AGENCY FINANCIAL REPORT
U.S. ENVIRONMENTAL PROTECTION AGENCY
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ABOUT THIS REPORT
The U.S. Environmental Protection Agency (EPA) is producing a Fiscal Year (FY) 2013 Agency
Financial Report (APR), an Annual Performance Report (APR), and an FY 2013 Financial and Program
Performance Highlights, in accordance with Office of Management and Budget (OMB) Circular A-136,
Financial Reporting Requirements.
EPA's AFR describes the agency's financial and high-level performance during FY 2013. This allows
the President, Congress, and the public to evaluate the Agency's accomplishments during the year
beginning October 1 through September 30. The FY2013 AFR contains EPA's FY2013 Financial
Statements Audit Report and FY2013 Management Integrity Act Report. These reports present the
Administrator's assurance statement on the soundness of the Agency's internal controls for financial
and programmatic activities and report on progress toward addressing Office of Inspector General
(OIG) audit recommendations.
EPA's FY 2013 APR provides information on the Agency's performance and progress toward achieving
the goals established in its FY 2011-2015 Strategic Plan and FY 2013 performance budget. The APR
is prepared according to the requirements set forth in OMB Circular A-11, Preparation, Submission and
Execution of the Budget. EPA will produce the FY2013 APR in conjunction with the FY 2014
Congressional Budget Justification and will post it on the Agency's website at
http://www2.epa.gov/planandbudget/results by February 2014.
Additionally, EPA will publish an online Financial and Program Performance Highlights presenting key
financial and performance information from both the AFR and APR in a brief, nontechnical, user-friendly
format. Highlights information will be available on the Agency's website at
http://www2.epa.gov/planandbudget/ by February 2014.
How the Report Is Organized
Administrator's Letter
The Administrator's letter transmits EPA's FY2013 AFR from the Agency to the President and
Congress. The letter assures financial and performance data presented in the AFR is reliable and
complete. The letter also assures that the report communicates significant internal control weaknesses
and actions EPA is taking to resolve them.
Section I—Management's Discussion and Analysis
This section contains information on 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 initiatives.
Section II—Financial Section
This section includes the Message from the Chief Financial Officer and the Agency's financial
statements, related Independent Auditor's Report, and other information on the Agency's financial
management.
Section III—Other Accompanying Information
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This section provides additional material, as specified under OMB Circular A-136, Financial Reporting
Requirements. The subsection titled "Management Challenges and Integrity Weaknesses" discusses
EPA's progress toward strengthening management practices to achieve program results and presents
the Inspector General's (IG's) list of top management challenges and associated Agency's response.
Appendices
The appendices include links to relevant Agency Web pages and a glossary of acronyms and
abbreviations.
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TABLE OF CONTENTS
About This Report 2
How the Report Is Organized 2
Table of Contents 4
Administrator's Letter 6
SECTION I MANAGEMENT'S DISCUSSION AND ANALYSIS 8
About EPA 9
History and Purpose 9
Mission 9
Organization 10
Regional Map 11
Collaborating With Partners and Stakeholders 11
A Framework for Performance Management 11
FY 2013 Advances in Performance Management 12
2013 Program Performance 14
Strategic Goals 14
Financial Analysis and Stewardship Information 19
Sound Financial Management: Good for the Environment, Good for the Nation 19
Financial Condition and Results 20
Financial Management for the Future 25
Limitations of the Principal Financial Statements 26
Improving Management and Results 27
Office of Inspector General Audits, Evaluations, and Investigations 27
Grants Management 27
Accountability: Systems, Controls, and Legal Compliance 29
Federal Managers' Financial Integrity Act (FMFlA) 29
Management Assurances 30
Federal Financial Management Improvement Act (FFMIA) 30
Federal I nformation Security Management Act (FISMA) 31
Biennial User Fees 31
Inspector General Act Amendments of 1988—Audit Management 31
Defense Contract Audit Agency Audits 36
SECTION II FINANCIAL SECTION 38
Message from the Chief Financial Officer 39
Principal Financial Statements 40
Notes to the Financial Statements 50
Required Supplementary Information (Unaudited) 85
Required Supplementary Information (Unaudited) 86
Audit of EPA's Fiscal 2013 and 2012 Consolidated Financial Statments 91
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SECTION III OTHER ACCOMPANYING INFORMATION 129
Schedule of Spending 130
Money Management 130
Management Integrity and Challenges 132
Overview of EPA's Efforts 132
2013 Key Management Challenges 133
OIG-Reported Key Management Challenges 133
Progress in Addressing FY 2012 Weaknesses and Significant Deficiencies 158
Agency Weaknesses 159
Significant Deficiencies 161
Summary of Financial Statement Audit 170
Summary of Management Assurance 170
Improper Payments Compliance 171
Risk Assessments 171
Statistical Sampling 174
Corrective Actions 176
I mproper Payment Reporting 177
Recapture of I mproper Payments 177
Accountability 182
Agency Information Systems and Other Infrastructure 182
Statutory or Regulatory Barriers 182
Conclusions 182
APPENDIX A PUBLIC ACCESS 184
APPENDIX B ACRONYMS AND ABBREVIATIONS .. .. 186
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ADMINISTRATOR'S LETTER
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
I am submitting to you the first of three financial and performance reports on the U.S.
Environmental Protection Agency's operations in FY 2013, the EPA's Fiscal Year 2013 Agency
Financial Report. This report provides you, the Congress and the American public the
opportunity to review the EPA's financial information, how we manage the funds entrusted to
us and the progress we have made to further environmental protection and the health of all
Americans.
I am pleased to report that our financial and performance data are reliable and complete and
provide full transparency into our program operations. I also have highlighted some of our key
accomplishments during fiscal year 2013.
Proposed Carbon-Pollution Standards for New Power Plants
On September 20, 2013, the EPA proposed Clean Air Act standards to cut carbon pollution
from new power plants. These proposed standards will combat climate change and improve
public health. They will also spark the innovation we need to build the next generation of power
plants while helping to grow a more sustainable clean-energy economy. We also initiated
broad-based outreach and direct engagement with state, tribal and local governments, industry
and labor leaders, nonprofits and others to begin consideration of carbon-pollution standards
for existing power plants and build on state efforts to move toward a cleaner power sector.
Strengthened the EPA's Chemical Assessment Process
One of the commitments I have made during my tenure at the EPA is to take action on toxics
and to strengthen chemical safety in communities across the nation. Recently, the EPA made
changes to our Integrated Risk Information System program to improve the scientific
foundation of chemical assessments, increase transparency in the program and the process
and allow our scientists to complete a higher number of IRIS assessments each year. The
improvements are designed to enable us to better protect human health and the environment
by completing more health assessments for chemicals that are being used across our nation
every day. In addition, the agency is using a three-pronged approach to ensure the safety of
chemicals for our families and children, focusing on: assessing chemicals with known health
effects; increasing accessibility and usability of chemical information; and promoting the design
and use of safer chemicals. This year, EPA launched ChemView, an easy-to-use online
database with information on more than 1,500 chemicals that can help businesses,
consumers, and others make more informed decisions about the chemicals they use. We also
added more than 100 chemicals to the Safer Chemical Ingredient List this year to help
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manufacturers make safer products and issued a new rule to help protect Americans from
potentially harmful chemicals in carpets.
Modernized Reporting
Continuing my predecessor's actions to bring the EPA's work into the 21st century, we are
furthering our efforts to enable businesses to routinely conduct electronic environmental
business transactions with regulators. For example, the EPA proposed a rule that would
modernize Clean Water Act reporting processes for hundreds of thousands of municipalities,
industries and other facilities by converting to an electronic-data reporting system. In addition
to dramatically cutting costs for states and other regulatory authorities, the e-reporting rule
could expand transparency by making it easier for everyone to quickly access critical data on
pollution that might be affecting communities. The agency is also developing an e-manifest tool
to help the regulated community share information on practices associated with managing
hazardous materials. Finally, to increase the speed at which EPA can provide the public
access to accurate chemical information, EPA issued a final rule to require companies to
submit electronically a range of TSCA data, including new chemical submissions for agency
review.
Management
To carry out our critical work to protect American's health and our communities, our internal
management systems, financial controls and careful oversight of funds utilization are key to
our success. We continue to focus on strengthening our internal controls to ensure that the
agency efficiently and effectively achieves its mission. As part of this effort, corrective actions
are already underway to address the weaknesses and significant deficiencies identified during
FY2013. My assurance statement, as required under the Federal Managers' Financial
Integrity Act, appears in Section I, "Management's Discussion and Analysis," of this report.
Additional information on EPA's internal-control weaknesses is available in Section III, "Other
Accompanying Information," of this report.
I look forward to providing you with the EPA's FY 2014-2018 strategic plan, which will outline
our vision for protecting the environment and people's health in every community during the
next four years and beyond. We continue to build upon our successes, address new demands
and challenges that arise and strive to maximize our resources to the benefit of Americans,
their health and their communities.
Respectfully,
0 '
ina McCarthy
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Section I
Management's Discussion and Analysis
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ABOUT EPA
History and Purpose
EPA was created in 1970 in response to growing concern over the impacts of pollution on the nation's
air, water, and land. Its formation united federal environmental research, monitoring, standard-setting,
and enforcement responsibilities in a single, independent agency pursuing one mission: to protect
human health and the environment.
In its first four decades, EPA has made great strides in
protecting people in the places where they live, play,
work, and learn. A clean, safe environment is vital to the
health and economic prosperity of every community. By
conducting focused cleanup efforts, monitoring and
regulating pollutants, evaluating new chemicals, and
encouraging reuse, recycling, and better environmental
decision-making, EPA is creating a healthier national
environment for today and for the future.
EPA's successes have not been achieved alone. The
Agency safeguards a nation with multi-faceted
environmental issues; solving them requires effective
cooperation among diverse stakeholders at all levels.
From international organizations working on global
environmental issues to grassroots community groups
addressing challenges in their own backyards, EPA
welcomes the opportunity to collaborate with its many
partners to develop innovative approaches and realize
common benefits.
Then and now: The Cuyahoga River at present
(top) and on fire in 1952. When another fire broke
out in 1969, it helped launch the modern
environmental movement including the
establishment of the Clean Water Act and the
founding of EPA.
Addressing the myriad challenges of modern environmental threats will continue to require fresh
thinking and new solutions at every level—from the global to the national to the local. The necessity of
success will continue to drive EPA as it works with its partners and stakeholders to identify, evaluate,
and execute scientifically sound, sustainable solutions.
Mission
What EPA Does..
regulations
Gives grants to states, local
communities, and tribes
Studies environmental issues
Sponsors partnerships
Teaches people about the
environment
EPA's mission is "to protect human health and the environment."
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, EPA advances its work and
furthers public trust in its operations.
Publishes information
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Organization
EPA's headquarters are in Washington, D.C. Together, EPA's headquarters offices, 10 regional offices,
and more than a dozen laboratories and field offices across the country employ approximately 16,000
highly educated, technically trained men and women.
Office of Administration
and Resources
Management
Provides notional leadership, policy.
and manogement of many essential
support functions for the Agency
Office of Enforcement and
Compliance Assurance
forties pollution problems through vigorous
civil end criminal enforcement targeting
ir. and ehe
hazards and advances environmental justice
Office of the
Administrator
Provides overall supervision of the Agency
and is responsible directly to the
President of the Untied States.
Office of Air
and Radiation
Develops national programs, polices,
and regulations for controlling air
pollution and radiation exposure
Office of Environmental
Information
Manages the life cycle of information
to support EPA's mission of protecting
human health and the environment
Office of Research
and Development
and technology for the Agency.
Region I
Boston, MA
Region 2
New York, NY
Region 5
Chicago, IL
Region 6
Dallas, TX
Office of Chemical
Safety and
Pollution Prevention
\M>rics ro prated people ond the
environment from potent/a/ risks from
pesticides and tox/c chemicals through
innovative partnerships and cof/oborotroa
and preventing position be/bre it begins
Office of the
Chief Financial Officer
Manages agency's annual budget and
' Tiance plan, coordinates EPA's
0'/c planning efforts; provic..
financial services for the Agency, and
mokes payments to EPA grant recipients
. contractors, and other vendors
Office of
General Counsel
Provides legal support for Agency rules
and policies, case-by-case decisions.
Office of Solid Waste
and Emergency Response
Provides policy, guidance, and direction
for the Agency's emergency response
Office ofWater
:ersheds. and their aquatic ecosystems
to protect human health, support
conomic and rec/eotiono/ activities.
and provide healthy habitats for
fish, plants, and wildlife
;
Region 3
Philadelphia, PA
Region 4
Atlanta, GA
II
Region 7
Kansas City, KS
Region 8
Denver, CO
Region 9
San Francisco, CA
Region 10
Seattle, WA
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Regional Map
PR oft VI
Collaborating With Partners and Stakeholders
EPA, states, and tribes share responsibility for implementing environmental laws and policies to protect
human health and the environment. The federal government alone cannot begin to address all of the
nation's environmental challenges. Today's complex environmental issues require cooperative and
transparent action.
EPA works in concert with the states, tribes, local governments, and other federal agencies that
constitute our country's environmental protection enterprise to ensure the efficiency, efficacy, and
coordination of our distinct, joint, and complementary efforts. Work must be shared, roles must be
refined, and stronger, more efficient and cost-effective partnerships must be built to ensure continued
joint success. EPA works with its co-regulators as well as the regulated community, private industry,
nonprofit organizations, and the public to build new tools and strategies that enhance coordination,
establish joint priorities, manage resources effectively, and share information through E-Enterprise. E-
Enterprise is a joint initiative of states and EPA to improve environmental outcomes and enhance
service to the regulated community and the public by maximizing the use of advanced monitoring and
information technologies, optimizing operations, and increasing transparency.
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 of 2010, EPA develops a Strategic Plan
(http://www2.epa.gov/planandbudget/strategicplan) that establishes its long-term strategic goals,
supporting objectives, and measures. To promote achievement of these goals and objectives, EPA
commits to a suite of annual performance measures established in its Annual Performance Plan and
Budget. The Agency reports its results against these annual performance measures and discusses
progress toward longer term objectives and measures in its Annual Performance Report.
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EPA's Performance Management System
Strategic Planning
FY 2011-2015 Strategic Plan
Futures
Results Measurement, Reporting,
and Evaluation (Accountability)
• Annual Performance Report/Highlights
• Agency Financial Report
• Program Evaluation
• Cross-Cutting Fundamental Strategy Annual
Progress Reports
• Management Integrity and Audit Management
Annual Planning
and Budgeting
EPA Annual Plan and Budget
Priority Goals
Cross-Cutting Fundamental Strategy
Annual Action Plans
Operations and Execution
« National Program Manager Guidance
• Regional Performance Commitments/
Annual Commitment System (ACS)
• Regional and State Performance
Partnership Agreements
FY 2013 Advances in Performance Management
During FY 2013, EPA designed and implemented a number of key initiatives to further strengthen its
performance management system.
Development of the FY 2014-2018 Strategic Plan: EPA is drafting its FY 2014-2018 Strategic Plan,
which will reflect seven themes to set the Agency's direction over the next four years. Developing a new
Strategic Plan gives the Agency an important opportunity to reflect upon its progress to date and to
work with its partners to refine priorities and strategies for advancing environmental and human health
protection. EPA expects to issue its new Strategic Plan in early 2014.
Agency Performance Reviews: EPA's Deputy Administrator meets with senior leadership quarterly to
discuss progress on the Agency Priority Goals (APGs) and twice a year (mid-year and end-of-year) to
discuss progress toward the five goals and five cross-cutting fundamental strategies established in the
Agency's FY 2011-2015 Strategic Plan. EPA officials use this forum to discuss performance
information and the impact of resource levels on Agency priorities and strategies. During the FY 2013
mid-year review, the Agency focused on how results could inform the development of the new Strategic
Plan, the FY 2014-2015 APGs, and the Agency's FY 2015 Budget.
Agency Priority Goals: In FY 2013, EPA completed implementation of FY 2012-2013 Action Plans for
each of its five APGs and documented progress toward the Cross-Agency Priority Goal for
Cybersecurity. In addition to quarterly internal discussions, EPA reported progress under each Action
Plan on http://www.performance.qov and will discuss end-of-year progress for these APGs in its FY
2013 Annual Performance Report. During FY 2013, the Agency also drafted FY 2014-2015 APGs as it
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developed its FY 2014-2018 draft Strategic Plan. Final FY 2014-2015 APGs will be presented in the
FY 2014-2018 Strategic Plan.
Streamlined Performance Reporting: In February 2013, the Agency issued its first Web-based
Financial and Performance Highlights. Internally, the Agency continued to increase its use of the
Performance Dashboard, which provides access to performance information for Agency managers to
use in assessing program and performance status. Managers can view the results of their programs (as
well as progress of other programs and regions) across time, determine whether they are meeting their
annual targets, and communicate results at mid-year and end-of-year performance reviews. EPA
continued to work with OMB to better use http://www.performance.gov to make performance
information easily accessible to the public.
Enhanced Stewardship: To increase attention to stewardship responsibilities for managing programs
and resources effectively and efficiently, EPA piloted new comprehensive Management Accountability
Reviews in selected program and regional offices. The reviews focus attention on the Agency's
responsibilities for audit management and implementation of the Federal Managers' Financial Integrity
Act (FMFIA), helping to ensure that EPA programs and activities are managed to prevent waste, fraud,
and abuse.
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2013 PROGRAM PERFORMANCE
During FY 2013, EPA and its
partners achieved significant results QTDfl__n|r nn.. Q
under the long-term environmental
goals and cross-cutting fundamental Goal 1: Taking Action on Climate Change and lmproving Air Quality
strategies established in the Goal 2: Protecting America's waters
Agency's FY 2011—2015 Strategic ^oal ^' Cleaning Up Communities and Advancing Sustainable Development
Goal 4: Ensuring the Safety of Chemicals and Preventing Pollution
Goal 5: Enforcing Environmental Laws
EPA's progress in implementing its
cross-cutting fundamental strategies CROSS-CUTTING FUNDAMENTAL STRATEGIES
and detailed FY 2013 performance Expanding the Conversation on Environmentalism
results by Strategic goal Will be Working for Environmental Justice and Children's Health
presented in the FY 2013 APR, which Advancing Science, Research and Technological Innovation
the Agency Will issue With its FY 2015 Strengthening State, Tribal and International Partnerships
Congressional Budget Justification strengthening EPA's Workforce and Capabilities
and post on its website at
http://www2.epa.gov/planandbudget7r
esults in February 2014.
Strategic Goals
Goal 1: Taking Action on Climate Change and Improving Air Quality
As part of its mission to protect human health and the environment, EPA develops national programs,
policies, and regulations for controlling air pollution and radiation exposure. In June 2013, President
Obama issued a Presidential Memorandum directing EPA to work expeditiously to complete carbon
pollution standards for the power sector. In September 2013, EPA achieved the first milestone outlined
in the Memorandum, proposing Clean Air Act standards to cut carbon pollution from new power plants.
EPA has also initiated broad-based outreach and direct engagement with external stakeholders to
establish carbon pollution standards for existing power plants and build on state efforts to move toward
a cleaner power sector.
In March 2013, EPA proposed Tier 3 Motor Vehicle Emissions and Fuel Standards for cars and
gasoline that will significantly reduce harmful pollution and prevent thousands of premature deaths and
illnesses, while also enabling efficiency improvements in the cars and trucks we drive. Once fully
implemented, the standards will help avoid up to 2,400 premature deaths per year and 23,000 cases of
respiratory ailments in children. The proposal will reduce emissions of harmful pollutants, including
smog-forming volatile organic compounds and nitrogen oxides, by 80 percent; establish a 70 percent
tighter particulate matter standard; and reduce fuel vapor emissions to near zero. The proposal will also
reduce vehicle emissions of toxic air pollutants, such as benzene and 1,3-butadiene, by up to 40
percent and reduce gasoline sulfur levels by more than 60 percent—down to 10 parts per million in
2017.
The Agency took important steps to improve air quality by strengthening the annual health National
Ambient Air Quality Standard for fine particles (PM2.s) to a level within a range of 13.0 to 12.0
micrograms per cubic meter. The Agency retained the existing standards for coarse particle pollution
(PM10) and also finalized the Renewable Fuel Standard program for cellulosic biofuel, biomass-based
diesel, advanced biofuel, and total renewable fuel. These standards ensure that produced or imported
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gasoline and diesel sells in the United States with the minimum volume of renewable fuel required by
the Energy Independence and Security Act of 2007.
The Agency also developed a number of tools to help business, industry, and the public better
understand and address the impacts of a changing climate. In response to the President's call to make
commercial buildings 20 percent more energy efficient, EPA upgraded the ENERGY STAR Portfolio
Manager. This tool allows businesses to track and assess energy and water consumption across a
portfolio of buildings in a secure online environment. The Agency has also developed a mobile
emissions monitoring platform that has been effectively applied to characterize emissions near source
environments, including roadways, refineries, and oil and gas production pad studies in various states.
Lastly, the Agency released the National Stormwater Calculator, the first phase of the Stormwater
Calculator and Climate Assessment Tool package announced in the President's Climate Action Plan.
This tool allows planners and property owners to assess how green infrastructure can be used to
reduce rainwater runoff from development sites.
Goal 2: Protecting America's Waters
EPA coordinates with states, tribes, and other partners to ensure that our drinking water is safe and
that aquatic ecosystems are sustained for economic and recreational activities, while providing a
healthy habitat for fish, plants, and wildlife.
In FY 2013, EPA strengthened the Clean Water Act (CWA) Section 319 program by releasing the final
Nonpoint Source Program and Grants Guidelines for States and Territories. Under the reformed
Section 319, states must allot 50 percent of funds for watershed projects to restore impaired waters.
The final guidelines also use state planning processes to strategically focus resources, better leverage
funds, and focus on accountability for 319-funded outcomes. Once the guidelines are implemented,
states and tribes can better use 319 funds to address the most pressing Nonpoint Source Program
issues.
EPA signed the final 2013 National Pollutant Discharge Elimination System (NPDES) Vessel General
Permit for another five years. This permit will cover 700,000 vessels, ensuring that vessels do not
introduce invasive species to U.S. waters and reducing the toxicity level and volume of pollutant
discharge (e.g., oils) to the nation's waterways. To develop appropriate science-based limits for the
permit, EPA commissioned independent studies by both the EPA Science Advisory Board and the U.S.
National Research Council, successfully sought and concluded Endangered Species Act consultations,
developed vessel discharge types documents, and conducted an economic analysis evaluating the cost
of the permit. EPA issued the permit more than eight months ahead of its effective date to provide the
regulated community time and flexibility to come into compliance with the permit's new requirements.
Under the Great Lakes Restoration Initiative, EPA, along with 15 other federal agencies, is working to
clean up and delist Great Lakes Areas of Concern. In FY 2013, Presgue Isle Bay became the second
Great Lakes Area of Concern delisted in the United States since the Great Lakes Water Quality
Agreement was signed in 1972. The delisting was based on the success of various cleanup activities in
the bay. For example, changes to the city of Erie's collection, conveyance, and treatment systems
reduced sewer overflow and Stormwater runoff into the bay.
Goal 3: Cleaning Up Communities and Advancing Sustainable Development
One of EPA's top priorities is to support sustainable, thriving communities by reducing waste,
minimizing the use of resources, and cleaning up contaminated sites.
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To respond to Hurricane Sandy, EPA quickly activated the Emergency Operation Centers and
assessed 105 Superfund removals and 142 long-term remedial sites in the storm's path to determine
what damage Hurricane Sandy may have caused; supplemental funds were provided for response
actions at four Superfund sites. EPA also supported debris management and recovery operations and
partnered closely with the Federal Emergency Management Agency and the states of New York and
New Jersey to investigate more than 1,000 underground storage tanks for potential damage.
EPA works closely with communities to encourage renewable energy development on current and
formerly contaminated lands, landfills, and mine sites. In FY 2013, Harvard University's Kennedy
School selected EPA's RE-Powering America's Land Initiative as one of the 25 finalists for the
Innovation in American Government Award. Since RE-Powering's inception, more than 85 renewable
energy projects have been installed on contaminated sites or landfills, with a cumulative installed
capacity of over 507 megawatts. Across the country, landfills have been turned into solar arrays and
abandoned industrial sites into wind farms creating economic opportunities.
To support the Obama Administration's Investing in Manufacturing Communities Partnership, EPA is
promoting the use of brownfield sites to encourage new manufacturing in areas previously used for
industrial purposes. Communities are being charged to recycle vacant and abandoned properties for
productive uses and to improve local economies. EPA convened community workshops focused on
land revitalization and developed a technical assistance "playbook" for communities seeking new
manufacturing investment.
EPA, along with the Occupational Safety and Health Administration and the Bureau of Alcohol,
Tobacco, Firearms and Explosives issued a chemical advisory that provides information on the hazards
of ammonium nitrate storage, handling, and management. This advisory outlines lessons learned for
facility owners and operators, emergency planners, and first responders from recent incidents, including
the explosion at a fertilizer plant in West, Texas, involving ammonium nitrate, in order to prevent similar
incidents. This action supports the goals of President Obama's Executive Order on Improving Chemical
Facility Safety and Security.
In consultation with federal tribes, the Agency released the Indian Environmental General Assistance
Program Guidance on the Award and Management of General Assistance Agreements
for Tribes and Intertribal Consortia. This guidance supersedes previous guidance and establishes a
new framework for tribes and EPA, including the development of joint tribal-EPA environmental work
plans to build tribal environmental protection program capacities.
Goal 4: Ensuring the Safety of Chemicals and Preventing Pollution
In FY 2013, EPA took a number of actions under the Toxic Substances Control Act (TSCA) to ensure
the safety of chemicals in commerce. The Agency identified 83 chemicals in March 2012 that, if
warranted, will be targeted for risk assessments and risk management over the coming years. Of these
83, EPA has now released for public comment five draft risk assessments for chemicals found in
common household products. In March 2013, EPA announced plans to begin assessments on another
23 commonly used chemicals, including 20 flame retardants.
In addition, EPA increased transparency and met its accelerated FY 2013 target for reviewing and
where appropriate, challenging and declassifying, confidential business information (CBI) claims under
the TSCA. Through FY 2013, approximately 78 percent of the 22,483 existing CBI cases have been
addressed, positioning EPA to complete this effort by the end of FY 2014, a year ahead of schedule.
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Access to and use of chemical information is critical to federal, state, and other governmental decision-
makers, as well as to the public, in making informed choices about chemicals, products, and
technologies. In September 2013, EPA launched a Web-based tool, ChemView, to significantly improve
access to chemical-specific regulatory information developed by EPA and data submitted under the
TSCA. ChemView facilitates comparison of chemicals by use and by health or environmental effects,
providing more streamlined access to EPA assessments, hazard characterizations, and information on
safer chemical ingredients, as well as links to information on manufacturing, processing, use, and
release data reported under the Chemical Data Reporting Rule and the Toxics Release Inventory.
To continue promoting pollution prevention, more than 500 manufacturers may use the Design for the
Environment logo on more than 2,500 products. In FY 2013, the agency expanded the Safer Chemical
Ingredients list, which now includes more than 600 safer chemicals. For the first time, 119 fragrance
chemicals for commercial and consumer cleaning products have been added to the list.
A U.S. delegation, including representatives from EPA and led by the U.S. Department of State,
participated in the fifth and final round of negotiations to establish a legally binding convention directed
at reducing global mercury pollution. The Minamata Convention requires countries to reduce mercury
emissions from power plants and other sources, reduce the use of mercury in certain products and
industrial processes, and reduce and where feasible eliminate the use and release of mercury in
artisanal gold mining; the Convention also addresses mercury supply and trade. EPA worked
successfully with the State Department to conclude negotiations of this legally binding convention and
completed an assessment of U.S. readiness to sign and join it. In November 2013, the United States
signed the Convention and deposited its instrument of acceptance to enable the United States to
become a party.
Goal 5: Enforcing Environmental Laws
EPA works to ensure compliance with environmental laws and requirements to protect human health
and the environment, and takes civil or criminal enforcement actions for violations that threaten
communities and the environment. Over the past year, EPA finalized a number of key cases and
worked to make environmental and enforcement information more accessible to the public. EPA is
developing a comprehensive initiative to convert to 21st-century electronic reporting technology.
To further the E-Enterprise initiative, increase transparency, and support "Next Generation
Compliance," EPA proposed the NPDES Electronic Reporting Rule to modernize reporting processes
for NPDES permittees. Under this rule, facility-specific information, such as inspection and enforcement
history, pollutant monitoring results, and other data required by permits would be reported electronically
and made available on EPA's website, which could save the states about $29 million each year. The
Agency also modernized its Enforcement and Compliance History Online (ECHO) website, which now
offers interactive state dashboards and comparative maps and makes federal and state inspection,
violation, and enforcement action information available to the public for more than 800,000 regulated
facilities.
For its role in the 2010 Deep water Horizon disaster, BP Exploration and Production Inc. was sentenced
to pay over $4.4 billion in criminal fines and penalties after pleading guilty to 11 counts of felony
manslaughter, one count of felony obstruction of Congress, and violations of the Clean Water and
Migratory Bird Treaty Acts. More than half of the funds will be used to directly benefit the Gulf Coast
region through acquiring, restoring, preserving, and conserving the marine and coastal environments,
ecosystems, and bird and wildlife habitat in the Gulf of Mexico and bordering states harmed by the
Deepwater Horizon oil spill. The funds will also support significant barrier island restoration and
improved oil spill prevention and response efforts in the Gulf.
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Transocean Deepwater Inc. also pleaded guilty for its role in the Deepwater Horizon disaster, agreeing
to pay a total of $1.4 billion in civil penalties and criminal fines for violating the CWA. Transocean
Deepwater Inc. was sentenced to pay $400 million in criminal fines, received five years' probation (the
maximum probation term permitted by law), and must continue its ongoing cooperation in the
government's criminal investigation. Transocean Ocean Holdings LLC, Transocean Offshore
Deepwater Drilling Inc., Transocean Deepwater Inc., and Triton Asset Leasing GMBH agreed to pay an
additional $1 billion to resolve federal CWA civil penalty claims for the massive, three-month-long oil
spill at the Macondo Well and the Transocean drilling rig Deepwater Horizon. Eighty percent of the $1
billion will be used to fund projects that will benefit the environment and economy in the Gulf region.
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FINANCIAL ANALYSIS AND STEWARDSHIP INFORMATION
Sound Financial Management: Good for the Environment, Good for the Nation
EPA carries out its mission to protect human health and the environment while adhering to the highest
standards for financial management. Highlighted below are some of EPA's most significant financial
achievements in FY 2013:
• Clean audit opinion. For the 14th consecutive year, EPA's OIG issued an unqualified/unmodified or
"clean" audit opinion on the Agency's financial statements. This means that EPA's financial
statements are presented fairly in all material aspects, and they conform to generally accepted
accounting principles used by the federal government. In simple terms, a clean opinion means the
Agency's numbers are reliable and accurate.
• Tightened conference spending and oversight. EPA implemented a robust set of controls
related to conference spending in FY 2012 and FY 2013. In FY 2013, EPA initiated detailed
reporting to the public and OIG on conferences, providing greater transparency to the public on the
scope and scale of EPA conferences. These controls have contributed toward an overall 29 percent
reduction in travel expenditures from FY 2012 to FY 2013.
• Policy verification. EPA finalized its comprehensive review of internal controls over American
Recovery and Reinvestment Act (ARRA) funds during FY 2013, as part of its Policy Verification
Compliance Initiative. This initiative evaluated the Agency's implementation of the ARRA while also
fostering managerial integrity and accountability by enabling early identification and resolution of
potential areas of weakness.
• Timely payments. EPA paid 97 percent of its invoices on time, and the improper payments rate
was less than 0.04 percent. This means EPA paid the correct amount on time and to the correct
recipient in nearly every instance. Additionally, the Agency paid 100 percent of its grant payments
electronically.
• Strengthened internal controls over payments. EPA revised its statistical methods and approach
for testing the accuracy and compliance of payments. Additionally, the Agency incorporated the Do
Not Pay solution, a data mining tool that enables it to identify potential improper payments made to
ineligible recipients. Together, these efforts help EPA recoup erroneous payments, prevent future
errors from occurring, and better identify the root causes of payment errors.
• Improvements in travel payment processing. The Agency implemented a new policy requiring
employees to scan 100 percent of their travel receipts into EPA's electronic travel booking and
processing system, allowing the agency to audit travel vouchers as they are paid. This increases
efficiency by reducing the number of days needed for reimbursement, reducing delinquencies, and
strengthening control over Agency travel expenses.
• Improved employee time and attendance. The Agency implemented new internal controls over
employee time and attendance reporting. These controls will ensure that EPA employees are
following appropriate procedures and that the Agency pays employees accurately.
• Upgraded data quality control. The Agency implemented routine reviews of budget table
balances against the general ledger balances for consistency and accuracy. This new process
ensures greater data quality control, leading to better overall management of the Agency's financial
systems.
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• Increased oversight of user fee programs. In FY 2013, EPA implemented a new process for
conducting biennial reviews of its user fee programs. This process helps the Agency improve its
estimated costs of providing user fee services and assists programs in conducting more detailed
reviews.
• Balanced checkbook. 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.
Financial Condition and Results
Financial statements are formal financial records that document 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 other reportable financial activities.
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 EPA's
financial situation. Reviewers can glean a
snapshot of the Agency'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, 2013, and September 30, 2012. The Statement of Net Cost shows EPA's gross cost to
operate, minus exchange revenue earned from its activities. Together, these two statements provide
information about key components of 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 2011.
Key Terms
Assets: What the EPA
owns and manages.
Liabilities: Amounts the
EPA owes because of
past transactions or
events.
Net Position: The
difference between
EPA's assets and its
liabilities.
Net Cost of Operations:
The difference between
the costs incurred by
EPA's programs and
EPA's revenues.
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$25
$20
$15
$10
$5
$0
Balance Sheet Trend
(dollars in billions)
Assets
Net Position
Net Cost of Operations
Assets—What EPA Owns and Manages
EPA's assets totaled $16.67 billion at the end of FY 2013, a decrease of $597 million from the FY 2012
level. In FY 2013, almost 87 percent of EPA's assets fall into two categories: "Fund Balance with
Treasury" and "Investments." All of EPA's investments are backed by U.S. government securities. The
graphs that follow compare the Agency's FY 2013 and FY 2012 assets by major category.
FY 2013 Composition of Assets
• Fund Balance with Treasury. $9.94
billion
Investments. $4.58 billion
Property. Plant and Equipment
(Net). $1.03 billion
Accounts Receivable (Net). $0.86
billion
Other Assets. $0.25 billion
• Loans Receivable. $.0001 billion
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FY 2012 Composition of Assets
0%
> Fund Balance with Treasury, $10.86
billion
Investments. $4.62 billion
Property. Plant and Equipment
(Net). $1.01 billion
Accounts Receivable (Net). $0.52
billion
Other Assets. $0.26 billion
• Loans Receivable. $.0001 billion
Liabilities—What EPA Owes
EPA's liabilities were $2.38 billion at the end of FY 2013, marking an increase of $108 million from the
FY 2012 level. In FY 2013, EPA's largest liability—representing 43 percent—covers Superfund cashout
advances: funds paid by EPA for cleanup of contaminated sites under the Superfund program. The
next largest category, EPA's combined accounts payable and accrued liabilities, represents 28 percent
of what the Agency owes. The remaining two categories represent 29 percent of the Agency's liabilities.
Payroll and benefits payable include salaries, pensions and other actuarial liabilities. Other liabilities
include EPA's debt due to Treasury, custodial liabilities that are necessary to maintain assets for which
EPA serves as custodian, environmental cleanup costs, and other miscellaneous liabilities. The graphs
that follow compare FY 2013 and FY 2012 liabilities by major category.
FY2013 Composition of Liabilities
28%
13%
Accounts Payable and
Accrued Liabilities. $0.68
billion
• Cashout Advances.
Superfund. $1.01 billion
Other. $0.37 billion
Payroll and Benefits. $0.32
billion
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FY 2012 Composition of Liabilities
37%
14%
Accounts Payable and
Accrued Liabilities. $0.83
billion
• Cashout Advances,
Superfund. $0.74 billion
• Other. $0.39 billion
Payroll and Benefits. $0.31
billion
Net Cost of Operations—How EPA Used Its Funds
The graphs that follow show how EPA's funds are expended among its five program goal areas in FY
2013 and FY 2012:
FY 2013 Net Cost by Goal
21°/c
Clean Air. $1.05 billion
• Clean & Safe Water. $5.09
billion
Land Preservation &
Restoration. $1.94 billion
Healthy Communities &
Ecosystems. $0.66 billion
Compliance & Environmental
Stewardship. $0.69 billion
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FY 2012 Net Cost by Goal
21%
Clean Air. $1.2 billion
i Clean & Safe Water. $5.52
billion
Land Preservation &
Restoration. $2.2 billion
Healthy Communities &
Ecosystems. $0.73 billion
Compliance &
Environmental
Stewardship. $0.74 billion
EPA serves as a steward on behalf of the American people. The chart below presents four categories
of stewardship: infrastructure, research and development, human capital, and land. In FY2013, EPA
devoted a total of $4.3 billion to its stewardship activities.
Per the 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.
• Infrastructure efforts focus on clean water and drinking water facilities. EPA provides grants to
states to support wastewater and drinking water treatment facilities. EPA provided nearly $3.7
billion in FY 2013 to projects to ensure that people have clean water and, safe drinking water.
• Research and development activities enable EPA to identify and assess important risks to human
health and the environment. This critical research investment provides the basis for EPA's
regulatory work, including regulations to protect children's health and at-risk communities, drinking
water, and the nation's ecosystems.
• Human capital includes 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 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, 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 Section II of this report, under "Required
Supplementary Stewardship Information."
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FY 2013 Stewardship
(Dollars In Thousands) Human Capital.
.$0.036 bilion.
0.83%
R&D.$0.61
billion. 14.03%
Land. SO billion.
0%
Financial Management for the Future
Sound stewardship of financial resources is critical to EPA's ability to protect the environment and
human health. Reliable, accurate, and timely financial information is essential to ensure cost-effective
decisions for managing programs addressing land, water, air and ecosystem issues.
To strengthen EPA's financial stewardship capabilities, EPA's Office of the Chief Financial Officer
(OCFO) focuses on the fundamental elements of financial management: people and systems.
People: EPA leverages every available tool to recruit the best people with the necessary skills to meet
tomorrow's financial challenges. EPA is integrating financial information into everyday decision-making
so that it maximizes the use of its resources.
Systems: In FY 2013, EPA used a component-based approach to managing its financial systems. It
was designed to improve EPA's financial stewardship by strengthening accountability, data integrity,
and internal controls. The system, called Compass, is based on a commercial-off-the-shelf software
solution that addresses EPA's most critical business needs:
• General ledger
• Accounts payable
• Accounts receivable
• Property
• Project cost
• Intra-governmental transactions
• Budget execution
Compass provides core budget execution and accounting functions and facilitates more efficient
transaction processing. The system posts updates to ledgers and tables as transactions are processed
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and generates source data for the preparation of financial statements and budgetary reports. Compass
is integrated with 15 other Agency systems that support diverse functions, such 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.
EPA's financial systems modernization strategy builds upon Compass through the implementation of
additional components, subject to future review by OMB:
• Human resources, payroll, and time and attendance
• Budget formulation
• Superfund imaging and cost accounting
• Payment systems
EPA plans to migrate its human resources and payroll systems to the Interior Business Center, an OMB
Human Resources Line of Business approved shared service provider in FY 2014. In addition, EPA has
started the planning phase of its new Budget Formulation System. Currently, EPA is reviewing
requirements in preparation of designing the system.
Limitations of the Principal Financial Statements
EPA prepared the principal financial statements to report its financial position and the results of its
operations, pursuant to the requirements of 31 U.S.C. 3515(b). While 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 understanding 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
OIG contributes to EPA's mission to protect human health and the environment by assessing the
efficiency and effectiveness of 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 EPA carry out its ARRA objectives. In FY 2013,
OIG identified key management challenges and internal control weaknesses and provided over 624
recommendations accounting for more than $122 million in potential savings and recoveries and more
than 215 actions taken by EPA 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
agreed to:
• Develop assessment criteria and conduct regular reviews of its overall School Environmental Health
programs to determine whether it is providing sufficient regulatory and voluntary program services
to address the risks to children's health in school.
• Establish guidance, maintain database documentation, and track resources to enhance its ability to
determine the efficiency of the rulemaking process.
• Develop a comprehensive strategic plan, assess water security by gathering available data and
incorporating measures into national guidance, and improve internal controls by developing a
program review strategy and a multi-year review plan.
• Update the March 2009 fees rule to reflect the size of fees necessary to recover the program costs,
and apply indirect cost rates to all applicable direct costs to obtain the full cost of the program.
• Conduct biennial cost reviews of the lead-based paint fee collections and the full cost of operating
the program to determine whether it is recovering its costs, and determine the appropriate Agency
indirect cost rates to be used for its user fee programs.
Additionally, OIG investigations accounted for 256 criminal, civil, or administrative enforcement actions
or allegations disproved during FY 2013. The EPA OIG Investigations team also participated in the joint
federal task force, resulting in a criminal recovery of $4.4 billion from the BP oil spill. Finally, the EPA
OIG won the Alexander Hamilton Award, the highest achievement presented by the Council of
Inspectors General for Integrity and Efficiency, for its work associated with the Deepwater Horizon spill:
"In recognition of significant contributions to improving the protection of the environment from oil spills
of unprecedented magnitude and the government's ability to meet its legal obligations and effectively
manage and pay for associated costs."
Grants Management
EPA met or exceeded most major performance metrics, including grant closeout and competition goals,
under its second long-term Grants Management Plan (2009-2013), which builds on the progress made
under the first Grants Management Plan (2003-2008) and will prevent the recurrence of a grants
management weakness. The Agency was just 0.7 percent shy of the 99 percent grant closeout target
for FY 2013.
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Grants Management Performance Measures for 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 FY2013
93.4% in 201 2
98.3% in 2011 and earlier
96%
Progress in FY2012
94% in 201 1
99% in 2010 and earlier
97%
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ACCOUNTABILITY: SYSTEMS, CONTROLS, AND LEGAL COMPLIANCE
Federal Managers' Financial Integrity Act (FMFIA)
The FMFIA requires agencies to conduct annual evaluations of their internal controls over programs
and financial systems 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.
Each year, EPA's national program and regional offices conduct assessments and submit 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
EPA's internal controls over programmatic operations and financial systems. Over the years, the
Agency has taken several actions that strengthened its compliance with the FMFIA. For instance, the
Agency piloted new Management Accountability Reviews to assess its implementation of the FMFIA
and new audit management procedures. These reviews combined previously separate Management
Integrity Compliance Reviews and Audit Management Reviews into one single review and yielded
results that will be used to improve the Agency's technical guidance to senior managers.
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 287 key controls. This evaluation identified no
new material weaknesses. Subsequent to the Agency's review, EPA's OIG identified no new material
weaknesses and six new significant deficiencies during the FY 2013 financial statement audit. Based
on the results of the Agency's and OIG's FY 2013 evaluations, the Administrator can provide
reasonable assurance on the adequacy and effectiveness of EPA's internal controls over programs and
financial systems, and the Agency's internal controls over financial operations were found to be
operating effectively and efficiently.
Fiscal Year 2013 Annual Assurance Statement
The U.S. Environmental Protection Agency conducted its Fiscal Year 2013 assessment of the
effectiveness of internal controls over programmatic operations and financial activities, as well as
conformancc of financial systems to governmentwide standards. The assessment was conducted in
compliance with the Federal Managers ' Financial Integrity Act, Office of Management and Budget
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, 2013.
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, 2013, I am providing
reasonable assurance that the EPA's internal controls over financial activities were operating effectively.
Gina/MfcCarthy
Admrrfistrator
Date
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Management Assurances
For FY 2013, no material weakness was identified by OIG. EPA is addressing a number of less severe
weaknesses for which corrective actions are underway. Section III of this report provides details about
corrective actions underway to rectify weaknesses and deficiencies. EPA will continue monitoring
progress toward correcting these issues. The accompanying graph depicts EPA's progress toward
correcting its material and Agency-level weaknesses since 2008. EPA continues to emphasize the
importance of maintaining effective internal controls.
(A
0)
(A
(A
0)
C
^
ra
0)
Five-Year Trend of Material and Agency Weaknesses
Remaining at Fiscal Year End
(Fiscal Years 2009-2013)
5 5
Agency
Material
Fiscal Year
Material Agency
Federal Financial Management Improvement Act (FFMIA)
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. Standard General Ledger (USSGL). Annually, Agency heads are required to assess and
report on whether these systems comply with FFMIA.
EPA's FY 2013 assessment included the following:
• A-123 review found no significant deficiencies.
• OIG's FY 2013 financial statement audit identified no new material weaknesses related to financial
management systems but identified EPA as non-compliant with FFMIA at the United States
Standard General Ledger transaction level. The Agency disagrees with this finding and discusses
its position in Section III of this AFR. Section II of this AFR includes the OIG's audit report.
• The Agency's annual Federal Information Security Management Act Report did not disclose any
material weaknesses.
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• The Agency conducted other systems-related activities, including:
o Third-party control assessments.
o Network scanning for vulnerabilities.
o Annual certification for access to the Agency's accounting system
Based on the assessment described above, the Agency believes it is compliant with the FFMIA for FY
2013.
Federal Information Security Management Act (FISMA)
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 (IG)—to the Department of Homeland Security (DHS), OMB, and Congress. Agencies also
report quarterly and monthly to DHS and OMB on the status of particular aspects of the information
security program.
EPA's Chief Information Officer, senior Agency program officials, and the IG's FY 2013 FISMA Report
and FY 2013 FISMA audit status meetings cite no material weakness in information security. The FY
2013 report, however, noted where EPA needs to make significant improvements in configuration,
contractor systems, and risk management. EPA has been making improvements in configuration
management through FY 2013 and will continue to focus efforts through FY 2014 in all these
areas. The Agency plans to focus on the Administration Priorities (APs) for information security as well
as in FY 2014 to progress on meeting the AP standards.
Biennial User Fees
In accordance with OMB Circular A-25 Revised, User Charges, and the CFO Act of 1990, EPA
conducted the biennial review of its user fee programs. The objective was to determine whether
additional fees should be assessed for services it provides and/or recommend adjustments to reflect
unanticipated changes in costs or market values.
The review evaluated the activities of the Agency's eight existing fee programs: Motor Vehicle and
Engine Compliance Program Fee, Registration Service Fee, Pesticide Maintenance Fee,
Premanufacture Notice Fee, Lead Accreditation and Certification Fee, Clean Air Part 71 Operating Fee,
Outside User Fee Agreement Program, and Freedom of Information Act Requests.
Results of the review, including whether any may qualify for an exception under OMB Circular A-25 is
still on-going and will be reported in a subsequent year. Pending the outcome of this process, EPA did
not make recommendations to adjust its existing fees or propose any legislative changes.
Inspector General Act Amendments of 1988—Audit Management
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. For
example:
• EPA completed first year implementation of its revised audit management policy, EPA Manual
2750, Audit Management Procedures, issued in September 2012. The new policy clarifies roles and
responsibilities, ensures consistent audit management and follow-up practices Agencywide, and
promotes timely, efficient, and effective resolution of OIG—as well as Government Accountability
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Office and Defense Contract Audit Agency (DCAA)—audit findings and recommendations. Since
the policy was issued, the Agency has noted increased attention to timely resolution of OIG audits:
55 percent of program/performance audits issued this fiscal year were resolved before issuance of
the final report.
• To broaden its attention to its stewardship responsibilities for managing programs and resources
effectively and efficiently, EPA piloted new comprehensive Management Accountability Reviews in
selected program and regional offices. By focusing attention on the Agency's responsibilities for
audit management—including accountability for, and completion of, outstanding unimplemented
OIG recommendations—as well as implementation of the FMFIA, the reviews help ensure that EPA
programs and activities are managed to prevent waste, fraud, and abuse.
• The Office of the Chief Financial Officer continued to prepare Audit Management Progress Reports
highlighting the status of management decisions and corrective actions. Shared with program office
and regional managers across EPA, these reports promote timely audit follow-up and completion of
corrective actions.
In FY 2013, EPA was responsible for addressing OIG recommendations and tracking follow-up
activities for 405 OIG reports. The Agency achieved final action (completing all corrective actions
associated with the audit) on 191 audits, which included program evaluation/program performance,
assistance agreement, and single audits. This total excludes DCAA audits issued after January 1,
2009; these audits are discussed in a separate section below. EPA's FY 2013 management activities
for audits with associated dollars are represented in the following table.1
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 (16) and
with better use funds (4)
(ii) Management decisions with no disallowed costs (135)
and with no better use funds (47)
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
(Hi) 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
47 $ 18,726,977
151 $ 1,313,463
198 $20,040,440
148 $11,811,362
$ 4,432,054
$ 233,480
$ 0
$ 3,232,360
$ 0
$ 3,913,468
50 $ 8,229,078
Funds Put to Better Use
(Performance Audits)
Number Value
84 $145,113,342
51 $ 19,294,000
135 $164,407,342
43 $ 51,402,608
$ 51,402,608
92 $113,004,734
Any differences in number of reports and amounts of disallowed costs or funds put to better use between this report and our
previous APR results from corrections made to data in our audit tracking system.
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EPA's FY 2013 management activities for audits without final corrective action are summarized as
follows:
• Final corrective action not taken. Of the 405 audits that EPA tracked, a total of 199—including
program evaluation/program performance, assistance agreement, contract, and single audits—were
without final action and not yet fully resolved at the end of FY 2013. (The 15 audits with
management decisions under administrative appeal by the grantee are not included in this total; see
discussion below.)
• Final corrective action not taken beyond one year. Of the 199 audits, EPA officials had not
completed final action on 66 audits (four of which involve multiple offices) within one year after the
management decision (the point at which 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 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.
Audits of Program Performance: Final action for program performance audits occurs when all
corrective actions have been implemented, which can require more than one year when corrections are
complex and lengthy. Some audits include recommendations requiring action by more than one office.
EPA is tracking 52 audits in the program performance category (four of which involve multiple offices).
Office of the Administrator
11-P00708 EPA Progress on the 2007 Methamphetamine Remediation Research Act
12-P00125 Use of Unapproved Asbestos Demolition Methods May Threaten Public Health
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
11-100015 Audit of EPA's Fiscal 2010 and 2009 Consolidated Financial Statements
11-P00136 EPA Needs Better Agency-Wide Controls Over Staff Resources
11-P00616 EPA Has Not Fully Implemented a National Emergency Response Equipment Tracking System
11-P00687 EPA Should Improve Timeliness for Resolving Audits Under Appeal
11-P00705 EPA's Contract Oversight and Controls Over Personal Computers Need Improvement
12-100073 Audit of EPA's Fiscal 2011 and 2010 Consolidated Financial Statements
12-P00388 EPA Should Improve Controls for Managing Contractor-Held Property
Office of Air and Radiation
2005-P00010 Evaluation of CAA Title V Operating Permit Quality
9-P00087+ EPA Plans for Managing Counter Terrorism/Emergency Response Equipment and Protecting
Critical Assets
10-P00154 Key Activities in EPA's Integrated Urban Air Toxics Strategy Remain Unimplemented
11-P00010 Energy Star Label Needs to Assure Superior Energy Conservation Performance
11-P00701 EPA Should Update Its Fee Rule to Recover More Motor Vehicle and Engine Compliance
Program Costs
11-R00179 EPA Needs to Better Document Project Delays for Recovery Act Diesel Emission Reduction Act
Grants
Office of Chemical Safety and Pollution Prevention
10-P00066 EPA Needs a Coordinated Plan to Oversee Its Toxic Substances Control Act Responsibilities
Office of the Chief Financial Officer
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2006-P00013 SF Mandate: Program Efficiencies
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-P00177+ Appointment Business Process
11-P00031 EPA Needs to Strengthen Internal Controls for Determining Workforce Levels
11-P00223 Review of Travel Controls
11-P00630 EPA Needs Workload Data to Better Justify Future Workforce Levels
12-P00311 EPA Can Improve Its Improper Payments Reporting
Office of Enforcement and Compliance Assurance
2001-P00013 State Enforcement Effectiveness—National Audit
2005-P00024 Priority Enforcement and Compliance Assurance Universe
10-P00007 EPA Oversight and Policy for High Priority Violations of Clean Air Act Need Improvement
10-P00224+ EPA Should Revise Outdated or Inconsistent EPA-State Clean Water Act Memoranda of
Agreement
10-P00230 Data Quality Audit of ECHO System Phase II
11-P00315+ Agency-Wide Application of Region 7 NPDES Program Process Improvements Could Increase
EPA Efficiency
12-P00376 Early Warning Report: Use of Contractors to Conduct Clean Air Act Risk Management Program
Inspections in Certain States Goes Against Court Decisions
Office of Environmental Information
2007-P00008 EPA Could Improve Controls Over Mainframe Software
10-P00177+ Appointment Business Process
11-P00277 EPA Has Taken Steps to Address Cyber Threats But Key Actions Remain Incomplete
12-P00427 Office of Environmental Information Should Strengthen Controls Over Mobile Devices
Office of Research and Development
10-P00176 EPA's Office of Research and Development Performance Measures Need Improvement
11-P00333 Office of Research and Development Needs to Improve Its Method of Measuring Administrative
Savings
11-P00386 Office of Research and Development Should Increase Awareness of Scientific Integrity Policies
Office of Solid Waste and Emergency Response
2007-P00002 Asbestos Cleanup in Libby Montana
10-P00042 Lack of Final Guidance on Vapor Intrusion Impedes Efforts to Address Indoor Air Risks
11-P00171 EPA Needs an Agency-Wide Plan to Provide Tribal Solid Waste Management Capacity
Assistance
11-P00173 EPA Promoted the Use of Coal Ash Products With Incomplete Risk Information
11-P00534 Revisions Needed to National Contingency Plan Based on Deepwater Horizon Oil Spill
12-P00253 EPA Needs to Further Improve How It Manages Its Oil Pollution Prevention
12-P00289 Controls Over State Underground Storage Tank Inspection Programs in EPA Regions Generally
Effective
12-P00508 EPA Inaction in Identifying Hazardous Waste Pharmaceuticals May Result in Unsafe Disposal
Office of Water
9-P00223 EPA Needs to Accelerate Adoption of Numeric Nutrient Water Quality Standards
10-P00081 EPA Needs Procedures to Address Delayed Earmark Projects
10-P00224+ EPA Should Revise Outdated or Inconsistent EPA-State Clean Water Act Memoranda of
Agreement
11-P00315+ Agency-Wide Application of Region 7 NPDES Program Process Improvements Could Increase
EPA Efficiency
Region 2
2007-P00016 Ringwood Mines/Landfill Superfund Site
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Region 8
11-P00430 An Overall Strategy Can Improve Communication Efforts at Asbestos Superfund Site in Libby,
Montana
Region 9
2008-P00196 Making Better Use of Stringfellow SF Special Accounts
11-P00725 Region 9 Technical and Computer Room Security Vulnerabilities Increase Risk to EPA's Network
Region 10
12-P00220 Region 10 Technical and Computer Room Security Vulnerabilities Increase Risk to EPA's
Network
+ Indicates audits involving more than one office
Single Audits: Final action for single audits occurs when non-monetary and/or monetary compliance
actions are completed. Achieving final action can 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. EPA is tracking completion of
corrective action on the following 12 single audits for the period beginning October 1, 2013.
Region 2
2007-300139
11-300022
11-300038
12-300444
12-300725
Region 9
10-300208
12-300285
Region 10
2003-300047
2003-300117
2003-300145
2006-300167
2006-300168
State of New York, FY 2006
United States Virgin Islands Government FY 2007
United States Virgin Islands Government FY 2008
New Jersey State FY 2011
Puerto Rico Environmental Quality Board Government FY2010
City of Nogales FY 2008
Commonwealth Utilities Corporation MP FY2010
Stevens Village Council
Stevens Village Council
Circle Village Council
State of Alaska—FY 2003
State of Alaska—FY 2004
"indicates that collection of funds has been turned over to the U.S. Department of the Treasury
Audits of Assistance Agreements: Reaching final action for assistance agreement audits can require
more than one year, as the grantee may appeal, refuse to repay, or be placed on a repayment plan that
spans several years. EPA is tracking the following two audits in this category.
Region 3
2001-100101 Center for Chesapeake Communities (CCC) Assist. Agreements*
Region 5
2008-200039 Village of Laurelville, OhioA
"indicates that collection of funds has been turned over to the U.S. Department of the Treasury
Audits Awaiting Decision on Appeal: EPA regulations allow grantees to appeal management
decisions on financial assistance audits that seek monetary reimbursement from the recipient. In the
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case of an appeal, EPA must not take action to collect the account receivable until it issues a decision
on the appeal. At the end of FY 2013, 15 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 EPA's APR.
Defense Contract Audit Agency Audits
Prior to January 1, 2009, DCAA audits of the EPA contracts requested by EPA's OIG and the results
were included in OIG's Semiannual Report on to Congress. EPA will continue to track and report on
these DCAA audits along with other OIG audits until they are resolved and final actions are taken;
these audits are included in the previous summary. Beginning January 1, 2009, however, EPA's Office
of Acquisition Management assumed responsibility for requesting DCAA audits. Accordingly, these
audits are now reported separately from OIG audits. The following provides an overview of DCAA audit
activity for the period of October 1, 2012, through September 30, 2013.
Summary of Audit Activities for the Period Ending September 30, 2013
Since OIG no longer handles the DCAA audits, the resolution of these audits is not reported on in OIG's
semi-annual report to Congress. Accordingly, we have summarized the status of audits in the resolution
process in the following chart:
Category
A. Audits for which no management decision was made by 10/1/2012
B. Audits which were issued during the period
C. Subtotal (A+B)
D. Audits for which a management decision was made during the reporting period
E Audits for which no management decision was made by 9/30/1 3
F. Reports for which no management decision was made within six months of issuance
Number
45
42
87
53
35
0
Questioned Costs
$ 4,156,673
$ 1,355,254
$ 5,511,927
$ 1,264,925
$ 784,068
$ 0
During this reporting period, EPA management was accountable for monitoring 86 DCAA audits, one
performed by a Certified Public Accountant (CPA) firm and one performed by the Defense Contract
Management Agency (DCMA). The agency achieved final action on 50 audits. EPA's FY 2013
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 (19)
(ii) Management decisions with no disallowed costs (33)
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
Disallowed Costs
(Financial Audits)
Number Value
1 $ 0
52 $ 656,754
53 $ 656,754
49 $ 316,969
$ 0
$ 0
$ 0
Funds Put to Better Use
(Performance Audits)
Number Value
0 $ 0
0 $ 0
0 $ 0
0 $ 0
-------
d) Other
(ii) Write-offs
(iii) Reinstated through 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)
$ 316,969
$ 0
$ 0
4 $ 339,785
$ 0
$ 0
0 $ 0
Final Corrective Action Not Taken on DCAA Audit Reports: Of the 88 DCAA, DCMA, and CPA firm
audits EPA tracked, 39 were without final action and not yet fully resolved at the end of FY 2013.
DCAA Audits Awaiting Decision on Appeal: As of September 30, 2013, there were no management
decisions in administrative appeal status.
DCAA Audits Without Management Decision in 180 Days: As of September 30, 2013, EPA is
tracking no DCAA reports, for which EPA is the cognizant agency, that have not reached management
decision in over 180 days from the date of the report.
Final Corrective Action Not Taken Beyond One Year: Final action for contract audits performed by
DCAA or other organizations occurs when non-monetary and/or monetary compliance actions are
completed. Achieving final action may require more than a year if the findings are complex or the
contractor does not have the resources to take corrective action. EPA is tracking completion of
corrective action on the following contract audit for the period beginning October 1, 2013.
Office of Acquisition Management
2012-114475 Avanti Corporation Fiscal Years 2006, 2007 and 2008
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Section II
Financial Section
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Message from the Chief Financial Officer
EPA's Agency Financial Report presents the performance and financial results that the
agency achieved during fiscal year 2013. It provides information on the agency's
accomplishments and challenges in protecting human health and the environment, use of
the financial resources entrusted to us, and progress toward addressing key management
challenges. During FY 2013, the Agency continued to demonstrate efficient, effective and
accountable management and made innovative improvements to increase efficiency and
reduce costs.
As required by Office of Management and Budget Circular A-123 and the Federal Managers' Financial
Integrity Act, EPA conducted an annual assessment of the effectiveness of internal controls over financial
reporting and programmatic operations. Based on the results of the Agency's FY 2013 evaluation and
reviews, the Administrator can provide reasonable assurance on the adequacy and effectiveness of the
agency's internal controls over programs, financial activities and financial systems.
In FY 2013, the Agency continued its efforts to enhance financial stewardship. Despite the austere conditions
resulting from spending cuts to EPA's programs, we maintained a strong focus on ensuring effective internal
controls were in place to manage our limited resources as efficiently and effectively as possible to achieve
our mission.
EPA scrutinized expenses, including travel and training, and leveraged this opportunity to further enhance
internal controls. For example, we implemented electronic processing and 100% audit of travel expenses and
receipts, tightened our control over conference-related costs and provided EPA's first public report on agency
conferences. Additionally, travel expenditures were reduced by 29% compared to FY 2012, the speed and
accuracy of payments increased, and financial reporting improved.
The Agency implemented new internal controls to increase the accuracy of employee time and attendance
reporting. These controls work to ensure that employees and managers are following appropriate procedures
to enter and approve time and attendance data. Also, we implemented various system upgrades to improve
time and attendance approval procedures to reduce erroneous payments.
To support the new and enhanced internal controls implemented during FY2013, the Agency completed a
major effort to review and update our financial policies. This effort resulted in 100% of EPA's financial policies
being reviewed and the addition of a new three-year review cycle to prevent policies from becoming outdated.
In FY 2013, EPA piloted new Management Accountability Reviews to assess the agency's implementation of
agencywide audit management guidance and facilitate employee training on FMFIA. The streamlined reviews
found that agency managers are attending to their management integrity and audit management
responsibilities and effectively implementing audit management programs.
As Acting 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 and strive to ensure that we utilize taxpayer dollars effectively in fulfilling our mission to protect
human health and the environment. EPA 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.
Maryann Froehlich
Acting Chief Financial Officer
December 16, 2013
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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 (FBWT)
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. FECA Actuarial Liabilities
Note 16. Cashout Advances, Superfund
Note 17. Unexpended Appropriations - Other Funds
Note 18. Commitments and Contingencies
Note 19. Funds from Dedicated Collections
Note 20. Intragovernmental Costs and Exchange Revenue
Note 21. Environmental Cleanup Costs
Note 22. State Credits
Note 23. Preauthorized Mixed Funding Agreements
Note 24. Custodial Revenues and Accounts Receivable
Note 25. Reconciliation of President's Budget to Statement of Budgetary Resources
Note 26. Recoveries and Resources Not Available, Statement of Budgetary Resources
Note 27. Unobligated Balances Available
Note 28. Undelivered Orders at the End of the Period
Note 29. Offsetting Receipts
Note 30. Transfers-ln and Out, Statement of Changes in Net Position
Note 31. Imputed Financing
Note 32. Payroll and Benefits Payable
Note 33. Other Adjustments, Statement of Changes in Net Position
Note 34. Non-exchange Revenue, Statement of Changes in Net Position
Note 35. Reconciliation of Net Cost of Operations to Budget
Note 36. Amounts Held By Treasury (Unaudited)
Note 37. Antideficiency Act Violations
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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)
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Environmental Protection Agency
Consolidated Balance Sheet
For the Periods Ending September 30, 2013 and 2012
(Dollars in Thousands)
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 21)
Cashout Advances, Superfund (Note 16)
Commitments & Contingencies (Note 18)
Payroll & Benefits Payable (Note 32)
Other (Note 13)
Total Liabilities
NET POSITION
Unexpended Appropriations - Other Funds (Note 17)
Cumulative Results of Operations - Funds from Dedicated Collections (Note 19)
Cumulative Results of Operations - Other Funds
Total Net Position
Total liabilities and Net Position
FY2013
FY2012
9,944,179 $
4,577,071
14,327
243,654
14,779,231 $
10
849,173
57
1,030,807
5,756
16,665,034 S
55,961
28
94,441
102,693
253,123 $
619,734 $
51,818
21,549
1,011,585
25,200
267,955
125,908
2,376,872 $
8,980,012
4,576,942
731,208
14,288,162
16,665,034 S
10,856,475
4,620,231
28,216
252,837
15,757,759
10
491,122
136
1,010,021
3,134
17,262,182
55,021
1,063
118,900
117,520
292,504
775,281
46,905
21,560
735,837
25,180
266,727
105,068
2,269,062
9,811,870
4,504,199
677,051
14,993,120
17,262,182
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Consolidated Statement of Net Cost
For the Periods Ending September 30, 2013 and 2012
(Dollars in Thousands)
FY2013
FY2012
COSTS
Gross Costs (Note 20) $
Less:
Earned Revenue (Note 20)
NET COST OF OPERATIONS (Note 20) $
10,026,208 $
600,897
10,905,272
521,826
9,425,311 $
10,383,446
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Period Ending September 30, 2013
(Dollars in Thousands)
dean & Safe
dean Air Water
Costs:
Intragovernmental $ 166,921 $ 405,439
With the Public 903,413 4,723,286
Total Costs (Note 20) 1,070,334 5,128,725
Less:
Earned Revenue, Federal 21,275 7,733
Earned Revenue, non Federal 1,444 29,976
Total Earned Revenue (Note 20) 22,719 37,709
NET COST OF
OPERATIONS (Note 20) $ 1,047,615 S 5,091,016
Land
Presenation&
Restoration
$
341,138
1,902,661
2,243,799
67,803
237,781
305,584
S 1,938,215
Healthy
Communities &
Ecosystems
$ 163,742
538,325
702,067
12,732
31,837
44,569
657,498
Compliance &
Environmental
Stewardship
$ 194,386
686,897
881,283
3,489
186,827
190,316
690,967
Costs:
Intragovernmental
With the Public
Total Costs (Note 20)
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
NET COST OF
OPERATIONS (Note 20)
Consolidated
Totals
1,271,626
8,754,582
10,026,208
113,032
487,865
600,897
S 9,425,311
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Period Ending September 30, 2012
(Dollars in Thousands)
Land Healthy Compliance &
Clean & Safe Preservation & Communities & Environmental
Clean Air Water Restoration Ecosystems Stewardship
Costs:
Intragovernmental $ 184,695 $ 380,760 $ 358,603 $ 184,459 $ 216,865
With the Public 1,027,551 5,177,804 2,175,713 593,659 605,163
Total Costs (Note 20) 1,212,246 5,558,564 2,534,316 778,118 822,028
Less:
Earned Revenue, Federal 12,171 8,220 79,371 12,092 5,877
Earned Revenue, non Federal 1,372 33,654 255,421 37,106 76,542
Total Earned Revenue (Note 20) 13,543 41,874 334,792 49,198 82,419
NET COST OF
OPERATIONS (Note 20) $ 1,198,703 S 5,516,690 S 2,199,524 S 728,920 S 739,609
Costs:
Intragovernmental
With the Public
Total Costs (Note 20)
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
NET COST OF
OPERATIONS (Note 20)
Consolidated
Totals
1,325,382
9,579,890
10,905,272
117,731
404,095
521,826
S 10,383,446
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Periods Ending September 30, 2013 and 2012
(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 34)
Nonexchange Revenue - Other (Note 34)
Transfers In/Out (Note 30)
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Imputed Financing Sources (Note 31)
Total Other Financing Sources
Net Cost of Operations
Net Change
Cumulative Results of Operations
FY2013
Funds from
Dedicated
Collections
4,504,199
4,504,199
28,717
195,107
(12,594)
1,087,088
1,298,318
25,151
25,151
(1,250,726)
72,743
4,576,942
FY2013
All Other
Funds
677,051
677,051 $
9,160,169
29,885
(1,087,088)
8,102,966
125,776
125,776
(8,174,585)
54,157
731,208
FY2013
Consolidated
Total
5,181,250
5,181,250
9,160,169
28,717
195,107
17,291
9,401,284
150,927
150,927
(9,425,311)
126,900
5,308,150
Unexpended Appropriations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Received
Other Adjustments (Note 33)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION
9,811,870
9,811,870
8,782,272
(453,961)
(9,160,169)
(831,858)
8,980,012
9,811,870
4,576,942 S 9,711,220 S
9,811,870
8,782,272
(453,961)
(9,160,169)
(831,858)
8,980,012
14,288,162
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Periods Ending September 30, 2013 and 2012
(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 34)
Nonexchange Revenue - Other (Note 34)
Transfers In/Out (Note 30)
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing S ources (Non-Exchange)
Donations and Forfeitures of Property
Transfers In/Out (Note 30)
Imputed Financing Sources (Note 31)
Other Financing Sources
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 30)
Other Adjustments (Note 33)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION
FY2012
Funds from
Dedicated
Collections
7,027,163
7,027,163 $
.
87,454
200,069
(2,418,773)
1,075,367
(1,055,883) $
26,337
(76)
26,261 $
(1,493,342)
(2,522,964)
4,504,199 $
- $
-
-
-
-
4,504,199 S
FY2012
All Other
Funds
654,306
654,306 $
9,814,392
-
-
32,018
(1,075,367)
8,771,043 $
141,806
-
141,806 $
(8,890,104)
22,745
677,051 $
11,462,598
11,462,598 $
8,251,902
5
(88,243)
(9,814,392)
(1,650,728)
9,811,870
10,488,921 S
FY2012
Consolidated
Total
7,681,469
7,681,469
9,814,392
87,454
200,069
(2,386,755)
-
7,715,160
168,143
(76)
168,067
(10,383,446)
(2,500,219)
5,181,250
11,462,598
11,462,598
8,251,902
5
(88,243)
(9,814,392)
(1,650,728)
9,811,870
14,993,120
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, 2013 and 2012
(Dollars in Thousands)
FY2013
FY2012
BUDGETARY RESOURCES
Unobligated Balance, Brought Forward, October 1: !
Unobligated balance brought forward, October 1, as adjusted
Recoveries of Prior Year Unpaid Obligations (Note 26)
Other changes in unobligated balance
Unobligated balance from prior year budget authority, net
Appropriations (dis cretionary and mandatory)
Spending authority from offs etting collections (dis cretionary and mandatory)
Total Budgetary Resources (Note 25) !
STATUS OF BUDGETARY RESOURCES
Obligations incurred (Note 25) I
Unobligated balance, end of year:
Apportioned (Note 27)
Unapportioned
Total unobligated balance, end of period
Total Status of Budgetary Resources !
CHANGEIN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid Obligations, Brought Forward, October 1 (gross) !
Obligations incurred
Outlays (gross)
Recoveries of prior year unpaid obligations
Unpaid obligations, end of year (gross) !
Uncollected Payments:
Uncollected cus tomer payments from Federal Sources, brought forward, October 1 !
Change in Uncollected cus tomer payments from Federal sources
Uncollected cus tomer payments from Federal sources, end of year I
Memorandum entries:
Obligated balance, start of year !
Obligated balance, end of year (net) I
BUDGET AUTHORITY AND OUTLAYS, NET:
Budget authority, gros s (dis cretionary and mandatory) I
Actual offs etting collections (discretionary and mandatory)
Change in Uncollected cus tomer payments from Federal sources (discretionary and mandatory)
Budget authority, net (discretionary and mandatory) I
Outlays, gross (discretionary and mandatory) (Note 25) !
Actual offsetting collections (discretionary and mandatory) (Note 25)
Outlays, net (discretionary and mandatory)
Distributed offsetting receipts (Notes 25 and 29)
Agency outlays, net (discretionary and mandatory) I
2,786,404 $
2,786,404
286,170
(25,506)
3,047,068
9,585,239
664,260
13,296,567 $
10,090,120 $
3,008,632
197,815
3,206,447
13,296,567 $
11,311,842 $
10,090,120
(11,331,761)
(286,170)
9,784,031 $
(305,514) $
9,338
(296,176) $
11,006,328 $
9,487,856 $
10,249,499 $
(673,598)
9,338
9,585,239 $
11,331,761 $
(673,598)
10,658,163
(1,173,784)
9,484,379 $
3,497,850
3,497,850
571,576
(31,639)
4,037,787
11,948,399
583,051
16,569,237
13,782,833
2,609,127
177,277
2,786,404
16,569,237
12,774,894
13,782,833
(14,674,309)
(571,576)
11,311,842
(438,428)
132,914
(305,514)
12,336,466
11,006,328
12,531,450
(715,965)
(132,914)
11,682,571
14,674,309
(715,965)
13,958,344
(1,163,736)
12,794,608
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, 2013 and 2012
(Dollars in Thousands)
FY2013
FY2012
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties $
Other
Total Cash Collections $
Accrual Adjustment
Total Custodial Revenue (Note 24) $
Disposition of Collections:
Transferred to Others (General Fund) $
Increases/Decreases in Amounts to be Transferred
Total Disposition of Collections $
Net Cus tottial Revenue Activity (Note 24) $
150,444
17,346
167,790
(20,167)
147,623
167,790
(20,167)
147,623
172,938
(51,707)
121,231
62,980
184,211
121,234
62,977
184,211
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, 2013 and 2012
(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 2013 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
Office of Management and Budget (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 (STAG),
Buildings and Facilities (B&F), and for Payments to the Hazardous Substance Superfund to be
available until expended, as well as annual appropriations for Science and Technology (S&T),
Environmental Programs and Management (EPM) and for the Office of Inspector General (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 (FIFRA) and Pesticide
Registration Funds (PRIA) 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 Working Capital Fund (WCF) is provided by fees collected from other Agency
appropriations and other federal agencies to offset costs incurred for providing the agency
administrative support for computer and telecommunication services, financial system services,
employee relocation services, background investigations, conference planning and postage.
In FY 2013, EPA received an advance of $1.053 million from BP PLC (BP) to fund the National
Resource Damage and Assessment Fund (NRDA) to participate in addressing injured natural
resources and service resulting from the Deepwater Horizon Oil Spill.
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 EPA's funds.
5. Trust Funds
Congress adopts an annual appropriation amount for the Superfund, Leaking Underground
Storage Tank (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
Inland Oil Spill Programs appropriation amount to the EPA's Oil Spill Response Account.
The Office of General Counsel determined that the EPA did not have statutory authority to retain
and use states voluntary cost share payments for Superfund removal actions and subsequently
did not comply with the Miscellaneous Receipts Act and the EPA's Hazardous Substance
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Superfund appropriation was improperly augmented. As a result of this decision, the EPA
transferred $9.3 million from the Superfund appropriation to Treasury's miscellaneous receipts.
D. Basis of Accounting
Generally Accepted Accounting Principles (GAAP) for Federal entities is the standard prescribed by
the Federal Accounting Standards Advisory Board (FASAB), 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.
E. Revenues and Other Financing Sources
The following EPA policies and procedures to account for inflow of revenue and other financing
sources are in accordance with Statement of Federal Financial Accounting Standards (SFFAS)
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 (SSCs), and settlement
proceeds from Potentially Responsible Parties (PRPs) under CERCLA 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 which
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 which 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 FIFRA and PRIA 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 the 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
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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).
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 SARA. 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 remedial action 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.
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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.
N. Property, Plant, and Equipment
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 (FAS) automatically generates depreciation entries monthly based on in-service dates.
A purchase of EPA-held or contract personal property is capitalized if it is valued at $25 thousand 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 two through five. 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 fifteen 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 thousand 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
thousand 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 economic 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 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.
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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 in-service 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 thousand 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
thousand 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 (CPIC) 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 ten years.
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 32 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 (CSRS). On January 1, 1984, the
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Federal Employees Retirement System (FERS) went into effect pursuant to Public Law 99-335.
Most employees hired after December 31, 1983, are automatically covered by FERS and Social
Security. Employees hired prior to January 1, 1984, 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
(OPM), 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.
U. Recovery Act Funds
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of
2009 (Recovery Act). 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 Recovery Act 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, 2013, EPA has paid out $7.1 billion.
The EPA, in collaboration with states, tribes, local governments, territories and other partners, is
administering the funds it received under the Recovery Act through four appropriations. The funds
include:
• State and Tribal Assistance Grants (STAG) that in turn include:
o $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);
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o $100 million for competitive grants to evaluate and clean up former industrial and
commercial sites (Brownfields program);
o $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 (Leaking
Underground Storage Tank program); and
• $20 million for audits and investigations conducted by the Inspector General (IG).
The vast majority of the contracts awarded under the Recovery Act have used competitive
contracts. The EPA is committed fully to ensuring transparency and accountability throughout the
agency in spending Recovery Act funds in accordance with OMB guidance.
EPA set up a Stimulus Steering Committee that meets to review and report on the status of the
distribution of the Recovery Act Funds to ensure transparency and accuracy. EPA also developed
a Stewardship Plan which is an Agency-level risk mitigation plan that sets out the Agency's
Recovery Act 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 (GAO) 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 Plan is a dynamic document and will be
updated as revised OMB guidance is issued or additional risks are uncovered.
EPA has the three-year EPM treasury symbol 6809/110108 that was established to track the
appropriate operation and maintenance of the funds. EPA's other Recovery Act programs are the
following: Office of Inspector General (IG), treasury symbol 6809/120113; State and Tribal
Assistance Grants, treasury symbol 6809/100102; Payment to the Superfund, treasury symbol
6809/100249; Superfund, treasury symbol 6809/108195; and Leaking Underground Storage Tank,
treasury symbol 6809/108196.
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, BP is required by the 1990 Oil Pollution Act to fund the
cost of the response and cleanup operations. In FY 2011, the EPA worked on the cleanup effort in
conjunction with the U.S. Coast Guard who was named the lead Federal On-Scene Coordinator
and continues to assist the Department of Justice on the pending civil litigation.
On September 10, 2012, the President designated EPA and USDA as additional trustees for the
National Resource Damage and Assessment Council for restoration solely in conjunction with injury
to, destruction of, loss of, or loss of the use of natural resources, including their supporting
ecosystems, resulting from the Deepwater Horizon Oil Spill. In FY 2013, EPA received an advance
of $1.053 million from BP, to participate in addressing injured natural resources and service
resulting from the Deepwater Horizon Oil Spill.
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W. Hurricane Sandy
On January 29, 2013, President Obama signed into law the Disaster Relief Appropriations Act
(Disaster Relief Act) which provides aid for Hurricane Sandy disaster victims and their communities.
Because relief funding of this magnitude often carries additional risk, agencies must ensure that the
funds appropriated under the Act are used for their intended purposes. The Disaster Relief Act
required Federal agencies supporting Sandy recovery and other disaster-related activities to
implement internal controls to prevent waste, fraud and abuse of these funds. EPA implemented an
internal control plan. The EPA Hurricane Sandy Internal Control Plan was submitted to OMB, GAO
and the IG during March 2013.
EPA received a post sequestration appropriation of $577 million in Hurricane Sandy funds. As of
the end of FY 2013, $433,005 in Hurricane Sandy funds have been expended. These funds are for
the following programs (all amounts are post sequestration):
• The Clean Water State Revolving Fund received $475 million for work on clean water
infrastructure projects in New York and New Jersey.
• The Drinking Water State Revolving Fund received $95 million for work on drinking water
infrastructure projects in New York and New Jersey.
• The Leaking Underground Storage Tanks program received $4.75 million for work on
projects impacted by Hurricane Sandy.
• The Superfund program received $1.9 million for work on Superfund sites impacted by
Hurricane Sandy.
• EPA also received $689,000 to make repairs to EPA facilities impacted by Hurricane Sandy
and conduct additional water quality monitoring.
X. 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.
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Note 2. Fund Balance with Treasury (FBWT)
Fund Balance with Treasury as of September 30, 2013 and 2012, consists of the following:
Trust Funds:
Superfund
LUST
Oil Spill
Revolving Funds:
FIFRA/Tolerance
Working Capital
Cr. Reform Finan.
NRDA
Appropriated
Other Fund Types
Total
Entity
Assets
$ 40,254 $
38,368
5,082
11,820
66,663
370
1,037
9,402,247
377,460
$ 9,943,301 $
FY2013
Non-Entity
Assets Total
- $ 40,254
38,368
5,082
11,820
66,663
370
1,037
9,402,247
878 378,338
878 $ 9,944,179
Entity
Assets
95,604 $
35,310
4,682
4,808
68,319
599
10,300,004
338,748
10,848,074 $
FY2012
Non-Entity
Assets
- $
-
-
-
-
-
-
8,401
8,401 $
Total
95,604
35,310
4,682
4,808
68,319
599
10,300,004
347,149
10,856,475
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 EPA for other
entities.
Status of Fund Balances:
FY2013
FY2012
Unobligated Amounts in Fund Balance:
Available for Obligation
Unavailable for Obligation
Net Receivables from Invested Balances
Balances in Treasury Trust Fund (Note 36)
Obligated Balance not yet Disbursed
Non-Budgetary FBWT
Totals
3,008,631
199,569
(3,114,699)
2,492
9,487,855
360,331
9,944,179 $
2,609,126
177,277
(3,269,572)
(994)
11,005,812
334,826
10,856,475
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
are available only for adjustments of existing obligations. For FY 2013 and FY 2012 no differences
existed between Treasury's accounts and EPA's statements for fund balances with Treasury.
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Note 3. Cash and Other Monetary Assets
As of September 30, 2013 and 2012, the balance in the imprest fund was $10 thousand.
Note 4. Investments
As of September 30, 2013 and 2012 investments related to Superfund and LUST consist of the
following:
Amortized T ^ ^ T ., ^ ». • ^
Interest Inwstments, Market
Cost (Premium) .
v ' ReceiraMe Net Value
Discount
Intragowrnmental Securities:
Non-Marketable FY2013 $ 4,510,044 $ (60,737) $ 6,290 $ 4,577,071 $ 4,577,071
Non-Marketable FY2012 $ 4,509,646 $ (103,614) $ 6,971 $ 4,620,231 $ 4,620,231
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from
responsible parties (RPs). Some RPs file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy
settlements, 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 funds from dedicated collections (see Note 19).
The Federal Government does not set aside assets to pay future benefits or other expenditures
associated with funds from dedicated collections. The cash receipts collected from the public for
dedicated collection funds are deposited in the U.S. Treasury, which uses the cash for general
Government purposes. Treasury securities are issued to EPA as evidence of its receipts. Treasury
securities are an asset to EPA and a liability to the U.S. Treasury. Because EPA and the U.S.
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. Government-wide financial statements.
Treasury securities provide EPA with authority to draw upon the U.S. Treasury to make future benefit
payments or other expenditures. When 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
$
$
$
15,163 $
(836) $
14,327 $
29,027
(811)
28,216
The Accounts Receivable as of September 30, 2013 and 2012 consist of the following:
FY2013 FY2012
Intragovernmental:
Accounts & Interest Receivable
Less: Allowance for Uncollectibles
Total
Non-Federal:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Uncollectibles
Total
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
142,251 $
2,484,674
(1,777,752)
849,173 $
139,138
2,036,177
(1,684,193)
491,122
Other Assets as of September 30, 2013 and 2012 consist of the following:
Litragovernmental: FY2013
Advances to Federal Agencies
Advances for Postage
Total
243,586
68
FY2012
252,537
300
243,654 $
252,837
Non-Federal:
Travel Advances
Other Advances
Operating Materials and Supplies
Inventory for Sale
Total
318
5,052
85
301
5,756 $
202
2,625
140
167
3,134
Note 7. Loans Receivable, Net
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, 2013 and
2012 are as follows:
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FY2013 FY2012
Loans Value of Assets Loans Value of Assets
Recei\aHe, Allowance* Related to Recei\aMe, Allowance* Related to
Gross Direct Loans Gross Direct Loans
Direct Loans
Obligated After FY 30 27 57 496 (36°) 136
1991
Total $ 30 $ 27 $ 57 $ 496 $ (360) $ 136
* 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 U.S. Treasury for the Asbestos Loan Program
based on an upward re-estimate of $33 thousand 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
thousand) of the $33 thousand 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 Antideficiency Act (ADA) violation. On October 13, 2009, 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, 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):
Interest Rate Technical Total
Re-estimate Re-estimate
Upward Subsidy Reestimate-FY2013 $ $ $ -
Downward Subsidy Reestimate-FY2013 302 96 398
FY2013 Totals $ 302 $ 96 $ 398
Upward Subsidy Reestimate-FY2012 $ 247 $ 85 $ 332
Downward Subsidy Reestimate-FY2012 -
FY2012 Totals $ 247 $ 85 $ 332
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Schedule for Reconciling Subsidy Cost Allowance Balances
(Post-1991 Direct Loans)
FY2013 FY2012
Beginning balance of the subsidy cost allowance $ (360) $ (131)
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 $ (11) $ 103
Other
End balance of the subsidy cost allowance before reestimates $ (11) $ 103
Add or subtract subsidy reestimates by component:
(a)hiterestratereestimate 302 (247)
(b) Technical/default reestimate 96 (85)
Total of the above reestimate components $ 398 (332)
Ending Balance of the subsidy cost allowance $ 27 $ (360)
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, 2013 and 2012:
FY2013 FY2012
Litragowrnmental:
Accounts Payable $ 642 $ 2,610
Accrued Liabilities 55,319 52,411
Total $ 55,961 $ 55,021
Non-Federal: FY2013 FY2012
Accounts Payable $ 78,614 $ 107,294
Advances Payable 3 11
Interest Payable 7 7
Grant Liabilities 378,230 460,835
Other Accrued Liabilities 162,880 207,134
Total $ 619,734 $ 775,281
Other Accrued Liabilities primarily relate to contractor accruals.
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Note 9. General Property, Plant, and Equipment, Net
General property, plant, and equipment (PP&E) consist of software, real property, EPA and contractor-
held personal property, and capital leases.
As of September 30, 2013 and 2012, General PP&E consist of the following:
EPA -Held Equipment $
Software
Contractor Held Equip.
Land and Buildings
Capital Leas es
Total $
Acquisition
Value
273,725 $
690,335
48,158
680,344
35,440
1,728,002 $
FY2013
Accumulated
Depreciation
(169,592) $
(272,155)
(18,631)
(210,467)
(26,350)
(697,195) $
Net Book Value
104,133 $
418,180
29,527
469,877
9,090
1,030,807 $
Acquisition
Value
261,279 $
615,090
59,812
672,096
35,440
1,643,717 $
FY2012
Accumulated
Depreciation
(157,259) $
(231,599)
(18,711)
(201,140)
(24,987)
(633,696) $
Net Book
Value
104,020
383,491
41,101
470,956
10,453
1,010,021
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, 2013 and 2012 is as follows:
All Other Funds FY2013 FY2012
Beginning Net Ending Beginning Net Ending
Balance Borrowing Balance Balance Borrowing Balance
Intragowrnniental:
Debt to Treasury
1,063
2,593
1,063
Note 11. Stewardship Land
The Agency acquires title to certain property and property rights under the authorities provided in
Section 104(j) CERCLA 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 clean-up. 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).
As of September 30, 2013 and 2012, the Agency possesses the following land and land rights:
-------
FY2013 FY2012
Superfund Sites with
Easements
Beginning Balance 36 36
Additions 0 0
Withdrawals 0_ 0_
Ending Balance 36_ 36_
Superfund Sites with
Land Acquired
Beginning Balance 34 34
Additions 0 0
Withdrawals 1_ 0_
Ending Balance 33_ 34_
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, 2013 and 2012, custodial liability is approximately $94 million and $119 million,
respectively.
Note 13. Other Liabilities
Other Liabilities consist of the following as of September 30, 2013:
-------
Other Liabilities - Intragowrnmental
Current
Employer Contributions & Payroll Taxes
WCF Advances
Other Advances
Advances, HRSTF Cashout
Deferred HRSTF Cashout
Liability for Deposit Funds
Non-Current
Unfunded FECA Liability
Unfunded Unemployment Liability
Payable to Treasury Judgment Fund
Total Intragovernmental
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal
Liability for Deposit Funds, Non-Federal
Non-Current
Capital Lease Liability
Total Non-Federal
Other Liabilities consist of the following as
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Taxes $
WCF Advances
Other Advances
Advances, HRSTF Cashout
Deferred HRSTF Cashout
Non-Current
Unfunded FECA Liability
Payable to Treasury Judgment Fund
Total Intragovernmental $
Other Liabilities - Non-Federal
Current
Unearned Advances, Non -Federal $
Liability for Deposit Funds, Non-Federal
Non-Current
Capital Lease Liability
Total Non-Federal $
Cove r e d by Not Cove r e d by
Budgetary Budgetary
Resources Resources
$ 26,599 $
1,526
8,814
32,736
274
5
10,581
158
22,000
$ 69,954 $ 32,739
$ 103,813 $
1,052
21,043
$ 104,865 $ 21,043
of September 30, 2012:
Covered by Not Covered by
Budgetary Budgetary
Resources Resources
25,304 $ - $
1,294
23,505
34,341
604
10,472
22,000
85,048 $ 32,472 $
72,728 $ - $
9,335
23,005
82,063 $ 23,005 $
Total
$ 26,599
1,526
8,814
32,736
274
5
10,581
158
22,000
$ 102,693
$ 103,813
1,052
21,043
$ 125,908
Total
25,304
1,294
23,505
34,341
604
10,472
22,000
117,520
72,728
9,335
23,005
105,068
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Note 14. Leases
Capital Leases:
The value of assets held under Capital Leases as of September 30, 2013 and 2012 are as follows:
Summary of Assets Under Capital Lease: FY2013 FY2012
Real Property $ 35,285 $ 35,285
Personal Property 155 155
Total $ 35,440 $ 35,440
Accumulated Amortization $ 26,350 $ 24,987
EPA had two capital leases for land and buildings housing scientific laboratories and computer facilities.
Both 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.
One lease terminated in FY 2013 and the other terminates in FY 2025.
The total future minimum capital lease payments are listed below.
Future Payments Due:
Fiscal Year Capital Leases
2014 $ 4,215
2015 4,215
2016 4,215
2017 4,215
After 5 y ears 30,910
Total Future Minimum Lease Payments 47,770
Less: Imputed Interest $ (26,727)
Net Capital Leas e Liability 21,043
Liabilities not Covered by Budgetary Resources $ 21,043
(See Note 13)
Operating Leases:
The GSA provides leased real property (land and buildings) as office space for EPA employees. GSA
charges a Standard Level User Charge that approximates the commercial rental rates for similar
properties.
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
2014 $ 89
2015 89
2016 89
2017 83
Beyond 2018 11£
Total Future Minimum Lease Payments $ 464
Note 15. FECA Actuarial Liabilities
The Federal Employees' Compensation Act (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, 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.
The FECA Actuarial Liability as of September 30, 2013 and 2012 was $51.8 million and $46.9 million,
respectively. The FY 2013 present value of these estimated outflows is calculated using a discount
rate of 2.727 percent in the first year, and 3.127 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 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 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 EPA without further appropriation by Congress. As of September 30, 2013
and 2012, cashouts are approximately $1.012 billion and $736 million respectively.
Note 17. Unexpended Appropriations - Other Funds
As of September 30, 2013 and 2012, the Unexpended Appropriations consist of the following:
Unexpended Appropriations: FY2013 FY2012
Unobligated
Available $ 1,061,402 $ 602,413
Unavailable 95,043 82,346
Undelivered Orders 7,823,567 9,127,111
Total $ 8,980,012 $ 9,811,870
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Note 18. Commitments and Contingencies
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 EPA funding to the grantee or the provision of additional grantee matching
funds.
As of September 30, 2013 and 2012 total accrued liabilities for commitments and potential loss
contingencies is $25.2 million and $25.2 million, respectively. Further discussion of the cases and
claims that give rise to this accrued liability are discussed immediately below.
Litigation Claims and Assessments
There is currently one legal claim which 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 $15 million and $25 million. EPA has accrued the higher
conservative amount as of September 30, 2013. The maximum amount of exposure under the claim
could range as much as $25 million in the aggregate.
Superfund
Under CERCLA Section 106(a), 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 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, 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, 2013, there are no material claims pending in the Treasury's Judgment Fund.
However, 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
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 CEC). According to the terms of the agreement, each government pays an
equal share to cover the operating costs of the CEC. EPA paid $3 million to the CEC in the period
ended September 30, 2013 and $3 million in the period ended September 30, 2012.
EPA has a legal commitment under a non-cancellable agreement, subject to the availability of funds,
with the United Nations Environment Program (UNEP). This agreement enables EPA to provide funding
to the Multilateral Fund for the Implementation of the Montreal Protocol. EPA made payments totaling
$5.92 million in FY 2013. Future payments totaling $27 million have been deemed reasonably possible
and are anticipated to be paid in fiscal years 2014 through 2016.
Note 19. Funds from Dedicated Collections
Balance sheet as of September 30,2013
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 30,2013
Gross Program Costs
Less: Earned Revenues
Net Cost of Operations
Statement of Changes in Net Position for the
Period ended September 30,2013
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
En\ironmental
Ser\ices
Superfund
358,632 $
358,632
38,368 $
1,360,530
114,051 $
114,051 $
4,105,538
8,973 $ 1,277,641
1,558,007
441,908
Other Funds from Total Funds from
Dedicated Collections Dedicated Collections
40,254 $
3,216,541
739,813
108,930
358,632 $ 1,390,286 $ 2,827,897 $
358,632 $ 1,399,259 $ 4,105,538 $
1,116,099 $
36,767 $
3,193
3,086
42,919 $
127 $
43,046 $
74,237
54,131
20,106 $
(6,759) $
474,021
4,577,071
743,006
112,377
5,906,475
1,329,533
4,576,942
5,906,475
1,746,295
495,569
358,632 $
1,390,286 $
127 $
4,576,942
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Balance sheet as of September 30,2012
Assets
Fund Balance with Treasury
Investments
Accounts Receivable, Net
Other As sets
TotalAssets
Other Liabilities
Total Liabilities
Cumulative Results of Operations
Total Liabilities and Net Position
Statement of Changes in Net Cost for the
Period Bided September 30,2012
Gross Program Costs
Less: Earned Revenues
Net Cost of Operations
Statement of Changes in Net Position for the
Period ended September 30,2012
Net Position, Beginning of Period
None>change Revenue- Securities Investments
None>change Revenue
Other Budgetary Finance Sources
Other Financing Sources
Net Cost of Operations
Change in Net Position
Net Position
Fjivironmental
Serwces
325,719
LIST
35,310
1,315,101
332
1,350,743
325,719 $
325,719 $
1,336,906
1,350,743
69,766 $
Superfund
95,604 $
3,305,130
374,791
114,354
3,889,879
1,055,191 $
1,055,191 $
2,834,688 $
3,889,879 $
1,705,893 $
305,301
1,400,592 $
Other Funds from
Dedicated Collections
10,017
3,924
Total Funds from
Dedicated Collections
479,151
4,620,231
384,808
118,610
5,602,800
1,098,601
1,098,601
4,504,199
5,602,800
81,780 $
58,796
22,984 $
5,666 $
1,220 $
1,924,907
431,565
1,493,342
(2.522.964)
4,504,199
Funds from Dedicated Collections 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 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.
Leaking Underground Storage Tank (LUST) Trust Fund: The LUST Trust Fund, was authorized by
the Superfund Amendments and Reauthorization Act of 1986 (SARA) 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
which are implemented by the states. Funds are allocated to the states through cooperative
agreements to clean up those sites posing the greatest threat to human health and the environment.
Funds are used for grants to non-state entities including Indian tribes under Section 8001 of the
Resource Conservation and Recovery Act.
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 is largely financed through a transfer from general
revenues with authorized augmentation through cost share agreements with state governments and
cost recovery from and settlements with Federal, state, and industry responsible parties. Risks to public
health and the environment at uncontrolled hazardous waste sites qualifying for the Agency's National
-------
Priorities List (NPL) 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 Funds from Dedicated Collections:
Oil Spill Liability Trust Fund: The Oil Spill Liability Trust Fund, was authorized by the Oil Pollution Act
of 1990 (OPA). 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 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 (PRFAs) and other inter-agency agreements.
Pesticide Registration Fund: The Pesticide Registration Fund authorized by a 2004 Act,
"Consolidated Appropriations Act (P.L. 108-199),", and reauthorized until September 30, 2019, 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.
National Resource Damage and Assessment Fund: In FY 2013, EPA received an advance of
$1.053 million from BP to fund the National Resource Damage and Assessment Fund (NRDA) to
participate in addressing injured natural resources and service resulting from the Deepwater Horizon
Oil Spill.
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.
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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.
FY2013
FY2012
Clean Air
Pro gram Costs
Earned Revenue
NET COST
Clean and Safe Water
Pro gram Costs
Earned Revenue
NET COSTS
Land Preservation &
Restoration
Pro gram Costs
Earned Revenue
NET COSTS
Healthy Communities &
Ecosystems
Pro gram Costs
Earned Revenue
NET COSTS
Compliance &
Environmental
Stewardship
Pro gram Costs
Earned Revenue
NET COSTS
Total
Pro gram Costs
Earned Revenue
NET COSTS
Intragovernm
ental
166,921 $
21,275
145,646 $ '
405,439 $
7,733
397,706 $ '
With the
Public
Total
$ 341,138 $
67,803
$ 273,335 $ '
163,742 $
12,732
151,010 $ '
903,413 $ 1,070,334
1,444 22,719
901,969 $ 1,047,615
4,723,286 $
29,976
4,693,310 $
538,325 $
31,837
506,488 $
5,128,725
37,709
5,091,016
1,902,661 $ 2,243,799
237,781 305,584
1,664,880 $ 1,938,215
702,067
44,569
657,498
194,386 $ 686,897 $ 881,283
3,489 186,827 190,316
190,897 $ 500,070 $ 690,967
1,271,626 $ 8,754,582 $ 10,026,208
113,032 487,865 600,897
Intragovernm
ental
184,695 $
12,171
With the
Public
1,027,551 $
1,372
Total
172,524 $ 1,026,179 $
380,760 $ 5,177,804 $
8,220 33,654
184,459 $
12,092
172,367 $
216,865 $
5,877
210,988 $
1,325,382 $
117,731
593,659 $
37,106
556,553 $
528,621 $
1,212,246
13,543
5,558,564
41,874
372,540 $ 5,144,150 $ 5,516,690
358,603 $ 2,175,713 $ 2,534,316
79,371 255,421 334,792
279,232 $ 1,920,292 $ 2,199,524
778,118
49,198
728,920
605,163 $ 822,028
76,542 82,419
739,609
9,579,890 $ 10,905,272
404,095 521,826
1,158,594 $
8,266,717 $ 9,425,311
1,207,651 $ 9,175,795 $ 10,383,446
Intragovernmental costs relate to the source of goods or services not the classification of the related
revenue.
Note 21. Environmental Cleanup Costs
As of September 30, 2013, EPA has 2 sites that require clean up stemming from its activities. Two
claimants' chances of success are characterized as probable with costs amounting to $180 thousand
that may be paid out of the Treasury Judgment Fund. For sites that had previously been listed, it was
determined by EPA's Office of General Counsel to discontinue reporting the potential environmental
liabilities for the following reasons: (1) although 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 EPA; (2) any
demand against EPA will be resolved only 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 FY 2013 or in FY 2012.
Accrued Cleanup Cost:
-------
EPA has 15 sites that will require permanent closure, and EPA is responsible to fund the environmental
cleanup of those sites. As of September 30, 2013 and 2012, the estimated costs for site cleanup were
$21.6 million and $21.6 million, respectively. Since the cleanup costs associated with permanent
closure were not primarily recovered through user fees, EPA has elected to recognize the estimated
total cleanup cost as a liability and record changes to the estimate in subsequent years.
Note 22. State Credits
Authorizing statutory language for Superfund and related Federal regulations requires states to enter
into Superfund State Contracts (SSC) when EPA assumes the lead for a remedial action 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 remedial action. Under Superfund's authorizing statutory language, states will
provide 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,
remedial action, and enforcement) at publicly operated sites. In some cases, states may use 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 EPA has determined to be reasonable,
documented, direct out-of-pocket expenditures of non-Federal funds for remedial action.
Once 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 EPA. As of September 30, 2013 and 2012, the total remaining state credits have been
estimated at $25.1 million and $24.7 million, respectively.
In Fiscal Year 2013 EPA started recognizing the credits to non-federal sponsors of Great Lakes Legacy
Act (GLLA) agreements. The Legacy Act requires that at least 35 percent of project costs be provided
by a nonfederal sponsor, with U.S. EPA providing up to 65 percent. Nonfederal sponsors must also
cover 100 percent of the project's operation and maintenance costs. As of September 30, 2013 Great
Lakes Legacy Act credits have been estimated at $37 million.
Note 23. Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response actions at
their sites with the understanding that EPA will reimburse them a certain percentage of their total
response action costs. 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, 2013, EPA had 3 outstanding preauthorized mixed funding agreements with obligations
totaling $4.7 million. As of September 30, 2012, EPA had 3 outstanding preauthorized mixed funding
agreements with obligations totaling $4.7 million. A liability is not recognized for these amounts until all
work has been performed by the PRP and has been approved by EPA for payment. Further, 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 EPA.
-------
Note 24. 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
FY2013
147,623 $
190,630 $
(95,873)
FY2012
184,211
214,530
(99,606)
Total
94,757 $
114,924
EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous
receipts. Collectability by EPA of the fines and penalties is based on the PRPs' willingness and ability
to pay.
Note 25. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited
FY 2013 Statement of Budgetary Resources will be reconciled to the amounts included in the FY 2014
Budget of the United States Government when they become available. The Budget of the United
States Government with actual numbers for FY 2013 has not yet been published. We expect it will be
published by early 2014, and it will be available on the OMB website at http://www.whitehouse.gov/.
The actual amounts published for the year ended September 30, 2012 are listed immediately below:
FY 2012
Statement of Budgetary Resources
Expired and Immaterial Funds*
Rounding Differences**
Budgetary
Resources
16,569,237 :
(226,301)
1,064
Offsetting
Obligations Receipts
13,782,833 $ 1,163,736 $
(53,198)
365
264
Reported in Budget of the U. S. Government S 16,344,000 S 13,730,000 S 1,164,000 S
Net Outlays
13,958,344
(415)
71
13,958,000
* 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.
-------
Note 26. 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, 2013 and 2012:
FY2013 FY2012
Recoveries of Prior Year Obligations -Downward
adjustments of prioryears' obligations $ 286,170 $ 571,576
Temporarily Not Available-Rescinded Authority (84,183) (450)
Permanently Not Available:
Payments to Treasury (1,035) (1,529)
Rescinded authority (437,313) (58,203)
Canceled authonty (16,649) (30,116)
Total Permanently Not Available $ (454,997) $ (89,848)
Note 27. 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 the 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, 2013 and 2012:
FY2013 FY2012
Unexpired Unobligated Balance $ 3,022,122 $ 2,609,303
Expired Unobligated Balance 184,325 177,101
Total $ 3,206,447 $ 2,786,404
Note 28. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders at September 30, 2013 and 2012 were $9.23
billion and $10.60 billion, respectively.
Note 29. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt accounts
offset gross outlays. For September 30, 2013 and 2012, the following receipts were generated from
these activities:
FY2013 FY2012
Trust Fund Recovenes $ 34,987 $ 45,413
Special Fund Environmental Service 32,917 23,271
Trust Fund Appropriation 1,087,088 1,075,367
Miscellaneous Receipt and Clearing Accounts 18,792 19,685
Total $ 1,173,784 $ 1,163,736
-------
Note 30. Transfers-ln and Out, Statement of Changes in Net Position
Appropriation Transfers, In/Out:
For September 30, 2013 and 2012, 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, 2013 and 2012:
Transfers In/Out Without Reimbursement, Budgetary:
Fund/Type of Account FY2013 FY2012
Army Corps of Engineers $ -_$ 5_
Total Appropriation Transfers $ - $ 5
(Other Funds)
Net Transfers from Invested Funds $ 1,176,496$ 3,683,571
Transfers to Another Agency (5,100)
Allocations Rescinded 81,518 389
Total of Net Transfers on Statement
of Budgetary Resources $ 1,252,914 $ 3,683,960
For September 30, 2013 and 2012, Transfers In/Out under Budgetary Financing Sources on the
Statement of Changes in Net Position consists of transfers between EPA funds. These transfers affect
Cumulative Results of Operations. Details of the transfers-in and transfers-out, expenditure and
nonexpenditure, follows for September 30, 2013 and 2012:
Type of Transfer/Funds FY2013 FY2012
Funds from Funds from
Dedicated Dedicated
Collections Other Funds Collections Other Funds
Transfers-in (out) nonexpenditure,
Earmark to S&T and OIG funds $ (29,885) $ 29,885 $ (32,018) $ 32,018
Capital Transfer (5,000)
Transfers-in nonexpenditure, Oil Spill 12,190 23,344
Transfers-in (out) nonexpenditure,
Superfund 5,100 (5,099)
Transfer-out LUST (2,400,000) -_
Total Transfer in (out) without
Reimbursement, Budgetary $ (12,595) $ 29,885 $ (2,418,773) $ 32,018
Note 31. 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 2013 were $142.5 million
($22.9 million from Funds from Dedicated Collections, and $119.6 million from Other Funds). For FY
2012, the estimates were $151.6 million ($24.1 million from Funds from Dedicated Collections, and
$127.5 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. EPA estimates imputed costs for
inter-entity transactions that are not at full cost and records imputed costs and financing for these
unreimbursed costs subject to materiality. 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 2013
total imputed costs were $7.0 million ($2.2 million from Funds from Dedicated Collections, and $4.8
million from Other Funds).
In addition to the pension and retirement benefits described above, 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 2013 entries for Judgment Fund payments totaled
$1.4 million (Other Funds). For FY2012, entries for Judgment Fund payments totaled $10.0 million
(Other Funds).
The combined total of imputed financing sources for FY 2013 and FY 2012 is $150.9 million and $168.1
million, respectively.
Note 32. Payroll and Benefits Payable
Payroll and benefits payable to EPA employees for the years ending September 30, 2013 and 2012
consist of the following:
-------
FY2013 Payroll & Benefits Payable
Accrued Funded Payroll & Benefits
Withholdings Payable
Employer Contributions Pay able-TSP
Accrued Unfunded Annual Leave
Total - Current
Covered by
Budgetary
Resources
71,807 $
31,475
6,944
110,226 $
Not Covered
by Budgetary
Resources
- $
157,729
157,729 $
Total
71,807
31,475
6,944
157,729
267,955
FY2012 Payroll & Benefits Payable
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Pay able-TSP
Accrued Unfunded Annual Leave
Total - Current
72,799 $
31,511
4,163
108,473 $
- $
158,254 $
72,799
31,511
4,163
158,254
266,727
Note 33. 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 5 years
earlier. These amounts affect Unexpended Appropriations.
Other Funds Other Funds
FY2013 FY2012
Rescissions to General
Appropnations $ 437,280 $ 64,991
Canceled General Authority 16,681 23,252
Total Other Adjustments $ 453,961 $ 88,243
Note 34. 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, 2013 and 2012 consists of the following Funds from Dedicated Collections items:
Interest on Trust Fund
TaxRevenue, Net of Refunds
Fines and Penalties Revenue
Special Receipt Fund Revenue
Total Nonexchange Revenue
Funds from
Dedicated
Collections
FY2013
28,716 $
162,212
(475)
33,371
223,824 $
Funds from
Dedicated
Collections
FY2012
87,454
170,392
6,624
23,053
287,523
-------
Note 35. Reconciliation of Net Cost of Operations to Budget
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
Imputed Financing Sources
Other Resources to Finance Activities
Net Other Resources Used to Finance Activities
Total Resources Used to Finance Activities
FY2013
10,090,120
(950,430)
9,139,690
(1,155,006)
7,984,684
150,927
150,927
8,135,611
FY2012
13,782,833
(1,154,627)
12,628,206
(3,544,465)
9,083,741
168,142
(76)
168,066
9,251,807
RESOURCES USED TO FINANCE ITEMS
NOT PART OF THE NET COST OF OPERATIONS:
Change in Budgetary Resources Obligated
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 Receipts Not Affecting Net Cost
Resources that Finance Asset Acquisition
Other Resources Not Affecting Net Cost
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
1,374,392
(233,289)
81,041
105,622
186,663
(46,626) $
1,138,862
819
67,917
(106,802)
-
1,336,326 $
9,471,937 $
FY2013
(525) $
(10)
20
(730)
(237,175)
5,180
(49)
6,777
69,098
(145,656)
76
1,069,157
10,320,964
FY2012
(4,590)
722
15,000
189
(35,266)
2,429
1,242
(20,274)
96,481
(13,725)
82,756
62,482
Net Cost of Operations
9,425,311
10,383,446
-------
Note 36. 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.
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, 2013 and
2012. The amounts contained in these notes have been provided by Treasury. As indicated, a portion
of the outlays represents amounts received by EPA's Superfund Trust Fund; such funds are eliminated
on consolidation with the Superfund Trust Fund maintained by Treasury.
SUPERFUND FY 2013
Undistributed Balances
Uninvested Fund Balance
Total Undisbursed Balance
Interest Receivable
Investments, Net
Total Assets
Liabilities & Equity
Equity
Total Liabilities and Equity
Receipts
Corporate Environmental
Cost Recoveries
Fines & Penalties
Total Revenue
Appropriations Received
Interest Income
Total Receipts
Outlays
Transfers to/from EPA, Net
Total Outlays
Net Income
EPA
Treasury
3,028,841
3,028,841 $
3,028,841
$
3,028,841 $
- $
1,097,586 $
1,097,586
(433)
(433)
3,851
197,366
200,784
200,784 $
200,784
46
34,986
3,478
38,510
1,087,088
23,810
1,149,408
1,097,586 $
(1,097,586)
(1,097,586)
51,822
Combined
(433)
(433)
3,851
3,226,207
3,229,625
3,229,625
3,229,625
46
34,986
3,478
38,510
1,087,088
23,810
1,149,408
1,149,408
In FY 2013, the EPA received an appropriation of $1.09 billion for Superfund. Treasury's Bureau of
Public Debt (BPD), the manager of the Superfund Trust Fund assets, records a liability to EPA for the
amount of the appropriation. BPD does this to indicate those trust fund assets that have been assigned
for use and, therefore, are not available for appropriation. As of September 30, 2013 and 2012, the
Treasury Trust Fund has a liability to EPA for previously appropriated funds of $3.01 billion and $3.17
billion, respectively.
-------
SUPERFUNDFY2012 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance
Total Undisbursed Balance
Interest Receivable
Investments, Net
Total As sets
Liabilities & Equity
Receipts and Outlays
Equity
Total Liabilities and Equity
Receipts
Corporate Environmental
Cost Recoveries
Fines & Penalties
Total Revenue
Appropriations Received
Interest Income
Total Receipts
Outlays
Transfers to/from EPA, Net
Total Outlays
Net Income
LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2013
and 2012, there were no fund receipts from cost recoveries. Revenue provisions in section 40201 of
Public Law 112-141 transferred and appropriated $2.4 billion of LUST funds to the Highway Trust Fund.
The amounts contained in these notes are provided by Treasury. Outlays represent appropriations
received by EPA's LUST Trust Fund; such funds are eliminated on consolidation with the LUST Trust
Fund maintained by Treasury.
- $
-
-
3,171,409
3,171,409 $
3,171,409 $
3,171,409 $
_
-
-
-
-
-
- $
1,221,693 $
1,221,693
1,221,693 $
1,723 $
1,723
4,530
129,191
135,444 $
135,444 $
135,444 $
(104)
45,413
1,176
46,485
1,075,367
26,879
1,148,731 $
(1,221,693) $
(1,221,693)
(72,962) $
1,723
1,723
4,530
3,300,600
3,306,853
3,306,853
3,306,853
(104)
45,413
1,176
46,485
1,075,367
26,879
1,148,731
-
1,148,731
-------
LUSTFY2013
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance $
Total Undisbursed Balance
Interest Receivable
Investments, Net
Total As sets $
Liabilities & Equity
Equity $
Receipts
Highway TF Tax $
Airport TF Tax
Inland TF Tax
Total Revenue
Interest Income
Total Receipts $
Outlays
Transfers to/from EPA, Net $
Total Outlays
Net Income $
LUSTFY2012 EPA
Undistributed Balances
Uninvested Fund Balance $ - $
Total Undisbursed Balance
Interest Receivable
Investments, Net
Total As sets $ - $
Liabilities & Equity
Equity $ $
Receipts
Highway TF Tax $ - $
Airport TF Tax
Inland TF Tax
Total Revenue
Interest Income
Total Receipts $ - $
Outlays
Transfers to/from EPA, Net $ 2,504,142 $
Total Outlays 2,504,142
Net Income $ 2,504,142 $
- $
85,858
85,858 $
85,858 $
- $
-
- $
103,695 $
103,695
103,695 $
Treasury
(2,717) $
(2,717)
2,442
1,312,659
1,312,384 $
1,312,384 $
159,325 $
11,082
90
170,497
128,040
298,537 $
(2,504,142) $
(2,504,142)
(2,205,605) $
2,925 $
2,925
2,439
1,272,232
1,277,596 $
1,277,596 $
103,695 $
10,601
62
114,358
(4,904)
109,454 $
(103,695) $
(103,695)
5,759 $
Combined
(2,717)
(2,717)
2,442
1,312,659
1,312,384
1,312,384
159,325
11,082
90
170,497
128,040
298,537
-
298,537
2,925
2,925
2,439
1,358,090
1,363,454
1,363,454
103,695
10,601
62
114,358
(4,904)
109,454
.
-
109,454
-------
Note 37. Antideficiency Act Violations
The EPA experienced an Antideficiency Act violation on November 18 and 19, 2010 in the agency's Oil
Spill Response Account in the amount of $502,215. The violation occurred when the EPA made an
expenditure in excess of the funds available in the account. The EPA was participating in the response
to the Deepwater Horizon oil spill while simultaneously responding to a major inland oil spill in
Enbridge, Michigan. The violation was rectified on November 20, 2010, when the EPA was reimbursed
with funds from the U.S. Coast Guard. On October 25, 2012 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.
-------
Required Supplementary Information (Unaudited)
Environmental Protection Agency
As of September 30, 2013
(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 property, plant, and equipment (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 condition
assessment survey method of measuring deferred maintenance is utilized. The Agency adopts
requirements or standards for acceptable operating condition in conformance with industry practices.
2013
Asset Category:
Buildings $ 34,618
EPA Held Equipment 800
Total Deferred Maintenance $ 35,418
2. Stewardship Land
Stewardship land is acquired as contaminated sites in need of remediation and clean-up; 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.
-------
Required Supplementary Information (Unaudited)
Environmental Protection Agency
As of September 30, 2013
(Dollars in Thousands)
3. Supplemental Combined Statement of Budgetary Resources
For the Period Ending September 30, 2013
EPM
SUPERFUND
LUST
S&T
STAG
OTHER
TOTAL
BUDGETARYRESOURCES
Unobligated Balance, Brought Forward, October 1:
Unobligated balance brought forward, October 1, as adjusted
Recoveries of Prior Year Unpaid Obligations
Other changes in unobligated balance
Unobligated balance from prior year budget authority, net
Appropriations (discretionary and mandatory)
Spending authority from offsetting collections (discretionary and mandatory)
Total Budgetary Resources
STATUS OFBUDGETARYRESOURCES
Obligations incurred
Unobligated balance, end of year:
Apportioned
Unapportioned
Total unobligated balance, end of period
Total Status of Budgetary Resources
CHANGEEV OBLIGATED BALANCE
Unpaid Obligations
Unpaid Obligations, Brought Forward, October 1 (gross)
Obligations incurred
Outlays (gross)
Recoveries of prior year unpaid obligations
Unpaid obligations, end of year (gross)
UncollectedPayments
Uncollected customer payments from Federal Sources, brought forward, October 1 $
Change inuncollected customer payments from Federal sources
Uncollected customer payments from Federal sources, end of year
Memorandum Entries
Obligated balance, start of year
Obligated balance, end of year (net)
BUDGET AUTHORITY AND OUTLAYS, NET:
Budget authority, gross (discretionary and mandatory)
Actual offsetting collections (discretionary and mandatory)
Change inuncollected customer payments from Federal sources
Budget authority, net (discretionary and mandatory)
Outlays, gross (discretionary and mandatory)
Actual offsetting collections (discretionary and mandatory)
Outlays, net (discretionary and mandatory)
Distributed offsetting receipts
Agency outlays, net (discretionary and mandatory)
$
$
=
$
$
$
$
$
$
=
$
$
$
$
$
301,989 $
301,989
59,256
(8,827)
352,418
2,512,095
98,195
2,962,708 $
^^^^^^^^^= =
2,614,554 $
229,227
118,927
348,154
2,962,708 $
1,299,298 $
2,614,554
(2,685,571)
(59,256)
1,169,025 $
(110,004) $
11,404
(98,600) $
^^^^^^^^^= =
1,189,294 $
1,070,425 $
2,610,290 $
(109,599)
11,404
2,512,095 $
2,685,571 $
(109,599)
2,575,972
-
1,879,410 $
1,879,410
120,676
(8,857)
1,991,229
1,110,634
257,462
3,359,325 $
^^^^^^^^^^= !
1,541,048 $
1,799,707
18,570
1,818,277
3,359,325 $
1,401,705 $
1,541,048
(1,553,587)
(120,676)
1,268,490 $
(15,277) $
(2,914)
(18,191) $
^^^^^^^^^^= !
1,386,428 $
1,250,299 $
1,368,096 $
(254,547)
(2,914)
1,110,635 $
1,553,587 $
(254,547)
1,299,040
(34,986)
7,751 $
7,751
4,979
12,730
103,695
5
116,430 $
^^^^^^^^^^=
109,359 $
3,196
3,875
7,071
116,430 $
128,440 $
109,359
(118,589)
(4,979)
114,231 $
$
-
$
^^^^^^^^^^=
128,440 $
114,231 $
103,700 $
(5)
103,695 $
118,589 $
(5)
118,584
-
179,591 $
179,591
20,020
(6,951)
192,660
743,791
32,184
968,635 $
791,353 $
146,362
30,920
177,282
968,635 $
387,416 $
791,353
(809,837)
(20,020)
348,912 $
(31,465) $
4,734
(26,731) $
355,951 $
322,181 $
775,975 $
(36,919)
4,734
743,790 $
809,837 $
(36,919)
772,918
-
1 319,084 $
319,084
59,374
378,458
3,927,447
2,155
1 4,308,060 $
1 3,557,579 $
730,024
20,457
750,481
1 4,308,060 $
1 7,889,126 $
3,557,579
(4,714,758)
(59,374)
1 6,672,573 $
1 - $
-
1 - $
1 7,889,126 $
1 6,672,573 $
1 3,929,602 $
(2,155)
1 3,927,447 $
1 4,714,758 $
(2,155)
4,712,603
-
1 98,579 $
98,579
21,865
(871)
119,573
1,187,577
274,259
1 1,581,409 $
1 1,476,227 $
100,116
5,066
105,182
1 1,581,409 $
1 205,857 $
1,476,227
(1,449,419)
(21,865)
1 210,800 $
1 (148,768) $
(3,886)
1 (152,654) $
1 57,089 $
1 58,146 $
1 1,461,836 $
(270,373)
(3,886)
1 1,187,577 $
1 1,449,419 $
(270,373)
1,179,046
(1,138,798)
2,786,404
2,786,404
286,170
(25,506)
3,047,068
9,585,239
664,260
13,296,567
^^^^^^^^^^=
10,090,120
3,008,632
197,815
3,206,447
13,296,567
11,311,842
10,090,120
(11,331,761)
(286,170)
9,784,031
(305,514)
9,338
(296,176)
^^^^^^^^^^=
11,006,328
9,487,855
10,249,499
(673,598)
9,338
9,585,239
11,331,761
(673,598)
10,658,163
(1,173,784)
$ 2,575,972 $ 1,264,054 $ 118,584 $ 772,918 $ 4,712,603 $
40,248 $ 9,484,379
-------
Environmental Protection Agency
Required Supplemental Stewardship Information
For the Quarter Ended September 30, 2013
(Dollars in Thousands)
INVESTMENT IN THE NATION'S RESEARCH AND DEVELOPMENT:
EPA's Office of Research and Development provides the crucial underpinnings for EPA decision-
making by conducting cutting-edge science and technical analysis to develop sustainable solutions to
our environmental problems and employ more innovative and effective approaches to reducing
environmental risks. Public and private sector institutions have long been significant contributors to our
nation's environment and human health research agenda. EPA, however, is unique among scientific
institutions in this country 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 us to identify the most important sources of risk to human
health and the environment, and by so doing, informs our priority-setting, ensures credibility for our
policies, and guides our deployment of resources. It gives us the understanding, the framework, and
technologies we need to detect, abate, and avoid environmental problems.
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 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. EPA also
supports regulatory decision-making with chemical risk assessments.
For FY 2013, the full cost of the Agency's Research and Development activities totaled over $610M.
Below is a breakout of the expenses (dollars in thousands):
FY2009 FY2010 FY2011 FY2012 FY2013
Programmatic Expenses 600,552 590,790 597,558 580,278 531,901
Allocated Expenses2 119,630 71,958 80,730 133,637 78,189
See Section II of the PAR for more detailed information on the results of the Agency's investment in
research and development. Goals 1-4 of EPA's strategic plan incorporate the applied research
necessary to ensure that EPA's decisions are supported by the highest quality science.
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 (SRF) 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
2 Allocated Expenses are calculated specifically for the Required Supplemental Stewardship Information report
and do not represent the overall agency indirect cost rates.
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nation's water infrastructure, included sewage treatment plants, pumping stations, and 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, EPA shifted the focus of municipal
financial assistance from grants to loans that are provided by State Revolving Funds.
State Revolving Funds: 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 state revolving fund, 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 programs. 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 2009 FY2010 FY2011 FY2012 FY2013
Construction Grants 30,950 18,186 35,339 14,306 6,944
Clean Water SRF 836,502 2,966,479 2,299,721 1,925,057 1,976,537
Drinking Water SRF 906,803 1,938,296 1,454,274 1,240,042 1,027,613
Other Infrastructure Grants 306,366 264,227 269,699 196,085 166,050
Allocated Expenses 414,460 631,799 548,375 777,375 524,326
See the Goal 2 - Clean and Safe Water portion in Section II of the PAR for more detailed information
on the results of the Agency's investment in infrastructure.
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 the Human Capital are outlined below (dollars in
thousands):
FY 2009 FY2010 FY2011 FY2012 FY2013
Training and Awareness Grants 37,981 25,714 23,386 21,233 20,769
Fellowships 6,818 6,905 9,538 10,514 11,157
Allocated Expenses 8,924 3,973 4,448 7,311 4,118
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s
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Audit of EPA's Fiscal 2013 and
2012
Consolidated Financial
Statements
Report No. 14-1-0039
December 16, 2013
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Abbreviations
CIO Chief Information Officer
EPA U.S. Environmental Protection Agency
FFMIA Federal Financial Management Improvement Act of 1996
FMFIA Federal Managers' Financial Integrity Act of 1982
FY Fiscal Year
IP Internet Protocol
OCFO Office of the Chief Financial Officer
OEI Office of Environmental Information
OIG Office of Inspector General
OMB Office of Management and Budget
POA&Ms Plans of Action and Milestones
RSSI Required Supplementary Stewardship Information
SOP Standard Operating Procedure
SSC Superfund State Contracts
VM Vulnerability Management
Hotline
To report fraud, waste or abuse, contact
us through one of the following methods:
email: OIG Hotline@epa.gov
phone: 1-888-546-8740
fax: 1-202-566-2599
online: http://www.epa.gov/oig/hotline.htm
write: EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW
Mailcode2431T
Washington, DC 20460
Suggestions for Audits or Evaluations
To make suggestions for audits or evaluations,
contact us through one of the following methods:
email:
phone:
fax:
online:
write:
OIG WEBCOMMENTS@epa.gov
1-202-566-2391
1-202-566-2599
http://www.epa. gov/oig/contact.html#Full
Info
EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW
Mailcode2431T
Washington, DC 20460
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U.S. Environmental Protection Agency
Office of Inspector General
AT A GLANCE
14-1-0039
December 16, 2013
Why We Did This Review
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
I financial reporting were in
place.
• EPA management complied
I with applicable laws and
regulations.
I The requirement for audited
financial statements was enacted
to help bring about improvements
in agencies' financial
management practices, systems
and controls so that timely,
reliable information is available
for managing federal programs.
This report addresses the
following EPA theme:
• Embracing EPA as a high
performing organization.
For further information,
contact our public affairs office
at (202) 566-2391.
The full report is at:
www.epa.qov/oiq/reports/2014/
20131216-14-1-0039.pdf
Audit of EPA's Fiscal 2013 and 2012
Consolidated Financial Statements
System weaknesses
could impact the
reliability of financial
information.
EPA Receives an Unqualified Opinion
We rendered an unqualified opinion on the EPA's
Consolidated Financial Statements for fiscal 2013
and 2012, meaning that they were fairly presented
and free of material misstatement.
Internal Control Significant Deficiencies Noted
We noted the following significant deficiencies:
• EPA overstated Superfund State Contract credits.
• EPA's high number of accounting corrections indicates an internal control
weakness.
• Internal controls over EPA's accountable personal property inventory
process need improvements.
• Software was improperly recorded in Compass.
• EPA needs to improve access control procedures for key financial
systems.
• EPA needs to improve processes for following up on identified network
vulnerabilities.
Noncompliance With Laws and Regulations Noted
EPA's high number of accounting corrections indicates an internal weakness.
Recommendations and Planned Agency Corrective Actions
The agency agreed with most of our findings and recommendations. However,
the agency did not agree with our finding that the number of error corrections
were high, an internal control weakness and an instance of noncompliance with
the Federal Financial Management Improvement Act. The agency posted over
100 journal entries to correct posting model errors, and just one of those
entries involved 206 transactions. While we do not believe the noncompliance
rose to the level of substantial noncompliance, we consider the number of
errors at the transaction level to be high and an internal control weakness.
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fcfe)
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
December 16, 2013
MEMORANDUM
SUBJECT: Audit of EPA's Fiscal 2013 and 2012 Consolidated Financial Statements
Report No. 14-1-0039
FROM: Paul C. Curtis
Director, Financial Statement Audits
TO: Maryann Froehlich, Acting Chief Financial Officer
Office of the Chief Financial Officer
Craig E. Hooks, Assistant Administrator
Office of Administration and Resources Management
Cynthia Giles, Assistant Administrator
Office of Enforcement and Compliance Assurance
Attached is our report on the U.S. Environmental Protection Agency's (EPA's) fiscal 2013 and 2012
consolidated financial statements. We are reporting six significant deficiencies, one of which is also a
noncompliance issue. Attachment 2 contains the status of recommendations related to significant
deficiencies reported in prior years' reports. The significant deficiencies included in attachment 2 also
apply for fiscal 2013.
This audit report represents the opinion of the Office of Inspector General (OIG), and the findings in this
report do not necessarily represent the final EPA position. EPA managers, in accordance with
established EPA audit resolution procedures, will make final determinations on the findings in this audit
report. Accordingly, the findings described in this audit report are not binding upon the EPA in any
enforcement proceeding brought by the EPA or the Department of Justice. We have no objections to the
further release of this report to the public. This report will be available at http://www.epa.gov/oig.
In accordance with EPA Manual 2750, you are required to provide a written response to this report
within 60 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
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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
along with corresponding justification.
Should you or your staff have any questions about the report, please contact Richard Eyermann,
Acting Assistant Inspector General for Audit, at (202) 566-0565; or me at (202) 566-2523.
Attachments
cc: See appendix III, Distribution
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Table of Contents
Inspector General's Report on EPA's Fiscal 2013 and
2012 Consolidated Financial Statements 1
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 5
Prior Audit Coverage 6
Agency Comments and OIG Evaluation 7
Attachments s
1. Internal Control Significant Deficiencies 8
EPA Overstated Superfund State Contract Credits 9
EPA's High Number of Accounting Corrections Indicates an
I nternal Control Weakness 10
Internal Controls Over EPA's Accountable Personal Property
Inventory Process Needs Improvements 13
Software Improperly Recorded in Compass 15
EPA Needs to Improve Access Control Procedures for
Key Financial Systems 16
EPA Needs to Improve Processes for Following Up on
Identified Network Vulnerabilities 18
2. Status of Prior Audit Report Recommendations 21
3. Status of Current Recommendations and Potential Monetary Benefits 24
Appendices 26
I. EPA's Fiscal 2013 and 2012 Consolidated Financial Statements 26
11. Agency Response to Draft Report 84
III. Distribution 93
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Inspector General's Report on EPA's Fiscal 2013
and 2012 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, 2013, and September 30, 2012, 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 the United States; and Office of Management and Budget (OMB) Bulletin 14-
02, Audit Requirements for Federal Financial Statements, dated October 21, 2013. These standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
The financial statements include expenses of grantees, contractors and other federal agencies. Our audit
work pertaining to these expenses included testing only within the 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 the EPA as authorized in legislation. Since the U.S. Treasury, and not the EPA, is
responsible for these activities, our audit work did not cover these activities.
The 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 the 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, 2013 and 2012, 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 the 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 previously included the
unaudited Superfund Trust Fund financial statements and certain footnotes. The agency has decided to
omit those statements for fiscal 2013 and removed the previously published 2012 statements. The
Superfund statements were presented for additional analysis and are not a required part of the basic
financial statements. Our audit was not designed to express an opinion and, accordingly, we do not
express an opinion on the 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 the EPA's
consolidated financial statements and the information presented in the EPA's RSSI, Required
Supplementary Information, Supplemental Information, and Management's Discussion and Analysis.
Evaluation of Internal 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 financial 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 the 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. 14-02, Audit Requirements for Federal Financial Statements, dated October 21,
2013. We did not test all internal controls relevant to operating objectives as broadly defined by the
Federal Managers' Financial Integrity Act of 1982 (FMFIA), such as those controls relevant to ensuring
efficient operations.
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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. Under
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 those charged with governance. A material weakness is a deficiency, or
combination of deficiencies, such that there is a reasonable possibility that a material misstatement 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.
EPA Overstated Superfund State Contract Credits
The EPA overstated the value of Superfund State Contract credits available to reduce state shares
of remedial action costs by $15 million. The EPA's calculated credits were $25.7 million as of
June 30, 2013, but the general ledger showed a balance of $40.7 million for Superfund State
Contract credits. The overstatement would misstate the EPA's footnote disclosure and could
mislead financial statement users.
EPA's High Number of Accounting Corrections Indicates an Internal
Control Weakness
The EPA made numerous manual journal voucher entries in fiscal year (FY) 2013, of which over
100 were to correct transaction level errors in the accounting system. OMB directs agencies to
apply the United States standard general ledger at the transaction level to generate appropriate
general ledger accounts for posting transactions. The EPA made the accounting corrections due
to posting model and other system configuration errors. Although the EPA corrected the errors
that the EPA and the OIG identified, the high number of corrections diminishes the reliability of
the EPA's accounting system to process transactions accurately. Without a diligent review of
posting models, errors could occur at the transaction level, impacting the reliability of financial
information and increasing the risk that the financial statements could be misstated.
Internal Controls Over EPA's Accountable Personal Property Inventory Process
Needs Improvements
We found an $11.5 million difference in accountable personal property, including $7 million of
capitalized property, between the agency's property management system (Maximo) and its FY
2013 property certification letters. In addition, our examination found that the EPA did not
perform a complete inventory of $3.7 million of sensitive accountable personal property
purchased in the last quarter of FY 2013. As a result, Maximo is missing detailed records for this
property and such property is not included in the EPA's property certification letters. The EPA
requires accountable personal property to be inventoried annually and equipment to have decals
and added to Maximo when acquired. Various factors contributed to Maximo being incomplete
and inaccurate; however, the primary cause was that the EPA's details within Maximo were not
updated timely. The agency's capitalized property financial activity (which is part of the
accountable personal property) is dependent upon property management officers maintaining an
accurate inventory of capitalized property. Inaccurate accountable personal property records
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could compromise the EPA's property control system, impact the accuracy of the agency's
financial statements, and result in the loss or misappropriation of assets.
Software Improperly Recorded in Compass
The EPA Software In Development and Loss On Disposition accounts were misstated by $36
million. Federal regulations require agencies to have systems that record and generate accurate
financial information. The posting model applied to the transaction impacted the wrong accounts.
The misstatement impacts the accuracy and reliability of information reported in the EPA's
financial statements.
EPA Needs to Improve Access Control Procedures for
Key Financial Systems
The EPA did not maintain up-to-date system access control lists for two key Office of the Chief
Financial Officer (OCFO) financial systems. We found that users had access to these information
systems for at least one year longer than their job duties required. Specifically, a contractor
maintained privileged database administrator access to the production server controlling the
interface to the EPA's core financial application. We also had concern regarding separation of
duties because a system developer maintained a data creation account on another key financial
application. In both instances, the EPA resolved these two access control violations uncovered
during our audit.
EPA Needs to Improve Processes for Following Up on
Identified Network Vulnerabilities
The process for resolving and tracking network vulnerabilities for OCFO was not operating in
accordance with agency policy. In particular, OCFO failed to notify the Office of Environmental
Information within the required 30-day resolution timeframe of high-risk vulnerabilities that the
Office of Environmental Information incorrectly identified as belonging to the OCFO network.
OCFO lacked a documented process for its internal staff to follow when reviewing the monthly
vulnerability management reports. As such, OCFO received monthly vulnerability reports, but the
reports were not distributed to personnel knowledgeable on how to take action or to provide status
reports on vulnerability remediation activities.
Attachment 3 contains the status of issues reported in prior years' reports. The issues included in
attachment 3 should be considered among the EPA's significant deficiencies for FY 2013. We reported
to the agency on less significant 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
OMB Bulletin No. 14-02, Audit Requirements for Federal Financial Statements, dated October 21,
2013, requires the OIG 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 that there is a
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reasonable possibility that a material misstatement of the entity's financial statements will not be
prevented, or detected 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, 2013. 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 1.
Tests of Compliance With Laws and Regulations
The 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, noncompliance 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. 14-
02, Audit Requirements for Federal Financial Statements, dated October 21, 2013. 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 the 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 the EPA's grantees and contractors could disclose violations of laws and regulations, but a
determination about these cases has not been made.
FFMIA Noncompliance
Under FFMIA, 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 States Government Standard General Ledger at the transaction
level. To meet the FFMIA requirement, we performed tests of compliance with FFMIA Section 803(a)
requirements and used the OMB guidance, Memorandum M-09-06-23, Implementation Guidance for the
Federal Financial Management Improvement Act, dated January 9, 2009, for determining substantial
noncompliance with FFMIA.
The results of our tests did not disclose any instances where the agency's financial management systems
did not substantially comply with the applicable federal accounting standard.
We found that the agency had a high number of accounting corrections due to posting model and other
system errors at the transaction level. However, we do not believe that the errors we found reached the
level of substantial non compliance as described in OMB guidance. We also reported this issue as a
significant deficiency in attachment 1. The results of our tests did not disclose any other instances of
noncompliance with FFMIA 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.
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Our audit work was also performed to meet the requirements in 42 U.S. Code §961 l(k) with respect to
the Hazardous Substance Superfund Trust Fund, to conduct an annual audit of payments, obligations,
reimbursements or other uses of the 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:
• Compass system limitations.
• Posting models materially misstating general ledger activity and balances.
• Compass reporting limitations.
• Controls over expense accrual reversals.
• Accounts receivables internal controls.
• Fund Balance with Treasury Statement of Audit Differences not clearing timely.
• Property internal controls.
• Compass and Maximo not reconciling.
• System vulnerabilities.
• OCFO financial systems documentation.
• Compass service provider's controls over business processes.
Attachment 2 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 received December 13, 2013, the acting Chief Financial Officer 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 of the EPA, OMB, and
Congress, and is not intended to be and should not be used by anyone other than these specified parties.
Paul C. Curtis
Director, Financial Statement Audits \
Office of Inspector General
U.S. Environmental Protection Agency
December 16, 2013
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Attachment 1
Internal Control Significant Deficiencies
Table of Contents
1 EPA Overstated Superfund State Contract Credits 9
2 EPA's High Number of Accounting Corrections Indicates an
Internal Control Weakness 10
3 Internal Controls Over EPA's Accountable Personal Property
Inventory Process Needs Improvements 13
4 Software Improperly Recorded in Compass 15
5 EPA Needs to Improve Access Control Procedures for
Key Financial Systems 16
6 EPA Needs to Improve Processes for Following Up on
Identified Network Vulnerabilities 18
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1 - EPA Overstated Superfund State Contract Credits
The EPA overstated the value of Superfund State Contract (SSC) credits available to reduce state shares
of remedial action costs by $15 million. The EPA's calculated credits were $25.7 million as of June 30,
2013, but the general ledger showed a balance of $40.7 million for SSC credits. The overstatement
would misstate the EPA's footnote disclosure and could mislead financial statement users.
Under Section 104(c)(5)(A) of the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, the federal government shall grant credits to states for amounts they expend for
remedial action. EPA Comptroller Policy Announcement No. 99-01, dated December 23, 1998, states
that all approved SSC credit amounts will be recorded and tracked in the general ledger. The account
with credits earned for the year will close at year-end to the account that reflects the liability for
available credits.
The overstatement occurred because the EPA did not properly close the SSC credit accounts at the end
of FY 2012. The EPA disclosed the correct amount of SSC credits in the FY 2012 footnote to the
financial statements. However, the EPA did not properly set up the year-end closing entries and posted
entries that reduced EPA's credits earned during FY 2012 instead of EPA's cumulative liability for
credits. Therefore, FY 2013 opened with a $15 million overstatement of the cumulative liability for
credits. The EPA's general ledger overstated the cumulative state credits by $15 million; without a
correcting entry, the footnote to the financial statements for state credits would misstate the cumulative
credits at the end of FY 2013. The footnote disclosures must be accurate because they are an integral
part of the financial statements, and a misstatement could mislead financial statement users.
After we notified the EPA of the error, the EPA addressed the cause of the error and posted an entry to
correct the account balances. Therefore, we make no recommendations.
Agency Comments and OIG Evaluation
The agency did not respond to this issue. However, since the EPA addressed the cause of the error and
corrected the balances, we determined the agency agreed with our finding.
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2 - EPA's High Number of Accounting Corrections Indicates an
Internal Control Weakness
The EPA made numerous manual journal voucher entries in FY 2013, of which over 100 were to correct
transaction level errors in the accounting system. OMB directs agencies to apply the United States
standard general ledger at the transaction level to generate appropriate general ledger accounts for
posting transactions. The EPA made the accounting corrections due to posting model and other system
configuration errors. Although the EPA corrected the errors that the EPA and the OIG identified, the
high number of corrections diminishes the reliability of the EPA's accounting system to process
transactions accurately. Without a diligent review of posting models, errors could occur at the
transaction level, impacting the reliability of financial information and increasing the risk that the
financial statements could be misstated.
The EPA's manual journal voucher entries included corrections for the following types of transaction
level errors:
• Posting model errors, including:
-S Misclassification of direct appropriations and reimbursable authority.
S Misclassification of federal and non-federal activity.
S Misclassification of new obligations as upward or downward adjustments of prior year
obligations.
-S Misclassification of property accounts related to software in development.
• Erroneous journal voucher entries.
• Other system configuration errors, such as implied posting models.
The EPA misclassified $89.5 million of new obligations at the transaction level because posting model
errors incorrectly impacted the upward adjustments of prior year obligations 206 times. The errors
significantly impacted general ledger balances. The EPA has not corrected the obligations posting model
and continues to adjust the misstated balances.
The OMB'§ Memorandum M-09-06, Implementation Guidance for the Federal Financial Management
Improvement Act, directs federal agencies to apply the United States standard general ledger at the
transaction level to generate appropriate general ledger accounts for posting transactions. Federal
government internal control standards require accurate and timely recording of transactions.
In October 2011, the EPA replaced its accounting system with a new system, Compass Financials
(Compass). Following the conversion to Compass, the EPA has experienced posting model and other
system configuration errors. We previously reported on the posting model errors we found in our FY
2012 audit. At that time the agency did not agree that incorrect posting models resulted in material
misstated general ledger activity and balances. The agency stated that it has aggressively reviewed
posting models to ensure that transactions are properly posting to the EPA's financial accounts and will
continue to do so. However, during FY 2013 we continued to find posting model errors. While the
agency has corrected certain errors by posting journal vouchers, until they conduct a diligent review of
the posting models, such errors will continue to occur.
Without a diligent review of posting models, errors could occur at the transaction level. The EPA has
limited assurance that the accounting system can process transactions accurately and the account
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balances and financial statements are accurate. Due to the high number of transaction level errors and
corrections, we do not believe the EPA is in compliance with FFMIA. However, we do not believe that
the errors we found reached the level of substantial noncompliance as described in OMB guidance.
Agencies are required to post transactions to appropriate general ledger accounts at the transaction level,
but the EPA posting models misclassified a high number of transact! on-lev el entries that significantly
impacted the general ledger balances.
Recommendations
We recommend that the Chief Financial Officer:
1. Perform a thorough review of posting models and financial system configurations to ensure the
proper accounts are impacted.
2. Perform quarterly analytical reviews of account activity at the transaction level to verify that the
activity is reasonable.
Agency Comments and OIG Evaluation
The agency concurred with our recommendation to perform quarterly analytical reviews of account
activity but it did not concur with our recommendation to perform a thorough review of posting models.
The agency maintained that it already has an established process for regularly reviewing posting models.
We do not believe the agency's review process was effective because errors from posting models
continued throughout FY 2013 with the EPA making journal voucher corrections as we notified them of
errors.
We believe that the EPA is not in compliance with FFMIA because of the high number of transaction
level errors. The EPA stated that it disagreed that the number of corrections was high. We found that
over 100 of the journal voucher corrections were to correct posting models. Just one of the corrections
consisted of 206 transaction errors. While we could not determine the total number of transaction level
errors that made up all of the correcting entries, what we did find indicated the problem was more than
inconsequential. Accordingly, the EPA's posting models misclassified a high number of transaction
level entries that significantly impacted the general ledger balances. According to OMB, FFMIA
compliance indicates that systems routinely provide reliable financial information consistently,
accurately and uniformly. When a financial statement audit identifies a persistent significant deficiency,
the agency must demonstrate that the deficiency does not have any impact on providing reliable and
timely financial information.
While the agency did adjust for the errors so that the year-end financial statements were fairly stated, we
believe that the EPA's posting model errors have persistently and adversely impacted the capability of
the EPA's Compass financial management system to provide reliable financial information. The EPA
claims that Compass does provide reliable financial information. We disagree because throughout FY
2013 the Compass posting model errors generated transaction level entries that caused significant
misstatements to general ledger balances. Without making significant corrections to the system, the EPA
could not have obtained reliable financial information. The EPA claimed that making posting model
changes through its disciplined configuration management process is an integral part of complying with
the Federal Information System Management Act requirements, which is an indicator of FFMIA
compliance. We believe that performing a thorough review of posting models would be a more effective
method of correcting system errors and achieving FFMIA compliance.
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3 - Internal Controls Over EPA's Accountable Personal Property
Inventory Process Needs Improvements
We found an $11.5 million difference in accountable personal property, including $7 million of
capitalized property, between the agency's property management system (Maximo) and its FY 2013
property certification letters. In addition, our examination found the EPA did not perform a complete
inventory of $3.7 million of sensitive accountable personal property purchased in the last quarter of FY
2013. As a result, Maximo is missing detailed records for this property and such property is not included
in the EPA's property certification letters. The EPA requires accountable personal property to be
inventoried annually and equipment to have decals and added to Maximo when acquired. Various
factors contributed to Maximo being incomplete and inaccurate; however, the primary cause was that
the EPA's details within Maximo were not updated timely. The agency's capitalized property financial
activity (which is part of the accountable personal property) is dependent upon property management
officers maintaining an accurate inventory of capitalized property. Inaccurate accountable personal
property records could compromise the EPA's property control system, impact the accuracy of the
agency's financial statements, and result in the loss or misappropriation of assets.
At the time of our examination we found that the EPA's property management system was incomplete
or inaccurate based on its FY 2013 inventory. For example, the EPA did not inventory $3.7 million of
sensitive personal property that was part of a contract buy-out. Sensitive items as defined in the EPA's
Personal Property and Procedures Manual, section 3.2.7, Sensitive Items, "are nonexpendable items
(EPA owned or leased) that may be converted to private use or have a high potential for theft, must be
recorded and controlled as accountable property. This type of accountability requires property to be
tracked throughout its life cycle regardless of cost or value." In addition to the $3.7 million not
inventoried, a total of 2,097 records totaling $11.5 million, including 87 items totaling $7 million of
capitalized property, have not been updated in Maximo. Property managers can request a Board of
Survey be held to review the circumstances of missing property. The Board of Survey can determine if
the property should be removed from the property system inventory or referred for investigation.
According to the agency's Property Officer, a Board of Survey for one of the largest accountable areas
(Washington D.C.) has not been held for the last two years. These factors contributed to incomplete
inventory records as of September 30, 2013.
The Facilities Management and Services Division is responsible for administering the EPA Personal
Property Management Program. The EPA's Personal Property and Procedures Manual, Section 3.2.1,
defines accountable personal property as "Personal property with an acquisition cost of $5,000 or more,
all leased personal property, and sensitive items." Section 3.1.1, states that "Each AA's [Accountable
Area] personal property records must be maintained in IFMS [IFMS, the Integrated Financial
Management System, has been replaced by Compass and includes a fixed asset subsystem which is
updated by Maximo], thus providing all needed data for effective personal property management (i.e.
location, procurement, utilization, disposal.)"
The agency's capitalized property financial activity is dependent upon property management officers
maintaining an accurate inventory of capitalized items at the EPA. The $11.5 million difference between
the property certification letters and Maximo indicate that accurate personal property records are not
being maintained in the agency's official property system. Inaccurate personal property records
compromise the EPA's property control system and can lead to the loss or misappropriation of agency
assets and possible misstatements within the financial statements.
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Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management require
the Director, Facilities Management and Services Division, to:
3. Establish timeframes that property records are to be entered or updated when a new accountable
personal property item is received or inventoried, relocated, transferred or no longer in the EPA's
custody.
4. Determine and resolve the issue of missing personal property records not in agency's official
property system.
5. Verify capital assets are updated in Maximo (including new equipment, surplused and no longer
in the EPA's custody).
6. Hold a Board of Survey to address missing items.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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4 - Software Improperly Recorded in Compass
The EPA's Software In Development and Loss On Disposition accounts were misstated by $36 million.
Federal regulations require agencies to have systems that record and generate accurate financial
information. The posting model applied to the transaction impacted the wrong accounts. The
misstatement impacts the accuracy and reliability of information reported in the EPA's financial
statements.
FFMIA emphasizes the need for agencies to have systems that can generate timely, accurate and useful
information which managers can rely on to make informed decisions and ensure accountability on an
ongoing basis. The U.S. Government Accountability Office's Standards for Internal Control in the
Federal Government defines the five standards for the minimum level of quality acceptable for internal
control in government. The standard for Control Activities requires accurate and timely recording of
transactions and events.
Every year, the EPA transfers software going on-line from the Software in Development account to the
software in production account. Compass posting model FD01 Fixed Asset Disposition was used to
transfer the software out of the development account and reacquire it into the production account.
However, the posting model erroneously impacted revenue and cost offset accounts. When notified of
the posting model, the EPA prepared two journal vouchers that corrected the revenue account balance.
However, the offset account remained understated resulting in an overstatement to the Loss On
Disposition of Assets account. The amount of the under- and overstatements to each account is in excess
of $36 million. Posting models that impact the wrong accounts will result in inaccurate financial
information that can adversely impact the EPA's financial reporting and cost additional time and
resources to find and correct the errors.
Recommendation
We recommend that the Chief Financial Officer:
7. Require the Director of the Office of Technology Solutions to work with the Compass contractor
to correct the FD01 model posting error.
Agency Comments and OIG Evaluation
The agency did not concur with our finding. The agency believes it was human error and not a posting
model error that caused software to be improperly recorded in Compass. Regardless of the cause of the
error, multiple transactions occurred resulting in a $36 million misstatement, which had to be corrected.
The agency stated that staff will receive refresher training in FY 2014 for recording software transfers
from the development to the production account. In addition, OCFO indicated it will review and analyze
FD01 transactions for actual disposal entries in FY 2014.
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5 - EPA Needs to Improve Access Control Procedures for
Key Financial Systems
The EPA did not maintain up-to-date system access control lists for two key OCFO financial systems.
We found that users had access to these information systems for at least one year longer than their job
duties required. Specifically, a contractor maintained privileged database administrator access to the
production server controlling the interface to the EPA's core financial application. We also had concern
regarding separation of duties because a system developer maintained a data creation account on another
key financial application. In both instances, the EPA resolved these two access control violations
uncovered during our audit.
EPA Chief Information Officer (CIO) Transmittal No. 12-003, Information Security - Interim Access
Control Procedures, V3.2, July 13, 2012, states that the agency must manage information system
accounts through a life cycle consisting of establishing, activating and modifying accounts; periodically
reviewing accounts; and disabling, removing or terminating accounts. This guidance requires, in part,
that the agency review access controls every 30 days to ensure access lists are up-to-date and that users
have only the system privileges needed to perform their assigned duties.
EPA management did not ensure personnel followed access control procedures outlined in EPA CIO
Transmittal No. 12-003 for granting, monitoring and removing access to its systems/servers. For
instance, in June 2012, an Office of Environmental Information (OEI) contractor transferred from the
database administrator group to another group under the same EPA contract but was no longer required
privileged access. In another instance, one department within the OCFO Office of Technology Solutions
took over the responsibility of maintaining access control of OCFO payment systems. Previously, another
Office of Technology Solutions department was responsible for this systems' access control, as well as
software development. In both cases, EPA management did not ensure that responsible personnel updated
access control lists to the OCFO systems/servers in question.
If agency personnel do not follow access control procedures, there is uncertainty as to whether all OCFO
system access privileges are up-to-date, and whether security controls necessary to protect the
confidentiality, integrity and availability of the EPA's financial data are in place. Additionally,
management may be unaware of unnecessary or unauthorized access to agency systems, leaving no
assurance of the reliability of data on the information systems and placing the agency systems at
unnecessary risk.
Recommendations
We recommend that the Assistant Administrator for Environmental Information and the
Chief Financial Officer:
8. Conduct reviews of the access control lists for all agency financial applications under their
responsibility to ensure they are up-to-date and reflect the current necessary system privileges of
personnel.
9. Issue a memorandum to personnel responsible for controlling access to financial systems
emphasizing the importance of following access control procedures - specifically, periodic
access reviews and proper access removal.
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Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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6 - EPA Needs to Improve Processes for Following Up on
Identified Network Vulnerabilities
The process for resolving and tracking network vulnerabilities for OCFO was not operating in accordance
with agency policy. In particular, OCFO failed to notify the OEI within the required 30-day resolution
timeframe of high-risk vulnerabilities that OEI incorrectly identified as belonging to the OCFO network.
OCFO lacked a documented process for its internal staff to follow when reviewing the monthly
vulnerability management reports. As such, OCFO received monthly vulnerability reports but the reports
were not distributed to personnel knowledgeable on how to take action or to provide status reports on
vulnerability remediation activities.
On February 15, 2013, OEI published a Standard Operating Procedure (SOP), Vulnerability Management
Program, to describe regularly recurring activities for the agency's Vulnerability Management (VM)
Program. OEI's VM Program reports vulnerabilities found on networked resources to EPA offices on a
monthly basis. OCFO is responsible for monitoring all high-risk vulnerabilities included on its monthly
VM report and ensuring they relate to OCFO-networked resources. The VM SOP requires offices receiving
monthly scans to remediate network vulnerabilities labeled as "high" risk within 30 days of the scan report
date. If the high-risk vulnerabilities cannot be remediated within the required 30 days, offices must enter
Plans of Action and Milestones (POA&Ms) into the EPA's vulnerability tracking system to ensure the
agency is monitoring the vulnerability and that a resolution is in progress with documented milestone dates.
OEI had not provided training to the agency staff within each office responsible for receiving and
following up on identified vulnerabilities to ensure the responsible individual understood responsibilities
for managing identified vulnerabilities. While OEI published the VM SOP that outlines roles and
responsibilities, it did not provide details to inform responsible personnel on how to review the provided
VM report and what actions to take with the identified vulnerabilities. Additionally, OCFO did not have a
documented process in place to review the VM report to ensure all high-risk vulnerabilities are assigned
within OCFO or that feedback is provided to OEI informing it that listed high-risk vulnerabilities do not
correlate to OCFO information technology assets. OCFO lacks a complete inventory of its information
technology assets to identify which vulnerabilities listed on the VM report belong to OCFO. According to
the OCFO representative responsible for overseeing OCFO's VM program, OCFO was unaware of which
systems or servers correlated with the Internet Protocol (IP) addresses communicated by the VM report.
Our analysis disclosed that the VM report lacked a direct correlation, or common attribute, linking
vulnerabilities reported on the monthly VM report to the POA&M entries in the agency's vulnerability
tracking system. We noted that the monthly VM reports identify vulnerabilities by IP address, while the
POA&M entries are organized by server or system name and do not contain specific IP addresses.
The lack of effective response to identified vulnerabilities can adversely affect the agency's network. As
noted in table 1, our analysis showed that the weaknesses in the VM process resulted in four high-risk
vulnerabilities unresolved within the 30-day timeframe. Personnel unfamiliar with the specific IP
addresses associated with their offices' production servers were not reviewing monthly scan reports
completely to ensure vulnerabilities belonged to OCFO systems. If high-risk vulnerabilities such as
these go unresolved, they could be exploited to cause critical system flaws that are likely to have a
significant impact on financial data and reporting. These weaknesses could result in unauthorized access
to the production servers for financial applications and expose agency data, information and
configurations to unnecessary risk.
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Table 1: High-risk vulnerabilities from monthly VM report that remained unresolved after 30 days
Vulnerability Name
SMTP Open Mail Relay
Open SSH buffer_init Buffer Management
Vulnerabilities
Microsoft IIS hit-highlighting Remote
Security Bypass Vulnerability
Total
Identified in
March 201 3
V
V
V
^^^m
Source: OIG analysis.
SMTP: Simple Main Transfer Protocol
Open SSH bufferjnit Buffer: Open Secure Shell Buffer Initialize
Microsoft IIS: Microsoft Internet Information Server
Identified in
April 201 3
V
V
V
^^H
Buffer
# of IP address
vulnerabilities found
2
1
1
4
It is incumbent upon OCFO officials to have a process to train staff involved in the VM process to
ensure that vulnerabilities on OCFO networked resources are properly identified, tracked and
remediated in the required timeframe.
Recommendations
We recommend that the Chief Financial Officer:
10. Develop a detailed listing of all OCFO information technology assets by IP address, system
name and server name. Provide the OCFO staff in charge of receiving and analyzing monthly
VM reports with the detailed listing of information technology assets. The detailed listing should
include all OCFO information technology assets under OCFO operational control, as well as
information technology assets operated on behalf of OCFO within and external to the agency.
11. Issue a memorandum to OCFO staff involved in the monthly VM process reiterating the
importance of following roles and responsibilities outlined in the VM SOP. Specifically, the
memorandum should stress the importance of communicating, to OEI, IP addresses that do not
belong to OCFO so they are no longer included in OCFO's monthly reports. The memorandum
should also specify timelines when responsible personnel must update the POA&M information
in the agency's vulnerability tracking system and report the status of actions taken to OCFO's
primary ISO.
We recommend that the Assistant Administrator for Environmental Information and
Chief Information Officer:
12. Conduct training for staff in charge of receiving and analyzing monthly VM reports to ensure
they are knowledgeable of the agency's remediation process for vulnerabilities. This training
should included specific information on how to review the provided VM report and what actions
offices must take regarding the identified vulnerabilities.
Agency Comments and OIG Evaluation
The agency concurred with our findings and recommendations. The agency stated it will develop
training for staff responsible for receiving and analyzing the monthly VM reports, and make it available
through the agency's enterprise training tool. While the OIG agrees with the agency's approach for
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conducting the training, we believe the developed training should be required for all personnel
responsible for reviewing the VM reports and tracked to ensure all responsible personnel take the
training.
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Attachment 2
Status of Prior Audit Report Recommendations
The EPA 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 Officer is the agency follow-up official and is responsible for ensuring that corrective actions
are implemented. EPA Manual 2750, Audit Management Procedures, is a comprehensive audit
management guide that addresses OIG, U.S. Government Accountability Office, and Defense Contract
Audit Agency audits. OCFO continued to issue a quarterly report that highlights the status of
management decisions and corrective actions. This report is shared with program office and regional
managers throughout the agency to keep them informed of the status of progress on their audits.
Additionally, OCFO continued to conduct reviews of national and program offices, which it initiated in
fiscal 2009. The reviews focus on offices' audit follow-up procedures and their use of the Management
Audit Tracking System, or MATS. The reviews are designed to promote sound audit management;
increase agency awareness of, and accountability for, completing unimplemented corrective actions; and
ensure that audit follow-up data are accurate and complete. OCFO completed 4 of these on-site reviews
in fiscal 2013, including 2 regional offices and 2 national program offices. These reviews will be
performed on an ongoing, rotating basis.
The agency has continued to make progress in completing corrective actions from prior years. The
status of issues from prior financial statement audits and other audits with findings and
recommendations that could have a material 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 2: Significant deficiencies—Issues not fully resolved
Posting Models in Compass Materially Misstated GL Activities and Balances
In FY 2012, the EPA materially misstated general ledger activity and balances due to incorrect
posting models. The EPA corrected posting model errors that were identified during FY2012.
However, during FY 2013 we continued to find posting model errors. While the agency has corrected
the errors identified in FY 2013, such errors will continue to occur until the EPA conducts a diligent
review of the posting models. The EPA has implemented corrective actions to correct activity in
accounts incorrectly impacted by improper posting models, develop internal control procedures to
confirm the proper accounts are impacted for transactions, and to perform analytical reviews of
account activity on a quarterly basis to verify account activity is reasonable. The EPA's remaining
corrective action is to complete a thorough review of all posting models.
Compass Reporting Limitations Impair Accounting Operations and Internal Controls
The EPA did not agree that the reporting limitations we identified in FY 2012 in several accounting
areas significantly impair the effectiveness of the agency's accounting operations and internal
controls. However, the EPA stated that it will continue to analyze the agency's reports, identify any
concerns and develop new reports for users as needed. In FY 2013, the EPA had not developed
reports at the security organization level needed to reconcile accounts receivable and update
allowance for doubtful account estimates and to reconcile property financial data in Compass to the
property management data in Maximo. The EPA needs to complete corrective action in these areas
to develop reports to provide users with accurate data on a timely basis.
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• EPA Should Improve Compliance With Internal Controls for Accounts Receivable
During FY2012, we found numerous deficiencies in EPA's compliance with accounts receivable
internal controls. Various factors contributed to EPA not properly following its internal control
procedures to ensure timely and accurate recording of accounts receivable. We found that Cincinnati
Finance Center did not timely receive accounts receivable judicial legal documents from the
Department of Justice and EPA. In FY 2013, the agency made progress on the corrective action;
however, the corrective action is not complete. The agency revised agency accounts receivable
guidance to remove the requirement for Regional Legal Enforcement Offices to forward copies of
executed judicial orders to the Cincinnati Finance Center within five workdays. EPA's Office of
Enforcement and Compliance Assurance is still in the process of working with the Cincinnati Finance
Center and the Department of Justice to assess the timely transmission of judicial orders to the
Cincinnati Finance Center. The agency is scheduled to complete this corrective action in FY 2014.
• EPA Is Not Clearing Fund Balance with Treasury Statement of Differences Timely
During FY 2012, EPA did not clear Fund Balance with Treasury differences reported on the U.S.
Department of the Treasury's Statement of Differences within two months. Various problems resulting
from the agency's conversion from the Integrated Financial Management System to Compass
contributed to the untimely clearing of Statement of Differences transactions. In FY 2013 the agency
improved its process for clearing Statement of Differences transactions with the implementation of
the Central Accounting Reporting System. The EPA has made progress in clearing Statement of
Differences transactions in two months. However, the EPA has not fully completed corrective action
because some differences still remain, especially at the Washington Finance Center.
• Property Internal Controls Need Improvement
In our FY 2012 audit, we found that Compass did not sufficiently reject personal property information
entries that were not accurate. As a result, the agency could possibly lose accountability and control
over property. We identified personal property items for which the location was not properly identified,
and items were physically located in accountable areas other than the locations identified in the
property system. During FY 2013, we found that some capital property items valued at approximately
$1.1 million in Research Triangle Park were not in the exact location as recorded in the Fixed Assets
System. The EPA transferred the pieces of equipment to a new location, but did not update the
system.
• Compass and Maximo Cannot Be Reconciled
During FY2012, we found that the EPA could not reconcile capital equipment property management
data within its property management subsystem, Maximo, to relevant financial data within Compass.
The inability to reconcile the property subsystem with Compass could compromise the effectiveness
and reliability of financial reporting. The EPA could not reconcile Maximo and Compass because
historical property data did not migrate properly from the Integrated Financial Management System to
Compass. We recommended that the EPA develop procedures to reconcile capitalized property in
the agency's system with Maximo. According to agency officials, they identified the need to develop
additional procedures to reconcile capital property. The EPA is currently reviewing the policy and the
target completion date is December 31, 2013.
• EPA Should Improve Controls Over Expense Accrual Reversals
In FY 2012, the EPA did not reverse approximately $108 million of FY 2011 year-end expense
accruals. The agency did not reverse the accrual transactions because the Compass posting
configuration for the applicable fund category was inaccurate. By not reversing the accruals timely,
EPA materially overstated the accrued liability and expense amounts in the quarterly financial
statements. EPA's Policy Announcement No. 95-11, Policies and Procedures for Recognizing
Year-End Accounts Payable and Related Accruals, require the agency to "recognize and report all
accounts payable and related accruals in its year-end financial reports." In our final audit report
issued November 16, 2012, we recommended that the agency update the EPA's Policy
Announcement 95-11 to require reconciliations of accruals and accrual reversals. Agency officials
concurred with our finding and recommendations and took corrective action by implementing an
independent review of the FY2012 accruals and reversals. The agency also performed accrual
reviews prior to the issuance of the FY 2013 quarterly financial statements. However, the agency has
extended the target due date to update Policy Announcement 95-11 until June 2014.
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• EPA Needs to Remediate System Vulnerabilities That Place Financial Data at Risk
In our FY 2012 audit, we found that OCFO officials did not monitor the testing of its networked
information technology assets to identify commonly known vulnerabilities or take action to remediate
those weaknesses. We found the lack of monitoring, in part, because EPA's OEI took almost 3 years
to resolve a long-standing recommendation to define duties and responsibilities for testing networked
resources managed under EPA's service support contract. Information technology assets used by
finance center personnel contained 286 commonly known vulnerabilities that could potentially
undermine EPA's financial reporting capability, if exploited. We made several recommendations to
the agency's program office senior information official to establish a process to closely monitor the
contractor to ensure that they test the finance centers' networked resources and remediate all noted
vulnerabilities. During FY 2013, we identified four high-risk vulnerabilities that went unresolved within
the required 30-day timeframe for the OCFO network.
CFO Financial Systems Security Documentation Needs Improvement
During FY 2012 financial statement audit, we found that the EPA has inaccurate system security
plans for the following key financial information systems: Contract Payment System, Fellowship
Payment System, Grants Payment System and Small Purchase Information Tracking System. During
FY 2013 financial statement audit, we found that the EPA has integrated these financial information
systems as modules in the overarching Payment Tracking System. As of September 19, 2013, the
EPA has an approved system security plans for the Payment Tracking System. The Payment
Tracking System's system security plans incorporated the assessment and control reviews from the
Contract Payment System, Fellowship Payment System, Grants Payment System and Small
Purchase Information Tracking System system security plans. However, the Payment Tracking
System's system security plans includes reference to an outdated policy under controls AC-5 that
was found during the FY 2012 financial statement audit and the Contingency Plan provided was not
finalized.
• Financial Management System User Account Management Needs Improvement
EPA had previously considered these recommendations closed; however, OCFO agreed in FY2013,
to develop alternative corrective action for recommendation 27. OCFO is in the process of developing
our proposal. Regarding recommendation 32, OCFO has been receiving automated human
resources data/reports and is working with the Office of Administration and Resources Management
on the implementation of the Human Resources Line of Business which will further respond to this
recommendation."
Source: OIG analysis.
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Attachment 3
Status of Current Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Rec. Page
No. No.
Subject
Planned
Completion
Status1 Action Official Date
Claimed
Amount
Agreed To
Amount
1 11 Perform a thorough review of posting models and
financial system configurations to ensure the
proper accounts are impacted.
2 11 Perform quarterly analytical reviews of account
activity at the transaction level to verify that the
activity is reasonable.
3 14 Require the Director, Facilities Management and
Services Division, to establish timeframesthat
property records are to be entered or updated
when a new accountable personal property item is
received or inventoried, relocated, transferred or
no longer in the EPA's custody.
4 14 Require the Director, Facilities Management and
Services Division, to determine and resolve the
issue of missing personal property records not in
agency's official property system.
5 14 Require the Director, Facilities Management and
Services Division, to verify capital assets are
updated in Maximo (including new equipment,
surplused and no longer in the EPA's custody).
6 14 Require the Director, Facilities Management and
Services Division, to hold a Board of Survey to
address missing items.
7 15 Require the Director of the Office of Technology
Solutions to work with the Compass contractor to
correct the FD01 model posting error.
8 16 Conduct reviews of the access control lists for all
agency financial applications under their
responsibility to ensure they are up-to-date and
reflect the current necessary system privileges of
personnel.
9 17 Issue a memorandum to personnel responsible for
controlling access to financial systems
emphasizing the importance of following access
control procedures - specifically, periodic access
reviews and proper access removal.
10 19 Develop a detailed listing of all OCFO information
technology assets by IP address, system name
and server name. Provide the OCFO staff in
charge of receiving and analyzing monthly VM
reports with the detailed listing of information
technology assets. The detailed listing should
include all OCFO information technology assets
under OCFO operational control, as well as
information technology assets operated on behalf
of OCFO within and external to the agency.
Ongoing
quarterly
activity
1/31/14
Chief Financial Officer
Chief Financial Officer
Assistant Administrator for
Office of Administration and
Resources Management
Assistant Administrator for
Office of Administration and
Resources Management
Assistant Administrator for
Office of Administration and
Resources Management
Assistant Administrator for
Office of Administration and
Resources Management
Chief Financial Officer
Assistant Administrator for 1115/14
Environmental Information and
Chief Financial Officer
Assistant Administrator for 1115/14
Environmental Information and
Chief Financial Officer
Assistant Administrator for 4/30/14
Environmental Information and
Chief Financial Officer
1/31/14
Ongoing
quarterly
activity
1/31/14
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RECOMMENDATIONS
Rec.
No.
No.
Subject
Status1
Action Official
Planned
Completion
Date
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Claimed Agreed To
Amount Amount
12
19 Issue a memorandum to OCFO staff involved in
the monthly VM process reiterating the
importance of following roles and responsibilities
outlined in the VM SOP. Specifically, the
memorandum should stress the importance of
communicating, to OEI, IP addresses that do not
belong to OCFO so they are no longer included in
OCFO's monthly reports. The memorandum
should also specify timelines when responsible
personnel must update the POA&M information in
the agency's vulnerability tracking system and
report the status of actions taken to OCFO's
primary ISO.
19 Conduct training for staff in charge of receiving
and analyzing monthly VM reports to ensure they
are knowledgeable of the agency's remediation
process for vulnerabilities. This training should
included specific information on how to review the
provided VM report and what actions offices must
take regarding the identified vulnerabilities.
Assistant Administrator for 4/30/14
Environmental Information and
Chief Financial Officer
Assistant Administrator for
Environmental Information and
Chief Information Officer
1 0 = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is unresolved with resolution efforts in progress
117
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Appendix I
EPA's Fiscal 2013 and 2012
Consolidated Financial Statements
PROVIDED SEPARATELY
118
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Appendix II
Agency Response to Draft Report
December 13, 2013
MEMORANDUM
SUBJECT: Response to Office of Inspector General Draft Audit Report No. OA-FYl 3 -023 5, "Audit
of EPA 's Fiscal 2013 and 2012 Consolidated Financial Statements, " dated December 9,
2013
FROM: Maryann Froehlich
Acting Chief Financial Officer
TO: Arthur A. Elkins, Jr.
Inspector General
Thank you for the opportunity to respond to the issues and recommendations in the subject draft audit
report. Following is a summary of the agency's overall position, along with its position on each of the
report recommendations. For those report recommendations with which the agency agrees, we have
provided high-level intended corrective actions and estimated completion dates to the extent we can.
AGENCY'S OVERALL POSITION
The agency concurs with 10 of the 12 recommendations. We have attached a technical comments
document which explains our position for those report recommendations with which the agency does not
agree and for one recommendation on which the agency agrees.
AGENCY'S RESPONSE TO DRAFT AUDIT RECOMMENDATIONS
Agreements
No.
Recommendation
High-Level Intended
Corrective Action(s)
Estimated Completion
by Quarter and FY
Perform quarterly analytical
reviews of account activity
at the transaction level to
verify that the activity is
reasonable.
Concur. The EPA already
performs quarterly reviews at the
transact!onal level.
Complete.
(Ongoing quarterly
activity)
Establish timeframes that
property records are to be
entered or updated when a
new accountable personal
property item is received or
inventoried, relocated,
transferred or no longer in
the EPA's custody.
Concur. The Office of
Administration and Resources
Management will amend the
EPA Personal Property Policy
and Procedures manual to
require posting within 5 days of
installation or on-site receipt.
1/31/14
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Determine and resolve the
issue of missing personal
property records not in
agency's official property
system.
Concur.
1) Agency property officers are
working to identify and update
any missing personal property
records in the official property
system.
2) In addition, EPA Property
guidance will be revised to
ensure all future reconciliations
occur by September 1.
1) Updates of property
records complete.
(ongoing activity)
2) 1/31/14 for guidance
revision
Verify capital assets are
updated in Maximo
(including new equipment,
surplused and no longer in
the EPA's custody).
Concur. Updates of capital assets
records are required per the
Agency Personal Property Policy
and Procedure Manual (4382).
Complete.
(Ongoing quarterly
activity)
Hold a Board of Survey to
address missing items.
Concur.
1) A Board of Survey has been
identified to address missing
items.
2) A report is anticipated by late
January 2014. The Agency
Personal Property Policy and
Procedure Manual will be
updated to require BOS reports
by September 15.
1) BOS re-established
10/31/13
2) Manual updated by
1/31/14
Conduct reviews of the
access control lists for all
agency financial applications
under their responsibility to
ensure they are up-to-date
and reflect the current
necessary system privileges
of personnel.
Concur. The Office of
Environmental Information/
Office of Technology Operations
and Planning will conduct the
review of access control lists for
financial applications under
OTOP/National Computer
Center's purview.
1/15/14
Issue a memorandum to
personnel responsible for
controlling access to
financial systems
emphasizing the importance
of following access control
procedures - specifically,
periodic access reviews and
proper access removal.
Concur. OEI/OTOP will issue a
memorandum to responsible
personnel regarding adherence to
access control procedures.
1/15/14
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10 Develop a detailed listing of
all OCFO information
technology assets by IP
address, system name and
server name. Provide the
OCFO staff in charge of
receiving and analyzing
monthly VM reports with
the detailed listing of
information technology
assets. The detailed listing
should include all OCFO
information technology
assets under OCFO
operational control, as well
as information technology
assets operated on behalf of
OCFO within and external to
the agency.
Concur. The Office of the Chief
Financial Officer will update its
detailed inventory of Internet
Protocol addresses and system
and server names. Information
will be provided to appropriate
staff.
4/30/14
11 Issue a memorandum to
OCFO staff involved in the
monthly VM process
reiterating the importance of
following roles and
responsibilities outlined in
the VM SOP. Specifically,
the memorandum should
stress the importance of
communicating, to OEI, IP
addresses that do not belong
to OCFO so they are no
longer included in OCFO's
monthly reports. The
memorandum should also
specify timelines when
responsible personnel must
update the POA&M
information in the agency's
vulnerability tracking system
and report the status of
actions taken to OCFO's
primary ISO.
Concur. OCFO will issue a
memo to the appropriate staff
regarding roles and
responsibilities related to the
Vulnerability Management
review process including
procedures on handling items
that do not belong to OCFO and
related timelines.
4/30/14
12 Conduct training for staff in
charge of receiving and
analyzing monthly VM
reports to ensure they are
knowledgeable of the
agency's remediation
process for vulnerabilities.
Concur. OEI will develop
training on monthly VM reports
and make it available through
the agency's enterprise training
tool.
TBD
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Disagreements
No.
Recommendation
Agency Explanation/Response
Proposed Alternative
Perform a thorough review
of posting models and
financial system
configurations to ensure the
proper accounts are
impacted.
Nonconcur. The agency already
has an established process for
regularly reviewing posting
models to ensure that the proper
accounts are impacted.
N/A
Require the Director, Office
of Technology Solutions to
work with CGI to correct the
FD01 model posting error.
Nonconcur. TheFDOl posting
model did not cause the
erroneous postings referenced in
the draft report. The erroneous
posting was due to user errors.
N/A
CONTACT INFORMATION
If you have any questions regarding this response, please contact Stefan Silzer, Director, Office of
Financial Management on (202) 564-5389.
Attachment
cc: David Bloom
Rich Eyermann
Renee Wynn
Stefan Silzer
Jeanne Conklin
Raffael Stem
Mel Visnick
Quentin Jones
Robert Hill
Christopher Osborne
Sherri Anthony
John O'Connor
Istanbul Yusuf
Bridget Shea
John Showman
David Shelby
Anne Mangiafico
Judi Maguire
Meg Hiatt
Wanda Arrington
Art Budelier
Cynthia Poteat
Robert Hairston
Sheila May
Scott Dockum
Barbara Freggens
122
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Sandy Womack
Lorna Washington
Susan Lindenblad
Sandy Dickens
Janice Kern
Bernie Davis-Ray
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Attachment
Technical Comments Related to OIG's Draft Audit Report No. OA-FY13-0235, "Audit ofEPA's
Fiscal 2013 and 2012 Consolidated Financial Statements," dated December 9, 2013
• OIG Finding - "Federal Financial Management Improvement Act Noncompliance"
"Under FFMIA, 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 States Government Standard General Ledger at the transaction
level. To meet the FFMIA requirement, we performed tests of compliance with FFMIA Section 803 (a)
requirements and used the OMB guidance, Memorandum M-09-06-23, Implementation Guidance for the
Federal Financial Management Improvement Act, dated January 9, 2009, for determining substantial
noncompliance with FFMIA.
The results of our tests did not disclose any instances where the Agency's financial management systems
did not substantially comply with the applicable Federal accounting standards.
We found that the Agency had a high number of accounting corrections due to posting model and other
system errors at the transaction level. However, we do not believe that the errors we found reached the
level of substantial non compliance as described in OMB guidance. We also reported this issue as a
significant deficiency in attachment 1. The results of our tests did not disclose any other instances of non
compliance with FFMIA requirements. "
Agency Response: Do Not Concur
Agency Position on Finding:
The agency's financial system is in compliance with FFMIA. The OMB guidance does not require a
perfect system. The guidance states, ".. .FFMIA compliance itself neither requires nor results in ideal or
state-of-the-art system performance or system efficiency; nor does it require that systems be entirely
automated. What FFMIA compliance indicates is that systems routinely provide reliable financial
information consistently, accurately and uniformly." Accordingly, the system routinely and substantially
provides reliable financial information. Specifically, the Compass system:
o Gives the EPA the ability to prepare financial statements and other required financial and
budget reports using information generated;
o Provides reliable and timely financial information for managing current operations;
o Enables the agency to safeguard its assets reliably; and
o Enables the EPA to comply with the U.S. Government Standard General Ledger at the
transaction level.
Compass is based on a FSIO-compliant, commercial-off-the-shelf software solution from an OMB-
approved shared service provider. Changes to the system, such as the posting model changes in
progress, are accomplished through our disciplined configuration management process which includes
rigorous development, testing and approval procedures. Adhering to a disciplined configuration
management process is an integral part of complying with the Federal Information System Management
Act requirements. Compliance with FISMA is cited in OMB Memorandum M-09-06 as an indicator in
determining compliance with FFMIA. Specifically, the CM process aligns with the FISMA requirement
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for continuous monitoring of information systems components and associated security controls. This
process ensures the consistency of financial system performance through the orderly management,
documentation, testing, and review of system changes over the course of the system lifecycle. The CM
process enables EPA to introduce posting model changes in a manner that satisfies fundamental
accounting standards while mitigating the risk of disrupting existing functionality.
Further, the agency disagrees that the number of corrections made in FY 2013 is high given that the
agency processes thousands of transactions on a daily basis. The agency has developed and
implemented a rigorous process to continuously review, analyze and make the necessary corrections,
where needed, to posting models. This process is one of the reasons that we are confident that we are
providing reliable and timely information for managing current operations. Through this process we
identify opportunities for system changes to improve automated operations. Of particular note, the
agency is working on a system change to correct a defect related to upward and downward adjustments
of prior year obligations. To ensure the defect is corrected in an efficient and effective manner and that
we remain FISMA compliant, we are applying best practices in CM to change the system to correct
handling of the upward and downward adjustments. Pending implementation of the system change, we
have adopted manual procedures involving the use of journal vouchers as part of the process for
properly recording upward and downward adjustments to prior year obligations; we have followed the
manual procedures in FY 2013.
• OIG Finding "2— EPA's High Number of Accounting Corrections indicates an Internal
Weakness"
"The EPA made 396 manual journal voucher entries FY 2013 to correct transaction level errors in the
accounting system, including 138 entries for posting model errors. OMB directs agencies to apply the
United States standard general ledger at the transaction level to generate appropriate general ledger
accounts for posting transactions. The EPA made the accounting corrections due to posting model and
other system configuration errors. Although the EPA corrected the errors that the EPA and the Office of
Inspector General identified, the high number of corrections diminishes the reliability of the EPA 's
accounting system to process transactions accurately. Without a diligent review of posting models,
errors could occur at the transaction level, impacting the reliability of financial information and
increasing the risk that the financial statements could be misstated. "
Agency Response: Do Not Concur
Agency Position on Finding:
The EPA disagrees that the high number of accounting corrections indicates an internal weakness. We
believe the journal vouchers processed were fully supported and were significantly less in number than
the amount stated in OIG's condition statement. For example, journal voucher entries made as part of
normal financial business processes were erroneously classified by the OIG as corrections to transaction
level errors.
Also, The agency does not agree that the number of corrections diminishes the reliability of the EPA's
financial system. The agency took steps in FY 2012 and 2013 to ensure the integrity of its financial data
and identified many of the issues in the OIG finding. The EPA has a process in place to proactively
analyze and validate posting models. For example, during FY 2013, the agency identified accounting
model issues, corrected them in the system, and made necessary journal voucher entries in compass to
reflect the accurate United States Standard General Ledger impact. OCFO established an internal GL
Issues email box to collect agency identified accounting model and reference table issues. OCFO
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prioritized, and tracked progress in resolving accounting model and reference table issues. We continue
to remain vigilant in our efforts to ensure that Compass accounting models are properly recording
accounting events.
As discussed above, the EPA complies with FFMIA.
• OIG Finding "3—Internal Controls Over EPA's Accountable Personal Property Inventory
Process Needs Improvements"
"We found an $11.5 million difference in accountable personal property, including $7 million of
capitalized property, between the agency's property management system (Maximo) and its fiscal year
(FY) 2013 property certification letters. In addition, our examination found the EPA did not perform a
complete inventory of $3.7 million of sensitive accountable personal property purchased in the last
quarter ofFY 2013. As a result, Maximo is missing detailed records for this property and such property
is not included in the EPA 's property certification letters. The EPA requires accountable personal
property to be inventoried annually and equipment to be decaled and added to Maximo when acquired.
Various factors contributed to Maximo being incomplete and inaccurate; however, the primary cause
was that the EPA 's details within Maximo were not updated timely. The agency's capitalized property
financial activity (which is part of the accountable personal property) is dependent upon property
management officers maintaining an accurate inventory of capitalized property. Inaccurate accountable
personal property records could compromise the EPA 's property control system, impact the accuracy of
the agency's financial statements, and result in the loss or misappropriation of assets. "
Agency Response: Concur
Agency Position on Finding: EPA concurs that the inventory purchased from the Customer
Technology Solutions in the last quarter of FY 2013 was not completed. An official agency inventory
could not be conducted until the equipment buy-out was completed and the agency owned the assets.
The purchase of CTS equipment in August 2013 was an unusually large purchase resulting in the
acquisition of approximately 12,000 assets near the end of the year. The equipment buyout did not occur
until late August and Property notification in mid September. As a result, Facilities Management and
Services Division could not inventory all equipment by the end of FY13. Inventory of these assets was
initiated in October and should be completed by January 2014.
OARM will amend the EPA Personal Property policy and Procedures Manual to require posting of
records within 5 days of installation or receipt on site.
• OIG Finding "4— Software Improperly Recorded in Compass"
"The U.S. Environmental Protection Agency's (EPA) Software In Development and Loss On Disposition
accounts were misstated by $36 million. Federal regulations require agencies to have systems that
record and generate accurate financial information. The posting model applied to the transaction
impacted the wrong accounts. The misstatement impacts the accuracy and reliability of information
reported in the EPA 's financial statements. "
Agency Response: Do Not Concur
Agency Position on Finding: The EPA does not concur with the finding that the posting model applied
to the referenced transaction impacted the wrong actions. The "Software in Development" and the "Loss
on Disposition" postings were incorrect due to system users applying an incorrect document type. The
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correct posting for this type of transaction, which moves software in development status to production,
is the Fixed Asset Transfer (FT) document type. The FT document type allows the system to directly
reclassify the asset's status from development to production. While OCFO staff were trained by the
contractor in FY 2013 on how to process this transaction using the FT document type, the use of the FD
document type was used in error. To help mitigate the risk of this type of incorrect posting in the future,
OCFO will review with staff the correct posting for the business event of transferring software from the
development account to the production account. Staff will receive refresher training in FY2014.
The resulting postings using the FD01 were corrected with Journal Vouchers (RAS13582JAN &
RAS13583JAN) to allow the general ledger accounts to correctly reflect the intent of the accounting
events that were initiated. As part of the agency's internal process for reviewing transaction events,
OCFO will review and analyze the document/transaction type FD01 for the actual disposal entries in FY
2014.
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Appendix
Distribution
Office of the 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
Assistant Administrator for Solid Waste and Emergency Response
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Director, Office of Policy and Resource Management, Office of Administration and
Resources Management
Director, Office of Grants and Debarment, 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, Office 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, Office 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 Staff, 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 Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Enforcement and Compliance Assurance
Audit Follow-Up Coordinator, Office of Solid Waste and Emergency Response
Audit Follow-Up Coordinator, Office of Environmental Information
Audit Follow-Up Coordinator, Office of Grants and Debarment, 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
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Section III
Other Accompanying Information
129
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SCHEDULE OF SPENDING
Money Management
The Schedule of Spending (SOS) presents an overview of how and where EPA is spending money.
The SOS that follows reflects total budgetary resources available to the Agency, gross outlays, and
fiscal year-to-date total obligations for the Agency. "What Money Is Available to Spend?" represents the
authority that EPA was given to spend by law and the status of that authority. In this section:
• "Total Resources" represents amounts approved for spending by law.
• "Less Amount Not Agreed to Be Spent" represents amounts that EPA was allowed to spend but did
not take actions to spend.
• "Less Amount Not Available to Be Spent" represents the amount of total budgetary resources that
were not approved for spending.
• "Total Amounts Agreed to Be Spent" represents the amount of spending actions taken by EPA for
the fiscal year. This represents contracts, orders, and other legally binding obligations of the federal
government to pay for goods and services when received.
"How Was the Money Spent?" identifies the major categories for which EPA made payments during the
year. In this section:
• "Total Spending" represents the sum of all payments EPA made during each year against amounts
agreed to be spent. Balances include payments made to liquidate amounts agreed to be spent
originating in both the current as well as from prior fiscal years.
• "Amounts Remaining to Be Spent" represents the difference between total spending and amounts
agreed to be spent. Since payments can relate to spending activity initiated in the current and prior
years, it is not unusual for total payments in a fiscal year to exceed the amount of the new spending
actions originated that year, reported under "Amounts Agreed to be Spent." When this occurs,
negative amounts will be displayed as the balance of amounts remaining to be spent.
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What Money is Available to Spend?
Total Resources (Note 1)
Less:
Amount Available but Not Agreed to be Spent (Note 2)
Amount Not Available to be Spent (Note 3)
Total Amounts Agreed to be Spent (Note 4)
How was the Money Spent?
Clean Air
Contracts
Grants
Payroll
Rent, Communications and Utilities
Structures and Equipment
Travel
Clean & Safe Water
Contracts
Grants
Payroll
Rent, Communications and Utilities
Structures and Equipment
Travel
Insurance
Land Preservation & Restoration
Contracts
Financial Transfers
Grants
Payroll
Rent, Communications and Utilities
Structures and Equipment
Travel
Insurance
Healthy Communities & Ecosystems
Contracts
Grants
Payroll
Rent, Communications and Utilities
Structures and Equipment
Travel
Insurance
Compliance & Environmental Stewardship
Contracts
Grants
Payroll
Rent, Communications and Utilities
Structures and Equipment
Travel
Insurance
Total Spending (Note 5)
Amounts Remaining to be Spent
Total Amounts Agreed to be Spent (Note 4)
Notes:
l.This amount ties to CSBR as Total Budgetary Resources.
2.This amount ties to CSBR as Unobligated Balance-Apportioned.
3.This amount ties to CSBR as Unobligated Balance-Unapportioned.
4.This amount ties to CSBR as Total Obligations Incurred.
S.This amount ties to CSBR as Gross Outlavs.
$
$
$
$
$
$
s
$
s
$
s
$
$
$
FY2013
13,296,567
3,008,632
197,815
10,090,120
214,518
387,064
491,693
5,918
12,674
3,911
1,115,778
373,002
4,252,641
543,846
1,891
4,192
5,032
115
5,180,719
2,142,979
-
580,798
733,638
2,767
9,694
11,636
15,611
3,497,123
149,817
66,141
508,491
1,900
2,517
3,749
27
732,642
100,165
32,116
663,671
1,899
1,782
5,066
800
805,499
11,331,761
(1,241,641)
10,090,120
$
$
S
$
S
$
s
$
s
$
s
$
$
$
FY 2012
16,569,231
2,609,126
177,271
13,782,834
255,814
439,049
512,031
3,582
10,963
4,558
1,225,997
401,295
4,688,261
565,306
1,997
6,209
5,969
5,669,037
2,313,557
2,400,000
635,493
762,945
2,355
9,690
13,919
6,137,959
156,617
70,944
555,562
1,816
4,529
4,140
793,608
99,986
36,067
704,365
1,836
2,699
6,190
851,143
14,677,744
(894,913)
13,782,831
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MANAGEMENT INTEGRITY AND CHALLENGES
Overview of EPA's Efforts
Management challenges and integrity weaknesses represent vulnerabilities in program operations that
may impair EPA's ability to achieve its mission and threaten its safeguards against fraud, waste, abuse,
and mismanagement. These areas are identified through internal agency reviews and independent
reviews by EPA's external evaluators, such as OMB, the U.S. Government Accountability Office, and
EPA's Office of Inspector General. This section of the APR discusses in detail two components related
to challenges and weaknesses: 1) key management challenges identified by EPA's OIG, followed by
the Agency's response, and 2) a brief discussion of EPA's progress in addressing its FY 2013
management integrity weaknesses.
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 statement.)
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. In FY2013, no new
material weakness was identified by 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 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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2013 KEY MANAGEMENT CHALLENGES
OIG-Reported Key Management Challenges
The Reports Consolidation Act of 2000 requires OIG to report on the Agency's most serious
management and performance challenges, known as the key management challenges. Management
challenges represent vulnerabilities in program operations and their susceptibility to fraud, waste,
abuse, or mismanagement. For FY 2013, OIG identified five challenges. The table below includes
issues OIG identified as key management challenges facing EPA; the years in which OIG identified the
challenge; and the relationship of the challenge to the Agency's goals in its FY 2011-2015 strategic
plan, found at http://www2.epa.gov/planandbudget/strategicplan.
OKUMHU Top Major M.n,ge™n, Challenges for EPA
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 EPA and other federal agencies to set national environmental
goals and regulatory standards, particularly for problems that cross state or national borders, or
pose risks to future generations.
Oversight of Delegations to States: Due to differences between state and federal policies,
interpretation, strategies, and priorities, 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: EPA's duty is to ensure that reused contaminated sites are
safe for humans and the environment. EPA must strengthen oversight of the long-term safety of
sites, particularly within a regulatory structure in which non-EPA parties have key responsibilities,
site risks change overtime, and all sources of contamination may not be removed.
Enhancing Information Technology Security to Combat Cyber Threats (Formerly Limited
Capability to Respond to Cyber Security Attacks): EPA has a limited capacity to effectively
respond to external network threats. Although the Agency has deployed new tools to improve its
architecture, these tools raise new security challenges. EPA has reported that over 5,000 servers
and user workstations may have been compromised from recent cyber security attacks.
(Previously reported under Homeland Security.)
EPA's Framework for Assessing and Managing Chemical Risks: 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.
Workforce Planning: EPA's human capital is an internal control weakness in part due to
requirements released under the President's Management Agenda. OIG identified significant
concerns with EPA's management of human capital. EPA has not developed analytical methods
or collected data needed to measure its workload and the corresponding workforce levels
necessary to carry out that workload.
FY FY
2011 2012
•
•
•
*
*
•
•
*
*
•
FY
2013
•
•
•
•
•
EPA
Strategic
Goal
Cross-
Goal
Cross-
Goal
Goal 3
Cross-
Goal
Goal 4
Goal 5
Cross-
Goal
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D C 20460
XJL-I2M3
THE INSPECTOR GENERA!
MEMORANDUM
SUBJECT: The EPA's Fiscal Year 2jHp Management Challenges
FROM: Arthur A. Elkins Jr.
TO: Bob Perciasepe. Acting Administrator and Deputy Administrator
We are pleased to provide you with a lisl of areas the Office oflnspector General considers as
key management challenges confronting the U.S. Environmental Protection Agency. According
to the Government Performance and Results Act Modernization Act of 2010. major management
challenges are programs or management functions, within or across agencies, that have greater
vulnerability to waste, fraud, abuse, and mismanagement, and 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 the most
serious management and performance challenges facing the agency. Given this requirement, our
list includes management challenges and significant performance issues facing the 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 not yet reviewed, and other significant findings could result from
additional work. We provide detailed summaries of each challenge in the attachment.
Proposed Management Challenge
Oversight of Delegations to States
Safe Reuse of Contaminated Sites
Enhancing Information Technology Security to Combat Cyber Threats
(formerly Limited Capability to Respond to Cyber Security Attacks}
The EPA'* Framework for Assessing and Managing Chemical Risks
Workforce Planning
Page
1
4
9
13
15
While the EPA has made progress, and we recognize that budgetary pressures are considerable.
we repeated the five management challenges reported from last year (although we changed the
title of the challenge on cyber security). We welcome the opportunity to discuss our list of
challenges and any comments you might have.
Attachment
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Oversight of Delegations to States
The U.S. Environmental Protection Agency's oversight of state programs remains a key
management challenge. The EPA has made strides to improve its oversight of states but has not
completed its actions.
To accomplish its mission to protect human health and the environment, the EPA develops
regulations and establishes programs that implement environmental laws. Many federal statutes
also establish state regulatory programs that give states the opportunity to enact and enforce laws
when minimum federal standards and regulator,' objectives are met. The EPA may authorize
state, local or tribal governments to implement environmental laws when they request
authorization and the EPA deems that government capable of operating the program consistent
wiih federal standards. The EPA relies hcauly on authorized state and tribal agencies to obtain
performance data and implement compliance and enforcement programs. These EPA partners
perform a critical role in supporting the EPA's administration of key environmental laws.
The EPA performs oversight of state, local and tribal programs to provide reasonable assurance
that they achieve national goals. However, state delegation does not exempt the HPA from its
statutory and trust responsibilities to protect human health and the environment. 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. Budget limitations faced by many states impose an added pressure on EPA to maintain
oversight of state environmental management.
The uneven quality of the EPA's oversight of state programs has been a concern for many years.
The U.S. Government Accountability Office brought renewed attention to this issue in 2007
when it reported that while the EPA has made substantial progress in improving priority setting
and enforcement planning with states, its oversight needed further enhancement. In response, the
EPA implemented the "State Review Framework" to provide a consistent approach for
overseeing programs and identifying weaknesses ;md areas for improvement. However, in fiscal
year 2012 we reported that the EPA had not implemented the framework in a consistent manner.1
Past reviews of this framework also indicated that the EPA had limited ability to determine
whether states perform appropriate and timely enforcement and whether states apply violator
penalties in a fair and consistent manner In response to these and other findings, the EPA made
changes to the State Review Framework and initiated a Clean Water Act Action Plan aimed at
strengthening agency oversight of state water quality compliance and enforcement.
We issued a number of other reports on state oversight in recent years. Those reports pointed to
the EPA's inadequate and inconsistent oversight of a variety of state activities—from state
revolving fund projects to state enforcement of major environmental laws. Oversight of state
activities requires that the EPA establish consistent national baselines that state programs must
meet, and monitor state programs to determine whether they meet federal standards. Our work
' EPA OIO, EPA Must improve Oversight of Stale Enforcement. Report No. 12-P-0113. January 30. 2012.
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identified the absence of national baselines and a lack of consistent and robust state oversight of
multiple programs within the Clean Water Act, Clean Air Act. and Resource Conservation and
Recovery Act. We also found that unclear and outdated agreements caused confusion between
the EPA and states. For example:
• The ERA'S oversight of states did not ensure that requirements of the American Recovery
and Reinvestment Act of 2009 were met on Clean Water Slate Revolving Fund projects.
We found that the Recovery Act inspection checklist did not include enough detailed
questions to facilitate the KPA oversight of state programs. Further, the Office of Wrater
was not conducting and documenting reviews of state programs in a timely manner and
did not use the resulting reports to make national program decisions. Management did not
make completion of the review reports a priority and did nol use all of the Recovery Act
funding Congress allocated for oversight. As a result, the EPA oversight process could
nol ensure that states complied with Recovery Act program requirements.2
• The EPA takes a variety of approaches to correcting undcrpcrforming state programs.
These include making recommendations under the State Review Framework process.
ovcrfiling on states (i.e., when a state fails to enforce a program. EPA can enforce a
provision for which a particular state has authorization), and taking independent actions
when states choose not to act. We found that the EPA does not maximize its resources so
that it can take the most stringent step—revoking state authorization—when a state is
underperforming. The EPA primarily identifies underperforming state programs through
the State Review Framework process. The EPA's criteria for state performance varied
from region to region and state to state, depending on factors like state resources and
environmental priorities. This means that citizens in different states cannot expect the
same baseline of protection from pollution and human health risks. By establishing
stronger organizational structures, the HP A can directly implement a national
enforcement strategy that ensures all citizens have, and industries adhere to. a baseline
level of environmental protection. The EPA could make more effective use of its
resources by directing a single national workforce instead of 10 inconsistent regional
enforcement programs/
• Region 4 gave Georgia's concentra(ed animal feeding operation program a positive
assessment. However, our review identified concentrated animal feeding operations that
were operating without National Pollutant Discharge Elimination System permits or
Nutrient Management Plans. We also noted that inspection reports were missing required
components and the state was not assessing compliance with permit conditions. We
recommended implementing controls to require enforcement data tracking between EPA
and the state, assuring concentrated animal feeding operation inspections are complete.
and taking timely and appropriate enforcement actions.4
EPA DIG. EPA and States Should Strengthen Oversight nf Clean Water State Revolving Fund Recovery A ct
Projects. Report No. II -R-0519, August 24, 2011.
' EPA OIG. EPA Must Improve Oversight of Slate Enforcement, Report No. 12-P-0113, January 30. 2012.
" F.PA OIG. Region -I Should Strengthen Oversight <;/ (Jwrgia 's Concentrated Animal reeding Operation Program.
Rcpon No. ll-P-0274. June 23, 2011.
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• Region 4 has not adequately implemented management controls to assure that North
Carolina National Pollutant Discharge Elimination System permits comply with the
Clean Water Act and applicable federal regulations concerning thermal discharges.
Region 4 determined irnit the thermal limits tor four of the six facilities reviewed were
renewed based on insufficient documentation. Most of the draft permits we reviewed
were missing critical information needed to allow the EPA and the public an opportunity
for review and comment as required. Public notices for five draft permits did not contain
the required statements describing the proposed thermal variance.
The EPA agreed when w:e identified oversight of delegations to states as a 2012 management
challenge. In July 2012, the EPA convened an agencywide workgroup of staff responsible for
administering major agency programs in order to plan and implement an agency-wide effort to
collect available information to define, describe and assess the EPA's processes, practices and
tools for overseeing state delegations and authori/ations. This workgroup is reviewing key
components of the EPA/state partnership such as the EPA-State Memoranda of Agreement.
permit and program reviews, technical assistance to states, petitions to withdraw state programs.
and variability of regional oversight. It is also planning to analyze key similarities and
differences among the major permitting programs to improve communication between states and
the EPA. Findings and options for improving state oversight are expected to be reported to the
Deputy Administrator by September 2013.
In addition, the EPA agreed to implement recommendations contained in our past reports. For
example, in response to our January 2012 report on state oversight, the EPA agreed to:
• Review its public website to identify current compliance and enforcement documents that
affect state oversight and improve the presentation of these documents on its website.
• Revise many of the policies and guidance that direct the national enforcement program
and refine the State Review Framework metrics.
• Develop an escalation policy to address state performance issues including exploring
mechanisms, such as utilizing state grant funds to directly implement programs if
appropriate.
• Develop and make publicly available state performance dashboards for the Clean Water
Act. Clean Air Act. and Resource Conservation and Recovery Act, to track state
enforcement activities from year to year (which the EPA completed and demonstrated to
our office).
The workgroup and the EPA's positive responses to the recommendations contained in our past
reports arc promising steps that should improve the EPA's relationship with its state partners.
We will continue to monitor the EPA's progress in addressing this management challenge.
' EPA OIG. Oversight of North Carolina'* Renewals of Thermal Variances. Report No 11 -P-0221. May 9.20)1.
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Safe Reuse of Contaminated Sites
The EPA is increasingly emphasizing the reuse of contaminated or once contaminated properties.
The EPA Fiscal Years 2011-2015 Strategic Plan announced a shift in the definition of success at
a Superfund site from "construction complete" to "ready for anticipated use." The EPA's
FY 2013 budget states that it will continue to place emphasis on promoting site reuse in affected
communities.' and agency guidance states that revitalizing communities and ensuring the long-
term protection of human health and the environment remains a high priority for the EPA at
Superfund sites8 Currently, the agency is actively encouraging communities, developers,
industry, state and local governments, and anyone else interested in reusing contaminated sites
for renewable energy development (e.g.. wind, solar, biomass) facilities.9
The EPA has successfully turned some actual or perceived problem sites into properties that
reinvigorate communities and create jobs.10 Contaminated properties 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 the F.P.Vs recycle and reuse goals are notable and may
have made positive contributions in difficult economic times, the EPA's duty is to ensure that
contaminated sites arc sate for humans and the environment. The EPA faces significant and
increasing challenges in this area due to: (1) the common practice of not removing all
contamination sources 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) varying risks as site
conditions change over time; and (4) weaknesses in EPA's oversight of long-term site safety.
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, 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. Ineffective or missing long-term
safety controls at reused contaminated sites can pose significant risks to human health and the
environment. The New York Department of Environmental Conservation released a report listing
hundreds of "old" Superfund. brownfields and other cleanup cases that were reopened to
investigate potential new threats from vapor intrusion.12 Improvements in analytic techniques
and knowledge gained from site investigations have increased awareness of soil vapor as a
medium of concern and of the potential for human exposure from the soil vapor intrusion
6 EPA. FY 2011 -2015 Strategic Plan. p. 38
7 EPA. f7 2013 EPA BuJ^t m Brief.
* EPA, Office of Solid Waste and Emergemy Kespcnsf. f-Y 2011 National Program Manager's Guidance.
April 21. 2012, Publication Number 530R1200I, p. 20.
* EPA website, "Rt-Powering America's Land."
10 EPA website. "Superfund Redevelopment"
11 EPA, Brownftflih Technofafiy rrimer Vapor Intrusion Considerations for Redevelopment. EPA 542-R-0800I,
March 2008.
12 New York State Department of Environmental Conservation. Hiatus tit Vapor Intrusion Evaluations at Legacy
Sitn. February 11,2009.
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pathway.13 However, the EPA has yet to finalize guidance on assessing or addressing potential
risks from vapor intrusion and docs not have a current estimate of when this will be completed, 4
although the EPA has engaged stakeholders and considered public comments received in 2011
and 2012 as it works to issue final guidance.1"
The EPA has acknowledged challenges to ensuring the long-term safety of contaminated sites. In
\t
2005, the agency released a report that examined a range of long-term stewardship issues and
challenges it faced, as well as the role of non-EPA parties (e.g., states, tribes and other federal
agencies) in ensuring long-term safety of contaminated sites. 7 EPA identified five categories of
challenges: (1) understanding roles and responsibilities; (2) implementing and enforcing
institutional controls:18 (3) implementing, enforcing and monitoring engineering controls:19
(4) estimating long-term stewardship costs and obtaining funding and resources; and
(5) managing and communicating information to prevent breaches of controls and ensure
consistent information in databases. The report made a number of recommendations that
generally rely on partnerships and relationships to share, communicate and exchange necessary
information on roles, responsibilities and costs associated with long-term stewardship
responsibilities. The report encouraged non-EPA parties to adhere to legal provisions for
implementing institutional controls where applicable (e.g., Uniform Environmental Covenants
Act).20
In response to a GAO report on institutional controls, the EPA has also taken some steps to better
manage the implementation of institutional controls at Supcrfund sites.21 However, there are
many sites where the status of institutional controls is not available." In 2010, the EPA
completed an internal evaluation to determine whether the required and necessary institutional
controls were in place at national priority Superfund sites.23 This review disclosed that controls
" New York State Department of Environmental Conservation. Strategy'for Evaluating Soil Vapor Intrusion ai
Remedial Sites in New York. DER-13, October 18, 2006
'* EPA OIG, Lack of Final Guidance on I'apor Intrusion Impedes Efforts to Address Indoor Air Risk*, Report No.
IO-P-0042, December 14. 2009.
'* EPA Vapor Intrusion website at http: www.epa.gcrwoswer'vaporiiitriision/.
16 EPA generally characterizes long-term stewardship activities as activities that ensure (1) ongoing protection of
human health and the environment. (?) the integrity of remedial or corrective actions so the\ continue to operate
properly, and (3) the ability of people to reuse sites in a safe and protective manner.
EPA, Long-Term Stewardship. Ensuring Environmental Site Cleanup,'! Remain Protective Over Time: Challenge*
and Opportunities Facing EPA 's Cleanup Programs, E PA 500-R-05-001. September 2005.
" Institutional controls are legal or administrative controls intended to minimize the potential for human exposure to
contamination by limiting land or resource use. A local government is often the only entity that has legal authority to
implement certain types of institutional controls (e.g., zoning restrictions).
'" Engineering controls are the engineered physical barriers or structures designed to monitor and prevent or limit
exposure to the contaminaiion
fll The Uniform Environmental Covenants Act confirms the validity of environmental covenants (i.e.. institutional
controls/land use controls) by ensuring that land use restrictions, mandated environmental monitoring requirements,
and a wid« range ot 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 one-half of
U.S. states have passed a Uniform Environmental Covenants Act. The Uniform Environmental Covenants Act was
drafted by the National Conference of Commissioners on Uniform State Laws in August 2003.
GAO. HiKurduu* Waste Sites Improved Effectiveness of Controls at Sites Could Better Protect the Public,
GAO 05-163. January 28, 2005. See also EPA's website "Institutional Controls."
a EPA website, "Published Institutional Controls."
l' EPA. Summary of Program Evaluations for FY 20/0 Annual Performance Report.
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to protect human health were not in place at a number of sites reviewed. The EPA made
recommendations to improve the implementation of these controls to protect human health at
sites where risks remained. In December 2012, the EPA issued final guidance, Instiiuiional
Controls: A Guide to Planning. Implementing. Maintaining, and Enforcing Institutional Controls
at CofttfaninatedStes.M The guidance is a noteworthy improvement in the agency's
management of this important issue by recognizing the critical role of non-EPA parties in
ensuring effective institutional controls." The EPA has also issued final guidance with
recommended contents for such Institutional Control Implementation and Assurance Plans in its
December 2012 guidance. Institutional Controls: A Guide to Preparing Institutional Control
Implementation and Assurance Plans at Contaminated Sites.26
Our work has identified additional and ongoing 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 take over their long-term monitoring and maintenance responsibilities for
Superfund cleanups.2' 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.' the EPA's failure lo follow Superfund site deletion
guidance30 and Five-Year Review procedures/1 and the EPA's lack of systems to determine
whether a site cleanup is noncompliant.1" In our February 2011 report." we found that the EPA
relies on the self-certification of a third-parry environmental professional to determine whether
required environmental due diligence bas been performed a( Brownftekis sites funded by the
EPA grants. For the 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. The EPA also conducts no oversight of the
requirement to meet "continuing obligations" at Brewnfields properties funded by the EPA.
These obligations include land use controls and institutional controls designed to prevent
'4 OSWER 9355.0-89 EPA-540-R-09-001 December 2012.
~ This guidance states that "[w]hen ICs [Institutional Controls) are to be employed as a component of a site
response, site managers and site attorneys should earn out an anal) sis to determine if the state, local, and tribal
governments or other stakeholders (e.g., responsible panics) have the ability and capacity to implement, maintain,
and enforce the ICs." It also states that ''[a] good way to ensure effective implementation of ICs is to develop an
ICIAP [Institutional Control Implementation and Assurance Plan) that documents responsibilities over the full life
cycle of each 1C. and include this plan, or a reference to it, in ihe final decision documents "
* EPA. OSWER 9200.0-77 F.PA-5-IO-R-09-00: December 2012
' EPA DIG. Some States Cannot Address Assessment Needs and Fact Limitations in Mealing Future Superjund
Cleanup Requirements. Report No. 2004-P-00027, September I. 2004.
n The Detroit \'ews. "Michigan Out of Cash to Clean Up Toxic Sites," March 4. 2010.
29 EPA DIG, Improved Controls H'nulJ Reduce Superfund Backlogs. Report No. 08-P-0169. June 2, 2008.
M EPA DIG. EPA Decisions to Delate SuperfundSites Should Undergo Qiuhiy Assurance Kevim. Keport No
08-P-023S, August 20. 2008
' EPA DIG. EPA Has Improved Five-Year Rc\'tcw Process for Supe rftmd Remedies. But Further Steps \eeded^
Report No. 2007-P-00006. December 5, 2006. tPA O1G, tPA .v Sutm Determination for Delattt Mftalu Superfund
Site H'as Unsupported. Report No. 09-P-OQ29. November 19, 2008
12 EPA OIG. EPA \eeds lo Track Compliance with Superfund Cleanup Rtquiremtnts, Report No. 08-P-O HI.
April 28. 2008.
'"' LPA OIG, EPA Must Implement Controls lo Enswn Proper Investigations Art Conducted at Brcwnfields Sires.
Report No. ll-P-0107. Fchnwf> 14.2011
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unacceptable use of contaminated properties.>; Weaknesses or lapses in meeting environmental
due diligence or continuing obligations requirements can result in undetected or undisclosed
contamination and properly reuse that may pose unacceptable risk to humans. In response to our
February 2011 report, the EPA agreed to develop outreach materials and conduct training for
Browntlelds grantees and regional staff to increase compliance with federal requirements for
environmental due diligence investigations. The EPA reported it completed these activities
during FY 2012.
Our January 2010 report found new contamination at a delisted Superftmd site in Delaware
where the EPA conducted informal and undocumented oversight of the site reuse plans.'"' The
current site owner had nearK finalized plans for reusing the site for public recreation hut in a
manner inconsistent with the site cleanup plan. The EPA had not kept current with the current
owner's site reuse plans. In addition, the EPA did not issue a "Ready for Reuse" determination
for this site because it believed it was not necessary. A Ready for Reuse determination could
potentially address some of the internal challenges to ensuring safe reuse of contaminated sites.
However, there is no requirement to complete Ready for Reuse determinations, and they have
been treated as discretionary. Nonetheless, the EPA has held up these determinations as
providing the necessary "limitations that need to be followed to ensure [site] protectiveness."
A Ready for Reuse determination was not issued for the site reviewed in our January 2010 report
because site managers believed such a determination was only needed to aid the real estate
market. At another Superfund site, we also found that the EPA did not take action to address a
6-year gap in environmental sampling that the state should have conducted.36 This type of
oversight weakness can result in a failure to detect conditions that indicate a cleanup remedy
does not protect human health and the environment.
In August 2011, we reported the results of a review of hyperspectral imaging data taken of
Superfund sites that had been remediated and deleted from the National Priorities List. This
review identified conditions at two sites that warranted additional consideration by EPA. One of
these sites, a former landfill, had expanded since EPA's last review. At one former industrial
site, the current landowner was building a residence although levels of contamination for some
metals exceeded residential risk-based screening levels, and the site contained buried drums and
other debris.
The 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 recent years has the EPA focused attention on the long-term
stewardship aspects of contaminated sites across its cleanup programs. This gap could increase
substantially as the EPA continues to heavily promote the reuse of contaminated sites and create
new incentives without investing in tools needed to ensure the safe, long-term use of these sites.
Many Superfund sites are now moving to the long-term monitoring phase, with more sites
" EPA, Brown-fields Fact Sheet. EPA Brovnjietds Grants CERCLA Liability and All Appropriate Inquiries,
EPA S60-F-09-026. April 2009.
" EPA Old, Changes in Conditions at H'lldcat Landfill Supvrfund Site in Delaware Call for Increased
EPA O\-er<,ighr. Report No. 10-P-0055. January 21. 2010.
16 EPA OIG. EPA Should Improve Oversight of Long-term Monitoring j/ Bruin LaRoon Superfund Site in
Penn.i\'hania. Report No 10-P-02I7. September 8, 2010.
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expected to do so in the future.37 The EPA's December 2008 report on future Superfund
workload needs states that the "post-construction" workload will increase by 89 percent over the
current full-time equivalent distribution.38 The 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, the 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.
In 2009. the EPA agreed with this challenge.39 In its 2010,40 2011,41 and 20121" responses to this
challenge, the EPA stated that it actively promoies several tools 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. The EPA has stated that its
Superftind Five-Year Review process addresses the vast majority of "emerging contaminant"
situations observed at Superfund National Priorities List sites and conveyed that the Five-Year
Review process worked well. Specific "tools" the EPA has said it promotes to ensure appropriate
and safe reuse of sites are: (1) Ready for Reuse determinations. (2) comfort and status letters,
(3) prospective purchaser inquiry calls, (4) EPA-funded reuse planning offers, and (5) site reuse
fact sheets.4 (In 2011. the EPA identified these tools as things they can offer to ensure that reuse
is appropriate and will enhance long-term protectiveness.44 In 2012. these tools, except for
prospective purchaser inquiry calls, were also identified as things they can use to ensure that
reuse is appropriate and will enhance long-term protcctiveness. ~
The above tools appear to serve a purpose in enhancing reuse, but their use and effectiveness as
management controls for ensuring long-term human health protection has not been evaluated.
However, the EPA has taken significant steps to address and remedy vulnerabilities in the
Superfund Five-Year Review process. In 2009, the EPA completed a review of the quality of
Five-Year Reviews.46 The agency identified many reviews that needed additional support and
some that needed to modify their safety determinations. Additional actions such as modifying the
agency's 2001 guidance on Five-Year Reviews may be forthcoming. In a February 2012 report,
we recognized important improvements in the EPA's review and oversight of Five-Year
Reviews.47 The EPA has implemented national review of Five-Year Reviews to improve their
consistency and quality. Still, our February 2012 report identified additional opportunities for the
EPA, Long-Term Ste\vardship; Ensuring Environmental Site Cleanups Remain Protective Over Time:
Challenges and Opportunities Facing EPA 's Cleanup Programs. EPA 500-R-05-001, September 2005.
""' EP A, SuptrfunJ Workload Assessment Report. OSWER Document 9200-2-81, December 2,2008.
Post-construction workload can refer to all activities after a cleanup remedy is constructed (including long-term
monitoring and reuse activities).
" EPA. Performance and Accountability Report for Fiscal Year 2009. section IV. p. 43.
*° EPA, Fiscal Year 2010 Agency Financial Report, section III, p. 37-10.
41 Ibkl, p. 174.
'-Ibid, p. 187
13 Ibid, p. 39.
"Ibid. p. 174-175.
45 Ibid. p. 187-188.
EPA. Assessing Protecttvtntafor Asbestos Sites. Supplemental Guidance to Comprehensive Five-Year Review
Guidance, December 5, 2009.
4' EPA DIG. Stronger Management Contrnfx Will Improve KPA Five-Year Reviews of Superfund Sites. Report No.
12-P-0251 February 6, 2012.
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EPA to improve its national review process to ensure Five-Year Reviews conducted in the
regions are based on quality data and adhere to agency guidance. We believe that the Superfund
Five-Year Review process is and should be a "safety-net" for detecting new contamination or
other changing site conditions that may identity new potential human health risks. However, our
reviews of the Five-Year Review process and conditions at deleted Superfund sites continue to
demonstrate that the Five-Year Review process needs to be a stronger safety-net. We currently
have an ongoing assignment related to the Office of Solid Waste and Emergency Response's
Cross Program Revitalization Measures. We are evaluating whether the EPA's designation of
assessed and cleaned up sites that have achieved the "ready for anticipated uses" and/or
"protective for people" performance measures include effective controls to ensure long-term
protection to human health and the environment.
We will review and recognize the EPA's efforts to address the significant challenge of ensuring
the long-term safety of contaminated sites. Our work and the agency's work have shown that the
EPA can address some of these internal challenges through improved oversight and management
of EPA-directed activities inherent to successful long-term stewardship ot contaminated sites.
However, successful long-term stewardship also depends on having properly resourced and
informed non-EPA parlies who haw ongoing access to current information, are actively involved
in compliance, and conduct appropriate due diligence and oversight of contaminated sites. The
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
apparent will to do so. Lessons from recent issues such as vapor intrusion show that site reuse
can generate new environmental risks. In its FY 2011-2015 Strategic Plan, the EPA notes that:
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 to
provide permanent solutions.48
The EPA needs ne\\ strategies to address the challenges of providing needed information and
resources, and having the authority, to ensure long-term safety of reused sites.
Enhancing Information Technology Security to Combat Cyber Threats
M
From 2000 to 2010, global Internet usage increased from 360 million people to over 2 billion.
The EPA, like other federal agencies, has adopted this technology to become more citizen
focused and enhance its business operations. Whether it is exchanging data between states, tribes
and territories, or conducting financial operations, the Internet has become increasingly woven
into how the EPA conducts its daily operations. The EPA's decentralized structure to implement
security controls makes it increasingly important for the KPA executives to adopt information
technology and cyber security strategies that ensure these practices are fully integrated
throughout the agency.
1 EPA FY 2011-2015 Strategic Plan. p. 25
' Department of Defense, Strategy for Operating in Cyberspace, July 2011, p. I.
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We reported thai the EPA continues to strengthen its. IT and cyber security hy improving
processes in four key areas: (I) risk management planning. (2) Security Information and
Event Management tool implementatior,. (3) Computer Security Incident Response Capability
and network operation integration, and (4) Computer Security Incident Response Capability
relationship building However, the Challenge still exists primarily due to needed management
oversight to ensure components of the information security program are implemented throughout
the EPA and offices follow through with executing EPA policies, procedures and practices.
Our audit work highlights the need for management action lo address the growing use of
Internet technologies and the challenges thai cyber threats like Advanced Persistent Threats
pose to defending the agency's network. While progress has been made. EPA must continue to
strengthen its II security program to reduce the threat posed by cyber attacks. In particular, the
agency needs to do the following.
Strengthen I scr Authentication and Idenlifiealion Processes. In September 2012. we
reported that the HP A needed to improve management and implementation of security
controls for its network directory service system and related sencrs. The EPA lacks
effective management oversight practices for Ibis critical system that manages the
information and access privileges for users, computers and other equipment on the EPA's
network. This weakens the agency's security posture and ability lo respond to cyber
threats.' ' We noted that the EPA lacks processes to: (1) ensure key information system
security documents are kept up to date, (-) manage inactive user accounts and accounts
:or personnel who have left the agency. |3) oversee users with privilege access to the
directory system and to monitor these individuals" activities, and (4) manage the physical
security and environmental controls at the locations where the system equipment is
located." Ir. response to our report, the EPA concurred with all our recommendations and
indicated it has already completed actions to address many of our concerns.5'
Implement Automated Tools. hPA acknowledges ihat many of its continuous
monitoring effects pivot around the successful implementation of its Security Information
Event Management tool/" Our September 2012 report disclosed that the EPA lacks a
fully developed strategy to include the agency's headquarters offices within the Security-
Information E\em Management tool environment.51 The strategy includes each of the
EPA's regional offices, yet efforts to include headquarters offices fell short due to
turnover of technical staff and tbe EPA discontinuing meetings with headquarters
personnel." The EPA also did not develop a formal employee training program on how
to use the tool or a computer security log management policy on practices for audit log
•*" EPA Old. F.P-l Sfaml'.l Imfirmf Miimif>?niftit Practices MtiSecurity Conirair fry Its .\'M»(irll Directnr\ ',
System and IMuieJS<.->-w>, Report No, 12 P-0836, September 21. 2012.
" Ibid.
" Ibid.
" EPA FY 2012 .^vmv Financial /fV/w>r/, p I X.I
EPA OIG, Improvements \nmJuJin LP.4 "j .Vwiuwi Svcbrin- \1i>niior fragrant. Report No I2-P-0899,
September 27. 2(ii2.
55 EPA Security Information and Fvcn Vtana^cmenl (SIEM) Infrastructure. SIEMCvncept tif
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storage and disposal and management roles and responsibilities.56 The EPA has
completed two of the four recommendations. Management stated the remaining
recommendations would be completed by December 2013.^ Until then, the CPA faces
the challenge that the tool may not meet its intended purpose due to the lack of a clearly
defined policy outlining respective roles within the log management infrastructure.
Correct Known \\eakjiesses in Incident Response Capability. In September 2012, we
reported that the EPA did not follow up with staff to confirm whether corrective actions
were taken to address identified weaknesses in the agency's incident response program.
From 2009 to 2010, the EPA conducted three internal reviews of its information security
program to include its incidence response capabilities. We found that the EPA did not
create Plans of Actions and Milestones to track completion of 80 of the 102 reported
recommendations. The EPA also lacks a centralized oversight process to ensure
management completed the recommended actions.5* We recommended that the EPA
create Plans of Actions and Milestones to track the progress in completing the internal
recommendations and create a process to verify that the prescribed actions were
completed.59 The EPA completed these corrective actions.60
Develop a Vulnerability Kcmediatum Program. In September 2009. we reported that
project delays continued to prevent EPA from implementing an agencywide information
security vulnerability management program. Our audit highlighted both the need for the
EPA to implement a tool to continuously monitor for vulnerabilities and a management
process to ensure identified \ulnerabilities are remediated.6 The FPA has since taken
steps to procure a vulnerability management tool and established an agencywide
methodology to continuously identify vulnerabilities to agency assets.62 However, EPA
offices continue to face challenges in eradicating known vulnerabilities from its assets.*1'
Our September 2012 follow-up found that the EPA conducts monthly vulnerability scans
of EPA's network, but the staff does not follow up with system owners to verify that the)
remediated the identified weaknesses. As a result, there is no assurance that EPA's
information security staff is remediating vulnerabilities in a timely manner. This places
EPA's assets at risk to unauthorized access and potential harm to the network M
56 EPA OIO, improvements Needed in EPA 'f Network Security Monitoring Program. Report No. I2-P-0899.
September 27. 2012.
' EPA OIG, Office of Environmental Information Improvements Needed in EPA '* Network Security Monitoring
Program. Report No 12-P-0899, December 21. 2011
* EPA OIG, Improvements Seeded in EPA's \etwork Security Monitoring Program. Report No. I2-P-0899.
September 27. 2012.
v> Ibid.
* EPA OIG, Improvement* Needed in EPA 't AVrviw* Security Monitoring Program. Report No. I2-P-0899,
December 21.2012.
" EPA OIG. Project Delays Prevent EPA from Implementing an Agency-wide Information Security Vulnerability
Management Program. Report No. 09-P-0240, September 21. 2009.
«Ibid.
*5 EPA OIG website, FYs 2009-2012 OIO reports on the results of technical vulnerability assessments of the
EPA's network, hup:.''wHW.epa.gov'oipTeportvinfolech.rilm
M EPA OIO, Improvements \eeded in F.P4 '\ Metwvrk Security Monitoring /Vojjrum. Report No \2-P-08W.
September 27. 2012.
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In response, the EPA is ensuring that offices have access to all agency server
vulnerability findings and updating standard operating procedures, to include oversight
responsibilities for remediating vulnerabilities within 30 days or putting in place Plans of
Actions and Milestones.*^ Minimizing the EPA's response time between vulnerability
identification and remediation is key to protecting EPA's critical assets and data, and
combating cyber attacks.
Increase Skills for Personnel NVith Significant Security Responsibilities. We found
that the EPA did not develop strategies to align its workforce with legislative, regulatory
and agency objectives. Having personnel with the right skills in the right position is
critical for EPA to respond effectively to cyber attacks. The F.PA recogni7.es that not all
information security officers perform the same functions nor possess comparable
technical knowledge and abilities,hh We initiated an audit to evaluate the qualifications,
skills and competencies of personnel with significant information security
responsibilities.67
Improve the Overall Information Security Program. The EPA is strengthening risk
management governance by: (1) providing EPA executive reports on system
authorizations and plans of actions to elevate awareness of system statuses:
(2) conducting independent reviews of information system security controls, with all
agency systems being assessed by the end of FY 2014; (3) defining an enterprise level
risk management process; and (4) implementing a Risk Executive Board to ensure
acceptable and cost-effective system authorizations. However, the EPA has significant
deficiencies in the following security areas: Continuous Monitoring Management,
Configuration Management. Risk Management. Plan of Action and Milestones, and
Contractor Systems. While the EPA developed a continuous monitoring strategic plan,
the agency has yet to implement ongoing assessment of securit> controls as outlined in
the plan and required by federal guidance. The EPA does not have a process for limely
remediation of deviations noted during testing. The EPA can also improve its oversight to
ensure that Plans of Action and Milestones are completed and all offices complete
required annual security reviews.69
While the EPA's decentralized structure provides management with the flexibility to tailor
information security controls to address local needs, the structure proves to be problematic in
ensuring that controls arc consistently implemented agcncywide and that weaknesses are
properly reported for remediation tracking. The EPA leadership must continue to meet the IT and
cyber security challenge head-on as it defines ways to protect its infrastructure and the data
within the network. Stronger executive leadership, with emphasis on enhancing the IT
43 Ibid.
66 EPA OEI. PowerPoint Presentation. Dual ISO Designations, presented at September 20, 2011. Quality and
Information Council Meeting
67 EPA OIG. ,\'olijication Memorandum Jar Project So. OMS-fY 12-0006. Assessment of the Qualifications of
Environmental Protection Agency Personnel with Significant Security Responsibilities. February 15. 2012
61 EPA OIG. Fiscal Year 2012 Federal Information Sfcurin Management Act Report Status of EPA > Computer
Security Program, Report No. 13-P-0032. October 26. 2012.
w HPA OIG. Briefing Report: Improvements tended in EPA 'j Information Security Program, Report No
13-P-0257, May 13,2013.
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management control structure and holding EPA offices accountable for following it. is needed.
Our current audits continue to highlight the need for management to take recommended actions
to strengthen IT security practices pivotal to combating the growing cyber threat Without
immediate action, the EPA will not have the requisite tools to implement an effective, risk-based
security program capable of addressing the most sophisticated threats on the horizon.
The EPA's Framework for Assessing and Managing Chemical Risks
Since 1976, the Toxic Substances Control Act has charged the EPA with the responsibility of
assessing risks from and taking action against those chemicals that pose significant risks to
human health and the environment. Under TSCA, the EPA is required to (1) create an inventory
of existing chemicals already in commerce, ° (2) regulate unreasonable risk from new chemicals
introduced into commerce subsequent to the act,7' and (3) make health and safety information
available while protecting manufacturers' confidential business information.'" The TSCA
inventory of chemicals in commerce now exceeds 84.000 chemicals. In February 2012, the
F.PA issued its Existing Chemicals Program Strategy to pursue a multi-pronged approach
focusing on risk assessment and reduction, data collection, screening, and furthering public
access to chemical data and information. The EPA believes lhat this significant and long-term
challenge can best be met via legislative reform of TSCA to improve the EPA's chemical
management authorities.
The EPA's effectheness to assess and manage chemical risks is held back in part by limitations
on the agency's authority to regulate chemicals under TSCA. When 'ISCA was enacted, it
authorized the manufacture and use. without any evaluation, of all chemicals that were produced
for commercial purposes prior to 1976. As a result, manufacturers of these grandfathered
chemicals \vere not required to develop and produce data on toxicity and exposure that the EPA
needs to fully assess potential risks. Compounding this problem, TSCA did not provide the EPA
with adequate authority to evaluate existing chemicals as new concerns arose or as new scientific
information became a\jilable. However, until reform occurs, the EPA's responsibility to create a
sustained and effective existing chemicals program must be carried out under current authorities.
Every year, the EPA's New Chemicals Program reviews and manages the potential risks from
approximate!} 1,000 new chemicals, products of biotechnology, and nanoscale materials prior to
their entry into the marketplace. Our 2010 report showed that the New Chemicals Program 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.74 We recommended that the EPA
better coordinate risk assessment and oversight activities by establishing a management plan
with new goals and measures to demonstrate the results of EPA actions. We further
recommended that the EPA establish criteria for: (1) selecting chemicals or classes of chemicals
70 I5U.S.C. $2ft07(b>
71 I? USC §2605
n ISU.S.C. $2613.
75 EPA website. TSCA Chemical Substance Inventory Basic Information. (Updated February 25. 2013)
http. 'ww».epa.^ov oppt cxisunechemicak pubs tscainvetUors 'bask.htnilMbackpound.
4 EPA OIG. EPA Weeds a Coordinated Plan lo Overset lls Toxic Suh.ilani.ts Control Act Responsibilities.
Report No. IO-P-0066, February 17. 2010.
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for low-level exposure and cumulative risk assessments, and (2t classifying confidential business
information to improve the FlPA's transparency and information sharing. Finally, we
recommended that the EPA develop a management plan for core TSCA enforcement, including
training, consistent monitoring and inspection strategies across regions, and a list of
manufacturers and importers of chemicals for strategic targeting. The agency agreed with our
recommendations and is completing the corrective actions.
We continued to identify challenges to the EPA's ability to both assess and manage chemical
risks when we evaluated how effectively the EPA manages the human health and environmental
risks of nanomaterials.7" We found that although the EPA has the statutory authority to regulate
nanomaterials. it lacks the environmental and human health exposure and toxicological data to
do so effectively. The EPA has proposed mandatory reporting rules for nanomaterials under the
Federal Insecticide, Fungicide, and Rodenticide Act, and is also developing proposed rules under
TSCA. We also found that the EPA lacked a formal process to coordinate the dissemination and
utilization of the potentially mandated information. The agency agreed with our recommendation
to establish a process.
We also evaluated whether the outcomes of the EPA's Voluntary Children's Chemical
Evaluation Program met its goals outlined under the Chemical Righl-to-Know Initiative. *
We found that the Voluntary Children's Chemical F.valuation Program pilot did not achieve its
goals to design a process to assess and report on the safety of chemicals to children. The pilot's
design had a Hawed chemical selection process and lacked an effective communication strategy.
Programmatic effectiveness was further hampered by industry partners who chose not to
voluntarily collect and submit information, and the EPA's decision not to exercise its regulatory
authorities under 1SCA to compel data collection. The EPA has not demonstrated that it can
achieve children's health goals with a voluntary program.
1 ne tP/Vs framework for assessing and managing chemical risks from endocrine disrupters is
also failing to show results.'7 In 2000. the EPA estimated that approximately 87,000chemicals
would need to be screened for potential endocrine-disrupting effects. Thirteen years after
establishing its Endocrine Disruptor Screening Program, the EPA still has yet to determine
•whether any chemical is a potential endocrine disrupter. We found that the EPA had not
developed a management plan laying out the program's goals and priorities or performance
measures to track program results. The agency did not estahlish specific procedures to evaluate
screening results. Completed activities also exceeded their targets by about 4'/i to 6 years. In
response to our recommendations, the EPA issued its Endocrine Disruptor Screening Program
15 EPA OIG. EPA \eeds to Manage Hummalertat Risks More Effectively. Report No. I2-P-162, December 29,
201).
" EPA OIG. EPA 's I 'oltmtary Chemical t.vtiluiilt
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Comprehensive Management Plan containing a three-part plan to implement: (1) scientific
advancement of Tier 1 data reviews and Tier 2 assay development and validation (including
advancing the state of the science in chemical priority setting and screening); (2) test order
management and implementation, including prioritizing chemicals, developing policies and
procedures, and issuing and managing test orders: and (3) data management by developing an
enhanced and consolidated information infrastructure.7
In May 2009, the EPA released a new Integrated Risk Information System process for
completing health assessments. The goals of the new process are to strengthen program
management, increase transparency, and expedite the timeliness of health assessments.
Since then, the agency's National Center for Environmental Assessment has completed over
20 assessments. In response to congressional interest, we surveyed the EPA to determine if it
regularly incorporates exposure dose concentrations or loxidty values from the IRIS database
into regulatory decision-making.79 We found no EPA policy mandating the use of any toxicity
database including IRIS. Nevertheless, 85 percent of the EPA survey respondents reported that
they have used IRIS as their primary source for cancer values and 81 percent have used IRIS as
their primary source for non-cancer values. About one-third of the respondents reported that they
have used an alternate source for toxicity values when an IRIS value was available, primarily
because the alternate source was more up to date with current scientific practice or information.
We have initiated work to determine how well the FP/Vs Reduced-Risk Pesticide Initiative
meets its goal of reducing risks to human health and the environment by encouraging the
development, registration and use of pesticide products that are lower risk.80 Given our
completed and ongoing work, coupled with the size, complexity and significance of chemical
risks to human health and the environment, we believe this issue warrants being retained as an
agency management challenge.
Workforce Planning
In 2002. the EPA first acknowledged human capital as an agency internal control weakness in
part due to requirements released under the President's Management Agenda*' and audit findings
that identified significant concerns with the agency's management of human capital.K The EPA
since has developed numerous strategic documents to direct its human capital efforts to focus on
the skills, competencies and occupations needed to carry out its mission.8 While this is useful.
71 EPA DIG, EPA '.v Endocrine Disniptnr Screening Program Should Establish Management Controls to Ensure
Mora Timely Result*, Report No. 1l-P-0215, May 3. 2011.
'9 EPA O1G. Congressional!)- Requested Inturmation on In? EPA Utiii:aiiun uj Integrated Risk Information System,
Report No. 13-P-0127, January 31, 2013. IRJS evaluates risk information on human health effects that may result
from exposure lo environmental contaminant* IRIS consists of chemical assessments and quantitative toxicity
values that have been developed b> the EPA and undergone peer review li contains information for more than
550 chemical substances, including cancer and non-cancer human health effects.
*° EPA O10. \ottfit aiitm of Preliminary Research to Lvalualt the U S Emironmxntal Protection Agency s
Reduced-Risk Pesticide Initiative Pro/eel No OPE-FYI3-003 March 13,2013.
" EPA, F.PA Stralt-giL .t/ignmenr - Human Capital Planning. January 3. 2008, p. 1
K EPA, OCFO, 200" Performance Accountability Report, p. 205-06.
EPA, EPA Strategic Alignment - Human Capital Planning, Green Summary, January 3, 2008, p. I
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the EPA has not developed analytical methods or collected data to measure its workload and the
corresponding workforce levels necessary to carry out that workload.
In 2008. the EPA removed human capital from the list of agency weaknesses and added the more
specific topic of workforce planning as an Office of the Chief Financial Officer office-level
weakness. Previous EPA OIG and GAO reports—described below—recommend that the EPA
strengthen internal controls—policies, procedures and methods—for workforce planning.
The need for systematic, agencywide analysis of workload and workforce levels is broader than
OCFO and impacts the ability of all EPA programs to efficiently and effectively carry out their
mission. Due to the broad implications of workforce planning on accomplishing the EPA's
mission, we are including it as an agency management challenge for 2012.
In 2010, we reported that the EPA did not have controls or a defined methodology to determine
workforce levels based upon the workload of the agency.84 The EPA's OCFO establishes budget
workforce levels based on the prior year's levels and proposed funding levels. The EPA's
program and regional offices arc not conducting systematic workload analysis or identifying
workforce needs for budget justification purposes, and have not done so in more than 20 years.
In 2011, we reported85 that the EPA does not require program offices to collect and maintain
workload data. These programs do not have databases or cost accounting systems in place to
collect data on time spent on specific mission-related outputs. Without such data, program
offices are limited in their ability to analyze their workload and justify resource needs.
The GAO also reported that the EPA's process for budgeting and allocating resources does not
fully consider the agency's current workload. In March 2010. the GAO reported that it had
brought this issue to the attention of EPA officials in successive reports in 2001,2005. 2008 and
2009.86 In response, the EPA stated that it recognized the need to improve its ability to
understand and quantify the relative workload of its component organizations and to make
allocation decisions based on those assessments. The EPA said that it was committed to
improving its analytical capabilities and examining workload measures to support the resource
allocation process.
In February 2010, we reported that the EPA does not enforce a coherent program opposition
management to assure the efficient and effective use of its available workforce.87 Without an
agencywide position management program, the EPA leadership lacks reasonable assurance that it
is using personnel both effectively and efficiently to achieve its mission. In 2011.88 we found that
EPA's Office of Enforcement and Compliance Assurance is constrained from actively managing
its resources to direct them to the most important state enforcement problems. Currently, the
M EPA DIG. U\4 .VttJv 10 Strengthen Internal Controls for Determining Workforce Lei-els. Report No. I l-P-0031,
December 20, 2010.
" EPA OIG, EPA \eeds Workload Data to Better Ju.itifc Future Workforce Levels, Report No. I I -P-0630.
September 14. 2011.
6 GAO, Workforce Planning. Interior. EPA. and the Forest Service Should Strengthen Linkages to Their
Strategic i'lans and Imprm* Evaluation, GAO-10-413, March 31, 2010, page 19.
87 EPA OIG, EPA Xeeds Better Agency-Wide Control-; over Siaff Resources, Report No. 11-P-0136, February 22
2011.
" EPA OIG. £PA Must Improve Oversight of State Knfnrcemenr, Report No 12-P-0113, December 9,2011.
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EPA regions divide their resources among several enforcement priorities, including state
oversight. If these regions report that ihey are having problems with state enforcement, the
Office of Enforcement and Compliance Assurance cannot reallocate fuli-tirne equivalents to
address the problem because the office docs not control enforcement resources in the regions.
Therefore. priorii> enforcement issues may not receive needed resources.
The LPA has paid contractors nearly S3 million to conduct various workload studies over the
years, but then generally did not take action on or widelv share the results. In 2006. OCFO
awarded a contract to gather information on methods other government agencies use to assess
workload and staffing needs and their potential use h> the EPA The LPA planned to use this
information to develop methods lor assessing slatting in relation to workload and benchmark
staffing levels against workload shifts over time, Results showed that there were not significant
similarities among agencies. The contractor then recommended that ()C'KO develop its ovsn
approach for assessing and adjusting workforce allocation to align with workload.
In 2012. the EPA issued a final report. Developing a Model ('ivil Rights Program for the
Environmental Protection Agemy. highlighting fundamental changes the 1:PA is planning to
develop a more robust civil rights program. One of the key recommendations from this effort
was the development ul'n staffing plan for agency civil rights functions. The recommendation
calls for the same t\ pes of workforce actions we have been encouraging the agency to undertake.
including:
• Identifying the essential functions based upon data.
• Determining the skills and numbers of employees to carry out those functions.
• Developing a staffing plan.
• Requesting needed full-time equivalents'resources through the budget process.
The EPA continues to develop and test options for implementing workforce planning but has yet
to implement workforce analysis agcneywide. The KPA's ability to assess its workload and
accurately estimate workforce levels necessary to carry out that workload is critically important
to mission accomplishment. While the EPA has and continues to take action to address the
longstanding issue of. workforce analysis, much work remains to develop practical methods that
the agency can use to accurately estimate workload and staffing levels.
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Challenge #1—Oversight of Delegations to State
Agency Response: 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 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 its programs delegated to states.
In FY 2012, the Agency identified the oversight of state delegations as a strategic priority and
developed a key performance indicator in the FY 2012 Action Plan for Strengthening State, Tribal, and
International Partnerships. Under this key performance indicator, EPA established an Agencywide
workgroup (comprising national program managers, regions, and headquarters support offices) to plan
and implement an Agencywide effort to collect available information to define, describe, and assess
EPA's processes, practices, and tools for overseeing state delegations and authorizations. The
workgroup will report its findings to the Deputy Administrator and propose options for next steps as
needed to ensure that the Agency is carrying out its oversight responsibilities in a coordinated,
transparent, and accountable manner.
With continued budgetary constraints and cutbacks, EPA's strategy for assisting states in meeting their
federal environmental program requirements is focused on identifying programmatic areas that may be
reduced in scope, reducing administrative burdens where possible, and providing additional time for
required activities where allowed while still meeting the intent of all regulatory mandates. For example;
among EPA's collaborative efforts to reduce states' administrative burdens are: introducing cost
effective, streamlined administrative processes, such as reforming the State Implementation Plan
process for efficiency and cost saving; striving to write rules to maintain additional state burdens;
implementing electronic emissions reporting for sources; delaying the deployment of the near-road
monitoring network; and acknowledging mutually established priorities with states in annual national
program guidance.
Challenge #2—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 EPA's mission. The Agency's authority and control over contaminated
sites varies depending on the statutory authority under which the site is being addressed. Sites
undergoing cleanup through the Superfund Program provide the Agency the most direct control through
its authority to order the cleanup, provide oversight, seek penalties for non-compliance, and negotiate
the cleanup process. EPA's ability to oversee and manage the long-term stewardship of contaminated
sites must be based on these differences in its legal authority and state and local governments'
responsibilities.
EPA and state and tribal response programs continue to make progress in cleaning sites to protect
public health and the environment and support the safe use of cleaned and stabilized properties. The
Agency believes that it is communicating site risks and remedies, and information needed to ensure
protectiveness. However, in many circumstances the maintenance for long-term stewardship rests with
a state, local, trust, or other private entity.
The Superfund, Corrective Action, Brownfields, and Underground Storage Tank programs annually
report the number of sites ready for anticipated use (RAU). This measure is met when programs
receive information that a site has no pathway for human exposures to unacceptable levels of
contamination based on current site conditions, all cleanup goals are achieved for media that may
affect anticipated land use, and all institutional controls identified as part of the response action are in
place. Any determination made for the purposes of the RAU measure is based on the information at the
time the determination is made. This may change if the site's conditions change or if new or additional
information is discovered regarding the contamination or conditions on the site. As such, parties (e.g.
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landowners or developers) interested in finding out what uses would be protective for a particular
property should rely on site-specific cleanup documents and site-specific institutional controls.
Whenever waste is left in place at sites on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Act requires that the remedy at the site be
reviewed at least once every five years to ensure its continued protectiveness. EPA's national
Superfund Program reviews Five-Year Reports at all sites and tracks any recommendations for needed
further action to ensure implementation. Recently, EPA has developed several new guidance
documents to ensure consistent decision-making and documentation for Five-Year Reviews.
EPA and its state and tribal co-implementers may select institutional controls (ICs) to control land and
resource use where residual contamination remains in place. ICs help minimize the potential for
exposure to contamination and/or protect the integrity of engineered 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 EPA site managers and attorneys to coordinate with tribes, state and local governments,
communities, and other stakeholders to ensure that ICs are properly implemented, maintained, and
enforced over their lifetime. The guidance also highlights a number of factors for entities implementing
ICs to consider, including 1) providing adequate documentation of use restrictions in the response
decision documents, 2) formalizing agreements for state assurance on 1C responsibilities early in the
response process, 3) providing strategies to implement ICs on properties with non-liable landowners,
and 4) criteria to select an appropriate grantee to hold the covenant or title to the real property interest
(for proprietary controls). The Agency has also developed Institutional Controls: A Guide to Preparing
Institutional Controls Implementation and Assurance Plans at Contaminated Sites, which will help
regions systematically establish and document the activities associated with implementing and ensuring
the long-term stewardship of ICs. These plans will provide information to stakeholders on the legal
authorities for enforcing ICs, including relevant state 1C laws, Agency orders or agreements, or
voluntary cleanup agreements. These guidances relate to ICs when they are a component of EPA's
cleanup decisions; the installation of ICs is by state and local governments.
The Agency will continue to encourage state and tribal response program funding of tracking and
management systems for land use and ICs. Each year, EPA prepares a report that highlights response
programs and their brownfield and contaminated site inventory efforts and systems in place to track
institutional and other land use controls. The latest report is posted at http://www.epa.gov/brownfields.
The Agency has developed general education and outreach materials about ICs and their importance in
supporting safe land reuse. EPA continues to include training sessions on ICs as part of its national
brownfields conference as well as panel discussions between local government and state programs.
EPA will also continue to develop and maintain information systems like "Cleanups in My Community"
(http://www.epa.qov/cimc) to educate and inform the public about federally funded contaminated site
assessment and cleanup activities.
Promoting reuse involves communities in cleanup and reuse discussions. EPA will continue to explore
new tools to ensure appropriate reuse and enhance long-term protectiveness, including:
• "Ready for Reuse" determinations (environmental status reports on site reuse).
• Comfort and status letters (which convey status of the site remediation and liability issues).
• EPA-funded reuse planning.
• Site reuse fact sheets (which highlight critical remedial components in place, long-term
maintenance activities, and ICs).
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Challenge #3—Enhancing Information Technology Security to Combat Cyber Threats
(Formerly Limited Capability to Respond to Cyber Security Attacks)
Agency Response: EPA acknowledges that advanced persistent threats pose a significant challenge
for all federal agencies. EPA is implementing several corrective actions to address concerns raised by
OIG and is securely implementing specific automated tools to address cyber security challenges. To
address the six areas identified by OIG, EPA is:
• Strengthening user authentication and identification processes by identifying opportunities for
improving network discovery services.
• Implementing automated tools, such as the Security Information Event Management tool.
• Correcting known weaknesses in incident response capability by addressing audit findings and
recommendations and tracking remediation efforts.
• Developing a vulnerability remediation program and incorporating needed modifications to its
vulnerability management standard operating procedure.
• Developing a strategy to analyze needed and current skill sets for personnel with significant security
responsibilities. The agency is also developing training based on National Institute of Science and
Technology and Office of Personnel Management guidance.
Challenge #4—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, EPA
acknowledged "Streamlining Chemical Assessments Under IRIS" as an Agency-level weakness under
the FMFIA and has made progress in addressing concerns raised by both oversight organizations.
Improving the Integrated Risk Information System (IRIS). In May 2009, the Agency released a new
IRIS process for completing health assessments. The goals of the new process are to strengthen
program management, increase transparency, and expedite the timeliness of health assessments.
Since then, the Agency's National Center for Environmental Assessment has completed 25
assessments, which include some of the Agency's highest priorities such as trichloroethylene,
tetrachloroethylene, and dioxin (noncancer). The Agency has made significant progress on several
other high-profile assessments such as formaldehyde, inorganic arsenic, chromium VI, methanol,
benzo[a]pyrene, and Libby asbestos. In addition, EPA's IRIS Program is developing assessments of
health effects for chemicals found in environmental mixtures such as polycyclic aromatic hydrocarbons
(PAHs), phthalates, and polychlorinated biphenyls (PCBs). These cumulative assessments will
increase the number of chemicals that are addressed by the IRIS Program and are based upon the
Agency's expressed needs.
The following actions, some of which are now being implemented or are completed, address many of
GAO's concerns, including issues related to transparency and development of timely and credible
assessments.
• EPA will begin releasing preliminary materials and hold a public meeting early in the IRIS
assessment development process to explain the criteria for selecting studies and to ensure that
critical research was not omitted. Meeting with the public earlier in the process will result in more
timely opportunities for public input into the assessment and comment on the information available
for each chemical assessed.
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• The IRIS Program continues to use a database that facilitates public access to the scientific studies
that underpin key regulatory decisions. The Health and Environmental Research Online (HERO)
database contains the key studies EPA uses to develop environmental risk assessments. It
includes references and data for IRIS assessments, which support critical Agency decision-making
for chemical regulation. The HERO database is publicly accessible, so anyone can review the
scientific literature behind EPA assessments, thereby strengthening the transparency of the science
supporting Agency decisions.
• The Agency has adopted a new streamlined document structure for assessments with standardized
evidence tables and a systematic approach to conducting literature searches, identifying relevant
literature, and selecting key studies. Except for assessments that are late in the process, all IRIS
assessments have been converted to the streamlined structure. This new document structure for
IRIS assessments is clearer, more concise, and more systematic, making information more
accessible.
• The IRIS Program has partnered with the National Academies' National Research Council (NRC).
In FY 2013, the National Center for Environmental Assessment focused on responding to several
general recommendations by NRC for all IRIS assessments, which were issued as part of NRC's
April 2011 review report of EPA's draft IRIS assessment of formaldehyde. Separately, EPA is
sponsoring an NRC review of the IRIS assessment development process and the changes being
implemented or planned by EPA. As part of this review, the NRC is reviewing current methods for
evidence-based reviews and will recommend approaches for weighing scientific evidence for
chemical hazard and dose-response assessment.
• EPA's Science Advisory Board established the Chemical Assessment Advisory Committee (CAAC)
to provide expert peer review for IRIS assessments. The CAAC will review most IRIS assessments,
starting with the draft IRIS assessments of ammonia and 1, 2, 3-, 1, 2, 4-, and 1, 3, 5-
trimethylbenzenes, followed closely by the draft benzo[a]pyrene assessment.
To enhance overall productivity, scientific quality, and management of IRIS assessments, EPA has
instituted a new internal process for developing assessments. Eight disciplinary workgroups
(neurotoxicity, reproductive/developmental toxicity, respiratory/inhalation toxicity, systemic
toxicity/cancer/immunotoxicity, epidemiology, toxic pathways/genotoxicity, pharmacokinetics, and
statistics) have been established to develop and revise specific sections of IRIS assessments and work
with the assessment leads to develop an integrated assessment. This approach will improve the
scientific quality and consistency of the assessments by having a critical mass of experts in each area
write and review the sections. To manage the new draft development process, the Agency has
established an IRIS Management Council, consisting of managers who supervise scientists working on
IRIS assessments. The Council is responsible for assigning appropriate staff to assessments,
developing schedules, and ensuring that schedules are met. A parallel IRIS Science Council, consisting
of science managers and the chairs of the disciplinary workgroups, is responsible for identifying and
resolving cross-cutting scientific issues.
With these changes, EPA's goal is to increase the number of assessments being completed each year,
provide more accurate assessment development timelines to the public, and comprehensively address
all of GAO's concerns and recommendations.
Assessing and Managing Chemical Risk. EPA agrees that statutory changes are needed to enable
the Agency to successfully meet its goal of ensuring chemical safety now and into the future. The
Administration has put forward a set of essential principles for reform of chemicals management
legislation that will modernize and strengthen the tools available in the TSCA to increase confidence
that chemicals used in commerce are safe. However, until legislative reform takes place, EPA has
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adopted and is following an Existing Chemicals Strategy, released in February 2012, that outlines a
comprehensive approach for prioritizing chemicals for risk assessment and risk reduction, increasing
the public's access to chemical data, and advancing innovation for safer products and green chemistry.
Integral to this approach are the key steps of identifying chemicals for detailed risk assessment,
collecting and making effective use of chemical data, and pursuing action to manage the risks from
existing chemicals found to pose unreasonable risk to human health and the environment.
EPA has taken a number of specific steps to strengthen its chemical safety work within existing
authorities. Among the most significant are the following:
• EPA has identified a group of 83 TSCA Work Plan Chemicals for risk assessment under the TSCA
to help focus and direct the activities of the Existing Chemicals Program over the next several
years. Significant progress has already been made on risk assessments for an initial group of seven
Work Plan Chemicals identified in March 2012, five of which were released for public review in
January 2013.
• EPA is filling information gaps on existing chemicals by taking a range of TSCA information
gathering actions (including the Chemical Data Reporting Rule and test rules); expanding electronic
reporting of premanufacture notices and other submissions under the TSCA; and reviewing, and
where appropriate challenging, all new submissions under the TSCA where CBI is claimed in health
and safety studies as well as all CBI cases submitted before August 2010.
Challenge #5—Workforce Planning
Agency Response: EPA is making significant progress in both workforce and workload management.
The Agency is developing functional workload analyses to inform planning decisions in a cost-effective
manner and has conducted two Agencywide organizational workforce assessments. Examining EPA's
workforce to improve its resource planning is a broad and lengthy process requiring extensive reporting
and analysis. EPA continually reviews how to maximize the productivity of its limited staff and other
resources. As part of its annual budget process, EPA plans and tracks the use of resources at a
detailed level in terms of organization and media and by strategic planning goals. These data are
analyzed to inform the relative allocation of resources, staffing, and funding. EPA complements these
management and planning efforts and data by strengthening both workforce planning (Agency-led
research into the type of staff and skills needed) and workload analytics (Agency-led efforts to
understand and calculate the level of staffing needed for particular tasks). Lead offices for both these
efforts work extensively with experts in programs and offices across the Agency.
EPA has undertaken three major initiatives to increase understanding of resources needed for specific
functions to strengthen its ability to capture and evaluate workload data and use those data to analyze
specific tasks:
• Surveying more than 1,000 managers to capture their best estimates of their unit levels of work
required for six critical functions (scientific research, environmental monitoring, regulatory
development, permitting, enforcement, and financial management) as well as major tasks within
each function, work drivers, and products.
• Completing a report on 23 other federal agencies' workload analysis tools and efforts. The report
focused on how other agencies managed functions and processes similar to EPA's, illustrating
lessons and options for EPA's efforts. It was noteworthy that no other agencies had active workload
models for functions similar to EPA's.
• Piloted an approach that the Coast Guard used for gathering and analyzing data. In FY 2012, EPA's
Offices of Air and Radiation, Water, and the Chief Financial Officer and the regions combined their
pilot projects and developed workload analyses for the air and water permitting programs. In FY
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2013, the Agency extended these efforts to grants management and Superfund enforcement.
These processes are intended to serve as templates for additional future analyses.
The Agency is leading a series of collaborative workforce planning initiatives—conducted annually,
beginning in August 2011—to identify the critical occupations required to meet its current and future
mission objectives. The initiatives are aligned with the Agency's fiscal year budget process and a report
was issued to senior leadership in August 2012. In September 2012, the Agency conducted its second
workforce planning initiative. Through the initiative, every regional and program office evaluated its
existing workforce and identified occupational needs to the sub-office level, engaging local level
managers and providing a more accurate representation of planned workforce changes. The results will
be included in the Workforce Planning Gap Analysis Report 2013—ERA'S Workforce Needs 2013-
2016.
EPA intends to continue working closely with programs and other major stakeholders to refine workload
analysis tools to provide the most salient and actionable management understanding. GAO and OIG
acknowledge EPA's efforts to develop and test options for implementing workforce planning aimed to
institutionalize workforce analysis Agencywide. The Agency's ability to assess its workload and
accurately estimate workforce levels necessary to carry out that workload is critically important to
mission accomplishment.
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PROGRESS IN ADDRESSING
FY 2012 WEAKNESSES AND SIGNIFICANT DEFICIENCIES
In FY 2013, EPA continued to address its Agency-level internal control weaknesses and significant
deficiencies. This section discusses the weaknesses and significant deficiencies EPA resolved in FY
2013, as well as those that are new or for which corrective actions are still underway.
FY 2013 Weaknesses am
Significant Deficiencies
Agency Weaknesses
1. Permit Compliance System*
2. Streamlining EPA's Process for Developing Chemical Assessments Under IRIS
3. Electronic Content Management
Significant Deficiencies
1. Federal Reimbursable Costs Not Billed Timely'
2. Accounts Receivable Detail Not Provided Timely By Regions
3. Posting Models in Compass Materially Misstated GL Activities and Balances
4. Compass Reporting Limitations Impair Accounting Operations and Internal Controls
5. Compass System Limitations Impair Internal Controls of Financial Operations*
6. EPA Is Not Clearing Fund Balance With Treasury Statement of Differences Timely*
7. Property Internal Controls Need Improvement*
8. EPA Needs to Remediate System Vulnerabilities That Place Financial Data at Risk*
9. OCFO Financial Systems Security Documentation Needs Improvement*
10. EPA Should Improve Compliance With Internal Controls for Accounts Receivable
11. EPA Double Counted Contractor-Held Property
12. Compass and Maximo Cannot Be Reconciled
13. EPA Should Improve Controls Over Expense Accrual Reversals
14. Improvements Needed in Controls for Headquarters Personal Property
15. EPA Overstated Superfund State Credits*
16. EPA's High Number of Accounting Corrections Indicates an Internal Weakness*
17. Internal Controls Over EPA's Accountable Personal Property Inventory Process Needs
Improvements**
18. Software Improperly Recorded in Compass*
19. EPA Needs to Improve Access Control Procedures for Key Financial Systems**
20. EPA Needs to Improve Processes for Following Up on Identified Network Vulnerabilities"
* All corrective actions were completed in FY 2013
** Items identified as new in FY 2013
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Agency Weaknesses
Permit Compliance System (PCS)
In FY 1999, EPA declared the PCS an Agency-level weakness. The weakness focused on the need for
EPA to revitalize or replace the PCS to provide an information system that both the states and EPA can
use to ensure complete and accurate NPDES permit and discharge data.
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. All states have
been migrated from the PCS to the new system, the Integrated Compliance Information System (ICIS).
The states and EPA can now use the new system to ensure complete and accurate NPDES permit and
discharge data. Currently, all states (except New Jersey), two tribes, eight territories, and the District of
Columbia are using the new system. The legacy PCS system was shut down on April 1, 2013.
Specific actions taken in FY 2013 include:
• Implemented Wave 3 of ICIS-NPDES Full Batch functionality (electronic reporting of NPDES
violation, program reports, and enforcement action data from states to ICIS-NPDES).
• Moved the remaining 15 PCS Wave 3 states from legacy PCS to ICIS-NPDES.
• Completed the user validation and acceptance testing for Wave 3 of ICIS-NPDES Full Batch
functionality.
• Completed PCS modernization.
• Shut down the legacy PCS system.
The Agency has completed all corrective actions for this Agency-level weakness. The Agency will
continue to validate the effectiveness of the corrective actions through its analyses of the quality and
completeness of the data in the modernized PCS system; evaluation of EPA headquarters', regional
offices', and states' use of the system to more effectively manage the NPDES program; and evaluation
of EPA's and states' ability to track activities and manage new NPDES program areas, such as
stormwater, that were not reported in the legacy PCS system.
Streamlining EPA's Process for Developing Chemical Assessments Under IRIS
In FY 2009, EPA declared this 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 stated that the Agency needs to take actions to increase IRIS's
transparency and enhance its ability under the TSCA to obtain health and safety information from the
chemical industry.
In May 2009, the Agency released a new IRIS process for completing health assessments. The goals
of the new process are to strengthen program management, increase transparency, and expedite the
timeliness of health assessments. Since then, the Agency's National Center for Environmental
Assessment has completed 25 assessments, which include some of the Agency's highest priorities,
such as trichloroethylene, tetrachloroethylene, and dioxin (noncancer). The Agency has made
significant progress on several other high-profile assessments, such as formaldehyde, inorganic
arsenic, chromium VI, methanol, benzo[a]pyrene, and Libby asbestos. In addition, EPA's IRIS Program
is developing assessments of health effects for chemicals found in environmental mixtures such as
PAHs, phthalates, and PCBs. These cumulative assessments will increase the number of chemicals
that are addressed by the IRIS Program and are based upon the Agency's expressed needs.
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The following actions, now being implemented or already completed, address many of GAO's
concerns, including issues related to transparency and development of timely and credible
assessments.
• EPA will begin releasing preliminary materials and hold a public meeting early in the IRIS
assessment development process to explain the criteria for selecting studies and to ensure that
critical research was not omitted.
• EPA continues to use the HERO database, which contains the key studies EPA uses to develop
environmental risk assessments.
• The Agency has adopted a new streamlined document structure for assessments with standardized
evidence tables and a systematic approach to conducting literature searches, identifying relevant
literature and selecting key studies.
• EPA partnered with the National Academies' NRC. In FY 2013, the National Center for
Environmental Assessment focused on responding to several general recommendations by NRC
for all IRIS assessments, which were issued as part of NRC's April 2011 review report of EPA's
draft IRIS assessment of formaldehyde. Separately, EPA is sponsoring an NRC review of the IRIS
assessment development process and the changes being implemented or planned by EPA. As part
of this review, NRC is reviewing current methods for evidence-based reviews and will recommend
approaches for weighing scientific evidence for chemical hazard and dose-response assessment.
• EPA's Science Advisory Board established the CAAC to provide expert peer review for IRIS
assessments. Most IRIS assessments will be reviewed by the CAAC, starting with the draft IRIS
assessments of ammonia and 1, 2, 3-, 1, 2, 4-, and 1, 3, 5-trimethylbenzenes, followed closely by
the draft benzo[a]pyrene assessment.
To enhance overall productivity, scientific quality, and management of IRIS assessments, EPA has
instituted a new internal process for developing assessments. Eight disciplinary workgroups
(neurotoxicity, reproductive/developmental toxicity, respiratory/inhalation toxicity, systemic
toxicity/cancer/immunotoxicity, epidemiology, toxic pathways/genotoxicity, pharmacokinetics, and
statistics) have been established to develop and revise specific sections of IRIS assessments and work
with the assessment leads to develop an integrated assessment. This approach will improve the
scientific quality and consistency of the assessments by having a critical mass of experts in each area
write and review the sections. To manage the new draft development process, the Agency has
established an IRIS Management Council, consisting of managers who supervise scientists working on
IRIS assessments. The IRIS Management Council is responsible for assigning appropriate staff to
assessments, developing schedules, and ensuring that schedules are met. A parallel IRIS Science
Council, consisting of science managers and the chairs of the disciplinary workgroups, is responsible
for identifying and resolving cross-cutting scientific issues.
With these changes, EPA's goal is to increase the number of assessments completed each year,
provide more accurate assessment development timelines to the public, and comprehensively address
all of GAO's concerns and recommendations.
The projected closure date for this Agency-level weakness is FY 2015.
Electronic Content Management
In FY 2009, EPA declared electronic content management 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, it is rooted in traditional paper-based records
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management, maintenance, and access. The Agency's inconsistencies in how electronic content is
stored, maintained, and assessed are impacting 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 and the selection of enterprise tools, as well as the
formulation of new policies for content management responsibilities and processes.
The Agency has taken the following corrective actions to address this weakness:
• Established a new Quality Information Council Electronic Content Subcommittee.
• Developed a charter for the subcommittee.
• Established two enterprise-wide workgroups under the subcommittee.
• Developed interim procedures to address the storage and preservation of electronically stored
information.
• Launched two pilot projects to evaluate tools for e-discovery 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 has developed a corrective action plan that focuses on three sub-areas of electronic
content management: FOIA, email records, and e-discovery. Additionally, the Agency has developed a
validation strategy that will assess the effectiveness of various activities undertaken to address the
identified weakness. The validation strategy will consist of processes that allow the Agency to review
and determine whether policies and tools are being implemented and used.
The projected closure date for this Agency-level weakness is FY 2015.
Significant Deficiencies
Federal Reimbursable Costs Not Billed Timely
During the FY 2011 Financial Statement Audit, OIG stated that 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.
To remedy this significant deficiency, the Agency reviewed Interagency Agreements quarterly and
continued processing bills for new expenses identified to individual agreements. The Agency is working
to use functionality within Compass so all costs charged to reimbursable agreements will be linked to a
reimbursable agreement, thereby eliminating unidentified reimbursable costs.
The Agency continues working to resolve unbilled costs by billing for costs prior to cancellation of the
fund. The Agency will pursue collectability information for those not identified to an agreement to move
or write off costs that cannot be billed. Additionally, the Agency created a process for removing
reimbursable cost in cancelling funds if they cannot be reconciled to a reimbursable agreement. The
Agency will review and clear prior year charges before cancellation of the funds.
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The Agency has completed all corrective actions for this significant deficiency.
Accounts Receivable Detail Not Provided Timely by Regions
During the FY 2011 Financial Statement Audit, OIG found that the Agency was not timely in providing
supporting documentation of penalty debts to the Cincinnati Finance Center (CFC) to ensure prompt
recording of accounts receivable for all penalty debts.
In response to this finding and to remedy the significant deficiency, the Agency developed new
procedures, issued in April 2011, that require regions and/or headquarters to provide documentation of
penalty debts to CFC within five business days of receipt of the final administrative penalty order.
Specifically, within five business days the final order is filed with the Regional Hearing Clerk, the
Headquarters Hearing Clerk, or the Clerk for the Environmental Appeals Board. Under annual
guidance, the Agency is required to meet this five-business-day standard 95 percent of the time. The
Agency also created corrective actions to improve EPA-wide performance in providing timely accounts
receivable, which has resulted in improved performance and is expected to continue in the coming
fiscal year.
Additionally, the Agency has completed numerous activities to improve Agencywide performance in
providing timely accounts receivable. For example, in November 2011 and May 2012, webinars were
held on "Improving the EPA's Financial Integrity by Financial Reporting of Administrative Penalty
Accounts Receivable." The Agency worked internally to provide FY 2012 performance data to regions
to identify inaccuracies and enable needed changes to improve performance.
The Agency has completed all corrective actions for this significant deficiency and will continue to
monitor performance and engage with senior regional and headquarters management.
Posting Models in Compass Materially Misstated GL Activity and Balances
During the FY 2012 Financial Statement Audit, OIG declared that Compass materially misstated
general ledger (GL) activity and balances due to incorrect posting models.
EPA has aggressively reviewed posting models to ensure that transactions are properly posted its
financial accounts. The Agency continues to hold weekly meetings with Agency finance centers and
other OCFO offices to address known and potential accounting model issues. This approach has
served the Agency well, identifying and correcting more than 30 models and related transactions.
The Agency has in place a number of internal control procedures. For instance, the Finance Center
staff compares feeder system interfaced transactions to hard copy documentation and approves them.
The Agency periodically reviews the status of all documents in Compass to make sure all transactions
have processed properly. None of these reviews have revealed any significant problems or issues with
internal controls. When errors are found, they are reviewed, corrective actions identified, approved, and
entered into Compass. The Agency developed internal control procedures to confirm that the proper
accounts are impacted for all transactions. In addition, the Agency oversees and develops accounting
models and their impacts through GL analyses. If discrepancies are found, they are investigated and
reviewed for their impact on transactions and the GL to determine the nature of the matter. Issues are
tracked through the resolution and validation processes. These activities provide reasonable assurance
that EPA's GL balances are correct.
The Agency performs a quarterly comparative analysis based on the financial statement line. This
analysis highlights unusual variances between fiscal years. EPA will continue to conduct these
analytical reviews of account activity on a quarterly basis and more frequently if deemed necessary.
The Agency has completed all corrective actions for this significant deficiency.
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Compass Reporting Limitations Impair Accounting Operations and Internal Controls
During the FY 2012 Financial Statement Audit, OIG declared that EPA has been unable to obtain the
reports it needs from Compass for many accounting applications.
The Agency analyzes its financial reports, identifies any concerns, and develops new reports for users
as needed. All of the issues cited by OIG were based on observations made during the first six months
of the operation of Compass Financials, the Agency's new financial system. At that time, EPA was
learning the intricacies of the new system and applying this knowledge to reengineer day-to-day
business processes. This allowed the Agency to take advantage of the many features of the modern
system to best meet its business needs. EPA disclosed and discussed this approach with OIG in
December 2011.
To the maximum extent practicable, EPA adapted its business practices to take immediate advantage
of the new system. For example, Compass allowed EPA to streamline accounts receivable processes
by moving from reconciliation of accounts receivable based on Servicing Finance Offices to a
centralized approach. Reconciliation of accounts receivable at the Servicing Finance Office level was a
"hold-over" practice from before the establishment of EPA's current finance center structure, when
regional offices performed accounting functions. In adopting a centralized approach, EPA found that it
could cancel a policy on July 11, 2012, that required the finance centers to perform monthly
reconciliations of accounts receivable.
In other cases, the Agency deferred adoption of automated features available in Compass. For
example, EPA deferred adoption of the full capabilities of Compass to support the Fund Balance with
Treasury, instead using a Compass process very similar to the process used in the Integrated Financial
Management System, EPA's previous financial management system. EPA adopted this approach
based on hands-on daily experience with Compass gained during the first six months of operations and
in consideration of change management principles for the successful implementation of financial
systems.
The Agency has completed all corrective actions for this significant deficiency.
Compass System Limitations Impair Internal Controls of Financial Operations
During the FY 2012 Financial Statement Audit, OIG declared that Compass experienced several
impairments to processing financial transactions.
The Agency has corrected the impairments. In December 2011, it updated proper controls and
tolerance levels to prevent grant payments from exceeding the related obligation accounting lines. In
May 2012, it corrected the issue of preventing the improper posting of transactions to prior accounting
periods, except via Standard Voucher and Journal Voucher transactions. The Agency confirmed that
the Compass table was fixed to prevent spending against canceled appropriations.
The Agency has completed all corrective actions for this significant deficiency.
EPA Is Not Clearing Fund Balance With Treasury Statement of Differences Timely
During the FY 2012 Financial Statement Audit, OIG found that EPA did not clear Fund Balance with
Treasury differences reported on the U.S. Department of Treasury's Statement of Differences (SOD)
within two months.
The Agency has taken steps to remedy these timing differences. Early in the year, EPA was involved in
learning the intricacies of the new Compass system and applying this knowledge to reengineer day-to-
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day business processes. There was a significant learning curve. The Agency experienced a high
volume of rejects because of tighter budget controls and project notebook edits that occurred in
Compass. The Agency is now much more proficient in this process and has designed new reports to
assist accountants in performing the reconciliation.
The Agency updated the accounting model in July 2012 and, by the end of September 2012, resolved
the backlog of transactions that required clearing and submitted the SF224 report to Treasury. While
there were delays initially, the Agency is now able to clear differences in a timely manner. The majority
of the SOD differences were the result of timing differences (e.g., difference in reported month of
activity) rather than dollar differences. Since the reported values in the financial reports agreed exactly
with the Treasury balance, the discrepancies in the SOD did not affect the accuracy of the financial
reports. Through diligent effort, this was fully corrected and is no longer an issue with either the posting
logic or reconciliation process.
The Agency has completed all corrective actions for this significant deficiency.
Property Internal Controls Need Improvement
During the FY 2012 Financial Statement Audit, OIG declared that Compass does not sufficiently reject
inaccurate personal property information entries.
The Agency worked with its contractor to build a default into Maximo that will eliminate property record
errors. Corrective action was taken in August 2012 to reflect correct inventory dates for the 28 property
items that had future acquisition dates. In September 2012, Agency Property Officers reconciled
property records to ensure that the system reflected the correct location for the $2.9 million in assets. In
September 2012, the Agency conducted a system analysis to ensure that no other assets had the
same discrepancy; none were discovered.
The Agency has completed all corrective actions for this significant deficiency.
EPA Needs to Remediate System Vulnerabilities That Place Financial Data at Risk
During the FY 2012 Financial Statement Audit, OIG found that Agency officials did not monitor the
testing of the Agency's networked information technology assets to identify commonly known
vulnerabilities or take action to remediate those weaknesses.
The Agency currently conducts vulnerability assessments for all its general support systems and major
applications as directed by National Institutes of Standards and Technology guidelines, specifically
MIST 800-37, "Guide for Applying the Risk Management Framework to Federal Information Systems,"
and NIST 800-53, "Recommended Security Controls for Federal Information Systems and
Organizations." All general support systems and major applications undergo risk assessments (as
mandated by NIST Risk Management Framework certification) every three years or as the affected
application or system implements major modifications. Per the NIST guidelines and EPA policy, a plan
of action and milestones are created to address and remediate any weakness or threats identified by
the scans.
The Agency developed a memorandum of understanding that delineates the roles and responsibilities
of each organization with respect to identifying and remediating vulnerabilities of network resources.
The Agency has completed all corrective actions for this significant deficiency.
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OCFO Financial Systems Security Documentation Needs Improvement
During the FY 2012 Financial Statement Audit, OIG found that EPA lacked reliable information on the
implementation of required security controls for key financial applications at the Research Triangle Park
Finance Center.
The Agency established and is using a process covering security controls for key financial applications.
The Application Security Officer prepares the System Security Plans, and office Information Security
Officers review the documents before they are forwarded to the organization's Information Security
Officer, Information Management Officer, and Senior Information Official for review and approval.
The Agency has completed all corrective actions for this significant deficiency.
EPA Should Improve Compliance With Internal Controls for Accounts Receivable
During the FY 2012 Financial Statement Audit, OIG found numerous deficiencies in EPA's compliance
with accounts receivable internal controls.
EPA has a process in place whereby the Department of Justice's (DOJ's) Environment and Natural
Resources Division transmits judicial documents to EPA's CFC. In the case of payments due to the
United States under CERCLA cases referred to DOJ, EPA and DOJ have an Interagency Agreement in
place. Under this agreement, once a case has been settled under the terms of an entered consent
decree or other court judgment, DOJ is responsible for transmitting the supporting documentation to
CFC so that it can promptly record the required accounts receivable for those cases. Specifically, the
agreement requires that "[w]ithin seven [calendar] days of receipt of notice of entry of a consent decree
or other federal court judgment that requires payment of a sum certain to the EPA, DOJ ENRD will
send electronic notification of such entry, and attach a copy of the consent decree and/or judgment, as
entered, to accountsreceivable.cinwd@epa.gov."
The Agency uses the DOJ Debt Assessed Report, DOJ 30 Day Tracking Reports, and ICIS Tracking
Reports to review and follow up on documents not received by CFC. CFC compares these reports to
the Compass Data Warehouse to determine if receivables have been established. Although obtaining
Compass Data Warehouse query information caused some delays early in the year, these
reconciliations were completed timely by the fourth quarter. CFC will work with staff to ensure that
these reports are reviewed timely and fully utilized in obtaining missing documentation.
CFC developed standard operating procedures for the various types of receivables managed within the
office, and will ensure these procedures are in line with Agency policy. This has been a transition year
for CFC in that some files are now electronically maintained in Compass. CFC will clarify to staff the
requirements for electronic files.
The Agency anticipates that all remaining corrective actions for this significant deficiency will be
completed in FY2014.
The projected closure date for this significant deficiency is FY 2014.
EPA Double Counted Contractor-Held Property
During the FY 2011 Financial Statement Audit, OIG stated that EPA double counted contractor-held
property in its financial system because it did not remove property from that system that had been
transferred to contractors.
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To remedy this issue, EPA reviewed current policies and procedures and revised them as needed to
ensure that they address responsibilities for removing property transferred to contractors from the
Agency financial system. The Agency took the following actions to address this deficiency:
• Completed 10 desk audits on contracts with contractor-held property to ensure that property items
assigned to the contract did not appear in the Agency's inventory. Property duplications identified
were corrected.
• Developed draft guidance for inclusion in the Property Management Manual to reflect changes in
the April 2, 2012, Federal Acquisition Regulation. The guidance will assist contracting officers and
property managers in deciding whether property should be assigned to a contract or included in the
Agency inventory.
• Conducted two webinars for contracting officers and property managers to review parameters for
contractor-held property management.
The Agency will continue to perform desk audits during the fiscal year to ensure that contractor-held
property is not being double counted.
The Agency anticipates that the Property Management Manual will be finalized by December 2013. The
manual will contain a detailed chapter on managing contractor-held property. The projected closure
date for this significant deficiency is FY 2014.
Compass and Maximo Cannot Be Reconciled
During the FY 2012 Financial Statement Audit, OIG found that EPA could not reconcile capital
equipment property management data within its property management subsystem, Maximo.
EPA can reconcile capital equipment within the property management subsystem, Maximo, to relevant
data within Compass. The Finance Centers recently completed this reconciliation. The Agency will
document the procedures for reconciling capitalized property by the first quarter of FY 2014.
The projected closure date for this significant deficiency is FY 2014.
EPA Should Improve Controls Over Expense Accrual Reversals
During the FY 2012 Financial Statement Audit, OIG declared that the Agency did not reverse
approximately $18 million of FY 2011 year-end expense accruals in FY 2012. The Agency is updating
its policy for recognizing year-end accruals to require reconciliation of accruals and accrual reversals.
The Agency anticipates that all remaining corrective actions for this significant deficiency will be
completed in FY2014.
Improvements Needed in Controls for Headquarters Personal Property
During the FY 2010 Financial Statement Audit, OIG identified improvements needed in the controls for
personal property at EPA headquarters.
The Agency acknowledged several significant challenges related to tracking personal property for
which headquarters is accountable.
To remedy this significant deficiency, the Agency took the following actions:
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• Developed mandatory training for all managers and supervisors that is being monitored and tracked
by the Agency property management officer.
• Conducted a "wall-to-wall" inventory and significantly reduced the unaccounted assets identified in
2010 and 2011 by more than 250 assets.
• Developed a new property tracking system that includes individual as well as location tracking
features.
The Agency anticipates that the updated Property Management Manual will be completed by December
2013. Although the Agency as developed a new property tracking system, the interface with Compass
system cannot be completed until January 2015 due to limited funding and the priority of the human
resources line of business.
The projected closure date for this significant deficiency is FY 2015.
EPA Overstated Superfund State Credits
During the FY 2013 Financial Statement Audit, OIG found that EPA overstated the value of Superfund
State Contract (SSC) credits available to reduce state shares of remedial action costs by $15 million.
The Agency's calculated credits were $25.7 million as of June 30, 2013, but the general ledger showed
a balance of $40.7 million for SSC credits. OIG believes the overstatement would misstate EPA's
footnote disclosure and could mislead financial statement users.
To remedy this significant deficiency, the Agency addressed the cause of the error and posted an entry
to correct the account balance. The Agency has completed all corrective actions for this significant
deficiency.
EPA's High Number of Accounting Corrections Indicates an Internal Weakness
During the FY 2013 Financial Statement Audit, OIG stated that EPA made 396 manual journal voucher
entries in FY 2013 to correct transaction level errors in the accounting system, including 138 entries for
posting model errors. The Agency made the accounting corrections due to posting model and other
system configuration errors. Although EPA corrected the errors identified, OIG believes the high
number of corrections diminishes the reliability of EPA's accounting system to process transactions
accurately. OIG states without a diligent review of posting models, errors could occur at the transaction
level, impacting the reliability of financial information and increasing the risk that the financial
statements could be misstated.
EPA disagrees that the high number of accounting corrections indicates an internal weakness. We
believe the journal vouchers processed were fully supported and were significantly less in number than
the amount stated in OIG's condition statement. For example, journal voucher entries made as part of
normal financial business processes were erroneously classified by OIG as corrections to transaction
level errors.
Also, the Agency does not agree that the number of corrections diminishes the reliability of EPA's
financial system. The Agency took steps in FY 2012 and 2013 to ensure the integrity of its financial
data and identified many of the issues in the OIG finding. EPA has a process in place to proactively
analyze and validate posting models. For example, during FY 2013, the Agency identified accounting
model issues, corrected them in the system, and made necessary journal voucher entries in compass
to reflect the accurate United States Standard General Ledger impact. OCFO established an internal
GL Issues email box to collect agency identified accounting model and reference table issues. OCFO
prioritized, and tracked progress in resolving accounting model and reference table issues. The Agency
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will continue to remain vigilant in our efforts to ensure that Compass accounting models are properly
recording accounting events.
Internal Controls Over EPA's Accountable Personal Property Inventory Process Needs
Improvements
During the FY 2013 Financial Statement Audit, OIG found an $11.5 million difference in accountable
personal property, including $7 million of capitalized property, between the agency's property
management system (Maximo) and its FY 2013 property certification letters. In addition, OIG found
EPA did not perform a complete inventory of $3.7 million of sensitive accountable personal property
purchased in the last quarter of FY 2013. As a result, OIG details that Maximo is missing detailed
records for this property and such property is not included in the EPA's property certification letters. The
Agency requires accountable personal property to be inventoried annually and equipment to be decaled
and added to Maximo when acquired. Various factors contributed to Maximo being incomplete and
inaccurate; however, the primary cause was that EPA's details within Maximo were not updated timely.
The Agency's capitalized property financial activity (which is part of the accountable personal property)
is dependent upon property management officers maintaining an accurate inventory of capitalized
property. OIG states that inaccurate accountable personal property records could compromise EPA's
property control system, impact the accuracy of the Agency's financial statements, and result in the loss
or misappropriation of assets.
EPA concurs that the inventory purchased from the Customer Technology Solutions (CTS) in the last
quarter of FY 2013 was not completed. An official agency inventory could not be conducted until the
equipment buy-out was completed and the Agency owned the assets. The purchase of CTS equipment
in August 2013 was an unusually large purchase resulting in the acquisition of approximately 12,000
assets near the end of the year. The equipment buyout did not occur until late August and Property
notification in mid September. As a result, Facilities Management and Services Division could not
inventory all equipment by the end of FY13. Inventory of these assets was initiated in October and
should be completed by January 2014.
The Agency will amend the EPA Personal Property policy and Procedures Manual to require posting of
records within five days of installation or receipt on site.
The projected closure date for this significant deficiency is FY 2014.
Software Improperly Recorded in Compass
During the FY 2013 Financial Statement Audit, OIG stated that the EPA Software in Development and
Loss on Disposition accounts were misstated by $36 million. Federal regulations require agencies to
have systems that record and generate accurate financial information. The posting model applied to the
transaction impacted the wrong accounts. OIG states the misstatement impacts the accuracy and
reliability of information reported in the Agency's financial statements.
EPA does not concur with the finding that the posting model applied to the referenced transaction
impacted the wrong actions. The "Software in Development" and the "Loss on Disposition" postings
were incorrect due to system users applying an incorrect document type. The correct posting for this
type of transaction, which moves software in development status to production, is the Fixed Asset
Transfer (FT) document type. The FT document type allows the system to directly reclassify the asset's
status from development to production. While OCFO staff were trained by the contractor in FY 2013 on
how to process this transaction using the FT document type, the use of the FD document type was
used in error. To help mitigate the risk of this type of incorrect posting in the future, OCFO will review
with staff the correct posting for the business event of transferring software from the development
account to the production account. Staff will receive refresher training in FY 2014.
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The resulting postings using the FD01 were corrected with Journal Vouchers (RAS13582JAN &
RAS13583JAN) to allow the general ledger accounts to correctly reflect the intent of the accounting
events that were initiated. As part of the Agency's internal process for reviewing transaction events, the
Agency will review and analyze the document/transaction type FD01 for the actual disposal entries in
FY2014.
EPA Needs to Improve Access Control Procedures for Key Financial Systems
During the FY 2013 Financial Statement Audit, OIG found that EPA did not maintain up-to-date system
access control lists for two key OCFO financial systems. OIG found that users had access to these
information systems for at least 1 year longer than their job duties required. Specifically, a contractor
maintained privileged database administrator access to the production server controlling the interface to
the Agency's core financial application. We also had concern regarding separation of duties because a
system developer maintained a data creation account on another key financial application. In both
instances, EPA resolved these two access control violations uncovered during our audit.
The Agency will conduct reviews of access control lists for relevant financial application and will issue a
memo to responsible personnel regarding adherence to access control procedures.
The projected closure date for this significant deficiency is FY 2014.
EPA Needs to Improve Processes for Following Up on Identified Network Vulnerabilities
During the FY 2013 Financial Statement Audit, OIG stated that the process for resolving and tracking
network vulnerabilities for the OCFO was not operating in accordance with agency policy. In particular,
OCFO failed to notify the OEI within the required 30-day resolution timeframe of high-risk vulnerabilities
that OEI incorrectly identified as belonging to the OCFO network. OCFO lacked a documented process
for its internal staff to follow when reviewing the monthly vulnerability management reports. As such,
OCFO received monthly vulnerability reports but the reports were not distributed to personnel
knowledgeable on how to take action or to provide status reports on vulnerability remediation activities.
The Agency will update its detailed inventory of Internet Protocol address and system and server
names, and distribute to the appropriate staff. Additionally, EPA will issue a memo to the appropriate
staff regarding roles and responsibilities related to the Vulnerability Management review process,
including procedures on handling items that do not belong to OCFO and related timelines.
The projected closure date for this significant deficiency is FY 2014.
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Summary of Financial Statement Audit
Audit Opinion
Restatement
Unmodified
No
Material Weaknesses
Compass Systems Limitations
Total Material Weaknesses
Beginning
Balance
1
1
New
0
0
Resolved
1
1
Consolidated
0
0
Ending
Balance
0
0
Summary of Management Assurance
Effectiveness of Internal Control Over Financial Reporting (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
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 Federal Financial Management Information Act (FFMIA)
1 . System Requirement
2. Accounting Standards
3. USSGL at Transaction Level
Agency
No non-compliance noted
No non-compliance noted
No non-compliance noted
Auditor
No non-compliance noted
No non-compliance noted
Non-compliance noted
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."
*Explanation of Summary Differences - Please see "Significant Deficiencies" subsection that
preceded the Summary Charts. The new OIG-identified deficiency write-up "EPA's High Number of
Accounting Corrections Indicates an Internal Weakness" provides details on this difference. Additional
details are available in the OIG's Final Audit Report located in Section II of this APR.
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IMPROPER PAYMENTS COMPLIANCE
EPA is dedicated to reducing fraud, waste, and abuse by reviewing and reporting on programs
susceptible to significant improper payments, in accordance with applicable law and OMB guidance. On
July 22, 2010, the President signed into law the Improper Payments Elimination and Recovery Act of
2010 (IPERA; Public Law No. 111-204), which amends the Improper Payments Information Act of 2002
(IPIA; Public Law No. 107-300). Passed in November 2002, the IPIA requires executive branch agency
heads to review all programs and activities annually, identify those that may be susceptible to
significant improper payments, and report the results of their improper payment activities. On April 14,
2011, OMB issued Memorandum M-11-16 revising Circular A-123, Appendix C, Parts I and II,
Requirements for Effective Measurement and Remediation of Improper Payments, which requires each
executive branch agency to take the following steps:
1) Review all programs and activities to identify those that are susceptible to significant improper
payments. This term is defined as gross annual improper payments exceeding both 2.5 percent of
program outlays3 and $10 million of all program or activity payments during the fiscal year reported,
or $100 million (regardless of the rate).
2) Obtain a statistically valid estimate of the annual amount of improper payments in programs and
activities that are identified as susceptible to significant improper payments.
3) Implement a plan to reduce improper payments in risk susceptible programs or activities.
4) Report estimates of the annual amount of improper payments in programs and activities and
progress in reducing them.
IPERA defines an improper payment as any payment that should not have been made or that was
made in an incorrect amount under statutory, contractual, administrative, or other legally applicable
requirements. Incorrect amounts are overpayments or underpayments that are made to eligible
recipients (including inappropriate denials of payment or service, any payment that does not account for
credit for applicable discounts, payments that are for the incorrect amount, and duplicate payments). An
improper payment also includes any payment that was made to an ineligible recipient for an ineligible
good or service, or payments for goods or services not received (except for such payments authorized
by law). In addition, when an agency's review is unable to discern whether a payment was proper as a
result of insufficient or lack of documentation, this payment must also be considered an improper
payment.
The information in this report describes the Agency's efforts to reduce improper payments in its
principal payment streams and is submitted in compliance with applicable law and OMB guidance. EPA
is committed to improving performance by taking corrective action for any payment stream that is
determined to be susceptible to significant improper payments.
In this report, it should be noted that Tables 1 through 6 correspond to the tables required in OMB
Circular A-136 and that Figures A through G provide additional data collected by the Agency to
demonstrate results of its improper payments program.
OMB Circular A-123, Appendix C, requires executive agencies to conduct risk assessments of their
programs or activities to determine if they are susceptible to significant improper payments. Each year,
the Agency conducts quantitative risk assessments of its principal payment streams, which include
3 In a February 14, 2013 email to the CFO Council, OMB indicated that agencies should use 2.5 percent for FY
2013 reporting.
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grants, contracts, commodities, the Clean Water State Revolving Fund (CWSRF), and the Drinking
Water State Revolving Fund (DWSRF). The purpose of these risk assessments is to identify improper
payments and determine whether the payment streams are susceptible to significant improper
payments. In FY 2013, the CWSRF and DWSRF were considered to be risk susceptible programs, and
the Agency's grants, contracts, and commodities payment streams remain at low risk of improper
payments.
A) State Revolving Funds
In FY 2012, the SRFs exceeded OMB's threshold for significant improper payments. As a result, in FY
2013, the Agency initiated a statistical sampling methodology that treats the CWSRF and DWSRF
programs as separate entities and determines a statistically valid estimate of improper payments for
each.
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, review them
for eligibility and accuracy, and electronically submit cash draw requests for batches of invoices to EPA.
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. The Agency makes payments to the revolving loan funds
and conducts annual onsite reviews in each state. During the state reviews, EPA conducts improper
payment sampling, 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. Additional details about the sampling methodology are provided under "Statistical Sampling."
B) Grants
Each year, the Agency's Office of Grants and Debarment randomly selects a number of recipients with
active grant awards for advanced monitoring reviews. OGD stratifies its active grant recipients into five
categories: state governments, local governments, tribes, universities, and nonprofits. A proportionate
number is randomly selected from each group for review. Using a standard protocol, an onsite or desk
review is performed and each selected recipient's administrative and financial management controls
are examined. These reviews include an examination of the recipient's administrative policies and
procedures in addition to the testing of grant funds drawn for the period.
The Agency continues to monitor grantees to ensure payment accuracy and responds to single and
OIG audits to recover improper payments when they are discovered. In calendar year 2012, the Agency
closed a combination of 270 grant recipient reviews, single audits, and OIG audits as a means of
identifying improper payments. Of these 270 reviews and audits, 25 had actual improper payments or
unallowable costs.
In addition, the Agency maintains internal controls to help prevent improper payments in grants. Since
2008, EPA 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 of whom 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 that projects
are on schedule and progress matches the amount of funding used. Additionally, the Agency's Las
Vegas Finance Center routinely monitors grant payments made under the Agency's Automated
Standard Application Payment system for irregularities.
Results of advanced monitoring reviews are presented in Figure A, "EPA's Review of Grantees."
Additional sources of improper payments discovered outside the scope of sampling, such as single
audits or OIG audits that were completed and closed in calendar year 2012, are presented in Table 6,
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"Overpayments Recaptured Outside of Payment Recapture Audits." The preceding calendar year
remains the basis for improper payments reporting in the Agency's grants payment stream. For FY
2013 reporting, the Agency is publishing the results of grantee reviews closed during calendar year
2012.
Figure A: EPA's Review of Grantees (1)
Improper Payment
Results
Total grant outlays
(non-SRFs)
Total dollars sampled
Improper payments
(unallowable costs)
Recovered costs
Error rate
Estimated improper
payments
CY 2008
Review
n/a
$120,209,284
$111,329
$111,329
0.093%
n/a
CY 2009
Review
n/a
$10,258,129
$12,697
$4,647
0.124%
n/a
CY2010
Review
n/a
$21,242,755
$7,110
$7,110
0.033%
n/a
CY2011
Review
$2,283,853,375
$118,531,428
$610,131
$465,462
0.515%
$11,761,845
CY2012
Review (2)
$2,495,597,052
$17,035,826
$64,136
$64,136
0.376%
$9,395,354
(1) In this table, "CY' refers to "Calendar Year."
(2) Values reported in this column refer to statistical sample reviews closed in CY 2012. Other improper payments identified from audits,
enforcement actions, and overpayments/adjustments are reported in Table 6, "Overpayments Recaptured Outside of Payment
Recapture Audits."
C) Commercial Payments (Contracts and Commodities)
The contracts and commodities payment streams are collectively known as commercial payments. In
FY 2013, the commercial payment streams had very low error rates and were not susceptible to
significant improper payments. Due to the historical low percentage of improper payments in these
payment streams, the Agency relies on its internal review process to detect and recover improper
payments.
The Agency produces monthly improper payment reports for the commercial payment streams and
uses them as its primary tool for tracking improper payments. These reports identify the number and
dollar amount of improper payments, the source and reason for the improper payment, the number of
preventive reviews conducted, and the dollar amount of recoveries made for current and prior years.
The Agency's commercial payments are subject to financial review, invoice approval, and payment
certification. Since 100 percent of commercial payments are subject to rigorous internal controls, the
Agency relies upon its system of internal controls to minimize improper payments. The following is a
brief summary of the internal controls in place over the Agency's commercial invoice payment process.
The payment processing cycle requires that 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 of the invoice to Agency Project Officers and Approving Officials for
validation of proper receipt of goods and services, period of performance dates, labor rates, and
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, EPA Contracting Officers perform annual
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review of invoices on each contract they administer, and DCAA performs audits on cost-reimbursable
contracts at the request of the Agency.
Figures B and C quantify the agency's improper payment efforts in FY 2013 and in recent years.
Additional improper payments identified from sources such as OIG, A-123, and DCAA audits are
reported in Table 6, "Overpayments Recaptured Outside of Payment Recapture Audits."
Figure B: EPA's Review of Contract Payments
Fiscal Year
2009
2010
2011
2012
2013
Number of Erroneous
Payments
31 (of 35, 929)
35 (of 39,060)
21 (of 38, 965)
29 (of 33,473)
43 (of 29,645)
Erroneous Payments
(Dollars in Thousands)
$716.4
$882.6
$162.9
$953.7
$406.8
Error Rate for Dollars
0.05%
0.08%
0.01%
0.06%
0.03%
Figure C: EPA's Review of Commodity Payments
Fiscal Year
2009
2010
2011
2012
2013
Number of Erroneous
Payments
32 (of 4 1,585)
34 (of 39, 571)
44 (of 40,083)
50 (of 34, 908)
197 (of 33,467)
Erroneous Payments
(Dollars in Thousands)
$193.7
$166.3
$2,178.5
$363.6
$156.8
Error Rate for Dollars
0.07%
0.05%
0.67%
0.13%
0.06%
Vendors doing business with federal agencies occasionally offer discounts when invoices are paid in
full and within the specified discount period (e.g., within 10 days of billing). EPA makes its best effort to
take all discounts, as they represent a form of savings to the Agency. However, there are valid reasons
for which it is not feasible to take every discount that is offered, including: 1) an insufficient discount
period to process a discounted payment, such as an expired or short period upon receipt of the invoice
or the approval process exceeds the discount period; and 2) a situation in which it is not economically
advantageous to take the discount (i.e., the discounted amount is not economically advantageous in
comparison to the Treasury's current value of funds rate).
Part of IPERA's definition of an improper payment includes "any payment that does not account for
credit for applicable discounts." In applying this definition, the Agency determined that an applicable
discount is one that is actually taken, as only a discount that is taken would result in credit for which to
account. In accordance with IPERA's definition, it is the Agency's responsibility to properly account for
the credit. To that end, the Agency must take the discount within the specified timeframe and also in the
correct amount. Any errors made in accounting for the credit are reported as an improper payment.
This includes situations in which a discount is taken outside the discount period or if the wrong amount
of the invoice or percent is applied. In FY 2013, only one discount was determined to be an improper
payment.
In FY 2013, the Agency developed a more rigorous sampling methodology for the SRFs. As part of the
sampling design process, the Agency obtained OMB's approval to treat each SRF as a separate
reporting entity in order to provide greater transparency and better address the root causes of error. In
years past, the Agency grouped the SRFs together as a single reporting entity. FY 2013 is the first year
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in which the Agency is treating each SRF as a separate reporting entity, publishing a unique error rate
and improper payment estimate for each program.
The new sampling methodology draws a random, statistically valid, stratified sample of payments made
by each SRF during the preceding federal fiscal year.4 For FY 2013 reporting, the payment universe for
each SRF included each state's cash draws for base and ARRA funding. The samples were randomly
selected and stratified by dollar amount, then tested for improper payments during the state reviews
conducted by the Agency's financial analysts. In addition, supplemental transaction testing was
conducted in states where no samples were drawn.
The new sampling methodology provides a sample size sufficient to estimate the proportion of
erroneous payments within a margin of error of plus or minus 2.5 percent and a 90 percent confidence
level, assuming an estimated proportion of erroneous payments of 3.0 percent. Given the variability in
the distribution of dollar payments within each SRF, the Agency used stratified sampling, which
involves a greater probability of selecting larger payments relative to the smaller payments and
increases the precision of the estimated percentage of erroneous payments. For example, the dollar
value of CWSRF payments selected using stratified random sampling represents 17.5 percent of all
dollars paid, whereas the dollar value of the payments selected using simple random sampling would
represent only 2.3 percent of all dollars paid. Similarly, the dollar value of DWSRF payments selected
using stratified random sampling represents 14.5 percent of all dollars paid, whereas the dollar value of
the payments selected using simple random sampling would represent only 1.9 percent of all dollars
paid. The following figures provide an overview of the sampling strategy undertaken in each SRF during
FY2013. Results of the statistical sampling are presented under "Improper Payment Reporting."
Figure D: Stratification of Clean Water State Revolving Fund Payments
Stratum
1
2
Payment Range
< $100,000
$100,000-$999,999
$1,000,000-$2,999,999
$3,000,000-$9,999,999
$10,000,000-$39,999,999
> $39,999,999
Total
Total
Number of
Payments
1,626
1,165
276
106
19
5
3,197
Total Dollars
$42,314,658
$422,447,928
$458,016,464
$500,031,258
$337,553,160
$389,522,375
$2,149,885,843
Number of
Payments
Sampled
15
11
68
23
3
1
121
Dollars
Sampled
$292,736
$3,772,859
$113,117,364
$110,731,096
$51,869,477
$96,371,862
$376,155,393
Figure E: Stratification of Drinking Water State Revolving Fund Payments
Stratum
1
2
Payment Range
< $100,000
$100,000-$999,999
$1,000,000-$2,999,999
$3,000,000-$9,999,999
$10,000,000-$39,999,999
> $39,999,999
Total
Total
Number of
Payments
3,281
1,609
180
46
14
0
5,130
Total Dollars
$87,116,556
$509,020,903
$291,335,691
$229,783,848
$241,244,227
$0
$1,358,501,224
Number of
Payments
Sampled
36
18
51
16
2
0
123
Dollars
Sampled
$965,385
$5,796,595
$85,536,721
$79,917,435
$24,185,794
$0
$196,401,930
In prior years, each SRF used the preceding state fiscal year (i.e., the 12-month period from July 1 through June
30) as its basis for improper payments reporting.
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Corrective Actions
The Agency identifies and tracks the reasons for any improper payments identified and also takes
appropriate steps to reduce future errors and make recoveries. In FY 2013, all improper payments
identified were the result of administrative and documentation errors, which are caused by the "absence
of supporting documentation necessary to verify the accuracy of the claim; or inputting, classifying, or
processing applications or payments incorrectly by a relevant federal agency, State agency, or third
party who is not the beneficiary." Neither authentication nor verification errors were found. Given the
nature of the Agency's programs, medical necessity errors are not a possibility.
In FY 2012, the EPA identified improper payments in its SRF program which exceeded the threshold for
significant improper payments of $10 million and 2.5% of program outlays. In its FY 2012 IPERA
compliance audit, the OIG determined that the corrective actions that the Agency published in the AFR
did not fully comply with IPERA requirements. In FY 2013, EPA developed a multi-year corrective
action plan that addresses weaknesses determined by the OIG and the root causes of error identified
by the Agency's ongoing improper payment activities. As a result, the Agency's corrective action plan is
presented in Figure F. This corrective action plan is being implemented by both SRFs and will guide
their progress in reducing improper payments overtime. In FY 2013, the DWSRF program identified
$11.1 million of improper payments from $196 million of sampled cash draws. Extrapolating to the full
payment population of $1.36 billion yields an estimated improper payment rate of 4.06 percent, in the
amount of $55.2 million.
Figure F: FY 2013 Corrective Action Plan — State Revolving Funds
Description
Publish revised standard
operating procedures on
transaction testing.
Develop a more robust
sampling methodology for
identifying improper payments.
Designate senior Agency official
for ensuring SRF compliance
with IPERA.
Conduct training for regions to
ensure a proper understanding
of SRF proportionality errors.
Improve internal business
processes.
Publish DWSRF Eligibility
Handbook.
Determine baseline
measurements for FY 201 3
reporting and set appropriate
out-year reduction targets.
Ensure documentation of state
internal control procedures.
Conduct webinars, including
materials on improper payments
and internal controls, audits,
and proportionality.
Develop clarifying materials on
adequate documentation.
Target Completion
January 201 3
February 201 3
May 201 3
May 201 3
FY2013
Oct. 2013
Nov. 2013
March 201 4
March 201 4
June 2014
Status
Completed
Completed
Completed
Completed
Ongoing
In progress
Completed
In progress
Under
development
To be started
in Nov. 2013
Anticipated Results
Ensures consistency in improper
payments reporting across regions.
The improved methodology provides
greater precision, allowing EPA to
better address the root causes of error
while providing greater transparency.
Appointed the Office of Water's Deputy
Assistant Administrator as the senior
agency official responsible for SRF
compliance with IPERA.
Applying lessons learned and clarifying
when certain payments should be
identified as improper will ensure
greater accuracy in reporting.
Comparison of the Program Evaluation
Reports and transaction testing
worksheets will help ensure data
integrity.
Decrease improper payments due to
ineligible expenses.
Provide an accurate reflection of the
program's improper payment rate and
establish reasonable reduction targets
overtime.
Strengthen state procedures.
Strengthen internal controls and
oversight of both programs.
Decrease improper payments due to
inadequate documentation.
176
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Improper Payment Reporting
State Revolving Funds
Table 1 and Figure G below represent the Agency's improper payment results for the CWSRF and
DWSRF programs.
Table 1 : Improper Payment Reduction Outlook
(Dollars in millions)
Program
Clean
Water SRF
Drinking
Water SRF
FY12 FY12 FY12
Outlays IP% IP$
n/a
n/a
n/a
n/a
n/a
n/a
FY13 FY13 FY13 I!™ f.™
Out,ays ,P% ,P$ <£-JT
2,150
1,358
0.73%
4.06%
$15.6
(D
$55.2
(D
$11.1
(2)
$10.0
(2)
$4.5
(2)
$1.1
(2)
FY14 FY14 FY14
Outlays IP% IP$
1,528
(est.)
1,093
(est.)
1.50
target
3.00
target
22.9
(est.)
32.8
(est.)
FY15 FY15 FY15
Outlays IP% IP$
1,538
(est.)
1,006
(est.)
1.50
target
2.50
target
23.1
(est.)
25.2
(est.)
FY16 FY16 FY16
Outlays IP% IP$
1,325
(est.)
944
(est.)
1.50
target
2.00
target
19.9
(est.)
18.9
(est.)
(1) These estimates are derived by extrapolating the error rate identified from sampling to the full population of each program's payments.
(2) These estimates are derived by applying the proportion of actual overpayment and underpayment amounts identified from sampling to
the total estimate of total improper payments in each SRF.
Figure G: EPA's Review of Clean Water and Drinking Water SRFs
Fiscal Year
2009 (combined)
2010 (combined)
2011 (combined)
2012 (combined)
201 3 (CWSRF)
201 3 (DWSRF)
Outlays
$1.9 billion
$4.8 billion
$3.64 billion
$2.67 billion
$2. 14 billion
$1.36 billion
Outlays Tested
n/a
n/a
n/a
$459.7 million
$376.1 million
$196.4 million
Actual
Improper
Payments
$1.1 million
$1.8 million
$14.18 million
$13.38 million
$1.45 million
$11.12 million
Estimated
Improper
Payments (1)
n/a
n/a
n/a
$77.96 million
$15.64 million14
$55.20 million
Error Rate
0.06 percent
0.04 percent
0.39 percent
2.91 percent
0.73 percent
4.06 percent
^ Prior to FY 2012, the SRF error rate was not extrapolated to the full universe of SRF outlays.
(2) In FY 2012, EPA began extrapolating the error rate to determine an overall estimate of improper payments in the SRFs. The change in
methodology does not allow for comparison between FY 2013 and FY 2012 results.
Recapture of Improper Payments
The Agency's improper payment program is managed by Agency employees who continually monitor
its payment streams to prevent, identify, and recover improper payments. No programs or activities are
excluded from these reviews.5 The Agency's improper payment program reviews grants, contracts,
commodities, and the Clean Water and Drinking Water SRFs for erroneous payments.
When improper payments are identified in the SRFs, the errors are discussed with the state during the
review. Many of the payment errors are immediately corrected by the state or resolved quickly by
adjusting a subsequent cash draw. For issues requiring more detailed analysis, the state provides the
agency with a plan for resolving the improper payments and reaches an agreement on the planned
A-123 reviews of payroll, travel, and purchase card efforts are an integral internal control mechanism for reducing improper payments, but
these areas are not required for reporting under IPERA. Because they involve payments to federal employees, they are exempt from the
definition of improper payments, per OMB M-11-16, Question 2.
177
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course of action. The agreement is described in EPA's Program Evaluation Report, and the Agency
follows up with the state to ensure compliance. SRF improper payments typically arise from inadequate
cost documentation, incorrect proportionality used for drawing federal funds, ineligible costs, and draws
made from the wrong account.
Since inception, the Agency's improper payments program has recovered approximately $37.7 million
across all payment streams. This amount consists of approximately $2.8 million from contracts and
$4.4 million from commodities (beginning in FY 2004 for each), $700,000 from grants (beginning with
the CY 2006 review), $24.7 million from the combined SRFs during the state fiscal year 2009 through
2012 reviews, and $5.1 million from the DWSRF program in FY 2013. The following tables provide
more detailed information concerning the Agency's past and present efforts at identifying and
recapturing improper payments.
178
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Table 2: Payment Recapture Audit Reporting
Program
or Activity
CWSRF (2)
DWSRF (2)
Grants (4>
Contracts (6>
Commodities (6>
Type of
Payment
Grants
Grants
Grants
Contracts
Small
Durchases
Amount
Subject to
Review for CY
Reporting
2,149,885,843
1,358,501,224
2,495,597,052
1,298,210,581
259,846,330
Actual Amount
Reviewed and
Reported
(CY)
376,155,393
196,401,930
17,035,826
1,298,210,581
259,846,330
Amount
Identified
for
Recovery
(CY)
1,025,022
10,032,644
64,136
70,721
152,071
Amount
Recovered
(CY)
$0
5,133,840
64,136
70,718
146,901
%of
Amount
Recovered
of Amount
Identified
(CY)
0% I3)
51 .2%
100%
99.99%
96.6%
Amount
Outstanding
(CY)
1 ,025,022 P>
4,898,804
$0
3
$5,170
%of
Amount
Out-
standing
of Amount
Identified
(CY)
100%
48.8%
0%
0.01%
3.4%
Amount
Determined
Not to Be
Collectable
(CY)
$0
$0
$0
$0
$0
% of Amount
Determined
Not to Be
Collectable of
Amount
Identified
(CY)
0%
0%
0%
0%
0%
Amounts
Identified for
Recovery
(PYs)
n/a
n/a
793,867
2,722,237
4,295,635
Amounts
Recovered
(PYs)
n/a
n/a
621 ,779
2,722,237
4,284,081
Cumulative
Amounts
Identified for
Recovery (CY
+ PYs)
1 ,025,022
10,032,644
858,003
2,792,958
4,447,707
Cumulative
Amounts
Recovered
(CY + PYs)
$0
5,133,840
685,915
2,792,955
4,430,982
Cumulative
Amounts
Outstanding
(CY + PYs)
1,025,022
4,898,804
172,088
3
16,724
Cumulative
Amounts
Determined
Not to Be
Collectable
(CY + PYs)
$0
$0
1 17,108 (5>
$0
1,217
(1> In this table, "CY" refers to "Current Year" and "PY" refers to "Prior Year."
(2) For CWSRF and DWSRF, "CY" refers to the agency's FY 2013 review of state cash draws made in FY 2012.
<3> Full recovery is expected to be made on subsequent cash draws during the next several months.
(4> For grants, "CY" refers to reviews closed in calendar year 2012, and "PYs" refers to reviews closed in calendar years 2006 through 201 1 .
(5> In certain cases a recipient may no longer be in business, the assistance agreement has been financially and administratively closed, or the outstanding debt has been referred to the CFC
Claims Processer/Department of Treasury for collection.
(6> For contracts and commodities, "CY" refers to FY 2013, and "PYs" refers to FY 2004-2012.
Table 3: Payment Recapture Audit Targets
Program or
Activity
CWSRF
DWSRF
Grants
Contracts
Commodities
Type of
Payment
Grants
Grants
Grants
Contracts
Small
purchases
CY
Amount
Identified
$1,025,022
10,032,644
$64,136
$70,721
$152,071
CY
Amount
Recovered
$0
5,133,840
$64,136
$70,718
$146,901
CY
Recovery Rate (Amount
Recovered/ Amount
Identified)
0%
51 .2%
100%
99.9%
96.6%
CY+1
Recovery
Rate
Target
90%
90%
87%
92%
92%
CY + 2
Recovery
Rate Target
90%
90%
87%
92%
92%
CY + 3
Recovery Rate Target
90%
90%
87%
92%
92%
179
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Table 4: Aging of Outstanding Overpayments
Program or
Activity
CWSRF1"
DWSRF (n)
Grants (Z>
Contracts
Commodities
Type of Payment
Grants
Grants
Grants
Contracts
Small Purchases
CY Amount Outstanding
(0 to 6 Months)
$0
$0
$0
$0
$5,170
CY Amount Outstanding
(6 Months to 1 Year)
$0
$0
$0
$0
$0
CY Amount Outstanding
(Over 1 Year)
$1,025,022
$4,898,804
$0
$3
$0
(1> For each SRF, "CY" (for "Current Year") refers to the Agency's FY 2013 review, which covered state expenditures made during FY 2012. Thus, all amounts
outstanding for improper payments identified from the FY 2013 review are classified as outstanding for over 1 year.
(2) For grants, "CY' results are from reviews closed in calendar year 2012.
Table 5: Disposition of Recaptured Funds (1)
Program or
Activity
CWSRF w
DWSRF {Z}
Grants
Contracts (4)
Commodities (4)
Type of
Payment
Grants
Grants
Grants
Contracts
Small purchases
Agency Expenses to
Administer the Program
$55,500
$55,500
$603,000 (J)
$39,500
$39,500
Payment
Recapture
Auditor Fees
$0
$0
$0
$0
$0
Financial
Management
Improvement
Activities
$0
$0
$0
$0
$0
Original
Purpose
$0
$0
$0
$0
$0
Office of
Inspector
General
$0
$0
$0
$0
$0
Returned to
Treasury
$0
$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) All SRF recoveries automatically return to the program since they are revolving loan funds (per OMB Circular A-123, Appendix C, Part I).
(3> Includes CY 2012 costs for post award monitoring contract and the cost of EPA personnel performing reviews.
(4> The same cost estimate applies to both contracts and commodities.
180
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Table 6: Overpayments Recaptured Outside of Payment Recapture Audits
Source of Recovery
OIG and single audits (CWSRF) (FY2013)
OIG and single audits (DWSRF) (FY2013)
Supplemental reviews (CWSRF) (FY2013) (1)
Supplemental reviews (DWSRF) (FY2013) l"
Secondary review in Puerto Rico (CWSRF)
Secondary review in Puerto Rico (DWSRF)
Grant enforcement actions
Grant OIG and single audits
Grant adjustments (J)
Grants— other w
DCAA audits
Amount
Identified
(CY)
$0
$6,127,575
$687,136
$13,308,985
n/a
n/a
$127,461
$173,866
$944,136
$236,168
$1 ,670
Amount
Recovered
(CY)
$0
$6,127,575
$0
$13,307,435
n/a
n/a
$102,641
$173,866
$904,647
$236,168
$1,670
Amount
Identified
(PY)
n/a
n/a
n/a
n/a
$29,985,095 w
$2,827,209 w
n/a
$100,980
n/a
$0
$0
Amount
Recovered
(PY)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$100,980
n/a
$0
$0
Cumulative
Amount
Identified
(CY + PYs)
$0
$6,127,575
$687,136
$13,308,985
$29,985,095
$2,827,209
$127,461
$274,846
$944,136
$236,168
$98,868
Cumulative
Amount
Recovered
(CY + PYs)
$0
$6,127,575
$0
$13,307,435
n/a
n/a
$102,641 w
$274,846
$904,647
$236,168
$98,868
(1> The secondary reviews conducted in Puerto Rico in FY 2012 identified $29.9 million (CWSRF) and $2.8 million (DWSRF) in questioned costs that were reported as improper
payments in the FY 2012 AFR. However, following extensive review, the Agency identified offsetting eligible costs to cover the amount in question.
<2> The $24,820 not recovered has been referred to Treasury for collection.
(3> These are final adjustments made for 106 assistance agreements during grant closeout.
(4> A recipient overdrew its ASAP account.
181
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Accountability
The Agency continues to strengthen internal controls in key payment processes and has taken steps to
continue holding Agency managers accountable for reducing and recovering improper payments. In FY
2013, the Office of Water's Deputy Assistant Administrator was designated as the senior agency official
for ensuring compliance of the CWSRF and DWSRF programs with IPERA. The Agency's improper
payments program is overseen by OCFO to ensure compliance with all IPERA and reporting
requirements, and action is taken by appropriate program officials to identify and recover improper
payments.
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.
Do Not Pay Implementation
Treasury's Do Not Pay (DNP) program is a government-wide solution designed to prevent payment
errors and detect waste, fraud, and abuse in programs administered by the federal government. In
accordance with the April 2012 OMB Memorandum M-12-11, "Reducing Improper Payments Through
the 'Do Not Pay List,'" the Agency developed an implementation plan to incorporate the use of
Treasury's DNP solution into its business processes. Following the January 2013 enactment of IPERIA,
which codified the requirement for federal agencies to implement the DNP program, the Agency took
further steps to integrate its use.
In FY 2013, Treasury initiated the first phase of DNP implementation, which involves the review of
agency payment files for contracts, grants, small purchases, travel, and other payments on a post-
payment basis. Currently, the Agency receives monthly reports from the DNP program listing possible
improper payments made to potentially ineligible recipients. These reports identify matches occurring
when the DNP program compares the names of EPA's payees against the names contained in relevant
federal databases, such as the Death Master File and the System for Award Management exclusion
list.
EPA researches all matches identified in the monthly DNP reports and submits an adjudication report
back to Treasury, detailing the status of all matches and indicating whether they are false positives,
proper payments, or improper payments pending recovery.
Beginning in FY 2014, Treasury plans to initiate the second phase of DNP implementation, which may
include the review of agency payments on a pre-payment basis and would provide the option to stop
payments in accordance with pre-defined business rules. The Agency plans to work with Treasury to
ensure successful implementation of the second phase, with the goal of preventing improper payments
from being made to ineligible recipients.
Statutory or Regulatory Barriers
None.
Conclusions
The Agency commits to the following activities in FY 2014:
• Pursue recovery of outstanding overpayments from FY 2013.
• Review and revise the CWSRF and DWSRF sampling strategies as appropriate.
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• Initiate improper payments sampling of Hurricane Sandy relief funding.
• Continue to use Treasury's Do Not Pay program to identify payments to potentially ineligible
recipients.
183
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Appendix A
Public Access
184
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EPA invites the public to access its 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 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/news-releases
• Regional newsrooms: www2.epa.gov/newsroom/news-releases#regions
Laws, regulations, guidance, and dockets: www2.epa.gov/laws-regulations
• Major environmental laws: www2.epa.gov/laws-regulations/laws-and-executive-orders
• 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: www.epa.gov/epahome/regions.htm
Information sources: www.epa.gov/epahome/resource.htm
Education resources: www.epa.gov/students/
• Office of Environmental Education: www.epa.gov/education
About EPA: www.epa.gov/aboutepa
• EPA organizational structure: www.epa.gov/aboutepa/epa-organizational-structure
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: http://www2.epa.gov/home/epa-businesses-and-non-profits
• Small Business Gateway: www.epa.gov/osbp/
• Grants, fellowships, and environmental financing: www.epa.gov/epahome/grants.htm
Budget and performance: http://www2.epa.gov/planandbudget
Careers: www.epa.gov/careers/
• EZ Hire: www.epa.gov/ezhire
EPA en Espanol: www.epa.gov/espanol
EPA ^^: ^tHft&: www.epa.gov/chinese
EPA ^^ = fSJ^ft!*: http://www.epa.gov/chinese/simple/
EPA tiing Viet: www.epa.gov/vietnamese
EPA i-^°1: www.epa.gov/korean
185
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Appendix B
Acronyms and Abbreviations
186
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APR Agency Financial Report
APG Agency Priority Goal
APR Annual Performance Report
ARRA American Recovery and Reinvestment Act
CAAC Chemical Assessment Advisory Committee
CBI Confidential Business Information
CERCLA Comprehensive Environmental Response, Compensation, and Liability Act
CFC Cincinnati Finance Center
CFO Chief Financial Officer
CO Contracting Officer
CPA Certified Public Accountant
CWA Clean Water Act
CY Calendar Year
DCAA Defense Contract Audit Agency
DCMA Defense Contract Management 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
ECHO Enforcement and Compliance History Online
EPA U.S. Environmental Protection Agency
EPM Environmental Programs and Management
FAS Fixed Assets Subsystem
FBWT Fund Balance with Treasury
FERS Federal Employees Retirement System
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
FY Fiscal Year
GAAP Generally Accepted Accounting Principles
GAO Government Accountability Office
GL General Ledger
GSA U.S. General Services Administration
HERO Healthy Environmental Research Online database
1C Institutional Control
ICIS Integrated Compliance Information System
IP Improper Payment
IPERA Improper Payments Elimination and Recovery Act
IPIA Improper Payments Information Act
IRIS Integrated Risk Information System
LUST Leaking Underground Storage Tank
NIST National Institutes of Standards and Technology
NPDES National Pollutant Discharge Elimination System
187
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NPL National Priorities List
NRC National Research Council
OCFO Office of the Chief Financial Officer
OIG Office of Inspector General
OMB Office of Management and Budget
PM Office of Personnel Management
PAH Polycyclic Aromatic Hydrocarbon
PAR Performance and Accountability Report
PCB polychlorinated biphenyl
PCS Permit Compliance System
PP&E Plant, Property and Equipment
PRP potentially responsible party
RAU Ready for Anticipated Use
RP Responsible Party
SFFAS Statement of Federal Financial Accounting Standards
SOD Statement of Differences
SRF State Revolving Fund
SSC Superfund State Contracts
STAG State and Tribal Assistance Grants
TSCA Toxic Substances Control Act
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 2013 Agency
Financial Report. We welcome your comments on how we can make this report a more informative
document for our readers. Please send your comments to:
Office of the Chief Financial Officer
Office of Financial Management
Environmental Protection Agency
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Washington, D.C. 20460
ocfoinfo@epa.gov
This report is available at
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Printed copies of this report are available from 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 2013 Agency Financial Report
EPA-190-R-13-010
December 16, 2013
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