shouid have been recognized as earned as of September 30, 1993. We also obtained
-'this information at Regions 5 and 9, and performed similar calculations.
sWe found that S35 million of deferred revenue should have been recorded as earned
at Regions 2, 5 and 9 as of September 30, 1993, of which S8 million related to fiscal
year 1993 and S27 million related to prior years. EPA recorded adjustments based
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EPA's FY 1993 Annual Financial Sutemcnti
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on our test work. However, we did not determine the amount of adjustments chat
should be recorded at other regional finance offices.
EPA. Actions
EPA agreed with the recommendation in our 1992 report to develop procedures for
calculating state cost shares to properly recognize earned revenue as cleanup services
are performed. The corrective action target date for reconciling and adjusting the
deferred revenue account is April 1, 1994. The proposed corrective actions are
responsive to our recommendations. EPA management has made progress in this
area during fiscal year 1993 through the efforts at Region 2. Therefore, we are
making no further recommendations at this time. .
6. Grant Payment Requests Should Provide Appropriation And Account
Information
Grant recipients did not identify the appropriations to which grant payments under
the U.S. Treasury's Automated Clearing House (ACH) Payment System should be
charged, unless the payment requests were specifically related to Superfund site
cleanups. EPA's Las Vegas Financial Management Center (FMC-LV) applied these
ACH payment requests for grant expenses funded by more than one appropriation
using a first-in first-out (FIFO) method, by charging the oldest available unliquidated
obligations; This method may cause a misscatement of expenses during the fiscal
year among the appropriations that provide funding under the same grant agreement.
Further, payments on grants that were solely funded from Superfund were not
always charged to the correct Superfund account numbers.
We'found that the operating expenses included grant disbursements that resulted
from charging payments to Superfund, even though the expense or a portion thereof
may have been for non-Superfund purposes. Also, certain grant expenses actually
incurred to benefit Superfund may have been excluded from the expenses because
they were charged to another appropriation. In addition, the grant expenses for
Superfund charged to incorrect account numbers could affect indirect cost rates and
future cost recovery actions. Although.EPA officials at FMC-LV generally agreed
with this issue, they did not believe that the methodology being used resulted in
material misstatements of grant expenses.
We selected a statistical sample of Superfund disbursements that included 5
transactions, totaling 5499,464, on multi-funded grants paid at FMC-LV. Based on
our analysis of the funding percentages at the time the payments were made, we
found that the method used by FMC-LV resulted in 382,115, or 17.1%, of
EPA'i FY 1993 Annual Financial Statements
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potentially mischarged costs because the grantees did not identify the appropriations
to which the expenses pertain. FMC-LV used a method of charging these expenses
which may have resulted in improper charges because the method did not consider
the work performed or the funding levels by appropriation in place at the time the
payments were made. We also found that, using the funding percentages in place as
. of September 30, 1993 for these same 5 multi-funded agreements, would have
.*, resulted in $279,334, or 5.095, of potential mischarges to the Superfund
\.: appropriation for all payments made on these grants during the fiscal year. In
addition, we also noted that S532,491 of grant payments were not identified to the
{ Superfund account number charged because the ACH payment.requests did not
"^'.provide the account numbers for these expenses,
*,*
EPA Actions
We recommended in our 1992 report that the Director of the Grants Administration
'Division require grant recipients to provide grant accounting information on all ACH
,.pavment requests. EPA agreed in principle with our 1992 report recommendation,
- .-however, they stated that requiring detailed information from grantees was
' unnecessary and unreasonable. As part of EPA's corrective action, the Grants
\ Administration Division has established a Quality Action Team to explore these
. issues and develop options to the existing process. The QAT has not yet established
. a corrective action plan or a target date for implementation. 'Because corrective
',. action is still underway, we are making no further recommendations at this time.
»
*
EPA's Response to Draft Report and Our Evaluation
>
' The CFO disagreed with our position on the charging of multi-funded grant
payments processed at FMC-LV. The disagreement stems from our use of a
, !proration method to determine the potential mischarged costs to- the Superfund
. appropriation for multi-funded grants in which the grant recipients do not identify the
! iappropriation or account number to be charged. EPA officials stated that a proration
method based on the percentages of funding from each source would be no more
accurate and would be highly questionable as to validity due to the frequency of
; tagreement amendments. We believe that, although the percentages may change
1 frequently, the proration method provides a more reasonable basis for charging these
grant payments based upon the levels of funding provided by various EPA sources,
rather than the FIFO method used by FMC-LV, which charges payments to the
oldest available funding.
We concur with the CFO's opinion that there is no absolute correct or incorrect
method of recording recipient pa-> -nents, except requiring the recipient to identify
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EPA's FY 1993 Annual Financial Statements
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each payment at the appropriation and account number level. However, EPA
officials stated that requiring the recipient :o identify each payment by account
number would be unnecessary and unreasonable. We do not agree with this
assessment. We believe that requiring the recipient to identify the account numbers
would be the best solution. This method would require the recipient to identify the
work performed under the grant and relate the requests for payment to the proper
appropriation and account number.
We also noted that in the OIG's Report of Final Audit of the Hazardous Substance
Response Trust Fund at Las Vegas for Fiscal Year 1982, the OIG recommended
eliminating the FIFO method used for recording grant Letter of Credit (LOG)
drawdowns at FMC-LV. (The LOG system has since been replaced by the ACH
payment system.) In response, EPA officials stated that grants with multiple account
numbers were amended to require that account numbers be identified on all LOG
drawdowns. Based on EPA's acknowledgement and response to this issue from
1982, we believe that requiring the recipient to identify the account numbers was
not considered unreasonable and should have been implemented.
The CFO also did not concur with our statement that grant expenses for Superfund
charged to incorrect account numbers could affect indirect cost rates and future costs
recovery actions. EPA officials stated that the FIFO method is only used for
Superfund agreements that are non site-specific. Recipients are required to identify
account numbers for payments to site-specific projects. EPA officials further stated
that since site-specific Superfund payments are properly recorded, indirect cost rates
and future cost recovery would not be affected.
We agree that Superfund site-specific charges do not affect the indirect cost rates
because these charges are direct costs. However, indirect costs, such as the non site-
specific payments being charged using the FIFO method reported in this finding, do
affect the indirect cost rates calculated for Superfund cost recovery.
As we stated in the draft report, we are not making any further recommendations in
this area since the QAT has not yet established a corrective action plan or a target
date for implementation. We have also agreed to mast witri EPA officials to attempt
to resolve this issue.
EPA'i FY 1993 Annual Financial Stalonems
Page 109
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Superfund Trust Fund
Attachment 2 - Reoortable Conditions
1. Certain EDP Systems and Controls Need To Be Strengthened
Some of the weaknesses that limit the effectiveness of EPA's financial management
are related to the Integrated Financial Management System (IFMS) and its continued
dependence on EPA's predecessor Financial Management System (FMS). EPA
management has reported material weaknesses in its 1993 FMFIA report relating to
. financial systems. In addition to these material weaknesses, which are included in
' the material weaknesses reported in Attachment 1, we noted the following additional.
reportabie conditions.
Changes to Accounts Receivable System Did Not Solve All Outstanding Problems
During fiscal year 1993, EPA reported that corrections were made to the accounts
receivable module of IFMS. Some of the changes concerned the generation and
computation of compound interest and the processing of installment payments.
During our review, we noted that the solutions to both of these areas involve manual
procedures which work around limitations of the automated system instead of
. correcting them. EPA management explained that this was an interim measure until
'.the-.new version of IFMS is implemented in 1994.
,In addition, two other deficiencies in the accounts receivable module were noted.
' The first concerns who may override the system interest rate tables/data field.
During our testing, we noted that data entry employees have the ability to override
the stated interest rate without supervisory review and approval. The second
deficiency related to a similar issue regarding the accrued interest field. The system
correctly calculated the accrued interest. However, once calculated, it was subject to
manual override at the data entry level without supervisory review and approval. In
order to maintain effective controls, documented supervisory review and approval
should be required prior to the override of key financial data fields.
Account Number Limitation
'EPA continues to be dependent on its predecessor financial management system, '
FMS, to interface between IFMS and several key subsystems. This dependency will
v. continue, even after the implementation of the new IFMS upgrade, until these
subsystems are improved or functionally replaced by additional enhancements to
IFMS. Because of this dependency, the current 41 character account number
Page i 10
EPA's FY 1993 Annual Financial Statements
-------
capability of IFMS, although much needed for site-specific cost accounting, cannot
be fully utilized because FMS only has a 10-character account number capability.
As a result of the limitation, manual work-arounds involving the project/site codes
are needed so that the EPA has sufficient account numbers for all of its sites. The
10-character account number limitation of FMS is expected to cause additional
problems for Regions 4 and 5 during fiscal year 1994. There will not be enough
characters in the current account numbers to relate direct and indirect costs to sites
and projects in these regions in an automated fashion. EPA's ability to account for
costs at Superfund sites and projects may be adversely impacted and could result in
the failure to identify and recover these costs in cost recovery actions.
EPA Actions
EPA management has- reported in its 1993 FMFIA report that a new version of
IFMS will provide new accounts receivable functionalities. EPA also is developing
project cost accounting capability requirements in fiscal year 1994 and plans to
eliminate the FMS by September 1995.
Draft Report Recommendations
We recommended in our draft report that EPA's CFO:
(1) establish controls requiring supervisory review and approval of manual
overrides of interest rates and accrued interest; and
(2) ensure that project/site codes being used because of present system limitations
can provide project cost accounting for all regions and can be effectively
modified to the expanded account number in the future.
EPA's Response to Draft Report Recommendations and Our Evaluation
The CFO agreed with the intent of our draft report recommendations. The CFO
agreed to review existing policies and procedures and the feasibility of establishing
controls in IFMS to prevent the use of inappropriate interest rates. The CFO
proposed corrective action plans to conduct a review and analysis, develop
recommendations, and select and implement recommendations for this issue. The
target dates for these actions are from March 31, 1995 to June 30, 1995.
The CFO also stated that FMD has developed a procedure to continue recording
Superfund site codes pending implementation of the IFMS account structure
throughout IFMS systems. The CFO also indicated that ongoing projects have .
EPA's FY 1993 Annual Financial Statemenu
Page 111
-------
objectives to ensure the ability to convert to the EFMS format or access Superrund
site numbers from the FMS format However, the CFO stated that the capatiry for
using the CFMS 41 character account structure would be very limited until reliance
. on FMS is eliminated in fiscal year 1995. The CFO provided corrective action plans
to install capacity to use the EFMS format in all systems except FMS by October 1,
1994. The CFO also indicated a corrective action plan for an IFMS enhancement to
provide an edit function for Superfund site/project codes by March 30, 1995.
.Finally, the CFO provided a revised target date of October 30, 1995 for eliminating
"EPA's dependence on the FMS.
;''The CFO's proposed corrective actions are responsive to our recommendations.
, Therefore, we are making no further recommendations at this time. However, we
are concerned that the Agency's reliance on the predecessor financial system, FMS,
will continue into fiscal year 1996.
2. Leases Should Be Recorded And Reported
i
We identified capital and operating leases during our test work which were not
capitalized or disclosed in the financial statements.
A lease is a capital lease if it meets any one of the following classification criteria:
a. The lease transfers ownership of the property to the lessee by the end of the
. lease term.
b. .The lease contains an option to purchase the leased property at a bargain
price,
c. The lease term is equal to or greater than 75 percent of the estimated
economic useful life of the leased property.
d. The present value of rental and other minimum lease payments equals or
exceeds 90 percent of the fair value of the leased property.
the amount to be recorded as an asset and a capital lease liability is the lesser of the
present value of the minimum lease payments or the fair value of the leased
property.
"" ~
When a lease does not satisfy any one of the four capitalization criteria above, the
agreement is considered an operating lease. An operating lease does not require that
the minimum lease payments be capitalized. However, future lease payments on
operating leases, if the lease term exceeds one year, should be disclosed in the notes
ta the financial statements.
Page 112
EPA'i FY 1993 Annual Financial Statement!
-------
EPA's Financial Management Division has not issued guidance to financial
management offices regarding the accounting treatment for capital versus operating
leases. Furthermore, EPA does not have a system in place to capture and evaluate
all leases to support the required financial statement disclosures for both capital and
operating leases. We believe that EPA may have entered into odier leases, in
addition to those identified during our tesrwork, that should be accounted for as
capital leases.
OMB Bulletin 93-02 requires disclosures for both operating and capital leases.
Because of the lack of guidance and a tracking system for leases, the value of
equipment acquired through capital leases has not been determined or reported in the
financial statements. In addition, the required capital and operating lease disclosures
are not presented in the financial statements.
*
We did not perform procedures to determine if the capital or operating leases entered
into by EPA were material.
EPA Actions
We recognize management's initiative in forming a QAT in March 1993 to take
corrective action for property issues, including the recording and reporting of leases.
Because of the ongoing QAT effort, we are noc making further recommendations in
this report
EPA's FY 1993 Annual Financial Statement!
Page 113
-------
'..
I'',
-
This page is intentionally left blank,
Page 114 EPA's FY 1993 Annual Financial Statements
-------
ATTACHMENT 3 - SCHEDULE OF OPEN AUDIT REPORTS
AS OF SEPTEMBER 30, 1993
Report Findings
Fiscal Year 1992 - Report
On Financial Audit
Superfuod, LUST
and Asbestos Loan Program
Recommendation
Corrective Action
Target Date
Status
Financial reporting system
improvements are needed.
Redesign classification structure
elements so that IFMS will
automatically provide trial balances at
the highest level of aggregation
required for financial reporting
purposes.
Develop format of
MARS/SPUR report to
aggregate the general ledger
account balances and
enhance balances.
August 31, 1994
Ongoing
Continue Efforts to change (he
automated closing procedures to
retain regional account balances
Submit programs to obtain
beginning General Ledger
account balances and convert
1993 balances by SFO.
December 31, 1993
(original)
June 30, 1994
(revised)
Ongoing
Implement budgetary accounts and
transaction
codes to properly account for
reimbursable
authority.
Research SGL requirements
for reimbursable authority
and existing EPA policy and
procedures. As necessary,
issue revised procedures and
instructions.
October 15, 1994
Ongoing
Review and correct the automated
closing procedures.
Refer to Federal Financial
System User Group for
action.
March 30, 1994
Ongoing
Evaluate the timely closing of its
year-end accounting records prior to
the US Treasury's implementation of
the automated Standard General
Ledger trial balance.
Evaluate year-end closing
process.
April 30, 1994
Ongoing
Properly and equipment
records needs to be
integrated with the
general ledger.
Assign transaction codes in the IFMS.
for capital property and equipment
asset purchases and issue policies and
procedures for recording these
transactions.
Develop implementation
strategy for
recommendations presented
by Quality Action Team
(QAT).
FY 1995
Ongoing
EPA's FY 1993 Annual Financial Statements
Page 115
-------
Report Findings
Accounts payable/accrued
liabilities are not properly
recorded.
ti *v
ATTACHMENT 3 - SCHEDULE OF OPEN AUDIT REPORTS
AS OF SEPTEMBER 30, 1993
Recommendation
Corrective Action
Target Date
Determine the approximate amount of Conduct review of sample of March 31, 1994
contractor retainages being withheld contracts.
and develop and implement
procedures to ensure the amount can
be fairly presented in the financial
statements.
Ongoing
Accounting for grant
drawdowns does not provide
required account information.
Require inclusion of grant account
information from grant recipients for
all ACH payment requests.
Determine if additional procedures
need to be developed to account for
grant drawdowns.
Establish QAT to review the
procedures, establish-
milestones, report to process
owners, and implement
changes.
To be determined
by QAT
Ongoing
Genera] EDP controls need
to be strengthened.
' Capital leases have not been
recorded.
i -;. .';
Implement current, comprehensive
information system policies.
standards, and procedures on
a centralized basis.
Implement Version S.Ie of
IFMS and complete
enhancements to produce
complete and accurate
reports for accounts
receivable.
June 1994
Ongoing
Issue policies and procedures to
FMOs regarding properly recording
and accounting for leases.
Require FMOS to review all current
leases and evaluate whether leased
equipment should be capitalized.
Property QAT will review
current policies and
procedures along with
the other property issues and
implement procedures to
record and report leases.
To be determined
by QAT
Ongoing
Repairs and improvements
were charged to Superfund
and LUST.
Obtain Office of General Counsel
(OGC) opinion on whether EPA had
authority during fiscal
year 1992 to use Superfund and
LUST funds for repairs and
alterations.
Fiscal Year 1991 - Report On
Financial Audit - Hazardous
Substance'Superfund
Obtain an opinion from
OGC.
October 29, 1993
(original)
April 12, 1994
(revised)
Ongoing
Accounts receivable were not
recorded in a timely manner
or in the correct fiscal year.
Ensure that financial policies and
procedures for Superfund accounts
receivable and collections are
up-to-date.
Issue revised RMDS
2550-D.
December 31,1993
(original)
Nov. 30, 1994
(revised)
Ongoing
Page 116
EPA's FY 1993 Annual Financial Statements
-------
Report Findings
Collections were not
recorded in a
timely manner.
ATTACHMENT 3 - SCHEDULE OF OPEN AUDIT REPORTS
AS OF SEPTEMBER 30, 1993
Recommendation
Ensure that financial policies and
procedures for Superfund accounts
receivable and collections are
up-to-date.
Corrective Action
Issue revised RMDS
2550-D.
Target Date Status
December 31, 1993 Ongoing
(original)
November 30, 1994
(revised)
Fiscal Year 1991 - Report On
Financial Audit - Hazardous
Substance Superfund
Procedures have not been
updated since the
implementation of the
IFMS.
Ensure that the RMDS is fully
implemented and includes procedures
and requirements for recording and
supporting transactions in the
IFMS.
Issue RMDS 2530.
September 1992
(original)
December 1994
(revised)
Ongoing
EPA's FY 1993 Annual Financial Statements
Page 117
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LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED ?UBUC ACCOUNTANTS
WASMIMOTON OMICt
tltt FftANCONIA HOAO
VA. 1»10
(703) I22-TIZ2
FAX: (T9J|
LEONARO & 'aiHNCAUM WASHINGTON. O.C.
ustii A. uinn SUMMIT. NEW
OAVIO SAKOFS t.os AUOS.
CAAOl A. SCHNUDIR . IAN 3IEGO. CAUF08NIA
or rut '
s* Report on Cornpnance^with Laws and Regulations +
Suoerfund Trust Fund
Hie Inspector General
U.S. Environmental Protection Agency:
/I. We were engaged to audit the financial statements of the Superfund Trust
- Fund of the U.S. Environmental Protection Agency (EPA), as of and for the year
..ended September 30, 1993. We have issued our report thereon dated January 28, .
^ 1994,-in which we disclaimed an opinion on these financial statements.
>2. Compliance with laws and regulations is the responsibility of EPA's
^ managemenL As part of obtaining reasonable assurance about whether the financial
-^statements are free of material misstatement, we tested compliance with certain
provisions of the following laws and regulations, designated by OMB, EPA, and
/EPA's Office of Inspector General (OIG), that may have a direct and material effect
on the financial statements:
#
Budget and Accounting Procedures Act of 1950
Chief Financial Officers Act of 1990
Anti-Deficiency Act
Federal Managers' Financial Integrity Act of 1982
Prompt Payment Act
Debt Collection Act of 1982
Civil Service Reform Act
Fair Labor Standards Act
Civil Service Retirement Act
EPA'i FY 1993 Annual FtnincuU Suieraena Pige 113
-------
*
Federal Employees' Compensation Act
Federal Employees' Group Life Insurance Act of 1980
Federal Employees' Health Benefits Act of 1959
Comprehensive Environmental Response, Compensation, and Liability Act of
1980
Superfund Amendments and Reauthorization Act of 1986
Omnibus Budget Reconciliation Act of 1991
3. Our objective was not to provide an opinion on overall compliance with laws
and regulations. Accordingly, we do not express such an opinion.
4. As required by OMB Bulletin 93-06, Audit Requirements for Federal rinancial
Statements, we obtained an understanding of EPA's process for identifying and
evaluating weaknesses required to be reported in accordance with the Federal
Managers' Financial Integrity Act (FMFIA). We compared the material weaknesses
reported in EPA's fiscal year 1993 FMFIA report with the material weaknesses and
other reportable conditions reported in our report on internal control structure. EPA
reported material weaknesses and nonconformances in the areas of rinancial systems,
contract management, accounting system-related financial management problems,
accounts receivable, property accounting process, and accounting system interfaces in
its fiscal year 1993 FMFIA report. The definition of a material weakness for
financial statement purposes differs from the definition in OMB Circular A-123
(revised) Internal Control Systems, for the purposes of FMFIA. According to OMB.
Circular A-123, a material weakness is a situation in which the designed procedures
or degree of operations compliance therewith does not provide reasonable assurance
that the objectives of internal control specified in FMFIA are being accomplished.
These objectives are: to provide management with reasonable assurance that
obligations and costs comply with applicable law, assets are safeguarded against
waste, loss, unauthorized use and misappropriation; revenues and expenditures are
recorded and accounted for properly so that accounts and reliable financial reports
may be prepared and accountability of assets maintained; and programs are
efficiently and effectively carried out in accordance with applicable law and
management policy. As a result of our engagement, we reported six material
weaknesses in internal controls. To determine whether to report matters as material
weaknesses, we used the definition of a material weakness included in OMB Bulletin
93-06. According to the bulletin, a material weakness in the.intemal control
structure is a reportable condition in which the design or operation of one or more of
the internal control structure elements does not reduce to a relatively low level the
risk that errors or irregularities in amounts that would be material in relation to the
financial statements may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. The
Page 119
EPA'i FY 1993 Annual Financial Statement*
-------
following material weaknesses were reported by us but not included in EPA's
FMFIA report
not properly recording accounts payable, accrued liabilities and OP AC
payments;
not properly recognizing state cost share revenue;
not requiring appropriation and account information to properly record grant
';. payments; and
'' not properly identifying components of net position.
fThe above weaknesses that we noted were not reported by EPA in its FMFIA report
because these weaknesses are primarily specific financial accounting .and reporting
issues related to the financial statements, and the weaknesses reported by EPA under
FMFIA are broader in scope.
5. The results of our tests of compliance indicate that, with respect to the items
tested, EPA complied, in all material respects, with the provisions referred to in the
second paragraph of this report. With respect to items not tested, nothing came to
our attention that caused us to believe that EPA had not complied, in all material
respects, with those provisions. However, we noted the following matter which
should be highlighted.
Certain AEocable Costs Were Not Allocated
General support services costs are required by EPA policy to be allocated to
Superfund during the fiscal year from EPA's Abatement Control and Compliance
(AC&Q appropriation. The allocations are made using cost allocation plans
developed by EPA that are designed to distribute these support costs to the benefiting
programs. We found that the allocations of general support service costs reached
budgetary ceilings during fiscal year 1993 and were discontinued at several
allowance holders. We did not determine the estimated amounts that would have
been allocated to Superfund if they had been continued.
The Superfund Accounting Branch also prepared an overhead allocation model to
determine the agency-wide costs that benefitted Superfund but were not allocated
against its budgetary resources. This allocation amounted to $22,257,000, which
was recorded for financial statement purposes only, as both a revenue and expense of
Superfund. EPA management believes that any under-allocation of costs due to
ceiling limitation would be included in the 522,257,000 amount.
EPA'* FY 1993 Annual Financial Statement! P*ge 120
-------
We have previously recommended that EPA management obtain a written opinion
from its Office of General Counsel (OGQ on the legal basis for charging Stiperfund
administrative expenses to Agency-wide appropriations. If the OGC determines that
EPA's practice of charging the AC&C appropriation for Superfund administrative
expenses after the Superfund administrative ceilings were reached was improper, the
OGC should provide guidance on appropriate corrective action. EPA requested an
OGC opinion in fiscal year 1992, but has not yet received a response. We are
making no further recommendation at this time.
6. This report is intended for the information of Congress, OMB, and EPA. This
restriction is not intended to limit (he distribution of diis report, which is a matter of
public record.
i \^0-nvj
LEONARD G. BIRNBAUM & COMPANY
Alexandria, Virginia
January 28, 1994
A-a.
P»gel21
EPA'f FY 1993.Annul Financial Statements
-------
LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OMICI
tltS MAMCONIA flOAO
ALEXANDRIA. VA. 21310
(TOD t22-ri22
FAX: (703) I22-I2M
USONAHO a 81KNIAUM
LffSUi A. UIM*
OAVIO SAKQFS "
CA«ot A,
WASHINGTON. 3.C.
SUMMIT. NEW JESSSY
LOS ALTOS. CAL!*0«NIA
SAM OiEGO. CALIFORNIA
OP TMI
AMERICAN INSTITUTI
«V
Auditors* Report on Financial Statements -
Leaking Underground Storage Tank Trust Fund
The .Inspector General
U.S. Environmental Protection Agency:
1. ' ^ We bave auoUted the statements of financial position of the Leaking Underground Storage
Tank1 (LUST) Trust Fund of the U.S. Environmental Protection Agency (EPA) as of September
30, 1993 and 1992, and the related statements of operations and changes in net position, cash
flows, and budget and actual expenses for the years then ended. These statements are the
responsibility of EPA's management. Our responsibility is to express an opinion on these
statements based on our audits.
Scope
2. Except as discussed in paragraphs 4, 7 and 8 of this report, we conducted our audits in
accordance with generally accepted auditing standards; Government Auditing Standards, issued
by the Comptroller General of the United States; and Office of Management and Budget (OMB)
Bulletin 93-06, Audit Requirements for Federal Financial Statements. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
EPA's FY 1993 Annual FtnuieUl Statements
Page 123
-------
Basis of Accounting
3. As described in Note I, these financial statements were prepared in conformity with the
applicable accounting practices prescribed or permitted by OMB Bulletin 93-02 and applicable
provisions of OMB Bulletin 94-01, Form and Content of Agency Financial Statements, which
is a comprehensive basis of accounting other than generally accepted accounting principles.
Planned Exclusion
4. Prior to October 1, 1991, EPA was not required to prepare financial statements for the
LUST Trust Fund in conformance with OMB Bulletin 93-02, Form and Content of Agency
financial Statements, nor was EPA required to have such statements audited. Accordingly, the
statement of financial position as of September 30, 1991, has not been audited. Statement of
financial position amounts as of September 30, 1991, enter into the determination of results of
operations and changes in net position, cash flows, and budget and actual expenses for the year
ended September 30, 1992. Similarly, our qualified opinion on the September 30, 1992
statement of financial position affected our ability to report on the fiscal year 1993 results of
operations and changes in net position, cash flows, and budget and actual expenses.
Adjustments, if any, .to balances reflected in the statements of financial position as of September
30, 1992 and 1991, would affect the statements of operations and changes in net position, cash
flows, and budget and actual expenses for the years ended September 30, 1993 and 1992.
5. In our report on the fiscal year 1992 financial statements, dated April 7, 1993, we
reported that we were unable to audit the balance of amounts held by the U.S. Treasury for
future appropriations because that balance is maintained and controlled by the U.S. Treasury and
the audit of such amounts was not included in the scope of our audit As described in Note 14
to the financial statements, EPA changed its method of reporting amounts held by the U.S.
Treasury for future appropriations and no longer reports these amounts in its financial
statements. Accordingly, the 1992 financial statements have been restated and our present
planned exclusions on the 1992 financial statements, as presented herein, differ from those in
our previous report
6. In our report on the fiscal year 1992 financial statements, dated April 7, 1993, we
reported that we were unable to audit the administrative costs funded from other EPA
appropriations because the audit of these appropriations for allowability and allocabiliry of such
, costs was not within the scope of that audit We have since determined this amount to be
immaterial. Accordingly, our present planned exclusions on the 1992 financial statements, as
presented herein, differ from those in our previous report
EPA's FY 1993 Annual Financial Sutemena
-------
Scope Limitations and Qualifications
7. We were unable to audit accounts payable, non-federal, staled at $1,749,000 and
$1,503,000 as of September 30, 1993 and 1992, respectively, because accruals for grant
expenses of grant recipients who use the ACH payment system were not made. We were unable
to determine the amounts that should have been recorded for these liabilities. Adjustment, if
any, for accrued liabilities to grant recipients would affect all of the financial statements for the
yean ended September 30, 1993 and 1992.
8. ' We were unable to audit net position, stated at 592,515,000 and 585,923,000 as of
September 30, 1993 and 1992, respectively, and the changes in net position for the years then
ended because (a) EPA officials were unable to confirm unliquidated obligation balances, a
component of net position, and we were unable to perform alternative procedures, and (b) EPA
did not maintain sufficient accounting records to provide the net position disclosures in
conformance with OMB Bulletin 93-02, Form and Content of Agency Financial Statements.
Adjustments, if any, to the components of net position would affect all of the financial
statements for the years ended September 30, 1993 and 1992.
;'ti
Disclaimer of Opinion on Statements of Operations and Changes in Net Position, Cash Flows,
and Budget and Actual Expenses
9. >',; Because of the matters discussed in paragraphs 4, 7 and 8 of this report, the scope of our
A work was not sufficient to enable us to express, and we do not express, an opinion on the
statements of operations and changes in net position, cash flows, and budget and actual expenses
- for the years, ended September 30, 1993 and 1992.
- ' ) ;'
Opinion on. Statements of Financial Position
10. In our opinion, except for the effects of such adjustments, if any, that might have been
determined necessary had we been able to audit accounts payable, non-federal and net position
as described 'in paragraphs 7 and 8 of this report, the statements of financial position of the
LUST Trust Fund present fairly, in all material respects, the financial position of the U.S.
Environmental Protection Agency's LUST Trust Fund as of September 30, 1993 and 1992, on
the basis of accounting described in Note 1 to the financial statements.
' Supplementary Information
11. Our audits were made for the purpose of forming an opinion on the financial statements
referred to in the first paragraph of this report, taken as a whole. The financial information
presented in Management's Overview of EPA and Overview of Trust Funds, Revolving Funds and
Commercial Activities is not a required pan of the financial statements but is supplementary
EPA's FY 1993 Annual Financial Suietncau P*8« I24
-------
information required by OMB Bulletin 93-02, Form and Content of Agency Financial Statements.
We have considered whether this information is materially inconsistent with the financial
statements. Such information has not been subjected to the auditing procedures applied in the
audits of the financial statements and, accordingly, we express no opinion on it.
Distribution
12. This report is intended for the information of Congress, OMB, and EPA. This restriction
is not intended to limit the distribution of this report, which is a matter of public record.
. VjAs^Jr*^^*" Cerrr
LEONARD G. BIRNBAUM & COMPANY
Alexandria, Virginia
January 28, 1994
PtgelH
EPA'i FY 1993 Annual Kntnciil Sutcmenti
-------
LEONARD G. BIRNBAUM AWD COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OWCI
1213 MANCONIA SOAO
* ALEXAMQRIA. VA. 22310
(7031 »«-'«
FAX: (T03) m-Uit
UOMAKO'i «. iWNBAOM WASHINGTON. 0,C.
USUE A,! I.IIMH " SUMMIT. N6W
DAVID SAKOFS "-OS *l-TOi CALIFORNIA
CAHOfc A. SCMMllOf* ' . *** OIEO°- CAUfOBHIA
MCMIfftS Of THf
AMINICAN INSTITUTI
Of
Independent Auditors* Report on Internal Control
^
Leaking Underground Storage Tank Trust Fund
The Inspector General
U.S. Environmental Protection Agency:
1. ' We have audited the financial statements of the Taking Underground Storage Tank
(LUST) Trust Fund of the U.S. Environmental Protection Agency (EPA), as of and for the year
ended September 30, 1993. We have issued our report thereon dated January 28, 1994, in
which we disclaimed an opinion on the statements of operations and changes in net position, cash
flows, and budget and actual expenses and qualified our opinion on the statement of financial
position.
2. Except as discussed in paragraph 3 below and in paragraphs 4, 7 and 8 of our
Independent Auditors' Report on Financial Statements, we conducted our audit in accordance
with generally accepted auditing standards; Government Auditing Standards, issued by. the
Comptroller General of the United States; and Office of Management and Budget (OMB)
Bulletin 93-06, Audit Requirements for Federal Financial Statements. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatemenL
3. Performance measures present the financial and program accomplishments of the
reporting entity's activities. We did not review the data that support reported performance
measures or the internal control structure, policies and procedures designed to ensure the
existence and completeness of such information, as required by OMB Bulletin 93-06 because this
was a planned exclusion from the scope of our work due to decisions made by the OIG.
EPA'* FY 1993 Annual FintnciiJ Stauanenu P»*c l26
-------
4. In planning and performing our audit for the year ended September 30, 1993, we
considered EPA's internal control structure in order to determine our auditing procedures for
the purpose of expressing an opinion on the financial statements; and to determine whether the
internal control structure meets the objectives identified in the following paragraph. This
consideration included obtaining an understanding of the internal control policies and procedures
and assessing the level of control risk relevant to all significant cycles, classes of transactions,
or account balances.
5. The management of EPA is responsible for establishing and .maintaining an internal
control structure. In fulfilling this responsibility, estimates and judgments by management are
required to assess the expected benefits and related costs of internal control structure policies
and procedures. The objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that transactions, including obligations and costs, are
executed in compliance with laws and regulations that could have a direct and material effect on
the financial statements, and any other laws' and regulations that OMB, EPA management, or
EPA's OIG have identified as being significant and for which compliance can be objectively
measured and evaluated. The objectives of an internal control structure are also to provide
management with reasonable, but not absolute, assurance that funds, property, and other assets
are safeguarded against loss from unauthorized use or disposition; and transactions applicable
to EPA operations are properly recorded and accounted for to permit the preparation of reliable
financial statements and to maintain accountability over assets, in accordance with the accounting
principles described in Note 1 to the financial statements. Because of inherent limitations in any
internal control structure, errors or irregularities may nevertheless occur and not be detected.
Also, projection of any evaluation of the structure to future periods is subject to the risk that
procedures may become inadequate because of changes in conditions or that the effectiveness
of the design and operation of policies and procedures may deteriorate.
6. For the purpose of this report, we have classified the significant internal control structure
policies and procedures in the following categories:
General accounting and financial reporting
Receivables and receipts
Accounts payable and accrued liabilities
Fund balance
Obligations
Disbursements and operating expenses
Age 127
EPA's FY 1993 Annual Fmuiei*! Stitemenu
-------
7. For all of the internal control structure categories listed above, we obtained an
understanding of the design of relevant policies and procedures, determined whether they have
been placed in operation, assessed control risk, and performed tests of the control procedures.
8. We noted certain matters involving the internal control structure and its operation that
we consider to be material weaknesses and reportable conditions under standards established by
the American Institute of Certified Public Accountants and OMB Bulletin 93-06.
i
£
9. * A material weakness is a reportable condition in which the design or operation of the
specific internal control structure elements does not reduce to a relatively low level the risk that
errors or irregularities in amounts that would be material in relation to the financial statements
being audited may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. Reportable conditions involve matters coming
to our attention relating to significant deficiencies in the design or operation of the internal-
control structure that, in our judgment, could adversely affect the entity's ability to ensure that
obligations and costs are in compliance with applicable laws; funds, property, and other assets
are safeguarded against unauthorized use or disposition; and transactions applicable to EPA
operations are properly recorded to permit the preparation of reliable financial statements in
accordance with accounting principles described in Note 1 to the financial statements.
10. , Our consideration of the internal control structure would not necessarily disclose all
matters in the internal control structure that might be reportable conditions and, accordingly,
would not necessarily disclose all reportable conditions that are also considered to be material
weaknesses. Those conditions that we consider to be both reportable conditions and material
weaknesses are:
, General* Ledger Accounts Do Not Correctly Report Net Position Components
We found that HPA's general ledger accounts do not correctly disclose the components of net
position because the automated year end closing process in the CFMS is incorrect. This is
evidenced by the fact that certain account balances that should equal other accounts do not For
example, net property in the proprietary accounts does not equal invested capital, cumulative
results do not equal the balance of accounts related to receipts to be returned to the U.S.
Treasury. Also, beginning net position plus current appropriations less appropriations expensed
and the net change in invested capital and unfunded activities do not equal ending net position.
As a result, EPA financial management personnel spent significant time and resources to develop
financial information for the components of net position for footnote disclosure. -Manual
adjustments were recorded for financial statement purposes. However, the components of net
position as required by OMB Bulletin 93-02 still could not be properly disclosed. The bulletin
EPA't FY 1993 Annual Financial Statement* P»gC 128
-------
requires disclosure of the following components of net position: unexpended appropriations
available, unexpended appropriations unavailable, undelivered orders, cumulative results of
operations, and invested capital.
EPA Actions
In our 1992 report, we recommended that EPA review and correct the automated year end
closing procedures. EPA's corrective action for this issue is scheduled to begin in fiscal year
1994. Because of this ongoing effort, we are making no further recommendations at this time.
EPA management has recognized the IFMS as a material weakness in its FMFIA report for
1993. The weakness resulted from incomplete users manuals and system documentation,
incomplete interfaces, and inadequate financial management reports. EPA is in the process of
upgrading to a new release of the IFMS, scheduled for implementation in fiscal year 1994,
which EPA's management believe will resolve many of these deficiencies'.
Accrued Liabilities For Croat Expenses Were Not Recorded
EPA awards grants to state governmental units and other entities for removal of waste associated
with leaking underground storage tanks. The grantees oversee the removal work and request
reimbursement from EPA through the Automated Clearing House (ACS) Payment System or
using other drawdown documents. EPA's Fiscal Year 1993 fear-end Closing Procedures
require each regional office to record an accrued liability for the estimated amount of grant
drawdowns payable through September 30,1993, where the grantee has performed the work but
not yet submitted the grant drawdown documents to EPA. The procedures state that these
accrued liabilities should be based on historical data and past experience.
At Region 2, accrued liabilities were not recorded at year end for grant expenses that were being
reimbursed under the ACH payment system. We noted that Region 2's average monthly ACH
payments during 1993 amounted to $922,576. These payments are typically made for expenses
incurred in previous months. However, due to significant fluctuations in the timing and amount
of various grantees' drawdowns, we could not determine the costs incurred for which an accrual
should have been recorded.
At Region 5, we also noted that no accrued liabilities were recorded at year end for grant
expenses that were being reimbursed under the ACH payment system. We noted that Region
5's average monthly ACH payments during fiscal year 1993 were 51,164,022. These payments
are typically made for expenses incurred in previous months. However, we could not determine
Pftgel29
EPA'i FY 1993 Annual Fmtnciil Stitcmenti
-------
the accrual that should have been recorded for estimated costs incurred before year end.
At Region 9, accrued liabilities for grant expenses (except ACH grants) were recorded for one-
twelfth of the unliquidated obligation balance as of September 30, 1993. This resulted in an
estimated accrual of 51,066,121. This methodology is improper because it does not represent
a reasonable estimate of expenses incurred at year end. Such expenses are not necessarily
incurred proportionately over a given period of time and may have no direct relationship with
the amounts of outstanding obligations. However, we were unable to determine the actual
amount that should have been accrued by Region 9 for non-ACH grants.
We also found that no accrued liabilities were recorded at Region 9 for grant expenses of
recipients under the ACH payment system. We noted that the average monthly payments made
to recipients during 1993 was 5740,235. These payments are typically "made for expenses
incurred in previous months. However, we could not determine the accrual that should have
been recorded for estimated costs incurred before year end.
At Las Vegas Financial Management Center (FMC-LV), no accrued liabilities were recorded
for Migrant expenses of recipients under the ACH payment system. According to FMC-LV
officials, the year end closing procedures stated that no liability should be accrued where there
was-no evidence that goods or services were delivered or performed. We noted that FMC-LVs
average monthly ACH payments were 537,419. These payments are typically made for expenses
incurred in previous months. However, we could not determine the accrual that should have
been recorded for estimated costs incurred before year end.
concluded that there were inconsistencies and failures among finance offices to record
accrued liabilities for costs incurred by grantees prior to year end. These expenses occur on a
.continuing basis and there are normally delays in requesting reimbursement. However, we were
unable to determine the amounts of such adjustments that would be necessary to properly record
the accrued liabilities as of September 30, 1993. Based upon our analysis of average monthly
ACH payments, we believe the unrecorded amounts are likely to be material to the financial
statements.
~ -^
Draft Report' Recommendation
We recommended on our draft report that the CFO establish specific policies and procedures for
recording accrued liabilities for grant expenses for all -grant recipients and ensure that the
regional offices consistently comply with such procedures.
EPA'* FY 1993 Annual Financial Statement*
Page 130
-------
EPA's Response to Draft Repon Recommendation and Our Evaluation
The CFO agreed with our recommendation to issue specific guidance for calculating and
recording accrued liabilities for grant expenses. The CFO stated that specific guidance is
already included in year end closing instructions. However, he indicated that this guidance will
be expanded to include more detailed procedures to accurately calculate and record these
liabilities. The CFO provided corrective action plans to expand the year end instructions to
include more specific guidance and include payables and accruals as an agenda item in weekly
closeout meetings to emphasize to afl finance offices to follow the written year end instructions.
The target dates for these corrective actions are August 1 and September 30, 199*.
The CFO's proposed corrective actions are generally responsive to our recommendation.
However, we noted that the policies and procedures for calculating and recording accrued
liabilities are proposed to be included in the year end closing instructions. We believe that the
Office of Comptroller's Resources Management Directives Systems (RMDS) is the appropriate
and more effective method to establish Agency financial policies and procedures. RMDS was
designed to provide all such guidance in one unified system, through which comprehensive and
current financial guidance would be provided to all EPA offices.
Recommendation
We recommend that the CFO instruct the Comptroller to develop and establish policies and
procedures in RMDS for accounting for and recording accrued liabilities for grant expenses with
specific guidance to address calculating and documenting methodologies for these transactions.
11. We also noted other less significant matters involving the internal control structure and
its operation that we will report to the management of EPA in a separate management letter.
12. This report is intended for the information of Congress, OMB, and EPA. This restriction
is not intended to limit the distribution of this report, which is a matter of public record.
LEONARD G. BIRNBAUM & COMPANY
Alexandria, Virginia
January 28, 1994
P»ge 131
EPA't FY 1993 Annual HnmncUl Statements
-------
LEONARD G. BIRiNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OMICf
91H MANCONIA 10*0
ALlXAHtmiA. VA. 12310
« (703) 12
! PAX: (7P3) »»»
LIOMAKB a INNftAUM . WASHINGTON. O.C
LESUE A, LglPlfl SUMMIT. NEW JERSEY
OAVIO SAKOPS W AI-TOS.
CAPOi. A. SCMNflOER «" OliSO.
MEMBERS OP THf .
AMERICAN iMsrrruTf
OP CM'»
Independent Auditors* Report on Compliance with Laws and Regulations -
Leaking Underground Storage Tank Trust Fund
The Inspector General
U.S. Environmental Protection Agency:
1. We have audited die financial statements of the Leaking Underground Storage Tank
(LUST) Trust Fund of the U.S. Environmental Protection Agency (EPA), as of and for the year'
ended September 30, 1993. We have issued our report thereon dated January 28, 1994, in
which we disclaimed an opinion on the statements of operations and changes in net position, cash
flows, and budget and actual expenses and qualified our opinion on the statement of financial
position.
2. Except as discussed in paragraphs 4, 7 and 8 of our Independent Auditors' Report on
Financial Statements, we conducted our audit in accordance with generally accepted auditing
standards; Government Auditing Standards, issued by the Comptroller General of the United
States; and Office of Management and Budget Bulletin 93-06, Audit Requirements for Federal
financial Statements. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatemem.
3. Compliance with laws and regulations is the responsibility of EPA's management. As
part of obtaining reasonable assurance about whether the financial statements are free of material
misstatements, we tested compliance with certain provisions of the following laws and
regulations, designated by OMB, EPA, and EPA's Office of Inspector General, that may have
a direct and material effect on the financial statements:
EPA'i FY1993 Annual Financial Sutemeau - ' iP«ge 132
-------
or more of the internal control structure elements does not reduce to a relatively low level the
risk that errors or irregularities in amounts that would be material in relation to the financial
statements may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. The following material weaknesses were reported
by us but not included in EPA's FMFIA report:
not properly recording accrued liabilities for grant expenses; and
not properly identifying components of net position.
The above weaknesses that we noted were not reported by EPA in its FMFIA report because
these weaknesses are primarily specific financial accounting and reporting issues related to the
financial statements, and the weaknesses reported by EPA under FMFIA are broader in scope.
6. We considered these matters in forming our opinion on whether the LUST Trust Fund's
1993 statement of financial position is presented fairly, in all material respects, in conformity
with the applicable accounting provisions described in Note 1 to the financial statements, and
this report does not affect our report dated January 28, 1994 on those statements.
7. The results of our tests of compliance indicate that, with respect to the items tested, the
EPA complied, in all material respects, with the provisions referred to in the third paragraph
of this report, applicable to the LUST Trust Fund, and with respect to items not tested, nothing
came to our attention to cause us to believe that EPA had not complied, in all material respects,
with those provisions.
8. This report is intended for the information of Congress, OMB, and EPA. This
restriction is not intended to limit the distribution of this report, which is a matter of public
record.
LEONARD G. BIRNBAUM & COMPANY
Alexandria, Virginia
January 28, 1994
EJPA'i FY 1993 Annual Financial Statement!
Pige 134
-------
Budget and Accounting Procedures Act of 1950
Chief Financial Officers Act of 1990
Anti-Deficiency Act
Federal Managers' Financial Integrity Act of 1982
Prompt Payment Act
Debt Collection Act of 1982
Civil Service Reform Act
Fair Labor Standards Act
I Civil Service Retirement Act
-; Federal Employees' Compensation Act
Federal Employees' Group life Insurance Act of 1980
«. Federal Employees' Health Benefits Act of 1959
> Resource Conservation and Recovery Acts of 1976 and 1984
Superfund Amendments and Reauthoiization Act of 1986
4. Our objective was not to provide an opinion on overall compliance with laws and
regulations. Accordingly, we do not express such an opinion.
5. As required by OMB Bulletin 93-06, Audit Requirements for Federal Financial
Statements, we obtained an understanding of EPA's process for identifying and
evaluating weaknesses required to be reported in accordance with the Federal Managers'
Financial Integrity Act (FMFIA). We compared die material weaknesses reported in EPA's
fiscal year 1993 FMFIA report with the material weaknesses reported in our report on internal
control structure. EPA reported material weaknesses and nonconformances in its financial
systems, accounting system-related financial management problems, and accounting system
interfaces in its fiscal year 1993 FMFIA report. The definition of a material weakness for
. financial statement purposes differs from the definition in OMB Circular A-123 (revised)
Internal Control Systems, for the purposes of FMFIA. According to OMB Circular A-123, a
material weakness is a situation in which the designed procedures or degree of operations
. compliance therewith does not provide reasonable assurance that the objectives of internal
control specified in FMFIA are being accomplished. Thase objectives are: to provide
management with reasonable assurance that obligations and costs comply with applicable law,
asyfs are safeguarded against waste, loss, unauthorized use and misappropriation; revenues and
'' expenditures are recorded and accounted for properly so that accounts and reliable financial
reports may be prepared and accountability of assets maintained; and programs are efficiently
and effectively carried out in accordance with applicable Jaw and management policy. As a
.result of our engagement, we reported two material weaknesses in internal controls. To
determine whether to report marten as material weaknesses, we used the definition of a material
weakness included in OMB Bulletin 93-06. According to the bulletin, a material weakness in
the internal control structure is a reportable condition in which the design or operation of one
P»gi»133
EPA'* FY 1993 Annual Financial Statements
-------
This page is intentionally left blank".
P*gel35
EPA'* FY 1993 Annul Financial Sutenuaui
-------
LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OMtCC
3IS FHAMCONIA ROAO
ALCXANQfllA, VA. 22310
, ; (709) m-rm
»A«: (70S) f22-«lS6
& MMIAUM WASHINGTON. 0 C.
A, USlWft SUMMIT. *EW JERSEY
DAVID SAKOFS ' v LOS ALTOS. CALIFORNIA
CAROL A, SCWNiibfS SAM DIEGO.
MEMBERS OP TMf . ' ' '
AMERICAN INSTITUTI fa
-------
Basis of Accounting
3. As described in Note 1, these financial statements were prepared in conformity with the
applicable accounting practices prescribed or permitted by OMB Bulletin 93-02 and applicable
provisions of OMB. Bulletin 94-01, Form and Content of Agency Financial Statements, which
is a comprehensive basis of accounting other than generally accepted accounting principles.
Planned Exclusion
4. Prior to October 1, 1991, EPA was not required to prepare financial statements for the
Asbestos Loan Program in conformance with OMB Bulletin 93-02, Form and Content of Agency
Financial Statements, nor was EPA required to have such statements audited. Accordingly, the
statement of financial position as of September 30, 1991, has not been audited. Statement of
financial position amounts as of September 30, 1991, enter into the determination of results of
operations and changes in net position, cash flows, and budget and actual expenses for the year
ended September 30, 1992. Similarly, our qualified opinion on the September 30, 1992
statement of financial position affected our ability to report on the fiscal year 1993 results of
operations and changes in net position, cash flows, and budget and actual expenses.
Adjustments, if any, to balances reflected in the statements of financial position as of September
30, 1992 and 1991, would affect the statements of operations and changes in net position, cash
flows, and budget and actual expenses for the yean ended September 30, 1993 and 1992.
Scope Limitation and Qualification
5. We were unable to audit net position, stated at 563,216,000 and 549,224,000, as of
September 30, 1993 and 1992, respectively, and the changes in net position for the years then
ended because EPA did not maintain sufficient accounting records to provide the net position
disclosures in conformance with OMB Bulletin 93-02, Form and Content of Agency Financial
Statements. Adjustments, if any, to the components of net position would affect all of the
financial statements for the years ended September 30, 1993 and 1992.
Disclaimer of Opinion on Statements of Operations and Changes in Net Position, Cash Flows,
and Budget and Actual Expenses
6. Because of the matters discussed in paragraphs 4 and 5 of this report, the scope of our
work was not sufficient to enable us to express, and we do not express, an opinion on the
statements of operations and changes in net position, cash flows, and budget and actual expenses
for the years ended September 30, 1993 and 1992.
Page 137
EPA'i FY 1993 Annual Financial Statements
-------
Opinion on Statements of Financial Position
7. In our opinion, except for the effects of such adjustments, if any, that might have been
determined necessary had we been able to audit net position, as described in paragraph 5 of this
report, the statements of financial position of the Asbestos Loan Program as of September 30,
1993 and 1992, present fairly,- in all material respects, the financial position of the U. S.
Environmental Protection Agency's Asbestos Loan Program as of September 30,1993 and 1992,
on the basis of accounting described in Note 1 to the financial statements.
i \ .
8. As discussed in Note 14 to the financial statements, EPA has changed its method of
accounting for pre-Credit Reform loan balances, to comply with the Credit Reform Act of 1990.
Supplementary Information
9, Our audits were made for the purpose of forming an opinion on the financial statements
referred to in the first paragraph of this report, taken as a whole. The financial information
presented in Management's Overview of EPA and Overview ofTntst Funds. Revolving Funds and
Commercial Activities is not a required part of the financial statements but is supplementary
information required by OMB Bulletin 93-02, Form and Content of Agency Financial Statements.
We have considered whether this information is materially inconsistent with the financial
statements. Such information has not been subjected to the auditing procedures applied in the
audits of the financial statements and, accordingly, we express no opinion on it.
>
_*
Distribution
10. This report is intended for the information of Congress, OMB, and EPA. This restriction
is hot intended to limit the distribution of this report, which is a matter of public record.
LEONARD G. BffiNBAUM & COMPANY
Alexandria, Virginia
January 23, 1994
EPA's FY 1993 Annum] Fuuncjil Submenu
Psge 138
-------
This page is intentionally left blank.
Page 139 EPA'j FY 1993 Annual Financial Sutemenu
-------
LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OFFICE
ZIS FftANCONIA HOAO
ALEXANDRIA, v*. 22310
(T031 »J
FAI: (7031 9Z2-1Z3I
LEOMAftQ 8. 9WNBAUM WASHINGTON. C.C.
L£SUC A. L£JF6f» ' SUMMIT. NEW JERSEY
OAVIO SAKOFI . LOS ALTOS. CALIFORNIA
CAMOL A, SCKNIIOCR SAN OIESO. CALIFORNIA
MEMBERS OF TWf
AMERICAN INSTITUTE
or WA-S
Indeoendent Auditors' Reoort on Internal Control Asbestos Loan Proeram
The Inspector General
U.S. Environmental Protection Agency:
,?:
l..i' We have audited the financial statements of the Asbestos Loan Program of the U.S.
Environmental Protection Agency (EPA), as of and for the year ended September 30, 1993. We
have issued our report thereon dated January -28, 1994, in which we disclaimed an opinion on
\ the statements of operations and changes in net position, cash flows, and budget and actual
* .expenses and qualified our opinion on the statement of financial position.
' 2.'- "!. Except as discussed in paragraph 3 below and in paragraphs 4 and 5 of our Independent
Auditors' Report on Financial Statements, we conducted our audit in accordance with generally
accepted auditing standards; Government Auditing Standards, issued by the Comptroller General ^
of the United States; and Office of Management and Budget (OMB) Bulletin 93-06, Audit
Requirement for Federal Financial Statements. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement.
3. Performance measures present the financial and program accomplishments of the
reporting entity's activities. We did not review the data that support reported performance
measures or the internal control structure, policies and procedures designed to ensure the
existence and completeness of such information, as required by OMB Bulletin 93-06, because
this was a planned exclusion from the scope of our work due to decisions made by the OIG.
EPA's FV 1993 Annual Financial Statements Page 140
-------
4. In planning and performing our audit for the year ended September 30, 1993, we
considered EPA's internal control structure in order to determine our auditing procedures for
the purpose of expressing an opinion on the financial statements; and to determine whether the
internal control structure meets the objectives identified in the following paragraph. This
conside:-ation included obtaining an understanding of the internal control policies and procedures
and assessing the level of control risk relevant to all significant cycles, classes of transactions,
or account balances.
5. The management of EPA is responsible for establishing arid maintaining an internal
control structure. In fulfilling this responsibility, estimates and judgments by management are
required to assess the expected benefits and related costs of internal control structure policies
and procedures. The objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that transactions, including obligations and costs, are
executed in compliance with laws and regulations that could have a direct and material effect on
the financial statements, and any other laws and regulations that OMB, EPA management, or
EPA's OIG have identified as being significant and for which compliance can be objectively
measured and evaluated. The objectives of an internal control structure are also to provide
management with reasonable, but not absolute, assurance that funds, property, and other assets
are safeguarded against loss from unauthorized use or disposition; and transactions applicable
to EPA operations are properly recorded and accounted for to permit the preparation of reliable
financial statements and to maintain accountability over assets, in accordance with the accounting
principles described in Note 1 to the financial statements. Because of inherent limitations in any
internal control structure, errors or irregularities may nevertheless occur and not be detected.
Also, projection of any evaluation of the structure to future periods is subject to the risk that
procedures may become inadequate because of changes in conditions or that the effectiveness
of the design and operation of policies and procedures may deteriorate.
6. For the purpose of this report, we have classified the significant internal control structure
policies and procedures in the following categories:
General accounting and financial reporting
Loans receivable
Accounts payable and accrued liabilities
Fund balance
Obligations
Disbursements and operating expenses
7. For all of the internal control structure categories listed above, we obtained an
understanding of the design of relevant policies and procedures, de;ermined whether they have
Page HI EPA'i FY 1993 Annum! Financial Sutementi
-------
been placed in operation, assessed control risk, and performed tests of the control procedures.
8. We noted one matter involving the internal control structure and its operation that we
consider to be a material weakness and reponable condition under the Standards established by
the American Institute of Certified Public Accountants and OMB Bulletin 93-06.
9. A material weakness is a reponable condition in which the design or operation of the
specific internal control structure dements does not reduce to a relatively low level the risk that
errors or irregularities in amounts that would be material in relation to the financial statements
being audited may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. Reponable conditions involve matters coming
to our attention relating to significant deficiencies in the design or operation of the internal
control structure thai, in our judgment, could adversely affect the entity's ability to ensure that
obligations and costs are in compliance with applicable laws; funds, property, and other assets
are safeguarded against unauthorized use or disposition; and transactions applicable to EPA
operations are properly recorded to permit the preparation of reliable financial statements in
accordance with accounting principles described in Note 1 to the financial statements.
10. Our consideration of the internal control structure would not necessarily disclose all
matter* in the internal control structure that might be reponable conditions and, accordingly,
would not necessarily disclose all reponable conditions that are also considered to be material
weaknesses. The condition that we consider to be both a reponable condition and material
weakness is:
General Ledger Accounts Do Not Correctly Report Net Position Components
We :found that EPA's general ledger accounts do not correctly disclose the components of net
position because the automated year end closing process in the IFMS is incorrect. This is
evidenced by the fact that certain account balances that should equal other accounts do not For
example, beginning net position plus current appropriations less appropriations expensed and the
net change in invested capital and unfunded activities do not equal ending net position. As a
result, EPA financial management personnel spent significant time and resources to develop
financial information for the components of net position for footnote disclosure. Manual
adjustments were recorded for financial statements purposes. However, the components of net
position as required by OMB Bulletin 93-02 still could not be properly disclosed. The bulletin
requires disclosure of the following components of net position: unexpended appropriations
'available, unexpended appropriations unavailable, undelivered orders, cumulative results of
operations, and invested capital.
EPA't FY 1993 Annual Financial Statement!
Pige 142
-------
EPA Actions
EPA management has recognized the IFMS as a material weakness in its FMFIA report for
1993. The weakness resulted from incomplete users manuals and system documentation,
incomplete interfaces, aad inadequate financial management reports. EPA is in the process of
upgrading to a new release of the IFMS, scheduled for implementation in fiscal year 1994,
which EPA's management believe will resolve many of these deficiencies.
In our 1992 report, we recommended that EPA review and correct the automated year end
dosing procedures. EPA's corrective action for this issue is scheduled to begin in fiscal year
1994. Because of this ongoing effort, we are making no further recommendations at this time.
11. This report is intended for the information of Congress, OMB, and EPA. This restriction
is not intended to limit the distribution of this report, which is a matter of public record.
LEONARD G. BIRNBAUM & COMPANY
Alexandria, Virginia
January 28, 1994
Pt«el43
EPA'i FY 1993 Annual Financial Statement!
-------
LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OFFICf
I3IS FHANCONIA "OAO
ALEXANDRIA. VA. 3ZJ10
(7031 923-rm
FA*: troji m<*asi
UOMANO a SlftMSAUM
usue A. LUPIN.
OAVIO SAKOFS *
CAftOi. A. SCMMCIOC*
MIM8EMS OP TMi
AMERICAN INSTtTUTt
OP CM'S ;'
WASMtMQTON. Q.C.
SUMMIT. N«W JERSEY
vos ALTOS. CALIFORNIA
SAN oitsa CAUFOBNIA
Auditors' Reort on Compliance yfth
Asbestos Loan Program
Thetljispector General
U.S. Environmental Protection Agency:
1. We have audited the financial statements of the Asbestos Loan Program of the U.S.
Environmental Protection Agency (EPA), as of and for the year ended September 30, 1993. We
have issued our report thereon dated January 28, 1994, in which we disclaimed an opinion on
the statements of operations and changes in net position, cash flows, and budget and actual
expenses and qualified our opinion on the statement of financial position.
. 2. '? Except, as discussed in paragraphs 4 and 5 of our Independent Auditors' Report on
-.Financial Statements, we conducted our audit in accordance with generally accepted auditing
.standards; Government Auditing Standards, issued by the Comptroller General of the United
States; and Office of Management and Budget Bulletin 93-06, Audit Requirements for Federal
Financial Statements. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
3. ,. Compliance with laws and regulations is the responsibility of EPA's management. As
part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we tested compliance with certain provisions of the following laws and
regulations, designated by OMB, EPA, and EPA's Office of Inspector General, that may have
a direct and material effect on the financial statements:
* Budget and Accounting Procedures Act of 19SO
EPA'* FY 1993 Annul Financial Sutonenu
Page 144
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Chief Financial Officers Act of 1990
Anti-Deficiency Act
Federal Managers' Financial Integrity Act of 1982
Federal Credit Reform Act of 1990
Prompt Payment Act
Debt Collection Act of 1982
Asbestos School Hazard Abatement Act of 1984
Asbestos School Hazard Abatement Reauthorization Act of 1990
4. Our objective was not to provide an opinion on overall compliance with laws and
regulations. Accordingly, we do not express such an opinion.
5. As required by OMB Bulletin 93-06, Audit Requirement for Federal Financial
Statemejus, we obtained an understanding of EPA's process for identifying and
evaluating weaknesses required to be reported in accordance with the Federal Managers'
Financial Integrity Act (FMFIA). We compared the material weaknesses reported in EPA's
fiscal year 1993 FMFIA report with the material weakness reported in our report on internal
control structure. EPA reported material weaknesses and nonconformances in its financial
systems, accounting system-related financial management problems and accounting system
interfaces in its fiscal year 1993 FMFIA report. The definition of a material weakness for
financial statement purposes differs from the definition in OMB Circular A-123 (revised)
Internal Control Systems, for the purposes of FMFIA. According to OMB Circular A-123, a
material weakness is a situation in which the designed procedures or degree of. operations
compliance therewith does not provide reasonable assurance that the objectives of internal
control specified in FMFIA are being accomplished. These objectives are: to provide
management with reasonable assurance that obligations and costs comply with applicable law,
assets are safeguarded against waste, loss, unauthorized use and misappropriation; revenues and
expenditures are recorded and accounted for properly so that accounts and reliable financial
reports may be prepared and accountability of assets maintained; and programs are efficiently
and effectively carried out in accordance with applicable law and management policy. As a
result of our engagement, we reported one material weakness in internal control. To determine
whether to report matters as material weaknesses, we used the definition of a material weakness
included in OMB Bulletin 93-06. According to the bulletin, a material weakness in the internal
control structure is a reportable condition in which the design or operation of one or more of
the internal control structure elements does not reduce to a relatively low level the risk that
errors or irregularities in amounts that would be material* in relation to the financial statements
may occur and not be detected within a timely period by employees in the normal course of
performing their assigned functions. The material weakness reported by us but not included in
EPA's FMFIA report was not properly identifying components of net position.
Page 145
EPA's FY 1993 Annul Fuuncial Statement!
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The above weakness thai we noted was not reported by EPA in its FMFIA report because this
weakness is a specific financial accounting and reporting issue related to the financial statements,
and the weaknesses reported by EPA under FMFIA are broader in scope.
6. ' The results of our tests of compliance indicate that, with respect to the items tested, the
EPA complied, in all material respects, with the provisions referred to in the third paragraph
of this report, applicable to the Asbestos Loan Program, and with respect to items not tested,
nothing came to our attention to cause us to believe that EPA had not complied, in all material
respects, with those provisions.
7. This report is intended for the information of Congress,.OMB, .and EPA. This
restriction is not intended to limit the distribution of this report, which is a matter of public
LEONARD G. BIRNBAUM & COMPANY
Alexandria, Virginia
January 28, 1994
'
^
EPA'i FY 1993 Annual Financial Statement! **&* 14*
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 3 I
THE NSPC70fl GENEML
MEMORANDUM
SUBJECT
FROM:
TO:
Fiscal 1993 Financial Statement Audit of the Pesticides
Revolving Funds and the Oil Spill Trust Fund
Audit Report No. E1AML3-20-7001-4100230
Kenneth A. Konz
Assistant Xnspe
Jonathan Z. cannon
Chief Financial Officer (3101)
Audit (2421)
Lynn R. Goldman, M.D.
Assistant Administrator for Prevention,
Pesticides and Toxic Substances (7101)
Elliott P. Lavs
Assistant Administrator for Solid Waste
and Emergency Response (5101)
Attached is our audit report on the fiscal 1993 financial
statements for three of EPA's trust and revolving funds - the
Reregistration and Expedited Processing Fund (FIFRA Fund), the
Revolving Fund for Certification and Other'Services (Tolerance
Fund), and .the Oil Spill Trust Fund. The audit was performed in
accordance with the requirements of the Chief Financial Officers
(CFO) Act. The objectives of the audit wew to determine if the
financial statements were fairly presented, adequate internal
controls were in place, and the Agency complied with applicable
provisions, of lava and regulations. -
During this audit, ve identified significant financial
reporting improvements. As a result of these improvements and
additional audit work we performed, we are-issuing a qualified
opinion on the Statement of Financial Position for the FIFRA Fund
as of September 30, 1993. Although we noted improvements in the
financial reporting for the FIFRA Fund, as a result of additional
audit work we performed related to the Tolerance Fund, we
identified weaknesses in controls in the Office of Pesticide's
fee tracking system. These weaknesses resulted in material
errors in the records used to support the deferred revenue aaount
shown on the Tolerance Fund Statement of Financial Position.
EPA's FY 1993 Annual Financial Statement*
P»ge 147
-------
Therefore, we are unable to determine if the statement of
Financial Position for the fund as of September 30, 1993 is
fairly presented. The statement of Financial Position amounts
for the FIFRA and Tolerance Funds as of September 30, 1992, which
we could not audit last year, enter into the determination of
results for the Statements of Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expenses for fiscal
1993. Therefore, we are continuing to disclaim opinions on these
financial statements. For the Oil Spill Trust Fund, we are
issuing unqualified opinions on the fiscal 1993 Statements of
Financial Position and Cash Flows. We are qualifying our
opinions on the Statements of Operations and Changes in Net
Position and Budget and Actual Expenses for the year, only
because we did not audit the overhead expenses allocated from
other appropriations.
;-j We also identified one noncompliance issue which was also
discussed in our audit report on the fiscal 1992 financial
statements. The Agency has not complied with the CFO Act
requirement to perform biennial reviews of user fees. We believe
the Agency needs to place a higher priority on completing these
reviews since such reviews might identify user fees EPA could
increase thereby providing additional revenues for the
Agency's use in performing its mission.
In accordance with EPA Order 2750, you are required to
provide this office a written response to the audit report within
9'0 days of the final audit report date. Since the
recommendations are addressed to two offices we are designating
the Chief Financial Officer as the primary action official. As
such, the primary action official should take the lead in
coordinating the Agency's official response so that the 90 day
timeframe is met. The Assistant Administrator for Prevention,
Pesticides and Toxic Substances, as the secondary action
official, should coordinate with the primary action official.
For corrective actions planned but not completed by the response
date, reference to specific milestone dates will assist us in
closing the report. During our upcoming audit of the fiscal 1994
financial statements, we will work with your staff to assist them
in implementing corrective actions to improve the accuracy and
timeliness of EPA's financial information.
This report contains findings that describe problems the
Office of Inspector General (OIG) identified and corrective
actions the OIG recommends. This report represents the opinion
of the OIG. Final determinations on matters in this report will
be made by EPA managers in accordance with established EPA audit
resolution procedures. Accordingly, the findings described in
this report do not necessarily represent the final EPA position.
We have no objection to the further release of this report to the
public.
Ptge 148 EPA'i FY 1993 Annual FinancUl Statements
-------
Should you or your staff have any questions concerning this
report, please contact Melissa Heist, Divisional Inspector
General, Financial Audit Division at 260-1479 or Michael Powers
of her staff at 260-1480.
Attachment
EPA'* FY 1993 Annual Financial Statements
Page 149
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f;
This Page Left Blank Intentionally
Page 150
EPA'* FY 1993 Annual Financial Sutements
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INSPECTOR GENERAL'S REPORT ON THE FINANCIAL
iTEMENTS FOR THE FIFRA AND TOLERANCE REV<
FUNDS AND THE OIL SPILL TRUST FUND
The Administrator
U.S. Environmental Protection Agency:
We have audited the principal financial statements of the
Pesticides Reregistration and Expedited Processing Fund {FIFRA
Fund), the Revolving Fund for Certification and Other Services
(Tolerance Fund), and the Oil Spill Trust Fund as of and for the
year ended September 30, 1993. Following, are the results of our
audit work that included assessments of whether (1) the financial
statements are fairly presented, (2) adequate internal controls
related to these funds were in place, and (3) the Agency complied
with applicable laws and regulations.
FINANCIAL STATEMENTS FOR THE FIFRA FUND
In our previous report on the FIFRA Fund financial statements,
dated April 7, 1993, we did not express an opinion on the
Statements of Financial Position, Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expenses for the Fund
as of and for the year ended September 30, 1992 because:
We were unable to audit the September 30, 1992, property,
plant and equipment balance stated at $574,000 because the
detail maintained in the accounting records was not
sufficient to support the financial statement amounts.
We did not audit the administrative costs of $22,811,000
that were funded from other EPA appropriations. These costs
are recorded for financial statement purposes as income from
overhead allocation and as offsetting overhead expenses from
allocation. We did not audit these costs because we were
initially told by EPA management that these costs would not
be included in the financial statements, and the decision to
include them was made too late to allow us to audit them.
We were unable to audit the accounts payable and accrued
liabilities for the Fund because adequate documentation was
not available to support year-end adjusting entries of
$141,223. In addition, we were unable to audit other
adjustments made to the FIFRA Fund totaling $181.3 million
because adequate supporting, documentation was not available.
EPA'i FY 1993 Annual Financial Statement*
Page 151
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Prior to October 1, 1991, EPA was not required to prepare
financial statements for the FIFRA Fund. Accordingly, the
account balances for this Fund had not been audited as of
September 30, 1991.
The Statement of Financial Position amounts as of September 30,
1992, enter into the determination of results of operations and
changes in net position, cash flows, and budget and actual
expenses for the year ended September 30, 1993. Because we were
unable to examine sufficient evidence to determine the
reliability of the Statement of Financial Position for the Fund
as of September 30, 1992, the scope of our audit, work was not
sufficient to enable us to express ah opinion on the Statements
of Operations and Changes in Net Position, Cash Flows, and Budget
and Actual Expenses for the year ended September 30, 1993.
In addition, we did not audit the administrative costs of
$25,303,000 that were allocated from other EPA appropriations to
the FIFRA Fund for fiscal 1993. These costs are recorded for
financial statement purposes as income from overhead allocation
and as offsetting overhead expenses from allocation. We did not
audit these administrative costs funded from other EPA
appropriations because of the substantial increased audit effort
that would have been required. We plan to audit this category of
costs beginning in fiscal 1995 when the Agency will expand the
coverage of its financial statements to all of its activities.
Adjustments, if any, to these account balances would affect the
Statements of Operations and Changes in Net Position, and Budget
.'and Actual Expenses for the Fund.
We were unable to audit the FIFRA Fund property, plant and
^equipment balance of $533,000 as of September 30,.1993, because
; the detailed records on property maintained by the Agency do not
.provide adequate support for the financial statement amounts.
Adjustments, if any, to the property, plant and equipment balance
would affect all of the FIFRA Fund Financial Statements for the
year ended September 30, 1993.
In our opinion, except for the effects of any adjustments that
might have been necessary had we been able to audit the property,
plant and equipment balance, the Statement of Financial Position
for the FIFRA Fund as of September 30, .1993, is fairly presented
on.the basis of accounting described in Note 1 to the financial
statements. As required by applicable provisions of Office of
Management and Budget (OMB) Bulletins 93-02 and 94-01, both
entitled "Form and Content of Agency Financial Statements," Note
1 describes the accounting policies followed by the Agency to
prepare its financial statements, which is a comprehensive basis
of accounting other than generally accepted accounting
principles. -
Page 152
EPA'i FY 1993 Annual Financial Statement*
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Our audit work related to the information presented in
Management's Overview of EPA and Overview of TrustFunds,..
Revolving Funds and Commercial Activities consisted of applying
certain limited procedures to the section of the overview
captioned "Pesticides Reregistration and Expedited Processing
Fund (FIFRA Fund)." These procedures consisted primarily of
comparing the information with information contained in EPA's
accounting records and making inquiries of management regarding
the presentation of the overview. We did not audit the
information contained in the overview, and are; therefore not
expressing an opinion on it.
FINANCIAL STATEMENTS FOR THE TOLERANCE FUND
In our report on financial statements dated April 7, 1993, we did
not express an opinion on the Statements of Financial Position,
Operations and Changes in Net Position, Cash flows, and Budget
and Actual Expenses for EPA's Tolerance Fund as of and for the
year ended September 30, 1992. We were unable to express an
opinion or, the Tolerance Fund financial statements for the
following reasons:
We did not audit the administrative costs of $3,532,000 that
were funded from other EPA appropriations. These costs are
recorded for financial statement purposes as income from
overhead allocation and as offsetting overhead expenses from
allocation. We did not audit these costs because we were
initially told by EPA management that these costs would not
be included in the financial statements, and the decision to
include them was made too late to allow us to audit them.
We were unable to audit $21.2 million in adjustments made to
the Tolerance Fund because adequate supporting documentation
was not available.
Prior to October 1, 1991, EPA was not required to prepare
financial statements for the Tolerance Fund. Accordingly,
the account balances for this Fund had not been audited as
of September 30, 1991.
The Statement of Financial Position amounts as of September 30,
1992, enter into the determination of results of operations and
changes in net position, cash flows, and budget and actual
expenses for the year ended September 30, 1993. Because we were
unable to examine sufficient evidence to determine the
reliability of the Statement of Financial Position for the Fund
as of September 30, 1992, the scope of our audit work was not
sufficient to enable us to express an opinion on the Statements
of Operations and Changes in Net Position, Cash Flows, and Budget
and Actual Expenses for the year ended September 30, 1993.
EPA'f FY 1993 Annual Financial Statement*
Page 153
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In addition, due to weaknesses in controls in the Office of
Pesticide Programs' (OPP) fee tracking system, we were unable to
audit the deferred revenue .amount of $4,157,000 shown on the
Statement of Financial Position for the Tolerance Fund as of
September 30, 1993. Further, due to a lack of adequate
supporting documentation, we were unable to determine the
validity of $24.3 million of adjusting entries made to the
Tolerance Fund.
Finally, we did not audit the administrative costs of $4.5
million that were allocated from other EPA appropriations to the
Tolerance Fund for fiscal 1993. These costs are recorded for
financial statement purposes as income from overhead allocation
and as offsetting overhead expenses from allocation. We did not
audit these administrative costs funded from other EPA
appropriations because of the substantial increased audit effort
that would have been required. He plan to audit this category of
costs beginning in fiscal 1995 when the Agency will expand the
coverage of its financial, statements to all of its activities.
Adjustments, if any, to these account balances would affect the
Statements of Operations and Changes in Net Position, and Budget
and ^Actual Expenses for the Fund.
Because of the matters discussed above, the scope of our work was
not^sufficient to enable us to express an opinion on the
Statements of Financial Position, Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expense for the
Tolerance Fund as of and for the year ended September 30, 1993.
Our audit work related to the information presented in
Management's Overview of EPA and Overview of Trust Funds.
/-Revolving Funds and Commercial Activities consisted of applying
.''certain limited procedures to the. section of the overview
;jcaptioned "Revolving Fund for Certification and Other Services
"(Tolerance Fund)." These procedures consisted primarily of
..comparing the information with information contained in EPA's
'accounting records and making inquiries of management regarding
the presentation of the overview. We did not audit the
information contained in the overview, and are therefore not
expressing an opinion on it.
FINANCIAL STATEMENTS FOR THE OIL SPILL TRUST FUND
Fiscal 1993 was the first year EPA received a separate
appropriation to carry out its responsibilities under the Oil
Pollution Act of 1990. Accordingly, fiscal 1993 was the first
year EPA prepared financial statements covering the Oil Spill
Trust Fund.
Page 154
EPA'* FY 1993 Annual Financial Statement*
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We did not audit the overhead expenses allocated from other
appropriations to the Oil Spill Trust Fund because of the
substantial audit effort that would have been involved. These
allocated expenses of $755,000 for the year ended September 30,
1993, are shown on the Statement of Operations and Changes in Net
Position as Income from Overhead Allocation and Overhead Expenses
from Allocations. We will audit this category of expenses
beginning in fiscal 1995 when Agency-wide financial statements
will be prepared.
In our opinion, except for the effects of any adjustments that .
might have been necessary to the Statements of Operations and
Changes in Net Position, and Budget and Actual Expenses had we
audited these account balances, the financial statements for the
Oil Spill Trust Fund fairly present, the Fund's:
financial position as of September 30, 1993; and
results of operations and changes in net position,
cash flows, and
budget and actual expenses for the year then ended; on the
basis of accounting described in Note 1 to the financial
statements.
.As required by applicable provisions of OMB Bulletins 93-02 and
94-01, both entitled "Form and Content of Agency Financial
Statements," Note 1 describes the accounting policies followed by
the Agency to prepare its financial statements, which is a
comprehensive basis of accounting other than generally accepted
accounting principles.
Our audit work related to the information presented in
Management's Overview of EPA and overview of Trust Funds^
Revolving Funds and Commercial Activities consisted of applying
certain limited procedures to the section of the overview
captioned "Oil Pollution Prevention Program (Oil Spill Trust
Fund).11 These procedures consisted primarily of comparing the
information with information contained in EPA's accounting
records and making inquiries of management regarding the
presentation of the overview. We did not audit the information
contained in the overview, and are therefore not expressing an
opinion on it.
EVALUATION OF INTERNAL CONTROLS
As a part of our audit, 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 designed by
management provide reasonable assurance that the following
objectives are met:
EPA'i FY 1993 Annual Financial Statement*
Page 155
-------
transactions are properly recorded and accounted for to
permit the preparation of reliable financial statements and
to maintain accountability over assets;
transactions, including those related to obligations and
costs, are executed in compliance with applicable laws and
and
funds, property, and other assets are safeguarded against
loss from unauthorized use or disposition.
The audit methodology section of this report provides further
details on the scope of our internal control audit work.
MATERIAL WEAKNESSES
During our evaluation of internal controls, we noted the
following material weaknesses involving the Agency's internal
control structure related to the FIFRA and Tolerance Revolving
Funds and the Oil Spill Trust Fund. Applicable guidance
contained in OMB Bulletin 93-06, "Audit Requirements for Federal
Financial Statements,*1 defines a material weakness as a
report able condition in which the design or operation of specific
internal control procedures does not reduce to a relatively low
level, the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned
functions.
!: * Weaknesses Exist In System Used To Track Tolerance Fees
Weaknesses in controls in OPP's fee tracking system resulted in
significant errors in the office's tolerance fee records. For
example, we found fee receipts of $457,700 and earnings of $9,800
that were recorded twice; earnings of $163,800 that were recorded
for fees which had been refunded; and fees totaling $288,100 that
were refunded but not recorded in petition records. The
Financial Management Division relied on OPP's detailed records on
fees to support summary information on deferred revenue that was
entered into the Agency's Integrated Financial Management System
for the Tolerance Fund. As a result, we could not determine if
the amount of deferred revenue in the Tolerance Fund Statement of
Financial Position as of September 30, 1993 was accurate. Since
deferred revenue represents 87 percent of the reported
liabilities for the Fund, we are unable to express an opinion on
the statement.
Page 156
EPA's FY 1993 Annual Financial Statement*
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2. Further Improvements Needed In Documentation For Adjusting
Entries
During this year's audit of EPA's financial statements, we found
financial management personnel improved their documentation for
adjusting entries. We did find, however, that some material
adjustments were not adequately described and lacked supporting
documentation. Adequate documentation should be maintained to
ensure that only legitimate adjustments are made to the Agency's
financial records. As a result of the lack of adequate
documentation, we could not determine the validity of $150.4
million of adjusting entries made to the FIFRA Fund, and $24.3
.million made to the Tolerance Fund. We found other ways to
validate year-end account balances for the FIFRA Fund. However,
insufficient documentation for Tolerance Fund entries contributed
to our disclaimer of an opinion on the Tolerance Fund financial
statements.
'* Property Balances Included In The Financial statements Could
ot Be Audited
.ne procedures used to capitalize property purchased with FIFRA
and other Agency funds do not identify all property which should
be capitalized. In addition, property that is capitalized in the
accounting records can not be uniquely identified in the Agency's
property accountability system. Consequently, when items of
property are transferred, replaced or lost, those changes can not
be reflected in the accounting records. As a result, the FIFRA
Fund property, plant and equipment balance of $533,000 included
in the fiscal 1993 Statement of Financial Position for the Fund
could not be audited. This condition was also reported during
our fiscal 1992 financial statement audit.
4. Improvements Needed in Estimating AccountsPayable And
Accrued Liabilities
The methods the Research Triangle Park (RTP) Financial Management
Center used to compute year-end accounts payable and accrued
liability adjustments resulted in a net material misstatement of
$799,775 in the fiscal 1993 FIFRA Fund financial statements, and
an $816,054 misstatement in the fiscal 1993 Oil Spill Trust Fund
financial statements. The RTP Financial Management Center
overstated its FIFRA Fund accounts payable adjusting entry of
$106,829 by $22,106, and they also overstated their accrued
liability adjustment of $848,177 by $777,669v In addition, the
RTP Financial Management Center understated the Oil Spill Trust
Fund accounts payable adjusting entry of $415,309 by $271,603 and
understated the accrued liability adjustment of $91,051 by
$544,450. Agency financial management personnel made the
necessary corrections to the Agency's financial statements,
however, additional controls are needed to prevent such
misstatements in the future.
EPA's FY 1993 Annual Financial Statement*
Page IS?
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In addition to these weaknesses, the Agency, in its fiscal 1993
FHFIA report, included as a material weakness accounting system-
related financial management problems that affect the funds we
audited. EPA reported that while its Integrated Financial
Management System (IFMS) meets the Joint Financial Management
Improvement Program core accounting system requirements, specific
systems-related problems impair EPA's ability to provide
complete, reliable and timely data for Agency decision-making and
control of assets. The problems which would impact the funds we
audited include: (l) incomplete user manuals and system
documentation, (2) an inadequate automated project cost
accounting capability, (3) incomplete interfaces with
programmatic and administrative systems, and (4) inadequate
financial management reports.
REPORTABLB CONDITIONS
We also identified the following reportable conditions. OMB
Bulletin 93-06 defines a reportable condition as a weakness in
the. design or operation of the internal control structure that
could adversely affect EPA's ability to ensure: (1) obligations
and costs are in compliance with applicable laws; (2) funds,
property, and other assets are safeguarded against unauthorized
use or disposition; and (3) transactions are properly recorded to
permit the preparation of reliable financial statements.
>
* Unliquidated ObligationBalance For TheFIFRA Fund Contained
Invalid Obligations
The fiscal 1993 year-end FIFRA unliquidated obligation balance in
-the general ledger contained invalid obligations. This occurred
because OPP did not conduct a complete and timely review of some
of its unliquidated obligations. In addition, the Headquarters
Procurement Operations Division did not request deobligation of
funds associated with completed delivery orders. We identified
approximately $471,000 of unliquidated obligations that should be
deobligated and made available for other critical FIFRA program
requirements. This is especially important since Agency
management has identified the shortage of funds as one of the
reasons they will not meet the Congressionally imposed deadline
for reregistering pesticides.
2. Property Accountability Controls Keed To Be Strengthened
As a result of weaknesses in controls over property, the Agency
is not able to account for all property purchased with FIFRA
funds. We found: (1) employees improperly exchanged equipment
among themselves without notifying their custodial officers;
(2) a complete fiscal 1993 physical inventory was not conducted;
and (3) custodial officers were accountable for too many items of
property. Our 1992 audit report also identified similar problems
PtgelSB
EPA's FY 1993 Annual Financial Statement!
-------
Annual Registration Maintenance, and Pre-Manufacture Notice fees
all required review in 1993. The Agency needs to place a higher
priority on completing these reviews since such reviews might
identify user fees EPA could increase thereby providing
additional revenues for the Agency's use in performing its
mission. For example, the Agency collected $1.5 million in
Tolerance Petition fees while the Office of Pesticide Programs
estimated that 49 FTEs at a total cost of $3.2 million were used
to process Section 408 tolerance petitions for raw agricultural
products. Performing reviews of user fees is consistent with the
Vice President's Report of the National Performance Review, which
raises concerns that "given the size of the federal deficit,
government must find better, more efficient, and.more effective
ways to pay for its activities." To accomplish this, the report
recommends increasing the use of user fees for many activities*
COMPARISON OF EPA'S FMPIA REPORT WITH OUR EVALUATION O7 INTERNAL
CONTROLS
As required by OMB Bulletin 93-06, "Audit Requirements for
Federal Financial Statements," we compared EPA's Federal
Managers' Financial Integrity Act (FMFIA) report to our
evaluation of the internal control systems related to the FIFRA
and Tolerance Revolving Funds and the Oil Spill Trust Fund. For
fiscal 1993, EPA continued to report IFMS as a high risk area and
a material weakness. EPA also continued to report as material
nonconformances the need to: (1) enhance the process for
recording property in order to improve the accuracy of the
Agency's accounting records, and (2) implement interfaces between
IFMS and other administrative systems. In addition, the Agency
reported that corrective action had been completed on two
previously reported material nonconforroances (1) the need to
record adjustments to the general ledger due to IFMS
implementation during 1989* and (2) the need to perform
comprehensive reconciliations between Treasury reports and IFMS.
In addition to the weaknesses identified by EPA, we are reporting
three additional weaknesses that affect the funds we audited. We
found that OPP did not have an adequate system to track tolerance
fees. We also found, as we had in our fiscal 1992 audit, that
material adjusting entries for the FIFRA and Tolerance Funds were
not adequately supported, and the methods used to estimate
accounts payable and accrued liabilities for the FIFRA and Oil
Spill Funds resulted in material misstatements of the account
balances for these two funds.
Page 160
EPA'i FY 1993 Annual Financial Statement*
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regarding controls over property located in OPP. Based on a
physical inventory we conducted of statistically selected items,
we project that 64 FIFRA funded items valued at $220,384 are
missing, and 26 items valued at $88,154 were improperly
transferred to other custodial areas.
We will also be reporting other less significant matters
involving the internal control structure and its operation in a
separate management letter.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control
structure that might be reportable conditions * or material
weaknesses. In addition, because of inherent limitations in any
internal control structure, errors or irregularities may
nevertheless occur and not be detected. Also, projection of any
evaluation of the internal control structure to future periods is
subject to the risk that procedures may become inadequate because
of changes in conditions, or the effectiveness of the design and
operation of policies and procedures may deteriorate.
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
As a part of obtaining reasonable assurance about whether the
financial statements for the FIFRA, Tolerance and Oil Spill Funds
were free of material misstatements, we tested compliance with
those laws and regulations that either materially affect the
financial statements, or that OMB or our office considered
^significant to the audit. .
-------
OTHER SIGNIFICANT MAT]
The 1988 amendments to the Federal Insecticide, Fungicide, and
Rodenticide Act, mandate the accelerated reregistration of all
pesticide products registered prior to November 1, 1984. The
amendments establish a statutory goal of completing
reregistration eligibility decisions by 1997. In the Agency's
Overview of Trust Funds. Revolving Funds, and Commercial
Activities, the Office of Pesticide Programs discloses that
additional resources will be needed to meet these deadlines.
According to a recent General Accounting Office report, EPA now
estimates that all pesticides may not be reassessed until 2004,
and all products may not be reregistered until 2006. We have
chosen to report this matter in our report even though it is not
material to the financial statements because of its significance.
EPA'i FY 1993 Annual Financial Statements
Page 161
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EPA'i FY 1993 Annual Financial Statements
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RESPONSIBILITIES AND METHODOLOGY
EPA MANAGEMENT AND OIG RESPONSIBILITIES
EPA's management is responsible for:
preparing annual financial statements covering its trust
funds, revolving funds and commercial activities following
applicable accounting principles;
establishing and maintaining a system of.internal controls;
and
complying with applicable laws and regulations.
We are responsible for auditing the financial statements in order
to determine if the statements are free of material misstatements
and presented fairly in accordance with the basis of accounting
described in Note 1 to the financial statements. We are also
responsible for evaluating related internal controls and
compliance with applicable provisions of laws and regulations.
AUDIT METHODOLOGY
Zn order to fulfill our responsibilities, except as described in
our opinions or disclaimers of opinion on the financial
statements for the FIFRA and Tolerance Revolving Funds and the
Oil Spill Trust Fund, we:
examined on a test basis, evidence supporting the amounts
and disclosures in the financial statements;
assessed the accounting principles used and significant
estimates made by management; and
evaluated the overall presentation of the financial
statements.
In addition, we completed the following- audit work in order to
evaluate internal controls and test compliance with laws and
regulations.
EVALUATION OP INTERNAL CONTROLS
We considered EPA's internal control structure in planning and
performing our audit of the FIFRA and Tolerance Revolving Funds
and the Oil Spill Trust Fund. The purposes of this consideration
were: (1) to determine our auditing procedures for the purpose
of attempting to express an opinion on the financial statements;
and (2) to determine whether the internal control structure meets
EPA't FY 1993 Annual Financial Statement*
P»ge 163
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the previously described objectives. We obtained an
understanding of the significant internal control structure
policies and procedures and assessed the level of control risk
relevant to all significant cycles, classes of transactions, and
account balances. For those significant internal control
structure policies and procedures that have been properly
designed and placed in operation, we performed tests to assess
whether the controls are effective and working as designed.
We classified the significant internal control structure policies
and procedures into the following categories:
Receipts
Disbursements
.'';; Payroll
'*; investments
' Property
Budget
Financial Reporting
As a part of our audit work, we also obtained an understanding of
management's process for evaluating and reporting on internal
control and accounting systems as required by FMFIA. In
addition, we compared the material weaknesses reported in the
Agency's FMFIA report that relate to the financial statements
under audit to the material weaknesses found during the
evaluation we conducted of the entity's internal control system.
Our objective in performing this work was not to express an
opinion on overall compliance with FMFIA provisions.
The information presented; in Management's Overview of EPA and
Overview 'of Trust Funds. Revolving Funds and Commercial
Activitiesvis supplemental information required by OMB Bulletins
93-02 and 94-01 both entitled "Form and Content of Agency
Financial Statements.*1 OMB Bulletin 93-06, "Audit Requirements
for Federal Financial Statements," contains certain requirements
with respect to performance measurement information reported in
the overview section of financial statements. Auditors are to
'obtain an understanding of the internal control structure
policies and procedures designed to ensure that data supporting
the measures are properly recorded and accounted for to permit
the preparation of reliable and complete performance information.
Auditors are also required to assess the risk that the controls
in place would not prevent, detect or correct a material
misstatement of the 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 EPA's accounting records and providing comments, to management
regarding the presentation of the overview.
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EPA'i FY 1993 Annual Financial Statement!
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TE8T8 OF COMPLIANCE WITH LAWS AND REGULATIONS
As a part of obtaining reasonable assurance about whether the
financial statements were free of material misstatements, we
tested compliance with applicable sections of those laws and
regulations that either materially affect the financial
statements, or that OMB or our office considered significant to
the audit. In addition, we relied on some compliance testing
performed by Leonard G. Birnbaum and Company, Certified Public
Accountants, as part of its engagement to audit EPA's financial
statements for the Superfund and Leaking Underground storage Tank
Trust Funds, and the Asbestos Loan Program as of and for the
years ended September 30, 1993 and 1992. We reviewed the firm's
audit work and concluded that we could rely on it to augment our
work. The objective of our audit work and the work performed by
Leonard G. Birnbaum and Company was not to provide an opinion on
overall compliance with laws and regulations. .
DETAILS OF AUDIT FIELD WORK PERFORMED
We selected statistical and non-statistical samples from EPA's
detailed accounting records supporting various FIFRA, Tolerance
and Oil Spill financial statement accounts. We tested these
sample transactions to determine if they were adequately
supported by documentation and were recorded in accordance with
internal control policies and procedures and applicable laws and
regulations. We also reviewed other supporting documentation,
such as worksheets and schedules, that the Agency used in
preparing its financial statements. In addition, we applied
certain analytical review procedures to account balances.
The financial management records and supporting documentation we
reviewed were maintained by Financial Management Centers in
Research Triangle Park, Cincinnati and Las Vegas; and the Office
of Pesticide Programs, the Office of Emergency and Remedial
Response, the Headquarters Accounting Operations Branch and the
Financial Reports and Analysis Branch in Washington, D.C. To
gain an understanding of established internal control procedures,
we also interviewed personnel in these offices and reviewed
applicable policies and procedures.
To evaluate controls in place to safeguard assets, we interviewed
personnel in the Facilities Management and Services Division and
the Office of Pesticide Programs, both located in Washington, .
D.C. We also reviewed applicable policies and procedures. In
addition, we conducted a physical inventory o'f randomly selected
FIFRA funded property items.
Our fieldwork for the audit of the fiscal 1992 financial
statements was performed from March 31, 1992, through
April 7,1993, and our fiscal 1993 audit work was performed from
June 28, 1993, through January 31, 1994.
EPA'i FY 1993 Annual Financial Statement* Page 165
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Our audit was conducted in accordance with Government Auditing
Standards, issued by the Comptroller General of the United
States; and OMB Bulletin 93-06, "Audit Requirements for Federal
Financial Statements,11 except as previously discussed in this
report. These standards require that we- plan and perform our
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We believe that
our audit provides a reasonable basis for our opinions.
1
Unneth A. Ko
Assistant Inspec
U.S. Environment
January 31, 1994
ir General for Audit
Protection Agency
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EPA'i FY 1993 Annual Financial Suiementi
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