I    Office of Inspector General
         Report of Audit
FISCAL 1992 FINANCIAL STATEMENT AUDIT
  OF THE PESTICIDES REVOLVING FUNDS
          E1EPL2-20-7001-3100265
               June 30, 1993
                                  4 Printed on Recycled Paper

-------
Inspector General Division
  Conducting the Audit:
Region Covered:
Financial Audit Division
Washington, D.c.

Agencywide
Program Offices Involved:
Office  of  Administration   and
Resources Management
                                     Office of Prevention,  Pesticides
                                     and Toxic Substances

-------
          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. ElEPIj2-20-7p01-3100265
                           /   tj-
FROM:     Kenneth A. Konz;^*^^ ^
          Assistant Inspector General tfor 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.

-------
     We also identified one noncompliance issue.  The Agency has
not complied with the CFO Act requirement 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

-------
                     EXECUTIVE 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.

-------
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 TN RRTKF

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

-------
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

-------
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

-------
                       MATERIAL WEAKNESSES
                  *
During our audit, we noted the following deficiencies in internal
controls in EPA's financial management that we consider to be
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

                                v

-------
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.

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 of Financial Position for
the Fund.

                      REPORTABLE 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 of reliable financial statements.

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

                                vi

-------
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.

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

                               vii

-------
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 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 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 OIG 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
                               van

-------
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.
                                ix

-------
This Page Intentionally Left Blank

-------
                      TABLE OF CONTENTS

EXECUTIVE SUMMARY I	  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

-------
APPENDIXES
     APPENDIX I:   r AGENCY COMMENTS  	125

     APPENDIX II:   GLOSSARY OF ACRONYMS 	137

     APPENDIX III:  DISTRIBUTION  	139

-------
                         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

-------
          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.

-------
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 Laws 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
Managers7 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.

-------
Audit Methodology

We selected statistical and nonstatistical samples from EPA's
detailed accounting records supporting various FIFRA 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
firm's 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 firm's 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

-------
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 statements
          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.

-------
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.

-------
        AUDITORS* REPORT ON FINANCIAL ST;
                  >

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,
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.

-------
Accordingly, the account balances of these funds as of September
30, 1991, have not been audited.

Because of the matters discussed above, the scope of our work was
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

-------
   United States       Office of Administration    March 1993
   Environmental Protection   and Resources Management
   Agency          Washington, DC 20460
SEPA
   Audited Annual
   Statements for
   Fiscal Year  1992
      Superfund
      Leaking Underground Storage Tank (LUST
       Program
      Pesticides Reregistration and Expedited
       Processing Fund (RFRA 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
                 10

-------
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 pan  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


                                           3
                                         11

-------
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 EPA, will be a benchmark from which
improvements in the management and accounting for resources entrusted to EPA can be
measured.
                                                           Carol M. Browner
                                          4
                                         12

-------
  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:
                    EPA Workyears
»  The Clean Air Act
>  The Clean Water Act
>  The Safe Drinking Water Act
1  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
20,000-
16,000
12,000-1
8,000-1
4,000-1
                                                  SupcrAny
                                                   LUST
      1986    1867    1968    1988    1990
                                       1991
                                             1982
                                       5
                                      13

-------
                                              EPA Budgets
                                        Excludes Construction Grants
                         5,000-
                        4,000-1
                        3,000-1
                        2^00-1
                        1,000
                              1986    1967   1968    1969    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  marker  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
                                          6
                                         14

-------
   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) Repon 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.
                                          7
                                         15

-------
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  apnua]  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:
EPA Obligations - FY 92
     Total $7.0 billion
                Non-tond (72%)
                   Fund (28%)
•  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.
Fund Obligations - FY 92
     Total $1.9 billion
                     RFRA(3*)
                         ><3K)
                   LUST (4*)
Fund Workyears • FY 92
 Total approximately 4,000
                      Totaranoa(
-------
The first pan 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.
                                            9
                                           17

-------
Revolving Funds.  A revolving fund is a fund
authorized  by specific provisions  of law to
finance a continuing cycle of operations with
receipts  derived  from   such   operations
available in their entirety for use by the fund.
Two 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 (FIFRA Fund), and
•  the Revolving Fund for  Certification and
   Other Services (Tolerance Fund)

EPA is charged by Congress with  the job of
regulating the use of pesticides and balancing
the risks and benefits posed  by pesticide use.
The  Agency regulates the use of pesticides
through its Office  of Pesticide  Programs
(OPP),  within 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).  FIFRA gives EPA
the authority and responsibility for registering
pesticides  for  specified  uses  and  the
reregistration of existing pesticides that were
registered  prior  to  November   1,  1984.
Pesticide  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 pan 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
                                           18

-------
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 S25 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
                                          19

-------
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 S5.1 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
MBbrwofS
 2,000-
  1,800
  1,200
   800
   400-I
                   settlements for response actions at NPL sites
                   of $1.3 billion.

                   Superfund  program  expenditure- through
                   FY 1992 are approximately seven and a half
                   billion dollars. In EPA's most r:cent 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
Appreprtatttm


NetOuteya
                                       FY90

                                          12
                                          20
                             FY91
                                                                        FY92

-------
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
                                          21

-------
   Superfund Obligations by Activity - FY 92
             Total obligations $ 1.7 biiion
                         (51S)
  OOwr (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 pan of the Superfund budget,
                         the resources  invested  there have a
                         large payoff.   See Measures 6-9 and
                         the   summary   discussion   which
                         follows.
                       Ramovit (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   NFL  nave   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
zooo
i,eoo
1.200-1
          FY90
FY91
                                          14
                                          22

-------
                                      Superfund Disbursements by Activity - FY 92
                                                Total disbursements 41.3 billion
                                                              (42%)
                                       Other (29%)
                                                                           uMiMU (13%)
                                                                  (16%)
Superfund Disbursements by Activity. The
pie chan 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
                                                  EntarOTwnt
             FYW
FYS8
                                          15
                                          23

-------
  Superfund Staff by Location - FY 92
             Total FTC's 3.604
                (75%)
                          HO-AflOthars (18%)
             HO-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
2JOO-
MOO-I
1JOO.I
1.000 •)
 500
     OA  OPPE  OAR   OW  OOC  ORO OARM  OE OSWER
                                        If

                                        24

-------
 Superfund Obligations by Location * FY 92
           Total obByctions $1.7 billion
            Regions (71%)
                             HO-AJI Others (10%)
               HOOSWEP (20%)
Superfund Obligations by Location.  The
pie chair 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
2JXO-
1.000-1
1,200
         FV90
FVtl
FY98
                                         17
                                         25

-------
                                     Superfund Disbursements by Location • FY 92
                                               Total disbursements $ 1.3 billion
                                                  Raotara (64%)
                                                                 HO-AIOthors (12%)
                                                     HO-OSWER (23%)
Superfund Disbursements by Location. The
pie chan 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 will not
   be disbursed in the same fiscal year.
       Superfund Disbursements by Location • Trends
              FYW
                            FYW
FV92
                                          18
                                          26

-------
Program Results
The direct beneficiaries of the Superftind
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 yean, it is
   important  to look  at the  "pipeline"  of
   activities  to  get  an  accurate  sense  of
   progress as is shown  in "An Overview of
   the Cleanup Stages".
        The Remedial Proceas
    An Overview of the Cleanup Stages.
Remedial Investigation (Rl)

An aaaaumam of tna MM* and axiam of eonumnafien
ino tiw aaaooaiad Mun and •""•»«"«"»"'if naki


Feasibility Study (FS)
PW*

«a. teeatattg to IM MM avaaiaaon creana: vauajiy uneanakan
eoneuimmry wen ma Hi
           Selection of Remedy
 S«iM»notman)ma«iaJaaamaiiv*teraMMa. Thianap

              Proposed Plan
 (SsrrtSsi if* nmaoiai aaamauva Buiy to M cnosan tor • SuoMimd
  so* tno •spams wny a ai ma pnfarrae aumaiMa. and •nevs
               lorpuMieeDimvni

         Record of Decision (ROD)

Th» eflealnoen eeeunvnung O» baatgiound Momuinn on tn» u*
   and wienfiing m* eneMn miMo? and new < wm*
           Remedial Design (RD)
     Prapanuien of tKftnieal ettm and spcofieatidna
     lor impMiTwnwg tn* enotan nmMiai «n«mauv»
           Remedial Action (RA)
        ConKfwcuon or etntr wen n*euury to
          rnpterrwnt m« mmMiai M«mauv»
       Operation A Malnttnanet (O&M)
   AoiviiM eonduave at a »•• •n*' a r»»oon«» aaion occur*
  10 antura tnai m* cManuo mtnods a/t *onung prep«ny and
       to anaura aia ranwor eoniinw** ta M anaeav*
                                            19
                                            27

-------
Measure 1.   Number  of sites  on  the
National Priorities List  (NFL)  where
cleanup has started/total number of sites
on the NFL.

Activities which count under this measure
axe  short-term  removal  actions  and  the
remedial   investigation/feasibility   study
which assesses  the nature and extent of
contaminating  at  the  Site  and
analyzes cleanup  alternatives so
that a remedy can be selected.

Results: In FY 1992 cleanup was
started at 35 sites..   Cumulative
performance  to  date  is  1,219
cleanups begun/1,275 sites on the
NPL.

The number of cleanups started
declined in FT 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 i
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 terms, 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

• Removalofdrusu,barrels,tanks,orotherbulkcontainers

• Containment, treatment, disposal, or incineration of
  hazardous materials

• Provision of an alternate water supply

• Fences, warning signs, or other security or site control
  precautions.
                                           20
                                           28

-------
Measure 3.  The number of sites on the
NFL  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 NFL.

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 jaipiynjifjrpy  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
1O9 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 NFL
where  Remedial  Action   has   been
completed  for  at least a significant
portion of the site/the total number of
sites on the NFL.

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 FY1992, 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
NFL  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
                                         29

-------
           NPL Sites with Construction Complete
                     Cumulative sites to data
      200,
      180-1
      120
       40
          8283648586678889900192
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
                                         30

-------
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
NFL/the total amount achieved
in   settlements   and   judicial
actions.

This measure totals the  value "of
cost  recoveries,   penalties  and
damages collected during the fiscal
year compared to the amount of
cost recoveries actually  achieved
(assessed)   in  settlements   and
judicial actions.

There   is   frequently   a  delay
between the date the settlement is
reached (the day cost recovery is
considered to be achieved) and the
date  the  funds   are   collected.
Because  of the time required  to
file the necessary documents with
the courts, delays of three months
and longer are not uncommon.  As
a result, settlements reached in the
         second half of one fiscal year are frequently
         collected in the following year.

         Results:  In FY 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
     818283646586878869909192
         Cost Recoveries • Cumulative
   ie($
1.000V
 800
 600 -I
 400
 200 -I
     8162636466668788699091   92
                                          23
                                          31

-------
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 NFL 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  parry  response  worth  an
estimated   $1.45   billion.     Response
settlements may be broken out as follows:


             PRP Response Settlements
       80618283846586876069908192
  •   Remedial   Design/Remedial  Action
       settlements- $1,301 million
         -   Consent decrees referred to the
            Department  of Justice  -  $819
            million.
         -   unilateral adminL.  jtive orders
            - $482 million
  • Settlements  for  removal  and   site
     evaluation- $150million.
  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
         ToM     ambitious  goals  of 200
                 sites  by the end  of FY
                 1993 and 650 by the year
                 2000.
         RtVRA
                 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
                                         32

-------
party settlements has risen dramatically in
the past few years due to EPA's enhanced
enforcement   authorities   and   an
"enforcement first" policy.

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  NFL 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
                                         33

-------
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.  Traks 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
                                        34

-------
Financial Perspective
                      *
Since 1986, the Treasury managed LUST
Trust Fund has collected S856 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 mttton
                       State Managed (96%)
                                            EPA Managed (4S
             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
       crt
     1001
      60H
      60
      40-1
      20-1
                                                   Obflgrtoni	
                                                   Approprtaflora
                                                   NctOuOays
               FY90
FY91
FY82
                                         27
                                         35

-------
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   JST sites
                where action has been initiate  , remediate
                or clean up the contamination.  jd 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            LUST National Corrective Action Activity
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
200 ,
160
120
                             80-1
 40
    90-1  2   3   4  01-1  2   3    4  82-1  2   3   4
                                        28
                                        36

-------
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 of 29,000 LUST sites.  Total to
date completions is 56,0001 an end of FY
universe of 183,000 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
                                             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
                                   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
                                         37

-------
Pesticides Reregistration and Expedited Processing Fund
(FIFRA Fund)
The Pesticides Reregistration and Expedited
Processing   Fund   (FEFRA   Fund)   is
administered under the Federal Insecticide,
Fungicide,  and Rodenticide Act (FIFRA)
primarily  by  the  Office of  Prevention,
Pesticides and Toxic Substances
Program Description

As  part  of  its  authority  to  regulate
pesticides,   EPA   is   responsible   for
reregistering  existing  pesticides.    The
FIFRA legislation, requiring the registration
of pesticide products, was originally passed
in  1947.     Since  then,  health  and
environmental standards have become more
stringent and scientific analysis  techniques
are much more precise and sophisticated. In
the  1988 amendments to FIFRA (FIFRA'
88),  Congress  mandated  the  accelerated
reregistration of all products registered prior
to November 1, 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 FEFRA 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
                                        38

-------
Phase 4 - EPA Review and Data
Call-Ins (DCIs). - EPA reviews the
studies,   identifies  and  "calls-in"
missing studies by issuing a DCI. A
"DCT 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
                                   39

-------
           Perspective
         RFRA Fund Receipts • FY 92
            Total Receipts $17.1 million
             (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 SI6.3  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 $17.1 million in
                      FY 1992 receipts, approximately 95%
                      was fee collections. Although the fund
                      balance and related investment earnings
                      continued to decrease from FY 1990
                      through FY  1992,  the  fee  receipts
                      increased in FY 1992 after a decline in
                      FY 1991.  Legislation in December
                      1991 changed the FIFRA fee cap which
                      resulted in increased Maintenance Fee
                      collections in FY 1992.   Obligations
                      followed the same trend as fee receipts.
                                         FIFRA Financial Trends
 01$
The   unobligated
balance in  the fund
at the end of FY
1992   was  $8.98
million.  This is a
decrease  of $4.89
40
30
20
10
                                            ObBgMonc
         FY90
FT 91
PY92
                                         32
                                         40

-------
Program Results
Measure 1.  The number of Data-Call-ins
issued.

Results:   The number of Data-Call-ins
(DO*) issued in FY1992 was 97 versus a
targe: of 91.   EPA reviews the studies,
identifies and "calls-in" missing studies by
issuing a DO 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.
reregistered.
The number  of products
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.
                            FIFRA Fund Completions
          200
                                 FYflO
                                    FY91
FY82
                                        33
                                        41

-------
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 pan 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
                                         42

-------
Financial Perspective
                                     Tolerance Fund Financial Trends
                         MMmeft
                            5-,
                            4-
                            3-
                            2-1
                            1-1
                                                                         FundBalano*
                                                                        Feaflacalpa
                                    FY90
FY«1
PY92
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
                                         43

-------
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 for section 408
raw agricultural  commodities and section
409 food additives was 62 compared to a
target  of 50.     This  represents final
determinations by the Agency concerning
permanent tolerance  petition requests for
allowable levels of pesticide residues on raw
agricultural   commodities  and  in food
additives.    This  is  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-
Tolerance Completions
                           60-
                           40-
                           20-1
                                    FY90
           FY91
FY92
                                        36
                                        44

-------
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  Designees)   are
responsible for collecting, reviewing, and
submitting applications  to  EPA.    Third,
EPA receives and reviews all applications,
and  makes  offers of financial assistance
available on the  basis  of  the  applicant's
asbestos hazard and demonstrated financial
need.  The reauthorized statute mandates
that awards of financial  assistance must be
made by April 30 of each year for which
Congress appropriates funding for the loan
and grant program.

In making its award decisions, the ASHAA
legislation instructs EPA to generate its own
national  priority   list   from applications
received.    A  ranking  method  is  then
employed  to sort all  proposed abatement
projects into categories depending on certain
characteristics  of  the  asbestos-containing
building materials (ACBM).  Only projects
with friable ACBM and some degree of
damage   are  considered   for  financial
assistance.  If the project has  damaged
friable material, the ranking method  next
establishes four 'categories  based on  the
degree  of damage to  the ACBM,   and
whether the material is exposed or located in
an air plenum.  The four categories are:
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

                                          45

-------
           award    amount,    and    the   loan/grant
           composition  of the award.   In accordance
           with  the statute,   monies  are  not  made
           available  to  any   applicant   which  has
           sufficient resources available to support an
           asbestos  abatement program.    Financial
           indicators used 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
TOTAL
APPLICANTS
LEA»
Seta*
flmjMs

196S
1107
5095
6548

1986
371
1211
2389

1987 -I'
292
1030
1967

1987-2
340
1015
1769

1988*
328
986
1722

1989
1110
2383
4125

1990
863
1856
3352

1991
406
991
1611

1992
362
712
1211
COM
            $535 JU
                       $211.6 U
           $162.5 U
          $177.9 U
          $170.3 M
          (367.7 U
                                                                              $403.011
                                                      $2305 U
                                                     $198.7 U
TOTAL QUALIFIED
APPLICATIONS"
LEAi
Piqwu
Com
               5(7
               1632
               2647
            $186.6 M
  241
  644
  1247

193.6 U
   136
   406
   774

$41.4 U
  201
  489
  820

$94.7 M
  185
  441
  721

$79.0 U
                                                                      662
                                                                      1361
                                                                      2093

                                                                   $1212 M
                                                                   633
                                                                   1300
                                                                   2065

                                                                $2612U
                                                                   246
                                                                   557
                                                                   887

                                                                $134.6 U
                                                                   209
                                                                   389
                                                                   616

                                                                $126.1 U
70TA1AWAHDEES

LEAs
PlGJMS
PubfcAtmtf
LoanAwitri
 198
 340
 417

$45 U
  173
  295
  421

$4711
   133
   366
   663

$34 JU
 35
 56
 66

$8U
                                                            103
                                                            187
                                                            226

                                                          $2UU
                                                                       231
                                                                       327
                                                                       401

                                                                     $45 M
                                                          129
                                                          168
                                                          206

                                                       $43.4 U
                                                         123
                                                         201
                                                         272

                                                      $46JU
$39JU(88%)
$5.2 U (12%)
$33 JU (74%)
$11JU(26%)
$41.4 U (88%)
$5JU (12%)
$34JU(73%)
$12.7 U (27%)
$29.1 U (85%)
$5.2 U (15%)
$24.6 U (72%)
$9.7 U (28%)
$7.4 U (93%)
$0.6 U (07%)
$4JU(54%)
$3.7 U (46%)
$19JU (68%)
$2JU (12%)
$15.4 U (66%)
$7.2U(32%)
$40JU(90%)
$4.4 U (10%)
$25.4 U (56%)
$19.6 U (44%)
$35 JU (82%)
$7JU (18%)
$29 JU (69%)
$13.6 U (31%)
$2UU(63%)
$17.1 U (37%)
$33JU(72%)
$I2JU (28%)
              4.7 U
                         3J5U
                       2.5 M
                        0.5 U
                       2.0 U
                       4.0 U
                                                        128
                                                        198
                                                        261

                                                      $543 U
                                                     TOTAL
                                                        12!
                                                        213
                                                        293

                                                     $346.11
                       MM
                                                                                           2.4 U
                                                                                                     $47JU(87%)  $290JI
                                                                                                     $6JU (13%)  IS5.6I

                                                                                                     $397 U (73%)  $240.2*
                                                                                                     $14JU (27%)  $105.91
                                            3.1 U
 ' Unfunart upfcaiicns tarn 1906 wtr» tf» enfr prepas eawdwtd tor 1987.1 »«wdi. Unfunded MCtattara ton 1987-2iNr»ltwenl|rpro
 ~ ACM • liiaW*. damtgrt. cipostd (or in in w ptonum). »nd r«ll*a« tfx»» vpkuu dtwiwM to b* 'quattetf' altof EPA's Metrical ratww.
                                                                                    i eonadMid tar 1988 mwd*.
                                                           38
                                                           46

-------
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
       50-,
                    Asbestos Fund Awards • FY 92
                         Total awards $54.5 million

                         Loan* (73%)
                                           Grants (27%)
             over FY 1991  awards.   Of the  FY  1992
             awards, 73%  were loans and 27%  were
             grants.
       30
       20
       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.
                                                    Lome
                                                     Grants
                                                     lout
                                   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.
                FT 00
FY91
PY«2
                                         39
                                         47

-------
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
a significant amount of
exposure  to  asbestos
fibers   in   school
buildings.

EPA's   performance
measures   for   the
ASHAA   program
include two measures:
                            ASHAA Projects Awarded
                            Two rounds of awards in 1987
               800-
               600 -I
               4OH
               200 -I
                   1988   t980   1907  1
1990  1991   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
                  * nan
                   1986   1988  1987   1988   1989   1990   1991   1992
                                       40

                                       48

-------
MESSAGE FROM TELE 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 (FIFRA 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 pan  of these statements. In addition, there are
combining 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
                                         49

-------
                                                ,
position and the results of onin^^ *  "*  H* *""* ab°Ut EPA'S fuunci»1
noted, these finance amnS^^Sl* *"* ^  ^ ""= Adminisoaor has
an, effectively aUocate3"   ^     "* '""'"*' enSU™8 *« °»r
                                                      ^
          move ^ard our goa,
                                                            R. Holmfes
                                   42

                                   50

-------
Principal Financial Statements
                Contents

                Financial Statements
                   Consolidated Statement of Financial Position
                   Consolidated Statement of Cash Flows
                   Statement of Operations and Changes in Net Position
                   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
                                   51

-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Combined Statement of Financial Position
As of September 3Ofi  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-Fedaral                                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.

-------
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.
                                53

-------
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

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
Net Appropriations
Borrowing from  the Treasury
Net Cash Provided (Used) by Financing Activities

Net Cash Provided (Used) - Total
Fund Balances .with Treasury, Beginning
Fund Balances with Treasury, Ending
 $   36,426
 (1,130,071)
   (45,917)
   (14,385)
   (30,627)
  (324,353)
   157,652
       711
     1,092
       602
 (1,385,296)
 (1,348,870)
     6,638
     1.150

     7,788
    80,500
 1,348,952

      (196)
   (57.728)
 1,371,528
     1.318
 1.372.846

    31,764
    73.606
$  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)


Budaet

Actual
Obliaations
Program Name
Superfund
LUST
FIFRA
Tolerance Fund
Asbestos Loan Program
Totals
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
Reimbursed
$ 10,156
-
17,071
1,104
.
$ 28.331
Expenses
$ 1,432,145
69,391
47,500
4,732
17.871
$ 1.571.639
Budget Reconciliation:

   Total Expenses

   Add:
      Capital Acquisitions
      Other Expended Budget Authority

   Less:
      Depreciation and Amortization
      Unfunded Annual Leave Expense
      Interest Expense
      Bad Debt Expense

   Accrued Expenditures

   Less Reimbursements

   Accrued Expenditures, Direct
      Financial Statement Adjustment, not on SF-133
      Overhead Expenses from Allocation, not on SF-133
      Unreconciled Difference

   Accrued Expenditures, Direct - per SF-133
$ 1,571,639


     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.
                                55

-------
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
                     56

-------
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  arid 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.

-------
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)
                     58

-------
      Superfund                                     $ 17,586
      LUST                                              238
      Asbestos                                           902
      FIFRA                                           22,811
      Tolerance                                         3.532
      Total                                          $ 45.069

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.
                       59

-------
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
                     60

-------
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 nave 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.
                     61

-------
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   Suomrfund  LUST  Asbestos  FIFRA
      PRP receivable* (including   *8O,92O   »80,920
          I of $6,681)
      Allowance on PRP receivable*   (5,926)    (5,926)

      State cost share receivable*   47,368    47,317    51

      Other receivable*         	44   	4    _;       12     22

                        • 122.406   122.316    51,       iS     22
                      62

-------
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.
                     63

-------
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
                     64

-------
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   $115,419     115,419
     arrangements

     Site cleanup costs   133,142     133,142

     Other              12.521     	:   8.917      3.604

                     $261.082     248.561   8.917      3.604


  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.
                     65

-------
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.
                    66

-------
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.
                   67

-------
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:
                   «n

            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     S 3.822      $   -

      Total               $ 105.370    $ 95.932    $ 9.438
                    68

-------
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.
                     69

-------
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   $
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.
                      70

-------
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   Suoerfund     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.
                    Beginning     New                  Ending
                     Balance    Borrowings   Repayments   Balance

 Asbestos Loan Program    $ ;      $ 1.318       $ ;      $ 1.318
                    71

-------
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     Suoerfund     LUST     A«be«to«    FIFRA
Appropriated/
Subsidy Capital  $7,436,966  $7,154,509   $234,551     $47,906      $  -
Invested Capital    16,752     16,094        84          -      574
Cumulative Result*
of Operations    (4,507,637)  (4,488,797)   (148,712)    125,532     4,340
Future funding
requirements - non-
actuarial         (10.7231    (10.723)   	:     	;     	;
Total Net
Position       $2.935.358  $2.671.083   $ 85.923    $173.438    $4.914
                      72

-------
73

-------
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.
                    74

-------
   LUST      Asbestos     FIFRA     Tolerance
 $ 4,558        $ 53   $ 14,261     $ 1,200
     536            -        198
     554            -      2,049
      49           1         68
   2,253       1,133      6,108
      53                    193
     227            -        505
  60,832      15,775      1,378

      55      	-       (243)      	-
$ 69.117    $ 16.962   $  24.517     $ 1.200
  ^^^^•M^^^B      ^^^^^K^i^^—   ^^^^B-^—£_^^^^_       ^^^Eaaaaa
                                  75

-------
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              2            z           2
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
                     76

-------
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 ^classifications, and other non-operating increases
and decreases.

                     Total    Suoerfund   LUST    Asbestos FIFRA
$642,483
8.384
650,867
91.266
$512,852
7.128
519,980
13.908
$75,000
75,000
69.154
                                                    $54,631    $  -
                                                      1.256     _;
                                                     55,887

                                                      8.008   196
                                          $5.846     $47.879  $(196)
Increases:
Transfers-in
Other Increases
Total Increases

Total Decreases

Net Non-Operating
Changes            $559.601   $506.072

Note 13.  Subsequent Events:
During October 1992,  the  Agency received a 19% equity interest in the
reorganized Uniroyai Technology Company, consisting of 1.9 million shares
of stock, valued at approximately  $6.9 million. This settlement transaction
was accepied 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 Uniroyai Technology Company was not accrued as of
September 30,  1992.  The  settlement of this receivable will be recorded as
a fiscal year 1993 transaction.

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.
                    77

-------
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
$ 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
 Liabilities

 Accounts Payable, Non-Federal
 Accounts Payable, Federal
 Accrued Payroll and Benefits
 Deferred Revenue, Non-Federal
 Deferred Revenue - Federal
    105,349
    126,947
      7,065
    261,082
     14,929
 Amounts Held by Treasury for Future Appropriations (Note 1)  1,917,506
 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
      1,318
     19,704
     10.723

  2,464,623
      4,914
  2,767,729
    173,438
    (10.723)

  2.935.358
  5.399.981
   102,212
   126,733
      6,464
   248,561
     14,929
  1,344,292
     10.723
  1,853,914
  2,681,806

    (10.723)

  2.671.083
$ 4.524.997
  The notes to the Combined financial statements are an integral part of these statements.
                                        78

-------
  LUST            Asbestos             FIFRA           Tolerance
Trust Fund        Commercial Activity      Revolving Fund        Revolving Fund

$   6,471          $  29,877            $    65             3,757
                                       15,243
                     19,400
      51                 12                28
                    125,520
  80,722
                     19,704


     247                  -                15
      84                  -              574
 573.214            	-            	-             	:


 660.789            194.513            15.925             3.757
    1,503                53             1,428               153
        5                  -               209
      144                  -               457
                                        8,917             3,604

 573,214
                      1,318
                     19,704
  574,866            21,075            11.011             3,757
                                        4,914
   85,923                  -
                    173,438
   85.923           173.438             4.914              	=
$ 660.789         $ 194.513          $ 15.925            $ 3.757
                                 79

-------
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)

Net Position, Ending Balance
                                          Combined
                                           Balances
$ 1,496,485
    25,890
      5,310
    45,069
   220,685
   (192.647)

  1,600,792
  1,520,378
       711
      5,472
     45,069
  	a

  1,571,639
$ 2,338,239
     37,518
    559.601

$ 2.935.358
                 Super-fund
                 Trust Fund
$ 1,408,040

      4,514
     17,586
   200,596
   (184.639)

  1,446,097
  1,408,582
       520
      5,455
     17,586
  	g

  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

s 2.671.083
 The notes to the Combined financial statements are an integral part of these statements.
                                 30

-------
    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
                                        4.483
  80,077              111,142             627
                       14,417           4,483
   5.846               47.879             (196)

$ 85.923            $ 173.438        $  4.914           $
                               31

-------
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
                                                     Balances      Trust Fund
Cash Flows from Operating Activities:

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 Rows from Financing Activities:

Appropriations (Current Warrants)
Transfers of Cash from Others
Deduct:
  Withdrawals
  Transfers of Cash to Others

Net Appropriations
Borrowing from the Treasury
Net Cash Provided (Used) by Financing Activities

Net Cash Provided (Used) - Total
Fund Balances with Treasury, Beginning
Fund Balances with Treasury, Ending
                                                   §   36,426   $  17,526
                                                   (1,130,071)  (1,041,626)
                                                      (45,917)     (45,595)
                                                      (14,385)
                                                      (30,627)
                                                     (324,353)
                                                      157,652
                                                          711
                                                        1,092
                                                          602
  (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
                                                       80,500
                                                    1,348,952

                                                         (196)
                                                      (57.728)
    1,316
1,295,639
  (49.720)
                                                    1,371,528   1,245,919
                                                        1.318  	:_
                                                    1.372.846   1.245.919
                                                       31,764
                                                       73.606
   12,355
   52.845
                                                   s  105.370   $  65.200

The notes to the combined financial statements are an integral part of these statements.
                                   82

-------
 LUST
Trust Fund
   Asbestos
Commercial Activity

      $ 14,417
   FIFRA
Revolving Fund

    $  4,483
 Tolerance
Revolving Fund
(69,153)
(290)
-
(223)
2,279
(153)
19
17
(67,504)
(67,504)

(47)
(19,292)
(5)
(14,385)
-
53
- •
-
2.466
(31,163)
(16,746)

-
.
(27)
-
(16,799)
183
(17,584)
172
(162)
(34,217)
(29,734)
6,638
(119)
.
_
.
_
.
(6)
-

(6)
(6)

.
       (47)
                          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
        (196)


        (196)

        (196)

     (23,411)
     23.476
          (6)
      3.763
     $3.757
                                   83

-------
This Page Intentionally Left Blank
                84

-------
                    )RT 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 7, 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


                                85

-------
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.

For 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.
                                86

-------
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.
                                87

-------
3.  PROPERTY PURCHASED WITH FIFRA FUNDS WAS NOT PROPERLY
CAPITALIZED        ,

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 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.

                                88

-------
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 FIFRA 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. Konz  .
Assistant Inspector General for Audit
U.S. Environmental Protection Agency
April 7, 1993
                                89

-------
This Page Intentionally Left Blank
                90

-------
                                                     ATTACHMENT 1
                                                     Page 1 of 19
                    MATERIAL WEAKNESSES
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.

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
                                91

-------
                                                     ATTACHMENT 1
                                                     Page 2 of 19

the general ledger at fiscal year-end so that EPA's cash account
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.

                                92

-------
                                                     ATTACHMENT 1
                                                     Page 3 of 19

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

                                93

-------
                                                     ATTACHMENT 1
                                                     Page,4 of 19

assets, or masking errors.  Accordingly, it is essential to
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 taken, have
appropriate supporting documentation attached, and include dated
signatures and titles of both the originator and the supervisory
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 for adjusting entries.

Many of these adjustments were required because Accounting
Transaction Codes used during the year to post transactions to
the general ledger were not tailored to accounting for revolving
funds.  In addition, the Year-End Account Table in IFMS that was
used to close the general ledger contained errors.  As a result,
budgetary and proprietary accounts were not correct and had to be
manually adjusted, increasing the potential for errors.  Problems
with incorrect accounting transaction codes and year-end closing
tables had existed for a number of years, and had required
adjustments being made to the general ledger during the closing
process.  However, no attempt had been 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 Fund, and by $56.9 and $44.6

                                94

-------
                                                     ATTACHMENT 1
                                                     Page 5 of 19

million in the FIFRA Fund.  When we asked about these 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
"reconciled" 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 adjustments.

To evaluate whether the Deferred Revenue Account was accurate
after these undocumented adjustments were made, we compared the
general ledger fund balance with the fund balance maintained by
OPP.  OPP is the source of information on what has been "earned"
and what has been "transferred" 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 $29,409 less than
the program office balance of $3,751,477.  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.
                                95

-------
                                                     ATTACHMENT 1
                                                     Page. 6 of 19

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.
                                96

-------
                                                     ATTACHMENT 1
                                                     Page 7 of 19
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.
                                97

-------
                                      ATTACHMENT 1
                                      Page .8 of 19
This Page Intentionally Left Blank
                98

-------
                                                     ATTACHMENT 1
                                                     Page 9 of 19

2.  SOME FIFRA YEAR-END ACCOUNTS PAYABLE MID 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.

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

                                99

-------
                                                     ATTACHMENT 1
                                                    Page 10 of 19

appropriation.  We reviewed payments made subsequent to the end
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 bv 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
liabilities.  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.
                               100

-------
                                                     ATTACHMENT 1
                                                    Page 11 of 19
AGENCY COMMENTS AND PIG 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.
                               101

-------
                                      ATTACHMENT 1
                                     Page 12 of 19
This Page Intentionally Left Blank
                102

-------
                                                     ATTACHMENT 1
                                                    Page 13 of 19

3. PROPERTY PURCHASED WITH FIFRA FUNDS WAS NOT PROPERLY
CAPITALIZED

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
i%ems 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

                               103

-------
                                                     ATTACHMENT 1
                                                    Page 14 of 19

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.

                               104

-------
                                                     ATTACHMENT 1
                                                    Page 15 of 19
Leasehold Improvements
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".
                               105

-------
                                                     ATTACHMENT 1
                                                    Page 16 of 19
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 $5,000)."  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
ADP equipment and software were not capitalized because they did
not individually cost more than $5,000.  A listing of funds spent
on ADP related equipment provided by the Office of Pesticide
Programs showed that from the inception of the FIFRA Fund in
fiscal 1989 through August 14, 1992, ADP related property
purchased with FIFRA funds totaled approximately $4.8 million.
Total FIFRA property- capitalized in the same period was only
$918,300.  To include large purchases such as these in the
financial statements as expenses in the year they are acquired,
materially distorts those and subsequent statements.

Incorrect Assignment of Object Class Codes Contributed to
Capitalization Problems

In some instances, items eligible for capitalization were not
capitalized because object class codes were not accurately
assigned.  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

                               106

-------
                                                     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 $118,00.0, 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 Agency's 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 FIFRA 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 in PPAS was
only $425,450, or a difference in value of $43,126.

In March 1993, the Personal Property Quality Action Team (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 and 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 issues 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.
                               107

-------
                                                     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 nay 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. ,
                               108

-------
                                                     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.
                               109

-------
This Page Intentionally Left Blank
                110

-------
                                                      ATTACHMENT 2
                                                       Page 1 of 6
                    REPORTABLE CONDITIONS
 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.

 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
ajf ound.

 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.


                                Ill

-------
                                                     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.
                               112

-------
                                                     ATTACHMENT 2
                                                      Page 3 of 6

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 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

                               113

-------
                                                     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.
                               114

-------
                                                     ATTACHMENT 2
                                                      Page 5 of 6

Supervisory responsibility at all levels requires the
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

                               115

-------
                                                     ATTACHMENT 2
                                                      Page 6 of 6

responsive.  We have revised Recommendation 1 to clarify the
actions that we believe the Office should take to ensure that
adequate controls are in place to safeguard and account for
property.
                               116

-------
                                                     ATTACHMENT 3
                                                      Page 1 of 2
Fiscal Year 1991 - Report On Financial Audit - Hazardous
substance Superfund (Audit Report Number PlSSFl-n-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 Superfund (Audit Report Number PlSFFO=ll-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
                               117

-------
                                                     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
                                118

-------
          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

                               119

-------
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,  (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 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'8 COSTS

Fees collected for processing raw agricultural commodity
tolerance petitions .voider 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,

                               120

-------
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 EPA's costs for processing these
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.
                               121

-------
Reviews Of Fees Required Bv The CFO Act Were Not Performed
                   f                                       '
The CFO Act requires the Environmental Protection Agency's
(Agency) Chief Financial Officer to review, on 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


                               122

-------
preparation of the fiscal 1992 financial statements, could
provide a good starting point for this review.

Raising fees charged to process raw agricultural tolerance
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 required 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.
                               123

-------
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
                               124

-------
                                                             APPENDIX  I
                AGENCY COMMENTS
J»'«"'«>J,
               UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                           WASHWQTON, O.C.  20460
                                          MIS 893
                                                            OFFCEOF
                                                          ADMINISTRATION
                                                          AND RESOURCES
                                                           MANAGEMENT
 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
  FIFRA 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.  We 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.  He 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 Jack Shipley, Acting Director of the Financial Management
  Division  at 260-5097.

  Attachment
                                                          Printed on Recycled Pane •
                             125

-------
                                                              APPENDIX I
cc:  General Counsel, office of General Counsel  (LE-130)
     Comptroller  (PM-225)
     Director, Office of Acquisition Management  (PM-214F)
     Director, Office of Administration and Resources
       Management, Cincinnati, OH
     Director, Office of Administration and Resources
       Management, RTP, 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  (KD-33)
     Director, Facilities Management and Services
       Division  (PM-21S)
     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 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)
     Regional Comptrollers I-X
     Regional Financial Management Officers I-X
     Financial Management Division Branch Chiefs
                           126

-------
                                                          APPENDIX I
be:   Ron Bachand
     Ken Wetzel
                            127

-------
                                                               APPENDIX  I
                                            Attachment      Page l

                   RESPONSE TO RECOMMENDATIONS
                DRAFT AUDIT REPORT E1EPL2-20-7001
              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.  We
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  rinding: The auditors war* unable to reader aa opinion on
     the rxrut and Tolerance Fund financial statements because
     material unsupported adjustments were made to the general
     ledger.

General CQc
     We believe the wording for this finding is overstated and
consequently misleading.  As indicated in pages 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...1*.  This statement 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.

i.l  Recommend that the Chief Financial officer direct the
     Comptroller to emphasiie the need to adequately support all
     transactions and document supervisory approval of
     transactions.  Perform, as a part of the annual federal
     managers' Financial Integrity Act process, alternative
     management control reviews to determine if transactions are
     being .properly documented.
                              128

-------
                                                               APPENDIX  I
                                            Attachment     Pag*  2

     He agree with this recommendation and bav« Bat with our
accountants to reeaphasize the need for adequate docuaantation
and having *upervi*ory approval of accounting transaction*.
Sinca this araa will be reviewed as part of th« FY 93  Financial
Statamant audit, wa baliava that an altarnativa aanageaent
control review (AMCR) vould duplicata tha vork by tha  auditors.
Hovavar, v* will focus attantion in this araa as part  of  our on-
going quality assuranc* raviavs.

1.2  Corraet kaova arrors la aeeouatiag traaaaetioa eodas aad tha
     autoaatad yeajr-ead elosiag tablaa.

     Ha agraa with tha intent of this racoaaandation.  Ha hava a
thraa phaaa approach for addrasaing this racoaaandation.  For tha
FY 93 cloaing procass, v* will corract arrors in tha year-end
tablas.  For corractions ralatad to posting tha cumulative
accounts of currant yaar activitias to currant yaar not accounts,
we will rafar thasa itaas to tha Fadaral Financial Systaa (FFS)
Oaar Group for action.  Ha baliava that this coursa of action is
tha aost cost affactiva sinca othar Fadaral usars ara having tha
saaa problaa.

     For eorractions involving tha standard ganaral ladgar
requirements, va will dalay correcting thaa at this tiae.  This
dalay is tha result of the Government-vide Standard General
Ledger Committee'a (SGLC) revising the general ledger
requirement*.  The Coaaittee vill be aaking their recommendation*
in August, 1994.  However, no data has been set for the
publication of the new general ledger requireaents.  He will
revise our transaction code structure to comply with the new SGLC
requireaents and iaau* procedures for tha proper posting of the
entries.

Corrective ActIBB;                                Target Date

- Revise year-end cloaing tablas                 Sept. 30, 1993

- Request aasistanca froa the FFS User           Sept. 30, 1993
  Group on posting requiraaents

- Reviae transaction code structure to           Dec.  31, 1994
  comply with new SGLC requireaents and
  iasue procedures for proper posting

1.3  insure periodic reconciliations are perforaed of tha FXFUk
     aad Toleraaee Fuad general ledger belaaeee aad prograa
     offiee record*.

     He will complete reconciliation* of prior year balance* with
the prograa offices.
                            129

-------
                                                              APPENDIX  I
                                            Attachment      Page  3

Corrective Action!                    • •           Target Date

- Meet with program offices to discuss           July 30,  1993
  FIFRA and Tolerance Fund reconciliations

- Complete the reconciliation of FIFRA and       Sept. 30,  1993
  Tolerance Funds records with program offices

1.4  Recommend that FMD complete reconciliations of the rXTRA and
     Toleraaee ruad Year-Bad Prepaid Adjustments Accounts.

     We agree with this recommendation.   We have substantially
completed the reconciliation for FY 1992.  We 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  rinding: rXFRA year-end accounts payable and accrued
     liability adjustments were materially misstated aad lacked
     supporting documentation.

2.1  Recommend that the Director, Financial Management Division
     prepare aa audit adjustment to correct the year-end
     adjusting entries in the aoeeunts payable and accrued
     liability accounts.  Also ensure that the reversal of  the
     origiaal adjusting entry is corrected so that the fiscal
     19*3 figures will not be materially misstated.

     We agree with this recommendation.   We made 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  Reoommend that the Director, Financial management Division
     work with the Director, national Contract Payment Division
     to evaluate the process used to complete year-end adjusting
     entries for accounts payable and accrued liabilities and
     revise it to more accurately estimate the entries,  consider
     reviewing payments made over several prior years to develop
     a more accurate methodology.
                             130

-------
                                                               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:                                Tarqret Date

- Meet with OIG staff on changes to              July  is,  1993
  the methodology

- Implement changes to the methodology           Sept. 30,  1993

3.0  rinding: 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 oni

     o defining all object class cedes 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 IFNS 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,  LUST, and
Asbestos Loan Program.

3.2  Direct the Director, Financial Management Division to
     provide training to program office personnel on the proper
                              131

-------
                                                              APPENDIX  I
                                            Attachment      Page 5

     assignment of object class codes en obligating documents.

     We agree with this recommendation.  The Financial Management
Division will be meeting with Office of Pesticide Programs  (OPP)
to determine the type and duration of the training needed.   In
the interim, OPP 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                               Dec. 31, 1993

4.0  rinding: The Office of Pesticide Programs did mot perform a
     complete review of unliquidated obligations.

4.1  Recommend that the Director, Office of Pesticide Programs
     require each division director to complete the annual  review
     of unliquidated obligations and provide in a timely manner
     the results of the review to the appropriate finance office
     eo that invalid obligations can 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

5.0  Findings Improvements are needed in controls ever property
     located in the Office of Pesticide Programs

5.1  Recommend that the Director, office of Pesticide Program
ensure that internal controls are in place and followed to
safeguard and account for property, including, performing annual
inventories and reconciling the results with PPAfl.

     We agree with this recommendation.  After consultation with
the QIC 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
                             132

-------
                                                                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 AOP 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.

     we will provide specific target dates in the final report.

3.2  Recommend that the Director, Office of Pesticide Program
schedule all custodial offieers 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.

3.3  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** annual Federal 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 FKFIA 1994-1995 Management
  control Plan)

—  Auditors' Report on Compliance with Laws and Regulations

c.o  findingt Tolerance fees collected did not cover EPA's costs.

     We agree with the auditors' recommendations that a cost
                              133

-------
                                                               APPENDIX I
                                             Attachment     Page 7

study b« conducted.  However, we have major  concerns with the
wording of the recommendation and the description  of the  issue
used as the premise for the recommendation.  Specifically,  we  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.  We, 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 a
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 OPP associated with processing the petitions
totaled about $3.0 Billon."  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 OPP 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  million  in
Salaries and Expense  (SJ.E) costs which compares  favorably  to the
$1.4 millon 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  made a
conscious decision to cover only personnel compensation and
                              134

-------
                                                               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.I  Recommend that the Chief  financial Officer ia coordination
     vita the Director, Office of Pesticide  Programs,  ooaduot a
     comprehensive review of tolerance program costs to determine
     how much tolerance fees should be raised, and take the
     necessary steps to make appropriate  changes  in  the fees
     charged.

     He 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 need to increase  fees.  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

«.2  Recommend that the Chief  Financial officer conduct the
     required biennial review  of other Agency user fees,  and
     institute the necessary policies aad procedures to ensure
     that these reviews will be conducted in a timely manner  ia
     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 need to establish
policies and procedures to ensure these reviews are conducted;
our action.plan is presented below.  He cannot provide specific
target dates for the last few  milestones since we must obtain
                              135

-------
                                                              APPENDIX  I
                                            Attachment     Page 9

additional clarification from Offica of. Management and Budget.
We plan to have specific dates in our final response.

Corrective Action;                                Target Date

- CFO will issue guidance to national           July 31,  1993
  program managers for the conduct of
  biennial reviews for applicable user
  fee programs

- Program offices will develop methodology       Oct. 30,  1993
  in consultation with CFO for conducting
  their reviews

- CFO complete reviews of program                To be determined
  offices' methodology

- Program offices conduct review based on        To be determined
  approved methodology by CFO

- CFO evaluate the results of program            To be determined
  offices reviewed
                              136

-------
                                                      APPENDIX II
                   GLOSSARY OF ACRONYMS
ADP
Agency
CFO
CFO Act
EPA
FIFRA

FIFRA Fund
FIFRA 88
FMD
FMFIA
FMS
FMSD
FRAB
GAO
HAOB
IFMS
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 Managers7 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
                               137

-------
This Page Intentionally Left Blank
                138

-------
                                                     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,
  RTP, 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)
                               139

-------
This Page Intentionally Left Blank
                140

-------