U.S. ENVJR,
N AGENCY
AGENCY FINANCIAL REPORT
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ABOUT THIS REPORT
For Fiscal Year 2011, the U.S. Environmental Protection Agency has elected to use the Office of
Management and Budget's three-part reporting approach as an alternative to the consolidated
Performance and Accountability Report. In FY 201 1 , the EPA is producing an Agency Financial Report,
an Annual Performance Report and an FY2011 Financial and Program Performance Highlights,
pursuant to the OMB Circular A-136, Financial Reporting Requirements.
The EPA's AFR provides fiscal and high-level performance results that enable the President, Congress
and the public to assess our accomplishments for each fiscal year (i.e., October 1 through September
30). It will also include the EPA's FY2011 Financial Statements Audit Report and FY 2011
Management Integrity Act Report, which provides the Administrator's assurance statement on the
soundness of the agency's internal controls for financial and programmatic activities and presents
progress in addressing Office of Inspector General audit recommendations.
The EPA's APR provides information on the agency's performance and progress in achieving the goals
established in its FY 2011-2015 Strategic Plan and FY 201 1 performance budget. The report is
prepared in accordance with the requirements of OMB Circular A-1 1 , Preparation, Submission and
Execution of the Budget. The EPA will produce the FY 201 1 APR in conjunction with the FY 2013
Congressional Budget Justification and will post it on the agency's website at
http://epa.gov/ocfo/budget/index.htm by February 6, 2012.
In addition, the EPA will publish an online Financial and Program Performance Highlights, which
presents key financial and performance information from both the AFR and APR in a brief,
nontechnical, user-friendly format. The Highlights will be posted on the agency's website at
http://www.epa.gov/planandbudget/.
How the Report Is Organized
Administrator's Letter
The Administrator's letter transmits the EPA's FY2011 AFR from the agency to the President and
Congress. In the letter, the Administrator describes the agency's missions, goals and accomplishments.
The letter provides assurance that financial and performance data presented in the AFR is reliable and
complete and conveys material internal control weaknesses and actions the EPA is taking to resolve
them.
Section I — Management's Discussion and Analysis
This section contains information on the EPA's mission and organizational structure; selected agency
performance results; an analysis of the financial statements and stewardship figures; information on
systems, legal compliance, and controls; and other management information and initiatives.
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Section II—Financial Section
This section contains the Message from the Chief Financial Officer, the agency's financial statements
and related Independent Auditor's Report, as well as other information on the agency's financial
management.
Section III—Other Accompanying Information
This section provides additional material as specified under OMB Circular A-136, "Financial Reporting
Requirements." The subsection titled "Management Challenges and Integrity Weaknesses" discusses
the EPA's progress in strengthening management practices to achieve program results and presents
the Inspector General's list of top management challenges and the agency's response.
Appendices
The appendices include a list of relevant agency Internet links and a glossary of acronyms and
abbreviations.
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TABLE OF CONTENTS
About This Report ii
Table of Contents iv
Administrator's Letter vi
SECTION I: MANAGEMENT'S DISCUSSION AND ANALYSIS 1
About the EPA 2
History and Purpose 2
Mission 2
Organization 3
Highlights of Environmental Accomplishment, EPA Regions 4
Collaborating With Partners and Stakeholders 6
A Framework for Performance Management 6
Refocusing Performance Management in FY 2011 7
FY 2011 Program Performance 8
Administrator Jackson's Priorities 8
American Recovery and Reinvestment Act of 2009 Reporting 12
Financial Analysis and Stewardship I nformation 13
Sound Financial Management: Good for the Environment, Good for the Nation 13
Financial Condition and Results 15
Financial Management for the Future 20
Limitations of the Principal Financial Statements 21
Improving Management and Results 22
Office of Inspector General Audits, Evaluations and Investigations 22
Grants Management 22
Accountability: Systems, Controls and Legal Compliance 23
Federal Managers' Financial Integrity Act 23
Management Assurances 24
Federal Financial Management Improvement Act 24
Federal I nformation Security Management Act 25
Biennial User Fees 25
I nspector General Act Amendments of 1988 - Audit Management 25
Defense Contract Audit Agency Audits 29
SECTION II: FINANCIAL SECTION 31
Message from the Chief Financial Officer 32
Principal Financial Statements 33
Notes to the Financial Statements 44
Required Supplementary Information (Unaudited) 79
Required Supplemental Stewardship Information (Unaudited) 81
Supplemental Information and Other Reporting Requirements (Unaudited) 83
Audit of the EPA's Fiscal 2011 and 2010 Consolidated Financial Statements 91
IV
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SECTION III: OTHER ACCOMPANYING INFORMATION 139
Management Integrity and Challenges 140
Overview of the EPA's Efforts 140
Progress in Addressing FY2011 Weaknesses and Significant Deficiencies 141
Agency Weaknesses 141
Significant Deficiencies 146
Summary of Financial Statement Audit 151
Summary of Management Assurance 151
FY2011 Key Management Challenges 152
Key Management Challenges 152
I mproper Payments 183
Risk Assessments 183
Statistical Sampling 183
Corrective Action 185
I mproper Payment Reporting 185
Recapture of I mproper Payments 188
Accountability 191
Agency Information Systems and Other Infrastructure 191
Barriers 191
Conclusions 191
APPENDICES
Appendix A: Public Access 192
Appendix B: Acronyms and Abbreviations 194
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ADMINISTRATOR'S LETTER
November 15, 2011
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
I am pleased to submit the U.S. Environmental Protection Agency's Fiscal Year 2011 Agency Financial
Report. This report presents the agency's detailed financial information, accounting for the use of funds
entrusted to us to carry out our mission to protect human health and the environment. It also provides
readers with a sense of the agency's priorities, strengths and challenges in implementing the programs
used to fulfill our mission. The financial and performance data presented in this report are reliable,
complete and updated.
This is the first of three integrated reporting components. The remaining two reports, the Fiscal Year
2011 Financial and Program Performance Highlights and the Fiscal Year 2011 Annual Performance
Report, will be available in February 2012.
The EPA at 40
The EPA celebrated its 40th anniversary during 2010. For more than four decades, the EPA has worked
to protect human health and the environment. It has matured into the world's preeminent environmental
regulatory agency, grounded in the core values of science, transparency and the rule of law. Although
there is still much left to accomplish, the EPA has made significant strides in reducing the pollution that
threatens our air, our water and our communities. During this fiscal year, we took action under the
landmark Clean Air Act to build upon the EPA's efforts to impact climate change. We also put a greater
focus on community-level engagement to augment and reinforce the critical work of our state and tribal
partners. The EPA is taking common-sense steps to achieve an ambitious vision for protecting and
restoring America's waters, ensuring the safety of chemicals, improving air quality, addressing climate
change, cleaning up communities and ecosystems and strengthening the EPA's scientific and
enforcement capabilities. Further, we are improving the EPA's internal operations to deliver
environmental results for the American people.
Management
At the EPA, we take seriously our responsibility as stewards of taxpayer dollars. We continue to make
every effort to be more efficient, effective and accountable and to eliminate waste wherever it is found.
We are strengthening our internal controls to ensure the EPA achieves its financial and programmatic
objectives in the most cost-effective manner.
For FY 2011, both the EPA and the Office of the Inspector General identified no new material
weaknesses. We also are addressing a number of less severe weaknesses for which corrective actions
are underway. My assurance statement, provided under the Federal Managers' Financial Integrity Act,
appears in Section I, "Management's Discussion and Analysis." Section III, "Other Accompanying
Information," provides additional information on the EPA's internal-control weaknesses.
The inspector general, in compliance with the Reports Consolidation Act of 2000, has identified what he
considers to be the EPA's five most serious management challenges in FY 2011. While we are making
progress, the Inspector General has acknowledged that it might take years to meet these challenges,
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such as measuring the results of our programs on human health and the environment and ensuring that
the nation has the funding needed to construct, repair and maintain its drinking-water and wastewater
infrastructure. Meeting these human-health and environmental challenges also will require collaboration
among many, including Congress, other federal agencies, states, tribes and communities. The EPA is
committed to working with our partners and stakeholders to address these challenges.
Future Direction
The EPA will continue to lead our nation's efforts to protect our air, water and land. We will put our
expertise and energy to work to meet our responsibilities for enforcing the nation's environmental laws
and regulations, and we will collaborate with our state and local partners to find solutions for our most
significant environmental challenges. Our work as One EPA provides a solid foundation for our future
success, and I have tremendous confidence in the talent and spirit of our work force. Indeed, the EPA's
dedicated men and women look forward to the next 40 years with a renewed commitment to fostering
healthier families, cleaner communities and a stronger America.
Respectfully,
Lisa P. Jackson
VII
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Section I
Management's Discussion and Analysis
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ABOUT THE EPA
The Birth of the EPA
Reorganization Plan No. 3 was an
executive order submitted to
Congress on July 9, 1970, by
President Richard Nixon. The order
consolidated components from
different federal agencies to form the
EPA, "a strong, independent agency"
that would establish and enforce
federal environmental protection
laws. Reorganization Plan No. 3 was
sent to Congress in agreement with
the provisions of chapter 9 of title 5
of the United States Code. The
Reorganization Plan was enacted in
Public Law 98-614.
History and Purpose
Born in the wake of elevated
concern about environmental
pollution, the EPA was established
on December 2, 1970, to
consolidate in one agency a variety
of federal research, monitoring,
standard-setting and enforcement
activities to ensure environmental
protection. Since its inception, the
EPA has been instrumental in
fostering a cleaner, healthier
environment for the American
people. Since 1970, America's
environmental history has stood
witness to both dramatic events and
remarkable progress.
In FY 2011, the EPA celebrated 40 years of working to protect human health and the environment.
From regulating vehicle emissions to ensuring that drinking water is safe; from cleaning up toxic waste
to assessing and ensuring the safety of chemicals; and from reducing greenhouse gas emissions to
encouraging conservation, reuse, and recycling, the EPA and its federal, state, local, and community
partners and stakeholders have made enormous progress in protecting and sustaining the nation's
health and environment. America's air, water and land are cleaner today than they were only a decade
ago, and increasingly people are adopting a "greener" way of living. Across all sectors of society,
people are making choices to preserve resources, prevent pollution and reduce impacts on the
environment.
The EPA has made exceptional progress in protecting the environment. Despite the historic
environmental advances the EPA has made along the way, much work remains. The environmental
problems the country faces today are often more complex than those of years past, and implementing
solutions—both nationally and globally—is more challenging. These environmental concerns and other
obstacles drive the agency's commitment to ensure that communities, individuals, businesses, and
state, local and tribal governments all have access to accurate information to assist in managing human
health and environmental risks.
The E
Develops and enforces
regulations
Gives grants to states, local
communities and tribes
Studies environmental issues
Sponsors partnerships
Teaches people about the
environment
Publishes information
Mission
The EPA's mission is "to protect human health and the
environment." As America's environmental steward, the EPA
leads the nation's environmental science, research, education,
assessment and enforcement efforts. Maintaining our core
values of science, transparency, and the rule of law, the agency
is strongly committed to meeting growing environmental
protection needs. The EPA's science provides the foundation for
agency decision-making and the basis for understanding and
preparing to address future environmental needs and issues.
Increased transparency is vital for improving programmatic and
financial performance. By making environmental information
both available and understandable, the EPA advances its work
and furthers public trust in its operations.
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Organization
The EPA's headquarters are located in Washington, DC. Together, the EPA headquarters, 10 regional
offices and more than a dozen laboratories and field offices across the country employ more than
17,000 men and women. The agency's employees are highly educated and technically trained. In fact,
more than 50 percent of the agency's employees are engineers, scientists and policy analysts. Many
other talented individuals in scores of vital occupations, from legal and public affairs to finance and
information technology, make up the agency's workforce.
U.S. Environmental Protection Agency
The mission of the Environmental Protection Agency is to protect human health and the environment
Assistant Administrator
for Administration and
Resource Management
Assistant Administrator
for Chemical Safety and
Pollution Prevention
Assistant Administrator
for Research and
Development
Region I
Boston, MA
Region 2
New York, NY
Region 5
Chicago, IL
Region 6
Dallas, TX
Assistant Administrator
for Enforcement and
Compliance Assurance
Assistant Administrator
for International
and Tribal Affairs
Assistant Administrator
for Environmental
Information
Assistant Administrator
for Solid Waste and
Emergency Response
Region 3
Philadelphia, PA
Region 4
Atlanta, GA
Region 7
Kansas City, KS
Regions
Denver, CO
Region 9
San Francisco, CA
Region 10
Seattle, WA
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Highlights of Environmenta
Region 10 Restoring the Puget Sound Ecosystem
The EPA awarded $38.1 million in grants to facilitate the ecosystem
restoration and protection of Puget Sound, the nation's second-
largest estuary. Funded projects include reducing toxic and bacterial
pollution and protecting at-risk watersheds such as the Duwamish
River, an urban waterway in Puget Sound that is currently under
Superfund cleanup. The port of Seattle and city of Seattle have
committed $33 million to dean up contaminated marine sediment
and soil. Tribes have used the Puget Sound funding to support the
elimination of invasive species and to monitor salmon movement
during the Elwha River Dam removal, the largest project of its kind
in U.S. history.
http://www.epa.gov/pugetsound/
Region 9 Undertaking Uranium Cleanup in Navajo Nation
To address health and environmental impacts of uranium contami-
nation in Navajo Nation, the EPA and Navajo EPA screened 683
structures for potential contamination, completed the demolition
and excavation of 34 structures and 12 residential yards, assessed
452 mines, and started cleanup on the 4 highest priority mines.
Additionally, the EPA tested 240 wells for ground water contamina-
tion and partnered with Indian Health Services and U.S. Housing
and Urban Development to invest $24.5 million in new water lines
serving drinking water to 300 homes. Marking a major accomplish-
ment, the EPA and the Navajo Nation reached agreement on a plan
to dean up the Northeast Church Rock United Nudear Corporation
mine—the largest mine on the reservation—starting in 2012.
http://www.epa.gov/region09/NavajoUranium
Region 7 Responding to Joplin.Missouri.Tornado Aftermath
On May 22,2011, tragedy struck Joplin, Missouri, after an F-5
tornado damaged approximately 8,000 structures in its wake. In
the aftermath of the tornado, the EPA has worked with the Mis-
souri Department of Natural Resources and the Federal Emergency
Management Agency, as well as other state and local partner agendes
and nongovernmental entities, to reuse and recyde more than 156
tons of electronic equipment, 104,000 containers, and 257 tons of
white goods, such as housing materials and propane cylinders. In
addition, the EPA coordinated with partner agendes to conduct rapid
needs assessments, air monitoring for asbestos and particulates, and
household hazardous waste operations, as well as provide long-
term community recovery support The EPA has maintained public
outreach efforts throughout the response, conducting more than 70
news media interviews that resulted in several hundred news stories
mentioning the agency's efforts.
http://www.epa.gov/joplin/
Region 8Treating Contaminated Mining Drainage in Colorado
Using $17 million in hazardous waste cleanup funding from the Ameri-
can Recovery and Reinvestment Act of 2009, the EPA and the Colorado
Department of Public Health and Environment constructed a 1,600-gallon-
per-minute water treatment plant at the Summitville Mine Superfund site
to remove heavy metal contaminants from mine drainage before the water
leaves the site and enters the headwaters of the Alamosa River, a tributary
of the Rio Grande River. The project has supported job creation in various
building trades, including mechanics, heavy equipment operators and
truck drivers. In addition, the EPA and the CDPHE installed a micro-
hydropower plant at the site, providing 15 to 20 percent of the site's energy
needs and resulting in significant cost savings.
http://wnw.epa.gov/region8/superfund/co/summitville/index.html
Region 6 Ensuring Environmental Justice and Public Health in Texas
The EPA finalized approval of a community-based Supplemental Environmental
Project to build a $1 million health clinic to serve the residents of Port Arthur,
Texas. The clinic is part of the EPA's Environmental Justice Showcase Com-
munity Project, a grassroots program in which the EPA works with city offidals,
industry, and state and federal partners to achieve measurable progress in some
of America's most environmentally distressed communities. In addition, the
EPA has helped establish six multi-stakeholder workgroups designed to improve
environmental conditions, health care, housing, jobs training, energy efEdency
and urban redevdopment projects in the region.
http://www.epa.gov/region06/6dra/oejta/ej/index.html
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Accomplishment, EPA Regions
Region 5 Advancing Northeast Ohio's Water Infrastructure and Economy
In July 2011, the EPA reached a Combined Sewer Overflow Consent Decree with the North-
east Ohio Regional Sewer District, mandating a $3 billion effort to reduce the annual
volume of raw sewage discharged from 4,5 billion gallons to 494 million gallons, including
a minimum of $42 million for large-scale green infrastructure projects spanning the next
25 years. Green infrastructure management approaches and technologies include infiltra-
tion, evapotranspiration, and the capture and reuse of storm water to maintain or restore
natural hydrologies. Collectively, the implemented control measures will result in the treat-
ment of more than 98 percent of the wet weather flows in the sewer system. One economic
impact study concluded that such sewer construction projects will create 31,000 jobs in the
7 northeast Ohio counties, $3 billion in labor income, and $443 million in tax revenue.
http://www.epa.gov/compliance/resources/cases/civil/cwa/neorsd.html
Region 4 Improving Air Quality in the Southeast Through Clean Air
Act Settlement
In April 2011, the EPA provided a new benchmark for clean power generation in
the United States through a Clean Air Act settlement with the Tennessee Valley
Authority that requires the TVA to spend $350 million on environmental mitiga-
tion projects, including energy efficiency and renewable energy projects. Once
fully implemented, the pollution controls could reduce emissions of nitrogen
oxide by 69 percent and sulfur dioxide by 67 percent from the TVA's 2008 emis-
sion levels. The settlement will also significantly reduce particulate matter and
carbon dioxide emissions, leading to estimated annual monetized health benefits
ranging from $11 billion to $27 billion.
http://www.epa.gov/compHance/resources/cas es/dvU/caa/tt'acoal-fired.html
Region / Providing Train ing To Prevent Lead
Exposure in New England
As part of an extensive outreach and assistance effort
reaching more than 125,000 people in the New England
region, the EPA accredited 64 training providers, over a
two-year period, to teach more than 134 courses under
the federal lead renovation, repair and painting rule. The
rule requires that firms performing renovation, repair and
painting projects that disturb lead-based paint in pre-1978
homes, childcare facilities and schools be certified by the
EPA and use certified renovators trained to follow lead-safe
work practices. To date, 12,664 New England firms have
been certified, and almost 2,500 courses have been offered,
providing invaluable training to an estimated 75,000
people. Continuing the EPA's effort to achieve compli-
ance and reduce risks, Region 1 issued the first renovation,
repair and painting rule enforcement action in the nation
resulting from a social media video tip.
http://epa.gov/regionl/enforcement/leadpaint
Region 2 Cleaning Up the Hudson River
Region 2 marked an important milestone in the cleanup
of the Hudson River with the start of the second and final
phase of dredging in spring 2011. Over the next five to
seven years, General Electric will remove about 2.4 million
cubic yards of polychlorinated biphenyls contaminated
sediment from a 40-mile section of the Upper Hudson
River between Fort Edward and Troy, NY. An estimated
1.3 million pounds of PCBs were discharged into the
river from two General Electric capacitor manufactur-
ing plants located in Fort Edward and Hudson Falls over
the course of 30 years. General Electric is conducting the
dredging project, with EPA oversight, under die terms of a
November 2006 legal agreement Approximately 500 jobs
have been created by the cleanup project, and more than
550,000 cubic yards of contaminated sediment has already
been removed.
http://www.epa.gov/hudson/
Region 3 Reducing Surface Mining Impacts on
Appalachian Waters
The EPA vetoed a permit issued by the Army Corps of Engi-
neers for the Spruce No. 1 Surface Mine in Logan County,
West Virginia, marking the most signficant agency action
to date in protecting Appalachian waters and reducing the
environmental impacts of surface coal mining on local and
downstream communities. The EPA held a public hearing
to engage stakeholders—including mining companies
and workers, local community groups and citizens, and
watershed and conservation groups—coming from all sides
of the issue. The public hearing solicited more than 50,000
public comments. The EPA's efforts will help prevent
harmful levels of selenium and salinity contamination in
downstream waters, and avoid the destruction or degrada-
tion of 3.5 square miles of wildlife habitat
http://yosemite.epa,gov/opa/admpress.nsf/0/6b9ecfafebce
79a5852578170056al79?OpenDocument
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Collaboration with Partners and Stakeholders
Addressing today's complex environmental issues requires greater transparency and cooperative
action; establishing and enhancing working partnerships between all levels of government and with
private industry and nonprofit organizations; and leveraging the EPA's resources with those of other
federal agencies and state, local and tribal partners. The EPA, the states and the tribes largely share
responsibility for implementing environmental laws and policies to protect human health and the
environment. The EPA understands that government alone cannot begin to address all of the nation's
environmental challenges.
A Framework for Performance Management
To carry out its mission to protect human health and the environment, and in compliance with the
Government Performance and Results Modernization Act, the EPA develops a five-year Strategic Plan
(www.epa.gov/ocfo/plan/plan.htm), which establishes the agency's long-term strategic goals, along with
supporting objectives and measures. To support achievement of the long-term goals, objectives and
measures, the EPA prepares an Annual Performance Plan and Budget, which commits the agency to a
suite of annual performance measures. The EPA will report its results against these annual
performance measures and discuss progress toward longer term objectives and measures in its Annual
Performance Report, which the agency presents in its Congressional Budget Justification.
The EPA developed its FY 2011 Annual Plan and Budget under its 2006-2011 Strategic Plan. On
September 30, 2011, the EPA issued its FY 2011-2015 Strategic Plan, which advances the
Administrator's Priorities, and in FY 2011, the agency began assessing performance under this new
plan.
EPA's Performance Management System
Strategic Planning
FY 20! I-2015 Strategic Plan
Futures Work
Results Measurement,
Reporting, and Evaluation
(Accountability)
• Annual Performance Report
• Program Evaluation
Annual Planning
and Budgeting
EPA Annual Plan and Budget
Priority Goals
Operations
and Execution
National Program Manager
Guidance
Regional Performance
Commitments
Regional and State Performance
Partnership Agreements (PPAs)
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Refocusing Performance Management in FY 2011
To refocus attention on advancing its FY 2011-2015 Strategic Plan, in FY 2011 the EPA instituted two
new practices that move the agency closer to a goal of using simpler and more meaningful
performance information in managing programs and informing decision-making. For example, the
Deputy Administrator holds quarterly meetings with senior leadership to discuss progress on agency
priority goals, and at midyear and the end of the year on the full suite of performance measures. These
meetings encourage transparency and a dialogue among national program managers and regions on
program performance.
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2011 PROGRAM PERFORMANCE
Administrator Jackson's
Priorities
* Taking Action on Climate Change
•{» Improving Air Quality
* Assuring the Safety of Chemicals
* Cleaning Up Our Communities
* Protecting America's Waters
* Expanding the Conversation on
Environmentalism and Working
for Environmental Justice
* Building Strong State and Tribal
Partnerships
During FY 2011, the agency made progress in advancing the Administrator's priorities and mission
goals. Specifically, the EPA and its partners achieved significant results under each of the five long-
term environmental goals established in the agency's FY 2011-2015 Strategic Plan: 1) Taking Action
on Climate Change and Improving Air Quality, 2) Protecting America's Waters, 3) Cleaning Up
Communities and Advancing Sustainable Development, 4) Ensuring the Safety of Chemicals and
Preventing Pollution and 5) Enforcing Environmental Laws.
Detailed FY 2011 performance results by strategic goal will be presented in the EPA's FY 2011 APR,
which the agency will issue with its FY2013 Congressional Budget Justification and post on its website
atwww.epa.gov/ocfo/budget/index.htm by February 6, 2012. This section highlights the agency's
accomplishments in furthering the Administrator's seven
priorities.
Taking Action on Climate Change. EPA is contributing
to a movement toward more efficient energy use and
reduced consumption of fossil fuels, which will reduce
greenhouse gas emissions that are linked to climate
change. To tackle climate change issues, the agency is
taking a proactive approach to reducing greenhouse gas
emissions by managing and collecting data on emissions
and coordinating with federal, state and local government
agencies and the international community.
On August 22, 2011, the EPA opened the electronic
Greenhouse Gas Reporting Tool for 2010 GHG reporting.
Facilities emitting greenhouse gases reported 2010
emissions to the EPA by September 30, 2011. This
comprehensive, nationwide emission data will provide the
EPA with a better understanding of the sources of
greenhouse gases and will guide development of the
policies and programs to reduce emissions. The publicly
available data will allow facilities to track their emissions,
compare them to similar facilities and identify cost-
effective opportunities for reducing emissions in the future.
An estimated 85 to 90 percent of total U.S. greenhouse
gas emissions from approximately 13,000 facilities will be
reported to the registry.
Improving Air Quality. The EPA is making historic
progress toward improving air quality through the
implementation of the Clean Air Act Amendments of 1990,
particularly by developing new standards for vehicle emissions and fuel economy. In FY 2011, the EPA
and the U.S Department of Transportation announced that they intend to propose new fuel-efficiency
standards increasing fuel economy to 54.5 miles per gallon for cars and light-duty trucks by model year
2025. The standards that EPA and DOT intend to develop could save approximately 4 billion barrels of
oil over the lifetime of the model year 2017-2025 vehicles. In the near term, for model year 2013 cars
and trucks, the EPA has unveiled the next generation of fuel economy labels, which provide consumers
with more comprehensive fuel-efficiency information at retailers than is currently available. Specifically,
the labels will compare energy use and purchase price between new electric cars and conventional
gasoline-powered cars.
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In April 2011, the EPA finalized an important settlement with the Tennessee Valley Authority, which will
result in cleaner power generation in the United States. The settlement will ensure that 92 percent of
the TVA's coal-fired generating capacity will either be equipped with state-of-the-art air pollution
controls for sulfur dioxide and nitrogen oxides or be permanently shut down by the end of 2018. The
settlement also requires the TVA to spend $350 million on environmental mitigation projects, including
energy efficiency and renewable energy projects that will result in further pollution reductions.
In July 2011, the EPA finalized the Cross-State Air Pollution Rule, which will lead to capital investments
in addition to those underway to comply with the predecessor rulemaking, the Clean Air Interstate Rule.
Combined, these investments will help improve air quality for more than 240 million Americans from
smog and soot pollution. The EPA estimates $120 to $280 billion in annual benefits associated with the
rule.
Assuring the Safety of Chemicals. In FY 2011, the EPA continued to ensure that health impacts
associated with chemicals are reduced, and that restrictions are placed on harmful chemical
substances. To ensure that safe chemicals are used in American commerce, the EPA developed action
plans to address the priority chemicals methylene diphenyl diisocyanate and toluene diisocyanate.
Diisocyanates, widely used in sealants, adhesives and coatings, are well-known dermal and inhalation
sensitizers in the workplace and have been documented to cause asthma, lung damage and, in severe
cases, fatal reactions. To increase transparency, the EPA has removed confidentiality claims for more
than 150 chemicals and is reviewing 100 percent of newly submitted and, where appropriate, is
challenging CBI claims for Toxic Substances Control Act health and safety studies.
To make chemical data more accessible, the EPA finalized the 2012 Chemical Data Reporting Rule.
Through use of the Chemical Data Access tool, Americans can access key information about chemical
use. Additionally, the EPA has registered more than 2,500 products that meet the "Safer Product" label.
The Design for the Environment Safer Product Labeling Program uses the EPA's chemical expertise
and resources to carefully evaluate products and label only those that have met the program's
standards. Use of the logo on products allows consumers to select environmentally friendly chemical
products that do not sacrifice quality or performance. The "Safer Product" label can be seen on a
variety of chemical-based products, including all-purpose cleaners, laundry detergents, and carpet and
floor care products.
In FY 2011, the EPA accelerated the pace of Pesticide Registration Reviews, the program that provides
scientifically sound and transparent reviews of all pesticide chemicals on the market. The EPA's
Registration Review decisions achieve improved public health and environmental protection by directly
contributing to reducing occupational poisoning and the presence of certain pesticides in urban
watersheds.
Cleaning Up Our Communities. Cleaning up contaminated sites and making them ready for reuse not
only reduces human exposure to contaminants but also stimulates economic development. In FY 2011,
cleanup activities funded by the EPA's Brownfields Program, which provides grants and technical
assistance to communities, states and tribes for the assessment, cleanup and redevelopment of
formerly contaminated properties, leveraged 6,447 jobs. Since 1995, activities have leveraged over
72,000 jobs. In FY 2011, EPA also instituted a new pilot program, called the Brownfields Area-wide
Planning Program, under which 23 communities were awarded grants and provided with technical
assistance to help develop strategies to address cleanup issues, facilitate community-based
partnerships, and advance economic development and job creation through the leveraging of resources
and investments.
In FY 2011, EPA continued cleanup efforts at Superfund sites across all EPA regions. Some of the
highlights of these efforts included: 1) the excavation and disposal of 173 tons of soil from a Superfund
site at the Flash Cleaners site in Pompano Beach, Florida: 2) the reduction of contamination in the
Portneuf River through the interception of more than 2.4 million pounds of phosphorous at the Eastern
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Michaud Flats Superfund Site in the Southeast; and 3) the adoption of an interagency Federal Facility
Agreement to remediate the Fort Detrick Area B Groundwater Superfund Site, once a testing and
disposal area for chemical, biological and radiological materials, located in Frederick, Maryland. Wastes
disposed of at the Fort Detrick site released hazardous chemicals into the ground water, contaminating
residential drinking water wells. The FFA governs the cleanup and grants the EPA final authority over
cleanup decisions.
In response to the Japanese nuclear incident in March 2011, the EPA utilized its nationwide radiation
monitoring system, RadNet, to collect and analyze data about radiation contamination in U.S. air,
precipitation, drinking water and milk. To enhance transparency and respond to domestic public health
concerns, the EPA created the Japan 2011 website, which contained near-real-time monitoring data
and Japan-related sample analysis results. This data provided assurances to the American public that
any radiation migrating to the United States from Japan was below levels of concern.
Protecting America's Waters. In FY 2011, the EPA provided expertise and funding to support local
and state governments and tribes working to improve water quality. Through initiatives like the Urban
Waters Program, and Clean and Drinking Water State Revolving Funds, the EPA is addressing the
nation's aging water infrastructure, reducing nonpoint source pollution and ensuring that America's
waters are clean and safe for recreation and commerce.
Still, communities face many challenges. One such example is the complex environment of the Gulf of
Mexico region. Numerous threats to the Gulf impact the protection, restoration, enhancement and
management of coastal and natural resources. The EPA continues to play a significant leadership role
in the Gulf of Mexico Alliance and supports the collaborative regional watershed projects. Additionally,
development of the "Gulf of Mexico Ecosystem Valuation Database" (GecoServ) gives the Gulf of
Mexico stakeholders the platform to plan and incorporate the value of ecosystem benefits into their
decision-making processes.
In May 2011, the EPA issued Clean Water Act Action Plan Implementation Priorities. Addressing these
priorities will increase compliance with and expand transparency of the National Pollutant Discharge
Elimination System, contributing to improved water quality. Since the Clean Water Act Action Plan was
initiated in 2009, the EPA has worked collaboratively with state co-regulators to develop a wide range
of new approaches to compel compliance through public accountability, including self-monitoring,
electronic reporting and other methods. As of September 2011, NPDES permitting has prevented the
discharge of 203 billion pounds of pollutants into waterways. The EPA and states exceeded their goal
of issuing 763 designated priority NPDES permits.
In December 2010, the EPA established the Chesapeake Total Maximum Daily Load, a comprehensive
"pollution diet" for meeting water quality standards in the Chesapeake Bay and its tidal tributaries. The
Chesapeake Bay TMDL includes strict limits on nitrogen, phosphorus and sediment and largely reflects
detailed strategies submitted by the six watershed states and the District of Columbia for achieving the
necessary pollution reductions. The TMDL is designed to ensure that all control measures needed to
meet the jurisdictions' Chesapeake Bay water quality standards are in place by 2025, with 60 percent of
the actions completed by 2017.
Expanding the Conversation on Environmentalism and Working for Environmental Justice. In
FY 2011, the EPA led a number of initiatives designed to promote sustainable development in the
United States and abroad and supported the use of technology innovation in solving environmental
issues. In August 2011, the EPA Administrator and Brazil's Minister of Environment formally launched
the U.S.-Brazil Joint Initiative on Urban Sustainability, a global model for building greener economies
and smarter cities. This initiative will demonstrate the economic, environmental and social benefits of
increased investment in an urban environment through innovative public-private partnerships for green
infrastructure projects.
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The EPA also released the updated Enforcement and Compliance History Online website, which
includes an interactive, comparative map and dashboard for Clean Water Act major and minor facilities
along with an EPA-state enforcement map that allows users to compare enforcement activities across
states by federal and state environmental agencies. In FY 2011, ECHO surpassed 10 million queries
and is a featured site on www.data.gov. This website was recognized by President Obama as a model
for government transparency for regulatory compliance data.
In August 2011, the EPA reached a comprehensive settlement with the Department of the Interior to
address alleged violations of waste, water, air, toxics and community right-to-know laws at schools and
public water systems in Indian Country that are owned or operated by or the legal responsibility of the
Bureau of Indian Affairs. The settlement impacts 60 tribes across the United States and will improve
environmental conditions at 164 Department of the Interior schools in Indian Country, benefitting more
than 40,000 students. The settlement will protect student and community health in Indian Country by
reducing potential exposure to environmental hazards.
During FY2011, the EPA committed $1 million to address environmental justice challenges in 10
communities across the nation. Through the Environmental Justice Showcase Communities initiative,
the EPA is working to address and alleviate environmental and human health challenges. This
regionally focused effort brings together governmental and nongovernmental organizations to pool their
collective resources and expertise on the best ways to achieve real results in communities.
Building Strong State and Tribal Partnerships. The EPA and its partners, the Department of
Housing and Urban Development and the Department of Transportation, provided assistance through
the Partnership for Sustainable Communities—a collaborative effort to coordinate and leverage
resources among federal, state and local stakeholders. As part of a broader pilot project for transit-area
development in the Massachusetts Fairmont-Indigo Corridor, the EPA will help fund the assessment
and cleanup of more than 30 local brownfields sites, promoting economic development and community
revitalization in the Boston neighborhoods of Roxbury, Dorchester and Mattapan. Additionally, the EPA
participates in the Water Technology Innovation Cluster, a geographic concentration of firms that work
together to solve water-related problems, promoting economic growth and technological innovation in
Ohio, Kentucky and Indiana.
To facilitate coordination with tribal governments and to consider tribal interests when carrying out the
EPA's programs to protect human health and the environment, on May 4, 2011, the EPA Administrator
announced the EPA Policy on Consultation and Coordination with Indian Tribes. This policy sets
standards for the consultation process, defining the what, when and how of consultation; designates
specific agency personnel responsible for serving as consultation points of contact in order to promote
consistency coordination the consultation process; and establishes a management oversight and
reporting structure that will ensure accountability and transparency.
During FY 2011, and after four years of consultation and facilitation support to the Oregon Department
of Environmental Quality and the Confederated Tribes of the Umatilla Indian Reservation, the EPA
developed recommendations to revise human health criteria for toxics based on an increased fish
consumption rate. The Oregon Environmental Quality Commission approved new rules reflecting the
recommendations on June 16, 2011.
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American Recovery and Reinvestment Act of 2009 Reporting
Since the end of FY 2009, the EPA has tracked program performance for six key ARRA-funded
environmental programs that invest in clean water and drinking water projects, implement diesel
emission reduction technologies, clean up leaking underground storage tanks, revitalize and reuse
brownfields, and clean up Superfund sites. To date, the following have been achieved:
More than 660 projects have been funded to improve or maintain wastewater treatment works
serving an estimated 79 million Americans, and more than 265 drinking water systems have been
brought into compliance, serving over 7.4 million Americans.
• Almost 30,000 diesel engines have been retrofitted, replaced or retired.
Hundreds of contaminated sites have been cleaned up, including 92 brownfield properties, more
than 1,300 underground storage tanks and nine Superfund sites. Additionally, more than 50
Superfund site cleanups have been accelerated.
To ensure accountability and demonstrate progress toward meeting ARRA goals, the EPA provides
quarterly performance updates at http://www.epa.gov/recoverv/plans.htmltfquarterly.
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FINANCIAL ANALYSIS AND STEWARDSHIP INFORMATION
Sound Financial Management: Good for the Environment, Good for the Nation
The EPA carries out its mission to protect human health and the environment with the support of strong
financial management. The accomplishments described in this section demonstrate that the EPA
adheres to the highest standards for financial management.
• Audit opinion. For the 12th consecutive year, the EPA's OIG issued an unqualified or "clean"
opinion on the agency's financial statements. This means that the EPA's financial statements are
presented fairly in all material aspects and that they conform to generally accepted accounting
principles for the federal government. In simple terms, a clean opinion means that that agency's
numbers are reliable.
Department of Treasury's Collections and Cash Management. The EPA received an award
from the Department of Treasury for the agency's commitment to 100 percent Electronic Funds
Transfer collections. The EPA is the first government agency to ever receive such recognition.
Compliance with federal financial systems requirements. The EPA is compliant with the
Federal Financial Management Improvement Act, which means that the agency's financial systems
comply substantially with federal system requirements and accounting standards. The EPA uses
reliable and timely information from its financial system to make sound decisions on the use of
agency resources.
The EPA also accomplished significant achievements in FY 2011, a few of which are highlighted below:
Financial management system. In FY 2011, the EPA implemented a component-based approach
as its principal financial management systems strategy. This approach begins with the FY 2012
launch of Compass, the core financial system that replaces the Integrated Financial Management
System, the EPA's legacy core financial system for the past 22 years. The introduction of Compass
will improve the EPA's financial stewardship by strengthening accountability, data integrity and
internal controls.
Timely payments. The EPA paid 99.88 percent of its invoices on time and avoided late payment
penalties. The improper payment rate was less than 0.12 percent, which means that the correct
amount was paid to the right recipient in nearly every instance. Furthermore, the EPA paid 100
percent of its grant payments electronically and 100 percent of them on time.
Policy verification. In FY 2011, the EPA conducted a comprehensive review of internal controls
over its ARRA funds, as part of its new Policy Verification Compliance Initiative. The objective of the
PVCI is to encourage management integrity and fiscal accountability.
Federal relocation services across government. The EPA's Working Capital Fund continues to
grow its relocation service offerings across the federal government. The agency provides services
to the U.S. Department of Agriculture, Department of Labor and Transportation Security
Administration for home sales, household goods and employee counseling for permanent change of
station moves.
Indirect rate and annual allocation rates. During FY 2011, the EPA's continued development and
preparation of cost recovery packages resulted in significant gains for the agency. The EPA
recovered approximately $112 million in Superfund indirect costs and collected $9.7 million in
interagency indirect costs.
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Balanced checkbook. The EPA's checkbook is balanced—the agency general ledger matches the
fund balance records maintained by the Department of the Treasury. This match translates to
greater integrity of financial reports and budget results.
Improved management of unliquidated obligations. In FY 2011, the agency implemented a new
policy and launched an automated system, which resulted in a review of 100 percent of agencywide
ULOs and increased data transparency.
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Financial Condition and Results
Financial statements are formal financial records that document the EPA's activities at the transaction
level, where a "financial event" occurs. A financial event is any occurrence having financial
consequences to the federal government related to the receipt of appropriations or other financial
resources; acquisition of goods or
services; payments or collections;
recognition of guarantees, benefits to be
provided, and other potential liabilities; or
Number Crunching
other reportable financial activities.
The EPA prepares four consolidated
statements, including: 1) Balance Sheet,
2) Statement of Net Cost, 3) Statement of
Changes in Net Position, and 4) Statement
of Custodial Activity, and one combined
statement, the Statement of Budgetary
Resources. Together, these statements
with their accompanying notes provide the
complete picture of the EPA's financial
situation. Reviewers can glean a snapshot
of the EPA's overall financial condition by
examining key pieces of information from
these statements. The complete
statements with accompanying notes, as
well as the auditor's opinion, are available
in Section II of this report.
The Balance Sheet displays assets, liabilities and net position as of September 30, 2011, and
September 30, 2010. The Statement of Net Cost shows the EPA's gross cost to operate, minus
exchange revenue earned from its activities. Together, these two statements provide information about
key components of the EPA's financial condition—assets, liabilities, net position and net cost of
operations. The chart that follows depicts the agency's financial activity levels since FY 2009.
Assets: What the
EPA owns and
manages.
Liabilities: Amounts
the EPA owes
because of past
transactions or
events.
Net Position: The difference between the EPA's
assets and liabilities.
Net Cost of Operations: The difference between
the costs incurred by the EPA's programs and the
EPA's revenues.
$25
$20
$15
$10
$5
$0
Balance Sheet Trend
(dollars in billions)
2009
2010
2011
Assets
Liabilities
Net Position Net Cost of Operations
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Assets—What the EPA Owns and Manages
The EPA's assets totaled $21.55 billion at the end of FY 2011, a decrease of $1.9 billion from the FY
2010 level. This change is a result of a decrease in the Fund Balance with Treasury primarily related to
the cash that was carried forwarded to the FY 2010 Beginning Balance from the ARRA State & Tribal
Assistance Grant program. The EPA received the program's budgetary authority in FY 2009, the
majority of which was not disbursed fully until FY 2010.
In FY 2011, almost 92 percent of the EPA's assets fall into two categories: 1) its Fund balance with the
Department of the Treasury, the equivalent of the agency's "checkbook" balance available to pay
expenses, and 2) investments that will be used to pay for future Superfund or Leaking Underground
Storage Tank cleanups. All of the EPA's investments are backed by U.S. government securities. The
graphs that follow compare the agency's FY 2011 and FY 2010 assets by major categories.
FY2011 Composition of Assets
0%
Fund Balance with Treasury, $12.6
billion
Investments, $7.1 billion
Property, Plant and Equipment
(Net), $0.97 billion
Accounts Receivable (Net), $0.55
billion
Other Assets, $0.25 billion
i Loans Receivable, $.002 billion
FY2010 Composition of Assets
Fund Balance with Treasury, $14.6
billion
Investments, $7.2 billion
Property, Plant and Equipment
(Net), $0.92 billion
Accounts Receivable (Net), $0.46
billion
Other Assets, $0.23 billion
i Loans Receivable, $.005 billion
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Liabilities—What the EPA Owes
The EPA's liabilities were $ 2.4 billion at the end of FY 2011, marking an increase of $60 million from
the FY 2010 level. The overall increase in EPA's liabilities is attributed primarily to the increase in
Cashout Advances, Superfund in FY 2011 resulting from additional Special Account Settlements
primarily from Helca Mining Company, General Motors and Tronox Incorporated.
In FY 2011, the EPA's largest liability, its combined accounts payable and accrued liabilities, includes
$0.97 billion and represents 40 percent of what the agency owes. The next largest category,
representing 33 percent of the EPA's liabilities, covers Superfund cashout advances that include funds
paid by the EPA to fund cleanup of contaminated sites under the Superfund program. The remaining
two categories represent 27 percent of the agency's liabilities. Payroll and benefits payable include
salaries, pensions and other actuarial liabilities. Other liabilities include the EPA's debt due to Treasury,
custodial liabilities that are necessary to maintain assets for which the EPA serves as custodian,
environmental cleanup costs and other miscellaneous liabilities. The graphs that follow compare FY
2011 and FY 2010 liabilities by major categories.
FY2011 Composition of Liabilities
40%
13%
Accounts Payable and
Accrued Liabilities, $0.97
billion
l Cashout Advances,
Superfund,$0.79 billion
Other, $0.33 billion
Payroll and Benefits, $0.32
billion
FY2010 Composition of Liabilities
46%
13%
Accounts Payable and Accrued
Liabilities, $1.08 billion
i Cashout Advances, Superfund,
$0.64 billion
Other, $0.31 billion
Payroll and Benefits, $0.31
billion
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Net Cost of Operations—How the EPA Used Its Funds
The graphs that follow show how the EPA divided its funds among its five program goal areas in FY
2011 and FY 2010:
FY2011 Net Cost by Goal
18%
Clean Air, $1.18 billion
i Clean & Safe Water, $5.37
billion
Land Preservation &
Restoration, $1.95 billion
Healthy Communities &
Ecosystems, $1.57 billion
Compliance & Environmental
Stewardship,$0.80 billion
FY 2010 Net Cost by Goal
Clean Air, $1.19 billion
i Clean & Safe Water, $6.385
billion
Land Preservation &
Restoration, $1.89 billion
Healthy Communities &
Ecosystems, $1.45 billion
Compliance & Environmental
Stewardship,$0.79 billion
Goal areas: clean air and global climate change, clean and safe water, land preservation and
restoration, healthy communities and ecosystems, and compliance and environmental stewardship.
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Responsible Financial Stewardship
The EPA serves as a steward on behalf of the American people. The chart below presents two
categories of stewardship: RSI (Stewardship Land) and RSSI (Research and Development,
Infrastructure, and Human Capital). In FY 2011, the EPA devoted a total of $5.3 billion to its
stewardship activities.
Per Federal Accounting Standards Advisory Board, stewardship investments consist of expenditures
made by the agency for the long-term benefit of the nation that do not result in the federal government
acquiring tangible assets. As reflected in the graph below, the FY 2011 land totals $438,000.
FY 2011 Stewardship
(Dollars in Thousands)
Infrastructure,
$4.6 billion, 87%
Human
Capital,
$0.037 bilion,
1%
R&D, $0.68
billion, 13%
Land, $0.004
billion,
0%
Infrastructure efforts focus on clean water and drinking water facilities. The EPA funds construction
of wastewater treatment projects and provides grants to states to support wastewater and drinking
water treatment facilities. The EPA devoted nearly $4.6 billion in FY 2011 to projects to ensure that
people have clean, safe drinking water.
Research and development activities enable the EPA to identify and assess important risks to
human health and the environment. This critical research investment provides the basis for the
EPA's regulatory work including those to protect children's health and at-risk communities, drinking
water, and the nation's ecosystems.
Human capital includes the EPA's educational outreach and research fellowships, both of which are
designed to enhance the nation's environmental capacity.
Land includes contaminated sites to which the EPA acquires title under the Superfund authority.
This land needs remediation and cleanup because its quality is well below any usable and
manageable standards. To gain access to contaminated sites, the EPA acquires easements that
are in good and usable condition. These easements also serve to isolate the site and restrict usage
while the cleanup is taking place.
A detailed discussion of this information is available in the Required Supplementary Stewardship
Information located in Section III of this report.
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Financial Management for the Future
As challenges to the environment grow, sound stewardship of the EPA's financial resources becomes
increasingly critical to the agency's ability to protect the environment and human health locally,
nationally and internationally. Reliable, accurate and timely financial information is essential to inform
decisions on how to address land, water, air and ecosystem issues.
To strengthen the EPA's financial stewardship capabilities, the Office of the Chief Financial Officer
focuses on the fundamental elements of financial management: people and systems.
People: The EPA leverages every available tool to recruit the best people with the necessary skills to
meet tomorrow's financial challenges. Staff are trained in financial analysis and forecasting to
understand the financial data, and what the data means. The EPA is integrating financial information
into everyday decision-making, so the agency maximizes the use of its resources.
Systems: The EPA's IFMS has served the agency for more than 20 years, but the technologies used
by this legacy system are inadequate to meet the EPA's financial management objectives. In FY 2011,
the EPA implemented a component-based approach as its principal financial management systems
strategy. This approach begins with the launch of Compass in early FY 2012. Compass is the core
financial system that replaces the IFMS, the EPA's legacy core financial system for the past 22 years.
The introduction of Compass will improve the EPA's financial stewardship by strengthening
accountability, data integrity and internal controls. Compass will be based on a commercial-off-the-shelf
software solution that addresses the EPA's most critical business needs, including:
General Ledger
• Accounts Payable
• Accounts Receivable
Property
Project Cost
Intra-Governmental Transactions
Budget Execution
Compass will provide core budget execution and accounting functions, including posting updates to
ledgers and tables as transactions are processed and generating source data for the preparation of
financial statements and budgetary reports. Compass will be integrated with 15 agency systems that
support such diverse functions as budget planning, execution, and tracking; recovery of Superfund site-
specific cleanup costs; property inventory; agency travel; payroll time and attendance; document and
payment tracking; and research planning. Compass is a Web-based, open architecture application
managed at the CGI Federal Phoenix Data Center, a certified shared service provider in compliance
with the Financial Management Line of Business.
Beyond the launch of the new core financial system, the financial systems modernization strategy
builds upon Compass through the implementation of five additional components, subject to future
review by OMB:
Human Resources, Payroll, and Time and Attendance
Implementation of the Common Governmentwide Account Code Structure
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Budget Formulation
Superfund Imaging and Cost Accounting
Payment Systems
After the Compass implementation, the EPA plans to migrate its human resources, payroll, and time
and attendance systems to an OMB Human Resources Line of Business approved shared service
provider.
The implementation of Compass will also serve as the foundation for the introduction of future
components to establish a unified and integrated systems infrastructure. Compass will leverage
increases in the EPA's wide area network bandwidth as well as its implementation of a trusted Internet
connection to facilitate more efficient transaction processing. As additional components are introduced,
the infrastructure will evolve to effectively centralize the resource footprint and reduce financial
management information silos across the organization.
Limitations of the Principal Financial Statements
The EPA has prepared the principal financial statements to report the financial position and results of
operations of the agency, pursuant to the requirements of 31 U.S.C. 3515 (b). While the EPA has
prepared the statements from the books and records of the entity in accordance with U.S. generally
accepted accounting principles for federal entities and the formats prescribed by OMB, the statements
are in addition to the financial reports used to monitor and control budgetary resources that are
prepared from the same books and records. The statements should be read with the realization that
they are for a component of the U.S. government, a sovereign entity.
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IMPROVING MANAGEMENT AND RESULTS
Office of Inspector General Audits, Evaluations and Investigations
The EPA's OIG contributes to the agency's mission to improve human health and environmental
protection by assessing the efficiency and effectiveness of the EPA's program management and
results; ensuring that agency resources are used as intended; developing recommendations for
improvements and cost savings; and providing oversight and advisory assistance in helping the EPA
carry out its ARRA objectives. In FY 2011, OIG identified key management challenges and internal
control weaknesses and provided more than 2,011 recommendations accounting for more than $82.4
million in potential savings and recoveries and more than 315 actions taken for improvement from OIG
recommendations. OIG also contributes to the integrity of and public confidence in the agency's
programs and to the security of its resources by preventing and detecting possible fraud, waste and
abuse and pursuing judicial and administrative remedies. For example, in response to OIG
recommendations the agency: established procedures to provide reasonable assurance that Diesel
Emissions Reduction Act grant and subgrant grantee progress reports are accurate and emission levels
are verified; agreed to ensure that the Solid Waste Disposal Act site priority requirement is consistently
incorporated into the terms and conditions of future LUST Trust Fund grant agreements; developed
strategic vision and program design that assures that the ENERGY STAR® label represents superior
energy conservation performance along with a complete set of goals, and valid and reliable measures;
and agreed to revise policies and procedures to ensure that financial monitoring review reports are
distributed timely to all project officers, work assignments managers and task order managers assigned
to the contract impacted by the financial monitoring review. OIG investigations accounted for 160
criminal, civil or administrative enforcement actions or allegations disproved during FY 2011 and $6.4
million in ARRA fund cost savings to date from OIG audits, evaluations and investigations.
Grants Management
The EPA met or exceeded major performance metrics under its second long term Grants Management
Plan (2009-2013), including grant closeout and competition goals. The Grants Management Plan
builds on the progress made in the Grants Management Plan (2003-2008) and will prevent the
recurrence of a grants management weakness.
Grants Management Performance Measures for the EPA
Performance Measure
Percentage of eligible
grants closed out
Percentage of new grants
subject to the competition
policy that are competed
Target
90%
99%
90%
Progress in FY2011
93.4% in 2010
99.5% in 2009 and earlier
96%
Progress in FY2010
95.6% in 2009
99.6% in 2008 and earlier
96.5%
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ACCOUNTABILITY: SYSTEMS, CONTROLS AND LEGAL COMPLIANCE
Federal Managers' Financial Integrity Act
FMFIA requires agencies to conduct an annual evaluation of their internal controls over programs
(FMFIA Section 2) and financial systems (FMFIA Section 4) and report the results to the President and
Congress. In addition, agencies are required to report on the effectiveness of internal controls over
financial reporting, which includes safeguarding of
assets and compliance with applicable laws and
regulations in accordance with the requirements of
Appendix A of OMB Circular A-123.
Every year, all of the EPA's national program and
regional offices conduct assessments and submit
annual assurance letters attesting to the soundness of
the internal controls within their organizations. These
assurance letters provide the basis for the
Administrator's annual statement of assurance on the
adequacy of the EPA's internal controls over
programmatic operations and financial systems. The
Administrator's FY 2011 statement of assurance is
provided below. Based on the results of the agency's
FY2011 evaluation, the Administrator can provide
reasonable assurance on the adequacy and
effectiveness of the EPA's internal controls over
programs and financial systems.
To evaluate its internal controls over financial reporting
(as required by OMB Circular A-123, Appendix A), the
agency reviewed 10 key financial processes and 271
key controls. Based on this evaluation, no new
material weaknesses were identified. During its financial statement audit process, OIG identified
several significant deficiencies. Based on the results of the evaluation and the OIG findings, the
agency's internal controls over financial operations were found to be operating effectively and
efficiently.
FY 2011 Key Management
Challenges Identified by the
Office of Inspector General
1. Need for Greater Coordination of
Environmental Efforts
2. Oversight of Delegation to States
J. Safe Reuse of Contaminated Sites
4. Limited Capability to Respond to
Cyber Security
5. EPA's Framework for Assessing
and Managing Chemical Risks
Fiscal Year 2011 Annual Assurance Statement
The U.S. Environmental Protection Agency conducted its FY2011 assessment of the effectiveness of internal controls
over programmatic operations and financial activities, as well as conformance of financial systems to government-wide
standards. The assessment was conducted in compliance with the Federal Managers' Financial Integrity Act, OMB
Circular A-123, Management's Responsibility for Internal Control, and other applicable laws and regulations.
Based on the results of the EPA's assessment and no findings of material weaknesses, I am providing reasonable
assurance that the agency's internal controls over programmatic operations were operating effectively and financial
systems conform to government-wide standards as of September 30, 2011.
In addition, based on the results of the EPA's assessment of the effectiveness of internal controls over financial
activities and no findings of material weaknesses as of June 30, 2011, I am providing reasonable assurance that the
EPA's internal controls over financial activities were operating effectively.
Lisa P. Jackson
Administrator
(bate
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Five-Year Trend of Material and Agency
Weaknesses
5 -r- Remaining at Year-End
• Material
Agency
2007
2008 2009 2010
Fiscal Year
2011
Management Assurances
For FY 2011, no new material weaknesses
were identified by the agency or the OIG.
The EPA is addressing a number of less
severe weaknesses for which corrective
actions are underway. In FY 2011, the
agency closed one agency-level
weaknesses, identified no new agency-level
weaknesses, identified five new significant
deficiencies and is carrying over four
agency-level weaknesses. Section III of this
report provides details about corrective
actions underway to rectify remaining
agency-level weaknesses. The EPA will
continue monitoring progress in correcting
these issues through their resolution. The
accompanying graph depicts the EPA's
progress in correcting its material and
agency-level weaknesses since 2007.
The EPA continues to emphasize the
importance of maintaining effective internal
controls. In FY 2011, the agency continued
to conduct internal program compliance
reviews of program and regional offices to
help inform and strengthen its FMFIA implementation. Additionally, the agency provided on-line training
for senior managers and designated staff designed to help them fulfill their roles and responsibilities for
maintaining an effective internal controls program.
Federal Financial Management Improvement Act
FFMIA requires that agencies implement and maintain financial management systems that comply with
1) federal financial management system requirements, 2) applicable federal accounting standards, and
3) the U.S. Government Standard General Ledger. Annually, agency heads are required to assess and
report on whether these systems comply with FFMIA.
EPA's FY 2011 assessment included the following:
• A-123 review found no significant deficiencies.
• The OIG's FY 2011 financial statement audit identified no material weaknesses related to financial
management systems.
• The agency's annual Federal Information Security Management Act Report did not disclose any
material weaknesses.
• The agency conducted other systems-related activities, including:
o Initial certification for access to the agency's new accounting system.
o Completion of security self-assessments with the online Automated System Security
Evaluation and Remediation Tracking tool for the accounting system.
Based on the assessment described above, the agency is in compliance with the FFMIA for FY 2011.
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Federal Information Security Management Act
FISMA directs federal agencies to annually evaluate the effectiveness of their information security
programs and practices and submit a report—including an independent evaluation by the Inspector
General—to the Department of Homeland Security, OMB and Congress. Agencies also report quarterly
and annually to DHS and OMB on the status of remediation of identified weaknesses.
The EPA's Chief Information Officer and senior agency program officials and the IG's FY 2011 FISMA
Report cite no significant or material weakness in information security. However, the IG noted where
the EPA needs to make significant improvements in risk management, managing plan of actions and
milestones, and continuous monitoring. The report presents the results of the agency's annual security
program reviews and reflects the EPA's continued efforts to ensure that information assets are
protected and secured in a manner consistent with the risk and magnitude of the harm resulting from
the loss, misuse, or unauthorized access to or modification of information. The agency plans to focus its
FY 2012 efforts on improving the effectiveness of the agency information security program by
implementing risk-based improvements identified by a series of metrics based on key performance
indicators.
Biennial User Fees
In accordance with OMB Circular A-25, User Charges, and the Chief Financial Officer's Act of 1990, the
agency conducted its biennial review of user fees. The FY 2011 review concluded that the EPA's user
fees are in compliance with statutory authority. However, the agency's OIG issued a report
recommending that the agency update its 2004 fee rule for the Motor Vehicle and Engine Compliance
Program to increase the amount of costs it can recover and conduct biennial reviews of the MVECP fee
collections and full program costs. The EPA concurred with OIG's recommendations and is currently
evaluating options for making necessary revisions to the fee rule. Also during FY 2011, the agency
initiated a feasibility study on the Energy STAR. The EPA continues to evaluate the viability of
collecting fees for the program.
Inspector General Act Amendments of 1988 -Audit Management
The EPA uses the results of OIG audits and evaluations to assess its progress toward its strategic
goals and make corrections and adjustments to improve program effectiveness and efficiency. The
agency is continuing to strengthen its audit management, addressing audit follow-up issues and
working to complete corrective actions expeditiously and effectively to improve environmental results.
During FY 2011, for example, the Office of the Chief Financial Officer continued the effort it initiated in
FY 2009 to conduct quality assurance reviews of national program and regional offices to promote
sound audit management and increase agency awareness of, accountability for, and completion of,
outstanding unimplemented OIG recommendations. Additionally, the Chief Financial Officer instituted a
quarterly report highlighting the status of management decisions and corrective actions. Shared with
program office and regional managers throughout the agency, the quarterly reports promote timely
audit follow-up and completion of corrective actions. OCFO also initiated an update of the agency Order
2750, "EPA's Audit Management Process."
In FY 2011, the EPA was responsible for addressing OIG recommendations and tracking follow-up
activities for 377 OIG reports. The agency achieved final action (completing all corrective actions
associated with the audit) on 165 audits, which included program evaluation/program performance,
assistance agreement and single audits. This total excludes Defense Contract Audit Agency audits
issued after January 1, 2009; these audits are discussed in a separate section below. The EPA's FY
2011 management activities for audits with associated dollars are represented in the following table:
25
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Category
A. Audits with management decisions but
without final action at the beginning of the period
B. Audits for which management decisions were
made during the period
(i) Management decisions with disallowed costs
(12) and with better use funds (2)
(ii) Management decisions with no disallowed
costs (79) and with no better use funds (44)
C. Total audits pending final action during the
period (A+B)
D. Final action taken during the period:
(i) Recoveries
a) Offsets
b) Collection
c) Value of Property
d) Other
(ii) Write-Offs
(iii) Reinstated Through Grantee Appeal
(iv) Value of recommendations completed
(v) Value of recommendations management
decided should/could not be completed
E. Audits without final action at end of period (C-
D)
Disallowed Costs
(Financial Audits)
Number Value
65 $66,371,403
91 $ 853,496
156 $67,224,899
108 $ 39,960,302
$ 1,695,420
$ 1,027,915
$ 0
$ 17,205,909
$ 54,300
$ 19,976,758
48 $ 27,264,597
Funds Put To Better
Use
(Performance Audits)
Number Value
77 * $ 80,070,565
46 $ 9,647,000
123 $89,717,565
57 $ 13,880,370
$13,880,370
66 $ 75,837,195
*This number includes all performance audits.
The EPA's FY 2011 management activities for audits without final corrective action are summarized
below:
Final Corrective Action Not Taken. Of the 377 audits that the EPA tracked, a total of 199 audits—
which include program evaluation/program performance, assistance agreement, contracts and
single audits—were without final action and not yet fully resolved at the end of FY 2011. (The 13
audits with management decisions under administrative appeal by the grantee are not included in
the 199 total; see discussion below.)
Final Corrective Action Not Taken Beyond One Year. Of the 199 audits, the EPA officials had
not completed final action on 52 audits (five of which involve multiple offices) within one year after
the management decision (the point at which the OIG and the Action Official reach agreement on
the corrective action plan). Because the issues to be addressed may be complex, agency
managers often require more than one year after management decisions are reached with the OIG
to complete the agreed-on corrective actions. These audits are listed below by category—audits of
program performance, single audits and assistance agreements—and identified by title and
responsible office. Additional details are available on the EPA's website at
http://www.epa.gov/planandbudget/.
Audits of Program Performance. Final action for program performance audits occurs when all corrective
actions have been implemented, which may require more than one year when corrections are complex
26
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and lengthy. Some audits include recommendations requiring action by more than one office. The EPA
is tracking 38 audits in this category (four of these involve multiple offices):
Office of Administration and Resources Management
9-P00087+ EPA Plans for Managing Counter Terrorism/Emergency Response Equipment and Protecting
Critical Assets
10-P00002 Review of Hotline Complaint on Employee Granted Full-Time Work-at-Home Privilege
Office of Air and Radiation
2005-P00003 Development of the Proposed MACT for Utility Units
2005-P00010 Evaluation of CAA Title V Operating Permit Quality
2008-P00206 Voluntary Greenhouse Gas Reduction Programs Have Limited Potential
9-P00087+ EPA Plans for Managing Counter Terrorism/Emergency Response Equipment and Protecting
Critical Assets
Office of the Chief Financial Officer
2008-P00116 Superfund Expenditures at NPL TRI Sites
9-P00087+ EPA Plans for Managing Counter Terrorism/Emergency Response Equipment and Protecting
Critical Assets
10-100029 Audit of 2009 and 2008 (Restated) Consolidated Financial Statements
10-P00077+ EPA Needs to Improve Its Recording and Reporting of Fines and Penalties
Office of Enforcement & Compliance Assurance
2001-P00013 State Enforcement Effectiveness - National Audit
2005-P00024 Priority Enforcement and Compliance Assurance Universe
2007-P00027 Benchmarking Other Organizations Statistically Valid Compliance Practices
2008-P00141 EPA Needs to Track Compliance with Superfund Clean-up Requirements
9-P00092 EPA Can Improve Implementation of the Risk Management Program for Airborn Chemical
Releases
9-P00144 EPA Needs to Improve Internal Controls to Increase Cost Recovery
10-P00007 EPA Oversight and Policy for High Priority Violations of Clean Air Act Need Improvement
10-P00009+ EPA Needs a Better Strategy to Identify Violations of Section 404 of the Clean Water Act
10-P00077+ EPAA Needs to Improve Its Recording and Reporting of Fines and Penalties
10-P00133 EPA Should Improve Its Oversight of Federal Agency Superfund Reviews
10-P00066 EPA Needs a Coordinated Plan to Oversee Its Toxic Substances Control Act Responsibilities
Office of Environmental Information
2007-P00008 EPA Could Improve Controls over Mainframe Software
2009-P00127 EPA Has Improved its Response to FOIA Requests
Office of Research and Development
9-P00232 EPA's Office of Research and Development Could Better Use the Federal Managers' Financial
Integrity
2009-P00235 EPA Needs an Oversight Program for Protocol Gases
10-P00042+ Lack of Final Guidance on Vapor Intrusion Impedes Efforts to Address Indoor Air Risks
Office of Solid Waste and Emergency Response
2006-P00013 SF Mandate: Program Efficiencies
2006-P00007 More Information Is Needed on Toxaphene Degradation Products
2007-200003 Superfund Cooperative Agreement Obligations
2007-P00002 Asbestos Cleanup in Libby Montana
8-P00265 EPA Should Continue Efforts to Reduce Unliquidated Obligations in Brownfields Pilot Grants
10-P00042+ Lack of Final Guidance on Vapor Intrusion Impedes Efforts to Address Indoor Air Risks
10-P00133 EPA Should Improve Its Oversight of Federal Agency Superfund Reviews
Office of Water
2002-P00012 Controlling and Abating Combined Sewer Overflows
9-P00223 EPA Needs to Accelerate Adoption of Numeric Nutrient Water Quality Standards
10-P00009+ EPA Needs a Better Strategy to Identify Violations of Section 404 of the Clean Water Act
27
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10-P00081
10-R00057
Region 1
2009-P00119
Region 2
2007-P00039
2007-P00016
Region 3
2007-P00031
10-P00055
Region 9:
2008-P00196
EPA Needs Procedures to Address Delayed Earmark Projects
EPA Needs Definitive Guidelines for Recovery Act and Future Green Reserve Projects
Improved Management of Special Accounts Will Make More Funds Available
OIG Congressional Request-Ringwood Mines/Landfill Superfund
Ringwood Mines/Landfill Superfund Site
Chesapeake Bay Land Use
Changes in Conditions at Wildcat Landfill Superfund Site in Delaware Call for Increased EPA
Oversight
Making Better Use of Stringfellow SF Special Accounts
+ Indicates audits involving more than one office
Single audits. Final action for single audits occurs when nonmonetary compliance actions are
completed. Achieving final action may require more than a year if the findings are complex or the
grantee does not have the resources to take corrective action. Single audits are conducted of nonprofit
organizations, universities, and state and local governments. The EPA is tracking completion of
corrective action on 11 single audits for the period beginning October 1, 2011.
Region 2
2007-300139
Region 9:
9-300234
10-300164
Region 10
2002-300009
2002-300042
2003-300047
2003-300117
2003-300145
2004-300011
2006-300167
2006-300168
State of New York, FY 2006
Guam Waterworks Authority FY 2008
Guan Waterworks Authority FY 2009
Iliama Village Council
Iliama Village Council
Stevens Village Council
Stevens Village Council
Circle Village Council
Northway Village Council
State of Alaska-FY 2003
State of Alaska-FY 2004
Audits of Assistance Agreements. Reaching final action for assistance agreement audits may require
more than one year, as the grantee may appeal, refuse to repay, or be placed on a repayment plan that
spans several years. The EPA is tracking three audits in this category:
Region 2
1989-901299
Nassau County, NY
Region 3
2001-100101 Center for Chesapeake Communities (CCC) Assist. Agreements
Region 5
2008-200039 Village of Laurelville, Ohio
28
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Audits Awaiting Decision on Appeal. The EPA regulations allow grantees to appeal management
decisions on financial assistance audits that seek monetary reimbursement from the recipient. In the
case of an appeal, the EPA must not take action to collect the account receivable until the agency
issues a decision on the appeal. At the end of FY 2011,13 audits were in administrative appeal. When
these audits are out of appeal and all issues have been resolved, they will be captured in audit follow-
up data reported in the EPA's APR.
Defense Contract Audit Agency Audits
Prior to January 1, 2009, DCAA audits of the EPA contracts were requested by the EPA's Office of
Inspector General and the results included in the OIG's Semi-annual Report to Congress. The EPA will
continue to track and report on these DCAA audits along with other Office of Inspector General audits
until they are resolved and final action taken; they are included in the summary above. Beginning
January 1, 2009, however, the EPA's Office of Acquisition Management assumed responsibility for
requesting DCAA audits. Accordingly, these audits are now reported separately from Office of Inspector
General audits. Following is an overview of DCAA audit activity for the period, October 1, 2010 through
September 30, 2011.
Summary of Audit Activities for the Period Ending September 30, 2011
During this reporting period, agency management was accountable for monitoring 65 DCAA audits. The
agency achieved final action on 36 audits. The EPA's FY 2011 management activities for DCAA audits
with associated dollars are represented in the following table:
Category
A. Audits with management decisions but
without final action at the beginning of the period
B. Audits for which management decisions were
made during the period
(i) Management decisions with disallowed costs
(6)
(ii) Management decisions with no disallowed
costs (25)
C. Total audits pending final action during the
period (A+B)
D. Final action taken during the period:
(i) Recoveries
a) Offsets
b) Collection
c) Value of Property
d) Other
(ii) Write-Offs
(iii) Reinstated Through Grantee Appeal
(iv) Value of recommendations completed
(v) Value of recommendations management
decided should/could not be completed
E. Audits without final action at end of period
(C-D)
Disallowed Costs
(Financial Audits)
Number Value
1 $ 97,198
35 $ 2,538,189
36 $ 2,635,387
36 $ 2,635,387
$ 0
$ 97,198
$ 0
$2,538,189
$ 0
$ 0
$ 0
0 $ 0
Funds Put To Better
Use
(Performance Audits)
Number Value
0 $ 0
0 $ 0
0 $ 0
0 $ 0
$ 0
$ 0
0 $ 0
29
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Final Corrective Action Not Taken on DCAA Audit Reports: Of the 65 DCAA audits the EPA
tracked, a total of 29 audits were without final action and not yet fully resolved at the end of FY 2011.
DCAA Audits Awaiting Decision on Appeal: As of September 30, 2011, there were no management
decisions in administrative appeal status.
DCAA Audits Without Management Decision in 180 Days: As of September 30, 2011, the EPA is
tracking no DCAA reports for which EPA is the cognizant agency, and that have not reached
management decision in over 180 days from the date of the report.
30
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Section II
Financial Section
31
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Message from the Chief Financial Officer
The EPA's Agency Financial Report presents the performance and financial results
achieved by the agency during Fiscal Year 2011. It provides information on the EPA's
accomplishments and challenges in protecting human health and the environment, use
of the financial resources entrusted to us and progress in addressing key management
challenges.
During Fiscal Year 2011, the EPA continued to demonstrate efficient, effective and
accountable administration and to make innovative improvements to eliminate waste and reduce costs.
Highlights of the agency's efforts include becoming the first government agency to receive Treasury's Award
for 100% Electronic Funds Transfer for Collections and Cash Management, an exceptionally low improper
payment rate of 0.01% and a 12th consecutive clean opinion on its audited financial statements.
As required by OMB Circular A-123 and the Federal Managers' Financial Integrity Act, we conducted an
annual assessment of the effectiveness of internal controls over financial reporting and programmatic
operations. To strengthen our financial and programmatic stewardship, the agency implemented a multi-year
review strategy to ensure the integrity of agency programs and resources are protected from fraud, waste,
abuse and misappropriation. Based on the results of the agency's Fiscal Year 2011 evaluation and reviews,
the Administrator can provide reasonable assurance on the adequacy and effectiveness of the EPA's internal
controls over programs, financial activities and financial systems.
To ensure the agency is effectively managing its resources, the EPA implemented its new unliquidated
obligations policy and deployed an agencywide desktop tool to proactively monitor obligation balances for all
grants, interagency agreements, small purchases, travel documents and contracts. The new tool replaces a
paper-based process with real-time access to data, creating greater transparency and accountability over
federal funds. As a result, the agency reduced unliquidated obligations by $7.4 billion.
During Fiscal Year 2011, the EPA continued its effort to replace its legacy financial system with a new core
financial system, Compass. The new system will increase efficiency, improve business performance and
ensure financial integrity. Throughout the year, the Compass team conducted functionality, user acceptance,
performance, integration and end-to-end testing to comprehensively identify and resolve system defects
prior to launch. These testing activities established the foundation fora successful launch of Compass in
early Fiscal Year 2012.
In Fiscal Year 2011, the EPA began a new Policy Verification Compliance Initiative to assess the overall
efficiency, effectiveness and consistency of financial activities. The initiative allows the agency to identify
best practices and potential improvements to strengthen financial management. The agency targeted the
Recovery Act Stewardship Plan as its first verification review effort. The results ensure that Recovery Act
funds were managed appropriately.
As Chief Financial Officer, I take seriously my responsibility to provide informed financial analysis to agency
leaders and the public. As we start the new fiscal year, we will uphold our commitment to financial
excellence, move money out faster for projects and ensure taxpayers' dollars are utilized effectively in
fulfilling our mission to protect human health and the environment. We achieved great things this fiscal year
and I look forward to continuing our success through collaboration with our partners and stakeholders and
implementing innovative, cross-cutting strategies to help meet the challenges ahead.
Barbara J. Bennett
Chief Financial Officer
November 15, 2011
32
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Principal Financial Statements
Financial Statements
1. Consolidated Balance Sheet
2. Consolidated Statement of Net Cost
3. Consolidated Statement of Net Cost by Goal
4. Consolidating Statement of Changes in Net Position
5. Combined Statement of Budgetary Resources
6. Statement of Custodial Activity
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balance with Treasury
Note 3. Cash and Other Monetary Assets
Note 4. Investments
Note 5. Accounts Receivable, Net
Note 6. Other Assets
Note 7. Loans Receivable, Net
Note 8. Accounts Payable and Accrued Liabilities
Note 9. General Property, Plant and Equipment, Net
Note 10. Debt Due to Treasury
Note 11. Stewardship Land
Note 12. Custodial Liability
Note 13. Other Liabilities
Note 14. Leases
Note 15. Federal Employees Compensation Act Actuarial Liabilities
Note 16. Cashout Advances, Superfund
Note 17. Unexpended Appropriations - Other Funds
Note 18. Commitments and Contingencies
Note 19. Earmarked Funds
Note 20. Intragovernmental Costs and Exchange Revenue
Note 21. Cost of Stewardship Land
Note 22 Environmental Cleanup Costs
Note 23. State Credits
Note 24. Preauthorized Mixed Funding Agreements
Note 25. Custodial Revenues and Accounts Receivable
Note 26. Reconciliation of President's Budget to the Statement of Budgetary Resources
Note 27. Recoveries and Resources Not Available, Statement of Budgetary Resources
Note 28. Unobligated Balances Available
Note 29. Undelivered Orders at the End of the Period
Note 30. Offsetting Receipts
Note 31. Transfers-ln and Out, Statement of Changes in Net Position
Note 32. Imputed Financing
Note 33. Payroll and Benefits Payable
Note 34. Other Adjustments, Statement of Changes in Net Position
Note 35. Non-exchange Revenue, Statement of Changes in Net Position
Note 36. Reconciliation of Net Cost of Operations to Budget
Note 37. Amounts Held By Treasury (Unaudited)
Note 38. Antideficiency Act Violations
33
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Required Supplementary Information (Unaudited)
1. Deferred Maintenance
2. Stewardship Land
3. Supplemental Combined Statement of Budgetary Resources
Required Supplementary Stewardship Information (Unaudited)
Supplemental Information and Other Reporting Requirements (Unaudited)
Superfund Financial Statements and Related Notes
34
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Environmental Protection Agency
Consolidated Balance Sheet
As of September 30, 2011 and 2010
(Dollars in Thousands)
FY2011
ASSETS
Intragovernmental:
Fund Balance With Treasury (Note 2)
Investments (Note 4)
Accounts Receivable, Net (Note 5)
Other (Note 6)
Total Intragovernmental
Cash and Other Monetary Assets (Note 3)
Accounts Receivable, Net (Note 5)
Loans Receivable, Net - Non-Federal (Note 7)
Property, Plant & Equipment, Net (Note 9)
Other (Note 6)
Total Assets
Stewardship PP& E (Note 11 )
LIABILITIES
Intragovernmental:
Accounts Payable and Accrued Liabilities (Note 8)
Debt Due to Treasury (Note 10)
Custodial Liability (Note 12)
Other (Note 13)
Total Intragovernmental
Accounts Payable & Accrued Liabilities (Note 8)
Pensions & Other Actuarial Liabilities (Note 15)
Environmental Cleanup Costs (Note 22)
Cashout Advances, Superfund (Note 16)
Commitments & Contingencies (Note 18)
Payroll & Benefits Payable (Note 33)
Other (Note 13)
Total Liabilities
NET POSITION
Unexpended Appropriations - Other Funds (Note 17)
Cumulative Results of Operations - Earmarked Funds (Note 19)
Cumulative Results of Operations - Other Funds
Total Net Position
Total Liabilities and Net Position
12,662,541
7,112,197
35,518
251,803
20,062,059 $
10
514,190
2,107
966,799
2,566
21,547,731 $
52,448
2,593
56,703
132,910
244,654 $
916,766 $
44,833
20,838
790,069
10,180
272,335
103,989
2,403,664 $
11,462,598
7,027,163
654,306
19,144,067
FY2010
14,603,024
7,243,613
45,698
223,296
22,115,631
10
417,535
5,254
915,121
2,834
23,456,385
51,325
4,844
52,751
132,286
241,206
1,031,448
44,938
20,154
636,673
4,373
264,975
99,996
2,343,763
13,342,784
7,152,382
617,456
21,112,622
21,547,731 $
23,456,385
The accompanying notes are an integral part of these financial statements.
35
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Environmental Protection Agency
Consolidated Statement of Net Cost
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
FY2011 FY2010
COSTS
Gross Costs (Note 20) $ 11,577,224 $ 12,406,265
Less:
Earned Revenue (Note 20) 698,331 693,484
NET COST OF OPERATIONS (Note 20) $ 10,878,893 $ 11,712,781
The accompanying notes are an integral part of these financial statements.
36
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Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Period Ending September 30, 2011
(Dollars in Thousands)
Healthy Compliance &
Clean & Safe Land Preservation Communities & Environmental
Clean Air Water & Restoration Ecosystems Stewardship
Costs:
Intragovernmental $ 159,456 $ 252,748 $ 390,431 $ 335,757 $ 192,243
With the Public 1,035,680 5,125,894 2,180,996 1,289,505 614,514
Total Costs (Note 20) 1,195,136 5,378,642 2,571,427 1,625,262 806,757
Less:
Earned Revenue, Federal 13,586 7,333 124,874 12,010 3,607
Earned Revenue, non Federal 1,034 1,458 494,249 38,725 1,455
Total Earned Revenue (Note 20) 14,620 8,791 619,123 50,735 5,062
NET COST OF OPERATIONS (Note 20) $ 1,180,516 $ 5,369,851 $ 1,952,304 $ 1,574,527 $ 801,695
Consolidated
Totals
Costs:
Intragovernmental $ 1,330,635
With the Public $ 10,246,589
Total Costs (Note 20) 11,577,224
Less:
Earned Revenue, Federal $ 161,410
Earned Revenue, non Federal _$ 536,921
Total Earned Revenue (Note 20) 698,331
NET COST OF OPERATIONS (Note 20) $ 10,878,893
The accompanying notes are an integral part of these financial statements.
37
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Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Period Ending September 30, 2010
(Dollars in Thousands)
Costs:
Intragovern mental
With the Public
Total Costs (Note 20)
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
Clean Air
; 170,677
1,048,124
1,218,801
18,923
5,906
24,829
Clean & Safe
Water
$ 193,456
6,197,330
6,390,786
2,803
2,524
5,327
Land Healthy Compliance &
Preservation & Communities & Environmental
Restoration Ecosystems Stewardship
$
342,734 $
2,096,211
2,438,945
293,850 $
1,265,653
1,559,503
182,299
615,931
798,230
103,687
446,569
64,034
44,144
3,400
1,494
550,256
108,178
4,894
NET COST OF OPERATIONS (Note 20)
$ 1,193,972 $ 6,385,459 $ 1,888,689 $ 1,451,325
793,336
Costs:
Intragovern mental
With the Public
Total Costs (Note 20)
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
Consolidated
Totals
$ 1,183,016
$ 11,223,249
12,406,265
192,847
500,637
693,484
NET COST OF OPERATIONS (Note 20)
$ 11,712,781
The accompanying notes are an integral part of these financial statements.
38
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Period Ending September 30, 2011
(Dollars in Thousands)
Cumulative Results of Operations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 35)
Nonexchange Revenue - Other (Note 35)
Transfers In/Out (Note 31)
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Donations and Forfeitures of Property
Transfers In/Out (Note 31)
Imputed Financing Sources (Note 32)
Total Other Financing Sources
Net Cost of Operations
Net Change
Cumulative Results of Operations
Unexpended Appropriations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Received
Appropriations Transferred In/Out (Note 31)
Other Adjustments (Note 34)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION
FY 201 1
Earmarked
Funds
7,152,382
7,152,382
FY2011
All Other
Funds
617,456
$ 617,456
120,429
184,984
(17,068)
1,156,073
10,287,988
0
35,410
(1,156,073)
-
1
29,661
29,662
(1,599,299)
(125,219)
7,027,163
FY 201 1
Earmarked
Funds
50
76
148,993
$ 149,119
(9,279,594)
36,850
$ 654,306
FY2011
All Other
Funds
13,342,784
-
.
-
-
-
13,342,784
8,583,238
1,750
(177,186)
(10,287,988)
(1,880,186)
11,462,598
FY 2011
Consolidated
Total
1,444,418 $ 9,167,325 $
7,027,163 $ 12,116,904 $
7,769,838
7,769,838
10,287,988
120,429
184,984
18,342
10,611,743
50
77
178,654
178,781
(10,878,893)
(88,369)
7,681,469
FY 2011
Consolidated
Total
13,342,784
13,342,784
8,583,238
1,750
(177,186)
(10,287,988)
(1,880,186)
11,462,598
19,144,067
The accompanying notes are an integral part of these financial statements.
39
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Periods Ending September 30, 2010
(Dollars in Thousands)
Cumulative Results of Operations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 35)
Nonexchange Revenue - Other (Note 35)
Transfers In/Out (Note 31)
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Transfers In/Out (Note 31)
Imputed Financing Sources (Note 32)
Total Other Financing Sources
Net Cost of Operations
Net Change
Cumulative Results of Operations
FY2010
Earmarked
Funds
FY2010 All
Other Funds
7,086,476
7,086,476 $~
130,504
213,984
(20,789)
1,280,570
FY2010
Consolidated
Total
582,668
582,668 $~
11,294,823
33,859
(1,280,570)
1,604,269 $ 10,048,112 $
27,022
(546)
134,618
7,669,144
7,669,144
11,294,823
130,504
213,984
13,070
11,652,381
(546)
161,640
27,022 $ 134,072 $ 161,094
(1,565,385) (10,147,396) (11,712,781)
65,906 34,788 100,694
7,152,382 $
617,456 $
7,769,838
Unexpended Appropriations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Received
Appropriations Transferred In/Out (Note 31)
Other Adjustments (Note 34)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION
FY2010
Earmarked
Funds
FY2010 All
Other Funds
14,536,347
- $ 14,536,347 $
10,182,421
(17,000)
(65,989)
(11,292,995)
(1,193,563)
13,342,784
7,152,382 $ 13,960,240 $
FY2010
Consolidated
Total
14,536,347
14,536,347
10,182,421
(17,000)
(65,989)
(11,292,995)
(1,193,563)
13,342,784
21,112,622
The accompanying notes are an integral part of these financial statements.
40
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Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
FY2011 FY2010
BUDGETARY RESOURCES
Unobligated Balance, Brought Forward, October 1: $ 4,626,341 $ 3,703,022
Adjusted Subtotal 4,626,341 3,703,022
Recoveries of Prior Year Unpaid Obligations (Note 27) 270,664 277,771
Budgetary Authority:
Appropriation 8,648,816 10,256,166
Borrowing Authority - 52
Spending Authority from Offsetting Collections
Earned:
Collected 640,123 918,786
Change in Receivables from Federal Sources 11,181 (1,746)
Change in Unfilled Customer Orders:
Advance Received 79,380 234,559
Without Advance from Federal Sources (15,817) (132,489)
Expenditure Transfers from Trust Funds 35,410 36,809
Total Spending Authority from Offsetting Collections 750,277 1,055,919
Nonexpenditure Transfers, Net, Anticipated and Actual (Note 31) 1,372,575 1,369,345
Temporarily Not Available Pursuant to Public Law (Note 27) (553) (11,800)
Permanently Not Available (Note 27) (179,693) (73,453)
Total Budgetary Resources (Note 26) $ 15,488,427 $ 16,577,022
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $ 11,232,330 $ 11,260,452
Reimbursable 758,247 690,229
Total Obligations Incurred (Note 26) 11,990,577 11,950,681
Unobligated Balances:
Apportioned (Note 28) 3,326,812 4,430,813
Total Unobligated Balances 3,326,812 4,430,813
Unobligated Balances Not Available (Note 28) 171,038 195,528
Total Status of Budgetary Resources $ 15,488,427 $ 16,577,022
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
FY2011 FY2010
CHANGE IN OBLIGATED BALANCE
Obligated Balance, Net:
Unpaid Obligations, Brought Forward, October 1 $ 13,872,909 $ 15,788,389
Adjusted Total 13,872,909 15,788,389
Less: Uncollected Customer Payments from Federal Sources,
Brought Forward, October 1 (439,956) (573,824)
Total Unpaid Obligated Balance, Net 13,432,953 15,214,565
Obligations Incurred, Net (Note 26) 11,990,577 11,950,681
Less: Gross Outlays (Note 26) (12,817,928) (13,588,391)
Less: Recoveries of Prior Year Unpaid Obligations, Actual (Note 27) (270,664) (277,771)
Change in Uncollected Customer Payments from Federal Sources 1,528 133,869
Total, Change in Obligated Balance 12,336,466 13,432,953
Obligated Balance, Net, End of Period:
Unpaid Obligations 12,774,894 13,872,909
Less: Uncollected Customer Payments from Federal Sources (438,428) (439,956)
Total, Unpaid Obligated Balance, Net, End of Period $ 12,336,466 $ 13,432,953
NET OUTLAYS
Net Outlays:
Gross Outlays (Note 26) $ 12,817,928 $ 13,588,391
Less: Offsetting Collections (Note 26) (751,805) (1,189,788)
Less: Distributed Offsetting Receipts (Notes 26 and 30) (1,291,761) (1,402,960)
Total, Net Outlays $ 10,774,362 $ 10,995,643
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Statement of Custodial Activity
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
FY2011
FY2010
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties
Other
Total Cash Collections
Accrual Adjustment
Total Custodial Revenue (Note 25)
Disposition of Collections:
Transferred to Others (General Fund) $
Increases/Decreases in Amounts to be Transferred
Total Disposition of Collections $_
$
$
$
126,212
(4,024)
122,188
4,163
126,351
$
$
$
88,318
18,072
106,390
(16,763)
89,627
122,910
3,441
105,684
(16,057)
126,351 $
89,627
Net Custodial Revenue Activity (Note 25)
$
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Notes to the Financial Statements
Fiscal Year Ended September 30, 2011 and 2010
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Reporting Entities
The EPA was created in 1970 by executive reorganization from various components of other federal
agencies to better marshal and coordinate federal pollution control efforts. The agency is generally
organized around the media and substances it regulates - air, water, hazardous waste, pesticides, and
toxic substances.
The FY 2011 financial statements are presented on a consolidated basis for the Balance Sheet,
Statements of Net Cost, Changes in Net Position and Custodial Activity and a combined basis for the
Statement of Budgetary Resources. These financial statements include the accounts of all funds
described in this note by their respective Treasury fund group.
B. Basis of Presentation
These accompanying financial statements have been prepared to report the financial position and
results of operations of the U. S. Environmental Protection Agency (EPA or Agency) as required by the
Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994. The reports
have been prepared from the financial system and records of the agency in accordance with OMB
Circular No. A-136, Financial Reporting Requirements, and the EPA accounting policies, which are
summarized in this note. The Statement of Net Cost has been prepared with cost segregated by the
agency's strategic goals.
C. Budgets and Budgetary Accounting
1. General Funds
Congress adopts an annual appropriation for State and Tribal Assistance Grants, Buildings and
Facilities and for Payments to the Hazardous Substance Superfund to be available until
expended, as well as annual appropriations for Science and Technology, Environmental
Programs and Management and for the OIG to be available for two fiscal years. When the
appropriations for the General Funds are enacted, Treasury issues a warrant to the respective
appropriations. As the agency disburses obligated amounts, the balance of funds available to
the appropriation is reduced at Treasury.
The Asbestos Loan Program is a commercial activity financed from a combination of two
sources, one for the long-term costs of the loans and another for the remaining non-subsidized
portion of the loans. Congress adopted a one-year appropriation, available for obligation in the
fiscal year for which it was 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 did not represent long-
term cost is financed under permanent indefinite borrowing authority established with the
Treasury. A permanent indefinite appropriation is available to finance the costs of subsidy re-
estimates that occur in subsequent years after the loans were disbursed.
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Funds transferred from other federal agencies are processed as non-expenditure transfers. As
the agency disburses the obligated amounts, the balance of funding available to the
appropriation is reduced at Treasury.
Clearing accounts and receipt accounts receive no appropriated funds. Amounts are recorded
to the clearing accounts pending further disposition. Amounts recorded to the receipt accounts
capture amounts collected for or payable to the Treasury General Fund.
2. Revolving Funds
Funding of the Reregistration and Expedited Processing Fund and Pesticide Registration Funds
is provided by fees collected from industry to offset costs incurred by the agency in carrying out
these programs. Each year the agency submits an apportionment request to OMB based on the
anticipated collections of industry fees.
Funding of the WCF is provided by fees collected from other agency appropriations and other
federal agencies to offset costs incurred for providing agency administrative support for
computer and telecommunication services, financial system services, employee relocation
services and postage.
3. Special Funds
The Environmental Services Receipt Account obtains fees associated with environmental
programs.
Exxon Valdez uses funding collected from reimbursement from the Exxon Valdez settlement.
4. Deposit Funds
Deposit accounts receive no appropriated funds. Amounts are recorded to the deposit accounts
pending further disposition. These are not the EPA's funds.
5. Trust Funds
Congress adopts an annual appropriation amount for the Superfund, LUST and the Oil Spill
Response Accounts to remain available until expended. A transfer account for the Superfund
and LUST Trust Fund has been established for purposes of carrying out the program activities.
As the agency disburses obligated amounts from the transfer account, the agency draws down
monies from the Superfund and LUST Trust Fund at Treasury to cover the amounts being
disbursed. The agency draws down all the appropriated monies from the Principal Fund of the
Oil Spill Liability Trust Fund when Congress adopts the appropriation amount to the EPA's Oil
Spill Response Account.
D. Basis of Accounting
Generally Accepted Accounting Principles for federal entities is the standard prescribed by the Federal
Accounting Standards Advisory Board, which is the official standard-setting body for the federal
government. The financial statements are prepared in accordance with GAAP for federal entities.
Transactions are recorded on an accrual accounting basis and on a budgetary basis (where budgets
are issued). Under the accrual method, revenues are recognized when earned and expenses are
recognized when a liability is incurred, without regard to receipt or payment of cash. Budgetary
accounting facilitates compliance with legal constraints and controls over the use of federal funds.
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E. Revenues and Other Financing Sources
The following agency policies and procedures to account for inflow of revenue and other financing
sources are in accordance with Statement of Federal Financial Accounting Standards No. 7,
"Accounting for Revenues and Other Financing Sources."
The Superfund program receives most of its funding through appropriations that may be used within
specific statutory limits for operating and capital expenditures (primarily equipment). Additional
financing for the Superfund program is obtained through: reimbursements from other federal agencies,
state cost share payments under Superfund State Contracts and settlement proceeds from Potentially
Responsible Parties under the Comprehensive Environmental Response, Compensation and Liability
Act Section 122(b)(3) placed in special accounts. Cost recovery settlements that are not placed in
special accounts continue to be deposited in the Trust Fund.
Most of the other funds receive funding needed to support programs through appropriations that may
be used within statutory limits for operating and capital expenditures. However, under Credit Reform
provisions, the Asbestos Loan Program receives funding to support the subsidy cost of loans through
appropriations that may be used within statutory limits. The Asbestos Direct Loan Financing fund 4322,
an off-budget fund, receives additional funding to support the outstanding loans through collections
from the Program fund 0118 for the subsidized portion of the loan.
The Federal Insecticide, Fungicide and Rodenticide Act and Pesticide Registration funds receive
funding through fees collected for services provided and interest on invested funds. The WCF receives
revenue through fees collected for services provided to agency program offices. Such revenue is
eliminated with related agency program expenses upon consolidation of the agency's financial
statements. The Exxon Valdez Settlement Fund receives funding through reimbursements.
Appropriated funds are recognized as Other Financing Sources expended when goods and services
have been rendered without regard to payment of cash. Other revenues are recognized when earned
(i.e., when services have been rendered).
F. Funds with the Treasury
The agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements
are handled by Treasury. The major funds maintained with Treasury are Appropriated Funds, Revolving
Funds, Trust Funds, Special Funds, Deposit Funds and Clearing Accounts. These funds have balances
available to pay current liabilities and finance authorized obligations, as applicable.
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. No provision is made for unrealized gains or losses on these securities
because, in the majority of cases, they are held to maturity (see Note 4).
H. Notes Receivable
The agency records notes receivable at their face value and any accrued interest as of the date of
receipt.
I. Marketable Securities
The agency records marketable securities at cost as of the date of receipt. Marketable securities are
held by Treasury and reported at their cost value in the financial statements until sold (see Note 4).
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J. Accounts Receivable and Interest Receivable
The majority of receivables for non-Superfund funds represent penalties and interest receivable for
general fund receipt accounts, unbilled intragovernmental reimbursements receivable, allocations
receivable from Superfund (eliminated in consolidated totals), and refunds receivable for the STAG
appropriation.
Superfund accounts receivable represent recovery of costs from PRPs as provided under CERCLA as
amended by the Superfund Amendments and Reauthorization Act of 1986. Since there is no assurance
that these funds will be recovered, cost recovery expenditures are expensed when incurred (see Note
5).
The agency records accounts receivable from PRPs for Superfund site response costs when a consent
decree, judgment, administrative order or settlement is entered. These agreements are generally
negotiated after at least some, but not necessarily all, of the site response costs have been incurred. It
is the agency's position that until a consent decree or other form of settlement is obtained, the amount
recoverable should not be recorded.
The agency also records accounts receivable from states for a percentage of Superfund site remedial
action costs incurred by the agency within those states. As agreed to under SSCs, cost sharing
arrangements may vary according to whether a site was privately or publicly operated at the time of
hazardous substance disposal and whether the agency response action was removal or remedial. SSC
agreements are usually for 10 percent or 50 percent of site remedial action costs, depending on who
has the lead for the site (i.e., publicly or privately owned). States may pay the full amount of their share
in advance or incrementally throughout the RA process.
K. Advances and Prepayments
Advances and prepayments represent funds advanced or prepaid to other entities both internal and
external to the agency for which a budgetary expenditure has not yet occurred.
L. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. Loans receivable resulting
from obligations on or before September 30, 1991, are reduced by the allowance for uncollectible
loans. Loans receivable resulting from loans obligated on or after October 1, 1991 are reduced by an
allowance equal to the present value of the subsidy costs associated with these loans. The subsidy
cost is calculated based on the interest rate differential between the loans and Treasury borrowing, the
estimated delinquencies and defaults net of recoveries offset by fees collected and other estimated
cash flows associated with these loans.
M. Appropriated Amounts Held by Treasury
For the Superfund and LUST Trust Funds and for amounts appropriated from the Superfund Trust Fund
to the OIG, cash available to the agency that is not needed immediately for current disbursements
remains in the respective Trust Funds managed by Treasury.
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N. Property, Plant and Equipment
The EPA accounts for its personal and real property accounting records in accordance with SFFAS No.
6, "Accounting for Property, Plant and Equipment." For EPA-held property, the Fixed Assets Subsystem
automatically generates depreciation entries monthly based on acquisition dates.
A purchase of EPA-held or contract personal property is capitalized if it is valued at $25,000 or more
and has an estimated useful life of at least two years. For contractor held property, depreciation is
taken on a modified straight-line basis over a period of six years depreciating 10 percent the first and
sixth year, and 20 percent in years 2 through 5. Detailed records are maintained and accounted for in
contractor systems, not in FAS for contractor held property. Acquisitions of EPA-held personal property
are depreciated using the straight-line method over the specific asset's useful life, ranging from two to
15 years.
Personal property also consists of capital leases. To be defined as a capital lease, it must, at its
inception, have a lease term of two or more years and the lower of the fair value or present value of the
minimum lease payments must be $75,000 or more. Capital leases may also contain real property
(therefore considered in the real property category as well), but these need to meet an $85,000
capitalization threshold. In addition, the lease must meet one of the following criteria: transfers
ownership to the EPA, contains a bargain purchase option, the lease term is equal to 75 percent or
more of the estimated service life, or the present value of the lease and other minimum lease payments
equal or exceed 90 percent of the fair value.
Superfund contract property used as part of the remedy for site-specific response actions is capitalized
in accordance with the agency's capitalization threshold. This property is part of the remedy at the site
and eventually becomes part of the site itself. Once the response action has been completed and the
remedy implemented, the EPA retains control of the property (i.e., pump and treat facility) for 10 years
or less, and transfers its interest in the facility to the respective state for mandatory operation and
maintenance - usually 20 years or more. Consistent with the EPA's 10-year retention period,
depreciation for this property is based on a 10-year life. However, if any property is transferred to a
state in a year or less, this property is charged to expense. If any property is sold prior to the EPA
relinquishing interest, the proceeds from the sale of that property shall be applied against contract
payments or refunded as required by the Federal Acquisition Regulations.
An exception to the accounting of contract property includes equipment purchased by the WCF. This
property is retained in FAS and depreciated utilizing the straight-line method based upon the asset's
acquisition date and useful life.
Real property consists of land, buildings, capital and leasehold improvements and capital leases. Real
property, other than land, is capitalized when the value is $85,000 or more. Land is capitalized
regardless of cost. Buildings are valued at an estimated original cost basis, and land is valued at fair
market value if purchased prior to FY 1997. Real property purchased after FY 1996 is valued at actual
cost. Depreciation for real property is calculated using the straight-line method over the specific asset's
useful life, ranging from 10 to 102 years. Leasehold improvements are amortized over the lesser of
their useful life or the unexpired lease term. Additions to property and improvements not meeting the
capitalization criteria, expenditures for minor alterations, and repairs and maintenance are expensed
when incurred.
Software for the WCF, a revenue generating activity, is capitalized if the purchase price is $100,000 or
more with an estimated useful life of two years or more. All other funds capitalize software if those
investments are considered Capital Planning and Investment Control or CPIC Lite systems with the
provisions of SFFAS No. 10, "Accounting for Internal Use Software." Once software enters the
production life cycle phase, it is depreciated using the straight-line method over the specific asset's
useful life ranging from two to 10 years.
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O. Liabilities
Liabilities represent the amount of monies or other resources that are more likely than not to be paid by
the agency as the result of an agency transaction or event that has already occurred and can be
reasonably estimated. However, no liability can be paid by the agency without an appropriation or other
collections. Liabilities for which an appropriation has not been enacted are classified as unfunded
liabilities and there is no certainty that the appropriations will be enacted. Liabilities of the agency
arising from other than contracts can be abrogated by the government acting in its sovereign capacity.
P. Borrowing Payable to the Treasury
Borrowing payable to Treasury results from loans from Treasury to fund the Asbestos direct loans
Periodic principal payments are made to Treasury based on the collections of loans receivable.
Q. Interest Payable to Treasury
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt.
R. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Sick leave earned but not
taken is not accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is
accrued as an unfunded liability. Accrued unfunded annual leave is included in Note 33 as a
component of "Payroll and Benefits Payable."
S. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to January 1,
1987 may participate in the Civil Service Retirement System. On January 1, 1984, the Federal
Employees Retirement System 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 elected to either join FERS and Social Security or remain in CSRS. A primary
feature of FERS is that it offers a savings plan to which the agency automatically contributes one
percent of pay and matches any employee contributions up to an additional four percent of pay. The
agency also contributes the employer's matching share for Social Security.
With the issuance of SFFAS No. 5, "Accounting for Liabilities of the Federal Government," accounting
and reporting standards were established for liabilities relating to the federal employee benefit
programs (Retirement, Health Benefits and Life Insurance). SFFAS No. 5 requires that the employing
agencies recognize the cost of pensions and other retirement benefits during their employees' active
years of service. SFFAS No. 5 requires that the Office of Personnel Management, as administrator of
the CSRS and FERS, the Federal Employees Health Benefits Program, and the Federal Employees
Group Life Insurance Program, provide federal agencies with the actuarial cost factors to compute the
liability for each program.
T. Prior Period Adjustments and Restatements
Prior period adjustments, if any, are made in accordance with SFFAS No. 21, "Reporting Corrections of
Errors and Changes in Accounting Principles." Specifically, prior period adjustments will only be made
for material prior period errors to 1) the current period financial statements and 2) the prior period
financial statements presented for comparison. Adjustments related to changes in accounting principles
will only be made to the current period financial statements, but not to prior period financial statements
presented for comparison.
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U. ARRA Funds
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of
2009. The Act was enacted to create jobs in the United States, encourage technical advances, assist in
modernizing the nation's infrastructure and enhance energy independence. The EPA was charged with
the task of distributing funds to invest in various projects aimed at creating advances in science, health
and environmental protection that will provide long-term economic benefits.
The EPA manages almost $7.22 billion in ARRA funded projects and programs that will help achieve
these goals, offer resources to help other "green" agencies, and administer environmental laws that will
govern Recovery activities. As of September 30, 2011, the EPA has paid out $6.31 billion. The EPA, in
collaboration with states, tribes, local governments, territories and other partners, is administering the
funds it received under the ARRA through four appropriations. The funds include:
STAGs that in turn include: $4 billion for assistance to help communities with water quality and
wastewater infrastructure needs and $2 billion for drinking water infrastructure needs (Clean Water and
Drinking Water State Revolving Fund programs and Water Quality Planning program); $100 million for
competitive grants to evaluate and clean up former industrial and commercial sites (Brownfields
program); $300 million for grants and loans to help regional, state and local governments, tribal
agencies, and non-profit organizations with projects that reduce diesel emissions (Clean Diesel
programs); $600 million for the cleanup of hazardous sites (Superfund program); $200 million for
cleanup of petroleum leaks from underground storage tanks (LUST program); and $20 million for audits
and investigations conducted by the IG.
The EPA has committed to focusing on the following areas: Clean Diesel Emissions, Superfund
Hazardous Waste Cleanup, Cleaner Underground Storage Tank Sites, Revitalized Neighborhoods from
Brownfields and Cleaner Water and Drinking Water Infrastructures.
The vast majority of the contracts awarded under the ARRA will be entered into using competitive
contracts. The EPA is committed fully to ensuring transparency and accountability throughout the
agency in spending ARRA funds in accordance with OMB guidance.
The EPA has set up a Stimulus Steering Committee that meets to review and report on the status of the
distribution of the ARRA funds to ensure transparency and accuracy. The EPA has also developed a
Stewardship Plan that is an agency-level risk mitigation plan that sets out the agency's ARRA risk
assessment, internal controls and monitoring activities. The Stewardship Plan is divided into seven
functional areas: grants, interagency agreements, contracts, human capital/payroll, budget execution,
performance reporting and financial reporting. The Stewardship Plan was developed around
Government Accountability Office standards for internal control. Under each functional area, risks are
assessed and related control, communication and monitoring activities are identified for each impacted
program. The Stewardship Plan is a dynamic document; the EPA will update the Stewardship Plan as
revised OMB guidance is issued or additional risks are uncovered.
The EPA has the three-year EPM treasury symbol 689/10108 that is under the ARRA. The EPA's other
ARRA programs are the following: OIG, treasury symbol 689/20113; STAG, treasury symbol
689/00102; Payment to the Superfund, treasury symbol 689/00249; Superfund, treasury symbol
689/08195; and LUST, treasury symbol 689/08196.
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V. Deepwater Horizon Oil Spill
On April 20, 2010, the Deepwater Horizon drilling rig exploded, releasing large volumes of oil into the
Gulf of Mexico. As a responsible party, British Petroleum is required by the 1990 Oil Pollution Act to
fund the cost of the response and cleanup operations. In FY 2011, the EPA continued to work on the
cleanup effort in conjunction with the U.S. Coast Guard, who was named the lead Federal On-Scene
Coordinator, and is assisting the Department of Justice on the pending civil litigation.
W. Use of Estimates
The preparation of financial statements requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates.
Note 2. Fund Balance with Treasury
FBWT as of September 30, 2011 and 2010, consists of the following:
Trust Funds:
Superfund
LUST
Oil Spill & Misc.
Revolving Funds:
FIFRA/Tolerance
Working Capital
Cr. Reform Finan.
Appropriated
Other Fund Types
Total
Entity
Assets
$ 114,540 $
60,558
4,085
3,571
68,776
390
12,086,770
314,522
$ 12,653,212 $
FY2011
Non-Entity
Assets
- $
-
-
_
-
-
-
9,329
9,329 $
Total
114,540$
60,558
4,085
3,571
68,776
390
12,086,770
323,851
12,662,541$
Entity
Assets
106,247$
55,132
9,644
4,204
80,485
390
14,049,511
289,149
14,594,762 $
FY2010
Non-Entity
Assets
- $
-
-
_
-
-
-
8,262
8,262 $
Total
106,247
55,132
9,644
4,204
80,485
390
14,049,511
297,41 1
14,603,024
Entity fund balances, except for special fund receipt accounts, are available to pay current liabilities and
to finance authorized purchase commitments (see Status of Fund Balances below). Entity Assets for
Other Fund Types consist of special purpose funds and special fund receipt accounts, such as the
Pesticide Registration funds and the Environmental Services receipt account. The Non-Entity Assets for
Other Fund Types consist of clearing accounts and deposit funds, which are either awaiting
documentation for the determination of proper disposition or being held by the EPA for other entities.
Status of Fund Balances:
FY2011
FY2010
Unobligated Amounts in Fund Balance:
Available for Obligation
Unavailable for Obligation
Net Receivables from Invested Balances
Balances in Treasury Trust Fund (Note 38)
Obligated Balance not yet Disbursed
Non-Budgetary FBWT
Totals
3,326,812 $
171,038
(3,485,275)
1,310
12,336,466
312,190
12,662,541 $
4,430,813
195,529
(3,736,818)
(1,115)
13,432,954
281,661
14,603,024
The funds available for obligation may be apportioned by OMB for new obligations at the beginning of
the following fiscal year. Funds unavailable for obligation are mostly balances in expired funds, which
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are available only for adjustments of existing obligations. For FY 2011 and FY 2010 no differences
existed between Treasury's accounts and the EPA's statements for fund balances with Treasury.
Note 3. Cash and Other Monetary Assets
As of September 30, 2011 and 2010, the balance in the imprest fund was $10,000.
Note 4. Investments
As of September 30, 2011 and 2010, investments related to Superfund and LUST consist of the
following:
Cost
6,959,480$
7,079,053$
Amortized
(Premium)
Discount
(137,103) $
(139,302) $
Interest
Receivable
15,614 $
25,258 $
Investments,
Net
7,112,197 $
7,243,613 $
Market
Value
7,112,197
7,243,613
Intragovernmental Securities:
Non-Marketable FY 2011
Non-Marketable FY2010
CERCLA, as amended by SARA, authorizes the EPA to recover monies to clean up Superfund sites
from responsible parties. Some RPs file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy
settlements, the EPA is an unsecured creditor and is entitled to receive a percentage of the assets
remaining after secured creditors have been satisfied. Some RPs satisfy their debts by issuing
securities of the reorganized company. The agency does not intend to exercise ownership rights to
these securities, and instead will convert them to cash as soon as practicable (see Note 6). All
investments in Treasury securities are earmarked funds (see Note 19).
The federal government does not set aside assets to pay future benefits or other expenditures
associated with earmarked funds. The cash receipts collected from the public for an earmarked fund
are deposited in the Treasury, which uses the cash for general government purposes. Treasury
securities are issued to the EPA as evidence of its receipts. Treasury securities are an asset to the EPA
and a liability to the Treasury. Because the EPA and the Treasury are both parts of the government,
these assets and liabilities offset each other from the standpoint of the government as a whole. For this
reason, they do not represent an asset or liability in the U.S. governmentwide financial statements.
Treasury securities provide the EPA with authority to draw upon the U.S. Treasury to make future
benefit payments or other expenditures. When the EPA requires redemption of these securities to make
expenditures, the government finances those expenditures out of accumulated cash balances, by
raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other
expenditures. This is the same way that the government finances all other expenditures.
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Note 5. Accounts Receivable, Net
The Accounts Receivable as of September 30, 2011 and 2010 consist of the following:
FY2011 FY2010
Intragovernmental:
Accounts & Interest Receivable $ 35,518$ 45,698
Total $ 35,518 $ 45,698
Non-Federal:
Unbilled Accounts Receivable $ 159,170$ 143,444
Accounts & Interest Receivable 2,176,215 1,958,981
Less: Allowance for Uncollectibles (1,821,195) (1,684,890)
Total $ 514,190 $ 417,535
The Allowance for Uncollectible Accounts is determined both on a specific identification basis, as a
result of a case-by-case review of receivables, and on a percentage basis for receivables not
specifically identified.
Note 6. Other Assets
Other Assets as of September 30, 2011 and 2010 consist of the following:
Intragovernmental: FY 2011 FY2010
Advances to Federal Agencies $ 251,649$ 223,165
Advances for Postage 154 131
Total $ 251,803 $ 223,296
Note 7.
Non-Federal:
Travel Advances $
Letter of Credit Advances
Other Advances
Operating Materials and Supplies
Inventory for Sale
Total $
Loans Receivable, Net
486 $
-
1,838
140
102
2,566 $
432
9
2,105
149
139
2,834
Loans Receivable consists of Asbestos Loan Program loans disbursed from obligations made prior to
FY 1992 and are presented net of allowances 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, which 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 loan present value is the gross loan
receivable less the subsidy present value. The amounts as of September 30, 2011 and 2010 are as
follows:
53
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Direct Loans
Obligated Prior to
FY1992
Direct Loans
Obligated After FY
1991
Total
FY2011 FY2010
Loans Value of Assets Loans Value of Assets
ReceiraMe, Allowance* Related to ReceiraMe, Allowance* Related to
Gross Direct Loans Gross Direct Loans
44 $
2,194
2,238 $
(131)
(131) $
44 $
545 $
2,063
2,107 $
5,476 $
(222)
545
4,709
(222) $
5,254
* Allowance for Pre-Credit Reform loans (prior to FY 1992) is the Allowance for Estimated Uncollectible
Loans, and the Allowance for Post Credit Reform Loans (after FY 1991) is the Allowance for Subsidy
Cost (present value).
During FY 2008, the EPA made a payment within the Treasury for the Asbestos Loan Program based
on an upward re-estimate of $33,000 for increased loan financing costs. It was believed that the
payment only consisted of "interest" costs and, as such, an automatic apportionment, per OMB Circular
A-11, Section 120.83, was deemed appropriate. However, approximately one-third ($12,000) of the
$33,000 re-estimate was for increased "subsidy" costs which requires an approved apportionment by
OMB before any payment could be made. Therefore, the payment resulted in a minor technical Anti-
deficiency Act violation. On October 13, 2009, the EPA transmitted, as required by OMB Circular A-11,
Section 145, written notifications to the 1) President, 2) President of the Senate, 3) Speaker of the
House of Representatives, 4) Comptroller General and 5) the Director of OMB. On May 18, 2011, the
EPA sent a supplemental letter to the OMB Director to further identify the names of the persons
responsible for the violation, and that they were not suspected of willfully or knowingly violating the
ADA.
Subsidy Expenses for Credit Reform Loans (reported on a cash basis):
Upward Subsidy Reestimate - FY2011
Downward Subsidy Reestimate -FY2011
FY2011 Totals
Upward Subsidy Reestimate - FY2010
Downward Subsidy Reestimate - FY2010
FY2010 Totals
Interest Rate
Re-estimate
104 $
104 $
5 $
(35)
(30) $
Technical
Re-estimate
39 $
39 $
2 $
(16)
(14)$
Total
143
143
7
(51)
(44)
54
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Schedule for Reconciling Subsidy Cost Allowance Balances
(Post-1991 Direct Loans)
FY2011 FY2010
Beginning balance of the subsidy cost allowance $ (222) $ (948)
Add: subsidy expense for direct loans disbursed during the
reporting years by component:
Interest rate differential costs
Default costs (net of recoveries)
Fees and other collections
Other subsidy costs
Total of the above subsidy expense components $ - $
Adjustments:
Loan Modification
Fees received
Foreclosed property acquired
Loans written off
Subsidy allowance amortization 234 477
Other
End balance of the subsidy cost allowance before reestimates 234 477
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate (104) 176
(b) Technical/default reestimate (39) 73_
Total of the above reestimate components (143) 249
Ending Balance of the subsidy cost allowance $ (131) $ (222)
EPA has not disbursed Direct Loans since 1993.
Note 8. Accounts Payable and Accrued Liabilities
The Accounts Payable and Accrued Liabilities are current liabilities and consist of the following
amounts as of September 30, 2011 and 2010:
FY2011 FY2010
Intragovernmental:
Accounts Payable $ 62 $ 1,466
Accrued Liabilities 52,386 49,859
Total $ 52,448 $ 51,325
Non-Federal: FY 2011 FY2010
Accounts Payable $ 69,505$ 118,033
Advances Payable 3 8
Interest Payable 7 7
Grant Liabilities 503,249 650,526
Other Accrued Liabilities 344,002 262,874
Total $ 916,766 $ 1,031,448
Other Accrued Liabilities primarily relate to contractor accruals.
55
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Note 9. General Property, Plant and Equipment, Net
General property, plant and equipment consist of software, real property, the EPA and contractor-held
personal property and capital leases.
As of September 30, 2011 and 2010, General PP&E consist of the following:
EPA-Held Equipment
Software
Contractor Held Equip.
Land and Buildings
Capital Leases
Total
FY 2011
FY2010
Acquisition
Value
255,049 $
527,603
66,808
653,518
35,440
1,538,418$
Accumulated Net Book Value
Depreciation
(147,219$
(190,302)
(22,104)
(188,382)
(23,612)
(571,619)$
107,830$
337,301
44,704
465,136
1 1 ,828
966,799 $
Acquisition
Value
252,920$
443,847
95,494
630,252
35,440
1,457,953 $
Accumulated
Depreciation
(145,672)$
(158,034)
(39,225)
(1 77,654)
(22,247)
(542,832) $
Net Book
Value
107,248
285,813
56,269
452,598
13,193
915,121
Note 10. Debt Due to Treasury
The debt due to Treasury consists of borrowings to finance the Asbestos Loan Program. The debt to
Treasury as of September 30, 2011 and 2010 is as follows:
All Other Funds FY2011 FY2010
Beginning Net Ending Beginning Net Ending
Balance Borrowing Balance Balance Borrowing Balance
Intragovernmental:
Debt to Treasury
4,844 $
(2,251)$ 2,593$
9,983$
(5,139) $
4,844
Note 11. Stewardship Land
The agency acquires title to certain property and property rights under the authorities provided in
CERCLA Section 104(j) related to remedial clean-up sites. The property rights are in the form of fee
interests (ownership) and easements to allow access to clean-up sites or to restrict usage of
remediated sites. The agency takes title to the land during remediation and transfers it to state or local
governments upon the completion of cleanup. A site with "land acquired" may have more than one
acquisition property. Sites are not counted as a withdrawal until all acquired properties have been
transferred under the terms of 104(j).
56
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As of September 30, 2011, the agency possesses the following land and land rights:
FY2011 FY2010
Superfund Sites with
Easements
Beginning Balance 35 33
Additions 1 2
Withdrawals 0 0
Ending Balance 36 35
Superfund Sites with
Land Acquired
Beginning Balance 32 30
Additions 4 2
Withdrawals 2 0
Ending Balance 34 32
Note 12. Custodial Liability
Custodial Liability represents the amount of net accounts receivable that, when collected, will be
deposited to the Treasury General Fund. Included in the custodial liability are amounts for fines and
penalties, interest assessments, repayments of loans, and miscellaneous other accounts receivable. As
of September 30, 2011 and 2010, custodial liability is approximately $57 million and $53 million,
respectively.
57
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Other Liabilities consist of the following as of September 30, 2010:
Covered by Not Covered by
Other Liabilities - Intragovernmental Budgetary Budgetary Total
Resources Resources
Current
Employer Contributions & Payroll Taxes$ 22,585$ $ 22,585
WCF Advances 1,706 - 1,706
Other Advances 52,596 - 52,596
Advances, HRSTF Cashout 20,431 - 20,431
Deferred HRSTF Cashout 1,831 - 1,831
Liability for Deposit Funds
Resources Payable to Treasury 649 - 649
Subsidy Payable to Treasury 256 - 256
Non-Current
Unfunded FECA Liability - 10,232 10,232
Payable to Treasury Judgment Fund - 22,000 22,000
Total Intragovernmental $ 100,054 $ 32,232$ 132,286
Other Liabilities - Non-Federal
Current
Unearned Advances $ 65,31$ -$ 65,314
Liability for Deposit Funds 8,128 - 8,128
Contract Holdbacks 155 - 155
Non-Current
Other Liabilities - 200 200
Capital Lease Liability - 26,199 26,199
Total Non-Federal $ 73,597$ 26,399$ 99,996
Note 14. Leases
Capital Leases:
The value of assets held under Capital Leases as of September 30, 2011 and 2010 are as follows:
Summary of Assets Under Capital Lease: FY 2011 FY2010
Real Property $ 35,285 $ 35,285
Personal Property 155 155
Software License - -
Total $ 35,440 $ 35,440
Accumulated Amortization $ 23,612$ 22,246
The EPA had two capital leases for land and buildings housing scientific laboratories and computer
facilities. All of these leases include a base rental charge and escalation clauses based upon either
rising operating costs and/or real estate taxes. The base operating costs are adjusted annually
according to escalators in the Consumer Price Indices published by the Bureau of Labor Statistics, U.S.
Department of Labor. Two leases terminate in FY 2013 and FY 2025.
59
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Note 13. Other Liabilities
Other Liabilities consist of the following as of September 30, 2011:
Covered by Not Covered by
Other Liabilities - Intragovernmental Budgetary Budgetary Total
Resources Resources
Current
Employer Contributions & Payroll Taxes$ 25,495 $ -$ 25,495
WCF Advances 1,337 - 1,337
Other Advances 38,981 - 38,981
Advances, HRSTF Cashout 34,979 - 34,979
Deferred HRSTF Cashout
Liability for Deposit Funds
Resources Payable to Treasury 3 - 3
Subsidy Payable to Treasury
Non-Current
Unfunded FECA Liability - 10,115 10,115
Payable to Treasury Judgment Fund - 22,000 22,000
Total Intragovernmental $ 100,795$ 32,115$ 132,910
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal $ 70,084 $ -$ 70,084
Liability for Deposit Funds, Non-Federal 9,194 - 9,194
Contract Holdbacks
Non-Current
Other Liabilities
Capital Lease Liability - 24,711 24,711
Total Non-Federal $ 79,278 $ 24,711$ 103,989
58
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The total future minimum capital lease payments are listed as follows:
Future Payments Due:
Fiscal Year Capital Leases
2012 $ 5,714
2013 5,714
2014 4,215
2015 4,215
After 5 years 39,340
Total Future Minimum Lease Payments 59,198
Less: Imputed Interest $ (34,487)
Net Capital Lease Liability 24,711
Liabilities not Covered by Budgetary Resources $ 24,711
(See Note 13)
Operating Leases:
The U.S. General Services Administration provides leased real property (land and buildings) as office
space for the EPA's employees. GSA charges a Standard Level User Charge that approximates the
commercial rental rates for similar properties.
The EPA had two direct operating leases for land and buildings housing scientific laboratories and
computer facilities. The leases include a base rental charge and escalation clauses based upon either
rising operating costs and/or real estate taxes. The base operating costs are adjusted annually
according to escalators in the Consumer Price Indices published by the Bureau of Labor Statistics. Two
leases expire in FY 2017 and FY 2020. These charges are expended from the EPM appropriation.
The total minimum future operating lease costs are listed below:
Operating Leases, Land and
Buildings
Fiscal Year
2012 $ 89
2013 89
2014 89
2015 89
Beyond 2015 285
Total Future Minimum Lease Payments$ 641
Note 15. Federal Employees' Compensation Act Actuarial Liabilities
FECA provides income and medical cost protection to covered federal civilian employees injured on the
job, employees who have incurred a work-related occupational disease, and beneficiaries of employees
whose death is attributable to a job-related injury or occupational disease. Annually, the EPA is
allocated the portion of the long-term FECA actuarial liability attributable to the entity. The liability is
calculated to estimate the expected liability for death, disability, medical and miscellaneous costs for
approved compensation cases. The liability amounts and the calculation methodologies are provided by
the Department of Labor.
60
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The FECA Actuarial Liability as of September 30, 2011 and 2010 was $44.8 million and $44.9 million,
respectively. The FY 2011 present value of these estimated outflows is calculated using a discount rate
of 3.535 percent in the first year, and 4.025 percent in the years thereafter. The estimated future costs
are recorded as an unfunded liability.
Note 16. Cashout Advances, Superfund
Cashout advances are funds received by the EPA, a state or another PRP under the terms of a
settlement agreement (e.g., consent decree) to finance response action costs at a specified Superfund
site. Under CERCLA Section 122(b)(3), cashout funds received by the EPA are placed in site-specific,
interest bearing accounts known as special accounts and are used for potential future work at such
sites in accordance with the terms of the settlement agreement. Funds placed in special accounts may
be disbursed to PRPs, to states that take responsibility for the site, or to other federal agencies to
conduct or finance response actions in lieu of the EPA without further appropriation by Congress. As of
September 30, 2011 and 2010, cashouts are approximately $790 million and $637 million, respectively.
Note 17. Unexpended Appropriations - Other Funds
As of September 30, 2011 and 2010, the Unexpended Appropriations consist of the following:
Unexpended Appropriations: FY 2011 FY 2010
Unobligated
Available $ 1,151,603$ 184,815
Unavailable 74,517 275,592
Undelivered Orders 10,236,478 12,882,377
Total $ 11,462,598 $ 13,342,784
Note 18. Commitments and Contingencies
The EPA may be a party in various administrative proceedings, 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 agency funding to the grantee or the provision of additional grantee matching
funds.
As of September 30, 2011 and 2010 total accrued liabilities for commitments and potential loss
contingencies is $10.2 million and $4.37 million, respectively. Further discussion of the cases and
claims that give rise to this accrued liability are discussed immediately below.
61
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Litigation Claims and Assessments
There is currently one legal claim that has been asserted against the EPA pursuant to the Federal Tort
Claims and Fair Labor Standards Acts. This loss has been deemed probable, and the unfavorable
outcome is estimated to be between $10 million and $15 million. The EPA has accrued the higher
conservative amount as of September 30, 2011. The maximum amount of exposure under the claim
could range as much as $15 million in the aggregate.
Superfund
Under CERCLA Section 106(a), the EPA issues administrative orders that require parties to clean up
contaminated sites. CERCLA Section 106(b) allows a party that has complied with such an order to
petition the EPA for reimbursement from the fund of its reasonable costs of responding to the order,
plus interest. To be eligible for reimbursement, the party must demonstrate either that it was not a liable
party under CERCLA Section 107(a) for the response action ordered, or that the agency's selection of
the response action was arbitrary and capricious or otherwise not in accordance with law.
Judgment Fund
In cases that are paid by the U.S. Treasury Judgment Fund, the EPA must recognize the full cost of a
claim regardless of which entity is actually paying the claim. Until these claims are settled or a court
judgment is assessed and the Judgment Fund is determined to be the appropriate source for the
payment, claims that are probable and estimable must be recognized as an expense and liability of the
agency. For these cases, at the time of settlement or judgment, the liability will be reduced and an
imputed financing source recognized. See Interpretation of Federal Financial Accounting Standards No.
2, "Accounting for Treasury Judgment Fund Transactions."
As of September 30, 2011, there are no material claims pending in the Treasury's Judgment Fund.
However, the EPA has a $22 million liability to the Treasury Judgment Fund for a payment made by the
Fund to settle a contract dispute claim.
Other Commitments
The EPA has a commitment to fund the United States government's payment to the Commission of the
North American Agreement on Environmental Cooperation between the Governments of Canada, the
Government of the United Mexican States, and the Government of the United States of America
(commonly referred to as the Commission for Environmental Cooperation). According to the terms of
the agreement, each government pays an equal share to cover the operating costs of the CEC. For the
periods ended September 30, 2011 and 2010, the EPA paid $3 million for each of these periods to the
CEC. A payment of $3 million was made in FY 2011.
The EPA has a legal commitment under a non-cancellable agreement, subject to the availability of
funds, with the United Nations Environment Program. This agreement enables the EPA to provide
funding to the Multilateral Fund for the Implementation of the Montreal Protocol. The EPA made
payments totaling $8.35 million in FY 2011. Future payments totaling $11 million have been deemed
reasonably possible and are anticipated to be paid in FY 2012 through 2014.
62
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Note 19. Earmarked Funds
Balance sheet as of September 30, 2011
Assets
Fund Balance with Treasury
Investments
Accounts Receivable, Net
Other Assets
Total Assets
Other Liabilities
Total Liabilities
Cumulative Results of Operations
Total Liabilities and Net Position
Statement of Changes in Net Cost for the
Period Ended September 30, 2011
Gross Program Costs
Less: Earned Revenues
Net Cost of Operations
Environmental
Services
302,677
Superfund
302,677 $
302,677 $
60,558 :
3,535,052
20,757 $
20,757
3,575,200 $
3,595,957 $
209,613
Other Earmarked
Funds
114,540 !
3,577,145
445,303
118,355
4,255,343
1,111,724 $
1,111,724 !
3,146,619 $
4,255,343 $
209,613 $ 1,908,317 !
532,006
1,376,311 $
19,500 $
16,866
4,415
35,114 $
35,114 $
5,667 $
40,781 $
124,214
110,839
13,375
Total Earmarked
Funds
497,275
7,112,197
462,169
123,117
8,194,758
1,167,595
1,167,595
7,027,163
8,194,758
2,242,144
642,845
1,599,299
Statement of Changes in Net Position for the
Period ended September 30, 2011
Net Position, Beginning of Period
Nonexchange Revenue- Securities Investments
Nonexchange Revenue
Other Budgetary Finance Sources
Other Financing Sources
Net Cost of Operations
Change in Net Position
Net Position
273,416 $
29,261
29,261 $
3,539,217 $
93,156
152,127
314
(209,613)
35,984 $
3,340,498 $
27,266
3,596
1,120,663
27,907
(1,376,311)
(196,879)$
(749) $
7
18,342
1,441
(13,375)
6,415 $
7,152,382
120,429
184,984
1,139,005
29,662
(125,219)
302,677 $
3,575,201 $
3,143,619 $
63
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Balance sheet as of September 30, 2010
Assets
Fund Balance with Treasury
Investments
Accounts Receivable, Net
Other Assets
Total Assets
Other Liabilities
Total Liabilities
Cumulative Results of Operations
Total Liabilities and Net Position
Statement of Net Cost for the
Period Ended September 30, 2010
Gross Program Costs
Less: Earned Revenues
Net Cost of Operations
Environmental
Services
; 273,420$
LUST
273,420
_4_ $
4 $'
- $
- $
Superfund
Other Earmarked
Funds
55,132 $
3,502,913
266
106,247$
3,740,700
391,388
115,729
3,558,311
4,354,064
19,094 $
1,013,566$
19,094 $
1,013,566$
181,870$
181,870$
1,844,712$
484,165
1,360,547$
29,578 $
7,697
6,199
43,474
44,223 $
44,223 $
Total Earmarked
Funds
464,377
7,243,613
399,085
122,194
8,229,269
1,076,887
1,076,887
273,416$
273,420$
3,539,217$
3,558,311$
3,340,498$
4,354,064$
(749) $
43,474 $
7,152,382
8,229,269
121,214$
98,246
22,968 $
2,147,796
582,411
1,565,385
Statement of Changes in Net Position for the
Period ended September 30, 2010
Net Position, Beginning of Period
Nonexchange Revenue- Securities Investments
Nonexchange Revenue
Other Budgetary Finance Sources
Other Financing Sources
Net Cost of Operations
Change in Net Position
Net Position
231,820$
-
41,596
-
-
-
41,596 $
3,436,303$
115,523
168,990
-
271
(181,870)
102,914$
3,416,536$
14,968
3,396
1,241,402
24,743
(1,360,547)
(76,038)$
273,416$
3,539,217$
3,340,498$
1,817 $
13
2
18,379
2,008
(22,968)
(2,566)$
7,086,476
130,504
213,984
1,259,781
27,022
(1,565,385)
65,906
(749) $
7,152,382
Earmarked funds are as follows:
Environmental Services Receipt Account: The Environmental Services Receipt Account authorized
by a 1990 act, "To amend the Clean Air Act (P.L. 101-549),", was established for the deposit of fee
receipts associated with environmental programs, including radon measurement proficiency ratings and
training, motor vehicle engine certifications, and water pollution permits. Receipts in this special fund
can only be appropriated to the S&T and EPM appropriations to meet the expenses of the programs
that generate the receipts if authorized by Congress in the agency's appropriations bill.
LUST Trust Fund: The LUST Trust Fund was authorized by the Superfund Amendments and
Reauthorization Act of 1986 as amended by the Omnibus Budget Reconciliation Act of 1990. The LUST
appropriation provides funding to respond to releases from leaking underground petroleum tanks. The
agency oversees cleanup and enforcement programs that are implemented by the states. Funds are
allocated to the states through cooperative agreements to clean up those sites posing the greatest
threat to human health and the environment. Funds are used for grants to non-state entities including
Indian tribes under Section 8001 of the Resource Conservation and ARRA. The program is financed by
a one cent per gallon tax on motor fuels that will expire on September 30, 2011.
Superfund Trust Fund: In 1980, the Superfund Trust Fund was established by CERCLA to provide
resources to respond to and clean up hazardous substance emergencies and abandoned, uncontrolled
hazardous waste sites. The Superfund Trust Fund financing is shared by federal and state
governments as well as industry. The EPA allocates funds from its appropriation to other federal
agencies to carry out CERCLA. Risks to public health and the environment at uncontrolled hazardous
64
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waste sites qualifying for the agency's National Priorities List are reduced and addressed through a
process involving site assessment and analysis and the design and implementation of cleanup
remedies. NPL cleanups and removals are conducted and financed by the EPA, private parties, or
other federal agencies. The Superfund Trust Fund includes Treasury's collections, special account
receipts from settlement agreements, and investment activity.
Other Earmarked Funds:
Oil Spill Liability Trust Fund: The Oil Spill Liability Trust Fund was authorized by the Oil Pollution Act
of 1990. Monies are appropriated from the Oil Spill Liability Trust Fund to EPA's Oil Spill Response
Account each year. The agency is responsible for directing, monitoring and providing technical
assistance for major inland oil spill response activities. This responsibility involves setting oil prevention
and response standards, initiating enforcement actions for compliance with OPA and Spill Prevention
Control and Countermeasure requirements, and directing response actions when appropriate. The
agency carries out research to improve response actions to oil spills including research on the use of
remediation techniques such as dispersants and bioremediation. Funding for specific oil spill cleanup
actions is provided through the U.S. Coast Guard from the Oil Spill Liability Trust Fund through
reimbursable Pollution Removal Funding Agreements and other inter-agency agreements.
Miscellaneous Contributed Funds Trust Fund: The Miscellaneous Contributed Funds Trust Fund
authorized in the Federal Water Pollution Control Act (Clean Water Act) as amended P.L. 92-500 (The
Federal Water Pollution Control Act Amendments of 1972), includes gifts for pollution control programs
that are usually designated for a specific use by donors and/or deposits from pesticide registrants to
cover the costs of petition hearings when such hearings result in unfavorable decisions to the petitioner.
Pesticide Registration Fund: The Pesticide Registration Fund authorized by a 2004 Act,
"Consolidated Appropriations Act (P.L. 108-199),", and reauthorized in 2007 for five more years, for the
expedited processing of certain registration petitions and associated establishment of tolerances for
pesticides to be used in or on food and animal feed. Fees covering these activities, as authorized under
the FIFRA Amendments of 1988, are to be paid by industry and deposited into this fund group.
Reregistration and Expedited Processing Fund: The Revolving Fund was authorized by the FIFRA
of 1972, as amended by the FIFRA Amendments of 1988 and as amended by the Food Quality
Protection Act of 1996. Pesticide maintenance fees are paid by industry to offset the costs of pesticide
re-registration and reassessment of tolerances for pesticides used in or on food and animal feed, as
required by law.
Tolerance Revolving Fund: The Tolerance Revolving Fund was authorized in 1963 for the deposit of
tolerance fees. Fees are paid by industry for federal services to set pesticide chemical residue limits in
or on food and animal feed. The fees collected prior to January 2, 1997 were accounted for under this
fund. Presently, collection of these fees is prohibited by statute, enacted in the Consolidated
Appropriations Act, 2004 (P.L. 108-199).
Exxon Valdez Settlement Fund: The Exxon Valdez Settlement Fund authorized by P.L. 102-389,
"Making appropriations for the Department of Veterans Affairs and Housing and Urban Development,
and for sundry independent agencies, boards, commissions, corporations, and offices for the fiscal year
ending September 30, 1993,", has funds available to carry out authorized environmental restoration
activities. Funding is derived from the collection of reimbursements under the Exxon Valdez settlement
as a result of an oil spill.
65
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Note 20. Intragovernmental Costs and Exchange Revenue
Exchange, or earned revenues on the Statement of Net Cost include income from services provided to
federal agencies and the public, interest revenue (with the exception of interest earned on trust fund
investments), and miscellaneous earned revenue.
FY 2011
FY2010
Clean Air
Program Costs
Earned Revenue
NET COST
Clean and Safe Water
Program Costs
Earned Revenue
NET COSTS
Land Preservation &
Restoration
Program Costs
Earned Revenue
NET COSTS
Healthy Communities &
Ecosystems
Program Costs
Earned Revenue
NET COSTS
Compliance &
Environmental
Stewardship
Program Costs
Earned Revenue
NET COSTS
Total
Program Costs
Earned Revenue
NET COSTS
Intragovern With the
mental Public
Total
159,456 $
13,586
145,870 $
252,748 $
7,333
245,415 $
390,431 $
124,874
265,557 $
335,757 $
12,010
323,747 $
192,243 $
3,607
188,636 $
1,330,635 $
161,410
1,035,680 $
1,034
1,034,646 $
5,125,894 $
1,458
5,124,436 $
2,180,996 $
494,249
1,686,747 $
1,289,505 $
38,725
1,250,780 $
614,514 $
1,455
613,059 $
10,246,589 $
536,921
1,195,136
14,620
1,180,516
5,378,642
8,791
5,369,851
2,571,427
619,123
1,952,304
1,625,262
50,735
1,574,527
806,757
5,062
801,695
$ 1,169,225 $
11,577,224
698,331
9,709,668 $ 10,878,893
Intragovern
mental
170,677 $
18,923
With the
Public
1,048,124
5,906
Total
193,456 $
2,803
342,734
103,687
293,850
64,034
182,299
3,400
178,899 $
1,183,016
192,847
6,197,330
2,524
2,096,211
446,569
1,265,653
44,144
615,931 $
1,494
614,437 $
11,223,249
500,637
1,218,801
24,829
151,754 $ 1,042,218 $ 1,193,972
6,390,786
5,327
190,653 $ 6,194,806 $ 6,385,459
2,438,945
550,256
239,047 $ 1,649,642 $ 1,888,689
1,559,503
108,178
229,816 $ 1,221,509 $ 1,451,325
798,230
4,894
793,336
12,406,265
693,484
990,169 $ 10,722,612 $ 11,712,781
Intragovernmental costs relate to the source of goods or services not the classification of the related
revenue.
Note 21. Cost of Stewardship Land
There were costs of approximately $438,000 related to the acquisition of stewardship land for
September 30, 2011, and no costs for September 30, 2010. These costs are included in the Statement
of Net Cost.
Note 22. Environmental Cleanup Costs
As of September 30, 2011, the EPA has two sites that requires clean up stemming from its activities.
For sites that had previously been listed, it was determined by the EPA's Office of General Counsel to
discontinue reporting the potential environmental liabilities for the following reasons: 1) although the
EPA has been put on notice that it is subject to a contribution claim under CERCLA, no direct demand
for compensation has been made to the EPA; 2) any demand against the EPA will be resolved only
66
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after the Superfund cleanup work is completed, which may be years in the future; and 3) there was no
legal activity on these matters in FY2010 or in FY2011.
Accrued Cleanup Cost:
The EPA has 15 sites that will require permanent closure, and the EPA is responsible to fund the
environmental cleanup of those sites. As of September 30, 2011 and 2010, the estimated costs for site
cleanup were $20.84 million and $20.15 million, respectively. Since the cleanup costs associated with
permanent closure were not primarily recovered through user fees, the EPA has elected to recognize
the estimated total cleanup cost as a liability and record changes to the estimate in subsequent years.
Note 23. State Credits
Authorizing statutory language for Superfund and related federal regulations requires states to enter
into Superfund State Contracts when the EPA assumes the lead for a RA in their state. The SSC
defines the state's role in the remedial action and obtains the state's assurance that it will share in the
cost of the RA. Under Superfund's authorizing statutory language, states will provide the EPA with a 10
percent cost share for remedial action costs incurred at privately owned or operated sites, and at least
50 percent of all response activities (i.e., removal, remedial planning, RA and enforcement) at publicly
operated sites. In some cases, states may use the EPA-approved credits to reduce all or part of their
cost share requirement that would otherwise be borne by the states. The credit is limited to state site-
specific expenses the EPA has determined to be reasonable, documented, direct out-of-pocket
expenditures of non-federal funds for RA.
Once the EPA has reviewed and approved a state's claim for credit, the state must first apply the credit
at the site where it was earned. The state may apply any excess/remaining credit to another site when
approved by the EPA. As of September 30, 2011 and 2010, the total remaining state credits have been
estimated at $22.2 million and $21.0 million, respectively.
Note 24. Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response actions at
their sites with the understanding that the EPA will reimburse them a certain percentage of their total
response action costs. The EPA's authority to enter into mixed funding agreements is provided under
CERCLA Section 111(a)(2). Under CERCLA Section 122(b)(1), as amended by SARA, PRPs may
assert a claim against the Superfund Trust Fund for a portion of the costs they incurred while
conducting a preauthorized response action agreed to under a mixed funding agreement. As of
September 30, 2011, the EPA had four outstanding preauthorized mixed funding agreements with
obligations totaling $11.5 million. As of September 30, 2010, the EPA had six outstanding
preauthorized mixed funding agreements with obligations totaling $15.6 million. A liability is not
recognized for these amounts until all work has been performed by the PRP and has been approved by
the EPA for payment. Further, the EPA will not disburse any funds under these agreements until the
PRP's application, claim and claims adjustment processes have been reviewed and approved by the
EPA.
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Note 25. Custodial Revenues and Accounts Receivable
Fines, Penalties and Other Miscellaneous Receipts?
Accounts Receivable for Fines, Penalties and Other
Miscellaneous Receipts:
Accounts Receivable $
Less: Allowance for Uncollectible Accounts
Total
$
FY2011
126,351 $
236,313$
(184,366)
51,947 $
FY2010
89,627
229,658
(181,153)
48,505
The EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous
receipts. Collectability by the EPA of the fines and penalties is based on the PRPs' willingness and
ability to pay.
Note 26. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited
FY 2011 Statement of Budgetary Resources will be reconciled to the amounts included in the FY 2012
Budget of the United States government when they become available. The Budget of the United States
government with actual numbers for FY 2011 has not yet been published. The EPA expects it will be
published by early 2012, and it will be available on the OMB website at http://www.whitehouse.gov/.
The actual amounts published for the year ended September 30, 2010 are listed immediately below:
FY2010
Statement of Budgetary Resources
Expired and Immaterial Funds*
68X6275 adjustment
Rounding Differences**
* Expired funds are not included in Budgetary Resources Available for Obligation in the Budget
Appendix (lines 23.90 and 10.00). Also, minor funds are not included in the Budget Appendix.
** Balances are rounded to millions in the Budget Appendix.
Budgetary
Resources
$ 16,577,022$
(189,104)
2,082
$ 16,390,000 $
Obligations
11,950,68$
1,319
11,952,000$
Offsetting
Receipts
1,402,960$
(6,290)
330
1,397,000 $
Net Outlays
12,398,603
(281)
678
12,399,000
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Note 27. Recoveries and Resources Not Available, Statement of Budgetary Resources
Recoveries of Prior Year Obligations, Temporarily Not Available and Permanently Not Available on the
Statement of Budgetary Resources consist of the following amounts for September 30, 2011 and 2010:
FY2011 FY2010
Recoveries of Prior Year Obligations - Downward
adjustments of prior years'obligations $ 270,664$ 277,771
Temporarily Not Available - Rescinded Authority (553) (11,800)
Permanently Not Available:
Payments to Treasury (2,508) (5,191)
Rescinded authority (157,166) (52,897)
Canceled authority (20,019) (15,365)
Total Permanently Not Available $ (179,693) $ (73,453)
Note 28. Unobligated Balances Available
Unobligated balances are a combination of two lines on the Statement of Budgetary Resources:
Apportioned, Unobligated Balances and Unobligated Balances Not Available. Unexpired unobligated
balances are available to be apportioned by OMB for new obligations at the beginning of the following
fiscal year. The expired unobligated balances are only available for upward adjustments of existing
obligations.
The unobligated balances available consist of the following as of September 30, 2011 and 2010:
FY2011 FY2010
Unexpired Unobligated Balance $ 3,325,991$ 4,441,115
Expired Unobligated Balance 171,859 185,226
Total $ 3,497,850 $ 4,626,341
Note 29. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders at September 30, 2011 and 2010 were $11.91
billion and $12.88 billion, respectively.
Please note that in FY 2010, Undelivered Orders at the End of the Period inadvertently excluded the
paid portion of undelivered orders and were highlighted as $12.63 billion.
Note 30. Offsetting Receipts
Distributed offsetting receipts credited to the General Fund, Special Fund or Trust Fund receipt
accounts offset gross outlays. For FY 2011 and 2010, the following receipts were generated from these
activities:
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FY2011 FY 2010
Trust Fund Recoveries $ 97,623 $ 53,247
Special Fund Environmental Service 29,257 41,599
Downward Re-estimates of Subsidies - 51
Trust Fund Appropriation 1,156,073 1,280,570
Special Fund Receipt Account and Treasury
Miscellaneous Receipt and Clearing Accounts 8,808 27,493
Total $ 1,291,761~ $ 1,402,960~
Note 31. Transfers-ln and Out, Statement of Changes in Net Position
Appropriation Transfers, In/Out:
For FY 2011 and 2010, the Appropriation Transfers under Budgetary Financing Sources on the
Statement of Changes in Net Position are comprised of non-expenditure transfers that affect
Unexpended Appropriations for non-invested appropriations. These amounts are included in the Budget
Authority, Net Transfers and Prior Year Unobligated Balance, Net Transfers lines on the Statement of
Budgetary Resources. Details of the Appropriation Transfers on the Statement of Changes in Net
Position and reconciliation with the Statement of Budgetary Resources follows for September 30, 2011
and 2010:
Transfers In/Out Without Reimbursement, Budgetary:
Fund/Type of Account FY 2011 FY2010
Army Corps of Engineers $ 1,750 $ (9,000)
U.S. Navy (8,000)
Small Business Administration -
Total Appropriation Transfers (Other 1,750 (17,000)
Funds)
Net Transfers from Invested Funds 1,370,349 1,386,345
Transfers to Another Agency 1,750 (17,000)
Allocations Rescinded $ 476 $ -_
Total of Net Transfers on Statement of
Budgetary Resources $ 1,372,575 $ 1,369,345
For FY 2011 and 2010, Transfers In/Out under Budgetary Financing Sources on the Statement of
Changes in Net Position consist of transfers to or from other federal agencies and between the EPA
funds. These transfers affect Cumulative Results of Operations. Details of the transfers-in and
transfers-out, expenditure and nonexpenditure, are listed as follows for September 30, 2011 and 2010:
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Type of Transfer/Funds FY2011 FY2010
Earmarked Other Funds Earmarked Other Funds
Transfers-in (out) nonexpenditure,
Earmark to S&T and OIG funds $ (35,410)$ 35,410$ (39,168)$ 33,859
Transfer-in nonexpenditure recovery
from CDC
Transfers-in nonexpenditure, Oil Spill 18,342 18,379
Transfer-in (out) cancelled funds -_ -_
Total Transfer in (out) without
Reimbursement, Budgetary $ (17,068)$ 35,410 $ (20,789)$ 33,859
Transfers In/Out without Reimbursement, Other Financing Sources:
For FY 2011 and 2010, Transfers In/Out without Reimbursement under Other Financing Sources on the
Statement of Changes in Net Position are comprised of negative subsidy to a special receipt fund for
the credit reform funds.
The amounts reported on the Statement of Changes in Net Position are as follows for September 30,
2011 and 2010:
Type of Transfer/Funds FY2011 FY2010
Earmark Other Funds Earmark Other Funds
Transfers-in by allocation transfer
agency $ $ $ $
Transfers-in property (1) 180 - 341
Transfers (out) of prior year negative
subsidy to be paid following year (256) -_ 205
Total Transfer in (out) without
Reimbursement, Budgetary $ (1) $ (76) $ $ 546
Note 32. Imputed Financing
In accordance with SFFAS No. 5, "Accounting for Liabilities of the Federal Government," federal
agencies must recognize the portion of employees' pensions and other retirement benefits to be paid
by the OPM trust funds. These amounts are recorded as imputed costs and imputed financing for each
agency. Each year the OPM provides federal agencies with cost factors to calculate these imputed
costs and financing that apply to the current year. These cost factors are multiplied by the current
year's salaries or number of employees, as applicable, to provide an estimate of the imputed financing
that the OPM trust funds will provide for each agency. The estimates for FY 2011 were $164.4 million
($25.8 million from Earmarked Funds, and $138.6 million from Other Funds). For FY 2010, the
estimates were $146.8 million ($23.7 million from Earmarked Funds, and $123.1 million from Other
Funds).
SFFAS No. 4, "Managerial Cost Accounting Standards and Concepts" and SFFAS No. 30, "Inter-Entity
Cost Implementation," requires federal agencies to recognize the costs of goods and services received
from other federal entities that are not fully reimbursed, if material. The EPA estimates imputed costs
for inter-entity transactions that are not at full cost and records imputed costs and financing for these
71
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unreimbursed costs subject to materiality. The EPA applies its Headquarters General and
Administrative indirect cost rate to expenses incurred for inter-entity transactions for which other federal
agencies did not include indirect costs to estimate the amount of unreimbursed (i.e., imputed) costs.
For FY 2011 total imputed costs were $11.6 million ($3.9 million from Earmarked funds, and $7.7
million from Other Funds).
In addition to the pension and retirement benefits described above, the EPA also records imputed costs
and financing for Treasury Judgment Fund payments made on behalf of the agency. Entries are made
in accordance with the Interpretation of Federal Financial Accounting Standards No. 2, "Accounting for
Treasury Judgment Fund Transactions." For FY 2011, entries for Judgment Fund payments totaled
$2.6 million (Other Funds). For FY 2010, entries for Judgment Fund payments totaled $4.0 million
(Other Funds).
The combined total of imputed financing sources for FY2011 and FY2010 is $178.6 million and $161.6
million, respectively.
Note 33. Payroll and Benefits Payable
Payroll and benefits payable to the EPA employees for the years ending September 30, 2011 and 2010
consist of the following:
Covered by Not Covered
FY 2011 Payroll & Benefits Payable Budgetary by Budgetary Total
Resources Resources
Accrued Funded Payroll & Benefits $ 73,432$ -$ 73,432
Withholdings Payable 32,050 - 32,050
Employer Contributions Payable-TSP 4,008 - 4,008
Accrued Unfunded Annual Leave - 162,845 162,845
Total - Current $ 109,490$ 162,845$ 272,335
FY 2010 Payroll & Benefits Payable
Accrued Funded Payroll and Benefits $ 66,677 $
Withholdings Payable 31,298
Employer Contributions Payable-TSP 3,588
Accrued Unfunded Annual Leave - _
Total - Current $ 101,563 $
- $
163,412
163,412$
66,677
31,298
3,588
163,412
264,975
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Note 34. Other Adjustments, Statement of Changes in Net Position
The Other Adjustments under Budgetary Financing Sources on the Statement of Changes in Net
Position consist of rescissions to appropriated funds and cancellation of funds that expired five years
earlier. These amounts affect Unexpended Appropriations.
Other Funds Other Funds
FY2011 FY2010
Rescissions to General
Appropriations $ 157,208$ 50,623
Canceled General Authority 19,978 15,366
Total Other Adjustments $ 177,186 $ 65,989
Note 35. Non-exchange Revenue, Statement of Changes in Net Position
Non-exchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net Position
as of September 30, 2011 and 2010 consists of the following items:
Earmarked Funds Earmarked Funds
FY2011 FY2010
Interest on Trust Fund $ 120,429$ 130,504
Tax Revenue, Net of Refunds 152,437 172,127
Fines and Penalties Revenue 3,286 261
Special Receipt Fund Revenue 29,261 41,596
Total Nonexchange Revenu^ 305,413 $ 344,488
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Note 36. Reconciliation of Net Cost of Operations to Budget
FY2011
FY2010
RESOURCES USED TO FINANCE ACTIVITIES
Budgetary Resources Obligated
Obligations Incurred $
Less: Spending Authority from Offsetting Collections and Recoveries
Obligations, Net of Offsetting Collections $
Less: Offsetting Receipts
Net Obligations $
Other Resources
Donations of Property $
Transfers In/Out without Reimbursement, Property
Imputed Financing Sources
Net Other Resources Used to Finance Activities $
Total Resources Used to Finance Activities $
RESOURCES USED TO FINANCE ITEMS
NOT PART OF THE NET COST OF
Change in Budgetary Resources Obligated $
Resources that Fund Prior Periods Expenses
Budgetary Offsetting Collections and Receipts that
Do Not Affect Net Cost of Operations:
Credit Program Collections Increasing Loan Liabilities for
Guarantees or Subsidy Allowances
Offsetting Reciepts Not Affecting Net Cost
Resources that Finance Asset Acquition
Total Resources Used to Finance Items Not Part of the Net Cost of Operations $
Total Resources Used to Finance the Net Cost of Operations $
COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL
NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD:
Components Requiring or Generating Resources in Future Periods:
Increase in Annual Leave Liability $
Increase in Environmental and Disposal Liability
Increase in Unfunded Contingencies
Upward/ Downward Reestimates of Credit Subsidy Expense
Increase in Public Exchange Revenue Receivables
Increase in Workers Compensation Costs
Other
Total Components of Net Cost of Operations that Require or
Generate Resources in Future Periods $
Components Not Requiring/Generating Resources:
Depreciation and Amortization
Expenses Not Requiring Budgetary Resources
Total Components of Net Cost that Will Not Require or Generate Resources $
Total Components of Net Cost of Operations That Will Not Require or $
Generate Resources in the Current Period
11,990,577 3
(1,020,941)
10,969,6363
(1,282,958)
9,686,678 $
50 $
(178)
178,654
178,526 $
9,865,204 $
1,031,615 $
2,759
126,885
(190,101)
971,158 $
10,836,362$
FY2011
(224,315)$
73,640
193,206
266,846
42,531
11,950,681
(1,333,690)
10,616,991
(1,375,422)
9,241,569
(341)
161,640
161,299
9,402,868
2,166,944
5,681
94,852
(213,953)
2,053,524
11,456,392
FY2010
(823) $
484
5,807
394
(231,519)
(221)
1,563
4,232
630
(200)
(207)
7,375
979
(3,077)
9,732
85,741
160,916
246,657
256,389
Net Cost of Operations
10,878,893$
11,712,781
Note 37. Amounts Held by Treasury (Unaudited)
Amounts held by Treasury for future appropriations consist of amounts held in trusteeship by Treasury
in the Superfund and LUST Trust Funds.
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Superfund
Superfund is supported by general revenues, cost recoveries of funds spent to clean up hazardous
waste sites, interest income, and fines and penalties.
The following reflects the Superfund Trust Fund maintained by Treasury as of September 30, 2011 and
2010. The amounts contained in these notes have been provided by Treasury. As indicated, a portion
of the outlays represents amounts received by the EPA's Superfund Trust Fund; such funds are
eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
SUPERFUND FY 2011 The EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance $ - $ 15,000$ 15,000
Total Undisbursed Balance - 15,000 15,000
Interest Receivable - 4,361,927 4,361,927
Investments, Net 3,368,753,717 204,029,927 3,572,783,644
Total Assets $ 3,368,753,717$ 208,406,854$ 3,577,160,571
Liabilities & Equity
Eq u ity $ 3,368,753,717$ 208,406,854 3,577,160,571
Total Liabilities and Equity$ 3,368,753,717$ 208,406,854 3,577,160,571
Receipts
Corporate Environmental - 310,125 310,125
Cost Recoveries - 97,623,116 97,623,116
Fines & Penalties - 1,755,095 1,755,095
Total Revenue - 99,688,336 99,688,336
Appropriations Received - 1,156,073,340 1,156,073,340
Interest Income -_ 27,266,038 27,266,038
Total Receipts $ $ 1,283,027,714$ 1,283,027,714
Outlays
Transfers to/from EPA, Net $ 1,292,883,474$ (1,292,883,474$
Total Outlays 1,292,883,474 (1,292,883,474) -
Net Income $ 1,292,883,474$ (9,855,760)$ 1,283,027,714
In FY 2011, the EPA received an appropriation of $1.16 billion for Superfund. Treasury's Bureau of
Public Debt, the manager of the Superfund Trust Fund assets, records a liability to the EPA for the
amount of the appropriation; BPD does so to indicate those trust fund assets that have been assigned
for use and, therefore, are not available for appropriation. As of September 30, 2011 and 2010, the
Treasury Trust Fund has a liability to the EPA for previously appropriated funds of $3.37 billion and
$3.53 billion, respectively.
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SUPERFUND FY2010 The EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance $ - $ 4,234,294$ 4,234,294
Total Undisbursed Balance - 4,234,294 4,234,294
Interest Receivable - 4,442,724 4,442,724
Investments, Net 3,526,671,825 209,585,595 3,736,257,420
Total Assets $ 3,526,671,825 $ 218,262,613$ 3,744,934,438
Liabilities & Equity
Receipts and Outlays
Equity $ 3,526,671,825$ 218,262,613$ 3,744,934,438
Total Liabilities and Equity$ 3,526,671,825$ 218,262,613$ 3,744,934,438
Receipts
Corporate Environmental - 3,137,141 3,137,141
Cost Recoveries - 53,246,618 53,246,618
Fines & Penalties 3,451,837 3,451,837
Total Revenue - 59,835,596 59,835,596
Appropriations Received - 1,280,570,288 1,280,570,288
Interest Income 14,967,685 14,967,685
Total Receipts $ $ 1,355,373,569$ 1,355,373,569
Outlays
Transfers to/from EPA, Net $ 1,308,704,084$ (1,308,704,084$
Total Outlays 1,308,704,084 (1,308,704,084) -_
Net Income $ 1,308,704,084$ 46,669,485$ 1,355,373,569
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LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2011
and 2010, there were no fund receipts from cost recoveries. The following represents the LUST Trust
Fund as maintained by Treasury. The amounts contained in these notes are provided by Treasury.
Outlays represent appropriations received by the EPA's LUST Trust Fund; such funds are eliminated
on consolidation with the LUST Trust Fund maintained by Treasury.
LUST FY 2011 The EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance $ 1$ 1,295,063$ 1,295,063
Total Undisbursed Balance - 1,295,063 1,295,063
Interest Receivable - 11,252,175 11,252,175
Investments, Net -_ 3,523,799,673 3,523,799,673
Total Assets $ - $ 3,536,346,911 $ 3,536,346,911
Liabilities & Equity
Equity $ -$ 3,536,346,911$ 3,536,346,911
Receipts
Highway TF Tax $ $ 141,300,963$ 141,300,963
Airport TF Tax - 10,750,770 10,750,770
Inland TF Tax -_ 75,023 75,023
Total Revenue - 152,126,756 152,126,756
Interest Income -_ 93,156,165 93,156,165
Total Receipts $ - $ 245,282,921 $ 245,282,921
Outlays
Transfers to/from EPA, Net $ 112,874,798$ (112,874,798)$ -_
Total Outlays 112,874/798 (112,874,798) ~
Net Income $ 112,874,798$ 132,408,123 $ 245,282,921
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LUST FY 2010 The EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance $ - $ (5,349,000)$ (5,349,000)
Total Undisbursed Balance - (5,349,000) (5,349,000)
Interest Receivable - 20,815,275 20,815,275
Investments, Net 210,146,189 3,271,951,525 3,482,097,714
Total Assets $ 210,146,189 $ 3,287,417,800$ 3,497,563,989
Liabilities & Equity
Equity $ 210,146,189 $ 3,287,417,800$ 3,497,563,989
Receipts
Highway TF Tax $ - $ 158,254,000$ 158,254,000
Airport TF Tax - 10,685,000 10,685,000
Inland TF Tax -_ 51,000 51,000
Total Revenue - 168,990,000 168,990,000
Interest Income -_ 115,523,147 115,523,147
Total Receipts $ -_ $ 284,513,147$ 284,513,147
Outlays
Transfers to/from EPA, Net $ 103,901,000$ (103,901,000$ -
Total Outlays 103,901,000 (103,901,000) -
Net Income $ 103,901,000$ 180,612,147$ 284,513,147
Note 38. Antideficiency Act Violations
During FY 2004, the EPA awarded a contract in the amount of $193,545 for the analysis of drinking-
water samples. The funding was available for FY 2004 and FY 2005. However, the contract
performance period crossed three fiscal years, FY 2004, FY 2005 and FY 2006. As a result, the
obligation of funds went beyond the appropriation resulting in an Antideficiency Act violation. On July
14, 2010 the EPA transmitted, as required by OMB Circular A-11, Section 145, written notifications to
the 1) President, 2) President of the Senate, 3) Speaker of the House of Representatives, 4)
Comptroller General and 5) the Director of OMB.
The EPA experienced an Antideficiency Act violation in November 2010 when EPA made an
expenditure in excess of the funds available in the Inland Oil Spill Program account due to an
inadvertent reporting error in monitoring the cash flow. The required notification letters are awaiting
OMB clearance.
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Environmental Protection Agency
As of September 30, 2011
(Dollars in Thousands)
1. Deferred Maintenance
Deferred maintenance is maintenance that was not performed when it should have been, that was
scheduled and not performed, or that was delayed for a future period. Maintenance is the act of
keeping PP&E in acceptable operating condition and includes preventive maintenance, normal repairs,
replacement of parts and structural components, and other activities needed to preserve the asset so
that it can deliver acceptable performance and achieve its expected life. Maintenance excludes
activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different
from or significantly greater than those originally intended.
The EPA classifies tangible property, plant and equipment as follows: 1) EPA-Held Equipment, 2)
Contractor-Held Equipment, 3) Land and Buildings and 4) Capital Leases. The EPA utilizes the
condition assessment survey method of measuring deferred maintenance. The agency adopts
requirements or standards for acceptable operating condition in conformance with industry practices.
No deferred maintenance was reported for any of the four categories.
2. Stewardship Land
Stewardship land is acquired as contaminated sites in need of remediation and cleanup; thus, the
quality of the land is far below the standard for usable and manageable land. Easements on
stewardship lands are in good and usable condition but acquired in order to gain access to
contaminated sites.
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Environmental Protection Agency
As of September 30, 2011
(Dollars in Thousands)
3. Supplemental Combined Statement of Budgetary Resources
For the Period Ending September 30, 2011
BUDGETARY RESOURCES
Unobligated Balance Brought Forward, October 1
Recoveries of prior year unpaid obligations
Budgetary Authority:
Appropriation
Borrowing Authority
Spending Authority from Offsetting Collections:
Collected
Change in receivables from Federal sources
Advance received
Without advance from Federal sources
Expenditure Transfers from trust funds
Nonexpenditure transers, net anticipated and actual
Temporarily not available pursuant to Public Law
Permanently not available
Total Budgetary Resources
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct
Reimbursable
Total Obligations Incurred
Unobligated Balances:
Unobligated funds apportioned
Unobligated balance not available
Total Status of Budgetary Resources
CHANGE IN OBLIGATED BALANCE
Obligated Balance, Net
Unpaid obligations brought forward, October 1
Less: Uncollected customer payments from Federal
sources brought forward, October 1
Total unpaid obligation balance, net
Obligations incurred net
Less: Gross outlays
Less: Recoveries of prior year unpaid obligations, actual
Change in uncollected customer payments from Federal
sources
Total
Obligated Balance, net, end of period:
Unpaid obligations
Less: Uncollected customer payments from Federal
sources
Total, unpaid obligated balance, net, end of period
NET OUTLAYS
Gross outlays
Less: Offsetting collections
Less: Distributed Offsetting Receipts
Total, Net Outlays
EPM
481 ,430$
18,183
2,761,994
41,297
(2,668)
20,988
(30,898)
1,750
(16,061)
3,276,016$
2,916,254$
65,946
2,982,200
174,028
119,787
3,276,015$
1,218,961$
(156,949)
1,062,012
2,982,200
(2,776,330)
al (18,183)
33,565
1,283,264$
1,406,648
(123,384)
FIFRA
1,776$
20,927
1,777
24,480 $
$
22,339
22,339
2,141
24,480$
2,427$
2,427
22,339
(23,337)
1,429$
1,430
LUST
7,163$
6,633
51
(10)
113,101
(226)
126,712$
118,878$
118,878
4,345
3,489
126,712$
263,464$
263,464
118,878
(207,759)
(6,633)
167,950$
167,950
S&T
253,199$
6,047
815,110
7,113
734
(1 ,039)
2,423
25,484
(10,687)
1,098,384$
905,157$
4,913
910,070
150,025
38,289
1,098,384$
411,565$
(35,065)
376,500
910,070
(893,623)
(6,047)
(3,717)
383,183$
421,966
(38,781)
STAG
1,717,294$
67,859
3,766,446
7,285
(147,532)
5,411,352$
4,552,822$
4,552,822
855,714
2,816
5,411,352$
10,081,435$
10,081,435
4,552,822
(5,555,301)
(67,859)
9,011,097$
9,011,098
OTHER
2,165,479$
171,942
1,305,266
563,450
13,115
57,664
12,658
9,926
1,257,724
(327)
(5,413)
5,551,484$
2,739,219$
665,049
3,404,268
2,140,559
6,657
5,551,484$
1,895,057$
(247,942)
1,647,115
3,404,268
(3,361 ,578)
(171,942)
(28,320)
1,489,543$
1,765,802
(276,263)
TOTAL
4,626,341
270,664
8,648,816
0
640,123
11,181
79,380
(15,817)
35,410
1,372,575
(553)
(179,693)
15,488,427
11,232,330
758,247
11,990,577
3,326,812
171,038
15,488,427
13,872,909
(439,956)
13,432,953
11,990,577
(12,817,928)
(270,664)
1,528
12,336,466
12,774,894
(438,428)
1,283,264$ 1,430$ 167,950$ 383,185$ 9,011,098$ 1,489,539$ 12,336,466
2,776,330$ 23,337$ 207,759$
(62,285) (22,704) (41)
893,523$ 5,555,301$ 3,361,578$ 12,817,828
(30,998) (7,285) (628,492) (751,805)
(1,291,761) (1,291,761)
$ 2,714,045$ 633$ 207,718$ 862,525$ 5,548,016$ 1,441,325$ 10,774,262
80
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Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30, 2011
(Dollars in Thousands)
INVESTMENT IN THE NATION'S RESEARCH AND DEVELOPMENT:
The EPA's Office of Research and Development provides the crucial underpinnings for the EPA
decision-making by conducting cutting-edge science and technical analysis to develop sustainable
solutions to our environmental problems and more innovative and effective approaches to reducing
environmental risks. The EPA is unique among scientific institutions in combining research, analysis,
and the integration of scientific information across the full spectrum of health and ecological issues and
across the risk assessment and risk management paradigm. Research enables the EPA to identify the
most important sources of risk to human health and the environment and by so doing, informs the
agency's priority-setting, ensures credibility for its policies and guides its deployment of resources.
Among the agency's highest priorities are research programs that address the development of
alternative techniques for prioritizing chemicals for further testing through computational toxicology; the
environmental effects on children's health; the potential risks and effects of manufactured
nanomaterials on human health and the environment; the impacts of global change and providing
information to policy makers to help them adapt to a changing climate; the potential risks of unregulated
contaminants in drinking water; the development of recreational water quality criteria; the health effects
of air pollutants such as particulate matter; the protection of the nation's ecosystems; and the provision
of near-term, appropriate, affordable, reliable, tested, and effective technologies and guidance for
potential threats to homeland security. The EPA also supports regulatory decision-making with
chemical risk assessments.
For FY 2011, the full cost of the agency's Research and Development activities totaled over $678
million. A breakout of the expenses is as follows (dollars in thousands):
FY 2007 FY2008 FY2009 FY2010 FY2011
Programmatic $624,088 $597,080 $600,552 $590,790 $597,558
Expenses
Allocated Expenses $100,553$103,773$119,630 $71,958 $80,730
Each of the EPA's strategic goals has a Science and Research Objective.
INVESTMENT IN THE NATION'S INFRASTRUCTURE.
The agency makes significant investments in the nation's drinking water and clean water infrastructure.
The investments are the result of three programs: the Construction Grants Program which is being
phased out and two State Revolving Fund programs.
Construction Grants Program: During the 1970s and 1980s, the Construction Grants Program was a
source of federal funds, providing more than $60 billion of direct grants for the construction of public
wastewater treatment projects. These projects, which constituted a significant contribution to the
nation's water infrastructure, included sewage treatment plants, pumping stations collection and
intercept sewers, rehabilitation of sewer systems and the control of combined sewer overflows. The
construction grants led to the improvement of water quality in thousands of municipalities nationwide.
Congress set 1990 as the last year that funds would be appropriated for Construction Grants. Projects
funded in 1990 and prior will continue until completion. After 1990, the EPA shifted the focus of
municipal financial assistance from grants to loans that are provided by SRFs.
81
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SRFs: The EPA provides capital, in the form of capitalization grants, to state revolving funds which
state governments use to make loans to individuals, businesses, and governmental entities for the
construction of wastewater and drinking water treatment infrastructure. When the loans are repaid to
the SRF, the collections are used to finance new loans for new construction projects. The capital is
reused by the states and is not returned to the federal government.
The agency also is appropriated funds to finance the construction of infrastructure outside the
Revolving Funds. These are reported below as Other Infrastructure Grants.
The agency's investments in the nation's Water Infrastructure are outlined below (dollars in thousands):
FY 2007 FY 2008 FY 2009 FY2010 FY 2011
Construction Grants $9,975 $11,517 $30,950 $18,186 $35,339
Clean Water SRF $1,399,616 $1,063,825 $836,502 $2,966,479 $2,299,721
Safe Drinking Water SRF $962,903 $816,038 $906,803 $1,938,296 $1,454,274
Other Infrastructure $381,481 $388,555 $306,366 $264,227 $269,699
Grants
Allocated Expenses $443,716 $396,253 $414,460 $631,799 $548,375
HUMAN CAPITAL
Agencies are required to report expenses incurred to train the public with the intent of increasing or
maintaining the nation's economic productive capacity. Training, public awareness, and research
fellowships are components of many of the agency's programs and are effective in achieving the
agency's mission of protecting public health and the environment, but the focus is on enhancing the
nation's environmental, not economic, capacity.
The agency's expenses related to investments in Human Capital are outlined below (dollars in
thousands):
FY 2007 FY 2008 FY 2009 FY2010 FY2011
Training and Awareness Grants $32,845 $30,768 $37,981 $25,714 $23,386
Fellowships $12,185 $9,650 $6,818 $6,905 $9,538
Allocated Expenses $7,255 $7,025 $8,924 $3,973 $4,448
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Environmental Protection Agency
Supplemental Information and Other Reporting Requirements
Balance Sheet for Superfund Trust Fund
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
(Unaudited)
FY2011
FY2010
ASSETS
Intragovernmental:
Fund Balance With Treasury (Note S1)
Investments
Accounts Receivable, Net
Other
Total Intragovernmental
Accounts Receivable, Net
Property, Plant & Equipment, Net
Other
Total Assets
114,540 $
3,577,146
10,560
8,076
3,710,322 $
454,606
109,272
1,006
4,275,206 $
106,247
3,740,700
27,323
12,941
3,887,211
364,065
101,714
1,075
4,354,065
LIABILITIES
Intragovernmental:
Accounts Payable and Accrued Liabilities
Other
Total Intragovernmental
Accounts Payable & Accrued Liabilities
Pensions & Other Actuarial Liabilities
Cashout Advances, Superfund (Note S2)
Payroll & Benefits Payable
Other
Total Liabilities
NET POSITION
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
$
$
$
$
53,778
61,080
114,858 $
141,464 $
7,778
790,069
47,174
30,244
1,131,587 $
3,143,619
3,143,619
4,275,206 $
45,641
62,260
107,901
178,045
6,420
636,673
45,792
38,736
1,013,567
3,340,498
3,340,498
4,354,065
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Supplemental Information and Other Reporting Requirements
Statement of Net Cost for Superfund Trust Fund
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
(Unaudited)
FY2011 FY2010
COSTS
Gross Costs $ 1,908,317$ 1,844,712
Expenses from Other Appropriations 71,457 30,349
Total Costs 1,979,774 1,875,061
Less:
Earned Revenue 532,006 484,165
NET COST OF OPERATIONS $ 1,447,768 $ 1,390,896
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Supplemental Information and Other Reporting Requirements
Statement of Changes in Net Position for Superfund Trust Fund
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
(Unaudited)
Cumulative Results of Operations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Nonexchange Revenue - Securities Investment
Nonexchange Revenue - Other
Transfers In/Out
Trust Fund Appropriations
Income from Other Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Transfers In/Out
Imputed Financing Sources
Total Other Financing Sources
Net Cost of Operations
Net Change
Cumulative Results of Operations
FY2011
Earmarked
Funds
3,340,498
FY 2010
Earmarked
Funds
3,416,536
3,340,498 $ 3,416,536
27,266
3,596
(35,410)
1,156,073
71,457
14,968
3,396
(39,168)
1,280,570
30,349
1,222,982 $ 1,290,115
1
27,906
24,743
27,907 $
(1,447,768)
(196,879)
24,743
(1,390,896)
(76,038)
3,143,619 $ 3,340,498
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Supplemental Information and Other Reporting Requirements
Statement of Budgetary Resources for Superfund Trust Fund
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
(Unaudited)
FY2011
FY2010
BUDGETARY RESOURCES
Unobligated Balance, Brought Forward, October 1:
Adjusted Subtotal
Recoveries of Prior Year Unpaid Obligations
Budgetary Authority:
Appropriation
Spending Authority from Offsetting Collections
Earned:
Collected
Change in Receivables from Federal Sources
Change in Unfilled Customer Orders:
Advance Received
Without Advance from Federal Sources
Total Spending Authority from Offsetting Collections
Nonexpenditure Transfers, Net, Anticipated and Actual
Temporarily Not Available Pursuant to Public Law
Permanently Not Available
Total Budgetary Resources
2,059,687 $
2,059,687
154,843
35,410
313,039
2,864
1,605,363
1,605,363
171,423
36,809
518,936
47
63,378
(3,828)
375,453
1,257,724
(250)
3,882,867 $
244,146
4,423
767,552
1,273,244
(2,600)
(4,102)
3,847,690
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct
Reimbursable
Total Obligations Incurred
Unobligated Balances:
Apportioned
Total Unobligated Balances
Unobligated Balances Not Available
Total Status of Budgetary Resources (Note S6)
1,450,802
396,582
1,847,384
2,033,533
2,033,533
1,950
3,882,867 $
1,475,861
312,141
1,788,002
2,058,813
2,058,813
874
3,847,690
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Supplemental Information and Other Reporting Requirements
Statement of Budgetary Resources for Superfund Trust Fund
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
(Unaudited)
CHANGE IN OBLIGATED BALANCE
Obligated Balance, Net:
Unpaid Obligations, Brought Forward, October 1
Adjusted Total
Less: Uncollected Customer Payments from Federal Sources,
Brought Forward, October 1
Total Unpaid Obligated Balance, Net
Obligations Incurred, Net
Less: Gross Outlays
Less: Recoveries of Prior Year Unpaid Obligations, Actual
Change in Uncollected Customer Payments from Federal Sources
Total, Change in Obligated Balance
Obligated Balance, Net, End of Period:
Unpaid Obligations
Less: Uncollected Customer Payments from Federal Sources
Total, Unpaid Obligated Balance, Net, End of Period
FY2011
1,692,915
(123,366)
1,448,347
1,570,749
(122,402)
FY2010
1,692,915 $
1,861,908
1,861,908
(118,896)
1,569,549
1,847,384
(1,814,706)
(154,843)
963
1,743,012
1,788,002
(1,785,572)
(171,423)
(4,471)
1,569,549
1,692,915
(123,366)
1,448,347 $
1,569,549
NET OUTLAYS
Net Outlays:
Gross Outlays (Note S6)
Less: Offsetting Collections (Note S6)
Less: Distributed Offsetting Receipts* (Note S6)
Total, Net Outlays
$
1,814,706 $
(376,417)
(97,623)
1,340,666 $
1,785,572
(763,081)
(53,247)
969,244
Offsetting receipts line includes the amount in 68X0250 (payment to trust fund) from Treasury
The payment cannot be made directly through the trust fund, but must go through a "pass-through" fund
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Supplemental Information and Other Reporting Requirements
Related Notes to Superfund Trust Financial Statements
For the Periods Ending September 30, 2011 and 2010
(Dollars in Thousands)
(Unaudited)
Note S1. Fund Balance with Treasury for Superfund Trust
Fund Balance with Treasury for the Superfund as of September 30, 2011 and 2010 is $114.5 million
and $106.2 million, respectively. Fund balances are available to pay current liabilities and to finance
authorized purchase commitments (see Status of Fund Balances below).
Status of Fund Balances: FY 2011 FY2010
Unobligated Amounts in Fund Balance:
Available for Obligation $ 2,033,533$ 2,058,813
Unavailable for Obligation 1,951 874
Net Receivables from Invested Balances (3,368,754) (3,526,672)
Balances in Treasury Trust Fund 15 (1,115)
Obligated Balance not yet Disbursed 1,447,795 1,574,347
Totals $ 114,540 $ 106,247
OMB may apportion the funds available for obligation for new obligations at the beginning of the
following fiscal year. Funds unavailable for obligation are mostly balances in expired funds, which are
available only for adjustments of existing obligations.
Note S2. Cashout Advances, Superfund
Cashout Advances are funds received by the EPA, a state or another PRP under the terms of a
settlement agreement (e.g., consent decree) to finance response action costs at a specified Superfund
site. Under CERCLA Section 122(b)(3), cashout funds received by the EPA are placed in site-specific,
interest bearing accounts known as special accounts and are used for potential future work at such
sites in accordance with the terms of the settlement agreement. Funds placed in special accounts may
be disbursed to PRPs, to states that take responsibility for the site, or to other federal agencies to
conduct or finance response actions in lieu of the EPA without further appropriation by Congress. As of
September 30, 2011 and 2010, cashout advances are $790 million and $637 million, respectively.
Note S3. Superfund State Credits
Authorizing statutory language for Superfund and related federal regulations require states to enter into
SSCs when the EPA assumes the lead for a RA in their state. The SSC defines the state's role in the
RA and obtains the state's assurance that they will share in the cost of the RA. Under Superfund's
authorizing statutory language, states will provide the EPA with a 10 percent cost share for remedial
action costs incurred at privately owned or operated sites, and at least 50 percent of all response
activities (i.e., removal, remedial planning, RA and enforcement) at publicly operated sites. In some
cases, states may use the EPA approved credits to reduce all or part of their cost share requirement
that would otherwise be borne by the states. Credit is limited to state site-specific expenses the EPA
88
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has determined to be reasonable, documented, direct out-of-pocket expenditures of non-federal funds
for remedial action.
Once the EPA has reviewed and approved a state's claim for credit, the state must first apply the credit
at the site where it was earned. The state may apply any excess/remaining credit to another site when
approved by the EPA. As of September 30, 2011, the total remaining state credits have been estimated
at $22.2 million. The estimated ending credit balance on September 30, 2010 was $20.9 million.
Note S4. Superfund Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response actions at
their sites with the understanding that the EPA will reimburse them a certain percentage of their total
response action costs. The EPA's authority to enter into mixed funding agreements is provided under
CERCLA Section 111(a)(2). Under CERCLA Section 122(b)(1), as amended by SARA, PRPs may
assert a claim against the Superfund Trust Fund for a portion of the costs they incurred while
conducting a preauthorized response action agreed to under a mixed funding agreement. As of
September 30, 2011, the EPA had four outstanding preauthorized mixed funding agreements with
obligations totaling $11.5 million. As of September 30, 2010, the EPA had six outstanding
preauthorized mixed funding agreements with obligations totaling $15.6 million. A liability is not
recognized for these amounts until all work has been performed by the PRP and has been approved by
the EPA for payment. Further, the EPA will not disburse any funds under these agreements until the
PRP's application, claim and claims adjustment processes have been reviewed and approved by the
EPA.
Note S5. Income and Expenses from other Appropriations; General Support Services Charged
to Superfund
The Statement of Net Cost reports costs that represent the full costs of the program outputs. These
costs consist of the direct costs and all other costs that can be directly traced, assigned on a cause and
effect basis or reasonably allocated to program outputs.
During FY 2011 and FY 2010, the EPM appropriation funded a variety of programmatic and
non-programmatic activities across the agency, subject to statutory requirements. This appropriation
was created to fund personnel compensation and benefits, travel, procurement, and contract activities.
This distribution is calculated using a combination of specific identification of expenses to Reporting
Entities and a weighted average that distributes expenses proportionately to total programmatic
expenses. As illustrated below, this estimate does not impact the consolidated totals of the Statement
of Net Cost or the Statement of Changes in Net Position.
FY2011 FY2010
Income from Expenses from Income from Expenses from
Other Other Net Other Other Net
Appropriations Appropriations Effect Appropriations Appropriations Effect
Superfund $ 69,754 (69,754) $ - $ 30,349 (30,349) $
All Others (69,754) 69,754 -_ (30,349) 30,349 -
Total $ -$ .$.$ .$ .$.
In addition, the related general support services costs allocated to the Superfund Trust Fund from the
S&T and EPM funds are $48,000 for FY 2011 and $194,000 for FY 2010.
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Note S6. Reconciliation of the Statement of Budgetary Resources to the President's Budget
Budgetary resources, obligations incurred, and outlays, as presented in the audited FY 2010 Statement
of Budgetary Resources, will be reconciled to the amounts included in the Budget of the United States
government when they become available. The Budget of the United States government with actual
numbers for FY 2011 has not yet been published. The EPA expects it will be published by March 2012,
and it will be available on the OMB website at http://www.whitehouse.gov/omb. The actual amounts
published for the year ended September 30, 2010 are included in the EPA's FY 2010 financial
statement disclosures.
FY2010
Statement of Budgetary Resources
Rounding Differences**
Reported in Budget of the U. S. Government
Budgetary
Resources
$
$
3,
3
,847,690
(690)
,847,000
Obligations
$
$
1
1
,788,002
(2)
,788,000
$
$
Offsetting
Receipts
53
53
,247$
,247$
Net Outlays
1
1
,022,491
509
,023,000
Balances are rounded to millions in the Budget Appendix.
Note S7. Superfund Eliminations
The Superfund Trust Fund has intra-agency activities with other the EPA funds that are eliminated on
the consolidated Balance Sheet and the Statement of Net Cost. These are listed below:
FY2011 FY 2010
Advances $5,506 $9,265
Expenditure Transfers Payable $28,663 $25,555
Accrued Liabilities $950 $2,214
Expenses $25,337 $33,419
Transfers $35,410 $38,016
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(ft)
^1 iBHO1*
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Audit of EPA's
Fiscal 2011 and 2010
Consolidated Financial
Statements
Report No. 12-1-0073
November 15, 2011
91
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Abbreviations
ALJ Administrative Law Judges
BFY Budget fiscal year
CFC Cincinnati Finance Center
EAB Environmental Appeals Board
EPA U.S. Environmental Protection Agency
FFMIA Federal Financial Management Improvement Act of 1996
FMFIA Federal Managers' Financial Integrity Act of 1982
GAO U.S. Government Accountability Office
HR Fund Oil Spill Reimbursable Fund
1FMS Integrated Financial Management System
LEO Legal Enforcement Office
OARM Office of AtlmimstnUion and Resources Management
OCFO Office of the Chief Financial Officer
OEC A Office of Enforcement and Compliance Assurance
OIG Office of Inspector General
OMB Office of Management and Budget
ORC Office of Regional Couasel
RMDS Resource Management Directive System
RPO Regional program office
RSSI Required Supplementary Stewardship Information
SFFAS Statement of Federal Financial Accounting Standards
USCG U.S. Coast Guard
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail: OIG Hotline(5jepa.gov
phone: 1-888-546-8740
fax: 202-566-2599
online: http:/Avww.epa aov/oia/hotline.htm
write: EPA Inspector General Hotline
1200 Pennsylvania Avenue NW
Mailcode2431T
Washington, DC 20460
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I
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
12-1-0073
November 15. 2011
Why We Did This Audit
We performed this audit in
accordance with the Government
Management Reform Act, which
requires the U.S. Environmental
Protection Agency (EPA) to
prepare, and the Office of
Inspector General to audit, the
Agency's financial statements
each year. Our primary objectives
were to determine whether:
• EPA's consolidated financial
statements were fairly stated
in all material respects.
* EPA's internal controls over
financial reporting were in
place.
• EPA management complied
with applicable laws and
rcaiil ill ions.
Background
The requirement for audited
financial statements was enacted
to help bring about improvements
in agencies' financial
management practices, systems,
and controls so mat timely,
reliable information is available
for managing federal programs.
For further Information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.ep a.qo v/oig/re po rtsf 20121
2Q111115.12-1-0073.Ddf
Audit of EPA's Fiscal 2011 and 2010
Consolidated Financial Statements
EPA Receives an Unauahfied Oomion
We rendered an unqualified opinion on EPA's Consolidated Financial
Statements for fiscal 2011 and 2010, meaning that they were fairly presented
and free of material misstatement.
Internal Cont.ro Sianificant Deficiencies Noted
We noted the following significant deficiencies:
• Regions and headquarters did not timely provide accounts receivable
supporting documentation.
• EPA did not timely bill other federal agencies for reimbursable costs,
• EPA did not properly close general ledger accounts in its cancelling
Treasury symbols.
• EPA double c ounted contractor-hel d propert y.
• EPA headquarters could not account for 1,284 personal property items.
• EPA needs to better secure marketable securities.
• EPA recorded earned revenue without recognizing corresponding expenses.
* EPA is withholding payments related to the BP Deepwater Horizon oil
spill.
NoncomDliance With Laws and Peculations Noted
We noted a rioncompliance issue involving EPA's Oil Spill Response Account
in relation to the BP Deepwater Horizon oil spill response. EPA violated the
Aniideficiency Act in November 2010 because it made expenditures in excess
of funds available. Also, to avoid a second potential Antideficiency Act
violation, EPA delayed payments to vendors, resulting in the Agency being
required to make interest penalty payments to vendors as required by the
Prompt Payment Act.
Aaencv Comments and Office of Inspector Genera Eva mat ion
The Agency did not concur with our finding regarding cancelling Treasury
symbols causing inappropriate balances. The .Agency believes that it is
following Treasury instructions and the balances are proper. While the amounts
are not material to the financial statements, by reversing the receivable, the
Agency has understated fiscal 2011 income and bad debt expense related to
cancelling the Treasury symbol. The Agency agreed with our other findings
and recommendations.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D C 20460
THE N^ECTOR O0JBWL
November 15, 201 I
MEMORANDUM
SUBJECT: Audi! of KPA's Fiscal 2011 and 201M Consolidated Financial Statements
Report No. 12-1-0073
FROM: Arthur A. HI kins. Jr.
Inspector General
TO: I.isaP Jackson
Administrator
Barbara J. Bennett
Chief Financial Ollicer
Craig li. Hooks
i Administrator for Administration and Resources Management
Cynthia Giles
Assistant Administrator for Enforcement and Compliance Assurance
Attached is our report on tlw U.S. Environmental Projection Agency's (EPA~s) fiscal 2011 and
2(ll<) consolidated financial statement!). We are reporting eight significant deficiencies We ulso
identified an instance of noneompliaiKc \\ilh laws and regulations related to an AntideJicieneA
Aci \ iolation in the Oil Spill Response Account- Attachment 3 contains Ihe status of
recommendations related lo Ihc material weaknesses, sigmlk-anl deficiencies, and
noncomplianccs with laws and regulations reported in prior years" reports. The significant
deficiencie.s and noncomphunccs included in attachment 3 also apply for llsc;il 2011
This audit report repre!>enls tlw opinion of the Otllce of Inspector General, and the findings in
this report do not necessarily represent I he filial HPA position. HPA managers, in accordance
with established [£PA audit resolution procedures, will make final determinations on Ihe findings
in this audit report. Accordingly, the findings described in this audit report are not binding upon
EPA in any enforcement proceeding brought by [{PA or the Department of Justice. We have no
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objections to the further release of this report to the public. This report will be available at
http: // w vv w. opa ..gov/oig.
In accordance with EPA Manual 2750, you are required to provide a written response to this
report within 90 calendar days of the final report date. The response should address all issues and
recommendations contained in attachments 1 and 2. For corrective actions planned but not
completed by the response date, reference to specific milestone dates will assist us in deciding
whether to close this report in our audit tracking system. Your response will be posted on the
OIG's public website, along with our memorandum commenting on your response. Your
response should be provided as an Adobe PDF file that complies with the accessibility
requirements of Section 508 of the Rehabilitation Act of 1973, as amended. The final response
should not contain data that you do not want to be released to the public; if your response
contains such data, you should identify the data for redaction or removal.
Should you or your staff have any questions about the report, please contact Melissa Heist,
Assistant Inspector General for Audit, at (202) 566-0899: or Paul Curtis, Director, Financial
Statement Audits, at (202) 566-2523.
Attachments
cc: See appendix III. Distribution
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Audit of EPA's Fiscal 2011 and 2010 12-1-0073
Consolidated Financial Statements
of
EPA's 2011
2010 Statements[[[ i
Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis 2
Evaluation of Internal Controls 2
Tests of Compliance With Laws and Regulations ,,.,,.,,,,.,,.,,,, 8
Prior Audit Coverage 7
Agency Comments and OIG Evaluation .,,,.,,,,,.,..,,,, 8
Attachments s
1. Internal Control Significant Deficiencies 9
Accounts Receivable Detail Not Provided Timely 10
Federal Reimbursable Costs Not Billed Timely 13
EPA's Process for Cancelling Treasury Symbols Caused
Inappropriate Account Balances 16
EPA Double Counted Contractor-Held Property 18
EPA Headquarters Cannot Account for 1,284 Property Items 19
EPA Should Secure Marketable Securities 20
EPA Recognized Earned Revenue in Excess of Expenditures 21
EPA Is Withholding Payments Related to BP Deepwater Horizon
Oil Spill Cleanup , , 23
2, Compliance with Laws and Regulations „,,,.,,,,,,,,,,,,,„,,,.,.„.,,,,,„,,,,,,„,,,,,,„,,,,,,„,,, 24
EPA Violated the Antideficiency Act in Its Oil Spill Account 25
3. Status of Prior Audit Report Recommendations 27
4. Status of Current Recommendations and Potential Monetary Benefits.................. 29
Appendices 31
I. EPA's Fiscal 2011 and 2010 Consolidated Financial Statements,.,,,,,,,,,,,,,,,.,,, 31
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Inspector General's Report on EPA's Fiscal 2011
and 2010 Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
We have audited the consolidated balance sheet of the U.S. Environmental Protection Agency
(EPA) as of September 30. 2011. and September 30, 2010, and the related consolidated
statements of net cost, net cost by goal, changes in net position, and custodial activity; and the
combined statement of budgetary resources for the years then ended. These financial statements
are the responsibility of EPA management. Our responsibility is to express an opinion on these
financial statements based upon our audit.
We conducted our audit in accordance with generally accepted government auditing standards;
the standards applicable to financial statements contained in Government Auditing Standards.
issued by the Comptroller General of ihe United States; and Office of Management and Budget
(OMB) Bui letin 07-04, A ttdit Requirements for Federal Financial Statements, as Amended
September 23. 2009. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatements.
Aii audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
'Hie financial statements include expenses of grantees, contractors, and other federal agencies.
Our audit work pertaining to these expenses included testing only within EPA. The U.S.
Treasury collects and accounts for excise taxes that are deposited into the Leaking Underground
Storage Tank Trust Fund, The U.S. Treasury is also responsible for investing amounts not
needed for current disbursements and transferring funds to EPA as airthorized in legislation.
Since the U.S. Treasury, and not EPA, is responsible for these activities, our audit work did not
cover these activities.
"Hie Office of Inspector General (OIG) is not independent with respect to amounts pertaining to
OIG operations that are presented in the financial statements. The amounts included for the OIG
are not material to EPA's financial statements. The OIG is organizationally/ independent with
respect to all other aspects of the Agency's activities.
In our opinion, the consolidated financial statements, including the accompanying notes, present
fairly, in all material respects, the consolidated assets, liabilities, net position, net cost, net cost
by goal, changes in net position, custodial activity, and combined budgetary resources of EPA as
of and for the years ended September 30, 2011 and 2010, in conformity with accounting
principles generally accepted in the United States of America.
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Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis
We obtained information from EPA management about its methods for preparing Required
Supplementary Stewardship Information (RSSI). Required Supplementary Information.
Supplemental Information, and Management's Discussion and Analysis, and reviewed this
information for consistency with the financial statements. The Supplemental Information
includes the unaudited Superfund Trust Fund financial statements for fiscal 2011 and 2010,
which are being presented for additional analysis and are not a required part of the basic financial
statements. However, our audit was not designed to express an opinion and. accordingly, we do
not express an opinion on EPA's RSSI. Required Supplementary Information. Supplemental
Information, and Management's Discussion and Analysis.
We did not identify any material inconsistencies between the information presented in EPA's
consolidated financial statements and the information presented in KPA's KSSL Required
Supplementary Information. Supplemental Information, and Management's Discussion and
Analysis.
Evaluation of Controls
As defined by OMB, internal control, as it relates to the financial statements, is a process,
affected by the Agency's management and other personnel, that is designed to provide
reasonable assurance that the following objectives are met:
Reliability of financial reporting Transactions are properly recorded, processed, and
summarized to permit the preparation of the iinancial statements in accordance with
generally accepted accounting principles, and assets are safeguarded against loss from
unauthorized acquisition, use, or disposition,
Compliance" with applicable laws, regulations, and government-wide policies
Transactions are executed in accordance with laws governing the use of budget authority,
government-wide policies, laws identified by OMB. and other laws and regulations that
could have a direct and material effect on the financial statements.
In planning and performing our audit, we considered EPA's internal controls over financial
reporting by obtaining an understanding of* the Agency's internal controls, determining whether
internal controls had been placed in operation, assessing control risk, and performing tests of
controls. We did this as a basis for designing our auditing procedures for the purpose of
expressing an opinion on the financial statements and to comply with OMB audit guidance, not
to express an opinion on internal control. Accordingly, we do not express an opinion on internal
control over financial reporting nor on management's assertion on internal controls included in
Management's Discussion and Analysis. We limited our internal control testing to those controls
necessary to achieve the objectives described in OMB Bulletin No. 07-04, Audit Requirements
for Federal b'inancial Statements, as Amended September 23, 2009. We did not test all internal
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controls relevant to operating objectives as broadly defined by the Federal Managers' Financial
Integrity Act of 1982 (FMF1A). such as those controls relevant to ensuring efficient operations,
Our consideration of the internal controls over financial reporting would not necessarily disclose
all matters in the internal control over financial reporting that might be significant deficiencies.
I ;nder standards issued by the American Institute of Certified Public Accountants, a significant
deficiency is a deficiency, or combination of deficiencies, that is less severe than a material
weakness, yet important enough to merit attention by (hose charged with governance. A material
weakness is a deficiency, or combination of deficiencies, such thai there is a reasonable
possibility thai a material misstatemeiit of the entity's financial statements will not be prevented.
or detected and corrected in a timely manner. Because of inherent limitations in internal controls.
misstatements, losses, or noncompliance may nevertheless occur and not be detected. We noted
certain matters discussed below involving the internal control and its operation that we consider
to be significant deficiencies, none of which are considered to be material weaknesses. These
significant deficiencies are summarized below and detailed in attachment 1.
Accounts Receivable Source Documentation Not Provided Timely
EPA regional and headquarters offices did not timely submit supporting documentation
to (he Cincinnati Finance Center (CFC) so that CFC could promptly record accounts
receivable in the financial system. EPA policies state that within 5 business days of
determining a debt is owed to the Agency, the responsible office must forward source
documents to CFC, Regional program office (RPO). Office of Regional Counsel (ORC).
the Environmental Appeals Board (EAB). Office of Administrative Law Judges (ALJ),
Office of Enforcement and Compliance Assurance (OECA) staff, and regional E-egal
Enforcement Office (LEO) staff are responsible for providing this documentation. CFC
stated that offices may have been unaware of the 5-day policy, or may have simply
forgotten to send the documentation. When CFC is unable to create receivables timely,
the debtor may not be billed appropriately, interest may not accrue, and F,PA may not
collect all that it is owed. Further. EPA's delayed recording of accounts receivable could
result in a material misstatemcnt of the Financial statements.
Federal Reimbursable Costs Not Billed Timely
HPA did not timely bill other federal agencies for S2.210.617 of reimbursable costs. We
found costs that had not been billed for up to 9 years. In addition, S3.150.692 and
8521,589 of reimbursable expenses were recorded in funds cancelled in fiscal 2010 and
2011. respectively. Reimbursable costs were not timely billed to other federal agencies
because EPA had difficulty reconciling costs previously incurred to eosls previously
billed under individual reimbursable agreements. Untimely billing of reimbursable eosls
causes delays in replenishing funds spent on reimbursable agreements. Also, untimely
billing may result in EPA losing the ability to obligate and/or spend funds due to the
expiration and subsequent cancellation of funds before they are collected. For example.
we identified $3.7 million of reimbursable expenses due from other agencies in fiscal
2010 and 2011 in cancelled funds. Since the funds are now cancelled, if EPA does bill
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such amounts, the collections must he returned to Treasury and will not be available to
EPA.
EPA's Process for Cancelling Treasury Symbols Caused Inappropriate
Account Balances
EPA did not properly close general ledger accounts in its cancelling Treasury symbols.
We identified two instances in which EPA inappropriately recorded general ledger entries
to elose accounts when it cancelled Treasury symbols. Treasury Financial Manual
Bulletin Ab. 20] l-0~. Section 21. stales that agencies must cancel any remaining
balances (whether obligated or unobligated) in a closed appropriation account being
cancelled and report valid receivable and payable balances associated with a cancelled
Treasury Appropriation Fund Symbol. Because EPA did not review the net impact to
current Treasury funds, EPA's improper cancellation procedures resulted in various
misstated general ledger accounts. Consequently, the financial statements were misstated,
although the misslatemente were not material to the financial statements as a whole.
EPA Double Counted Contractor-Held Property
EPA double counted 97 items of capitalized property in its financial system because it did
not remove property from its financial system thai had been transferred to contractors. As
a result these items were recorded as both EPA-hcld property and contractor-held
property. The double-counted properly had an acquisition cost ol'S)2.3 million and a net
hook value of $5 million. EPA property guidance states that when contractors are
furnished with government property, the property is deleted from the financial system.
The contractor-held property items were not removed because EPA does not have a
policy thai stales who is responsible for removing contractor-held property from EPA's
financial system. Without clear policies, neither the Office of the Chief Financial Officer
(OCFO) nor the Office of Administration and Resources Management (OARM) has
taken responsibility to ensure that EPA property transferred to contractors is deleted from
EPA's financial system. The double counting resulted in capitalized property being
overstated by $5 million in fiscal 2011.
EPA Headquarters Cannot Account for 1,284 Property Items
EPA headquarters could not account for 1.284 personal property items in fiscal 2011 as
required by EPA's Personal Property and Procedures Manual. Headquarters mid-level
management was not knowledgeable about Agency property management procedures.
and EPA did not provide planned property training for Agency employees during fiscal
20J1. Because EPA could not account for these property items, it was nol exercising
proper control over S2,1 million of accountable personal property. Inaccurate personal
property records compromise EPA's property control system and can lead to the loss or
misappropriation of Agency assets.
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EPA Should Secure Marketable Securities
EPA does not perform inspections of the sale in which marketable securities received
should be stored to ensure that the securities are adequately safeguarded and that the
contents of the safe agree with accounting or control records. The U.S. Government
Accountability Office's (GACVs) Standards for Internal Control in the Federal
{government, GACKA.IMD-00-21.3.1. states. "An agency must establish physical control
to secure and safeguard vulnerable assets. Examples include security for and limited
access to assets such as cash, securities, inventories, and equipment which might be
vulnerable to risk of loss or unauthorized use. Such assets should be periodically counted
and compared to control records." By not securing marketable securities, EPA increases
the risk of loss or theft of its assets.
EPA Recognized Earned Revenue in Excess of Expenditures
EPA recorded earned revenue without recognizing corresponding expenses. At the end of
fiscal 2011. EPA had recorded $7 million more in earned revenue in the Oil Spill
Reimbursable (IIR) Fund than it recognized in HR reimbursable expenses. The fund had
a balance of S74.5 million in Earned Revenue Federal Billed versus S67.5 million for
Operating Expense Public Exchange. These balances were the totals after EPA rceorded
(1) a $5.7 million entry to accrue unbilled reimbursements and earned revenue, and (2) a
SI. 1 million entry to reduce advances from other agencies and to increase earned
revenue. Statement of Federal Financial .Accounting Standards (SFFAS) No. 7.
Accounting for Revenue and Other Financing Sources, requires agencies to match
revenue and expenses. "Hie Agency did not properly match revenues and expenses in the
IIR Fund at the end of Fiscal 2011 because it made earned revenue accrual entries without
recognizing an equal amount in accrued expenses, "flue S7 million imbalance in the HR
Fund code violates the matching principle required by the standard.
EPA Is Withholding Payments Related to BP Deepwater Horizon Oil Spill
Cleanup
As of September 30. 2011, EPA had not paid contractors working on the Deepwater
Horizon oil spill S6.6 million, of which $2.8 million is late under the Prompt Payment
Act, HP A violated the Antideficiency Act in November 2010 because it made
expenditures in excess of funds available. To avoid a second potential Anlidetlcieucy Act
violation, EPA delayed payments Jo vendors, resulting in the Agency being required to
make interest penalty payments to vendors as required by the Prompt Payment Act.
Section 1315.4(g) of the Prompt Payment Act states that paxmenl is due (1) on the date
specified in the contract. (2) in accordance with discount terms when discounts are
olTered and taken. (3) in accordance with Accelerated Payment Methods, or (4) 30 days
after the start of a payment period, when a proper invoice is received. 'Die Agency
withheld payments to vendors because it did not have suffleient cash in its Deepwater
Horizon Oil Spill funds to pay its bills. By not paying contractors on time, KPA is
incurring interest payments and is losing the opportunity to lake discounts.
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Attachment 3 contains the status of issues reported in prior years" reports. The issues included in
attachment 3 should be considered among EPA's significant deficiencies for fiscal 2011. We
reported to the Agency on less signillcant internal control matters in writing during the course of
the audit. We will not issue a separate management letter.
Comparison of EPA's FMFIA Report With Our Evaluation of Internal Controls
OM B Bulletin No. 07-04. A udit Requirements tor Federal Financial Statements, as A mended
September 23, 2009. requires us to compare material weaknesses disclosed during the audit with
those material weaknesses reported in the Agency's FMFIA report that relate to the financial
statements, and identify material weaknesses disclosed by the audit that were not reported in the
Agency's FMFIA report.
For financial statement audit and financial reporting purposes. OMB defines material weaknesses
in internal control as a deficiency or combination of deficiencies in internal control such thai
there is a reasonable possibility that a material misstaiemeni ofthe financial statements will not
be prevented, or delected and corrected on a timely basis,
The Agency reported that no material weaknesses had been found in the design or operation of
internal controls over financial reporting as of June 30. 2011, We did not identify any material
weaknesses during the course of our audit Details concerning our findings on significant
deficiencies can be found in attachment I.
Tests of Compliance With Laws and Regulations
EPA management is responsible for complying with laws and regulations applicable to the
Agency. As part of obtaining reasonable assurance about whether the Agency's financial
statements are free of material misstatement, we performed tests of its compliance with certain
provisions of laws and regulations, noncomptiance with which could have a direct and material
effect on the determination of financial statement amounts, and certain other laws and
regulations specified in OMB Bulletin No. 07-04, Audit Requirements for Federal Financial
Statements, as Amended September 23, 2009, The OMB guidance requires that we evaluate
compliance with federal financial management system requirements, including the requirements
referred to in the Federal Financial Management Improvement Act of 1996 (FFMIA). We limited
our tests of compliance to these provisions and did not test compliance with all laws and
regulations applicable to EPA,
Providing an opinion on compliance with certain provisions of laws and regulations was not an
objective of our audit and. accordingly, we do not express such an opinion. A number of ongoing
investigations involving EPA's grantees and contractors could disclose violations of laws and
regulations, but a determination about these cases has not been made. 'Hie results of our tests of
compliance with laws and regulations are summarized below and detailed in attachment 2.
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EPA Violated the Antideficiency Act in Its Oil Spill Response Trust Account
In January 2011. EPA notified OMB that it violated the Antideficiency Act when EPA
made expenditures in excess of funds available in the Oil Spill Response Account in the
amount ol"S502.215. The violation occurred because the U.S. Coast Guard (USCG) did
not timely reimburse 1%PA for BF Deepwater Horizon oil spill response expenses.
According to EPA, the reason for the reimbursement delay was that USCG wanted EPA
to provide a greater level of cost documentation than had been acceptable in the past. By
spending more funds than were available. EPA, violated the Antideficiency Act.
Federal Financial Management Improvement Act Compliance
Under F'FMIA. we are required to report whether the Agency's financial management
systems substantially comply with the federal Financial management systems
requirements, applicable federal accounting standards, and the United Stales Government
Standard General Ledger at the transaction level. To meet the FFXII A requirement, we
performed tests of compliance with FFVHA Section 803(a) requirements and used the
OMB guidance. Memorandum M-09-06. Implementation Outdance tor the Federal
Financial \lanagemcni Improvement Act dated January 9. 2009, for determining
substantial noncompliancc with FF.V1LA, The results of our tests did not disclose any
instances in which the .Agency's financial management systems did nol substantially
comply with FF'MJA requirements.
No other significant matters involving compliance with laws and regulations came to our
attention during the course of the audit. We will not issue a separate management letter.
Our audit work was also performed to meet the requirements in 42 U.S.C. §961 l(k) with respect
to the Hazardous Substance Superftind Trust Fund, to conduct an annual audit of payments.
obligations, reimbursements, or other uses oflhe fund. The significant deficiencies reported
above also relate to Superfund,
Prior Audit Coverage
During previous financial or financial-related audits, we reported weaknesses that impacted our
audit objectives in the following areas:
» Collectibility of federal receivables and recording of any needed allowances for doubtful
accounts
» Headquarters property items not inventoried
• Improper closing of accounts when cancelling Treasury symbols
» Uncollectible debt misstated
» Financial system user account management
» Security planning for Customer Technology Solutions equipment
• Assessing automated application processing controls for the Integrated Financial
Management System (IFVIS)
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Attachment 3 summarizes the current status of corrective actions taken on prior audit report
recommendations related to these issues
Agency Comments and OIG Evaluation
In a memorandum dated November 111. 2011, (he Agency responded to our draft report
The rationale for our conclusions and a summary of the Agency comments are included in
the appropriate sections of this report, and the Agency's complete response is included as
appendix II to this report
This report is intended solely for the information and use of the management ofKPA, OMB, and
Congress, and is not intended lo be and should not be used by anyone other than these specified
parties.
PaulC Curtis
Director. Financial Statement Audits
Office of Inspector Genera!
U.S. Environmental Protection Agency
November 15, 2011
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Attachment 1
Internal Control Significant Deficiencies
Table of Contents
1—Accounts Receivable Detail Not Provided Timely ,,.,..,.,,.,..,.,,.,..,.,,.,..,.,,.,. 10
2—Federal Reimbursable Costs Not Billed Timely 13
3—EPA's Process for Cancelling Treasury Symbols Caused
Inappropriate Account Balances 18
4—EPA Double Counted Contractor-Held Property 18
5—EPA Headquarters Cannot Account for 1,284 Property Items 19
6—EPA Should Secure Marketable Securities 20
7—EPA Recognized Earned Revenue in Excess of Expenditures 21
8—EPA Is Withholding Payments Related to BP Deepwater Horizon
OH Spill Cleanup 23
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1— Not Provided Timely
EPA regional and headquarters offices did not timely submit supporting documentation to CFC
so that CFC could promptly record accounts receivable in Ihc financial system, EPA policies
state that within 5 business days of determining a debt is owed to the Agency, the responsible
office must forward source documents to CFC. RPO. ORC. EAB. ALJ. OECA. and regional
LEO staff are responsible for providing this documentation. CFC stated that the offices may have
been unaware of the 5-day policy, or may have simply forgotten to send the documentation.
When CFC is unable to create receivables timely, the debtor may not be billed appropriately.
interest may not accrue, and KPA may not colled all that il is owed. Further, KPA's delayed
recording of accounts receivable could result in a material misstatement of the financial
statements.
According to GAO's Standards jbr Internal Control in the J-'ederal (Joverimient. transactions
should be promptly recorded to maintain their relevance and value to management in controlling
operations and making decisions. KPA's Resource Management Directive System (RVIDS)
2550D-14-T1 requires Servicing Finance Offices to maintain ongoing communications with the
RPOs, ORCs. and LEOs regarding the status of settlement agreements and to ensure that
accounts receivable source documents are forwarded within 5 business days.
From our audit of accounts receivable, we found that the offices did not timely forward
supporting documentation (e.g.. consent decrees, consent agreements and final orders,
administrative orders, etc.) to CFC for 39 receivables totaling $106 million. CFC received
associated source documents from 1 day to over 2 years late, 'fable 1 provides a summary of the
relevant exceptions found during our audit.
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Table 1: Summary of receivables support not received timely
Sample ^tpL'' Sons o^pTon?
6th month
Department of Justice Report
Integrated Compliance Information System Report
Superfund Control3
AllOthef Control"
Subtotal
8th month
Department of Justice Report
Integrated Compliance Information System Report
Superfund Control
All Other Control
Subtotal
Year-end:
Integrated Compliance Information System Report
Subtotal
Total
27
11
29
12
79
18
4
2
2
26
16
16
121
6
7
10
0
23
8
1
1
0
10
6
6
39
$58,314,473.66
4,584,50000
27:61 0,137 88
0.00
$90,509,111.54
$13,528,177.32
140,000.00
1,704,020.70
0.00
$15,372,198,02
$508,000.00
$508,000.00
$106,389,309.56
Source: OIG analysis
J One Department of Justice exception was also noted in Superfund Control Testing but excluded from
Number of Exceptions and Dollar Amount of Exceptions in our analysis to avoid double counting.
c One Integrated Compliance Information System and one Department of Justice exception were also
noted in All Other Control Testing but excluded from Number of Exceptions and Dollar Amount of
Exceptions in our analysis to avoid double counting.
EPA's RMDS, as updated in April 2011, establishes procedures for timely providing supporting
documentation for receivables. RMDS 2550D-14-T1 addresses Superfund receivables and
requires the originating office to forward 10 the Servicing Finance Office copies of all Superfund
consent decrees and judgments within 5 business days of receipt from the court. RMDS 2540-9-
P3 specifically addresses administrative penalties and referrals of civil enforcement cases to the
Department of Justice. The directive requires that the originating office ensure that
documentation of administrative orders and bankruptcy proceedings with civil penalties are
provided to CFC within 5 business days. For regionally initiated administrative enforcement
actions. ORC Regional Hearing Clerks are to ensure thai penalties are entered in the EPA Case
Tracking System, which automatically sends a request to CFC to establish a billing document. It
also states that OECA will develop internal processes to ensure that, in the case of OECA-
initialed administrative enforcement actions, all documentation for administrative penalty
debt/accounts receivable is sent to CFC along with the request for CFC to establish a billing
document. OECA also coordinates with CFC to determine the appropriate action when a penalty
debt/accounts receivable is 120 days past due.
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For regionally initiated cases, the ORC'LEO/RPO is required to provide effective ongoing
communication with Ihc finance center regarding the status of settlement agreements to prevent
untimely recording of accounts receivable. For headquarters-initiated cases, the Headquarters
Hearing Clerk, the EAB, and OECA's Air Enforcement Division are responsible for notifying
CFC after an order becomes final. Untimely receipt of accounts receivable source documentation
results in inaccurate balances in the Agency's financial management system. Therefore, we
believe that regional and headquarters offices and CFC should work together to resolve this
control issue,
Recom mendation
We recommend thai the Assistant Administrator for Enforcement and Compliance Assurance:
1. Require thai regional and headquarters enforcement officials assist CFC by
implementing EPA's newly updated RMDS policy, which includes the requirement to
forward legal documentation within 5 business days and to designate regional
contacts so that receivables are recorded timely.
Agency Comments and OIG Evaluation
'lite Agency concurred •with our finding and recommendation. OECA responded that in October
2011 it issued processes for headquarters-initiated administrative enforcement aetions.
Headquarters-initiated eases include those resolved by Af J. EAB. or OECA's Air Enforcement
Division. OECA requires these offices to make orders available to CFC within 5 business days of
the order's effective date.
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2—-Federal Not Timely
EPA did not timely bill other federal agencies for 52,210,617 of reimbursable costs. We found
costs that had not been billed for up to 9 years. In addition. S3.150,692 and $521.589 of
reimbursable expenses were recorded in funds cancelled in fiscal 2010 and 2011. respectively.
Reimbursable costs were not timely billed to other Federal agencies because EPA had difficulty
reconciling costs incurred to costs billed under individual reimbursable agreements. Untimely
billing of reimbursable costs causes delays in replenishing funds spent on reimbursable
agreements. Also, untimely billing results in EPA losing the ability lo obligate and/or spend
funds due to the expiration and subsequent cancellation of funds before they are collected. For
example, we identified S3.7 million of reimbursable expenses due from other agencies in fiscal
2010 and 2011 in cancelled funds. Since the funds are mm cancelled, if EPA does bill such
amounts, the collections must be returned to Treasury and will not be available to EPA,
EPA. provides goods or services to other federal agencies and is reimbursed for its expenses
under reimbursable agreements. Under reimbursable agreements. EPA uses reimbursable
authority provided by OMB to perform agreement activities. Reimbursable authority is a type of
borrowing authority that exists for definite periods of time as long as the authority from the year
of funding exists and is not expired or cancelled.
OMB Circular A-l 1, S20. states that during the expired phase, no new obligation can be incurred
against the appropriations. At the end of the expired phase, all obligated and unobligated
balances must be cancelled and the account closed. Cancelled balances may not be used to incur
or pay obligations. Collections authorized or required to be credited to a cancelled appropriation
that are received after the account is closed must be deposited in the Treasury as miscellaneous
receipts. Therefore, once the appropriation in which the expenditures were incurred expires or
cancels. EPA no longer has the ability lo obligate and'or spend those funds if collected.
To execute reimbursable agreements. EPA assigns a unique reimbursable account number
(budget organization code) to each reimbursable agreement. The budget organization code for
each interagency agreement identifies obligations pertaining to that agreement, and costs of
performance must be charged to reimbursable account numbers. As EPA performs work
specified in the agreement. EPA should bill the other agency for costs incurred in providing the
services or goods, and be reimbursed by the other agency for those costs.
During our analysis of the fiscal 2011 fourth quarter federal unbilled accrual, we identified more
than S2 million of reimbursable expenses incurred from budget fiscal years (BFYs) 2000 through
2008 that were not billed to other federal aeencies. as shown in table 2.
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Table 2: Federal reimbursable costs not timely billed
BFY
2000
2001
2002
2003
2004
2005
2006
2007
2008
Total
Expended amount
$909,05680
804,873.23
700,161 16
6,748,900.32
1,881,76295
394,948,066.24
35,943,703.28
23,233,38543
59,463,193.87
$524,633,103.33
Billed amount
855,371.83
702,805.84
681,766.76
6,746,25327
1,804,949.75
394,383,011.57
35.610,641.09
23,072,839.72
58,564,846.32
$522,422,486.15
Unbilled amount
$53,68497
102,067,39
18,39440
2,647,05
76,813.20
565,054.67
333,062.19
160,545.76
898,347.55
$2,210,617.18
Source: OIG analysis.
Not timely billing reimbursable costs may result in EPA losing the ability to obligate and spend
those funds, because collections must be returned to Treasury if the budgetary authority has been
cancelled. For example, we identified unbilled reimbursable expenses of about S3.2 million and
$522,000 remaining in cancelled funds from BFVs 2002 through 2004, as shown in table 3,
These unbilled reimbursable expenses were moved to the miscellaneous receipt Treasury
account. As a result EPA no longer had the ability to obligate and or spend funds collected due
to the cancellation of funds.
Table 3: Unbilled costs in cancelled funds
BFY
2002-2003
2003-2004
Expended amount
$16,008,647.30
3,933,402.14
Billed amount
$12,857,955.39
3,411,813.33
Unbilled amount
$3,150,691.91
521,588.81
Year cancelled
2010
2011
Source: OIG analysis
In response to our inquiry as to why the reimbursable expenses incurred in prior years have not
been billed, the Agency stated that there may be problems with the agreements, expenses may
not be identified to an agreement, or the expenses may have just recently been paid.
Not timely billing other federal agencies for reimbursable costs (1) causes unnecessary delays in
replenishing funds spent on reimbursable agreements, (2) limits EPA's ability to recover all costs
before funding authority cancels, and (3) could result in EPA using appropriated funds to cover
reimbursable costs incurred. If EPA does not bill atid collect the funds before the funds expire, it
is not able to obligate and expend additional funds from those accounts.
Recommendations
We recommend that the Chief Financial Officer:
2. Review unbilled federal reimbursable expenses, determine their collectibility, and bill
appropriate funds before the funding period is cancelled.
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3, Create and implement a process to reconcile expenses incurred and costs billed under
individual reimbursable agreements.
4. Develop a process or implement a reporting system to track, for each reimbursable
agreement, the expenses that have been billed for each budget fiscal year.
Agency Comments and OIG Evaluation
"The Agency concurred with our finding and recommendations.
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3—EPA's Process for Cancelling Treasury Symbols
Caused Inappropriate Account Balances
EPA did not properly close general ledger accounts in its cancelling Treasury symbols. We
identified two instances in which EPA inappropriately recorded general ledger entries to close
accounts when it cancelled Treasury symbols. Treasury Financial Manual Bulletin No. 2011-07.
Section 21. states that agencies must cancel any remaining balances (whether obligated or
unobligated) in a closed appropriation account being cancelled, and report valid receivable and
payable balances associated with a cancelled Treasury Appropriation Fund Symbol. Because
EPA did not review the net impact to current Treasury funds. EPA's improper cancellation
procedures resulted in various misstated general ledger accounts. Consequently, the financial
statements were misstated, although the misstatements were not material to the financial
statements as a whole.
EPA's closing procedures for accounts receivable in cancelled expenditure accounts resulted in a
$6.5 million credit balance in the general ledger account. Expense Uncollectible Debt, Other
Finances (Uncollectible Debt Expense). This account should normally have a debit balance. A
credit balance in this account indicates that either the Agency has revenue from uncollectible
debts or the general ledger account is otherwise misstated. EPA uses Standard Vouchers with
predetermined debit(s) and credit(s) to record accounting events that occur on a recurring basis in
accordance with its Comptroller Policy 93-02. Policies for Documenting Agency Financial
Transactions. EPA moved the balances from the cancelling appropriation without properly
reviewing the net impact on current Treasury funds.
This is the third year we have reported this issue. In fiscal 2009 and 2010, we recommended that
EPA review and update its required standard voucher entries. In response to our
recommendations, EPA noted that it would review the impact of accounting entries, including
standard vouchers for billing documents, and provide accounting models and technical advice as
appropriate. EPA has not made changes to accounting entries in the year-end instructions.
The procedure also resulted in an understatement in the general ledger account. Allowance for
Loss on Accounts Receivable (Allowance for Loss). EPA did not properly record the Allowance
for Loss from cancelling appropriations in fund 3200 (Treasury Symbol for the Collection of
Receivable from Cancelled Account) along with the related account receivables. We found thai
in fund 3200 nonfederal receivables increased by S6.4 million from last fiscal year, but the
related allowance account activity changed by $3.000. The Agency did not move the related
allowances from the cancelling appropriations to fund 3200, resulting in the overstatement of the
receivables net book value. Table 4 shows the fund 3200 balance as of year-end.
Table 4: Fund 3200 account balances
GL
13P3
13P9
GL account name
Billed Wise Receipts Public
Allow For Loss On A/R, Non Fed
2011 balance
$27,667,949.59
(17,317,47461)
2010 balance
521,293,448.77
(17.. 320,502 51)
DiffS
$6,374,500,82
3,027.90
Diff %
2994%
-0.02%
Source: IFMS and OIG analysis.
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EPA recorded this entry in accordance with its Year-End (''losing Instructions, which requires
finance centers to remove accounts receivable and the related allowance lor doubtful accounts
from cancelling appropriations, and establish the receivables in fund 3200, The instructions do
not allow for establishing the related allowance in fund 3200. SFFAS No. 1 states that an
allowance for estimated uncollectible amounts should be recognized to reduce the gross amount
of receivables to its net realizable value. EPA required movement of balances without properly
reviewing the closing entries" net impact on current Treasury funds. In doing so. the entry caused
an understatement in the Allowance for Loss account in fund 3200. By not recording the related
allowance for the receivables, EPA is overstating the net book value of the receivables in fund
3200.
OMB Circular A-127, Financial Management Systems, requires financial management systems
to provide complete, reliable, consistent, timely, and useful financial management information
on federal government operations, If EPA had properly reviewed the two general ledger accounts
for the effect of the closing entries prior to the fiscal period close. EPA could have noticed the
net impact on current Treasury funds. By not reviewing the entries and the account balances.
EPA understated Uncollectible Debt Expense and Allowance for Loss in the financial
statements.
Recommendations
We recommend that the Chief Financial Officer:
5, Revise the cancellation procedures to ensure accounts are properly stated,
6, Posi the proper Allowance for Loss.
7, Revise the Year-End Closing Instructions, to prescribe proper procedures for closing
accounts.
8, Prior to year-end closing, review7 and test the net impact of closing entries to ensure
proper statement of expenses, revenue, and assets in the financial management system
and financial statements.
Agency Comments and OIG Evaluation
Hie Agency did not concur with our finding and recommendations. The Agency stated it posted
the appropriate adjustments, it is following Treasury guidance, and balances are properly stated.
Our analysis of the Agency's adjustments to cancel a receivable and the related allowance
revealed they understated fiscal 2011 revenue and bad debt expense. The understatement
occurred because the Agency reversed the receivable and related allowance accounts creating
postings that decreased revenue and bad debt expense. While the understatements are not
material to the financial statements taken as a whole, we believe the Agency should have
reviewed the impact of the closing entries and posted the proper adjustments so that revenue and
expense were properly stated.
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4—EPA Counted Contractor-Held Property
EPA double counted 97 items of capitalized properly in its financial system because it did not
remove from its financial system property that had been transferred to contractors. As a result.
these items were recorded as both EPA-hekl property and contractor-held property. The double-
counted property had an acquisition cost of SI 2.3 million and a net book value of $5 million.
EPA property guidance states that when contractors are furnished with government property, the
property is deleted from the financial system. The contractor-held property items were not
removed because EPA does not have a policy that slates who is responsible lor removing
contractor-held property from EPA's financial system. Without clear policies, neither OCF'O nor
OARM lias taken responsibility to ensure that EPA property transferred to contractors is deleted
from EPA's financial system. The double counting resulted in capitalized property being
overstated by S5 million in fiscal 2011.
EPA's Personal Property Policy and Procedures Manual stales that as an integral part of all
KPA contracts, effective control and accountability must be maintained for all personal property
furnished by EPA or acquired with EPA funds, in accordance with the Federal Acquisition
Regulations and EPA's Contracts \fanagwneni Manual. Section 5.2.1 of the property manual
states. '"When contractors arc furnished with government property, it is deleted from the IFMS
and the contractor becomes responsible for the property until such time as it is returned to the
Government. In such eases, the Government retains title to the property."'
Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management:
9. Develop and implement policies and procedures to address responsibility for the
removal of EPA property from the Agency financial system when EPA property is
transferred to contractors.
10. Ensure that all EPA property that has been transferred to contractors is removed from
EPA's financial system.
Agency Comments OIG Evaluation
The Agency concurred with our finding recommendations.
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5—-EPA Cannot Account for 1,284
EPA headquarters could not account for 1.284 personal property items in fiscal 2011 as required
by EPA's Personal Property and Procedures Manual, Headquarters mid-level management was
not knowledgeable of Agency property management procedures, and EPA did not provide
planned property training for Agency employees during fiscal 2011, Because EPA could not
account for these property items, it was not exercising proper control over S2.1 million of
accountable personal property. Inaccurate personal property records compromise EPA's property
control system and can lead to the loss or misappropriation of Agency assets.
The OARM Facilities Management and Services Division is responsible for administering the
EPA Personal Properly Management Program. EPA defines accountable personal property as
"non-expendable personal property with an acquisition cost of S5.000 or greater. EPA-leased
personal property, or property identified as a sensitive item." EPA's Personal Properly ami
Procedures Manual. Section 3.1.1, states that each accountable area must maintain personal
property records in the I1;V1S. thus providing all needed data for ellective personal property
management (e.g., location, procurement, utilization, and disposal). The missing items indicate
that accurate personal property records arc not being maintained. The Personal Property Policy
and Procedures Manual, Section 1.3.2. requires that, when property is lost, damaged, or
destroyed, a Board of Survey conduct a thorough investigation and provide recommendations to
remove the property from EPA's financial system. Headquarters has 77 requests for board action
on the 976 items from fiscal 2010.
As of October 15. 2011, EPA headquarters could not account for 1,284 accountable personal
property items with a value of S2.130,427. EPA headquarters could not account for 769 of the
items (valued at Sl.288.817) missing from the fiscal 2010 inventory \\hen it conducted its 2011
inventory. This is the third consecutive year we have reported this problem. In fiscal 2010 and
2009, EPA headquarters could not account for 1,134 and 1.804 items, respectively. In response
to our fiscal 2010 audit, EPA planned to develop a mandatory online property training program,
However, the target date for implementing the training program slipped from March 30, 2011. to
November 15. 2011.
Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management
require the Director, Facilities Management and Services Division, to:
11. Conduct planned property training and require completion of the course by all EPA
managers.
12. Address the missing personal property items in accordance with Agency procedures,
Agency Comments and GIG Evaluation
The Agency concurred with our finding recommendations.
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6—EPA Should
EPA does not perform inspections of the sale in which marketable securities should be stored to
ensure that securities are adequately safeguarded and that the contents of the safe agree with
accounting or control records. GAO's Standards for Iniemal Control in the Federal
(Mvernmem. GAO'AIMD-00-21.3,1, states. "An agency must establish physical control to
secure and safeguard vulnerable assets. Examples include security for and limited access to
assets such as cash, securities, inventories, and equipment which might be vulnerable to risk of
loss or unauthorized use. Such assets should be periodically counted and compared to control
records," By not securing marketable securities. EPA increases Ihe risk of loss or theft of its
assets.
During our llscal 2011 financial statement audit, we found that EPA received I wo Common
Stoek Certificates from Exide Technologies totaling SI.2 million that were not placed in a safe
for safeguarding. During our review, we found that EPA does not have regularly scheduled
reviews of the sale. After our inquiry. HP A .stated that il does not schedule inspections of the safe
because the safe is rarely used. In addition, we noted that the safe was located in an open area
instead of in a more secure location, such as a locked room.
Securities physically received by EPA should be secured in a sale until they are transferred to
Treasury for disposition. To properly safeguard securities, access to securities should be limited
to authorized personnel only. During our review, we found that EPA does not have regular
scheduled reviews of the safe. By not having controls in place for safe inspect ions. EPA has
minimal assurance that marketable securities received are properly accounted for and handled,
Recommendations
We that the Chief Financial Officer;
13. Develop and implement procedures to perform inspections of the safe on a
basis to verily the contents against accounting records.
14. Move the safe to a secure area, such as a locked room, instead of keeping the safe in
an open area,
Agency Comments and OIG Evaluation
The Agency concurred with our finding and recommendation to develop and implement
procedures to perform inspections of the safe on a regular basis. The Agency did not concur with
moving the safe to a secure area, staling the safe is behind a desk, weighs 1.000 pounds, and
there is other office security; we concluded that no further action is required.
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7—EPA Recognized Earned Revenue in Excess of Expenditures
EPA recorded earned revenue without recognizing corresponding expenses. At the end of fiscal
2011, EPA had recorded S7 million more; in earned revenue in the IIR l;und than it recognized in
HR reimbursable expenses. The fund had a balance of S74.5 million in Earned Revenue Federal
Billed versus $67.5 million for Operating Expense Public Exchange. These balances were the
totals after EPA recorded (1) a $5.7 million entry to accrue unbilled reimbursements and earned
revenue, and (2) a Sl.l million entry to reduce advances from other agencies and to increase
earned revenue, SFFAS No. 7, Accounting for Revenue and Other Financing Sources, requires
agencies to match revenue and expenses. The Agency did not properly match revenues and
expenses in the HR Fund at the end of fiscal 2011 because it made earned revenue accrual entries
without recognizing an equal amount in accrued expenses. The S7 million imbalance in the HR
Fund code violates the matching principle required by the standard.
We extracted and reviewed the fiscal 2011 ending balances in general ledger accounts in the HR
Fund. Hie year-end balances showed that EPA reported $74.5 million in earned revenue in
general ledger account 522G—Earned Revenue Federal Billed. EPA also reported S67.5 million
in operating expenses in account 6IPE—Operating Expense Public Exchange. These two
balances represent a surplus of $7,0 million in the HR account at year end, which violates the
principle of matching revenues and expenses. EPA created the imbalance when it recorded
entries to recognize unbilled reimbursements for the HR Fund code at year end. The amounts
FPA recorded and the resulting balances are shown in table 5:
Table 5: HR Fund code amounts in fiscal 2011
Event
Balances in HR at 09/30/2011
Entries recorded in the 13th and 14th
months to record unbilled
reimbursements and recognize oil spill
reimbursable revenue
Entries made in 1 3th month to accrue
exchange expenses
Balances in HR at 09OO/2011
{after accruals and adjusting entries)
GIL Account 522G
earned revenue
G/L Account 61 PE
operating expense
Revenue-
expense
.',-, millions
($61.4)
(13.1)
0.0
(74.5)
S61.2
0.0
6.3
675
($0.2)
(13.1)
6.3
(70)
Source: Data from IFMS and OIG analysis.
SFFAS No. 7 establishes the criteria for the recognition and measurement of revenue and
expenses. The guidance notes that revenue conies from two sources: exchange and nonexchange
transactions. The guidance requires agencies to match revenue and expenses. Exchange
(reimbursable funds) revenue is to be recognized at the time goods or services are provided
(i.e., when expenses are incurred),
EPA created the $7 million difference in MR revenues over expenses when it prepared entries for
the 13th- and Mtli-moiith periods. EPA adjusted general ledger account 2315—Other Advances
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Federal, recognizing Sl.l million in earned revenue without recognizing expenses. EPA also
recorded an entry for S5.7 million to adjust the unbilled reimbursement accrual, which increased
earned revenue that was already recognized. Hie $5.7 million was based on accounts payable
recorded in late September 2011. When those payables were recorded, earned revenue was
properh" recognized. However. EPA's entry to adjust the unbilled accrual recognized the
S5.7 million in earned revenue for a second time. By not taking into account the total impact of
its entries, EPA overstated earned revenue by 85.7 million and understated operating expense by
$1,1 million in the JiR Fund. The ncl clTccl was earned revenue exceeding operating expenses in
the HR Fund, and exchange revenues not properly matching expenses at fiscal year-end 2011.
Recom
We recommend that the Chief Financial Officer:
15. Review the entries and accounting models used to record expenditures and recognize
earned revenue to assess their impact on the financial statements and to ensure that
they result in the proper recognition of revenue.
16. Ensure that exchange revenue is only recognized at the time goods or services are
provided.
Agency Comments OIG Evaluation
The Agency concurred with our finding recommendations.
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8—EPA Is Withholding Payments Related to
BP Deepwater Horizon Oil Spill Cleanup
.As of September 30. 2011. EPA had not paid contractors working on the Deepwater Horizon oil
spill S6.6 million, of which S2.8 million is late under the Prompt Payment Act. EPA violated the
Antideficieney Act in November 2010 because it made expenditures in excess of funds available.
To avoid a second potential Ajitidefteiency Act violation, EPA delayed payments to vendors,
resulting in the Agency being required to make interest penalty payments lo vendors as required
by the Prompt Payment Act. Section l.315.4(g) of the Prompt Payment Act states that payment is
due (1) on the date specified in the contract, (2) in accordance with discount terms when
discounts are oiTered and taken, (3) in accordance with Accelerated Payment Methods, or
(4) 30 days after the start of a payment period, when a proper invoice is received. The Agency
withheld the payments because it did not have sufficient cash in its Deepwaler Horizon oil spill
funds to pay its bills, By not paying contractors on time. EPA is incurring interest payments and
is losing the opportunity to take discounts.
The Agency was aware that it would have to pay interest as required by the Prompt Payment Act
if it did not pay the bills timely. The Agency was forced into this situation because of disputes
between EPA and L'SCG on invoices submitted for reimbursement. EPA has not received
suflieient emergency funding from L'SCG to reimburse the Oil Spill Response Trust Fund for
eosts incurred by EPA's response to the April 2010 Deepwater Horizon incident. This lack of
funding prompted EPA to make a conscious decision to cease payments lo its oil spill contractors
on September 12. 2011. It is not clear when EPA will obtain the funds necessary to resume
payment of the oil spill invoices. As of November 7. 2011, EPA has not resinned payments.
Consequently. EPA owes contractors the S6.6 million due as of September 30, 2011. as well as
any interest and late penalties, and debts incurred since September 30. 2011.
Recom
We recommend that the Chief Financial Officer:
17. Resume payments to the oil spill contractors as soon as adequate funds are available
ifi the Oil Spill Response Trust Fund.
18. Include in payments lo contractors the interest penalties prescribed by the Prompt
Payment Act for invoices that are paid past their due dates.
Agency Comments and OIG Evaluation
The Agency concurred with our finding and recommendations.
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Attachment 2
With
Table of Contents
t—EPA Violated the Antidefrclency Act In Its Oil Spill Response Aecoynt 25
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9—ERA Violated the Antideficiency Act In Its
Oil Spill Response Account
In January 2011, EPA notified OMB that it violated the Antideficiency Act when it made
expenditures in excess of funds available in the Oil Spill Response Account in the amount of
$502.215. The violation occurred because USCG did not timely reimburse EPA for BP
Deepwater Horizon oil spill response expenses. According to EPA. the reason for the
reimbursement delay was that USCG wanted EPA to provide a greater level of cost
documentation than had been acceptable in the past. By spending more funds than were
available. EPA violated the Antideficiency Act.
Hie Deepwater Horizon incident occurred in April 2010. According to EPA. starting on June 1.
2010. EPA's CFC regularly monitored the cash balance of the Oil Spill Response Account.
According to EPA. in July 2010. EPA requested a cash advance from USCG due to large
amounts being invoiced by contractors working on the response action. In August 2010. USCG
provided EPA with a S32 million advance. EPA used ihe advance to pay contractor invoices, as
well as Agency payroll and travel expenses, related to the Deepwater Horizon response work. On
October 27. 2010. EPA advised USCG that additional advances would be required to pay oil
spill response bills, but USCG was unwilling to provide additional advances because of cost
documentation concerns. In EPA OIG Report No. I l-P-0527. L'PA 's Guif Coast Oil Spill
Response Sfwws Need for Improved Documentation and Funding Practices. .August 25. 2011.
we identified that EPA needed to improve its cost documentation packages prior to submillal to
USCG. The report recommended that EPA implement controls to ensure that bills and supporting
cost documentation packages submitted to USCG are clear and complete, and comply with cost
documentation requirements,
To assist in cash management. EPA developed a cash monitoring report intended to include all
transaction costs, but the report did not include disbursements related to indirect costs. EPA
discovered this issue on November 23. 2010. In a revised cash monitoring report that included
indirect costs. EPA discovered a negative cash balance in the Oil Spill Response Account on
November 18 and 19. 2010. By spending more cash than available. EPA violated the
Antideficiency Act. Title 31 U.S.C. §1341 (a) states. "'An officer or employee of the United
Slates Government may not make or authorize an expenditure or obligation exceeding an amount
available in an appropriation or fund for the expenditure or obligation."
Since the date of the violation. EPA has established several reporting and analysis measures and
safeguards. The measures include (I) establishing a new comprehensive funds-availability report
that includes indirect costs distributed from the account. (2) balancing the new report with the
fund balance with the Department of Treasury at the end of each month, and (3) analyzing the
historical monthly expenses to estimate future expenses. In addition. EPA indicated that it will
revise its administrative funds control policies to change the minimum required available cash
balance from $500.000 to S2 million or more if the balance cannot support payment of
anticipated fixed costs, and bill USCG weekly or when a disbursement of SI million or more is
made.
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Recommendations
We recommend that the EPA Administrator:
19. Finalize the reporting of the Antideficiency Act violation to the President, through the
OMB Director. Congress, and the Comptroller General, as required.
We recommend that the Chief Financial Officer:
20, Work with I 'SCO lo come to a mutual agreement on what constitutes acceptable cost
documentation so that reimbursements do not continue to be delayed.
Agency Comments DIG Evaluation
The Agency concurred with our finding and recommendations.
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Attachment 3
Status of Prior Audit Report Recommendations
¥,PA is continuing to strengthen its audit management to address audit follow-up issues and
complete corrective actions expeditiously and effectively to improve environmental results. The
Chief Financial Oilicer is Ihe Agency follow-up official and is responsible for ensuring that
corrective actions are implemented. During fiscal 2011. OCFO instituted a new quarterly report
that highlights the status of management decisions and corrective actions. "Iliis report is shared
with program olTice and regional managers throughout the Agency to keep them informed of the
status of progress on their audits. OCFO also initiated an update of EPA Order 2750. EPA 'x
Audit Management I'rocess. Additionally. OCFO continued to conduct the on-site reviews of
national and program offices, which it initiated in fiscal 2009. The reviews locus on offices*
audit follow-up procedures and their use of the Management Audit Tracking System, or MATS.
"Hie reviews are designed to promote sound audit management: increase Agency awareness of,
accountability for, and completion of* unimplemented corrective actions: and ensure that audit
follow-up data are accurate and complete. OCFO completed seven of these on-site reviews in
fiscal 2011. including four of regional offices and three of national program offices. These
reviews will be performed on an ongoing, rotating basis,
"Flie Agency has continued to make progress in completing corrective actions from prior years.
'flie status of issues from prior financial statement audits and other audits with findings and
recommendations that could have an effect on the financial statements, and have corrective
actions that are not completed or have not been demonstrated to be fully effective, are listed in
the following table.
Table 6: Significant deficiencies—issues not fully resolved
Automated Application Processing Controls for IFMS
EPA has taken action to correct this open issue by implementing a new financial system to replace
IFMS. The new system was implemented in October 2011. We continue to report this issue because
the fiscal 2011 financial statements were produced using IFMS and the same inability to test
application controls due to insufficient system documentation stiil exists within iFMS.
EPA Misstated Uncollectible Debt and Other Related Accounts
In fiscal 2011. we recommended that prior to year-end closing. EPA should review and test the net
impact of closing entries to ensure proper statement of expenses, revenue, and assets in the
financial management system and financial statements. This is the third year we have reported this
issue. In responses to prior recommendations, EPA noted that it would review the impact of
accounting entries, including standard vouchers for billing documents, and provide accounting
models and technical advice as appropriate. EPA has not made changes to accounting entries in the
year-end instructions See attachment 1. 'Internal Control Significant Deficiencies," for more
information
Improvements Needed in Controls for Headquarters Property
The Agency has not taken sufficient action to address the weakness we noted in the headquarters
annual personal property inventory. As described in attachment 1. "Internal Control Significant
Deficiencies/1 EPA headquarters could not account for 1.284 personal property items in fiscal 2011.
The activation date for the managers' on-line property training has slipped from March 30. 2011, to
November 15. 2011
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Integrated Financial Management System User Account Management Needs Improvement
EPA has made significant strides to complete corrective actions associated with the segregation ot
duties issue noted during She fiscal 2009 financial statement audit. To date, the Agency has
implemented a segregation of duties policy and detective systems controls do exist. However, it has
not provided sufficient documentation to show that the new Agency financial management system
includes automated controls to enforce separation of duties (recommendation 27 in the fiscal 2009
financial statement audit report) Additionally, the OIG recommended that the new financial
management system include automated controls to link to human resources data
(recommendation 32 in the fiscal 2008 financial statement audit report)- To date, EPA has not
implemented any corrective actions in response to this recommendation EPA has indicated that no
further actions have Seen taken due to reevaluation of the business case for a new human resources
system-
Improved Security Planning Needed for the Customer Technology Solutions Project.
Though EPA has taken steps to complete corrective actions, it has not provided all signed
memoranda of understanding for each General Support System owner as agreed upon. A corrective
action was rescheduled to be completed by August 29, 2011, but corrective actions are still
incomplete EPA has not provided an updated milestone date for when it plans to complete the
corrective actions associated with this report's recommendations.
EPA Should Assess Collectibility of Federal Receivables and Record Any Needed Allowances
for Doubtful Accounts
EPA fully implemented recommendations 5 and 7 from our fiscal 2010 financial statement audit, but
did not take full corrective actions for recommendation 6 In our fiscal 2011 financial statement audit,
we found that EPA did not review the collectibility of 10 federal receivables that had been outstanding
for 4 to 11 years, totaling 5793,000. EPA's CFC did not document efforts to collect the federal debt or
determine the debt's status after the 3-year delinquent period. During our review of the federal
allowance for doubtful accounts, we identified 6 of 10 receivable files with the CFC Director's
signature noting a review on September 30, 2011, but nothing was in the remaining 4 files Debt files
are required to document efforts to collect the debt.
EPA Improperly Closing Accounts When Cancelling Treasury Symbols
During fiscal 2010. we reported that EPA processed an adjusting entry to close out the Treasury
symbol 682/30108. and improperly expensed the advance as well as removed other liabilities when
the funds became cancelled on September 30, 2010 We found that the Working Capital Fund had
not refunded the remaining advanced funds to EPA's Environmental Programs and Management
appropriation. EPA responded that the advanced funds were expended before the Treasury symbol
was cancelled, and the funds were spent in Treasury symbol 883/40108 Subsequently, EPA
performed a reconciliation to compare advanced funds recorded in BFY 2002/2003 with drawdowns
of those advanced funds in later BFYs. This comparison reflected activity by service agreement and
did not identify the specific transactions to record the expenditures. EPA did not adequately track
where the advanced funds from BFY 2002/2003 were spent. Further, although EPA's updated
cancellation procedures seemed reasonable, the implementation of the cancellation procedures
resulted in inappropriate activity and balances due to the cancellation of funds and improper
procedures prescribed in the fiscal 2011 year-end closing instructions. Additional support provided by
the Agency was not provided in time to be considered in this report.
Source: OIG analysis.
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Attachment 4
Status of Current Recommendations and
Potential Monetary Benefits
POTENTIAL MONETARY
BENEFITS (in SOOOs)
Rec,
No,
Page
No,
Subject
Status' Act ion Official
Planned
Completion
Dale
Claimed
Amount
Agreed To
Amount
12 Require that regions! and headquarter?
enforcement officials assist GFC by implementing
EPA's newly updated RMDS policy, which
includes the requirement to forward tegs!
doc indentation within 5 business days and to
designate regional contacts 50 that receivables
are recorded timely.
14 Reyiew unbilled Federal reimbursable expenses.
determine thesr coltectibility. and bill appropriate
funds before the funding period is cancelled.
18 Create and rnptement» process to reconcile
expenses incurred and costs NletJ under
individual reimbursable agreements.
15 Dsyesop a pioc-oss OT implement n reporting
system to track, for each rgimbtsrsgblg sgregmgnt,
the expenses that have been billed for each
budge! fiscai year.
1? Revrse the cancellation procedures to ensure
aecounts are pioperly stated.
1? Postthe pioper Allowance for Loss.
17 Prior to year-end closing review and test the net
impact of closing entfiss to firtsu/e proper
statsmsnt of expenses, revesius, snd assets in
the financial m^nagsmerrt sys-tem and financial
statements.
18 Develop and implemsrsl aelicies and prseedures
to address responsibility for the removal of EPA
property from the Agency financial system when
property is tran&ferred to contractors.
18 Ensure that all EPA property that has been
transferred to contractors is removed From EPA's
Finsnci$! systsm.
11 Require the Director. Faeces Management gnd
Services Drvrsion. to cortduct planned psoperty
training and require completion of the course by
all EPA managers.
U Assistant Aommistrstor for
Enforcement and Compliance
U
U Chiel Ftnanei.
'inaiwiai QfRoor
U Chtaf Financial Dffieer
U Chief Financiil Officer
U Chief OfReer
"inaneiai Offeer
Asi^ifrt for
and Ressurces
U Assistant Aclministrator for
Adminis.trati@n and Resources
Manggemsnt
AtoinistratEon and Resources
Management
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29
125
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RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (in S0C«Os)
Rec.
No,
No.
Subject
Planned
Completion
Status1 Act ion Official Dale
Claimed
Amount
Agreed To
Amount
19 Require the Director. Facilities Management and U
Services Dwiwosi, to address the missing personal
property items *n accordance with Aganey
procedures.
20 De¥e>op and implement pfoceduses to perform U
inspections of the safe on $ regular besss to verify
the contents against accounting records
20 Move the safe to 3 secure area, such a locked C
room, instead of keeping the safe in an open
area.
22 Review the entries and accounting models used U
to record expenditures and recognize earned
revenue to assess their Bnpget on the financial
statements and to ensure that they result in the
proper recognition of revenue.
22 En sura that exchange revenue is only recognized U
at the time goods or services are provided.
23 Resume payment-^ to ihg eil spi c-onlraetors a$ U
soen as adequate funds are available in the Oil
Spill Response Trust f untl.
23 Include tn payments to contractors the interest U
penalties prescribed by the Prompt Payment Act
for inveices that are paid past their due dates.
26 Finalize the repotting of the Antideficiency Act U
violation to the President, thnjugh the OM8
Director, Congress, and the Comptroller General
as required
26 Work with USCG to come to a mutual agreement U
on what constitutes acceptable cost
documentation sts that reimbursements da net
continue to be delayed.
Assistant Admin is tralor for
Administration and Resource;
Management
Chief Financial Officer
ChM Financial Offfeer
Chief Financial Officer
Chief Financial Officer
Chief Financial Officer
Chief Financial Officer
EPA Aobinisfratar
Chief Financial Officer
HrtflftOH
0 - recommBn:dabGn is open wrth agreed-to corrective actions pending
C - reconiniendation is closed with all agreed-to actions completed
U " recommendation is unresolved with resolution efforts in progress
12-1-0073
30
126
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Appendix 1
201 f and
Consolidated Financial
Provided separately.
12-1-0073 31
127
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II
to
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SUBJECT: Atsdi? ul"FP.-\\ Fiscal Year 201 ! and :OIO CoivM>lkiju\i Financial S
FROM: Barbara J. Brandt /v Original By:
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Inspvxirir ( ii.1 Rcr.il
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iliynl% >ou ibr idcntil\ m.ii jJdith^n.il area-* I'ur iiiipruxc.r.ciH in ihc drait Ui'lkv o* Inspector
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ai;cf)i"\ in llstiil stewardship >:zmlKim\ results. Atlachcii ar-,1 llic agency"1, res^nses l
tlii-. audit rep-nrl. 13cia;li?iJ convclKe action i>Lm.s will he jinivnied u> vou jiid )<>ur stall' within
1X'! davs of list i-isiiatiec ol tht llnal asidu repnri.
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Office iii"FJn.jiit.':jl Manatacnicnl tjl'i202i 5t»-<-53S'> reuardii^J! the audis.
128
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Attachment
cc; Craig Hooks, Assistant Administrator. Administration and Resources Management
Cynthia Oiks, Assistant Administrator. Office of Enforcement and Compliance Assurance
Melissa Heist. Assistant Inspector General for Audit
Maryann Froehlich. Deputy Chief Financial Officer
Joshua Baylson. Associate Chief Financial Officer
Stefan Silzer. Director. Office ofFinaneial Management
RaJTael Stein. Director, Office ofFinaneial Services
Renee Page. Director, Office of Administration
Jeanne Conklin, Deputy Director. Office ofFinaneial Management
Paul Curtis. Director, Financial Statements Audit
Jim Wood. Director, Cincinnati Finance Center
Chris Osbome. Acting Staff Director. Reporting and Analysis Staff
Dale Miller, Acting Staff Director, Financial Policy and Planning Staff
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Attachment
Response to Draft OIG Audit of EPA's Fiscal 2011 and 2010 Consolidated Financial
Statements
I - Accounts Receivable Detail Not Provided Timely by Regions
We recommend that the Assistant Administrator lor Enforcement and Compliance Assurance;
1. Request that regional enforcement officials assist Cincinnati Finance Center by
implementing the EPA's newly updated Resource Management Directives System policy.
which includes the requirement of forwarding legal documentation within 5 business days and
designating regional contacts so that receivables are recorded timely.
Response: (Concur)
The Office of Enforcement and Compliance Assurance will continue to work with the regions
and CFC and outline additional actions to be taken in the implementation of the EPA's newly
updated RMDS policy including the requirement of forwarding legal documentation within 5
business days and designating regional contacts so that receivables are recorded timely. This
ellbn requires the coordination of headquarters enforcement offices, the Department of Justice.
the Environmental Appeals Board and the Office of Administrative Law Judges in addition to the
regional offices to work with CFC to create accounts receivable in a timely manner,
We request the following corrections be made- in the draft audit report.
» In the case of non-Superl'und civil judicial cases. RMDS 2540-9-43 (Procedure 3). issued on
April 13. 2011. states that the DOJ will notify and provide CFC with documentation when a
final order is issued requiring the payment of a civil penalty.
• In October 2011. the DEC A issued internal procedures governing penalties assessed under
headquarters initialed administrative enforcement actions,
* For Superfund enforcement-related accounts receivable. RMDS 2550D-14-T1 covers live
types of statutory Superfund accounts receivable (i.e.. cost recoveries, cash outs. Superfund
slate contract cost share payments, future response costs, and civil and stipulated penalties).
» Among the 39 exceptions noted in the draft audit report, some of these involved cases for
which DOJ or headquarters did not provide timely notification to CFC.
Over the course of* the last year. OFvCA has taken the following steps to address this issue. First, the
Office of Civil Enforcement worked closely with other OECA offices and with the Office of the
Chief Financial Officer to revise the RMDS policy governing non-Superl'und penalties. Second, by
memorandum dated October 4. 201J. signed by OEC.Vs former Principal Deputy Assistant
Administrator Catherine McCabe and OCTO's Deputy' Chief Financial Officer Man-ami Froehlich.
12-1-0073 99
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OECA and OCFO advised the Regional Administrators. Deputy Regional .Administrators and Senior
Enforcement Managers of the new procedures issued by OCFO requiring the notification to CFC
when penalty accounts receivable are created. Third, as required under Procedure 3. DEC A issued
internal procedures for EPA headquarters-originated administrative enforcement cases.
In addition on November 17. 2011. OCE and OCFO will he presenting a webinar for the regions,
headquarters and staff at the EAB and the OALJ to explain the revised RMDS policy, how to
coordinate with CFC on a timely and consistent basis and to explain the performance measure that
requires notification to CEC within 5 business days of the effective date of a final administrative
order assessing civil penalties and Siipcrlund penalty actions.
With regard to Superfund-related enforcement accounts receivable, the Office of Site
Remediation Enforcement is developing a training course, to be delivered to all regions, on how
to elYectively manage Supcri'und accounts receivable. The training will include a section thai
emphasizes the need for regional offices to forward executed copies of settlement agreements,
and other legal documents, establishing amounts due to CFC within 5 business days as provided
inRMDS2550D-14-TL
Finally, we have been working with OCFO on a FY 2012 performance measure for notifying and
providing CFC with documentation regarding penalty and other enforcement-related accounts
receivable within 5 business days. OCFO has committed to provide quarterly reports to senior
management in OECA and the regions assessing the extent to which the regions and headquarters
are meeting this performance metric, 'Iliroughout FY 2012, we will be working with regional
enforcement managers. OCFO and the Department of Justice to ensure that enforcement-related
accounts receivable are created in a timely manner.
2 - Federal Reimbursable Crusts Not Billed Timely
We recommend thai the Chief Financial Officer:
2. Review unbilled federal reimbursable expenses, determine their collcclabilily and bill
appropriate funds before the funding period is cancelled,
Response: (Concur)
The CFC works diligently to research, resolve, and bill outstanding reimbursable costs and
will continue to research and resolve unbilled costs particularly before the funding period is
cancelled. CEC reviews and bills all active funds-in Interagency Agreements on a quarterly
basis. Expenditure reports for unique budget organization are reviewed by previously billed
amount prior to creating a bill for new costs. In addition, CEC will research methods to
allocate costs if it cannot be identified to an agreement and research their colieetability once
identified to an IA,
3. Create and implement a process to reconcile expenses incurred and costs billed under
individual reimbursable agreements.
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Response; (Concur)
CFC currently processes expense reports under individual reimbursable agreements. These
reports are maintained in the agreement file along with a log of bills, date the bills were issued
and remaining balance on the agreement, CFC will continue to maintain these records either
manually in the agreement files or within the Compass financial system.
4, Develop a process or implement a reporting system to track, for each reimbursable
agreement, the expenses that have been billed tor each budget fiscal year.
Response: (Concur)
CFC manually tracks these costs in each agreement file using the OCFO Reporting and
Business Intelligence Tool and Compass Data Warehouse reports. CFC is also exploring
using functionality within Compass to link the budget organizations and agreement for
reimbursable costs. This should eliminate charging to generic or ""unlinked" budget
organizations.
3 - EPA's Processes for Cancelling Treasury Symbols Caused Inappropriate Balances
We recommend that the Chief Financial Officer:
5. Revise the cancellation procedures to ensure accounts are properly stated.
Response; (Non-Concur)
The Treasury financial management guidance supports the agency's position in regards to how
it cancels a Treasury Account Symbol. The EPA cancellation procedures support this guidance
and are properly stated,
6. Post the proper .Allowance for Loss.
Response: (Non-Concur)
The KPA has posted the appropriate adjustments to close the TAS and establish the
correct balances in the 32HO miscellaneous receipt account.
7. Revise the Yeur-l-lncl Closing instructions, to prescribe proper procedures for closing
accounts,
Response: (Non-Concur)
'Hie EPA Year End Closing Instructions already provide proper procedures for dosing
accounts.
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8. Prior to year-end closing, review and test the net impact of closing entries to ensure proper
statement of expenses, revenue, and assets in the financial management system and financial
statements.
Response: (Non-Concur)
The EPA properly cancellation of the TAS; no further work is
4 - EPA Double Counted Contractor-Held Property
We recommend that the Assistant Administrator for Administration and Resources Management:
9. Develop and implement policies and procedures to address responsibility for the removal
of EPA property from its financial system when it is transferred to contractors,
Response; (Concur)
The Office of Administration and Resources Management will review current policies and
procedures and revise as needed to ensure they address responsibilities for the removal from
its financial system when it is transferred to contractors. Current procedures arc in place to
inform contracting officers, project managers, contractors and agency property personnel on
how to handle property transfers to contractors. While the appropriate agency guidance exists
in the Contract Management Manual and the Property Policy and Procedures Manual, agency
and contractor compliance remains a challenge. Additionally, frequent turnover of positions
necessitates an increase in both training and cross training ot'COs and Agency Property
Managers. Agency property management duties are collateral duties that, in some cases, are
rotated among program level stall".
OARM is committed to developing a training program for all parties associated with the
contract property process during FY 2012. As part of an on-going review and improvement
program. OARM will continue to provide periodic training information to COs on the
importance of ensuring that all contracts having contract property clauses are identified as
such in the U.S. Environmental Protection Agency Acquisition System. Additional guidance
and training is being developed to improve communications and eliminate this issue. In
addition, the agency's Contractor Property Coordinator sent an informational memo regarding
potential double counting issues to APMs on October 13. 2011.
The following points highlight significant action taken by OARM during FY 2011 to address
the issue:
» Hie CPC provided training to contracting officers at the annual training conference
and attended three APM's monthly teleconferences to address the issues and answer
questions.
« OARM implemented a quarterly assessment and management certification program
on property management and reporting. This program will aid in the improvement of
the agency's compliance with federal and EPA property policies, improve data
12-1-0073 102
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accuracy through verification and validation and ensure the effectiveness of
management and oversight systems thai support government property tracking and
reporting systems.
« The Operating Division Directors and Regional Acquisition Managers are provided
with reports on a quarterly basis, from EAS and Federal Procurement Data System-
Next Generation on contracts under their purview that have government property
and.'or government property clauses. Each ODD and RAM is required to: 1) review
the information for accuracy and completeness, 2) make any necessary1 corrections,
and 3) validate thai all necessary information has been provided or when it will be
provided to the CPC. Using the data from both EAS and FPDS-NCi OARM has the
reporting capability to identify contracts containing CUP and 'or the government
property clauses, as well as a management tool to verity that COs are forwarding
contracts containing CHF to the CPC in compliance with Contracts hlanagemern
Manual 42.5. These two reports provide an independent process methodology for
identifying and verifying the universe of the EP.-Vs contracts containing CHP.
« OARM has also created a new position For data quality as part of its Strategic
Acquisition Human Capital Plan and found new avenues to electronically collect
information on government property from contracts.
10. Ensure that all EPA property that has been transferred to contractors is removed from
EPA's financial system.
Response: (Concur)
has already taken steps to remedy the issues surrounding data collection and
maintenance for Government property. A more comprehensive and accurate list of contractors
having contracts and agency contract property clauses has been compiled and is being used to
validate the FY 201 1 annual reporting, The list contains 396 contracts: I) 69 had reportable
contract property greater than or equal to $25.000. 2) 191 had no property, and 2) 136 had
property but no property at the S25.000 level. A review is underway to identify any
duplicative recording and ensure corrective action where necessary.
5 - EPA Headquarters Cannot Account for 1,284 Property Items
We recommend that the Assistant .Administrator for Administration and Resources Management
require the Director. Facilities Management and Services Division, to:
1 1 . Conduct planned property training and require completion of the course by all F,PA
managers.
Response: (Concur)
The planned property training course has been developed and is posted on the agency's
website. Over the next week, the .Assistant Administrator for OARM will send a notification
letter to the agency's senior managers outlining the training course instructions and training
commencement.
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12. Address the missing personal property items in accordance with agency procedures,
(Concur)
OARM is currently addressing the missing personal properly items in accordance with agency
procedures. OARM is currently working with the Board of Survey to investigate the
remaining items from previous years. The Board plans to make a decision on missing items
shortly and it is anticipated the recommendation will be to mark the missing items as inactive
in the agency's financial system.
6 - EPA Should Secure Marketable Securities
We recommend thai the Oil ice of Chid" financial Officer;
13. Develop and implement procedures to perform inspections of the on a regular
to verify the contents against accounting records.
Response: (Concur)
CFC will create and maintain a log of accountable items in (he sale.
14, Move the safe to a secure area, such a locked room, instead of keeping the sale in an open
area.
Response: (Non-Concur)
The safe is currently in a secure area and is located behind ihe CFC administrative assistant's
desk out of ihe general flow of the office. The safe is the size of a four drawer file cabinet
and weighs over 1,000 pounds. The building has a guard sitting in the lobby 24 hours-'? days a
week and non-duty hours access to the building is restricted and monitored through a sign-in
sheet.
7 - EPA Recognized Earned Revenue In Eicess of Expenditures
We recommend that the Chief Financial Officer:
13, Review the entries and accounting models used to record expenditures and recognize
earned revenue to assess their impact on ihe financial statements and to ensure that they result
in the proper recognition of revenue,
Response: (Concur)
The will be verified.
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16. Ensure that exchange revenue is only recognized at the time goods or services are
provided.
Response: (Concur)
The EPA concurs.
8 - EPA is Withholding Payments Related to BP Deepwatcr Horizon Oil Spill Cleanup
We recommend that the Chief Financial Officer:
17. Resume payments to the oils spill contractors as soon as adequate Oil Spill Response
Trust funds are available.
Response: (Concur)
The EPA will process the payments to the contractors as soon as adequate funds are available,
18. Include in the payments the interest penalties prescribed by the Prompt Payment Act for
invoices that are paid past their due dates,
Response: (Concur)
The EPA will include the interest on all over 30 in with the Prompt
Payment Act.
9 - EPA Violated the Antldetieiency Art in Its Oil Spill Response Account
We recommend that the EPA Administrator;
19. Finalize the reporting of the Anti deficiency Act violation to the President, through the
Office of Management and Budget Director. Congress and the Comptroller General, as
required.
Response: (Concur)
The agency will continue to work with OMB to finalize the submission of the Antidcficiency
Act letters. The EPA Administrator signed the letters on October 25. 2011 and they were
delivered to OMB. The required notification letters are awaiting OMB clearance.
We recommend that the Chief Financial Officer:
20, Work with L'SCG to come to a mutual agreement on what constitutes acceptable cost
documentation so that reimbursements do not continue to be delayed.
Response: (Concur)
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The CXT'O and L'.S. Coast Guard have been in discussions lor the past several months to
identify a process to ensure the timely submission and reimbursement of agency costs whik
adhering to the cost documentation requirements of the U.S. Coast Guard.
Responsible Managers:
• s; Original Signed By: November 10. 201'
Signature 'Date
Stefan Silxer, Director. Office of Financial Management
•'V Original Signed By; November 10. 201'.
Signature-Dale
Ruffael Stein. Director. Office of Financial Services
fsf Original By: November 10.2011
Signature-''Date
Craig Hooks. Administrator for Administration Resources Management
•V Original Signed By: November 10. 2011
S ignature.- Date
Cynthia Giles. Assistant Administrator for Enforcement and Compliance Assurance
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Appendix III
Distribution
Administrator
Chief Financial Officer
Assistant Administrator for Administration and Resources Management
Assistant Administrator for Enforcement and Compliance Assurance
Assistant Administrator for Environmental Information and Chief Information Officer
General Counsel
.Associate Administrator for Congressional and Intergovernmental Relations
.Associate Administrator for External .Affairs and Environmental Education
Acting Director. Office of Policy and Resource Management. Office of Administration and
Resources Management
Director. Office of.Administration. Office of .Administration and Resources Management
Director, Office of Civil Enforcement, Office of Enforcement and Compliance Assurance
Director. Office of Site Remediation Enforcement, Office of Enforcement and Compliance
.Assurance
Director. Office of Technology Operations and Planning. Office of Environmental Information
Director. Office of Budget. OITice of the Chief Financial Officer
Director. Office of Financial Management. Office of the Chief Financial Officer
Director. Office of Financial Services. Office of the Chief Financial Officer
Director. Research Triangle Park Finance Center, Olllee of the Chief Financial Officer
Director. Cincinnati Finance Center, Office of the Chief Financial Officer
Director. Las Vegas Finance Center. Office of the Chief Financial Officer
Director. Office of Planning, Analysis, and Accountability. Office of the Chief Financial Officer
Director, Reporting and Analysis Staff, Office of the Chief Financial Officer
Director. Office of Technology Solutions. Office of the Chief Financial Officer
Director. Financial Policy and Planning Stall", Office of the Chief Financial Officer
Director. .Accountability and Control Staff. Office of the Chief Financial Officer
Director. Payroll Management and Outreach Staff. Office of the Chief Financial Officer
Agency Audit follow-Up Coordinator
Audit Follow-Up Coordinator, Office of the .Administrator
Audit Follow-Up Coordinator. Office of the Chief Financial Officer
Audit Fol low-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator. Office of Enforcement and Compliance Assurance
Audit Follow-Up Coordinator. Office of Environmental Information
/Audit Follow-Up Coordinator. Office of Solid Waste and Emergency Response
Audit Follow-Up Coordinator, Office of Grants and Debatment. Office of Administration and
Resources Management
.•Audit Follow-Up Coordinator, Office of Financial Management, Office of the
Chief Financial Officer
Audit Follow-Up Coordinator. Office of Financial Services. Office of the Chief Financial Officer
12-1-0073 107
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Section III
Other A ccompanying Information
139
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MANAGEMENT INTEGRITY AND CHALLENGES
Overview of the EPA's Efforts
Management challenges and integrity weaknesses represent vulnerabilities in program operations that
may impair the EPA's ability to achieve its mission and threaten the agency's safeguards against fraud,
waste, abuse and mismanagement. These areas are identified through internal agency reviews and
independent reviews by the EPA's external evaluators, such as OMB, GAO and the EPA's OIG. This
section of the APR discusses in detail two components related to challenges and weaknesses: 1) a
brief discussion of the EPA's progress in addressing its FY 2011 integrity weaknesses and 2) key
management challenges identified by the EPA's OIG, followed by the agency's response.
Under the FMFIA, all federal agencies must provide reasonable assurance that policies, procedures
and guidance are adequate to support the achievement of their intended mission, goals and objectives.
(See Section I, "Management Discussion and Analysis," for the Administrator's assurance statements.)
Agencies also must report any material weaknesses identified through internal and/or external reviews
and their strategies to remedy the problems. Material weaknesses are vulnerabilities that could
significantly impair or threaten fulfillment of the agency's programs or mission. For FY 2011, no new
material weaknesses were identified by the agency or the OIG. (See following subsection for a
discussion of new, existing and corrected weaknesses and significant deficiencies.)
The agency's senior managers remain committed to maintaining effective and efficient internal controls
to ensure that program activities are carried out in accordance with applicable laws and sound
management policy. Agency leaders meet periodically to review and discuss the EPA's progress in
addressing issues raised by OIG and other external evaluators, as well as progress in addressing
current weaknesses and emerging issues. The agency will continue to address its remaining
weaknesses and report on its progress.
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PROGRESS IN ADDRESSING
FY 2011 WEAKNESSES AND SIGNIFICANT DEFICIENCIES
FY 2011 Weaknesses and
Significant Deficiencies
Agency Weaknesses
1. Program Evaluation*
?. Strengthening the Agency's Implementation of
FMFIA
3. Permit Compliance System
4. Streamlining EPA's Process for Developing
Chemical Assessments Under IRIS .
5. Electronic Content Management
Significant Deficiencies
1. Improperly Closed Account*
2. Reconciling Unearned Revenue forSuperfund
State Contract Costs
3. Collectability of Federal Receivables
4. Headquarters Personal Property Controls
5. EPA Double Counted Contractor Held Property**
6. Federal Reimbursable Costs Not Billed Timely**
7. EPA is Withholding Payments Related to
Deepwater Horizon Oil Spill Cleanup**
8. EPA Recognized Earned Revenue in Excess of
Expenditures**
9. Accounts Receivable Detail Not Provided Timely
By Regions **
In FY 2011, the EPA continued to address its
agency-level internal control weaknesses and
significant deficiencies. This section
discusses the weaknesses resolved in FY
2011, as well as those for which corrective
actions are still underway.
Agency Weaknesses
Program Evaluation
In its September 2007 report, Using the
Program Assessment Rating Tool as a
Management Control Process, OIG identified
several limitations to systematically
conducting program evaluations at the EPA.
These include: 1) funding limitations; 2) lack
of internal and external expertise; 3) the need
for strategic investment in program
evaluation; 4) insufficient data/performance
measurement information; and 5) lack of
participation and willingness from states. The
EPA declared Program Evaluation as an
agency-level weakness in FY 2009.
To address this weakness, the agency
developed a two-part program evaluation
strategy that included various focus areas to
strengthen the EPA's evaluation capabilities.
In FY 2011, the agency continued to take
steps to implement key actions in the two-part
program evaluation strategy and to
strengthen program evaluation throughout the agency. In part one of the strategy, the EPA seeks to
strengthen internal expertise and build access to external expertise to move closer to achieving its long-
term goal of establishing a program evaluation culture at the EPA. In part two of the strategy, the EPA
seeks to improve strategic investments in program evaluation planning and partnerships.
In addition to the strategy, the agency has taken other actions to strengthen program evaluation at the
EPA:
Designated a senior executive responsible for developing a more robust evaluation capacity at the
EPA
Established guidelines for conducting program evaluation, and considering funding during annual
planning and budgeting process.
Built strategic relationships with external evaluators by co-sponsoring the Environmental Evaluators
Network Forum
In collaboration with EEN partners, developed a peer-reviewed article and a comprehensive
database of peer-reviewed literature
* All corrective actions were completed in FY 2011.
** Items identified as new in FY 2011.
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Maintain access to skilled external evaluators to develop methodologies and to provide specialized
skills and expert reviews
Increased the number of evaluations listed in the FY 2011-2015 Strategic Plan
• Through efforts underway, improving the strategic use of performance measurement for program
management and improvement
The agency has completed all the corrective actions for this weakness. The EPA will continue to
monitor progress in carrying out the two-part program evaluation strategy. To enhance program
evaluation in the EPA's performance measurement system, the agency plans to initiate 1-2 larger
scale program evaluations. Additionally, the agency will continue to improve impact measurement
and evaluation capacity by supporting partnerships with states and academic experts.
Strengthening the Agency's Implementation of FMFIA
In FY 2009, the EPA declared Strengthening the Agency's Implementation of FMFIA as an agency-
level weakness. OIG believes that the agency's management integrity guidance for FYs 2008 and 2009
did not require reporting on compliance with all of the GAO's five Standards for Internal Control in the
Federal Government, as referenced in OMB Circular A-123.
The agency has taken steps to strengthen the EPA's FMFIA process and to address OIG concerns.
Specifically, the agency has:
Issued Deputy Administrator and CFO memorandum emphasizing the importance of maintaining
internal controls over programmatic operations and financial activities, and clarifying expectations
for senior leadership.
Released on-line mandatory FMFIA courses and trained almost 2,000 agency senior managers
(AAs/RAs, SES, and GS-15s designated by their AA/RA), 335 agency staff including Management
Integrity Advisors.
Held a training workshop for all agency Management Integrity Advisors to enhance their knowledge
of internal controls, risk assessment, and the agency's management integrity program.
Issued technical guidance and user-friendly fillable forms/templates for developing Program Review
Strategies which require reporting against all five GAO standards.
Conducted Management Integrity Program Compliance Reviews of six regional and five
headquarters national program offices. Findings from the reviews have informed the FY 2010 and
FY 2011 Management Integrity Guidance for the agency.
The agency will continue conducting Program Compliance Reviews in selected national program and
regional offices to assess the agency's FMFIA implementation and determine needs for guidance,
training, and other tools and assistance. Additionally, the EPA will use reviews conducted by OIG, or
other oversight agencies, to determine the effectiveness of corrective actions. The agency is validating
the effectiveness of corrective actions and expects to close this weakness in FY 2012.
Permit Compliance System
In FY 1999, the EPA declared Permit Compliance System as an agency-level weakness. The
weakness focuses on the need for the EPA to revitalize or replace PCS to provide an information
system that both the states and the EPA can use to ensure complete and accurate NPDES permit and
discharge data.
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Although the EPA has now developed and successfully implemented a modern, national information
system designed to meet the needs of today's NPDES permitting and enforcement program, not all of
the states have been migrated from PCS to the new system ICIS. Currently, 34 states, 2 tribes, 8
territories and the District of Columbia are using the new system. That leaves 16 states remaining to be
migrated to ICIS, all of which are authorized to manage the NPDES program. The plan is to complete
the modernization of PCS and migrate those 16 states from PCS to ICIS in FY 2013.
In FY 2011, the agency:
Completed User Validation and Acceptance Testing for Wave I of ICIS-NPDES Full Batch
functionality.
Implemented Wave I of ICIS-NPDES Full Batch (capability to electronic report permit and facility
data from states to ICIS-NPDES) functionality.
• Migrated five (FL, KY, MO, MN, OH) additional states from PCS to ICIS-NPDES.
Completed Software Technical Specifications for Wave 2 of ICIS-NPDES Full Batch functionality
(electronic reporting of NPDES inspection data from states to ICIS-NPDES).
• Completed Software Development for Wave 2 of ICIS-NPDES Full Batch functionality.
Completed Functional and Integration testing of Wave 2 of ICIS-NPDES Full Batch functionality.
Completed Software Technical Specifications for Wave 3 of ICIS-NPDES Full Batch functionality
(electronic reporting of NPDES Enforcement Actions, Program Reports and violation related data
from states to ICIS-NPDES).
• Begun Software Development for Wave 3 of ICIS-NPDES Full Batch functionality.
The final closure date for this agency level weakness is projected to be the end of fourth quarter FY
2013. This completion date is based on various assumptions and estimates.1
Streamlining EPA's Process for Developing Chemical Assessments Under IRIS
In FY 2009, the EPA declared Streamlining EPA's Process for Developing Chemical Assessments
Under IRIS as an agency-level weakness. GAO identified "Transforming EPA's Processes for
Assessing and Controlling Toxic Chemicals" as a high-risk area in its January 2009 High-Risk Series. In
its report, GAO states that the agency needs to take actions to increase the transparency of the
Integrated Risk Information System and enhance its ability under the Toxic Substances Control Act to
obtain health and safety information from the chemical industry.
In May 2009, the agency released a new Integrated Risk Information System process for completing
health assessments. The goal of the new process is to strengthen program management, increase
transparency and expedite the timeliness of health assessments. Since that time, the agency's National
1 This completion date is based on various assumptions about the future and, therefore, any changes to the assumptions
would impact the schedule. For FY 2011 and beyond, we assumed that annual funding will rise to $ 7.5 million. (If EPA
assumes the President's budget level of $6.7 continues in FY 2011 and beyond, the schedule would likely move 5 or more
quarters into the future, with a shut down date for PCS delayed until FY 2015). Further, as with any project, extended
timelines for completion add risk to the project, and predictions about when the project will be completed become more
speculative.
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Center for Environmental Assessment has completed 16 assessments, more than the number of
assessments completed in the previous three years. Additionally, the agency is making significant
progress on health hazard assessments of numerous high priority chemicals (e.g. formaldehyde,
trichloroethylene, perchloroethylene, dichloromethane, arsenic, chromium VI, methanol,
benzo[a]pyrene and Libby asbestos), including the completion of milestones for interagency science
consultation, external review or posting on the IRIS web page. Progress on these and other IRIS
assessments is available at http://www.epa.gov/IRIS/. Assessments of health effects for chemicals
found in environmental mixtures including PAHs, dioxins, phthalates and PCBs are being developed.
These cumulative assessments will increase the number of chemicals that are addressed by the IRIS
Program and are based upon the expressed needs of the agency. The EPA's Human Health Risk
Assessment program will continue to lead innovation in risk assessment science based on expanding
scientific knowledge.
The EPA recently unveiled a new database that facilitates public access to the scientific studies that
underpin key agency decisions. The Health Environmental Research Online database contains the key
studies the EPA uses to develop environmental risk assessments for the public. It includes references
and data supporting the Integrated Risk Information System, which supports critical agency
policymaking. The HERO database is publicly accessible so anyone is able to review the scientific
literature behind the EPA science assessments. The HERO database strengthens the transparency of
the science supporting agency decisions.
The IRIS update project is in a pilot phase. Toxicity values in IRIS that are more than 10 years old have
been identified, screened, and prioritized based on agency needs; the first group of 15 high priority
assessments has been selected for update. A Federal Standing Science Review Committee, consisting
of reviewers from the EPA and other federal agencies has been assembled. An independent contractor
will lead and conduct independent external peer reviews of these assessments. A second batch of nine
assessments should be ready for the FSSRC by December 2011, and a Federal Register notice
announcing a new set of 20-30 chemicals.
In July 2011, the EPA announced additional measures to strengthen the scientific quality of IRIS
assessments based on comments from the National Academy of Sciences. These measures include
making assessment documents clearer, shorter and more transparent. The EPA will evaluate the
strengths and weaknesses of critical studies in a more uniform way and clearly indicate which criteria
were most influential in weighing scientific evidence supporting its choice of toxicity values. Also, the
EPA will continue to track progress to determine if new timelines need adjustment.
Electronic Content Management
In FY 2009, the EPA declared Electronic Content Management at the EPA as an agency-level
weakness. Although the agency has a formal, structured and vigorously managed records management
program in place that has met past records management requirements, its roots can be found in
traditional paper-based records management, maintenance and access. The agency's inconsistencies
in how electronic content is stored, maintained and assessed have started to have an impact on critical
processes related to electronic records management.
To implement effective changes to content management practices within the agency, corrective actions
must be addressed enterprise-wide. An enterprise approach will allow for integration with the agency's
lines of business and replace current piecemeal or ad hoc approaches. To accomplish this, the agency
is implementing a system for the effective management of its information assets that will include a
governance structure for content management as well as selection of enterprise tools, and the
formulation of new policies for content management responsibilities and processes.
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The agency has taken the following corrective actions to address this weakness:
Established a new QIC Electronic Content Subcommittee
Developed a charter for the subcommittee
Established two enterprise-wide workgroups under the subcommittee
Launched two pilot projects to evaluate tools for eDiscovery and the management of email records.
The results of the pilot projects will be used to inform the subcommittee's decisions on future policy
or tool implementation.
The agency anticipates that all remaining corrective actions will be completed in FY 2013.
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Significant Deficiencies
EPA Improperly Closed Accounts When Cancelling Treasury Symbols
During the FY 2010 Financial Statement Audit, OIG stated that the EPA did not properly close the Fund
Balance with Treasury when cancelling treasury symbols on September 30, 2010. Treasury Financial
Manual Bulletin No. 2009-04 states that agencies must cancel any remaining balances (whether
obligated or unobligated) in the account being cancelled. The agency has taken a number of steps to
ensure appropriate funds have been returned to Treasury.
In FY 2011, the agency:
Conducted an analysis to determine whether funds needed to be returned to Treasury;
Made the appropriate adjusting entry to treasury symbol;
Reviewed procedures to ensure processes for reconciliations are in place to prevent future issues;
Provided guidance to ensure balances are properly reported; and
Evaluated procedures and revised them to ensure timely review of the balances in cancelling
treasury symbols.
The agency is utilizing monitoring report information to ensure no variances exist for treasury symbols
that will be cancelled at year-end. All corrective actions for this significant deficiency have been
completed.
Improvement Needed in Billing Costs and Reconciling Unearned Revenue for Superfund State
Contract Costs
During the FY 2009 financial statement audit, the OIG identified the failure of the EPA to properly
review the calculations used to reconcile unearned revenue for SSC. costs as a material weakness. To
remedy the material weakness, the agency improved accountability for the SSC contract requirements
and site status information by researching transactions in older funds to determine validity;
strengthening the review/verification process for reconciling Superfund site cost; and ensuring data and
calculations used are consistent and properly supported. In FY 2010, based on the corrective actions
taken, the issue was downgraded to a significant deficiency.
In FY 2011, the agency continued to provide instructions to the regions for careful review of the "closed"
sites and the steps necessary to complete the closure activity. Extra measures and verifications were
taken to ensure data entered on the spreadsheets was correctly transferred into the financial system.
For instance, the review of the SSC spreadsheets was added to the regional review of internal controls
over financial activities. This year, the process included ensuring that the spreadsheets were complete
for all sites, that contract values and percentages were updated, and that credits were not only included
but were for the correct amounts.
As part of the quarterly SSC accrual process, the agency will continue to send requests to the regions
emphasizing the need to review all sites they have listed as 'closed' to make sure they are taking care
of all actions. This included, but was not limited to, billing a particular state for its share of the costs,
adjusting the contract values and/or percentages and reclassifying appropriated disbursements where
applicable. The agency has included language in its quarterly call for regional input into the
spreadsheets. This will help the regions ensure all billings are done timely.
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The agency will continue to review the SSC process as part of its review of internal controls over
financial activities. The agency anticipates that all corrective actions for this significant deficiency will be
completed in FY2012.
Assess Collectability of Federal Receivables and Record Any Needed Allowances for Doubtful
Accounts
During the FY 2010 financial statement audit, OIG stated that the agency should assess federal
receivables collectability and record any needed allowances for doubtful accounts. Historically, the EPA
has not established allowances for delinquent federal debts because it considered all federal debts to
be collectible. To remedy this significant deficiency, the agency reviewed its open federal debts to
ensure accurate status, established new procedures to timely bill federal agencies; and issued a new
policy to address delinquent federal receivables, Resource Management Directives System, 2540-12-
P1, Intragovernmental Business Rules - Delinquent Federal Accounts Receivable.
The agency anticipates that all corrective actions for this significant deficiency will be complete in FY
2012.
Improvements Needed in Controls for Headquarters Personal Property
During the FY 2010 financial statement audit, OIG identified improvements needed in the controls for
the EPA headquarters. The agency acknowledged several significant challenges with tracking personal
property in the headquarters accountable area. To remedy this significant deficiency, the agency is
developing training for all managers, revising the current policy and procedures manual, and
establishing standard operating procedures. Additionally, the agency is conducting a "wall to wall"
inventory of headquarters personal property and will share the results with stakeholders, as
appropriate.
The agency anticipates that all corrective actions for this significant deficiency will be completed in FY
2012.
EPA Double Counted Contractor Held-Property
During the FY 2011 Financial Statement Audit, OIG stated that the EPA double counted contractor-held
property in its financial system because it did not remove from its financial system property that had
been transferred to contractors. To remedy this issue, the agency will review current policies and
procedures and revise them as needed to ensure it addresses responsibilities for removing from its
financial system property which is transferred to contractors. Current procedures are in place to inform
Contracting Officers, project managers, contractors and agency property personnel on how to handle
property transfers to contractors. While the appropriate agency guidance exists in the Contract
Management Manual and the Property Policy and Procedures Manual, agency and contractor
compliance remains a challenge. Additionally, frequent turnover of positions necessitates an increase in
both training and cross training of COs and Agency Property Managers. Agency property management
duties are collateral duties that, in some cases, are rotated among program level staff.
The agency is committed to developing a training program for all parties associated with the contract
property process during FY 2012. As part of an on-going review and improvement program, the agency
will continue to provide periodic training information to COs on the importance of ensuring that all
contracts having contract property clauses are identified as such in EAS. Additional guidance and
training is being developed to improve communications and eliminate this issue. In addition, the
agency's Contractor Property Coordinator sent an informational memo regarding potential double
counting issues to APMs on October 13, 2011.
In FY 2011, the agency has taken the following actions to address the issue:
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• The CPC provided training to CO at the annual training conference and attended three ARM
monthly teleconferences to address the issues and answer questions.
• The agency implemented a quarterly assessment and management certification program on
property management and reporting. This program will aid in the improvement of the agency's
compliance with federal and agency property policies, improve data accuracy through verification
and validation and ensure the effectiveness of management and oversight systems that support
government property tracking and reporting systems.
Operating Division Directors and Regional Acquisition Managers are provided with quarterly reports
from EAS and Federal Procurement Data System-Next Generation on contracts under their purview
that have government property and/or government property clauses. Each ODD and RAM is
required to: 1) review the information for accuracy and completeness, 2) make any necessary
corrections and 3) validate that all necessary information has been provided or note when it will be
provided to the CPC. Using the data from both EAS and FPDS-NG, the agency has the reporting
capability to identify contracts containing CHP and/or the government property clauses, as well as a
management tool to verify that COs are forwarding contracts containing CHP to the CPC in
compliance with Contracts Management Manual 42.5. These two reports provide an independent
process methodology for identifying and verifying the universe of the EPA's contracts containing
CHP.
• The agency has also created a new position for data quality as part of its Strategic Acquisition
Human Capital Plan and found new avenues to electronically collect information on Government
property from contracts.
The agency has already taken steps to remedy the issues surrounding data collection and maintenance
for government property. A more comprehensive and accurate list of contractors having contracts and
agency contract property clauses has been compiled and is being used to validate the FY 2011 annual
reporting. The list contains 396 contracts: 1) 69 had reportable contract property greater than or equal
to $25,000, 2) 191 had no property, and 3) 136 had property but no property at the $25,000 level. A
review is underway to identify any duplicative recording and ensure corrective action where necessary.
The agency anticipates that corrective actions for this significant deficiency will be completed in
FY2012.
Federal Reimbursable Costs Not Billed Timely
During the FY 2011 Financial Statement Audit, OIG stated that the EPA did not timely bill other federal
agencies for reimbursable costs. The agency works diligently to research, resolve, and bill outstanding
reimbursable costs and will continue to research and resolve unbilled costs particularly before the
funding period is cancelled. The agency reviews and bills all active funds in Interagency Agreements on
a quarterly basis. Expenditure reports for unique budget organizations are reviewed by previously billed
amount prior to creating a bill for new costs. In addition, the agency will research methods to allocate
costs if they cannot be identified to an agreement and research their collectability once identified to an
IA.
The agency currently processes expense reports under individual reimbursable agreements. These
reports are maintained in the agreement file along with a log of bills, the dates the bills were issued and
the remaining balance on the agreement. The agency will continue to maintain these records either
manually in the agreement files or within Compass.
The agency anticipates that corrective actions for this significant deficiency will be completed in
FY2012.
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EPA Is Withholding Payments Related to BP Deepwater Horizon Oil Spill Cleanup
During the FY 2011 Financial Statement Audit, OIG stated that the EPA withheld payments related to
BP Deepwater Horizon Oil Spill. To remedy this issue, the agency will process the payments to the
contractors as soon as adequate funds are available. The EPA will include the interest on all payments
over 30 days in accordance with the Prompt Payment Act.
The agency anticipates that corrective actions for this significant deficiency will be complete in
FY2012.
EPA Recognized Earned Revenue in Excess of Expenditures
During the FY 2011 Financial Statement Audit, OIG stated that the EPA recorded earned revenue
without recognizing corresponding expenses. To remedy this issue, the accounting model will be
reviewed and verified. The EPA will ensure that exchange revenue is only recognized at the time goods
or services are provided.
The agency anticipates that corrective actions for this significant deficiency will be completed in FY
2012.
Accounts Receivable Detail Not Provided Timely By Regions
During the FY 2011 Financial Statement Audit, OIG stated that the EPA did not provide timely accounts
receivable supporting documentation to be promptly recorded in the financial system. To remedy this
issue, the agency will continue to work with the regions and Cincinnati Finance Center and outline
additional actions to be taken in the implementation of the EPA's newly updated RMDS policy, including
the requirement to forward legal documentation within five business days and designate regional
contacts so that receivables are recorded timely. This effort requires the coordination of headquarters
enforcement offices, DOJ, the Environmental Appeals Board and the Office of Administrative Law
Judges in addition to the regional offices to work with CFC to create accounts receivable in a timely
manner.
Over the course of the last year, the agency has taken the following steps to address this issue. First,
the agency worked closely with other internal offices to revise the RMDS policy governing non-
Superfund penalties. Second, by memorandum dated October 4, 2011, signed by the Office of
Enforcement Compliance and Assurance's former Principal Deputy Assistant Administrator Catherine
McCabe and OCFO's Deputy Chief Financial Officer Maryann Froehlich, OECA and OCFO advised the
Regional Administrators, Deputy Regional Administrators and Senior Enforcement Managers of the
new procedures issued by OCFO requiring the notification to CFC when penalty accounts receivable
are created. Third, as required under Procedure 3, OECA issued internal procedures for EPA
headquarters-originated administrative enforcement cases.
In addition, the agency will be presenting a webinar for the regions and headquarters staff to explain
the revised RMDS policy, how to coordinate on a timely and consistent basis and the performance
measure that requires notification within five days of the effective date of a final administrative order
assessing civil penalties and Superfund penalty actions.
With regard to Superfund-related enforcement accounts receivable, the agency is developing a training
course, to be delivered to all regions, on how to effectively manage Superfund accounts receivable.
The training will include a section that emphasizes the need for regional offices to forward executed
copies of settlement agreements and other legal documents establishing amounts due within five
business days as provided in RMDS 2550D-14-T1, Superfund Accounts Receivable and Billings.
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Finally, the agency is working to develop a performance measure for notifying and providing
documentation regarding penalty and other enforcement-related accounts receivable within five
business days. The agency financial manager has committed to provide quarterly reports to agency
enforcement senior managers in headquarters and the regions assessing the extent to which the
regions and headquarters are meeting this performance metric. Throughout FY 2012, the agency will
be working with its regional enforcement managers, financial managers and DOJ to ensure that
enforcement-related accounts receivable are created in a timely manner.
The agency anticipates that corrective actions for this significant deficiency will be completed in
FY2012.
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Summary of Financial Statement Audit
Audit Opinion
Restatement
Audit Opinion: Unqualified
No
Material Weaknesses
Total Material Weaknesses
Beginning
Balance
0
New
0
Resolved
0
Consolidated
0
Ending
Balance
0
Summary of Management Assurance
Effectiveness of Internal Control Over Financial Reporting (FMFIA § 2) (A-123 Appendix A)
Statement of Assurance
Unqualified
Material Weaknesses
Total Material Weaknesses
Beginning
Balance
0
New
0
Resolved
Consolidated
0
Reassessed
0
Ending
Balance
0
Effectiveness of Internal Control Over Operations (FMFIA § 2)
Statement of Assurance
Unqualified
Material Weaknesses
Total Material Weaknesses
Beginning
Balance
0
New
0
Resolved
0
Consolidated
0
Reassessed
0
Ending
Balance
0
Conformance With Financial Management System Requirements (FMFIA § 4)
Statement of Assurance
Systems Conform to Financial Management System Requirements
Non-Conformances
Total Non-Conformances
Beginning
Balance
0
New
0
Resolved
0
Consolidated
0
Reassessed
0
Ending
Balance
0
Compliance With FFMIA
Overall Substantial Compliance
1 . System Requirement
2. Accounting Standards
3. USSGL at Transaction Level
Agency
YES
Auditor
YES
YES
YES
YES
NOTE: See "EPA Holds Itself Accountable" in Section I of this report for additional information on FMFIA 2, FMFIA 4
and FFMIA presented in the summary graphs above."
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2011 KEY MANAGEMENT CHALLENGES
The EPA's Top Major Management Challenges
As Identified and Reported by the Office of Inspector General
The Need for a National Environmental Policy: Environmental quality depends on
policies related to farming, energy, water, transportation and federal land management.
A national environmental policy would help the EPA and other federal agencies go
beyond existing, fragmented coordination efforts to set national environmental goals
and set regulatory standards, particularly for problems that cross state or national
borders or pose risks to future generations.
Water and Wastewater Infrastructure: Many drinking water and wastewater systems
across the country are unable to maintain compliance with federal water standards due
to needed repairs and new constructions. Over the next 20 years, the EPA estimates
that approximately $633 billion will be needed to pay for water and wastewater
infrastructure. The EPA needs to lead in developing a coherent Federal strategy with
states and local governments to assess and organize resources to meet water and
wastewater infrastructure needs.
Oversight of Delegations to States: Due to differences between state and federal
policies, interpretation, strategies and priorities. The EPA needs to more consistently
and effectively oversee its delegation of programs to the states assuring that delegated
programs are achieving their intended goals.
Safe Reuse of Contaminated Sites: The common practice of not removing all
sources of contamination from hazardous sites is inhibited by a regulatory structure
that places key responsibilities for monitoring and enforcing the long-term safety of
contaminated sites on non-EPA parties that may lack necessary resources,
information, and skill; changes in site risks as site conditions change overtime; and
existing weaknesses in the EPA's oversight of the long-term safety of sites as well
funding deficiencies.
Limited Capability to Respond to Cyber Security Attacks: The EPA is highly
vulnerable existing external network threats, despite reports from security experts that
Advanced Persistent Threats, designed to steal or modify information without detection
are becoming more prevalent throughout the government. Currently, the EPA has
reported that over 5,000 servers and user workstations may have been compromised
from recent cyber security attacks along with national security and confidential
business and personal data. (Previous years reported under Homeland Security)
Reducing Domestic Greenhouse Gas: In response to a Supreme Court ruling in
April 2007, the EPA issued an endangerment finding that current and projected
atmospheric concentrations of six GHGs threaten the public health and welfare of
current and future generations. However, the EPA must take significant actions to
address the adverse impacts of these air pollutants.
EPA's Framework for Assessing and Managing Chemical Risks: The EPA's
effectiveness in assessing and managing chemical risks is limited by its authority to
regulate chemicals under the Toxic Substances Control Act. Chemicals manufactured
before 1976 were not required to develop and produce data on toxicity and exposure,
which are needed to properly and fully assess potential risks.
FY
2009
•
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FY
2010
•
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•
•
•
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•
FY
2011
•
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•
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Link to
Agency
Strategic
Goal
Cross-Goal
Goal 2
Cross-Goal
Goal 3
Cross Goal
Goal 1
Goal 4
Goal 5
Key Management Challenges
The Reports Consolidation Act of 2000 requires OIG to identify, briefly assess and report annually the
most serious management and performance challenges facing the agency. In FY 2011, OIG identified
five areas it considers the EPA's most pressing management challenges. The EPA has made progress
in addressing the issues OIG identified and will continue to work diligently in assessing and resolving
vulnerabilities before they become serious management issues. The following pages provide the entire
OIG's Management Challenges report along with the EPA's response to each challenge.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C 20460
JUN 29 m
TH£ WEKCTQHGCNEHAl
MEMORANDUM
SUBJECT: EPA's Fiscal Year 2011 Management Challenges
TO:
Lisa P. Jackson
Administrator
We are pleased to provide you with a lisi of areas Lhe Office of Inspector General considers as
key management challenges confronting the U.S. Environmental Prelection Agency (EPA). The
passage of the GPRA (Government Performance and Results Act) Moderni ration Act of 2010
provides a new government-wide definition of major management challenges. According to the
Act, major management challenge means programs or management functions, within or across
agencies, that have greater vulnerability to waste, fraud, abuse, and mismanagement where a
failure to perform well could seriously affect the ability of an agency or the federal government
to achieve its mission or goals.
The Reports Consolidation Act of 2000 requires our office to report what we consider as the
most serious management and performance challenges facing the Agency. Given this
requirement, our list includes management challenges and significant performance issues facing
EPA. We used audit, evaluation, and investigative work, as well as additional analysis of Agency
operations, to identify challenges and weaknesses. Additional challenges and weaknesses may
exist in areas that we have noi yet reviewed, and other significant findings could result from
additional work. We provided detailed summaries of each challenge in the attachment.
Management Challenges
Page
Need for Greater Coordination of Environmental Efforts
Oversight of Delegations to States
Safe Reuse of Contaminated Sites
Limited Capability to Respond to Cyber Security Attacks
12
EPA's Framework for Assessing and Managing Chemical Risks
15
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This year we deleted two management challenges (Water and Wastewater Infrastructure and
Reducing Domestic Greenhouse Gas Emissions) because we moved relevant excerpts to the
challenge on the need for greater coordination on environmental efforts.
We welcome the opportunity to discuss our list of challenges and any comments you might have.
; Arthur A. Elkins, Jr.
Attachment
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Need for Greater Coordination of Environmental Efforts
Congress passed the National Environmental Policy Act (NEPA) and created the U.S.
Environmental Protection Agency (EPA) in 1970 to carry out national environmental policy.
Before EPA's creation, more than a dozen federal agencies had environmental responsibilities,
resulting in the lack of an organized, concerted focus to address pollution and degradation,
Reorganization Plan No, 3 of 1970 created FPA and transferred to it programs housed in 15 units
of several existing federal departments and independent agencies. Creating EPA served as the
first step to address national environmental policy by consolidating separate federal efforts.
Despite efforts to consolidate federal environmental programs. EPA's 2006-2011 Strategic Plan
noted that 25 other federal departments and agencies conduct environmental activities.
In June 2010, we reported that NEPA does not outline a national strategy, set national priorities
and goals, or unify all stakeholder efforts.1 In addition, EPA faces challenges related to
interagency coordination since EPA Lacks complete authority or control over many activities that
affect the condition of our nation's environment, such as land use and transportation planning.
Environmental quality depends on policies related to farming, energy, water, transportation, and
federal land management, but neither Congress nor the Executive Branch has Silly engaged hi
harmonizing these issues.
Funding and budget data illustrate the degree to which other agencies have a role in protecting
the environment. For example, nearly 20 percent ($147 billion) of the total funding of
$787 billion under the American Recovery and Reinvestment Act of 2009 (ARRA) has gone to
federal agencies other than EPA that have environmental mandates in areas such as energy
usage, air quality, climate change, water quality, solid and hazardous waste, materials
management, or land conservation. Budget data also identify1 potential areas of duplication and
the need to coordinate more efficiently cross-agency efforts to achieve environmental goals.
Testimony in 1995 by the Comptroller General noted that, "The lack of an integrated approach to
government leads to redundancy and waste. Government can make huge efforts to provide
services to the public, yet still fall far short of its intentions because of faulty coordination of its
efforts within and across agency lines."
The following examples of past management challenges identified by our office and the
Government Accountability Office (GAO) illustrate how EPA cannot fully address the goals of
NEPA due to ineffective, segregated coordination efforts.
\\atcr and Waste-water Infrastructure According to some studies, local communities
will need to spend up to $400 billion over the next 20 years to maintain and improve
clean water infrastructure.2 EPA's Clean Water and Drinking Water State Revolving
Funds received about SI.4 billion in federal capitalization grants in FY 2009,J Congress
added 56 billion to these funds through the ARRA. The U.S. Departments of Housing
1 EPA DIG. National Envtnavnental Polity and Quadrennial Revte* AVofaf, Report No. 10-P-OI40, June 8.2010.
•' Clean Water Funding Network Website.
hBB'/^Jtig|f1liTftiiirihi|.nry/ti>dei-4ihp'1opiion com cnnlctitA-
i; S, EPA, Drinking Water Sou Revolving FundAllotmtntt; U.S. EPA, Clean Water SKF Federal CapliatKation
Grants by Federal Fiscal Year ofA*ard M State,
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and Urban Development and Agriculture also provided grant and loan assistance for
walcr and wastewater infrastructure of about S2 billion in FY 2006 and received funding
through the ARRA. These programs are small in relation to the funding gap and arc not
part of a comprehensive investment strategy to address water infrastructure needs, The
federal government does not have a national approach to bridging the water and
wastewatcT infrastructure gap. Since EPA is primarily responsible for administering the
Clean Water Act and Safe Drinking Water Act, it should take the lead in organizing a
coherent federal strategy within the limits of its statutory authorities and responsibilities.
A comprehensive approach to bridging the walcr and wastevvater infrastructure gap
would systematically assess the investment requirements, alert the public and Congress of
unfunded liabilities and risks, and work with other federal agencies. States and local
governments to organize resources to meet needs.
Greenhouse Gases (GHGs) - In October 2009. the GAO recommended developing a
national strategy for climate change." In October 2010, the White House interagency task
force on climate change adaptation issued a final report that noted "significant gaps in the
U.S. government's approach to climate change adaptation and building resilience."6
Among the gaps the report noted were a unified strategic vision and approach;
coordinated efforts across state, local, and federal lines; and coherent research programs
to assess regional effects. In January 2011. EPA initiated the Cross-F.PA Climate Change
Adaptation Planning Work Group to develop and implement a climate change adaptation
plan for EPA.' EPA relics on multiagcncv research organizations" for the information and
tools to help address GHGs,° and to accelerate the development of new and advanced
GHG reduction technologies.10 Consequently. EPA has limited control over the content,
conduct, and timing of this research. The FY 2012 President's Budget shows that EPA is
one of 13 departments and agencies that contribute research to the U.S. Global Change
Research Program" to improve understanding of the science of climate change and its
4 U.S. Department of Agriculture. Rural Development, Water and Environmental Programs, Annual Actrrtrt' Report
- FY2006. page 6.
* GAO, Climate Change Adaptation: Strategic Federal Planning Could Help Government Officiate Make More
Wormed Decisions. GAO-10-113, October 2009.
* White House Council on Environmental Quality. Progress Report of the Interagency Climate Change Adaptation
Task Farce: Recommended Actions in Support of a National Climate Change Adaptation Strategy, October 5, 2010.
T EPA, Memorandum from Louise Wbe. EPA Acting Associae Administrator for Polk)-, Etiahltshmtnt ofCreas-
EfA Climate Change Adaptation Planning tt'ark Group & Call for Wort Group Member Nominations, January 13.
2011
1 EPA relics on the U.S. Global Change Research Program and the Climate Change Technology Program »
understand better the effects and risks of climate change and to develop new technologies to reduce GHG emissions.
EPA information on climate change regulatory initiatives, policies, and actions, including EPA'i Performance and
Accountability' Report jor Fiscal Year 2QW, November 16.2009.
* EPA OIG, EPA Needs a Comprchensn-e Research Plan and Policies to Fulfill its Emerging Climate Change Role,
Report No 09-P-0089. February 2, 2009; Piclke, Roger A., IT,, "Scientific Information and Global Change
PoMcymaktng,- Climate Change 28: 315-19, 1994.
" C-Span video archives, EPA Administrator's Address to the National Press Club on the Agency's Key Priorities.
March 8, 2010. at 00:24:04 and 00:25:48.
" U.S. Global Change Research Program website. Participating Departments and Agencies
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potential impacts,1' KPA recognizes thai it needs creativity and innovaiiorL among other
things, from all stakeholders to meet GHG challenges.13 and thai is beyond EPA's direct
control.14
Water Ecosystems - Chesapeake Bay - EPA participates in inlcragcncy efforts to solve
complex environmental challenges in large coasta! freshwater and marine ecosystems, '
A joint 2006 report by our office and the U.S. Department of Agriculture OIG on the
Chesapeake Bay noted that while local farming associations support clean-up efforts.
they oppose granting EPA authority to control nonpoint source pollution entering the
watershed. This creates an opportunity for the U.S. Department of Agriculture to assist
EPA in working with local farming communities surrounding the Bay.
US Mexico Border Water Program - In March 2011, GAO issued its first annual report
to Congress identifying federal programs^ agencies, offices, and initiatives, within
departments or government-wide, that have similar or overlapping goals or activities.
The report described how fragmented federal efforts to meet water needs in the U.S.-
Mexico border region have resulted in an administrative burden, redundant activities, and
an overall inefficient use of resources. GAO found thai seven federal agencies, including
EPA, that arc active in the border region obligated at least SI .4 billion from FYs 2000
through 2008 to fund numerous projects in the region, but their efforts are ineffective
because they have not comprehensively assessed the needs of the region. GAO suggested
that Congress require federal agencies develop a task force in partnership with state and
local officials to leverage collective resources and establish compatible and coordinated
polices across relevant agencies.
These complex environmental issues show how EPA needs to continually work to improve
external coordination with federal agencies and others with which it shares environmental
protection responsibilities. However, as noted in the Environmental Law Reporter, "Inleragcncy
coordination concerning the environment is uneven at best"17 The implementation of a national
environmental policy could reduce or eliminate federal agencies' duplication, overlap, or
fragmentation, and help agencies more efficiently and effectively address environmental
problems, while providing the federal government with cost-saving opportunities. Our research
11 U.S. Global Change Research Program website, "About/Program Overview"
' ' -
' C-Spaa2 video archives. Administrate* 's address to the National Press Club on the Agency's key priorities,
March 8. 2010, it 00:24:04 and 00:25:48
'*DOE, U.S. Climate Change Technology Program, I 'ision and Framework for Stratew and Planning, Report No.
DOE/PI-OOOS. September 2006.
" We evaluated EPA's attempts to resolve the envirtinnxrmal challenges in these water bodies in several reports,
including: EPA Ptted>i to Accelerate Adoption of Numeric Nutrient Water Quality Standards, Report No. 09-P-0223.
August 26, 2009; EPA Needs a Cohesive Plan lo Clean Up the Great Lake* Areas of Concern, Report No. 09-P-
0231, September 14. 2009; and several reports on the Chesapeake Bay that can be found at
hm>:. ' 'www irp>.eov oia rBPOrtv'cfacurtnhtitom
16 GAO. Opportunities la Reduce Potential Duplication in Guvtmmenl Programs. Save Tax Dollars, and Enhance
Revenue. GAO- 1 1 -3 1 8SP. March 20 II
17 Environmental Law Reporter News & Analysis, Special Issue: Agenda for a Sustainable America, National
Governance: Still Stumbling Toward SusialnabiMy. 39 Envtl. I.. Rep. News & Analysis 1032 1 (April 20D9>,
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has found a push ibr developing national strategics related to various environmental aspecb.
including invasive species, sustainable development, and environmental justice.
Given the absence of a. national environmental policy, there are a number of near-term corrective
actions that EPA could lake to coalesce various environmental stakeholder efforts. The EPA
Administrator could send a letter to stakeholder groups asking for their insight on areas a
national environmental policy should address. Next, EPA could form study groups to address
key concepts, topics, and/or missions relevant lo a national environmental policy. The EPA
Administrator could send a letter to stakeholder organisations encouraging participation in the
interagency groups. KPA's study groups could then meet regularly and develop position papers
on their respective topics. Position papers could identify shared goals, overlapping/duplicative
programs, strategies to attain goals, and measures to assess progress. Currently. EPA has ad hoc
intcragcncy workgroups such as that between EPA and the U.S. Departments of Transportation
and Housing and Urban Development to create a framework to foster sustainable communities -
but EPA lacks an overall coordinated strategy and goals that integrate these efforts with other
stakeholder activities. Moreover, Congress should provide EPA and other federal agencies the
capacity to identify and manage environmental problems of national significance. EPA should
work with Congress and the Administration to examine ways to leverage resources expended to
various, insular environmental protection efforts.
Oversight of Delegations to States
EPA's oversight of state programs is a key management challenge. GAO and our office have
reported that EPA has made some progress in this area; however, the effectiveness of Agency
oversight has a number of limitations.
To accomplish its mission to protect human health and the environment, KPA develops
regulations and establishes programs that implement environmental laws. Many of the federal
statutes establish federal and state regulatory' programs in which states are given the opportunity
to enact and enforce such laws, meeting minimum federal criteria, to achieve the regulatory
objectives which Congress has established. As such. EPA may authorize state, local, or tribal
governments to implement these laws when they request authorization and EPA deems the
agency capable of operating the program consistent with federal standards. EPA relies heavily on
authorized state, and tribal agencies to obtain performance data and to implement compliance
and enforcement programs. In its FY 2007 Performance and Accountability Report, EPA stated
that it delegated the responsibility for issuing permits and for monitoring and enforcing
compliance to the states and tribes.
EPA does not abrogate its oversight responsibility when it has delegated enforcement
responsibility. Federal intent is to ensure national minimum level environmental protection
standards. In addition, federal requirements establish consistency for businesses and within
industries nationwide. States' discretion adds flexibility to address specific circumstances and
local issues, but joint implementation and enforcement leads to special challenges in
interpretations, strategies, and priorities. Therefore. F.PA performs oversight of state, local, and
tribal programs to provide reasonable assurance that they achieve national goals.
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Improving EPA-statc relationships is a priority for EPA," and EPA has begun to improve its
oversight by implementing the Slate Review Framework," However, GAO reported that while
EPA has made substantial progress in improving priority setting and enforcement planning with
states, its oversight needed further enhancement. The framework is intended to provide a
consistent approach for overseeing programs and identifying weaknesses and areas for
improvement but EPA has not implemented it in a consistent manner. For example, evaluations
of the State Review Framework show that EPA has limited ability to determine whether states
are performing appropriate enforcement in a timely manner, and whether penalties are applied to
environmental violators in a lair and consistent manner within and among states. In response to
these Findings, EPA made changes to ihc State Review Framework and initiated a Clean Water
Act Enforcement Action Plan, which among other things is aimed at strengthening Agency-
oversight of state water quality compliance and enforcement.
We have continued our work on this topic over the past year, and our recent reports demonstrate
that this challenge persists. Two key factors limiting EPA's knowledge about state programs are
(1) data limitations and (2) inadequate oversight of state activities.
• Data Limitations—Limitations in the availability, quality, and robustness of program
implementation and effectiveness data, and limited Agency resources to
independently obtain such data, prevent EPA from ensuring that the intent of the law
is met. Our work this year found issues with two federal data systems: the Safe
Drinking Water Information System and the Resource Conservation and Recovery-
Act (RCRA) Information System (RCRAInfo).
>• We found that EPA could not accurately assess the risk of public water
systems delivering contaminated drinking water from emergency facilities
because of limitations in Safe Drinking Water Information System data
management, EPA and state officials we interviewed said they were unaware
of instances similar to the situation we reported on in Illinois. However, they
also stated that they currently have no way to know whether an emergency
facility had been turned on without notice. There is no federal regulatory
requirement for UP A or states to oversee or monitor emergency facilities. As a
result, neither EPA nor the states know the amount of risk that public water
system customers may face from misuse of water from emergency facilities.'"
> We also found that the RCRAInfo data that track hazardous waste handlers
and the shipment and receipt of hazardous waste contain errors and miss
source documentation. These conditions call into question the quality and
11 EPA. Administrator Lisa Jackson's Seven Priorities for EPA's Future,
tynp_ tltqLepJLk1 '
_
'* EPA, State Review Framework, http: uww.epa.t-m b
^ EPA O1G, UP.4 Lacks Internal Controls to Prevtra Misuse of Emergenc)- Drinhns Water Facilrtifs, Report No.
tl-P-0001, October 12, 20 10.
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reliability of data within the RCRAInfo system, as well as any resulting
repotting,1'
Inadequate Ch-ersighf—Oversight of state activities requires that EPA establish
national baselines that state programs must meet, and monitor state programs lo
determine whether they meet federal standards. Our work identified the absence of
national baselines and a lack of robust state oversight with respect lo the Clean Water
Act, Superfund program, and RCRA.
> EPA's authorizing memoranda of agreement with stales are critical common
denominators for state-authorized programs and should represent a common.
national baseline. We found that EPA and states have outdated and
inconsistent state agreements under the National Pollutant Discharge
Elimination System, EiPA headquarters does not hold EPA regional or state
offices accountable for updating their memoranda of agreement when
necessary. Instead. EPA relics on an inconsistent variety of other planning and
management mechanisms to exercise control over state programs. Without
current written agreements with all authorized states, EPA cannot ensure
Agency management control and effective oversight over this state-
adminislered national program.""
> Long-term monitoring of the ground water is necessary to ensure that the
Superfund remedial action remains protective of human health and the
environment. However, our work found that the State of Pennsylvania did not
collect ground water samples from the Bruin Lagoon Superfund Site for
6 years, from 2001 to 2007. EPA Region 3 managers told us they made a
deliberate hut undocumented decision to not use oversight authority to require
the state to conduct ground water sampling at the site. In June 2007.
Pennsylvania resumed sampling ground water at the site. The Region's 2009
Five-Year Review, which included sht-sc results, indicated that the site was
protective. Nonetheless, gaps in Song-term monitoring may result in a failure
to detect conditions that indicate that a cleanup remedy is not protecting
human health and the environment.23
> RCRA requires EPA to provide oversight of sites where cleanup authority is
delegated to slates. In addition. EPA's Public Involvement Policy encourages
EPA siaffand managers to ensure that decision-making processes are open
and accessible. Our office received a Hotline complaint from Citizen Action
New Mexico alleging that the New Mexico Emironment Department
mismanaged the Sandia National laboratory's Mixed Waste Landfill
21 EPA OIGf EPA Colild Improve RCRAIttfa Daia Quality arKJSiTiein Development, Report No, 1l-P-0096,
F<*nW}'7,2QIl.
21 EPA OIG, Ef A Should Rwise Outdated or facorxisient F.FA -Slate Memoranda ofAgrermeta, Report No. 10-P-
0224, September 14,2010.
23 EPA OIO, EPA Shvtild Improve Oversight of Long-term Monitoring at Bruin Lagoon Sttp&funil Site in
Pennsylvania, Report No. 10-P-02I7, September 8,2010,
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monitoring wells. We found that Region 6's documentation of its oversight
was insufficient. Therefore, we could not determine whether the allegations
had merit or whether New Mexico Environment Department's actions and
decisions were technically sound.24
While EPA has renewed its attention on the oversight of programs delegated to stales, much
work remains. The Agency must address limitations in the availability, quality, and robustness of
program data, and limitations in implementation across environmental statutes to provide
effective oversight. Effective oversight of delegations to states also requires an organizational
structure capable of maintaining clear lines of accountability. Our ongoing, national review of
issues related to this management challenge focuses on how EPA's organizational structure may
impede its ability to oversee state Clean Air Act (CAA), Clean Water Act, and RCRA
enforcement programs. If EPA does not adequately oversee states' authorized enforcement
programs, it cannot hold states accountable for meeting their enforcement responsibilities. As a
result, EPA would not be able to ensure Americans that states maintain a baseline level of
environmental protection,
Safe Reuse of Contaminated Sites
In the last decade, EPA has increasingly emphasized the reuse of contaminated or once*
contaminated properties. In its 2011 -2015 Strategic Plan, EPA announced a shift in the
definition of success ai a Superfund site from "construction complete" of a site cleanup to when
a site is "ready for anticipated use."'11 Recently, the Agency identified thousands of contaminated
sites that it encourages developers and "anyone interested" to use for building renewable energy
(e.g., wind, solar, biomass) facilities,** EPA has successfully turned some actual or perceived
problem sites into properties that reinvigorated communities and created jobs.2' Contaminated
properties have become viable again as retail stores, public recreation areas, housing complexes,
sports stadiums, and commercial office space.
Recycling and reusing contaminated property can produce measured economic benefits, provide
environmental benefits that result from preserving undeveloped lands, and improve quality of
life for communities. While EPA's recycle and reuse goals are notable and may have made a
positive contribution in difficult economic limes, EPA's duty is to ensure that contaminated sites
are safe for humans and the environment. EPA faces significant and increasing challenges in this
area due to: (1) the common practice of not removing all sources of contamination from
hazardous sites; (2) a regulatory structure that places key responsibilities for monitoring and
enforcing the long-term safety of contaminated sites on non-EPA parties that may lack necessary
resources, information, and skill; (3) changes in risks as site conditions change overtime; and
(4) weaknesses in EPA's oversight of the long-term safety of sites,
Many contaminated sites, such as Superfund sites, must be monitored in the long term
(i.e., 30 years or more) because known contamination is often not fully removed or remediated.
** EPA OIG, Region t> \'eetis to Improve Ovo-tighl Practice*. Report Mo, 10-P-O100, April 14, 201D.
11 EPA. FY 2011-2015 Strategic Plan, page 38. hnp »^u.gpa.a>v pl.imiiidbiiiki.-i srr,ilcL:.LpliinJiteiL
24 EPA website, "RE-Powcring America's Land." hup: WAV. ctmovi'imeii»«blgmff tv
37 EPA website, "Superfund Redevelopment,"
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and controls that prevent prohibited activities at sites must be maintained and enforced. New
controls or monitoring may be required if previously undetected or new contaminants emerge,**
which can be a direct result of site changes brought about by reuse. The lack of effective long-
term monitoring and enforcement of reuse controls al contaminated sites can pose significant
risks to human health and the environment. The New York Department of Environmental
Conservation released a report in March 2009 listing hundreds of "old" Superfund. Brownfields.
and other cleanup cases that were reopened to investigate potential new threats from vapor
intrusion.* Improvements in analytic techniques and knowledge gained from site investigations
has increased awareness of soil vapor as a medium of concern and of the potential for human
exposure from the soil vapor intrusion pathway. ° However, EPA has yet to finali2c guidance on
assessing or addressing potential risks from vapor intrusion and does not estimate that it will do
so until 2012,JI
EPA has acknowledged challenges to ensuring the long-term safety of contaminated sites. ~ In
2005. the Agency released a report that examined a range of long-term stewardship issues33 and
challenges it faced, as well as the role of non-EPA parties nir»g restrictions).
15 Engineering controls are the engineered physical barriers or structures designed to monitor and prevent or limit
exposure to the contamination.
3* The Uniform Environmental Covenants Act confirms the validity of environmental covenants (i.e.. institutional
CQBBoil/bDd UK controls) by ensuring that land use restrictions, mandated environmental monitoring
requirement*, and a wide range of common engineering controls designed to control the potential environmental
risk of residual contamination will be reflected in land records and effectively enforced over time. Currently, about
8
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In response to a GAO report on institutional controls. EPA 1ms also taken some steps to better
manage the implementation of institutional controls at Supcrfund siics,"' However, many sites
remain for which the implementation status of institutional controls is not available. * In 2010.
EPA completed an internal evaluation to determine whether the required and necessary
institutional controls were in place at national priority Superfiind sites." EPA's review disclosed
that controls to protect human health were not in place at a number of sites they reviewed. EPA
made recommendations Jo improve the implementation of these controls to protect human health
at sites where risks remained. In November 2010, EPA also revised Agency guidance and sought
public comment on its "interim final guidance," institutional Controls: A Guide to Planning.
Implementing. Maintaining, and Enforcing Institutional Controls at Contaminated Sites.
Our work has identified a number of additional challenges that EPA faces in ensuring effective
long-term monitoring or stewardship of contaminated sites. We found that some states were not
financially prepared to lake over their long-term monitoring and maintenance responsibilities for
Superfund cleanups.41 In 2010. Michigan's Department of Environmental Quality believed it
would run out of money for its hazardous waste cleanup program, * We have reported on state
failures to enforce cleanup agreements,10 EPA's failure to follow Superfund site deletion
guidance44 and Five-Year Review procedures,45 and EPA's lack of systems to determine whether
a site cleanup is noncompliantw
We found that EPA relies on the self-certification of a third-party environmental professional to
determine whether statutorily required environmental due diligence has been performed at
Brownfields sites funded by EPA grants. In all sample environmental due diligence
investigations we reviewed, environmental professional certifications failed to meet federal
requirements and therefore failed to assure that a proper environmental investigation occurred.
one-half of U.S. stales have passed a Uniform Environmental Covenants Act. The Uniform Environmental
Covenants Act was drafted by Ihe National Conference of Commiisioners aa Uniform Slate Laws in August 2003.
" GAO, Hazardous Waste Sties: Improved Effectiveness of Controls at Sites Cmitd Btittr Protect the Public, GAQ
05-163 January 28. 2005. See also rcrtiind ptilio :c indc-\ h'm.
" EPA website, "Published institutional Controls."
"I r4.
0 The Detroit News, "Michigan Oul of Cash to Clean Up Toxic Sites." March 4. 2010.
11 EPA OIQ, Imprtn'tti Cantrnh Wuuld Reduce Super/and Backlogs, Report No. OS-P-0169, June 2, 2008
** EPA O1G, EPA Decision* to Delete Superfitnd Sites Should Undergo Qualify Assurance Rttvte*, Report No. 08-
P^J235, August 20,2008,
*' EPA O)G. EPA Has Improved Fivt-Ytar Rtvlfw Process for Superfund Remedies, Bui Further Steps Needed,
Report No. 2007-P-00006, December 5,2006; EPA OtG. EPA > Safety Determination fur Delate Metals
Superfund Site Wax Unsupported, Report No. CW-P-0029. November 19, 2008.
46 EPA OIQ. EPA Heads to Track Compliance with SuperfiatdCleanup Requirements. Repon No. 08-P-OI41,
A$wi)2g, 2008.
" EPA O1G, EPA Must Implement Controls to Ensure Prnper tm'esrigatiam Are Conducted ea Brawnfieldx Silts,
Report No. I l-P-0107, Febraaiy 14, 2011.
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EPA also conducts no oversight of the requirement to meet "continuing obligations" at
Brownfields properties funded by EPA. Continuing obligations include land use controls and
institutional controls designed to prevent unacceptable uses of a contaminated properties,4"
Weaknesses or lapses in meeting environmental due diligence or continuing obligations
requirements can result in undetected or undisclosed contamination and inappropriate land use.
Our January 2010 report found new contamination at a dclisted Supcrfund site in Delaware
where EPA conducted informal and undocumented oversight of the site reuse plans. The
current site owner had nearly finalized plans for reusing the site for public recreation but in a
manner inconsistent with the site cleanup plan. HP A had not kept current with the current
owners site reuse plans. In addition, HPA did not issue a Ready For Reuse (R£R) determination
for this site because it believed it was not necessary. An RfR could potentially address some of
the internal challenges to ensuring safe reuse of contaminated sites. However, there is no
requirement to complete RfRs, and they have been treated as discretionary. Nonetheless. EPA
has held up RfRs as providing the necessary "limitations that need to be followed to ensure [site]
proteclivcness," An RfR was not issued for the site reviewed in our January 2010 report because
site managers believed an RfR %vas on!y needed lo aid the real estate market. At another
Superfund site, we also found that EPA did not take action to address a 6-year gap in
environmental sampling thai the state should have conducted.'0 This type of oversight weakness
can result in a failure lo detect conditions that indicate that a cleanup remedy does not protect
human health and the environment.
EPA's management of the long-term oversight and monitoring requirements for the safe reuse of
contaminated sites has lagged behind its marketing of site reuse opportunities and showcasing of
successes. Only in the last several years has EPA focused attention on the long-term stewardship
aspects of contaminated sites across its cleanup programs. This gap promises to increase
substantially as EPA continues to heavily promote the reuse of contaminated sites without
investing in tools needed to ensure the safe, long-term use of these sites. Many Supcrfund sites
are now moving to the long-term monitoring phase, with more sites expected to do so in the
future." EPA's December 2008 report on nature Superfund workload needs states thai the "post-
construction" workload will require the greatest increase in coming years and will increase by 89
percent over the current full-time equivalent distribution." EPA will continually need to assess
challenges it faces, as well as challenges among the diverse group of non-EPA parties it must
work with, to ensure that sites are safely reused. In its assessments. EPA should consider new or
expanded authorities and regulations, new organizations, measures and goals, new methods of
sharing information, and dedicated funding and resources for long-term stewardship activities.
** EPA, Brtmnfletd* Foci Sheet, EPA Brownfields Grants CEKCL4 Liability and All Appropriate Imptirm, EPA
560-F-M-026,' April 2009.
40 EPA OIG. Changei m Conditions at Wildcat Landfill Sitperfiutd Site in Delcm-are Call far Increased EPA
Oversight, Report No. 10-P-0055, January 27. 2010.
** EPA OIG. EPA Should Improve Oversight of Long-term Monitoring at Brain Lagoon Superfand SUt in
Petaxylvmta, Report No. [O-P-0217. September 8. 2010.
" EPA. Long-Term Stewardship Ensuring Environmental Site Cleanups Remain Protective Over Timt
and Opportunities Facing EPA 'j Cleanup Programs, EPA 500-R-05-00 1 . September 2005.
n EPA, Superfafid Workload Assessment Report, OSWER Document 9200-2-S 1 . Dsc«nl>er 2. 2008 Posl-
constntctkm workload can refer to all activities after a cleanup remedy is constructed (including lone-term
monitoring and reuse activities).
10
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In 2009, EPA agreed with this challenge.53 In its 2010 response to this challenge, EPA stated that
it had se%reral tools it actively promotes to ensure appropriate and safe reuse of sites, and that it
will continue to explore new tools and approaches to sharing risk information to ensure that sites
remain safe in their future uses.5* EPA stated that its Superfund Five-Year Review process
addresses the vast majority of ""emerging contaminant" situations observed at Superfund
National Priority List sites and conveyed that the Five-Year Review process worked well. Six
specific "tools" EPA said it promotes to ensure appropriate and safe reuse of sites are: {I) RfR
determinations, (2) comfort and status letters, (3) prospective purchaser inquiry calls, (4) EPA-
funded reuse planning offers, (5) site reuse fact sheets, and (6) Comprehensive Environmental
Response, Compensation and Liability Information System data on institutional controls. EPA
has recently taken significant steps to address and remedy vulnerabilities in the Five-Year
Review process. Several actions have been taken in response to our findings. In 2009. EPA
completed a review of the quality of Five-Year Reviews. The Agency identified many reviews
that needed additional support and some that needed modified safety determinations. Additional
actions such as modifying the Agency's 2001 guidance on Five-Year Reviews may be
forthcoming.
We will review and recognize EPA efforts to address (he significant challenge of ensuring the
long-term safety of contaminated sites. Our work and the Agency's work have shown that EPA
can address these internal challenges through improved oversight and management of activities
inherent to successful Song-term stewardship of contaminated sites. However, success till long-
term sle%vardship also depends on having properly resourced and informed non-EPA parties, who
have ongoing access to current information, arc actively involved in compliance, and conduct
appropriate due diligence and oversight of contaminated sites. EPA is highly limited in
addressing this challenge when state or local governments with primary responsibility for
addressing many long-term safety issues have neither the money nor the will to do so. The
lessons from recent issues such as vapor intrusion show that site reuse can generate new
environmental risks. In its 2011-2015 Strategic Plan, EPA states:
Complications can arise when new scientific information
concerning contaminants at a site suggests that a risk assessment
that was protective when a remedy was selected is no longer
protective given the contaminant levels remaining at a site and
their potential exposure pathways..,. EPA must incorporate
emerging science into decision making to maintain its commitment
lo provide permanent solutions."^
EPA needs new strategies that take the Agency beyond merely encouraging non-EPA parties to
fulfill requirements and focus on providing EPA and other parties the information, resources, and
authorities to ensure long-term safety of reused sites.
51 EPA, Perfarfttmo! and Aetovntabitify Report far f'acal Year 2U(W, section IV, page 43.
M EPA, Fiscal Year 2018.tgericy Financial Report. Section III, piges 37 40.
M EPA, Fr 1011-201S Strategic Plan, page 25,
II
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Limited Capability to Respond to Cyber Security Attacks
Continuing from the management challenge from last year, EPA still has a limited capacity' to
effectively respond to external network threats despite reports that Advanced Persistent Threats
(APTs) designed to steal or modify information without detection are becoming more prevalent
throughout government.5* In addition, the Agency does not have an overarching understanding of
system exploitations from an insider threat perspective. This type of threat can come from a user,
through unauthorized physical access by an individual, through a breach due to access and weak
controls via contract facility connections, or from insertion of mahvarc lhat allows for
unauthorized remote access.
Our ongoing analysis shows that the Agency still faces challenges with respect to protecting
against APT-typc attacks. Although the Agency has deployed new tools 10 improve its
architecture, these tools raise new security challenges and. therefore, concerns by our office.
EPA deployed Symantec Endpoint Protection in an attempt to identify mat ware on Agency
systems, The full extent of this deployment and the ability of the Agency to rapidly correlate the
reporting of system vulnerabilities are limited. The Agency implemented "BigFix" servers for
managing patch and software updates. While use of ihcse systems is beneficial, the systems
introduce security concerns because a single compromise of the BigFix system could modify
computers throughout the EPA domain. Some of these BigFix servers were reported to have
been compromised this year.
The Agency does not have an Agency-wide governance of its critical infrastructure designed to
identify critical components, systems, and data, and any associated back-up or redundant
systems, so that when a compromise occurs, the Agency and our office can quickly engage key
stakeholders, assess the significance of the threat, and take appropriate actions. The Agency
recently had one of these designated "critical" systems reported as compromised. However, due
to a lack of critical system redundancy, investigators responding to the an incident were unable
to take the systems offline to preserve evidence. This failure to provide for critical redundant
capability exist at the wide area network (WAN) and local area network levels of EPA
infrastructure.
EPA is in the process of transferring to the U.S. General Services Administration's Managed
Trusted IP Services (MTIPS) contract. MT1PS is reported to provide services such as intrusion
detection, intrusion protection, incident response, managed firewall, vulnerability scanning,
antivirus management, and managed c-aulhentication. Integration of these services into the
control and oversight of EPA's Office of Environmental Information (OEI) has not been fully
realized or understood. When we asked OEI staff whether the Agency and our office would have
access to the day-to-day EPA's networks security logging data controlled by the MTIPS
contractor, staffhad no ready answers. OEI staff responded that the focus was on transition and
that security was a secondary concern, This response is concerning given that we noted last year
lhat EPA could not identify the owners of approximately lOjjercent of the Internet Protocol (IP)
addresses that are potentially compromised due to an APT.' These compromised systems extend
to every EPA regional office and headquarters. In September 2010. the Agency stopped
w Federal Computer »'*<:*. "Google Attacks: A Wake-up Call or Curtain Call for AgcnciesT February 4.2010.
*7 Electronic ttwU from EPA's Computer Security Incident Response Capability Center, April 6. 2010.
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producing and or sharing this data with our office: thus, we do know whether EPA has remedied
this situation.
Security of EPA's network greatly depends on ongoing public- and private-sector partnerships
led by the United States Computer Emergency Readiness Team (US-CERT)/* The mission of
US-CERT is to protect the nation's Internet infrastructure and to coordinate national defense
against and responses to cyber attacks." Accordingly, il disseminates actionable cyber security
information to EPA's Computer Security Incident Response Capability Center (CSIRC), whose
goal is to protect EPA information assets and respond to actual and potential incidents. The
unknown origins of many cyber attacks and the complex ways they compromise data networks'"1
make this ongoing collaboration crucial to the security of EPA's network. Although US-CERT
has been a key provider of cyber threat data or intelligence to the Agency, up until February
2011, EPA only had the Research Triangle Park point of presence (POP) monitored by US-
CERT sensing equipment. While EPA was waiting on the WAN 2010 upgrade lo install a sensor
at its District of Columbia POP, US-CERT did not have visibility on an estimated 8.000-10,000
EPA personnel and contractors utilizing this POP for an extended period.
The management challenge issued in FY 2010 stated, "EPA's CSIRC is expected to have
sufficient technical expertise and resources to coordinate rapid and highly skilled responses to
incidents of malicious attacks on its network." To date, the staffing resources at CSIRC arc
limited and cannot provide the required information requested by our office. We are in
discussions with OEl staff regarding procedures they should follow in handling requests from
our office that exceed their starring resources.6*
EPA is working toward acquiring, training, and deploying forensic tools and experienced
technical specialists to analyze and determine whether attackers have gained entry to EPA's
network systems, what they did while within EPA's domain space, what information was
compromised, and what information may have been maliciously removed from the EPA
network. Our office is working with OEl on a memorandum of understanding to define roles and
responsibilities for our two offices in response to intrusion activities associated with EPA's
networks. The implementation of this memorandum of understanding and the information
gathered by the Agency's information technology staff will benefit and support not only EPA's
operational mission, but our investigative mission as well, specifically as it relates to the
preservation of the crime scene associated with intrusion events.
To meet this challenge to EPA's network head on, EPA leadership must understand the threats to
EPA's confidential business informaiion and the importance of minimizing those risks. Further.
the Chief Information Officer and the Office of Technology Operations and Planning leadership
should carefully study the classified intelligence materials provided to them regarding threats
against government domains and disseminate the information to necessary offices. These
intelligence materials are especially critical as EPA's network is reportedly compromised, Last
" US-CERT website, tea:.'/ww<».uKen.gpv aboutmJitml.
* US-CERT website, -MIP « A a M.-it-n it"- ,.•>• ly.iuj !r.:v:.
*° EPA intranet, hBTT /JBfin(lirtBKitP* HP>' oiop security 'ciirc-'aboui UA.Cfro.
"' CNNcomftetiutolf'Ki. "I.1 S aovcmmcni Sites among TTiose Mil b> Cvber Anack," July 8. 2009.
41 Reference e-mail. OEl 10 O1G, dated March 12,2011. JO: 11 AM.
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year, before reporting to our office stopped, there were approximately 7,800 EPA systems
identified as potentially communicating to known hostile IPs or domains. We note that not all
7,800 systems were compromised, but we do not know which ones were compromised.
Further. EPA leadership must clearly articulate to Confess the costs of protecting its
infrastructure and seek from Congress sufficient funds for the development of a real-time
capability to identify and analyze attacks against EPA's computer and network systems,
EPA also should compile a berter inventory' of network assets, including intellectual properties,
and identify where data sit on its network. EPA should also deploy a better method of identifying
and authenticating individuals allowed to access EPA's network. Only then wiit EPA be able lo
execute a strategy that effectively protects its resources. uiirastructureT and intellectual property
from individuals and entities that intend to do harm,
In addition, EPA should aggressively address previously reported security weaknesses to
strengthen its ability to detect and respond to network attacks.6' In particular, EPA should:
« Implement a process that tracks IP address assignments and documents the origin of
all active IP addresses so responders can take quicker steps to minimize harm caused
by APTs.M
• Implement a vulnerability management program to proacti%'ely identify' and correct
commonly known vulnerabilities before they can be exploited.65
• Communicate high-risk vulnerability alerts more effectively throughout the Agency
and follow up with responsible parties to ensure satisfactory remediation.'16
• Verily that EPA's numerous information security officers are adequately skilled to
conduct regular vulnerability tests of their respective local area networks and systems,
as well as successfully recognize and remediate high and medium risks in a uniform
and acceptable manner.''
63 EPA O1G, Project Delays Prevent EPA from Implementing an Agency-wide Information Security t'ulnerabilttt
Miinajttmiaa Program Report No 09-P-0240. September 2 [. 2009.
w EPA OIG. Management of EPA Headquarters Internet Protocol Atltiressa Mff<& Improvement. Report No 08-P-
0273, September 23.2008.
°* EPA OIG. Project Delays Prevent EPA from Implementing an Agmcy-*'Hit Information Security Vulnerability
Management Program. Report No. 09-P-Q24Q. September 2I. 2009.
** EPA OIG, EPA \eedt to Strengthen Fmattiial Dulaheise Security Oversight and Monitor Compliance, Report No.
2007-P-00017. March 29,2007.
"' E?A OIG, Results ofTeehalcat ftttwork Vulnerability Assotment Region 9, Report No. 09-P-0032, December 9.
2008; EPA OIG, Results of Technical Network Vulnerability Assessment EPA 's Radiation anil Indoor
Environments National Laboratory. Report So. Q9-P-0053. December?, 2008; EPA OIG, Results of Technical
Network Vulnerability Assessment EPA's Las Vegas Finance Center, Report No. 09-P-0054, December 9, 2008;
EPA OIG, Results of'Technical Network I'vlnerahiloy Assessment: EPA's Research Triangle Park Campus, Report
No. 09-P-OQ55. December 9. 2008; EPA OIG. Results vf Technical Network I'ulnerabiiin Assessment. EPA
Headquarters, Report \o. 09-P-0097. Kcbruary 23. 2009; EPA OIG. Remits of Technical \chtvrk f'vlmtrot»lUy
Assessment EPA s Great £«*« National Prngram Office. Report No. 09-P-O185, June 30,2009; EPA OIG, Results
• :'•. ,/atwal fretwork i'ulnerabUay Assessment: EPA's National Computer Center. Report No. 09-P-OI86, June 30,
2009: EPA OIG. Rtsvia of Technical tfetwort V'ulntrabtlm Assessment Region X, Report No. W-P-Q187, June 30,
2009; EPA OIG. Results of Technical Network Vulnerability Assessment LPA 's Potomac Yard Buildings. Report
No, OT-P-0] B8, June 30, 2009; EPA OIG, Results ofTecitnical Newark Yulnerahtltn Assessment EPA's 1310 L
Street Building. Report No. 09-P-OI89. June 30.2009: EPA OIG. Results cf Technical Network Futnerablluy
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• Take steps to improve the reliability of data used to assess the status of its
information security program and posture with regard to known network threats. 8
« Train EPA's information security community on testing and documenting
information systems security controls, and enhance the quality assurance process [o
verify that .self-assessments evaluate all required security controls,*9
» Develop and implement comprehensive log review policies and procedures, establish
a management control process to review the performance of the contractors
conducting these reviews, and update and approve the WAN security plan and
properly certify and accredit future significant WAN configuration changes prior to
moving them into production.lfl
* Develop and implement a network traffic analysts methodology to be used to identify
abnormal network traffic,"
« Deploy a system of obtaining full network packet capture of all traffic within and
traveling outside of its domain, to have the ability to historically understand cyber'
incidents that occur and any loss of sensitive data.
Taking these actions would enhance BPA's ability to effectively (T) identify what key data
(intellectual, confidential, privacy) have been stolen, (2) determine collateral damage to the
Agency's trusted business partners, (3) remediate threats as they occur, and (4) better defend its
network domain. EPA's limitation in these areas is alarming, because a large-scale cyber attack
could be as devastating to (he U.S. economy and infrastructure as a terrorist bombing.71
EPA's Framework for Assessing and Managing Chemical Risks
EPA's framework for assessing and managing chemical risks has not yet achieved the goal of
protecting human health and the environment. In 1976. Congress passed the Toxic Substances
Control Act (TSCA). authorizing EPA to collect information on, and to regulate the
production and distribution of, chemicals. TSCA required EPA to (I) create an inventory of
"existing chemicals" already in commerce, (2) regulate unreasonable risk from "new
chemicals" introduced into commerce subsequent to the act, and (3) make health and safety
Asieamaa: EPA's Research Triangle Park Finance Center, Report No OWMJ227, August 31. 2009; EPA OIG,
Results of Technical b'tiv/ork t'tilnerabiltty Afseuments: EPA 's Andrew W. Sreidenbac'h Environmental AtueorfA
Center, Report No. IO-P-02JO, September 7,2010; EPA OIG, Results ofTectoui-ai fretwork t'utnerahitii}'
Assessment: EPA j Erlanger Building. Repofl No. IO-P-0311. September 7, 2010; EPA OIG, Results of Technical
Network VulntroW% Aauesvn&a. EPA 's Ronald Reagan Building, RtTJort No. 10-P-Q212, Sefrtember 7,2010;
F-PA OIG, Result-i a/Technical Network Vulnerability Assessment- EPA '* Region 4, Report No. 1Q-P-0213,
September 7. 2010.
™ EPA OIG, Setf-reported Data Unreliable for Assessing EPA 's Computer ."wfwrin,- Pnrgram, Report No. IO-P-
005 8, February 2,2010,
"* F.PA OIG, Improvements Needed in Key EPA Infwmativn S&ttm StewOy Praeufe.1, Report No. 10-P-fl 146, June
15,2010.
70 EPA OIG, Improvements Needed in ETA's Network Traffic Management Practices, Report Ho. 1 l-P-0159, Mareh
14,2011.
'' EPA OIG, Imprtn'maenti Needed in EPA's Network Tn$ic Management Pradit&, Report Mo. 1 l-P-0159, March
14,2011.
n CW.comftetftnategy, "U.S. at Risk of Cyber ABacks, Experts Sa>'," AugusH 18.2008.
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information available for examination while protecting manufacturers' confidential business
information,
EPA's effectiveness in assessing and managing chemical risks is hampered in part by
limitations on the Agency's authority to regulate chemicals under TSCA. When TSCA was
enacted, it authorized the manufacture and use. without any evaluation, of all chemicals that
were produced for commercial purposes in 1976 or earlier years. Tims, manufacturers of these
grandfathered chemicals were not required to develop and produce data on toxicity and
exposure, which are needed to properly and fully assess potential risks. Further compounding
this problem, the statute never provided adequate authority for LPA to evaluate existing
chemicals as new concerns arose or as new scientific information became available. As
enforcement is critical to ensuring environmental protection, while TSCA authorizes EPA to
conduct inspections, issue subpoenas, and impose civil penalties for violations, the statute
lacks the broad information-gathering and enforcement provisions found in other major
environmental protection statutes. For example. TSCA docs not provide EPA the
administrative authority to seek injunctivc relief, issue administrative orders, collect samples.
and quarantine and release chemical stocks.
On September 29, 2009, the Administration outlined core principles to strengthen U.S. chemical
management laws. Administrator Jackson testified before Congress on December 2.2009, on the
need to revise and modernize TSCA. In the absence of new legislation, we found that EPA could
better manage existing authorities. In 2010, we published a report on the New Chemicals
Program that showed that EPA did not have integrated procedures and measures in place to
ensure that new chemicals do not pose an unreasonable risk to human health and the
environment. 'JWe recommended that EPA better coordinate risk assessment and oversight
activities by establishing a management plan that contains new goals and measures that
demonstrate the results of EPA actions. Additionally, we recommended that EPA establish
criteria for selecting chemicals or classes of chemicals for low-level exposure and cumulative
risk assessments, and develop confidential business information classification criteria to improve
EPA's transparency and information sharing. Finally, we recommended that EPA develop a
management plan for Core TSCA enforcement that includes training, consistent enforcement
strategies across regions for monitoring and inspection protocols, and a list of manufacturers and
importers of chemicals for strategic targeting. The Agency agreed with our recommendations,
and in November 2010. we accepted the Agency's corrective action plan outlining the steps it
intends to take to address our recommendations.
EPA's framework for assessing and managing chemical risks from endocrine disrupters is also
failing to show results. In August 1996, Congress passed both the ! und Oualitj I'rutcuiion ACL
and amendments to the Safe Drinking Water Act. calling for the screening and testing of
chemicals and pesticides for possible endocrine-disrupting effects (i.e., adverse effects on the
development of the brain and nervous system, the growth and function of the reproductive
system, as well as the metabolism and blood-sugar levels), EPA established the Endocrine
Disruption Screening Program in 1998. The Endocrine Disruption Screening Program was
mandated to use validated methods for the screening and testing of chemicals to identify
71 EPA GIG, EPA Needs a Coordinated Plan to Oversee t(s Toxic Substances Central Act Kexpfmsibilniei, Report
No. 1CMMKJ66, February 17, 2010.
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potential endocrine disrupters. In 2000, EPA estimated that approximately 87,000 chemicals
would need to be screened for potential endocrine-disrupting effects. As of February 25, 2010,
EPA issued test orders to industry for 67 pesticide active inpedients and high-production
volume chemicals with some pesticide inert uses, llius, 14 years after the passage of the Food
Quality Protection Act and amendments to the Safe Drinking Water Act EPA has yet to regulate
the endocrine-disrupting effects of any chemicals.
Though we have not yet completed any additional reports on EPA's activities under TSCA, \ve
have identified some potential challenges tor the Agency. To address the unique properties of
nanornaterials and to better address children's health concerns, revisions to EPA's regulations
and management approaches may be necessary, In 2009. EPA launched a new initiative to
enhance the Agency's current chemicals management program within the limits of existing
authorities. Since then. EPA has proposed several new regulations under TSCA that may allow it
to better address both children's health and nanomaterials. As EPA implements these steps to
improve its management of chemical risks, it must institute sufficient internal controls to ensure
the success of its efforts. Specifically, the Agency should create performance measures that
demonstrate the impact and overall success in reaching the desired outcome. The Agency must
also have a clear strategy that formalizes intra-agency coordination and prioritizes activities to
maximize the impact of available resources in pursuit of its goals, ensuring that the most
significant risk areas arc addressed firs. '*
'* EPA OIG, £PA '3 Endocrine Dtsruptor Screening Program Should Establish Management Controls to Ensure
Mart Timtfy Results, Report No. 11 -P-0215, May 3,2011.
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Challenge #1 - Need for Greater Coordination of Environmental Efforts
Agency Response: The EPA maintains its position as originally stated in its April 20, 2010 response to
the Draft Special Report: National Environmental Policy and Quadrennial Review Needed. The EPA's
view is that a national environmental policy exists in the form of authorizing statutory goals and
mandates in the National Environmental Policy Act. Further, the EPA and other federal agencies are
already coordinating on high priority, complex issues.
For example, the agency routinely coordinates with federal, state and local funding partners to facilitate
the delivery of often first time drinking water and wastewater services to small communities, while
minimizing the administrative burden on them. Coordination, collaboration and leveraging resources in
concert with program partners are key aspects of US-Mexico Border Water Infrastructure Program
implementation throughout the project selection, development and construction phases. The agency, in
coordination with its partners, uses a risk-based prioritization process to identify and fund border water
infrastructure projects that will have the greatest public health and environmental benefits. Also, the
EPA ensures that its resources are used efficiently through a program policy that stipulates the EPA
construction grants be used only as a last resort after all other possible funding sources have been
explored and the EPA funding is deemed essential to make affordable high priority projects that
otherwise could not be implemented in communities that have limited institutional capacity. In doing so,
the EPA ensures that project funding is necessary, is directed to the communities that are most in
need, is coordinated across agencies and is not duplicative. The EPA will continue to partner,
coordinate, and leverage resources as it implements the US-Mexico Border Water Infrastructure
Program to address the significant public health and environmental needs along the border.
Additionally, the EPA is continuing to take the lead in working across the federal government and the
water sector to close the water infrastructure gap and move the nation's water infrastructure to a more
sustainable footing. In October of 2010, the EPA released its Clean Water and Drinking Water
Sustainability Policy. The Policy represents the agency's efforts to bring focus to the issue and to define
the focal points that will affect change to reduce the infrastructure gap. The Policy emphasizes: 1) the
need for robust and effective planning for water infrastructure; 2) capacity development and effective
utility management to enhance the sustainability of all aspects of water sector systems; and 3)
integrating water infrastructure into cross sector planning efforts to foster the sustainability of our
communities. The EPA is actively pursuing a suite of programs and activities in each of these areas,
including efforts to encourage and work with state SRFs as they incorporate sustainability
considerations into their programs.
The agency will continue its efforts to coordinate environmental issues across the federal government
and state and local partners.
Challenge #2 - Oversight of Delegations to States
Agency Response: The EPA acknowledges that state oversight is a very complex and changeable
arena. Through federal statutes, implementing regulations and program design, states are allowed
flexibility in how they manage and implement environmental programs. Within the EPA, national
program managers are directly responsible for state oversight of individual programs. The agency has
committees, workgroups, special projects and initiatives to continuously improve agency programs
delegated to states. Below are a few examples of these programs and the efforts made to enhance
oversight or correct issues with state delegation.
Improving Oversight through Better Data Quality:
As OIG noted, having adequate data is important to the EPA's ability to understand and oversee state
programs. The agency and its state partners continually look for ways to improve public health
protection and data quality. The EPA is undergoing a comprehensive review of SDWIS/FED and
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SDWIS/State as we develop the next generation of SDWIS, which is a key management tool for the
drinking water program. In addition, the EPA is currently working with state representatives to develop
standard definitions for facility availability codes in SDWIS and update standard operating procedures.
To ensure that emergency wells are reviewed on an individual and recurring basis, we will issue
guidance to states regarding reviewing emergency sources as part of state oversight programs,
including sanitary surveys. This guidance will clarify that emergency sources should be reviewed on a
recurring basis as part of routine state oversight.
Strengthening State-EPA Implementation of Water Programs:
Beginning in June 2008, ECOS Officers asked the agency to provide more collaboration at the national
level to meet the challenges of increasing workload and declining resources. In November of 2008,
work with the states culminated in the creation of the Partnership Council of the Office of Water and
States to 'test' the early and ongoing engagement of the states in planning, budgeting, and
implementation activities for the national water program. Since its creation, PCOWS has engaged
regularly to discuss strategic priorities with the states, to ensure that core and key program activities
are given appropriate priority in budget decisions, and to identify opportunities to maximize resources
and reduce barriers in support of key joint priorities. Recently, the agency met with PCOWS to identify
opportunities to streamline and reduce burdens from administrative activities, in response to the
President's February 2011 Memorandum on Administrative Flexibility.
NPDES Program Withdrawal Requests:
The EPA currently has 21 pending NPDES authority withdrawal petitions in 16 different states. The
petitions can be broad reaching or focused on narrow issues. Three of those 16 petitions have been
filed since Jan 1 of this year. Eight Regions have at least one petition filed within their respective states.
The last petition to be resolved was two years ago in July of 2009. Efforts have recently been re-
doubled on a national level to address the concerns cited in withdrawal petitions. These efforts manifest
in the form of increased withdrawal petition specific discussions with the Regions, the corresponding
states, other agency offices and with Senior EPA management. While the recent efforts have yet to
result in any new petition resolutions, the EPA is confident several will be resolved prior to the
conclusion of CY2011.
Improving RCRA Oversight and Data Limitations:
In response to the OIG's findings that the Commonwealth of Pennsylvania did not collect ground water
monitoring data at the Bruin Lagoon site as required by the terms of the Superfund State Contract, The
EPA's Region 3 office developed new documentation procedures to address any future instances of
non-compliance. The procedures, as documented in an October 2010 memorandum from the Director
of the Office of Superfund Site Remediation, include consulting with Regional Counsel and
documenting the non-compliance in a letter to the State. In instances of continued non-compliance, the
issue will be elevated within the EPA and the state, and counsel will determine necessary actions to
ensure a state carries out its obligations.
The RCRA program provides adequate oversight of state programs through several means. For
instance, the EPA sets out national baselines and state commitments for grant funding. The EPA
monitors the progress toward these goals through the Government Performance and Results Act and
our Annual Commitment System, through discussions with our Regions (who meet directly with states
to assess progress), and through frequent interaction with Association of State and Territorial Solid
Waste Management Officials. The RCRA program works closely with ASTSWMO at the board-level, as
well as in subgroups for particular topics (e.g., corrective action, permitting). In addition, the EPA works
closely with states to issue rules and guidance to address issues of concern and provide
implementation assistance for state programs.
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In terms of addressing data limitations, the agency agrees with the OIG audit recommendation as far as
making suggestions and recommendations to the States regarding the importance of document
retention. Each state creates its own policy, and we will continue to stress this during our National
Conferences and during our training sessions and outreach activity.
Improving State-EPA Collaborations Through National Environmental Performance Partnership
System:
Through the National Environmental Performance Partnership System, the EPA and the states have
developed a strategic, performance-based working relationship based on a clearer understanding of
mutual issues and priorities and improved allocation of resources. Building on this successful platform,
the EPA and the states are working together to share the workload more efficiently and effectively to
achieve environmental and public health outcomes. In FY2011, the EPA and states will collaborate on a
focused effort to identify opportunities for enhanced worksharing and resource and workload flexibility
in order to maintain the effectiveness of core programs, particularly in light of widespread state budget
reductions due to the economic downturn. The EPA established a task force with states to determine
parameters for worksharing, identify program activities where worksharing can be more broadly applied
areas where statutes or regulations prohibit worksharing, and share best practices for effective
worksharing arrangements.
Challenge #3 - Safe Reuse of Contaminated Sites
Agency Response: Cleaning up contaminated sites and ensuring their safe reuse over the long term is
an agency priority and central to the EPA's mission. The agency believes that it is doing an effective job
of communicating site risks and remedies, and providing site users with information needed to ensure
protectiveness.
For sites remediated under the Comprehensive Environmental Response Compensation and Liability
Act, the EPA performs five-year reviews to ensure that sites remain protective. In rare situations where
a site is not subject to a five-year review, the EPA uses its Comprehensive Environmental Response,
Compensation and Liability Information System to identify sites where new contaminant information
may lead to questions of long-term protectiveness. Under its Return to Use Initiative, the EPA also
makes specific inquiries of the site managers and other stakeholders about new issues that might affect
site risks if the site goes into reuse.
Additionally, the EPA may select institutional controls as a component of remedial action at a site where
residual contamination remains in place. Institutional controls help minimize the potential for exposure
to contaminant and/or protect the integrity of a remedial action and are subject to the same periodic
five-year reviews as other remedy components. The agency has developed cross-program guidance,
Institutional Controls: A Guide to Planning, Implementing, Maintaining and Enforcing Institutional
Controls at Contaminated Waste Sites, which stresses the need for the EPA site managers and
attorneys to coordinate early and often with State and local governments, tribes, responsible parties,
communities, and other stakeholders to ensure that institutional controls are properly implemented,
maintained (monitored and reported to the EPA), and enforced over their lifetime.
Promoting reuse sends communities a strong message about involving the EPA in their reuse
discussions. Seeing the EPA as a collaborator rather than an impediment means that communities
involve the EPA in the reuse process, allowing the agency to communicate key messages about
protectiveness. Once communities are ready to discuss a site, the EPA can offer a number of tools to
ensure the reuse is appropriate and will enhance long-term protectiveness. These include:
Ready for Reuse Determinations—environmental status reports that reiterate the limitations and
opportunities associated with the reuse of sites. While not mandatory, these may be useful for
sharing information about the site to a broader audience.
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Comfort and status letters—issued by the Regions to convey the status of the site remediation,
describe site limitations and protectiveness issues, and clarify liability issues.
Prospective purchaser inquiry calls—provide consistent and reliable information about limitations
and opportunities at sites. Frequently, these calls result in prospective purchasers determining that
sites are not appropriate, thereby serving their purpose of providing information prospective users
need to understand before using a site.
EPA-funded reuse planning—offers communities and key stakeholders the opportunity to engage in
an informed and realistic dialogue with the EPA project managers about the reuse of sites, including
institutional controls and long-term stewardship.
Site reuse fact s/?eefe-highlight critical remedial components in place, long-term maintenance
activities and institutional controls.
The EPA will continue to explore new tools and approaches for sharing this information to ensure that
sites remain safe for future use.
Challenge #4 - Limited Capability to Respond to Cyber Security Attacks
Agency Response: The EPA acknowledges that Advanced Persistent Threats pose a significant
challenge for the agency, as well as for all federal agencies. The EPA continues to make significant
progress in enhancing situational awareness across the agency and increasing invisibility into network
activities. To address this challenge, the agency has identified specific automated tools to address
cyber security concerns that are being implemented in a secure manner. The agency has fully deployed
a Security Information and Event Management Tool to facilitate greater vigilance in log reviews and
activity monitoring. The agency's Computer Security Incident Response Capability office is working to
build stronger relationships with internal organizations such as the Office of Homeland Security, for
threat intelligence sharing.
Challenge #5 - The EPA's Framework for Assessing and Managing Chemical Risks
Agency Response: GAO continues to identify "Transforming EPA's Processes for Assessing and
Controlling Chemicals" as a high-risk area, and OIG continues to identify "EPA's Framework for
Assessing and Managing Chemical Risks" as a management challenge. In October 2009, the EPA
acknowledged "Streamlining Chemical Assessments Under IRIS" as an agency-level weakness under
the Federal Financial Managers' Integrity Act and has made progress in addressing concerns raised by
both oversight organization.
Improving IRIS Process:
In May 2009, the agency released a new Integrated Risk Information System process for completing
health assessments. The goal of the new process is to strengthen program management, increase
transparency and expedite the timeliness of health assessments. Since that time, the agency's National
Center for Environmental Assessment has completed 20 assessments, more than the number of
assessments completed in the previous five years. Additionally, the agency is making significant
progress on health hazard assessments of numerous high priority chemicals (e.g. formaldehyde,
trichloroethylene, perchloroethylene, dichloromethane, arsenic, chromium VI, methanol,
benzo[a]pyrene and Libby asbestos), including finalizing one assessment and completing of milestones
for interagency science consultation, or external review for the others. Progress on these and other
IRIS assessments is available at http://www.epa.gov/IRIS/. Assessments of health effects for chemicals
found in environmental mixtures including PAHs, dioxins, phthalates and PCBs are being developed.
These cumulative assessments will increase the number of chemicals that are addressed by the IRIS
Program and are based upon the expressed needs of the agency. The EPA's Human Health Risk
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Assessment program will continue to lead innovation in risk assessment science based on expanding
scientific knowledge.
The EPA recently unveiled a new database that facilitates public access to the scientific studies that
underpin key agency decisions. The Health Environmental Research Online database contains the key
studies the EPA uses to develop environmental risk assessments for the public. It includes references
and data supporting the Integrated Risk Information System which supports critical agency
policymaking. The HERO database is publicly accessible so anyone is able to review the scientific
literature behind the EPA science assessments. The HERO database strengthens the transparency of
the science supporting agency decisions.
The IRIS update project is in a pilot phase. Toxicity values in IRIS that are more than 10 years old have
been identified, screened, and prioritized based on agency needs; the first group of 15 high priority
assessments has been selected for update. A Federal Standing Science Review Committee (FSSRC),
consisting of reviewers from the EPA and other federal agencies has been assembled. An independent
contractor will lead and conduct independent external peer reviews of these assessments. A second
batch of nine assessments should be ready for the FSSRC by December 2011, and a Federal Register
notice announcing a new set of 20-30 chemicals should be published by this summer.
In July 2011, the EPA announced additional measures to strengthen the scientific quality of IRIS
assessments based on comments from the National Academy of Sciences. These measures include
making assessment documents clearer, shorter and more transparent. The EPA will evaluate the
strengths and weaknesses of critical studies in a more uniform way and clearly indicate which criteria
were most influential in weighing scientific evidence supporting its choice of toxicity values. Also, the
EPA will continue to track progress to determine if new timelines need adjustment.
Management of Endocrine Disrupting Chemicals:
The EPA has had three major tasks to complete before it could issue test orders to pesticide registrants
and chemical manufacturers to commence testing. Validation to establish the relevance and reliability
of the assays was the largest of these tasks. The EPA has followed a five-stage assay validation
process that included: 1) test development, 2) pre-validation testing, 3) inter-laboratory validation
studies, 4) peer review and 5) regulatory acceptance, as described at the EDSP website:
(http://www.epa.gov/scipolv/oscpendo/pubs/assayvalidation/status.htm). Each of the first three of these
stages typically took a year or more to complete and had to be completed sequentially as the
knowledge developed in one stage was essential to the conduct of the next stage. Peer review of these
assays was completed in mid-2008.
A second task was the prioritization of chemicals to be screened. The EPA planned on using the high
throughput in vitro assays used by the pharmaceutical industry as a means to rapidly identify those
chemicals that may interact with the endocrine system. In a demonstration with 65 chemicals
conducted in 1998-99, the high throughput screens failed to correctly identify most of the chemicals
known to interact with hormone receptors; thus, the EPA was forced to adopt a different approach for
selecting chemicals. A pilot demonstration of the utility of existing information led the EPA to the
conclusion that this was also not a cost-effective way to prioritize and select chemicals for screening. In
2005, the EPA finally proposed and took comment on using exposure information only to identify
chemicals, primarily pesticides, in the first round of Tier 1 screening. This approach led to the proposal
of the first list of chemicals for screening in 2007.
The third task was to develop the policies and procedures which would apply to test order recipients.
These include the procedures for responding to test orders, minimizing duplicative testing, providing for
data compensation, and protecting sensitive information. In addition, the EPA developed cost estimates
for conducting the Tier 1 battery which formed the basis of an Information Collection Request submitted
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to OMB in 2008. The ICR was approved in the fall of 2009, and the first test orders were issued in
October 2009.
In addition to the Food Quality Protection Act provisions that require the screening of all pesticide
chemicals, the 1996 Safe Drinking Water Act provides the EPA with the authority to test substances
that may be found in sources of drinking water to which a substantial population may be exposed. As
instructed by the House Appropriation Committee, the EPA developed a second list of not less than 100
chemicals for screening. The agency published the second list in the Federal Register on November
17, 2010 along with a draft amended Information Collection Request and draft policies and procedures
covering Safe Drinking Water Act chemicals. The List 2 chemicals are drawn from three sources:
chemicals that have a National Primary Drinking Water Regulation, chemicals lists on the
Contaminated Candidate List 3, and pesticides that are on the Registration Review Program schedule
for FYs 2007 and 2008. The proposed second list to receive EDSP test orders contain 134 chemicals
that are used as pesticides, personal care products, Pharmaceuticals and/or in commerce. The agency
has coordinated this effort internally and is currently reviewing and considering the comments
submitted by the public and developing responses to the public comments before finalizing the second
list.
As the EDSP progresses, the EPA continues to obtain information on endocrine related health effects.
Despite the fact that the EDSP has only begun to screen chemicals, the EPA has been obtaining useful
information regarding endocrine-related health effects, as documented by annual reports to Congress.
EPA routinely requires pesticide applicants to submit data for a range of toxicity studies (see 40 CFR
Part 158) for regulatory actions associated with the current and on-going registration of pesticide
products in accordance with the Federal Insecticide, Fungicide, and Rodenticide Act and the Federal
Food, Drug, and Cosmetic Act. A number of these studies provide information on endocrine-related
effects. The agency evaluated 1,159 unique pesticide active ingredients and pesticide inert chemicals
in connection with the Reregistration Program, Registration Review Program, Registration Program and
tolerance action between August 3, 1999 and September 30, 2010. Of these 1,159 chemicals for which
regulatory decisions were made, the agency received data on an estimated 600 unique chemicals that
provided information on endocrine-related effects through one or more toxicity studies. In evaluating
potential risks of a pesticide, the EPA's regulatory decisions ensure protection of human health and
wildlife from the most sensitive adverse effects observed in the information base provided through
mammalian and wildlife studies such as those required in 40 CFR Part 158. Of the 1,159 chemicals,
endocrine-related effects were the most sensitive effects observed within the information base for 79
pesticides and, therefore, used in regulatory determination. All of the 1,159 chemicals evaluated by the
EPA meet the required statutory safety standards based on available information. Under the FFDCA,
the EPA has found that there is a reasonable certainty that no harm will result from exposure via the
diet and other non-occupational pathways. Moreover, in the associated registration decision under
FIFRA, the EPA has concluded that the use of the pesticides will not pose unreasonable risks to the
environment.
The agency plans to finalize the second list along with the ICR and policies and procedures covering
the SWDA chemicals. The agency also plans on implementing the EDSP for pesticides on a routine
basis by continuing to issue orders for pesticides entering Registration Review. The Registration
Review program requires all pesticides currently registered to be re-evaluated to ensure they meet
current scientific and regulatory standards.
An important part of the continuation of the EDSP is the development of a Comprehensive
Management Plan. This plan, will detail how the program is organized, managed, and how resources
are allocated across the agency and tasks. In addition EDSP is developing a work plan that will outline
the steps necessary to move the screening program from its current state into a new form that is less
reliant on whole animal based assays, using computational models and higher throughput/shorter time
in vitro methods to screen for the potential for endocrine disruption. The work plan is part of the
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Comprehensive Management Plan. In response to an OIG evaluation of the EDSP, the Comprehensive
Management Plan is due to be completed in mid-calendar year 2012.
The complexity of the scientific and regulatory process associated with the full implementation of the
EDSP warrant the designation of the program as a management challenge. However, the EDSP
continues to progress towards full implementation with the on-going evaluation of the chemicals,
prioritization of the universe of chemicals and issuance of test orders.
GAO has stated that the EPA's framework for assessing and managing chemical risks has not yet
achieved the goal of protecting human health and the environment and the EPA's effectiveness in
assessing and managing chemical risks is hampered in part by limitations on the agency's authority to
regulate chemicals under TSCA. In a similar vein, OIG believes the EPA needs to transform its
processes for assessing and controlling toxic chemicals.
The EPA has announced its principles to strengthen US chemical management laws, and initiated a
comprehensive effort to enhance the agency's current chemicals management program within the limits
of existing authorities, and is proposing expansions of that effort in the FY 2012 President's Budget.
This effort includes:
Using all available authorities under TSCA to take immediate and lasting action to eliminate or
reduce identified chemical risks and develop safer alternatives;
Using regulatory mechanisms to fill remaining gaps in critical exposure and health and safety data
for chemicals already in commerce and increasing transparency and public access to information
on TSCA chemicals;
Using data from all available sources to prioritize chemicals for assessment and conducting detailed
chemical risk assessments to inform and support development and implementation of risk
management actions; and,
Preventing introduction of unsafe new chemicals into commerce.
Reducing Chemical Risks:
In FY 2010 and FY 2011, the EPA increased use of regulatory authorities currently provided under
TSCA and took non-regulatory action to reduce known chemical risks. The agency:
Issued a Final Significant New Use Rule restricting the use of elemental mercury in various
measuring devices (published in July 2010);
Initiated a rulemaking under section 6 of TSCA to phase out or ban the use of mercury in a range of
switches, relays, measuring devices, and other products (expected publication fall 2011);
Published final SNURs for two carbon nanotubes on September 17, 2010, requiring companies to
provide EPA 90 days notice before they manufacture or import the two carbon nanotubes and to
comply with restrictions the EPA had already imposed on their original manufacturer;
Issued a proposed rulemaking on glymes under section 5(a)(2) of TSCA to require prior notification
to the agency of any new consumer of monoglyme, diglyme and ethylglyme;
Issued an Advance Notice of Proposed Rulemaking on the agency's potential reassessment of its
current authorization for PCB use and distributi9on in commerce;
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Initiated four Alternative Assessments for BPA in thermal paper, the flame retardants decaBDE and
HBCD, and NPE surfactants; and
Continued implementing the global Perfluprppctampoc Acid Steward Program to reduce
perflurooctanoic acid and related chemicals from emissions and product content, in which eight
participating companies committed to achieve, no later than 2010, a 95% reduction in
perfluorooctanioc acid emissions and the elimination of these chemicals from emissions and
products by 2015 (2010 results are due in October 2011).
In FY 2012, the agency will continue expanding its portfolio of risk management actions, including:
Furthering implementation of risk management actions initiated in FY 2010 and continued in FY
2011, including:
o Section 6 use restrictions addressing long chain perfluorinated chemicals,
hexabromocyclododecane, lead wheel weights, and mercury used in switches and
certain measuring devices;
o Section 5 Significant New Use Rules addressing; polybrominated diphenyl ethers,
nonylphenol and nonylphenol ethoxylates, elemental mercury in products, benzidine
dyes, certain short chain chlorinated paraffins, certain phthalates and
hexabromocyclododecane; and,
o Section 5(b)(4) chemicals of concern listings addressing phthalates, bisphenol A and
PBDEs;
Initiating five new risk management actions in FY 2012, including additional Section 6 use
restrictions/prohibitions, Section 5 Significant New Use Rules and Section 5(b)(4) chemicals of
concern listings, informed and supported by the 10 detailed chemical risk assessments to be
initiated and completed in FY 2012 (see Assessment section below);
Proposing, evaluating public comments and developing two final regulations implementing ten
actions mandated under the recently enacted TSCA Title VI (Formaldehyde Standards for
Composite Wood Act) establishing national emission standards for formaldehyde in new composite
wood products - the statute requires the EPA to finalize and promulgate these regulations by
January 1, 2013;
Initiating stewardship activities including commitments from industry to adopt viable safer
alternatives, safer best practices, voluntary withdrawal of dangerous chemicals and/or products
from the market, and stewardship programs to reduce emissions;
Promoting development of safer chemicals, chemical management practices and technologies by
assessing risks and efficacy of alternatives associated with existing chemicals which present
significant risks; and
Issuing a final SNUR under section 5(a)(2) of TSCA for 14 glymes requiring persons who intend to
manufacture, import or process these chemical substances for the designated significant new uses
to notify the EPA at least 90 days before commencing.
The EPA has and will continue to work closely with other federal agencies, such as FDA and CPSC, to
coordinate efforts on these chemicals.
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Obtaining, Managing and Making Public Chemical Information:
In FY 2010 and FY 2011, the EPA increased its use of TSCA regulatory authorities to meet critical
existing chemical data needs and increase transparency and public access to chemical information,
including:
Publishing the Final HPV Test Rule 2, covering 19 chemicals
• Advancing the Proposed HPV Test Rule 3, covering 29 chemicals
• Advancing the Proposed HPV Test Rule 4, covering an anticipated 29 chemicals
Issuing a new confidential business information policy for review of CBI chemical identify claims for
TSCA Section 8(e) notices of substantial risk in January 2010, and a notice of a new policy in May
2010 for review of CBI chemical identify claims for all health and safety studies to allow the public
access to important information that would have otherwise remained secret;
For the first time ever, providing in FY 2010 free online access to the TSCA Chemical Substance
Inventory, allowing the public easy and free access to the listing of 84,000 chemicals in commerce;
Integrating information on 3,800 TSCA facilities and 6,300 chemicals into Envirofacts, the EPA's
single point of access on the internet for information about environmental activities;
Proposing to modify the 2006 TSCA Inventory Update Reporting rule that would require
manufacturers, including importers, to submit information electronically, make the data public more
quickly, limit the information that can be treated as confidential, and require more reporting from
chemical manufacturers;
Developing a PMN/CBI Amendment for PMN submissions claiming chemical and micro-organism
identify as confidential in health and safety studies submitted under TSCA prior to the
commencement of manufacturer; and
Initiating development of a Sunset Provision relating to claims for CBI submitted under the TSCA
that would require the periodic reassertion and resubstantiation of such claims (NPRM is scheduled
to publish in 2012).
In FY 2012, the EPA will continue expanding use of regulatory mechanisms to fill remaining gaps in
critical exposure and health and safety data for chemicals already in commerce, improve management
of TSCA information resources and maximize their availability and usefulness to the public, including:
Issuing and implementing TSCA Section 4 Test Rules to obtain data needed to evaluate the safety
of existing chemicals, including:
o More than 100 HPV chemicals not sponsored under the HPV Challenge Program;
o 125 or more chemicals newly identified as HPV chemicals in TCSA Inventory Update
Reports submitted to the EPA in 2011; and,
o Several other chemicals including bisphenol A and certain nanoscale materials;
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Implementing the expanded TSCA Inventory Update Reporting rule to develop more robust
exposure data sets on all reported chemicals—not just HPV chemicals—and rapidly make those
data publicly available:
o In August 2010, the EPA proposed modifications to the IUR rule under section 8 of
TSCA, presenting a range of options for public comment to make the reporting of
chemical use information more transparent, more current, more useful and more useable
by the public; and
o The EPA expects to issue final amendments in FY 2011 and in FY 2012 to process
submission of 2011 IUR data reports for approximately 6,000 to 7,000 chemicals
produced in volumes of greater than 25 thousand pounds per year.
Increasing transparency by reviewing all new TSCA chemical health and safety studies claimed in
FY 2012 as CBI and 4,400 CBI cases submitted prior to 2010, challenging claims and declassifying
studies where appropriate;
Digitizing over 20,000 TSCA documents received under TSCA Sections 4, 5 and 8, and making
those data, where appropriate, available to the public; and,
Expanding electronic reporting to include all TSCA health and safety submissions and fully
deploying 21st century information technology to more effectively and efficiently store and
disseminate TSCA information.
Screening and Assessing Chemical Risks:
In FY 2012, the EPA will assess the risks of priority chemicals to determine what risk management is
needed and to inform and support development and implementation of risk management actions, as
appropriate, including:
Initiating twelve detailed chemical risk assessments of priority chemicals that will inform the need
for and support development of risk management actions, with seven of the assessments being
completed in FY2012;
Developing hazard characterizations for 500 additional HPV chemicals using the data obtained
through TSCA test rules, the TSCA IUR and previous voluntary industry submissions, bringing the
cumulative total by the end of FY 2012 to 2,165 of the 2,900 HPV chemicals identified prior to the
2011 TSCA IUR;
Increasing use of intelligent testing approaches to improve our ability to understand chemical risks;
Developing methodologies and tools to better assess risks from high priority chemicals such as
PBT chemicals in consumer products to support risk management actions on these chemicals;
• Analyzing the data the EPA has received through its Nanoscale Materials program to understand
which nanoscale materials are produced, in what quantities, and what other risk-related data are
available. The EPA will use this information to understand whether certain nanoscale materials may
present risks to human health and the environment and warrant further assessment, testing or other
action; and
Enhancing the RSEI tool to help identify geographic areas with particularly high risk scores
associated with toxics releases and the facilities and chemicals responsible for those conditions.
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Preventing Introduction of Unsafe New Chemicals Into Commerce:
Through its New Chemicals Program, the EPA serves as America's gatekeeper for Industrial and
commercial chemicals, ensuring that new chemicals introduced into U.S. commerce do not pose
unreasonable risks to humans or the environment. In January 2010, the EPA published a final rule that
enables and, by April 6, 2012 requires manufacturers and importers to submit PMNs and other TSCA
Section 5 documents to the EPA electronically via the internet. The agency developed software to
assist companies in preparing and executing their electronic submissions and is conducting training
sessions via webinar and other means to help companies prepare to comply with these new
requirements.
In FY 2006 to measure performance under the New Chemical Program, the EPA adopted a measure to
reflect the program's statutory mission, establishing a "zero tolerance" performance standard for the
number of new chemicals or micro-organisms introduced into commerce that pose an unreasonable
risk to human health or the environment.
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IMPROPER PAYMENTS
In accordance with the Improper Payments Elimination and Recovery Act of 2010, which amends the
Improper Payments Information Act of 2002, the EPA reviews its programs and activities for improper
payments. The EPA is committed to improving program performance by taking corrective action for any
programs that are determined to be susceptible to significant improper payments. IPERA defines an
improper payment as any payment that should not have been made or that was made in an incorrect
amount (including overpayments and underpayments) under statutory, contractual, administrative or
other legally applicable requirements. Improper payment reviews are conducted in accordance with the
OMB Circular A-123, Management's Responsibility for Internal Control, Appendix C, Requirements for
Effective Measurement and Remediation of Improper Payments.
I. Risk Assessments
OMB Circular A-123, Appendix C, requires executive agencies to conduct risk assessments of their
programs or activities to determine if programs are susceptible to significant improper payments. Given
the large number of small, unique programs at the EPA, OMB has approved the agency's method of
reporting on improper payments by payment stream. Every year, the EPA conducts quantitative risk
assessments of its principal payment streams - grants, contracts, commodities, and the Clean and
Drinking Water State Revolving Funds. The SRFs are former Section 57 programs for which OMB
requires detailed reporting. Results from the agency's risk assessments are published below in Section
IV, "Improper Payments Reporting." These quantitative risk assessments demonstrate that the EPA's
principle payment streams are not "susceptible to significant improper payments", defined by OMB as
exceeding both $10 million of improper payments and 2.5 percent of program outlays.
II. Statistical Sampling
A) State Revolving Funds
ARRA provided the SRFs with an additional $6 billion of spending authority. As a result, during the FY
2010 and FY 2011 improper payments reporting cycles, the SRF program broadened its sampling
process to include state expenditures of ARRA funds. This involves the testing of four cash draws per
state - twice per year - during the EPA's on-site visits. Similarly, the sampling of base appropriations
involves the testing of at least four cash draws per state per year. A cash draw is a disbursement from
Treasury for the payment of state grants. Each disbursement can refer to a single invoice or a batch of
invoices, which are reviewed by the EPA for improper payments. Of the total $3.6 billion in SRF
outlays, approximately $1.7 billion consisted of ARRA funds. Furthermore, of the total $14.2 million of
improper payments identified, 97.6 percent originated from ARRA funds, and 2.4 percent originated
from base appropriations. Although a majority of SRF errors originated from the ARRA program, 90
percent of ARRA funds have now been disbursed. In addition, with less than $350,000 of errors
identified in the base program, this small amount is a good indication of the low level of long-term risk in
the SRF program.
It should be noted that the transaction testing conducted by the EPA during FY 2011 pertains to
expenditures made by the states during State FY 2010. In most cases, the State FY begins on July 1
and ends on June 30. Given the time lapse between the states' expenditure of SRF funds and the
implementation of the EPA's on-site reviews, the agency has obtained OMB's approval to continue
using the preceding State FY as its alternative twelve-month reporting period for SRF improper
payments.
B) Grants
Every November since 2006, a list of recipients with active grants receiving more than $20,000 during
the prior fiscal year is pulled from the Integrated Grants Management System. From this list, a sample
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of 60 nonprofit recipients is selected for detailed review. The recipients are randomly assigned to either
a Desk Review or an On-Site review. Each review is conducted in accordance with standard protocol,
and a checklist is provided to the reviewers as a guideline. A minimum of three non-consecutive draws
from different grants is reviewed for each recipient, and the recipient is required to provide supporting
documentation for the selected draws. Examples of supporting documentation include approval
signatures, timecards, contracts and invoices. The type of supporting documentation may vary,
depending on the programs or services supported by the grants.
Based upon historical data, the EPA considers the nonprofit grantees to be at greater risk of improper
payments than all other grantees. As a result, the agency specifically analyzes the nonprofits for
improper payments, using them as a proxy for all grants. However, since IPERA requires agencies to
expand their efforts at identifying and recapturing improper payments, the EPA has broadened its
sampling, review and reporting process to include state and local governments, universities and tribes.
This expanded sampling began during Calendar Year 2011, and results of these reviews will be
available for inclusion in the agency's FY 2012 improper payments report. The ongoing Calendar Year
2011 review includes the random selection of 120 grant recipients, which are stratified into higher-risk
and lower-risk categories. These two categories were developed based upon an analysis of five years
of post award reviews. Of the 120 grant recipients, 90 recipients were selected proportionally from the
higher-risk group consisting of nonprofits, local governments and tribes, and 30 recipients were elected
proportionally from the lower-risk group consisting of state governments and universities. Preliminary
data indicate that the EPA's grants will remain below the OMB threshold for susceptibility to significant
improper payments and full results will be published in the agency's FY 2012 improper payments
submission.
C) Commercial Payments (contracts and commodities)
In February 2006, the agency centralized all commercial payments at the Research Triangle Park,
North Carolina Finance Center, as part of an A-76 competition won by the agency. Previously, all non-
contract (Simplified Acquisitions, utilities, training) invoices were paid by the 10 regional finance
centers. The consolidation resulted in much greater discipline in the management and internal controls
through the center's standardization of standard operating procedures and sophisticated payment
systems.
The EPA does not use a statistical sampling methodology in its audit of commercial improper payments
since each payment is subject to financial review, invoice approval and payment certification. Various
post audits are performed as well. The following provides a brief summary of process controls in place
on the agency's commercial invoice payment process.
The payment processing cycle requires all invoices be subjected to rigorous review and approval by
separate entities. Steps taken to ensure payment accuracy and validity, which serve to prevent
improper payments from occurring include: 1) the Finance Center's review for adequate funding and
proper invoice acceptance, 2) comprehensive system edits to guard against duplicate payments,
exceeding ceiling cost and fees, billing in wrong period of performance dates, and payment to wrong
vendor, 3) electronic submission to agency Project Officers and Approving Officials, with a copy of the
invoice, for validation of proper receipt of goods and services, period of performance dates, labor rates,
appropriateness of payment, citing disallowances or disapprovals of costs if appropriate and 4) review
by the Finance Center of suspensions and disallowances, if taken, prior to the final payment
certification for Treasury processing. Additional preventive reviews are performed by the Finance
Center on all credit and re-submittal invoices. Additionally, agency Contracting Officers perform annual
review of an invoice on each contract they administer, and DCAA audits are performed at the request of
the agency on large cost reimbursable contracts.
Additionally, monthly Finance Center Improper Payment Reports are provided to agency management.
This information tracks the number and dollar amount of improper payments, the source and reason for
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the improper payment, the number of preventive reviews conducted, and the dollar amount of
recoveries made for current and prior years.
III. Corrective Actions
As published in previous improper payment reports, the EPA has demonstrated great success at
maintaining low rates of improper payments in its principle payment streams. In FY 2011, it was
determined that none of the EPA's payment streams was susceptible to significant improper payments.
The agency maintains an internal payment recapture audit program that prevents, identifies and
recovers improper payments. Of the improper payments that are identified, most of them consist of
Administrative and Documentation errors, which arise from the incorrect processing of payments.
Typical root causes of error include payments in the wrong amount, duplicate payments and payments
to an incorrect vendor. The agency has consistently maintained low rates of improper payments across
all payment streams. As a result, the EPA emphasizes adherence to sound internal controls, which
serve to prevent the occurrence of improper payments, and aggressively recovers any that do occur.
In addition to the agency's existing improper payment reviews, the EPA initiated an agency-wide effort
in 2011 to review and verify implementation of the Recovery Act Stewardship Plan, the agency's
comprehensive risk assessment and risk mitigation strategy for its ARRA-funded activities. The policy
verification included a statistical random sample of 110 awards across seven functional areas, including
grants, contracts, and interagency agreements. Drawing directly from the RASP, the agency developed
a review protocol based on: 1) the risks identified in the RASP and 2) the associated policies and
procedures established by the RASP to mitigate each identified risk. Detailed, on-site reviews were
then conducted for each sample award in the EPA regions, finance centers and headquarters program
offices.
A number of review elements, such as indirect cost rate agreements, focus on improper payments.
Though the report is still pending, once the report is finalized, OCFO will better understand the
estimated scope of improper payments across all ARRA award activities, as well as corrective actions.
IV. Improper Payment Reporting
A) State Revolving Funds
The SRFs are state-administered programs that provide Federal funds to the states and Puerto Rico to
capitalize revolving loan fund programs. The states receive invoices from fund recipients (e.g.,
municipalities), review them for eligibility and accuracy, and electronically submit cash draw requests
for a batch of invoices to the EPA. The agency makes payments to the revolving loan funds and
conducts annual on-site reviews in each state. The EPA conducts transaction testing, reviews invoices
for eligibility, confirms that the total amount of invoices matches the amount of cash draw, and
examines accounting records to confirm that the states made matching deposits.
Prior to IPERA, the agency established an overall improper payments target of 0.30 percent for the
SRFs. This target remains an ambitious one, and the EPA has been consistent in meeting it over the
years. In FY 2011, it was determined that the SRFs made improper payments totaling $14.2 million,
with an error rate of 0.39 percent, indicating that they remain below the OMB threshold for significant
improper payments. Historical SRF improper payments data are summarized below:
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Figure 1 : Clean Water and Drinking Water SRFs
(Figures 1-4 provide information on the EPA's payment streams, supplementing Tables 1-6 from Circular A-1 36)
Fiscal Year
2007
2008
2009
2010
2011
Outlays
$2.3 billion
$2.1 billion
$1.9 billion
$4.8 billion
$3.64 billion
Improper Payments
$1.64 million
$8.3 million
$1.1 million
$1.8 million
$14.18 million
Error Rate
0.07 percent
0.39 percent
0.06 percent
0.04 percent
0.39 percent
As a result of transaction testing and its oversight of state activities, the SRF program vigorously
recovers overpayments. During its annual reviews, the agency tests four base transactions and eight
ARRA transactions per state, examining all associated invoices. Whenever improper payments are
identified, the EPA's financial analysts discuss them with the state during the review. Many of the
payment errors are immediately corrected by the state or can be quickly resolved by adjusting a
subsequent invoice. For issues requiring more detailed analysis, the state provides the agency with a
plan for resolving the improper payments. This agreement is described in the agency's Program
Evaluation Report, and the EPA follows up with the state to ensure compliance. As a result of this
process, the SRF program is highly successful at correcting errors and recovering improper payments.
In the current year, the SRF program achieved a recovery rate of 99.9%.
Table 1: Improper Payment Reduction Outlook
(Dollars in Millions; Tables 1-6 refer to the corresponding tables in OMB Circular A-136)
Clean
Water and
Drinking
Water SRFs
(1)
FY10 FY10 FY10
Outlays IP% IP$
$4,800
030
target
0.04
actual
$3.5
FY11 FY11
FY11 FY11 FY11 Over- Under-
Outlays IP% IP$ pmt pmt
$3,645
030
target
0.39
actual
$14.18
$14.17
$0.01
FY12 FY12 FY12
Outlays IP% IP$
$3,562
[est.]
0.30
target
$10.7
[est.]
FY13 FY13 FY13
Outlays IP% IP$
$3,289
[est.]
0.30
target
$9.9
[est.]
FY14 FY14 FY14
Outlays IP% IP$
$3,300
[est.]
0.30
target
$9.9
[est.]
(1) The SRF program is listed here because it is a former Section 57 program of OMB Circular A-11. However, the SRF program
does not exceed OMB's threshold for significant improper payments of $10 million and 2.5 percent of program outlays.
B) Grants
The EPA continues to monitor grantees to ensure payment accuracy and recover improper payments.
In Calendar Year 2010, the agency sampled 59 active, nonprofit grantee recipients to identify improper
payments. Of these 59 grantees, five had actual erroneous payments.
It should be noted that, similar to the SRFs, the EPA has obtained OMB's approval to continue using an
alternative twelve month period for reporting improper payments for grants. The agency uses the prior
calendar year as its twelve-month reporting period for conducting grantee reviews. In the FY 2011
improper payments reporting cycle, the EPA is publishing the results of grantee reviews conducted
during Calendar Year 2010. In Calendar Year 2011, the EPA has expanded its sampling of recipients to
include state and local governments, universities and tribes, and will publish the result of these reviews
in the FY 2012 improper payments report.
Results from the past five reviews are provided in the table below. The table also updates information
on recovered costs and results from the appeals process for these years.
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Figure 2: Nonprofit Grantees Review/Audit Results
Nonprofit Grantees
Review/Audit
Results
Total dollars drawn
Actual erroneous
payments
(unallowed costs)
Costs that have
been recovered
Percent of
erroneous payments
CY 2006
Review
$29,373,772
$39,167
$19,798
0.133%
CY 2007
Review
$22,544,462
$13,433
$13,433
0.059%
CY 2008
Review
$120,209,284
$111,329
$111,329
0.093%
CY 2009
Review
$10,258,129
$12,697
$4,647
0.124%
CY2010
Review
$21,242,755
$7,110
$7,110
0.033%
In addition to the sampling process described above, the EPA maintains internal controls to help
prevent the occurrence of improper payments in grants. Since 2008, the agency has implemented
annual "baseline" monitoring of all active assistance agreements that review fund drawdowns for
appropriateness. As part of the baseline monitoring, each assistance agreement is reviewed
programmatically by a Project Officer, and administratively by a Grants Specialist. Both the Project
Officer and Grants Specialist review financial drawdowns for consistency with the project's duration and
progress. Any irregularities found are examined with the recipient and further scrutinized when
warranted. Project Officers also review quarterly reports submitted by recipients, to ensure projects are
on schedule and progress matches the amount of funding used. Additionally, the EPA's Las Vegas
finance center routinely monitors grant payments made under the agency's Automated Standard
Application Payment system for irregularities.
C) Commercial Payments
Due to the historical low percentage of improper payments in the contracts and commodities payment
streams, the EPA relies on its internal review processes to detect and recover associated improper
payments. Additional post audit findings (OIG, A-123, DCAA) that warrant inclusion of improper
payments are captured in Table 6 below. The agency continues to use its monthly Improper Payment
Reports for both contracts and commodities as its primary tool for monitoring improper payments.
Combined, the agency processed 79,000 commercial payments for $1.9 billion in FY 2011,
representing an overall improper payments rate of 0.12 percent, with a recovery rate of 99.7 percent.
Data for FY 2007 through FY 2011 for contracts and commodities are summarized below.
Contracts:
Figure 3: Results of the EPA's Improper Contract Payments Report
Fiscal Year
2007
2008
2009
2010
2011 (1)
Number of Erroneous
Payments
14 (of 29,828)
12 (of 32,043)
31 (of 35,929)
35 (of 39,060)
21 (of 38,965)
Erroneous Payments
(Dollars in Thousands)
$65.3
$324.0
$716.4
$882.6
$162.9
Error Rate for
Dollars
0.01%
0.03%
0.05%
0.08%
0.01%
(1) DCAA audit results are presented in Table 6.
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Commodities:
Figure 4: Results of the EPA's Improper Commodity Payments Report
Fiscal Year
2007
2008
2009
2010
2011
Number of Erroneous
Payments
63 (of 45, 859)
48 (of 43,629)
32 (of 41, 585)
34 (of 39,571)
44 (of 40, 083)
Erroneous Payments
(Dollars in Thousands)
$176.5
$215.4
$193.7
$166.3
$2,178.5(1)
Error Rate for
Dollars
0.06%
0.08%
0.07%
0.05%
0.67%
(1) A single overpayment in the amount of $1,664,837 represents 76 percent of all commodities improper payments
identified in FY 2011. It was paid to the vendor instead of the vendor's assignee and was immediately recovered.
V. Recapture of Improper Payments
The EPA maintains an internal payment recapture audit program run by agency employees who
continuously monitor the agency's payment streams to prevent, identify and recover improper
payments. In FY 2004, the EPA contracted with a recovery auditor to sample a universe of $6.5 billion
of contracts and commodities outlays. It was determined that the agency made only $50 thousand of
improper payments during a period of five fiscal years, demonstrating the EPA's success at preventing
improper payments. The recovery auditor noted in its final report that "The total recovery represents an
error rate that is materially negligible in relation to the volume of transactions processed during our
audit period."
Based upon this experience, the EPA determined that it would be preferable to establish an internal
payment recapture audit program, in lieu of contracting with a recovery auditor. The agency's payment
recapture audit program consists of agency employees reviewing grants, contracts, commodities and
the SRFs for improper payments. No programs or activities are excluded from these reviews.2
The EPA's payment recapture audit program has recovered approximately $20.8 million across all
payment streams. This amount consists of approximately $1.8 million from contracts, $4.0 million from
commodities (beginning in FY 2004 for each), $156,000 from grants (beginning with the CY 2006
review), and $14.9 million from the SRFs (beginning with the FY2010 review).
A-123 reviews of payroll, travel, and purchase cards efforts are an integral internal control mechanism for reducing improper payments, but
these areas are not required for reporting under IPERA. As they involve payments to federal employees, they are exempt from the definition of
improper payments, per OMB M-11-16, question 2.
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Table 2: Payment Recapture Audit Reporting
(Tables 1- 6 refer to the corresponding tables in OMB Circular A-136)
Program
or Activity
SRFs(l)
Grants (2)
Contracts
(3)
Commodities
Type of
Payment
grants
grants
contracts
small
purchases
Amount Subject
to Review for CY
Reporting
3,644,665,300
21,242,755
1,600,132,236
326,151,314
Actual Amount
Reviewed and
Reported (CY)
1,129,881,840
5,745,676
1,600,132,236
326,151,314
Amount
Identified for
Recovery
(CY)
14,165,798
7,110
20,570
2,178,910
Amount
Recovered
(CY)
14,154,293
7,110
20,570
2,150,810
%of
Amount
Recovered
out of
Amount
Identified
(CY)
99.9%
100%
100%
98.7%
Amount
Outstanding
(CY)
11,505
0
0
28,100
% of Amount
Outstanding
out of
Amount
Identified
(CY)
0.1%
0%
0%
1.3%
Amount
Determined
Not to be
Collectable
(CY)
0
0
0
0
% of Amount
Determined Not
to be
Collectable out
of Amount
Identified (CY)
0%
0%
0%
0%
Amounts
Identified for
Recovery
(PYs)
726,577
176,626
1,772,200
1,844,089
Amounts
Recovered
(PYs)
726,577
149,207
1,772,200
1,841,448
Cumulative
Amounts
Identified for
Recovery
(CY + PYs)
14,892,375
183,736
1,792,770
4,022,999
Cumulative
Amounts
Recovered
(CY + PYs)
14,880,870
156,317
1,792,770
3,992,258
Cumulative
Amounts
Outstanding
(CY+PYs)
11,505
27,419(4)
0
31,850
Cumulative
Amounts
Determined
Not to be
Collectable
(CY+PYs)
0
0
0
1,200
(1) For the SRFs, in Tables 2-6, "Current Year" refers to the transaction testing conducted during State FY 2010, and "Prior Year" refers to the transaction testing conducted
during State FY 2009.
(2) For grants, in Tables 2-6, "Current Year" results are from reviews performed in Calendar Year 2010, and "Prior Year" results are from reviews performed in Calendar Years
2006-2009.
(3) For contracts and commodities, "Current Year" refers to FY2011, and "Prior Year" refers to FY 2004-2010.
(4) In certain instances, recipients continue to appeal the agency's unallowed cost determinations for prior years.
Table 3: Payment Recapture Audit Targets
Program or
Activity
SRFs
Grants
Contracts
Commodities
Type of
Payment
Grants
Grants
Contracts
small purchases
CY
Amount
Identified
$14,165,798
$7,110
$20,570
$2,178,900
CY
Amount
Recovered
$14,154,293
$7,110
$20,570
$2,150,800
CY
Recovery Rate (Amount
Recovered /Amount
Identified)
99.9%
100%
100%
98.7%
CY+1
Recovery
Rate Target
87%
80%
90%
90%
CY + 2
Recovery
Rate Target
89%
85%
91%
91%
CY + 3
Recovery Rate Target
90%
87%
92%
92%
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Table 4: Aging of Outstanding Overpayments
Program or
Activity
SRFs (1)
Grants (2)
Contracts
Commodities
Type of
Payment
grants
Grants
Contracts
small purchases
CY Amount Outstanding
(0-6 months)
$11,505
$0
$0
$28,100 (3)
CY Amount Outstanding
(6 months to 1 year)
$0
$0
$0
$0
CY Amount Outstanding
(over 1 year)
$0
$0
$0
$0
(1) For the SRFs, "Current Year" data refers to the state reviews conducted during State FY 2010. This table shows amounts outstanding for the
SRFs, beginning Oct. 1,2010.
(2) For grants, "Current Year" results are from reviews performed in Calendar Year 2010.
(3) Three commodities overpayments were detected in September 2011, totaling $28,100. They will be recovered in FY2012.
Table 5: Disposition of Recaptured Funds
Program or
Activity (1)
SRFs
Grants (2)
Contracts
Commodities
Type of Payment
grants
grants
contracts
small purchases
Agency Expenses to
Administer the Program
$66,994
$23,183
$17,123
$13,528
Payment
Recapture
Auditor Fees
$0
$0
$0
$0
Financial
Management
Improvement
Activities
$0
$0
$0
$0
Original
Purpose
$0
$0
$0
$0
Office of
Inspector
General
$0
$0
$0
$0
Returned to
Treasury
$0
$0
$0
$0
(1) No recoveries originated from expired funds appropriated after the enactment of IPERA. Therefore, all recoveries were returned to their original appropriation.
(2) Since the SRFs are revolving loan funds, all SRF recoveries are automatically returned to the program (per OMB's guidance).
Table 6: Overpayments Recaptured Outside of Payment Recapture Audits
Source of Recovery
SRF Single Audit
Reviews
SRF state testing
DCAAAudits(l)
Amount
Identified
(CY)
$10,504
$379,758
$97,198
Amount
Recovered
(CY)
$10,504
$379,758
$97,198
Amount
Identified
(PY)
n/a
n/a
n/a
Amount
Recovered
(PY)
n/a
n/a
n/a
Cumulative
Amount
Identified
(CY+PYs)
$10,504
$379,758
$97,198
Cumulative
Amount
Recovered
(CY+PYs)
$10,504
$379,758
$97,198
(1) As shown in the "Defense Contract Audit Agency Audits" section of the AFR, $97,198 was collected. Of the $2,538,189 reported as "Other", $1,979,255 is related
to indirect cost rate adjustments, which are not considered to be improper payments since contracts are allowed to bill at a provisional indirect cost rate. The
remaining $558,934 is subject to further review due to late receipt of information.
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VI. Accountability
As previously outlined, the agency continues to strengthen already strong internal controls in
key payment processes. Information on erroneous payments from reviews and audits of the two
SRFs, the EPA's largest grant programs, is reported semi-annually to management in both the
Office of Water and the OCFO. In all cases, action is taken with the appropriate officials to
ensure that improper payments are recovered and to avoid future improper payments.
VII. Agency Information Systems and Other Infrastructure
The agency's internal controls, human capital, information systems and other infrastructure are
sufficient to monitor the reduction of improper payments to targeted levels.
VIM. Barriers
None.
IX. Conclusions
The agency's internal payment recapture audit program has been highly effective at identifying
and recovering overpayments. In the first year of IPERA reporting, all of the EPA's payment
streams have already exceeded OMB's recovery target rate of 85 percent by FY 2013. Although
the agency's payment streams continue to demonstrate low levels of risk for improper
payments, the EPA plans to continue assessing risk annually.
In addition, the agency commits to the following activities in FY 2012:
Maintain a higher level of sampling for SRF base funding by reviewing at least four cash
draws per state per year.
Report results from the expanded Calendar Year 2011 review of state and local
government, university, tribe and nonprofit grantees.
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Appendix A
Public Access
192
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The EPA invites the public to access its newly redesigned website at www.epa.gov to obtain the
latest environmental news, browse agency topics, learn about environmental conditions in their
communities, obtain information on interest groups, research laws and regulations, search
specific program areas, or access the EPA's historical database.
American Recovery and Reinvestment Act of 2009: www.epa.gov/recovery
EPA newsroom: www.epa.gov/newsroom
News releases: www.epa.gov/newsroom/newsreleases.htm
Regional newsrooms: www.epa.gov/newsroom/tfregions
Laws, regulations, guidance and dockets: www.epa.gov/lawsregs
Major environmental laws: www.epa.gov/lawsregs/laws/index.html
EPA's Federal Register website: www.epa.gov/fedrgstr
Where you live: www.epa.gov/epahome/whereyoulive.htm
Search your community: www.epa.gov/epahome/commsearch.htm
EPA regional offices: http://www.epa.gov/epahome/regions.htm
Information sources: www.epa.gov/epahome/resource.htm
Hotlines and clearinghouses: www.epa.gov/epahome/hotline.htm
Publications: www.epa.gov/epahome/publications.htm
Education resources: www.epa.gov/epahome/students.htm
Office of Environmental Education: www.epa.gov/enviroed
About EPA: www.epa.gov/epahome/aboutepa.htm
EPA organizational structure: www.epa.gov/epahome/organization.htm
EPA programs with a geographic focus: www.epa.gov/epahome/places.htm
Partnerships: www.epa.gov/partners
Central Data Exchange: www.epa.gov/cdx
Business Guide to Climate Change Partnerships:
www.epa.gov/partners/Biz guide to epa climate partnerships.pdf
EPA for business and nonprofits: www.epa.gov/epahome/business.htm
Small Business Gateway: www.epa.gov/smallbusiness
Grants, fellowships, and environmental financing: www.epa.gov/epahome/grants.htm
Budget and performance: www.epa.gov/performance/
Careers: www.epa.gov/careers
EZ Hire: www.epa.gov/ezhire
EPA en Espanol: www.epa.gov/espanol
EPA ^^t: ^Hlft£: www.epa.gov/chinese
EPA 3*3C: l^tffi^: www.epa.gov/chinese/simple/
EPA tiing Viet: www.epa.gov/vietnamese
EPA t.1"^"0!: www.epa.gov/korean
193
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Appendix B
A cronyms and A bbre via tions
194
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APR Agency Financial Report
APR Annual Performance Report
ARRA American Recovery and Reinvestment Act
ASSERT Automated System Security Evaluation and Remediation Tracking
BPD Bureau of Public Debt
CBI Confidential Business Information
CERCLA Comprehensive Environmental Response Compensation and Liability Act
CFC Cincinnati Finance Center
CFO Chief Financial Officer
CO Contracting Officer
CPC Contractor Property Coordinator
CPIC Capital Planning and Investment Control
CWA Clean Water Act
DCAA Defense Contract Audit Agency
DHS U.S. Department of Homeland Security
DOJ U.S. Department of Justice
DOT U.S. Department of Transportation
DWSRF Drinking Water State Revolving Fund
EAS U.S. Environmental Protection Agency Acquisition System
ECHO Enforcement and Compliance History Online
EPA U.S. Environmental Protection Agency
EPM Environmental Programs and Management
FAS Fixed Assets Subsystem
FASAB Federal Accounting Standards Advisory Board
FBWT Fund Balance with Treasury
FECA Federal Employees Compensation Act
FERS Federal Employees Retirement System
FFDCA Federal Food, Drug and Cosmetic Act
FFMIA Federal Financial Management Improvement Act of 1996
FIFRA Federal Insecticide, Fungicide and Rodenticide Act
FISMA Federal Information Security Management Act
FMFIA Federal Managers' Financial Integrity Act of 1982
FQPA Food Quality Protection Act
FSSRC Federal Standing Science Review Committee
FY Fiscal Year
GAAP Generally Accepted Accounting Principles
GAO Government Accountability Office
GIS Geographical Information System
GSA U.S. General Services Administration
HPV High Production Volume
ICIS Integrated Compliance Information System
ICR Information Collection Request
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IFMS Integrated Financial Management System
IP Improper Payment
IPERA Improper Payments Elimination and Recovery Act
IPIA Improper Payments Information Act
IRIS Integrated Risk Information System
IUR Inventory Update Reporting
LUST Leaking Underground Storage Tank
MAS National Academy of Sciences
NPDES National Pollutant Discharge Elimination System
NPL National Priorities List
OCFO Office of the Chief Financial Officer
ODD Operating Division Director
OECA Office of Enforcement and Compliance Assurance
OEI Office of Environmental Information
OFM Office of Financial Management
OIG Office of the Inspector General
OMB Office of Management and Budget
OPM Office of Personnel Management
ORD Office of Research and Development
PAH Polyaromatic Hydrocarbon
PAR Performance and Accountability Report
PCBs Polychlorinated Biphenyls
PCOWS Partnership Council of the Office of Water and States
PCS Permit Compliance System
PM Performance Measure
PMN Pre-Manufacture Notice
PP&E Plant, Property and Equipment
PRP Potential Responsible Parties
QIC Quality Assurance/Quality Control
R&D Research and Development
RA Remedial Action
RAM Regional Acquisition Manager
RASP Recovery Act Stewardship Plan
RCRA Resource Conservation and Recovery Act
RMDS Resource Management Directives System
RP Responsible Party
RTP Research Triangle Park
SARA Superfund Amendments and Reauthorization Act of 1986
SDWA Safe Drinking Water Act
SDWIS Safe Drinking Water Information System
SFFAS Statement of Federal Financial Accounting Standards
SNUR Significant New Use Rule
SRF State Revolving Fund
SSC Superfund State Contracts
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STAG State and Tribal Assistance Grants
TMDL Total Maximum Daily Load
TSCA Toxic Substances Control Act
TVA Tennessee Valley Authority
TWG Targeted Watershed Grants
LIST Underground Storage Tanks
UV Ultraviolet
WCF Working Capital Fund
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WE WELCOME YOUR COMMENTS!
Thank you for your interest in the U.S. Environmental Protection Agency's Fiscal Year 2011 Agency
Financial Report. We welcome your comments on how we can make this report a more informative
document for our readers. We are particularly interested in your comments on the usefulness of the
information and the manner in which it is presented. Please send your comments to:
Office of the Chief Financial Officer
Office of Financial Management
Environmental Protection Agency
1200 Pennsylvania Ave., NW
Washington, D.C. 20460
This report is available on OCFO's home page at
http://www.epa.gov/planandbudget/
Printed copies of this report are available from the EPA's National Service Center for Environmental
Publications at 1-800-490-9198 or by email at nscep@bps-lmit.com.
U. S. Environmental Protection Agency
Fiscal Year 2011 Agency Financial Report
EPA-190-R-11-008
November 15, 2011
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