Office °f Inspector General
Report of Audit
*•
FISCAL 1993 FINANCIAL STATEMENT AUDIT
OF THE PESTICIDES REVOLVING FUNDS,
AND THE OIL SPILL TRUST FUND
E1AML3-20-7001-4100230
March 31, 1994
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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
Office of Solid Waste and
Emergency Response
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 3 I 1994
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Fiscal 1993 Financial Statement Audit of the Pesticides
Revolving Funds and the Oil Spill Trust Fund
Audit Report No. ElAML3-20-700fl-4100230
FROM: Kenneth A.
Assistant Inspector General /for Audit (2421)
TO: Jonathan Z. Cannon
Chief Financial Officer (3101)
Lynn R. Goldman, M.D.
Assistant Administrator for Prevention,
Pesticides and Toxic Substances (7101)
Elliott P. Laws
Assistant Administrator for Solid Waste
and Emergency Response (5101)
Attached is our audit report on the fiscal 1993 financial
statements for three of EPA's trust and revolving funds - the
Reregistration and Expedited Processing Fund (FIFRA Fund) , the
Revolving Fund for Certification and Other Services (Tolerance
Fund) , and the Oil Spill Trust Fund. The audit was performed in
accordance with the requirements of the Chief Financial Officers
(CFO) Act. The objectives of the audit 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 significant financial
reporting improvements. As a result of these improvements and
additional audit work we performed, we are issuing a qualified
opinion on the Statement of Financial Position for the FIFRA Fund
as of September 30, 1993. Although we noted improvements in the
financial reporting for the FIFRA Fund, as a result of additional
audit work we performed related to the Tolerance Fund, we
identified weaknesses in controls in the Office of Pesticide's
fee tracking system. These weaknesses resulted in material
errors in the records used to support the deferred revenue amount
shown on the Tolerance Fund Statement of Financial Position.
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Therefore, we are unable to determine if the Statement of
Financial Position for the fund as of September 30, 1993 is
fairly presented. The Statement of Financial Position amounts
for the FIFRA and Tolerance Funds as of September 30, 1992, which
we could not audit last year, enter into the determination of
results for the Statements of Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expenses for fiscal
1993. Therefore, we are continuing to disclaim opinions on these
financial statements. For the Oil Spill Trust Fund, we are
issuing unqualified opinions on the fiscal 1993 Statements of
Financial Position and Cash Flows. We are qualifying our
opinions on the Statements of Operations and Changes in Net
Position and Budget and Actual Expenses for the year, only
because we did not audit the overhead expenses allocated from
other appropriations.
We also identified one noncompliance issue which was also
discussed in our audit report on the fiscal 1992 financial
statements. The Agency has not complied with the CFO Act
requirement to perform biennial reviews of user fees. We believe
the Agency needs to place a higher priority on completing these
reviews since such reviews might identify user fees EPA could
increase — thereby providing additional revenues for the
Agency's use in performing its mission.
In accordance with EPA Order 2750, you are required to
provide this office a written response to the audit report within
90 days of the final audit report date. Since the
recommendations are addressed to two offices we are designating
the Chief Financial Officer as the primary action official. As
such, the primary action official should take the lead in
coordinating the Agency's official response so that the 90 day
timeframe is met. The Assistant Administrator for Prevention,
Pesticides and Toxic Substances, as the secondary action
official, should coordinate with the primary action official.
For corrective actions planned but not completed by the response
date, reference to specific milestone dates will assist us in
closing the report. During our upcoming audit of the fiscal 1994
financial statements, we will work with your staff to assist them
in implementing corrective actions to improve the accuracy and
timeliness of EPA's financial information.
This report contains findings that describe problems the
Office of Inspector General (OIG) identified and corrective
actions the OIG recommends. This report represents the opinion
of the OIG. Final determinations on matters in this report will
be made by EPA managers in accordance with established EPA audit
resolution procedures. Accordingly, the findings described in
this report do not necessarily represent the final EPA position.
We have no objection to the further release of this report to the
public.
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Should you or your staff have any questions concerning this
report, please contact Melissa Heist, Divisional Inspector
General, Financial Audit Division at 260-1479 or Michael Powers
of her staff at 260-1480.
Attachment
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ECUTTVE SUMMARY
PURPOSE
The Chief Financial Officers Act of 1990 (the 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 CFO Act requires the
Environmental Protection Agency (EPA) and other federal agencies
to prepare annual financial statements. The Act also requires
each Inspector General, or an independent public accounting firm
selected by the Inspector General, to audit these financial
statements. The EPA is required to prepare financial statements
covering only its revolving funds, trust funds and commercial
activities.
To carry out our responsibilities under the CFO Act we audited
the financial statements for EPA's two revolving funds and one of
its trust funds, and we contracted with an independent public
accounting firm for audits of EPA's other two trust funds and its
one commercial activity. This report contains the results of our
audit of EPA's fiscal 1993 financial statements for the following
three funds: the Reregistration and Expedited Processing Fund
(FIFRA Fund), the Revolving Fund for Certification and Other
Services (Tolerance Fund), and the Oil Spill Trust Fund.
Our objective in carrying out this audit was to express an
opinion on whether the financial statements for these three funds
are fairly presented. We also determined whether EPA had in
place internal controls to ensure that:
• transactions are properly recorded and accounted for to
permit the preparation of reliable financial statements and
to maintain accountability over assets;
• transactions, including those related to obligations and
costs, are executed in compliance with applicable laws and
regulations; and
• funds, property, and other assets are safeguarded against
loss from unauthorized use or disposition.
In addition, we determined whether EPA had complied with laws and
regulations that would either materially affect the financial
statements, or that the Office of Management and Budget (OMB) or
we considered to be significant.
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BACKGROUND
FIFRA and Tolerance Funds
The FIFRA Fund was authorized in 1988 by amendments to the
Federal Insecticide, Fungicide and Rodenticide Act. The 1988
amendments require EPA to complete, over approximately a nine-
year period, the 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 amendments authorized EPA to
collect two types of fees; a one-time reregistration fee for
each active pesticide ingredient, and an annual registration
maintenance fee to be paid for each registered pesticide 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 allowed 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 (OPP) within the Office of
Prevention, Pesticides and Toxic Substances is responsible for
reregistering pesticide products and establishing tolerances.
Oil spill Trust Fund
The Oil Pollution Act of 1990 was passed in response to the
increasing frequency and severity of oil spills, such as the
Exxon Valdez spill. Under the Act, EPA is responsible for oil
spill prevention, preparedness, response and enforcement
activities associated with non-transportation related facilities.
The Agency is provided funds from the Oil Spill Trust Fund to
finance the costs of these activities. The Office of Emergency
and Remedial Response within the Office of Solid Waste and
Emergency Response has primary responsibility for EPA's
activities relating to the Fund. Fiscal 1993 was the first year
EPA received a separate appropriation to carry out its
responsibilities under the Act. Accordingly, fiscal 1993 was the
first year EPA prepared financial statements covering the Oil
Spill Trust Fund.
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SUMMARY OF INSPECTOR GENERAL'S REPORT ON THE
FINANCIAL STATEMENTS FOR THE FIFRA AND TOLERANCE
REVOLVING FUNDS AND THE OIL SPILL TRUST FUND
OPINIONS OR DISCLAIMERS OF OPINION ON THE FINANCIAL STATEMENTS
FOR THE FIFRA AND TOLERANCE REVOLVING FUNDS MID THE OIL SPILL
TRUST FUND
During fiscal 1993, EPA made significant financial reporting
improvements. As a result, the Agency accelerated preparation of
its financial statements by three months. The fiscal 1993
financial statements were completed during December 1993 versus
March 1993 for the fiscal 1992 financial statements. Further,
last year we had to disclaim opinions on the fiscal 1992
financial statements for the two funds we audited, the FIFRA and
Tolerance Fund.
FIFRA Fund
This year, as a result of Agency improvements and additional
audit work we performed, we are issuing a qualified opinion on
the Statement of Financial Position for the FIFRA Fund as of
September 30, 1993. The Statement of Financial Position amounts
as of September 30, 1992, which we could not audit last year,
enter into the determination of results for the Statements of
Operations and Changes In Net Position, Cash Flows, and Budget
and Actual Expenses for the year ended September 30, 1993.
Therefore, we are continuing to disclaim opinions on these
financial statements.
Tolerance Fund
Although we noted improvements in the financial reporting for the
FIFRA Fund, as a result of additional audit work we performed
related to the Tolerance Fund, we identified weaknesses in
controls in the Office of Pesticide's fee tracking system. These
weaknesses resulted in material errors in the records used to
support the deferred revenue amount shown on the Statement of
Financial Position. The deferred revenue amount represents 87
percent of the liabilities shown in the statement as of
September 30, 1993. In addition, we again found weaknesses in
the supporting documentation for adjusting entries that affect
the Tolerance Fund. As a result of these internal control
weaknesses, which are further described below, we are unable to
determine if the Statement of Financial Position as of
September 30, 1993 is fairly presented. The Statement of
Financial Position amounts as of September 30, 1992, which we
Report No. E1AML3-20-7001-4100230
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could not audit last year, enter into the determination of
results for the Statements of Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expenses for the year
ended September 30, 1993. Therefore, we are continuing to
disclaim opinions on these statements.
Oil Spill Trust Fund
For the Oil Spill Trust Fund, we are issuing unqualified opinions
on the fiscal 1993 Statements of Financial Position and Cash
Flows. We are qualifying our opinions on the Statements of
Operations and Changes in Net Position, and Budget and Actual
Expenses for the year ended September 30, 1993, only because we
did not audit the overhead expenses allocated from other
appropriations. Due to the substantial audit effort involved, we
have decided not to audit this category of expenses until fiscal
1995 when the Agency will begin preparing Agency-wide financial
statements.
EVALUATION OF INTERNAL CONTROLS
MATERIAL WEAKNESSES
As a result of our evaluation of internal controls, we noted the
following weaknesses in internal controls that are material to
the financial statements of the FIFRA and Tolerance Revolving
Funds and the Oil Spill Trust Fund. Applicable guidance
contained in OMB Bulletin 93-06, "Audit Requirements for Federal
Financial Statements," defines a material weakness as a
reportable condition in which the design or operation of specific
internal control procedures does not reduce to a relatively low
level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned
functions.
First, as previously mentioned, we found weaknesses in controls
in the Office of Pesticide Programs' fee tracking system that
resulted in significant errors in the office's tolerance fee
records. For example, we identified fee receipts of $457,700 and
earnings of $9,800 that were recorded twice; earnings of $163,8.00
that were recorded for fees which had been refunded; and fees
totaling $288,100 that were refunded but not recorded in petition
records. Summary information on fees from this system was used
by the Financial Management Division in determining the amount of
deferred revenue to report in the financial statements for the
Tolerance Fund.
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We found improvements had been made in documenting adjusting
entries. We did find, however, material adjustments that were
not adequately described and lacked supporting documentation. As
a result, we could not determine the validity of $150.4 million
of adjusting entries for the FIFRA Fund, and $24.3 million for
the Tolerance Fund. Adequate supporting documentation should
also be maintained to ensure that only legitimate adjustments are
made to the Agency's financial records. We used other means to
validate year-end balances for the FIFRA Fund, but were unable to
obtain sufficient documentation for the Tolerance Fund entries.
This was a contributing factor to our disclaimer of opinion on
the Tolerance Fund financial statements.
As reported in our 1992 audit report, we also found that
procedures used to capitalize property purchased with FIFRA and
other Agency funds did not identify all property which should
have been capitalized. In addition, property that was
capitalized in the Agency's accounting records could not be
uniquely identified in the Agency's property accountability
system. Consequently, when items of property were transferred,
replaced or lost, those changes could not be reflected in the
accounting records. As a result, the property, plant and
equipment balance for the FIFRA Fund stated at $533,000 could not
be audited. The Agency reported this weakness in its fiscal 1993
Federal Managers' Financial Integrity Act (FMFIA) report to the
President.
Finally, we found that the methods used by one finance office to
compute year-end accounts payable and accrued liability
adjustments resulted in a net material misstatement of $799,775
in the fiscal 1993 FIFRA financial statements, and an $816,054
misstatement in the fiscal 1993 Oil Spill Trust Fund financial
statements. Agency financial management personnel have made the
necessary corrections to the Agency's financial statements, but
additional controls are needed to prevent such misstatements in
the future.
In addition to these weaknesses, the Agency, in its fiscal 1993
FMFIA report, included as a material weakness accounting system-
related financial management problems that affect the funds we
audited. EPA reported that while its accounting system meets the
Joint Financial Management Improvement Program core accounting
system requirements, specific systems-related problems impair
EPA's ability to provide complete, reliable and timely data for
Agency decision-making and control of assets. The problems which
would impact the funds we audited include: (1) incomplete user
manuals and system documentation, (2) an inadequate automated
project cost accounting capability, (3) incomplete interfaces
with programmatic and administrative systems, and (4) inadequate
financial management reports.
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REPORTABLE CONDITIONS
We also identified the following reportable conditions during our
audit. OMB Bulletin 93-06 defines a reportable condition as a
weakness in the design or operation of the internal control
structure that could adversely affect EPA's ability to ensure:
(1) obligations and costs are in compliance with applicable laws;
(2) funds, property, and other assets are safeguarded against
unauthorized use or disposition; and (3) transactions are
properly recorded to permit the preparation of reliable financial
statements.
We found the fiscal 1993 year-end FIFRA unliquidated obligation
balance in the general ledger contained invalid obligations.
This occurred because OPP did not conduct a complete and timely
review of some of its unliquidated obligations. In addition, the
Headquarters Procurement Operations Division did not request
deobligation of funds associated with completed delivery orders.
We identified approximately $471,000 of unliquidated obligations
that should be deobligated and made available for other critical
FIFRA program requirements. This is especially important since
Agency management has identified the shortage of funds as one of
the reasons they will not meet the Congressionally imposed
deadline for reregistering pesticides.
In addition, as a result of weaknesses in controls over property,
the Agency is not able to account for all property purchased with
FIFRA funds. We found: (1) employees improperly exchanged
equipment among themselves without notifying their custodial
officers; (2) a complete fiscal 1993 physical inventory was not
conducted; and (3) custodial officers were accountable for too
many items of property. Our 1992 audit report also identified
similar problems regarding controls over property located in OPP.
Based on a physical inventory we conducted of statistically
selected items, we project that 64 FIFRA funded items valued at
$220,384 are missing, and 26 items valued at $88,154 were
improperly transferred to other custodial areas.
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
Our compliance testing disclosed no material instances of
noncompliance. We did identify the following area of
noncompliance with laws and regulations that while not material.
to the financial statements, we are still reporting because it is
a significant issue that should be addressed by EPA's management.
This matter was also discussed in our audit report on the fiscal
1992 financial statements.
We found that during fiscal 1993, EPA did not perform biennial
reviews of user fees required by the CFO Act. The Act requires
that fees imposed by EPA for services and things of value be
Vi Report No. E1AML3-20-7001-4100230
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reviewed, and that the Chief Financial Officer make
recommendations on revising the fees to reflect costs incurred in
providing the services. EPA's Tolerance Petition, Annual
Registration Maintenance, and Pre-Manufacture Notice fees all
required review in 1993. The Agency needs to place a higher
priority on completing these reviews since such reviews might
identify user fees EPA could increase — thereby providing
additional revenues for the Agency's use in performing its
mission. For example, the Agency collected $1.5 million in
Tolerance Petition fees while the Office of Pesticide Programs
estimated that 49 FTEs at a total cost of $3.2 million were used
to process Section 408 tolerance petitions for raw agricultural
products. Performing reviews of user fees is consistent with the
Vice President's Report of the National Performance Review, which
raises concerns that "given the size of the federal deficit,
government must find better, more efficient, and more effective
ways to pay for its activities." To accomplish this, the report
recommends increasing the use of user fees for many activities.
OTHER SIGNIFICANT MATTER
The 1988 amendments to the Federal Insecticide, Fungicide, and
Rodenticide Act mandate the accelerated reregistration of all
pesticide products registered prior to November 1, 1984. The
amendments establish a statutory goal of completing
reregistration eligibility decisions by 1997. In the Agency's
Overview of Trust Funds. Revolving Funds. and Commercial
Activities, included as an appendix to this report, OPP discloses
that additional resources will be needed to meet these deadlines.
According to a recent General Accounting Office report, EPA now
estimates that all pesticides may not be reassessed until 2004,
and all products may not be reregistered until 2006. We have
chosen to report this matter in our report even though it is not
material to the financial statements because of its significance.
RECOMMENDATIONS
To correct the material weaknesses and reportable conditions
described in this report, we are recommending that the
Chief Financial Officer develop or revise procedures for:
(1) documenting adjusting entries, and (2) computing year-end
accounts payable and accrued liability adjusting entries. We are
also recommending that the Chief Financial Officer include
completion of the required unliquidated obligation reviews and
physical inventories as financial management performance measures
on which offices are evaluated. To ensure the required reviews
of fees are performed, we are recommending that the Chief
Financial Officer also include completion of user fee reviews as
a financial management performance measure.
Report No. E1AML3-20-7001-4100230 Vll
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In addition, we are recommending that the Director of the Office
of Pesticide Programs improve internal controls related to the
tracking of tolerance fees by: (1) revising procedures for
recording transactions, (2) reviewing all prior year tolerance
fee and earnings data, (3) reconciling the office's fee records
with records maintained in the Integrated Financial Management
System, and (4) including the fee tracking system in FMFIA
reviews. In addition, we are recommending that the Director of
the Office of Pesticide Programs complete the required reviews of
unliquidated obligations, and notify the appropriate office of
invalid obligations that can be deobligated.
AGENCY COMMENTS AND PIG EVALUATION
In a memorandum dated March 28, 1994, the Chief Financial Officer
responded to our draft report. ,In the response, he generally
concurred with the report findings and many of the
recommendations. He stated that he believed this year's report
reflected well on the efforts of his staff and the OIG's staff in
meeting an accelerated schedule for producing audited financial
statements. He also noted that in many instances his office and
OPP have initiated or completed the corrective actions we
recommended in our draft report. To provide a balanced
understanding of the issues we have summarized the Agency's
position in the appropriate locations throughout the report and
have included the complete response as Appendix II.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY i
PURPOSE i
BACKGROUND ii
SUMMARY OF INSPECTOR GENERAL'S REPORT ON THE
FINANCIAL STATEMENTS FOR THE FIFRA AND TOLERANCE
REVOLVING FUNDS AND THE OIL SPILL TRUST FUND iii
OPINIONS OR DISCLAIMERS OF OPINION ON THE
FINANCIAL STATEMENTS FOR THE FIFRA AND
TOLERANCE REVOLVING FUNDS AND THE OIL SPILL
TRUST FUND iii
EVALUATION OF INTERNAL CONTROLS iv
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS .. vi
OTHER SIGNIFICANT MATTER vii
RECOMMENDATIONS vii
AGENCY COMMENTS AND OIG EVALUATION viii
INTRODUCTION 1
PURPOSE 1
BACKGROUND 2
PRIOR AUDIT COVERAGE 3
INSPECTOR GENERAL'S REPORT ON THE FINANCIAL STATEMENTS
FOR THE FIFRA AND TOLERANCE REVOLVING FUNDS AND THE
OIL SPILL TRUST FUND 5
FINANCIAL STATEMENTS FOR THE FIFRA FUND 5
FINANCIAL STATEMENTS FOR THE TOLERANCE FUND 7
FINANCIAL STATEMENTS FOR THE OIL SPILL TRUST FUND 8
EVALUATION OF INTERNAL CONTROLS 9
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS 13
OTHER SIGNIFICANT MATTER 17
RESPONSIBILITIES AND METHODOLOGY 19
EPA MANAGEMENT AND OIG RESPONSIBILITIES 19
AUDIT METHODOLOGY 19
ATTACHMENT 1 - MATERIAL WEAKNESSES 23
1. WEAKNESSES EXIST IN SYSTEM USED TO TRACK
TOLERANCE FEES 23
2. FURTHER IMPROVEMENTS NEEDED IN DOCUMENTATION
FOR ADJUSTING ENTRIES 29
3. PROPERTY BALANCES INCLUDED IN THE FINANCIAL
STATEMENTS COULD NOT BE AUDITED 33
4. IMPROVEMENTS NEEDED IN ESTIMATING ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES 35
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ATTACHMENT 2 - REPORTABLE CONDITIONS 39
1. UNLIQUIDATED OBLIGATION BALANCE FOR THE FIFRA
FUND CONTAINED INVALID OBLIGATIONS 39
2. PROPERTY ACCOUNTABILITY CONTROLS NEED TO
BE STRENGTHENED 43
APPENDIX I ANNUAL FINANCIAL STATEMENTS FOR FISCAL
YEARS 1993 AND 1992 47
APPENDIX II AGENCY COMMENTS 125
APPENDIX III GLOSSARY OF ACRONYMS 137
APPENDIX IV REPORT DISTRIBUTION 139
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INTRODUCTION
PURPOSE
The Chief Financial Officers Act of 1990 (the 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 CFO Act calls for the
preparation of annual financial statements. The Environmental
Protection Agency (EPA) is required by the Act to prepare
financial statements covering its trust funds, revolving funds
and commercial activities. Fiscal 1993 is the second year for
which EPA prepared financial statements in accordance with the
requirements of the Act.
The Act also requires the Office of the Inspector General, or an
independent public accounting firm selected by the Inspector
General, to audit the financial statements. To carry out our
responsibilities under the CFO Act, we audited the financial
statements for EPA's two revolving funds and one of its trust
funds and contracted with an independent public accounting firm
for audits of EPA's other two trust funds and its one commercial
activity. This report contains the results of our audit of EPA's
fiscal 1993 financial statements for the following three funds:
the Reregistration and Expedited Processing Fund (FIFRA Fund),
the Revolving Fund for Certification and Other Services
(Tolerance Fund), and the Oil Spill Trust Fund.
The 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 are properly recorded and accounted for to
permit the preparation of reliable financial statements
and to maintain accountability over assets;
• transactions, including those related to obligations
and costs, are executed in compliance with applicable
laws and regulations; and
• funds, property, and other assets are safeguarded
against loss from unauthorized use or disposition.
(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 the Office of Management and Budget (OMB)
or our office considered significant to the audit.
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BACKGROUND
FIFRA Fund
The 1988 amendments to the Federal Insecticide, Fungicide and
Rodenticide Act mandate the accelerated reregistration of all
pesticide products registered prior to November 1, 1984.
Specifically, the law requires 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 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 (OPP) within the Office of
Prevention, Pesticides and Toxic Substances is responsible for
reregistering pesticide products and establishing tolerances.
Oil Soill Trust Fund
The Oil Pollution Act of 1990 was passed in response to the
increased frequency and severity of oil spills, such as the Exxon
Valdez spill. Under the Act, EPA is responsible for oil spill
prevention, preparedness, response and enforcement activities
associated with non-transportation related facilities. The
Agency is provided funds from the Oil Spill Trust Fund to finance
the costs of these activities. The Office of Emergency and
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Remedial Response within the Office of Solid Waste and Emergency
Response has primary responsibility for EPA's activities related
to the Fund. Fiscal 1993 was the first year EPA received a
separate appropriation to carry out its responsibilities under
the Oil Pollution Act of 1990. Accordingly, fiscal 1993 was the
first year EPA prepared financial statements covering the Oil
Spill Trust Fund.
PRIOR AUDIT COVERAGE
During previous financial audits, weaknesses that would impact
our audit objectives were reported in the areas of:
EPA's Integrated Financial Management System,
maintenance of documentation to support financial
transactions,
recording of accounts payable and accrued liabilities,
accounting for and controlling property,
performing reviews of unliquidated obligations,
reconciling data as a result of the Integrated Financial
Management System implementation, and
• performing reviews of Agency's fees.
During our audit we identified the need for additional corrective
actions in all of the above areas with the exception of
reconciling data as a result of implementing the Integrated
Financial Management System. With the assistance of auditors
from our contract independent public accounting firm, the Agency
completed this reconciliation during fiscal 1993.
EPA management has developed an action plan and corrective
actions are ongoing in each of the areas listed above. However,
in some cases, target dates contained in the corrective action
plans have been missed indicating that additional emphasis needs
to be placed on making these financial management improvements.
The sections of this report on internal controls and compliance
with laws and regulations provide details on the results of our
audit work in each of these areas.
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INSPECTOR GENERAL'S REPORT ON THE FINANCIAL
STATEMENTS FOR THE FIFRA AND TOLERANCE REVOLVING
FUNDS AND THE OIL SPILL TRUST FUND
The Administrator
U.S. Environmental Protection Agency:
We have audited the principal financial statements of the
Pesticides Reregistration and Expedited Processing Fund (FIFRA
Fund), the Revolving Fund for Certification and Other Services
(Tolerance Fund), and the Oil Spill Trust Fund as of and for the
year ended September 30, 1993. Following, are the results of our
audit work that included assessments of whether (1) the financial
statements are fairly presented, (2) adequate internal controls
related to these funds were in place, and (3) the Agency complied
with applicable laws and regulations.
FINANCIAL STATEMENTS FOR THE FIFRA FUND
In our previous report on the FIFRA Fund financial statements,
dated April 7, 1993, we did not express an opinion on the
Statements of Financial Position, Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expenses for the Fund
as of and for the year ended September 30, 1992 because:
• We were unable to audit the September 30, 1992, property,
plant and equipment balance stated at $574,000 because the
detail maintained in the accounting records was not
sufficient to support the financial statement amounts.
• We did not audit the administrative costs of $22,811,000
that were funded from other EPA appropriations. These costs
are recorded for financial statement purposes as income from
overhead allocation and as offsetting overhead expenses from
allocation. We did not audit these costs because we were
initially told by EPA management that these costs would not
be included in the financial statements, and the decision to
include them was made too late to allow us to audit them.
• We were unable to audit the accounts payable and accrued
liabilities for the Fund because adequate documentation was
not available to support year-end adjusting entries of
$141,223. In addition, we were unable to audit other
adjustments made to the FIFRA Fund totaling $181.3 million
because adequate supporting documentation was not available.
• Prior to October 1, 1991, EPA was not required to prepare
financial statements for the FIFRA Fund. Accordingly, the
Report No. E1AML3-20-7001-4100230 5
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account balances for this Fund had not been audited as of
September 30, 1991.
The Statement of Financial Position amounts as of September 30,
1992, enter into the determination of results of operations and
changes in net position, cash flows, and budget and actual
expenses for the year ended September 30, 1993. Because we were
unable to examine sufficient evidence to determine the
reliability of the Statement of Financial Position for the Fund
as of September 30, 1992, the scope of our audit work was not
sufficient to enable us to express an opinion on the Statements
of Operations and Changes in Net Position, Cash Flows, and Budget
and Actual Expenses for the year ended September 30, 1993.
In addition, we did not audit the administrative costs of
$25,303,000 that were allocated from other EPA appropriations to
the FIFRA Fund for fiscal 1993. These costs are recorded for
financial statement purposes as income from overhead allocation
and as offsetting overhead expenses from allocation. We did not
audit these administrative costs funded from other EPA
appropriations because of the substantial increased audit effort
that would have been required. We plan to audit this category of
costs beginning in fiscal 1995 when the Agency will expand the
coverage of its financial statements to all of its activities.
Adjustments, if any, to these account balances would affect the
Statements of Operations and Changes in Net Position, and Budget
and Actual Expenses for the Fund.
We were unable to audit the FIFRA Fund property, plant and
equipment balance of $533,000 as of September 30, 1993, because
the detailed records on property maintained by the Agency do not
provide adequate support for the financial statement amounts.
Adjustments, if any, to the property, plant and equipment balance
would affect all of the FIFRA Fund Financial Statements for the
year ended September 30, 1993.
In our opinion, except for the effects of any adjustments that
might have been necessary had we been able to audit the property,
plant and equipment balance, the Statement of Financial Position
for the FIFRA Fund as of September 30, 1993, is fairly presented
on the basis of accounting described in Note 1 to the financial
statements. As required by applicable provisions of OMB
Bulletins 93-02 and 94-01, both entitled "Form and Content of
Agency Financial Statements," Note 1 describes the accounting .
policies followed by the Agency to prepare its financial
statements, which is a comprehensive basis of accounting other
than generally accepted accounting principles.
Our audit work related to the information presented in
Management's Overview of EPA and Overview of Trust Fundsr
Revolving Funds and Commercial Activities consisted of applying
certain limited procedures to the section of the overview
6 Report No. E1AML3-20-7001-4100230
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captioned "Pesticides Reregistration and Expedited Processing
Fund (FIFRA Fund)." These procedures consisted primarily of
comparing the information with information contained in EPA's
accounting records and making inquiries of management regarding
the presentation of the overview. We did not audit the
information contained in the overview, and are therefore not
expressing an opinion on it.
FINANCIAL STATEMENTS FOR THE TOLERANCE FUND
In our report on financial statements dated April 7, 1993, we did
not express an opinion on the Statements of Financial Position,
Operations and Changes in Net Position, Cash Flows, and Budget
and Actual Expenses for EPA's Tolerance Fund as of and for the
year ended September 30, 1992. We were unable to express an
opinion on the Tolerance Fund financial statements for the
following reasons:
• We did not audit the administrative costs of $3,532,000 that
were funded from other EPA appropriations. These costs are
recorded for financial statement purposes as income from
overhead allocation and as offsetting overhead expenses from
allocation. We did not audit these costs because we were
initially told by EPA management that these costs would not
be included in the financial statements, and the decision to
include them was made too late to allow us to audit them.
• We were unable to audit $21.2 million in adjustments made to
the Tolerance Fund because adequate supporting documentation
was not available.
• Prior to October 1, 1991, EPA was not required to prepare
financial statements for the Tolerance Fund. Accordingly,
the account balances for this Fund had not been audited as
of September 30, 1991.
The Statement of Financial Position amounts as of September 30,
1992, enter into the determination of results of operations and
changes in net position, cash flows, and budget and actual
expenses for the year ended September 30, 1993. Because we were
unable to examine sufficient evidence to determine the
reliability of the Statement of Financial Position for the Fund
as of September 30, 1992, the scope of our audit work was not •
sufficient to enable us to express an opinion on the Statements
of Operations and Changes in Net Position, Cash Flows, and Budget
and Actual Expenses for the year ended September 30, 1993.
In addition, due to weaknesses in controls in OPP's fee tracking
system, we were unable to audit the deferred revenue amount of
$4,157,000 shown on the Statement of Financial Position for the
Report No. E1AML3-20-7001-4100230 7
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Tolerance Fund as of September 30, 1993. Further, due to a lack
of adequate supporting documentation, we were unable to determine
the validity of $24.3 million of adjusting entries made to the
Tolerance Fund.
Finally, we did not audit the administrative costs of $4.5
million that were allocated from other EPA appropriations to the
Tolerance Fund for fiscal 1993. These costs are recorded for
financial statement purposes as income from overhead allocation
and as offsetting overhead expenses from allocation. We did not
audit these administrative costs funded from other EPA
appropriations because of the substantial increased audit effort
that would have been required. We plan to audit this category of
costs beginning in fiscal 1995 when the Agency will expand the
coverage of its financial statements to all of its activities.
Adjustments, if any, to these account balances would affect the
Statements of Operations and Changes in Net Position, and Budget
and Actual Expenses for the Fund.
Because of the matters discussed above, the scope of our work was
not sufficient to enable us to express an opinion on the
Statements of Financial Position, Operations and Changes in Net
Position, Cash Flows, and Budget and Actual Expense for the
Tolerance Fund as of and for the year ended September 30, 1993.
Our audit work related to the information presented in
Management's Overview of EPA and Overview of Trust Funds.
Revolving Funds and Commercial Activities consisted of applying
certain limited procedures to the section of the overview
captioned "Revolving Fund for Certification and Other Services
(Tolerance Fund)." These procedures consisted primarily of
comparing the information with information contained in EPA's
accounting records and making inquiries of management regarding
the presentation of the overview. We did not audit the
information contained in the overview, and are therefore not
expressing an opinion on it.
FINANCIAL STATEMENTS FOR THE OIL SPILL TRUST FUND
Fiscal 1993 was the first year EPA received a separate
appropriation to carry out its responsibilities under the Oil
Pollution Act of 1990. Accordingly, fiscal 1993 was the first
year EPA prepared financial statements covering the Oil Spill •
Trust Fund.
We did not audit the overhead expenses allocated from other
appropriations to the Oil Spill Trust Fund because of the
substantial audit effort that would have been involved. These
allocated expenses of $755,000 for the year ended September 30,
1993, are shown, on the Statement of Operations and Changes in
8 Report No. E1AML3-20-7001-4100230
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Net Position as Income from Overhead Allocation and Overhead
Expenses from Allocations. We will audit this category of
expenses beginning in fiscal 1995 when Agency-wide financial
statements will be prepared.
In our opinion, except for the effects of any adjustments that
might have been necessary to the Statements of Operations and
Changes in Net Position, and Budget and Actual Expenses had we
audited these account balances, the financial statements for the
Oil Spill Trust Fund fairly present, the Fund's:
• financial position as of September 30, 1993; and
• results of operations and changes in net position,
• cash flows, and
• budget and actual expenses for the year then ended; on the
basis of accounting described in Note 1 to the financial
statements.
As required by applicable provisions of OMB Bulletins 93-02 and
94-01, both entitled "Form and Content of Agency Financial
Statements," Note 1 describes the accounting policies followed by
the Agency to prepare its financial statements, which is a
comprehensive basis of accounting other than generally accepted
accounting principles.
Our audit work related to the information presented in
Management's Overview of EPA and Overview of Trust Funds.
Revolving Funds and Commercial Activities consisted of applying
certain limited procedures to the section of the overview
captioned "Oil Pollution Prevention Program (Oil Spill Trust
Fund)." These procedures consisted primarily of comparing the
information with information contained in EPA's accounting
records and making inquiries of management regarding the
presentation of the overview. We did not audit the information
contained in the overview, and are therefore not expressing an
opinion on it.
EVALUATION OF INTERNAL CONTROLS
As a part of our audit, we evaluated the Agency's internal
control structure: (1) to determine the audit procedures
necessary to express an opinion on the financial statements, and
(2) to determine whether the internal controls designed by
management provide reasonable assurance that the following
objectives are met:
• transactions are properly recorded and accounted for to
permit the preparation of reliable financial statements and
to maintain accountability over assets;
Report No. E1AML3-20-7001-4100230
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• transactions, including those related to obligations and
costs, are executed in compliance with applicable laws and
regulations; and
• funds, property, and other assets are safeguarded against
loss from unauthorized use or disposition.
The audit methodology section of this report provides further
details on the scope of our internal control audit work.
MATERIAL WEAKNESSES
During our evaluation of internal controls, we noted the
following material weaknesses involving the Agency's internal
control structure related to the FIFRA and Tolerance Revolving
Funds and the Oil Spill Trust Fund. Applicable guidance
contained in OMB Bulletin 93-06, "Audit Requirements for Federal
Financial Statements," defines a material weakness as a
reportable condition in which the design or operation of specific
internal control procedures does not reduce to a relatively low
level, the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned
functions.
1. Weaknesses Exist In System Used To Track Tolerance Fees
Weaknesses in controls in OPP's fee tracking system resulted in
significant errors in the office's tolerance fee records. For
example, we found fee receipts of $457,700 and earnings of $9,800
that were recorded twice; earnings of $163,800 that were recorded
for fees which had been refunded; and fees totaling $288,100 that
were refunded but not recorded in petition records. The
Financial Management Division relied on OPP's detailed records on
fees to support summary information on deferred revenue that was
entered into the Agency's Integrated Financial Management System
for the Tolerance Fund. As a result, we could not satisfy
ourselves that the amount of deferred revenue in the Tolerance
Fund Statement of Financial Position as of September 30, 1993 was
accurate. Since deferred revenue represents 87 percent of the
reported liabilities for the Fund, we are unable to express an.
opinion on the statement.
2. Further Improvements Needed In Documentation For Adjusting
Entries
During this year's audit of EPA's financial statements, we found
financial management personnel improved their documentation for
10 Report No. E1AML3-20-7001-4100230
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adjusting entries. We did find, however, that some material
adjustments were not adequately described and lacked supporting
documentation. As a result, we had difficulty understanding the
reasoning behind the entries and tracing the entries into the
accounting records. We tried, but using the available
documentation, could not determine the validity of $150.4 million
of adjusting entries made to the FIFRA Fund, and $24.3 million
made to the Tolerance Fund. We found other ways to validate
year-end account balances for the FIFRA Fund. However,
insufficient documentation for Tolerance Fund entries contributed
to our disclaimer of an opinion on the Tolerance Fund financial
statements.
3. Property Balances Included In The Financial Statements Could
Not Be Audited
The procedures used to capitalize property purchased with FIFRA
and other Agency funds do not identify all property which should
be capitalized. In addition, property that is capitalized in the
accounting records can not be uniquely identified in the Agency's
property accountability system. Consequently, when items of
property are transferred, replaced or lost, those changes can not
be reflected in the accounting records. As a result, the FIFRA
Fund property, plant and equipment balance of $533,000 included
in the fiscal 1993 Statement of Financial Position for the Fund
could not be audited. This condition was also reported during
our fiscal 1992 financial statement audit.
4. improvements Needed In Estimating Accounts Payable And
Accrued Liabilities
The methods the Research Triangle Park (RTF) Financial Management
Center used to compute year-end accounts payable and accrued
liability adjustments resulted in a net material misstatement of
$799,775 in the fiscal 1993 FIFRA Fund financial statements, and
an $816,054 misstatement in the fiscal 1993 Oil Spill Trust Fund
financial statements. The RTP Financial Management Center
overstated its FIFRA Fund accounts payable adjusting entry of
$106,829 by $22,106, and they also overstated their accrued
liability adjustment of $848,177 by $777,669. In addition, the
RTP Financial Management Center understated the Oil Spill Trust
Fund accounts payable adjusting entry of $415,309 by $271,603 and
understated the accrued liability adjustment of $91,051 by
$544,450. Agency financial management personnel made the
necessary corrections to the Agency's financial statements,
however, additional controls are needed to prevent such
misstatements in the future.
Report No. E1AML3-20-7001-4100230 11
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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.
In addition to these weaknesses, the Agency, in its fiscal 1993
FMFIA report, included as a material weakness accounting system-
related financial management problems that affect the funds we
audited. EPA reported that while its Integrated Financial
Management System (IFMS) meets the Joint Financial Management
Improvement Program core accounting system requirements, specific
systems-related problems impair EPA's ability to provide
complete, reliable and timely data for Agency decision-making and
control of assets. The problems which would impact the funds we
audited include: (1) incomplete user manuals and system
documentation, (2) an inadequate automated project cost
accounting capability, (3) incomplete interfaces with
programmatic and administrative systems, and (4) inadequate
financial management reports.
REPORTABLE CONDITIONS
We also identified the following reportable conditions. OMB
Bulletin 93-06 defines a reportable condition as a weakness in
the design or operation of the internal control structure that
could adversely affect EPA's ability to ensure: (1) obligations
and costs are in compliance with applicable laws; (2) funds,
property, and other assets are safeguarded against unauthorized
use or disposition; and (3) transactions are properly recorded to
permit the preparation of reliable financial statements.
1. Unliquidated Obligation Balance For The FIFRA Fund Contained
Invalid Obligations
The fiscal 1993 year-end FIFRA unliquidated obligation balance in
the general ledger contained invalid obligations. This occurred
because OPP did not conduct a complete and timely review of some
of its unliquidated obligations. In addition, the Headquarters
Procurement Operations Division did not request deobligation of
funds associated with completed delivery orders. We identified
approximately $471,000 of unliquidated obligations that should be
deobligated and made available for other critical FIFRA program
requirements. This is especially important since Agency
management has identified the shortage of funds as one of the
reasons they will not meet the Congressionally imposed deadline
for reregistering pesticides.
12 Report No. E1AML3-20-7001-4100230
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2. Property Accountability Controls Need To Be Strengthened
As a result of weaknesses in controls over property, the Agency
is not able to account for all property purchased with FIFRA
funds. We found: (1) employees improperly exchanged equipment
among themselves without notifying their custodial officers;
(2) a complete fiscal 1993 physical inventory was not conducted;
and (3) custodial officers were accountable for too many items of
property. Our 1992 audit report also identified similar problems
regarding controls over property located in OPP. Based on a
physical inventory we conducted of statistically selected items,
we project that 64 FIFRA funded items valued at $220,384 are
missing, and 26 items valued at $88,154 were improperly
transferred to other custodial areas.
Attachment 2 describes each of these reportable conditions in
more detail. We will also be reporting other less significant
matters involving the internal control structure and its
operation in a separate management letter.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control
structure that might be reportable conditions or material
weaknesses. In addition, because of inherent limitations in any
internal control structure, errors or irregularities may
nevertheless occur and not be detected. Also, projection of any
evaluation of the internal control structure to future periods is
subject to the risk that procedures may become inadequate because
of changes in conditions, or the effectiveness of the design and
operation of policies and procedures may deteriorate.
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
As a part of obtaining reasonable assurance about whether the
financial statements were free of material misstatements, we
tested compliance with those laws and regulations that either
materially affect the financial statements, or that OMB or our
office considered significant to the audit.
Our compliance testing did not disclose any material instances of
noncompliance. Also, with respect to items not tested, nothing
came to our attention that caused us to believe that material
noncompliance with such provisions had occurred. However, the
objective of our audit, including our tests of compliance with-
applicable laws and regulations, was not to provide an opinion on
overall compliance with such provisions.
We did identify the following area of noncompliance with laws and
regulations that while not material to the financial statements,
we are still reporting because it is a significant issue that
should be addressed by EPA's management.
Report No. E1AML3-20-7001-4100230 13
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Higher Priority Needs To Be Placed OP Completing Required Reviews
Of User Fees
During fiscal 1993, EPA did not perform biennial reviews of user
fees required by the CFO Act. The CFO Act requires that fees
imposed by EPA for services and things of value be reviewed, and
that the Chief Financial Officer make recommendations on revising
the fees to reflect costs incurred in providing the services.
Since the CFO Act was passed in November 1990, the Agency has not
performed any reviews of fees. EPA's Tolerance Petition, Annual
Registration Maintenance, and Pre-Manufacture Notice fees were
all required to be reviewed in 1993. The Agency needs to place a
higher priority on completing these reviews since the reviews
might identify user fees EPA could increase — thereby providing
additional revenues for the Agency's use in performing its
mission. This is consistent with the Vice President's Report of
the National Performance Review, which raises concerns that
"given the size of the federal deficit, government must find
better, more efficient, and more effective ways to pay for its
activities." To accomplish this, the report recommends
increasing the use of user fees for many activities.
Tolerance Petition Fees
In our report on the Fiscal 1992 Financial Statement Audit of the
Pesticides Revolving Funds (Audit Report No. E1EPL2-20-7001-
3100265), we noted that fees collected for processing raw
agricultural commodity tolerance petitions under Section 408 of
the Federal Food, Drug, and Cosmetic Act, did not cover EPA's
costs of carrying out the activity. We also noted that reviews
required by the CFO Act that would have identified this shortfall
were not performed. For fiscal 1993, we found that the Agency
collected $1.5 million in Tolerance Petition fees while OPP used
49 FTEs at a total cost of $3.2 million to process Section 408
tolerance petitions for raw agricultural commodity products.
Although the Agency waives the fee for processing some tolerance
petitions, the significant shortfall between the cost of
processing the petitions and the fees collected indicates a
review of the fees charged would be worthwhile.
In addition to the CFO Act requirements to review fees, Section
408 of the Federal Food, Drug, and Cosmetic Act, the authority
under which Tolerance Petition fees are collected, also requires
that fees collected will in the aggregate be sufficient to
provide, equip, and maintain an adequate service for establishing
raw agricultural commodity tolerances. One of the reasons
program office personnel gave for not completing the reviews was
that there was no incentive to increase tolerance fees because
they would not be available to the Agency. According to the
program office, tolerance fees have historically been used as an
offset by OMB during the budget process. We recognize that this
is a concern and a disincentive to collecting more fees.
14 Report Mo. E1AML3-20-7001-4100230
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However, we believe that the Agency should work through the
budget process, and even the legislative process, to ensure that
additional fees collected are made available to carry out EPA's
mission.
Agency's Activities To Review Fees
The Acting Chief Financial Officer, in her response to our fiscal
1992 financial statement audit report, agreed to take the
following corrective actions we recommended:
(1) conduct a comprehensive review of tolerance program costs,
and take the necessary steps to make appropriate changes in
the fees charged, and
(2) complete the required biennial review of other Agency user
fees, and institute the necessary policies and procedures to
ensure that these reviews are conducted in a timely manner
in the future.
During fiscal 1993, the Chief Financial Officer sent a memorandum
to the Acting Assistant Administrator for the Office of
Prevention, Pesticides, and Toxic Substances (OPPTS) dated
July 15, 1993. The memorandum asked OPPTS to establish a
methodology for conducting the biennial review of OPPTS user
fees, have the methodology approved by the Chief Financial
Officer, and conduct the review. OPPTS was the only addressee of
the memorandum because the only biennial fee reviews currently
delinquent belonged to them — the Tolerance Petition fee, the
Annual Registration Maintenance fee, and the Pre-Manufacture
Notice Fee.
As of January 31, 1994, the only action OPP had taken in response
to the memorandum was to develop a general study methodology
which they proposed to use to evaluate the adequacy of Tolerance
and Reregistration fees. This proposed methodology was detailed
in a December 15, 1993, memorandum from the Director of OPP to
the Assistant Administrator of OPPTS. However, as of January 31,
1994, a methodology had not been developed to evaluate Pre-
Manufacture Notice fees, and the methodology that had been
developed to evaluate the adequacy of Tolerance and
Reregistration fees had not been reviewed by the Chief Financial
Officer.
If a higher priority is not placed on performing these required
biennial reviews, we believe the Agency will miss opportunities
to identify user fees which could be increased — thereby
providing additional revenues for the Agency's use in performing
its mission.
Report No. E1AHL3-20-7001-4100230 15
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RECOMMENDATION
In addition to the recommendations we made in our fiscal 1992
audit report, we recommend that the Chief Financial Officer
include timely review of user fees as one of the financial
management performance measures used to evaluate program offices
in the future.
AGENCY COMMENTS MID OI6 EVALUATION
In their consolidated response to our draft report, the Chief
Financial Officer and the Assistant Administrator for the Office
of Prevention, Pesticides and Toxic Substances questioned our
statement that increasing fees would provide additional revenues
to the Agency. They stated that not only would the Agency have
to change their budget process, but OMB and Congress would also
have to change their processes to allow the Agency to retain
increased tolerance fees. We agree, and we believe that the
Agency should work with Congress and OMB to ensure that
additional fees collected can be used by the Agency.
The Chief Financial Officer and the Assistant Administrator for
the Office of Prevention, Pesticides and Toxic Substances, also
stated that the draft report did not acknowledge the Agency's
policy of waiving fees for some petitions. We have revised our
report to acknowledge this point.
In response to our recommendation to include the timely review of
user fees as a financial management performance measure, the
Chief Financial Officer agreed to consider the idea. We believe
that since reviews of user fees could generate additional
revenues for the Agency it is important for the Agency to
implement this recommendation.
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 Federal
Managers' Financial Integrity Act (FMFIA) report to our
evaluation of the internal control systems related to the FIFRA
and Tolerance Revolving Funds and the Oil Spill Trust Fund. For
fiscal 1993, EPA continued to report IFMS as a high risk area and
a material weakness. EPA also continued to report as material
nonconformances the need to: (1) enhance the process for
recording property in order to improve the accuracy of the
Agency's accounting records, and (2) implement interfaces between
IFMS and other administrative systems. In addition, the Agency
reported that corrective action had been completed on two
previously reported material nonconformances — (1) the need to
16 Report No. E1AKL3-20-7001-4100230
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record adjustments to the general ledger due to IFMS
implementation during 1989, and (2) the need to perform
comprehensive reconciliations between Treasury reports and IFMS.
In addition to the weaknesses identified by EPA, we identified
three additional weaknesses that affect the funds we audited. We
found that OPP did not have an adequate system to track tolerance
fees. We also found, as we had in our fiscal 1992 audit, that
material adjusting entries for the FIFRA and Tolerance Funds were
not adequately supported, and the methods used to estimate
accounts payable and accrued liabilities for the FIFRA and Oil
Spill Funds resulted in material misstatements of the account
balances for these two funds.
OTHER SIGNIFICANT MAT!
The 1988 amendments to the Federal Insecticide, Fungicide, and
Rodenticide Act, mandate the accelerated reregistration of all
pesticide products registered prior to November 1, 1984. The
amendments establish a statutory goal of completing
reregistration eligibility decisions by 1997. In the Agency's
Overview of Trust Funds. Revolving Funds, and Commercial
Activities f the Office of Pesticide Programs discloses that
additional resources will be needed to meet these deadlines.
According to a recent General Accounting Office report, EPA now
estimates that all pesticides may not be reassessed until 2004,
and all products may not be reregistered until 2006. We have
chosen to report this matter in our report even though it is not
material to the financial statements because of its significance.
Report No. E1AML3-20-7001-4100230 17
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18 Report No. E1AML3-20-7001-4100230
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RESPONSIBILITIES AND METHODOLOGY
EPA MANAGEMENT AND OIG RESPONSIBILITIES
EPA's management is responsible for:
• preparing annual financial statements covering its trust
funds, revolving funds and commercial activities following
applicable accounting principles;
• establishing and maintaining a system of internal controls;
and
• complying with applicable laws and regulations.
We are responsible for auditing the financial statements in order
to determine if the statements are free of material misstatements
and presented fairly in accordance with the basis of accounting
described in Note 1 to the financial statements. We are also
responsible for evaluating related internal controls and
compliance with applicable provisions of laws and regulations.
AUDIT METHODOLOGY
In order to fulfill our responsibilities, except as described in
our opinions or disclaimers of opinion on the financial
statements for the FIFRA and Tolerance Revolving Funds and the
Oil Spill Trust Fund, we:
• examined on a test basis, evidence supporting the amounts
and disclosures in the financial statements;
• assessed the accounting principles used and significant
estimates made by management; and
• evaluated the overall presentation of the financial
statements.
In addition, we completed the following audit work in order to
evaluate internal controls and test compliance with laws and
regulations.
EVALUATION OF INTERNAL CONTROLS
We considered EPA's internal control structure in planning and
performing our audit of the FIFRA and Tolerance Revolving Funds
and the Oil Spill Trust Fund. The purposes of this consideration
Report No. E1AML3-20-7001-4100230 19
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were: (1) to determine our auditing procedures for the purpose
of expressing our opinion on the financial statements; and (2) to
determine whether the internal control structure meets the
previously described objectives. We obtained an understanding of
the significant internal control structure policies and
procedures and assessed the level of control risk relevant to all
significant cycles, classes of transactions, and account
balances. For those significant internal control structure
policies and procedures that have been properly designed and
placed in operation, we performed tests to assess whether the
controls are effective and working as designed.
We classified the significant internal control structure policies
and procedures into the following categories:
Receipts
Disbursements
Payroll
Investments
Property
Budget
Financial Reporting
As a part of our audit work, we also obtained an understanding of
management's process for evaluating and reporting on internal
control and accounting systems as required by FMFIA. In
addition, we compared the material weaknesses reported in the
Agency's FMFIA report that relate to the financial statements
under audit to the material weaknesses found during the
evaluation we conducted of the entity's internal control system.
Our objective in performing this work was not to express an
opinion on overall compliance with such provisions.
The information presented in Management's Overview of EPA and
Overview of Trust Funds. Revolving Funds and Commercial
Activities is supplemental information required by OMB Bulletins
93-02 and 94-01 both entitled "Form and Content of Agency
Financial Statements." OMB Bulletin 93-06, "Audit Requirements
for Federal Financial Statements," contains certain requirements
with respect to performance measurement information reported in
the overview section of financial statements. Auditors are to
obtain an understanding of the internal control structure
policies and procedures designed to ensure that data 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 providing comments to management
regarding the presentation of the overview.
20 Report No. E1AML3-20-7001-4100230
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TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
As a part of obtaining reasonable assurance about whether the
financial statements were free of material misstatements, we
tested compliance with applicable sections of those laws and
regulations that either materially affect the financial
statements, or that OMB or our office considered significant to
the audit. In addition, we relied on some compliance testing
performed by Leonard G. Birnbaum and Company, Certified Public
Accountants, as part of its audit of EPA's financial statements
for the Superfund and Leaking Underground Storage Tank Trust
Funds, and the Asbestos Loan Program as of and for the years
ended September 30, 1993 and 1992. We reviewed the firm's audit
work and concluded that we could rely on it to augment our work.
The obj ective of our audit work and the work performed by
Leonard G. Birnbaum and Company was not to provide an opinion on
overall compliance with laws and regulations.
DETAILS OF AUDIT FIELD WORK PERFORMED
We selected statistical and non-statistical samples from EPA's
detailed accounting records supporting various FIFRA, Tolerance
and Oil Spill financial statement accounts. We tested these
sample transactions to determine if they were adequately
supported by documentation and were recorded in accordance with
internal control policies and procedures and applicable laws and
regulations. We also reviewed other supporting documentation,
such as worksheets and schedules, that the Agency used in
preparing its financial statements. In addition, we applied
certain analytical review procedures to account balances.
The financial management records and supporting documentation we
reviewed were maintained by Financial Management Centers in
Research Triangle Park, Cincinnati and Las Vegas; and the Office
of Pesticide Programs, the Office of Emergency and Remedial
Response, the Headquarters Accounting Operations Branch and the
Financial Reports and Analysis Branch in Washington, D.C. To
gain an understanding of established internal control procedures,
we also interviewed personnel in these offices and reviewed
applicable policies and procedures.
To evaluate controls in place to safeguard assets, we interviewed
personnel in the Facilities Management and Services Division and
the Office of Pesticide Programs, both located in Washington,
D.C. We also reviewed applicable policies and procedures. In
addition, we conducted a physical inventory of randomly selected
FIFRA funded property items.
Our fieldwork for the audit of the fiscal 1992 financial
statements was performed from March 31, 1992, through April 7,
Report No. E1AML3-20-7001-4100230 21
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1993, and our fiscal 1993 audit work was performed from June 28,
1993, through January 31, 1994.
Our audit was conducted in accordance with Government Auditing
Standards. issued by the Comptroller General of the United
states; and OMB Bulletin 93-06, "Audit Requirements for Federal
Financial Statements," except as previously discussed in this
report. These standards require that we plan and perform our
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We believe that
our audit provides a reasonable basis for our opinions.
(enneth A. Koi
Assistant Inspector General for Audit
U.S. Environmental Protection Agency
January 31, 1994
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MATERIAL WEAKNESSES
1. WEAKNESSES EXIST IN SYSTEM USED TO TRACK TOLERANCE FEES
Weaknesses in controls in the Office of Pesticide Programs' (OPP)
fee tracking system resulted in significant errors in the
office's tolerance fee records. For example, in the sample of
transactions we reviewed, we found fee receipts of $457,700 and
earnings of $9,800 that were recorded twice; earnings of $163,800
that were recorded for fees which had been refunded; and fees
totaling $288,100 that were refunded but not recorded in petition
records. The Financial Management Division (FMD) relied on OPP's
detailed records on fees to support summary information on
deferred revenue that was entered into the Environmental
Protection Agency's (Agency) Integrated Financial Management
System (IFMS) for the Revolving Fund for Certification and Other
Services (Tolerance Fund). As a result, we could not determine
whether the amount of deferred revenue in the Tolerance Fund
Statement of Financial Position as of September 30, 1993 is
accurate. Since deferred revenue reported in the financial
statement represents 87 percent of the reported liabilities for
the Fund, this is a major contributing factor to our disclaimer
of an opinion on the statement.
Stronger Controls Needed In OPP's Fee Tracking System
OPP's internal control system did not reduce the risk of mistakes
low enough to prevent material errors in fee records. Office of
Management and Budget (OMB) Bulletin 93-06 provides a definition
of what an internal control system should do. It states that an
internal control system should reduce, to a low level, the risk
that employees will not detect significant financial errors while
doing their normally assigned duties. We found that OPP needed
stronger controls in its database software and better written
procedures explaining how to account for fees in order to prevent
errors.
OPP employees sometimes duplicated entries because the editing
function supporting the database did not always display all
records for a petition. When employees did not check to make •
sure there were no additional records, they sometimes unknowingly
duplicated records not displayed. Other duplicate entries were
made because employees used temporary petition numbers to enter
data for fees that arrived before petition packages. They later
forgot to delete the temporary data records when they reentered
data for the same petition using a permanent number.
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The database contained earnings from refunded fees because
written procedures did not address the need to check whether any
earnings had already been recognized when OPP refunded petition
fees. In addition, we found a weakness with the report function
of the database. OPP designed the report function to produce a
report entry for only those records with activity during the
reporting month. OPP employees relied on the accuracy of the
reports. However, the reports did not alert employees — by
showing overstated earnings — when employees mistakenly recorded
earnings for fees refunded in an earlier month. We identified
$102,800 of erroneous earnings data and $9,800 of duplicate
earnings that had been entered into IFMS based on tolerance fee
information provided by OPP.
The tolerance petition balances we identified that did not
reflect refunds related mostly to petitions over eight years old.
The comment portion of the data records explained the refund, but
the refunds were not posted to petition balances. OPP personnel
told us that they had removed these old inactive records from the
database after an internal study in 1989. They stated that, at
some point, however, an older backup copy of the database (with
the older records) must have been substituted for a current copy
of the database.
OPP's written procedures state that information in the database
must support monthly deferred revenue reports sent to FMD.
However, the procedures do not explain how to check whether the
database supports the reports. As a result, OPP personnel did
not do periodic checks of database totals to totals in the
reports. Making this kind of comparison would have alerted OPP
personnel to errors such as double recorded entries and earnings
without fees.
OPP could also have prevented or detected the errors had they
included the fee tracking system in financial system reviews
required by the Federal Managers' Financial Integrity Act
(FMFIA). OPP did not include the system in FMFIA reviews because
neither they, nor FMD, believed it was a financial system.
However, we found that FMD depended upon OPP to keep detailed
financial data for tolerance petitions.
We confirmed the errors we found during our audit with OPP
personnel, and they began corrective action. However, we could
not confirm potential errors of $43,100 of overstated earnings,
and $32,600 of overstated fee receipts. This was because OPP
personnel, after searching their files, could not identify the
petitions.
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Reconciliation of OPP and FMD Records Is Needed
OPP and FMD did not perform the reconciliation of general ledger
balances and program office records we recommended in our fiscal
1992 financial statement audit. They did not do the
reconciliation because they believed the reconciliations of fee
receipts they did during fiscal 1993 met the intent of our
recommendation. We tried to reconcile the records, but could
only come within $252,800 of making FMD and OPP's records agree.
This is a material unreconciled difference when compared to the
$4.2 million fund balance with Treasury reported in the Agency's
Tolerance Fund financial statements.
Deferred Revenue Was Overstated
OPP had records showing that the Tolerance Fund had earned
$531,800 of fees from prior years, which FMD still showed as
deferred revenue in the Tolerance Fund financial statements. FMD
was aware of most of the prior year earnings, but they did not
originally disclose the earnings in the Tolerance Fund financial
statements because they believed the financial statements should
reflect only fiscal 1993 expenses and revenues. OMB Bulletins
93-02 and 94-01 require footnotes to financial statements to
provide any additional disclosures necessary to make the
statements fully informative. OPP accumulated the $531,800
because of the way they financed the costs of processing
tolerance petitions, and because of problems they had realizing
earnings in the correct year. OPP did not request that FMD
reduce deferred revenue by the $531,800 because of accounting
guidance they received from FMD. Also, OPP requested that the
Office of General Counsel make a legal determination about
whether the Agency could use the prior year earnings. The Office
of General Counsel determined that OPP could only apply prior
year earnings against prior year expenses.
During fiscal 1992 and prior years, OPP financed the cost of
processing tolerance petitions with appropriated funds. OPP
later returned the appropriated funds, through periodic cost
transfers, to the extent that earnings recognized covered the
costs. OPP recognized earnings from fees when product managers
reported the date they completed a major processing milestone..
However, OPP personnel stated that product managers were often
slow to report milestones. If product managers failed to report
they completed a petition milestone in the same year they did the
processing work, OPP categorized the earnings as "prior year."
FMD allowed OPP to transfer processing costs from appropriated
funds to fees only for current year earnings. As a result, OPP
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had accumulated earnings of $531,800 from prior years. We found
an additional $46,600 of earnings from fiscal 1993 OPP had
overlooked.
FMD had not reduced deferred revenue for the prior year earnings
because they believed the financial statements should reflect
only fiscal 1993 expenses and revenues. As a result, users of
the statements would not have known that the Tolerance Fund's
liability for deferred revenue was actually $578,400 lower than
the $4.2 million FMD originally disclosed in the statements.
During our audit, FMD made the necessary adjustments to disclose
in the fiscal 1993 financial statements that the EPA liability
for deferred revenue is $465,800 less than the amount previously
shown in the Tolerance Fund Statement of Financial Position. The
$465,800 disclosure consists of the $531,800 of prior year
earnings plus the $46,600 of overlooked earnings ($578,400 total)
less the $102,800 of erroneous earnings data, and $9,800 of
duplicate earnings that OPP reported to FMD.
RECOMMENDATIONS
We recommend that the Director, Office of Pesticide Programs:
1. Revise procedures to explain in detail how to record
tolerance fee transactions, and how to check to make sure
transactions have been accurately recorded.
2. Perform a review of all petition fee and earnings data, and
make any needed corrections to recorded balances. Reconcile
the results of the review with data in IFMS.
3. Correct records to reflect earnings overlooked in fiscal
1993 and prior years.
4. Before the financial statements are prepared each year,
reconcile OPP's Tolerance Fund fee records with IFMS
records.
5. Include the fee tracking system in FMFIA reviews.
We recommend that the Director, Financial Management Division:
1. Make any needed accounting adjustments to establish the
correct deferred revenue balance after OPP completes its
review of fee and earnings data.
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2. On an annual basis, ensure the financial statements for the
Tolerance Fund agree with OPP's detailed records on fees.
AGENCY COMMENTS AND PIG EVALUATION
In their consolidated response to our draft report, the Chief
Financial Officer, and the Assistant Administrator for the Office
of Prevention, Pesticides and Toxic Substances, agreed to take
corrective action based on our audit recommendations. They
indicated that in some cases corrective action has been initiated
or completed. For example, as recommended in our draft audit
report, OPP purchased a commercial software program to address
the control weaknesses in the fee tracking system. The office is
also in the process of correcting the errors we identified in the
tracking system. With the exception of the following two
recommendations, the proposed corrective actions satisfy the
intent of our recommendations.
In response to recommendation 4, the Director, OPP, agreed with
the recommendation and stated that his office was "committed to
performing quarterly reconciliations of the fee receipts." As
detailed in the finding, the quarterly reconciliations of fee
receipts performed in 1993 in response to our 1992 audit
recommendation were not sufficient. Unless a more comprehensive
reconciliation is performed, the problems we noted with the fee
tracking system are likely to remain.
Concerning recommendation 2 to the Director, FMD, the Chief
Financial Officer stated that it duplicates recommendation 4 to
the Director, OPP. We do not believe the recommendations are
duplicative. One recommendation requests that OPP reconcile with
IFMS (i.e., FMD), and the other requests that FMD reconcile with
OPP. Unless both parties reconcile with the other's records, a
true reconciliation has not taken place.
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2. FURTHER IMPROVEMENTS NEEDED IN DOCUMENTATION FOR ADJUSTING
ENTRIES
During this year's audit of the Environmental Protection Agency's
(EPA) financial statements, we found financial management
personnel improved their documentation for adjusting entries. We
did find, however, that some material adjustments were not
adequately described and lacked supporting documentation. As a
result, we had difficulty understanding the reasoning behind the
entries and tracing the entries into the accounting records. We
tried, but using the available documentation, could not determine
the validity of $150.4 million of adjusting entries made to the
Registration and Expedited Processing Fund (FIFRA Fund), and
$24.3 million made to the Tolerance Fund. We found other ways to
validate year-end account balances for the FIFRA Fund. However,
insufficient documentation for Tolerance Fund entries contributed
to our disclaimer of an opinion on the Tolerance Fund financial
statements.
EPA Comptroller Policy Announcement No. 93-02 Policies for
Documenting Aaencv Financial Transactions is EPA's internal
policy on documenting transactions. The announcement requires
that "all financial transactions recorded in the accounting
system be supported by adequate source documentation, and that
this documentation be easily accessible." To avoid confusion,
the announcement also defines the terms adequately documented and
easily accessible.
Entries Need To Be More Clearly Described
FMD personnel need to improve the clarity and accuracy of their
descriptions for adjusting entries. For example, the only
explanation provided for one entry involving $3.2 million of
Tolerance Fund monies and five different budget accounts was:
"To reverse erroneous entry for C&R fund write off and to
reclassify 4119 to 4210." No cross-reference or further
explanation of the original "erroneous entry" was provided.
The explanation of another entry increasing the Tolerance Fund
deferred revenue account by $320,200 read only: "To fund prior
period adjustments in order to offset revenue and expense.
Should this be a reduction to 5220 or 6101? With this adjustment
7401 does not appear . . . ." We could not understand the entry
using this description, and FMD personnel were unable to provide
a complete explanation for it.
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Better Supporting Documentation Needs To Be Maintained
The Acting Chief Financial Officer, in response to our fiscal
1992 financial statement audit, agreed to stress the need for
financial management personnel to maintain adequate supporting
documentation. FHD personnel believed that general ledger
adjustment forms that they kept on file adequately supported
adjusting entries. We found during our audit last year, and
again this year, that explanations on the forms did not
adequately support the adjusting entries made. FMD personnel
stated that because of limited time available to prepare
adjusting entries at year end, they often could not provide
detailed explanations for entries. We recognize that FMD has
tight time frames within which to make adjusting and closing
entries and prepare the financial statements. However, proper
research and documentation of adjustments is a key safeguard to
detect potential illegitimate and improper acts that would
otherwise go undetected.
We could not find evidence that FMD staff researched and
documented five FIFRA entries totalling $34,373,221, and two
Tolerance Fund entries totaling $7,432,278. FMD personnel could
not find files for these seven fiscal 1993 adjustments. Also
missing in FMD's files was documentation for a fiscal 1991
Tolerance Fund adjusting entry which FMD corrected with a $19,725
fiscal 1992 adjusting entry.
We also found that multiple items were sometimes combined into
single (net) general ledger adjusting entries. Although the
individual items being adjusted were usually identified in the
explanation section for the combined entry, the unrelated amounts
all carried the same document identification number in IFMS. FMD
personnel could strengthen controls and provide a better audit
trail, if they made each adjustment as a separate entry.
Adjusting Entry For the Fiscal 1992 Financial Statements
FMD staff need to be careful not to take actions that may affect
our opinions on prior year financial statements. FMD personnel
made a $52,537 general ledger adjustment in fiscal 1993 to
satisfy a recommendation we made to correct the fiscal 1992 FIFRA
financial statements. FMD personnel later decided the adjustment
was incorrect and reversed it. We based our opinion on the
fiscal 1992 FIFRA financial statements, in part, on FMD making
the adjustment that the entry reversed. We brought this matter
to FMD's attention during the audit, and the adjusted financial
statements now reflect the correct amounts.
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Written Procedures Needed
Accounting transactions for the FIFRA and Tolerance Funds are
unique at EPA because they are revolving funds that do not follow
the standard IFMS "appropriated fund" model. During the year,
millions of dollars of FIFRA and Tolerance monies are recorded in
budgetary and proprietary accounts that are invalid for the FIFRA
and Tolerance Funds. Correction of the IFMS accounting
transaction codes for revolving funds that would fix this problem
is not expected to be completed until fiscal 1995. We found that
because the necessary changes have not been made to the
accounting transaction codes, IFMS year-end closing tables
continue to be incorrect for the two funds. As a result, the
IFMS automated closing process can not be used for the funds. To
compensate for this, FMD employees have developed manual
adjusting and closing entries exclusively for the two funds,.
However, at the time of our audit, they had not developed written
procedures explaining which accounts require manual adjusting
entries, and explaining how to close the funds. As a result, we
could not reconstruct the adjusting or closing entries without
verbal explanations from the FMD employee who made the entries.
The lack of written procedures is an internal control weakness.
In the event key employees are not available at closing, or there
is turnover of personnel, FMD could not be sure they could close
the funds properly, and prepare financial statements consistent
with the previous fiscal year.
RECOMMENDATIONS
We recommend that the Director, Financial Management Division
direct staff to:
1. Provide adequate descriptions and supporting documentation
for all adjusting entries.
2. Make adjustments as single entries instead of combining
multiple unrelated adjustments into a single (net) entry.
3. Consult with the OIG before changing adjustments that were
previously made in response to a recommended audit
adjustment and upon which we relied to render an opinion on
prior year financial statements.
AGENCY COMMENTS AND OIG EVALUATION
In his response to our draft report, the Chief Financial Officer
agreed to take corrective actions based on Recommendations 1
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and 2. He also indicated that written procedures for closing the
FIFRA and Tolerance Funds had been developed, as we recommended
in our draft report.
The Chief Financial Officer disagreed with the wording of
Recommendation 3 in our draft audit report stating that FMD
should retain the right, as part of Agency management, to
determine what entries are proper and necessary. We agree that
management is responsible for accounting data in the finance
system. We have revised our recommendation to clarify that we
are addressing management changing an adjustment they had
previously agreed upon, and on which we relied to render an
opinion on the Agency's financial statements. To change such an
adjustment unilaterally could change our opinion on those
financial statements.
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3.
NOT BE AUDITED
The procedures used to capitalize property purchased with FIFRA
and other Agency funds do not identify all property which should
be capitalized. In addition, property that is capitalized in the
accounting records can not be uniquely identified in the Agency's
property accountability system. Consequently, when individual
items of property are transferred, replaced or lost, those
changes can not be reflected in the accounting records. As a
result, the FIFRA property, plant and equipment balance of
$533,000 included in the fiscal 1993 Statement of Financial
Position for the Fund could not be audited. This condition was
also reported in our report on the Fiscal 1992 Financial
Statement Audit of the Pesticides Revolving Funds (Audit Report
No. E1EPL2-20-7001-3100265) .
In order to make the necessary improvements to the Agency's
property accounting system, a Quality Action Team was
established. The Agency's formal response to our fiscal 1992
audit report stated that the Team would complete a cost benefit
analysis by October 31, 1993, obtain management concurrence by
November 30, 1993, and develop an implementation plan by
December 31, 1993. The response further stated that FMD planned
by September 30, 1995, to implement a fully integrated fixed
asset sub-system to IFMS as a permanent solution. As of
January 31, 1994, FMD's cost benefit analysis had been drafted,
but it had not been formally presented to management, and an
implementation plan had not been developed. We recognize that
these target dates are contingent upon successful implementation
of the fixed asset sub-system by the contractor who developed
IFMS and the U.S. Geological Survey (USGS). As of January 1994,
USGS had just begun to test the sub-system. After the sub-system
has been fully tested and accepted by USGS, it will become part
of the IFMS base-line system, which after some modification will
be implemented by the Agency. Revised target dates need to be
established and tracked as this process evolves.
In our 1992 audit report, we recommended that FMD revise their
capitalization policy to include more detailed instructions for.
determining which Agency assets should be capitalized. FMD
personnel told us that as a part of the process to implement the
new sub-system, a complete overhaul of policies and procedures
will have to take place. They further stated that making
extensive changes to the current method for capitalizing property
would be ineffective and would not be enforceable before the new
system is in place. Given the time-consuming process currently
used, which is only partially effective, we agree with FMD's
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decision to hold off revising capitalization procedures until the
new fixed asset sub-system is in place.
RECOMMENDATIONS
We recommend that the Chief Financial Officer establish and track
revised target dates for implementing the new fixed asset sub-
system once development of the sub-system has been completed.
AGENCY COMMENTS AND PIG EVALUATION
In his response to our draft audit report, the Chief Financial
Officer agreed to monitor USGS's progress in implementing the
fixed asset sub-system, finalize the cost benefit analysis, and
develop implementation plans for the sub-system. The Chief
Financial Officer also agreed in principle that more
comprehensive capitalization procedures are necessary. However,
he stated that it would be more effective to implement these
procedures once the fixed assets sub-system is in place. We
agree and have revised our report accordingly.
The Chief Financial Officer also stated that he believes the
current process captures substantially all FIFRA Fund property.
We do not know whether these capitalization weaknesses have a
material effect on the FIFRA financial statements because neither
we, nor the Agency, have quantified how much property is not
being capitalized. However, weaknesses in the Agency's
capitalization procedures affect not only the FIFRA Fund, but
other Agency funds as well. This same condition has been
reported in the Superfund financial statement audit reports.
Further, in fiscal 1995 when the Agency begins to prepare Agency-
wide financial statements, the lack of adequate capitalization
procedures will continue to be a problem.
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4. IMPROVEMENTS NEEDED IN ESTIMATING ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
The methods the Research Triangle Park (RTF) Financial Management
Center used to compute year-end accounts payable and accrued
liability adjustments resulted in a net material misstatement of
$799,775 in the fiscal 1993 FIFRA financial statements and an
$816,054 misstatement in the fiscal 1993 Oil Spill Trust Fund
financial statements. The RTF Financial Management Center,
overstated its FIFRA accounts payable adjusting entry of $106,829
by $22,106, and they also overstated their accrued liability
adjustment of $848,177 by $777,669. In addition, the RTF
Financial Management Center understated the Oil Spill Trust Fund
accounts payable adjusting entry of $415,309 by $271,603 and
understated the accrued liability adjustment of $91,051 by
$544,450.
Accounts Payable Entries
FMD personnel at the RTF Financial Management Center and other
locations record accounts payable adjustments at year-end so that
the Agency's financial statements will properly show EPA's
liability for goods and services that have been received as of
September 30, but for which the invoice has not been paid as of
September 30. At the RTF Financial Management Center, the
Contract Payment System tracks all invoices that have been
received by the finance center. The system tracks key milestone
dates including the dates the invoices were received, the dates
Project Officer approval forms were returned, and the dates
invoices were paid. A listing is obtained from the Contract
Payment System to use in calculating the finance center's
accounts payable adjusting entry. We found that adjusting
entries for FIFRA and Oil Spill Funds were not correct because
the listing only included invoices received by September 30,
which were also not paid as of October 14. As a result, valid
accounts payable at fiscal year-end were not included in the
accounts payable adjusting entry.
Of the ten unpaid FIFRA invoices received by September 30, 1993,
only three were included as part of the accounts payable accrual.
None of the five invoices that were paid between September 30,
and October 14, were included as part of the accounts payable
accrual even though they were valid liabilities at fiscal year-
end. In addition, we found that the remaining two invoices were
incorrectly included as accrued liabilities because project
officer approvals had not been returned as of October 14. After
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reviewing subsequent payments made through December 31, we
determined the accounts payable entry for the FIFRA Fund was
overstated by $22,106.
Four of the seven unpaid Oil Spill invoices received by
September 30 were also not included in the accounts payable
accrual entry. Again, the four invoices were paid between
September 30, and October 14. After reviewing subsequent
payments made through December 31, we determined the
understatement of accounts payable for the Oil Spill Trust Fund
was $271,603. The methodology used by the RTF Financial
Management Center to estimate the accounts payable accruals would
have been reliable if all fiscal 1993 invoices received before
September 30 had been included in the adjusting entry, not just
those remaining unpaid at the date the adjustment was made. In
future years, the RTF Financial Management Center should ensure
that all invoices received but unpaid as of September 30, are
recorded as accounts payable.
Accrued Liability Entries
Accrued liability entries are recorded at year-end to estimate
the Agency's liability for goods and services that have been
received, but for which an invoice has not been received. We
found that the RTF Financial Management Center also materially
misstated both the FIFRA and Oil Spill fiscal 1993 accrued
liability adjusting entries because of the methodology that was
used. The adjusting entries were calculated based on the average
monthly amount paid for each appropriation during the first
eleven months of the fiscal year. By using this methodology, the
accrued liability entry for the FIFRA Fund was materially
overstated by $777,669, and the entry for the Oil Spill Trust
Fund was materially understated by $544,450.
During our fiscal 1992 financial statement audit, we determined
that the RTF Financial Management Center's accrued liability
adjustment for FIFRA was about one-half the amount needed based
on the eleven month fund disbursement average. Consequently, to
more accurately estimate the fiscal 1993 accrued liability
adjusting entry, an agreement was reached between the RTF
Financial Management Center, FMD's Quality Assurance Staff, and
our office to double the accrued liability estimate calculated
based on the eleven month fund disbursement average. This
methodology did not provide an accurate estimate of fiscal 1993
accrued liabilities. We reviewed payments made subsequent to the
end of the fiscal year and determined that the amount recorded
for FIFRA was overstated by $777,669. To more accurately
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estimate next year's entry, the RTF Financial Management Center
staff should review the historical results from both fiscal 1992
and 1993.
The RTF Financial Management Center also adjusted accrued
liabilities for the Oil Spill Trust Fund using the eleven month
fund disbursement average. This methodology did not result in
the calculation of the proper adjusting entry for this Fund
because this was the first year of the Fund's existence, and the
first disbursement against this appropriation was not made until
February 1993. In addition, there were only six months during
the year with disbursements for this Fund, with most of the
disbursements occurring in the last three months of the year. We
reviewed payments made subsequent to the end of the fiscal year
and determined that accrued liabilities recorded for the Oil
Spill Trust Fund were understated by $544,450.
Financial Statement Effect
The procedures used by the RTF Financial Management Center to
estimate the fiscal 1993 year-end adjusting entries for accounts
payable and accrued liabilities resulted in a $799,775
overstatement of expenses in the fiscal 1993 FIFRA Statement of
Operations and Changes in Net Position. This overstatement also
resulted in an understatement of the Fund's balance in the
Statement of Financial Position by the same amount. The same
procedures also resulted in a $816,054 understatement of expenses
in the Oil Spill Trust Fund's fiscal 1993 Statement of Operations
and Changes in Net Position, and an overstatement of the Fund's
balance in the Statement of Financial Position by the same
amount. We discussed these adjustments with the Agency, and the
Financial Management Division incorporated them into the fiscal
1993 financial statements.
RECOMMENDATIONS
We recommend that the Director, Financial Management Division:
I. Revise the procedures used by the RTF Financial Management
Center to compute year-end adjusting entries for accounts
payable to include all unpaid invoices received by
September 30 in order to more accurately estimate the
entries.
2. Work with the Director of the RTF Financial Management
Center to evaluate the process used to compute year-end
adjusting entries for accrued liabilities and revise it to
more accurately estimate the entries.
Report No. E1AML3-20-7001-4100230 37
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ATTACHMENT 1
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AGENCY COMMENTS AND PIG EVALUATION
In his response to our draft report, the Chief Financial Officer
agreed to take corrective action. He noted that the process used
at RTF to compute year-end adjusting entries for accrued
liabilities would be re-evaluated. In addition, he indicated the
error that caused the accounts payable adjustment to be wrong
will be corrected by creating standard operating procedures to
formalize the specifications for year-end processing. The
proposed corrective actions satisfy the intent of our.
recommendations.
38 Report No. E1AML3-20-7001-4100230
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ATTACHMENT 2
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REPORTABLE CONDITIONS
1. UNLIQUIDATED OBLIGATTQM BAT.ANCE FOR THE FIFRA FUND CONTAINED
INVALID OBLIGATIONS
The fiscal 1993 year-end Reregistration and Expedited Processing
Fund (FIFRA Fund) unliquidated obligation balance in the general
ledger contained invalid obligations. This occurred because the
Office of Pesticide Programs (OPP) did not conduct a complete and
timely review of some of its unliquidated obligations. In
addition, the Headquarters Procurement Operations Division did
not request deobligation of funds associated with completed
delivery orders. We identified approximately $471,000 of
unliquidated obligations that should be deobligated and made
available for other critical FIFRA program requirements. This is
especially important since Agency management has identified the
shortage of funds as one of the reasons they will not meet the
Congressionally imposed deadline for reregistering pesticides.
To test the validity of the fiscal 1993 FIFRA year-end
unliquidated obligation balance in the general ledger, we
judgementally selected 12 obligations, totaling $513,674 as of
September 30, 1993, which had no recorded disbursements during
fiscal 1993. Of the 12 obligations reviewed, we determined that
11 were either partially or totally invalid. Treasury Financial
Manual Bulletin No. 92-08 requires agencies to review their
unliquidated obligations before year-end to reasonably ensure
that all and only those transactions meeting the criteria of
valid obligations are properly recorded.
Complete and Timely Unliquidated Obligation Reviews Needed
Although OPP's performance in the area of reviewing unliquidated
obligations improved in 1993, more work needs to be done to
ensure that complete and timely reviews of unliquidated
obligations are conducted prior to year-end. This condition was
also reported in our report on the Fiscal 1992 Financial
Statement Audit Of The Pesticides Revolving Funds (Audit Report
No. E1EPL2-20-7001-3100265). OPP stated, in response to that
report, that the unliquidated obligation reviews would be
completed by July 30, 1993.
In April 1993, OPP received an unliquidated obligation listing
from the Cincinnati Financial Management Center to use to
identify invalid obligations. The finance center requested that
the results be returned by June 1, 1993. In addition, the
finance office requested that the program office notify the
Report No. E1AML3-20-7001-410023O 39
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Grants Administration Division of any interagency agreements
identified as invalid, and request that they be closed out. The
finance center would deobligate funds when a written notice was
received from the Grants Administration Division. Of the three
obligations in our sample belonging to Cincinnati, OFF identified
two, totaling $188,680, as being invalid. The results of this
unliquidated obligation review were sent to the finance center
shortly after August 5, 1993, but the interagency agreements
remained obligated at year-end because OPP did not request that
the Grants Administration Division close them out.
In May 1993, OPP received the Headquarters Accounting Operations
Branch's unliquidated obligation listing for review. This
listing included FIFRA funded obligations totaling $109,767. The
Headquarters Accounting Operations Branch requested the results
be returned to them by June 30, 1993. However, three of the
eight OPP responsibility centers never returned the results of
their unliquidated obligation reviews. The FIFRA portion of
these obligations totaled $102,229.
Contract Obligations Should Be Deobliqated
Seven of the 12 unliquidated obligations we reviewed were
contract items from the Research Triangle Park (RTF) Financial
Management Center, valued at $232,792. Five of the seven were
from contracts that expired in fiscal 1991 and 1992 that had not
yet been closed out. We determined, based on information
provided by OPP personnel, that all seven obligations were
invalid.
The RTF Financial Management Center prepares an unliquidated
obligation listing for contract activity and sends it to the
Headquarters Procurement Operations Division to review. When we
attempted to determine whether the contracting officer had
requested that the seven obligations be deobligated, we were told
that the contract office requested that they not be deobligated
because the funds might be required for disbursement during
contract close out due to indirect cost rate adjustments or
increases in contractors' costs based on wage determinations.
We believe that any additional funds needed for indirect cost ,
rate or wage determination adjustments identified during the
contract close out phase should be prorated among delivery
orders, particularly since they were funded out of different
appropriations. We do not believe additional funding for cost
rate or wage determination adjustments, for the delivery orders
we determined to be invalid, would total $232,792. For example,
one of the seven unliquidated obligations has an open balance of
$38,312. This represents 69 percent of the total amount
40 Report Mo. E1AML3-20-7001-4100230
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ATTACHMENT 2
Page 3 of 7
obligated for the delivery order. Any cost rate or wage
determination adjustment for this delivery order should not total
$38,312. For this reason, a portion of all seven unliquidated
obligations should be deobligated.
Unless complete reviews are made of all unliquidated obligations
and deobligation requests are processed in a timely manner,
program offices may not be. able to put program funds to the best
use. This is particularly true for programs using appropriated
funds which expire if not used within required time frames.
RECOMMENDATIONS
We recommend that the Assistant Administrator for the Office of
Prevention, Pesticides and Toxic Substances direct the Director,
Office of Pesticide Programs to:
1. Complete the required unliquidated obligation reviews and
provide the results to the appropriate finance office so
that invalid obligations can be deobligated.
2. Submit to the Grants Administration Division close out
requests for invalid interagency agreements.
We recommend that the Chief Financial Officer:
1. Include the completion of unliquidated obligation reviews as
a financial management performance measure on which offices
are evaluated.
2. Direct the Director, Financial Management Division to:
• Coordinate with the Headquarters Procurement Operations
Division to deobligate from the $232,792 the
appropriate amount not needed for contract incidentals.
• Coordinate with program offices to deobligate the
remaining $238,653 of unliquidated obligations we
determined to be invalid.
3. Direct the Director, Headquarters Procurement Operations
Division to identify the amount, by delivery order, that may
be needed for incidental costs during contract close out and
request deobligation of the remaining funds.
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AGENCY COMMENTS AND PIG EVALUATION
In their consolidated response to our draft report, the Chief
Financial Officer, and the Assistant Administrator for the Office
of Prevention, Pesticides and Toxic Substances agreed with all of
our recommendations. They outlined a number of corrective
actions with completion dates that should ensure that
unliquidated obligation reviews will be completed and the
necessary accounting entries recorded by fiscal 1994 year-end.
The corrective actions also include making unliquidated
obligation reviews a financial management performance measure
beginning in fiscal 1995.
In the Agency's response, a concern was raised that the draft
report did not present a true picture of how OPP's performance in
reviewing unliquidated obligations had substantially improved
from past years. We have revised the report narrative to reflect
the improvements made in this area during fiscal 1993.
42 Report No. E1AML3-20-7001-4100230
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2. PROPERTY ACCOUNTABILITY CONTROLS NEED TO BE STRENGTHENED
As a result of weaknesses in controls over property, the Agency
is not able to account for all property purchased with FIFRA
funds. We found: (1) employees improperly exchanged equipment
among themselves without notifying their custodial officers; (2)
a complete fiscal 1993 physical inventory was not conducted; and
(3) custodial officers were accountable for too many items of
property. The Fiscal 1992 Financial Statement Audit of the
Pesticides Revolving Funds audit report also identified similar
problems regarding controls over property located in OPP. Based
on a physical inventory we conducted of statistically selected
items, we project that 64 FIFRA funded items valued at $220,384
are missing, and 26 items valued at $88,154 were improperly
transferred to other custodial areas.
In order to test the Agency's internal controls over property
accountability, we conducted a physical inventory of 145 pieces
of equipment purchased with FIFRA funds. These items represent a
statistical sample that was drawn from a universe of 932 pieces
of FIFRA funded equipment valued at $3,195,575. As of January 4,
1994, the date we completed our inventory, 10 pieces of equipment
with a value of $36,146 were missing, and 4 pieces of equipment
valued at $13,944 were found in a custodial area they were not
assigned to. Projecting our sample results over the population
universe, we estimate that 64 items purchased with FIFRA funds
valued at $220,384 are missing, and 26 items valued at $88,154
were improperly transferred to other custodial areas.
Property items were found in custodial areas they were not
assigned to because Agency employees exchanged equipment among
themselves without notifying the custodial officer. Custodial
officers within OPP stated that this was a frequent occurrence.
Many times they would try to locate a piece of equipment assigned
to a particular employee only to find that the employee had given
the item to another person. The Agency's Personal Property
Management Policy Manual states that it is the inherent
responsibility of all individuals to properly care for and
protect Government property. The manual goes on to state that it
is the responsibility of each individual to report any property
that is lost, damaged or removed from its assigned area to their
custodial officer.
Physical Inventory of FIFRA Property Was Not Conducted During
Fiscal 1993
The Facilities Management and Services Division (FMSD) did not
conduct a physical inventory of the Office of Prevention,
Report No. E1AML3-20-7001-4100230 43
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Pesticides and Toxic Substances (OPPTS) property during fiscal
1993. FMSD decided to stagger the timing of the annual
inventories of the Agency's program offices instead of continuing
to inventory all offices at the same time. This process of
staggering the inventories caused FMSD not to schedule the OPPTS
inventory until 1994. Nearly all of the property purchased with
FIFRA funds resides in OPPTS. The Agency's Personal Property
Management Policy Manual states that equipment shall be
inventoried at least annually. Conducting annual inventories is
a tool management has to ensure, in a timely fashion, that
property is being used for purposes intended and that loss of
property is kept to a minimum.
Custodial Officers Were Responsible for Too Many Property Items
We believe that another contributing cause of this problem was
the large number of items for which custodial officers were
responsible. The Agency's Personal Property Management Policy
Manual states that generally, a maximum of 100 items per area is
recommended for each custodial officer to control. We found that
within OPPTS, 15 out of 25 custodial areas (60 percent) had more
than 100 pieces of equipment assigned to them, and some custodial
areas contained as many as 300 items. Of these 15 custodial
areas, FIFRA property assigned to 5 custodial areas were either
missing or were found in another custodial area during our
inventory. If OPPTS had followed the 100 item limit per
custodial area, the amount of missing and misplaced property may
have been reduced.
RECOMMENDATIONS
We recommend that the Assistant Administrator for the Office of
Prevention, Pesticides and Toxic Substances:
1. Notify all employees of the proper method of transferring
property within the organization.
2. Work with FMSD to reduce the number of personal property
items assigned to custodial areas to 100 items.
We recommend that the Chief Financial Officer include completion
of physical inventories as one of the financial management
performance measures on which offices are evaluated.
44 Report Mo. E1AML3-20-7001-4100230
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AGENCY COMMENTS AND PIG EVALUATION
In their consolidated response to our draft report, the Chief
Financial Officer, and the Assistant Administrator for the Office
of Prevention, Pesticides and Toxic Substances agreed with all of
our recommendations and outlined a number of corrective actions
that they will initiate. Those actions include notifying OPP
employees of the proper methods for transferring property, and
reducing the number of property items for which custodial
officers are responsible. In addition, the Chief Financial
Officer agreed to include the completion of physical inventories
as a financial management performance measure.
Report No. E1AML3-20-7001-4100230 45
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46 Report No. E1AML3-20-7001-4100230
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APPENDIX I
ANNUAL FINANCIAL STATEMENTS FOR
FISCAL YEARS 1993 AND 1992
Report No. E1AML3-20-7001-4100230 47
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48
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TABLE OF CONTENTS
MESSAGE FROM THE ADMINISTRATOR iii
SECTION A
Overview of EPA 1
Overview of Trust Funds, Revolving 4
Funds and Commercial Activities
Superfund 7
Leaking Underground Storage Tank (LUST) Program 18
Oil Pollution Prevention Program 21
Asbestos Loan and Grant Program 24
Pesticides Reregistration and Expedited 27
Processing Fund (FEFRA Fund)
Revolving Fund for Certification and 30
Other Services (Tolerance Fund)
SECTION B
Message from the Chief Financial Officer 33
Principal Financial Statements 35
EPA's FY 1993 Annual Financial Statements Page i
49
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Page ii EPA's FY 1993 Annual Financial Statements
50
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MESSAGE FROM THE ADMINISTRATOR
I am pleased to present the Fiscal Year 1993 Annual Financial Statements for the U.S.
Environmental Protection Agency. These statements were prepared by the Agency's Chief
Financial Officer (CFO) and present a snapshot of the financial condition of EPA's trust
funds, revolving funds and commercial activities. Since the financial statements help to
evaluate the effectiveness of the Agency's systems and operational weaknesses, I consider
them to be an integral part of my strategy for increasing accountability and strengthening
management practices throughout the Agency.
This year we made considerable progress in preparing our financial statements. We
reduced the timeframe for producing the statements by three months. In addition, as a direct
result of improvements we made, EPA received more favorable opinions from the auditors
on several of its funds, including an unqualified opinion on its newest fund, the Oil Spill
Trust Fund.
The overall results of the audits attest to the continuing improvements hi the Agency's
internal controls, financial management and accounting practices. The audit results also
measure our performance against the baseline we established last year. Finally, the
partnership formed between our finance and program offices in preparing these financial
statements has strengthened financial management and improved program performance
throughout the Agency.
The requirement to produce annual financial statements provides the Agency with an
opportunity not only to examine its financial systems and operations, but also to begin linking
financial data with program performance information. We plan to use the financial
statements as the foundation for achieving our long-term vision of results-oriented
management and increased accountability. The statements play a key role in our ultimate
goal of developing and implementing an integrated approach to Agency-wide strategic
planning, budgeting, financial management and program evaluation. This approach will
guide the Agency's program and investment decisions.
To implement this vision consistently across the Agency, we plan to integrate and
coordinate key management initiatives including the CFO Act, new guidelines for the Federal
Managers' Financial Integrity Act, provisions of the Government Performance and Results
Act (GPRA) and the recommendations of the National Performance Review (NPR). In
addition, we must ensure the availability of timely, reliable, accurate and useful financial and
program information. At EPA, we recognize the value of this information and are putting in
place the necessary infrastructure to improve our ability to measure program performance,
track program costs and evaluate financial management practices.
EPA's FY 1993 Annual Financial Statements Page iii
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As Administrator, I personally am dedicated to developing the most effective and
responsive organization possible in order to meet the immense challenges set forth by our
environmental mandate. Our goal is an integrated management system that supports effective
environmental decision making. The production of these audited financial statements is an
important step, among many, that will move us toward this goal.
In the last year, we took our first steps toward a new way of doing business, to
management that focuses our resources most effectively on producing a cleaner, healthier
environment. While I am extremely pleased with the progress we have made, what appeals
to me even more is the promise of the coming years.
Carol M. Browner
P»ge iv
52
EPA's FY 1993 Annul Financial Statement!
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OVERVIEW OF EPA
Mission. Stated broadly, the job of the U.S.
Environmental Protection Agency (EPA) is to
improve and preserve the quality of the
environment, both national and global. EPA
works to protect human health and the natural
resources on which all human activity depends.
America's continuing growth and prosperity
depend on its ability to find effective, creative
solutions to environmental problems.
A Complex Growing Agency. When it was
formed in 1970, EPA employed 5,400 people. It
had a budget of approximately $1 billion and
was responsible for a handful of major
environmental laws. Today more than 17,000
highly skilled, culturally diverse people work for
EPA; and the Agency has a budget of
approximately $6 billion parceled out among
programs implementing 16 major laws that
Congress has passed to protect the environment:
The Clean Air Act
The Clean Water Act
The Safe Drinking Water Act
The Comprehensive Environmental
Response, Compensation and Liability
Act (CERCLA, or "Superfund")
The Emergency Planning and Community
Right-To-Know Act
The Resource Conservation and Recovery
Act
The Federal Insecticide, Fungicide, and
Rodenticide Act
The Toxic Substances Control Act
The Marine Protection, Research, and
Sanctuaries Act
The Uranium Mill Tailings Radiation
Control Act
The Indoor Radon Abatement Act
The Ocean Dumping Ban Act
The Coastal Zone Management Act
The Pollution Prevention Act
The Federal Facilities Compliance Act
The Oil Pollution Act.
EPAWorkyears
EPA'c FY 1993 Annual Financial Statements
Page 1
53
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EPA Budgets
uooo
New Problems and New Solutions. Many of
EPA's responsibilities originated in response to a
new generation of environmental problems which
surfaced in the 1980s. Most notable is the
whole range of global environmental concerns:
climate change, stratospheric ozone depletion,
rainforest destruction, and acid rain. Also
important are such domestic issues as pollution
prevention, radon contamination of homes, food
safety, and pollution carried by run-off from
lawns, farms, and highways. In many ways,
these new problems are both more widespread
and more complex than those of the past
EPA has responded to emerging environmental
problems in bold and creative ways. In addition
to its traditional regulatory approaches, the
Agency is addressing environmental concerns by
creating market incentives and encouraging
voluntary actions. The Agency's goal is to
anticipate the environmental needs of the next
century and develop new policies and programs
that will meet those needs.
In the last four years, EPA experienced an
unprecedented amount of change. There has
been increased emphasis on risk to human health
and the ecology as one of the factors in
environmental protection decisions. Both
budget and workforce resources for the Agency's
environmental programs have experienced
growth. This expansion primarily has been
accomplished in the air, water, hazardous waste,
pesticides, enforcement and multimedia
programs.
Effective Resource Management. One of the
most significant areas of change in recent years
has been in the management of the Agency's
resources. Managers throughout the Agency
directed their attention and support toward
strengthening resources management.
Improvements resulting from this concerted
effort include:
• Strengthening accountability for resource
management functions by designating
Senior Resource Officers in each
Headquarters and Regional office, who
are responsible not only for procurement
but other aspects of financial resource
management as well;
• Continuing to diversify the Agency's
workforce to ensure the greatest possible
range of talent managing our resources;
• Providing additional funds in FY 1993 to
strengthen our Integrated Financial
Management System (IFMS) and
allocating funds to correct the weaknesses
identified in our FMFIA reporting.
EPA's FY 1993 Annual Financial Statements
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• Reorganizing the Office of
Administration and Resources
Management (OARM) to increase
accountability and control;
• Increasing emphasis on effective contracts
management including substantially
elevating the level of resources devoted
to that effort;
• Proceeding with plans to correct our
material weaknesses in financial
management as well as nonconformances
in our accounting system;
• Improving audit follow up and
implementation by issuing, in conjunction
with the General Accounting Office and
the Inspector General, an early warning
report of high priority audits requiring
EPA action.
To the extent possible, EPA has implemented
these changes in recent years hi conjunction with
establishing the structure and accountability
measures required under the Chief Financial
Officers (CFO) Act The Agency CFO program
accomplishments include the following:
• Issuing a comprehensive Financial
Management Five-Year Plan which
provides a blueprint for improving
financial management throughout the
Agency, complete with specific activities
and milestones;
• Developing financial management
performance measures for an FY 1994
pilot program in six offices for traditional
financial management functions, including
accouting operations, budget execution
and management controls;
• Working with program office staff to
continue the development of the program
performance measures which are
discussed in this report; and
• Preparing the CFO's Annual Report
which highlights the financial status of
the Agency and identifies existing and
potential areas of concern.
EPA'c FY 1993 Annual Financial Statements
Page3
55
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OVERVIEW OF TRUST FUNDS, REVOLVING FUNDS,
AND COMMERCIAL ACTIVITIES
The CFO Act of 1990 placed new emphasis on
financial management in major federal agencies.
One of the major requirements of the Act is the
preparation of annual financial statements for
each of the Agency's revolving and trust funds,
and commercial operations.
EPA's financial statements for FY 1993 include
the following trust funds, revolving funds, and
commercial activities:
• the Oil Pollution Prevention Program;
• Superfund;
• Leaking Underground Storage Tank
(LUST) Program;
« the Loan Portion of the Asbestos Loan
and Grant Program;
• the Pesticide Reregistration and Expedited
Processing Revolving Fund (FIFRA
Fund); and
• the Revolving Fund for Certification and
Other Services (Tolerance Fund).
Of these, Superfund is by far the largest, as
measured by monies spent (obligations) and EPA
workyears used by the funds. The Oil Pollution
Prevention Program will be included in the
financial statements for the first time this year.
EPA Financial Statements. Under the CFO
Act, financial statements are required to reflect
the overall financial position of the funds, as
well as the results of the operations of the funds
and their activities or operations. Detailed
financial information on EPA's trust funds,
revolving funds and commercial activities is
contained in the Principal Statements section of
this report.
The first part of the financial statements is this
overview prepared in accordance with OMB
guidance. It contains a separate section on each
of the six revolving fund, trust fund, and
commercial activity programs reported on,
including:
• a description of each program,
• a financial perspective of each program,
and
• a discussion of program performance.
EPA's programs and activities not currently
covered by the CFO Act are not included in the
FY 1993 financial statements. The Agency plans
to expand annual financial statements in future
years to include additional EPA programs. The
Agency currently is investigating options for
tracking and reporting additional program
performance and financial information in a
manner that would be useful to those interested
in knowing more about the results of EPA's
programs.
The following paragraphs provide an overview
of the organization, management, and authorizing
legislation for each of the six programs.
Trust Funds. A trust fund is a fund established
to account for receipts which are held in trust for
use in carrying out specific purposes and
programs in accordance with an agreement or
statute. Three of the EPA programs covered by
the CFO Act are trust funds and are housed
primarily in the Office of Solid Waste and
Emergency Response. These programs, which
use trust fund revenues to finance the cost of
cleaning up contaminated sites, are:
• the Superfund,
• the Oil Pollution Prevention Program and
• the Leaking Underground Storage Tank
(LUST) Program.
Page 4
56
EPA's FY 1993 Annual Financial Statements
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Hie 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 Pollution Prevention),
Underground Storage Tanks (with responsibility
for LUST), Solid Waste (with responsibility for
the solid and hazardous waste programs under
the Resource Conservation and Recovery Act),
and Waste Programs Enforcement (with
responsibility for enforcement for all of
OSWER's programs).
EPA has ten Regional offices which manage the
day-to-day operations of these three programs.
Over three quarters of the staff responsible for
carrying out the Superfund, Oil Pollution
Prevention and LUST programs reside in the
Regions. The three programs are located in the
Regional Waste Management Divisions (except
in Regions 4 and 10 where the LUST program is
in the Water Division and in Regions 1, 6 and 7
where the Oil Pollution Program is located in the
Environmental Services Division).
While OSWER and the Regional Waste
Management, Water and Environmental Services
Divisions have lead responsibility for the
Superfund, Oil Pollution Prevention and LUST
programs, these programs are supported by staff
in other Headquarters and Regional offices.
These offices charge administrative and
extramural expenses to the three programs, but
primarily to Superfund.
In Headquarters, these support functions are
carried out primarily by the Offices of
Administration and Resources Management,
Enforcement, Inspector General and Research
and Development In the Regions, support is
provided by staff from the Office of Planning
and Management and the Environmental Services
Division, as well as in other Federal Agencies in
the case of Superfund. Funding for these efforts
is supported through an allocation of trust fund
resources.
Revolving Funds. A revolving fund is a fund
authorized by specific provisions of law to
finance a continuing cycle of operations with
receipts derived from such operations available
in their entirety for use by the fund. Two EPA
programs covered by the CFO Act are revolving
funds and both of these are housed primarily in
the Office of Prevention, Pesticides and Toxic
Substances (OPPTS). These programs are:
• the Pesticides Reregistration and
Expedited Processing Fund (FIFRA
Fund), and
• the Revolving Fund for Certification and
Other Services (Tolerance Fund)
EPA is charged by Congress with the job of
regulating the use of pesticides and balancing the
risks and benefits posed by pesticide use. The
Agency regulates the use of pesticides through
its Office of Pesticide Programs (OPP), within
OPPTS. OPP consists of seven divisions and a
staff office. Both appropriated and revolving
funds are utilized by OPP in accomplishing its
mission. The two revolving funds which
supplement appropriated resources for OPP are:
The Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund) and The
Revolving Fund for Certification and Other
Services (Tolerance Fund).
The mission of EPA's pesticide program is to
serve the nation by safeguarding public health
and the environment from risks posed by
pesticides. The regulation of pesticides comes
under the authority of two laws - the Federal
Insecticide, Fungicide, and Rodenticide Act
(FIFRA) and Ihe Federal Food, Drug and
Cosmetic Act (FFDCA). FIFRA gives EPA the
authority and responsibility for registering
pesticides for specified uses and the
reregistration of existing pesticides that were
registered prior to November 1, 1984. Pesticide
EPA's FY 1993 Annual financial Statement*
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57
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regulatory decisions are based primarily on
EPA's evaluation of the test data provided by
applicants. Tolerance residue setting activities
arc authorized by FFDCA. EPA's pesticide
regulations coven
• 20,000 pesticide products
• 2,200 registrants
• 3300 formulators
• 29,000 distributors and other
establishments
• 40,000 commercial pest control firms
• 1 million farms
• 90 million households
Commercial Activities. The CFO Act requires
reporting on programs performing substantial
commercial functions and specifically identifies
the making of loans as such an activity. EPA is
reporting on one commercial activity which is
administered under the Office of Pollution
Prevention and Toxics (OPPT) within the Office
of Prevention, Pesticides and Toxic Substances:
• the Asbestos Loan and Grant Program.
This overview covers the entire Asbestos Loan
and Grant Program. However, the loan portion
of the program is the only part that is a
commercial activity and is the only part of the
program covered by the audited financial
statements. The Asbestos School Hazard
Abatement Act (ASHAA) of 1984 directed EPA
to create a loan and grant program to financially
assist Local Education Agencies (LEAs) or
school districts with asbestos abatement projects
in public and nonprofit elementary and
secondary schools. The Act was subsequently
reauthorized in 1990 for an additional five years.
The ASHAA loan and grant program is
administered hi the Chemical Management
Division, Field Programs Branch of OPPTS.
EPA's FY 1993 Annual Financial Statement*
58
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Superfund
The Superfund program is administered under
the Comprehensive Environmental Response,
Compensation and Liability Act of 1980
(CERCLA) as amended by the Superfund
Amendments and Reauthorization Act, 1986
(SARA) and the Omnibus Reconciliation Act of
1991. The program is primarily managed by the
Office of Solid Waste and Emergency Response.
Program Description
CERCLA (Superfund) was enacted on December
11, 1980 to address public health and
environmental threats from spills of hazardous
materials and from sites contaminated with
hazardous substances. The Superfund law
established a comprehensive program to identify
and clean up these spills and sites. EPA was
authorized to use a trust fund (the Hazardous
Substance Superfund) to pay for this work and to
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. In fact, the average site takes
seven to ten years from discovery to start of
cleanup. Prior to being placed on the NPL, EPA
conducts a preliminary assessment of the site.
Where warranted, this is followed by a site
investigation. While EPA continues to seek
ways to speed site cleanups, the work on
complex sites can stretch into decades especially
when ground water must be treated. EPA also
conducts removal actions at non-NPL sites.
Since 1980, approximately 3,400 short-term
removal actions have been started (270 in FY
1993 alone), with the majority at non-NPL sites.
Once a site is listed on the NPL, EPA works
with the community around the site to plan the
long-term cleanup with a detailed study of the
site and an evaluation of cleanup options. The
planning process can take up to four years with
an average cost of $1.35 million per site.
The actual cleanup (construction) work itself
averages $22 million per site. Because of the
high cost and limited Superfund resources,
EPA's enforcement program emphasizes
compelling responsible parties to conduct the
cleanup actions. Responsible parties currently
fund approximately 72 percent of NPL sites.
While the Superfund responsibilities cannot be
delegated, at some sites the State, local
government or Indian Tribe takes the lead in
managing the site cleanup. At other sites, the
State or local agency cooperates with EPA on
handling a site cleanup.
Financial Perspective
In 1980, the Congress established in the
Department of the Treasury a trust fund entitled
the "Hazardous Substance Response Trust Fund".
which is known now as the Hazardous Substance
Superfund. Congress also appropriated funding
for five years totalling $1.6 billion. As the
long-term nature and expense of site cleanup
EPA's FY 1993 Annual Financial Statements
Page?
59
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became more evident, Congress reauthorized the
program in 1986 and the taxing authority for an
additional five years of EPA funding totalling
$8.5 billion. In 1990, Congress extended taxing
authority for an additional three years adding
$5.1 billion to EPA's funding.
The Department of Treasury's Hazardous
Substance Superfund Trust Fund is the source of
funding for EPA's Superfund account Through
annual and supplemental appropriations,
Congress establishes the amount of the fund that
EPA may use. EPA withdraws monies from the
trust fund as needed to cover disbursements. At
the end of FY 1993, the trust fund reflected an
unappropriated balance of $2.1 billion. Congress
could make these funds available to EPA in
future appropriations.
The Superfund trust fund is supported primarily
by taxes on crude and petroleum, on the sale or
use of certain chemicals,
and an environmental tax
on corporations. Other
sources of funding for
Superfund include
cleanup costs recovered
from responsible parties,
interest, fines and
penalties paid by
individuals and entities
who violate the terms of
the CERCLA provisions,
and by general revenues.
Superfund Staff by Location • FY 93
TOMFTEI.3.BM
(78%)
HO-AIOttwn (16H)
HO-OSWER (10%)
«*.«, Superfund Financial Trends
1JBO
FVIO rvtt
Parties responsible for
contaminating Superfund
NPL sites are
increasingly paying the
cost of cleanup, saving the fund for those sites
where parties are unable to contribute.
Responsible party commitments to site cleanup
have exceeded $1 billion in each of the past
three years. In FY 1993, EPA achieved
settlements for response actions at NPL sites
valued at $9103 million.
Superfund response program expenditures
through FY 1993 total $8.7 billion. In EPA's
most recent report to Congress, the Office of
Solid Waste and Emergency Response estimated
the remaining costs of cleaning up the 1,177
sites currently on the
NPL to be $14.3
billion for FY 1994
and beyond. This
estimate does not
include the
responsible party
contribution.
Superfund
appropriations,
obligations and
outlays have
remained fairly
constant from 1990
through 1993 as can
be seen on the
financial trends-chart.
In FY 1993, the Superfund program was staffed
by a total of 3,509 FTEs, and total Superfund
obligations were approximately $1.6 billion.
Further analysis of these numbers is provided in
the following sections.
PageB
60
EPA's FY 1993 Annual Financial Statements
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Superfund by Activity. The Agency has
identified four major components of the
Superfund program: Remedial Activities,
Removal Activities, Enforcement Activities, and
Other Activities. These activities were identified
based upon the "Superfund Activity Code",
which is the accounting process the Agency uses
to identify Superfund activities with accounting
transactions. Each of these components has
various activities which are identified below.
Remedial activities represent the long-term
response at a Superfund site and include the
Preliminary Analysis/Site Investigation (PA/SI),
Remedial Investigation/ Feasibility Study
(RI/FS), Remedial Design (RD), Remedial
Action (RA), associated oversight and laboratory
analysis activities, and remedial support and
management.
Removal activities represent the short-term
response and stabilization of hazardous
substances and include the removal actions,
associated oversight and laboratory analysis
activities, expedited response actions, Technical
Assistance Team activities, and removal support
and
Enforcement activities represent the actions the
Agency takes in the recovery of Superfund
expenditures, settlement negotiations with
responsible parties, and associated oversight
Other activities represent activities of the
Agency in supporting the Superfund program as
a whole. These "Other" activities cross the
remedial, removal, and enforcement program
lines and are associated with remedial, removal
and enforcement "Other" activities include
Research and Development contract award and
management, financial management, personnel
activities, and rent and utility costs.
These charts provide a look at Agency spending
patterns for the current fiscal year and the past
three-year period. The spending patterns are
identified for both obligations and disbursements.
An obligation represents a commitment to
procure and pay, and is funding for an activity.
Obligations are not the same as actual cash
disbursements. Disbursements (outlays)
represent cash payments for products or services
rendered. In general, for any given fiscal year,
obligations are an indication of current and
future activities and disbursements are indicative
of completed activities.
Superfund Obligations by Activity • FY 93
Toftl oMoutora fij Bfflon
Olhr (27*)
Enfornnwra (12%)
(«%)
Superfund Obligations by Activity. Remedial
activities account for more than 40 percent of the
Superfund Obligations by Activity • Trends
woo
1400
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EPA's FY 1993 Annual Financial Statements
Page 9
61
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Superfund budget Remedial Actions are taken
at large sites requiring complex cleanups. Over
60 percent of the sites on the NPL have had
design or construction for cleanup initiated, and
most contract dollars (more than 60 percent in
FY 1993) go for cleanup.
The "Other" category represents all infrastructure
support costs, including rent and utilities, to both
cleanup and enforcement as well as funds for
other offices within EPA, such as Research and
Development, and for other Federal agencies
which support the Superfund program.
The Superfund program conducts a large number
of short-term removal actions each year to
control immediate threats, with over 2,500 of
these completed by the end of FY 1993.
Removals account for approximately 18 percent
of the FY 1993 Superfund cleanup costs.
While enforcement represents the smallest part
of the Superfund budget, the resources invested
there have a large payoff. See Measures 6-9 and
the summary discussion which follows.
The four-year trend chart of Superfund
obligations indicates an increase in support
(other) spending in FY 1993. Total funding has
remained relatively constant.
Superfund Disbursements by Activity.
Disbursements represent the actual payment for
Superfund Disbursements by Activity - FY 93
Tow OttuMMna -Si JMon
pnt)
OMrfBK)
Superfund Disbursements by Activity - Trends
win
FVtl
services. The type of expense (activity) will
have an impact on how quickly an obligation is
actually disbursed. For example, payroll costs
are obligated and disbursed at one time. The
same holds for travel. Contract activities are
obligated at one time. However, the service may
be performed over a period of time. The mix of
payroll, travel, contracts, etc., will determine
how closely obligations and disbursements
match.
Superfund by Location. Superfund activity can
be further broken down by location. Obligations
and disbursements are displayed by Region,
Headquarters (HQ) - Office of Solid Waste and
Emergency Response (OSWER), and HQ - All
Others. Much of the operational responsibility
resides in the EPA regions. HQ - OSWER
nt
UOO
UOO
1JOO
1,000
•0
Superfund Staff by Office • FY 93
0* OMU OHO QM OW OOC CFPCMWn OK ft*
fen
Paw 10
62
EPA'i FY 1993 Annual Financial Statements
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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 Obligations by Location - FY 93
(10%)
HOOSWER (80%)
Superfiaid Obligations by Location. EPA
headquarters is further broken down between
Headquarters OSWER (Immediate Office •
OSWER, Office of Emergency and Remedial
Response, and Office of Waste Programs
Enforcement) and all other remaining non-
OSWER offices.
The bulk of the obligations occur in the regions.
Agency strategy, in the past few years, has been
to place more of the operational responsibility in
the regions. As a result, most obligations occur
in the regions.
Superfund Disbursements by Location. Current
Superfund Disbursements by Location • FY 93
Totil DMHjmronli 11.31
(B5%)
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.
•hi
Superfund Obligations by Location - Trends
WTM
Superfund Disbursements by Location - Trends
• in
1JOO
1JOO
rvn
rvti
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EPA'i FY 1993 Annual Financial Statements
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63
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Disbursements closely mirror obligations by
location except for the Regions.
Disbursements indicate completed activity while
obligations represent future activity. Since a
large portion of Superfund Remedial activity is
long-term and is conducted in the Regions, all
current year obligations will not be disbursed in
the same fiscal year.
Program Results
The direct beneficiaries of the Superfund are
those people living in the vicinity of the sites
this cleanup program addresses. Indirect
beneficiaries include those living further from
the sites who might suffer degradation of their
groundwater, drinking water, or air if these
programs did not alleviate the risk of
contamination before it became more
widespread. Early action to contain impacted
areas also lessens the potential liability of parties
responsible for *hft 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.
The Superfund cleanup program to date has
made significant strides in reducing risk from
exposure to hazardous waste. Over 340 million
gallons of liquid waste and 330 million gallons
of surface water have been treated by the
Superfund program. Seventy-five billion gallons
of groundwater also have been treated in cleanup
work. In addition, 23 million cubic yards of
solid waste, 12 million cubic yards of soil and
200,000 cubic yards of sediment have been
treated in conjunction with the thousands of
persons that have been relocated from the
vicinity of hazardous waste sites and supplied
with alternative water.
Superfund program performance measures
reported in the Agency's FY 1992 CFO Report
included accomplishments attributable to the
Federal facilities program. For FY 1993,
accomplishments claimed by that program have
been removed, and Federal facility sites are not
included in the NPL universe. Since the purpose
of the CFO Report is to relate program
performance to the trust fund and the funds used
to cleanup these sites do not come from the trust
fund, this data has not been included in the
report
EPA's performance measures for the Superfund
program for FY 1993 fall into two categories:
site cleanup (Measures 1-5) and enforcement/cost
recovery (Measures 6-9).
Cleanup. For site cleanup we measure not only
the completion stage but also the critical steps in
the cleanup process. Because the cleanup
process can take a number of years, it is
important to look at the "pipeline" of activities to
get an accurate sense of progress .
Measure 1: Number of sites on the National
Priorities List (NPL) where cleanup has
started/total number of sites on the NPL.
Activities which count under this measure are
short-term removal actions and the remedial
investigation/feasibility study which assesses the
nature and extent of contamination at the site
and analyzes cleanup alternatives so that a
remedy can be selected.
Results: In FY 1993, cleanup was started at 21
sites. Cumulative performance to date is 1,124
cleanups begun/1,177 sites on the NPL
The number of cleanups started declined in FY
1991 through 1993 relative to earlier years as the
Superfund program's emphasis has shifted to the
later stages of the cleanup effort needed to
complete work at a site. Also, cleanup has now
begun at nearly all sites on the NPL. The S3
Page 12
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EPA's FY 1993 Annual Financial Statements
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remaining sites have been evaluated for
immediate threat, even though cleanup action has
not yet begun.
Measure 2: The number of non-NPL sites
with hazardous releases where EPA has begun
a cleanup action.
Sites with confirmed hazardous releases, which
do not score high enough to be included on the
NPL or where an emergency exists, are eligible
for a short-term Superfund removal action if they
meet certain regulatory criteria. This measure
counts the number of sites where a removal
action has started.
Results: In FY1993, cleanup actions were
begun at 198 non-NPL sites, bringing the total
number of sites addressed through such actions
since program inception to 2,227.
Measure 3: The number of sites on the NPL
where a decision has been made about how to
proceed with the cleanup of at least a
significant portion of the site/the total number
of sites on the NPL.
Activities which count under this measure
include the documentation of how to proceed
with the remedial action - the signing of a
Record of Decision (ROD) - or the
documentation of the selection and authorization
of a removal - an Action Memorandum. The
ROD identifies the remedy that has been chosen
for remediating the site (or portion thereof) and
summarizes the site problems, the alternative
remedies considered, and the public's
involvement in the decision. The Action
Memorandum substantiates the need for action,
identifies the proposed action, and explains the
rationale for the particular type of removal action
selected. Action Memoranda were not included
as measures in the FY 1992 financial statements;
however, they are significant measures in the
documentation of removal action progress and
are included in this report for increased data
accuracy.
Results: Cleanup decisions were made for 59
sites in FY 1993, resulting in a total to date of
891 sites of the 1,177 sites on the NPL
Measure 4: Number of sites on the NPL
where Remedial Action has been completed
for at least a significant portion of the site/the
total number of sites on the NPL.
This measure counts those NPL sites (or portions
thereof) which have progressed through the
Remedial Action phase. At this stage the
construction work to implement the remedy is
complete, and EPA has conducted a final
inspection to determine that the remedy is
functioning properly and performing as designed.
As indicated above, a site may have more than
one Remedial Action.
Results: In FY 1993, 73 sites (or significant
portions thereof) progressed through the
Remedial Action cleanup phase. This brings the
total number of such sites to 301 of the 1,177
sites on the NPL [In the FY 1992 financial
statements, seven of the sites that were reported
as reaching remedial action were Federal
facilities. This year's report excludes Federal
facilities.
Measure 5: The number of sites on the NPL
where cleanup construction is completed/the
total number of sites on the NPL.
This measure counts the sites for which EPA has
declared cleanup construction complete. Sites
qualify for construction completion when:
1) any necessary physical construction is
complete whether or not final cleanup levels
or other requirements have been achieved;
EPA't FY 1993 Annual Financial Statr.mf.nti
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65
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NPL Sites with Construction Complete
CumuW* SUM* DtM
2) EPA determines that the response action does
not involve construction; or
3) the she qualifies for deletion from the NPL.
Additional clarification on the definition of site
cleanup is described in the Federal Register,
March 2,1993.
Results: During FY1993, cleanup was
completed at 68 sites. The substantial increases
in completions reflect management's increasing
focus on completions, the maturing of sites
already in the pipeline, and the streamlining of
documentation requirements. Cumulative results
for the program to date are 216 sites with
cleanup construction completed of the 1,177 sites
on the NPL [In the FY 1992 financial
statements, one site cleanup was attributable to
a Federal facility. Federal facilities are
excluded from this year's report]
Enforcement
EPA's enforcement program seeks to involve
those responsible for contaminating the
Superfund site in its cleanup and pursues cost
recovery of monies EPA expends from the trust
fund.
Measure 6: The number of enforcement
actions EPA has taken at sites on the NPL
against the Potentially Responsible Parties
(PRPs) for contaminating the site/the total
number of sites on the NPL.
This measure counts the number of legal actions
EPA has taken to involve responsible parties in
site study and cleanup. These actions include
administrative and judicial settlements, injunctive
referrals and administrative orders for removal,
site'study, and Remedial Design and Remedial
Action (RD/RA). It includes both those
situations where parties voluntarily entered into a
settlement with EPA and those where EPA uses
its enforcement authority to compel responsible
parties to conduct work.
Results: During FY 1993, 127 enforcement
actions for site study and cleanup were taken at
115 sites of the 1,177 sites on the NPL Seventy-
eight of these actions were settlements for
RD/RA (36 consent decrees and 42 unilateral
administrative orders).
Since the inception of the Superfund program,
EPA has achieved responsible party (RP)
commitments to site response at 748 sites (64
percent) of the 1,177 non-Federal facility sites
on the NPL with an estimated cumulative value
of over $7.9 billion. In FY 1993, EPA achieved
RP commitments to response work at 115 (10
Cost Recoveries • By Year
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EPA's FY 1993 Annual Financial Statements
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percent) of the 1,177 NPL sites. The estimated
value of the FY 1993 RP NPL cleanup
commitment is $841.6 million.
Measure 7: Past costs achieved in settlement
This measures provides the amount of cost
recovery that has been achieved to date. A
number of factors limit Superfund's ability to
recover its past costs, including bankruptcy of
PRPs,, other litigation concerns, involvement of
other Federal agencies as PRPs, the inability to
identify financially viable PRPs, and the
exclusion of certain indirect costs from cost
recovery. Of the $8.7 billion in past costs, $4.8
billion are considered recoverable.
_ Cost Recoveries-Cumulative
Results: Through FY 1993, Superfund has
achieved settlement for $1.033 billion and is
seeking another $944 million in ongoing cost
recovery actions. Also, through FY 1993,
Superfund has incurred approximately $4.8
billion in past costs which are considered
recoverable.
Future cost recovery actions will seek additional
portions of the $4.8 billion in recoverable past
costs. Cost recovery actions for individual sites
are generally initiated in the year prior to the
expiration of the statute of limitations.
Measure 8: The amount of money EPA has
collected from parties responsible for
contaminating sites on the NPL/the total
amount achieved in settlements and judicial
actions.
This measure totals the value of cost recoveries,
penalties and damages collected during the fiscal
year compared to the amount of cost recoveries
actually achieved (assessed) in settlements and
judicial actions.
There is frequently a delay between the date the
settlement is reached (the day cost recovery is
considered to be achieved) and the date the
funds are collected. Because of the time
required to file the necessary documents with the
courts, delays of three months and longer are not
uncommon. As a result, settlements reached in
the second half of one fiscal year are frequently
collected in the following year.
Results: In FY 1993, the Agency collected over
$185 million in cost recoveries and reached
settlements for the recovery of $221.7 million.
Since the inception of the program, the Agency
has collected over $731.7 million in cost
recoveries. This represents 71 percent of the
total value of cost recovery settlements reached
by the program to date.
IM» PRP Response Settlements
TOM
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EPA's FY 1993 Annual Financial Statements
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Measure 9: The estimated amount of money
parties responsible for contaminating
Superfund sites legally have committed to
spend on site cleanup/the total amount of
money spent by the Superfund on site
cleanup.
This measure estimates the dollar value of
cleanups responsible parties have agreed to
perform at NPL and non-NPL sites. The
estimate is derived from the Remedial Design or,
where this is not available, from the Record of
Decision. This estimate is then compared to the
amount of funds expended from the trust fund to
provide an order-of-magnitude contrast between
EPA expenditures for site response versus
private party expenditures for site response,
recognizing that the actual outlay of funds takes
place over several years. The resulting ratio is a
measure of cost avoidance to the fund.
Results: In FY1993, the Agency reached 199
settlements (NPL and non-NPL) for responsible
party response worth an estimated $910.3
million. Response settlements may be broken out
as follows:
• Remedial Design/Remedial Action
settlements- $811.0 million
•- Consent decrees referred to the
Department of Justice - $366.3
million.
• unilateral administrative orders -
$420.6 million
- Administrative Orders on Consent -
$24.1 million
• Settlements for removal and site evaluation -
$99.3 million.
When the value ofFY 1993 response settlements
is added to the cost recovery settlements
achieved of $221.7 million, the total ($1.13
billion) represents the amounts for which private
parties committed to pay for site response. FY
1993 Superfund obligations totaled $1.6 billion.
Compared to Superfund enforcement
expenditures in FY 1993 ($189 million), these
results represent a ratio of $6.00 in settlements
for each dollar spent on enforcement.
Summary. The Superfund program exceeded
most of the internal goals the Agency set for
itself in FY 1993. The Agency exceeded its goal
of 200 total sites by the end of FY 1993 by
achieving 216 construction completions and
expects to achieve a total of 650 by the year
2000.
The Superfund enforcement program also
compiled an enviable record in FY 1993.
Responsible parties contributions now account
for a majority of the Superfund cleanup work.
The value of responsible party settlements has
risen dramatically in the past few years due to
EPA's enhanced enforcement authorities and an
"enforcement first" policy and now comprise 79
percent of the remedial actions initiated in FY
1993.
Building on the momentum of the Superfund
revitalization program, in FY 1993 the Agency
initiated a series of nine initiatives to improve
the Superfund program without changing the
current statute. These initiatives address
enforcement fairness, streamlining response
actions, enhancing environmental justice,
community involvement, and enhancing the roles
of the States in the Superfund program.
In addition, the program will continue its
emphasis in accelerating cleanups through the
Superfund Accelerated Cleanup Model,
completing construction at NPL sites, pursuing
cleanups done by PRPs and improving contract
management.
Next Steps. One critical area we will continue
to focus on is contracts management. Since the
Superfund program is highly contract leveraged,
an efficient and effectively managed contracts
program is integral to Superfund's success. The
Agency is implementing a long-term contracting
16
EPA's FY 1993 Annual Financial Statements
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strategy that projects Superfund's needs over the
next decade and redesigns our portfolio of
contracts to meet these. We are phasing in new
contracts, most of which will be managed by the
Regional offices. This strategy is now under
Agency review.
EPA's Alternative Remedial Contracting Strategy
(ARCS) Task Force recommended improving
cost control in the ARCS contracts to reduce
administrative expenditures. The ARCS Task
Force recommended a target ratio be set at 20
percent for program management costs against
total contract expenditures. This target was
subsequently lowered by Congress in the VA-
HUD appropriations bill language to 15 percent
for FY 1992, 12 percent for FY 1993 and 11
percent for FY 1994. EPA's actions to control
costs resulted in EPA achieving the program
management Congressional targets for FY 1992
(with an actual ratio of 13.9 percent) and again
in FY 1993 (with an actual ratio of 11.5
percent). The national target continues to
decrease each year, encouraging contractors
cleaning up sites to manage administrative costs
wisely.
EPA also must continue to address weaknesses
in our contracts program. Although the Agency
has contracted substantially for policy and
regulatory development support, this has been
done out of necessity rather than choice. The
Agency would prefer to have this work done by
government employees. Due both to limits in
staff resources and to the availability of contract
funds, the Agency has contracted out these
activities.
EPA also enhanced enforcement fairness via
approximately 43 de minimis settlements in FY
1993 and by pursuing several other efforts such
as the use of alternative dispute resolution to
assist in cost allocation issues at approximately
35 sites. EPA also plans to issue guidance on
soil screening levels for approximately 90
chemicals commonly found at Superfund sites
and issue a policy regarding future land use of
Superfund sites. The first 30 soil screening
guidances are in draft and being piloted in the
regions; the remaining 60 are in development.
Additional guidance will also be issued for
certain types of sites for presumptive/
standardized remedies which should speed the
selection of remedies. In addition, 14 sites, 2
areas and 5 region-wide areas have been
identified as pilots for special environmental
justice emphasis.
EPA's efforts to convert base extramural
resources to Agency FTE to perform these types
of functions have been unsuccessful thus far. In
lieu of substituting Agency staff for contractors
to perform sensitive work, we are instituting
more stringent Agency contracting procedures.
However, as long as we continue to use
contractors to handle such a large portion of the
Superfund work, we remain vulnerable to
potential problems.
EPA's FY 1993 Annual Financial Statements
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Leaking Underground Storage Tank (LUST) Program
The Leaking Underground Storage Tank (LUST)
program was authorized by the Resource
Conservation and Recovery Act The Office of
Solid Waste and Emergency Response is
responsible for implementation of the LUST
program.
Program Description
The Resource Conservation and Recovery Act
was amended in 1984 to give EPA the authority
to regulate underground tanks storing petroleum
products. In 1986, Congress set up a $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. The
trust fund was reauthorized for five years in
1990 with no cap on funds collected. The fund
is used to oversee cleanups by responsible
parties or to clean up LUSTs where the
owner/operator cannot or will not do so, or
where no owner/operator can be found.
The U.S. has 5-7 million underground tanks
storing petroleum products. Approximately 1.3
million of these are regulated by EPA; the rest -
mainly on farms and at other locations that
contain heating oil for on-site consumption • are
exempt by law.
Underground storage tanks (USTs) are found at
gas and service stations, convenience stores and
non-marketer locations such as bus depots and
government facilities. An estimated 15-25
percent of regulated tanks may be leaking.
Leaks from USTs can cause fires or explosions,
and some leaks contaminate groundwater.
Due to the large size and diverse nature of the
regulated universe, EPA has set up a
decentralized UST program. The Agency relies
primarily on States and localities to carry out the
underground storage tank program. EPA has
formal agreements with all States to operate the
UST program as EPA's agent (including
inspections and enforcement). At the end of FY
1993, EPA had delegated program authority to
13 States, granting them formal approval to
regulate USTs in lieu of EPA.
Financial Perspective
Since 1986, the Treasury managed LUST Trust
Fund has collected $1.1 billion. This fund is the
source of funding for EPA's LUST account
Through annual and supplemental appropriations,
Congress establishes the amount of the fund that
EPA may use. Congress has appropriated a total
of $410 million to EPA through the end of FY
1993. EPA withdraws monies from the trust
fund as needed to cover disbursements. At the
LUST Projects-FY 93
TOW EPA Fundng tS3 MMon
Statt Managed (97%)
EPA Managed (3%)
end of FY 1993, the trust fund had an
unappropriated balance of $675 million.
Congress could make these funds available to
EPA in future appropriations.
Due to the decentralized nature of the LUST
program, EPA has awarded 86 percent of its
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EPA's FY 1993 Annual Financial Statements
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LUST Financial Trends
MO
appropriated funds to the States, since the
program's inception.
In FY 1993, EPA utilized 82.7 FTE and $83
million to implement the LUST program.
OSWER supported the LUST program with 67
FTE and $73 million, while approximately 16
FTE and $10 million were used by non-OSWER
offices in Headquarters and the Regions.
Responsible parties conducted 97 percent of the
cleanups with State oversight
The appropriated funds increased by $10 million
in FY 1992 compared to FY 1991. The FY
1993 Appropriations Act kept funding at the
same level as FY 1992, but a Midwest Flood
Supplemental Appropriation provided an
additional $8 million. Obligations decreased by
almost $1 million in FY 1993 after an $8.6
million increase in FY 1992. However, net
outlays continued to increase from FY 1990
through FY 1993. Since the LUST program is
funded by no-year appropriations, obligations
and outlays are funded by current-year
appropriations as well as prior-year unobligated
and unexpended balances respectively.
Program Results
The LUST program has initiated corrective
actions at over 171,000 sites as of the end of
FY 1993. These cleanup actions are protecting
hundreds of thousands of people from the effects
. of leaking petroleum storage tanks.
For the LUST program, the FY 1993
performance measures count the number of sites
with confirmed releases of petroleum products,
the number of these where cleanup has been
initiated and the number where it has been
completed.
Measure 1: The number of sites nationwide
where EPA and the States have found a
petroleum leak from an underground storage
tank.
This measure counts those sites where a release
has been identified and confirmed by EPA or the
designated State agency. It represents the
potential universe of sites for cleanup by the
LUST program. This measure does not count
tanks on farms and at other locations exempted
by law from the LUST program.
Results: During FY 1993, 53,000 USTs were
added to the list of sites with confirmed releases.
At the end of the fiscal year, a total of 237,000
sites were on this list.
Measure 2: The number of sites with
petroleum leaks from an underground storage
tank where cleanup has been initiated/the
total number of known sites with leaking
tanks.
This measure counts those LUST sites where
action has been initiated to remediate or clean up
the contamination, and compares that number to
the universe of sites with known releases.
Cleanups may be initiated by a State (with or
without LUST trust fund money) or by the
responsible party.
EPA's FY 1993 Annual Financial Statements
Page 19
71
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Results: In FY1993, the program initiated
actions at 42,000 sites. Cumulative program to
date: 171,000 cleanups initiated/a total universe
at the end ofFY 1993 of 237,000 sites with
confirmed releases.
Measure 3: The number of sites with
petroleum leaks from an underground storage
tank that have been cleaned up/the total
number of known sites with leaking tanks.
This measure counts those sites where the State
has determined that no further cleanup is
necessary, and compares this number to the
universe of sites with known releases. The
cleanup can be led by the State or the
responsible party and State cleanups may or may
not have used trust fund money.
t^ LUST National Corrective Action Activity
HTM
wrn
Results: During FY 1993, cleanup was
completed at 32,000 LUST sites. Total to date
completions is 87,000/a total universe at the end
ofFY 1993 0/237,000 sites with confirmed
releases.
The FY 1993 LUST data indicates a continuing
increase in the number of confirmed releases
from underground tanks. This is not surprising
as many tanks which were installed 20 to 30
years ago are now corroding and leaking. We
anticipate that the rate of confirmed releases will
continue at a rate of about 50,000 per year for
the next several years.
The numbers of cleanups initiated and completed
are also on the upswing, due to the growth of
State programs and EPA's efforts to speed up
site assessments and get the cleanups underway
quickly. EPA also has worked with States to
quicken the pace of cleanups and make them as
least costly as possible.
Over the next several years, the LUST program
will focus on preventing as well as remediating
releases. By December 1993, all owners must
utilize an accepted method of leak detection on
all existing systems. In addition, the program
will expand its efforts to ensure that new tanks
are properly installed and that old ones are
properly close. Proper tank installation and
closure and careful monitoring of tanks in use
will minimize future problems with leaking
underground storage tanks.
Prgc20
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EPA's FY 1993 Annual Financial Statements
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Oil Pollution Prevention Program (Oil Spill Trust Fund)
EPA's Oil Pollution Prevention program is
housed in the Office of Solid Waste and
Emergency Response (OSWER) and uses the Oil
Spill Trust Fund to finance the cost of cleaning
up spills. The Emergency Response Division
(ERD) within OSWER's Office of Emergency
and Remedial Response (OERR) provides
assistance to Regional On-Scene Coordinators
during oil spill incidents. Support for
enforcement activities is p jvided by OSWER's
Office of Waste Programs Enforcement (O\VPE).
Program Description
The Oil Pollution Act (OPA) of 1990 was passed
hi response to increasing frequency and severity
of accidental oil discharges into the environment,
such as the Exxon-Valdez spill. The goal of the
Oil Pollution Prevention Program is to protect
public health, welfare and the environment from
hazards associated with a discharge, or a threat
of a discharge, of oil and other petroleum
products or hazardous substances into navigable
waters.
Under the OPA, EPA is responsible for oil spill
prevention, preparedness, response, and
enforcement activities associated with non-
transportation-related facilities. These facilities,
which range from hospitals and apartment
complexes to large tank farms, include any
storage facility with aboveground storage
capacity greater than 1,320 gallons, a single
aboveground storage tank larger than 660
gallons, or underground storage greater than
40,000 gallons.
The OPA requires area committees (comprised
of state, local and federal officials) to develop
Area Contingency Plans which: detail the
responsibilities of those involved in planning the
response process; describe unique geographical
features of the area covered; and identify
available response equipment. EPA must review
and approve facility response plans which:
ensure consistency with the National
Contingency Plan; identify and ensure the
availability of resources to respond to a worst
case discharge; establish communications;
identify an individual with authority to
implement removal actions; and describe training
and testing drills at the facility.
The most resource-intensive and time critical
requirements are those related to facility
response plan reviews and approvals. Of the
4,074 facility response plans submitted to the
Agency, 2,300 facilities pose a significant or
substantial threat to the environment and will
require Agency approval by February 1995, or
the requesting facility must cease operations.
EPA is establishing the regulatory framework
under which it will proceed with its OPA-
mandated responsibilities. This framework
includes the Oil and Hazardous Substances
National Contingency Plan (NCP 40 CFR Part
300) and the Oil Pollution Prevention regulation
(40 CFR Part 112). the NCP is the nation's
blueprint for responding to releases of oil and
hazardous substances. The Oil Pollution
Prevention program establishes requirements to
prevent and prepare to respond to spills at oil
storage facilities subject to the regulation.
Headquarters develops policy and program
guidance to: 1) prevent harmful releases of oil
and other petroleum products; 2) improve
nationwide capability to respond to threats of
discharge of oil or other petroleum products; 3)
improve nationwide capability for containment
and removal of releases that occur hi navigable
waters; 4) coordinate with other federal agencies
on facility response plan requirements and
review and approval; 5) minimize the resulting
environmental damage from releases; and
EPA's FY 1993 Annual Financial Statements
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6) fully utilize enforcement authority to compel
responsible parties to clean up spills and to
provide a strong economic incentive to invest in
preventive measures and comply with
regulations.
In addition. Headquarters supports field
operations through operational guidance,
technical bulletins, and demonstrations of new
technologies. Headquarters also supports the
OPA-mandated facility response plan process,
chiefly through the development of approval
criteria for the response p* as.
The Regions conduct on storage facility
inspections to ensure compliance with EPA's oil
pollution prevention regulation, also known as
the Spill Control and Countermeasures regulation
(SPCC). A major component of the Regions'
work is the monitoring, directing, or performance
of removal actions during oil spills. They also
conduct periodic equipment inspections and
unannounced area drills. The Regions take
administrative actions against facility operators
for failure to comply with SPCC plans and new
OPA requirements, and refer a limited number of
actions for judicial action. Administrative and
judicial actions also are brought as a result of oil
and hazardous substance spills. Regions also
assist the Federal Emergency Management
Agency at major disasters and participate in
response training of State and local staff.
The beneficiaries of the Ofl Pollution Prevention
program are those people living in the vicinity of
confirmed spills when cleanup actions are taken
either by EPA or the responsible party. People
living near regulated facilities benefit from the
increased safety measures incorporated into the
facilities' response plans.
Financial Perspective
Since the beginning of the Oil Spill Trust Fund's
existence through FY 1993, Congress has
appropriated a total of $39 million to the
Agency. In FY 1993, EPA used 75.5 FTE and
had budget authority of $20.7 million to
implement the Oil Pollution Prevention program.
The $20.7 million sum includes $700,000
received as a result of a Midwest Flood
Supplemental Appropriation. The Agency
obligated $18.2 million for oil spill response
activities in FY 1993 and processed $6.2 million
in net outlays.
Program Results
Measure l(a) Oil Facility Response Plans
Received and (b) Extensions Granted
This measure counts (a) the number of oil
facility response plans received and (b) the
number of extensions granted to facilities for
submitting response plans. Under the Oil
Pollution Act (OPA), facilities which store oil
and have the potential to cause "substantial
harm" to the environment must prepare a
response plan for the worst case discharge.
Results: To date, 4,074 facility response plans
have been received and 2,378 extensions have
been granted.
Measure 2(a) Oil Spill Cleanups and (b) On-
Scene Monitoring of Potentially Responsible
Party (PRP) Lead Cleanups
This measure counts (a) the number of oil spills
cleaned up by EPA using OPA funds and (b) the
number of times EPA monitors a PRP's cleanup
actions. EPA monitors a cleanup when a
Potentially Responsible Party responds to the
spill to ensure adequate cleanup takes place.
Results: Twenty-five oil spills were cleaned up
in FY 1993 using OPA funds. EPA monitored
170 responsible party oil spill cleanups in FY
1993.
22
EPA't FY 1993 Annual Financial Statements
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Measure 3(a) Administrative Actions for spill
violations and prevention regulation violations
and (b) Judicial Penalty Enforcement Actions
for spill violations and prevention regulation
violations,
This measure counts (a) the number of
administrative and (b) judicial enforcement
actions resulting from prohibited spills and
violations of the regulations of the Clean Water
Act as amended by the Oil Pollution Act These
two actions reflect a significant portion of the
resources used in the oil program and indicate
significant achievements in compliance. An
administrative complaint is counted on the date it
is issued to the respondent. A judicial case is
counted on the date of the referral letter/cover
memo to the Department of Justice.
Results: Eleven administrative cases were filed,
and four judicial enforcement actions were
referred to the Department of Justice in FY
1993.
EPA's FY 1993 Annual Financial Statements
Page 23
75
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Asbestos Loan and Grant Program
The Asbestos Loan and Grant Program is
administered under the Asbestos School Hazard
Abatement Act (ASHAA) primarily by the
Office of Prevention, Pesticides and Toxic
Substances (OPPTS). This overview covers the
entire Asbestos Loan and Grant program.
However, the loan portion of the program is the
only part that is a commercial activity and is the
only part of the program covered by the audited
financial statements.
Program Description
The purpose of the ASHAA program is to
reduce risk to school children and employees
posed by asbestos. Since its inception, the
program has provided more than $420 million in
financial assistance to financially needy Local
Education Agencies (LEAs) with the most
hazardous asbestos abatement projects. During
this period, a significant amount of exposure to
asbestos fiber has been eliminated. Although the
statute was reauthorized through 1995, EPA has
not included funding in any of its recent budget
requests to Congress. Each year, new funding
has been dependent on Congress adding
resources, in varying amounts, to the Agency's
budget request The 1994 Appropriations Bill
did not contain any funding for ASHAA loans
and grants. The State designee and educational
organizations have been notified of this reduction
in the ASHAA program.
The Act envisions a three-step process. First,
EPA is to make applications available to public
and non-profit schools for completion and
submission to their State Governors (or the
Governor's Designee). Second, Governors (or
Designees) are responsible for collecting,
reviewing, and submitting applications to EPA.
Third, EPA receives and reviews all applications
and makes offers of financial assistance available
on the basis of the applicant's asbestos hazard
and demonstrated financial need. The
reauthorized statute mandates that awards of
financial assistance must be made by April 30 of
each year for which Congress appropriates
funding for the loan and grant program.
In making its award decisions, the ASHAA
legislation instructs EPA to generate its own
national priority list from applications received.
A ranking method is then employed to sort all
proposed abatement projects into categories
depending on certain characteristics of the
asbestos containing building materials (ACBM).
Only projects with friable ACBM and some
degree of damage are considered for financial
assistance. If the project has damaged friable
material, the ranking method next establishes
four categories based on the degree of damage to
the ACBM, and whether the material is exposed
or located in an air plenum. The four categories
are:
Priority One - Significantly damaged friable
surfacing material which is exposed and/or
located in an air plenum.
Priority Two - Friable asbestos containing
materials which are exposed or in an air plenum
and are defined by an AHERA accredited person
as one of the following:
• Damaged or significantly damaged thermal
system insulation.
• Damaged surfacing material.
• Damaged or significantly damaged
miscellaneous material which has been
isolated to protect human health and the
environment.
Priority Three - Damaged or significantly
damaged friable miscellaneous material which
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EPA's FY 1993 Annual Financial Statements
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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 tL. asbestos-contar ;
materials determines the priority for
consideration of a project, financial need controls
whether an award is offered, the award amount,
and the loan/grant composition of the award. In
accordance with the statute, monies are not made
available to any applicant which has sufficient
resources available to support an asbestos
abatement program. Financial indicators used to
determine eligibility for both private and public
schools include Budget per Pupil and the burden
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 percent of
abatement project costs and grants may cover up
Asbestos Fund Awards - FY 93
Tottl Awn*. SMS ratal
Lorn (83%)
Grant* (7%)
to 50 percent of costs. ASHAA does not require
that EPA provide recipients the total funding
necessary to complete an abatement project.
Financial Perspective
Since 1985, the ASHAA Loan and Grant
program has awarded $422.3 million for asbestos
abatement projects. Approximately $310.7
million of these awards were for twenty-year
loans.
-------
loans, EPA lowers the Federal government's
costs for reducing asbestos exposure hours. Both
loan obligations and loan repayment collections
continued to increase from FY 1990 through FY
1993.
During FY 1993, the Agency collected $10.4
million in loan repayments. Based on loan
disbursement and collection history, the Agency
projects collecting $10.5 million in loan
repayments in FY 1994.
Program Results
EPA's performance measures for the ASHAA
program include two measures:
Meaasure 1: Number of ASHAA awarded
projects.
Results: In FY 1993, the ASHAA program
funded 305 projects in 156 LEAs across the
country.
Measure 2: Elimination of Exposure Hours.
Results: When the projects currently funded are
completed, EPA estimates that 3.2 million
exposure hours will be eliminated per week.
Asbestos Exposure Hours Eliminated per Week
ASHAA Projects Awarded
(Two iwndi d Mwd» In FY 17)
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EPA's FY 1993 Annual Financial Statements
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Pesticides Reregistration and Expedited Processing Fund
(FIFRA Fund)
The Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund) is administered
under the Federal Insecticide, Fungicide, and
Rodenticide Act (FIFRA) primarily by the Office
of Prevention, Pesticides and Toxic Substances
Program Description
As part of its authority ti rgulate pesticid
EPA is responsible for reregistering existi.
pesticides. The FIFRA legislation, requiring the
registration of pesticide products, was originally
passed in 1947. Since then, health and
environmental standards have become more
stringent and scientific analysis techniques are
much more precise and sophisticated. In the
1988 amendments to FIFRA (FIFRA '88),
Congress mandated the accelerated reregistration
of all products registered prior to November 1,
1984. The amendments established a statutory
goal of completing reregistration eligibility
decisions by 1997. The legislation allows for
various time extensions which can extend this
deadline by three years or more. Additional
resources, however, will be needed to meet these
goals/deadlines.
Congress authorized the collection of two kinds
of fees until 1997 to supplement appropriated
funds for the program - an annual Maintenance
Fee and a one-time Reregistration Fee.
Maintenance fees are assessed on registrants of
pesticide products and are structured to collect
approximately $14 million per year.
Reregistration fees are assessed on the
manufacturers of the active ingredients in
pesticide products and are based on the
manufacturer's share of the market for the active
ingredient In fiscal years 1992, 1993, and 1994,
approximately 14 percent of Maintenance Fees
collected, up to $2 million each year, are to be
used for the expedited processing of old
chemical and amended registration applications.
Fees are deposited to the FIFRA Revolving
Fund. By statute, excess monies in the FIFRA
Fund may be invested. Waivers and/or refunds
are granted for minor use pesticides,
antimicrobial pesticides, and small businesses.
The reregistration process is being conducted
through reviews of groupings of similar active
ingredients called cases. There are five (5)
major phases of reregistration:
• Phase 1 - Listing of Active Ingredients. EPA
publishes lists of active ingredients and asks
registrants whether they intend to seek
reregistration. Completed in FY 1989.
• Phase 2 - Declaration of Intent and
Identification of Studies. Registrants notify
EPA if they intend to reregister and identify
missing studies. Completed in FY 1990.
• Phase 3 - Summarization of Studies.
Registrants submit required existing studies.
Completed in FY 1991.
• Phase 4 - EPA Review and Data Call-Ins
(DCIs). EPA reviews the studies, identifies
and "calls-in" missing studies by issuing a
DCI. A "DCI" is a request to a pesticide
registrant for scientific data to assist the
Agency in determining the pesticide's
eligibility for reregistration.
• Phase 5 - Reregistration Decisions. EPA
reviews all studies and issues a Reregistration
Eligibility Document (RED) for the active
ingredient(s). A "RED" is a determination
by the Agency whether products containing a
pesticide active ingredient are eligible for
reregistration. The registrant complies with
the RED by submitting product specific data
EPA's FY 1993 Annual Financial Statements
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and new labels. EPA reregisters or cancels
the product. Pesticide products are
reregistered, based on a RED eligibility
determination, when it meets all label
requirements. This normally takes 14 to 20
months after issuance of the RED.
Financial Perspective
During FY 1993, the Agency's obligations
charged against the FIFRA Fund for the cost of
the rercgistration and exp- :ed processing
programs were 192 FTEs *ad $15.6 millioi Df
these amounts, the Office of Pesticide Progr^ns
funded the 192 FTEs and obligated $12.3
million of this cost
FIFRA Financial Trends
rrn
Appropriated funds are used in addition to
FIFRA revolving funds. In FY 1993,
approximately $25.3 million in appropriated
funds were obligated for reregistration and
expedited processing program activities. The
unobligated balance in the fund at the end of FY
1993 was $9.92 million. This is an increase of
$0.94 million compared to the FY 1992 year-end
balance of $8.98 million.
The fund has two types of receipts: fee
collections and interest earned on investments.
Of the $16.3 million in FY 1993 receipts,
approximately 97 percent was fee collections.
During the past two years, the fund balance and
corresponding investment earnings have
decreased because program expenses
(disbursements) exceeded collections. The fee
collections decreased by almost $0.4 million in
FY 1993 compared to FY 1992. The obligations
decreased in FY 1993 because the Office of the
General Counsel and other Agency offices no
longer make direct charges to the fund.
FIFRA Fund Receipts • FY 93
TOW RwripO - $164 ftUfen
FMS (87%)
Program Results
The following measures support the program's
strategic goals of Food Safety and Safer
Pesticides as contained in the Pesticide Program
Strategy, 1994-1997. The product reregistration
measure is different from the measure reported
in FY 1992. It has been changed to remain
consistent with the definition of the performance
indicators being tracked by the Strategic
Targeted Activities for Results System (STARS).
In FY 1992, STARS measured only the number
of reregistrations, while in 1993, it counted the
number of products reregistered, canceled and
amended. This figure more accurately reflects
program effort based on a RED eligibility
determination.
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EPA's FY 1993 Annual Financial Statements
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Measure 1: Number of Reregistration
Eligibility Documents (REDs) completed.
Results: The number of Reregistration Eligibility
Documents (REDs) completed was 19 (versus a
target of 20), an increase of 4 over FY1992
when 15 were completed. There are
approximately 405 REDS of which 47 have been
completed.
Measure 2: Number of products reregistered,
canceled, or amended.
Results: In FY 1993, 219 products were
reregistered, 434 cancelled (111 of which for
nonpayment of fees) and 12 amended. The
combined 665 actions were achieved versus a
target of 1122. In addition, 423 products were
forwarded to the EPA Office of Compliance
Monitoring for suspension.
EPA's FY 1993 Annual Financial Statements
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Revolving Fund for Certification and Other Services
(Tolerance Fund)
The Revolving Fund for Certification and Other
Services (Tolerance Fund) is administered under
the Federal Food, Drug and Cosmetic Act
(FFDCA) primarily by the Office of Prevention,
Pesticides and Toxic Substances (OPPTS).
Program Description
As pan 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 me public is protected from
unreasonable health risks posed by eating foods
that have been treated with pesticides in
accordance with label directions. The tolerance
program is a major part of the Agency's Food
Safety goals.
In 1954, Congress authorized the collection
of fees for the establishment of tolerances for
raw agricultural commodities (section 408 of
FFDCA). Congress, however, did not authorize
the collection of fees for food additive
tolerances (section 409 of FFDCA). EPA,
therefore, does not collect fees for food additive
tolerances. The Agency also does not collect
fees for Agency-initiated actions such as the
revocation of tolerances for previously canceled
pesticides. Fees collected for tolerances for raw
agricultural commodities were deposited to the
U.S. Treasury General Fund until 1963 when
Congress established the Tolerance Fund.
Specific fees are contained in 40 CFR 180.33
and range from $3,200 to $56,175, depending
on the type of tolerance action requested.
Waivers and/or refunds are granted for minor use
pesticides submitted under the Inter-Regional
Research Project Number 4 (IR-4 Program),
public interest, such as reduced-risk pesticides,
and economic hardship. The fees are updated
annually based on the cost-of-living adjustment
in Federal General Scale wage rates. Fees were
increased 3.7 percent in FY 1993. By statute,
monies in the Tolerance Fund may not be
invested.
Financial Perspective
During FY 1993, the Agency charges to the
Tolerance Fund for the cost of the tolerance
setting functions were $0.9 million.
Appropriated funds are used hi addition to
revolving funds. In FY 1993, approximately
$4.5 million in appropriated funds were
obligated. The unobligated balance in the
revolving fund at the end of FY 1993 was $4.25
million. This is an increase of $0.5 million
compared to the FY 1992 year-end balance of
$3.75 million.
»•_ Tolerance Fund Financial Trends
ftndl
PYB
PVtl
FYB
PYB
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EPA'* FY 1993 Annual Financial Statements
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The fund balance remained about the same in
FY 1991 and FY 1992 then increased by almost
$0.5 million in FY 1993. This fund balance
increase mainly resulted from fee collections
which rose by $0.4 million in FY 1993
compared to FY 1992. Earnings (obligations)
decreased from FY 1992 to FY 1993 primarily
as a result of the decrease in the number of
permanent tolerance petition completions.
Program Results
Tolerance fees collected in FY 1993 were
approximately $1.5 million and "earnings" in FY
1993 were approximately $0.9 million. Earnings
represent the value of petitions that are 80
percent or more completed. In 1993, EPA could
not use the tolerance fees in the revolving fund
until the work on a petition was at least 80
percent completed.
Measure 1: Number of permanent tolerance
petitions completed.
Results: The number of permanent tolerance
petitions completed for section 408 raw
agricultural commodities and section 409 food
additives was 39 compared to a target of 50.
This represents final determinations by the
Agency concerning permanent tolerance petition
requests for allowable levels of pesticide
residues on raw agricultural commodities and in
food additives. This is a decrease of 23
completions compared to the 62 in FY 1992.
The number of permanent tolerance petition
reviews ("cycles") completed was 385 compared
to a target of 413. This measure supports the
strategic goals of Food Safety and Safer
Pesticides as contained in the Pesticide Program
Strategy, 1994-1997.
Tolerance Completions
rvn
FYH
FY92
FYtS
EPA'i FY 1993 Annual Financial Statements
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84
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MESSAGE FROM THE CHIEF FINANCIAL OFFICER
As the Chief Financial Officer of the U.S. Environmental Protection Agency (EPA), I
am proud to present EPA's Fiscal Year 1993 Annual Financial Statements. These statements
provide our Agency managers with an assessment of the financial condition of our trust
funds, revolving funds and commercial activities. They are submitted in accordance with
requirements of the Chief Financial Officers (CFO) Act of 1990 and Office of Management
and Budget guidance.
EPA's financial statements present the financial position and results of operation of
the following six funds: Superfund Trust Fund; Leaking Underground Storage Tanks (LUST)
Trust Fund; Oil Spill Trust Fund; Loan Portion of the Asbestos Loan and Grant Program;
Pesticides Reregistration and Expedited Processing Fund (FIFRA Fund); and Revolving Fund
for Certification and Other Services (Tolerance Fund). The preparation of financial
statements and participation in the audit process provide useful information about our
programs and accounting systems and help us identify areas where improved information
systems, management controls and accountability are needed.
EPA accelerated the submission of its annual financial statements by 90 days this
year. In addition to the abbreviated timeframe, we were able to make significant
improvements in a number of areas. These include:
• completing the reconciliation of long-standing conversion errors resulting from the
installation of our integrated financial management system (IFMS) in 1989;
• receiving a more favorable opinion on the FIFRA fund. This year the auditors
expressed a qualified opinion as opposed to the disclaimer we received in FY 1992;
and
• receiving an unqualified opinion on the Oil Spill Trust Fund, which was added to our
financial statements for the first time this year.
I am encouraged by the progress we have made as well as by the auditors' overall
recognition of management's commitment to identify and resolve EPA's financial
management problems.
While I am pleased with these improvements, much work still needs to be done, since
a number of the auditors' findings from last year's statements remain. While we will not be
able to resolve all of these issues immediately, among my top priorities are to: improve the
management of our accounts receivable; establish a property tracking system; and resolve
financial management systems documentation, interface and reporting problems. In many
cases, corrective actions are well underway, and I anticipate that our progress will be
reflected in next year's financial statements.
EPA's FY 1993 Annual Financial Statements Page 33
85
-------
EPA's Financial Management Five-Year Plan outlines our strategy for strengthening
accountability and financial management practices throughout the Agency. The plan
establishes benchmarks, goals and specific milestones by which our progress can be
measured in future years. By following our plan, consistent with available resources, I
believe we will meet our critical resource management needs and position the Agency to
achieve its environmental mission.
I am confident that we at EPA are on the right track for restoring public trust in the
Federal government as responsible financial stewards. I strongly believe the recent financial
reform efforts, which the federal government has undertaken via the National Performance
Review and various legislative efforts, will go a long way toward resolving common
problems faced by the Federal financial community.
On a personal note, I want to acknowledge the hard work of the employees
throughout the Agency who contributed to the production of these financial statements. I am
especially indebted to the excellent support provided by EPA's Office of Solid Waste and
Emergency Response; Office of Prevention, Pesticides and Toxic Substances; Office of
Policy, Planning and Evaluation; Office of the Inspector General; and my own dedicated
staff.
Jonathan 71 Cannon
Page 34 EPA's FY 1993 Annual Financial Statements
86
-------
Principal Financial Statements
Contents
Financial Statements
Statements of Financial Position
Statements of Operations and Changes in Net Position
Statements of Cash Flows
Statements of Budget and Actual Expenses
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balances with Treasury
Note 3. Investments - Federal
Note 4. Loans Receivable, Net Non-Federal
Note 5. Property, Plant and Equipment - Net
Note 6. Debt - Federal
Note 7. Other Funded Liabilities - Federal
Note 8. Total Net Position
Note 9. Program or Operating Expenses
Note 10. Other Expenses
Note 11. Prior Period Adjustments
Note 12. Non-Operating Changes
Note 13. Contingencies
Note 14. Restatement of Prior Year Financial
Statements
EPA's FY 1993 Annul Financiil Statements
87
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Financial Position - Restated (Note 14)
As of September 30, 1993 and 1992 (Dollars in Thousands)
Assets
Financial Resources:
Fund Balances With Treasury (Note 2)
Investments - Federal (Note 3)
Marketable Equity Securities (Note 1)
Accounts Receivable, Federal, Net (Note 1)
Accounts Receivable, Non-Federal, Net (Note 1)
Loans Receivable, Non-Federal, Net (Note 4)
Appropriated Amounts Held by Treasury (Note 1)
Non-Financial Resources:
Advances and Prepayments, Non-Federal
Property, Plant and Equipment, Net (Note 5}
Total Assets
Liabilities and Net Position
Liabilities
Accounts Payable, Non-Federal
Accounts Payable, Federal
Accrued Payroll and Benefits
Deferred Revenue, Non-Federal (Note 1)
Deferred Revenue - Federal (Note 1)
Debt - Federal (Note 6)
Other Funded Liabilities - Federal (Note 7)
Accrued Leave - Unfunded
Total Liabilities
Net Position
Trust Fund Balances
Commercial Activities
Revolving Fund Balances
Less Future Funding Requirements
Total Net Position (Note 8)
Total Liabilities and Net Position
Superfund
Trust Fund
1993
$ 11,485
4,699
7,955
193,938
3,173,380
133
14.030
$3.405.620
$ 112,057
105,541
7,698
183,430
4,511
11.556
424,793
2,992,383
(11.556)
2.980.827
S3.405.620
1992
$ 65,200
8,958
122,315
2,967,460
678
16.094
$3.180.705
$ 102,212
126,733
6,464
248,561
14,929
10.723
509,622
2,681,806
(10.723)
2.671.083
$3.180.705
Page 36
8£
EPA's FY 1993 Annual Financial Statements
-------
LUST
Trust Fund
1993 1992
$ 1,638
$ 6,471
Oil Spill
Trust Fund
1993
$ 14,478
1992
14
33
89,021
51
80,722
3,654
61
S 94.421
247
84
S 87.575
$ 14.478
$
$ 1,749
157
$ 1,503
5
144
$ 1,334
91
157
1,906
1,652
1,582
92,515
85,923
12,896
92.515
85.923
$ 87.575
12.896
$ 14.478
$
(Continued)
EPA's FY 1993 Annual Financial Statements
Page 37
89
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Financial Position - Restated (Note 14), Continued
As of September 30, 1993 and 1992 (Dollars in Thousands)
Assets Asbestos
Commercial Activity
1993 1992
Financial Resources:
Fund Balances With Treasury (Note 2) $ 63,073 $ 29,877
Investments - Federal (Note 3) -
Marketable Equity Securities (Note 1) - -
Accounts Receivable, Federal, Net (Note 1) - 19,400
Accounts Receivable, Non-Federal, Net (Note 1) 4 12
Loans Receivable, Non-Federal, Net (Note 4) 130,011 124,515
Appropriated Amounts Held by Treasury (Note 1) - -
Non-Financial Resources:
Advances and Prepayments, Non-Federal
Property, Plant and Equipment, Net (Note 5) : :
Total Assets $193.088 $173.804
Liabilities and Net Position
Liabilities
Accounts Payable, Non-Federal $ 66 $ 53
Accounts Payable, Federal
Accrued Payroll and Benefits
Deferred Revenue, Non-Federal
Deferred Revenue - Federal
Debt - Federal (Note 6) 12,172 1,318
Other Funded Liabilities - Federal (Note 7) 117,634 123,209
Accrued Leave - Unfunded * :
Total Liabilities 129,872 124,580
Net Position
Trust Fund Balances
Commercial Activities 63,216 49,224
Revolving Fund Balances
Less Future Funding Requirements : :
Total Net Position (Note 8) 63.216 49.224
Total Liabilities and Net Position $193.088 $173.804
The accompanying notes are an integral part of these statements.
Pace 38 EPA's FY 1993 Annual Financial Statements
90
-------
FIFRA
Revolving Fund
1993 1992
$ 950
10,209
$ 65
15,243
Tolerance
Revolving Fund
1993 1992
$ 4,246
$ 3,757
28
4
533
$ 11.698
15
574
$ 4.246
357
73
260
5,755
$
1,428
209
457
8,917
$
89
466
-
3,691
$ 153
-
-
3,604
6,445
11,011
4,246
3,757
5,253
5.253
4,914
4.914
$ 4.246
$ 3.757
EPA's FY 1993 Annual Financial Statements
Page 39
91
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Operations and Changes in Net Position
Restated (Note 14)
For the Years Ended September 30, 1993 and 1992
(Dollars in Thousands)
Superfund
Trust Fund
1993 1992
Revenues and Financing Sources
Appropriations Expensed $1,343,528 $1,408,040
Revenues from Services to the Public 18,941
Interest and Penalties, Non-Federal 32,695 4,514
Interest Income, Federal - -
Income From Overhead Allocation 22,257 17,586
Fines, Penalties and Other Revenues 420,242 200,596
Less: Receipts Returned to Treasury (185.359) (184.639)
Total Revenues and Financing Sources 1.652.304 1.446.097
Expenses
Program or Operating Expenses (Note 9) 1,340,418 1,408,582
Depreciation and Amortization 5,016 520
Bad Debts and Writeoffs 161,463 5,455
Overhead Expenses from Allocation 22,257 17,586
Other Expenses (Note 10) 1 2
Total Expenses 1.529.155 1.432.145
Excess of Revenues and Financing Sources 123,149 13,952
Prior Period Adjustments (Note 11) 17.361 3.574
Excess of Revenues and Financing Sources
Over Total Expenses 140,510 17,526
Plus: Unfunded Expenses 833 1.092
Excess of Revenues and Financing Sources
Over Funded Expenses $ 141.343 $ 18.618
Changes in Net Position
Net Position, Beginning Balance $2,671,083 $2,146,393
Excess of Revenues and Financing Sources 141,343 18,618
Non-Operating Changes (Note 12) 168.401 506.072
Net Position, Ending Balance $2.980.827 $2.671.083
;e 40 EPA's FY 1993 Annual Financial Statements
-------
LUST Oil Spill
Trust Fund Trust Fund
1993 1992 1993 1992
$75,137 $ 69,153 $ 7,804 $
827 238 755
75,964
75,107
29
1
827
75.964
69,391 8,559
69,117 7,804
19
17
238 755
69.391 8,559
(22) - -
(22)
$
$
$-
EPA's
(22)
85,923
(22)
6.614
92.515
FY 1993 Annual
$ $ $ -
$ 80,077 $ $ -
5.846 12.896
$ 85.923 $ 12,896 $
(Continued)
Financial Statements Page 41
93
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Operations and Changes in Net Position
Restated (Note 14), Continued
For the Years Ended September 30, 1993 and 1992
(Dollars in Thousands)
Asbestos
Commercial Activity
1993 1992
Revenues and Financing Sources
Appropriations Expensed $ 10,718 $ 3,395
Revenues from Services to the Public
Interest and Penalties, Non-Federal 16 13
Interest Income, Federal 310 7
Income From Overhead Allocation 895 902
Fines, Penalties and Other Revenues
Less: Receipts Returned to Treasury - -
Total Revenues and Financing Sources 11.939 4.317
Expenses
Program or Operating Expenses (Note 9) 10,718 3,395
Depreciation and Amortization
Bad Debts and Writeoffs 7
Overhead Expenses from Allocation 895 902
Other Expenses (Note 10) 310 7
Total Expenses 11.930 4.304
Excess of Revenues and Financing Sources 9 13
Prior Period Adjustments (Note 11) - -
Excess of Revenues and Financing Sources
Over Total Expenses 9 13
Plus: Unfunded Expenses ^ :
Excess of Revenues and Financing Sources
Over Funded Expenses $ 9
Changes in Net Position
Net Position, Beginning Balance $ 49,224
Excess of Revenues and Financing Sources
Non-Operating Changes (Note 12) 13.992
Net Position, Ending Balance $ 63.216
The accompanying notes are an integral part of these statements.
Pace 42 EPA's FY 1993 Annual Financial Statements
-------
FIFRA
Revolving Fund
Tolerance
Revolving Fund
1993
1992
1993
1992
*_
$
$
18,156
432
25,303
43.891
18,928
200
25,303
44,431
(540)
971
431
321 •,
4,862 $
431
(40)
5,253 $
24,690 926 1 ,200
783
22,81 1 4,474 3,532
48,284 5,400 4.732
24,517 926 1,200
172
22,811 4,474 3,532
47.500 5.400 4.732
784
3.699
4,483
4.483 $ ; $ -
627 $ - $
4,483
(196)
4.914 $ - $ -
EPA's
FY 1993 Annual Financial
Statements Page
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Cash Flows by Fund Activity
Restated (Note 14)
For the Years Ended September 30, 1993 and 1992
(Dollars in Thousands)
Superfund
Trust Fund
Cash Flows from Operating Activities:
Excess - Revenues and Financing Sources
Over Total Expenses
Adjustments Affecting Cash Flow:
Appropriations Expensed
Decrease (Increase) in Marketable Equity Securities
Decrease (Increase) in Accounts Receivable
Decrease (Increase) in Loans Receivable
Decrease (Increase) in Other Assets
Increase (Decrease) in Accounts Payable
Increase (Decrease) in Other Liabilities
Depreciation and Amortization
Bad Debt Expense
Other Unfunded Expenses
Other Adjustments
Total Adjustments
Net Cash Provided (Used) by Operating Activities
Cash Flows from Investing Activities:
Proceeds from Sales of Investments
Purchase of Equipment
Net Cash Provided (Used) by Non-Operating Activities
Cash Flows from Financing Activities:
Appropriations (Current Warrants)
Transfers of Cash from Others
Deduct:
Withdrawals
Transfers of Cash to Others
Net Appropriations
Borrowing from the Treasury
Net Cash Provided (Used) by Financing Activities
Net Cash Provided (Used) - Total
Fund Balances with Treasury, Beginning
Fund Balances with Treasury, Ending
1993
$ 140,510
(1,343,528)
(4,699)
(70,620)
545
(10,113)
(75,549)
5,016
4,053
833
16.715
(1,477,347)
(1,336,837)
(2.954)
(2,954)
1,355,215
69.139
1,286,076
1,286,076
(53,715)
65.200
$ 11.485
1992
$ 17,526
(1,408,040)
(45,595)
(13,605)
39,546
175,395
520
1,092
(1.719)
(1,252,406)
(1,234,880)
1.316
1.316
1,295,639
49.720
1,245,919
1,245,919
12,355
52.845
$ 65.200
;e44
EPA's FY 1993 Annual Financial Statements
-------
LUST
Trust Fund
1993
1992
Oil Spill
Trust Fund
1993
1992
$ (22)
(75,137)
4
(3,407)
254
29
(69,153)
(290)
(223)
2,279
(153)
19
(7,804)
1,425
157
(1.248)
(79,505)
(79,527)
17
(67,504)
(67,504)
(6,222)
(6,222)
(6)
(6)
(47)
(47)
74,700
80,500
20,700
74,700
74,700
(4,833)
6.471
$ 1.638
80,500
80,500
12,949
(6.478)
$ 6.471
20,700
20,700
14,478
$ 14.478
$.
EPA's FY 1993 Annual Financial Statements
Page 45
97
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statements of Cash Flows by Fund Activity
Restated (Note 14), Continued
For the Years Ended September 30, 1993 and 1992
(Dollars in Thousands)
Cash Flows from Operating Activities:
Excess - Revenues and Financing Sources
Over Total Expenses
Adjustments Affecting Cash Flow:
Appropriations Expensed
Decrease (Increase) in Marketable Equity Securities
Decrease (Increase) in Accounts Receivable
Decrease (Increase) in Loans Receivable
Decrease (Increase) in Other Assets
Increase (Decrease) in Accounts Payable
Increase (Decrease) in Other Liabilities
Depreciation and Amortization
Bad Debt Expense
Other Unfunded Expenses
Other Adjustments
Total Adjustments
Net Cash Provided (Used) by Operating Activities
Cash Flows from Investing Activities:
Proceeds from Sales of Investments
Purchase of Equipment
Net Cash Provided (Used) by Non-Operating Activities
Cash Flows from Financing Activities:
Appropriations (Current Warrants)
Transfers of Cash from Others
Deduct:
Withdrawals
Transfers of Cash to Others
Net Appropriations
Borrowing from the Treasury
Net Cash Provided (Used) by Financing Activities
Net Cash Provided (Used) - Total
Fund Balances with Treasury, Beginning
Fund Balances with Treasury, Ending
The accompanying notes ere an integral part of these statements.
Asbestos
Commercial Activity
1993
$ 9
(10,718)
19,408
(5,496)
13
5,279
7
(6.531)
1,962
1,971
31,225
31,225
31,225
33,196
29.877
1992
$ 13
(3,395)
(19,406)
(13,379)
53
13,412
(734)
(23,449)
(23,436)
53,313
53,313
53,313
29,877
$ 29.877
Re 46
EPA's FY 1993 Annual Financial Statements
-------
1993
FIFRA
Revolving Fund
1992
Tolerance
Revolving Fund
1993
1992
$ 431
$ 4,483
(26)
12
(485)
(4,121)
200
(27)
(16,799)
183
(17,584)
172
(41)
89
441
(6)
(4.420)
(3,989)
(162)
(34,217)
(29,734)
489
489
(6)
(6)
5,033
(159)
4,874
6,638
(119)
6,519
885
65
$
196
(196)
(196)
(23,411)
23.476
65
489
3.757
$ 4.246
(6)
3.763
$ 3.757
EPA's FY 1993 Annual Financial Statements
Paee 47
99
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statement of Budget and Actual Expenses
For the Year Ended September 30, 1993
(Dollars in Thousands)
Budaet
Actual
Obliaations
Resources
$ 1,875,354
85,468
20,700
111,657
25,491
5.683
Direct
1,587,754
74,451
18,225
90,906
(754)
-
Reimbursed
$21,047
-
-
-
16,328
1.526
Expenses
$ 1,529,155
75,964
8,559
11,930
44,431
5.400
$ 2.124.353
1.770.582
Program Name
Superfund
LUST
Oil Spill
Asbestos Loan Program
FIFRA
Tolerance Fund
Total
Budget Reconciliation:
Total Expenses
Add:
Capital Acquisitions
Other Expended Budget Authority
Less:
Depreciation and Amortization
Unfunded Annual Leave Expense
Interest Expense
Bad Debt Expense
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
$ 1.675.439
$1,675,439
3,119
5,245
833
310
161.471
1,510,699
38.901
1,471,798
(486,061)
(54,511)
(32.813)
$ 898.41:
The accompanying notes are an integral part of this statement.
Page 48
100
EPA's FY 1993 Annual Financial Statements
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Statement of Budget and Actual Expenses—Restated (Note 14)
For the Year Ended September 30, 1992
(Dollars in Thousands)
Resources
$1,944,698
76,966
109,509
30,873
4.820
Obliaations
Direct Reimbursed
$1,729,094 $ 10,156
75,403
100,071
4,821 17,071
1.104
$2.166.866
Budaet
Program Name
Superfund
LUST
Oil Spill
Asbestos Loan Program
FIFRA
Tolerance Fund
Totals
Budget Reconciliation:
Total Expenses
Add:
Capital Acquisitions
Other Expended Budget Authority
Less:
Depreciation and Amortization
Unfunded Annual Leave Expense
Interest Expense
Bad Debt Expense
Accrued Expenditures
Less Reimbursements
Accrued Expenditures, Direct
Financial Statement Adjustment, not on SF-133
Overhead Expenses from Allocation, not on SF-133
Unreconciled Difference
Accrued Expenditures, Direct - per SF-133
Actual
$1,432,145
69,391
4,304
47,500
4.732
$1.558.072
$1,558,072
1,150
123,707
711
1,092
7
5.472
1.675,647
28.331
1.647,316
(12,816)
(45,069)
13.554
$1.602.985
The accompanying notes are an integral part of this statement.
EPA's FY 1993 Annual Financial Statements
Page 49
101
-------
EPA Trust Funds, Revolving Funds and Commercial Activities
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies:
A. Basis of Presentation
These financial statements have been prepared to report the financial position and results
of operations of the Environmental Protection Agency (EPA) for the Hazardous Substance
Superfund (Superfund) Trust Fund, Leaking Underground Storage Tank (LUST) Trust Fund,
Oil Spill Response Trust Fund, Asbestos Loan Program (a commercial activity), Registration
and Expedited Processing (FIFRA) Revolving Fund and the Revolving Fund for Certification
and Other Services (Tolerance), as required by the Chief Financial Officers Act of 1990. The
reports have been prepared from the books and records of EPA in accordance with "Form
and Content for Agency Financial Statements," specified by the Office of Management and
Budget (OMB) in Bulletin 93-02 and applicable provisions of Bulletin 94-01 and EPA's
accounting policies which are summarized in this note. These statements are therefore
different from the financial reports also prepared by EPA pursuant to OMB directives that are
used to monitor and control EPA's use of budgetary resources.
B. Reporting Entities
EPA was created in 1970 by executive reorganization from various components of other
Federal agencies in order to better marshal and coordinate federal pollution control efforts.
The Agency is generally organized around the media and substances it regulates — air,
water, land, hazardous waste, pesticides and toxic substances.
The Hazardous Substance Superfund Trust Fund was authorized by the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) to respond to hazardous
substance situations or sites which threaten human health and the environment. The
Superfund Amendments and Reauthorization Act (SARA) increased funding and gave the
program new responsibilities and authorities. There are three basic components to the
Superfund program: site assessment and cleanup activities; enforcement; and support.
Support includes facilities and management, research and development and other non-direct
site work. These components are integrated and coordinated to ensure the most cost
effective use of Superfund monies in order to achieve the greatest possible cleanup. The
program is funded from monies appropriated from general fund tax collections, interest on
investments, fines and cost recoveries. As authorized by Congress, Superfund Trust Fund
appropriations include certain amounts that are transferred to other Federal agencies for
authorized activities in support of the Superfund program. The uses of these transfer
appropriations are not reported in the Superfund Trust Fund financial statements. Rather,
they are reported by the specific agencies that receive the transfer amount. The Superfund
Trust Fund is accounted for under Treasury symbol number 8145.
The LUST Trust Fund was authorized by the amendment of the Resource Conservation and
Recovery Act (RCRA) in 1986 to implement a comprehensive regulatory program for
underground storage tanks and to provide funds for responding to releases from leaking
underground petroleum tanks. EPA oversees cleanup and enforcement programs which are
implemented by the States. Funds are allocated to the States through cooperative
Page SO EPA's FY 1993 Annual Financial Statements
102
-------
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 Oil Spill Fiesponse Trust Fund was authorized by the Oil Pollution Act of 1990. In FY
1992, monies were included in the Agency's Salary and Expense appropriation in the amount
of $4,951, Abatement, Control and Compliance appropriation in the amount of $10,982, and
Research and Development appropriation in the amount of $2,500, for carrying out oil spill
response activity. The Oil Spill Response Trust Fund was established in fiscal year 1993 and
monies were appropriated to the Oil Spill Response Trust Fund. EPA is responsible for
directing, monitoring and providing technical assistance for major inland oil spill response
activities. Funding of oil spill cleanup actions is provided through the Department of
Transportation under the Oil Spill Liability Trust Fund. FY 1993 is the first year for audit of
the Oil Spill Response Trust Fund and, accordingly, no comparative data is available for FY
1992. The Oil Spill Response Trust Fund is accounted for under Treasury symbol number
8221.
The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act
of 1986 to manage asbestos building materials in schools, is reported in accordance with the
Federal Credit Reform Act of 1990. For FY 1992 and 1993 obligations, the program is
funded by a subsidy appropriated from the General Fund for the actual cost of financing the
loans, and by borrowings from Treasury for the unsubsidized portion of the loan. The
Program fund receives the subsidy and administrative appropriations, disburses the subsidy
to the Financing fund, and disburses administrative expenses to the providers. The Financing
fund receives the subsidy payment, borrows from Treasury and disburses and collects the
asbestos loans. Loans obligated before 1992 are maintained in a Liquidating fund and are
disbursed from the Liquidating fund. The loans receivable and collections on those loans are
recorded in a General Fund receipt account. Under provisions of the Federal Credit Reform
Act, the balance of any monies collected on loan repayments must be returned to the general
revenue fund at Treasury. Accounting activity for the Asbestos Loan Program is accounted
for under the 0118, 4321, 4322 and 2917 Treasury symbols.
The FIFRA Revolving Fund was authorized in 1988 by amendments to the Federal
Insecticide, Fungicide and Rodenticide Act. The 1988 amendments mandated the
accelerated reregistration of all products registered prior to November 1, 1984. Congress
authorized the collection of fees to supplement appropriated funds for reregistration and to
fund expedited processing of certain pesticides. FIFRA also includes provisions for the
registration of new pesticides, monitoring the distribution and use of pesticides, issuing civil
or criminal penalties for violations, establishing cooperative agreements with the states, and
certifying training programs for users of restricted chemicals. Appropriated funds, however,
pay for these activities. The FIFRA Revolving Fund is accounted for under Treasury symbol
number 4310.
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. A
tolerance is the maximum legal limit of a pesticide residue 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
EPA's FY 1993 Annual Financial Statements Page 51
103
-------
established the Revolving Fund for Certification and Other Services (Tolerance Revolving
Fund). The Department of Agriculture and the Food and Drug Administration are responsible
for enforcing adherence to these tolerance levels. Funding is provided by fee collections and
by appropriated funds for federal services in establishing tolerances for residues of pesticide
chemicals in or on raw agricultural commodities. The Tolerance Revolving Fund is accounted
for under Treasury symbol number 4311.
The accompanying financial statements include the accounts of all funds described in this
note. Each of the funds included in the financial statements charge some administrative
costs directly to the fund and charge the remainder of the administrative costs to
Agencywide appropriations. The following is a list of all the programs and the corresponding
administrative costs funded by Agencywide appropriations (unaudited):
1933 1992
Superfund $ 22,257 $ 17,586
LUST 827 238
Oil Spill 755
Asbestos 895 902
FIFRA 25,303 22,811
Tolerance 4,474 3,532
These amounts are included in the Income from Overhead Allocation and the Overhead
Expenses from Allocation line items as shown in the financial statements.
The Superfund and LUST Trust Funds are allocated general support services costs (such as
rent, communications, utilities, mail operations, etc.) that were initially charged to the
Agency's Program and Research Operations (PRO) and Abatement, Control and Compliance
(AC&C) appropriations. During the year, these costs are allocated from the PRO and AC&C
appropriations to the Superfund and LUST Trust Funds based on a ratio of direct labor hours,
using budgeted or actual full-time equivalent personnel charged to these appropriations, to
the total of all direct labor hours. Agency general support services cost charges to the
Superfund and LUST Trust Funds may not exceed the ceilings established in the Superfund
and LUST Trust Fund appropriations. The related general support services costs charged to
the Superfund and LUST Trust Funds were $25,146 and $216 for FY 93.
C. Budgets and Budgetary Accounting
Congress adopts an annual appropriation amount to be available until expended for the
Superfund Trust Fund, for the LUST Trust Fund, and for the Oil Spill Response Trust Fund.
Transfer accounts for the Superfund and LUST Trust Funds have been established for the
purpose of carrying out the program activities. A Trust Fund account has been established
at Treasury for the purpose of carrying out the oil spill response program activities. As EPA
disburses obligated amounts from the transfer accounts, EPA draws down monies from the
Superfund and LUST Trust Funds at Treasury to cover the amounts being disbursed. EPA
Page 52 EPA's FY 1993 Annual Financial Statements
1C
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draws down all the appropriated monies from the Treasury's Oil Spill Liability Trust Fund to
the Oil Spill Response Trust Fund when Congress adopts the annual appropriation amount.
The Asbestos Loan Program is a commercial activity financed by a combination from two
sources: one for the long term cost of the loan and another for the remaining non-subsidized
portion of the loan. Congress annually adopts a one year appropriation, available for
obligation in the fiscal year for which it is appropriated, to cover the estimated long term
cost of the Asbestos loans. The long term costs are defined as the net present value of the
estimated cash flows associated with'the loans. The portion of each loan disbursement that
does not represent long term cost is financed under a permanent indefinite borrowing
authority established with the Treasury. The annual appropriation bill limits the amount of
obligations that can be made for direct loans. A permanent indefinite appropriation is
available to finance the costs of subsidy reestimates that occur after the year in which the
loan is disbursed.
Funding of the FIFRA and the Tolerance Revolving Funds is provided by fees collected from
industry to offset costs incurred by EPA in carrying out these programs. Each year EPA
submits an apportionment request to OMB based on the anticipated collections of industry
fees.
D. Basis of Accounting
Transactions are recorded on an accrual accounting basis and a budgetary basis. Under the
accrual method, revenues are recognized when earned and expenses are recognized when
a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting
facilitates compliance with legal constraints and controls over the use of Federal funds. All
interfund balances and transactions have been eliminated.
E. Revenues and Other Financing Sources
The Superfund, LUST, and Oil Spill Response Trust Funds receive the majority of funding
needed to support the program through appropriations that may be used, within statutory
limits, for operating and capital expenditures (primarily equipment). Additional financing for
the Superfund Trust Fund is obtained through reimbursements from potentially responsible
parties.
Under Credit Reform provisions, the Asbestos Loan Program receives funding to support the
subsidy cost of loans through appropriations which may be used within statutory limits. The
Asbestos Direct Loan Financing fund, an off-budget fund, receives funding to support the
loan disbursements through collections from the Program fund for the subsidized portion of
the loan and through borrowing from Treasury for the non-subsidized portion. The Asbestos
Direct Loan Liquidating fund received funding to support the pre-Credit Reform loans through
appropriations.
The FIFRA and the Tolerance Revolving Funds receive funding through fees collected for
services provided. The FIFRA Revolving Fund also receives interest on invested funds.
Appropriations are recognized as revenues at the time they are used to pay program or
administrative expenses. Appropriations expended for property and equipment are
EPA's FY 1993 Annual Financial Statements Page S3
"105
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recognized as expenses when the asset is consumed in operations. Other revenues are
recognized when earned, i.e., when services have been rendered.
F. Funds with the Treasury
EPA does not maintain cash in commercial bank accounts. Cash receipts and disbursements
are handled by Treasury. The funds maintained with Treasury are Appropriated Funds,
Revolving Funds and Trust Funds. These funds have balances available to pay current
liabilities and finance authorized purchase commitments.
G. Investments in U. S. Government Securities
Investments in U. S. Government securities are maintained by Treasury and are reported at
amortized cost net of unamortized discounts. Discounts are amortized over the term of the
investments and reported as interest income. The FIFRA Revolving Fund holds the
investments to maturity, unless they are needed to finance operations of the fund. No
provision is made for unrealized gains or losses on these securities because, in the majority
of cases, they are held to maturity.
H. Marketable Equity Securities
During fiscal year 1993, the Agency received marketable equity securities, valued at $4,699
as of September 30, 1993, from a company in settlement of Superfund cost recovery
actions. The Agency does not intend to exercise ownership rights related to these securities,
held by Treasury, but instead will convert these securities to cash as soon as practicable.
In prior similar transactions, this has been accomplished in less than one year.
I. Accounts Receivable
Both the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
and the Superfund Amendments and Reauthorization Act (SARA) provide for cost recovery
of costs from potentially responsible parties (PRPs). However, cost recovery expenditures
are expensed when incurred because there is no assurance that these funds will be
recovered.
It is EPA's policy to record accounts receivable from PRPs for Superfund site cleanup costs,
incurred by EPA, when a consent decree, judgment, or other binding agreement is reached.
These agreements are generally obtained after site cleanup costs are incurred. It is EPA's
position that until a consent decree is obtained, the amount recoverable should not be
recorded. The allowance for uncollectible PRP accounts receivable is determined'on a
specific identification basis as a result of a case-by-case review of receivables at the regional
level, and a general reserve for those not specifically identified.
EPA also records accounts receivable from states for a portion of Superfund site cleanup
actions within those states. Cost sharing arrangements vary according to whether a site
was privately or publicly operated at the time of hazardous substance disposal and whether
the EPA response action was removal or remedial. State cost share agreements are usually
10% to 50% of site cleanup cost. States may pay the full amount of state cost shares in
e 54 EPA's FY 1993 Annual Financial Statements
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advance, or in incremental amounts throughout the cleanup project. No allowances for
uncollectible state cost share receivables have been recorded, because EPA has not had
collection problems on these agreements.
Other receivables for Asbestos and FIFRA represents interest receivable.
A summary of non-federal accounts receivable as of a September 30, 1993 and September
30, 1992 is as follows:
Fiscal Year 1993 Non-Federal Accounts Receivable
Suoerfund LUST Asbestos FIFRA
PRP receivables (including interest) $ 336,638 $ $ - $ -
State cost share receivables 20,156 33
Other receivables 55 10 2
Allowance for uncollectible receivables (162.9111 : (6) :
$ 193.938 $ 33 $ 4 $ 2
Fiscal Year 1992 Non-Federal Accounts Receivable
Suoerfund LUST Asbestos FIFRA
PRP receivables (including interest) $ 80,920 $ - $ - $ -
State cost share receivables 47,317 51
Other receivables 4 - 12 28
Allowance for uncollectible receivables (5.926) ; : ;
$ 122.315 $ 51 $ 12 $ 28
EPA's FY 1993 Annual Financial Statements Page 5*
107
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Accounts Receivable - federal result primarily from interagency agreements for services
performed and receivables from EPA funds other than Trust or Revolving Funds or
Commercial Activities.
Accounts Receivable - Federal
Superfund LUST Asbestos
1993 1992 1993 1992 1993 1992
Interagency agreements $7,955 $2,695 $ 5 $ $ - $
Intraagency receivables - 5,600 - -
Other : 663 9 : : 19.400
$7.955 $8.958 $ 14 $ - $ = $19.400
J. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. The amount of
Asbestos Loan Program loans obligated but not disbursed are disclosed in Note 4. No
allowance for uncollectible amounts has been established for loans obligated prior to October
1, 1991 because there has never been a default and a review of outstanding amounts does
not indicate a potential default. Loans receivable resulting from loans obligated on or after
October 1, 1991 are reduced by an allowance equal to the present value of the subsidy
costs associated with these loans. The subsidy cost is calculated based on the interest rate
differential between the loans and Treasury borrowings, the estimated delinquencies and
defaults net of recoveries offset by fees collected and other estimated cash flows associated
with these loans.
K. Appropriated Amounts Held by Treasury
For the Superfund and LUST Trust Funds, cash available to EPA that is not needed
immediately for current disbursements remains in the respective Trust Funds managed by
Treasury. At the end of fiscal years 1993 and 1992, approximately $3,173,380 and
$2,967,460, respectively, remained in the Treasury-managed Superfund Trust Fund and
approximately $89,021 and $80,722, respectively, remained in the LUST Trust Fund to
meet EPA's disbursement needs.
L. Advances and Prepayments
EPA records the differences resulting from disbursements recorded by Treasury but not
recorded by EPA and the disbursements recorded by EPA but not by Treasury as advances
and prepayments. As a result of the correction of a data conversion error, the LUST Trust
Fund has recorded a prepayment of $3,540 which related to prior years and will reverse
during fiscal year 1994.
EPA's FY 1993 Annual Financial Statements
108
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M. Property, Plant and Equipment
The land and buildings which EPA uses are provided by the General Services Administration,
which charges a Standard Level Users Charge (SLUG) that approximates the commercial
rental rates for similar properties. Equipment purchases are capitalized at cost if the initial
acquisition cost is at least five thousand dollars. Equipment with an acquisition cost of less
than five thousand dollars is expensed when purchased. Equipment is depreciated using a
modified straight line method over a period of six years depreciating 10% the first and last
year and 20% in years 2 through 5.
N. Liabilities
Liabilities represent the amount of monies or other resources that are likely to be paid by EPA
as the result of a transaction or event that has already occurred. However, no liability can
be paid by EPA without an appropriation or other collection of revenue for services provided.
Liabilities for which an appropriation has not been enacted are classified as unfunded
liabilities and there is no certainty that the appropriations will be enacted. Liabilities of EPA,
arising from other than contracts, can be abrogated by the Government acting in its
sovereign capacity.
0. Accounts Payable - Federal
The Superfund Trust Fund contracts for a wide range of goods and services through
interagency agreements with other federal agencies. As of September 30, 1993 and 1992,
the balance of Accounts Payable - Federal of $105,541 and $126,733, respectively,
represents interagency agreements payable. The balance of Accounts Receivable - Federal
as of September 30, 1993 and 1992 includes $7,955 and $2,695, respectively, relating to
interagency agreements. Accounts Payable - Federal includes $20,704 which is due to the
Abatement, Control-and Compliance appropriation and $84,837 which is payable to other
federal agencies.
Accounts Payable - Federal for the Tolerance Revolving Fund includes $466 of application
fees for Tolerance Petitions. Agency policy is to record fees as earned after specific
processing milestones, and then use the earnings to reimburse appropriated funds used to
pay expenses. EPA earned the fees in prior years, but did not record the earnings or
reimburse the appropriated funds.
P. Deferred Revenue
Superfund deferred revenue represents amounts paid to EPA by states, for state cost share
arrangements, or by other entities, for site cleanup costs or other services, in advance of
EPA's performing the services. Such amounts may have been paid voluntarily or under
protest. Deferred revenue is reduced and is recognized as the related services are incurred.
However, amounts paid in protest are not recorded as income until the protest is resolved.
EPA's FY 1993 Annual Financial Statements Paee 57
109
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FIFRA Revolving Fund deferred revenue represents fees collected in advance of services
being performed for the reregistration of existing pesticides and for the registration of new
pesticides. Tolerance Revolving Fund deferred revenue represents fees collected in advance
of services being performed for the establishment of tolerances for residues of pesticide
chemicals in or on raw agricultural commodities.
Components of deferred revenue as of September 30, 1993 and 1992 are as follows:
Non-Federal:
State cost share
arrangements
Site cleanup costs
Other
Federal:
Interagency
agreements
Fiscal Year 1993 Deferred Revenue
Suoerfund FIFRA
135,011
$ 48,419 $
5.755
$183.430 $5.755
$ -
Tolerance
$
3.691
$3.691
Non-Federal:
State cost share
arrangements
Site cleanup costs
Other
Federal:
Interagency
agreements
Fiscal Year 1992 Deferred Revenue
Superfund FIFRA
133,142
$115,419 $
; 8.917
$248.561 $8.917
$ -
Tolerance
$
3.604
$3.604
$ -
Page 58
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EPA's FY 1993 Annual Financial Statements
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Q. Borrowings Payable to the Treasury
Borrowings payable to Treasury result from loans from Treasury to fund the Asbestos direct
loans described in part B of this note. Periodic principal payments are made to Treasury
based on the collections of loans receivable.
R. Interest Payable to Treasury
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt
to Treasury. At the end of fiscal year 1993 and 1992, there was no outstanding interest
payable to Treasury because payment was made on September 30.
S. Annual, Sick and Other Leave
Annual leave is accrued as it is earned and the liability is reduced as leave is taken. Each
year, the balance in the accrued annual leave account is adjusted to reflect current pay rates.
To the extent current or prior year appropriations are not available to fund annual leave
earned but not taken, funding will be obtained from future financing sources. Annual leave
expense for the Superfund Trust Fund was $833 in FY 1993 and $1,092 in FY 1992. Sick
leave and other types of nonvested leave are expensed were taken.
T. Retirement Plan
The majority of EPA's employees participate in the Civil Service Retirement System (CSRS),
to which EPA makes matching contributions equal to 7% of pay.
On January 1, 1987, the Federal Employees Retirement System (FERS) went into effect
pursuant to Public Law 99-335. Most employees hired after December 31, 1983, are
automatically covered by FERS and Social Security. Employees hired prior to January 1,
1984 were allowed to either join FERS and Social Security or remain in CSRS. A primary
feature of FERS is that it offers a savings plan to EPA employees which automatically
contributes 1 percent of pay and matches any employee contribution up to an additional 4
percent of pay. For most employees hired after December 31, 1983, EPA also contributes
the employer's matching share for Social Security.
EPA does not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities,
if any, applicable to its employees. Reporting such amounts is the responsibility of the
Office of Personnel Management. Such data is not allocated to individual departments and
agencies.
EPA's FY 1993 Annual Financial Statements Page 59
111
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Note 2. Fund Balances with Treasury:
The Treasury maintains EPA's fund accounts and processes all of EPA's receipts and
disbursements. The available balances are for payment of EPA's obligations under its various
programs. The restricted balances pertain to expired appropriated authority and are
unavailable for future obligations.
Fiscal Year 1993:
Trust Funds:
Superfund
LUST
Oil Spill
Commercial Activities:
Asbestos Loan
Program
Revolving Funds:
FIFRA
Tolerance
Total
$ 11,485
1,638
14,478
$ 63,073
$ 950
4,246
Available
$ 11,485
1,638
14,478
$ 44,835
$ 950
4,246
Restricted
$
$ 18,238
Fiscal Year 1992:
Trust Funds:
Superfund
LUST
Oil Spill
Commercial Activities:
Asbestos Loan
Program
Revolving Funds:
FIFRA
Tolerance
Total
$ 65,200
6,471
$ 29,877
$ 65
3,757
Available
$ 65,200
6,471
$ 20,439
$ 65
3,757
Restricted
$
$ 9,438
$
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EPA's FY 1993 Annual Financial Statements
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Note 3. Investments - Federal:
The FIFRA Revolving Fund invests monies in Federal securities that can be bought and sold
on the open market. The cost of the investments is recorded at face value less interest to
be earned over the term of the investment (unamortized discount). Invested amounts are
disinvested arid become available for payment of EPA's obligations as needed.
Investments in Federal marketable securities were as follows:
Face Unamortized Investments,
Value Discount Net
September 30, '1993 $ 10,220 $ 11 $ 10,209
September 30, 1992 $15,285 $42 $15,243
Note 4. Loans Receivable, Net - Non-Federal:
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 would be
reported net of an allowance for estimated uncollectible loans, if an allowance was
considered necessary. Loans disbursed from obligations made after FY 1991 are governed
by the Federal Credit Reform Act. The Act mandates that the present value of the subsidy
costs (i.e., interest rate differentials, interest subsidies, anticipated delinquencies, and
defaults) associated with direct loans be recognized as an expense in the year the loan is
made. The net present value of loans is the amount of the gross loan receivable less the
present value of the subsidy.
An analysis of loans receivable and the nature and amounts of the subsidy and administrative
expenses associated entirely with Asbestos Loan Program loans is provided in
the following sections.
EPA's FY 1993 Annual Financial Statements Page 61
113
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Pre-Credit Reform Loans:
Allowance for
Loans Receivable, Estimated Loans Receivable,
Gross Uncollectible Loans Net
September 30, 1993 $ 117,631
September 30, 1992 $ 123,197
Post Credit Reform Loans:
$ 117,631
$ 123,197
September 30, 1993
September 30, 1992
Total 1993:
Total 1992:
Loans Receivable,
Gross
$21,129
$ 2.323
$138.760
$125.520
Allowance for
Subsidy Cost
(present value)
$ (8,749)
$ (1.005)
$
Loans Receivable,
Net
$12,380
$ 1.318
Subsidy Expenses for Post Credit Reform Loans:
Current Year's Loans:
Fiscal Year 1993:
Fiscal Year 1992:
Total Direct Loan Subsidy Expense:
Total
$8.054
$1.012
Interest
Differential
$8.054
$1.012
Expected
Defaults
$-
$.;
Fee
Offsets
$-
$^
Fiscal Year 1993
Fiscal Year 1992
$ 8,054
$ 1,012
Administrative Expenses for Pro and Post Credit Reform Loans:
1993 1992
Charged Directly to the Asbestos Loan Program $2,664 $ 2,383
Additional Administrative Support Expenses
Charged to Other Appropriations
Total
895
$3.559
902
$3.285
Fiscal Year 1993 Other Information: $13,000 for obligations established prior to Credit
Reform and $108,600 for obligations established after Credit Reform remain unpaid. No
expenses were incurred in FY 1993 for subsidy reestimates.
Page 62
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EPA's FY 1993 Annual Financial Statements
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Note 5. Property, Plant, and Equipment - Net:
Real Property [land and buildings) used as office space for EPA employees in the course of
mission related activities and facility related services are provided by the General Services
Administration (GSA). GSA charges a Standard Level Users Charge that approximates the
commercial rental rates for similar properties.
A small percentage of real property, such as laboratories, is acquired by EPA using
appropriated funds.
Equipment purchases are capitalized if the equipment is valued at five thousand dollars or
more and has; an estimated useful life of at least 2 years. The Agency depreciates all
capitalized equipment on a modified straight-line basis over a period of 6 years, depreciating
10% the first and last years and 20% in years 2 through 5. The Trust and Revolving Funds
normally do not reflect purchases of property other than equipment.
Schedule of Property, Plant, and Equipment by Fund:
Fiscal Year 1993:
Superfund LUST
Acquisition Value $56,310 $134
Accumulated Depreciation 42.280 73
Net Book Value $14.030 $ 61
Fiscal Year 1992:
Suoerfund LUST FIFRA
Acquisition Value $53,357 $129 $918
Accumulated Depreciation 37.263 45 344
Net Book Value $16.094 $ 84 $574
EPA's FY 1993 Annual Financial Statements Page 63
115
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Note 6. Debt - Federal:
Under the provisions of the Federal Credit Reform Act, borrowings from Treasury represent
the portion of loan disbursements not subsidized by appropriated funds.
FY 93 and 92 borrowings from Treasury are:
Beginning New
Balance Borrowings Repayments Ending Balance Refinancing
Intragovernmental
Debt:
Fiscal Year 1993 $1.318 $10.854 $^ $12.172 $_;
Borrowing from
Treasury
Fiscal Year 1992 $ $ 1.318 $_; $ 1.31
Borrowing from
Treasury
Note 7. Other Funded Liabilities - Federal:
Resources payable to Treasury consist of all the precredit reform debt. This amount
represents the remaining principle not collected and paid back to Treasury.
1993 1992
Resources Payable to Treasury are: $117.634 $123.209
Note 8. Total Net Position:
The total net position of EPA's Trust and Revolving Funds and commercial activities
represents the financial position of these funds after consideration of the net effects of
operations in the current year and the cumulative effects of all prior years.
Appropriated/Subsidy Capital represents the funding authority provided by Congress, net of
Page 64 EPA's FY 1993 Annual Financial Statements
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interagency transfers. Invested Capital represents the book value, net of depreciation, of
EPA resources invested in equipment. Cumulative Results of Operations represents the
cumulative deficit or surplus from the funds' operations.
Fiscal Year 1993:
Suoerfund LUST Oil Spill Asbestos FIFRA
Appropriated/Subsidy
Capital $2.767,175 $95,972. $12,896 $63,216 $
Invested Capital 14,030 61 - - 533
Cumulative Results of
Operations 211.178 (3,618) - - 4,720
Future funding
requirements - non-
actuarial (11.556) : : : :
Total Net
Position $2.980.827 $92.515 $12.896 $63,216 $5.253
Fiscal Year 1992:
Superfund LUST Oil Spill Asbestos FIFRA
Appropriated/Subsidy
Capital $2,154,509 $34,551 $ - $49,224 $
Invested Capital 16,094 84 - - 574
Cumulative Results of
Operations 511,203 51,288 - - 4,340
Future funding
requirements -
non-actuarial (10.723) - • - -
Total Net
Position $2.671.083 $85.923 $ $49.224 $4,914
EPA's FY 1993 Annual Financial Statements Page 65
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A/ore 9. Program or Operating Expenses:
Fiscal Year 1993 Operating Expenses Superfund LUST
by Object Classification:
(1) Personnel Services and Benefits $211,842 $4,849
(2) Travel and Transportation . 10,841 502
(3) Rental, Communication and Utilities 30,165 393
(4) Printing and Reproduction 934 17
(5) Contractual Services 1,051,499 1,997
(6) Supplies and Materials 4,097 69
(7) Equipment not Capitalized 8,404 173
(8) Land and Structures 47
(9) Investments and Loans
(10) Grants, Subsidies and Contributions 173,306 68,741
(11) Insurance Claims and Indemnities (3)
(12) Accrued Expenses* (150.714) (1.6341
Total Expenses by Object Class $1.340.418 $75.107
'Accrued expenses for FY 1992 were not reversed by object class due to the volume of data entry required.
Accrued expenses for FY 1993 are recorded by object class.
Fiscal Year 1992 Operating Expenses Suoerfund LUST
by Object Classification:
(1) Personnel Services and Benefits $ 201,285 $ 4,558
(2) Travel and Transportation 10,064 536
(3) Rental, Communication and Utilities 26,831 554
(4) Printing and Reproduction 1,436 49
(5) Contractual Services 955,390 2,253
(6) Supplies and Materials 3,610 53
(7) Equipment not Capitalized 11,489 227
(8) Grants, Subsidies and Contributions 158,794 60,832
(9) Insurance Claims and Indemnities 15
(10) Accrued Expenses* 39.668 55
Total Expenses by Object Class $1.408.582 $69.117
'Accrued expenses are not recorded by object class in the accounting system due to the volume of data entry
required. Accrued expenses are the net of the reversal of FY 1991 accruals and FY 1992 accruals.
Page 66 EPA's FY 1993 Annual Financial Statements
118
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Oil Spill
Asbestos
FIFRA
Tolerance
$4,488
133
443
22
2,669
37
8
4
_
$7.804
Oil Spill
$
•
-
-
-
-
-
-
—
$ -
EPA's FY 1993 Annual Financial Statements
$
-
-
-
2,657
-
7
8,054
_
$10.718
Asbestos
$ 53
-
-
1
2,329
-
-
1,012
—
$3.395
$11,756
62
2,291
160
4,661
49
688
827
(1.566)
$18.928
FIFRA
$14,261
198
2,049
68
6,108
193
505
1,378
(243)
$24.517
$926
-
-
.
-
-
-
•
—
$926
Tolerance
$1,200
-
-
-
-
-
-
-
~_
$1.200
Page 67
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Note 10. Other Expenses:
As a matter of policy, EPA expenses discounts lost during the fiscal year as interest expense.
EPA pays Treasury interest on the Asbestos loan borrowings.
Suoerfund Asbestos
Fiscal Year 1993:
Discounts Lost
Interest Paid to Treasury
Total
$ 1
U
$ -
310
$310
Superfund Asbestos
Fiscal Year 1992:
Discounts Lost
Interest Paid to Treasury
Total
$2
$ 2
$ -
7
Note 11. Prior Period Adjustments:
Fiscal Year 1993:
Effective September 30, 1993 unreconciled and unidentified general ledger balances, in
addition to those identified in the 1992 audit, and resulting from the 1989 financial
accounting system conversion, were removed from the general ledger as adjustments to prior
period. Unreconciled cash differences for FY's 1989 through 1991 were also removed from
the general ledger as adjustments to prior period effective September 30, 1993. The
amounts removed were as follows:
Superfund Trust Fund
LUST Trust Fund
FIFRA
$17,361
(22)
971
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EPA's FY 1993 Annual Financial Statements
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Fiscal Year 1992:
Prior to FY 1992, interest earnings on investments for FIFRA were included as part of
unearned advances. Effective October 1, 1991, these earnings were reclassified to
Cumulative Results of Operations.
Reclassification of Interest Earnings - FIFRA Revolving Fund $ 3,699
In addition, unrecognized prior year earnings for reimbursable work were recorded as an
adjustment effective October 1, 1991.
Earnings on Reimbursable Activity - Superfund Trust Fund 3,574
Effective October 1,1991, the Superfund and LUST Trust Funds removed unreconciled and
unidentified general ledger balances resulting from the 1989 financial accounting system
conversion by recording adjustments to equity accounts.
Correction, system conversion errors - Superfund Trust Fund 26,044
Correction, system conversion errors - LUST Trust Fund 4,704
Note 12. Non-Operating Changes:
The Non-Operating Changes resulted from funds transferred-in from Treasury, funds
collected and returned to Treasury, statement of financial position reclassifications, and other
non-operating increases and decreases.
Fiscal Year 1993:
Suoerfund LUST Oil Spill Asbestos FIFRA
Increases:
Transfers-in $1,573,528 $74,700 $20,700 $31,225 $ -
Other Increases ; : : i. _:
Total Increases 1,573,528 74,700 20,700 31,225
Total Decreases 1.405.127 68.086 7.804 17.233 40
Net Non-Operating
Changes $ 168.401 $ 6.614 $12.896 $13.992 $(40)
EPA's FY 1993 Annual Financial Statements Page 69
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Fiscal Year 1992:
Suoerfund LUST Oil Spill Asbestos FIFRA
Increases:
Transfers-in $512,852 $75,000 $ - $19,400 $ -
Other Increases 7.128 - - : 53.163 :
Total Increases 519,980 75,000 - 72,563
Total Decreases 13.908 69.154 : 134.481 196
Net Non-Operating
Changes $506.072 $ 5.846 $ $(61.9181 $(196)
Note 13. Contingencies
EPA is a party.in various administrative proceedings, legal actions, and claims brought by or
against it. These include:
Various personnel actions, suits, or claims brought against the Agency by
employees and others.
Various contract and assistance program claims brought against the Agency
by vendors, grantees and others.
The legal recovery of Superfund costs incurred for pollution cleanup of
specific sites, to include the collection of fines and penalties from responsible
parties.
Claims against recipients for improperly spent assistance funds which may be
settled by a reduction of future EPA funding to the grantee or the provision
of additional grantee matching funds.
These matters, affecting the Superfund Trust Fund, range individually up to several million
dollars. If such claims are successfully asserted against EPA, they could have a material
impact on the Superfund Trust Fund financial statements. Total losses at the end of FY
1993 on these administrative claims and litigation could amount to approximately '$ 35,400
and $ 4,800, respectively. Total losses at the end of FY 1992 on these administrative
claims and litigations could amount to approximately $ 18,700 and $ 5,000, respectively.
The ultimate outcome of these claims and litigations cannot presently be determined.
Accordingly, no provision for any liability that may result in adjudication has been recognized
in the accompanying financial statements.
Page 70 EPA's FY 1993 Annual Financial Statements
122
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In the opinion of EPA's management and General Counsel, the ultimate resolution of any
legal actions still pending will not materially affect EPA's operations or financial position.
At the end of FY 1993, the Superfund Trust Fund had $ 3.5 million in contract obligations
that were cancelled. These obligations were entered into in FY 1986. Although these
obligations were cancelled under the requirements of Public Law 101-510 "M" Account
Legislation, since these obligations related to valid contracts, there is a potential that these
obligations will become a liability that will require funding from a future appropriation. No
obligations were cancelled at the end of FY 1992.
Note 14. Restatement of Prior Year Financial Statements
Due to a change in defining the reporting entity, the Superfund Trust Fund and the LUST
Trust Fund Statements of Financial Position have been restated. As of September 30,1992,
EPA included amounts held by the U.S. Treasury not yet appropriated as an asset and
offsetting the liability on the Statements of Financial Position. EPA has no control over these
balances, which may be appropriated to EPA or to other Federal agencies in the future. As
a result, EPA has determined that this balance should not be included on the Superfund Trust
Fund or LUST Trust Fund financial statements. The Statements of Financial Position as of
September 30, 1992, have been restated for consistency.
Additionally, due to an error in the Superfund Trust Fund Appropriations Expensed balance
on the September 30, 1992, Statement of Cash Flows, this amount has been restated.
Finally, EPA has changed its method of accounting for pre-credit reform loan balances, to
comply with the Credit Reform Act of 1990. As a result, loan activity as of and for the year
ending September 30, 1992, has been restated in all financial statements of the Asbestos
Loan Program.
EPA's FY 1993 Annual Financial Statements Page 71
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124
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APPENDIX II
AGENCY COMMENTS
"«»,
'
\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
* WA8HWOTON. O.C. 20460
OFFICE OF
AOMWI3TRAT1CN
AND RESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT: Response to the Draft Audit Report No. E1AML3-20-7001:
Fiscal 1993 Financial Statement Audit of the Pesticides
living Funds
FROM: /, Jonathan z. Cannon
nt Administrator (3101)
Kenneth Konz
Assistant Inspector General for Audit (2421)
Thank you for the opportunity to comment on the subject
draft ireport. Attached is the Agency's response from both the
Office of Administration and Resources Management (OARM) and the
Office of Prevention, Pesticides, and Toxic Substances (OPPTS) to
the subject draft audit report. We have agreed in principle with
most o£ the report's recommendations, and the staff of both OARM
and OPPTS have already begun to take appropriate' action to
resolv» these issues.
I believe that this year's report reflects well on the
effort» of both our staffs in meeting an accelerated schedule for
producing audited financial statements. We appreciate that the
audit ireport acknowledges both the OPPTS' and my staff's efforts
in resolving issues raised in last year's report.
I am committed to addressing the issues raised in this
year's report as well as completing our work on the ongoing
corrective actions. Improving financial management in the agency
is a high priority for us.
If you have any questions regarding our response, please
contact Jack Shipley, Director of the Financial Management
Division at 260-5097.
Attachment
Report No. E1AML3-20-7001-4100230 125
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cc: Administrator for the Office of Prevention, Pesticides and
Toxic Substances (7101)
General Counsel, Office of General Counsel (2310)
Comptroller (3301)
Director, Office of Acquisition Management (3801F)
Director, Office of Administration and Resources
Management, Cincinnati, OH
Director, Office of Administration and Resources
Management, RTF, NC (MD-20)
Director, Office of Information Resources
Management (3401)
Director, Office of Pesticide Programs (7501C)
Director, Budget Division (3301)
Director, Contracts Management Division, RTP, NC (MD-33)
Director, Facilities Management and Services
Division (3204)
Director, Financial Management Division (3303F)
Director, National Contracts Payment Division,
RTP, NC (MD-32)
Director, National Data Processing Division, RTP, NC (MD-34)
Director, Program Management and Support Division (7502C)
Director, Quality Assurance staff (3204)
Chief, Policy and Special Projects Staff (7501C)
Chief, Security and Property Management Branch (3204)
Agency Followup Official (3304)
Audit Follow-up Coordinator ATTN: Program Policy
Coordination Office (3102)
Carolyn Levine, Audit Liaison for the Office of
Administration and Resources Management (3101)
Joyce Hay, Audit Liaison for the Office of Prevention,
Pesticides and Toxic Substances (7401)
Regional Comptrollers I-X
Regional Financial Management Officers I-X
Financial Management Division Branch Chiefs
be: Ron Bachand (3303F)
Terry Overson (3302)
Steve Verrecchia (3302)
Ken Wetzel (7502C)
Len Bechtel (3303F)
126
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ATTACHMENT
RESPONSE TO RECOMMENDATIONS IN DRAFT AUDIT
REPORT NO. E1AML3-20-7001
FISCAL 1993 FINANCIAL STATEMENT AUDIT OF THE
PESTICIDES REVOLVING FUNDS AND THE OIL SPILL TRUST FUND
The following represents the Office of Administration and
Resources; Management (OARM) and the Office of Prevention,
Pesticide's, and Toxic Substances (OPPTS) consolidated response to
recommendations in the draft audit report of Fiscal 1993
Financial Statement Audit of the FIFRA, Tolerance, and Oil Spill
Trust Funds. We have grouped our comments and responses to the
recommendations as they appear in the report.
RECOMMENDATIONS/RESPONSE
— Auditors' Report on Internal Controls (Material Weaknesses)
1.0 Finding: Weaknesses exist in the system used to track
tolerance fees
General Comment
We agree in general with the recommendations and with the
report's finding that problems exist in the TOLFUND database and
with the resulting recommendations. We cannot confirm the
specific dollar amounts until a full review, as recommended, is
completed. Some of the recommendations have been or are in the
process of being implemented. For example, OPPTS has already
purchased a commercial software package that was recommended by
the OIG to record future tolerance fee transactions (receipts and
refunds) ., Further, we are in the process of correcting the
current database as a result of the errors identified by the OIG.
1.1 Recommend that the Director/ OPPTS revise procedures to
explain in detail how to record tolerance fee transactions,
and how to check to make sure transactions have been
accurately recorded.
We agree with this recommendation and have purchased a
software package which will address this issue.
Corrective Action: Target Date
- Develop procedures for new commercial Sept. 1, 1994
system.,
1.2 Recommend that the Director, OPPTS request programming
support to correct the control problems we noted in the fee
tracking system/ or buy a suitable commercial software
package with strong application controls.
We agree with this recommendation and in December 1993,
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OPPTS purchased a commercial software package to address the
control problems in the fee tracking system.
1.3 Recommend that the Director, OPPTS perform a review of all
petition fee and earnings data, and make any needed
corrections to recorded balances. Reconcile the results of
the review with data in the Integrated Financial Management
System.
We agree with this recommendation.
Corrective Action: Target Date
- Complete review of petition fee and Sept. 1, 1994
earnings data.
- Provide FMD with the results of the review Sept. 15, 1994
for reconciliation with IFMS.
1.4 Recommend that the Director, OPPTS correct records to
reflect earnings overlooked in fiscal 1993, and prior years.
We agree with this recommendation and will incorporate it
into OPPTS's review of all petition fee and earnings data. As
stated in our response to Recommendation 1.3, we will correct
these data by September 15, 1994.
1.5 Recommend that the Director, OPPTS before the financial
statements are prepared each year, reconcile OPP's Tolerance
Fund fee records with IFMS records.
We agree with this recommendation. We are committed to
performing quarterly reconciliations of the fee receipts.
Corrective Action: Target Date
- Reconciliation of fee receipts. Quarterly
1.6 Recommend that the Director, OPPTS include the fee tracking
system in FMFIA reviews.
We agree with this recommendation. OPP has already included
the tolerance fee tracking system for study through the FMFIA
1993 Management Control Plans (MCPs).
Corrective Action: Target Date
- Conduct review of the fee tracking Sept. 30, 1994
system.
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1.7 Recommend that the Director, FMD make any needed accounting
adjustments to establish the correct deferred revenue
balemce after OFF completes its review of fee and earnings
datzi.
Once OPP has completed its review of fees and earnings, FMD
will make the necessary adjusting entries to correct the deferred
revenue balances by the end of the current fiscal year.
1.8 Recommend that the Director, FMD, on an annual basis, ensure
the financial statements for the Tolerance Fund agree with
OFP"s detailed records on fees.
FMD has been working with OPP to reconcile their Tolerance
Fund fee records on a quarterly basis since the FY 1992 financial
statement audit. FMD will continue to assist OPP in this effort.
Further, we believe that this recommendation duplicates
Recommendation 1.5. Therefore, we suggest that it be deleted.
2.0 Finding: Further improvements needed in documentation for
adjusting entries
2.1 Recommend that the Director, FMD direct staff to provide
adequate descriptions and supporting documentation for all
adjusting entries.
We agree with this recommendation. We believe that we have
sufficient guidance on documenting adjusting entries. However,
the auditors had problems in understanding some of our entries.
As a result, we will be expanding the explanations for every
adjusting entry to ensure that we adequately describe the reason
for an entry. Lastly, we will attach the supporting
documentation to an entry or retain the supporting documentation
in the financial management area where FMD staff can retrieve it
when requested by audit personnel.
2.2 Recommend that the Director, FMD direct staff to make
adjustments as single entries, instead of combining multiple
unrelated adjustments into a single (net) entry.
We agree in principle with this recommendation. Although
the use of multiple entries is both correct and allowable in
accomplishing the appropriate accounting system adjustments, it
may cause some confusion during the audit follow-up review
process. To minimize this confusion, we will reduce the number
of multiple type entries and separate the entries as to subject
matter. We will also provide expanded explanations and
documentation for the adjusting entries.
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2.3 Recommend that the Director, FMD direct staff to consult
with the OI6 before making adjustments that may affect our
opinions on prior year financial statements.
We disagree with this recommendation. Agency management has
the responsibility for the accounting data in the finance system
along with the financial statements. We believe that FMD should
retain the right, as a part of Agency management, to determine
what entries are proper and necessary as long as these entries
are in accordance with standard accounting guidelines. However,
as a part of the year-end audit, Agency management will provide
to the auditors all records of the financial system, which
includes all adjusting entries. During this time, we will
discuss the rationale of our adjustments with the auditors.
Also, as stated in our response to recommendation 2.1, we will be
expanding the explanations for every adjusting entry to ensure
that we adequately describe the reason for an entry.
2.4 Recommend that the Director/ FMD direct staff to develop
written procedures for closing the FIFRA and Tolerance
Funds.
We agree with this recommendation. We have already
developed written procedures for manually adjusting and closing
entries at year-end for both the FIFRA and Tolerance funds. The
procedures provide for the proper use of the alternate general
ledger accounts for both the FIFRA and Tolerance funds during the
fiscal year. These general ledger accounts will provide a
crosswalk in explaining the year-end closing entries being made
for both funds.
3.0 Finding: Property balances included in the financial
statements could not be audited
3.1 Recommend that the CFO establish and track revised target
dates for implementing the new fixed asset sub-system once
development of the sub-system has been completed.
We agree in principle with the recommendation but would like
to make several comments. First, although we recognize that the
current process has some weaknesses, we believe that for FIFRA,
the current process captures substantially all of FIFRA's
property. FIFRA has little, if any, contractor acquired
property, software, or capital leases. These are the areas where
our current procedures are weak. Therefore, we believe it may be
possible to audit the FIFRA property balance within acceptable
audit materiality levels. Secondly, readers of this audit report
may be led to believe that the reported property balances are not
adequately documented. All reported amounts are documented with
purchasing documents and paid invoices in the various finance
offices. Third, the report states,..."After the sub-system has
been fully tested and accepted by U.S. Geological Survey (USGS),
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the Agency plans to purchase the system and, after some
modifications, implement it." EPA will not have to purchase the
system. It will be available to EPA at no cost. However, we
will need to pay for any additional modifications that are
necessary for meeting EPA's unique requirements. FMD is tracking
the progress on this issue through their FMFIA quarterly progress
reviews.
Corrective Action; Target Date
- Monitor USGS implementation progress. On-going
- Finalise and submit cost benefit analysis April 15, 1994
to EPA management.
- Develop implementation plan for sub-system. May 31, 1994
3.2 Recommend that the CFO revise the Agency's capitalization
policy to include detailed instructions for determining what
types of assets the Agency should capitalize, and revise
current procedures to implement the necessary changes.
We agree in principle with this recommendation. However,
while we recognize the need to develop and issue such policies,
until we can make the required system changes, issuing these
policies and procedures will not substantially improve the
Agency's accounting for property. The current system does not
have the capability to properly account for property, which is
why we implemented the ad hoc procedures we currently use.
Moreover, the current system provides no effective means for
enforcing any hew policies and procedures.
The Personal Property Quality Action Team (QAT) is preparing
a cost benefit analysis for the implementation of the Integrated
Fixed Assets Sub-system. Once management reaches concurrence on
the QAT recommendations, an implementation plan will be developed
for the creation of the sub-system. When the new system is fully
operational, we will have the capability to properly account for
property while providing us a way to enforce the new policies and
procedures that we will develop and subsequently issue in the
future.
Corrective Action: Target Date
- Develop milestones for revising policies May 31, 1994'
and procedures in the Implementation Plan.
4.0 Finding: Improvements needed in estimating accounts payable
and accrued liabilities
4.1 Recommend that the Director, FMD revise the procedures used
by the RTF Financial Management Center to compute year-end
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adjusting entries for accounts payable to include all unpaid
invoices received by September 30 in order to more
accurately estimate the entries.
We agree with this recommendation. This recommendation was
the result of a mistake in year-end accounts payable due to
incomplete specifications being provided to our computer
programmers. We will correct this situation by creating standard
operating procedures which will formalize the specifications for
year-end processing.
Corrective Action; Target Date
- Develop standard operating procedures for June 30, 1994
year-end processing of accounts payables.
4.2 Recommend that the Director, FMD work with the Director of
the RTF Financial Management Center to evaluate the process
used to compute year-end adjusting entries for accrued
liabilities and revise it to more accurately estimate the
entries.
We agree with this recommendation. The process used to
compute the year-end adjusting entries for accrued liabilities at
RTF needs to be re-evaluated. RTF will draft revised procedures
for computing accrued liabilities related to the FIFRA
appropriation. Once the revised procedures for computing accrued
liabilities are issued, they will be utilized for computing the
year-end adjusting entries.
Corrective Action: Target Date
- Issuance of Agency guidance for computing Sept. 1, 1994
year-end accrued liabilities' adjustments.
- Completion of year-end adjusting entries. Oct. 15, 1994
— Auditors' Report on Internal Controls (Reportable Conditions)
5.0 Finding: Unliquidated Obligation Balance for the FIFRA Fund
contained invalid obligations
General Comment
The report narrative does not present a true picture of how
OPP's performance has improved substantially this year from the
past. OPP recommended, in its 1993 partial review, that 45
documents be deobligated or closed, which would return about
$231,000 to the FIFRA Fund. A total of $9.6 million (738
documents) were recommended to be deobligated for all
appropriations. OPP is in the process of improving its review
process so that a complete review of their unliquidated
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obligation balance can be accomplished in a timely and efficient
manner. The roughly $417,000 identified by the OIG as
unliquidated obligations is relatively minuscule when compared to
the pesticide reregistration shortfall.
5.1 Recommend that the AA for Prevention, Pesticides and Toxic
SubHtances direct the Director/ Office of Pesticide Programs
to complete the required unliquidated obligation reviews and
provide the results to the appropriate finance office so
that invalid obligations can be deobligated.
We agree with this recommendation. Upon the completion of
the unliquidated obligation reviews, OPPTS will provide to FMD
the final information necessary to deobligate invalid
obligations.
Corrective Action; Target Date
- Receipt of FMD obligation listings. June 1, 1994
- Completion of unliquidated obligation reviews. Aug. 15, 1994
5.2 Recommend that the AA for Prevention, Pesticides and Toxic
Substances direct the Director, Office of Pesticide Programs
to submit to the Grants Administration Division close out
requests for invalid interagency agreements.
We agree with this recommendation. OPPTS will submit the
proper close out requests to the Grants Administration Division
for action.
Corrective Action; Target Date
- Submission of close out requests for Aug. 15, 1994
invalid lAGs.
5.3 Recommend that the CFO include the completion of
unliquidated obligation reviews as a financial management
performance measure on which offices are evaluated.
We agree with this recommendation. We intended to include
the completion of unliquidated obligation reviews as a
performance measure even before this audit review was complete.
We will coordinate this issue with the Office for Prevention,
Pesticides and Toxic Substances (OPPTS) as a CFO requirement.
Corrective Action; Target Date
- Include unliquidated obligation reviews as Oct. l, 1994
a financial management performance measure.
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5.4 Recommend that the CFO direct the Director, PMD to:
(1) Coordinate with the Headquarters Procurement Operations
Division to deobligate from the $232,792 the
appropriate amount not needed for contract incidentals.
(2) Coordinate with program offices and the Grants
Administration Division to deobligate the remaining
$238,653 of unliquidated obligations for interagency
agreements we determined to be invalid.
We agree with the intent of this recommendation. FMD will
work with the appropriate procurement, program, and Grants
administration offices to deobligate the necessary funds.
However, FMD is a service division, and does not have the
authority to deobligate funds without appropriate instructions
from these offices. FMD will record the necessary accounting
transactions upon receipt of proper authorization.
5.5 Recommend that the Director, Headquarters Procurement
Operations Division to identify the amount, by delivery
order, that may be needed for incidental costs during
contract close out and request deobligation of the remaining
funds.
We agree with this recommendation. We have already
initiated a review of the contracts involved. As a result, we
have deobligated some funds. However, in some cases funds can
not be deobligated because they will be needed to cover
contractor costs. We will document in the contract file what
specific action was taken.
Corrective Action; Target Date
- Conduct review of delivery orders. April 15, 1994
6.0 Finding: Property accountability controls need to be
strengthened
General Comment
The report gives the appearance of a less than satisfactory
level of accountability in OPP's internal controls of equipment
and furniture. However, in FY 1993 all OPP Custodial Officers
and Alternates were counseled on the necessity of correcting all
records and ensuring that all property under their respective
responsibility center was accounted for and logged out, as
appropriate, for "surplus."
When the audit report is finalized and issued, each OPP
division director will be given a written synopsis of the
report's section relating to property. They will then be asked
8
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to ensure that all subordinate management and staff follow the
appropriate rules and regulations regarding the receipt/transfer
of equipment/furniture.
OPP will also work with the Facilities Management and
Support Division in developing communications to OPP employees
that concisely and clearly state the proper methods of property
management. However, ultimately each responsible OPP employee
must effectively account for their own equipment and furniture
purchases.
6.1 Recommend that the AA-for Prevention, Pesticides and Toxic
Substances notify all employees of the proper method of
transferring property within the organization.
We agree with this recommendation and OPPTS will notify all
of their employees promptly.
Corrective Action: Target Date
- Issue notification to OPP employees on July 15, 1994
proper methods of organizational property
transfer.
6.2 Recommend that the AA for Prevention, Pesticides and Toxic
Substances work with FM8D to reduce the number of personal
property items assigned to custodial areas to 100 items.
We agree with this recommendation. OPPTS will take prompt
action to reduce the number of personal property items in the
custodial areas.
Corrective Action; Target Date
- Reduce the number of personal property July 15, 1994
items in custodial areas.
6.3 Recommend that the CFO include completion of physical
inventories as one of the financial management performance
measures on which offices are evaluated.
We agree with this recommendation. The Property Management
Section under the Facilities Management and Services Division
(FMSD) heis been doing physical inventories of property purchased
with FIFRA funds. The Assistant Administrators are responsible
for performing physical inventories, and FMSD is working to
ensure that they assume this responsibility. The performance
measures for performing physical inventories will be created
through the Agency's established process.
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— Auditors' Report on Compliance with Laws and Regulations
7.0 Finding: Higher priority needs to be placed on completing
required reviews of user fees
General Comment
The report cites two OPP fees that were required to be
reviewed in 1993: Tolerance Petition fees and Annual Maintenance
fees. A third fee system, Reregistration fees, in which the
individual fees were established by Congress and could not be
changed by the Agency, is nearly complete. Approximately $31
million has been collected. Congress has established a goal of
collecting $14 million a year in Annual Maintenance fees and gave
the Agency the authority to adjust the individual fees, if
necessary, to reach that goal. EPA reached, or exceeded, that
goal in fiscal years 1992 and 1993. Any review concerning Annual
Maintenance fees would merely restate the obvious.
The report states that increased fees will provide
additional revenues to the Agency. We welcome your statement
that "the Agency should work through the budget process to ensure
that additional fees collected are made available." It is not
only the Agency, however, that needs to change the process. OMB
and Congress must also change their budget processes to allow the
Agency to retain increased tolerance fees.
The audit report discussion of the cost of processing
Section 408 tolerances vs. receipts does not acknowledge the
Agency's policy of waving fees for IR-4 minor use petitions
(submitted by universities), economic hardship and public
interest. The implication of this discussion is that those who
now pay for their own petitions should also pay for those that
are waived. •
7.1 Recommend that the CFO include timely review of user fees as
one of the financial management performance measures used to
evaluate program offices in the future.
We will consider the idea of including the timely review of
user fees as a financial management performance measure for the
evaluation of program offices in the future. Our current plans
call for putting the program financial management measures in
place by October 1, 1994.
10
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APPENDIX III
GLOSSARY OF ACRONYMS
Agency
CFO Act
EPA
FIFRA Fund
FMD
FMFIA
FMSD
IFMS
OMB
OPP
OPPTS
RTP
Tolerance
Fund
USGS
Environmental Protection Agency
Chief Financial Officer Act
Environmental Protection Agency
Reregistration and Expedited Processing Fund
Financial- Management Division
Federal Managers' Financial Integrity Act
Facilities Management and Services Division
Integrated Financial Management System
U.S. Office of Management and Budget
Office of Pesticide Programs
Office of Prevention, Pesticides and Toxic
Substances
Research Triangle Park, NC
Revolving Fund for Certification and Other
Services
U.S. Geological Survey
Report No. E1AMX.3-20-7001-4100230
137
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138 Report No. E1AKL3-20-7001-4100230
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APPENDIX IV
REPORT DISTRIBUTION LIST
General Counsel, Office of General Counsel (2310)
Comptroller (3301)
Director, Office of Acquisition Management (3801F)
Director,, Office of Administration and Resources Management,
Cincinnati, OH
Director, Office of Administration and Resources Management,
RTF, NC
Directors, Financial Management Centers at Cincinnati, Las Vegas,
and Research Triangle Park
Director, Office of Information Resources Management (3401)
Director,, Office of Pesticide Programs (7501C)
Director,, Office of Emergency and Remedial Response (5201)
Director,, Budget Division (3302)
Director,, Contracts Management Division, RTP, NC
Director,, Facilities Management and Services Division (3204)
Director,, Financial Management Division (3303F)
Director,, National Data Processing Division, RTP, NC
Director,, Program Management and Support Division (7502C)
Director,, Quality Assurance Staff (3204)
Chief, Financial Compliance and Quality Assurance Staff (3303F)
Chief, Financial Reports and Analysis Branch (3303F)
Chief, Financial Systems Branch (3303F)
Chief, Fiscal Policies and Procedures Branch (3303F)
Chief, Headquarters Accounting Operations Branch (3303)
Chief, Policy and Special Projects Staff (7501C)
Chief, Security and Property Management Branch (3204)
Agency Followup Official (3304)
Carolyn Levine, Audit Liaison for the Office of Administration
and Resources Management (3102)
Joyce Hay, Audit Liaison for the Office of Prevention, Pesticides
and Toxic Substances (7104)
Charlene Dunn, Audit Liaison for the Office of Solid Waste and
Emergency Response (5103)
Report No. E1AML3-20-7001-4100230 139
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