&EPA
United States
Environmental Protection
Agency
Administration And
Resources Management
(PM-226F)
EPA 205-R-93-002
August 1993
Chief Financial
1993 Annual Report
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TABLE OF CONTENTS
Statement of the Chief Financial Officer
Chapter 1 - Status of Financial Management
Summary of Financial Statement Audits and Management 1
Responses
Highlights of Financial and Program Performance Indicators 9
Financial Management Status Report and Five Year Plan 12
Executive Summary
Chapter 2 - Audited Financial Statements & Auditors' Reports
Introduction 20
Audited Annual Statements for Fiscal Year 1992 Appendix A
Auditors' Report Superfund, LUST Trust Funds Appendix B
and Asbestos Loan Program
Auditors' Report FIFRA and Tolerance Funds Appendix C
Chapter 3 - Summary of Reports on Internal Accounting
and Administrative Control Systems
EPA's 1992 Integrity Act Report 22
List of Material Weaknesses and Non-conformances 23
Material Weaknesses and Non-conformances Identified 25
by the Financial Statements Audit
Management's Explanation for not Reporting Conditions 25
as Material
Note: The Appendices are an integral part of Chapter 2. However,
they are presented as Appendices at the conclusion of Chapter 3
because of their length and because they are previously prepared
material.
Chief Financial Officer - 1993 Annual Report
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STATEMENT OF THE CHIEF FINANCIAL OFFICER
I am pleased to present the Environmental Protection Agency's (EPA) 1993 Chief Financial
Officer's Annual Report. Fiscal Year 1993 marked the beginning of a new era for financial
management at EPA. During this year, we have worked hard to lay a solid foundation for integrating
financial management into the management culture and practices of the Agency. For example, we
have taken a number of steps to heighten senior managers' awareness of their responsibilities to
ensure that sound financial management becomes an integral part of their day-to-day activities. We
also have taken preliminary steps to link financial information with program performance data in
order to strengthen our decision-making process and the management of our resources. We have not
only documented our progress, but also charted our course for the future of EPA's financial
management in our first annual financial statements for fiscal year 1992, our first Chief Financial
Officer's (CFO's) Annual Report and our Five-Year Plan for financial management, which
accompanies this report.
During FY 1993, the Agency moved forward to meet Administrator Browner's commitments to
link the goals of environmental protection and sustainable economic growth, and to build into EPA a
far more rigorous system of accountability for the management of its resources. Toward that end, the
Administrator directed a thorough review of all the activities funded in the Agency's "base" and
identified the best possible allocation of Agency resources. We incorporated the information gained
from this review into our FY 1995 budget submission. We also designated a cadre of senior Agency
managers to ensure accountability for all aspects of resource management within their respective EPA
organizations.
In addition to addressing these specific commitments, we have made substantial progress toward
eliminating our material weaknesses and meeting the other far reaching requirements of the CFO Act.
Discussion of our recent and current financial management activities are incorporated into this report
in three sections:
• Status of Financial Management Reviews the numerous changes and improvements we have
made and discusses the considerable challenges which lie ahead, as covered in our Five-Year
Plan.
• Annual Financial Statements and Audit Reports Provides financial statements and performance
information for EPA's five trust funds, revolving funds, and commercial activities, and provides
two groups of audit reports (including the CFO's responses) which review those funds.
• Summary of the Reports on Internal Accounting and Administrative Control Weaknesses -
Discusses material weaknesses and non-conformances reported in the Agency's report to the
President and the Congress by the Federal Managers' Financial Integrity Act (FMFIA), as well
as a discussion of material weaknesses reported in the audits of our financial statements but not
included in the Integrity Act Report.
With an eye toward meeting the challenges of the future, EPA is actively participating in several
financial management reviews. These include Vice President Gore's National Performance Review,
Chief Financial Officer 1993 Annual Report
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an EPA review of financial management designed to complement the National Performance Review,
and a broad-based review of EPA's financial activities to be conducted jointly by the CFO and the
Inspector General. We anticipate that these reviews will yield substantive and far reaching
recommendations.
Incorporating these ideas of financial management improvement and reform will obviously
necessitate considerable change in our systems, operations and culture. In the following long-range
goals, which I as CFO have endorsed, we state our commitment to improving EPA's financial
management:
• Establish Agency-wide accountability for financial management operations and activities.
• Provide complete, reliable, timely and useful financial information and services to Agency
managers, central agencies and the Congress.
• Cultivate program and regional partnerships to effectively and efficiently manage resources in
support of Agency goals.
• Support an integrated approach to Agency-wide strategic planning, budgeting, financial
accounting and program evaluation.
• Define future skill needs and establish a strategy for recruitment and training of financial
management personnel.
Achieving these goals will require flexibility and a willingness to change. While I am optimistic
about the future of EPA's financial management, the path towards that future will be a difficult one in
which financial managers will face many hard choices concerning the levels of service and activities
to be provided. These choices will be made against a backdrop in which resources will most likely be
decreasing. EPA is moving to mitigate the impact of declining resources for financial management
and other administrative services by taking advantage of new technology and re-engineering to make
financial management more efficient, effective and client focused. One example of this effort is the
development of a working capital fund aimed at providing more cost-effective services in a more
business like manner.
These and other plans for financial management improvement are contained in EPA's Financial
Management Status Report and Five-Year Plan. I believe that these plans will move us a long way
towards the type of integrated quality financial management that meets the needs of our varied
clientele, meets the goals of the Chief Financial Officers Act, and accomplishes our mission. For
only, by making wise investments today, with the scarce resources entrusted to us, can we hope for a
cleaner and healthier environment for ourselves and future generations of Americans.
SallyanMHarper ^
Acting Chief Financial Officer
Chief Financial Officer -1993 Report
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CHAPTER 1 - STATUS OF FINANCIAL MANAGEMENT
SUMMARY OF 1992 FINANCIAL STATEMENT AUDITS
AND MANAGEMENT'S RESPONSES
Introduction
Currently the Environmental Protection
Agency is required by the Chief Financial
Officers Act of 1990 (CFO Act) to prepare
annual financial statements for its trust funds,
revolving funds, and commercial activities.
The Act requires that these statements be
audited by the Office of the Inspector General
(OIG) or an independent auditor selected by
the Inspector General. Fiscal year (FY) 1992
marked the first year EPA prepared and
audited financial statements for these funds in
accordance with the CFO Act.
Overall, management considers the
agency's first year audit a success. The OIG
and financial management staff both worked
diligently under tight timeframes to meet the
new CFO requirements for preparing and
auditing the Agency's financial statements.
Most of the audit weaknesses identified by the
OIG had previously been identified as
problems in the Agency's financial control
systems as part of EPA's annual Financial
Managers Financial Integrity Act (FMFIA)
reporting process. Improvement plans for
these weaknesses are included in EPA's
Financial Management Status Report and Five
Year Plan. As many of these financial
improvement initiatives currently in progress
are implemented, the Agency will become
more efficient in its ability to meet the new
CFO requirements. Also, the experience of
this audit will be quite useful as we approach
the FY 1993 financial statement audit.
This section of the CFO report summarizes
the results of the audit and highlights
management's response to major aspects of the
auditors' reports. Also summarized at the end
of this section is a general description of
planned corrective actions to address principal
issues reported in the audit and potential
impediments to correcting these deficiencies.
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EPA Reporting Entities
EPA was required to prepare financial
statements under the CFO Act for the
following FY 1992 reporting entities:
• Superfund
• The Leaking Underground Storage Tank
(LUST) Program
• Pesticides Reregistration and Expedited
Processing Revolving Fund (administered
under the Federal Insecticide, Fungicide,
and Rodenticide Act and known as the
FIFRA Fund)
• Revolving Fund Certification and Other
Services (Tolerance Fund)
• The Loan Portion of the Asbestos Loan
and Grant Program (referred to as the
Asbestos Loan Program)
The financial statements were prepared
using OMB Bulletin 93-02, "Form and Content
of Agency Financial Statements," a
comprehensive basis of accounting other than
generally accepted accounting principles.
These trust funds, revolving funds and
commercial activities represent 26 percent of
EPA's seven billion dollar gross budget
authority during FY 1992.
EPA's financial statements include the
following statements, schedules and footnotes:
1) Statement of Financial Position;
2) Statement of Operations and Changes in
Net Position;
3) Statement of Cash Flows;
4) Statement of Budget and Actual Expenses;
5) Separate schedules of financial position,
operation and changes in net position and
cash flow for each fund; and
6) Related footnotes.
The Office of the Inspector General
conducted the audit of the Agency's two
revolving funds (FIFRA and Tolerance) and
contracted with Leonard G. Birnbaum &
Company, an independent public accounting
firm, to perform the audit of the two trust
funds (Superfund and LUST) and the Asbestos
Loan Program.
Both the independent public accounting
firm and the OIG issued consolidated audit
reports for the funds they audited. The results
of the audit are presented in three separate
reports within each consolidated report:
« the first report states the auditors' opinion
on the fairness of the financial statements;
• the second, the results of their evaluation
of the Agency's internal control structure;
and
« the third report, the auditors determination
of the Agency's compliance with related
laws and regulations.
The following summarizes the principal
findings of the two audits. The auditors' final
reports and management's response to the
auditors' reports are contained in the
appendices of Chapter 2 of this report.
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Audit Summary:
The Superfund Trust Fund, Leaking Underground Storage Tank Trust
Fund and Asbestos Loan Program
Auditors' Opinion Expressed on the Financial
Statements
The public accounting firm of Birnbaum
and Company disclaimed an opinion on the FY
1992 Superfund Trust Fund Statement of
Financial Position and issued qualified
opinions of the FY 1992 Statement of
Financial Position for the LUST Trust Fund
and the Asbestos Loan Program. Since this
was a first year audit, and the scope of the
audit did not include auditing the statements of
financial position at the end of FY 1991, the
auditors were unable to express opinions on
the FY 1992 Superfund, LUST, and Asbestos
Loan Program statements of operations,
changes in financial position, cash flows, and
budget and actual expenses. Similarly, the
auditors have indicated in their report that their
ability to render an opinion on the FY 1993
Superfund Trust Fund financial statements of
operations and changes in financial position
will be affected by their inability to audit the
FY 1992 Superfund statement of financial
position.
The auditors cited two conditions that
affected their ability to express an opinion on
the overall fairness of the Agency's Statements
of Financial Position for the Superfund, LUST
and Asbestos Loan Program:
1. Scope Limitations Imposed by the OIG
• Amounts held by the Department of
Treasury for future appropriations for the
Superfund and LUST Trust Funds were
not included in the scope of the audit.
These amounts, however, were included in
EPA's financial statements in accordance
with OMB guidance. The accounting
records supporting these amounts are
maintained by the Treasury.
• Also not included in the scope of the audit
because the OIG deemed it impractical
were: Superfund Trust Fund, LUST Trust
Fund, and Asbestos Loan Program general
support service costs that were allocated
from other EPA appropriations to these
funds and administrative expenses funded
by Agency-wide appropriations.
2. Conditions Influenced by EPA Management
In addition to the above scope limitations,
the auditors cited other factors that affected
their ability to satisfy themselves regarding
certain amounts reflected in the Superfund,
LUST and Asbestos Loan Program statements
of financial position:
• untimely receipt of information from EPA;
• inadequate documentation maintained by
EPA; and
• EPA's inability to report information as
required by OMB Bulletin 93-02.
Management's Response EPA
management agreed in principle with the
rationale provided by the auditors for their
qualified opinions on the LUST Trust Fund
and Asbestos Loan Program Statement of
Financial Position and the disclaimer of
opinion on the Superfund Trust Fund financial
statements. However, in our response to the
draft audit report, the CFO expressed concerns
with specific aspects of the opinion rationales
and the manner in which the opinions were
presented.
The auditors revised their final report to
better distinguish the major aspects of the
disclaimer that related to scope limitations
imposed at the onset of the audit by the OIG
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as opposed to the limitations under the
influence of EPA financial managers.
Summary of Auditors' Report on Internal
Controls
The audit identified several deficiencies in
internal controls which were reflected in the
report as material weaknesses or reportable
conditions. The report defined material
weaknesses as reportable conditions having a
material relation to the financial statements and
reportable conditions as significant deficiencies
in the Agency's internal control structure that
might adversely affect staffs' ability to comply
with laws and regulations and safeguard the
Agency's resources.
The following is a list of the material
weaknesses and reportable conditions disclosed
by the audit:
Material Weaknesses
* Need to Identify and Record Capital
Leases.
Management's Response In response to
the draft audit report, management generally
agreed with the auditors report on the
Agency's internal controls and the
recommendations for improving EPA's
financial control systems. Except for issues
raised by the auditors for accounts payable and
grant drawdowns, Agency management
previously had identified and begun corrective
action on all of the internal control issues
disclosed in the audit report. With respect to
grant drawdowns, while EPA understands the
concerns raised by the auditors, the CFO does
not believe the dollar amounts involved are
material in relation to the overall presentation
of the financial position of these funds. This
is explained in management's response
included as part of the auditors' reports in the
appendices that are part of Chapter 2 of this
report.
• Financial reporting systems improvements
are needed.
• Improvement are needed in recording
accounts receivable.
• Property and equipment records need to be
integrated with the general ledger.
• State cost share revenue is not properly
recognized.
• Accounts payable/accrued liabilities are not
properly recorded.
• Accounting for grant drawdowns does not
provide required account information.
Reportable Conditions
• Need to Strengthen General EDP Controls
Summary of Independent Auditors' Report on
Compliance with Laws and Regulations
The audits determined that EPA
management had complied in all material
respects with applicable laws and regulations
that might have a material effect on the
financial statements of the Superfund Trust
Fund, the LUST Trust Fund, and the Asbestos
Loan Program. As part of the auditors' tests
of EPA's compliance with applicable laws and
regulations, they compared EPA's FMFIA
reports to their own evaluation of EPA's
internal control system as required by OMB
Bulletin 93-06. The auditors' report
identified deficiencies in addition to those
reported by EPA; however, the auditors
acknowledged that the definition of material
weakness included in OMB Bulletin 93-06
differs from the definition provided by
FMFIA.
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Management's Response EPA generally
agrees with the concerns raised by the auditors
and is in the process of correcting these
deficiencies.
The following lists the conditions reported
by the audit as additional internal control
deficiencies that EPA management had not
previously reported in its FMFIA report to the
President:
• state cost share revenue is not properly
recognized;
• accounts payable and accrued liabilities are
not properly recorded;
• accounting for grant drawdowns does not
provide required account information; and
• components of equity are not properly
identified.
In Chapter 3 EPA management explains
why these weaknesses were not included in the
Agency's FMFIA report.
Chief Financial Officer - 1993 Annual Report Page 5
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Audit Summary:
Pesticides Reregistration and Expedited Processing Fund (FIFRA Fund)
and the Tolerance Fund
Auditors' Opinion Expressed on the Financial
Statements
The Office of the Inspector General
disclaimed opinions on the FIFRA and
Tolerance Fund financial statements because
they were unable to satisfy themselves
regarding the following financial statement
amounts:
• Opening account balances for the FIFRA
and Tolerance Funds;
• Accounts payable and accrued liabilities
for the FIFRA Fund; the auditors
considered the accounting staffs
documentation inadequate to support year-
end adjusting entries of $141,223 and 25
other adjustments made to the FIFRA and
Tolerance Funds totaling $181.3 million
and $21.2 million, respectively;
• Property, plant, and equipment for the
FIFRA Fund (stated at $574,000 as of
September 30, 1992); the auditors
considered the detail maintained in the
accounting records insufficient to support
the financial statement amounts;
« Administrative expenses supported by
other agency appropriations.
Management's Response
EPA management does not dispute the
auditors' rationale for disclaiming an opinion
on the FIFRA and Tolerance Funds financial
statements. In response to the issue of
inadequate documentation to facilitate the audit
of accounts payable and accrued liability
adjustments and capitalized property, Agency
management has developed corrective action
plans consistent with the auditors'
recommendations. The decision not to audit
opening account balances and administrative
expenses was a scope limitation decided by the
OIG.
Prior to the audit, management was aware
of, and had already begun correcting, long-
standing internal control problems in the
property area. The problems relate to
difficulties in reconciling the Agency's
physical accountability system for property and
the Agency's financial accounting system.
Management formed a Personal Property
Quality Action Team (QAT) to examine the
problems in this area and propose options for
solving these problems. The QAT issued its
preliminary report on July 29, 1993, with a
recommendation for adopting a single database
system for property accountability and
financial reporting. The process owners are
currently evaluating the recommendation. This
issue is also addressed in the Agency's Five-
Year Plan for financial management.
Auditors' Report on Internal Controls
The auditors' reported five deficiencies in
internal controls related to the financial
statements of the FIFRA and Tolerance Funds
which were identified in their report as
material weaknesses or reportable conditions:
Material Weaknesses
• Unsupported adjustments were made to the
general ledger;
• Incorrect calculations or lack of
documentation to support some FIFRA
year-end accounts payable and accrued
liability adjustments;
• Property purchased with FIFRA funds was
not properly capitalized;
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Chief Financial Officer - 1993 Report
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Reportable Conditions
• The program office did not perform a
complete review of unliquidated
obligations;
• Improvements are needed in controls over
property located in the program offices.
Management's Response Management
agrees with the auditors that these conditions
indicate a weakness in the Agency's internal
control structure, and has either completed
corrective action or is in the process of
initiating corrective measures. However, we
disagree with the auditors designation of these
conditions as material weaknesses. An
explanation of our position is contained in
Chapter 3 of this report.
Auditors' Report on Compliance with Laws
and Regulations
The audit determined that EPA
management had complied in all material
respects with applicable laws and regulations
that might have a material effect on the
financial statements of the FIFRA and
Tolerance Funds. As part of the auditors
tests of EPA's compliance with applicable laws
and regulations, they reviewed EPA's FMFIA
report and identified two additional internal
control deficiencies that they considered
material in relation to the audited funds
financial statements:
• Material unsupported adjustments were
recorded in EPA's accounting system; and
• Improper method was used by one finance
office to compute year-end accounts
payable and accrued liability adjusting
entries.
The auditors also noted another area of
noncompliance. While not material to the
financial statements, the IG thought it was
significant enough to mention in its report.
The auditors noted that the Agency had not
performed biennial reviews of user fees as
required by the CFO Act. The auditors
further concluded that fees currently collected
by the agency for processing tolerance
petitions for raw agricultural commodities did
not cover EPA's costs associated with the
activity.
Management's Response Management
agrees with the auditors that these findings
indicate that the Agency's control systems
could be improved in these areas. However,
the Agency views these findings as isolated
occurrences of non-compliance with Agency
policy that do not reflect a material non-
conformance that should have been reported in
the Agency FMFIA Integrity Act report to the
President. If these conditions had been
disclosed by the Agency's internal control
review process, they would have been reported
as "Agency level" weaknesses.
Management also agrees with the auditors'
recommendation that a cost study should be
done in accordance with the CFO biennial
review requirement. The Office of Pesticide
Program has agreed to take the lead in
completing our first review by January 31,
1994. However, we have major concerns
with the auditors' conclusion that "tolerance
fees collected did not cover EPA's costs".
Our concerns partially relate to the auditors'
description of the issue and their interpretation
of legal, programmatic, and policy in
formulating their premise for this conclusion.
A detailed discussion of our specific
disagreement with the auditors is provided in
management's response which is part of the
auditors' final report included in Chapter 2 of
this report.
Chief Financial Officer - 1993 Annual Report
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Planned Corrective Actions
Financial Systems and Related Financial
Management Problems
At the core of EPA's financial control
system is the Integrated Financial Management
System. EPA has reported its financial system
as a high risk area and accounting system-
related financial problems as a material
weakness in its annual reports to OMB,
pending the implementation of enhancements
to the system to meet EPA's needs.
Completion of these enhancements will greatly
assist the agency's financial staff in addressing
issues raised by the audits regarding untimely
reports and inadequate documentation to
support financial statement amounts.
Impediments to Correcting Control Problems
The Agency expects to meet the revised
target dates. However, these problems are
extremely complex and, as with any systems
development effort, we may encounter
unforeseen problems which could impede our
planned corrective action schedule.
Planned Actions and System Enhancements
Action/Enh ancement
Original Date Revised Date
Install enhancements to accounts receivable. 12/92
Reconcile FY 1989 conversion adjustments. 10/92
Update policies for recording transactions in 10/92
IFMS general ledger.
Implement Version 5.1e IFMS -- include user manuals 2/94
and system documentation.
Complete enhancements to produce complete and accurate 6/94
reports — OMB and Treasury reports, financial statements,
and supplemental accounts receivable reports.
Finalize funds management requirements study. 9/93
Finalize project cost accounting requirements study. 9/93
Issue and update financial policy guidance. 12/96
Complete interfaces with programmatic and administrative systems: 9/95
Grants Information and Control System
Personal Property Accountability System
Integrated Contract Management System
Eliminate old system FMS and RMIS. 9/93
5/93
9/93
4/94
3/94
10/94
9/95
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HIGHLIGHTS OF FINANCIAL AND PROGRAM PERFORMANCE INDICATORS
Introduction
Program performance measures are an
integral part of an agency's annual financial
statements. The overview section of the
EPA's combined annual financial statements
for FY 1992-included in Chapter 2 of this
report—provides a discussion of key program
performance results for each of the five
revolving funds, trust funds, and commercial
activities on which EPA reported. The
overview also includes a program description
and a financial perspective for each of the five
reported programs. The following highlights
some key financial and program performance
indicators reflected in the overview of the EPA
programs that were audited for fiscal year
1992.
Financial and Program Performance
Indicators
Superfund Cost Recovery
Since the inception of the program, the
Agency has collected over $545 million in cost
recoveries. This represents 62% of the total
value of cost recovery settlements reached by
the program to date. There is frequently a
delay between the date the settlement is
reached 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.
• In FY 1992 the Agency collected over $185
million in cost recoveries and reached
settlements for the recovery of $250 million
from parties responsible for contaminating
sites on the National Priorities List (NPL).
Superfund Cleanup Activity
From the public's perspective, the most
significant achievement was the accelerated
pace of site completions from 63 through FY
1991 (covering approximately ten years from
the programs inception) to 149 at the end of
FY 1992. Moreover, the Agency is on target
to meet our ambitious goals of 200 sites by the
end of FY 1993 and 650 by the year 2000.
The definition of "site completion" was
changed to more accurately convey the
successful completion of cleanup activities.
• Cleanup was started at 35 sites on the
National Priorities List (NPL) during FY
1992. Cumulative performance to date is
1,219 cleanups begun out of 1,275 sites on
the NPL. The 56 remaining sites have been
Chief Financial Officer 1993 Annual Report
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evaluated for immediate threat, even though
cleanup action has not yet begun.
• Cleanup construction was completed at 86
sites during FY 1992, raising cumulative
cleanups to 149 sites with cleanup
construction completed of the 1,275 sites on
the NPL. Sites qualify for construction
completion when: 1) any necessary
physical construction is complete whether
or not final cleanup levels or other
requirements have been achieved; 2) EPA
determines that the response action does not
involve construction; or 3) the site qualifies
for deletion from the NPL.
Superfund Recovery Through Enforcement
While enforcement represents only 12% of
the Superfund budget, the resources invested
have a large payoff. Parties responsible for
contaminating Superfund NPL sites are
increasingly paying the cost of cleanup,
leaving 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. 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.
« In FY 1992 118 enforcement actions for
site study and cleanup were taken at 106 of
the 1,275 sites on the NPL. The estimated
value of the FY 1992 responsible party
NPL cleanup commitment is $1.3 billion.
Since inception of the program, EPA has
achieved responsible party commitments to
site response at 679 sites with an estimated
cumulative value of over $7 billion.
LUST Cleanups and Corrective Actions
Over the next several years, the Leaking
Underground Storage Tank (LUST) program
will focus on preventing releases. As of FY
1993, the phase-in of release detection
requirements will apply to tanks installed prior
to 1980. In addition, the program will expand
its efforts to ensure that new tanks are
properly installed and that old ones are
properly closed. Proper tank installation and
closure and careful monitoring of tanks in use
will minimize future problems with leaking
underground storage tanks.
• Cleanup was completed at 29,000 LUST
sites during FY 1992. There were 56,000
cleanup completions through FY 1992.
• In FY 1992, the program initiated
corrective actions at 49,000 sites. Through
FY 1992 there were cumulative corrective
actions initiated at 129,000 sites. The
number of cleanups initiated and completed
are 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. The Agency relies
primarily on States and localities to carry
out the underground storage tank program.
Ninety six percent of the cleanups were
conducted by responsible parties with State
oversight.
• During FY 1992, 57,000 underground
storage tanks were added to the list of sites
with confirmed releases. At the end of the
fiscal year there were a total of 183,000
sites on this list. The FY 1992 LUST data
indicates a continuing increase in the
number of confirmed releases from
underground tanks. This is expected
because many tanks were installed 20 to 30
years ago and are now corroding and
leaking. The expected rate of confirmed
releases will continue at a rate of about
50,000 per year for the next several years.
FIFRA Reregistrations
« Forty-one products were reregistered and
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Chief Financial Officer - 1993 Report
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165 products were canceled through the
product reregistration processing FY 1992
under the Federal Insecticide, Fungicide
and Rodenticide Act (FIFRA). In the 1988
amendments to FIFRA(FIFRA '88),
Congress mandated the accelerated
reregistration of all products registered
prior to November 1, 1984. This was the
first year that products were reregistered
under FIFRA' 88.
Asbestos Loans to Schools
The purpose of the Asbestos School Hazard
Abatement Act (ASHAA) Program is to reduce
risk to school children and employees posed by
asbestos by funding financially needy Local
Educational Agencies (LEAs). In accordance
with the statute, monies are not made available
to any applicant which has sufficient resources
available to support an asbestos abatement
program. Assistance may take the form of
either a grant or an interest-free loan, or some
combination of both.
• 261 projects were awarded in FY 1992
under the ASHAA Program.
Future Plans
The program performance measures for FY
1992 are primarily output measures tracked
through the Agency's existing performance
measurement system. Because of the
accelerated submission of the FY 1993 audited
financial statements, the measures will not
change significantly this year.
One of the goals of EPA's five-year
financial management improvement plan is to
establish more meaningful and verifiable
measures of program achievement which will
reflect the environmental results of EPA's
activities. Currently, efforts are underway to
enhance the Agency's program measurement
system to better link financial and program
performance measures with major
environmental goals and program
achievements.
Pesticide Tolerance Actions
Final determinations by the Agency
concerning allowable levels of pesticide
residues on raw agricultural commodities and
in food additives are permanent tolerance
petitions.
• Sixty-two permanent tolerance petitions
completed for section 408 raw agricultural
commodities and section 409 food additives
in FY 1992. This is an increase of 11
completions compared to the 51 in FY
1991.
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FINANCIAL MANAGEMENT STATUS REPORT AND FIVE -YEAR PLAN
EXECUTIVE SUMMARY
Introduction
The FY 1993 1997 Financial Management
Status Report and Five-Year Plan provides the
Environmental Protection Agency (EPA) with
an opportunity to: articulate a bold, long-range
vision for financial management; and begin
developing a strategy, complete with goals and
milestones, that will serve as a roadmap for
achieving that vision. The initiatives set forth
in this plan range from a full-fledged
organizational review of EPA's financial
management framework and technology, to the
integration of financial management into the
strategic planning, budgeting and program
evaluation process that guides the Agency's
program management and investment
decisions.
The Five-Year Plan was developed against
the backdrop of unprecedented Agency and
government-wide focus on improving financial
management, as well as top management's
commitment to strengthen accountability and
financial management practices throughout
EPA. The Plan focuses on the opportunity to
integrate key pieces of Congressional
legislation (e.g., the CFO Act, the
Government Performance and Results Act and
the Federal Managers' Financial Integrity Act)
so that EPA is able to provide coherent and
integrated financial, budget and program
management information to decision-makers in
support of informed and fact-based public
policy in the environmental arena.
With this mandate, EPA's Chief Financial
Officer (CFO) has developed a Five-Year Plan
that embraces the initiatives already underway
to improve financial management, while
challenging the Agency to position itself for
the resource management demands of the next
century. The intentions of the Plan are to:
• Develop a comprehensive financial
management program which will enhance
EPA's ability to attain its environmental
goals through more effective resource
management; and
* Insure that the American public and
Congress have access to specific
information on EPA's financial stewardship
and on the effectiveness and efficiency of
the Agency's programs in improving the
quality of the Nation's environment.
Following the guidance provided by the
Office of Management and Budget, EPA's
Five-Year Plan is divided into nine chapters.
In the first chapter, the CFO provides a
conceptual framework for the development and
implementation of the Plan. The subsequent
chapters focus on eight specific financial
management functional areas within financial
management. Each of these chapters contains:
a general goal statement; a status report; a
discussion of planned activities; and milestone
charts. A lexicon explaining all acronyms and
EPA-specific terms is also included.
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CFO's Conceptual Framework
The CFO envisioned five key themes which
guided the development of the blueprint for
meeting the future challenges of financial
management. These themes-integration,
infrastructure, balance, accountability and
continuous improvement—must be cultivated in
order to develop a comprehensive financial
management program which will ensure more
effective management of the Agency's
resources and also will support attaining EPA's
environmental goals. With this conceptual
framework of financial management in mind,
the CFO has established five key long-range
goals for EPA's financial management
operations. The goals are as follows:
1. Establish Agency-wide accountability for
financial management operations and
activities.
2. Provide complete, reliable, timely and
useful financial information and services to
Agency managers, central agencies and the
Congress.
3. Cultivate program and regional partnerships
to effectively and efficiently manage
resources in support of Agency goals.
4. Support an integrated approach to Agency-
wide strategic planning, budgeting, financial
accounting and program evaluation.
5. Define future skill needs and establish a
strategy for recruitment and training of
financial management personnel.
The experiences EPA has gained during the
past year have provided opportunities to
identify and plan for the initiatives and
activities needed to fulfill the requirements of
the CFO Act and to meet these goals. Those
plans are detailed in the eight prescribed
chapters of the status report and five-year plan.
Summary of Functional Financial
Management Areas
Financial Management Organization
Status: In FY 1993, EPA initiated a number
of organizational actions designed to strengthen
Agency-wide financial management. The
Agency accomplished the following:
• Reorganized the Office of Administration
and Resources Management to recognize the
importance of key management functions
and financial integrity to the successful
operation of the Agency;
• Established two councils under the
Administrator—the Senior Leadership
Council and the Resource Management
Committee—to focus Agency-wide senior
management attention on improving
resources management and accountability;
and
• Held an Agency-wide "CFO Planning
Session" as an initial step to engage
program and regional managers in CFO
financial management initiatives.
Planned: In the period covered by the Plan,
the Agency anticipates additional actions to
strengthen EPA's financial management
organization. EPA will:
• Use the Senior Leadership Council to
address the Agency's material weaknesses
as identified in the Integrity Act Report to
the President and Congress;
• Revise the Delegations of Authority to
clarify the CFO's oversight authority over
Agency-wide financial management
operations and strengthen that authority by
establishing financial management
performance measures and reporting
procedures;
• Establish an internal CFO Advisory Council
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to provide advice to the CFO and other
senior managers on financial management
operations, and to address cross-cutting
financial management issues such as
program performance measures and
financial management performance
reporting; and
Conduct broad-based reviews of the existing
financial management organization and core
operations, and develop action plans to
position the Agency to meet the financial
management needs of the next century.
Accountability Standards
Status: The Agency has begun the process of
defining expectations for financial management
performance and developing appropriate
measures to assess achievement. In FY 1993,
the Agency:
» Revised and updated several aspects of its
accounting and policy procedures, including
requirements for documenting financial
transactions and reconciling accounts
receivable;
® Assisted OMB in developing government-
wide financial management performance
measures through the CFO Council's
Operations Group; and
• Developed initial financial management
performance measures which will serve as a
basis for assessing the strengths and
weaknesses of core financial management
operations as well as of key CFO-related
activities performed in each of the program
and regional offices.
Planned: In the next few years, the Agency
will lay the foundation for establishing
appropriate accountability standards for EPA's
financial management. The Five-Year Plan
indicates that the Agency will:
• Develop and implement a strategy to
consolidate and revise existing accounting
policies and procedures and issue them in
the Resources Management Directives
System;
• Implement OMB's government-wide
performance measures for financial
management, and continue to identify and
refine appropriate measures to gauge
financial management performance Agency-
wide; and
• Issue a revised Quality Assurance (QA)
Manual to: reflect current QA procedures;
increase the use of statistical sampling as a
quality control technique; and reflect the
Agency's approach to Total Quality
Management.
Financial Management Personnel
Status: The Agency completed a number of
actions in FY 1993 to develop the skills and
meet the training needs of financial
management personnel. Under the direction of
the CFO, staff have:
• Reviewed performance agreements of
financial management personnel and
integrated language to strengthen
accountability for financial management
functions;
© Developed a core curriculum for financial
management personnel to guide employees
in the development of their training plans;
and
® Provided employees with hands-on
experience using financial systems and
guidance to implement several key
processes including timekeeping, travel
reimbursements, tracking of interagency
agreements, and Superfund accounting
policies.
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Chief Financial Officer 1993 Report
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Planned: The Agency must work to cultivate
a financial management staff that can fulfill the
financial management needs of the Agency,
both now and in the future. To develop staff
to meet the challenges of the next century,
EPA will:
• Continue to refine its financial management
training curriculum to address employee
needs in the full scope of financial
management functions, including clerical,
professional and managerial;
• Coordinate ongoing training initiatives,
establish standard programs for training
conducted in multiple sites, evaluate
existing training programs and issue a
calendar listing training opportunities for
financial management employees; and
• Initiate a certification and recognition
program tying related financial management
training to organizational objectives and
employee skill enhancements.
Financial Systems
Status: EPA's financial management system
includes one integrated accounting and budget
system, an integrated personnel/payroll
system, two ad hoc reporting systems, and six
management information systems which feed
or contain limited financial data. In FY 1993,
EPA completed several key activities related to
improvements in IFMS and the financial
systems arena. Major accomplishments
include:
« Completing the development of the IFMS
Strategic Plan and Master Work Plan;
* Implementing two releases of IFMS to
streamline the payment certification process
and to correct our long standing problems
with accounts receivable interest, handling
and penalty charges;
• Developed and implemented a
comprehensive financial systems training
plan and provided training to more than 300
users at various regional sites in IFMS
(Data Entry and Using IFMS Tables),
ADCR (New User Training) and MARS
(New User and Refresher training);
• Formed a dedicated IFMS 5.1e project team
to manage the implementation of the latest
release of EPA's off the shelf financial
system. The team has been able to make a
significant impact on keeping the project in
focus and staying within the project plan;
and
• Developed project plans and initiated efforts
to eliminate legacy systems. Progress has
been made for ADCR elimination with a
pilot group selected for conversion to IFMS
in FY 1994. Training plans and training
materials have been developed for this
effort.
Planned: In the next five years, EPA hopes to
meet all CFO requirements and other
legislative mandates pertaining to the
performance of EPA's automated financial
systems. The Agency will:
• Eliminate reliance on predecessor systems-
the Financial Management System, the
Automated Document Control Register and
the Resources Management Information
System;
* Expand the capacity of financial information
systems to provide better tracking and
reporting of program costs and closer
linkages with program performance
information;
® Electronically bridge the Integrated
Financial Management System (IFMS) with
other Agency financial and administrative
systems to eliminate duplicative data entry
and inconsistent application of terms;
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Maximize benefits of "off the shelf"
software by coordinating development
efforts closely with other federal agencies;
and
Review EPA's current business practices in
the context of financial systems and begin
systems re-engineering to improve
efficiency, effectiveness and service
delivery.
Management Integrity
Status: The Agency completed several actions
to streamline and strengthen audit management
and Integrity Act implementation during FY
1993. EPA has:
• Reorganized the Resource Management
Division to more effectively execute
functions related to both the Office of the
Inspector General (OIG) and General
Accounting Office audit management and
for Integrity Act implementation;
• Implemented steps to link Integrity Act
implementation with planning and budgeting
cycles;
• Created a Financial Audit Division within
the Office of the Inspector General to
address the Chief Financial Officers Act
requirement concerning audits of EPA's
financial statements; and
• Conducted quality action team reviews of
both audit management and Integrity Act
implementation to review processes and
develop recommendations for improved
performance.
Planned: Following through on
recommendations of the two quality action
teams, the Agency plans to initiate a number
of actions designed to strengthen the
management integrity functions, make the
processes more effective and focus attention on
correcting systemic weaknesses. EPA will:
* Refer appropriate financial management
issues to the Accountable Officials—a group
of senior career officials accountable for
correcting the material weaknesses in the
Agency's annual Integrity Act reports;
* Streamline and combine Integrity Act
requirements and automate the reporting
process to reduce the documentation burden
of identifying and monitoring weaknesses;
and
• Mandate stronger linkages between
planning, budget and management integrity
to ensure investment in correcting Agency
management weaknesses.
Asset Management
Status: EPA has placed a high priority on
asset management. Among its significant
improvements in FY 1993, EPA has:
• Implemented recommendations of an EPA
task force on accounts receivable, including
the issuance of Office of the Comptroller
policies, improving region/Headquarters
communications, and the strengthening of
internal controls;
• Established a task force, which included
representation from the Office of the
General Counsel, to review debt collection
documentation, prepare correspondence
advising debtors of upcoming collection
activity, and ensure that regulations are
published in the Federal Register,
• Reduced the number of invoices paid late
by 29.2 % and interest penalties by 5.4 %;
• Converted payment of cash incentive
awards to electronic fund transfer for those
employees receiving salary checks by
DD/EFT;
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Chief Financial Officer - 1993 Report
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• Expanded the use of the small purchases
bankcard program to accelerate the
procurement process and reduce the amount
of money handled by petty cashiers; and
• Supported a quality action team (QAT)
effort to review the tracking and accounting
of Agency property. The QAT
recommended implementation of a single
fully integrated fixed asset sub-system.
Planned: As outlined in the Plan, the Agency
will continue to expand programs in asset
management in order to maximize financial
resources and safeguard Agency property.
EPA will:
• Install an automated accounts receivable
module into the IFMS to assist in the
management of accounts receivable;
• Participate in the Federal Salary Offset and
the Federal Tax Refund Offset programs to
recover outstanding debts owed to EPA;
• Test and implement a third party draft
system to improve the Agency's cash
management;
• Implement a select statistical sampling
process to enhance the Agency's quality
assurance efforts and improve the quality of
prompt pay data;
• Continue to aggressively identify and
pursue options for using electronic funds
transfer;
• Automate tracking of third party billings
and payments to manage significantly
increasing workload;
• Implement an integrated fixed asset sub-
system for property management; and
• Implement an automated system to assist
with information and reporting requirements
of the Federal Credit Reform Act.
Audited Financial Reporting
Status: EPA prepared and submitted FY 1992
financial statements for the following trust and
revolving funds and commercial activities:
Superfund; Leaking Underground Storage
Tank (LUST); Pesticides Reregistration and
Expedited Processing Fund (FIFRA Fund);
Revolving Fund for Certification and Other
Services (Tolerance Fund); and the Loan
Portion of the Asbestos Loan and Grant
Program. As part of this effort, EPA:
• Prepared initial performance measures and
other program information for incorporation
into the Overview section of the report;
• Supported and responded to the audits of
the five CFO-covered funds; and
• Evaluated the process and explored options
for improving the timeliness and accuracy
of future financial statements.
Planned: Based on a review of this year's
process for developing the financial statements,
EPA believes that it can improve both the
timeliness and quality of the financial
statements in the next few years. The Agency
has committed to:
• Accelerate its schedule for the preparation
of FY 1993 financial statements;
• Continue to explore options for streamlining
the preparation of the financial statements
and building in quality assessment measures
to document the accuracy of the financial
statement data;
• Refine procedures and enhance systems
used to produce the audited financial
statements;
• Continue to work with the Office of Policy,
Planning and Evaluation, and program and
regional offices in developing outcome
measures reflecting program results and
Chief Financial Officer 1993 Annual Report
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accomplishments;
• Respond, as appropriate, to OIG audits; and
« Prepare and submit to the OIG Agency-
wide principal financial statements
beginning in FY 1996 (i.e., the FY 1995
financial statements);
Administration of Government Assistance
Programs
Status: Improvements to EPA's grants
administration process in FY 1993 has
strengthened the grants management function.
EPA has:
• Elevated the grants administration function
to office level status;
• Conducted training for State and local
officials regarding various grant and
cooperative agreement requirements;
» Participated in and provided support to the
State Capacity Task Force which issued
recommendations to the Administrator on
how to augment State capacity to respond to
environmental mandates;
• Strengthened controls over grants
administration, including issuing new
policies such as grant versus contract
determination, timely awards and closeout;
and
• Developed several new grant training
programs.
Planned: Several grants management
initiatives currently underway should be
accomplished in the next few years, while
other activities are in development. During
the five-year period covered under the Plan,
EPA will be involved in:
• Streamlining EPA's Grants Process;
• Conducting grants administration training
for EPA grants project officers;
• Updating EPA grants policies to reflect
emerging issues and anticipated OMB
revisions to key circulars;
» Evaluating State efforts in conducting risk
assessments to set the stage for establishing
a multi-media assistance program; and
« Reviewing possible options to give States
more flexibility in implementing their
assistance programs, such as allowing States
to "pool" their media-specific funds.
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Chief Financial Officer - 1993 Report
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Conclusion
EPA's 1993 Financial Management Status
Report and Five-Year Plan serves as a
compendium of the Agency's financial
management accomplishments during FY 1993
and a diagram of its goals and initiatives for
FYs 1994 1997. The Agency has made great
strides in developing this plan by offering not
only a vision for the future of financial
management within EPA, but also by
establishing benchmarks, goals and specific
milestones by which its progress can be
measured in future years.
The plan takes financial management far
beyond the traditional core functions and
operations, and strives to introduce an Agency-
wide awareness of and momentum for financial
management improvement. The plan is a
beginning; it provides the underpinnings for
future plans in what will be an evolutionary
process. The ultimate goal is to secure a
partnership of financial and program managers
making informed programmatic and resource
decisions, and guiding the Agency to achieve
its environmental mission and meet its
fiduciary responsibilities.
Chief Financial Officer - 1993 Annual Report Page 19
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CHAPTER 2 - AUDITED FINANCIAL STATEMENTS
& AUDITORS' REPORTS
INTRODUCTION
This Chapter of the CFO's Annual report
contains the EPA audited annual financial
statements for FY 1992 and the related audit
reports. Also, a complete text of
management's responses to the draft audit
reports are included as part of the auditors'
final reports.
The annual financial statements and the
auditors' reports, which are rather lengthy,
are presented as appendices in order to permit
the reader to more easily access the new
material in this report. However, the
appendices are included as an integral part of
Chapter 2. The three appendices are the
following:
• Appendix A EPA's Audited Annual
Statements for Fiscal Year 1992
• Appendix B Auditor's Report:
Superfund, LUST Trust Fund and
Asbestos Loan Program
• Appendix C Auditor's Report:
FIFRA and Tolerance Revolving Funds
EPA was required by the CFO Act to
prepare financial statements in 1992 for its
trust funds, revolving funds, and commercial
activities which consist of the following funds
or reporting entities:
• Superfund;
• Leaking Underground Storage Tank
(LUST) Program;
• the Loan Portion of the Asbestos Loan
and Grant Program;
« Pesticide Reregistration and Expedited
Processing Revolving Fund (FIFRA
Fund);
• Revolving Fund for Certification and
Other Services (Tolerance Fund).
These activities represented 26 % of
EPA's $7 billion gross budget authorities for
FY 92. The Superfund is the largest of the
activities covered by the audit representing
90% of the audited fund obligations reflected
in the 1992 financial statements. The LUST
fund represents 4 % of the audited activity,
Asbestos and FIFRA each represent
approximately 3 %, and the Tolerance Fund
has less than 1 % of the total.
The Financial position and results of
operations of the five funds are presented on a
combined basis in four financial statements and
related footnotes.
• Consolidated Statement of Financial
Position
• Consolidated Statement of Cash Flows
» Statement of Operations and Changes in
Net Position
• Statement of Budget and Actual Expenses
EPA's programs and activities not
currently covered by the CFO Act are not
included in the FY 1992 financial statements.
EPA plans to expand its financial statements in
future years to include additional EPA
programs.
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Following the financial statements are the
related auditors' reports for the audited funds.
The independent public accounting firm of
Leonard Birnbaum & Company and the Office
of Inspector General issued consolidated
reports for the funds they audited. The
auditors' reports include their independent
reports on: (1) EPA's financial statements (2)
internal control structure and (3) compliance
with applicable laws and regulations for each
of the audited funds. These reports are
reprinted as presented to the Agency.
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CHAPTER 3 - SUMMARY OF REPORTS ON INTERNAL
ACCOUNTING AND ADMINISTRATIVE CONTROL SYSTEMS
Introduction
This section of the CFO's Annual Report
provides a list of the material management
control weaknesses and non-conformances
reported in the Agency's FY 1992 Federal
Managers' Financial Integrity Act (Integrity
Act) Report to the President and Congress,
and explains the differences between the 1992
Integrity Act Report and the findings in the
auditors' reports on the Agency's financial
statements.
EPA's 1992 Integrity Act Report
In EPA's 1992 Integrity Act Report, EPA
indicated that its management control and
financial systems, taken as a whole, provided
reasonable assurance that the objectives of the
Act had been achieved. In his annual review
of the Agency's management control program,
EPA's Inspector General cited several positive
examples of the Agency's efforts to implement
the requirements of the Act in a reasonable
and prudent manner. The Inspector General
also identified several areas for specific
management improvements in selected EPA
offices.
The Agency identified eight new complex
cross-cutting material management control
weaknesses. Briefly, they were:
1) contracts management;
2) enforcement data integration;
3) accounting system-related financial
management problems;
4) accounts receivable;
5) Superfund cost recovery;
6) environmental data quality;
7) information systems planning and security;
and
8) State drinking water program primacy.
In addition, the agency carried over fifteen
material weaknesses and closed out one
material weakness in 1992.
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Chief Financial Officer - 1993 Report
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List of Material Weaknesses and Non-conformances.
The following two tables summarizes the management first reported the control
material weaknesses and non-conformances deficiency and the current target date for
reported in the Agency's 1992 Integrity Act correction.
Report. The tables identify the year
EPA Reported Material Weaknesses (Enclosure C of the 1992 FMFIA Report)
Target Date for Current Target
Year First Correction in 1991 Date For
Title Reported FMFIA Report Correction
Band One:
Contracts Management 1992 1996
Enforcement Data Integration 1992 1993
Accounting System-Related Financial Management 1992 1995
Problems
Accounts Receivable 1992 1994
ARCS Contract Management 1991 1992 1993
Accelerating Remedial Cleanup 1991 1993 1993
Contract Laboratory Program 1991 to be determined 1994
Data Integrity for Pesticides and Toxic Substances 1991 1992 1993
Agency-wide Audit Follow-up 1989 1992 1993
Chemical Testing 1990 1992 1993
Disposal Program 1990 1992 1993
Implementation of Storm Water Permitting 1991 to be determined 1993
Band Two:
PWSS State Primary 1992 1997
Superfund Cost Recovery Program 1992 1995
Environmental Data Quality 1992 1994
IRM Planning and Security 1992 1995
Antimicrobial Program 1990 1992 1994
Federal Facilities 1991 1993 1994
Requests for audits of EPA Contractors 1991 ongoing 1993
R&D Extramural Resources 1990 1994 1995
R&D Buildings and Facilities 1989 1993 1994
R&D Laboratory Operating Expenses 1990 1995 1995
R&D Equipment 1988 1994 1994
Closed:
Superfund 90-Day Study 1989 1991 Completed
Requirements Under the Clean Water Act
Chief Financial Officer - 1993 Annual Report Page 23
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Non-conformances (Enclosure D of the 1992 FMFIA Report
Regional accounts receivable recording,
documentation, and collection problems
have impacted the accuracy of the general
ledger accounts receivable balances.
General ledger accounts adjustments as the
result of the implementation of IFMS need
to be accomplished.
Comprehensive reconciliation between Treasury
reports and IFMS needs to be performed.
Year First
Reported
1989
Target Date for Current Target
Correction in 1991 Date for
FMFIA Report Correction
1993
1994
1989
1989
Update and strengthen our policies and procedures 1983
to assure reconciliation between property and
accounting reports.
Opportunities exist for greater interfaces between
the accounting system and other administrative
systems.
1985
1992
1993
1992
1993
1993
1993
1993
1995
Note: The target dates are those included in the EPA December 1992 Integrity Act Report;
some of these dates will be revised in our December 1993 Integrity Act Report to reflect
1993 conditions.
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Material Weaknesses and Non-conformances
Identified by the Financial Statement Audits
The audit of the agency's 1992 financial
statements identified the following deficiencies
in the agency's internal control structure in
addition to those included in the agency's
FMFIA report to the President and Congress:
• state cost share revenue is not properly
recognized;
• accounts payable and accrued liabilities are
not properly recorded; additionally one
finance office improperly computed year-
end adjusting entries in these accounts;
• accounting for grant drawdowns on grants
funded from more than one fund account
does not provide required account
information;
• components of equity are not properly
identified;
• material unsupported adjustments were
recorded in EPA's accounting system;
These conditions related primarily to
financial accounting issues. EPA management
generally agrees with the concerns raised by
the auditors and are in the process of
addressing these issues. We note that the audit
reports do not recommend that the Agency
report these weaknesses in our 1993 FMFIA
letter of assurance.
We will continue monitoring Agency
corrective actions to resolve these weaknesses
and if these problems persist, will consider
reporting them through our FMFIA process.
Management's Explanation for not
Reporting Conditions As Material
EPA management did not report the
preceding conditions as material weaknesses or
non-conformances in its FMFIA report.
Generally, management did not consider these
conditions of sufficient importance to be
reported to the President and Congress based
on FMFIA reporting requirements. Material
weaknesses reported by agency management
were identified within the context of the
overall EPA financial management system or
organization. Material weaknesses were
identified as weaknesses that: significantly
impair management's ability to fulfill the
mission of an agency component—or reporting
entity; violates a statutory or regulatory
requirement; or significantly weaken
safeguards against waste, loss or unauthorized
use of the reporting entities resources.
The auditors defined materiality based on
more narrowly defined criteria contained in
OMB Bulletin 93-06. These criteria relate to
dollar thresholds of specific accounts in
relationship to reported amounts in each fund's
audited financial statement. These criteria
differ from FMFIA reporting which considers
all the Agency's funds, resulting in different
dollar thresholds and conclusions of
materiality. The auditors acknowledged the
criteria they used in determining materiality
differed from the FMFIA guidelines.
Following are specific explanations for why
each of the conditions referenced in the
preceding section are not material weaknesses
reportable under FMFIA.
State Cost Share This issue relates to the
recognition of revenue earned when EPA
receives deferred revenue advances from the
states for cleaning up sites under the
Superfund program. At the time EPA signs a
cost share agreement with a state to share in
the cost of site clean-up, EPA records a
Chief Financial Officer - 1993 Annual Report
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receivable and a corresponding deferred
revenue. As site clean-up costs are incurred,
EPA should reduce the deferred revenue
account and recognize revenue earned. EPA
accounting staff has failed to make the revenue
adjustment entries. The Agency is aware of
this deficiency in its accounting process and
will complete an analysis of prior activity and
make the appropriate accounting adjustments
by April 1, 1994. We will also strengthen our
internal controls in this area by issuing policies
and procedures and requiring supervisory
approval of the adjusting entries.
Reporting of Grant Drawdowns EPA, in
funding grants to grant recipients, sometimes
funds the grants from more than one funding
source. At the time the recipients request
drawdown or payment on the grant through the
Automated Clearinghouse, the Agency does
not require the recipients to specify the
benefiting funding source unless the activity
relates to a Superfund site. Because of the
nature of EPA program grants—recipients
generally can not readily identify which, or
how much, a particular funding source or
program has benefitted from work performed
at interim points in the process-EPA has
questioned the benefit of imposing a more
rigid accounting and reporting requirements on
its recipients. The rationale is that the life of
the grants are usually no more than two fiscal
years and that the pro-rata share of the
contributing funding source could be adjusted
at the conclusion of the grant.
It is management's view that this approach
does not overly burden the recipient with
reporting requirements of limited benefit and,
because of the nature of the activity reported,
the Agency's financial statement would not be
materially misstated. Though the auditors
disagreed with this position, they indicated in
their report that their sample was, not
conclusive 'that the method EPA is currently
using to record expenses resulted in a. material
misstatement of grant expenses in relationship
to the reporting entity financial statements.
Management, in its response to the audit,
agreed in principle with the auditors' finding
and recommendation but still considers
requiring more detailed information from
grantees at the time of drawdown unreasonable
and unnecessary. Management nevertheless
has committed to forming a Quality Action
Team to explore the issues and develop options
to the existing process. The auditors accepted
EPA management's response as responsive to
their recommendation. They acknowledged in
their "Independent Report on Internal
Controls" that additional analysis is in fact
needed to determine the materiality of the
issue.
Accounts Payable. Accrued Liabilities, and
Unsupported Adjustments While conditions
referred to in the second and last bullets of the
preceding section are material in relationship
to the total dollar amount of funds obligated in
the individual funds, these conditions were
isolated instances of noncornpliance with
Agency policy and do not reflect systemic
problems. The appropriate correcting entries
have been made to Agency accounting records.
In addition, Agency management has made a
thorough review of our policies and procedures
and found them to be adequate to prevent a
recurrence of these problems. Also, additional
guidance has been provided to those staff
members who had not complied with these
policies.
In those instances where staff did not
compile sufficient documentation, additional
guidance and precautions have been taken to
prevent a recurrence of the same situation.
Equity Account Components The condition
which states "components, of equity are not
properly identified" relates to a new reporting
requirement imposed by OMB Bulletin 93-02.
The Agency has not had opportunity to modify
its system to comply with this new
requirement.
Page 26
Chief Financial Officer - 1993 Report
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Currently, the Agency's general ledger does
not provide breakout of the equity components
of the trust funds to show unexpended
appropriations available, unexpended
appropriations unavailable and undelivered
orders in the standard general ledger accounts.
This information is currently obtained from
the budgetary accounts. Steps have been
taken to correct this reporting deficiency. By
the end of FY 93 the CFO will complete an
analysis and adjustment of prior year system
conversion amounts and adjustment entries,
and reconcile equity and budgetary accounts.
Conclusion
The CFO is now monitoring actions
underway to resolve all of the five additional
internal control weaknesses reported by the
auditors. While some corrective actions may
take several months to complete, EPA has
taken swift action in correcting those
conditions reflecting noncompliance with
Agency policy.
Chief Financial Officer - 1993 Annual Report
Page 27
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APPENDIX A - EPA'S AUDITED ANNUAL STATEMENTS
FOR FISCAL YEAR 1992
Message from the Administrator 3
Overview of EPA 5
Overview of Trust Funds, Revolving Funds and 8
and Commercial Activities
Principal Financial Statements 43
Chief Financial Officer - 1993 Annual Report
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United States Office of Administration June 1993
Environmental Protection and Resources Management
Agency Washington, DC 20460
&EPA
Audited Annual
Statements for
Fiscal Year 1992
Superfund
Leaking Underground Storage Tank (LUST
Program
Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund)
Revolving Fund for Certification and Other
Services (Tolerance Fund)
The Loan Portion of the Asbestos Loan and
Grant Program
-------
Contents
Message from the Administrator 3
Overview of EPA 5
Overview of Trust Funds, Revolving Funds 8
and Commercial Activities
Superfund 11
Program Description 11
Financial Perspective 12
Superfund by Activity 13
Superfund by Location 16
Program Results 19
Cleanup 19
Enforcement 22
Summary 24
Next Steps 25
Leaking Underground Storage Tank 26
(LUST) Program
Program Description 26
Financial Perspective 27
Program Results 28
Pesticides Reregistration and 30
Expedited Processing Fund (FIFRA Fund)
Program Description 30
Financial Perspective 32
Program Results 33
Revolving Fund for Certification and 34
Other Services (Tolerance Fund)
Program Description 34
Financial Perspective 35
Program Results 36
Asbestos Loan and Grant Program 37
Program Description 37
Financial Perspective 39
Program Results 40
Message from the Chief Financial Officer 41
Principal Financial Statements 43
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MESSAGE FROM THE ADMINISTRATOR
Environmental protection in America has undergone a profound transformation. During the
past 20 years a comprehensive set of environmental legislation has been passed and
implemented. The Environmental Protection Agency has evolved into an agency comprised
of a skilled and diverse work force with significant responsibilities for protecting the
environment for future generations.
As I begin my tenure at EPA, I believe that for the Agency to succeed, it must continue to
evolve. The next decade will be one in which we will move from command and control,
media-specific regulation to alternative approaches oriented toward pollution prevention,
ecosystem protection and incentive based policies. Additionally, we need to pursue programs
that link the goals of environmental protection and economic growth by unleashing American
ingenuity and creativity. One way to do this is to encourage the creation of a new generation
of improved environmental technology.
A major area where EPA is evolving is in managing the Agency's resources. EPA is
currently making a significant investment in this area. In addition to those employees whose
primary jobs are related to managing resources, many other employees throughout EPA have
the management of resources as an integral part of their everyday duties. I am grateful for
the strides taken to date to improve resource management, but I believe it is fair to say that
we all feel we still have a long way to go in this area.
Consequently, one of my most important tasks is to build into EPA a far more rigorous
system of accountability for the management of our resources. I expect EPA to be a model
of efficiency and accountability, and I intend to make management integrity a cornerstone of
my administration. In this regard we have recently taken steps to increase accountability
and develop more comprehensive programs for allocating and accounting for the Agency's
resources.
» I am establishing a new cadre of senior managers; these managers, known as Senior
Resource Officers, are responsible for all aspects of resource management in each
region and each assistant and associate administrator's office.
• I intend to perform, for the first time in over a decade, a thorough review of all the
activities funded in the Agency's "base" so as to determine the best possible allocation
of Agency resources.
As a step in the direction of increased accountability and understanding of resource
allocation, I am pleased to present the Fiscal Year 1992 Annual Financial Statements for the
U.S. Environmental Protection Agency, our first set of annual financial statements prepared
under the Chief Financial Officers (CFO) Act. They include principal statements and
footnotes for trust funds, revolving funds and commercial activities of EPA. In addition, for
each of the five funds reported on, there is an overview section which provides a description
of the program, a financial perspective of the program, and a discussion of program results
including performance measures.
-------
Although the CFO Act has required that we only prepare financial statements for trust funds,
revolving funds and commercial activities, it is my intention to expand annual financial
statements in future years to include additional EPA programs. As we prepare future
financial statements, I anticipate that the Agency*s performance measures as defined in this
report may shift to reflect new directions, priorities, and a better understanding of the impact
of resource allocations on environmental protection.
Preparing these statements has been extremely informative, providing us with useful
information about our programs and accounting systems and identifying areas where
improved systems, management controls, and accountability are needed. These statements,
presented at the beginning of my tenure at EPAS will be a benchmark from which
improvements in the management and accounting for resources entrusted to EPA can be
measured.
Carol
4
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OVERVIEW OF EPA
Mission. Stated broadly, the job of the U.S.
Environmental Protection Agency 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 $7 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-,
16,000
12,000-
8,000-
4,000-
1986 1987 1988 1989 1990 1991 1992
SuperfurxV
LUST
Operating
Programs
-------
EPA Budgets
Excludes Construction Grants
5,000 n
4,000
3,000-
2,000
1,000-
SuperfurxV
LUST
Operating
Programs
1986
1987
1988
1989
1990
1991
1992
New Problems and New Solutions. Many of
EPA's responsibilities originated in response
to a new generation of environmental
problems that 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 and more complex than those of
the past.
Moving into the 1990s, EPA is grappling
with the new agenda of environmental
problems in bold and creative ways. It is
supplementing traditional regulatory
programs with market incentives and
voluntary actions. The Agency's managers
are trying to anticipate the environmental
needs of the next century and to develop
new policies and programs that will meet
those needs.
In the last four years, the Environmental
Protection Agency has 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
increased steadily. The largest of these
increases have come 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. As previously noted
this report is about FY 92, however in 1993
there are a number of key changes we have
made, and are presently making, under the
current administration such as:
• Increasing accountability by expanding
the role of the Senior Procurement
Officers to serve in newly created
positions as Senior Resource Officers
-------
responsible not only for procurement but
other aspects of financial resource
management as well.
• Commitment to the diversification of the
Agency's workforce so as to have the
widest possible range of talent managing
our resources.
• A commitment to additional funds in FY
93 to strengthen our Integrated Financial
Management System (IFMS) and in our
FY 94 budget have attached a high
priority to allocating funds to correct the
weaknesses identified in our FMFIA
reporting.
This is built on FY 92 and prior years
work, most notably:
• Increased oversight of resources,
including currently conducting over
2,000 audits annually and preparing
additional special reports for Congress.
• Revamped the budget process so that it
is organized around the strategic themes
and the new priorities of the Agency.
• Reorganized the Office of
Administration and Resources
Management (OARM) to increase
accountability and control and to reflect
the changes brought about by the Chief
Financial Officers (CFO) Act.
• Responded to new legislative
requirements for more sophisticated
accounting of resource use, and for more
timely payment of Agency obligations
including The Credit Reform Act of
1990 and The Prompt Payment Act.
• Increased emphasis on effective contracts
management including substantially
increasing the resources devoted to that
effort.
• Proceeded with plans to correct our
material weaknesses in financial
management as well as nonconformances
in our accounting system which were
reported in our FY 1992 Federal
Managers' Financial Integrity Act
(FMFIA) Report to the President and
Congress.
• Established a special council of senior
officials, known as the "Accountable
Officials Network", dedicated to
correcting on an Agencywide basis the
weaknesses identified in the annual
FMFIA Report.
• Developed a new tracking system to
accelerate collection of the Agency's
largest account receivables.
• Improved 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.
• Begun implementing the far reaching
financial reform requirements of the
CFO Act.
Of all of the changes in recent years, the
most important of these is likely the CFO
Act which has resulted in :
• The Agency's first Financial
Management Status Report and Five-
Year Plan.
• The development of program
performance measures which are
discussed further in this report.
• A re-examination of roles and
responsibilities of the Agency's resource
managers to increase accountability.
• The preparation of this report which is
the Agency's first submission of annual
financial statements under the CFO Act.
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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 1992
include the following trust funds, revolving
funds, and commercial activities:
• 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.
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.
EPA Obligations - FY 92
Total $7.0 billion
Non-fund (72%)
Fund (28%)
Fund Obligations - FY 92
Total $1.9 billion
Tolerance (<1%)
FIFRA (3%)
Asbestos (3%)
LUST (4%)
Superfund (90%)
Fund Workyears - FY 92
Total approximately 4,000
Tolerance (<1%)
FIFRA (7%)
Asbestos (1%)
LUST (2%)
Superfund (90%)
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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 five 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 1992 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 five
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. Two of the EPA
programs covered by the CFO Act are trust
funds, and both are housed primarily in the
Office of Solid Waste and Emergency
Response. These programs, both of which
use trust fund revenues to finance the cost of
cleaning up contaminated sites, are:
• the Superfund, and
• the Leaking Underground Storage Tank
(LUST) Program.
The Office of Solid Waste and Emergency
Response (OSWER) is headed by an EPA
Assistant Administrator who is responsible for
the Agency's waste management programs.
The offices within OSWER are: Emergency
and Remedial Response (with responsibility
for Superfund and oil spills), 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 two
programs. Over three quarters of the staff
responsible for carrying out the Superfund and
LUST programs reside in the Regions. The
Superfund and LUST programs are located in
the Regional Waste Management Divisions
(except in Regions 4 and 10 where the LUST
program is in the Water Division).
While OSWER and the Regional Waste
Management/Water Divisions have lead
responsibility for the Superfund and LUST
programs, these programs are supported by
staff in other Headquarters and Regional
offices. These offices charge administrative
and extramural expenses to both 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.
-------
Revolting 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 additional 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.
These programs are:
• the Pesticides Reregistration and Expedited
Processing Fund (FTFRA 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 the Office of Prevention,
Pesticides and Toxic Substances (OPPTS).
OPP consists of seven divisions and a staff
office. Approximately $88 million and 805
FTEs (workyears) were expended in FY 1992
in OPP on pesticides regulation. Appropriated
and revolving funds are both 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). FTFRA 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 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 OPTS:
• 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.
10
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Superfund
The Superfund program is administered under
the Comprehensive Environmental Response,
Compensation and Liability Act of 1980
(CERCLA) primarily by the Office of Solid
Waste and Emergency Response (OSWER).
Program Description
The 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 pursue recovery of
expenditures from parties responsible for the
contamination.
The law directs EPA to handle releases of
hazardous substances by either compelling
potentially responsible parties to respond or
conducting a removal 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. While EPA continues
to seek ways to speed up site cleanups and
completions (such as through the use of
presumptive remedies), the work remains
complex especially when ground water must
be treated.
Prior to being placed on the NPL, EPA
conducts a preliminary assessment of the site.
Where warranted, this is followed by a site
investigation. Only five to eight percent of
the sites EPA evaluates are listed on the NPL
for long-term remedial cleanup. At the end
of FY 92 there were 1,275 sites on the NPL.
EPA also conducts removal actions at non-
NPL sites. Since 1980, over 3,200 short-
term removal actions have been started (400
in FY 1992 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 $1.5 million
per site.
The actual cleanup (construction) work itself
averages $25 million per site. Because of the
high cost and limited Superfund resources,
EPA's enforcement program emphasizes
cleanup actions by responsible parties (RPs).
RPs currently fund cleanup at approximately
70% 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.
11
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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 now known 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 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.
Superfund is funded 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 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.
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
92 EPA achieved a
record value of
settlements for response
MiHions of $
2,000 i
1,600-
1,200-
800
400-
actions at NPL sites of $1.3 billion.
Superfund program expenditures through
FY 1992 are approximately seven and a half
billion dollars. In EPA's most recent report
to Congress, the Office of Solid Waste and
Emergency Response estimated the
remaining costs of cleaning up the 1,275
sites currently on the NPL to be $18 billion.
This estimate does not include the
responsible party contribution.
Superfund appropriations, obligations and
outlays have remained fairly constant from
1990 through 1992 as can be seen on the
financial trends chart.
In FY 1992, the Superfund program was
staffed by a total of 3,604 FTEs, and
Superfund obligations exceeded $1.7 billion.
Further analysis of these numbers is
provided in the following sections.
Superfund Financial Trends
____ Obligations
Appropriations
Net Outlays
FY90
FY91
FY92
12
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Superfund by Activity. The Agency has
identified four major components of the
Superfund program: Remedial Activities,
Removal Activities, Enforcement
Activities, and Other Activities. These
activities were identified based upon the
"Superfund Activity Code", which is the
accounting process the Agency uses to
identify Superfund activities with
accounting transactions. Each of these
components has various activities which are
identified below.
Remedial activities represent the long-term
response at a Superfund site and include the
Preliminary Analysis/Site Investigation
(PA/SI), Remedial Investigation/Feasibility
Study (RI/FS), Remedial Design (RD),
Remedial Action (RA), associated oversight
and laboratory analysis activities, and
remedial support and management.
Removal activities represent the short-term
response and stabilization of hazardous
substances and include the removal actions,
associated oversight and laboratory analysis
activities, 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.
The following 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.
13
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Superfund Obligations by Activity - FY 92
Total obligations $1.7 bilion
Remedial (51%)
Other (21%)
Enforcement (12%)
term removal actions each year to
control immediate threats, with over
2,000 of these completed by the end of
FY 1992. Removals account for
nearly 20% of the Superfund budget.
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.
Removal (16%)
Superfund Obligations by Activity.
Remedial activities account for more than
half of the Superfund budget. Remedial
Actions are taken at large sites requiring
complex cleanups. Nearly 60% of the sites
on the NPL have had design or
construction for cleanup initiated, and most
contract dollars (78% in FY 1992) go for
cleanup.
The three-year trend chart indicates
the increase in remedial activities over
time as the program matures and more
sites move from the assessment and
study phases toward remediation. The
remaining three activities have maintained a
relatively constant level of obligations over
the last three years.
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-
Superfund Obligations by Activity - Trends
Millions (X «
2,000-
1,600
1,200
800
400
Enforcement
Removal
Other
Remedial
FY90
FY91
FY92
14
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Superfund Disbursements by Activity
Total disbursements $ 1.3 billion
FY92
Remedial (42%)
Other (29%)
Enforcement (13%)
Removal (16%)
Super/laid Disbursements by Activity. The
pie chart shows current year disbursements
by Superfund activity. Disbursements
represent the actual payment for 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 Disbursements by Activity - Trends
Millions of $
2,000
1,600
1,200
Enforcement
Removal
Other
Remedial
FY90
FY91
FY92
15
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Superfund Staff by Location - FY 92
Total FTE's 3,604
Regions (75%)
HQ-AJI Others (16%)
HQ-OSWER (10%)
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 represents the Office of
Emergency and Remedial Response and
Office of Waste
Programs 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 Staff By Office - FY 92
Total FTEs 3,604
2,500
2,000
1,500
1,000
500
Headquarters
Regions
OA OPPE OAR OW OQC ORD OARM OE OSWER
16
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Superfund Obligations by Location - FY 92
Total obligations $1.7 billion
Regions (71%)
HQ-AII Others (10%)
HQ-OSWER (20%)
Superfund Obligations by Location. The
pie chart shows the amount of obligations
by EPA regional offices and EPA
headquarters. 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. The
second largest pie slice is
HQ - OSWER. The third
slice, HQ - All Others
includes the Office of
Enforcement, Office of
Research & Development,
and other offices which
support the Superfund
program.
Superfund Obligations by Location - Trends
Militant of $
2,000
1.600-
1,200-
800-
400-
HQ-A1I Others
HQOSWER
Regions
FY90
FY91
FY92
17
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Superfund Disbursements by Location - FY 92
Total disbursements $1.3 billion
Regions (64%)
HQ-A1I Others (12%)
HQ-OSWER (23%)
Superfund Disbursements by Location. The
pie chart shows current year disbursements
by Superfund activity. Current 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. 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 wiE not
be disbursed in the same fiscal year.
Superfund Disbursements by Location - Trends
2,000
1,600
1,200
800-
400-
FY90
HQ-All Others
HQ-OSWER
Region*
FY91
FY92
18
-------
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 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.
While we have no estimates of the
total numbers of people protected by
short-term removal actions at non-
NPL sites, EPA's preliminary data
shows that as of the end of FY 1992,
we have relocated over 54,000 people
living in the vicinity of NPL and non-
NPL sites and have supplied
alternative water to nearly 600,000
people at these sites.
EPA^s performance measures for the
Superfund program for FY 1992 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 "pipeline11 of
activities to get an accurate sense of
progress as is shown in "An Overview of
the Cleanup Stages".
The Remedial Process
An Overview of the Cleanup Stages.
Remedial Investigation (Rl)
An asstMmtni ol th* nature ane tfltm cl eonummtion
and th* associated h«atih and arrvironmaraaJ risk*
Feasibility Study (FS)
Dcvatopmant and analysis of th* ring* ol etoanup afltmatvti forth*
tht. according 10 th« nint »valuation crft»rta; usually urtO*ruX»n
concurrent^ wth th« Rl
Selection of Remedy
t m» remedial atomativ* lor th« tit*. Ths ritp indudts:
Proposed Plan
Identifies tr>* rsrrscTal aRemat^e Ek*ly to be chosen (or » Supertund
srl* and ixplajns why t is ln« preferred »r,»mniv». and allows
tor public eanvrmn
Record of Decision (ROD)
Th* of!ia'al.r»pcrt eocumtnling th« bad^rourid Wermaliori on Ih« *R»
and 6«ichbing th« ehewn r»m«<(y and hew R was »»1*C»CI
Remedial Design (RD)
Pr»paratien of t»chn«al plans and sp*elTe«tioni
(or impJ»rri*niing thi chcstn r*rr»d*ial a"»mative
Remedial Action (RA)
Construction or otntr work nrcessary to
« rtm*dial arltmativt
Operation & Maintenance (O&M)
Aaiv*i*s conduci»d ai a tot an»r a mpons* action occurs
to insun lha! th* cleanup r»ir.c<3 a/t working property and
to »nsur* sll* rcm*ct contmu«i to t* »fl»Ctry»
19
-------
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 FY1992 cleanup was
started ai 35 sites.. Cumulative
performance to date is 1,219
cleanups begun/1,275 sites on the
NPL.
The number of cleanups started
declined in FY 1991 and 1992
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 56 remaining sites
have been evaluated for immediate
threat, even though cleanup action
has not 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 1992 cleanup actions were
begun at 279 non-NPL sites, bringing the
total such actions since program inception to
2,029.
Types of Removal Actions
Drainage controls
Stabilization of berms, dikes, or impoundments; or
drainage or dosing of lagoons
Capping of contaminated soils or sludges
Use of chemicals or other materials to limit the spread of
a release or mitigate its effects
Excavation, consolidation, or removal of highly
contaminated soils from drainage or other areas
Removal of drums, barrels, tanks, or other bulk containers
Containment, treatment, disposal, or incineration of
hazardous materials
Provision of an alternate witer supply
Fences, warning signs, or other s*curiry or site control
precautions.
20
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Measure 3. The number of sites on the
NPL where 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.
This measure counts the next significant
stage of cleanup for NPL sites following
the feasibility study ->• the signing of the
Record of Decision (ROD). 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.
Large, complex sites often are addressed in
stages (e.g., cleaning up a drum storage
area on a different schedule than a landfill)
each with its own ROD. This measure
counts each site with at least one ROD but
that ROD may not address the entire site.
Results: Cleanup decisions were made for
109 sites in FY1992, resulting in a total to
date of 795 sites of the 1,275 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 1992, 61 sites (or significant
portions thereof) progressed through the
Remedial Action clean up phase. This
brings the total number of such sites to 235
of the 1,275 sites on the NPL.
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;
2) EPA determines that the response action
does not involve construction; or
3) the site qualifies for deletion from the
NPL.
Results: During FY 1992, cleanup was
completed at 86 sites. Cumulative results
for the program to date are 149 sites with
cleanup construction completed of the 1,275
sites on the NPL.
21
-------
NPL Sites with Construction Complete
Cumulative sites to date
200
160-
120-
80
82 83
84
85 86
87
88 89 90 91 92
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 parties responsible 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 have voluntarily entered into
a settlement with EPA and those where
EPA uses its enforcement authority to
compel responsible parties to conduct work.
Results: During FY1992, 118 enforcement
actions for site study and cleanup were
taken at 106 sites of the 1,275 sites on the
NPL. 90 of these actions were settlements
for RD/RA (48 consent decrees and 42
unilateral administrative orders), and two
were injunctive referrals for RD/RA to the
Department of Justice.
Since the inception of the Superfund
program, EPA has achieved responsible
party (RP) commitments to site response at
679 sites (59%) of the 1,149 non-Federal
Facility sites on the NPL with an estimated
cumulative value of over $7 billion. In FY
1992, EPA achieved RP commitments to
response work at 106 (9%) of the 1,149
NPL sites. The estimated value of the FY
1992 RP NPL cleanup commitment is $1.3
billion.
Measure 7. The number of major
enforcement actions for recovery of
Superfund costs against parties
responsible for contaminating sites.
22
-------
The measure is a subset of number 6 and
counts any enforcement action (injunctive
referrals and settlements) which resulted in
recovering over $200,000 in past costs.
This measure will be expanded in FY 1993
to more accurately depict enforcement
activity at sites. At that time a
denominator will be added to show the
relationship to the total number of eligible
sites.
Results: In FY 1992, the Agency
referred 75 major (greater than
$200,000) cost recovery cases to
the Department of Justice. The
total value of past costs sought
through these referrals was $137
million.
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
Millions of $
300-
250
200-
150-
100
50
Millions of $
1,000
800-
600-
400
200-
second half of one fiscal year are frequently
collected in the following year.
Results: In FY 1992 the Agency collected
over $185 million in cost recoveries and
reached settlements for the recovery of $250
million. Since the inception of the program,
the Agency has collected over $545 million
in cost recoveries. This represents 62% of
the total value of cost recovery settlements
reached by the program to date.
Cost Recoveries - By Year
Settlements
Collections
616283846566676889909192
Cost Recoveries - Cumulative
Settlements
Collections
/
816283648566876869909192
23
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Measure 9. The amount of money
parties responsible for contaminating
Superfund sites have agreed 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 1992 the Agency reached
227 settlements (NPL and non-NPL) for
responsible party response worth an
estimated $1.45 billion. Response
settlements may be broken out as follows:
PRP Response Settlements
Millions rf$
8,000
6,000-
4,000-
2,000-
• Remedial Design/Remedial Action
settlements- $1,301 million
Consent decrees referred to the
Department of Justice $819
million.
unilateral administrative orders
- $482 million
® Settlements for removal and site
evaluation $150 million.
When the value of FY 1992 response
settlements is added to the cost recovery
settlements achieved of $250 million, the
total ($1.7 billion) represents the amounts
for which private parties committed to pay
for site response. FY 1992 Superfund
obligations totaled $1.7 billion. Compared
to Superfund enforcement expenditures in FY
1992 ($198 million), these results represent
a ratio of $8.50 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 1992. From the
public's perspective the most significant
achievement was the accelerated pace of site
completions from only 63 since the
program's inception
through FY 1991 to 149 at
the end of FY 1992.
Moreover, the Agency is
on target to meet our
ambitious goals of 200
sites by the end of FY
1993 and 650 by the year
2000.
Total
RQ/RA
80 81 82 83 64 85 86 87 88 89 90 91 92
The Superfund
enforcement program also
compiled an enviable
record in FY 1992.
Responsible parties
contributions now account
for a majority of the
Superfund cleanup work.
The value of responsible
24
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party settlements has risen dramatically in
the past few years due to EPA's enhanced
enforcement authorities and
"enforcement first" policy.
an
Over the past two years EPA has reviewed
the Superfund program's progress and
made significant improvements which have
contributed to the above successes. Two
major studies in FY 1991 looked at ways to
speed up the pace of NPL cleanups,
evaluate risks and improve our contracting
practices.
Building on these studies, the Agency
undertook a Superfund revitalization
program which includes: consolidating
management accountability for this large
program, using a troubleshooting team to
quickly identify and resolve problems,
developing and piloting regional models to
speed site cleanups and completions,
reducing contract management costs, and
improving risk-based decision making.
These reforms are beginning to produce
results, as our FY 1992 numbers show.
We look forward to continued
improvements in FY 1993 as the programs
begun in FY 1991 and FY 1992 come into
full swing.
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. In FY
1991 the Agency developed a long-term
contracts strategy that projects Superfund's
needs over the next decade and redesigns
our portfolio of contracts to meet these. In
FY 1993 we will phase in new contracts,
most of which will be managed by the
Regional offices.
In FY 1993 we will continue our efforts to
reduce contracts management costs. The
share of our contracts cost devoted to
program management has decreased from
almost 30% in FY 1990 to 14% in FY
1992. We must ensure these management
costs stay reasonable.
EPA must also 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's efforts to convert base extramural
resources to Agency FTE to perform these
types of functions have thus far been
unsuccessful. 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.
25
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Leaking Underground Storage Tank (LUST) Program
The Leaking Underground Storage Tank
(LUST) program is administered under the
Resource Conservation and Recovery Act
primarily by the Office of Solid Waste and
Emergency Response.
Program Description
In 1984 the Resource Conservation and
Recovery Act was amended to give EPA the
authority to regulate underground tanks
storing petroleum products. In 1986
Congress set up a $500 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. In 1990 the
Trust Fund was reauthorized for 5 years
with no cap on funds collected. The Fund
is used to oversee cleanups by responsible
parties or to cleanup 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. About 1.6
million of these are regulated by EPA; the
rest mainly on farms and tanks 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% of regulated
tanks are leaking. Leaks from USTs can
cause fires or explosions, and some leaks
contaminate groundwater.
Due to the large size 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 1992, EPA had delegated
program authority to 10 States, granting
them formal approval to regulate USTs in
lieu of EPA.
26
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Financial Perspective
Since 1986, the Treasury managed LUST
Trust Fund has collected $856 million. Of
this amount, $329 million had been
appropriated to EPA through the end of FY
1992. Due to the decentralized nature of the
LUST program, EPA has awarded 82% of
these funds to the States.
In FY 1992, EPA had 95 FTE and $75
million to implement the LUST program.
OSWER had 62 FTE and $72 million to
support the LUST program. Approximately
30 FTE and several million dollars were
used by non-OSWER offices in
Headquarters and the Regions to support the
LUST program. 96% of the cleanups were
conducted by responsible parties with State
oversight.
The appropriated funds decreased by $10.2
million in FY 1991 compared to FY 1990
then increased by $10 million in FY 1992.
The obligations followed the same trend as
the appropriation. However, net outlays
LUST Projects - FY 92
Total EPA funding $63 million
State Managed (96%)
EPA Managed (4%)
continued to increase from FY 1990 through
FY 1992. Since the LUST program is
funded by no-year appropriations,
obligations are funded by current year
appropriations and prior year unobligated
balances.
LUST Financial Trends
100
BO
60
40-
20
Obligations
Appropriations
Net Outlays
FY90
FY91
FY92
27
-------
Program Results
The LUST program has initiated corrective
actions at over 129,000 sites as of the end of
FY 1992. These cleanup actions are
protecting hundreds of thousands of people
from the effects of leaking petroleum
storage tanks.
For the LUST program, the FY 1992
performance measures count the number of
sites with confirmed releases of petroleum
products, and the number of these where
cleanup is underway and the number where
it is completed.
Measure 1. The number of sites
nationwide where EPA and the States
have found a petroleum leak from an
underground storage tank.
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.
Results: In FY 1992 the program initiated
actions at 49,000 sites. Cumulative
program to date: 129,000 cleanups initiated/
a total universe at the end of FY 1992 of
183,000 sites with confirmed releases.
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
1992, 57,000 USTs
were added to the list of
sites with confirmed
releases. At the end of
the fiscal year there
were a total of 183,000
sites on this list.
Measure 2. The
number of sites with
petroleum leaks from
an underground
storage tank where
LUST National Corrective Action Activity
Thousands oJ
Actions to date
200-
160-
120-
80
40-
Confirmed
Releases
Clean-Ups
Started
. Ctean-Up»
Complete
90-1 2
91-1 2 3
Fiscal Quarter
92-1
28
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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.
Results: During FT 1992 cleanup was
completed at 29,000 LUST sites. Total to
date completions is 56,0001 an end of FY
universe of 283,000 sites with confirmed
releases.
that new tanks are properly installed and
that old ones are properly closed. Proper
tank installation and closure and careful
monitoring of tanks in use will minimize
future problems with leaking underground
storage tanks.
The FY 1992 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 has
also 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 releases.
As of FY 1993 the phase-in of release
detection requirements will apply to tanks
installed prior to 1980. In addition, the
program will expand its efforts to ensure
29
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Pesticides Reregistration and Expedited Processing Fund
(FIFRAFund)
The Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund) is
administered under the Federal Insecticide,
Fungicide, and Rodenticide Act (FIFRA)
primarily by the Office of Prevention,
Pesticides and Toxic Substances
Program Description
As part of its authority to regulate
pesticides, EPA is responsible for
reregistering existing pesticides. The
FIFRA legislation, requiring the registration
of pesticide products, was originally passed
in 1947. Since then, health and
environmental standards have become more
stringent and scientific analysis techniques
are much more precise and sophisticated. In
the 1988 amendments to FIFRA (FIFRA >
88), Congress mandated the accelerated
reregistration of all products registered prior
to November 1, 1984. Reregistration is
required to be completed by 1997.
Congress authorized until 1997 the
collection of two kinds of fees to supplement
appropriated funds for the program an
annual Maintenance Fee and a one time
Reregistration Fee. Maintenance fees are
assessed on registrants of pesticide products
and are structured to collect approximately
$14,000,000 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, l/7th of
Maintenance Fees collected, up to
$2,000,000 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. They do not have to
be earned prior to obligation as in the
Tolerance Revolving Fund. 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.
30
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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 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.
31
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Financial Perspective
FIFRA Fund Receipts - FY 92
Total Receipts $17.1 million
Fees (95%)
Investment Earnings (5%)
During FY 1992, the Agency's obligations
charged against the FIFRA Fund for the cost
of the reregistration and expedited
processing programs were 264 FTEs and
$24.5 million. Of these amounts the Office
of Pesticide Programs funded approximately
221 FTEs and obligated $16.3 million of
this cost.
Appropriated funds
are used in addition
to FIFRA revolving
funds. In FY 1992,
approximately $22.8
million in
appropriated funds
were obligated for
reregistration and
expedited processing
program activities.
million compared to the FY 1991 year-
end balance of $13.87 million.
The fund has two types of receipts: fee
collections and interest earned on
investments. Of the $17.1 million in
FY 1992 receipts, approximately 95%
was fee collections. Although the fund
balance and related investment earnings
continued to decrease from FY 1990
through FY 1992, the fee receipts
increased in FY 1992 after a decline in
FY 1991. Legislation in December
1991 changed the FIFRA fee cap which
resulted in increased Maintenance Fee
collections in FY 1992. Obligations
followed the same trend as fee receipts.
FIFRA Financial Trends
The unobligated
balance in the fund
at the end of FY
1992 was $8.98
million. This is a
decrease of $4.89
Millions of $
40-,
30
20-
10
Obligations
Fee Receipts
FY90
FY91
FY92
32
-------
Program Results
Measure 1. The number of Data-Call-ins
issued.
Results: The number of Data-Call-ins
(DCIs) issued in FY 1992 was 97 versus a
target of 91. EPA reviews the studies,
identifies and "calls-in" missing studies by
issuing a DCI to a pesticide registrant to
obtain additional scientific data.
Measure 2. The number of Reregistration
Eligibility Documents (REDS) completed.
Results: The number of Reregistration
Eligibility Documents (REDS) completed was
15 versus a target of 16, an increase of 2
over FY 1991 when 13 were completed.
Measure 3. The number of products
reregistered.
Results: In FY 1992,
41 products were
reregistered versus a
target of 100; the first
year products were
reregistered under
FIFRA' 88. In
addition, 165 products
were canceled through
the product
reregistration process.
200-,
160-
120-
80-
40-
FIFRA Fund Completions
Product
Registrations
REDs
DCIs
FY90
FY91
FY92
33
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Revolving Fund for Certification and Other Services
(Tolerance Fund)
The Revolving Fund for Certification and
Other Services (Tolerance Fund) is
administered under the Federal Food, Drug
and Cosmetic Act (FFDCA) primarily by
the Office of Prevention, Pesticides and
Toxic Substances (OPPTS).
Program Description
As part of its authority to regulate
pesticides, EPA is responsible for setting
"tolerances". If the pesticide is being
considered for use on a food or feed crop or
as a food or feed additive, the applicant
must petition EPA for establishment of a
tolerance (or exemption from a tolerance)
under authority of FFDCA. A tolerance is
the 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
$3,075 to $54,175, 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 (TR-4 Program), public
interest, such as reduced-risk pesticides, and
economic hardship. The fees are updated
annually based on the percentage change in
GS pay rates. Fees were increased 4.2% in
FY 1992. By statute, monies in the
Tolerance Fund may not be invested.
34
-------
Financial Perspective
Tolerance Fund Financial Trends
Million* of $
5
4-
2-
1-
Fund Balance
FY90
Foe Flecelpts
Obligations
FY91
FY92
During FY 1992, the Agency charges to the
Tolerance Fund for the cost of the tolerance
setting functions were $1.2 million.
Appropriated funds are used in addition to
revolving funds. In FY 1992,
approximately $3.5 million in appropriated
funds were obligated. The unobligated
balance in the revolving fund at the end of
FY 1992 was $3.76 million. This is an
increase of $10 thousand compared to the
FY 1991 year-end balance of $3.75 million.
The fund balance increased by $1 million in
FY 1991 compared to FY 1990. It
remained almost unchanged in FY 1992.
The fee receipts increased in FY 1991 and
declined in FY 1992 while obligations
declined in FY 1991 and increased in FY
1992.
35
-------
Program Results
Tolerance fees collected in FY 1992 were
approximately $1.2 million and "earnings"
in FY 1992 were approximately $1.1
million. Earnings represent the value of
petitions that are 80% or more completed.
Before EPA can use the tolerance fees in the
revolving fund, the work on a petition must
be at least 80% completed.
Measure 1. The number of permanent
tolerance petitions completed.
Results: The number of permanent
tolerance petitions completed/or section 408
raw agricultural commodities and section
409 food additives was 62 compared to a
target of 50. This represents final
detenninations by the Agency concerning
permanent tolerance petition requests for
allowable levels of pesticide residues on raw
agricultural commodities and in food
additives. This is an increase of 11
completions compared to the 51 in FY 1991.
The number of permanent tolerance petition
reviews ("cycles")
completed was 411
compared to a target of
275.
80-
60-
40
20
Tolerance Completions
FY90
FY91
FY92
-------
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).
Program Description
The Act envisions a three-step process.
First, EPA is to make applications available
to public and nonprofit schools for
completion and submission to their State
Governor (or the Governor's Designee).
Second, Governors (or Designers) are
responsible for collecting, reviewing, and
submitting applications to EPA. Third,
EPA receives and reviews all applications,
and makes offers of financial assistance
available on the basis of the applicant's
asbestos hazard and demonstrated financial
need. The reauthorized statute mandates
that awards of financial assistance must be
made by April 30 of each year for which
Congress appropriates funding for the loan
and grant program.
In making its award decisions, the ASHAA
legislation instructs EPA to generate its own
national priority list from applications
received. A ranking method is then
employed to sort all proposed abatement
projects into categories 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:
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.
Priority One Significantly damaged friable
surfacing material which is exposed and/or
located in an air plenum.
Priority Two Friable asbestos-containing
materials which are exposed or in an air
plenum and are defined by an AHERA
accredited person as one of the following:
• Damaged or significantly damaged
thermal system insulation.
• Damaged surfacing material.
• Damaged or significantly damaged
miscellaneous material which has been
isolated to protect human health and the
environment.
Priority Three Damaged or significantly
damaged friable miscellaneous material
which does not necessitate isolation but is
exposed and/or located in an air plenum.
Priority Four - Any damaged or significantly
damaged friable material which is not
exposed or located in an air plenum.
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
37
-------
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
anasbestos abatement program. Financial
indicators used in determining eligibility for
both private and public schools include
Budget Per Pupil and the burden of
abatement costs on an LEA's operating
budget.
Assistance may take the form of either a
grant or an interest-free loan, or some
combination of both. Loans may include up
to 100% of abatement project costs and
grants may cover up to 50% of costs.
ASHAA does not require that EPA provide
recipients the total funding necessary to
complete an abatement project.
ASHAA Loan/Grant Program Summary - FY 92
TTTAL
VPPL1CAHTS
£te
chock
1ra*dt
1985
1107
SOBS
8548
1986
371
1211
2389
1987-V
292
1030
1967
1987-2
340
1015
1769
1968'
328
966
1722
1989
1110
2363
412S
1990
863
1856
3352
1991
406
S91
1S11
1992
362
712
1211
tl62.SU
$I77.«U
II70JM
$367.7 M
$403.0 M
$230.5 M
$199.7 M
rOTAL QUALIFIED
VPPUCAT10NS"
JEAs
xhxfc
587
1832
2B47
istt
$186.6 U
241
644
1247
$93.6 M
13*
408
774
$41.4 U
208
489
820
$94.7 M
185
441
721
$79.0 M
682
1361
2093
$123.2 M
£33
1300
206$
$262.2 M
246
557
$134.$ M
209
389
616
$126.1 M
lOTALAWARDEES
LEA*
And
PifcaU Awrf
LwnAmnJ
EjposinHwn
198
940
417
$4SU
139.8 M (88%)
tS2 U (12%)
173
295
421
W7M
$41.4 U (88%)
$5.6 M (12%)
133
366
$63
$34 JM
$29.1 M (85%)
K2 M (15%)
35
56
66
$8M
$7.4 U (93%)
$0.6 U (07%)
103
187
228
$22 JIM
$19.8 M (88%)
$2.8 M (12%)
231
327
401
$4SU
$40.6 M (90%)
$4.4 U (10%)
129
16S
206
$43.4 U
$35 .6 M (82%)
$7.8 M (18%)
123
201
272
$46.3 M
$29.2 U (63%)
$17.1 M (37%)
128
198
261
$S4iM
$47.6 M (87%)
$6.9 M (13%)
TOTALS
12S3
2156
1551 M (IP
$332 M (74%) $30M(73%) $24.6 M (72%) $4.3 M (54%) $15.4 M (68%) $25.4 M (56%) $29.8 M (69%) $33.5 M (72%) $39.7 M (73%) J2«.2M|ffl
$11.8 M (26%) $12.7 M (27%) $9.7 W (28%) $3.7 U (46%) $7.2 M (32%) $19.5 M (44%) $,3.6 M (31%) $12.8 M (28%) $14.8 M (27%) HOW
4.7 M
33 U
2.1M
2.4 M
3.1 M
2UM
' UnlLmdsrf ippfalwil Ircm 195S w»n th« on)y proj»ds cms'.dend lof 1987 • 1 swards. Un!und«d appticalioos Item 1987-2 w»r» !hs onV pojocls consideiod la 1988 »w»rd».
~ ACM is l/iablt, dimjje((, «ipostd [or h an tit ptenum), and felleds lhos» «ppfcanU d*l»rmir»iJ to t* •quslilaf «JI«r EPA'J l«dmical r»vi»w.
38
-------
Financial Perspective
Since 1985, the ASHAA Loan and Grant
Program has awarded $346.1 million for
asbestos abatement projects. Approximately
$240.2 million of these awards were for
twenty year loans. Since the reauthorized
statute extended the program for an
additional five years, it is expected that
Congress will continue to appropriate
funding for the program through 1995.
Implementation of the Federal Credit
Reform Act of 1990 changed the way the
Agency uses appropriated funds for asbestos
loans. Prior to Credit Reform, 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 which is borrowed from the Treasury
and repaid as EPA collects loan repayments.
In FY 1992, grant and loan awards totalled
to $54.5 million, an increase of $8.2 million
Asbestos Fund Financial Trends
Millions o( $
40
30-
20-
Asbestos Fund Awards - FY 92
Total awards $54.5 million
Loans (73%)
Grants (27%)
over FY 1991 awards. Of the FY 1992
awards, 73% were loans and 27% were
grants.
10
Both loan obligations and loan repayment
collections continued to increase from FY
1990 through FY 1992. However, grant
obligations declined
by less than $1
million in FY 1991
then increased by
$2 million in FY
1992.
Loans
Grants
Loan
Repayments
Based on loan
disbursements and
collection history,
the Agency projects
collecting $9.4
million in loan
repayments during
FY 1993, and
$10.5 million in
FY 1994.
FY90
FY91
FY92
39
-------
Program Results
The purpose of the
ASHAA program is to
reduce risk to school
children and employees
posed by asbestos. By
funding financially
needy LEAs with the
most hazardous asbestos
abatement projects, the
program has eliminated
a significant amount of
exposure to asbestos
fibers in school
buildings.
EPA's performance
measures for the
ASHAA program
include two measures:
eoo
eoo
400
200
ASHAA Projects Awarded
Two rounds of awards in 1987
1985 1986 1987 1988 1989 1990 1981 1992
Measure 1.
of ASHAA
projects.
Number
awarded
Results: In FY 1992,
the ASHAA program
funded 261 projects in
LEAS across the
country.
Measure
Elimination
Exposure Hours.
of
Results: When the
projects currently
funded are completed,
EPA estimates that 3.1
million exposure hours
will be eliminated per
week.
Asbestos Exposure Hours Eliminated per Week
Millions of hour*
1985 1986 1987 1988
1989
1990 1991 1992
40
-------
MESSAGE FROM THE CHIEF FINANCIAL OFFICER
We at the United States Environmental Protection Agency (EPA) are pleased to submit our
fiscal year 1992 financial statements. This is the first set of financial statements produced by
the Agency based on requirements of the Chief Financial Officers (CFO) Act of 1990 and
OMB (Office of Management and Budget) Bulletin No. 93-02.
EPA has spent considerable resources and approximately two years in the development of
these statements. We are grateful to the hard work of those persons in financial management
and throughout EPA who developed the performance measures, the principal statements, and
other support efforts that made publishing these statements on schedule possible. We are
also indebted to the excellent guidance and support provided externally by OMB and the
General Accounting Office, and internally by the program offices, the Office of the Inspector
General and the Office of Planning, Policy and Evaluation
EPA's fiscal year 1992 financial statements cover the financial condition of five funds:
Superfund;
Leaking Underground Storage Tank (LUST) Program;
Pesticides Reregistration and Expedited Processing Fund (FTFRA Fund);
Revolving Fund for Certification and Other Services (Tolerance Fund); and the
Loan Portion of the Asbestos Loan and Grant Program.
The financial position and results of operations of the five funds are presented on a combined
basis in four financial statements and related footnotes:
• The Statement of Financial Position discloses the funds' assets, liabilities, and net
position.
• The Statement of Operations and Changes in Net Position reflects the results of the
funds' operations for the reporting period, including the changes in the funds' net
position from the end of the prior reporting period.
• The Statement of Cash Flows reflects the funds' gross cash receipts and cash
payments.
• The Statement of Budget and Actual Expenses reconciles total expenses from the
financial statements with budgetary information about the status of EPA's
appropriations reported to OMB.
The same records and accounts traditionally used to prepare our required reports to the
Department of the Treasury were used to prepare these statements. The footnotes provide
detailed information and are an integral part of these statements. In addition, there are
supporting statements for each individual fund. The statements should be read with the
understanding that the payments of all liabilities can, in most circumstances, be terminated
for the convenience of the government.
41
-------
We hope the information in these statements, including the information in the Overview
section, will be useful to a wide range of readers who wish to know about EPA's financial
position and the results of operations in regard to these funds. As the Administrator has
noted, these financial statements are an important step towards ensuring that our resources
are effectively allocated and managed.
We have worked closely with our Inspector General in the development of these statements
to ensure they can be effectively and quickly audited, and look forward to receiving the
results of that audit. We intend to use that information, as well as the extensive lessons we
have learned in preparing these statements, to improve our financial systems and management
controls and move toward our goal of greater accountability in the management of our
resources.
Tiaif R. Holmes
42
-------
Principal Financial Statements
Contents
Financial Statements
Combined Statement of Financial Position
Statement of Operations and Changes in Net Position
Combined Statement of Cash Flows
Statement of Budget and Actual Expenses
Notes to Financial Statements
Note 1. Summary of Significant Accounting Events
Note 2. Fund Balances with Treasury
Note 3. Investments - Federal
Note 4. Loans Receivable, Net Non-Federal
Note 5. 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. Subsequent Events
Schedules
Schedule of Financial Position by Fund Activity
Schedule of Operations and Changes in Net Position
Schedule of Cash Flow by Fund Activity
43
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Combined Statement of Financial Position
As of September 30, 1992 (Dollars in Thousands)
Assets
Financial Resources:
Fund Balances With Treasury (Note 2) $ 105,370
Investments Federal (Note 3) 15,243
Accounts Receivable, Federal 28,358
Accounts Receivable, Non-Federal (net of $5,926 allowance) 122,406
Loans Receivable, Net-Non-Federal (Note 4) 125,520
Appropriated Amounts Held by Treasury (Note 1) 3,048,182
Other Federal (Note 7) 19,704
Non-Financial Resources:
Advances and Prepayments, Non-Federal 940
Property, Plant and Equipment, Net (Note 5) 16,752
Amounts Held by Treasury for Future Appropriations (Note 1) 1.917.506
Total Assets $5.399.981
Liabilities and Net Postion
Liabilities
Accounts Payable, Non-Federal $ 105,349
Accounts Payable, Federal 126,947
Accrued Payroll and Benefits 7,065
Deferred Revenue, Non-Federal 261,082
Deferred Revenue - Federal 14,929
Amounts Held By Treasury for Future Appropriations (Note 1) 1,917,506
Debt - Federal (Note 6) 1,318
Other Funded Liabilities Federal (Note 7) 19,704
Accrued Leave Unfunded 10.723
Total Liabilities 2,464,623
Net Position
Revolving Fund Balances 4,914
Trust Fund Balances 2,767,729
Commercial Activities 173,438
Less: Future Funding Requirements (10,723)
Total Net Position (Note 8) 2,935.358
Total Liabilities and Net Position $5.399.981
The accompanying notes are an integral part of these statements.
-------
^^^^^^^^^^^^••^^^^••••^^•^^•^^^^•••^^•^^^^•^^^^•^^^^(^^^^^^^^^^^•^^••^^••••^•••••i^M^^M^^^^MI^^M
EPA Trust Funds, Revolving Funds and Commercial Activities
Combined Statement of Operations and Changes in Net Position
For the Year Ended September 30, 1992
(Dollars in Thousands)
Revenues and Financing Sources
Appropriations Expensed $ 1,496,485
Revenues from Services To the Public 25,890
Interest and Penalties, Non-Federal 5,310
Income from Overhead Allocation 45,069
Fines, Penalties and Other Revenues 220,685
Less: Receipts Returned To Treasury (192,647)
Total Revenues and Financing Sources 1,600,792
Expenses
Program or Operating Expenses (Note 9) 1,520,378
Depreciation and Amortization 711
Bad Debts and Writeoffs 5,472
Overhead Expenses from Allocation 45,069
Other Expenses (Note 10) 9
Total Expenses 1,571,639
Excess of Revenues and Financing Sources 29,153
Prior Period Adjustments (Note 11) 7,273
Excess of Revenues and Financing Sources 36,426
Plus: Unfunded Expenses 1,092
Excess of Revenues and Financing Sources $ 37.518
Changes in Net Position
Net Position, Beginning Balance $ 2,338,239
Excess of Revenues and Financing Sources 37,518
Non-Operating Changes (Note 12) 559.601
Net Position, Ending Balance $ 2,935,358
The accompanying notes are an integral part of these statements.
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Combined Statement of Cash Flows
For the Year Ended September 30, 1992
(Dollars in Thousands)
Cash Flows from Operating Activities:
Excess of Revenues and Financing Sources $ 36,426
Adjustments Affecting Cash Flow:
Appropriations Expensed (1,130,071)
Decrease (Increase) in Accounts Receivable (45,917)
Decrease (Increase) in Loans Receivable (14,385)
Decrease (Increase) in Other Assets (30,627)
Increase (Decrease) in Accounts Payable (324,353)
Increase (Decrease) in Other Funded Liabilities 157,652
Depreciation and Amortization 711
Other Unfunded Expenses 1,092
Other Adjustments 602
Total Adjustments (1,385,296)
Net Cash Provided (Used) by Operating Activities (1,348,870)
Cash Flows from Investing Activities:
Proceeds from Sales of Investments 6,638
Purchase of Equipment 1.150
Net Cash Provided (Used) by Investing Activities 7,788
Cash Flows from Financing Activities:
Appropriations (Current Warrants) 80,500
Transfers of Cash from Others 1,348,952
Deduct:
Withdrawals (196)
Transfers of Cash to Others (57.728)
Net Appropriations 1,371,528
Borrowing from the Treasury 1.318
Net Cash Provided (Used) by Financing Activities 1.372.846
Net Cash Provided (Used) - Total 31,764
Fund Balances with Treasury, Beginning 73.606
Fund Balances with Treasury, Ending $ 105.370
The accompanying notes are an integral part of these statements.
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statement of Budget and Actual Expenses
For the Year Ended September 30, 1992
(Dollars in Thousands)
Budget
Actual
Obligations
Resources
$ 1,944,698
76,966
30,873
4,820
109.509
$ 2.166,866
Direct
$ 1,729,094
75,403
4,821
100.071
$ 1.909.389
Program Name
Superfund
LUST
FIFRA
Tolerance Fund
Asbestos Loan Program
Totals
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
Reimbursed Expenses
$ 10,156 $ 1,432,145
69,391
17,071 47,500
1,104 4,732
: 17.871
$ 28.331 $ 1.571.639
$ 1,571,639
1,150
123,707
711
1,092
7
5,472
1,689,214
28,331
1,660,883
(12,816)
(45,069)
(13)
$ 1,602,985
The accompanying notes are an integral part of these statements.
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Notes to Financial Statements
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 Trust (LUST) Fund,
Asbestos Loan Program (a commercial activity), Revolving Fund for
Certification and Other Services (Tolerance) and the Reregistration
and Expedited Processing (FIFRA) Revolving Fund, 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 the
form and content for entity financial statements specified by the
Office of Management and Budget (OMB) in Bulletin 93-02 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 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 wisest use of Superfund money in order to achieve the greatest
possible cleanup. The program is funded from monies appropriated
-------
from general fund 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 agreements 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 Asbestos Loan Program was authorized by the Federal Credit
Reform Act of 1990 to conduct the activities defined by the
Asbestos School Hazard Abatement Act to manage asbestos building
materials in schools. As required by the Federal Credit Reform Act,
this program records all cash flows to and from the Federal
government in a non-budgetary account for direct loans obligated in
1992. The 1992 program is funded by 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.
All cash flows from the Federal government are maintained in a
budgetary liquidating account for loans obligated before 1992 and
collections on those loans are recorded in a General Fund receipt
account. Loans obligated before 1992 are funded by General Fund
appropriations. Under provisions of the Federal Credit Reform Act,
the balance of any money collected on loan repayments authorized
by the Asbestos School Hazard Abatement Act of 1986 must be
returned to the general revenue fund at Treasury. Accounting
activity for the Asbestos Loan Program is accounted for under the
4321, 0118, 4322 and 2917 Treasury symbols.
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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 registration of new pesticides, monitoring the
distribution and use of pesticides, issuing civil or criminal penalties
of violations, establishing cooperative agreements with the states,
and certifying training programs for users of restricted chemicals.
Appropriated funds, however, pay for these activities. The FIFRA
Revolving Fund is accounted for under Treasury symbol number
4310.
The Tolerance Revolving Fund was authorized in 1963 for the
deposit of tolerance fees. A tolerance is the maximum legal limit of
a pesticide residue on food commodities and animal feed.
Tolerances are established by EPA to prevent consumer exposure to
unsafe levels of pesticide residues. In 1954, Congress authorized
the collection of fees for raw agricultural commodities. Fees were
deposited to the Treasury general fund until 1963 when Congress
established the Revolving Fund for Certification and Other Services
(Tolerance Revolving Fund). The Department of Agriculture and the
Food and Drug Administration are responsible for enforcing
adherence to these tolerance levels. Funding is provided 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 combined 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 Agencywide appropriations. The following is a list of all the
programs and the corresponding administrative costs funded by
Agencywide appropriations (unaudited): (Dollars in Thousands)
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Superfund
LUST
Asbestos
FIFRA
Tolerance
Total
These amounts are included in the Income from Overhead Allocation
and the Overhead Expenses from Allocation line items of the relevant
financial statements.
In addition, the Superfund and LUST Trust Funds are allocated
general support service costs (such as rent, communications,
utilities, mail operations, etc.) that were initially charged to the
Agency's Salaries and Expense (S & E) appropriation. During the
year, these costs are allocated from the S & E appropriation 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 service costs 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 service costs charged to the Superfund and LUST Trust
Funds were $ 17.59 million and $ .24 million
for FY 92.
C. Budgets and Budgetary Accounting
Congress annually adopts an appropriation amount to be available
until expended for the Superfund Trust Fund and for the LUST Trust
Fund. Transfer accounts for each Trust Fund have been established
for the purpose of carrying out the program activities. As EPA
disburses obligated amounts from the transfer accounts, EPA draws
down monies from the Trust Funds at Treasury to cover the amounts
being disbursed.
The Asbestos Loan Program is a commercial activity financed by a
combination of 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 provided, 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 outflows
associated with the loans less the estimated cash inflows. 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 reestimates that occur after the year in which the loan is
disbursed.
Funding of the FIFRA Revolving Fund and the Tolerance Revolving
Fund 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 and LUST 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 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 maintains no cash in commercial bank accounts. Cash receipts
and disbursements are processed by the Treasury. The funds
maintained with the 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 the
Treasury and are reported at amortized cost net of unamortized
discounts. Discounts are amortized into interest income over the
term of the investments. 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. 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 funds. Cost
recovery expenditures are expensed when incurred because there is
no assurance that these funds will be recovered.
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It is EPA's policy to record accounts receivable from potentially
responsible parties (PRPs) for Superfund site cleanup costs, incurred
by EPA, when a consent decree, judgement, or other binding
agreement is reached. These agreements are often obtained after
site cleanup costs are incurred and often in subsequent accounting
periods. It is EPA's position that until a consent decree is obtained,
potential receivables are not measurable or probable for collection.
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.
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
costs share agreements are usually 10 to 50 percent of site cleanup
costs. States may pay the full amount of state cost shares in
advance, or in incremental amounts throughout the cleanup project
term. No allowances for uncollectible state cost share receivables
have been recorded, because EPA has not had collection problems
on these arrangements.
Other Receivables for FIFRA represents interest receivable.
A detail of non-federal accounts receivable at September 30, 1992
is as follows:
Total Superfund LUST Asbestos FIFRA
PRP receivables (including $80,920 $80,920
interest of $6,681)
Allowance on PRP receivables (5,926) (5,926)
State cost share receivables 47,368 47,317 51
Other receivables 44 4 _^ J_2 28_
$122,406 122,315 51 12 28
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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.
Total Suoerfund Asbestos
Inter-agency agreements $ 2,695 2,695
Intra-agency receivables 25,000 5,600 19,400
Other 663 663 ;
$28,358 8,958 19,400
I. 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.
J. 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 at Treasury for Treasury to invest. At the
end of the fiscal year, approximately $2.97 billion of Superfund and
$81 million of LUST funds remained in the Trust Funds to meet
EPA's disbursement needs. These amounts are classified as
appropriated amounts held by Treasury in the accompanying
statement of financial position.
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Treasury also maintains and manages trust funds for (1) the
collection of taxes on crude and petroleum, sales or use taxes on
certain chemicals, and environmental taxes on corporations,
designated for the Superfund program, and (2) taxes on motor fuels
designated for the LUST program, that have not yet been
appropriated to EPA or to other Federal agencies. EPA has no
control over these balances. These balances, $1,344,292,000 and
$573,214,000 for the Superfund Trust Fund and LUST Trust Funds,
respectively, are classified as amounts held by Treasury for future
appropriations and offset by a corresponding liability on the
accompanying statement of financial position.
K. Property and Equipment
The land and buildings which EPA uses is 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 $5,000 or more. Equipment with an
acquisition cost of less that $5,000 is expensed when purchased.
Equipment is depreciated using a modified straight line method over
a period of six years depreciating ten percent the first and last year
and twenty percent in years two through five.
L. 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.
M. Interagency Agreements
The Superfund Trust Fund contracts for a wide range of goods and
services through interagency agreements with other Federal
agencies. At September 30, 1992, the balance of Accounts Payable
- Federal of $126,947,000 represents interagency agreements
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payable. The balance of Accounts Receivable Federal includes
$2,695,000 relating to interagency agreements.
N. Deferred Revenue
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 be paid voluntarily or under protest. Deferred
revenue is to be recognized as the related services are incurred.
However, amounts paid in protest are held until the protest is
resolved.
Components of the September 30, 1992 deferred revenue are as
follows:
Total Superfund FIFRA Tolerance
Non-Federal:
State cost share
arrangements
Other
Federal:
Interagency $ 14,929 14,929 - -
agreements
O. Borrowings Payable to the Treasury
Borrowings payable to the Treasury result from loans from the
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.
115,419
133,142
12,521
>61.082
115,419
133,142
_
248,561
-
-
8.917
8.917
3.604
3.604
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P. Interest Payable to Treasury
The Asbestos Loan Program makes periodic interest payments to
Treasury based on its debt to Treasury. At the end of the fiscal
year, there was no outstanding interest payable to Treasury because
payment was made on September 30.
Q. Contingencies
EPA is a party in various administrative proceedings, legal actions,
and claims brought by or against it. These include:
Various personnel actions, suits, or claims brought
against the Agency by employees and others.
Various contract and assistance program claims
brought against the Agency by vendors, grantees and
others.
The legal recovery of Superfund costs incurred for
pollution cleanup of specific sites, to include the
collection of fines and penalties from responsible
parties.
Claims against recipients for improperly spent
assistance funds which may be settled by a reduction
of future EPA funding to the grantee or the provision of
additional grantee matching funds.
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 on these administrative
claims and litigation could amount to approximately $18.7 million
and $5 million, respectively. The ultimate outcome of these claims
and litigation cannot presently be determined. Accordingly, no
provision for any liability that may result upon adjudication has been
recognized in the accompanying financial statements.
In the opinion of EPA's management and General Counsel, the
ultimate resolution of any legal actions still pending will not
materially affect EPA's operations or financial position.
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R. Annual, Sick and Other Leave
Annual leave is accrued as it is earned and the accrual 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 was $1,092,000 in FY
1992. Sick leave and other types of nonvested leave are expensed
as taken.
S. 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 percent 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 since 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.
T. Comparative Data
Comparative data for the prior year has not been presented because
this is the first year for which EPA prepared financial statements. In
future years, comparative data will be presented in order to provide
an understanding of changes in the financial position and operations
of EPA's trust funds, revolving funds and commercial activities.
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Note 2. Fund Balances with Treasury:
(Dollars in Thousands)
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.
Total Available Restricted
Trust Funds:
Superfund $ 65,200 $ 65,200 $ -
LUST 6.471 6.471
Sub-Total $ 71.671 $ 71.671
Commercial Activities:
Asbestos Loan
Program $ 29.877 $ 20.439 $ 9.438
Revolving Funds:
FIFRA $ 65 $ 65 $ -
Tolerance 3.757 3.757 -
Sub-Total $ 3.822 $ 3.822 $ -
Total $ 105.370 $ 95.932 $ 9.438
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Note 3. Investments - Federal:
(Dollars in Thousands)
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).
Face Unamortized Investments,
Value Discount Net
Federal Marketable
Securities $ 15.285 $ 42 $ 15.243
Note 4. Loans Receivable, Net - Non-Federal:
(Dollars in Thousands)
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 with
the loans is provided in the following sections.
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Loans Obligated Prior to FY 1992:
Allowance for
Loans Estimated Loans
Receivable, Uncollectible Receivable,
Gross Loans Net
Asbestos Loan
Program $ 123,197 $ $ 123,197
Loans Obligated After FY 1991:
Loans Allowance for Loans
Receivable, Subsidy Cost Receivable,
Gross (present value) Net
Asbestos Loan
Program $ 3.336 $ 1.013 $ 2.323
Total: $ 126.533 $ 1.013 $ 125.520
Subsidy Expenses for Post-1991 Loans:
Current Year's Loans
Interest Expected Fee
Total Differential Defaults Offsets
Asbestos Loan Program $ 1,013 $ 1.013 $ ; $ ;
Administrative Expenses:
Charged Directly to the Asbestos Loan Program $ 1,333
Additional Administrative Support Expenses
Charged to Other Appropriations 902
Total $ 2.235
Other Information: $24 million for obligations established prior to
FY 1992 and $34.5 million for obligations established after FY
1991 remain unpaid. No expenses were incurred in FY 1992 for
subsidy reestimates.
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Note 5. Equipment - Net:
(Dollars in Thousands)
EPA capitalizes equipment purchases with a value of five thousand
dollars or more and 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 percent the first
and last years and 20 percent in years 2 through 5. The Revolving
and Trust Funds normally do not reflect purchases of property other
than equipment.
Schedule of Equipment by Fund:
Total Superfund LUST FIFRA
Acquisition
Value $54,404 $ 53,357 $ 129 $ 918
Accumulated
Depreciation 37.652 37.263 45 344
Net Book Value $16.752 $ 16.094 $ 84 $ 574
Note 6. Debt - Federal:
(Dollars in Thousands)
Under the provisions of the Federal Credit Reform Act, borrowings
from the Treasury represent the portion of loan disbursements not
subsidized by appropriated funds.
Asbestos Loan Program
Beginning
Balance
$ -
New
Borrowings
$ 1.318
Repayments
$ -
Ending
Balance
$ 1.318
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Note 7. Other - Federal Assets and Other Funded
Liabilities - Federal:
The Federal Credit Reform Act authorizes EPA to borrow $21 million
from the Treasury for the Asbestos Loan Program. Of that amount,
$19.7 million remains available for EPA use. This unused authority
is reflected in the Other - Federal category in the Asset section of the
statement of financial position, offset by other funded liabilities.
Note 8. Total Net Position:
(Dollars in Thousands)
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 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.
Total Superfund LUST Asbestos FIFRA
Appropriated/
Subsidy Capital $7,436,966 $7,154,509 $234,551 $47,906 $
Invested Capital 16,752 16,094 84 574
Cumulative Results
of Operations (4,507,637) (4,488,797) (148,712) 125,532 4,340
Future funding
requirements - non-
actuarial (10,723) (10,723) : : ;
Total Net
Position $2.935,358 $2,671,083 $ 85,923 $173,438 $4,914
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Note 9. Program or Operating Expenses:
(Dollars in Thousands)
Operating Expenses by Object Total Suoerfund
Classification:
(1) Personnel Services and Benefits $ 221,357 $ 201,285
(2) Travel and Transportation 10,798 10,064
(3) Rental, Communication and Utilities 29,434 26,831
(4) Printing and Reproduction 1,554 1,436
(5) Contractual Services 964,884 955,390
(6) Supplies and Materials 3,856 3,610
(7) Equipment not Capitalized 12,221 11,489
(8) Grants, Subsidies and Contributions 236,779 158,794
(9) Insurance Claims and Indemnities 15 15
(10) Accrued Expenses' 39.480 39.668
Total Expenses by Object Class $ 1.520.378 $ 1.408.582
'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 91 accruals and
FY 92 accruals.
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LUST
Asbestos
FIFRA
Tolerance
$ 4,558
536
554
49
2,253
53
227
60,832
$ 53
-
-
1
1,133
-
-
15,775
$ 14,261
198
2,049
68
6,108
193
505
1,378
$ 1,200
55
$ 69,117 $ 16.962 $ 24,517
$ 1.200
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Note 10. Other Expenses:
(Dollars in Thousands)
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. The Unfunded Leave Expense reflects leave earned
but not taken during the current fiscal year. Funding is to be provided
by future appropriations. By contrast, sick leave and other types of
leave are expensed as taken.
Total Superfund Asbestos
Discounts Lost $ 2 $ 2 $
Interest Paid to Treasury 7 -_ 1_
Total $ 9 $ 2 $ 7
Note 11. Prior Period Adjustments:
(Dollars in Thousands)
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 1988 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
$ 38,021
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Note 12. Non-Operating Changes:
(Dollars in Thousands)
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.
Total Suoerfund LUST Asbestos FIFRA
Increases:
Transfers-in
Other Increases
Total Increases
Total Decreases
$642,483 $512,852
8.384 7.128
650,867 519,980
91.266 13.908
$75,000
Net Non-Operating
Changes $559,601
$506,072
8.008 196
$47,879 $(196)
Note 13. Subsequent Events:
During October 1992, the Agency received a 19% equity interest in the
reorganized Uniroyal Technology Company, consisting of 1.9 million shares
of stock, valued at approximately $6.9 million. This settlement transaction
was accepted in lieu of $27.3 million of costs incurred as a result of
Superfund actions at 20 sites. The Agency does not intend to exercise
ownership rights related to this stock, but instead will convert these
marketable equity securities to cash as soon as practicable. In prior similar
transactions, this has been accomplished in less than one year. The $27.3
million receivable from Uniroyal Technology Company was not accrued as of
September 30, 1992. The settlement of this receivable will be recorded as
a fiscal year 1993 transaction.
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EPA Trust Funds, Revolving Funds and Commercial Activities
Combining Statement of Financial Position
As of September 30, 1992 (Dollars in Thousands)
Assets
Financial Resources:
Fund Balances With Treasury (Note 2)
Investments Federal (Note 3)
Accounts Receivable, Federal
Accounts Receivable, Non-Federal (Net of $5,926 allowance)
Loans Receivable, Net-Non-Federal (Note 4)
Appropriated Amounts Held by Treasury (Note 1)
Other Federal (Note 7)
Non-Financial Resources:
Advances and Prepayments, Non-Federal
Property, Plant and Equipment, Net (Note 5)
Combined
Balances
$ 105,370
15,243
28,358
122,406
125,520
3,048,182
19,704
940
16,752
Total Assets $
Liabilities and Net Position
Liabilities
Accounts Payable, Non-Federal
Accounts Payable, Federal
Accrued Payroll and Benefits
Deferred Revenue, Non-Federal
Deferred Revenue Federal
Amounts Held by Treasury for Future Appropriations (Note 1)
Debt - Federal (Note 6)
Other Funded Liabilities Federal (Note 7)
Accrued Leave - Unfunded
Total Liabilities
Net Position
Revolving Fund Balances
Trust Fund Balances
Commercial Activities
Less Future Funding Requirements
Total Net Position (Note 8)
Total Liabilities and Net Position
5.399.981
105,349
126,947
7,065
261,082
14,929
1,917,506
1,318
19,704
10.723
4,914
2,767,729
173,438
(10.723)
2.935.358
$ 5.399.981
Superfund
Trust Fund
$ 65,200
8,958
122,315
2,967,460
678
16,094
Amounts Held By Treasury for Future Appropriations (Note 1) 1.917.506 1.344.292
4.524.997
102,212
126,733
6,464
248,561
14,929
1,344,292
10.723
2,464,623 1,853,914
2,681,806
(10.7231
2,671,083
$ 4.524J91
The notes to the Combined financial statements are an integral part of these statements.
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LUST
Trust Fund
$ 6,471
51
80,722
Asbestos
Commercial Activity
$ 29,877
19,400
12
125,520
19,704
FIFRA
Revolving Fund
$ 65
15,243
28
Tolerance
Revolving Fund
3,757
247
84
573.214
15
574
660.789
194.513
3.757
1,503
5
144
53
1,428
209
457
8,917
153
3,604
573,214
1,318
19,704
574,866
21,075
11,011
3,757
85,923
173,438
4,914
85^923
$ 660,789
173.438
$ 194.513
4.914
$ 15.925
$ 3.757
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EPA Trust Funds, Revolving Funds and Commercial Activities
Combining Statement of Operations and Changes in Net Position
For the Year Ended September 30, 1992
(Dollars in Thousands)
Revenues and Financing Sources
Appropriations Expensed
Revenues from Services To the Public
Interest and Penalties, Non-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
Plus: Unfunded Expenses
Excess of Revenues and Financing Sources $
Changes in Net Position
Net Position, Beginning Balance
Excess of Revenues and Financing Sources
Non-Operating Changes (Note 12)
Combined
Balances
$ 1,496,485
25,890
5,310
45,069
220,685
(192.647)
1,600,792
1,571,639
$ 2,338,239
37,518
559.601
Superfund
Trust Fund
$ 1,408,040
4,514
17,586
200,596
(184.639)
1,446,097
1,520,378
711
5,472
45,069
9
1,408,582
520
5,455
17,586
2
1,432,145
29,153
7,273
36,426
1.092
37,518
13,952
3.574
17,526
1.092
$ 18.618
2,146,393
18,618
506.072
Net Position, Ending Balance $ 2.935.358 $ 2.671.083
The notes to the Combined financial statements are an integral part of these statements.
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LUST Asbestos FIFRA Tolerance
Trust Fund Commercial Activity Revolving Fund Revolving Fund
69,153 $ 19,292 $ $ -
24,690 1,200
13 783
238 902 22,811 3,532
20,089
- (8,008) - -
69,391 32,288 48,284 4,732
69,117 16,962 24,517 1,200
19 - 172
17
238 902 22,811 3,532
- 7 - -
69,391 17,871 47,500 4,732
14,417 784
- - 3.699 -
14,417 4,483
14,417 4.483
80,077 111,142 627
14,417 4,483
5,846 47.879 (196)
$ 85.923 $ 173.438 $ 4.914
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EPA Trust Funds, Revolving Funds and Commercial Activities
Combining Statement of Cash Flows
For the Year Ended September 30, 1992
(Dollars in Thousands)
Combined Superfund
Cash Flows from Operating Activities: Balances Trust Fund
Excess of Revenues and Financing Sources
Adjustments Affecting Cash Flow:
Appropriations Expensed
Decrease (Increase) in Accounts Receivable
Decrease (Increase) in Loans Receivable
Decrease (Increase) in Other Assets
Increase (Decrease) in Accounts Payable
Increase (Decrease) in Other Funded Liabilities
Depreciation and Amortization
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
Net Cash Provided (Used) by Investing Activities
Cash Flows from Financing Activities:
Appropriations (Current Warrants)
Transfers of Cash from Others
Deduct:
Withdrawals
Transfers of Cash to Others
Met 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
$ 36,426 $ 17,526
(1,130,071)
(45,917)
(14,385)
(30,627)
(324,353)
157,652
711
1,092
602
(1,041,626)
(45,595)
(13,605)
(326,868)
175,395
520
1,092
(1.719)
(1,385,296) (1,252,406)
(1,348,870) (1,234,880)
6,638
1.150
1.316
7,788
1,316
80,500
1,348,952 1,295,639
(196)
(57.728)
(49.720)
1,371,528 1,245,919
1.318 i_
1.372.846 1.245.919
31,764 12,355
73.606 52.845
$ 105.370 $ 65.200
The notes to the combined financial statements are an integral part of these statements.
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LUST
Trust Fund
Asbestos
Commercial Activity
$ 14,417
FIFRA
Revolving Fund
$ 4,483
Tolerance
Revolving Fund
(69,153)
(290)
(223)
2,279
(153)
19
12
(67,504)
(67,504)
(19,292)
(5)
(14,385)
53
2.466
(31,163)
(16,746)
(27)
(16,799)
183
(17,584)
172
(162)
(34,217)
(29,734)
(6)
(6)
(6)
(47)
(47)
6,638
(119)
6,519
80,500
80,500
80.500
12,949
(6.478)
$ 6.471 !
53,313
(8.008)
45,305
1.318
46.623
29,877
$ 29,877
(196)
(196)
(23,411)
23.476
$ 65
(6)
3.763
$3.757
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APPENDIX B - AUDITORS' REPORT:
SUPERFUND, LUST TRUST FUND
AND ASBESTOS LOAN PROGRAM
Executive Summary
Independent Auditors' Report on Financial Statements
Independent Auditors' Report on Internal Control
Independent Auditors' Report on Compliance with
Laws and Regulations
EPA's Response
Independent Auditors' Evaluation of EPA's Response
III.l
IV.l
V.I
Appendix 1
Appendix 2
Note: The Annual Financial Statements for Fiscal Year 1992, which were included
in this audit report as section n, are not reproduced since they comprise
Appendix A of this Annual Report.
Chief Financial Officer 1993 Annual Report
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Leonard G. BIrnbaura and Company
The United States
Environmental Protection Agency
Report of Financial Audit
Audit Assignment Number P1SFL2-20-8001
Leonard G. Birnbaum and Company
Alexandria. Virginia 22310
April 7^1993
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Table of Contents
Executive Summary..... i
Purpose i
Background i
Summary of Independent Auditors' Report on Financial Statements ii
Summary of Independent Auditors' Report on Internal Control iii
Summary of Independent Auditors' Report on Compliance with Laws and
Regulations....... vi
Recommendations vii
EPA's Response to Our Draft Report and Our Evaluation vii
Introduction I.I
Purpose • I.I
Background 1.2
Scope and Methodology 1.2
Prior Audit Coverage 1.4
Annual Financial Statements for Fiscal Year 1992 HI
Independent Auditors' Report on Financial Statements ffl.l
Independent Auditors' Report on Internal Control IV.1
Attachment 1 - Material Weaknesses IV.4
1. Financial Reporting System Improvements Are Needed FV.4
2. Improvements Are Needed in Recording Accounts Receivable IV.7
3. Property and Equipment Records Need to Be Integrated with the
General Ledger IV.9
4. State Cost Share Revenue Is Not Properly Recognized IV.10
5. Accounts Payable/Accrued Liabilities Are Not Properly Recorded IV.11
6 . Accounting for Grant Drawdowns Does Not Provide Required Account
Information IV. 13
Attachment 2 - Reportable Conditions IV.16
1. General EDP Controls Need to Be Strengthened IV.16
2. Capital Leases Have Not Been Recorded IV.17
Attachment 3 - Schedule of Open Prior Report Audit Findings IV. 19
Independent Auditors' Report on Compliance with Laws and Regulations V.I
Appendix 1 - EPA's Response to Our Draft Report
Appendix 2 - Independent Auditors' Evaluation of EPA's Response
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Executive Summary
Purpose
The Chief Financial Officers Act of 1990 (CFO Act) requires the U.S. Environmental
Protection Agency (EPA) to prepare annual financial statements for its trust funds,
revolving funds, and commercial activities. EPA's Office of Inspector General (OIG) has
been charged with the responsibility for auditing these financial statements. To
accomplish this task, the OIG has conducted audits of EPA's revolving funds and
contracted with us to audit EPA's trust funds and commercial activity.
We audited the financial statements of the Leaking Underground Storage Tank (LUST)
Trust Fund and the Asbestos Loan Program, and we were engaged to audit the Superfund
Trust Fund financial statements, included in the Combining Statements of the Trust Funds,
Revolving Funds, and Commercial Activities of EPA as of and for the year ended
September 30, 1992. The financial statements were prepared by EPA's Financial
Management Division using OMB Bulletin 93-02, "Form and Content of Agency
Financial Statements," a comprehensive basis of accounting other than generally accepted
accounting principles. These financial statements are the responsibility of EPA's
management Our responsibility is to express opinions on these financial statements based
on our audits.
The Superfund Trust Fund, LUST Trust Fund, and Asbestos Loan Program financial
statements have not been previously prepared or audited in conformance with the CFO
Act and OMB requirements. This report contains the Superfund Trust Fund, LUST Trust
Fund, and Asbestos Loan Program financial statements, our report on those financial
statements, our report on internal controls, and our report on compliance with laws and
regulations. This audit also meets the audit requirements for the Superfund Trust Fund
mandated by the Superfund Amendments and Reauthorization Act (SARA) of 1986.
For the past five years, the OIG has contracted with us to audit the obligations and
disbursements of the Superfund Trust Fund to meet SARA audit requirements and to
perform agreed-upon procedures for certain other accounts. Those audits primarily
required us to test Superfund Trust Fund obligations and disbursements and EPA's
compliance with internal control procedures and specific laws and regulations.
Background
Superfund Trust Fund - Congress established the Superfund in 1980 to respond to and
clean up hazardous substance emergencies and abandoned uncontrolled hazardous waste
sites. Superfund activities are financed primarily from taxes on crude oil and petroleum,
the sale or use of certain chemicals, and an environmental tax on corporations. Other
sources of funding include cleanup costs recovered from responsible parties; interest, fees
and penalties paid by individuals and entities who violate Superfund provisions; and by
general revenues. Funding of $15.2 billion has been authorized by Congress from
inception of the program through fiscal year 1994 for EPA's Superfund activities.
Leaking Underground Storage Tank Trus: Fund - EPA is responsible for regulating
underground tanks storing petroleum products. In 1986, Congress established a Leaking
Underground Storage Tank Trust Fund to provide funds for responding to releases from
leaking underground petroleum tanks. EPA relies primarily on states and localities to
carry out the underground storage tank program. The LUST Trust Fund is financed by a
tax on motor fuels, and it has been authorized through fiscal year 1995.
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Asbestos Loan Program - The Asbestos Loan Program was created in 1984 to provide
financial assistance, in the form of interest-free loans, to public and nonprofit schools for
the removal of asbestos. Financial assistance is determined based on the level of asbestos
hazard and demonstrated financial need. Since its inception, the Asbestos Loan Program
has awarded approximately $240 million in loans for asbestos removal activities. EPA's
Asbestos Loan Program accounts for the resources available for loans and activity on
outstanding loans.
Summary of Independent Auditors' Report on Financial Statements
For the year ending September 30, 1991, EPA obtained a waiver of the requirement for
preparing financial statements in conformance with the CFO Act As a result, prior to
October 1, 1991, the Superfund Trust Fund, LUST Trust Fund, and Asbestos Loan
Program were not required to prepare financial statements in conformance with OMB
Bulletin 93-02, "Form and Content of Agency Financial Statements". The scope of our
audit did not include auditing the statements of financial position as of September 30,
1991. Therefore, we were not able to express opinions on the Superfund Trust Fund,
LUST Trust Fund, and Asbestos Loan Program results of operations and changes in net
position, cash flows, and budget and actual expenses for the year ended September 30,
1992. We disclaimed an opinion on the 1992 Superfund Trust Fund statement of
financial position because of matters discussed below. In a similar way, audit opinions
on the 1993 Superfund Trust Fund results of operations and changes in net position, cash
flows, and budget and actual expenses will be affected by our inability to audit the 1992
Superfund Trust Fund statement of financial position.
The following were outside the scope of our audit due to decisions made by the OIG and
us as a matter of audit planning:
amounts held by Treasury for future appropriations for the Superfund Trust Fund and
LUST Trust Fund • because these Treasury-managed financing sources are not
accounted for in EPA's accounting system; and
• expenses of the Superfund Trust Fund, LUST Trust Fund, and Asbestos Loan
Program - because general support service costs that were allocated from other EPA
appropriations to these funds, and administrative expenses funded by agencywide
appropriations, were not included within the scope of this audit
In addition, we were unable to satisfy ourselves regarding the following financial
statement amounts:
• accounts receivable from Superfund Trust Fund cost recovery actions - because
accounting records which ensure a complete listing of such amounts were not
identified timely;
• property, plant, and equipment for the Superfund Trust Fund - because there are
inadequate detailed schedules to support the financial statement amounts;
• accounts payable for contract retainages for the Superfund Trust Fund - because EPA
does not maintain accounting records for such amounts and, therefore, did not record
this liability in the financial statements;
• deferred revenue from state cost share agreements for the Superfund Trust Fund -
because accounting records were not maintained to determine the proper timing of
recognition of such revenue;
• undelivered orders (unliquidated obligations) for the Superfund Trust Fund and LUST
Trust Fund - because EPA did not reconcile the supporting details to the financial
statement amounts timely;
11
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• equity components of the Superfund Trust Fund, LUST Trust Fund, and Asbestos
Loan Program disclosed in Note 8 to the financial statements - because EPA could
not provide accounting records to support these amounts or categorize equity into the
components required by OMB Bulletin 93-02;
• expenses for the Superfund Trust Fund grant drawdowns - because requests from
certain recipients do not identify the source of grant funding; and
• capital or operating lease disclosures were not provided for the Superfund Trust Fund
as required by OMB Bulletin 93-02.
Because of the limitations discussed above, we concluded in our independent auditors'
report that we could not express an opinion on the statement of financial position of
EPA's Superfund Trust Fund as of September 30, 1992. However, we concluded in our
independent auditors' report that, except for.
• the effects of being unable to audit amounts held by Treasury for future
appropriations and determine the allowability and alienability of general support
service and administrative costs, relating to the LUST Trust Fund; and
• being unable to audit certain components of fund equity for both the LUST Trust
Fund and the Asbestos Loan Program; the statements of financial position of EPA's
LUST Trust Fund and Asbestos Loan Program as of September 30, 1992, present
fairly, in all material respects, the financial position of the LUST Trust Fund and
Asbestos Loan Program as of September 30, 1992.
Summary of Independent Auditors' Report on Internal Control
EPA's management is responsible for establishing and maintaining an internal control
structure. The objectives of our internal control review were to determine our auditing
procedures for the purpose of expressing our opinion on the financial statements; and to
determine whether the internal control structure provides management with reasonable,
but not absolute assurance that transactions are executed in compliance with applicable
laws and regulations, that assets are safeguarded, and that transactions are properly
recorded.
During our audit, we noted deficiencies in internal controls in EPA's financial
management We consider the deficiencies discussed in detail in Attachments 1 and 2 to
our Independent Auditors' Report on Internal Control to be reportable conditions under
the standards established by the American Institute of Certified Public Accountants
(AICPA). Those deficiencies included in Attachment 1 were also considered material
weaknesses in relation to the financial statements of the Superfund Trust Fund, LUST
Trust Fund, and Asbestos Loan Program.
A material weakness is a reportable condition in which the design or operation of the
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. 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 agency 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.
111
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Material Weaknesses
Financial Reporting System Improvements Are Needed
Improvements are needed in financial reporting systems and procedures. The integrity of
financial and budgetary reporting depends on extensive manual procedures to overcome
system inadequacies. The current accounting classification structure does not allow EPA
to aggregate financial information at the levels required for CFO Act and OMB and U.S.
Treasury standard form reporting. As a result, EPA personnel are required to manually
prepare spreadsheets to prepare financial reports. We also observed that financial system
reports are not always received timely and certain budgetary accounts are not used. In
addition, EPA has not completely reconciled material data conversion errors from the
1989 system conversion and implementation of the Integrated Financial Management
System (IFMS). Finally, the components of equity are not appropriately disclosed. This
resulted from closing procedures that did not close operating activity to the correct equity
general ledger accounts. These errors affect both financial and budgetary reporting.
System weaknesses and a lack of effective controls to identify and correct inaccurate
financial information led to material adjustments to the financial statements that we
identified and EPA made during our audit. The impact of these adjustments on the
Superfund Trust Fund was to decrease assets by $57,508,000, decrease liabilities by
$499,289,000, and increase equity by $441,781,000. The impact of these adjustments on
the LUST Trust Fund was to decrease liabilities and increase equity by $4,704,000.
EPA management has recognized the IFMS as a material weakness in its Federal
Managers' Financial Integrity Act (FMFIA) report for 1992. EPA is currently in the
process of implementing a new release of the IFMS. EPA officials generally agreed with
our draft report recommendations although they offered alternative solutions which we
have incorporated in this report
Improvements Are Needed in Recording Accounts Receivable
Improvements are needed in the areas of reporting receivables. EPA's management of
accounts receivable is hampered by the lack of accurate and reliable reports. We also
found that receivables and collections are not recorded timely. The failure to timely
record receivables and collections may adversely affect the collectibility of receivables,
interest, and penalties.
These weaknesses have existed and been reported by us since 1987. EPA management
reported in its 1992 FMFIA report that the accounts receivable system was a material
nonconformance. Certain records used in the accounting for accounts receivable were
not identified timely. As a result, we could not determine the completeness of the
accounts receivable balance reported in the Superfund Trust Fund financial statements.
EPA officials disagreed with some of our comments regarding accounts receivable and
we have incorporated some of their requested modifications. EPA management
recognizes that further improvements are needed in managing and recording accounts
receivable. EPA has formed several teams to improve and enforce controls over
recordation.
Property and Equipment Records Need to Be Integrated with the General Ledger
EPA uses a manual system to record capitalized property accounting information in its
general ledger. The manual system does not contain all required data that is needed to
determine that the balance of property and equipment recorded in the financial statements
IV
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is accurate. EPA also maintains a system to control property; however, this system was
not designed to provide accounting information. There is redundancy of information
between the two systems, and neither system contains sufficient accounting data to
support the property and equipment amount in the statement of financial position.
Weaknesses with property and equipment records have existed and have been reported by
us and the OIG in audit reports and by EPA since its initial FMFIA report, covering fiscal
year 1983. EPA management has recognized this issue in its 1992 FMFIA report, and
has formed a cross-departmental Quality Action Team to resolve these property
accounting problems.
State Cost Share Revenue Is Not Properly Recognized
We found that deferred revenue recorded from state cost share agreements is not being
reduced as site cleanup takes place. As a result, the deferred revenue is overstated and
earned revenue is understated. We could not determine the amount to be adjusted
because the necessary information was not available. At September 30, 1992 the balance
in the deferred revenue account was $115,418,879.
EPA management is aware of the problems in accounting for deferred state cost share
agreements and is currently implementing procedures to properly account for these
transactions. EPA management had previously designed a transaction code to record this
activity, however, implementation procedures had not been developed. Instruction for the
procedures and use of this transaction code needs to be distributed to the regional offices.
Accounts Payable/Accrued Liabilities Are Not Properly Recorded
We discovered material errors in the accounts payable and accrued liabilities reported as
of September 30, 1992. These errors were a $486,000,000 overstatement of the liabilities
for interagency agreements and a $12,816,251 understatement of accrued liabilities for
contracts. These misstatements resulted from a lack of effective controls to identify and
correct inaccurate financial information. The financial records were subsequently
adjusted by EPA management to reflect the proper amounts, based on our audit.
In addition, contractor retainages are not recorded as liabilities until such amounts have
been separately invoiced by the contractors, even though the goods and services have
been provided. Retainages have occurred when contractors submitted invoices for
payments relating to services performed and EPA retained specified percentages of the
amounts due until satisfactory contract completion. Although requiring contractor
retainages has been eliminated, there is no assurance that all retainages have been
returned to contractors.
Finally, year-end accruals were recorded without being properly classified by object
class. This resulted in EPA not being able to disclose operating expenses with the
appropriate recognition of expense by object class in Note 10 to the financial statements.
EPA management must develop and document procedures that will properly and
consistently account for accrued accounts payable, accrued liabilities, and contractor
retainages at year-end. EPA officials generally agreed with our recommendations, except
that they disagreed with our comments regarding contractor retainages. The materiality
of that issue has yet to be determined.
-------
Drawdowns Does Not Provide Require Account Information
EPA does not currently require grant recipients to indicate the account to which their
grant drawdowns relate, except for Superfund site-specific charges. EPA management
applies grant drawdowns to the obligation account that has been outstanding the longest.
As a result, grant disbursements are expensed based on a first-in first-out method.
Therefore, expenses for multifunded grants may not be properly recorded in the
applicable fund to which the grant expenditures relate.
EPA personnel agreed with our comments in theory, however, they believe requiring this
information from grant recipients to be unreasonable and are investigating alternative
solutions.
Reponable Conditions
In addition to the material internal control weaknesses discussed above, we also identified
two reportable conditions. The reportable conditions we noted concern the need to
strengthen general EDP controls and to identify and record capital leases. EPA
management has initiated action on both issues.
Summary of Independent Auditors' Report on Compliance with Laws and Regulations
The results of our compliance tests indicated that EPA management had complied in all
material respects with applicable laws and regulations that might have a material effect
on the financial statements of the Superfund Trust Fund, the LUST Trust Fund, and the
Asbestos Loan Program.
We compared EPA's FMF1A reports to our evaluation of the internal control system.
This comparison is required by OMB Bulletin 93-06, "Audit Requirements for Federal
Financial Statements". EPA has identified several material system weaknesses that
significantly impact its ability to provide accurate and timely financial information.
These issues have been identified by EPA management through the FMFIA process. For
fiscal year 1992, EPA identified material nonconformances related to the lack of
centralized accounts receivable recordation, inadequate reconciliation to external
Treasury reports, inadequate reconciliation of the property system to the general ledger,
uncorrected data conversion errors in the general ledger system, and automation
opportunities. EPA also identified 23 material weaknesses agencywide, 8 of which affect
the financial management of the Superfund Trust Fund and LUST Trust Fund.
We identified weaknesses in addition to those identified by EPA; however, the definition
of a material weakness included in OMB Bulletin 93-06 differs from the definition
provided by the FMFIA. These conditions are:
state cost share revenue is not properly recognized;
accounts payable and accrued liabilities are not properly recorded;
• accounting for grant drawdowns does not provide required account information; and
• components of equity are not properly identified.
In addition, we highlighted in our report that certain allocable costs were not allocated to
the Superfund Trust Fund. We also noted that repairs and improvements were charged to
the Superfund Trust Fund and LUST Trust Fund appropriations even though a specific
VI
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appropriation was available to cover such costs. EPA is taking action by requesting an
opinion from Office of General Council regarding these issues.
Recommendations
As a result of our audit, we have several primary recommendations which are
summarized as follows:
• EPA must dedicate adequate resources to resolving financial system and reporting
issues;
EPA must continue to improve accounting for receivables;
• EPA must improve accounting for property, plant, and equipment;
• EPA must resolve errors in accounting for state cost share revenue;
• EPA must improve its controls over reporting liabilities; and
• EPA must determine if grant expenses are being properly recorded,
EPA's Response to Our Draft Report and Our Evaluation
The Acting CFO provided a formal response dated June 16, 1993, to our draft report
dated April 7, 1993. In the response, the CFO generally agreed with our report
recommendations for improving EPA's financial control system. She also agreed, in
principle, with our rationale for rendering qualified opinions on the LUST Trust Fund and
the Asbestos Loan Program and the disclaimer of opinion on the Superfund Trust Fund.
The CFO raised several concerns in her cover memorandum and noted disagreements
with specific aspects of the opinions and the manner in which the opinions were
presented. This memorandum is included in Appendix 1. We have addressed all of
EPA's concerns either by changing the format or language of our report, where
appropriate, or clarifying our position in Appendix 2. We had previously met with EPA
financial managers on May 12, 1993, and May 26, 1993, to discuss some of these issues.
We also held an exit conference with EPA officials on June 22, 1993, to discuss our
evaluation of the CFO's response and our final report recommendations.
via
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Introduction
Purpose
The Chief Financial Officers Act of 1990 (CFO Act) requires the U.S. Environmental
Protection Agency (EPA) to prepare annual financial statements for its trust funds,
revolving funds, and commercial activities. EPA's Office of Inspector General (OIG) has
been charged with the responsibility for auditing these financial statements. To
accomplish this task, the OIG has audited EPA's revolving funds and contracted with us
to audit EPA's trust funds and commercial activity.
We audited the financial statements of the Leaking Underground Storage Tank (LUST)
Trust Fund and the Asbestos Loan Program, and we were engaged to audit the Superfund
Trust Fund financial statements, included in the Combining Statements of the Trust
Funds, Revolving Funds, and Commercial Activities of EPA as of and for the year ended
September 30, 1992. EPA's Financial Management Division used OMB Bulletin 93-02,
"Form and Content of Agency Financial Statements," a comprehensive basis of
accounting other than generally accepted accounting principles, as a guide in preparing
the financial statements. These financial statements are the responsibility of EPA's
management. Our responsibility is to express opinions on these financial statements
based on our audits.
The Superfund Amendments and Reauthorization Act (SARA) of 1986 also requires an
annual audit of obligations and disbursements of the Superfund Trust Fund. Our audit
work under the CFO Act for the Superfund Trust Fund encompasses the SARA audit
requirements.
The primary objectives of the audits were to determine if:
(1) the financial statements are presented fairly, in all material respects, on the basis of
accounting described in the financial statements;
(2) EPA management has established an internal control structure which provides
reasonable assurance that:
transactions are properly recorded and accounted for to permit the preparation
of reliable financial statements and to maintain accountability over assets;
funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition; and
• transactions, including those related to obligations and costs, are executed in
compliance with: (a) laws and regulations that could have a direct and
material effect on the financial statements, and (b) any other laws and
regulations that the Office of Management and Budget (OMB), EPA
management, or the OIG have identified as being significant for which
compliance can be objectively measured and evaluated.
(3) EPA management has complied with applicable laws and regulations which, if not
followed, could have a material effect on the financial statements, including any
other laws and regulations that OMB, EPA management, or the OIG have identified
as being significant to the audit for which compliance can be objectively measured
and evaluated.
LI
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Background
Superfund Trust Fund. Congress established the Superfund program by the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) which was amended by SARA and the Omnibus Budget Reconciliation Act
of 1990. The Superfund was established to respond to and clean up hazardous substance
emergencies and abandoned uncontrolled hazardous waste sites. Funding of $15.2 billion
has been authorized from inception of the program through fiscal year 1994 for EPA's
Superfund activities.
The U.S. Treasury maintains and manages the Hazardous Substance Superfund Trust
Fund to account for financial resources collected for Superfund activities. Funds are
accumulated primarily from taxes on crude oil and petroleum, the sale or use of certain
chemicals, and an environmental tax on corporations. Other sources of funding include
cleanup costs recovered from responsible parties; interest, fees, and penalties paid by
individj^ls and entities that violate the terms of the CERCLA provisions; and general
revenues.
EPA accounts for its Superfund activities in a separate Superfund Trust Fund that does
not account for the activity of other agencies receiving Superfund authority. However,
EPA has recorded the remaining balance of appropriated and unappropriated Treasury
collections for Superfund activity in the financial statements.
Leaking Underground Storage Trust Fund. In 1984, the Resource Conservation and
Recovery Act was amended to give EPA the authority to regulate underground tanks
storing petroleum products. In 1986, Congress established a Leaking Underground
Storage Tank (LUST) Trust Fund, to provide funds for responding to releases from
leaking underground petroleum tanks. EPA relies primarily on states and localities to
carry out the underground storage tank program. The LUST program is financed by a tax
on motor fuels. This fund has been authorized through fiscal year 1995 with no cap on
funds collected.
EPA accounts for its LUST activities in a separate LUST Trust Fund that does not
account for the activity of other agencies receiving LUST authority. However, EPA has
recorded the remaining balance of appropriated and unappropriated Treasury collections
for LUST activity in the financial statements.
Asbestos Loan Program. The Asbestos Loan Program was created by the Asbestos
School Hazard Abatement Act of 1984. EPA provides financial assistance, in the form of
interest-free loans, to public and nonprofit schools for the removal of asbestos. Financial
assistance is determined based on the level of asbestos hazard and demonstrated financial
need The financial statements in this report include the EPA's Asbestos Loan Program.
The grant component of EPA's asbestos activities was not subject to audit Since its
inception, the Asbestos Loan Program has awarded approximately $240 million in loans
for asbestos removal activities. EPA's Asbestos Loan Program accounts for the resources
available for loans and activity on outstanding loans.
Scope and Methodology - LUST Trust Fund and Asbestos Loan Program
We planned and performed our audits in accordance with generally accepted auditing
standards; Government Auditing Standards, issued by the Comptroller General of the
United States; and OMB Bulletin 93-06, "Audit Requirements for Federal Financial
Statements". Those standards require that we plan and perform the audits to obtain
1.2
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reasonable assurance about whether the financial statements are free of material
misstatemenL
Accounting principles for Federal entities are currently being studied by the Federal
Accounting Standards Advisory Board (the Board). Accounting principles for Federal
entities are to be promulgated by the Comptroller General, the Secretary of the Treasury,
and the Director of OMB, based on advice from the Board. In the interim, Federal
agencies have been advised to follow the applicable accounting principles contained in
agency accounting policy, procedures manuals, and/or related guidance. The summary of
significant accounting policies included in Note 1 to the financial statements describes
the accounting principles prescribed by EPA and used to prepare the financial statements.
These accounting principles are based on OMB Bulletin 93-02, "Form and Content of
Agency Financial Statements", a comprehensive basis of accounting other than generally
accepted accounting principles.
In planning and performing our audits of the LUST Trust Fund and Asbestos Loan
Program financial statements for the year ended September 30, 1992, we considered
EPA's internal control structure. The purposes of this consideration were to: (i)
determine our auditing procedures for the purpose of expressing our opinion on the
financial statements; and (ii) determine whether the internal control structure meets the
objectives identified in the fourth paragraph of our Independent Auditors' Report on
Internal Control. 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. We also tested
compliance with certain provisions of significant laws and regulations, designated by
OMB and identified by EPA, that may directly affect the financial statements.
As a part of the audits, we selected statistical and nonstatistical samples from detail
accounting records supporting various statement of financial position accounts and from
the obligations and disbursement transactions recorded in the Integrated Financial
Management System (IFMS) and its subsystems. Sample transactions were tested to
determine if they were adequately supported by documentation and were recorded
properly in accordance with internal control procedures and compliance attributes.
Our audit included examining, on a test basis, financial management records at four of
EPA's regional offices: Boston, New York, Chicago, and San Francisco. In addition, we
audited, on a test basis, financial management records at EPA's National Contract
Payment Division at Research Triangle Park; Headquarters Accounting Operations
Branch in Washington, D.C.; Cincinnati Financial Management Center, Las Vegas
Financial Management Center, and the Financial Management Division in Washington,
D.C. We excluded regional offices in Philadelphia, Atlanta, Dallas, Kansas City, Denver,
and Seattle from audit testing. These excluded offices accounted for only 7% and 4% of
the fiscal 1992 expenditures of the Superfund Trust Fund and LUST Trust Fund,
respectively. The excluded offices are not involved in accounting for the Asbestos Loan
Program,
We also reviewed the status of findings and recommendations included in prior audit
reports performed as a result of SARA compliance audits relating to Superfund Trust
Fund obligations and disbursements.
Our fieldwork, including our survey, was performed from October 19, 1992, through
April?, 1993. , , s
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Prior Audit Coverage
Reported Weaknesses and Noncompliance
Our Superfund audit report for fiscal year 1989 disclosed an unreconciled difference of
approximately $26,044,000 between the total disbursements reported in EPA's Schedule
of Disbursements and total outlays reported to OMB. This unreconciled difference
resulted from the conversion of EPA's financial management system.
Our prior annual audit reports of the Superfund obligations and disbursements, covering
the fiscal years 1990 and 1991, identified weaknesses related to internal controls of the
financial management system. These weaknesses included inadequate reporting
capabilities to provide complete and accurate reports for management's use and
accounting procedures not being updated since the implementation of the IFMS in 1989.
The audit reports also identified weaknesses in accounting for and controlling personal
property, recording and managing accounts receivable, and incomplete allocation of
certain allocable costs to the Superfund Trust Fund.
EPA Corrective Actions
In response to the audit report for fiscal year 1990, the Assistant Administrator for the
Office of Administration and Resources Management (AA) generally agreed with the
findings and recommendations. The AA stated that corrective actions had been taken or
were proposed, along with milestone dates, that were responsive to the recommendations.
Specifically, corrective actions were implemented to correct internal control weaknesses
in financial reporting, emphasize consistency in the treatment of receivables, reconcile
differences in payroll information systems, and resolve questioned transactions.
In response to the audit report for fiscal year 1991, the AA generally agreed with the
findings and recommendations. The AA indicated that corrective actions had been taken,
or would be taken, in regard to monitoring the progress and completion of corrective
action plans for accounts receivable and property and equipment.
Our Review of EPA Follow-up Actions
Our review indicates that EPA has not taken the follow-up actions in response to our
fiscal year 1989 audit report concerning the reconciliation of data transferred from the
FMS to the IFMS. EPA has reported this in its 1992 FMFIA report as a material
nonconformance and has set a revised target date for completion in October 1993. As a
result, the Superfund Trust Fund statement of financial position for the year ended
September 30, 1992, included an adjustment to beginning equity of approximately
$26,044,000.
We found that EPA has taken follow-up actions indicated in the AA's response to our
fiscal 1990 audit report. EPA implemented the Management and Accounting Reporting
System (MARS) in July 1991 to attempt to correct the weakness previously reported
regarding inadequate reporting capabilities. However, during our audit, we noted
significant delays in EPA's ability to obtain accurate or complete data from MARS,
MARS does not contain all the data recorded in the IFMS. Financial reports cannot be
easily obtained and often require a significant reconciliation effort
Further, EPA has set target dates for corrective actions on certain fiscal 1990 audit
recommendations that were to be completed prior to the completion of the fiscal 1992
audit fieldwork. These corrective actions were: upgrading the software program used to
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transfer data from the CPS to the IFMS and updating the Resources Management
Directives Systems (RAIDS) for accounting procedures. We found that EPA completed
the interface which transfers data from the CPS to the IFMS. However, EPA has not yet
completed updating the RMDS accounting procedures and has set a revised target date
for completion in April 1994.
On fiscal year 1991 audit recommendations, in the areas of financial reporting, however,
accounts receivable, and property, although EPA has taken some corrective action, the
complete resolution of these issues has not yet been accomplished. As a result, these
issues are repeated in our current year report
Attachment 3 to our report on internal controls presents the status of known but
uncorrected prior year findings.
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LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OFFICE
6285 FRANCONIA ROAD
ALEXANDRIA VA 22310
(703) 922-7622
FAX (703) 922-6256
LEONARD G BIRNBAUM
LESLIE A LEIPER
DAVID SAKOFS
CAROL A SCHNEIDER
KEVIN UCKINSTHlE
MEMBERS OF THE
AMERICAN INSTITUTE
OF CPA'S
WASHINGTON, D C
SUMMIT NEW JERSEY
MOUNTAIN VIEW CALIFORNIA
SAN DIEGO CALIFORNIA
Independent Auditors7 Report on Financial Statements
The Inspector General
U.S. Environmental Protection Aeencv:
1. We were engaged to audit the financial statements of the Superfund Trust Fund,
included in the Combining Statement of Financial Position of the Trust Funds, Revolving
Funds, and Commercial Activities of the U. S. Environmental Protection Agency (EPA)
as of September 30, 1992, and the related combining statement of operations and changes
in net position, cash flows, and budget and actual expenses for the year then ended.
These financial statements are the responsibility of EPA's management.
2. We have audited the statements of financial position of the Leaking Underground
Storage Tank (LUST) Trust Fund and the Asbestos Loan Program, included in the
combining statement described above in paragraph 1, as of September 30, 1992. These
statements are the responsibility of EPA's management. Our responsibility is to express
an opinion on these statements based on our audits.
Scope • LUST Trust Fund and Asbestos Loan Program
3. Except as discussed in paragraphs 6 through 9, 19 and 20 of this report, we
conducted our audit of the LUST Trust Fund and the Asbestos Loan Program 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 audit 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
opinions.
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MEMBER OF THE DIVISION FOR CPA FIRMS. PRIVATE COMPANIES PRACTICE SECTION
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
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Basis of Accounting
4. Accounting principles for Federal entities are currently being studied by the
Federal Accounting Standards Advisory Board (the Board). These principles are to be
promulgated by the Comptroller General, Director of OMB, and Secretary of the
Treasury, based on advice from the Board. In the interim, Federal agencies have been
advised to follow the applicable accounting principles contained in agency accounting
policy, procedures manuals, and/or related guidance. The summary of significant
accounting policies included in Note 1 to the financial statements describes the
accounting principles prescribed by EPA and used to prepare the financial statements,
which are based on OMB Bulletin 93-02, "Form and Content of Agency Financial
Statements", a comprehensive basis of accounting other than generally accepted
accounting principles.
Planned Exclusions
5. We did not audit the 1992 Superfund Trust Fund, LUST Trust Fund and Asbestos
Loan Program financial statement amounts discussed in paragraphs 6 through 9 of this
report. It was impracticable to extend our procedures sufficiently to determine the extent
to which these trust fund financial statements as of and for the year ended September 30,
1992, may have been affected by these amounts.
6. We were unable to audit the balances of amounts held by the U.S. Treasury for
future appropriation of $1,344,292,000 and $573,214,000 for the Superfund Trust Fund
and LUST Trust Fund, respectively, because these balances are maintained and controlled
by the U.S. Treasury. The EPA does not record amounts held by the U.S. Treasury for
future appropriations in its general ledger. These financing sources have not been
appropriated to EPA or to other Federal entities. These balances are shown as assets with
offsetting liabilities for financial reporting purposes on the Superfund Trust Fund and
LUST Trust Fund statements of financial position.
7. The Superfund Trust Fund and LUST Trust Fund program or operating expenses
on the statements of operations and changes in net position include general support
service costs that were allocated from other EPA funds. Allocations are performed at the
Headquarters and regional levels. Because of the number of allocations, the total amount
of allocated costs could not be readily determined by EPA. General support service costs
allocated to the Superfund Trust Fund and LUST Trust Fund affect both operating results
and equity. We were unable to audit the general support service cost pools or the bases
for allocations of these costs to determine the alienability of such costs because audits of
costs originally charged to other EPA funds were not within the scope of these audits.
Adjustments, if any, to allocated general support service costs would affect all of the
Superfund Trust Fund and LUST Trust Fund financial statements.
8. Administrative costs of $17,586,000, $238,000 and $902,000 for the Superfund
Trust Fund, LUST Trust Fund, and the Asbestos Loan Program, respectively, have been
funded from other EPA appropriations and are 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
equity. We were unable to audit the administrative costs funded from other EPA
appropriations because the audit of these appropriations for allowability and alienability
of such costs to the Superfund Trust Fund, LUST Trust Fund, and the Asbestos Loan
Program was not within the scope of these audits. Adjustments, if any, to administrative
costs funded by other EPA appropriations would affect the Superfund Trust Fund, LUST
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Trust Fund, and the Asbestos Loan Program statements of operations and changes in net
position.
9. Prior to October 1, 1991, the Superfund Trust Fund, LUST Trust Fund, and the
Asbestos Loan Program, were not required to prepare financial statements in
conformance with OMB Bulletin 93-02, "Form and Content of Agency Financial
Statements". Accordingly, the statements of financial position of these funds as of
September 30, 1991, have not been audited. Adjustments, if any, to balances reflected in
the statements of financial position as of September 30, 1991, would affect the Superfund
Trust Fund, LUST Trust Fund, and the Asbestos Loan Program results of operations and
changes in net position, cash flows, and budget and actual expenses for the year ended
September 30, 1992.
Limitations - Superfund Trust Fund
10. We were unable to satisfy ourselves regarding the 1992 Superfund Trust Fund
financial statement amounts discussed in paragraphs 11 through 18 of this report. It was
impracticable to extend our procedures sufficiently to determine the extent to which these
trust fund financial statements as of and for the year ended September 30, 1992, may
have been affected by these conditions.
11. We were unable to determine if accounts receivable have been recorded for all
Superfund Trust Fund cost recovery actions, because reports which may have provided
sufficient evidential matter to support the balance reported for accounts receivable were
not identified timely. Adjustments, if any, to the balance of accounts receivable would
affect all of the Superfund Trust Fund financial statements for the year ended September
30, 1992.
12. We were unable to audit the Superfund Trust Fund property, plant and equipment,
net, balance stated at $16,094,000 as of September 30, 1992, because there were
inadequate detailed schedules to support the financial statement amounts. EPA's
supporting property records did not identify all the property and equipment acquired.
Certain property and equipment disposed of has not been removed from the accounting
records. Property and equipment acquired by contractors and through capital leases has
not been recorded. Adjustments, if any, to property, plant and equipment, net, balance
would affect all of the Superfund Trust Fund financial statements for the year ended
September 30, 1992.
13. We were unable to audit the Superfund Trust Fund retainages payable to
contractors. EPA does not maintain sufficient accounting records for such amounts and,
therefore, did not record these liabilities in the financial statements. Adjustments, if any,
for retainages payable to contractors would affect all of the Superfund Trust Fund
financial statements for the year ended September 30, 1992.
14. We were unable to audit the balance of Superfund Trust Fund deferred revenue
from state cost share agreements stated at $115,418,879 and included in deferred revenue,
non-federal. Specifically, we were unable to obtain accounting records to determine the
proper timing of recognition of revenue on Superfund Trust Fund state cost share
agreements. Because EPA does not maintain adequate records, we could not determine
whether the balance of deferred revenue from state cost share agreements was fairly
stated at September 30, 1992. Adjustments, if any, to deferred revenue from state cost
snare agreements would affect all of the Superfund Trust Fund financial statements.
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15. We were unable to audit undelivered orders (unliquidated obligations), which are
components of equity balances, amounting to $2,151,243,375 for the Superfund Trust
Fund as of September 30, 1992, because EPA did not provide timely reconciliations of
the accounts supporting the financial statement amounts. Adjustments, if any, to the
balance of undelivered orders would affect the Superfund Trust Fund statement of budget
and actual expenses and footnote disclosures.
16. We were unable to audit the Superfund Trust Fund appropriated/subsidy capital,
amounting to $7,154,509,000 and cumulative results of operations, amounting to
($4,448,797,000) as of September 30, 1992, because the closing procedures in EPA's
present accounting system cause misclassifications between these equity components
disclosed in Note 8. In addition, OMB Bulletin 93-02, "Form and Content of Agency
Financial Statements", requires disclosure of the following components of fund equity:
unexpended appropriations available, unexpended appropriations unavailable, and
undelivered orders. The Superfund Trust Fund financial statement did not disclose these
components. Adjustments, if any, to equity components would affect the footnote
disclosures for the Superfund Trust Fund.
17. We were unable to audit Superfund Trust Fund expenses for grants because grant
drawdown requests from certain recipients did not identify the source of grant funding.
Adjustments, if any, to grant expenses would affect the Superfund Trust Fund statement
of operations and changes in net position.
18. The Superfund Trust Fund financial statements did not disclose capital or
operating lease commitments. OMB Bulletin 93-02, "Form and Content of Agency
Financial Statements," 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. Capital lease disclosures would include the
amortization charge applicable to capitalized assets, unless included in depreciation
expense, and aggregate future minimum lease payments for each of the five succeeding
years, less executory costs and imputed interest Operating lease disclosures would
include the future aggregate minimum rental payments for each of the five succeeding
years. For all operating leases, total rental expense should be disclosed for each period
for which a statement of operations is presented, with separate amounts for minimum
rentals and contingent rentals.
Scope Limitations and Qualifications - LUST Trust Fund
19. We were unable to audit undeb'vered orders (unliquidated obligations), which are
components of equity balances, amounting to $79,572,539 for the LUST Trust Fund, as
of September 30, 1992, because EPA did not provide timely reconciliations supporting
the financial statement amounts. Adjustments, if any, to the balance of undelivered
orders would affect the LUST Trust Fund statement of budget and actual expenses and
footnote disclosures.
Scope Limitations and Qualifications • LUST Trust Fund and Asbestos Loan Program
20. We were unable to audit the LUST Trust Fund and the Asbestos Loan Program
appropriated/subsidy capital, amounting to $234,551,000 and $47,906,000, respectively;
and cumulative results of operations, amounting to ($148,712,000) and $125,532,000,
respectively, as of September 30, 1992, because the closing procedures in EPA's financial
management system cause misclassifications between these equity components disclosed
in Note 8. In addition, OMB Bulletin 93-02, "Form and Content of Agency Financial
Statements", requires disclosure of the following components of fund equity:
in.4
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unexpended appropriations available, unexpended appropriations unavailable, and
undelivered orders. The LUST Trust Fund and the Asbestos Loan Program financial
statements did not disclose these components. Adjustments, if any, to equity components
would affect the footnote disclosures for the LUST Trust Fund and the Asbestos Loan
Program.
Disclaimer of Opinion - Superfund Trust Fund Financial Statements
21. Because of the matters discussed in paragraphs 6 through 18 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 year ended
September 30, 1992.
Disclaimer of Opinion - LUST Trust Fund and Asbestos Loan Program Results of
Operations and Changes in Net Position, Cash Flows, and Budget and Actual
Expenses for the year ended September 30,1992
22. Because of the matters discussed in paragraphs 7 through 9 of this report relating
to the LUST Trust Fund and the Asbestos Loan Program, the scope of our work was not
sufficient to enable us to express, and we do not express, opinions on the LUST Trust
Fund and Asbestos Loan Program results of operations and changes in net position, cash
flows, and budget and actual expenses for the year ended September 30, 1992.
Opinion - LUST Trust Fund Statement of Financial Position
23. In our opinion, except for the effects of such adjustments, if any, that might have
been determined necessary had we been able to audit the balances of the amounts held by
the U.S. Treasury for future appropriations, general support service and administrative
costs, undelivered orders, and the balance of equity components, as described in
paragraphs 6, 7,8, 19 and 20 of this report, the statement of financial position of the
LUST Trust Fund of the U.S. Environmental Protection Agency as of September 30,
1992, presents fairly, in all material respects, the financial position of the U.S.
Environmental Protection Agency's LUST Trust Fund as of September 30, 1992, on the
basis of accounting described in Note 1 to the financial statement.
Opinion - Asbestos Loan Program Statement of Financial Position
24. In our opinion, except for the effects of such adjustments, if any, that might have
been determined necessary had we been able to audit the balance of equity components,
as described in paragraph 20 of this report, the statement of financial position of the
Asbestos Loan Program of the U. S. Environmental Protection Agency as of September
30, 1992, presents fairly, in all material respects, the financial position of the U. S.
Environmental Protection Agency's Asbestos Loan Program as of September 30, 1992, on
the basis of accounting described in Note 1 to the financial statement.
Emphasis Matters
25. 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's Superfund program
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 Superfund Trust Fund. Since the inception of
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Superfund, Congress has authorized $15.2 billion to be made available to EPA in annual
appropriations through fiscal year 1994. The current authorization of Superfund expires
September 30, 1994.
26. As of September 30, 1992, EPA had placed 1,275 sites on the NPL. In the
Overview section of the accompanying financial statements, EPA estimates that the
remaining costs of cleaning up these 1,275 sites will be $18 billion, not including the
responsible parties' contribution. However, in a recent U.S. General Accounting Office
(GAO) report titled "Superfund Program Management," dated December 1992, EPA
estimated that the Superfund's remaining share of the costs to clean up these same 1,275
sites would be $40 billion. Because costs have not yet been incurred for future cleanup
actions, the Superfund Trust Fund financial statements do not include any accrual for
such costs. However, based on either of these varying estimates, the cleanup of all sites
on the NPL will require future funding beyond amounts currently authorized.
Supplementary Information
21. The financial information presented in Management's Overview of EPA and
Overview of Trust Funds'. Revolving Funds and Commercial Activities is supplementary
information required by OMB Bulletin 93-02, "Form and Content of Agency Financial
Statements". We did not audit and do not express an opinion on such information.
However, we have applied certain limited procedures to the information captioned
"Superfund," "Leaking Underground Storage Tank (LUST) Program," and "Asbestos
Loan and Grant Program," in management's Overview of Trust Funds. Revolving Funds.
and Commercial Activities, which consisted principally of inquiries of management
regarding the methods of measurement and presentation of the supplementary
information.
Distribution
28. 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
April 7, 1993
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LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OFFICE
6285 FRANCONIA ROAD
ALEXANDRIA. VA 22310
(703) 922-7622
FAX (703) 922-8256
LEONARD G BIRNBAUM
LESLIE A LEIPER
DAVID SAKOFS
CAROL A SCHNEIDER
KEVIN MCKINSTRIE
'MEMBERS OF THE
AMERICAN INSTITUTE
OF CPA'S
WASHINGTON, D C
SUMMIT. NEW JERSEY
MOUNTAIN VIEW. CALIFORNIA
SAN DIEGO. CALIFORNIA
Independent Auditors' Report on Internal Control
The Inspector General
U.S. Environmental Protection Aeencv:
We have audited the financial statements of the Leaking Underground Storage Tank
(LUST) Trust Fund and the Asbestos Loan Program, and 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, 1992. We have issued our
report thereon dated April 7, 1993, in which we disclaimed an opinion on the financial
statements of the Superfund Trust Fund; disclaimed opinions on the statements of
operations and changes in net position, cash flows, and budget and actual expenses of the
LUST Trust Fund and Asbestos Loan Program: and qualified our opinions on the
statements of financial position of the LUST Trust Fund and the Asbestos Loan Program.
Except as discussed in paragraphs 6 through 9, 19, and 20 of our Independent Auditors
Report on Financial Statements, we conducted our LUST Trust Fund and Asbestos Loan
Program 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.
In planning and performing our audits, we considered EPA's internal control structure.
The purposes of this consideration were to: U) determine our auditing procedures for the
purpose of expressing our opinion on the financial statements; and (ii) 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.
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.
IV. 1
MEMBER OF THE DIVISION FOR CPA FIRMS, PRIVATE COMPANIES PRACTICE SECTION
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
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including obligations and costs, are executed in compliance with laws and regulations
that coufd have a direct and material effect on the financial statements, and any other laws
and regulations that OMB, EPA management, or the OIG have identified as being
significant and for which compliance can be objectively measured and evaluated; 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.
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
Loans
Accounts payable and accrued liabilities
• Fund balance
Obligations
• Disbursements and operating expenses
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.
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.
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
nsk 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 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. 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.
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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 letter.
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
April?, 1993
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Attachment 1 - Material Weaknesses
1. Financial Reporting System Improvements Are Needed
EPA management reported as material nonconformances in its 1992 FMFIA report that:
reconciliation to external U.S. Treasury reports is inadequate; the general ledger needs to
be adjusted as a result of the implementation of the Integrated Financial Management
System (IFMS); and opportunities exist for more automation of the accounting system
with other administrative systems. The EFMS reporting system weaknesses impose
significant constraints on EPA's ability to perform its financial reporting duties in an
effective, efficient, and timely manner.
EPA management also reported as a material weakness that the IFMS system contributes
to EPA's inability to provide complete, timely, and reliable data for EPA 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. System weaknesses and a lack of effective
controls to identify and correct inaccurate financial information led to material
adjustments to the financial statements that we identified during our audit. The impact of
these adjustments on the Superfund Trust Fund was to decrease assets by $57,508,000,
decrease liabilities by $499,289,000, and increase equity by $441,781,000. The impact of
these adjustments on the LUST Trust Fund was to decrease liabilities and increase equity
by $4,704,000. There were no material adjustments to the Asbestos Loan Program.
General Ledger System
The IFMS is used by EPA management to prepare OMB and U.S. Treasury standard
forms and financial statements. The IFMS does not automatically aggregate financial
account balances to the higher level required for external reporting. Instead, IFMS
financial account balances are at the U.S. Treasury symbol level. As a result, EPA
personnel spend significant time preparing spreadsheets to summarize account balances
so that combined balances can be determined for reporting purposes.
In addition, the IFMS does not currently maintain beginning account balances at the
regional financial office level. EPA's current automated closing procedures close all
assets and liabilities recorded by the regions to a combined headquarters amount, by
account As a result, regional account balances for the subsequent year begin with a zero
balance. This process makes it difficult to ascertain the actual asset and liability account
balances at the regional level. Although a supplemental reporting system, Management
Accounting and Reporting System (MARS), contains historical information by region,
not all entries made to the IFMS are included in MARS. Therefore, manual
reconciliation procedures are necessary to obtain supporting detail for account balances at
the regional level. We understand that EPA is currently changing the automated closing
procedures in the IFMS so that regional balances will be maintained.
We also noted that budgetary Standard General Ledger (SGL) accounts have not been
established to record reimbursable authority received by EPA as a result of interagency
agreements. The SGL accounts that have not been used properly to capture the
interagency agreements activity to include Reimbursable Orders Accepted, Unfilled
Customer Orders-Unobligated, Unfilled Customer Orders-Obligated, and
Reimbursements and Income Earned. Therefore, required OMB standard forms are being
prepared using proprietary accounts that provide lower levels of detail.
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For example, line 3 A, "Reimbursements and Other Income-Earned" of the SF-133,
Report on Budget Execution, should equal the SGL account balance in Reimbursements
and Other Income-Earned, However, this activity is maintained through the accounts for
Unliquidated Obligations and Expended Appropriations. These two accounts are further
broken down by fund type, 2T-Regular fund type and 2R-Reimbursable fund type. In
order to extract the required information of these two accounts at the fund type level,
EPA uses the General Ledger Balance Tables in IFMS. This is an inefficient process and
results in a potential lack of budgetary control because reimbursable work is a budgetary
resource.
Like an appropriation, reimbursable work is subject to fund control and can be
apportioned, allotted, committed, obligated, and expended. Therefore, EPA needs to
establish the proper budgetary accounts to account for the reimbursable agreements.
Finally, the automated closing procedures in the IFMS that close the nominal budgetary
and proprietary accounts at year-end do not provide the appropriate level of detail in the
equity account series. As a result, EPA management spent significant time and resources
to develop equity financial information for footnote disclosure. Despite this effort, EPA
management did not have sufficient information to report the components of equity as
required by OMB Bulletin 93-02, "Form and Content of Agency Financial Statements".
Omitted disclosures include the balance of undelivered orders, unexpended
appropriations available, and unexpended appropriations unavailable.
The required components of equity accounts should be researched and corrected. This
will require substantial EPA resources because a review of the equity account
components must take place at the lowest level of the account classification structure for
which trial balances are maintained.
Report Generation
We observed that financial system reports are often not received timely and often require
significant reconciliation effort to ensure that reports are accurate. During our audit, we
noted significant delays in EPA's ability to obtain accurate and complete data from the
IFMS and MARS. For example, to provide a detailed computer file of Superfund
unliquidated obligations from MARS, four weeks of effort were necessary to reconcile
Superfund amounts to within our threshold of materiality (excluding conversion error
differences). We also noted that EPA performed several detailed reviews of the data
related to transaction details in IFMS before it was released to us.
We also noted instances when amounts were not properly included in all OMB and U.S.
Treasury standard forms. For example, the Unobligated Balance Available for Obligation
reported on EPA's September 30, 1991, TFS 2108 statement was $7,811,901 for the
Superfund Trust Fund This amount should have been reported on the Superfund Trust
Fund's SF-133 Report on Budget Execution in fiscal year 1992 because it represents the
carryover amount from fiscal year 1991 that has not yet been obligated. This amount was
not disclosed on the fiscal year 1992 SF-133.
In addition, consistent with prior years, EPA prepares OMB and U.S. Treasury standard
forms before closing the year-end accounting records. For example, EPA closed its year-
end accounting records on December 6, 1992. However, EPA submitted its TFS-2108
Year-End Statement to the U.S. Treasury, on November 10, 1992, and its SF-133 to
OMB on November 23, 1992.
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Unresolved Data Conversion Errors
Material unexplained credit balances of approximately $26,044,000 and $4,704,000 exist
in the Superfund Trust Fund and LUST Trust Fund trial balances, respectively, as a
result of incomplete data conversion procedures during the 1989 IFMS installation. We
noted that certain transactions were not convened, certain transactions were convened
more than once, and a journal entry was then recorded to balance the accounts.
Adjustments were made to fund equity, for financial reporting purposes, to account for
the unreconciled balances. EPA has taken steps to correct portions of this data
conversion error in the detailed general ledger, but has not successfully resolved the
remaining unsupported balance because of a lack of personnel and data resources.
A material unreconciled balance of $18,954,915 was also identified in the Superfund
Trust Fund's budgetary trial balance at September 30, 1992. EPA corrected $7,323,716
of this amount, which was due to a journal entry error. The remaining unexplained
$11,63J,199 has existed from 1989 to 1992 and may also be the result of incomplete data
conversion procedures during the 1989 IFMS installation. As a result, the budgetary
accounts were out-of-balance during fiscal year 1992.
Recommendations
We recommend that the CFO:
(1) develop a report that will provide trial balances at the highest level of aggregation
required for financial reporting purposes;
(2) continue efforts to change the automated closing procedures to retain regional
account balances;
(3) implement budgetary accounts and transaction codes to properly account for
reimbursable authority;
(4) review and correct the automated closing procedures;
(5) evaluate the timely closing of its year-end accounting records prior to the U.S.
Treasury's implementation of the automated Standard General Ledger trial balance
transmission in 1995, which will replace the manual U.S. Treasury standard forms
currently in use;
(6) determine the appropriate final disposition of the unreconciled data conversion
errors and remove them from the IFMS general ledger trial balances; and
(7) ensure that adequate resources are dedicated to meeting EPA's financial reporting
requirements in a timely manner.
EPA's Response to Draft Report Recommendations and Our Evaluation
The CFO agreed with the intent of our recommendations and has implemented corrective
action plans. In addition, alternative corrective actions were proposed to one of the
recommendations included in the draft repon. We believe EPA's proposed actions will
address the issues, so we have revised our recommendations accordingly. Corrective
action target dates have been established and completion dates range from October 30,
1993 through October 15, 1994. See Appendix 1 for additional details. With the
exception of the CFO's comment regarding "timeliness" issues which we addressed in
Appendix 2, Note 9, the CFO's response to our draft repon and EPA's proposed
corrective actions are generally responsive to our recommendations. Therefore, we are
making no further recommendations on these issues.
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2. Improvements Are Needed in Recording Accounts Receivable
EPA currently has several types of receivables, the most significant resulting from cost
recovery actions that identify individuals and businesses that were responsible for
polluting the environment. These potentially responsible parties are identified during
site-specific enforcement procedures. It is EPA' s policy to record accounts receivable
from potentially responsible parties for Superfund site cleanup costs incurred by EPA
when a consent decree, judgment, or other binding agreement is reached. The amounts
collectible as a result of the consent decree, or other judgment, include the site-specific
cleanup costs and general and administrative costs incurred by EPA related to the site
cleanup.
EPA management has reported in its 1992 FMFIA report, as a material nonconformance,
that there is no centralized capability to record, bill, and write off accounts receivable.
EPA management also reported, as a material weakness, that EPA's accounts receivable
management is hampered by system weaknesses in the IFMS accounts receivable
module, noncurrent policies and procedures, inaccurate and incomplete reports, and
insufficiently trained personnel.
Our audit approach to accounts receivable from potentially responsible parties included
(1) testing a statistical sample of the recorded balances at September 30, 1992, (2) testing
a nonstatistical sample of accounts receivable billing and collection transactions during
fiscal year 1992, and (3) testing the completeness of accounts receivable at September 30,
1992.
The purpose of our statistical sample was to ascertain whether accounts receivable were
overstated at September 30, 1992. We concluded that accounts receivable from
potentially responsible parties were not overstated. The purpose of our nonstatistical
sample was to determine if there were significant delays in recording accounts receivable
once a consent decree or other judgment was reported to the financial management
offices by the Office of Regional Counsel (ORC). We noted significant delays in
recording accounts receivable, as discussed below.
We tested the completeness of accounts receivable from potentially responsible parties by
obtaining Quick Look Reports from the ORC's Consolidated Docket Enforcement
System, which the ORC uses to track current cases, and agreeing individual cases to the
accounts receivable recorded in EPA's general ledger. As a result of our testwork, we
noted that the ORC is recording an estimate, not the actual amount of the consent decrees
or other judgments, into its tracking system. This makes it difficult to reconcile the
Quick Look Reports to recorded accounts receivable.
In addition, in our testwork at the San Francisco regional office, the Quick Look Reports
identified significantly more consent decrees/judgments than were recorded in the general
ledger. Alternatively, in the New York and Chicago regional offices, the cases on the
Quick Look Reports were significantly less than the general ledger amounts. As a result,
we could not conclude that the general ledger listing of accounts receivable was
complete. An additional set of reports was identified after the end of our field work
which may provide additional evidential matter, however, these reports will not be
reviewed until the fiscal year 1993 audit
Accounts Receivable Were Not Recorded Timely
Our tests of receivables disclosed that 9 Superfund Trust Fund receivables, totaling
$5,804,437, from our nonstatistical sample of 38 receivables, totaling $13,821,052, were
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not recorded timely. For these 9 receivables, an average of 77 days elapsed from
execution of the consent decree or other judgment creating the debts, to recording the
receivables in IFMS. Also, there were two accounts receivable amounting to $1,302,000
that were recorded in the IFMS after the collections were received.
The receivables that were not recorded timely were disclosed only from our nonstatistical
sample and may not represent a complete summary of receivables that were not recorded
timely during fiscal year 1992. Because of the lack of timely recording of accounts
receivable, there may have been other accounts receivable at September 30, 1992, that
were not recorded.
GAO policy states that accounts receivable shall be recorded at the time the events occur
that entitle EPA to collect funds. 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.
Receivables were not recorded timely because Regional Counsels and Superfund program
offices often did not forward settlement documents and orders to the FMOs within one
work day of final signature, as required by EPA policy. Also, judicial orders were not
promptly obtained by Regional Counsels from the U.S. Department of Justice (DOJ).
The failure to record receivables timely causes inaccurate internal and OMB and U.S.
Treasury Standard form reports and financial statements. This could result in the loss of
interest and penalties and contribute to the uncollectibility of receivables.
Inaccurate Subsidiary System Interest Calculation
EPA's accounts receivable module does not currently maintain accurate interest
calculations. Therefore, EPA personnel must calculate interest manually. Although the
manual calculation appears to be reasonably accurate, it is time-consuming for EPA
personnel. This weakness was reported by EPA in its FMFIA report for 1992 as a
material nonconfonnance.
Collections Were Not Recorded Timely
Our tests of nonstatistical samples of 34 collections, totaling $17,169,401, disclosed that
17 collections, totaling $10,406,812 were not recorded timely in the IFMS. The average
number of days from receipt of these 17 items to recording in the IFMS was 10 days.
When collections are made, the existing receivables should be reduced in a timely manner
by the amount of the collections received. GAO and EPA policy states that transactions
are to be promptly recorded and properly classified. Prompt recording of collections
helps ensure control over the funds collected and provides up-to-date accounting
information for use in managing accounts receivable.
EPA Actions
These weaknesses in accounts receivable have existed and have been reported by us since
1987. We recommended in our prior report that EPA's AA develop a specific corrective
action plan. EPA management recognizes that improvements are still needed in
managing accounts receivable. EPA has taken some corrective actions in the areas cited
in this report and has indicated a commitment to quickly resolve all issues related to
managing accounts receivable.
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EPA has reported accounts receivable as a material weakness in the FMFIA and has taken
steps such as formation of a Task Force and Internal Work Group, which are responsible
for resolution of the following problems:
• inaccurate interest calculations;
• timely recording of receivables;
• timely recording of collections; and
• reconciliation procedures to ensure that all valid accounts receivable are recorded.
We recognize management's initiative to take corrective action for accounts receivable
issues and, as a result, we are not making further recommendations regarding improving
the accounts receivable accounting in this report
3. Property and Equipment Records Need to Be Integrated with the General Ledger
EPA does not have an integrated property system that supports the property and
equipment balance reported in the statement of financial position. EPA currently uses
two systems to account for and control property, PPAS and spreadsheets. However,
neither of these two systems contains complete historical cost data and information to
support all capitalized property. EPA management has reported in its 1992 FMFIA
report that reconciliation between PPAS and IFMS is not adequate.
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, financial management offices prepare
listings of property and equipment that meet EPA's capitalization criteria. These listings
are based on detailed reviews of disbursements of property and equipment recorded as
operating expenses. The finance offices then prepare general ledger journal entries to
capitalize these amounts.
EPA uses the listings to update the detailed property spreadsheets. EPA also uses the
property spreadsheet information as the basis for calculating and recording depreciation.
Property spreadsheets have been maintained since 1989. However, contractor-acquired
property is not capitalized or recorded on the property spreadsheets or in EPA's general
ledger. Additionally, disposed property items are generally not removed from the general
ledger.
EPA maintains a separate system, the Personal Property Accountability System (PPAS),
to control property. Annual physical inventories are required to be taken and should 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 amount obligated. 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.
As a result of the system differences, EPA cannot reconcile the spreadsheets supporting
the general ledger balance of property and equipment to the PPAS or to the physical
inventories. Because the detailed accounting records supporting the financial statement
balance of property and equipment are inadequate, we were unable to audit this account.
An integrated property system should provide both accountability for and control over
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property recorded in EPA's general ledger. Such a system should provide information,
such as type of asset, date of acquisition, original cost, estimated useful life, applicable
depreciation data, physical location, and identity of custodial officers.
EPA's accounting system problems with 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. We noted that EPA still
reported a material nonconformance in the reconciliation of information in the IFMS
(which is supported by spreadsheets) and PPAS in the FMFIA report for fiscal year 1992.
The FMFIA report stated that the policies and procedures need to be updated and
strengthened to ensure reconciliation between property and accounting records. EPA's
revised target date for correction of this nonconformance is September 1993.
We recognize management's initiative in forming a Quality Action Team (QAT) in
March 1993 to take corrective action for property issues. Based on our review of FMFIA
and quality review reports, the property records are being considered for eventual
integration with the IFMS. Other alternatives, such as implementing the IFMS property
module are also being considered. Significant modifications will be needed to support
financial reporting requirements. These reporting requirements include valuation of all
property at historical cost and determination of useful life for the purpose of calculating
depreciation. Because the OIG, in its audit report on the fiscal year 1992 FlFRA and
Tolerance Fund financial statements, made recommendations on issues the QAT should
address, we are not making any additional recommendations.
4. State Cost Share Revenue Is Not Properly Recognized
State cost share agreements arise when EPA signs an agreement with a state to share in
the cost of Superfund site cleanup at a specified ratio of costs incurred. We noted during
our testwork that EPA records receivables and corresponding deferred revenue when state
cost share agreements are signed. However, deferred revenue is not reduced when site
cleanup disbursements are incurred. This was evidenced by the fact that the transaction
code which liquidates the deferral and recognizes state cost share revenue was not used
during fiscal year 1992.
To determine the amount of deferred state cost share revenue that should be recognized,
EPA must first prepare a detail accounting record of the deferred revenue account, by
cost share agreement. Then, the estimated project costs and percentage of project
completion for each related cleanup action must be identified. This information must be
obtained from accounting records and through documentation provided by site project
managers. The cost-sharing percentage for each agreement must also be determined.
Using this data, the appropriate amount of deferred revenue should be calculated for each
state cost share agreement
We were not able to audit deferred revenue for cost share agreements as of September 30,
1992, because the necessary data was not available. Currently, EPA does not have an
adequate method for determining the costs incurred on these agreements in order to
properly liquidate the deferral and recognize revenue.
Recommendation
We recommend that the CFO develop procedures for calculating state cost shares to
properly recognize earned revenue as cleanup services are performed.
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EPA's Response to Draft Report Recommendation and Our Evaluation
The CFO agreed with our recommendation 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 the deferred revenue account is April 1, 1994.
The CFO's proposed corrective actions are responsive to our recommendations.
However, this issue will not be resolved until fiscal year 1994 and, therefore, this balance
will be unauditable in fiscal year 1993.
5. Accounts Payable/Accrued Liabilities Are Not Properly Recorded
We identified significant audit adjustments, described below, to accounts payable and
accrued liabilities as of September 30, 1992, which resulted from a lack of effective
controls to identify and correct inaccurate financial information. Accrued liabilities for
interagency agreements were improperly calculated using a methodology that did not
reflect actual services performed by the supplying agency. Contract retentions are not
being properly tracked and classified as accounts payable. EPA is also not properly
accruing unpaid grant drawdowns as accounts payable or accrued liabilities.
Interagency Agreements
We found that the original method used to calculate the interagency agreement liability
did not consider the extent of work performed under each agreement. Instead, EPA
calculated the liability based on the time elapsed under the agreement less payment
activity. However, at our request, EPA obtained the necessary documentation to adjust
the interagency agreement liability for a significant number of interagency agreements.
EPA identified an overstatement of Federal accrued liabilities relating to interagency
agreements amounting to approximately $486,000,000, which was subsequently
corrected.
Accounting for Contractor Retainages
Currently, EPA does not record accounts payable for contractor retainages. Retainages
have occurred when contractors submitted invoices for payments relating to services
performed and EPA retained portions of the amount due. Retainages are not paid until
EPA is satisfied that the contractor has met all contractual requirements pertaining to that
contract. This policy has been changed such that retainages may not be required in the
future. EPA should record payables and expenses for the entire amount of contractor
billings, prior to deducting the retainages. EPA should have recognized a liability for the
amounts retained that had not been paid to contractors as of September 30, 1992.
Contract payments for EPA are paid primarily by the National Contract Payment
Division (NCPD) through the Contract Payment System (CPS). EPA could not
determine the amount of outstanding contract retainages as of September 30, 1992.
Therefore, we were unable to determine if EPA's practice of not recording retainages as
payables would materially affect the financial statements.
NCPD believes that it has accounted for the estimated value of retainages in its estimate
of accrued liabilities at September 30, 1992. Accrued liabilities are calculated as
one-twelfth of the total contract disbursements for fiscal year 1992. This calculation
provides an accrual for anticipated contractor expenses for services performed in
September that will not be billed until the following fiscal year. Because the
disbursement amounts included in this calculation included any disbursements made in
fiscal year 1992 for retainages, the accrual would include some provision for retainages.
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Although we agree that the accrued liabilities may consider some level of retainages, it is
not possible to determine if such accrual is sufficient to cover all retainages withheld by
EPA at September 30, 1992. Retainages can be withheld for long periods, often years,
before they are paid
We believe that unless EPA determines that these amounts are immaterial, the contract
retainages should be recorded as accounts payable based on EPA's Fiscal Year 1992
Year-end Closing Procedures, issued by the Financial Reports and Analysis Branch.
These procedures classify accounts payable as obligations in which an invoice has been
received and the services have been performed.
Accounting for Grant Accruals
EPA awards grants to state and local governmental units and other entities, primarily
nonprofit organizations, for research and other support activities that benefit all EPA
prograais. Some grantees request reimbursement from EPA through the Automated
Clearing House (ACH) Payment system. EPA's ACH Payment System is an electronic
funds transfer process initiated in response to the U.S. Treasury's elimination of the
Treasury Financial Communication System - Letter of Credit Other grantees request
reimbursement from EPA using other drawdown documents.
As a result of our testwork, we identified inconsistencies among regional offices in
recording accounts payable and accrued liabilities for obligations to grantees. Only two
regions that we audited recorded accounts payable for grants at September 30, 1992.
Region 1 recorded $128,707 of accounts payable for unpaid ACH Payment requests.
Region 9 recorded $947,619 of accounts payable for unpaid grant drawdowns requested
outside of the ACH Payment system. Region 2 and Region 5 recorded no accounts
payable for unpaid grant drawdown requests for the Superfund Trust Fund and LUST
Trust Fund
Region 9 also recorded an accrued liability for grant drawdowns amounting to $775,807
and $548,056 for the Superfund Trust Fund and LUST Trust Fund, respectively. The
methodology used to calculate this accrued liability was developed internally and did not
accurately reflect the amount owed to grantees as of September 30, 1992. Region 9 was
not able to provide supporting documents, timely, to calculate the proper accrued liability
for grant drawdowns.
The Las Vegas Financial Management Center is responsible for consolidating all grant-
related ACH Payment requests for all regions. Therefore, we believe that the regional
offices, in conjunction with the Las Vegas Financial Management Center, should
determine the year-end accounts payables for all unpaid grant drawdown requests
submitted through the ACH Payment request system. Each regional financial
management office should record accounts payable for all unpaid non-ACH related grant
drawdown requests at year-end.
According to EPA's Fiscal Year 1992 Year-end Closing Procedures, each regional office
should also have recorded an accrued liability for the estimated amount of grant
drawdowns that were payable through September 30, 1992, because related services had
been performed, but the grant drawdown documents had not yet been submitted to EPA.
EPA has not yet performed a complete analysis of accrued liabilities to determine the
proper liability relating to grant drawdowns. EPA's procedures state that such accrued
Liabilities should be based on historical data and past experience.
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Based on our testwork, we could not determine if the accounts payable and accrued
liability entries for grant drawdowns were material in relation to the financial statements
being audited. EPA personnel have agreed to work with us during the 1993 audit to
attempt to determine the materiality of these amounts.
Accrued Liability Error
We identified a $12,816,251 understatement of accrued liabilities at September 30,1992.
This understatement resulted from the suppression of an account number in the detailed
report used to compute the accrual at the NCPD. At our request, this understatement was
subsequently corrected by EPA.
Accruals Were Recorded Without Object Classes
EPA was not able to disclose all expenses by object class in Note 10 to the financial
statements. This occurred because year-end accruals were recorded without object class.
Recommendations
We recommend that the CFO:
(1) determine the approximate amount of contractor retainages being withheld; if the
amount is material, develop and implement procedures to ensure the amount can be
fairly presented in the financial statements;
(2) ensure that-the regional offices are consistently following the year-end closing
procedures for recording accounts payable and accrued liabilities for obligations to
grantees and revise the year-end closing procedures to include ACH recipients in
the year-end accrual process; and
(3) require that accruals be recorded with object class and revise the year-end closing
procedures.
EPA's Response to Draft Report Recommendations and Our Evaluation
The CFO agreed with the recommendations to ensure that the regional offices
consistently follow the year-end closing procedures for recording accounts payable and
accrued liabilities and to revise the year-end closing procedures to require that accruals be
recorded with object classes. The corrective action target date for revision of the year-
end closing procedures is July 31, 1993.
The CFO disagreed with our recommendation to develop and implement procedures to
capture the outstanding amount of contractor retainages withheld and record the
corresponding liability. She stated that, in 1991, EPA revised its policy on contractor
retainages, so that, except in rare instances, no amounts earned by contractors are being
retained. Consequently, contractor retainages should be insignificant in future years. We
have revised our recommendation in this area to address EPA's concerns that the
contractor retainages may not be material. EPA has agreed to determine the amounts that
remain withheld as contractor retainages so that an analysis can be performed during our
1993 audit to determine if the corresponding liability is material to the financial
statements.
6. Accounting for Grant Drawdowns Does Not Provide Required Account Information
We found that the Las Vegas Financial Management Center is currently applying ACH
Payment requests for multi-funded grant drawdowns to funding sources based upon a
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first-in first-out method, using the oldest available unliquidated obligations. The grant
recipients do not identify which funding source the grant disbursements should be applied
to unless the payment requests are specifically related to a Superfund site cleanup. This
may cause a misstatement of activity among the various EPA sources or appropriations
that provide funding under the same grant agreement
As a result, the Superfund Trust Fund operating statement may include grant expenses
that resulted from application of grant drawdowns to the Superfund, even though the
drawdown may have been for non-Superfund purposes. Alternatively, certain grant
expenses actually incurred to benefit the Superfund program may be excluded from the
Superfund Trust Fund operating statement because they were recorded in another
appropriation. Further, drawdowns on grants that are solely funded from the Superfund
may not be charged to the correct account numbers. The financial statement effect of
EPA's current procedures for recording multi-funded grant drawdowns on the Superfund
Trust Fund operating statement and equity balance could not be determined during our
audit.
As a pan of our detailed disbursements testwork, we selected a statistical sample of grant
disbursements from transactions in major object class 4100, "Grants, Subsidies and
Contributions." This sample population amounted to $34,154,569, or 16% of total grant
disbursements of $219,178,249. In our draft report, we questioned as unsupported
$4,615,475 of multi-funded grant disbursements because we could not determine the
amounts that related to Superfund activities since the grant account information had not
been included on the ACH payment request by the grant recipient. We also questioned
$643,194 of Superfund grant disbursements as unsupported because the ACH payment
requests did not include the Superfund account numbers to which the payments should
have been charged.
Subsequent to the issuance of our draft report, EPA officials expressed concern that we
had questioned the entire amount of the multi-funded drawdowns and drawdowns on
grants that were solely funded by Superfund. Although EPA officials agreed in principle
with this issue, they did not believe that the methodology being used would result in
material misstatements.
At our request, the Las Vegas Financial Management Center reviewed several grants in
our sample and analyzed the effect of their drawdown charging procedures as of
September 30, 1992. The results of their review supported our position that each of the
multi-funded grants contained some degree of error in the charging of drawdowns this
methodology. However, we noted that the errors were less than 5% of the total
drawdowns paid under the three multi-funded grants reviewed. Although this was not
conclusive since all multi-funded grants in our sample were not analyzed, it does support
EPA's position that the current methodology does not result in material misstatements.
Recommendation
We recommend that the CFO review the results of the Quality Action Team's analysis of
this issue and determine if additional procedures need to be developed to account for
grant drawdowns.
EPA's Response to Draft Report Recommendation and Our Evaluation
We recommended in our draft report that the Director, Grants Administration Division,
require inclusion of grant account information from grant recipients for all ACH payment
requests.
IV. 14
-------
The CFO agreed in principle with the draft report recommendation, however, stated that
requiring this detailed information from grantees is unnecessary and unreasonable. The
Grants Administration Division will establish a Quality Action Team to explore these
issues and develop options to the existing process.
The CFO's response is generally responsive to our draft report recommendation. We
reevaluated our position based upon additional information provided by EPA. As a
result, we acknowledge that the unsupported costs in our report should not be questioned
in total. However, further analysis by EPA and us will be required to determine the
materiality of the error caused by the current method of charging these grant drawdowns.
IV.15
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2 - Reportable Conditions
1. General EDP Controls Need to Be Strengthened
EPA's lack of centralized systems policies and procedures are central to many of the
material system weaknesses that constrain financial management. EPA has identified
several material system weaknesses that significantly impact its ability to provide
accurate and timely financial information. These issues have been identified by EPA's
management through the FMFIA process and by over 50 audit reports and testimonies
discussing EPA's system inadequacies over the past decade.
Information Systems Policies, Standards, Procedures, and Related Documentation Need
to Be Expanded, Updated, and Centralized
Currently, EPA policies, standards, and procedures are decentralized throughout the
agency. Hardware standards are originated from the NDPD and software standards are
originated from the Administrative Systems Division (ASD) in the Office of Information
Resources Management (OIRM) or the FMD in the Office of Administration and
Resources Management (OARM). Other general policies, standards, and procedures such
as disaster recovery, system and program documentation, and logical access security vary
among applications and thus are not consistent within EPA.
In addition, other EPA documents relating to information systems such as the Resources
Management Directives System 2580 and the graphic representation of the interfaces
between the IFMS and its subsystems are inaccurate or outdated. Inconsistent or
inaccurate policies, standards, and procedures and/or other related documents can foster
the design and development of incompatible systems, impede routine maintenance, and
increase the opportunity that weaknesses in internal consols can exist and not be detected
in a timely manner.
The lack of current, centralized policies and procedures was most recently noted by the
OIG in its report on Computer Systems Integrity (#E1NMF1-15-2100641), dated
September 28, 1992. In its response to the OIG report, EPA management agreed to
develop a plan which, when implemented, would address the issue of decentralized,
inadequate, and/or outdated policies, standards, and procedures. The plan is scheduled to
be completed in draft form by June 30, 1993.
EPA's Response to Draft Repon Recommendation and Our Evaluation of the Response
Our draft report contained a recommendation that the CFO expedite EPA's efforts to
implement current, comprehensive information system policies, standards, and
procedures on a centralized basis. The CFO, in her response, stated that EPA officially
established eight critical IRM policy documents as formal binding Agency Directives on
April 20, 1993. These formal directions strengthen EPA's information system policies,
standards, and procedures on a centralized basis. As a result of issuing these directives,
the CFO believes that the recommendation has been fully implemented.
The CFO's response to our draft report and EPA's corrective actions appear to be
responsive to our recommendations. We will review the directives during our fiscal year
1993 audit to determine if the directives implemented adequately address our draft report
recommendations. We are making no further recommendations at this time.
rv.16
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2. Capital Leases Have Not Been Recorded
Between July 1990 and September 1992, EPA entered into lease arrangements for
systems furniture for its regional offices in Boston, Philadelphia, Chicago, Dallas, and
San Francisco. These lease arrangements met the capitalization criteria described in
OMB Bulletin 93-02, "Form and Content of Agency Financial Statements", but were not
capitalized as property in EPA's accounting system.
According to OMB 93-02, 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.
The total lease payments, including a lease buy-out payment made in fiscal year 1992
applicable to these systems furniture leases, amounted to $6,453,000. The amount
charged to the Superfund Trust Fund was $1,005,800. We also identified a capital lease
for a copier machine during our testwork at the Cincinnati Financial Management Center.
The fair value of this machine is approximately $10,000. The lease transferred ownership
at the end of the lease term. Therefore, it also met the criteria of a capital lease.
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 other leases, in addition to those identified
during our testwork. that should be accounted for as capital leases.
OMB 93-02, "Form and Content of Agency Financial Statements", requires disclosures
for both operating and capital leases. Because of the lack of a tracking system for leases,
the value of equipment acquired through capital leases has not been determined or
recorded in the financial statements and the required capital and operating lease
disclosures are not presented in the financial statements.
In particular, the systems furniture and the copier identified as capital assets during our
audit should be recorded as property and depreciated over their useful lives. Details of
both capital and operating leases should be maintained for control purposes and
preparation of required financial statement disclosures.
Recommendation
We recommend that the CFO issue policies and procedures to financial management
offices regarding properly recording and accounting for leases and require the financial
management offices to review all current leases and evaluate whether the leased
equipment should be capitalized.
IV. 17
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EPA's Response to Draft Report Recommendation and Our Evaluation of the Response
The CFO stated that she did not believe that the amount of leased equipment was
material. However, the Financial Management Division in conjunction with the Facilities
Management and Services Division will determine the universe of the leases. Once the
leases have been identified, EPA will meet with us to discuss the issue and agree on what
action is needed.
The CFO's response to our draft report and the proposed corrective actions are generally
responsive to our recommendations. Therefore, we are making no further
recommendations at this time.
rv.i8
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AITAUIMI-.NI VM'lll-,l?|i|,l,l)l I >l'l N I'KIUU HI Jt)UI All NDIN1.S
I JihJinps
Hs»-«l Year IWI • Ke
iiKorjioraicU into Ihc revised RMDS 2,'i'tO-l) lor
esiahlishnip an aJUmjnce lor Superlund receivahlcs
l-nsurc thai financial policies aiul pnx:cdures (or
Supcrlund iiccounis rcccivabte and coHeciuins ,ire
up-io-daie
leisure thai I manual policies and procrdurcs lor
Superlund accounts receivable and coMcTHon1. arc
up-io-daie
Hei|uire the Dircclor ol UAKM lo issue a polity
requirinp .tonuul cenihcanon Irom ihe Rcpioiiiil
Adnunistralors lhal (he •mnuaJ (ihysical invt'iiioncs.
walk-lhrough inspections, mid rccuncihaiinns 10 ihc
IM'AS .ire perlormcd
(Hiiain wntten opinion Irom ihc (HIice ol (Icneral
Counsel on Ihe legal hiisis lor charging Superlund
adrrunislralive expenses lo ihe S&l: appropriation
Delme report reiiuireiiieii s .mil ilcvdop reiorls lor Hit Mjich II I')'H
II MS
Issue reused HMDS :SSD-|) December II, I't'H
Issue revised HMDS 2SSH-D IXvrmhvr II. I'J'H
Ohi.uii llK iiitssiiip .itiiiii.ii niveiiliirv, iiis[velinn, ,uti) Deeemhcr II, I1)')!
iMu.
llnpoiup
Onptllll!!
Oiipomp
fXTOIlUliallOII CLTItllC.llh) Is
Kei|ucst a lepal npinn.n fmni ihe *K'i(" |o real I inn the
lepahlv ol eh.irpinf.1 Su|x- lund enivnsc1. lo ihe Sit!'
Unpomp
Kisrul Year IWD- Report On KinaiK-gal Audit *
Ha/jirdirus Substance Supcrfund
Procedures have mil IUTM U|Xl.ued since the
implementation ol the II-MS
(insure that Ihe KMDS t-s lullv implcincnteil and
includes procedures HIH! re(|uirciiK'ius lt»r recordmp
.md sii|)p«»niiip iransAlion in ihe MMS
Usue HMDS 2S Ml
Scniemhcr I'N? (nn<.'in.ili
A|iftl l'l')4 (revised)
I-Iscal Year OHM - Kcp»rt On Kinsncbil Audit -
Ma7,arduus Substance Superfuiwi
Daia w.is noi reconciled 111 ihr iransler Irom ihc1
I MS 10 ihc M-MS
Verily lhal iransaclions and account balances
hntujjhl torward Irom (he 1-"MS lo the II-MS ar
correct, complete, .md reconciled and lhal
reconcihaliun is retaiiK*d tor audil
Ad|ust conversion errors and hepinniup .K.COUIII balances
IXx-cmht-r ('WMoripin.!!!
Ociohei I'J'H (revised)
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LEONARD G. BIRNBAUM AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
WASHINGTON OFFICE
6285 FRANCONIA ROAD
ALEXANDRIA, VA 2231 0
(703) 922-7622
FAX (703) 922-8256
LEONARD G B'RNBAUM WASHINGTON DC
LESLIE A LEIPER SUMMIT, NEW JERSEY
DAVID SAKOFS MOUNTAIN VIEW CALIFORNIA
CABOL A SCHNEIDER SAN DIEGO, CALIFORNIA
KEVIN MCKINSTRIE
MEMBERS OF THE
AMERICAN INSTITUTE
OF CPA'S
Independent Auditors' Report on Compliance with Laws and Regulations
The Inspector General
J.S. Environmental Protection Agency:
We have audited the financial statements of the Leaking Underground Storage Tank
(LUST) Trust Fund and the Asbestos Loan Program, and 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, 1992. We have issued our
report thereon dated April 7, 1993, in which we disclaimed an opinion on the financial
statements of the Superfund Trust Fund; disclaimed opinions on the statements of
operations and changes in net position, cash flows, and budget and actual expenses of the
LUST Trust Fund and Asbestos Loan Program: and qualified our opinions on the
statements of financial position of the LUST Trust Fund and the Asbestos Loan Program.
Except as discussed in paragraphs 6 through 9. 19 and 20 of our Independent Auditors
Report on Financial Statements, we conducted our LUST Trust Fund and Asbestos Loan
Program audits in accordance with generally accepted auditing standards: Government
Auditing Standards, issued by the Comptroller General of the United States: and Office
of Management ana 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.
Compliance with-laws and regulations applicable to the Superfund Trust Fund, the LUST
Trust Fund, and the Asbestos Loan Program is the responsibility of EPA's management.
As pan 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 the OIG, that may have a direct and
material effect on the financial statements:
Budeet and Accounting Procedures Act of 1950
• 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
V.I
MEMBER OF THE DIVISION FOR CPA FIRMS, PRIVATE COMPANIES PRACTICE SECTION
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
-------
• Civil Service Reform Act
Fair Labor Standards Act
Civil Service Retirement Act
• 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
Resource Conservation and Recovery Acts of 1976 and 1984
• Asbestos School Hazard Abatement Act of 1984
« Asbestos School Hazard Abatement Reauthorization Act of 1990
Our objective was not to provide an opinion on overall compliance with laws and
regulations. Accordingly, we do not express such an opinion.
As required by OMB Bulletin 93-06, "Audit Requirements for Federal Financial
Statements", we reviewed management's process for evaluating and reporting on internal
control and accounting systems in accordance with the FMF1A. As required by OMB
Bulletin 93-06, we also compared EPA's fiscal year 1992 FMFIA reports with the
evaluation we conducted of the entity's internal control system. As a result of our audit,
we reported six material weaknesses in internal controls. To determine whether to report
matters as material weaknesses we used the definition of material weakness included in
OMB Bulletin 93-06. According to the bulletin, a material weakness in the internal
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 being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. EPA reported
weaknesses in the areas of the financial system, accounts receivable, reconciling property
and accounting records, and improving EDP system controls in the fiscal year 1992
FMFIA report. The following material weaknesses were not included in EPA's FMFIA
report:
• not properly recognizing state cost share revenue;
• not properly recording accounts payable and accrued liabilities;
not providing required account information to properly record grant drawdowns; and
• components of equity are not properly identified.
The conditions we noted that were not reported by EPA primarily relate to financial
accounting issues.
We considered these matters in forming our opinion on whether the LUST Trust Fund
and Asbestos Loan Program's 1992 statements of financial position are presented fairly,
in all material respects, in conformity with the applicable accounting principles described
in Note 1 to the financial statements; therefore this report does not affect our report dated
April 7, 1993 on those financial statements.
The results of our tests of compliance indicate that, with respect to the items tested, the
U.S. Environmental Protection Agency complied, in all material respects, with the
provisions referred to in the third paragraph of this report, applicable to the Superfund
Trust Fund, the LUST Trust Fund, and 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
V.2
-------
complied, in all material respects, with those provisions. However, we noted two items
we believe should be highlighted.
1. Certain Allocable Costs Were Not Allocated to Superfund
General support services costs are allocated quarterly during the first three quarters and
monthly during the fourth quarter of the fiscal year from EPA's Salaries and Expenses
appropriation to the Superfund Trust Fund and LUST Trust Fund. The allocations are
made using cost allocation plans established by EPA that are designed to distribute
support costs to the benefiting programs.
As a result of our testwork, we determined that the allocations of general support service
costs at Headquarters and Region 1 reached budgetary ceilings during the fiscal year and
the allocations were discontinued. We obtained the following information regarding the
estimated amounts that would have been allocated to the Superfund Trust Fund if they
had been continued:
Support Cost Allowance Allocable Actual
Type Holder Amounts Allocation Understatement
Headquarters 51 $ 4,744,834 $ 4,263,825 $ 481,009
Nationwide 51 19,442,613 19,238,986 203,627
Headquarters 55 2,524,430 2,253,590 270,840
Headquarters 54 583,363 580,140 3,223
Nationwide 54 3,258,085 2,893,071 365,014
Boston OIF 1.372.433 1.202.485 169.948
Total $31,925,758 $30,432,097 $1,493,661
Because this schedule reflects only understated cost allocations at accounting points
where audit testwork was performed, it does not quantify the total understatement of
allocable costs.
The Superfund Accounting Branch prepared an allocation model to determine the
agencywide costs incurred by the Salaries and Expenses appropriation that benefit the
Superfund but were not allocated against its budgetary resources. The Salaries and
Expenses appropriation subsidized Superfund by $17.5 million, which was recorded, for
financial statement purposes only, as both a revenue and expense of the Superfund Trust
Fund. The above-mentioned understatement of $1,493,661 is a part of the $17.5 million
subsidized amount. The $17.5 million of administrative costs was not budgeted to or
charged against Superfund appropriations, even though adequate carry-over
appropriations were available to cover these amounts.
We have previously recommended that EPA's AA obtain a written opinion from the
Office of General Counsel (OGC) on the legal basis for charging Superfund
administrative expenses to the Salaries and Expenses appropriation. If the OGC
determines that EPA's current practice of charging the Salaries and Expenses
appropriation for Superfund administrative expenses is improper, the OGC should
provide guidance on appropriate corrective action. This recommendation was initially
made in our 1991 audit report, and EPA has initiated corrective action. Therefore, we are
making no further recommendation at this time.
V.3
-------
2. Repairs and Improvements Were Charged to Superfund and LUST
We noted rhat $390,792 and $13,110 of building repairs and alterations and leasehold
improvements were charged to the Superfund Trust Fund and LUST Trust Fund
appropriations, respectively, during fiscal year 1992. In July 1992, EPA's Comptroller
issued a memorandum to all Assistant Regional Administrators, Regional Comptrollers,
and Senior Budget Officers advising that EPA should stop charging repairs and
improvements expenses to appropriations that do not specifically allow such charges. We
also noted that the Comptroller indicated that the application of these appropriation
restrictions may require retroactive adjustments for charges previously made to these
appropriations.
The memorandum further indicated that this was an extremely complex issue and that a
formal opinion would be requested from EPA's OGC. As of April 7, 1993, no such
opinion had been obtained from the OGC and no follow-up action had been taken
regarding retroactive adjustment of these charges to the Superfund Trust Fund and LUST
Trust Fund.
During the audit. Office of Comptroller personnel indicated to us that they believed no
further action was needed on this issue because of language included in the Conference
Report on the Agency's fiscal 1993 Appropriations Act (Report 102-902). This report
states that "to clanfy the Agency's authority to obligate Superfund and LUST trust funds
for minor repairs and improvements activities, the conferees have included language in
the bill that allows such activities in these respective accounts." Therefore, it was their
position that the words "to clarify" indicate that EPA also had authority in prior years to
obligate Superfund and LUST funds for repairs and alterations. We believe that an OGC
opinion is needed to resolve this issue and are making such a recommendation.
Recommendation
We recommend that the CFO obtain an OGC opinion on whether EPA had authority
during fiscal 1992 to use Superfund and LUST funds for repairs and alterations.
EPA's Response to Draft Report Recommendation and Our Evaluation
The CFO agreed with our draft report recommendation and has requested on opinion
from OGC. The CFO further stated that EPA believes that they had the authority to use
the funds for repairs and alterations based on their analysis of the appropriations and
discussions with Congressional staff.
The CFO's response to our draft report and EPA's proposed corrective action are
responsive to our recommendation. Therefore, we are making no further
recommendation on this issue.
V.4
-------
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
April 7, 1993
V.5
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Appendix 1
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JUN |6 1993
pendix
te 1
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT:
FROM:
TO:
OARM's Response to the Draft Audit Report P1SFL2-
20-8001: Fiscal 1992 Financial Statement Audit of the
Superfund Trust Fund, Leaking Underground Storage Tank
Program
nistrator (PM-208;
Kenneth Konz
Assistant Inspector General for Audit (A-109!
We appreciate the opportunity to comment on the draft report
of the Agency's first financial statement audit, which was
performed in accordance with the Chief Financial Officers Act.
We have reviewed the report and generally agree with the report
recommendations for improving our financial control systems. We
also agree, in principle, with the rationale provided by the
auditors for rendering qualified opinions on the LUST Trust Fund
and Asbestos Loan Program and the disclaimer of opinion on the
Superfund Trust Fund. However, we have several concerns with
specific aspects of the opinion rationales and the manner in
which the opinions are presented.
I will briefly summarize these concerns which we have
already shared in a meeting with your staff. Specific discussion
of some of these concerns are provided in the attachment as part
of our response to each of the report recommendations and our
proposed corrective action plan. We also have suggested
editorial comments and points of clarification that we would like
to discuss with your staff separately from this written response.
Our first concern is aimed at ensuring that the reader of the
audit report is fully aware of the basis and rationale for the
auditor's qualified opinions and the disclaimer of opinion on the
Superfund Trust Fund. While we do not dispute the opinions, we
are concerned that a reader of the report might interpret the
opinions as meaning that EPA financial processes were unauditable
in some major areas. This interpretation would be inaccurate and
unfair to EPA financial managers.
Printed on Recycled Paper
-------
See
Appendix 2
Note 2
See
Appendix 2
Note 3
See
Appendix 2
Note 4
See
Appendix 2
Note 5
See
Appendix 2
Note 6
We think that the report should clearly distinguish between
decisions of the auditors which ultimately affect their opinion
and those conditions found which were within the control of EPA
managers. Since their decisions precluded them from meeting
certain auditing standards set by the accounting profession, it
is important for the reader to be able to distinguish between the
major aspects of the disclaimer for Superfund and qualified
opinions for Asbestos and LUST funds. The point is best
illustrated by the fact that the auditors chose not to audit
opening balances. The reader may conclude that these balances
were unauditable, when in fact the auditors had merely limited
the scope of their audit because they did not audit the ending
balances for FY 1991 for each fund. Also, there were scope
limitations imposed by the DIG because of time and resource
constraints. For example, it was the auditor's decision not to
audit administrative support costs allocated to Superfund and not
to verify the accuracy of the fund amounts held by Treasury, in
both cases, OMB insisted that EPA include these amounts in its
financial statements for Superfund.
We believe the report would be easier to read and comprehend
if a separate opinion or independent audit report was provided
for each fund instead of commingling the results of the audit for
each fund into one report. In addition, it is not clear why the
report makes the distinction in the "Executive Summary" of the
report and in the section entitled the "Independent Auditors'
Report on Financial Statements" that they "audited" the LUST fund
and Asbestos program and were "engaged" to audit Superfund. We
believe this is not a minor point since the inference is that no
audit was performed on the Superfund financial statements.
Secondly, we disagree with the auditor's finding that the
Agency did not have a complete listing of accounts receivable to
support the amount reported in the Superfund statement of
financial position. We explained to the auditors that they had
not reviewed the appropriate documentation to support their
conclusion. We discussed this concern with your staff and
representatives from the independent audit firm and they
indicated that they would take another look at this area before
finalizing their position. They also acknowledged that they had
not reviewed all the pertinent documents and that they would in
fact restructure their audit procedures in this area for the 1993
audit.
Third, we question the materiality and the appropriateness
of four other conditions listed by the auditors as part of their
rationale for disclaiming an opinion on the Superfund. The
report indicates that the auditors were unable to satisfy
themselves regarding the financial statement amount for the
following accounts: accounts payables related to contract
retainages; unliquidated obligations for Superfund; expenses for
-------
Appendix 2
Note 8
multifunded grant drawdowns involving Superfund; and the amount
of equipment related to capital leases. While we agree with the
auditors that our internal controls and accounting policies could
be strengthened or should be reevaluated to determine whether the
Agency should change its current practice in these areas, we do
See not believe that any of these items are material in assessing the
Appendix 2 accuracy of the Superfund financial statements as a whole. We
Note 7 believe that these conditions would be more appropriately
discussed in the report on internal controls, and not included as
conditions influencing the disclaimer of opinion on Superfund.
With respect to confirming the amount of unliquidated
obligations, the auditors failed to recognize that they- -Birnbaum
& Company- -had already audited these accounts as part of the
annual Superfund audit of obligations and disbursements.
Unliquidated obligations is the difference between obligations
and disbursements. A review of the prior annual audits would
show that any material misstatements of obligations and
disbursements had been corrected and that the 1992 audit did not
disclose any material misstatement of obligations and
disbursements. This scope limitation is not material to
supporting the disclaimer for the Superfund Trust Fund and should
be deleted or substantially changed with respect to unliquidated
obligations.
See Finally, we disagree with the report- -and suggest the
Appendix 2 auditors use different language to make their point- -when it
Note 9 states that they were unable to audit EPA records to confirm
account amounts because the records were not available. In each
instance where the auditors make this statement, the auditors
were either constrained by insufficient time allotted to the
audit or they had concluded that the necessary audit tests to
confirm the accuracy of the accounts balance would be outside the
scope of their audit. The reader of the report should be able to
discern whether EPA had sufficient documentation to support
amounts reported in the published financial statements or whether
the auditor simply did not have sufficient time to review the
documentation. Also, on page III.l where the report states that
it was impractical for the auditors to extend their tests, an
explanation should be provided supporting this conclusion.
In summary, we believe the audit has been a positive
experience. Both of our staffs have worked diligently under
tight timeframes to meet the new CFO requirements for preparing
and auditing the Agency's financial statements. As we gain more
experience with the new CFO reporting requirements, I am sure we
will become more efficient in our ability to meet these
requirements. I am sure that the experience our staffs have
-------
gained from this initial audit will prove beneficial as we
approach the FY 1993 Financial Statement audit.
If you have any questions regarding our response, please
contact Jack Shipley, Acting Director of the Financial Management
Division at 260-5097.
Attachment
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cc: Deputy Assistant Administrators for OARM (PM-208)
General Counsel, Office of General Counsel (LE-130)
Assistant Administrator for Solid Waste
Emergency Response (OS-100)
Assistant Administrator for Enforcement (LE-133)
Assistant Administrator for Research
and Development (RD-672)
Associate Administrator for Regional Operations and
State/Local Relations (H1501)
Assistant Administrator for Solid Waste and Emergency
Response (OS-100)
Assistant Administrator for Prevention, Pesticides and
Toxic Substances (TS-788)
Comptroller (PM-225)
Associate Comptroller (PM-225)
Director, Office of Information Resources
Management (PM-211)
Director, Budget Division (PM-225)
Director, Resource Management Division (PM-225)
Director, Office of Acquisition Management (PM-214F)
Director, Procurement and Contracts Management
Division (PM-214F)
Director, Office of Administration (PM-217)
Director, Facilities Management and Services
Division (PM-215)
Director, Office of Administration and Resources
Management, RTP, NC (MD-20)
Director, National Contracts Payment Division,
RTP, NC (MD-32)
Director, National Data Processing Division,
RTP, NC (MD-34)
Director, Contracts Management Division,
RTP, NC (MD-33)
Director, Office of Waste Programs Enforcement (OS-500)
Director, Office of Emergency and Remedial Response (OS-200)
Director, Financial Management Division (PM-226F)
Director, Facilities Management and Services
(PM-215)
Office of Grants and Debarment (PM-216F)
Office of Underground Storage Tanks (OS-400W)
Office of Pollution Prevention and
(TS-792)
Director, Office of Administration and Resources
Management, Cincinnati, OH
Internal Control Official ATTN: Director, Resources
Management Division (PM-225)
Audit Follow-up Coordinator ATTN: Program Operations Support
Staff (PM-208)
Chief, Program Management Policy & Analysis Branch, FMSD
Chief, Security and Property Management Branch
Division
Director,
Director,
Director,
Toxics
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Regional Comptrollers
Regional Financial Management Officers
Financial Management Division Branch Chiefs
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Attachment Page 1
RESPONSE TO RECOMMENDATIONS
DRAFT AUDIT REPORT P1SFL2-20-8001
FISCAL 1992 FINANCIAL STATEMENT AUDIT
OF THE SUPERFUND TRUST FUND, LEAKING UNDERGROUND
STORAGE TANK TRUST FUND AND ASBESTOS LOAN PROGRAM
The following represents the Office of Administration and
Resources Management consolidated response to recommendations in
the draft audit report of Fiscal 1992 Financial Statement Audit
of the Superfund Trust Fund, Leaking Underground Storage Tank
Trust Fund and Asbestos Loan Program. We have grouped our
comments and responses to the recommendations as they appear in
the report.
GENERAL COMMENT
The results of the audit are presented in three major
sections of the audit report: the Independent Auditor's Report on
Financial Statements, the Independent Auditor's Report on
Internal Controls and the Independent Auditor's Report on
Compliance. The Executive Summary summarizes the major findings
and the rationale for the financial statement opinions.
Recommendations were provided in the two sections on internal
controls and compliance.
As indicated in the cover memorandum to this attachment,
OARM and Regional staff generally agree with the report
recommendations for improving EPA's financial control systems.
We also agree, in principle, with the rationale provided by the
auditors for rendering qualified opinions on the LUST fund and
the Asbestos Loan program and the disclaimer of opinion on the
Superfund Trust Fund. However, we have raised several concerns
in the cover memorandum and noted our disagreements with specific
aspects of the opinion rationales and the manner in which the
opinions are presented.
Our major concern is that the Executive Summary and the
Report on the Financial Statement as written will confuse the
reader on the essential rationales supporting the auditors'
opinions and disclaimer of opinion and that a reader of the
report might interpret the opinions as meaning EPA financial
processes were unauditable in some major areas. This
interpretation would be inaccurate and unfair to EPA financial
managers.
RECOMMENDATIONS/OARM RESPONSE
— Auditors' Report on Internal Controls
1.0 Finding: Financial Reporting System Improvements are Needed.
1.1 Recommend that the CFO redesign classification structure
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Attachment Page 2
elements so that IFMS will automatically provide trial
balances at the highest level of aggregation required for
financial reporting purposes.
We agree with the intent of the recommendation. However, we
believe that an aggregate of trial balances can be obtained using
MARS which would summarize the general ledger accounts by the
Treasury symbols to be included in the financial statements.
Another alternative would be to design a customized report.
Further, we are concerned that in the future financial statement
requirements will be modified which will impact how we proceed
with our corrective action.
Corrective Action; Target Pate
- Develop format of MARS report to aggregate July 30, 1993
the general ledger account balances
- Submit to FRAB for analysis of results July 30, 1993
- Obtain approval from FEAB Aug. 15, 1993
If format not accepted, design customized Aug. 30, 1993
report based upon RGLTS format
- AMS completion of customized report Oct. 30, 1993
format (if required)
1.2 Recommend that the CFO continue efforts to change the
automated closing procedures to retain regional account
balances.
We agree with this recommendation. However, we would point
out that we had planned for this capability for sometime. By the
end of June 1993, we will have completed the process to obtain
opening fiscal year 1993 account balances at the accounting
office level. We have scheduled the implementation of the
process for the fiscal year 1993 closing in our year-end
procedures instructions. We would expect that the opening
balances by accounting offices to be completed for fiscal year
1993 during December 1993.
Corrective Action; Target Date
Submit programs to obtain General Ledger June 30, 1993
(GL) beginning GL account balances by
Servicing Finance Office (SFO) for FY 1992
- Submit programs to convert FY 1993 Dec. 31, 1993
balances by SFO
1.3 Recommend that the CFO implement budgetary accounts and
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Attachment Page 3
transaction codes to properly account for reimbursable
authority.
We agree with the intent of this recommendation. The
Standard General Ledger (SGL) Committee has begun to revise the
general ledger requirements for reimbursable authority. After
the revised SGL is issued, we will develop an accounting model to
provide assurance that our present general ledger account
structure complies with the SGL requirements. Then, if
necessary, we will revise our transaction code structure to
comply with the new model and will issue procedures on the proper
use of the entries for reimbursable work. We believe that
delaying this work will allow us to work efficiently to implement
any necessary changes.
Corrective Action; Target Date
- Research SGL requirements for reimbursable July 30, 1994
authority
Compare existing EPA policy and procedures Aug. 30, 1994
- As necessary, create additional transaction Sept. 15, 1994
codes to implement requirements
As necessary, issue revised procedures and Oct. 15, 1994
instructions
1.4 Recommend that the CFO review and correct the automated
closing procedures.
We agree with this recommendation. We will review the
automated closing procedures with American Management Systems,
Inc. (AMS), the contractor who developed the standard software
package upon which IFMS is based. Based on our initial analysis,
the problem may arise because the closing process does not
perform all the necessary operations. If our understanding is
correct, other Federal agencies using this software package by
AMS will have the same results. Further, we are concerned that a
new reporting structure may be mandated by OMB and Treasury which
will impact on the closing process. Therefore, we will refer the
recommendation to the Federal Financial System (FFS) User Group
for action. We believe that this course of action is the most
cost effective option.
Corrective Action; Target Date
Obtain additional information from AMS July 30, 1993
Refer to FFS User Group for action Sept. 30, 1993
1.5 Recommend that the CFO evaluate the timely closing of its
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Attachment Page 4
year-end accounting records prior to the US Treasury's
implementation of the automated Standard General Ledger
trial balance transmission in 1995, which vill replace the
manual US Treasury standard forms currently in use.
We agree with this recommendation. We will evaluate our
year-end closing process and statement preparation procedures.
Corrective Action; Target Date
- Evaluate year-end closing process April 30, 1994
1.6 Recommend that the C70 determine the appropriate final
disposition of the unreconciled data conversion errors and
remove them from the IFMB general ledger trial balances.
We agree with this recommendation. We have been actively
working to reconcile the data conversion errors and to remove
them from the IFMS general ledger trial balances. This year, we
were able to identify and agree with the auditors on guidelines
for the adjustments and reclassifications needed.
Corrective Action; Target Date
- Adjust and correct FY 89 FMS to IFMS Sept. 30, 1993
conversion errors
- Adjust and reclassify accounting Sept. 30, 1993
transactions as needed for FY 1989 to 1992
- Enter adjustments into general ledger Sept. 30, 1993
1.7 Recommend that the CFO ensure that adequate resources are
dedicated to meeting iPA's financial reporting requirements
in a timely manner.
We agree with this recommendation. During FY 1993, the CFO
maintained financial management as a high priority. Despite
significant reductions in OAJRM resources and several competing
priorities, financial management resources were maintained as a
high priority and funding for IFMS was sustained. Financial
management will remain a high priority in FY 1994; however,
resource levels will be adjusted based on an uncertain budget
process and the President's deficit reduction program.
We believe it is prudent to expect the constraints on
resources to continue and probably get worse as additional
requirements are placed on the staff. Having the preparation of
the statements and the performance of the audit at the same time
has imposed a hardship upon our already limited resources. We
believe that the audit report must recognize this and the effect
on the "timeliness" issues discussed in the audit report.
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Attachment Page 5
However, as EPA gains experience in generating these
financial statements, fiscal year 1992 being the first year such
statements were required, certain efficiencies will develop.
Reports which needed to be customized for this fiscal year
through the design and coding phases, will be more readily
available.
2.0 Finding: State Cost Share Revenue Is Not Properly
Recognized
2.1 Recommend that the CFO develop procedures for calculating
state cost shares to properly recognize earned revenue as cleanup
services are performed.
* We agree with the recommendation.
Corrective Action; Target Date
Develop policies and procedures for state Sept. 30, 1993
cost share
- Reconcile deferred revenue cited in the April 1, 1994
report
3.0 Finding: Accounts Payable/Accrued Liabilities Are Not
Properly Recorded
3.1 Recommend that the CFO develop and implement procedures to
capture the outstanding amount of contractor retainages
withheld and record a corresponding liability in the
financial statements.
We agree with OIG's findings, but disagree with this
recommendation. In 1991, EPA revised its policy on contract
retainages, so that, except in rare instances, no amounts earned
by contractors are being retained. Consequently, contractor
retainages should be insignificant in future years. The new
policy is reflected in Unit 21 of the Acquisition Handbook.
3.2 Recommend that the CFO ensure that the regional offices are
consistently following the year-end closing procedures for
recording accounts payable and accrued liabilities for
obligations to grantees and revise the year-end closing
procedures to include ACH recipients in the year-end accrual
process.
We agree with this recommendation. The year-end
instructions will include additional information on accruals.
Further, we will be emphasizing payables and accruals during our
weekly year-end closing teleconferences. In fact, on June 2,
1993, we discussed this issue during our monthly regional
comptroller teleconference.
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Attachment Page 6
Corrective Action; Target Date
- Revise year-end closing instructions July 31, 1993
3.3 Recommend that the CFO require that accruals be recorded
vith object elass and revise the year-end closing
procedures.
We agree with the intent of this recommendation. We will
revise the year-end closing procedures to include object classes
for the accruals. However, OMB Bulletin 93-02 states that
"Agencies that are able to do so should also disclose operating
expenses by object classification in the notes to the principal
statements." Since the recommendation relates only to accruals
which will be reversed immediately after the close of the year,
we are concerned over the potential benefit to be gained versus
the additional workload of the regional finance offices.
Corrective Action; Target Date
- Revise year-end closing instructions July 31, 1993
4.0 Finding: Accounting for Grant Drawdowns Does Not Provide
Required Account Information
4.1 Recommend that the Director, Grants Administration Division,
require inclusion of grant account information from grant
recipients for all ACE payment requests.
We agree in principle with this recommendation. However,
requiring this kind of detailed accounting information of
grantees for every payment request is both unnecessary and
unreasonable. With this in mind, we believe that additional
steps can be taken to fine tune our existing process. Toward
this goal, the Grants Administration Division will establish a
Quality Action Team (QAT) with regional and grantee participation
to explore the issues and develop options. FMD and GAD will
carefully review the results and implement the QAT's
recommendation. Further, based on information provided by the
auditors on this issue and our research, the projects result in
immaterial amounts compared to the total amount reported in our
financial statements. We plan to meet with the auditors to
discuss our results.
Corrective Action; Target Date
- Establish Quality Action Team Aug. 31, 1993
- First meeting of QAT Oct. 30, 1993
5.0 Finding: General EDP Controls Need to Be Strengthened
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Attachment Page 7
5.1 Recommend that the CPO expedite EPA'a efforts to implement
current, comprehensive information system policies,
standards, and procedures on a centralized basis.
The CFO, as the Assistant Administrator for OARM, officially
established eight critical IRM policy documents as formal binding
Agency Directives on April 20, 1993. These formal directives
strengthen the Agency's information system policies, standards,
and procedures on a centralized basis. Therefore, we believe
this recommendation to be fully implemented.
6.0 Finding: Capital Leases Have Not Been Recorded
6.1 Recommend that the CFO issue policies and procedures to
financial management offices regarding properly recording
and accounting for leases and require the financial
management offices to review all current leases and evaluate
whether the leased equipment should be capitalized.
We agree with the intent of this recommendation. However,
we believe that amounts are immaterial. We are working with the
Facilities Management and Services Division to determine the
universe of leases. Once we have the results from FMSD, we plan
to meet with the auditors to discuss this issue and agree on what
action is needed. Further, any future actions taken will also be
impacted by the Personal Property Quality Action Team
recommendations in this area.
— Auditors' Report on Compliance with Laws and Peculations
7.0 Finding: Repairs and Improvements Were Charged to Superfund
and LUST
7.1 Recommend that the EPA's CFO obtain OGC opinion on whether
EPA had authority during fiscal 1992 to use Superfund and
LUST funds for repairs and alterations.
We agree with this recommendation. We have requested an
opinion from OGC and should be receiving it in the near future.
However, based on our analysis of the Superfund and LUST
appropriations and consultations with Congressional staff, we
believe that EPA had authority to use these funds for repairs and
alterations.
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Appendix 2
Independent Auditors' Evaluation of EPA's Re soon se
We appreciate the positive response by the Acting CFO to our draft report. The
following notes present our response to certain portions of the Acting Assistant
Administrator's June 16, 1993 memorandum. (See Appendix 1.)
Note:
To enhance the clarity of our Report on Financial Statements we have classified
our paragraphs as Planned Exclusions and Limitations. Planned Exclusions
resulted from audit timing or inaccessible data which was not within the control of
EPA financial managers. Limitations resulted from either (1) a lack of timeliness
in providing data to us which was necessary to the audit, or (2) inadequate
support for account balances.
Paragraph 9 of the Report of Financial Statements clearly states that preparation
of FY 1991 financial statements was not required and, therefore, was not audited.
There is absolutely no inference that these balances, had financial statements been
prepared, were unauditable.
We have classified both of these conditions as Planned Exclusions as further
explained in Note 1.
We have reorganized the report such that each paragraph or set of paragraphs is
captioned with the applicable fund.
AU Section 508.72 requires that when a disclaimer of opinion is issued there be
absolutely no inference that an audit was performed. Therefore, when referring to
the Superfund Trust Fund financial statements, we must use the word "engaged"
and not the word "audited".
We have changed the language of this paragraph. However, it should be noted
that the pertinent documents were not identified until May 12, 1993, over a month
after the last day of our fieldwork which was April 7, 1993. We have made no
analysis of these documents due to the lack of timely receipt.
These conditions with the exception of unliquidated obligations must be included
in the Independent Auditors' Report on Financial Statements since the amounts
have not been determined and therefore no judgment regarding materiality can be
made. Refer to Note 8, regarding unliquidated obligations.
Our financial statement audit differs significantly from SARA compliance audits
which have been performed in the past The primary difference is the fact that
financial statement audits require testing of balances, and compliance audits
require testing of transactions. Therefore, for fiscal year 1992, we are required to
test the balance of unliquidated obligations at year end. We consider the fact that
EPA could not provide, during our fieldwork, a listing of unliquidated obligations
which reconciled to the general ledger to be material to the disclaimer of opinion
on the Superfund Trust Fund.
AU Section 508.71 requires this language relating to scope limitations and the fact
that it was impractical to extend our tests. Planned Exclusions are now separately
classified in our report. EPA's inability to provide certain other information
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Appendix 2
timely resulted in insufficient time to conduct the audit testwork. Therefore, our
report language has not been changed.
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APPENDIX C - AUDITORS' REPORT:
FIFRA AND TOLERANCE REVOLVING FUNDS
Executive Summary i
Auditors' Report on Financial Statements 7
Auditors' Report on Internal Control Structure 85
Auditors' Report on Compliance with Laws and Regulations 119
Agency Comments 125
Note: The Annual Financial Statements for Fiscal Year 1992, which were included
in this audit report as pages 9 through 84 are not reproduced since they
comprise Appendix A of this Annual Report.
Chief Financial Officer - 1993 Annual Report
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
THE INSPECTOR GENERAL
June 30, 1993
MEMORANDUM
SUBJECT: Fiscal 1992 Financial Statement Audit of the FIFRA
and Tolerance Funds
Audit Report No. ElEPI£-20-7p01-3100265
FROM: Kenneth A. Ko
Assistant Inspector General for Audit (A-109)
TO: Sallyanne Harper
Acting Chief Financial Officer (PM-208)
Victor J. Kimm
Acting Assistant Administrator for
Prevention, Pesticides and Toxic Substances (TS-788)
Attached is the audit report summarizing the results of our
audit of the fiscal 1992 financial statements of the FIFRA and
Tolerance Funds. The audit was performed in accordance with the
requirements of the Chief Financial Officers Act. The objectives
of the audit were to determine if the financial statements were
fairly presented, adequate internal controls were in place, and
the Agency complied with applicable provisions of laws and
regulations.
During this audit, we identified weaknesses in key
accounting controls and in the Agency's Integrated Financial
Management System. These weaknesses contributed to our being
unable to determine if the financial statements for the FIFRA and
Tolerance Funds were fairly presented. More importantly, without
adequate controls in place Agency managers cannot be assured that
financial records for these two funds contain reliable
information and that assets are safeguarded. We understand that
some of the weaknesses described in this report have also been
reported, along with corrective action plans, to the President as
a part of the annual Federal Managers' Financial Integrity Act
process. Continued high level attention will need to be devoted
to the financial management area if these weaknesses are to be
corrected.
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We also identified one noncompliance issue. The Agency has
not complied with the CFQ Act re.q\iiremejxt_ to perform biennial
reviews of fees. We believe a high priority should be placed on
performing such reviews since they could potentially identify
areas where fees could be increased resulting in additional
revenues for the Agency.
In accordance with EPA Order 2750, you are required to
provide this office a written response to the audit report within
90 days of the final audit report date. Since the
recommendations are addressed to two offices we are designating
the Acting 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 Acting 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. We have no objection to the
further release of this report to the public.
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.
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
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SUMMARY
PURPOSE
The Chief Financial Officers Act of 1990 (CFO Act) was enacted in
order to bring about improvements in agency accounting systems,
financial management activities and internal controls. In order
to accomplish this objective, the Act calls for the preparation
of annual financial statements that are to be audited by the
Office of Inspector General or an independent external auditor
selected by the Inspector General.
The Environmental Protection Agency (EPA) was required by the CFO
Act to prepare financial statements covering its revolving funds,
trust funds and commercial activities beginning with fiscal 1991
activities. EPA management, however, requested and received a
waiver of the requirement to prepare financial statements
covering fiscal 1991. Therefore, fiscal 1992 was the first year
for which EPA prepared financial statements in accordance with
the requirements of the CFO Act.
To carry out our responsibilities under the CFO Act we audited
EPA's revolving funds and contracted with an independent public
accounting firm to audit EPA's trust funds and commercial
activity. This report contains the results of our audit of EPA's
fiscal 1992 financial statements for its two revolving funds:
the Reregistration and Expedited Processing Fund (FIFRA Fund) and
the Revolving Fund for Certification and Other Services
(Tolerance Fund). Our objective in carrying out this audit was
to express an opinion on whether the financial statements for the
FIFRA and Tolerance Funds are fairly presented. We also
determined whether EPA had in place internal controls to ensure
that: (1) transactions were properly recorded in order to permit
the preparation of reliable financial statements and to maintain
accountability over assets; (2) funds, property and other assets
were safeguarded against loss from unauthorized use or
disposition; and (3) transactions were executed in compliance
with applicable laws and regulations. In addition, we determined
whether EPA had complied with laws and regulations that would
either materially affect the financial statements or that we
considered to be significant.
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BACKGROUND
The FIFRA Fund was authorized in 1988 by amendments to the
Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) . The
1988 amendments require EPA to complete, over approximately a
nine-year period, a reregistration review of each pesticide
product containing an active ingredient registered prior to
November 1, 1984. EPA is required to reregister these products
since they were originally registered when the approval standards
and test data requirements were less stringent than they are
today. To help support the cost of accelerated reregistration
and other provisions of the new law, the FIFRA amendments
authorize EPA to collect two types of fees; a one-time
reregistration fee for each active ingredient, and an annual
registration maintenance fee to be paid for each registered
product- Fees collected are deposited into the FIFRA Fund.
The Tolerance Fund was established by Congress in 1963 for the
deposit of fees collected for establishing tolerances for
residues of pesticide chemicals in or on raw agricultural
commodities. A tolerance is the maximum legal limit of a
pesticide residue on food commodities and animal feed.
Tolerances are established by EPA to prevent consumer exposure to
unsafe levels of pesticide residues. The Department of
Agriculture and the Food and Drug Administration are responsible
for enforcing adherence to these tolerance levels.
The Office of Pesticide Programs within the Office of Prevention,
Pesticides and Toxic Substances is responsible for reregistering
pesticide products and establishing tolerances.
RESULTS IN BRIEF
During past audits of the financial management area, we have
identified weaknesses in internal controls. Similarly, during
our audit of the fiscal 1992 FIFRA and Tolerance Fund Financial
Statements we again noted weaknesses in key internal accounting
controls. In addition, we identified weaknesses in EPA's
Integrated Financial Management System. These weaknesses
contributed to our not being able to determine if the financial
statements for the FIFRA and Tolerance Funds were fairly
presented. More importantly, without adequate controls in place
Agency managers cannot be assured that financial records for
these two funds contain reliable information and that assets are
safeguarded.
Specifically, we were unable to determine the propriety of 25
adjustments totaling $181.3 million and $21.2 million,
respectively, made to the fiscal 1992 FIFRA and Tolerance Fund
general ledgers because they lacked supporting documentation.
Many of these adjustments also lacked evidence of supervisory
ii
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approvals. Although there are legitimate reasons for making
adjustments, without adequate safeguards in place adjustments to
accounting records could also be used for illegitimate or
improper purposes,, such as covering up defalcations', hiding
losses of assets, or masking errors.
We also found that at year end FIFRA accounts payable were
overstated by $135,620 and accrued liability adjustments were
understated by $663,635. Again, controls were not in place to
identify and correct these errors. Further, because the Agency's
property accountability system is not integrated with the
Agency's accounting system, we were unable to audit the FIFRA
property, plant and equipment balance of $574,000 included in the
fiscal 1992 FIFRA financial statements.
We also identified two other control weaknesses that did not
materially affect the financial statements, but could adversely
affect the entity's ability to properly record financial
transactions and safeguard assets. The Office of Pesticide
Programs did not conduct a complete review of its unliquidated
obligations. Thus, the office missed an opportunity to identify
FIFRA funds that could be deobligated and used to fund critical
activities associated with pesticide reregistration. The Agency
has stated additional resources will be needed in order to meet
the Congressionally imposed deadlines for reregistering
pesticides. We also found weaknesses in controls over property
located in the Office of Pesticide Programs.
In the area of compliance with laws and regulations, we found
that EPA complied with laws and regulations that could materially
affect the FIFRA and Tolerance Fund financial statements.
However, the Agency had not complied with the CFO Act requirement
to perform biennial reviews of its fees. For the Office of
Pesticide's tolerance setting activity, we estimated that during
fiscal 1992, EPA spent about $3.5 million to process tolerance
petitions for raw agricultural commodities while it collected
only $1.2 million in fees to cover its costs associated with this
activity. EPA has other fees programs. By performing the
required biennial reviews of fees, the Agency could potentially
identify other fees which could be increased resulting in
additional revenues for the Agency to use in carrying out its
programs.
Some of the weaknesses described in this report have also been
reported along with corrective action plans, to the President as
a part of the annual Federal Managers' Financial Integrity Act
process. Continued high level attention will need to be devoted
to the financial management area if these weaknesses are to be
corrected. Such high level attention is justified because
corrective action will result in not only more accurate timely
financial statements, but also more accurate timely financial
iii
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information for Agency managers to use in managing their
programs.
SUMMARY OF AUDITORS' REPORT ON FINANCIAL STATEMENTS
We were unable to satisfy ourselves regarding the following FIFRA
and Tolerance Fund Financial Statement amounts. Therefore, we
disclaimed an opinion on the fiscal 1992 financial statements for
the two funds.
• Accounts payable and accrued liabilities for the FIFRA Fund;
because adequate documentation was not available to support
year-end adjusting entries of $141,223. In addition,
documentation was not available to support 25 other
adjustments made to the FIFRA and Tolerance Funds totaling
$181.3 million and $21.2 million, respectively.
® Property, plant, and equipment for the FIFRA Fund (stated at
$574,000 as of September 30, 1992); because the detail
maintained in the accounting records was not sufficient to
support the financial statement amounts.
• Administrative expenses of the FIFRA and Tolerance Funds of
$22,811,000 and $3,532,000, respectively; because we were
initially told by EPA management that these expenses funded
by agency-wide appropriations could not be included in the
financial statements.
« Opening account balances for the FIFRA and Tolerance Funds;
since EPA was not required to and did not prepare financial
statements for the funds as of September 30, 1991.
SUMMARY OF AUDITORS' REPORT ON INTERNAL CONTROL
STRUCTURE
EPA's management is responsible for establishing and maintaining
an internal control structure. The objectives of our internal
control review were: (i) to determine our auditing procedures
for the purpose of expressing an opinion on the financial
statements, and (ii) to determine whether the internal control
structure provides management with reasonable, but not absolute
assurance that transactions are executed in compliance with
applicable laws and regulations, that assets are safeguarded, and
that transactions are properly recorded.
IV
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MATERIAL WEAKNESSES
During our audit, we noted the following deficiencies in internal
controls in EPA's financial management that we consider to he-
material weaknesses in relation to the financial statements of
the FIFRA and Tolerance Funds. A material weakness is a
reportable condition in which the design or operation of the
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.
1. We Were Unable To Render An Opinion On The FIFRA and
Tolerance Fund Statements of Financial Position Because Material
Unsupported Adjustments Were Made to the General Ledger
Financial Management Division (FMD) personnel made 25 unsupported
adjustments totaling $181.3 million and $21.2 million,
respectively, to the FIFRA and Tolerance Fund general ledgers
during fiscal 1992. As a result, we were unable to determine if
the Statements of Financial Position for the two funds were
fairly presented. Further, without adequate support for these
material adjustments, Agency management also lacked assurance
that the financial records for these funds contained accurate
reliable information. Adjustments to the accounting records for
the FIFRA and Tolerance Funds were necessary due to weaknesses in
the Agency's accounting procedures and Integrated Financial
Management System (IFMS). Some of these adjustments were
necessary in order to correct errors in general ledger balances
that had occurred in prior years when FMD personnel did not have
the reports they needed to monitor the accuracy of transactions
entered into the Agency's accounting records. In addition, some
of the adjustments were necessary because the accounting
transaction codes used during the year to post transactions to
the general ledger were designed for appropriated, rather than
revolving funds. These adjustments and IFMS weaknesses not only
prevented us from being able to render an opinion on the
Statements of Financial Position for the FIFRA and Tolerance
Funds, but also contributed to delays in closing the Agency's
accounting records and preparing the financial statements. The
Agency's accounting records for fiscal 1992 were not closed until
December 1992 and preparation of the financial statements was not
completed until March 1993, six months after the close of the
fiscal year.
2. Some FIFRA Year-End Accounts Payable And Accrued Liability
Adjustments Were Incorrectly Calculated Or Lacked Supporting
Documentation
The methods used by one finance office to compute year-end
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adjustments resulted in the overstatement of FIFRA accounts
payable by $135,620 and the understatement of FIFRA accrued
liabilities by $663,635. Accounting controls were not in place
to identify and correct these errors, ln_ addition, another
finance office could not provide adequate documentation to
support year-end accounts payable and accrued liability adjusting
entries of $141,223 that were made to the FIFRA Fund. Without
support for these adjustments, we were unable to determine if
these amounts were fairly stated.
3. Property Purchased With FIFRA Funds Was Not Properly
Capitalized
Property purchased with FIFRA funds was not properly capitalized
in the Environmental Protection Agency's (Agency) accounting
records. This occurred because the process the Agency used to
capitalize property did not identify all property which should
have been capitalized, and program office personnel assigned
incorrect object class codes to obligating documents. In
addition, as the Agency has reported in its FMFIA reports, the
property accountability system is not integrated with the
Agency's accounting system. Since neither system contained
sufficient information to account for property we were unable to
audit the FIFRA property, plant and equipment balance of $574,000
included in the fiscal 1992 Statement ©f Financial Position for
the Fund.
REPQRTABLE CONDITIONS
We also noted the following reportable conditions during our
audit. Reportable conditions are 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: (i) obligations and costs are in compliance with
applicable laws; (ii) funds, property, and other assets are
safeguarded against unauthorized use or disposition; and
(iii) transactions are properly recorded to permit the
preparation ©f reliable financial statements.
1. The Offic© of Pesticide Programs Did Not Perform A Complete
Review Of Unliquidated Obligations
During fiscal 1992, the Office ©f Pesticide Programs (OPP) did
not conduct a complete review of its unliquidated obligations.
When we looked at OPP's review of unliquidated obligations
maintained by two finance offices we found that OPP had not
reviewed any of the unliquidated obligations maintained by one
finance office, and only a portion of those maintained by the
other finance office. The reviews were not performed because a
low priority was placed on complying with this requirement.
During fiscal 1992, OPP had $345,588 of open FIFRA obligations
for which there was no activity in over a year. When there has
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been no activity in over a year on an obligation it is likely
that the obligation is no longer valid. By not performing the
required reviews of unliquidated obligations, OPP missed an
opportunity to identify no-year FIFEA funds tiiart eastfai fee-
deobligated and made available to fund other critical activities
associated with pesticides reregistration.
2. Improvements Are Needed In Controls Over Property Located In
The Office Of Pesticide Programs
We noted various weaknesses in controls over property located in
OPP. Required annual property inventories were not completed in
a timely manner, custodial officers did not prepare documentation
to support property transfers, and property was not always
recorded in the Agency's Personal Property Accountability System.
Without these key internal controls in place, management lacked
reasonable assurance that property purchased with OPP funds,
including FIFRA funds, was adequately safeguarded against loss
from unauthorized use or disposition.
SUMMARY OF AUDITORS' REPORT ON COMPLIANCE WITH
LAWS AND REGULATIONS
The results of our compliance testing for fiscal 1992 indicated
that for the items tested, EPA complied with those provisions of
laws and regulations which could have a material effect on the
financial statements. We did, however, identify one area of
noncompliance with laws and regulations that while not material
to the financial statements, still warrants disclosure due to its
significance.
We found that fees collected for processing tolerance petitions
for raw agricultural commodities did not cover EPA's costs
associated with the activity. In fiscal 1992, EPA collected
approximately $1.2 million in fees for processing such petitions.
During the same period, we estimated OPP's personnel costs
associated with processing the petitions to be about $3.0
million. In addition, we estimated the Agency's support costs
associated with processing these petitions to be another $486,460
resulting in a total cost of processing these petitions of about
$3.5 million.
The CFO Act which was enacted on November 15, 1990, requires
EPA's Chief Financial Officer: (1) to perform biennial reviews of
user fees and other charges for services EPA provides, and (2) to
make recommendations on revising these charges so that they will
reflect EPA's costs associated with providing these services.
EPA collects fees for not only its tolerance setting activity,
but other activities as well, such as the processing of new
chemical pre-manufacture notices and the motor vehicle and engine
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compliance program. As of April 7, 1993, the date we completed
fieldwork, EPA had not performed any of the required reviews and
had thereby failed to make necessary revisions to fees charged so
that they would cover total program costs.
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 Funds. For fiscal 1992, EPA reported IFMS as a
high risk area and a material weakness. EPA also reported as
material nonconformances the need to: (i) record adjustments to
the general ledger due to IFMS implementation, (ii) perform
comprehensive reconciliations between Treasury reports and IFMS,
(iii) update and strengthen policies and procedures to assure
reconciliation between property and accounting records, and (iv)
implement interfaces between IFMS and other administrative
systems. In addition t© the weaknesses identified by EPA, during
our audit we identified two additional weaknesses that materially
affected the FIFRA and Tolerance Fund Financial Statements. We
found that material unsupported adjustments were recorded in
EPA's accounting records and an improper method was used by one
finance office to compute year-end accounts payable and accrued
liability adjusting entries.
RECOMMENDATIONS
To correct the various material weaknesses and reportable
conditions described in this report we recommend that the Chief
Financial Officer emphasize current guidance on preparing
adequate documentation to support financial transactions; revise
the Agency's capitalization policy; correct known errors in
accounting transaction codes; and revise the methodology used by
one finance office to compute accounts payable and accrued
liabilities. In addition, we recommend that the Director of the
Office of Pesticide Programs perform the required reviews of
unliquidated obligations and ensure that internal controls are in
place and followed to safeguard and account for property. To
correct the noncompliance issue, we recommend that the Chief
Financial Officer conduct the required reviews of fees and take
the steps necessary to make the appropriate changes in fees
charged by EPA.
AGENCY COMMENTS AND QIG EVALUATION
In a memorandum dated June 28, 1993, the Acting Chief Financial
Officer responded to our draft report. In the response, the
Acting Chief Financial Officer generally concurred with the
report findings and many of the recommendations. To provide a
balanced understanding of the issues we have summarized the
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Agency's position in the appropriate locations throughout the
report and have included the complete response as Appendix I.
The only substantive- area of disagreement- concerned our
conclusion that the fees charged by EPA for processing raw
agricultural tolerance petitions need to be increased. In her
response, the Acting Chief Financial Officer agreed to perform a
study of the fees charged by EPA for raw agricultural tolerances;
however, she stated that a review of EPA's costs may not result
in an increase in the fees. We continue to believe that given
the enormity of the shortfall between fees collected and the cost
of processing petitions, a review of fees will result in an
increase in fees charged.
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TABLE OF C<
EXECUTIVE SUMMARY i
PURPOSE i
BACKGROUND ii
RESULTS IN BRIEF ii
SUMMARY OF AUDITORS' REPORT ON FINANCIAL STATEMENTS.. iv
SUMMARY OF AUDITORS' REPORT ON INTERNAL CONTROL
STRUCTURE iv
SUMMARY OF AUDITORS' REPORT ON COMPLIANCE WITH
LAWS AND REGULATIONS vii
RECOMMENDATIONS viii
AGENCY COMMENTS AND OIG EVALUATION viii
INTRODUCTION 1
PURPOSE 1
BACKGROUND 2
SCOPE AND METHODOLOGY 3
PRIOR AUDIT COVERAGE 6
AUDITORS' REPORT ON FINANCIAL STATEMENTS 7
ANNUAL FINANCIAL STATEMENTS FOR FISCAL YEAR 1992 9
AUDITORS' REPORT ON INTERNAL CONTROL STRUCTURE 85
ATTACHMENT 1 - MATERIAL WEAKNESSES 91
1. WE WERE UNABLE TO RENDER AN OPINION ON THE
FIFRA AND TOLERANCE FUND STATEMENTS OF FINANCIAL
POSITION BECAUSE MATERIAL UNSUPPORTED ADJUSTMENTS
WERE MADE TO THE GENERAL LEDGER 91
2. FIFRA YEAR-END ACCOUNTS PAYABLE AND ACCRUED
LIABILITY ADJUSTMENTS WERE MATERIALLY
MISSTATED AND LACKED SUPPORTING DOCUMENTATION ... 99
3. PROPERTY PURCHASED WITH FIFRA FUNDS WAS NOT
PROPERLY CAPITALIZED 103
ATTACHMENT 2 - REPORTABLE CONDITIONS Ill
1. THE OFFICE OF PESTICIDE PROGRAMS DID NOT
PERFORM A COMPLETE REVIEW OF UNLIQUIDATED
OBLIGATIONS Ill
2. IMPROVEMENTS ARE NEEDED IN CONTROLS OVER PROPERTY
LOCATED IN THE OFFICE OF PESTICIDE PROGRAMS .....113
ATTACHMENT 3 - SCHEDULE OF OPEN PRIOR AUDIT
REPORT FINDINGS 117
AUDITORS' REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS..119
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APPENDIXES
APPENDIX I: AGENCY COMMENTS 125
APPENDIX II: GLOSSARY OF ACEQNYMS- ^~^^,. ITT
APPENDIX III: DISTRIBUTION 139
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INTRODUCTION
PURPOSE
The Chief Financial Officers Act of 1990 (the Act) was enacted in
order to bring about improvements in agency accounting systems,
financial management activities and internal controls. In order
to accomplish this objective, the Act calls for the preparation
of annual financial statements. The Environmental Protection
Agency (EPA) was required by the Act to prepare financial
statements covering its trust funds, revolving funds and
commercial activities beginning with fiscal 1991 activity. EPA
management, however, requested and received a waiver of the
requirement to prepare financial statements covering fiscal 1991
activities. Therefore, fiscal 1992 was the first year for which
EPA prepared financial statements in accordance with the
requirements of the Act.
The CFO Act also requires the Office of the Inspector General, or
an independent external auditor selected by the Inspector
General, to audit the financial statements. To carry out our
responsibilities under the CFO Act, we audited EPA's two
revolving funds, the Reregistration and Expedited Processing
Revolving Fund (FIFRA Fund) and the Revolving Fund for
Certification and Other Services (Tolerance Fund). We contracted
with an independent public accounting firm to audit EPA's trust
funds and commercial activity.
This report contains the results of our audit of the FIFRA and
Tolerance Funds as of and for the year ended September 30, 1992.
The financial statements were prepared by EPA's Financial
Management Division using guidance provided in Office of
Management and Budget (OMB) Bulletin 93-02, "Form and Content of
Agency Financial Statements" which is considered a comprehensive
basis of accounting other than generally accepted accounting
principles. The financial statements are the responsibility of
EPA's management. Our responsibility was to express an opinion
on the financial statements based on our audit work.
The objectives of our audit work were to determine if;
(1) the financial statements are fairly presented;
(2) EPA management established an internal control structure
which provides reasonable assurance that:
• transactions were properly recorded and accounted for
to permit the preparation of reliable financial
statements and to maintain accountability over assets,
• funds, property, and other assets were safeguarded
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against loss from unauthorized use or disposition, and
• transactions, including those related to obligations
and costs, were executed in compliance with: (a) laws
and regulations that could have a direct and material
effect on the financial statements, and (b) any other
laws and regulations that the OMB or our office
identified as being significant to the audit; and
(3) EPA management complied with applicable laws and regulations
which, if not followed, could have a material effect on the
financial statements, including any other laws and
regulations that OMB or our office identified as being
significant to the audit.
BACKGROUND
FIFRA Fund
The Federal Insecticide, Fungicide and Rodenticide Act
Amendments, commonly referred to as FIFRA 88, mandate the
accelerated reregistration of all pesticide products registered
prior to November 1, 1984. Specifically, the law requires EPA to
complete a reregistration review of each pesticide product
containing an active ingredient registered prior to November 1,
1984. EPA is required to reregister these products since they
were originally registered when the standards for approval and
test data were less stringent than they are today.
In order to accelerate the reregistration process, Congress
authorized EPA to collect two types of fees; a one time
reregistration fee for each active ingredient, and an annual
registration maintenance fee to be paid for each registered
product. Fees collected are deposited into the FIFRA Fund.
Tolerance Fund
The Tolerance Fund was authorized in 1963 for the deposit of fees
collected by EPA for establishing tolerances for residues of
pesticide chemicals in or on raw agricultural commodities. The
Federal Food, Drug and Cosmetics Act authorizes EPA to promulgate
regulations to require companies to pay fees that will cover
EPA's costs for establishing tolerances for raw agricultural
commodities.
A tolerance is the maximum legal limit of a pesticide residue on
food commodities and animal feed. Tolerances are established by
EPA to prevent consumer exposure to unsafe levels of pesticide
residues. The Department of Agriculture and the Food and Drug
Administration are responsible for enforcing adherence to these
tolerance levels.
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The Office of Pesticide Programs within the Office of Prevention,
Pesticides and Toxic Substances is responsible for reregistering
pesticide products and establishing tolerances.
SCOPE AND METHODOLOGY
We performed our audit of the fiscal 1992 FIFRA and Tolerance
Fund Financial Statements 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." Our audit fieldwork was performed from
March 31, 1992, through April 7, 1993.
Evaluation of Internal Controls and Compliance With Lavs and
Regulations
In planning and performing our audit work, we obtained an
understanding of and tested relevant internal control policies
and procedures. We also assessed the level of control risk
relevant to all significant cycles, classes of transactions, or
account balances. The purpose of our internal control work was
to determine the audit procedures that we would need to perform
to render an opinion on the FIFRA and Tolerance Fund Financial
Statements. We also used the results of our internal control
work to determine whether the internal control structure provided
management with reasonable assurance that: (i) transactions were
executed in accordance with applicable laws and regulations; (ii)
funds, property and other assets were safeguarded against loss
from unauthorized use or disposition; and (iii) transactions were
properly recorded and accounted for to permit the preparation of
reliable financial reports and to maintain accountability over
assets.
As a part of our audit, we obtained an understanding of
management's process for evaluating and reporting on internal
control and accounting systems as required by the Federal
Managers' Financial Integrity Act (FMFIA). In addition, as
required by OMB Bulletin 93-06, "Audit Requirements for Federal
Financial Statements," we compared the material weaknesses
reported in the Environmental Protection Agency's (Agency) FMFIA
report that relate to the financial statements under audit to the
material weaknesses found during our evaluation of EPA's internal
control system. We also tested compliance with provisions of
laws and regulations that either directly affect the FIFRA and
Tolerance Fund Financial Statements or that OMB or our office
considered significant to the audit.
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Audit Methodology
We selected statistical and nonstatistical samples from EPA's
detailed accounting records supporting, various FIFRff and
Tolerance Fund 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.
The financial management records and supporting documentation we
reviewed were maintained by the National Contract Payment
Division at Research Triangle Park, the Financial Management
Center in Cincinnati; and the Office of Pesticide Programs,
Headquarters Accounting Operations Branch and 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.
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 property records for randomly selected
custodial areas within the Office of Pesticide Programs.
Reliance On the Work of other Auditors
In addition to the -audit work we performed, we relied on internal
control testing performed by Leonard G. Birnbaum and Company,
Certified Public Accountants, as part of its audit of EPA's
Financial Statements for the Superfund Trust Fund, Leaking
Underground Storage Tank Trust Fund and the Asbestos Loan Program
as of and for the year ended September 30, 1992. We reviewed the
finals internal control audit work and concluded that we could
rely on it to augment our work. Accordingly, we have, where
appropriate, incorporated the firm^s findings into our report.
The findings are reported in the finals audit report that is
entitled Fiscal 1992 Financial Statement Audit of the Superfund
Trust Fund, Leaking Underground Storage Tank Trust Fund and
Asbestos Loan Program.
We also relied on the results of an OIG Special Review of EPA's
1992 FMFIA Activity in order to obtain an understanding of
management's process for evaluating and reporting on internal
control and accounting systems. This special review was
performed to determine if the Agency's FMFIA process for fiscal
1992 was carried out in a reasonable and prudent manner. The
results of this special review are summarized in a report dated
February 19, 1993 (Audit Report No. E1RMG2-11-0052-340023). In
addition, we relied on a special review performed of electronic
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data processing (EDP) internal controls for selected pesticide
revolving fund information systems. The results of this special
review are summarized in Audit Report No. E1EPP2-15-7001-3400043
which was issued on March 31, 1993. Both of these special.
reviews were conducted in accordance with provisions of Office of
Inspector General Manual Chapter 150, Special Reports, rather
than Government Audit Standards.
Scope Limitations
The following factors limited the scope of our audit work:
• We were unable to audit the FIFRA property, plant and
equipment balance because the detail maintained in the
accounting records was not sufficient to support the
financial statement amounts.
• We did not perform audit procedures on the
administrative costs for the FIFRA and Tolerance Funds
because we were initially told by Agency personnel that
they would be unable to include these costs in their
financial statements.
• We were unable to obtain sufficient documentation to
support adjustments made to EPA's accounting records
that materially affected the financial statements for
the FIFRA and Tolerance Funds.
• EPA was not required to prepare financial stataments
for the FIFRA and Tolerance Funds as of September 30,
1991. Accordingly, we did not audit the account
balances for the funds as of October 1, 1991.
As a result of these scope limitations, we were unable to perform
audit work sufficient to render an opinion on EPA's fiscal 1992
financial statements for the FIFRA and Tolerance Funds.
OMB Bulletin 93-06 contains audit requirements with respect to
the performance measures reported in the overview section of the
financial statements. Auditors are to obtain an understanding of
the internal control structure policies and procedures designed
to ensure that data that support 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 making
inquiries of management regarding the presentation of the
overview.
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PRIOR AUDIT COVERAGE
In the past, annual audits have been performed of Superfund
obligations and disbursements. During these audits, weaknesses
that would impact our audit objectives have been reported in the
areas of financial reporting, accounting for and controlling
property, the lack of current accounting procedures and
unreconciled conversion data. During our audit we identified the
need for additional corrective actions in these areas. In many
cases EPA management has developed an action plan and corrective
actions are ongoing. Our Auditors' Report on Internal Control
Structure provides details on the results of our audit work in
each of these areas.
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AUDITORS' REPORT ON FINANCIAL STATEMENTS
The Administrator
U.S. Environmental Protection Agency:
We were charged with auditing the financial statements of the
Pesticides Reregistration and Expedited Processing Fund (FIFRA
Fund) and the Revolving Fund for Certification and Other Services
(Tolerance Fund), included in the Combining Statements of the
Trust Funds, Revolving Funds and Commercial Activities of the
Environmental Protection Agency (EPA) as of and for the year
ended September 30, 1992. These financial statements are the
responsibility of EPA's management.
We were unable to satisfy ourselves regarding the fiscal 1992
FIFRA Fund and Tolerance Fund financial statement amounts
discussed in the following paragraphs of this report. It was
impracticable to extend our procedures sufficiently to determine
the extent to which the FIFRA Fund and Tolerance Fund Financial
Statements as of and for the year ended September 30, 1992, may
have been affected by these conditions.
We were unable to audit the FIFRA Fund property, plant and
equipment balance as of September 30, 1992 (stated at $574,000),
because the detail maintained in the accounting records was not
sufficient to support 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, 1992.
We did not audit the administrative costs of $22,811,000 and
$3,532,000 for the FIFRA Fund and Tolerance Fund, respectively,
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 administrative costs funded from other EPA
appropriations because we were initially told by EPA management
that they would be unable to include these costs in the financial
statements.
We were unable to audit the accounts payable and accrued
liabilities for the FIFRA Fund because adequate documentation was
not available to support year-end adjusting entries of $141,223.
In addition, we were unable to audit 25 other adjustments made to
the FIFRA and Tolerance Funds totaling $181.3 million and $21.2
million respectively, because adequate supporting documentation
was not available.
Prior to October 1, 1991, EPA was not required to prepare
financial statements for the FIFRA and Tolerance Funds.
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Accordingly, "the account balances of these funds as of September
30, 1991, have not been audited.
Because of the matters discussed above, the scope tat. our work vs»
not sufficient to enable us to express, and we do not express
opinions on the Financial Statements for EPA's FIFRA and
Tolerance Funds as of and for the year ended September 30, 1992.
The information presented in Management's Overview of EPA and
Overview of Trust Funds. Revolving Funds and Commercial
Activities is supplemental information required by Office of
Management and Budget (OMB) Bulletin 93-02 "Form and Content of
Agency Financial Statements," and we did not audit and do not
express an opinion on such information. However, we have applied
certain limited procedures to the financial information included
in the sections of the overview captioned "Pesticides
Reregistration and Expedited Processing Fund (FIFRA Fund)" and
"'Revolving Fund for Certification and Other Services (Tolerance
Fund)." Our limited procedures consisted principally of
comparing the information with information contained in EPA's
accounting records and making inquiries of management regarding
the presentation of the overview.
This report is intended for the information of Congress, OMB, and
EPA management. This restriction is not intended to limit the
distribution of this report, which is a matter of public record.
Kenneth A. Konz
Assistant Inspector General for Audit
U.S. Environmental Protection Agency
April 7, 1993
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AUDITORS' REPORT ON INTERNAL CONTROL STRUCTURE
The Administrator
U.S. Environmental Protection Agency
We were charged with auditing the financial statements of the
Pesticides Reregistration and Expedited Processing Fund (FIFRA
Fund) and the Revolving Fund for Certification and Other Services
(Tolerance Fund) as of and for the year ended September 30, 1992.
We have issued our report thereon dated April 1, 1993, in which
we disclaimed an opinion on the financial statements for these
two funds.
In planning and performing our audit of the FIFRA and Tolerance
Funds, we considered the Environmental Protection Agency's (EPA)
internal control structure. The purposes of this consideration
were: (i) to determine our auditing procedures for the purpose
of expressing our opinion on the financial statements; and (ii)
to determine whether the internal control structure meets the
objectives identified in the following paragraph. Our
consideration of internal controls included obtaining an
understanding of the significant internal control structure
policies and procedures and assessing the level of control risk
relevant to all significant cycles, classes of transactions, or
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
more fully whether the controls are effective and working as
designed. In addition to the work we performed, we relied on
internal control testing performed by Leonard G. Birnbaum and
Company, Certified Public Accountants, as part of its audit of
EPA's financial statements for the Superfund Trust Fund, Leaking
Underground Storage Tank Trust Fund and the Asbestos Loan Program
as of and for the year ended September 30, 1992.
EPA's management is responsible for establishing and maintaining
an internal control structure. In fulfilling this
responsibility, estimates and judgements 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:
(i) 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 the Office of Management and Budget
(OMB) or our office have identified as being significant for
which compliance can be objectively measured and evaluated; (ii)
funds, property and other assets are safeguarded against loss
from unauthorized use or disposition; and (iii) transactions are
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properly recorded and accounted for to permit the preparation of
reliable financial reports in accordance with applicable
accounting policies and to maintain accountability over the
assets.
?or purposes of this report, we have classified the significant
internal control structure policies and procedures into the
following categories:
Budget
Receipts
Property
Expenditures
Payroll
Financial Reporting
Investments
OMB Bulletin 93-06, "Audit Requirements for Federal Financial
Statements," contains certain requirements with respect to the
performance measurement information reported in the overview
section of the financial statements. Auditors are to obtain an
understanding of the internal control structure policies and
procedures designed to ensure that data that support 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 making inquiries of management regarding the
presentation of the overview.
MATERIAL WEAKNESSES
We noted the following matters involving the internal control
structure and its operation that we consider to be material
weaknesses under standards established by the American Institute
of Certified Public Accountants and OMB Bulletin 93-06. Material
weaknesses are reportable conditions in which the design or
operation of the specified 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.
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1. WE WERE UNABLE TO RENDER AN OPINION ON THE FIFRA AND
TOLERANCE FUND STATEMENTS OF FINANCIAL POSITION BECAUSE MATERIAL
UNSUPPORTED ADJUSTMENTS WERE MADE TO THE GENERAL LEDGER
Financial Management Division (FMD) personnel made 25 unsupported
adjustments totaling $181.3 million and $21.2 million,
respectively, to the FIFRA and Tolerance Fund general ledgers
during fiscal 1992. As a result, we were unable to determine if
the Statements of Financial Position for the two funds were
fairly presented. Further, without adequate support for these
material adjustments, Agency management also lacked assurance
that the financial records for these funds contained accurate
reliable information. Adjustments to the accounting records for
the FIFRA and Tolerance Funds were necessary due to weaknesses in
the Agency's accounting procedures and Integrated Financial
Management System (IFMS). Some of these adjustments were
necessary in order to correct errors in general ledger balances
that had occurred in prior years when FMD personnel did not have
the reports they needed to monitor the accuracy of transactions
entered into the Agency's accounting records. In addition, some
of the adjustments were necessary because the accounting
transaction codes used during the year to post transactions to
the general ledger were designed for appropriated, rather than
revolving funds. These adjustments and IFMS weaknesses not only
prevented us from being able to render an opinion on the
Statements of Financial Position for the FIFRA and Tolerance
Funds, but also contributed to delays in closing the Agency's
accounting records and preparing the financial statements. The
Agency's accounting records for fiscal 1992 were not closed until
December 1992 and preparation of the financial statements was not
completed until March 1993, six months after the close of the
fiscal year.
2. SOME FIFRA YEAR-END ACCOUNTS PAYABLE AND ACCRUED LIABILITY
ADJUSTMENTS WERE INCORRECTLY CALCULATED OR LACKED SUPPORTING
DOCUMENTATION
The methods used by one finance office to compute year-end
adjustments resulted in the overstatement of FIFRA accounts
payable by $135,620 and the understatement of FIFRA accrued
liabilities by $663,635. Accounting controls were not in place
to identify and correct these errors. In addition, another
finance office could not provide adequate documentation to
support year-end accounts payable and accrued liability adjusting
entries of $141,223 that were made to the FIFRA Fund. Without
support for these adjustments, we were unable to determine if
these amounts were fairly stated.
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3. PROPERTY PURCHASED WITH FIFRA FUNDS WAS NOT PROPERLY
CAPITALIZED
Property purchased with FIFRA funds was not properiy capital!zed"
in the Agency's accounting records. This occurred because the
process the Agency used to capitalize property did not identify
all property which should have been capitalized, and program
office personnel assigned incorrect object class codes to
obligating documents. In addition, as the Agency has reported in
its Federal Managers Financial Integrity Act (FMFIA) reports, the
property accountability system is not integrated with the
Agency's accounting system. Since neither system contained
sufficient information to account for property, we were unable to
audit the FIFRA property, plant and equipment balance of $574,000
included in the fiscal 1992 Statement of Financial Position for
the fund.
Attachment 1 describes each of these material weaknesses in more
detail and includes the Environmental Protection Agency's
(Agency) actions to correct the weaknesses along with additional
corrective actions we are recommending.
REPORTABLE CONDITIONS
We also identified the following reportable conditions.
Reportable conditions involve matters coming to our attention
related to significant deficiencies in the design or operation of
the internal control structure that, in our judgement, could
adversely affect the entity's ability to ensure that the
objectives of the internal control structure, as previously
defined, are being achieved.
1. THE OFFICE OF PESTICIDE PROGRAMS DID NOT PERFORM A COMPLETE
REVIEW OF UNLIQUIDATED OBLIGATIONS
During fiscal 1992, the Office of Pesticide Programs (OPP) did
not conduct a complete review of its unliquidated obligations.
When we looked at OPP's review of unliquidated obligations
maintained by two finance offices we found that OPP had not
reviewed any of the unliquidated obligations maintained by one
finance office, and only a portion of those maintained by the
other finance office. The reviews were not performed because a
low priority was placed on complying with this requirement.
During fiscal 1992, OPP had $345,588 of open FIFRA obligations
for which there was no activity in over a year. When there has
been no activity in over a year on an obligation it is likely
that the obligation is no longer valid. By not performing the
required reviews of unliquidated obligations, OPP missed an
opportunity to identify no-year FIFRA funds that could be
deobligated and made available to fund other critical activities
associated with pesticides reregistration.
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2. IMPROVEMENTS ARE NEEDED IN CONTROLS OVER PROPERTY
LOCATED IN THE OFFICE OF PESTICIDE PROGRAMS
We also noted various weaknesses in controls over, property
located in OPP. Required annual property inventories were not
completed in a timely manner, custodial officers did not prepare
documentation to support property transfers, and property was not
always recorded in the Agency's Personal Property Accountability
System. Without these key internal controls in place, management
lacked reasonable assurance that property purchased with OPP
funds, including FIFPA funds, was adequately safeguarded against
loss from unauthorized use or disposition.
Attachment 2 describes each of these reportable conditions in
more detail.
We will be reporting other less significant matters involving the
internal control structure and its operation in a separate
management letter addressed to the Comptroller and the Director
of the Office of Pesticide Programs.
UNCORRECTED SIGNIFICANT FINDINGS
AND RECOMMENDATIONS
As required by OMB Bulletin 93-06, attachment 3 presents the
status of known but uncorrected significant findings and
recommendations from prior audits that affect the current audit
objectives.
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 as defined above. 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 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,,
This report is intended for the information of Congress, OMB, and
EPA management. This restriction is not intended to limit the
distribution of this report, which is a matter of public record.
Kenneth A. Kon;
Assistant Inspector General for Audit
U.S. Environmental Protection Agency
April 7, 1993
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1. WE WERE UNABLE TO RENDER AK OPINION ON THE FIFRA AND
TOLERANCE FUND STATEMENTS OF FINANCIAL POSITION BECAUSE MATERIAL
UNSUPPORTED ADJUSTMENTS WERE MADE TO THE GENERAL LEDGER
Financial Management Division (FMD) personnel made 25 unsupported
adjustments totaling $181.3 million and $21.2 million,
respectively, to the FIFRA and Tolerance Fund general ledgers
during fiscal 1992. As a result, we were unable to determine if
the Statements of Financial Position for the two funds were
fairly presented. Further, without adequate support for these
material adjustments, Agency management also lacked assurance
that the financial records for these funds contained accurate
reliable information. Adjustments to the accounting records for
the FIFRA and Tolerance Funds were necessary due to weaknesses in
the Agency's accounting procedures and Integrated Financial
Management System (IFMS). Some of these adjustments were
necessary in order to correct errors in general ledger balances
that had occurred in prior years when FMD personnel did not have
the reports they needed to monitor the accuracy of transactions
entered into the Agency's accounting records. In addition, some
of the adjustments were necessary because the accounting
transaction codes used during the year to post transactions to
the general ledger were designed for appropriated, rather than
revolving funds. These adjustments and IFMS weaknesses not only
prevented us from being able to render an opinion on the
Statements of Financial Position for the FIFRA and Tolerance
Funds, but also contributed to delays in closing the Agency's
accounting records and preparing the financial statements. The
Agency's accounting records for fiscal 1992 were not closed until
December 1992 and preparation of the financial statements was not
completed until March 1993, six months after the close of the
fiscal year.
Financial System Reporting Weaknesses Hampered EPA's Ability To
Monitor The Accuracy Of Financial Transactions
During fiscal 1989, EPA converted to a new automated accounting
system, IFMS. IFMS.had not been fully tested before
implementation and was not brought on-line in parallel with the
old system. As a result, numerous problems with the new system
surfaced. According to FMD personnel, one of the problems that
had a significant impact on the accuracy of the various general
ledger account balances was the lack of reports to monitor the
validity of transaction postings. This inability to review and
correct transactions led to material adjustments being made to
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the general ledger at fiscal year-end so that-'EPXTs cash ar.r-.ount
would agree with Treasury's records. These adjustments were
recorded in the Year-End Prepaid Adjustment Account. The Year-
End Prepaid Adjustment Account balance was then shown as a
negative asset on year-end financial reports submitted to
Treasury.
At the end of fiscal 1990, the balance in the Year-End Prepaid
Adjustment Account for the FIFRA Fund was a negative $19.7
million. In other words, EPA's records showed the Fund had a
cash balance of $19.7 million more than what Treasury's records
showed. This difference was significant since total assets for
this fund at the end of fiscal 1990 were only $11.6 million. At
the end of fiscal 1991, the balance in the account had been
reduced to a negative $16.8 million while total assets for the
fund were $29.2 million.
Material Unsupported Adjustments Were Made During The
Reconciliation Of The FIFRA Year-End Prepaid Adjustment Account
During fiscal 1992, FMD personnel attempted to reconcile the
negative $16.8 million beginning balance in the Year-End Prepaid
Adjustment Account. Thirteen adjusting vouchers were prepared
consisting of $20 million in debits that decreased the balance of
the account and $1.5 million in credits that increased the
balance of the account.
The only documentation for most of the vouchers was a short
explanation of the entry on the face of the voucher. For
example, one voucher which debited or decreased the prepaid
account by $17.6 million contained this explanation: "To adjust
general ledger proprietary accounts based on analysis of FY 89,
90 and 91 cash collections, interest collections and
disbursements for FIFRA, and to reclassify equity accounts." No
source documentation or analysis was available to support this
entry., Without adequate evidential matter, we could not verify
the validity of this $17.6 million adjustment.
Three of the thirteen adjusting vouchers prepared to reconcile
the Year-End Prepaid Adjustment Account involved corrections
related to payroll disbursements for fiscal "years 1989 through
1991. Very limited documentation existed for these vouchers.
Documentation attached to the vouchers stated simply that the
adjustments were based on assumptions for prior years' activity
and were not fully supported. These payroll related entries
moved $846,213 from the FIFRA Year-End Prepaid Adjustment Account
to the Salaries and Expense Prepaid Adjustment Account. Again,
without sufficient evidence we were unable to verify the validity
of this adjustment.
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Four other adjusting vouchers totaling $2.8 million were prepared
by the Financial Reports and Analysis Branch (FRAB) and sent to
the Headquarters Accounting Operations Branch (HAOB) for input
into IFMS. These four vouchers also lacked adequate supporting
documentation. When we asked HAOB personnel about these four
vouchers, they could not explain the purpose of the entries or
the supporting documentation. They said the entries were made at
the recommendation of FRAB, which also supplied the supporting
documentation. HAOB personnel said they made the entries relying
on FRAB's assurance that the entries were proper. Based on the
supporting documentation provided, we could not determine if
these entries were proper.
At our request, FMD personnel made four attempts to recreate, as
a way of documenting, the process they went through to reconcile
the Year-End Prepaid Adjustment Account. The rationale they
eventually came up with to support several of the entries sounded
logical, but they were not able to provide us with adequate
support for the entries that they had made. Without this
supporting documentation, we could not determine if the
adjustments made were proper.
The Comptroller General's internal control standards require
written evidence of all pertinent aspects of transactions and
other significant events. These standards require transactions
to be clearly documented with supporting documentation readily
available for examination. EPA's internal policies contained in
Comptroller Policy Announcement No. 93-02 Policies for
Documenting Agency Financial Transactions, include similar
requirements. This policy requires that all financial
transactions, including standard and journal voucher transactions
be supported by adequate source documentation that is easily
accessible. Adequately documented is defined in the policy as
"an independent individual competent in accounting and possessing
reasonable knowledge of EPA's operations should be able to
examine the documentation and reach substantially the same
conclusions as the persons who made and/or approved the entry."
Easily accessible is defined as "the entry should contain
sufficient information to identify the supporting documentation,
and the documentation should be organized and filed in a manner
to facilitate its retrieval."
There are legitimate and necessary reasons for making adjustments
to accounting records, such as correcting errors, posting
accruals to recognize expenses and related liabilities, or
writing off assets which are no longer of value. However,
without adequate safeguards, adjustments to accounting records
could also be used for any number of illegitimate or improper
purposes, such as covering up defalcations, hiding losses of
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assets, or masking errors. Accordingly, ±t is a««unLtal.-.tD
establish internal controls which ensure that only legitimate,
authorized adjustments are made and that clear documentation is
maintained to explain their basis and purpose. Such
documentation allows for detection and systematic correction of
errors and documents that adjustments were made for a valid
purpose and were authorized and executed by personnel acting
within the scope of their authority. It also allows accounting
personnel to reconstruct what was done in the event that they
need to, for example if there is a turnover of personnel.
Additional Unsupported Adjustments Were Made During The Closing
Process
During the closing process, accounting personnel made additional
adjusting entries. Twelve adjusting entries totaling $167.6
million were made to the FIFRA Fund. Nine of the twelve entries
lacked supporting documentation; three of the nine stated only
that they were to "realign FY funding to agree with
reimbursables," and to "offset the effect closing will have on
FIFRA,," In addition, five were not signed by the preparer, and
none contained indication of supervisory review. Having all
transactions clearly documented and properly authorized helps
ensure that only valid transactions and other events are entered.
EPA Comptroller Policy Announcement No» 91-03 Journal and
Standard Voucher Documentation, requires that all journal and
standard vouchers contain a description of the action takenf have
appropriate supporting documentation attached, and Include dated
financial management officer or designee, FMD^s fiscal 1992 year-
end closing memorandum to financial management officers also
stresses the importance of documentation being developed and
approved by appropriate supervisors
of thasfe adjustments ware, required because Account in
sactior? Cc-£es used daring the year
asr.er*,! ledo,er were; not tailored to
: Year-fine:
:os& t!".e general ledc'^r contained; errors,, as a result,,
rt~ry anc proprietary accounts %rere not correct and had to be
manually &djust-=df increasing the. potential for errors. Problems
:-?ith ipcorrect accounting transaction codes and year-end closing
tables had axis ted for a number of years,, and had required
adjustments being made to the general ledger during the closing
process. However, no attempt had made to correct those
errors. After adjustments were made and the books were closed,
we identified budgetary accounts that were misstated by $5.9 and
$4.8 million in the Tolerance Pundf and by $56.9 and $44.6
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million in the FIPRA Fund. When we asked about the~se balances,
we were told that they were "mistakes" that they thought had been
accounted for during the closing process. FMD personnel also
told us that other budgetary closing balances appeared to be
wrong.
Material Unsupported Adjustments Were Also Made To The Tolerance
Fund
During fiscal 1992, no adjustments were made to reconcile the
$41,300 balance in the Tolerance Fund's Year-End Prepaid
Adjustment Account. However, eight adjusting entries totaling
$21.2 million that affected other general ledger accounts were
made during the closing process. Again, there was no
documentation attached to these adjusting vouchers, and the brief
explanation on the vouchers was not sufficient to support the
entries made.
As an example, one voucher totalling $5.5 million stated only
that it was "to adjust GL (general ledger) for 5700/5220 based on
outlays" and for "account 2312 adj to equal letter from" the
Deputy Director, Program Management and Support Division, OPP.
The Deferred Revenue Account was adjusted by $507 on this
voucher. On the next sequential voucher that affected the
Tolerance Fund, the Deferred Revenue Account was again adjusted.
This time the account was adjusted by $298,153 after it had been
"reconciled98 to the OPP's amount on the previous voucher. The
explanation given for this entry was only that it was "to correct
general ledger balances for unearned revenue per balance with
Treasury". Again, no documentation supporting this entry could
be found. Without documentation to review for this and other
adjustments made, there was no way we, or Agency management,
could evaluate the validity of these
To evaluate whether the Deferred Revenue Account accurate
after these undocumented adjustments were mader we compared the
general ledger fund balance with the fund balance maintained;, lay
OPP,, OPP is the source of information on what has been ^earned9'
and what has been "transferred10 out of this fund? two of the
three components that make up the fund balance (collections being
the third component)„ We found that at the. end of fiscal 1991,
the general ledger balance of $3,722,068, was $29,405' less than
the program office balance of $3,751,477c At the end of fiscal
1992, taking into consideration an incorrect posting of the
fourth quarter expense transfer, the general ledger balance of
$3,716,143 was $128,248 more than the program office balance of
$3,587,895.
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In addition to the need to develop adequate documentation to
support adjustments made, we also believe that periodic
reconciliation of program office records and accounting records
would facilitate auditable balances in the general ledger and by
extension the financial statements. Further, it would help
ensure that program office personnel have accurate information to
use in managing their programs.
IFMS Reporting Weaknesses Delayed Financial Statement Preparation
EPA reported as a material weakness in its 1992 FMFIA report that
systems-related problems with IFMS impaired the Agency's ability
to provide complete, reliable, and timely data for Agency
decision making. One of the problems specifically identified in
the FMFIA report was the lack of adequate financial management
reports. IFMS does not automatically compile detail account
balance information into financial statement report formats.
Instead, IFMS assembles general ledger account balances at the
treasury symbol level. As a result, Agency personnel spent a
significant amount of time manually preparing spreadsheets to
summarize account balances at the treasury symbol level for
financial statement reporting purposes. Weaknesses in IFMS
reporting capabilities are discussed in more detail in the audit
report on the fiscal 1992 Financial Statements for the Superfund
Trust Fund, Leaking Underground Storage Tank Trust Fund and
Asbestos Loan Program.
RECOMMENDATIONS
We recommend that the Chief Financial Officer direct the
Comptroller to:
1. Emphasize the need to adequately support all transactions and
document supervisory approval of transactions. Perform, as a
part of the annual FMFIA process, alternative management control
reviews to determine if transactions are being properly
documented.
2. Correct known errors in accounting transaction codes and the
automated year-end closing tables.
3. Ensure quarterly reconciliations are performed of the FIFRA
and Tolerance Fund general ledger balances and program office
records.
4. Complete reconciliations of the FIFRA and Tolerance Fund
Year-End Prepaid Adjustment Accounts.
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AGENCY COMMENTS AND PIG EVALUATION
The Acting Chief Financial Officer, in her response to our draft
report, agreed to take the corrective actions contained in
Recommendations 2,3 and 4. At a meeting on June 24, 1993, her
staff provided additional information on their planned corrective
actions related to Recommendation 3. They stated that, in
addition to performing a reconciliation of prior year FIFRA and
Tolerance Fund balances, they will also perform the periodic
reconciliations we have recommended. We have further clarified
this recommendation to state that the periodic reconciliations
should be performed quarterly.
In response to Recommendation 1, the Acting Chief Financial
Officer agreed that the Comptroller should emphasize the need for
financial management personnel to adequately support
transactions. She also stated that corrective action has been
taken on this part of the recommendation. She disagreed with the
need to perform an alternative management control review to
ensure that transactions are being properly documented stating
that this would duplicate work performed by the auditors. She
did, however, agree to focus attention on this area during
on-going quality assurance reviews. Reviewing this area as a
part of on-going quality assurance reviews would meet the intent
of our recommendation and would help ensure the accuracy and
reliability of EPA's financial records. We do not believe such a
review would duplicate our audit efforts since our audits cover
only EPA's trust funds, revolving funds and commercial activity,
or about one fourth of the Agency's financial resources.
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2. SOME FIFRA YEAR -END ^ACCOUNTS PAYABLE ftiup ftUUKUED' LIABILITY
ADJUSTMENTS WERE INCORRECTLY CALCULATED OR LACKED SUPPORTING
DOCUMENTATION
The methods used by one finance office to compute year-end
adjustments resulted in the overstatement of FIFRA accounts
payable by $135,620 and the understatement of FIFRA accrued
liabilities by $663,635. Accounting controls were not in place
to identify and correct these errors. In addition, another
finance office could not provide adequate documentation to
support year-end accounts payable and accrued liability adjusting
entries of $141,223 that were made to the FIFRA Fund. Without
support for these adjustments, we were unable to determine if
these amounts were fairly stated.
Use of Inappropriate Methodologies Resulted in Material
Misstatements of Accounts Payable and Accrued Liabilities
One finance office overstated its fiscal 1992 year-end accounts
payable adjusting entry of $261,518 by $135,620. Accounts
payable are obligations remaining unpaid at fiscal year-end for
which goods have been delivered or services performed, and for
which an invoice is on hand. This overstatement was the result
of the manner in which EPA's Contract Payment System allocates
costs on invoices which are received before year-end, but for
which the project officer's approval form has not been received.
In the sample we selected, the Contract Payment System charged
the invoiced amount against the first account number listed for
the contract, and then continued to sequentially select
additional account numbers to charge until the invoiced amount
was covered. We reviewed actual payments made subsequent to the
end of the fiscal year and determined that the amount recorded at
fiscal year-end based on this methodology resulted in an
overstatement of $135,620. This overstatement of accounts
payable using this method indicates that this was not an accurate
way to predict which of the contract's account numbers would be
charged when an invoice was finalized for payment.
The same finance office also understated its fiscal 1992 year-end
accrued liability adjusting entry of $417,778 by $663,635.
Accrued liabilities are obligations for goods that have been
delivered or services performed, but for which an invoice has not
been received. This material understatement was also the result
of the methodology used by the finance office to calculate the
amount of the entry. According to personnel in the office, under
an informal agreement with the General Accounting Office (GAO)
dating back to 1988, the adjustment was calculated based on the
monthly average amount paid for each appropriation during the
year. That figure was then used as the adjusting entry for the
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appropriation. We reviewed payments made subsequent "to the and:
of the fiscal year and determined that the use of this
methodology resulted in a $663,635 understatement of accrued
liabilities.
Documentation to Support Material Adjustments Made by One Finance
Office Was Not Maintained
Another finance office could not provide adequate documentation
to support year-end accounts payable and accrued liability
adjustments of $141,223. Personnel in the office told us that
they manually went through suspense files at year-end to
determine the amounts to record as accounts payable and accrued
1labilities» The only documentation prepared was an Accounts
Payable And Accrued Liabilities By Object Class matrix. This
matrix showed only the dollar values that were entered into the
accounting system. When we asked for the detail supporting the
entries, personnel in the office indicated that they were unaware
that the documentation that they had retained was not sufficient.
Comptroller Policy Announcement No. 91-03 requires that all
journal and standard vouchers have adequate supporting
documentation, and states that the documentation must be kept on
file for future use and verification. In addition, the Financial
Management Division's year-end guidance also requires finance
offices to develop and retain documentation for adjusting
entries. Unless adequate supporting documentation is maintained,
there is no way to verify the accuracy of the amounts recorded.
Consequently, we could not determine if the year-end adjusting
entries made were appropriate, or what their effect was on the
fiscal 1992 FIFRA Financial Statements.
RECOMMENDATION
We recommend that the Chief Financial Officer direct the
Director, Financial Management Division to work with the
Director, National Contract Payment Division to evaluate the
process used to compute year-end adjusting entries for accounts
payable and accrued liabilities and revise it to more accurately
estimate the entries. Consideration should be given to reviewing
payments made over several prior years to develop a more accurate
methodology.
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AGENCY COMMENTS MO> DIG EVALUATION
In her response to the draft report, the Acting Chief Financial
Officer agreed to implement by September 30, 1993, a revised
methodology for computing year-end accounts payable and accrued
liabilities. This proposed corrective action satisfies the
intent of our recommendation. In our draft report we also
recommended that the Agency prepare entries to correct the errors
we identified in the accounts payable and accrued liabilities
accounts. Since the Acting Chief Financial Officer indicated
that these adjusting have been made we have dropped that
recommendation.
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3. PROPERTY
CAPITALIZED
FUNDS WAS NC
Property purchased with FIFRA funds was not properly capitalized
in the Agency's accounting records. This occurred because the
process the Agency used to capitalize property did not identify
all property which should have been capitalized, and program
office personnel assigned incorrect object class codes to
obligating documents. In addition, as the Agency has reported in
its annual FMFIA reports, the property accountability system is
not integrated with the Agency's accounting system. Since
neither system contained sufficient information to account for
property we were unable to audit the FIFRA property, plant and
equipment balance of $574,000 included in the fiscal 1992
Statement of Financial Position for the fund.
One of the stated purposes of the CFO Act is to provide complete,
reliable and consistent financial information for use in the
management and evaluation of Federal programs. When property is
not properly capitalized it affects the reliability and
consistency of financial information reported by the Agency.
Specifically, when property is not properly capitalized, assets
are understated on the financial statements for the life of the
property; and expenses are overstated in the year equipment was
purchased, and understated in following years. Although our
audit concentrated on property purchased with FIFRA funds, the
issues we identified also affect the capitalization of property
purchased using other Agency funds and appropriations.
Capitalization Process Was Time Consuming and Burdensome
The process FMD used to identify and capitalize property was time
consuming and burdensome, and did not result in the
capitalization of all property that should have been capitalized.
Each month, FMD extracted from the Agency's accounting system, a
report of disbursements made in the prior month that had been
assigned a major object class code of 3100 (Equipment). This
report was then sent to financial management offices for their
review. The finance offices were responsible for reviewing each
line item on the report greater than $5,000 to determine if the
item met the Agency's capitalization criteria; unit price greater
than $5,000 and useful life of two years or more. The finance
offices then provided FMD with a spreadsheet listing all of the
items that met the capitalization criteria.
To determine if this method for capitalizing property was
effective, we identified FIFRA funded equipment in the Agency's
property accountability system as of September 30, 1992, that was
valued at $5,000 and over. We then compared this listing of
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equipment to what had been capitalized in the accounting system.
We found that while approximately $425,450 had been capitalized,
an additional $213,300 of the items in the Personal Property
Accountability System (PPAS) that met the Agency's capitalization
criteria had not been capitalized.
Not All Property That Should Have Been Capitalized Was Identified
Property was not properly capitalized because Agency procedures
for identifying property for capitalization only considered items
recorded in major object class 3100 (Equipment) with a unit price
of $5,000 or more. This practice excluded property in other
major object classes which should have been capitalized; such as
property in the hands of contractors, automatic data processing
(ADP) software, and leasehold improvements. Other property was
not capitalized because some finance offices did not consider for
capitalization equipment purchased using more than one
appropriation or fund, nor did they identify component parts. In
addition, Agency procedures did not address placing mass
purchases of equipment, such as computers, into asset groups so
that they would be capitalized. The following paragraphs address
each of these situations in more detail.
Contractor Acquired Property
We found that property in the possession of contractors was
recorded under major object class 2500 (Other Contractual
Services) rather than 3100 (Equipment). As a result, this
property was not considered for capitalization. Property in the
hands of contractors, however, is no different than other
property bought with program funds. If it is not properly
capitalized, it affects the reliability and consistency of
financial information reported by the Agency.
ADP Software
The Agency records ADP software packages under major object class
2600 (Supplies and Materials). Again, because of object class
restrictions placed on the report generated to identify property
to be capitalized, ADP software valued at $5,000 or more is not
capitalized. In the first two years of the program, the Office
of Pesticide Programs spent approximately $159,298 in FIFRA funds
for Local Area Network software alone, which was excluded from
capitalization due to current procedures. EPA's policy on
capitalization of equipment is based on GAO Title 2 guidelines,
and requires that all equipment with an initial acquisition cost
of $5,000 or more, and an estimated life of two years or greater,
be capitalized. This policy also specifically applies to ADP
software meeting the same criteria.
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Leasehold
Leasehold improvements are recorded in major object class 3200
(Land and structures), and as a result are not considered for
capitalization. Leasehold improvements are defined in the
Agency's Resource Management Directive System, section 2590 part
IV, as the cost of improvements (including such improvements as
carpeting, space partitions, soundproofing of ceilings, walls and
alterations) which have an estimated useful life longer than one
year and are made to leased properties or to occupied properties
owned by another government agency. In our statistical sample of
fiscal 1992 disbursements, we found that removal and installation
of new carpeting costing approximately $33,000 was not
capitalized. EPA policy does not address capitalizing such
leasehold improvements. However, GAO Title 2 requires
capitalization of leasehold improvements, and OMB Bulletin 93-02
specifically requires that the value of leasehold improvements be
included in the Agency's financial statements.
Split-Funded Equipment
We also found that property acquired through split-funding was
not always capitalized. Split-funding is the purchase of items
from more than one appropriation or fund. At one finance office
property with a total unit price exceeding $5,000, but with
individual split-funded totals less than $5,000, was not being
considered for capitalization.
Component Parts
EPA policy regarding component parts is that if a part is
integral to the functioning of the main unit and does not have
the capacity to stand alone it should be capitalized. These
components are usually recorded under major object class 3100,
but since they typically cost less than $5,000, they are not
capitalized. When we visited one finance office, we discovered
that they had taken the basic policy described above, and had
modified it in such a way as to narrow it significantly. They
had redefined "and not have the capacity to stand alone" to mean
that the component could not be moved from one piece of equipment
to another. For example, we identified two "large tape backups"
with a unit price of $4,971 that were not capitalized because
they were less than $5,000, and because they theoretically could
be moved from one computer to another. The tape backups should
have been capitalized because they could not "stand alone".
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Asset Groups
In addition to procedural problems noted above, mass purchases of
furniture and ADP equipment and software were not placed in asset
groups for capitalization. Agency procedures did not cover asset
groups; however, we believe that they should be addressed because
of their material effect on the financial statements. By not
using asset groups for capitalizing large purchases, current
costs are distorted by charging to expense, large quantities of
items (such as the initial complement of equipment for an
office) , that individually cost less, but collectively cost much
more than §5,000. To better match expenses with revenue and to
prevent a material misstatement in the financial statements such
items should be grouped in separate asset groups and capitalized.
This is in line with GAO Title 2 which states that *if current
costs would be distorted in a given period by charging to expense
a large quantity of items , such as the initial complement of
equipment of a building, that individually cost less but
collectively cost more than the $5,000 capitalization criterion,
such items shall be grouped in a separate asset group account.
(An example would be a substantial amount of purchased office
furniture or computers , involving many pieces that individually
cost less than $5fOOO)e8' One Federal agency we talked to has
adopted this practice because of the distortion it would cause in
the financial statements if this were not done. EPA should also
adopt this practice.
Several million dollars in FIFRA funds used for mass purchases of
\DP equipment and software were not capitalized because they did
not Individually cost more than $5,000,, A listing of funds spent
or. AD? related equipment provided by the Office of Pesticide
Programs showed that from the Inception of the FIFRA Fund in
•"Lscs.1 198? through August 14, 1992, ADP related property
purchased with FIPRA funds totaled approximately $4»8! million.
Total FIPR.% property capitalised in the period!
$218,3 00-c, Tc include large purchases such as these
fir--^cis.l statements as ^vpenrs'ig In the y&ar
itei&s eligible for capitalisation were not
-5.pitc'lizsd because object class codes were not accurately
sssicned. Incorrectly assigned object class codes precluded some
items from being considered for capitalization because Agency
procedures only considered property in object class 3100 for
capitalization. The office requesting a procurement action is
responsible for assigning object class codes to obligating
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ATTACHMENT 1
Page 17 of 19
documents based on the description of the Items' purchased.
Personnel in the program offices were not always fully aware of
the proper classification to use when completing the obligating
documents. We compared object class codes in a random
statistical sample of disbursement documents at one finance
office to the Agency's definition of object class codes. Five of
the eight documents, valued at $118,000, had the wrong object
class code assigned.
IFMS and PPAS Are Not Integrated and Contain Inconsistent Data
The Agency has reported in its annual FMFIA reports that its
property accountability system is not integrated with the general
ledger. Neither system individually contains sufficient
information to account for property. As a result, the detailed
accounting records supporting the financial statement balance of
property were inadequate.
Our comparison of information in PPAS and IFMS showed the two
systems did not always include the same property. For example,
we identified 61 items of FIFRA funded equipment that had been
capitalized in IFMS between 1990 and 1992. All of these items
should have been recorded in PPAS, however, we found that 17 had
not been recorded. Further, during the same period 59 items were
recorded in PPAS that met the Agencyrs capitalization criteria
and should therefore have been capitalized in IFMS. We found
that 15 of these items had not been capitalized. In addition,
amounts recorded in the two systems seldom agreed. PPAS records
are based on amounts from obligating documents while IFMS records
are based on invoiced amounts, including adjustments for price
changes, freight and discounts. In comparing FIFKA property that
was recorded in both PPAS and IFMS during fiscals 1990 through
1992, we found that the property capitalized in IFMS was valued
at $468,576 while the value of the items recorded iia PPAS was
only $425,450, or a difference in value of $43,1£6<,
Irs March 1993 „ the Personal Property Quality kcti&n Ten:® (QAT>
was formed to develop a plan for correcting the. Agency's property
problems. Participants in the QAT work group represent the
Financial Management Division,- Facilities Management ani Services
Division, Administrative Systems Division, Office of Acquisition
Management, and Research Triangle Park Financial Management
Office, Our review of the Quality Action Team's work to date
shows that they are addressing many of the discussed in
this report. Continued management attention to this area is
needed in order for the long-standing problems in the property
area to be corrected.
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ATTACHMENT 1
Page 18 of 19
We understand that government accounting principLes-are" currently
being developed by the Federal Accounting Standards Advisory
Board. Thus, in future years changes may occur in the accounting
principles for property and equipment. However, the issues we
identified during our audit should be addressed since corrective
action in these areas will result in more complete, reliable and
consistent financial information on Agency programs.
RECOMMENDATIONS
"We recommend that the Chief Financial Officer direct the
Director, Financial Management Division to:
1. Revise the Agency's capitalization policy to include more
detailed instructions for determining which Agency assets should
be capitalized. Specifically, the policy should contain guidance
on:
« defining all object class codes which contain items which
could be capitalized,
* identifying component parts including a listing of
standard items which qualify as components,
* capitalizing split-funded purchases and purchases of
group assets, and
• identifying and accounting for leasehold improvements.
2. Provide training to program office personnel on the proper
assignment of object class codes on obligating documents.
AGENCY COMMENTS AND PIG EVALUATION
The Acting Chief Financial Officer, in her response to the draft
report, agreed with the intent of recommendation 1. At a meeting
with her staff on June 24, 1993, they suggested that we revise
the recommendation to show the Director, Financial Management
Division as the official responsible for implementing the
corrective action rather the Property Quality Action Team. We
have made that change. The Agency's response to this corrective
action is not considered fully responsive since it does not
include a corrective action plan to address our recommendations,
but rather suggests that any specific recommendations be withheld
until the Quality Action Team has issued its report. We believe
that correcting these long-standing capitalization problems will
be an evolutionary process. As such, we do not see the value in
waiting for the Quality Action Team to issue its report before
the Agency's capitalization policies are revised to address known
problems.
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ATTACHMENT 1
Page 19 of 19
Regarding Recommendation 2, The Acting Chief Financial Officer
agreed to conduct the recommended training by December 31, 1993.
The planned corrective action for this recommendation is
considered fully responsive.
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ATTACHMENT 2
Page 1 of 6
1. THE OFFICE OF PESTICIDE PROGRAMS DID KOT PERFORM A COMPLETE
REVIEW OF UNLIQUIDATED OBLIGATIONS
During fiscal 1992, the Office of Pesticide Programs (OPP) did
not conduct a complete review of its unliquidated obligations.
When we looked at OPP's review of unliquidated obligations
maintained by two finance offices we found that OPP had not
reviewed any of the unliquidated obligations maintained by one
finance office, and only a portion of those maintained by the
other finance office. The reviews were not performed because a
low priority was placed on complying with this requirement.
During fiscal 1992, OPP had $345,588 of open FIFRA obligations
for which there was no activity in over a year. When there has
been no activity in over a year on an obligation it is likely
that the obligation is no longer valid. By not performing the
required reviews of unliquidated obligations, OPP missed an
opportunity to identify no-year FIFRA funds that could be
deobligated and made available to fund other critical activities
associated with pesticides reregistration.
Treasury Financial Manual Bulletin No. 92-08 requires agencies to
review their unliquidated obligations before year-end to
reasonably assure that all, and only those, transactions meeting
the criteria of valid obligations have been properly recorded.
In addition, in a June 1992 memorandum, the Acting Chief
Financial Officer advised all EPA program offices, including OPP,
of their responsibility to complete a review of all unliquidated
obligations and to take action to cancel any invalid obligations
found.
Finance office personnel must rely on personnel in program
offices, such as OPP, to perform unliquidated obligation reviews
since these individuals are the most knowledgeable of what goods
and services have been ordered and delivered. We found, however,
that for obligations maintained by the Headquarters Accounting
Operations Branch, OPP did not review the unliquidated obligation
listing, despite a follow-up request in July 1992. For
unliquidated obligations maintained by the Cincinnati Financial
Management Center, the individual responsible for coordinating
OPP's response stated in her reply that she could only get four
of OPP's nine responsibility centers to respond to the request.
According to one finance office official, many program offices
put little or no effort into the annual unliquidated obligations
review process. This statement was confirmed by a memo from one
finance office to the Financial Reports and Analysis Branch.
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ATTACHMENT 2
Page 2 of 6
Personnel in the office stated that a majority of the responsible
program offices did not submit unliquidated obligation reviews by
the fiscal 1992 deadline. OPP was among them. Further, we were
told by personnel in another finance office that because of
problems the office has had with obtaining responses, it no
longer attempts to confirm unliquidated obligations with the
program offices. Instead, the finance office goes directly to
the appropriate contracting officer for verification of the
validity of the obligation.
To determine the extent of OPP unliquidated obligations that were
likely to be invalid, we obtained a report of those FIFRA funded
OPP obligations for which there was no activity during fiscal
1992. The report showed that during fiscal 1992 there were
$345,588 of such obligations. Of this total, $262,001
represented obligations maintained by the Cincinnati Financial
Management Center or the Headquarters Accounting Operations
Branch, the two finance offices that had indicated OPP had not
fully complied with their requests for reviews of unliquidated
obligations. When there has been no activity in over a year on
an unliquidated obligation, it is likely that the obligation is
invalid. If OPP had researched these unliquidated obligations
and found that they were no longer valid, the funds could have
been deobligated and used for other FIFRA activities.
RECOMMENDATION
We recommend that the Assistant Administrator for Prevention,
Pesticides and Toxic Substances direct the Director, Office of
Pesticide Programs to complete the annual review of unliquidated
obligations and provide in a timely manner the results of the
review to the appropriate finance office so that invalid
obligations can be deobligated.
AGENCY COMMENTS AND PIG EVALUATION
The Office of Pesticide Programs plans to complete the review of
its unliquidated obligations by July 30, 1993. The Office's
planned corrective actions satisfy the intent of our
recommendation.
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ATTACHMENT 2
Page 3 of 6
2. IMPROVEMENTS ARE NEEDED I1T CONTROLS OVER PKOPEKIT LOCRTED' TTT
THE OFFICE OF PESTICIDE PROGRAMS
We noted various weaknesses in controls over property located in
OPP. Required annual property inventories were not completed in
a timely manner, custodial officers did not prepare documentation
to support property transfers, and property was not always
recorded in PPAS. Without these key internal controls in place,
management lacked reasonable assurance that property purchased
with OPP funds, including FIFRA funds, was adequately safeguarded
against loss from unauthorized use or disposition.
Inventories Were Not Completed in a Timely Manner
OPP did not complete required annual inventories in a timely
manner. A low priority was placed on scheduling and completing
inventories. Appointments to perform inventories were repeatedly
rescheduled, creating a need to continually reshuffle subsequent
inventory schedules. In addition, because of inadequate controls
over property in the custodial areas, numerous staff hours were
required to reconcile inventory discrepancies. This further
contributed to delays in scheduled inventories. As of March
1993, 1 of the 8 OPP custodial areas had not completed
inventories that were initiated in July 1992. By not completing
the required annual property inventories, the office increased
the risk of waste, loss, unauthorized use and misappropriation of
its property.
Custodial Officers Did Not Adequately Perform Their Custodial
Duties
Custodial officers play a key role in ensuring accountability
over and security of property assigned to their custodial area.
These individuals are responsible for reporting all changes
affecting the status of that property, and preparing and
submitting to the property accountable officer documentation for
all property transactions in their custodial area. We found that
OPP custodial officers did not ensure that property transferred
in or out of their areas was supported by appropriate
documentation. The custodial officers also did not resolve
inventory discrepancies in a timely manner. The results of
inventories of two custodial areas that are discussed below
confirm that these activities were not always performed.
The July 1992 inventory in one OPP custodial area found that of
402 items recorded in PPAS for that area, 202 items valued at
$694,583 were unaccounted for at the time the inventory was
taken. It was later discovered that 37 of the 202 had been
transferred out of the area and into other custodial areas
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ATTACHMENT 2
Page 4 of 6
without the required transfer documentation being executed. As
of March 1993, EPA's inventory contractor was continuing to work
with the custodial officer to reconcile property in the custodial
area with PPAS records. In another OPP custodial area, 61 out of
249 items identified during the inventory were not assigned to
that custodial area. Again, this condition resulted from
inadequate documentation of property transfers.
We also identified six items used by employees at home that had
been signed out on twenty-four hour property passes from 14 to 24
months before. As of March 1993, the six items had not been
returned. EPA procedures require employees to obtain a
memorandum signed by their division director for property that is
to be used at home on a long-term basis. The memorandum which is
to be initiated by the custodial officer must state the reasons
why the employee is being permitted to use the equipment at home.
Preparation of such a memorandum helps ensure that employees are
only permitted to use Government property at home when it is in
the best interests of the Government. For the six items we
identified, the required memorandum had not been prepared because
the custodial officer was not aware of the requirement to prepare
such a memorandum.
Property Was Not Always Recorded in the Property Accountability
System
We also found that documentation of property transactions was not
always forwarded to the Facilities Management and Services
Division (FMSD) for input into PPAS. In the two custodial area
inventories referred to above, 52 items valued at $140,742 were
found that were not recorded in PPAS. FMSD personnel stated that
this usually happens when property is delivered directly to the
end user. When this occurs receiving documents are not always
sent to the property accountable officer at the accountable
location. This circumvents controls established to ensure that
all property received has a record established in PPAS, a bar
code decal affixed and responsibility assigned to a custodian.
Increased Management Attention to the Property Area Is Needed
FMSD personnel told us that the problems we had noted in OPP were
prevalent throughout the Agency. They also told us that they
believed that these problems stemmed from the low priority
management gives to custodial officer duties. FMSD personnel
stated that in many offices these duties are assigned to the
secretary as an additional duty.
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ATTACHMENT 2
Page 5 of 6
Supervisory responsibility, at all. levels, requires *>**»
establishment and continuous enforcement of administrative
measures necessary to ensure adequate protection and use of all
Government property under their jurisdiction. Given the extent
of problems noted with custodial officers performing their
duties, we believe that OPP management should place a higher
priority on the property area.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Prevention,
Pesticides and Toxic Substances:
1. Ensure the performance agreements of managers include a
critical job element covering managers' responsibilities for
properly safeguarding and accounting for property-
2. Schedule all custodial officers and alternates for refresher
training.
3. Work with the Facilities and Management Services Division to
establish internal control procedures to help ensure that
accountable property delivered directly to the end user is
reported to the property accountable officer for inclusion in
PPAS.
4. Perform an alternative management control review of property
controls as a part of the Office's annual Federal Managers'
Financial Integrity Act process.
AGENCY COMMENTS AND PIG EVALUATION
In the response to the draft report, the Office of Pesticide
Programs agreed with all of our recommendations and outlined a
number of corrective actions that they have initiated or
completed. Concerning Recommendation 4, the Office indicated at
a meeting on June 24, 1993, that they will complete the
recommended alternate management control review by September 30,
1994, rather than September 30, 1995, the date included in the
response to the draft report. The Office plans to use the
results of the alternate management control review to implement
Recommendation 3. We are concerned that this will delay any
corrective action on Recommendation 3 until at least fiscal 1995.
Therefore, we are recommending that personnel in the Office of
Pesticide Programs work with personnel in the Facilities and
Management Services Division to establish the control procedures
described in Recommendation 3 rather than wait until the
alternate management control review is completed. We consider
the Office's response to the remaining recommendations to be
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ATTACHMENT 2
Page 6 of 6
responsive. We have revised Recommendation 1 ta clarify the
actions that we believe the Office should take to ensure that
adequate controls are in place to safeguard and account for
property.
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ATTACHMENT 3
Page 1 of 2
OF OPEN PRIOR
Fiscal Year 1991 - Report On Financial Audit - Hazardous
Substance Superfund (Audit Report Number P1S8F1-11-0026-2100660)
finding
Property related physical inventories and walk-through
inspections were not performed and reconciliations to PPAS were
not performed.
Recommendation
Require the Assistant Administrator for Administration and
Resources Management to issue a policy requiring annual
certifications from the regional administrators that the annual
physical inventories, walk-through inspections, and reconcili-
ations to the PPAS have been performed.
Corrective Action
Obtain the missing annual inventory, inspection, and reconcili-
ation certifications.
Target Date
December 31, 1993
Status
Ongoing
Fiscal Year 1990 - Report On Financial Audit - Hazardous
Substance Euperfund (Audit Report Number PlSFFO-11-0032-1100385)
Finding
Procedures have not been updated since the implementation of the
IFMS.
Recommendation
Ensure that the Resources Management Directives System is fully
implemented and includes procedures and requirements for
recording and supporting transactions in the IFMS.
Corrective Action
Issue RMDS 2530.
Target Date
September 1992 (original), April 1994 (revised)
Status
Ongoing
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ATTACHMENT 3
Page 2 of 2
Fiscal Year 1989 - Report on Financial Audit - Hazardous
substance Superfund (Audit Report Number P1SFF9-11-0032-0100492)
Finding
Data was not reconciled in the transfer from FMS to IFMS during
1989.
Recommendation
Verify that transactions and account balances brought forward
from the Financial Management System (FMS) to IFMS are correct,
complete, and reconciled. Documentation of the reconciliation
should be retained for audit.
Corrective Action
Adjust conversion errors and beginning balances.
Target Date
December 1989 (original), October 1993 (revised)
Status
Ongoing
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AUDITORS* REPORT ON COMPLIANCE WITH
LAWS AND REGULATIONS
The Administrator
U.S. Environmental Protection Agency
We were charged with auditing the financial statements of the
Pesticides Reregistration and Expedited Processing Fund (FIFRA
Fund) and the Revolving Fund for Certification and Other Services
(Tolerance Fund) as of and for the year ended September 30, 1992.
We have issued our report thereon dated April 7, 1993, in which
we disclaimed an opinion on the financial statements for these
two funds.
Compliance with laws and regulations applicable to the FIFRA and
Tolerance Funds is the responsibility of the Environmental
Protection Agency's (EPA) management. As a part of obtaining
reasonable assurance about whether the financial statements were
free of material misstatements, we tested compliance with those
laws and regulations that either directly affect the financial
statements or that the Office of Management and Budget (OMB) or
our office considered significant to the audit. 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 the Federal Managers' Financial
Integrity Act (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 was not to provide an opinion on
overall compliance with such provisions. Accordingly, we do not
express such an opinion.
COMPARISON OF EPA'8 FMFIA REPORT WITH OUR EVALUATION OF INTERNAL
CONTROLS
As required by OMB Bulletin 93-06, "Audit Requirements for
Federal Financial Statements," we compared EPA's FMFIA report to
our evaluation of the internal controls related to the FIFRA and
Tolerance Funds. To determine whether to report matters as
material weaknesses, we used the definition of material
weaknesses 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 being audited may occur and not be
detected within a timely period by employees in the normal course
of performing their assigned functions. EPA, in its fiscal 1992
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FMFIA report, reported the Integrated Financial Management System
(IFMS) as a high risk area, and a material weakness. EPA also
reported as nonconformances the need to: (i) record adjustments
to the general ledger due to IFMS implementation fii) perform
comprehensive reconciliations between Treasury reports and IFMS,
(iii) update and strengthen policies and procedures to assure
reconciliation between property and accounting records,^and (iv)
implement interfaces between IFMS and other administrative
systems. In addition to the weaknesses identified by EPA, during
our audit we identified two additional weaknesses that materially
affected the FIFRA and Tolerance Fund Financial Statements. We
found that material unsupported adjustments were recorded in
EPA's accounting records for the FIFRA and Tolerance Funds, and
improper methods were used by one finance office to compute year-
end accounts payable and accrued liability adjusting entries for
the FIFRA Fund.
RESULTS OF COMPLIANCE TESTING
The results of our compliance tests for fiscal 1992 indicate that
for the items tested, EPA complied with those provisions of laws
and regulations which could have a material effect on the
financial statements. With respect to transactions not tested,
nothing came to our attention that caused us to believe that EPA
had not complied, in all material respects, with these
provisions. We did, however, identify the following area of
noncompliance with laws and regulations that while not material
to the financial statements, warrants disclosure due to its
significance.
TOLERANCE FEES COLLECTED DID NOT COVER EPA'S COSTS
Fees collected for processing raw agricultural commodity
tolerance petitions under Section 408 of the Federal Food, Drug,
and Cosmetic Act did not cover EPA's costs of carrying out the
activity. In addition, reviews required by the Chief Financial
Officers Act (CFO Act) that would have identified this shortfall
were not performed. In fiscal 1992, EPA collected approximately
$1.2 million in fees for processing raw agricultural tolerance
petitions. During the same period, personnel compensation and
benefit costs of the Office of Pesticide Programs (OPP)
associated with processing these petitions, using information
from OPP's Time Accounting Information System and their
internally computed overhead cost factor, totaled about $3.0
million. Agency support costs, external to OPP, allocable to
processing raw agricultural tolerance petitions totaled another
$486,460; resulting in a total Agency cost for processing these
petitions of about $3.5 million.
The CFO Act of 1990, enacted on November 15, 1990, requires EPA's
Chief Financial Officer to perform a biennial review of user fees
and other charges for services it provides. As of April 7, 1993,
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the date we completed fieldwork, EPA had not made the required
review of the fees it collects for raw agricultural tolerances,
and had thereby failed to make necessary revisions to these fees
so that they would-cover-EEA'ft costs for processing thesa
petitions. In addition to not reviewing raw agricultural
tolerance fees, EPA had also not reviewed other user fees it
collects, nor had it established procedures that would ensure
that reviews of user fees would be completed when required. Of
two other user fees that EPA currently collects, the Pre-
Manufacture Notice fee is currently overdue for review, and the
Motor Vehicle and Engine Compliance Program fee is due for review
by August 1994.
EPA Is Allowed Bv Law To Set Tolerance Fees
The Tolerance Fund was established in 1963 by Public Law 88-136.
This law states that fees are to be paid for services in
connection with the establishment of pesticide tolerances for raw
agricultural commodities. The fees collected are to be deposited
into the Tolerance Fund and are to be used for salaries and
expenses necessary to carry out activities related to
establishing tolerances. Section 408(o) of the Federal Food,
Drug, and Cosmetic Act also authorizes the promulgation of
regulations to require the payment of fees that will in the
aggregate be sufficient to provide, equip, and maintain an
adequate service for establishing raw agricultural tolerances.
In 1984, EPA issued a proposed rule to establish procedures for
increasing raw agricultural tolerance petition fees. The fees
had last been increased in 1972, and EPA believed that inflation,
the rise in Federal employee salary and expenses, and the
increased complexity and cost of scientific reviews far exceeded
the fees charged. EPA's final rule promulgated in 1986, resulted
in two provisions for adjusting tolerance fees:
1) automatic annual adjustments based on Federal General
Schedule salary changes; or
2) periodic reviews of costs and fees.
The last EPA review of its costs for processing these petitions
was made in 1984. All adjustments to raw agricultural tolerance
fees since then have been based on Federal salary increases. The
fiscal 1992 fee, reflecting a 4.2 percent increase in Federal
salaries, went into effect on September 4, 1992. According to
the program office, fees have been increased by 27 percent since
1986 based on annual adjustments tied to Federal salary
increases. As discussed above, however, even with these
adjustments, fees collected only cover a portion of the cost of
processing raw agricultural tolerance petitions.
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Reviews Of Fees Required Bv The CFO Act Were Not Performed
The CFO Act requires the Environmental Protection Agency's
(Agency) Chief Financial Officer to review., orr a biennial basis-,
charges imposed for services and things of value the Agency
provides to the public. It also requires the Chief Financial
Officer to make recommendations on revising charges to reflect
costs incurred in providing those services and things of value.
In addition to the raw agricultural tolerance fee, EPA also
collects other fees such as the Pre-Manufacture Notice fee and
the Motor Vehicle and Engine Program fee. Between November 15,
1990 when the CFO Act was passed, and the end of our audit
fieldwork, April 7, 1993, EPA had not performed any of the CFO
Act required reviews of fees. By performing the reviews, the
Agency could potentially identify other fees which could be
increased, resulting in additional revenues for the Agency.
In EPA's August 31, 1992, Financial Management Status Report and
Five-Year Plan to OMB, EPA's Chief Financial Officer stated that
a low priority had been assigned to the required biennial reviews
of user fees "due to resource shortages and the need to meet more
pressing CFO [Chief Financial Officer] requirements." Although
an Agency-wide CFO User Fees Workgroup was established in October
1992, it was disbanded in January 1993 pending direction from the
new administration. As of April 7, 1993, the workgroup was still
inactive. We believe that, given the substantial shortfall
between raw agricultural tolerance fees collected and the cost of
the program, it is essential that reviews of user fees such as
these be given a higher priority. Agency-wide workgroups such as
the one which had been established for user fees, provide an
opportunity to conduct these required reviews even during periods
of resource shortages.
Tolerance Fees Need To Be Increased To Cover EPA's Costs
EPA has historically used its base appropriation to supplement
raw agricultural tolerance activities rather than take steps to
make the fund self-supporting. According to program office
staff, after the fees were revised in 1986, OPP made a conscious
decision to consider only increases in personnel compensation and
benefit costs when tolerance fees were revised, even though the
Federal Food, Drug and Cosmetic Act states that fees collected
must be sufficient to provide, equip, and maintain an adequate
service for establishing pesticide tolerances. Given the
shortfall between fees being collected of about $1.2 million and
processing and administrative costs of about $3.5 million, it is
imperative that EPA conduct a comprehensive review of total raw
agricultural petition costs with a view toward determining how
much these fees should be raised. The work performed in
estimating "total" tolerance program costs (of which raw
agricultural tolerance costs are a major portion), during the
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preparation of the fiscal 1992 financial statements, could
provide a good starting point for this review.
Raising fees charged to- process raw agricultural ^ol^rance
petitions could result in appropriated funds currently budgeted
to fund this activity, being budgeted for other OPP activities.
One such activity is the pesticide reregistration program. OPP
has stated that one of the reasons the program will not meet its
Congressionally imposed deadline for reregistering pesticide
products is the lack of sufficient resources.
RECOMMENDATIONS
We recommend that the Chief Financial Officer:
1. In coordination with the Director, Office of Pesticide
Programs, conduct a comprehensive review of the costs associated
with processing raw agricultural tolerance petitions to determine
how much fees should be raised, and take the necessary steps to
make appropriate changes in the fees charged.
2. Conduct the reguired biennial review of other Agency user
fees, and institute the necessary policies and procedures to
ensure that these reviews will be conducted in a timely manner in
the future.
AGENCY COMMENTS AND PIG EVALUATION
The Acting Chief Financial Officer, in her response to our draft
report, agreed to take the corrective actions contained in
Recommendation 1. She caveated her response however, by stating
that the cost study performed may not result in increased fees.
Given the enormity of the shortfall between fees collected and
the cost of processing petitions, we believe a review of EPA's
costs for processing raw agricultural tolerance petitions will
result in an increase in fees charged. The Chief Financial
Officer in her response also expressed a concern that this
finding did not clearly differentiate between raw agricultural
commodity tolerances and other types of tolerances processed by
EPA. She stated that this distinction is important because the
Federal Food, Drug, and Cosmetic Act only provides for collecting
fees for the establishment of raw agricultural tolerances. We
have revised the finding to more clearly distinguish this fact.
The Acting Chief Financial Officer generally agreed with
Recommendation 2. She stated that policies and procedures would
be established to ensure that these reviews are conducted;
however, she requested that our draft report be revised to
include more information on other Agency fees. We have added
this additional information to the report.
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This report is intended for the information of Congress, OMB, and
EPA management. This restriction is not intended to limit the
distribution of this report, which is a matter of public record.
enneth A. Konz
Assistant Inspector General for Audit
U.S. Environmental Protection Agency
April 7, 1993
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APPENDIX I
AGENCY COMMENTS
\mj
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JOI2I 833
OmCEOF
AOUNISTRATKM
AND RESOURCES
UANAOEJJEMT
MEMORANDUM
SUBJECT:
FROM:
TO:
Draft Audi
Financial s
Fund
Report E1EPL2-
ent Audit of the
Sallyanne
Acting Assistant Administrator (PM-208)
Kenneth Konz
Assistant Inspector General for Audit (A-109)
As the Deputy Chief Financial Officer, I appreciate the
opportunity to comment on the draft report of the Agency's first
FZFRA and Tolerance funds financial statement audit performed in
accordance with the Chief Financial Officers' (CFO) Act.
Attached is the Agency's consolidated response to the
recommendations. He generally concur with the report findings
and many of the recommendations and, where appropriate, have
provided our corrective action plans with target dates for
completion. However, we have several editorial and factual
concerns which are identified in our response.
Also, in several instances we need additional information to
fully address the intent of the recommendation. We have
requested clarification from your staff and will provide
corrective action plans, if appropriate, when we respond to the
final report.
If you have any questions regarding our response, please
contact JacX Shipley, Acting Director of the Financial Management
Division at 260-5097.
Attachment
PnrtleO on Rrcyclea f>*Dt'
125
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APPENDIX I
cc: General Counsel, Office of General Counsel (LE-130)
Comptroller (PH-225)
Director, Office of Acquisition Management (PM-214F)
Director, Office of Administration and Resources
Management, Cincinnati, OH
Director, Office of Administration and Resources
Management, RTF, NC (MD-20)
Director, Office of Information Resources
Management (PM-211)
Director, Office of Pesticide Programs (H-7501C)
Director, Budget Division (PM-225)
Director, Contracts Management Division, RTP, NC (MD-33)
Director, Facilities Management and Services
Division (PM-215)
Director, Financial Management Division (PM-226F)
Director, National Contracts Payment Division,
RTP, NC (MD-32)
Director, National Data Processing Division, RTP, NC (MD-34)
Director, Program Management and Support Division (H-7502C)
Director, Quality Assurance Staff (PM-215)
Chief, Policy and Special Projects Staff (H-7501C)
Chief, Security and Property Management Branch (PM-215)
Agency Follovup Official (H-3304)
Audit Follow-up Coordinator ATTN: Program Operations Support
Staff (PM-208)
Carolyn Levine, Audit Liaison for the Office of
Administration and Resources Management (PM-208)
Joyce Hay, Audit Liaison for the Office of Prevention,
Pesticides and Toxic Substances (TS-788)
Regional Comptrollers I-X
Regional Financial Management Officers I-X
Financial Management Division Branch Chiefs
126
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APPENDIX I
be: Ron Bachand
Kan Wetzal
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APPENDIX I
Attachment Page 1
RESPONSE TO RECOMMENDATIONS
DRAFT AUDIT REPORT E1EFL2-20-7001
FISCAL 1992 FINANCIAL STATEMENT AUDIT
OF THE FIFRA AND TOLERANCE FUNDS
The following represents the Office of Administration and
Resources Management (OARM) and the Office of Prevention,
Pesticides, and Toxic Substances (OPPTS) consolidated response to
recommendations in the draft audit report of Fiscal 1992
Financial Statement Audit of the FIFRA and Tolerance Funds. He
have grouped our comments and responses to the recommendations as
they appear in the report.
RECOMMENDATIONS /OARM RESPONSE
— Auditors' Report on Internal Controls
l.o Fiadiagi Tae auditors were unable to reader AB opinion OB
the flTILK. and Tolerance Fund financial statements because
material unsupported adjustments were Bade fee the general
ledger.
General
We believe the wording for this finding is overstated and
consequently misleading. As indicated in page* ii and iii of the
report, there were other reasons for the disclaimer of opinion of
the financial statements besides the auditors' questioning the
adequacy of documentation provided to support several adjusting
entries made to the general ledger. We believe the wording for
this finding should be revised to read as follows: Adjusting
entries were made to the general ledger without sufficient
documentation.
We would also like to point out that the report states that
the 1988 amendments to FIFRA "require EPA to complete, over a
nine-year period (by 1997), the reregistration review of each
pesticide product...". This stateaent is stronger than the
actual legislative language. The statutory goal is to complete
reregistration eligibility document (RED) decisions by 1997 with
product reregistration decisions following each RED by
approximately 14 months. Various time extensions in the
legislation could extend the RED time-frames several years beyond
1997 in special cases.
1.3. Recommend that tbe caief Financial Officer direct the
Comptroller to emphasise tbe need to adequately support all
transactions and documeat supervisory approval of
transactions. Perform, as a part of tbe annual Federal
Managers' Financial Integrity Act process, alternative
BAnagemeat control reviews to determine if transactions are
being properly documented.
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APPENDIX I
Attachment Page 2
We agree with this recommendation and nave met with our
accountants to reeaphasize the need for adaquata documentation
and having »up«rviaory approval of accounting transactions.
Sinca thia araa will ba raviavad aa part of tha n 93 Financial
Statement audit, va baliava that an altarnativa management
control raviav (AMCR) vould duplicata tha work by tha auditors.
Bovavar, va vill focua attention in thia araa aa part of our on-
going quality assurance reviews.
1.1 Correct kaova errors la aeeouatiag traasaetioa codes aad the
automated jeax-aad eloaiag tables.
Ve agree with the intent of this recommendation. We have e
three phaaa approach for addressing this recoaaendation. Tor the
FY 93 closing process, we will correct errors in the year-end
tables. For corrections related to posting the cumulative
accounts of current year activities to current year net accounts,
we will refer these iteas to tha Federal Financial Syatea (FFS)
User Group for action. Ha believe that this course of action is
the aost cost effective since other Federal usera are having the
saae problea.
For corrections involving the standard general ledger
requireaents, we will delay correcting thea at thia tiae. This
delay is ths result of the Government-vide Standard General
Ledger Committee's (SGLC) revising the general ledger
requireaenta. The Committee will be aaXing their recommendations
in August, 1994. However, no date has been aet for the
publication of the new general ledger requireaents. Ne will
revise our transaction code structure to coaply with the new SGLC
requirements and iaaue procedures for the proper posting of the
entries.
Cerraetiva Action; Target Date
- Revise year-end closing tables Sept. 30, 1993
- Request assistance froa the FFS User Sept. 30, 1993
Group on posting requireaents
- Revise transaction code structure to Dec. 31, 1994
comply with new SGLC requireaents and
iasue procedures for proper posting
1.3 lasure periodic reconciliations are performed of the FXFBA
aad Teleraaee Fuad geaeral ledger balaaees aad program
offioe records.
We will complete reconciliations of prior year balances with
the prograa offices.
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APPENDIX I
Attachment Page 3
Corrective Action; Target Data
- Meet with prograa offices to discus* July 30, 1993
FIFRA and Tolerance Fund reconciliation*
- Complete the reconciliation of FIFRA and Sept. 30, 1993
Tolerance Funds records with prograa offices
1.4 Reeoaaead that FJ£D complete reeeaeiliatieas of the rirSA aad
Toleraaee ruad Tear-lad Prepaid adjustaeats Accounts.
We agree with this recommendation. We have substantially
completed the reconciliation for FY 1992. Me plan to complete
all reconciliations and make the necessary adjusting entries by
September 30, 1993.
Corrective Action; Target Date
- Reconcile FY 1993 cash accounts on a Sept. 30, 1993
monthly basis
- Identify remaining unbalanced items in Sept. 30, 1993
prepaid account for FYs 1992 and 1991
and make appropriate adjusting entries
- Analyze the status of the prepaid account Sept. 30, 1993
for FYs 1990 and 1989 and make appropriate
adjusting entries
2.0 Findings rxr&A year-ead aoeouats payable aad
liability adjustaeats were aater ially misstated and
supportiag docuaeatatioffi.
2.1 Keooaaead that the Director, riaaaoial Xaaageaeat Division
prepare aa audit adjustaeat to correct the year-end
adjustiag ea tries la the aeeouats payable aad %oeraed
liability aooouata. also easure that the reversal of tbe
origiaal adjustiag eatry is eorreeted so that the fiscal
1*93 figures will aot be materially aiestate«.
We agree with this recommendation. We aade the adjusting
entries in February 1993 and the final financial statements will
reflect these entries. The reversal of these entries has also
been completed.
2.2 Beooaaead that the Dir ester, yiaaaeial Xaaageaeat Division
work with the Director, Matioaal Contract Payment Division
to evaluate the process used to eoaplete year-end adjusting
eatries for aeoouats payable aad accrued liabilities and
revise it to aore accurately estimate the eatries. Coasider
reviewiag payaeats aade over several prior years to develop
a aore accurate methodology.
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APPENDIX I
Attachment Page 4
We agree with this recommendation. We have identified
potential changes to our methodology which we will be discussing
with the QIC staff.
Corrective Action; Target Date
- Meet with OIC staff on changes to July 15, 1993
the methodology
- Implement changes to the methodology Sept. 30, 1993
3.0 Finding: Property purchased with FXFBA fund was not properly
capitalised.
3.1 Recommend that the Chief Financial Officer direct the
Personal Property Quality Action Team to revise the Agency's
capitalisation policy to include more detailed instructions
for determining which Agency assets should be capitalised.
Specifically, the policy should contain guidance eat
o defining all object class codes which contain items which
could be capitalised;
o identifying component parts including a listing of
standard items which qualify as components;
o capitalising split-funded purchases and purchases of group
assets, and;
o identifying and accounting for leasehold improvements.
We agree in principle with the intent of the recommendations
but disagree with the suggested specific actions. The Personal
Property Quality Action Team was formed to examine the problems
the Agency has with accounting for personal property and to
propose potential options for solving these problems. The QAT
was not chartered to develop detailed accounting policies and
procedures for personal property. The mission of the QAT is to
review EPA's current policies, procedures, and systems for
tracking and accounting for personal property. The QAT is to
develop options and recommendations that will result: in improved
reconciliations between IFMS and PPAS; improved methods for
capturing cost for additions and improvements; and accounting for
contractor held property. We suggest that any specific
recommendations be withheld until after the QAT has issued its
report. This would be consistent with the auditor's position in
the FY 92 Financial Statement Audit of Superfund, LOST, and
Asbestos Loan Program.
3.2 Direct the Director, Financial Management Division to
provide training to program office personnel on the proper
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APPENDIX I
Attachment Page 5
assignment of object class oodes oa obligating docTjmeats.
He agree with this recommendation. The Financial Management
Division will be seating with Office of Pesticide Programs (OPP)
to determine the type and duration of the training needed. In
the interim, OPF will issue a memorandum to the staff instructing
them to take more care in assigning object class codes.
Corrective Action; Target Date
- Identify training requirements for OPP Sept. 30, 1993
- Conduct training Dee. 31, 1993
4.0 Fiadiagi The Office of Pesticide Programs did act perform a
complete review of unliquidated obligatieas.
4.1 Seeommead that the Director, Office of Pesticide Programs
require each division director to complete tae aaaual review
of unliquidated obligatieas aad provide la a timely m&aaer
the results of the review to the appropriate finance office
so that iavalid obligatioas eaa be deobligated.
We agree with this recommendation. All OPP divisions are
scheduled to complete the review of 1993 unliquidated obligations
by July 30, 1993. OPPTS Senior Budget Officer's staff is
reviewing and coordinating this effort to ensure that the review
is accurate and complete. As of June 11, 1993, OPP has reviewed
$11.5 million in unliquidated obligations. OPP has identified
$11.4 million as being still valid obligations while $64.1
thousand has been submitted for deobligation.
Corrective Action; Target Date
- Complete unliquidated obligation review July 30, 1993
for FY 1993
3.0 Finding* Improvements axe aeeded la controls over property
located la the Office of Pesticide Programs
5.1 Recommend that the Director, Office of Pesticide Program
ensure that internal controls axe la place and followed to
safeguard aad aeoouat for property, including, performing uuraal
iaventories aad reconciling the results with PP&m*.
He agree with this recommendation. After consultation with
the DIG staff, we believe the correct number of OPP custodial
areas is 8. Further, the first paragraph on page 34 discusses a
custodial area with 402 items. This area contains the most items
of any area in EPA. Of the 202 items unaccounted for in the July
1992 inventory, 192 have been found. The remaining 10 are on a
survey list. The proper documentation has been prepared for the
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APPENDIX I
Attachment Page 6
37 items transferred out of the area. The six items referred to
in the second paragraph have been found and returned to OPP and
the proper documentation (six month passes) have been prepared
where required. One of our divisions is in the process of
conducting a physical inventory of all ADP equipment within the
division and a Personal Property Custody Card (EPA 1740-21) is
being prepared for each item. When the inventory is completed,
we will compare it with the Agency PPAS inventory and resolve any
discrepancies.
He will provide specific target dates in the final report.
5.2 Recommend that the Director, Office of Pesticide Program
schedule all custodial officers and alternates for refresher
training.
We agree with this recommendation. We will contact FMSD to
determine the type of training available for custodial officers
and will provide a specific target date in the final report for
the training.
5.3 Recommend that the Director, Office of Pesticide Program
establish internal control procedures to help ensure that
accountable property delivered directly to the end user is
reported to the property accountable officer for inclusion In
PPAS.
See response to recommendation 5.4.
5.4 Recommend that the Director, Office of Pesticide Program
perform an alternative management control review of property
controls as part of the Office's annual Pederal Managers'
Financial Integrity Act process.
We agree with the recommendation 5.3 and 5.4. OPP
management places a high priority on property control and
accountability and believe management involvement will improve
the current system. After conducting the alternative management
control review, we will modify our internal controls procedures
to improve them, as appropriate.
Corrective Action! Target Date
- Conduct review of property (will be Sept. 30, 1995
added to the FHTIA 1994-1995 Management
Control Plan)
on Compliance with Lavs and Regulation^
c.o rinding! Tolerance fees collected did not cover EPA's costs.
Nc agree with the auditors' recommendations that a cost
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APPENDIX I
Attachment Pag* 7
study be conducted. However, we have major concern! vitfa the
wording of the recommendation and the description of the issue
used as the premise for the recommendation. Specifically, ve do
not agree with the finding that "Tolerance fees collected did not
cover EPA*s costs".
The audit report language does not differentiate between
various tolerance program activities (raw agricultural commodity
tolerances, food additive tolerances, tolerance revocations,
inerts, etc) and the legal, programmatic, and practical aspects
of fees for each. For example, Congress has only authorized the
collection of fees for the establishment of tolerances for raw
agricultural commodities under Section 408 of the Federal Food,
Drug, and Cosmetic Act (FFDCA). Congress, however, has not
authorized the collection of fees for food additive tolerances
under Section 409 of FFDCA. He, therefore, do not collect for
food additive tolerances.
The statement on page 40 of the audit report that "Section
408(o) ... authorizes the promulgation of regulations to require
the payment of fees ... for establishing pesticide tolerances" is
misleading. The actual statutory language states "... for the
performance of ... functions under this section." This language
refers only to Section 408. We also do not charge fees for
tolerance revocations because it would be impractical to charge &
company to revoke its tolerance. We also have a waiver/refund
policy for various situations such as minor use pesticide
tolerances submitted under the IR-4 program and economic
hardship.
Fees have increased since 1986, based on annual adjustments
to Federal salary increases. In fact, the fees have increased by
over 27%. The report states that "personnel compensation and
benefit costs of OFF associated with processing the petitions
totaled about $3.0 millon." The report is not clear how this
number was calculated or if it is referring to all tolerance
program costs or just the costs of processing Section 408
tolerances.
The major OFF activity in processing a petition is the
scientific review. Our internal Time Accounting Information
System (TAIS) captures such information and in 1992 approximately
20.88 FTEs were reported for Section 408 tolerance work. The
20.88 FTEs in 1992 is equal to approximately $1.3 Billion in
Salaries and Expense (StE) costs which compares favorably to the
$1.4 Billon in fees collected in 1992. OPP overhead for such
things as clerical, management, and administrative support, along
with nondirect cost such as leave and training, would need to be
reviewed and added to develop a total cost, if appropriate.
The statement on page 41 of the report that "OPP Bade a
conscious decision to cover only personnel compensation and
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APPENDIX I
Attachment Page 8
benefit costs with tolerances fees collected..." is not accurate.
When the new fee structure was developed in 1986, both salary and
expenses costs were used to develop the fees.
On page 41, the statements that "Raising fees charged to
process tolerance petitions could permit appropriated funds
currently used to fund this activity to be channeled to other
activities. One such activity is the pesticide reregistration
program ..." are inaccurate. OPP's appropriated budget,
specifically the Registration, Special Registration and
Tolerances Program Element is currently offset by fee
collections/earnings. Increased fees would not translate into
increased appropriated funds for Section 408 tolerance work or
other activities such as reregistration. Appropriated funds
would be offset by the amount of increased fees. In any case, we
could not use funds appropriated for tolerance work to be used
for reregistration work without Congressional approval.
C.l Beeommend that tbe Chief Financial Officer is coordination
with the Director, Office of Pesticide Programs, conduct a
comprehensive review of tolerance program costs to determine
bow much tolerance fees should be raised, and taJce the
necessary steps to ma&a appropriate changes in the fees
charged.
W« agree with the recommendation with the understanding that
the study may not result in increased fees. He agree that a cost
study should be conducted in accordance with the CFO biennial
review requirement. A number of legal, programmatic, and policy
issues need to be explored in conjunction with the cost study.
The study may or may not show a nead to increase f««s. Further,
we will initiate the cost study within ninety days after the CFO
issues the necessary guidance.
Corrective Action; Target Date
- Develop methodology for conducting review Oct. 31, 1993
- Complete review and submit to CFO Jan. 31, 1994
C.2 Recommend that tbe Chief Financial Officer conduct the
required biennial reviev of other Agency user fees, mad
institute the necessary policies and procedures to ensure
that these reviews will be conducted in a timely manner la
the future.
The draft report should be revised to provide the reader
with data on the other agency user fees that this recommendation
purports to address. However, we agree that we nead to establish
policies and procedures to ensure these reviews are conducted;
our action plan is presented below. We cannot provide specific
target dates for the last few milestones since we must obtain
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APPENDIX I
Attachment Page 9
additional clarification from Office of Management and Budget.
We plan to have specific dates in our final response.
Corrective Action; garget Dftt*
- CFO vill issue guidance to national July 31, 1993
program manager* for the conduct of
biennial reviews for applicable user
fee programs
- Prograa offices vill develop methodology Oct. 30, 1993
in consultation with CFO for conducting
their reviews
- CFO complete reviews of program To be determined
offices' methodology
- Prograa offices conduct review based on To be determined
approved methodology by CFO
- CFO evaluate the results of program To be determined
offices reviewed
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APPENDIX II
GLOSSARY OF ACRONYMS
ADP
Agency
CFO
CFO Act
EPA
FIFRA
FIFRA Fund
FIFRA 88
FMD
FMFIA
FMS
FMSD
FRAB
GAO
HAOB
I FMS
OMB
OPP
OPPTS
PPAS
QAT
Tolerance
Fund
Automatic Data Processing
Environmental Protection Agency
Chief Financial Officer
Chief Financial Officers Act of 1990
Environmental Protection Agency
Federal Insecticide, Fungicide, and Rodenticide
Act
Reregistration and Expedited Processing Fund
- 1988 Amendments to FIFRA
- Financial Management Division
- Federal Managers' Financial Integrity Act
- Financial Management System
- Facilities Management and Services Division
- Financial Reports and Analysis Branch
- U.S. General Accounting Office
- Headquarters Accounting Operations Branch
- Integrated Financial Management System
- U.S. Office of Management and Budget
- Office of Pesticide Programs
- Office of Prevention, Pesticides and Toxic Substances
- Personal Property Accountability System
- Quality Action Team
- Revolving Fund for Certification and Other Services
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138
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APPENDIX III
DISTRIBUTION
General Counsel, Office of General Counsel (LE-130)
Comptroller (PM-225)
Financial Management Officers, Cincinnati and Las Vegas
Director, Office of Acquisition Management (PM-214F)
Director, Office of Administration and Resources Management,
Cincinnati, OH
Director, Office of Administration and Resources Management,
RTF, NC (MD-20)
Director, Office of Information Resources Management (PM-211)
Director, Office of Pesticide Programs (H-7501C)
Director, Budget Division (PM-225)
Director, Contracts Management Division, RTP, NC (MD-33)
Director, Facilities Management and Services
Division (PM-215)
Director, Financial Management Division (PM-226F)
Director, National Contracts Payment Division,
RTP, NC (MD-32)
Director, National Data Processing Division, RTP, NC (MD-34)
Director, Program Management and Support Division (H-7502C)
Director, Quality Assurance Staff (PM-215)
Chief, Financial Compliance and Quality Assurance Staff (PM-226F)
Chief, Financial Reports and Analysis Branch (PM-226F)
Chief, Financial Systems Branch (PM-226F)
Chief, Fiscal Policies and Procedures Branch (PM-226F)
Chief, Headquarters Accounting Operations Branch (PM-226)
Chief, Policy and Special Projects Staff (H-7501C)
Chief, Security and Property Management Branch (PM-215)
Agency Followup Official (H-3304)
Audit Follow-up Coordinator ATTN: Program Operations Support
Staff (PM-208)
Carolyn Levine, Audit Liaison for the Office of Administration
and Resources Management (PM-208)
Joyce Hay, Audit Liaison for the Office of Prevention, Pesticides
and Toxic Substances (TS-788)
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