Agency Financial Report
Fiscal Year
2O14
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ABOUT THIS REPORT
For fiscal year 2014, the U.S. Environmental Protection Agency (EPA) is producing an Agency Financial
Report (APR), an Annual Performance Report (APR), and an FY2014 Financial and Program Performance
Highlights, in accordance with the Chief Financial Officers Act and Office of Management and Budget (OMB)
Circular A-136, Financial Reporting Requirements.
EPA's APR includes fiscal and high-level performance results that allow the President, Congress, and the
public to evaluate the Agency's accomplishments for each fiscal year beginning October 1 through
September 30. The FY 2014 APR contains EPA's FY2014 Financial Statements Audit Report anAFY 2014
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 audit recommendations by the Office of Inspector General (DIG).
EPA's FY2014 APR provides information on the Agency's performance and progress toward achieving the
goals established in its FY2011-2015 Strategic Plan and FY 2014 performance budget. The APR is prepared
according to the requirements set forth in OMB Circular A-11, Preparation, Submission and Execution of the
Budget and the Government Performance and Results Modernization Act of 2010 (GPRMA). EPA will
produce the FY2014 APR in conjunction with the FY 2015 Congressional Budget Justification and will post
it on the Agency's website at http://www.epa.gov/planandbudget/annualplan/fy2014.html by February
2015.
Additionally, EPA will publish an online Financial and Program Performance Highlights, which presents key
financial and performance information from both the APR and APR in a brief, nontechnical, user-friendly
format The Highlights will be posted on the Agency's website at http://www.epa.gov/planandbudget/.
How the Report Is Organized
Administrator's Letter
The Administrator's letter transmits EPA's FY2014 APR from the Agency to the President and Congress.
The letter assures financial and performance data presented in the APR is reliable and complete. The letter
also assures that the report communicates significant internal control weaknesses and actions the EPA is
taking to resolve them.
Section I—Management's Discussion and Analysis
The Management's Discussion and Analysis 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
The Financial Section includes the Message from the Chief Financial Officer (CFO) and the Agency's
independently audited financial statements, which are in compliance with the CFO Act. This section also
contains the related Independent Auditor's Report and other information on the Agency's financial
management
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Section III—Other Accompanying Information
This section provides additional material, as specified under OMB Circular A-136, Financial Reporting
Requirements, and the Reports Consolidation Act of 2000. The subsection titled "Management Challenges
and Integrity Weaknesses" discusses EPA's progress toward strengthening management practices to
achieve program results and presents the OIG's list of top management challenges and the Agency's
response.
Appendices
The appendices include links to relevant Agency websites and a glossary of acronyms and abbreviations.
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TABLE OF CONTENTS
About This Report i
How the Report Is Organized i
Table of Contents iii
MESSAGE FROM THE ADMINISTRATOR v
Section I Management's Discussion and Analysis 1
About EPA 2
History and Purpose 2
Mission 2
Organization 3
Regional Map 4
Collaborating With Partners and Stakeholders 4
A Framework for Performance Management 4
FY 2014 Advances in Performance Management 5
FY 2014 Program Performance 7
Strategic Goals 7
Financial Analysis and Stewardship Information 14
Sound Financial Management: Good for the Environment, Good for the Nation 14
Financial Condition and Results 15
Financial Management for the Future 19
Limitations of the Principal Financial Statements 20
Improving Management and Results 21
Office of Inspector General Audits, Evaluations, and Investigations 21
Grants Management 22
Accountability: Systems, Controls, and Legal Compliance 23
Federal Managers' Financial Integrity Act (FMFIA) 23
Management Assurances 25
Federal Financial Management Improvement Act (FFMIA) 25
Federal Information Security Management Act (FISMA) 26
Inspector General Act Amendments of 1988—Audit Management 26
Defense Contract Audit Agency Audits 31
Section II Financial Section 33
Message from the Chief Financial Officer 34
EPAs Fiscal 2014 and 2013 36
Consolidated Financial Statements (with Restatements) 36
Section III Other Accompanying Information 91
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Schedule of Spending 92
Management Integrity and Challenges 94
Overview of the EPA's Efforts 94
2014 Key Management Challenges 95
Office of Inspector General-Identified Key Management Challenges 95
AUDIT OF EPA'S FISCAL YEARS 2014 AND 2013 (RESTATED) CONSOLIDATED FINANCIAL
STATEMENTS 96
Progress in Addressing FY 2014 Weaknesses and Significant Deficiencies 105
Material Weaknesses 106
Agency Weaknesses 106
Significant Deficiencies 108
Improper Payments Compliance 116
Risk Assessments 117
Statistical Sampling 122
Corrective Actions 124
Improper Payment Reporting 126
Recapture of Improper Payments 126
Accountability 133
Agency Information Systems and Other Infrastructure 133
Statutory or Regulatory Barriers 133
Do Not Pay Initiative 133
Conclusions 134
Freeze the Footprint 135
Appendix A Public Access 136
Appendix B Acronyms and Abbreviations 138
IV
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MESSAGE FROM THE ADMINISTRATOR
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
As I submit the U.S. Environmental Protection Agency's Fiscal Year 2014 Agency Financial Report, I am
pleased to share with you some of our key accomplishments during the past year.
After an unprecedented outreach effort, the EPA in June released the Clean Power Plan proposal. As you
know, this proposal cuts carbon pollution from existing power plants, the single largest source of carbon
pollution in the U.S. Indeed, power plants account for roughly one-third of all domestic greenhouse-gas
emissions. While there are limits in place for the levels of arsenic, mercury, sulfur dioxide, nitrogen oxides
and particle pollution that power plants can emit, there are currently no national limits on carbon
pollution. The goal is to cut carbon emissions from the power sector by 30 percent below 2005 levels by
2030, which is equal to the emissions from powering more than half the homes in the U.S. for one year.
Furthermore, as a co-benefit, the proposal will cut particle pollution, nitrogen oxides and sulfur dioxide by
more than 25 percent by 2030 as well. This reduced pollution will provide up to $93 billion in climate and
public-health benefits, averting up to 6,600 premature deaths, up to 150,000 asthma attacks in children
and up to 490,000 missed work or school days. It will also make our electricity bills roughly 8 percent
cheaper than they would be withoutthe Plan by 2030 through increased energy efficiency and reduced
demand in the electricity system. It will protect public health, move our nation toward a cleaner
environment and fight climate change while supplying Americans with reliable and affordable power.
Demonstrating a solid commitment to protecting America's waters, the EPA and U.S. Army Corps of
Engineers released a proposed rule to clarify protection under the Clean Water Act for streams and
wetlands that form the foundation of the nation's water resources. The proposed rule will benefit
businesses by increasing efficiency in determining coverage of the Clean Water Act, a request made by
members of Congress, state and local officials, industry, agriculture, environmental groups and the public
for nearly a decade.
The health of rivers, lakes, bays and coastal waters depend on the streams and wetlands where they begin.
These streams and wetlands provide many benefits to communities: They trap floodwaters, recharge
groundwater supplies, remove pollution and provide habitat for fish and wildlife. They also are economic
drivers because of their roles in fishing, hunting, agriculture, recreation, energy and manufacturing. About
60 percent of stream miles in the U.S. flow only seasonally or after rain but have a considerable impact on
the downstream waters. And approximately 117 million people - one in three Americans - get drinking
water from public systems that rely in part on these streams. These are the important waterways for which
the EPA and the Army Corps are clarifying protection through this rule. The proposed rule was supported
by the latest peer-reviewed science, including the EPA's draft scientific assessment, which presents a
review and synthesis of more than 1,000 pieces of scientific literature. The rule will not be finalized until
the final version of this scientific assessment is complete. In addition, the EPA received many constructive
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comments during the public review period which we shall also review and, where appropriate, incorporate
into the final rule.
In April we released our FY 2014-2018 Strategic Plan, which provides a blueprint for advancing the EPA's
mission to protect public health and the environment nationwide. The plan envisions a new era of
partnerships with state and local governments, tribes, federal agencies, businesses and industry leaders to
achieve environmental benefits in a pragmatic, collaborative way. The agency will continue to deliver
significant public-health benefits through improved air quality and reduced emissions of toxic pollutants
and will take action to keep communities safe and healthy by reducing risks associated with exposure to
toxic chemicals in commerce, indoor and outdoor environments, products and food. The agency also will
continue efforts to improve water quality, given the nation's significant water-infrastructure needs,
focusing on common-sense, flexible approaches that rely on sustainable solutions, such as green
infrastructure, and that build resiliency to help us adapt to the effects of a changing climate. The plan
prioritizes environmental justice, continuing to focus on urban, rural and economically disadvantaged
communities to ensure that everyone, regardless of age, race, economic status or ethnicity, has access to
clean water, clean air and the opportunity to live, work and play in healthy communities.
In June 2014 as part of the FY 2014 Federal Managers' Financial Integrity Act process, no material
weaknesses were identified. Subsequently, OIG identified a material weakness during the FY 2014
Financial Statement Audit related to the recording of transactions and capitalization of software costs. The
agency agrees with the financial statement audit material weakness and expects to complete corrective
actions by FY 2018.
In FY 2014, the agency found no new material weaknesses in regards to the design or operation of our
internal controls over programmatic operations and no non-conformances in our financial management
systems. We completed corrective action to close eight significant deficiencies from previous years.
I am committed to ensuring that the EPA fulfills Americans' expectations of a clean, healthy environment in
all communities nationwide. We will continue to do our work with the utmost professionalism,
responsibility and accountability for the financial resources entrusted to us.
iina McCarthy
VI
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SECTION I
MANAGEMENT'S DISCUSSION AND
ANALYSIS
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ABOUT EPA
History and Purpose
Born in the wake of elevated concern about environmental pollution, EPA was established on December 2,
1970 to consolidate in one agency a variety of federal research, monitoring, standard-setting and
enforcement activities to ensure environmental and human
health protection. Since its inception, EPA has been working
for a cleaner, healthier environment for the American
people.
In its first four decades, EPA has made great strides. 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.
The Agency safeguards a nation with multi-faceted
environmental issues, which requires effective cooperation
among diverse stakeholders at all levels. From international
organizations working on global environmental issues to
state, tribal, and local governments addressing challenges in
their own backyards, EPA welcomes the opportunity to collaborate with its many partners to develop
innovative approaches and realize common benefits. The EPA will continue to work with its partners and
stakeholders to identify, evaluate, and execute scientifically sound, sustainable solutions.
Mission
Clean up of Love Canal, NY, Effects from the
dumping of 21,000 tons of toxic waste heightened
public awareness of the grave and imminent perils
of unregulated hazardous waste. This tragedy
contributed to the passage ofCERCLA, or
"Sunerfund." in 1980.
EPA's mission is to protect human health and the environment.
The Agency uses the best available scientific information to
evaluate environmental risks to ensure that all Americans are
protected from significant risks to their health and environment
The Agency strives to fairly and effectively enforce all federal laws
protecting human health and the environment, allowing America's
ecosystems to remain diverse and sustainable and our
communities economically prosperous.
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.
What EPA Does
•S Responds to the release of
hazardous substances
•/ Gives grants to states, local
communities and tribes
•/ Studies environmental issu
•/ Sponsors partnerships
•/ Teaches people about the
environment
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Organization
EPA's headquarters are located in Washington, DC. Together, EPA's headquarters offices, ten regional
offices, and more than a dozen laboratories and field offices across the country employ a diverse, highly
educated, and technically trained workforce of over 15,000 individuals.
Office of Administration
and Resources
Management
Region I
Boston, MA
Region 5
Chicago, IL
Office of the
Administrator
&rovides overall supervision of the Agency
and is responsible directly to the
President of the United Stales.
Office of Air
and Radiation
Develops national programs, policies.
and regulations for controlling air
Office of Research
and Development
Region 2
New York, NY
Region 6
Dallas, TX
Office of Chemical
Safety and
Pollution Prevention
pesticides and toxic chemicals through
" ~* partner' ' — J ---.-- —
Office of
General Counsel
Provides legal support for Agency rules
and policies, case-by-case decisions.
defensive litigation, operations.
and legislation.
Office of Solid Waste
and Emergency Response
Provides policy, guidance, and direction
for the Agency's emergency response
and waste programs.
!
Region 3
Philadelphia, PA
Region 7
Kansas City, KS
Region 4
Atlanta, GA
Region 8
Denver, CO
Region 9
San Francisco, CA
Region 10
Seattle, WA
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Regional Map
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EPA Offices and Facilites
W EPA National Headquarters
•jf EPA Regional Headquarters
EPA Regional and Program Laboratories and Facilities
Collaborating With Partners and Stakeholders
EPA's partnerships with states, tribes, local governments, and the global community are central to the
success of the national environmental protection enterprise. This Administration has placed high value on
strengthening these partnerships and has established a new cross-agency strategy, "Launching a New Era
of State, Tribal, Local and International Partnerships," to focus the Agency's work. EPA works in concert
with its partners to improve coordination, promote innovation, and leverage resources. Along with its co-
regulators, EPA works with the regulated community, private industry, nonprofit organizations, and the
public to use new tools and strategies to enhance coordination, manage resources effectively, and share
information. For example, through tools such as ECHO, "Enforcement and Compliance History Online," the
Agency has made environmental data more available and transparent EPA will continue working with its
partners and stakeholders to improve implementation of national environmental programs, seeking the
most efficient use of resources, streamlining business processes, and developing innovative solutions to
achieve results. As we work together, our relationships will continue to be based on integrity, trust, and
shared accountability to leverage our expertise, authorities, resources, and capabilities
A Framework for Performance Management
To carry out its mission to protect human health and the environment and comply with GPRMA, EPA
develops a Strategic Plan, which establishes its long-term strategic goals, objectives, and measures. To
further these strategic 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 APR.
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EPA's Performance Management Framework
Strategic Planning
FY 2014-2018 Strategic Plan
FY 2014-2015 Agency Priority Goals
Results Measurement, Reporting,
and Evaluation (Accountability)
FY 2014 Annual Performance Report/Highlights
FY 2014 Agency Financial Report
• Agency Management Integrity Report and Certifications
• Annual Audit Management
Program Evaluation
Deputy Administrator Performance Progress Reviews/Strategic Reviews
Annual Planning
and Budgeting
• FY 2016 EPA Annual Plan and Budget
• FY 2014-2015 Agency Priority Goal Action Plans
• Cross-Agency Strategy Action Plans
Operations and Execution
• FY2014 National Program Manager Guidance
• Regional Performance Commitments/
Annual Commitment System (ACS)
• Regional and State/Tribal Grant Work Plans
FY 2014 Advances in Performance Management
During FY 2014, EPA designed and implemented a number of key initiatives to further strengthen its
performance management
The FY2014-2018 EPA Strategic Plan: EPA's FY2014-2018 Strategic Plan, transmitted to the President
and the Congress and released to the public on April 10, 2014, updated our five strategic goals and thirteen
objectives and established four cross-agency strategies. During the development of the Plan, EPA engaged
with key partners and stakeholders, regularly briefed the Local Government Advisory Committee and the
Environmental Council of the States, formally consulted with Native American tribes, and held information
sessions during the public comment period.
Strategic Reviews: In compliance with GPRMA, EPA conducted its first round of strategic reviews as an
integral part of its performance management practices. The strategic reviews considered a wide array of
data and evidence to assess longer term progress toward each of EPA's thirteen strategic objectives and
four cross-agency strategies. Senior leaders met in spring 2014 to assess the agency's long-term progress
and to discuss the most important successes and challenges to inform critical planning, budgeting, and
program management decisions. The Agency summarized strategic review findings for each objective and
discussed them with the Deputy Administrator, the Acting Chief Financial Officer, and the Office of
Management and Budget. The results of the Agency's strategic reviews will be reflected in EPA's FY2014
Annual Performance Report and FY2016 Congressional Budget Justification and Annual Performance Plan.
Agency Priority Goals; In FY 2014, EPA established six FY 2014-2015 Agency Priority Goals (APGs) as
part of the FY2014-2018 Strategic Plan and made steady progress to implement action plans. EPA also
contributed to Cross-Agency Priority (CAP) Goals across the federal government, notably for Cybersecurity,
Benchmarking, and Infrastructure Permitting. In addition to quarterly internal discussions, EPA reported
5
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APG/CAP progress on http://www.performance.gov and will discuss end-of-year progress for APGs in its
FY 2014 Annual Performance Report
Agency Performance Reviews: EPA's Deputy Administrator and Acting Chief Financial Officer meet with
senior leadership quarterly to discuss progress on APGs and twice a year (mid-year and end-of-year) to
discuss progress toward the Agency's five goals and four cross-agency strategies. EPA officials use this
forum to discuss performance information, policy/programmatic issues, and the impact of resource levels
on Agency priorities and strategies. The reviews also help shape program strategy and budget initiatives
moving forward. During the FY 2014 mid-year review, EPA focused on its new strategic reviews and how
mid-year results inform and complement the longer view.
Transition to Two-Year National Program Manager (NPM) Guidance: In FY 2014, the Agency
convened a workgroup of state, regional, and national program representatives to strengthen and make
more meaningful state and tribal engagement in Agency programs; increase flexibility for EPA regions,
states, and tribes; streamline the workload associated with joint planning activities; and better align the
Agency's NPM and grant guidances. A key part of this effort has been transitioning to a two-year cycle for
the NPM guidance process. The NPM guidance identifies program priorities, strategies, and operational
measures consistent with EPA's Strategic Plan and Annual Plan and Budget and serves as a national
framework for regions to use as they establish work plans and work-sharing strategies with states and
Native American tribes. The new cycle for the NPM Guidance process began with implementation of the
new exceptions-based FY 2015 Addendums to the FY 2014 NPM Guidances. The FY 2016-2017 NPM
Guidances will reflect increased engagement with EPA partners to jointly identify the most important
environmental and human health work and clearly define flexibilities within work planning.
Enhanced Stewardship: To increase attention to the Agency's stewardship responsibilities for managing
programs and resources effectively and efficiently, EPA institutionalized Management Accountability
Reviews, conducting FY 2014 reviews in the Office of the Administrator, Office of Solid Waste and
Emergency Response, and EPA Regions 9 and 10. Onsite visits, conducted each year in selected program
and regional offices, focus attention on the Agency's responsibilities for audit management and
implementation of the Federal Managers' Financial Integrity Act, helping to ensure that EPA programs and
activities are managed to prevent waste, fraud, and abuse.
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FY 2014 PROGRAM PERFORMANCE
EPA's Strategic Goals
During FY 2014, EPA and its partners made progress
under the five strategic goals, thirteen supporting
objectives, and four cross-agency strategies
established in the Agency's FY2014-2018 Strategic ' poal 1= Addressing Climate Change and
0 J u Improving Air Quality
Goal 2: Protecting America's Waters
Goal 3: Cleaning Up Communities and
Advancing Sustainable Development
Goal 4: Ensuring the Safety of Chemicals
and Preventing Pollution
Goal 5: Protecting Human Health and the
Environment by Enforcing Laws and
Assuring Compliance
Detailed FY 2014 performance results, including the
Agency's progress in implementing its cross-agency
strategies, will be presented in EPA's FY 2014 Annual
Performance Report, which the Agency will issue with
its FY2016 Congressional Budget Justification and
EPA's Cross-Aeencv Strategies
Annual Performance Plan and post on its website at
http://www2.epa. gov/planandbudget in February
2015.
Working Toward a Sustainable Future
Strategic Goals
Working to Make a Visible Difference in
Communities
Launching a New Era of State, Tribal,
Local, and International Partnerships
Embracing EPA as a High-Performing
Organization
Goal 1: Addressing Climate Change and Improving
Air Quality
EPA develops national programs, policies, and
regulations for controlling GHG emissions, air
pollution, and radiation exposure to protect human health and the environment EPA has prevailed in
several recent cases in the Supreme Court and D.C. Circuit Court of Appeals on the Cross-State Air Pollution
Rule, the GHG Tailoring Rule, and the Mercury and Air Toxics Standards, reaffirming its central clean air
and climate change strategies.
EPA's strategies to address climate change reflect the President's Climate Action Plan (June 2013), which,
among other initiatives, tasks EPA with setting carbon dioxide (C02) standards for power plants, setting
motor vehicle emission and fuel standards, and applying the Agency's authorities and other tools to
address hydrofluorocarbons (HFCs). In June 2014, EPA proposed the first ever standards to address
carbon pollution from existing power plants. By 2030, the standards will cut carbon emissions from the
power sector by 30 percent nationwide below 2005 levels. Additionally, EPA expects the proposed
standards will cut particle matter pollution, nitrogen oxides, and S02 by more than 25 percent as a co-
benefit, avoiding up to 6,600 premature deaths and up to 150,000 asthma attacks in children—providing
up to $93 billion in climate and public health benefits. OAR continues to lead an unprecedented public
outreach effort on the proposed rule reaching thousands through webinars, public hearings, public
listening sessions, and numerous stakeholder meetings across the US. To date, over 1 million comments
have been received in the federal docket
Further advancing the President's Climate Action Plan, EPA is taking new steps to curb emissions of HFCs,
which are potent GHGs, by listing new HFC alternatives for use in industrial applications, identifying
refrigerant management options to reduce emissions, and organizing sector-specific workshops on moving
away from high global warming potential HFCs. EPA also developed five technical white papers as part of
the interagency Methane Strategy on potentially significant sources of emissions in the oil and gas sector
focusing on technical issues covering emissions and mitigation techniques that target methane and volatile
organic compounds (VOCs). The papers, along with the peer review and public input, are integral to how
EPA will determine to best pursue additional source reductions.
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EPA finalized the Tier 3 motor vehicle emission and fuel standards that set new vehicle emission standards
and lower the sulfur content of gasoline. These standards, which will take effect in 2017, consider the
vehicle and its fuel as an integrated system and will provide immediate air quality and health benefits as
soon as they are implemented. By 2030, the Tier 3 standards are expected to prevent up to 2,400
premature mortalities annually and 23,000 cases of respiratory ailments in children.
In addition, EPA published an Advance Notice of Proposed Rulemaking to update air toxics standards for
petroleum refineries including the first ever proposed requirement for fence-line monitoring to better
understand the risks to neighborhoods located near refineries. EPA is proposing additional emission
control requirements for storage tanks, flares and coking units at petroleum refineries. When fully
implemented, the provisions in this rule will result in a reduction of 5,600 tons per year of toxic air
pollutants and 52,000 tons per year of VOCs.
EPA also finalized an innovative rule to reduce regional haze caused by air pollution from the Navajo
Generating Station (NGS), the culmination of five years of efforts between the federal government and
tribes, utilities, water users, and environmental groups. In crafting the rule, EPA held five public hearings,
had 50 consultations with tribes and considered 77,000 public comments. When fully implemented by
2030, the EPA plan will reduce NOx emissions by about 80 percent and the visual impairment from the NGS
by roughly 73 percent at 11 national parks and wilderness areas.
EPA proposed standards for residential woodheaters, which are expected to reduce emissions of fine
particle pollution from new manufactured woodstoves, pellet stoves, hydronic heaters and forced air
furnaces by an estimated 4,825 tons a year - an 80 percent reduction over estimated emissions without the
rule. In addition to the health benefits provided by the proposed rule, woodheaters meeting the proposed
standards generally would be more efficient than older ones, meaning homeowners will be able to heat
their homes using less wood.
In response to the growing asthma problem, a serious, life-threatening respiratory disease that affects
nearly 26 million Americans, EPA created a national, multifaceted asthma education and outreach program
to share information and deliver training about managing environmental factors that trigger asthma
symptoms. As a result of EPA's 10-year investment, approximately 45,700 healthcare professionals are
now trained to address environmental asthma management as part of comprehensive asthma care.
EPA continues to be challenged to complete reviews of air toxics standards for stationary sources as
required by the Clean Air Act (CAA). Under Section 112 of the CAA, EPA must review and revise all air
toxics standards that have been promulgated since 1990, as necessary, within 8 years. Based on this
requirement, there are currently over 80 air toxics rules due for review. EPA sets review priorities based
on legal deadlines, resources, and the impact individual sectors have on low-income and disproportionately
impacted communities. Completing these reviews continues to be a challenge, and the Agency anticipates
potential litigation over pending or missed deadlines.
Goal 2: Protecting America's Waters
The nation's water resources are the lifeblood of our communities, supporting our economy and way of life.
Today we enjoy and depend on reliable sources of clean and safe water, but this was not always the case.
In the past, drinking water was too often the cause of illnesses, and many of our surface waters were so
polluted that swimming and fishing were impossible. The country has made significant progress since
enactment of landmark clean water legislation over 40 years ago. However, serious challenges remain, and
we continue to look for ways to make improvements as we deal with persistent water quality problems.
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In December 2013, EPA announced a new collaborative framework to enhance the overall efficiency of the
Clean Water Act [CWA] Section 303 [d] Program with States. This Long-Term Vision for Assessment,
Restoration, and Protection under the Clean Water Act Section 303(d) Program focuses attention on
priority waters and gives states the flexibility to use tools beyond the Total Maximum Daily Load (TMDLJ
rule to attain water quality restoration and protection.
On June 16, 2014, representatives from the entire watershed signed the new Chesapeake Bay Watershed
Agreement, for the first time committing the Bay's headwater states to full partnership in the Bay Program.
This plan for collaboration across the Bay's political boundaries establishes goals and outcomes for the
restoration of the Bay, its tributaries, and surrounding lands. The agreement builds from the foundation
laid by the 2009 Executive Order and contains ten goals that will advance the restoration and protection of
the Bay watershed. Each goal is linked to a set of time-bound and measurable targets that will directly
contribute to its achievement Chesapeake Bay Program partners are now developing management
strategies for achieving the agreement's targets and outcomes.
On April 21, 2014, EPA and the U.S. Army Corps of Engineers released a proposed rule to clarify protection
under the Clean Water Act for streams and wetlands that form the foundation of the nation's water
resources. The agencies launched a robust outreach effort after release of the proposal, holding discussions
around the country and gathering input needed to shape a final rule. To date, the agencies have held over
300 meetings with interested stakeholders.
While these accomplishments attest to our success in protecting the nation's waters, challenges remain
such as excess phosphorus loadings around the country and in the Great Lakes that contribute to water
quality impairments including harmful algal blooms. This summer, the City of Toledo issued a "Do Not
Drink" order for nearly 500,000 people in northwest Ohio and southeast Michigan when a drinking water
treatment plant was adversely impacted by a toxin produced in connection with a harmful algal bloom. EPA
immediately re-aligned approximately $12 million from FY 2014 Great Lakes Restoration Initiative (GLRI)
funding to protect public health by targeting harmful algal blooms in western Lake Erie. Under the second
GLRI Action Plan, agencies will support long term solutions for nutrient pollution through work that will:
(1) advance drinking water source protection; (2) increase voluntary agricultural conservation practices;
(3) use voluntary, incentive-based and existing regulatory approaches to reduce nutrient losses; and, (4)
encourage producers and agribusinesses to adopt innovative technologies and approaches to reduce
nutrient runoff and soil losses.
A January 2014 leak from a chemical storage tank into the Elk River in West Virginia, which left upwards of
300,000 residents, businesses, hospitals, and schools in nine counties in the Charleston, West Virginia
metropolitan area without safe drinking water for several days, highlighted the vulnerability of our
drinking water sources to contamination and the challenges of effectively responding to large-scale
incidents. This event has prompted states, large water utilities, and EPA to look at ways to improve spill
emergency response and preparedness as well as coordination across jurisdictions, programs, and
authorities as well as emergency preparedness and resiliency measures.
Goal 3: Cleaning Up Communities and Advancing Sustainable Development
Uncontrolled releases of waste and hazardous substances can contaminate our rivers, streams, drinking
water and land and can threaten healthy ecosystems. Local land use and infrastructure investments can
also generate unanticipated environmental consequences, such as increased stormwater runoff, loss of
open space, and increased GHG emissions. EPA continues working to prevent and reduce exposure to
contaminants, to accelerate the pace of cleanups, and to promote smart growth and the reuse of formerly
contaminated land sites.
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The Agency took critical steps in implementing Executive Order 13650 [August 1, 2013], Improving
Chemical Facility Safety and Security, bringing together federal regulatory representatives and
stakeholders with a vested interest in reducing the risks associated with handling and storage of chemicals
at stationary facilities within our communities. In May 2014, the Working Group released the final report to
the President highlighting progress and providing a plan to support and enable efforts by states, tribes, and
local communities to improve chemical facility safety. Furthermore, EPA's Region 2 developed standard
operating procedures for a unified federal, state and local approach for identifying and responding to risks
at chemical facilities and a plan to improve operational coordination. These procedures are now being used
as a model for other Regions across the nation. EPA also published a Request for Information on the risk
management program in July 2014 which describes 19 potential modifications to the program and requests
stakeholder feedback.
EPA's Brownfields Program strengthened efforts to create sustainable and resilient communities by
finalizing two checklists to help grant recipients address changing climate concerns during reuse planning
and cleanup. One checklist will help cleanup and Revolving Loan Fund recipients meet a new term and
condition to take potential changing climate conditions into consideration when evaluating cleanup
alternatives. A second checklist will help area-wide planning grantees plan for reuses as they consider
climate conditions. Brownfields re-development and cleanup activities resulted in more than 12,300 jobs
leveraged, and grant recipients indicated that $1.29 billion dollars were leveraged through Brownfields
cleanup and redevelopment activities in FY 2014.
EPA continues to make significant progress developing and implementing a targeted Sustainable Materials
Management (SMM) program centered on four focus areas: responsible management of used electronics;
sustainable food management; reducing the environmental footprint of the federal government; and
strengthening partnerships with state and local governments. Achievements in FY 2014 include:
preventing food waste through the Food Recovery Challenge, with participants diverting 375,000 tons of
food from landfills; diverting from landfills more than 220,000 metric tons of end-of-life electronics
through EPA's Electronics Challenge; and reducing the environmental footprint of over 400 federal
facilities through the Federal Green Challenge by diverting 523,000 tons of waste from landfills, saving
taxpayers an estimated $42 million.
EPA issued a final rule that helps create a consistent national framework to ensure the safe and effective
deployment and provide regulatory clarity for the implementation of Carbon Capture and Storage (CCS).
The new rule clarifies that C02 streams captured from emission sources, injected underground via
Underground Injection Control (UIC) Class VI wells approved for the purpose of geologic sequestration
under the Safe Drinking Water Act, and meeting certain other conditions (e.g., compliance with applicable
transportation regulations), will be excluded from EPA's hazardous waste regulations. Further, EPA
clarified that C02 injected underground via UIC Class II wells for enhanced oil recovery is not expected to be
a waste management activity. EPA's determination will help provide a clear pathway for deploying CCS
technologies in a safe and environmentally protective manner while also ensuring protection of
underground sources of drinking water.
Working with the White House, EPA chairs the Climate Change Subgroup as part of the White House
Council on Native American Affairs and seeks to provide tribes with data and information to improve
federal collaboration and assist with climate change adaptation and mitigation efforts through specific
projects and pilot programs. The Subgroup is collaborating with the President's Council on Environmental
Quality to address recommendations from the Task Force on Climate Preparedness and Resilience. This
effort is contributing to the long-term vision of strengthening existing and building new tribal partnerships
and bilateral relationships with other federal agencies to promote sustainability principles and goals.
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Goal 4: Ensuring the Safety of Chemicals and Preventing Pollution
Chemicals are released into the environment as a result of their manufacture, use in industrial and
commercial processing, use in households, and disposal. Chemical safety remains one of EPA's highest
priorities. EPA uses a variety of approaches and tools to assess, prevent, and reduce chemical releases and
exposures.
In FY 2014, the Agency completed final Toxic Substances Control Act [TSCA] Risk Assessments for four
VOCs under its TSCA Work Plan: trichloroethylene (TCE), dichloromethane (DCM), antimony trioxide
(ATO), and l,3,4,6,7,8-Hexahydro-4,6,6,7,8,8-hexamethylcyclopenta-y-2-benzopyran (HHCB). As a result of
findings of risk for both TCE and DCM, which are used as solvents in a wide variety of industrial,
commercial, and consumer use applications, the Agency has begun discussions with stakeholders about
safer alternatives and risk reduction approaches, including voluntary and regulatory actions. The
assessments of ATO, used in flame retardants, and HHCB, an ingredient in perfumes, cosmetics, shampoos,
detergents, and household cleaners, did not identify risk concerns.
Additionally, in FY 2014, the Agency released a revised TSCA Work Plan Chemicals list, updating the
original list of 83 chemicals based on the latest available TSCA Chemical Data Reporting and Toxics Release
Inventory information.
EPA expanded the ChemView database to include more than 8,300 chemicals. For the first time, the
database includes 298 Consent Orders as well as 73 test rule chemicals, for a total of 167 test rule
chemicals (including data adequacy reviews), and an additional 1,000 New Chemical Significant New Use
Rules (SNURs), for a total of over 1,700 SNURs. Improvements to ChemView included introducing
accessibility to the Toxic Release Inventory (P2) Pollution Prevention tool from the ChemView user tab;
providing the functionality to search by Significant New Use Notices for SNUR-related information; and
developing the tools/resources to quickly upload and provide information for public display.
EPA's Endocrine Disrupters Screening Program continues to evaluate through external peer review the use
of computational toxicology, CompTox, to prioritize and rapidly screen almost 1,800 chemicals for
endocrine testing. Integration of highly sophisticated exposure models provide critical data for risk-based
prioritization of thousands of EDSP chemicals. CompTox has significantly increased the Agency's capacity
to prioritize, screen, and predict chemical toxicity and exposure and to address the limitations of
traditional chemical toxicity testing.
EPA supported the United States as a signatory to the Minamata Convention on Mercury, a global
agreement to protect human health and the environment from the adverse effects of mercury. The major
highlights of the Minamata Convention on Mercury include a ban on new and a phase-out of existing
mercury mines, controls on air emissions, and the actions to address the informal sector for artisanal and
small-scale gold mining. Once fifty countries join the Convention and it enters into force, EPA will continue
its work supporting U.S. efforts to encourage full participation by the world community and to ensure that
decisions taken under the treaty are consistent with U.S. laws and regulations.
In FY 2014, the Design for the Environment (DfE) Program recognized 164 additional products that meet
the criteria for the Safer Products Labeling Program, which includes products formulated with the safest
possible ingredients for human health and the environment based on best available science and protective
criteria. This addition brings the total number of products bearing the DfE logo to approximately 2,500. DfE
also added 49 chemicals to the Safer Chemicals Ingredients List EPA helps partners participating in the
program switch to safer, more sustainable products by providing technical tools and expertise. To increase
public awareness of the availability of consumer products that are safer and more sustainable for the
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environment, EPA released four new proposed logo designs and is soliciting public comment on their
effectiveness. A decision on a new logo will be announced next year.
Goal 5: Protecting Human Health and the Environment by Enforcing Laws and Assuring Compliance
Vigorous enforcement supports EPA's ambitious mission to protect human health and the environment
Achieving its goals for safer water to drink, swimmable and fishable streams, cleaner air, and communities
and neighborhoods that are free from chemical contamination requires both new strategies and
compliance with the rules already in place. To help achieve these goals, EPA authorizes state, tribal, and
territorial agencies to directly implement environmental laws. In this way, federal, state, and tribal
agencies work cooperatively together as co-regulators to achieve compliance—with delegated or
authorized states conducting the vast majority of enforcement activities across the country.
In FY 2014, in partnership with delegated or authorized states and tribes, EPA worked to assure
compliance with environmental laws and requirements to protect human health and the environment.
Over the past year, EPA focused federal enforcement resources on the highest priority environmental
problems where noncompliance is a significant contributing factor, and where federal civil or criminal
enforcement actions can have a significant impact For example, Alpha Natural Resources, Inc., one of the
largest coal companies, and its 66 subsidiaries agreed to spend an estimated $200 million to install and
operate wastewater treatment systems and implement system-wide upgrades to reduce discharges of
pollution from coal mines in Kentucky, Pennsylvania, Tennessee, Virginia, and West Virginia. The
settlement with EPA covers approximately 79 active mines and 2 5 processing plants in 5 states. Under the
consent decree, Alpha must address CWA NPDES permit exceedances from their mining operations in
Appalachia by conducting comprehensive audits, implementing corrective measures, and installing
treatment technologies. Upgrades and advanced treatment required by the EPA settlement will reduce
discharges of total dissolved solids by over 36 million pounds each year, and cut metals and other
pollutants by approximately 9 million pounds per year. The companies will pay a civil penalty of $27.5
million for thousands of permit violations, the largest penalty in history under Section 402 of the Clean
Water Act The U.S. government will receive half of the penalty and the other half will be divided between
the co-plaintiffs, the states of West Virginia, Pennsylvania, and Kentucky.
Under EPA's national enforcement initiatives, EPA also addressed pollution problems that make a
difference in communities, including overburdened communities. For example, Flint Hill Resources of Port
Arthur, Texas agreed to a $350,000 civil penalty for CAA violations and to spend approximately $44 million
to implement innovative technologies to control harmful air pollution from industrial flares and leaking
equipment at its chemical plant in Port Arthur. When fully implemented, the new controls and
requirements under the settlement with EPA are estimated to reduce 1,860 tons of VOCs including
hazardous air pollutants annually. The company will also spend $350,000 to purchase and install
technologies to reduce energy demand in low income homes, and agreed to make its fence line monitoring
data available online to the public. Fence line monitoring is an example of Next Generation Compliance,
which takes advantage of new information and monitoring technologies as well as innovative strategies to
make rules and permits more effective. EPA hosted a "Next Generation Compliance Advanced Monitoring
Tech Demo Day" that convened some of the latest advances in pollution monitoring across the country.
Electronic reporting is another feature of Next Generation Compliance. Under EPA's settlement with
Titanium Metals Corporation, one of the world's largest producers of titanium parts for jet engines, the
company must electronically submit monitoring data biannually to EPA for three years showing that it is
appropriately managing any PCBs (polychlorinated biphenyls) it generates. The company has agreed to pay
a record $13.75 million civil penalty and perform an extensive investigation and cleanup of potential
contamination stemming primarily from the unauthorized manufacture and disposal of PCBs at its
manufacturing facility in Henderson, Nevada. The penalty is the largest ever imposed for violations of the
TSCA at a single facility. The settlement will result in the removal of approximately 84,000 pounds of PCB-
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contaminated waste from the environment each year, and will prevent the improper disposal of 56 million
pounds of hazardous waste each year.
As a result of another EPA settlement, Lowe's Home Centers agreed to implement a corporate-wide
compliance program at 1,700 stores nationwide to ensure that its contractors minimize lead dust when
performing home renovation activities. The consent decree protects children from lead paint exposure by
resolving violations of the Federal Lead, Renovation, Repair and Painting (RRP) Rule and requires payment
of a $500,000 civil penalty, the largest to date for violations of the RRP Rule. E.I, du Pont de Nemours and
Company will pay a $1.275 million penalty and take corrective actions to prevent future releases of harmful
levels of hazardous substances at a cost of approximately $2,276,000. DuPontwas fined for eight alleged
releases of harmful levels of hazardous substances over 4 years at its Belle, West Virginia facility, which
resulted in significant risk to people on the Kanawha River and the death of one DuPont worker. DuPont
will implement enhanced risk management operating procedures to improve its process of responding to
alarms triggered by releases of hazardous substances. Tonawanda Coke Corporation was ordered to pay a
$12.5 million penalty and make $12.2 million in community service payments for criminal violations of the
CAA and the Resource Conservation and Recovery Act. Tonawanda Coke released coke oven gas containing
benzene into the air through an unreported pressure relief valve. The community service payment will
fund an epidemiological study and an air and soil study to determine the extent of health and
environmental impacts on the Tonawanda community. Other examples of case settlements with significant
impacts on public health or the environment include East Bay Municipal Utility District and seven East Bay
Communities, carbon black manufacturer Cabot Corporation, pesticide producer Harrell's LLC, Elementis
Chromium, Inc., Chesapeake Appalachia, and Newfield Production Company.
EPA continued to modernize its compliance monitoring and enforcement information systems, including
the Integrated Compliance Information System (ICIS) Air Facility System (ICIS-Air), and conducted training
sessions with more than 150 state and local agency users. In support of the National Pollutant Discharge
Elimination System [NPDES] Electronic Reporting Rule. EPA developed new capabilities for the Electronic
Notice of Intent tool, called the NPDES eReporting Tool (NeT), which supports reporting of NPDES data by
applicants for general NPDES permits. EPA completed work necessary to move EPA's NPDES Multi-Sector
General Permit (MSGP), which supports 27 different sectors, from paper to electronic reporting throughout
the lifecycle of the permit EPA also launched the modernized version of the EPA's Enforcement and
Compliance History Online (ECHO) website, the Agency's primary website for providing public access to
regulatory compliance and enforcement data. EPA enhanced search capabilities for data related to
compliance, violations, enforcement cases, specific facilities and/or pollutants for several environmental
statutes. EPA also evaluated the use of new data analytics technology and completed the enhanced analytic
pilot for integrating Occupational Health and Safety Administration and EPA data as another tool for
targeting compliance monitoring.
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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 rigorous
financial management standards. Highlighted below are some of EPA's most significant financial
achievements in FY 2014:
• Clean audit opinion. For the 15th consecutive year, EPA's OIG issued a "clean" audit opinion,
unqualified and unmodified, 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.
• New electronic travel system. Implementation of a new electronic travel service provider, Concur
Government Edition, will streamline many facets of the employee travel process including planning and
authorizing travel, reservations, tickets, and reimbursements.
• Improvements in financial processes. In FY 2014, the Agency assessed the efficiency and
effectiveness of major financial processes. In FY 2015, workgroups will continue the implementation of
these improvements:
o Reimbursable Agreement payments. Improved and standardized financial controls will
reduce total process time and save the Agency as much as $648K annually.
o Budget Execution. Streamlining and standardizing the unliquidated obligation/deobligation
process for contracts and related processes will reduce workload, accelerate the processing of
funds, and reduce the number of expired funds that are lost each year.
o Superfund Cost Recovery. Standardizing finance elements of the cost recovery process across
EPA's regions will lead to improved process efficiencies and cost savings.
• Internal Control Assessments. EPA evaluated the Agency's control over sensitive employee payment
areas such as travel, payroll, parking and transit subsidies. This internal control assessment fostered
managerial integrity and accountability by enabling early identification and resolution of potential
areas of weakness.
• Tightened conference spending and oversight. EPA implemented a robust set of controls related to
conference spending. EPA provided detailed reporting to the public and the OIG on conferences,
enabling greater transparency to the public on conference spending. EPA also initiated a tracking and
coding system which ensures greater data quality. The EPA continues meet its reporting targets for the
OIG to data on conferences within 15 days of the conclusion of the conference.
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Financial Condition and Results
Financial statements are formal financial
records that document the EPA's activities at
the transaction level, where a "financial
event" occurs. A financial event is any
occurrence having financial consequences to
the federal government related to the receipt
of appropriations or other financial
resources; acquisition of goods or services;
payments or collections; recognition of
guarantees, benefits to be provided, and
other potential liabilities; or other reportable
financial activities.
The EPA prepares four consolidated
statements, including: 1) Balance Sheet, 2)
Statement of Net Cost, 3) Statement of
Changes in Net Position, and 4) Statement of
Custodial Activity, and one combined
statement, the Statement of Budgetary
Resources. Together, these statements with
their accompanying notes provide the
complete picture of the EPA's financial situation. The complete statements with accompanying notes, as
well as the auditor's opinion, are available in Section II of this report
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 the
EPA's assets and
liabilities.
Net Cost of Operations:
The difference between
the costs incurred by the
EPA's programs and the
EPA's revenues.
The Balance Sheet displays
assets, liabilities and net
position as of September 30,
2014, and September 30,
2013. The Statement of Net
Cost shows the EPA's gross
cost to operate, minus
exchange revenue earned
from its activities. Together,
these two statements provide
information about key
components of the EPA's
financial condition—assets,
liabilities, net position and
net cost of operations. The
chart that follows depicts the
Agency's financial activity
levels since FY 2012.
Balance Sheet Trend
(dollars in billions)
$20.00
$15.00
$10.00
$5.00
$-
$17.26
$16.76
$14.99
$14.39
$10.38
Assets
Net Position
Net Cost of
Operations
12012 B2013 B2014
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EPA Resources and Spending
The figure to the right
depicts EPA's aggregate
budgetary resources
(congressional
appropriations and some
Agency collections),
obligations (authorized
commitment of funds),
and total outlays (cash
payments) for each of the
last five fiscal years. The
Statement of Budgetary
Resources in Section III
provides more
information on the
makeup of the Agency's
resources.
$18.00
$17.00
cr $16.00
0 $15.00
g $14.00
^ $13.00
2 $12.00
d $11.00
Q $10.00
$9.00
$8.00
EPA FINANCIAL TRENDS
•Budgetary Resources • Obligations A Total Outlays
$16.58 $16.57
^\
$14.67
$11
2010
2011
2012
2013
2014
The figure to the right
presents EPA's FY 2014
costs(expenses for
services rendered or
activities performed) by
category.
FY 2014 COST CATEGORIES
Other Expenses
5%
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Assets—What the EPA Owns
and Manages
The EPA's assets totaled
$15.2 billion at the end of FY
2014, a decrease of $1.6
billion from the FY 2 013
level. In FY 2014, almost 87
percent of EPA's assets fall
into two categories: Fund
Balance with Treasury and
Investments. All of the EPA's
investments are backed by
U.S. government securities.
The graphs that follow
compare the Agency's FY
2014 and FY 2013 assets by
major categories.
Composition of Assets, FY 2013 - FY 2014
Loans Receivable
Other Assets |
Accounts Receivable (Net)
Property, Plant, and Equipment (Net)
Investments
Fund Balance with Treasury
S-
$2.00 $4.00 $6.00 $8.00 $10.00 $12.00
Dollars (in billions)
12014 B2013
Liabilities—What the EPA Owes
Composition of Liabilities, FY 2013 - FY 2014
Payroll and Benefits
Other
Cashout Advances, Superfund
$0.97
$1.01
The EPA's liabilities were
$2.19 billion at the end of FY
2014, a decrease of $180
million from the FY 2013
level. In FY 2014, the EPA's
largest liability (44 percent)
was Superfund cashout
advances that include funds
paid by the EPA for cleanup
of contaminated sites under
the Superfund program. The
second largest category (24
percent) was combined
accounts payable and
accrued liabilities. Other
categories include payroll
and benefits payable,
including salaries, pensions
and other actuarial liabilities,
EPA's debt due to Treasury, custodial liabilities that are necessary to maintain assets for which the EPA
serves as custodian, environmental cleanup costs and other miscellaneous liabilities. The graphs that
follow compare FY 2014 and FY 2013 liabilities by major categories.
Accounts Payable and Accrued Liabilities
0.60
$0.68
5-
$0.20 $0.40 $0.60 $0.80 $1.00 $1.20
Dollars (in billions)
12014 B2013
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Net Cost of Operations—How the EPA Used Its Funds
The graphs that follow show how the EPA's funds are expended among its five program goal areas in FY
2014 and FY 2013:
Net Cost By Goal, FY 2013-FY 2014
Compliance & Environmental Stewardship
Healthy Communities & Ecosystems
Land Preservation & Restoration
Clean & Safe Water
Clean Air
$0.71
50.69
$0.61
$0.66
$1.72
' $1.94
$0.98
$1.05
S- Si.00 $2.00 $3.00 $4.00 $5.00 $6.00
2014 «2013 Dollars (in billions)
Stewardship Funds
EPA serves as a steward on behalf of the American people. The chart below presents four categories of
stewardship: Stewardship Land and Research and Development, Infrastructure, and Human Capital. In FY
2014, the EPA devoted a total of $3.9 billion to its stewardship activities.
Per Federal Accounting Standards Advisory Board, stewardship investments consist of expenditures made
by the Agency for the long-term benefit of the nation that do not result in the federal government acquiring
tangible assets.
• The largest infrastructure programs are the Clean Water State Revolving Fund (CWSRF) and Drinking
Water State Revolving Fund (SRF) programs that provide grant funds to states for the construction of
wastewater and drinking water treatment facilities. States lend the majority of these funds to localities
or utilities to fund the construction and or upgrade of facilities (some may also be forgiven). The EPA
devoted nearly $2.3 billion in FY 2014 appropriated funds for states' use. In addition, states lent billions
of dollars from funds they received as repayments from previous SRF loans. These funds provide
crucial access to cleaner and safer drinking water for millions of people.
• Research and development activities enable the EPA to identify and assess important risks to human
health and the environment. This critical research investment provides the basis for the EPA's
regulatory work, including regulations to protect children's health and at-risk communities, drinking
water, and the nation's ecosystems.
• Human capital includes the EPA's educational outreach and research fellowships, both of which are
designed to enhance the nation's environmental capacity.
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FY 2014 STEWARDSHIP
Research &
Development,
$584,000,15%.
Human Capital,.
$35,563,1%
Land, $- , 0%
Land includes
contaminated sites to
which the EPA
acquires title under
the Superfund
authority. This land
needs remediation
and cleanup because
its quality is well
below any usable and
manageable
standards. To gain
access to
contaminated sites,
the EPA acquires
easements that are in
good and usable
condition. These
easements also serve to isolate the site and restrict usage while the cleanup is taking place.
A detailed discussion of this information is available in the Required Supplementary Stewardship
Information located in Section III of this report
Financial Management for the Future
As challenges to the environment grow, sound stewardship of EPA's financial resources becomes
increasingly critical to the Agency's ability to protect the environment and human health locally, nationally,
and internationally. Reliable, accurate, and timely financial information is essential to ensure cost-effective
decisions for addressing land, water, air and ecosystem issues.
To strengthen EPA's financial stewardship capabilities, EPA 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. Staff members are trained in financial analysis and forecasting to
understand financial data and what the data means. EPA is integrating financial information into everyday
decision-making so that the Agency maximizes the use of its resources.
Systems: In FY 2014, EPA utilized 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, including:
• General Ledger
• Accounts Payable
• Accounts Receivable
• Property
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• 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 and
generates source data for the preparation of financial statements and budgetary reports. Compass is
integrated with 15 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 (T&A); 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 completed its migration of its human resources and payroll systems to an OMB-approved Human
Resources Line of Business (HRLoB) shared service provider in FY 2014. EPA's financial systems
modernization strategy builds upon Compass and the migration to the new shared service provider
through the implementation of additional components, subject to future review by OMB:
• Account Code Structure
• Budget formulation
• Superfund imaging and cost accounting
• Payment systems; such as for travel, purchase card and grant payments
EPA is in the design phase of its new Budget Formulation System and is developing requirements for its
Account Code Structure to meet stakeholder reporting needs.
Limitations of the Principal Financial Statements
EPA prepared the principal financial statements to report the financial position and results of operations of
the Agency, pursuant to the requirements of 31 U.S.C. 3515 (b). While 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
The EPA's OIG contributes to the Agency's mission to improve human health and environmental protection
by assessing the efficiency and effectiveness of the EPA's program management and results. The OIG
ensures that Agency resources are used as intended; developing recommendations for improvements and
cost savings; and providing oversight and advisory assistance in helping the EPA carry out its objectives. In
FY 2014, the OIG identified key management challenges and internal control weaknesses and provided 448
recommendations accounting for over $380 million in potential savings and recoveries ($7.35 return for
every $1 invested in the OIG) and 324 actions taken by the Agency for improvement from OIG
recommendations and 224 criminal, civil or administrative enforcement actions altogether from OIG
audits, evaluations and investigations.
The OIG also contributes to the oversight 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 work with the Pipeline and Hazardous Materials Safety Administration to address
methane leaks. The Agency also agreed to develop a strategy to address the financial and policy
barriers that hinder methane reductions from the distribution sector (OIG report 14-P-0324:
http://www.epa.gov/oig/reports/2014/20140725-14-P-0324.pdfj:
• Agreed to implement regular transaction reviews to determine if purchase cardholders and
approving officials are complying with EPA purchase card guidance (OIG Report 14-P-0128:
http://www.epa.gOV/oig/reports/2014/20140304-14-P-0128.pdfl:and
• Agreed to create formal policies and procedures for several processes that contribute to
safeguarding Personally Identifiable Information (OIG Report 14-P-0122
http://www.epa.gov/oig/reports/2014/20140224-14-P-0122.pdfj.
Additionally:
• We recommended procedures to better utilize over $230 million dollars from reapplication of
unliquidated obligations in state revolving funds (OIG Report 14-P-0318
http://www.epa.gov/oig/reports/2014/20140716-14-P-0318.pdfl.
• We recommended that EPA recover $9 million in unallowable costs from a grantee (OIG Report 14-
R-0130 http://www.epa.gov/oig/reports/2014/20140306-14-R-0130.pdfl.
• We recommended that EPA recover over $1.5 million in improper costs from an environmental
support contractor (OIG Report 14-P-0132 http://www.epa.gov/oig/reports/2014/20140311-14-
P-0132.pdf).
• Investigations led to over 50 indictments, 19 convictions and 130 administrative actions.
• We gave 5 congressional testimonies and conducted or produced 90 briefings/podcasts.
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Grants Management
EPA has two major grants management metrics, one for grant competition, the other for grants closeout.
For FY 2014, the Agency exceeded the grant competition metric by 6%, and was just 1% shy of the 99%
grant closeout target
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 FY 2014
92% in 2013
98% in 2012 and earlier
96%
Progress in FY 2013
93% in 2012
98.3% in 2011 and earlier
96%
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ACCOUNTABILITY: SYSTEMS, CONTROLS, AND
LEGAL COMPLIANCE
Federal Managers' Financial Integrity Act (FMFIA)
FMFIA requires agencies to annually evaluate their program and financial internal controls and report the
results to the President and Congress. In addition, agencies must 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 OMB Circular A-123, Appendix A.
Each year, EPA's national program and regional offices assess controls 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 FMFIA. For instance, EPA institutionalized the Management
Accountability Reviews it piloted last year. These onsite visits, conducted each year in selected program
and regional offices, focus attention on the Agency's responsibilities for audit management and
implementation of the Federal Managers' Financial Integrity Act, helping to ensure that EPA programs and
activities are managed to prevent waste, fraud, and abuse.
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 237 key controls. Based on this evaluation, no new
material weaknesses were identified. Subsequent to the Agency's review, EPA's OIG identified 1 new
material weakness and 13 new significant deficiencies during the FY 2014 financial statement audit Based
on the results of the Agency's and the OIG's FY 2014 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.
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Fiscal Year 2014 Annual Assurance Statement
The U.S. Environmental Protection Agency conducted its FY 2014 assessment of the effectiveness of internal
controls over programmatic operations and financial activities as well as conformance 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 governmentwide standards as of September 30, 2014.
In addition, the EPA conducted its assessment of the effectiveness of internal controls over financial
activities. As of June 30, 2014, no material weaknesses were identified. Subsequently, the Office of the
Inspector General identified a material weakness during the FY 2014 Financial Statement Audit related to the
recording of transactions and capitalization of software costs. The agency agrees with the material weakness
and expects to complete corrective actions by FY 2018.
As a result, I can provide reasonable assurance that, except for the material weakness over the agency's
recording of transactions and capitalization of software costs, the EPA's internal controls over financial
activities were operating effectively as of September 30, 2014.
n
ij/ia McCarthy *—^ Date
Administrator
24
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Management Assurances
For FY 2014, one material weakness was identified by the OIG. EPA is addressing an Agency-level weakness
for which corrective actions are planned. 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 2010. EPA continues to emphasize the importance of maintaining effective internal
controls.
Five-Year Trend of Material and Agency Weaknesses
Remaining at Year-End
(D
0)
Material
Agency
2010
2011
2012
Fiscal Year
2014
I Agency • Material
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 2014 assessment included the following:
• A-12 3 review found no significant deficiencies.
• OIG's FY 2014 financial statement audit identified one new material weakness related to
undercapitalized software in the financial statements.
• The Agency's annual Federal Information Security Management Act Report did not disclose any
material weaknesses.
• The Agency conducted other systems-related activities, including:
o 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 is in compliance with the FFMIA for FY 2014.
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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 OIG—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's FY 2014 FISMA Report and the OIG's FY 2014 FISMA audit status meeting
cites no material weaknesses in information security. The FY 2014 OIG report, however, noted where EPA
needs to make significant improvements in configuration management EPA has been making
improvements in configuration management through FY 2014 and will continue to focus efforts through FY
2015. The Agency plans to focus on the other Administration Priorities (APs) for information security as
well in FY 2015 to progress on meeting the AP standards.
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 second year implementation of its revised audit management policy, "EPA Manual
2750, Audit Management Procedures." The revised policy clarifies roles and responsibilities, ensures
consistent audit management and follow-up practices agency-wide, and promotes timely, efficient
and effective resolution of OIG, as well as Government Accountability Office and Defense Contract
Audit Agency audit findings and recommendations. Since issuance of the new policy, the Agency has
noted increased attention to timely resolution of OIG audits: 69 percent of program/performance
audits issued in FY 2014 were resolved prior to issuance of the final audit report.
• To broaden the agency's attention to its stewardship responsibilities for managing programs and
resources effectively and efficiently, EPA institutionalized the comprehensive Management
Accountability Reviews piloted last year. These onsite visits, conducted each year in selected
program and regional offices, focus 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 Federal Managers' Financial Integrity Act 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 the EPA, these reports promote timely audit follow-up and
completion of corrective actions.
In FY 2014, EPA was responsible for addressing OIG recommendations and tracking follow-up activities for
339 OIG reports. The Agency achieved final action (completing all corrective actions associated with the
audit) on 164 audits, including program evaluation/program performance, assistance agreement, and
single audits. This total excludes Defense Contract Audit Agency audits issued after January 1, 2009; these
audits are discussed separately below. EPA's FY 2014 management activities for audits with associated
dollars are represented in the following table*.
26
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Category
A. Audits with management decisions but without
final action at the beginning of the period
B. Audits for which management decisions were
made during the period
(i) Management decisions with disallowed costs
(8) and with better use funds (6)
(ii) Management decisions with no disallowed
costs (106) and with no better use funds (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
d) Other
(ii) Write-offs
(iii) Reinstated through grantee appeal
(iv) Value of recommendations completed
(v) Value of recommendations management
decided should/could not be completed
E. Audits without final action at end of period (C-
D)
Disallowed Costs
(Financial Audits)
Number Value
50 $ 8,233,227
114 $15,541,207
164 $ 23,774,434
113 $ 15,608,834
$ 9,093,797
$ 195,652
$ 0
$ 6,319,385
$ 0
$ 0
51 $ 8,165,600
Funds Put To Better Use
(Performance Audits)
Number Value
99 $ 113,004,734
39 $ 291,000,927
138 $ 404,005,661
51 $ 214,569
$ 36,821
$ 177,748
87 $403,791,092
*Any differences in numbers of reports and amounts of disallowed costs or funds put to better use between
this report and EPA's previous APR result from corrections made to data in the Agency's audit tracking
system.
EPA's FY 2014 management activities for audits without final corrective action are summarized as follows:
Final Corrective Action Not Taken. Of the 339 audits that EPA tracked, a total of 163 audits—which
include program evaluation/program performance, assistance agreement, contract, and single audits—
were without final action and not yet fully resolved at the end of FY 2 014. (The 12 audits with
management decisions under administrative appeal by the grantee are not included in the 163 total;
see discussion below.)
Final Corrective Action Not Taken Beyond One Year. Of the 163 audits, EPA officials had not completed
final action on 77 audits (five of which involve multiple offices) within one year after the management
decision (the point at which the DIG and the action official reach agreement on the corrective action
plan). Because the issues to be addressed may be complex, agency managers often require more than
one year after management decisions are reached with the DIG 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 may require more than one year when corrections are complex and
27
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lengthy. Some audits include recommendations requiring action by more than one office. EPA is tracking 58
audits in the program performance category (5 of which involve multiple offices).
Office of Administration and Resources Management
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
12-P00836 EPA Should Improve Management Practices and Security Controls for Its Network Directory Service
System
13-P00028+ Improvements Needed in Estimating and Leveraging Cost Savings Across EPA
13-P00162 EPA Facility Space Management to Optimize Occupancy and Cost
13-P00200 Improvements Needed in EPA's Smartcard Program to Ensure Consistent Physical Access Procedures
and Cost Reasonableness
13-P00208+ EPA Should Increase Fixed Price Contracting for Remedial Actions
Office of Air and Radiation
9-P00087+ EPA Plans for Managing Counter Terrorism/Emergency Response Equipment and Protecting Critical
Assets
9-P00151 EPA Does Not Provide Oversight of Radon Testing Accuracy and Reliability
10-P00154 Key Activities in EPA's Integrated Urban Air Toxics Strategy Remain Unimplemented
11-P00701 EPA Should Update Its Fee Rule to Recover More Motor Vehicle and Engine Compliance Program
Costs
12-P00417 Weaknesses in EPA's Management of the Radiation Network System Demand Attention
13-100434 Effectiveness of Strategies to Reduce Ozone Precursors
13-P00161+ EPA Needs to Improve Air Emissions Data for the Oil and Natural Gas Production Sector
13-P00373 The EPA Should Improve Monitoring of Controls in the Renewable Fuel Standard
Program
Office of Chemical Safety and Pollution Prevention
10-P00066 EPA Needs a Coordinated Plan to Oversee Its Toxic Substances Control Act Responsibilities
12-P00600 Review of Hotline 2011-0027 (Lead- Renovation Painting and Repair Program) - Review of Hotline
Complaint Concerning Cost and Benefit Estimates for EPA's Lead-Based Paint Rule
13-P00163 EPA Is Not Recovering All Its Costs of the Lead-Based Paint Fees Program
Office of the Chief Financial Officer
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
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
13-100054 Audit of EPA's Fiscal 2012 and 2011 Consolidated Financial Statements
13-P00028+ Improvements Needed in Estimating and Leveraging Cost Savings Across EPA
13-P00366 The EPA Needs to Improve Timeliness and Documentation of Workforce and Workload Management
Corrective Actions
Office of Enforcement & 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
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11-P00315 Agency-Wide Application of Region 7 NPDES Program Process Improvements Could Increase EPA
Efficiency
13-P00431 EPA Needs to Update Its Pesticide and Chemical Enforcement Penalty Policies and Practices
13-P00435 The EPA Should Assess the Utility of the Watch List as a Management Tool
Office of Environmental Information
13-P00257 Improvements Needed in EPA's Information Security Program
13-P00433 Congressionally Requested Inquiry Into the EPA's Use of Private and Alias Email Accounts
Office of Research and Development
11-P00333 Office of Research and Development Needs to Improve Its Method of Measuring Administrative
Savings
13-P00161+ EPA Needs to Improve Air Emissions Data for the Oil and Natural Gas Production Sector
13-P00252 Improvements Needed to Secure IT Assets at EPA Owned Research Facilities
13-P00363 The EPA Should Improve Chemical Fume Hood Testing Oversight to Reduce Health and Safety Risk
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
13-P00152 EPA Could Improve Contingency Planning for Oil and Hazardous Substance Response
13-P00176 Results and Benefits Information Is Needed to Support Impacts of EPA's Superfund Removal Program
13-P00178 Improvements Needed in EPA Training and Oversight for Risk Management Program Inspections
13-P00208+ EPA Should Increase Fixed Price Contracting for Remedial Actions
13-P00298 Improved Information Could Better Enable EPA to Manage Electronic Waste and Enforce Regulations
Office of Water
10-P00224+ EPA Should Revise Outdated or Inconsistent EPA-State Clean Water Act Memoranda of Agreement
13-P00271 Improved Internal Controls Needed in the Gulf of Mexico Program Office
Region 8:
11-P00430
An Overall Strategy Can Improve Communication Efforts at Asbestos Superfund Site in Libby,
Montana
Region 9:
2008-P00196
11-P00725
Region 10:
12-P00220
13-R00206
Making Better Use of Stringfellow SF Special Accounts
Region 9 Technical and Computer Room Security Vulnerabilities Increase Risk to EPA's Network
Region 10 Technical and Computer Room Security Vulnerabilities Increase Risk to EPA's Network
Audit of American Recovery and Reinvestment Act Cooperative Agreement No. 2S-96099601
Awarded to the Idaho Department of Environmental Quality
+ 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 may require more than a year if the findings are complex or the
grantee does not have the resources to take corrective action. Single audits are conducted of nonprofit
29
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organizations, universities, and state and local governments. The EPA is tracking completion of corrective
action on the following 14 single audits for the period beginning October 1, 2014.
Region 2
2007-300139
11-300022
11-300038
12-300444
13-300119
Region 9:
10-300208
12-300285
12-300860
13-300133
13-300164
13-300346
Region 10
2003-300047
2003-300117
2003-300145
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
United States Virgin Islands FY 2010
CityofNogalesFY2008
Commonwealth Utilities Corporation MP FY 2010
Commonwealth Utilities Corporation MP FY 2011
Hopi Tribe Arizona FY 2009
City of Nogales Arizona FY 2011
City of Nogales Arizona FY 2012
Stevens Village Council
Stevens Village Council
Circle Village CouncilA
AIndicates 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 may require more
than one year, as the grantee may appeal, refuse to repay or be placed on a repayment plan that spans
several years. EPA is tracking the following 5 audits in this category.
Office of Grants and Debar ment
2001-100073 Napoleon City Schools-ASHAA (Hotline)
10-400067 Incurred Cost Audit of Three EPA Cooperative Agreements Awarded to National Tribal Environment
Region 3
2001-100101
2008-400156
Center for Chesapeake Communities (CCC) Assist. Agreements'
Canaan Valley Institute
Region 5
2008-200039 Village of Laurelville, OhioA
AIndicates 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 case of an appeal,
EPA must not take action to collect the account receivable until the agency issues a decision on the appeal.
At the end of FY 2014,12 audits were in administrative appeal. When these audits are out of appeal and all
issues have been resolved, they will be captured in audit follow-up data reported in the EPA's APR.
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Defense Contract Audit Agency Audits
Prior to January 1, 2009, DCAA audits of EPA contracts requested by EPA's OIG were included in OIG's
Semiannual Report 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
preceding 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 October 1, 2013
through September 30, 2014.
Summary of Audit Activities for the Period Ending September 30, 2014
Category
A. Audits for which no management decision was made by 10/1/2013
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 9/30/14
F. Reports for which no management decision was made within six months of issuance
Number
35
32
67
39
28
16
Questioned Costs
$ 1,774,479
$ 368,810
$ 2,143,289
$ 2,143,289
$ 0
$ 0
During this reporting period, EPA management was accountable for monitoring 70 DCAA audits, one
performed by the Defense Contract Management Agency (DCMA) and one performed by a CPA firm. The
agency achieved final action on 40 audits. EPA's FY 2014 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 (14)
(ii) Management decisions with no disallowed costs (25)
C. Total audits pending final action during the period (A+B)
D. Final action taken during the period:
(i) Recoveries
a) Offsets
b) Collection
c) Value of property
d) Other
(ii) Write-offs
(iii)Reinstated through 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
5 $ 339,785
39 2,143,289
44 $2,483,074
40 $2,204,132
$ 0
$ 0
$ 0
$2,204,132
$ 0
$ 0
4 $ 278,942
Funds Put to Better Use
(Performance Audits)
Number Value
0 $ 0
0 $ 0
0 $ 0
0 $ 0
$ 0
$ 0
0 $ 0
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Final Corrective Action Not Taken on DCAA Audit Reports: Of the 72 DCAA, DCMA and CPA firm audits
EPA tracked, 32 were without final action and not yet fully resolved at the end of FY 2014.
DCAA Audits Awaiting Decision on Appeal: As of September 30, 2014, there were no management
decisions in administrative appeal status.
DCAA Audits Without Management Decision in 180 Days: As of September 30, 2014, 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 audits for the period beginning October 1, 2014.
2012-114475 Avanti Corporation FY 2006,2007 and 2008 Incurred Costs
2012-114800 Alpha Gamma FY 2005 Incurred Costs
2012-114841 TechLaw Inc. FY 2006, 2007, 2008 Incurred Costs
2013-115413 Weston Solutions, CAS 420 Noncompliance Follow-Up Review
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SECTION II
FINANCIAL SECTION
33
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MESSAGE FROM THE CHIEF FINANCIAL OFFICER
I am honored to join the Administrator in presenting the EPA's FY 2014 Agency
Financial Report This report is the principal means by which we share with the
President, Congress and the public our accomplishments and challenges in protecting
human health and the environment, effectively managing the financial resources
entrusted to us, and progress toward addressing key management challenges.
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 2014 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.
Ensuring sound and professional financial management with attention to using our limited resources in the
most effective manner continues to be a focus within the agency. To develop cost-effective strategies, the
agency assessed the efficiency and effectiveness of major financial processes, including reimbursable
agreement payments, budget execution and Superfund cost recovery. Implementation of the proposed
changes over the next fiscal year will result in cost savings and more timely payments to the grantees,
contractors, and vendors who help us do our business.
In addition, we developed an internal control assessment process for systematically assessing compliance
and efficiency with our financial policies. Over the course of the fiscal year, we evaluated our internal
controls for travel, payroll, and parking and transit subsidy payments to employees. The evaluation
identified corrective actions for several areas, and we developed tools for improving agency operations
through future internal control assessments.
Further, we are committed to supporting the President's Management Agenda, which focuses on improving
the efficiency of the government by increasing the quality and value of core operations and enhancing
productivity to achieve cost savings. We have been particularly focused on mission-support functions
including acquisition, financial management, human capital, information technology management, and real
property. In FY 2014, the agency implemented a new human resources and payroll management system,
the Department of the Interior's Interior Business Center. This system standardizes, automates and
integrates our human resources and payroll systems to improve business performance. The agency also
changed its electronic travel system to Concur, which will allow better oversight and verification of
employee travel-related expenditures.
In the spirit of government transparency, we are working with the Department of the Treasury and OMB to
ensure effective implementation of the Digital Accountability and Transparency Act. This landmark federal
financial law requires that federal spending data is published online in an open and accessible format.
As we streamline our operations, closely monitor how we use our resources, and adjust to a smaller and
nimbler workforce, we are maintaining a robust planning process for the future. In FY 2014, we released
the agency's FY2014-2018 Strategic Plan. The Plan is focused on delivering creative, flexible, cost-effective,
and sustainable programs that improve human health and environmental protection in communities across
the country. We are also focusing on how we deliver our programs; in our Plan, we identify cross-agency
strategies that challenge us to change how we work, internally and externally, to achieve our mission
outcomes. The strategic goals in our Plan, combined with our cross-agency strategies, will drive our effort
to make tangible, measurable progress in environmental and human health protection in the coming years.
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As we start the new fiscal year, we will uphold our commitment to financial excellence and strive to ensure
that we use taxpayer dollars effectively in fulfilling our mission. I look forward to the agency's continued
success through collaboration with our partners and stakeholders to help deliver the best results to the
American people.
id A. Bloom
Acting Chief Financial Officer
November 17, 2014
35
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ERA'S FISCAL 2014 AND 2013
CONSOLIDATED FINANCIAL STATEMENTS (WITH
RESTATEMENTS)
36
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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. Cost of Stewardship Land
Note 2 2 Environmental Cleanup Costs
Note 23. State Credits
Note 24. Preauthorized Mixed Funding Agreements
Note 25. Custodial Revenues and Accounts Receivable
Note 2 6. Reconciliation of President's Budget to Statement of Budgetary Resources
Note 2 7. Recoveries and Resources Not Available, Statement of Budgetary Resources
Note 28. Unobligated Balances Available
Note 29. Undelivered Orders at the End of the Period
Note 30. Offsetting Receipts
Note 31. Transfers-In and Out, Statement of Changes in Net Position
Note 32. Imputed Financing
Note 33. Payroll and Benefits Payable
Note 34. Other Adjustments, Statement of Changes in Net Position
Note 35. Non-exchange Revenue, Statement of Changes in Net Position
Note 3 6. Reconciliation of Net Cost of Operations to Budget
Note 37. Amounts Held By Treasury (Unaudited)
Note 3 8. Restatements
37
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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)
38
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FY2014
9,370,002 $
3,900,385
10,573
229,018
13,509,978 $
10
526,859
398
1,185,888
3,288
15,226,421 S
Restated
FY2013
9,944,179
4,577,071
14,327
243,654
14,779,231
10
849,173
57
1,152,950
5,756
16,787,177
Environmental Protection Agency]
Consolidated Balance Sheet
For the Periods Ending September 30, 2014 and 2013 (Restated)
(Dollars in Thousands)
ASSETS
Intragovernmental:
Fund Balance With T reasury (Note 2) $
Investments (Note 4)
Accounts Receivable, Net (Note 5)
Other (Note 6)
Total Intragovemmental $
Cash and Other M onetary Assets (Note 3)
Accounts Receivable, Net (Note 5)
Loans Receivable, Net - Non-Federal (Note 7)
Property, Plant & Equipment, Net (Notes 9 and 38)
Other (Note 6)
Total Assets (Note 38) $
StewardshipPP&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 Intragovemmental $
Accounts Payable & Accrued Liabilities (Note 8) $
Pensions & Other Actuarial Liabilities (Note 15)
Environmental Cleanup Costs (Note 22)
Cashout Advances, Superfund (Note 16)
Commitments & Contingencies (Note 18)
Payroll & Benefits Payable (Note 33)
Other (Note 13)
Total Liabilities $
NET POSITION
Unexpended Appropriations - Funds from Dedicated Collections (Note 17)
Unexpended Appropriations - Other Funds (Note 17)
Cumulative Results of Operations - Funds from Dedicated Collections (Note 19)
Cumulative Results of Operations - Other Funds (Note 38)
Total Net Position (Note 38)
Total Liabilities and Net Position (Note 38) $
68,609 $
62
96,495
92,435
257,601 $
535,250 $
49,060
21,610
971,666
901
198,265
114,183
2,148,536 $
(2,497)
8,508,269
3,642,573
929,540
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
853,351
13,077,885
14,410,305
15,226,421 S
16,787,177
The accompanying notes are an integral part of these financial statements.
39
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Environmental Protection Agency
Consolidated Statement of Net Cost
For the Periods Ending September 30, 2014 and 2013 (Restated)
(Dollars in Thousands)
FY2014
COSTS
Gross Costs (Notes 20 and 38) $
Less:
Earned Revenue (Notes 20 and 38)
NET COST OF OPERATIONS (Notes 20 and 38) $
9,054,107 $
548,690
8,505,417 $
Restated
FY2013
9,904,065
600,897
9,303,168
The accompanying notes are an integral part of these financial statements.
40
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Environmental Protection Agency
Statement of Net Cost by Goal
For the Period Ending September 30, 2014
(Dollars in Thousands)
Costs:
Intragov eminent al
With the Public
Total Costs
162,818
836,368
999,186
Clean* Safe
Water
412,244
4,160,915
4,573,159
Land Preservation
& Restoration
338,293
1,774,828
2,113,121
Healthy
Communities &
Ecosystems
$ 149,398
518,293
667,691
Compliance &
Environmental
Stewardship
700,950
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
NET COST OF OPERATIONS
16,972
865
17,837
981,349
5,570
24,837
30,407
41,185
350,118
391,303
12,361
44,643
57,004
5,701
46,438
4,542,752
1,721,818
610,687
648,811
Costs:
Intragov eminent al
With the Public
Total Costs
Consolidated
Totals
1,310,913
7,743,194
9,054,107
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
81,789
466,901
548,690
NET COST OF OPERATIONS
8,505,417
The accompanying notes are an integral part of these financial statements.
41
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Environmental Protection Agency
Statement of Net Cost by Goal
For the Period Ending September 30, 2013 (Restated)
(Dollars in Thousands)
Clean Air
Costs:
Mtragovernmental(Note38) $ 166,921
With the Public 903,413
Total Costs (Notes 20 and 38) 1,070,334
Less:
Earned Revenue, Federal 21,275
Earned Revenue, non Federal 1,444
Total Earned Revenue (Note 20) 22,719
NET COST OF
OPERATIONS (Notes 20 and38) $ 1,047,615
Clean & Safe
Water
405,439
4,723,286
7,733
29,976
Land
Preservation &
Restoration
$ 341,138
1,902,661
2,243,799
67,803
237,781
37,709
Healthy
Communities &
Ecosystems
702,067
12,732
31,837
Restated
Compliance &
Environmental
Stewardship
$ 72,243
686,897
759,140
3,489
186,827
44,569
5,091,016
1,938,215
657,498
568,824
Costs:
Intragovernmental
With the Public
Total Costs (Notes 20 and 38)
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
NET COST OF
OPERATIONS (Notes 20 and38)
Consolidated
Totals
$ 1,149,483
$ 8,754,582
9,904,065
113,032
487,865
600,897
$ 9,303,168
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 Period Ending September 30, 2014
(Dollars in Thousands)
Cumulative Results of Operations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Other Adjustments
Appropriations Used
Nonexchange Revenue - Securities Investment (Note 35)
Nonexchange Revenue - Other (Note 35)
Transfers In/Out (Note 31)
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Transfers In/Out (Note 31)
Imputed Financing Sources (Note 32)
Total Other Financing Sources
Net Cost of Operations
Net Change
Cumulative Results of Operations (Note 38)
Unexpended Appropriations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Received
Other Adjustments (Note 34)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION (Note 38)
The accompanying notes are an integral part of these financial statements.
FY2014
Funds from
Dedicated
Collections
4,576,942
4,576,942 $
(2,122)
1,984
29,919
192,559
(1,012,576)
940,508
150,272 $
(53)
23,124
23,071 $
(1,107,713)
(934,370)
3,642,573 $
FY2014
Funds from
Dedicated
Collections
-
3,674
(4,187)
(1,984)
(2,497)
(2,497)
3,640,076 S
FY2014
All Other
Funds
731,208
731,208 $
.
8,385,104
-
2
28,825
(938,387)
7,475,544 $
(298)
120,790
120,492 $
(7,397,704)
198,332
929,540 $
FY2014
All Other
Funds
8,980,012
8,980,012
7,933,169
(19,808)
(8,385,104)
(471,743)
8,508,269
9,437,809 S
FY2014
Consolidated
Total
5,308,150
5,308,150
(2,122)
8,387,088
29,919
192,561
(983,751)
2,121
7,625,816
(350)
143,914
143,564
(8,505,417)
(736,037)
4,572,113
FY2014
Consolidated
Total
8,980,012
8,980,012
7,936,843
(23,995)
(8,387,088)
(474,240)
8,505,772
13,077,885
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Period Ending September 30, 2013 (Restated)
(Dollars in Thousands)
FY2013
Funds from
Dedicated
Collections
(Restated)
FY2013
All Other
Funds
(Restated)
FY2013
Consolidated
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
Adjustment:
(a) Changes in Accounting Principles
(b) Correction of Errors (Note 38)
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Used
Nonexehange Revenue - Securities Investment (Note 35)
Nonexchange Revenue - Other (Note 35)
Transfers In/Out (Note 31)
Trust Fund Appropriations
Total Budgetary Financing Sources
Other Financing Sources (Non-Exchange)
Transfers In/Out (Note 31)
Imputed Financing Sources (Note 32)
Total Other Financing Sources
Net Cost of Operations (Note 38)
Net Change (Note 38)
Cumulative Results of Operations (Note 38)
4,504,199
4,504,199
1,298,318
25,151
677,051
100,530
777,581 $
,102,966
125,776
5,181,250
100,530
5,281,780
-
28,717
195,107
(12,594)
1,087,088
9,160,169
-
-
29,885
(1,087,088)
9,160,169
28,717
195,107
17,291
-
9,401,284
150,927
25,151 $
(1,250,726)
72,743
125,776 $
(8,052,442)
176,300
150,927
(9,303,168)
249,043
4,576,942
953,881
5,530,823
FY2013
Funds from
Dedicated
Collections
(Restated)
FY2013
All Other
Funds
(Restated)
FY2013
Consolidated
Total
Unexpended Appropriations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
Budgetary Financing Sources:
Appropriations Received
Appropriations Transferred In/Out (Note 31)
Other Adjustments (Note 34)
Appropriations Used
Total Budgetary Financing Sources
Total Unexpended Appropriations
TOTAL NET POSITION (Note 38)
4,576,942 S
9,811,870
9,811,870
8,782,272
(453,961)
(9,160,169)
(831,858)
8,980,012
9,933,893 S
9,811,870
9,811,870
8,782,272
(453,961)
(9,160,169)
(831,858)
8,980,012
14,510,835
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, 2014 and 2013
(Dollars in Thousands)
BUDGETARY RESOURCES
Unobligated balance, brought forward, October 1:
Unobligated Balance Brought Forward, October 1, as adjusted
Recoveries of prior year unpaid obligations (Note 27)
Other changes in unobligated balance
Unobligated balance from prior year budget authority, net
Appropriations (dis cretionary and mandatory)
Spending Authority from offsetting collection (discretionary and mandatory)
Total Budgetary Resources
3,242,602
3,242,602
397,697
(62,229)
3,578,070
10,172,972
887,854
14,638,896
2,786,404
2,786,404
286,170
(25,506)
3,047,068
9,585,239
664,260
13,296,567
STATUS OF BUDGETARY RESOURCES
Obligations Incurred
Unobligated Balance, end of year:
Apportioned
Unapportioned
Total Unobligated balance, end of period (Note 28)
Total Status of Budgetary Resources
11,676,560 $
2,742,774
219,562
2,962,336
14,638,896
10,090,120
3,008,632
197,815
3,206,447
13,296,567
CHANGEIN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid obligations, brought forward, October 1 (gross)
Obligations incurred, net
Outlays (gross)
Recoveries of prior year unpaid obligations
Unpaid obligations, end of year (gross)
Uncollected Payments
Uncollected customer payments from Federal Sources, brought forward, October 1)
Change in Uncollected customer payments from federal s ources
Uncollected customer payments fromFederal 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 in Uncollected customer payments fromFederal sources (discretionary and mandatory)
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 (Note 30)
Agency outlays, net (discretionary and mandatory
9,784,031
11,676,560
(11,370,070)
(397,697)
9,692,826
(296,176)
36,534
9,487,855
9,433,183
11,060,827
(924,388)
36,534
10,172,973
11,370,070
(924,388)
10,445,682
(1,045,029)
9,400,653
11,311,842
10,090,120
(11,331,761)
(286,170)
(305,514)
9,338
(259,642) $
(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
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, 2014 and 2013
(Dollars in Thousands)
FY2014
FY2013
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties $
Other
Total Cash Collections $
Accrual Adjustment
Total Custodial Revenue (Note 25) $
Dis pos ition of Collections:
Transferred to Others (General Fund) $
Increases/Decreases in Amounts to be Transferred
Total Disposition of Collections $
Net Custodial Revenue Activity $
119,295
(2,040)
117,255
2,218
119,473
117,255
2,218
119,473
150,444
17,346
167,790
(20,167)
147,623
167,790
(20,167)
147,623
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, 2014 and September 30, 2013
(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 2014 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.
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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 EPA's Fiscal Year 2014 Appropriation Act established a new three year appropriation account
to provide funds to carry out section 3024 of the Solid Waste Disposal Act, including the
development, operation, maintenance, and upgrading of the hazardous waste electronic manifest
system. The Agency is authorized to establish and collect user fees for this account that will be used
for the electronic manifest system.
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 reestimates that occur in
subsequent years after the loans were disbursed.
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.
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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
The National Resource Damages Trust Fund was established for funds received for critical damage
assessments and restoration of natural resources injured as a result of the Deepwater Horizon oil
spill.
4. Deposit Funds
Deposit accounts receive no appropriated funds. Amounts are recorded to the deposit accounts
pending further disposition. Until determination is made, these are not EPA's funds. The amounts
are reported to the US Treasury through the Governmentwide Treasury Account Symbol Adjusted
Trial Balance System (GTAS).
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
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 and the American Institute of Certified Public Accountants (AICPA). 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 posted in
accordance with Office of Management and Budget (OMB) directives and the US Treasury regulations.
EPA uses a modified matching principle since Federal entities recognize unfunded (without budgetary
resources) liabilities in accordance with FASAB Statement of Federal Financial Accounting Standards
(SFFAS) No. 5 "Accounting for Liabilities of the Federal Government"
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 SFFAS No. 7, "Accounting for Revenues and Other Financing Sources."
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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 Comprehensive Environmental Response, Compensation,
and Liability Act (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, including those under the Credit Reform Act of 1990, receive program
guidance and funding needed to support loan programs through appropriations which may be used
within statutory limits for operating and capital expenditures. The Asbestos Direct Loan Financing fund
4322 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 Accounts. These funds have balances
available to pay current liabilities and finance authorized obligations, as applicable.
G. Investments in US Government Securities
Investments in US Government securities are maintained by Treasury and are reported at amortized
cost net of unamortized discounts. Discounts are amortized over the term of the investments and
reported as interest income. No provision is made for unrealized gains or losses on these securities
because, in the majority of cases, they are held to maturity (see Note 4).
H. Notes Receivable
The Agency records notes receivable at their face value and any accrued interest as of the date of
receipt
I. Marketable Securities
The agency records marketable securities at cost as of the date of receipt Marketable securities are
held by Treasury and reported at their cost value in the financial statements until sold (see Note 4).
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J. Accounts Receivable and Interest Receivable
The majority of receivables for non-Superfund funds represent penalties and interest receivable for
general fund receipt accounts, unbilled intragovernmental reimbursements receivable, allocations
receivable from Superfund (eliminated in consolidated totals), and refunds receivable for the STAG
appropriation.
Superfund accounts receivable represent recovery of costs from PRPs as provided under CERCLA as
amended by Superfund Amendments and Reauthorization Act of 1986 (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 primary responsibility 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 paid to other entities both internal and external to the
agency for which a budgetary expenditure has not yet occurred.
L. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. Loans receivable resulting
from obligations on or before September 30,1991, are reduced by the allowance for uncollectible loans.
Loans receivable resulting from loans obligated on or after October 1,1991, are reduced by an
allowance equal to the present value of the subsidy costs associated with these loans. The subsidy cost
is calculated based on the interest rate differential between the loans and Treasury borrowing, the
estimated delinquencies and defaults net of recoveries offset by fees collected and other estimated cash
flows associated with these loans.
M. Appropriated Amounts Held by Treasury
Cash available to the agency, that is not needed immediately for current disbursements of the
Superfund and LUST Trust Funds and amounts appropriated from the Superfund Trust Fund to the OIG,
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" as amended. For EPA-held property, the Fixed Assets
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Subsystem (FAS) maintains the official records and 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 15 years.
Personal property also consists of capital leases. To be defined as a capital lease, it must, at its
inception, have a lease term of two or more years and the lower of the fair value or present value of the
projected 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 at the end of the lease to the EPA; contains a bargain purchase option; the lease
term is equal to 75 percenter more of the estimated economic service life; or the present value of the
projected cashflows of the lease and other minimum lease payments is equal to or exceeds 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.
An exception to the accounting of contract property includes equipment purchased by the WCF. This
property is retained in FAS, depreciated utilizing the straight-line method based upon the asset's in-
service date and useful life and is reflected on the WCF statements.
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
marketvalue 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
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enters the production life cycle phase, it is depreciated using the straight-line method over the specific
asset's useful life ranging from two to 10 years.
0. 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 authorized for retention. Liabilities for which an appropriation has not been enacted
are classified as unfunded liabilities and there is no certainty that the appropriations will be enacted.
Liabilities of the agency arising from other than contracts can be abrogated by the Government acting
in its sovereign capacity.
P. Borrowing Payable to the Treasury
Borrowing payable to Treasury results from loans from Treasury to fund the Asbestos direct loans.
Periodic principal payments are made to Treasury based on the collections of loans receivable.
Q. Interest Payable to Treasury
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt.
R. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Sick leave earned but not taken
is not accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is accrued
as an unfunded liability. Accrued unfunded annual leave is included in Note 33 as a component of
"Payroll and Benefits Payable."
S. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to January 1,
1987, may participate in the Civil Service Retirement System (GSRS). On January 1,1984, the Federal
Employees Retirement System (FERS) went into effect pursuant to Public Law 99-335. Most employees
hired after December 31,1983, are automatically covered by FERS and Social Security. Employees
hired prior to January 1,1984, elected to either join FERS and Social Security or remain in GSRS. 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 (0PM), as administrator
of the GSRS 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.
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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.
For detailed information on the restatements made to the FY 2013 Consolidated Financial Statements,
refer to Footnote 38, Restatements.
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, 2014, 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);
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).
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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 setup 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 account 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 account symbol 6809/108195; and Leaking Underground Storage Tank, treasury
account 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 US 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 2014, $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, 2014 and September 30, 2013, consists of the following:
Trust Funds:
Superfimd
LUST
Oil Spill
Revolving Funds:
FIFRA/Tolerance
Working Capital
Cr. Reform Finan.
NRDA
Appropriated
Other Fund Types
Total
Entity
Assets
$ 18,817 $
32,390
4,020
16,480
83,214
398
549
8,821,029
389,306
FY2014
Non-Entity
Assets
- $
-
-
_
-
-
-
-
3,799
Total
18,817 $
32,390
4,020
16,480
83,214
398
549
8,821,029
393,105
Entity
Assets
40,254 $
38,368
5,082
11,820
66,663
370
1,037
9,402,247
377,460
FY2013
Non-Entity
Assets
- $
-
-
_
-
-
-
-
878
Total
40,254
38,368
5,082
11,820
66,663
370
1,037
9,402,247
378,338
9,366,203
3,799
9,370,002
9,943,301
878
9,944,179
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:
Unobligated Amounts in Fund Balance:
Available for Obligation
Unavailable for Obligation
Net Receivables from Invested Balances
Balances in Treasury Trust Fund (Note 37)
Obligated Balance not yet Disbursed
Non-Budgetary FBWT
Totals
FY2014
894,141
2,068,195
(3,416,491)
12,140
9,433,183
378,834
FY2013
3,008,631
199,569
(3,114,699)
2,492
9,487,855
360,331
9,370,002
9,944,179
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 2014 and FY 2013 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, 2014 and September 30, 2013, the balance in the imprest fund was $10 thousand.
Note 4. Investments
As of September 30, 2014 and September 30, 2013 investments related to Superfund and LUST consist of
the following:
Amortized T ^ ^ T ^ ^ ». • ^
Interest Inwstments, Market
Cost (Premium) .
v ' RecenaUe Net Value
Discount
Intragowrnmental Securities:
Non-Marketable FY2014 $ 3,886,652 $ (8,836) $ 4,897 $ 3,900,385 $ 3,900,385
Non-Marketable FY2013 $ 4,510,044 $ (60,737) $ 6,290 $ 4,577,071 $ 4,577,071
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. 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
The Accounts Receivable as of September 30, 2014 and September 30, 2013 consistof the following:
Intragovernmental:
Accounts & Interest Receivable
Less: Allowance for Uncollectibles
Total
Non-Federal:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Uncollectibles
Total
FY2014
126,170
2,303,339
(1,902,650)
526,859 $
FY2013
11,266 $
(693)
10,573 $
15,163
(836)
14,327
142,251
2,484,674
(1,777,752)
849,173
The Allowance for Uncollectible Accounts is determined both on a specific identification basis, as a result of
a case-by-case review of receivables, and on a percentage basis for receivables not specifically identified.
Note 6. Other Assets
Other Assets as of September 30, 2014 and September 30, 2013 consistof the following:
Litragovernmental: FY2014 FY2013
243,586
Advances to Federal Agencies
Advances for Postage
Total
228,982 $
36
229,018 $
243,654
Non-Federal:
Travel Advances
Other Advances
Operating Materials and Supplies
Inventory for Sale
Total
4 $
2,914
370
3,288 $
318
5,052
85
301
5,756
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, 2014 and September 30, 2013 are as follows:
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Direct Loans
Obligated After FY
1991
Loans
Receivable,
Gross
32
Value of Assets
Allowance* Related to
Direct Loans
366 398
Loans
Receivable,
Gross
30
Value of Assets
Allowance* Related to
Direct Loans
27 57
Total $ 32 $ 366 $ 398 $ 30 $ 27 $ 57
* 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).
Subsidy Expenses for Credit Reform Loans (reported on a cash basis):
Merest Rate Technical Total
Re-estimate Re-estimate
Upward Subsidy Reestimate-FY2014 $ 302 $ 96 $ 398
Downward Subsidy Reestimate-FY2014 -
FY2014 Totals $ 302 $ 96 $ 398
Upward Subsidy Reestimate-FY2013 $ $ $ -
Downward Subsidy Reestimate-FY2013 247 85 332
FY2013 Totals $ 247 $ 85 $ 332
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Schedule for Reconciling Subsidy Cost Allowance Balances
(Post-1991 Direct Loans)
FY2014 FY2013
Beginning balance of the subsidy cost allowance $ 27 $ (360)
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 $ 96
Total of the above subsidy expense components $ 123 $ (360)
Adjustments:
Loan Modification
Fees received
Foreclosed property acquired
Loans written off
Subsidy allowance amortization $ 304 $ (11)
Other
End balance of the subsidy cost allowance before reestimates $ 304 $ (11)
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate (47) 302
(b) Technical/default reestimate (14) 96
Total of the above reestimate components $ (61) 398
Ending Balance of the subsidy cost allowance $ 366 $ 27
EPA has not disbursed Direct Loans since 1993.
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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, 2014 and September 30, 2013:
Litragovernmental:
Accounts Payable
Accrued Liabilities
Total
Non-Federal:
Accounts Payable
Advances Payable
Interest Payable
Grant Liabilities
Other Accrued Liabilities
Total
FY2014
533
68,076
68,609
FY2014
75,387
11
7
308,521
151,324
535,250
Other Accrued Liabilities primarily relate to contractor accruals.
FY2013
642
55,319
55,961
FY2013
78,614
3
7
378,230
162,880
619,734
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, 2014 and September 30, 2013 (restated), General PP&E consist of the following:
EPA-Held Equipment $
Software In Production (Note 38)
Software In Development (Note 38)
Contractor Held Equip.
Land and Buildings
Capital Leases
Total $
Acquisition
Value
291,021 $
639,600
353,693
36,085
702,658
35,285
FY2014
Accumulated
Depreciation
(182,473) $
(420,968)
(18,345)
(223,647)
(27,021)
Net Book Value
108,548 $
218,632
353,693
17,740
479,011
8,264
Acquisition
Value
273,725 $
597,594
347,732
48,158
680,344
35,440
Restated
FY2013
Accumulated
Depreciation
(169,592) $
(405,003)
(18,631)
(210,467)
(26,350)
Net Book
Value
104,133
192,591
347,732
29,527
469,877
9,090
2,058,342 $
(872,454) $
1,185,888 $
1,982,993 $
(830,043) $
1,152,950
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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, 2014 and September 30, 2013 is as follows:
All Other Funds FY2014 FY2013
Beginning Net Ending Beginning Net Ending
Balance Borrowing Balance Balance Borrowing Balance
Intragowrnmental:
Debt to Treasury $ 28_ $ 34_ $ 62$ 1,063 $ (1,035) $ 28_
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, 2014 and 2013, the Agency possesses the following land and land rights:
FY2014 FY2013
Superfund Sites with
Easements
Beginning Balance 36 36
Additions 0 0
Withdrawals 1 0
Ending Balance 35_ 36_
Superfund Sites with
Land Acquired
Beginning Balance 33 34
Additions 1 0
Withdrawals 0_ l_
Ending Balance 34_ 33_
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, 2014 and September 30, 2013, custodial liability is approximately $96 million and $94 million,
respectively.
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Note 13. Other Liabilities
Other Liabilities consist of the following as of September 30, 2014:
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
Cove red by
Budgetary
Resources
Not Cove red by
Budgetary
Resources
Total
11,200
1,208
6,568
30,693
49,669 $
89,682 $
4,123
20,566
200
22,000
42,766 $
20,378
11,200
1,208
6,568
30,693
20,566
200
22,000
92,435
89,682
4,123
20,378
93,805 $
20,378 $
114,183
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Other Liabilities consist of the following as of September 30, 2013:
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Ta?es $
WCF Advances
Other Advances
Advances, HRSTF Cashout
Deferred HRSTF Cashout
Liability for Deposit Funds
Resources Payable to Treasury
Non-Current
Unfunded FECA Liability
Unfunded Unemployment Liability
Payable to Treasury Judgment Fund
Total Litragovernmental $
Other Liabilities - Non-Federal
Current
Unearned Advances $
Liability for Deposit Funds
Non-Current
Capital Lease Liability
Total Non-Federal $
Covered by
Budgetary
Resources
26,599
1,526
8,814
32,736
274
5
103,813
1,052
Not Covered by
Budgetary
Resources
69,954 $
10,581
158
22,000
32,739 $
21,043
Total
26,599
1,526
8,814
32,736
274
5
10,581
158
22,000
102,693
103,813
1,052
21,043
104,865 $
21,043 $
125,908
Note 14. Leases
Capital Leases:
The value of assets held under Capital Leases as of September 30, 2014 and 2013 are as follows:
Summary of Assets Under Capital Lease:
Real Property
Personal Property
Total
Accumulated Amortization
FY2014
35,285
FY2013
35,440
35,285 $
35,440
27,021 $
26,350
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. EPA's leases
terminate in FY 2025.
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The total future minimum capital lease payments are listed below.
Future Payments Due:
Fiscal Year Capital Leases
2015 4,215
2016 4,215
2017 4,215
2018 4,215
After 5 years 26,695
Total Future Minimum Lease Payments 43,555
Less: Imputed Interest $ (23,177)
Net Capital Leas e Liability 20,378
Liabilities not Covered by Budgetary Resources $ 20,378
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. The 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 Leas es, Land and
Buildings
Fiscal Year
2015 $ 89
2016 89
2017 89
2018 83
Beyond 2018 114
Total Future Minimum Lease Payments $ 464
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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, 2014 and 2013 was $49.06 million and $51.81 million,
respectively. The estimated future costs are recorded as an unfunded liability. The FY 2014 present value
of these estimated outflows is calculated using a discount rate of 3.455 percent in the firstyear, and 3.455
percent in the years thereafter. The estimated future costs are recorded as an unfunded liability.
Note 16. CashoutAdvances, 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 conductor finance response
actions in lieu of EPA without further appropriation by Congress. As of September 30, 2014 and September
30, 2013, cashouts are approximately $972 million and $1.012 billion respectively.
Note 17. Unexpended Appropriations - Other Funds
As of September 30, 2014 and 2013, the Unexpended Appropriations consist of the following:
Unexpended Appropriations:
Unobligated
Available
Unavailable
Undelivered Orders
Total
FY2014
527,068
88,317
7,890,387
FY2013
1,061,402
95,043
7,823,567
8,505,772 $
8,980,012
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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, 2014 and 2013 total accrued liabilities for commitments and potential loss
contingencies is $901 thousand and $25.2 million, respectively. The largest portion of lastyear's value was
settled. The recorded amount is comprised of two cases and discussed below.
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 thatthe Agency's selection of the response
action was arbitrary and capricious or otherwise not in accordance with law.
As of September 30, 2014, there are two cases pending against EPA that are reported under Environmental
Liabilities below: Bob's Home Service Landfill ($900 thousand) and the Seaboard Chemical/Riverdale
Landfill Site matter ($1 thousand) are reported as a probable liability. The $901 thousand will be recorded
as an accrual.
There is also one new matter concerning section 107 of CERCLA involving the Appvion Lower Fox River
and Green Bay Site. The amount is estimated at $174 million but is only possible and the final outcome is
not probable
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." EPA has a $22 million liability to the Treasury Judgment Fund for a payment
made by the Fund to settle a contract dispute claim.
As of September 30, 2014, there was one case pending Trinity Marine Products. Inc. v. United States. The
case has been denied twice, but Trinity appealed to US Court of Appeals for the Fifth Circuit The possibility
of loss is only reasonably possible so no liability has been accrued. An estimate of possible damages is $1
million to $4.4 million.
68
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Other Commitments
Since 1991, the United States has had a non-cancellable agreement, subject to the availability of funds, with
the United Nations Environment Programme (UNEP) to provide funds to the Multilateral Fund for the
Implementation of the Montreal Protocol. In keeping with this agreement, the U.S. Department of State
continues to negotiate successive three-year agreements for the level of funds that the United States will
provide to the Multilateral Fund for this purpose. Since 1991, the Department of State which has primary
responsibility for international commitments of the U.S., has provided the bulk of funds to the Multilateral
Fund, with EPA providing a lesser amount. Since commitments to the Multilateral Fund are ongoing, future
EPA payments totaling $27 million have been deemed reasonably possible and are anticipated to be paid in
years 2015-2017.
69
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Note 19. Funds from Dedicated Collections (Unaudited)
Balance sheet as of September 30,2014
Assets
Fund Balance with Treasury
Investments
Accounts Receivable, Net
Other Assets
TotalAssets
Other Liabilities
Total Liabilities
Unexpended Appropriations
Cumulative Results of Operations
Total Liabilities and Net Position
Statement of Changes in Net Cost for the
Period Bided September 30,2014
Gross Program Costs
Less: Earned Revenues
Net Cost of Operations
Statement of Changes in Net Position for the
Period ended September 30,2014
Net Position, Beginning ofPenod
Nonexchange Revenue- Securities Investments
Nonexchange Revenue
Other Budgetary Finance Sources
Other Financing Sources
Net Cost of Operations
Change in Net Position
Net Pos ition
Fjnironmental LIST Superfund Other Funds from Total Funds from
Services Dedicated Collections Dedicated Collections
370,053 $ 32,760 $ 27,393 $ 42,168 $ 472,374
446,455 3,453,929 - 3,900,384
85,924 319,640 5,407 410,971
686 119,991 3,145 123,822
370,053
8 $
8 $
- $
370,045 $
370,053 $
- $
- $
358,632 $
11,413
11,413 $
565,825
93,619 $
93,619 $
(4,187)
476,393 $
565,825 $
103,665 $
2,829
100,836 $
1,390,286 $
4,350
182,340
(1,004,187)
253
(100,836)
(918,080) $
3,920,953
1,127,129 $
1,127,129 $
- $
2,793,824 $
3,920,953 $
1,395,175 $
405,391
989,784 $
2,827,897 $
25,565
732
909,562
19,852
(990,741)
(35,030) $
50,720
46,719 $
46,719 $
1,690 $
2,311 $
50,720 $
83,808 $
66,715
17,093 $
127 $
3
(1,926)
22,045
845
(17,093)
3,874 $
4,907,551
1,267,475
1,267,475
(2,497)
3,642,573
4,907,551
1,582,648
474,935
1,107,713
4,576,942
29,918
192,559
(72,580)
20,950
(1,108,670)
(937,823)
370,045 $
472,206 $
2,792,867 $
4,001 $
3,639,119
70
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Balance sheet as of September 30,2013
Assets
Fund Balance with Treasury
Investments
Accounts Receivable, Net
Other Assets
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 30,2013
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- Secunties Investments
Nonexchange Revenue
Other Budgetary Finance Sources
Other Financing Sources
Net Cost of Operations
Change in Net Position
Net Pos ition
Bi\ironme ntal
Services
470 $
325,719 $
33,383
358,632 $
Superfund
1,399,259
- $ 114,051 $
(470) -
114,051 $
53,380 $
1,390,286 $
Funds from Dedicated Collections are as follows:
Other Earmarked
Funds
Total Earmarked
Funds
38,368 $ 40,254 $
1,360,530 3,216,541
739,813
361 108,930
4,105,538
8,973 $ 1,277,641 $
1,390,286 $ 2,827,897 $
1,399,259 $ 4,105,538 $
1,558,007 $
441,908
1,116,099 $
36,767 $
3,193
3,086
42,919 $
42,919 $
20,106 $
5,906,475
1,329,533
1,329,533
1,336,906 $
4,904
162,167
360
(114,051)
2,834,688 $
23,810
(430)
1,062,303
23,625
(1,116,099)
6,886 $
3
(12)
12,190
1,166
(20,106)
4,504,199
28,717
195,108
1,074,493
25,151
(1,250,726)
4,576,942
Environmental Services Receipt Account: The Environmental Services Receipt Account authorized by a
1990 act, "To amend the Clean Air Act (P.L. 101-549)," was established for the deposit of fee receipts
associated with environmental programs, including radon measurement proficiency ratings and training,
motor vehicle engine certifications, and water pollution permits. Receipts in this special fund can only be
appropriated to the S&T and EPM appropriations to meet the expenses of the programs that generate the
receipts if authorized by Congress in the Agency's appropriations bill.
Leaking Underground Storage Tank (LUST) Trust Fund: The LUST Trust Fund, was authorized by the
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 financing is shared by federal and state governments as
well as industry. The EPA allocates funds from its appropriation to other Federal agencies to carry out
CERCLA. Risks to public health and the environment at uncontrolled hazardous 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.
71
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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 offsetthe costs of pesticide re-registration and
reassessment of tolerances for pesticides used in or on food and animal feed, as required by law.
Tolerance Revolving Fund: The Tolerance Revolving Fund, was authorized in 1963 for the deposit of
tolerance fees. Fees are paid by industry for Federal services to set pesticide chemical residue limits in or
on food and animal feed. The fees collected prior to January 2,1997, were accounted for under this fund.
Presently collection of these fees is prohibited by statute, enacted in the Consolidated Appropriations Act,
2004 (P.L. 108-199).
Exxon Valdez Settlement Fund: The Exxon Valdez Settlement Fund authorized by P.L. 102-389, "Making
appropriations for the Department of Veterans Affairs and Housing and Urban Development, and for
sundry independent agencies, boards, commissions, corporations, and offices for the fiscal year ending
September 30,1993," has funds available to carry out authorized environmental restoration activities.
Funding is derived from the collection of reimbursements under the Exxon Valdez settlement as a result of
an oil spill.
Note 20. Intragovernmental Costs and Exchange Revenue (Restated)
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.
72
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FY2014
Restated
FY2013
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
Program Costs (Note 38)
Earned Revenue
NET COSTS
Total
Pro gram Costs
Earned Revenue
NET COSTS
Intragovernm
ental
162,818
16,972
145,846
412,244
5,570
406,674
338,293
41,185
297,108
149,398
12,361
248,160
5,701
242,459
1,310,913
81,789
1,229,124
With the
Public
Total
518,293 $
44,643
473,650 $
452,790 $
46,438
406,352 $
7,743,194 $
466,901
999,186
17,837
4,160,915 $ 4,573,159
24,837 30,407
4,136,078 $ 4,542,752
1,774,828 $ 2,113,121
350,118 391,303
1,424,710 $ 1,721,818
667,691
57,004
610,687
700,950
52,139
7,276,293 $
648,811
9,054,107
548,690
8,505,417
Intragovernm
ental
With the
Public
166,921 $ 903,413
21,275 1,444
145,646 $ 901,969
405,439 $ 4,723,286
7,733 29,976
397,706 $ 4,693,310
341,138 $ 1,902,661
67,803 237,781
273,335 $ 1,664,880
163,742 $ 538,325
12,732 31,837
151,010 $ 506,488
72,243 $ 686,897
3,489 186,827
68,754 $ 500,070
1,149,483 $ 8,754,582
113,032 487,865
1,036,451 $ 8,266,717
Total
1,070,334
22,719
1,047,615
5,128,725
37,709
5,091,016
2,243,799
305,584
1,938,215
702,067
44,569
657,498
759,140
190,316
568,824
9,904,065
600,897
9,303,168
Intragovernmental costs relate to the source of goods or services not the classification of the related
revenue.
Note 21. Cost of Stewardship Land
EPA had one acquisition of stewardship land at a cost of $45,600 for the year ending September 30, 2014.
There were no costs related to the acquisition of stewardship land for the year ending September 30, 2013.
These costs are included in the Statement of Net Cost
Note 22. Environmental Cleanup Costs
As of September 30, 2014, 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 $901 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.
73
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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, 2014 and 2013, 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 23. 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, 2014 and September 30, 2013, the total remaining state credits have been
estimated at $24.5 million and $25.1 million, respectively.
Note 24. Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response actions at
their sites with the understanding that 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 lll(a)(2). Under CERCLA Section 122(b)(l), as amended by SARA, PRPs may asserta 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, 2014, EPA had 3
outstanding preauthorized mixed funding agreements with obligations totaling $4.7 million. As of
September 30, 2013, 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.
74
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Note 25. Custodial Revenues and Accounts Receivable
Fines, Penalties and Other Miscellaneous Receipts
Accounts Receivable for Fines, Penalties and Other
Miscellaneous Receipts:
Accounts Receivable
Less: Allowance for Uncollectible Accounts
FY2014 FY2013
119,474 $ 147,623
229,581 $ 190,630
(132,606) (95,873)
Total
96,975 $
94,757
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 26. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited
FY2014 Statementof Budgetary Resources will be reconciled to the amounts included in the FY2015
Budget of the United States Government when they become available. The Budget of the United States
Government with actual numbers for FY 2014 has not yet been published. We expect it will be published
by early 2015, and it will be available on the OMB website at http://www.whitehouse.gov/.
The actual amounts published for the year ended September 30, 2013 are listed immediately below:
FY2013
Statement of Budgetary Resources
Reported in Budget of the U. S. Government
Budgetary
Resources
13,296,567 $
13,296,567 $'
Obligations
10,090,120 $
10,090,120 $
Offsetting
Receipts
1,173,784 $
1,173,784 $
Net Outlays
9,484,379
9,484,379
75
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Note 27. Recoveries and Resources Not Available, Statement of Budgetary Resources
Recoveries of Prior Year Obligations, Temporarily Not Available, and Permanently Not Available on the
Statement of Budgetary Resources consist of the following amounts for September 30, 2014 and September
30,2013:
FY2014 FY2013
Recoveries of Prior Year Obligations - Downward
adjustments of prioryears'obligations $ 397,697 $ 286,170
Temporarily Not Available - Rescinded Authority (2,002) (84,183)
Permanently Not Available:
Payments to Treasury - (1,035)
Rescinded authority - (437,313)
Canceled authority (60,107) (16,649)
Total Permanently Not Awilable $ (60,107) $ (454,997)
Note 28. Unobligated Balances Available
Unobligated balances are a combination of two lines on the Statement of Budgetary Resources:
Apportioned, Unobligated Balances and Unobligated Balances Not Available. Unexpired unobligated
balances are available to be apportioned by 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, 2014 and September 30,
2013:
Unexpired Unobligated Balance $
Expired Unobligated Balance
Total $
FY2014
2,852,876 $
109,460
2,962,336 $
FY2013
3,022,122
184,325
3,206,447
Note 29. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders at September 30, 2014 and September 30, 2013
were $9.25 billion and $9.23 billion, respectively.
Note 30. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt accounts
offset gross outlays. For September 30, 2014 and September 30, 2013, the following receipts were
generated from these activities:
FY2014 FY2013
Trust Fund Recovenes $ 79,755 $ 34,987
Special Fund Environmental Service 11,421 32,917
Trust Fund Appropriation 938,387 1,087,088
Miscellaneous Receipt and Clearing Accounts 15,466 18,792
Total $ 1,045,029 $ 1,173,784
76
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Note 31. Transfers-In and Out, Statement of Changes in Net Position
Appropriation Transfers, In/Out:
For September 30, 2014 and September 30, 2013, 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, and 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 follow for September 30, 2014 and
September 30, 2013:
Fund/Type of Account
Army Corps ofEiigineers
Total Appropriation Transfers
(Other Funds)
Net Transfers from Invested Funds S
Transfers to Another Agency
Allocations Rescinded
TotalofNet Transfers on Statement
ofBudgetary Resources S
FY2014
- S
- S
2,172,898 S
2,172,898 S
FY2013
1,176,496
(5,100)
81,518
1,252,914
Transfers In/Out Without Reimbursement, Budgetary:
For September 30, 2014 and September 30, 2013, Transfers In/Outunder Budgetary Financing Sources on
the Statement of Changes in Net Position consist of transfers between EPA funds. These transfers affect
Cumulative Results of Operations. Details of the transfers-in and transfers-out, expenditure and
nonexpenditure, follow for September 30, 2014 and September 30, 2013:
Type of Transfer/Funds
FY2014
FY2013
F\mdfrom
Dedicated
Collections
Other Funds
Transfers-in (out) nonexpenditure,
Earmark to S&T and OIG funds
Capital Transfer
Transfers-in nonexpenditure, Oil Spill
Transfers-in (out) nonexpenditure,
Superfund
Transfer-out LUST
Total Transfer in (out) without
Reimbursement, Budgetary
(28,987) $
(18,209)
30,947
1,000,000
28,987
983,751
28,987 $
Fund from
Dedicated
Collections
(29,885)
12,190
5,100
(12,595)
Other Funds
29,885
29,885
77
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Note 32. Imputed Financing
In accordance with SFFAS No. 5, "Accounting for Liabilities of the Federal Government," Federal agencies
must recognize the portion of employees' pensions and other retirement benefits to be paid by the 0PM
trust funds. These amounts are recorded as imputed costs and imputed financing for each agency. Each
year the 0PM 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 0PM trust funds will
provide for each agency. The estimates for FY 2014 were $143.9 million. For FY 2013, the estimates were
$150.9 million.
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 2014 total imputed costs were
$9.1 million.
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 2014 entries for Judgment Fund payments totaled $16.6
million. For FY 2013, entries for Judgment Fund payments totaled $1.4 million.
Note 33. Payroll and Benefits Payable
Payroll and benefits payable to EPA employees for the years ending September 30, 2014 and September 30,
2013 consist of the following:
FY2014 Payroll & Benefits Payable
Accrued Funded Payroll & Benefits
Withholdings Payable
Employer Contributions Pay able-TSP
Accrued Unfunded Annual Leave
Total - Current
Covered by
Budgetary
Resources
15,674
30,412
1,403
47,489
Not Covered
by Budgetary
Resources
150,776
150,776
Total
15,674
30,412
1,403
150,776
198,265
FY2013 Payroll & Benefits Payable
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Pay able-TSP
Accrued Unfunded Annual Leave
Total - Current
71,807
31,475
6,944
110,226
157,729
157,729
71,807
31,475
6,944
157,729
267,955
78
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EPA experienced a large decrease in accrued payroll in FY 2014 due to a shortened accrual period and
smaller agency payroll costs.
Note 34. Other Adjustments, Statement of Changes in Net Position
The Other Adjustments under Budgetary Financing Sources on the Statement of Changes in Net Position
consist of rescissions to appropriated funds and cancellation of funds that expired 7 years earlier. These
amounts affect Unexpended Appropriations.
Rescissions to General
Appropriations $
Canceled General Authority
Total Other Adjustments $
Other Funds
FY2014
23,995
23,995 $
Other Funds
FY2013
437,280
16,681
453,961
Note 35. Non-exchange Revenue, Statement of Changes in Net Position
Non-exchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net Position as of
September 30, 2014 and September 30, 2013 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
FY2014
29,919 $
718
182,355
9,488
222,480 $
Funds from
Dedicated
Collections
FY2013
28,717
162,212
(475)
33,371
223,825
79
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Note 36. Reconciliation of Net Cost of Operations to Budget (Restated)
RESOURCES USED TO FINANCE ACTIVITIES
Budgetary Resources Obligated
Obligations Incurred
Less: Spending Authority from Offsetting Collections and Recoveries
Obligations, Net of Offsetting Collections
Less: Offsetting Receipts
Net Obligations
Other Resources
Donations of Property
Transfers In/Out without Reimbursement, Property
Imputed Financing Sources
Other Resources to Finance Activities
Net Other Resources Used to Finance Activities
Total Resources Used to Finance Activities
FY2014
11,676,561 $
(1,285,551)
10,391,010 $
(2,029,100)
8,361,910
(351)
143,914
143,563 $
8,505,473 $
Restated
FY2013
10,090,120
(950,430)
9,139,690
(1,155,006)
7,984,684
150,927
150,927
8,135,611
RESOURCES USED TO FINANCE ITEMS
NOT PART OF THE NET COST OF OPERATIONS :
Change in Budgetary Resources Obligated
Resources that Fund Prior Periods Flenses
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
185,191
1,276,867
9
90,713
(353,695)
(77,782) $
8,427,691 $
FY2014
(7,048) $
60
(24,299)
61
(141,954)
10,027
(42,238)
(205,391) $
191,543 $
91,574
283,117 $
77,726 $
819
67,917
(106,802)
1,238,801
9,374,412
Restated
FY2013
(525)
(10)
20
(730)
(237,175)
5,180
(24,667)
(257,907)
81,041
105,622
186,663
(71,244)
Net Cost of Operations
8,505,417
9,303,168
80
-------
Note 37. Amounts Held by Treasury (Unaudited)
Amounts held by Treasury for future appropriations consist of amounts held in trusteeship by Treasury in
the Superfund and LUST Trust Funds.
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, 2014 and
September 30, 2013. 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 FY2014
Undistributed Balances
Uninvested Fund Balance
Total Undisbursed Balance
Interest Receivable
Investments, Net
Total As sets
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
3,331,307
3,331,307
3,331,307
3,331,307
1,109,279
1,109,279
Treasury
122 $
122
3,242
119,381
122,745 $
122,745 $
122,745 $
(1,109,279) $
(1,109,279)
Combined
122
122
3,242
3,450,688
3,454,052
3,454,052
3,454,052
15
79,754
1,035
80,804
940,509
25,565
1,046,878 $
15
79,754
1,035
80,804
940,509
25,565
1,046,878
1,109,279
(62,401) $
1,046,878
In FY 2014, the EPA received an appropriation of $1,089 million 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, 2014 and September 30, 2013, the
Treasury Trust Fund has a liability to EPA for previously appropriated funds and special accounts of $3.41
billion and $3.01 billion, respectively.
81
-------
SUPERFUNDFY2013
Undistributed Balances
Uninvested Fund Balance
Total Undisbursed Balance
Interest Receivable
Investments, Net
Total Assets
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
EPA
Treasury
Combined
3,028,841
3,028,841
(433) $
(433)
3,851
197,366
200,784 $
3,028,841 $
3,028,841 $
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 $
(1,097,586) $
(1,097,586)
51,822 $
(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
LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2014 and
2013, there were no fund receipts from cost recoveries. 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.
82
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LUSTFY2014
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
LUSTFY2013
Undistributed Balances
Uninvested Fund Balance
Total Undisbursed Balance
Interest Receivable
Investments, Net
Total Assets
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
EPA
Treasury
Combined
- $
85,924
85,924 $
85,924 $
- $
-
- $
1,094,566 $
1,094,566
1,094,566 $
EPA
- $
85,858
85,858 $
85,858 $
- $
-
- $
103,695 $
103,695
103,695 $
2,596 $
2,596
1,655
358,877
363,128 $
363,128 $
172,913 $
72
9,354
182,339
4,350
186,689 $
(1,094,566) $
(1,094,566)
(907,877) $
Treasury
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 $
2,596
2,596
1,655
444,801
449,052
449,052
172,913
72
9,354
182,339
4,350
186,689
.
-
186,689
Combined
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
83
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Note 38. Restatements
In accordance with OMB Circular A-123, the EPA performed a review of its capital software in FY 2 014. The
review identified the following issues:
1. Entries under $25,000 were not capitalized.
2. Some entries had incorrect accounting strings.
3. Credit/debit lines were combined to correct transaction amounts.
To address these findings, the EPA revised its capitalized software procedures, resulting in the agency
correcting values and accounting for all software projects. The EPA performed corrections to fix the value
of the software assets that were determined to be understated.
As a result of the agency corrections, the agency restated FY 2013 financial statements and are presented in
the FY 2014 and FY 2013 comparative financial statements. The changes impacted the FY 2013 Balance
Sheet, Statement of Net Cost and Statement of Changes to Net Position.
Restated Software Calculations
Software
FY 2013 Beginning FY2013 Restated FY 2013 FY2013 Restated FY 2013
Balance Adjustment Beginning Balance Activity Fnding Balance
In-Development
In-Production
Accumulated Depreciation
In-Production Net Book Value
235,168
102,247
379,921 165,802
(231,598) (132,831)
148,323 32,971
337,415
10,317
347,732
545,723 51,871
(364,429) (40,574)
181,294 11,297
597,594
(405,003)
192,591
Total:
383,491
135,218
518,709
21,614
540,323
84
-------
Consolidated Balance Sheet
Property, Plant & Equipment, Net ( Note 38)
Total Assets
Cumulative Results of Operations - Other Funds (Note 38)
Total Net Position
Total Liabilities and Net Position
Consolidated Statement of Net Cost
Gross Costs (Note 20)
Net Cost of Operations
Statement of Net Cost by Goal
Compliance & Environmental Stewardship:
Intragovernmental
Costs
Total Costs
Net Cost of Operations
Consolidated Intragovernmental
Total Costs
Net Cost of Operations
Consolidating Statement of Changes in Net Position
Net Position Beginning of Period
Net Cost of Operations - All Other Funds
Total - Net Cost of Operations
Net Change - All Other Funds
Net Change - Consolidated Total
Cumulative Results of Operations - All Other Funds
Total - Cumulative Results of Operations
Net Position - All Other Funds
Total Net Position
FY 2013,
as Previously
Reported
1,030,807
16,665,034
731,208
14,288,162
16,665,034
10,026,208
9,425,311
194,386
881,283
690,967
1,271,626
10,026,208
9,425,311
677,051
(8,174,585)
(9,425,311)
54,157
126,900
731,208
5,308,150
9,711,220
14,288,162
Adjustment
122,143
122,143
122,143
122,143
122,143
(122,143)
(122,143)
(122,143)
(122,143)
(122,143)
(122,143)
(122,143)
(122,143)
100,530
122,143
122,143
122,143
122,143
222,673
222,673
222,673
222,673
FY 2013,
as Restated
1,152,950
16,787,177
853,351
14,410,305
16,787,177
9,904,065
9,303,168
72,243
759,140
568,824
1,149,483
9,904,065
9,303,168
777,581
(8,052,442)
(9,303,168)
176,300
249,043
953,881
5,530,823
9,933,893
14,510,835
85
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Required Supplementary Information (Unaudited)
Environmental Protection Agency
As of September 30, 2014
(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. The deferred
maintenance as of September 2014 is:
2014
Assets Category:
Buildings $ 42,833
EPA Held Equipment 675
Total Defrerred Maintenance $ 43,508
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.
86
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Required Supplementary Information (Unaudited)
Environmental Protection Agency
As of September 30, 2014
(Dollars in Thousands)
3. Supplemental Combined Statement of Budgetary Resources
For the Period Ending September 30, 2014
BUDGET ARYRESOURCES
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
CHANGE IN 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 customer payments from Federal Sources, brought forward, October 1 $
Change in uncollected customer payments from Federal s ources
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 in uncollected customer payments from Federal s ources
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)
$
$
$
$
$
$
$
$
$
$
$
$
$
EPM
325,813
325,813
48,784
(32,755)
341,842
2,624,149
162,626
3,128,617
3,929,902
287,348
53,439
340,787
4,270,689
1,151,357
3,929,902
(2,751,509)
(48,784)
2,280,966
(61,884)
(61,884)
(123,768)
1,089,473
2,157,198
2,786,775
(100,743)
(61,884)
2,624,148
2,751,509
(100,743)
2,650,766
FIFRA
$ 13,280 $
13,280
13,280
(2,001)
45,332
$ 56,611 $
$ 26,881 $
4,042
7,496
11,538
$ 38,419 $
$ 2,940 $
26,881
(29,495)
$ 326 $
$ (2,940) $
$ (2,940) $
$ - $
$ (2,614) $
$ 43,331 $
(41)
$ 43,290 $
$ 29,495 $
(41)
29,454
LUST
19,340 $
19,340
2,380
(4,188)
17,532
1,180,424
3
1,197,959 $
1,210,881 $
1,533
1,271
2,804
1,213,685 $
102,038 $
1,210,881
(1,105,209)
(2,380)
205,330 $
$
-
$
102,038 $
205,330 $
1,180,427 $
(3)
1,180,424 $
1,105,209 $
P)
1,105,206
S&T
164,222 $
164,222
16,312
(20,005)
160,529
759,156
52,288
971,973 $
1,178,210 $
124,750
22,305
147,055
1,325,265 $
366,469 $
1,178,210
(806,008)
(16,312)
722,359 $
(19,911) $
(19,911)
(39,822) $
346,558 $
682,537 $
811,444 $
32,377
(19,911)
823,910 $
806,008 $
32,377
838,385
STAG
1,443,654 $
1,443,654
151,490
1,595,144
3,535,161
536
5,130,841 $
11,078,157 $
156,252
60,377
216,629
11,294,786 $
5,988,581 $
11,078,157
(4,287,414)
(151,490)
12,627,834 $
$
$
5,988,581 $
12,627,834 $
3,535,697 $
(536)
3,535,161 $
4,287,414 $
(536)
4,286,878
OTHER
2,488,300 $
2,488,300
178,730
(5,282)
2,661,748
5,189,041
1,791,071
9,641,860 $
4,311,488 $
2,168,849
74,674
2,243,523
6,555,011 $
1,478,928 $
4,311,488
(2,670,917)
(178,730)
2,940,769 $
(177,847) $
(177,847)
(355,694) $
1,301,081 $
2,585,075 $
6,980,112 $
(1,613,223)
(177,847)
5,189,042 $
2,670,917 $
(1,613,223)
1,057,694
(1,173,784)
TOTAL
4,454,609
4,454,609
397,696
(62,230)
4,790,075
13,285,930
2,051,856
20,127,861
21,735,519
2,742,774
219,562
2,962,336
24,697,855
9,090,313
21,735,519
(11,650,552)
(397,696)
18,777,584
(262,582)
(259,642)
(522,224)
8,827,731
18,255,360
15,337,786
(1,682,169)
(259,642)
13,395,975
11,650,552
(1,682,169)
9,968,383
(1,173,784)
87
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Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30, 2014
(Dollars in Thousands)
INVESTMENTS THE NATION'S RESEARCH AND DEVELOPMENT:
EPA's Office of Research and Development provides the crucial underpinnings for EPA decision-making.
Through conducting cutting-edge science and technical analysis, ORD develops 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 2014, the full costof the Agency's Research and Development activities totaled over $584M. Below
is a breakout of the expenses (dollars in thousands):
FY2010 FY2011 FY2012 FY2013 FY2014
Programmatic Expenses 590,790 597,558 580,278 531,901 510,911
Allocated Expenses1 71,958 80,730 133,637 78,189 73,622
See Section II of the PAR for more detailed information on the results of the Agency's investment in
research and development.
1 Allocated Expenses are calculated specifically for the Required Supplemental Stewardship Information report and do
not represent the overall agency indirect cost rates.
88
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INVESTMENT IN THE NA TION'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 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, however, EPA
continues to provide direct grant funding for the District of Columbia and territories.
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):
FY2010 FY2011 FY2012 FY2013 FY2014
Construction Grants 18,186 35,339 14,306 6,944 1,447
Clean Water SRF 2,966,479 2,299,721 1,925,057 1,976,537 1,534,453
Drinking Water SRF 1,938,296 1,454,274 1,240,042 1,027,613 1,187,212
Other Infrastructure Grants 264,227 269,699 196,085 166,050 118,706
Allocated Expenses 631,799 548,375 777,375 524,326 516,102
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.
89
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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):
FY2010 FY2011 FY2012 FY2013 FY2014
Training and Awareness Grants 25,714 23,386 21,233 20,769 23,255
Fellowships 6,905 9,538 10,514 11,157 8,082
Allocated Expenses 3,973 4,448 7,311 4,118 4,226
90
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SECTION III
OTHER ACCOMPANYING INFORMA TION
91
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SCHEDULE OF SPENDING
(unaudited]
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 versus 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, that are reported under Amounts Agreed to be Spent. When this
condition occurs, negative amounts will be displayed as the balance of Amounts Remaining to be
Spent
92
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Environmental Protection Agency
FY 2014 Schedule of Spending
For the Periods Ending September 30, 2014 and 2013 (Restated)
(Dollars in Thousands)
What Money is Available to Spend?
Total Resources
Less: Amount Not Agreed to be Spent
Less: Amount Not Ava liable to be Spent
Total Amount Agreed to be Spent
How was the Money Spent?
Clean Air
Contra cts
G ra n ts
Pa yro 11
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
Clean & Safe Water
Contra cts
G ra n ts
Pa yro 11
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
I ns u ra n ce
Land Preservation & Restoration
Contra cts
Financial Transfers
G ra n ts
Pa yro 11
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
I ns u ra n ce
Healthy Communities & Ecosystems
Contra cts
G ra n ts
Pa yro 11
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
I ns ura nee
Compliance & Environmental Stewardship
Contra cts
G ra n ts
Pa yro 11
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
I ns ura nee
Tota I Spendi ng
Amounts Remianingto be Spent
Total Amounts Agreed to be Spent
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2014
14,638,896
894,141
2,068,195
11,676,560
197,993
322,990
448,930
4,701
13,OO2
1,476
989,092
354,021
4,231,201
523,143
1,864
3,412
3,987
1O4
5,117,732
2,OO9,856
1,000,000
546,321
724,351
2,657
9,456
8,968
12,341
4,313,950
144,564
60,255
5O6,93O
1,786
1,254
3,124
20
717,933
94,292
3O,499
615,615
1,789
1,755
3,424
677
748,051
11,886,758
(210,198)
11,676,560
2013
$ 13,296,567
3,008,632
197,815
$ 1O,O9O,12O
$ 213,753
381,548
491,748
5,918
12,674
3,9O2
$ 1,109,543
$ 372,225
4,252,790
544,225
1,892
4,192
5,035
115
$ 5,180,474
$ 2,142,423
-
582,121
733,652
2,767
9,694
11,636
15,611
$ 3,497,904
$ 149,325
65,882
508,493
1,9OO
2,517
3,749
28
$ 731,894
$ 1OO,2 68
32,356
663,765
1,898
1,782
5,069
800
$ 805,938
$ 11,325,753
(1,235,633)
$ 10,090,120
93
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MANAGEMENT INTEGRITY AND CHALLENGES
Overview of the EPA's Efforts
Management challenges and integrity weaknesses represent vulnerabilities in program operations that
may impair EPA's ability to achieve its mission and threaten the agency's safeguards against fraud, waste,
abuse and mismanagement. These areas are identified through internal agency reviews and independent
reviews by EPA's external evaluaters, such as OMB, the U.S. Government Accountability Office (GAO), and
the EPA's DIG. This section of the APR discusses in detail two components related to challenges and
weaknesses: 1) key management challenges identified by the EPA's DIG, followed by the Agency's response
and 2) a brief discussion of the EPA's progress in addressing its FY 2 014 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 FY 2014, one 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 the 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.
94
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2014 KEY MANAGEMENT CHALLENGES
Office of Inspector General-Identified Key Management Challenge;
The Reports Consolidation Act of 2000 requires the 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 2014, the OIG identified six challenges. The table below includes issues the OIG
identified as key management challenges facing the EPA, the years in which the OIG identified the
challenge, and the relationship of the challenge to the agency's goals in its strategic plan
[http://epa.gov/planandbudget/strategicplan.html].
EPA
FY FY strategic
Oversight of Delegations to States: Due to differences between state and federal
policies, interpretation, strategies and priorities, the EPA needs to more
consistently and effectively oversee its delegation of programs to the states,
assuring that delegated programs are achieving their intended goals.
Safe Reuse of Contaminated Sites: The EPA's duty is to ensure that reused
contaminated sites are safe for humans and the environment. The 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 over
time, 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): The 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. The EPA has reported that over 5,000 servers and user
workstations may have been compromised from recent cyber security attacks.
EPA's Framework for Assessing and Managing Chemical Risks:
The EPA's effectiveness in assessing and managing chemical risks is limited by its
authority to regulate chemicals under the Toxic Substances Control Act. Chemicals
manufactured before 1976 were not required to develop and produce data on
toxicity and exposure, which are needed to properly and fully assess potential risks.
Workforce Planning /Workload Analysis: The EPA's human capital is of
concern in part due to requirements released under the President's Management
Agenda. The OIG identified significant concerns with the EPA's management of
human capital. The 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.
Abuse in Time and Attendance, Computer Usage, and Real Property
Management: Recent events and activities indicate a possible "culture of
complacency" among some supervisors at the EPA regarding time and attendance
controls, employee computer usage, and real property management. As stewards
of taxpayer dollars, EPA managers must emphasize and reemphasize the
importance of compliance and ethical conduct throughout the agency and ensure it
is embraced at every level of the organization
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Goal 3
Cross-
Goal
Goal 4
Goal 5
Cross-
Goal
Cross-
goal
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AUDIT OFEPA'S
FISCAL YEARS2014 AND 2013 (RESTATED)
CONSOLIDATED FINANANCIAL
STATEMENTS
96
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
inancial Management
Audit of EPA's
Fiscal Years 2014 and 2013
(Restated) Consolidated
Financial Statements
Report No. 15-1-0021
November 17, 2014
Scan this mobile
code to learn more
about the EPA OIG.
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Abbreviations
AWBERC Andrew W. Breidenbach Environmental Research Center
B&F Building and Facilities
CCTV Closed Circuit Television
CERCLA Comprehensive Environmental Response, Compensation and Liability Act
CFC Cincinnati Finance Center
DOJ Department of Justice
EPA U.S. Environmental Protection Agency
FFMIA Federal Financial Management Improvement Act of 1996
FMFIA Federal Managers' Financial Integrity Act of 1982
IRMD Information Resources Management Division
IT Information Technology
LVFC Las Vegas Finance Center
NIST National Institute of Standards and Technology
OARM Office of Administration and Resources Management
OCFO Office of the Chief Financial Officer
OIG Office of Inspector General
OMB Office of Management and Budget
PP&E Property, Plant and Equipment
RAS Reporting and Analysis Staff
RSSI Required Supplementary Stewardship Information
RTF Research Triangle Park
S&T Science and Technology
SFFAS Statement of Federal Financial Accounting Standards
SP Special Publication
WFC Washington Finance Center
Are you aware of fraud, waste or abuse in an
EPA program?
EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW (2431T)
Washington, DC 20460
(888) 546-8740
(202) 566-2599 (fax)
OIG Hotline@epa.gov
More information at www.epa.gov/oig/hotline.html.
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW (241OT)
Washington, DC 20460
(202) 566-2391
www.epa.gov/oig
Subscribe to our Email Updates
Follow us on Twitter @EPAoig
Send us your Project Suggestions
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I
o
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
15-1-0021
November 17, 2014
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
financial reporting were in
place.
• EPA management complied
with applicable laws and
regulations.
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 goal or
cross-agency strategy:
• Embracing EPA as a high-
performing organization.
Send all inquiries to our public
affairs office at (202) 566-2391
or visit www.epa.gov/oiq.
The full report is at:
www.epa.qov/oiq/reports/2014/
20141117-15-1-0021.pdf
Audit of EPA's Fiscal Years 2014 and 2013
(Restated) Consolidated Financial Statements
Financial Statements Receive an Unmodified Opinion
We rendered an unmodified opinion on the
EPA's consolidated financial statements for
fiscal 2014 and 2013 (restated), meaning that
they were fairly presented and free of material
misstatement.
We found the EPA's
financial statements to be
fairly presented and free
of material misstatement.
Internal Control Material Weakness and Significant Deficiencies Noted
We noted the following material weakness:
• Software costs were not capitalized, leading to the fiscal 2013 financial
statements needing to be restated.
We noted the following significant deficiencies:
Lab renovation costs were not capitalized.
Controls over accountable personnel inventory process need improving.
The property management and accounting systems do not reconcile.
The Cincinnati Finance Center should clear suspense transactions timely.
A fiscal 2013 collection was recorded to an incorrect fund.
Originating offices did not timely forward accounts receivable documents.
Accounts receivable were not properly reconciled.
Unliquidated funds were not deobligated timely.
Restricted entry access to server rooms was not consistently enforced.
Information technology assets need to be better monitored and secured.
Information technology assets need to be better protected from threats.
Server room cameras need to be reconfigured to fully monitor assets.
Documentation is needed for approval of posting module changes.
Noncompliances With Laws and Regulations Noted
We noted the following instances of noncompliance with laws and regulations:
• Standards for recording interest were not sufficiently followed.
• EPA's 2014 Federal Managers' Financial Integrity Act Annual Assurance
Statement is inaccurate.
Recommendations and Planned Agency Corrective Actions
The agency generally agreed with our findings and recommendations. The
agency disagreed that the timely forwarding of receivables was an internal
control significant deficiency, and with certain details of its Federal Managers'
Financial Integrity Act Annual Assurance Statement material weakness.
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% UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
f V V f WASHINGTON, D.C. 20460
-rfcO"1 OFFICE OF
PR° INSPECTOR GENERAL
November 17, 2014
MEMORANDUM
SUBJECT: Audit of EPA's Fiscal Years 2014 and 2013 (Restated) Consolidated Financial Statements
Report No. 15-1-0021
FROM: Paul C. Curtis, Director
Financial Statement Audits
TO: David Bloom, Acting Chief Financial Officer
Office of the Chief Financial Officer
Nanci Gelb, 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 2014 and 2013
(restated) consolidated financial statements. We are reporting an internal control material weakness, as
well as 13 significant deficiencies. Attachment 1 contains details on the material weakness and
significant deficiencies. We also noted two instances of noncompliance, which are discussed in
Attachment 2.
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.
Action Required
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 Act of
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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.
This report will be available at http://www.epa.gov/oig.
Attachments
cc: See Appendix III, Distribution
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Audit of EPA's Fiscal Years 2014 and 2013 15-1-0021
Consolidated Financial Statements
Table of Contents
Inspector General's Report on EPA's Fiscal 2014 and
2013 (Restated) Consolidated Financial Statements 1
Report on the Financial Statements 1
Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information,
and Management's Discussion and Analysis 2
Evaluation of Internal Controls 3
Tests of Compliance With Laws and Regulations 8
Prior Audit Coverage 10
Agency Comments and OIG Evaluation 11
Attachments 12
1. Internal Control Material Weakness and Significant Deficiencies 12
Material Weakness
EPA Failed to Capitalize Software Costs, Leading to
Restated Fiscal 2013 Financial Statements 13
Significant Deficiencies
PROPERTY
EPA Did Not Capitalize Lab Renovation Costs 15
EPA's Internal Controls Over Accountable Personnel Inventory
Process Need Improvement 18
EPA's Property Management System Does Not Reconcile
to Its Accounting System (Compass) 20
SUSPENSE ACCOUNT
Cincinnati Finance Center Should Clear Suspense Transactions Timely 22
RECEIVABLES AND COLLECTIONS
EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund 24
Originating Offices Did Not Timely Forward Accounts Receivable
Source Documents to the Finance Center 26
EPA Did Not Properly Reconcile Accounts Receivable 29
-continued-
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Audit of EPA's Fiscal Years 2014 and 2013 15-1-0021
Consolidated Financial Statements
UNLIQUIDATED OBLIGATIONS
Unneeded Funds Not Deobligated Timely 32
INFORMATION TECHNOLOGY
EPA Needs to Consistently Enforce Restricted Entry Access to
Server Rooms 35
EPA Needs to Ensure That Its Information Technology Assets
Are Properly Monitored and Secured 37
EPA Needs to Establish Procedures for Protecting
Information Technology Assets From Environmental Threats 39
EPA Needs to Configure Server Room Cameras to Fully Monitor
I nformation Technology Assets 41
EPA Needs to Document Management's Approval for Authorizing
Changes to the Accounting Posting Module 43
2. Compliance With Laws and Regulations 44
EPA Did Not Comply With Federal Accounting Standards for
Recording Interest 45
EPA's 2014 FMFIA Annual Assurance Statement Is Inaccurate 48
3. Status of Prior Audit Report Recommendations 50
4. Status of Current Recommendations and Potential Monetary Benefits 52
Appendices
I. EPA's Fiscal 2014 and 2013 (Restated) Consolidated Financial Statements
II. Agency Response to Draft Report
III. Distribution
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Inspector General's Report on EPA's
Fiscal 2014 and 2013 (Restated)
Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
Report on the Financial Statements
We have audited the accompanying financial statements of the U.S. Environmental Protection
Agency (EPA), which comprise the consolidated balance sheet, as of September 30, 2014, and
September 30, 2013 (restated), and the related consolidated statements of net cost, net cost by
goal, changes in net position, and custodial activity; the combined statement of budgetary
resources for the years then ended; and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation and maintenance of internal controls
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor's Responsibility
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. 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 involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
15-1-
0021
OIG-1
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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.
Opinion
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 the EPA as of and for the years ended September 30, 2014 and 2013 (restated),
in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matters
Restated Financial Statements. As discussed in Note 38 in the consolidated financial
statements, the agency has restated the financial statements for fiscal 2013 due to material
errors found in expensing software costs that otherwise should have been capitalized. The
agency's internal control review found it had previously expensed approximately
$193 million in software costs that should have been capitalized. Due to the material errors
found in expensing software costs that should have been capitalized, our report on the EPA's
Consolidated Financial Statements, dated December 16, 2013, is not to be relied upon. That
report is replaced by this report on the restated fiscal 2013 EPA consolidated financial
statements. We report the internal control deficiency that resulted in the material errors as a
material weakness in the Internal Control section of this report.
Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis
Our audit was conducted for the purpose of forming an opinion on the financial statements as a
whole. The Required Supplementary Stewardship Information (RSSI), Required Supplementary
Information, Supplemental Information, and Management's Discussion and Analysis are
presented for purposes of additional analysis and are not a required part of the basic financial
statements. Such information is the responsibility of management. We obtained information from
the EPA management about its methods for preparing the RSSI, Required Supplementary
15-1-
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OIG-2
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Information, Supplemental Information, and Management's Discussion and Analysis, and
reviewed this information for consistency with the financial statements.
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.
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.
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 governmentwide policies—
Transactions are executed in accordance with laws governing the use of budget authority,
governmentwide policies, laws identified by OMB, and other laws and regulations that
could have a direct and material effect on the financial statements.
Opinion on Internal Controls. 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. 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.
Material Weakness and Significant Deficiencies. 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
15-1-
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OIG-3
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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. Because of the material and significant errors found in software, other property, and
inventory, we consider the property management and accounting system to be a material
weakness. These issues are summarized below and detailed in Attachment 1.
EPA Failed to Capitalize Software Costs, Leading to Restated Fiscal 2013
Financial Statements
The agency's accounting for software is a material weakness. In fiscal 2014, the agency
found it had undercapitalized software by expensing approximately $255 million in
software costs over a 7-year period. The undercapitalized software and related equity
accounts indicate the agency has a material weakness in internal controls over identifying
and capitalizing software because such controls failed to detect and correct the errors,
resulting in a misstatement of the fiscal 2013 financial statements. The material
misstatement of the fiscal 2013 financial statements contributed to our determination that
the agency's accounting for software is a material weakness.
15-1-
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PROPERTY
EPA Did Not Capitalize Lab Renovation Costs
The EPA did not capitalize approximately $8 million of Research Triangle Park lab
renovations. The Statement of Federal Financial Accounting Standards (SFFAS) No. 6,
Accounting for Property, Plant, and Equipment, states "the cost of acquiring property,
plant and equipment (PP&E) may include: .. .fixed equipment and related installation
costs required for activities in a building or facility...." The agency did not believe it
should capitalize the lab renovation because it was a bulk purchase of equipment where
each unit price was less than $25,000. As a result, the EPA did not properly classify the
lab renovation as a capital improvement.
EPA's Internal Controls Over Accountable Personal Inventory Process
Need Improvement
The EPA reported a $2.6 million difference between the amount of accountable personal
property recorded in the property management system (Maximo) and the amount of
physical inventory for fiscal 2014. The EPA also identified 573 property items not
recorded in Maximo. The EPA requires property management personnel to annually
OIG-4
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inventory accountable personal property and add it to Maximo when acquired. The EPA
did not record the property items in Maximo due to various reasons. The primary cause
was property management personnel did not update Maximo timely and accurately.
Recording untimely and inaccurate accountable personal property information could
compromise the EPA's property management system, prevent the proper capitalization of
property, misstate the agency's financial statements, and result in asset loss and
misappropriation.
EPA's Property Management System Does Not Reconcile to Its
Accounting System (Compass)
The EPA did not reconcile $100 million of capital equipment within its property
management subsystem (Maximo) to relevant financial data within its accounting system
(Compass). Resource Management Directive, Technical Interpretation, 2540-11-T2,
Reconciliation Requirements for Capital Property, requires reconciliations between the
property module and general ledger be performed monthly by the responsible security
organization. Various factors contributed to the EPA's failure to reconcile the property
module and the general ledger, such as: (1) incomplete capitalized property records,
which resulted in inappropriately expensed capital equipment; and (2) an integration error
between Maximo and Compass. The inability to reconcile the property subsystem with
Compass can compromise the effectiveness and reliability of financial reporting. We
previously reported on this issue in our 2012 financial statement audit report.
SUSPENSE ACCOUNT
Cincinnati Finance Center Should Clear Suspense Transactions Timely
The Cincinnati Finance Center (CFC) is not clearing collection and disbursement
transactions from the federal budget clearing (suspense) account within 60 days after
posting. As of February 28, 2014, we identified 179 federal disbursement and collection
transactions totaling $18,369,054 remaining in suspense beyond 60 days. EPA guidance
requires each servicing finance office to classify and transfer transactions in the agency's
federal budget clearing accounts to appropriate general ledger accounts within 60 days.
Untimely clearing of suspense transactions influences the agency's ability to reflect financial
activity in the correct fund.
RECEIVABLES AND COLLECTIONS
EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund
In fiscal 2013, the EPA recorded an $11.3 million Clean Air Act engine nonconformance
penalty collection to an incorrect fund. The EPA recorded the collection to the
Environmental Services Special Fund (for vehicle emission test fees) instead of the fines
and penalties fund. Agency guidance directs servicing finance offices to analyze each
collection to determine the reason for the remittance. According to the U.S. Treasury
Financial Manual, engine nonconformance penalties belong in the fines and penalties
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OIG-5
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fund 1099. Neither CFC nor the Washington Finance Center followed procedures for
analyzing the collection. CFC, which should have recorded the collection, incorrectly
sent the collection to the Washington Finance Center, which then recorded the collection
as a vehicle emission test fee in the Environmental Services Special Fund. By recording
the nonconformance penalty as a motor vehicle test fee, the EPA overstated the
Environmental Services Special Fund and understated its custodial liability to the
Treasury.
Originating Offices Did Not Timely Forward Accounts Receivable Source
Documents to the Finance Center
The EPA and the Department of Justice did not timely forward 40 accounts receivable
source documents totaling $61.7 million to finance centers for recording in the agency's
financial system. The EPA's policies state that the originating offices and action officials
must forward action documents that establish a receivable to the finance center within 5
business days of receipt. We identified various reasons for the delays in forwarding
source documents to the finance centers. Delaying the recording of accounts receivable
could result in a material misstatement of the financial statements.
EPA Did Not Properly Reconcile Accounts Receivable
The EPA did not properly reconcile the March 31, 2014, accounts receivable subsidiary
ledger to the general ledger. The EPA improperly treated a general ledger error as an
addition to the detail receivables. The EPA combined federal and non-federal receivables
in the reconciliation, although federal accounting guidance requires separate reporting.
EPA guidance directs the agency to perform quarterly accounts receivable
reconciliations, investigate discrepancies and correct any differences. When the agency
cannot accurately reconcile the accounts receivable subsidiary ledger to the general
ledger and correct differences, the agency cannot ensure financial statements are properly
stated.
UNLIQUIDATED OBLIGATIONS
Unneeded Funds Not Deobligated Timely
The EPA did not deobligate unneeded funds totaling $4.4 million identified during the
fiscal 2014 annual review of unliquidated obligations. Federal and agency guidance
require unliquidated obligations to be reviewed annually, and EPA requires responsible
offices to review inactive unliquidated obligations and take appropriate action to
deobligate unneeded funds. However, the EPA did not take timely actions to notify the
appropriate offices to deobligate the unneeded funds. As a result, the EPA has no
assurance that unliquidated obligations are accurate and represent valid and viable
obligations, and that obligated funds are being used efficiently.
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INFORMATION TECHNOLOGY
EPA Needs to Consistently Enforce Restricted Entry Access to
Server Rooms
The EPA did not consistently enforce restricted access at the Las Vegas Finance Center
and the Andrew W. Breidenbach Environmental Research Center server rooms. We
found that personnel were granted access to server rooms without proper approval and
that unauthorized personnel had access to a server room door. Specifically, a contractor
was granted access to the Las Vegas server room without the office director's approval.
Additionally, we noticed that the approved access list for the Breidenbach Center's rear
server room door did not match the computer access list in the Facility Commander
software, which allowed unauthorized staff to use the server room door.
EPA Needs to Ensure That Its Information Technology Assets Are
Properly Monitored and Secured
The EPA did not ensure that information technology (IT) assets at the Las Vegas Finance
Center server room, Andrew W. Breidenbach Environmental Research Center server
room, and Research Triangle Park National Computer Center computer room were
properly monitored and secured. We found that a card reader located at the Las Vegas
server room did not consistently log or document alerts of attempts by unauthorized users
to gain access, while server racks within the Breidenbach Center telecommunication
room and the National Computer Center computer room were unlocked.
EPA Needs to Establish Procedures for Protecting Information Technology
Assets From Environmental Threats
The EPA lacks processes to enable personnel to monitor environmental factors that are
used to protect IT assets. Specifically, finance center server rooms lack processes to
protect IT assets from temperature and humidity damage. Additionally, one finance
center had incorrectly installed water sensors, making the servers vulnerable to flooding
before personnel could be alerted to the problem.
EPA Needs to Configure Server Room Cameras to Fully Monitor
Information Technology Assets
Closed circuit television system cameras at the EPA finance centers do not provide
enough visibility to monitor production servers and valuable IT assets for unauthorized
changes. We found that cameras within one server room did not monitor the racks
containing EPA production servers and other IT assets. Additionally, the storage time for
those cameras' feed did not provide the required 30-day playback time. We also observed
an EPA server room for which visibility was controlled by a non-automated light switch
that was not coordinated with the closed circuit television system. Lastly, one server
room lacked consistent lighting to ensure server room activity could be recorded.
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EPA Needs to Document Management's Approval for Authorizing
Changes to the Accounting Posting Module
The EPA lacks management's written approval for authorizing changes to the Compass
accounting posting model to prevent unauthorized changes. The Office of the Chief
Financial Officer does not officially document management's approval when making
updates to the recording of general ledger account activity within the Compass accounting
posting module. The Government Accountability Office's Standards for Internal Control
in the Federal Government (November 1999) states that all transactions and significant
events need to be clearly documented. Revisions to OMB Circular A-123, Management's
Responsibility for Internal Control (December 2004), state that management's control
activities such as proper authorization and appropriate documentation are internal controls
that help safeguard against unauthorized use of assets.
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 fiscal 2014.
We reported to the agency on less significant internal control matters 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, 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 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, 2014. During our audit, the agency
informed us that it intends to report the under capitalization of software and personal property as
agency-level weaknesses. We consider the under capitalization of software to be a material
weakness. As explained in Note 38, the under capitalization caused a material understatement of
capitalized software over a number of years. The agency's internal control system did not detect
or prevent this material understatement. Details concerning our findings on the material
weakness and significant deficiencies can be found in Attachment 1. Subsequently, the agency
agreed to declare weaknesses over its accounting for software as a material weakness.
Tests of Compliance With Laws and Regulations
EPA management is responsible for complying with laws and regulations applicable to the
agency. As part of obtaining reasonable assurance about whether the agency's financial
statements are free of material misstatement, we performed tests of its compliance with certain
provisions of laws and regulations, noncompliance with which could have a direct and material
effect on the determination of financial statement amounts, and certain other laws and
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regulations specified in OMB Bulletin No. 14-02, Audit Requirements for Federal Financial
Statements. 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.
Opinion on Compliance With Laws and Regulations
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.
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.
We identified an instance of substantial noncompliance with FFMIA requirements. The
agency was not in substantial compliance with SFFAS No. 10, Accounting for Internal Use
Software, for under capitalizing software costs. See Attachment 1 for the detailed description
of this issue. Our results of our tests did not disclose any other instances of substantial
noncompliance with FFMIA requirements.
We identified two significant matters involving compliance with laws and regulations that
came to our attention during the course of the audit. We found that the EPA did not comply
with federal standards for recording interest, and the EPA's 2014 FMFIA Annual Assurance
Statement did not report software as a material weakness. Attachment 2 provides additional
details, as well as our recommendations on actions that should be taken on these matters.
We will not issue a separate management letter.
EPA Did Not Comply With Federal Accounting Standards for
Recording Interest
The EPA did not record all applicable interest for some Superfund, installment and grant
accounts receivable in the accounting system as required by applicable laws, federal
accounting standards and EPA policy. The EPA did not record the proper interest due to
Compass accounting system problems and nonconformance to the terms in the receivable
legal source documents. By not recording all applicable interest, the EPA did not collect
all the funds to which it was entitled and did not comply with applicable laws, federal
accounting standards and EPA policy.
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EPA's 2014 FMFIA Annual Assurance Statement Is Inaccurate
In May 2014, the EPA identified a $193 million error in its capitalized software accounts,
which resulted in the restatement of its fiscal 2013 financial statements. In spite of this
material error, the EPA did not report capitalized software as a material weakness in its
draft fiscal 2014 FMFIA Annual Assurance Statement. OMB Circular A-123 defines
material weaknesses in internal control as a "Reportable condition, or combination of
reportable conditions, that results in more than a remote likelihood that a material
misstatement of the financial statements, or other significant financial reports, will not be
prevented or detected." OMB Circular A-123 also states that "management is precluded
from concluding that the agency's internal control is effective (unqualified statement of
assurance) if there are one or more material weaknesses." While EPA management is
restating the fiscal 2013 financial statements, the agency does not consider this software
capitalization error to be a material weakness. Because the EPA did not report capitalized
software as a material weakness in its initial fiscal 2014 draft FMFIA Annual Assurance
Statement, the agency is not in compliance with FMFIA reporting requirements.
Subsequently, the agency has agreed to declare weaknesses over its accounting for
software as a material weakness.
Audit Work Required Under the Hazardous Substance Superfund Trust Fund
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 the following weaknesses that
impacted our audit objectives:
• Posting models materially misstated general ledger activities and balances.
• Compass reporting limitations impair accounting operations and internal controls.
• EPA should improve compliance with internal controls for accounts receivable.
• Property internal controls need improvement.
• Compass and Maximo cannot be reconciled.
• EPA should improve controls over expense accrual reversals.
• Financial management system user account management needs improvement.
Attachment 3 summarizes the current status of corrective actions taken on prior audit report
recommendations related to these issues.
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Agency Comments and OIG Evaluation
In a memorandum dated November 13, 2014, 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 those
specified parties.
Paul C. Curtis
Certified Public Accountant
Director, Financial Statement Audits
Office of Inspector General
U.S. Environmental Protection Agency
November 17, 2014
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Attachment 1
Internal Control Material Weakness
and Significant Deficiencies
Table of Contents
Material Weakness
1 EPA Failed to Capitalize Software Costs, Leading to
Restated Fiscal 2013 Financial Statements 13
Significant Deficiencies
PROPERTY
2 EPA Did Not Capitalize Lab Renovation Costs 15
3 EPA's Internal Controls Over Accountable Personnel Inventory
Process Need Improvement 18
4 EPA's Property Management System Does Not Reconcile
to Its Accounting System (Compass) 20
SUSPENSE ACCOUNT
5 Cincinnati Finance Center Should Clear Suspense Transactions Timely 22
RECEIVABLES AND COLLECTIONS
6 EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund 24
7 Originating Offices Did Not Timely Forward Accounts Receivable
Source Documents to the Finance Center 26
8 EPA Did Not Properly Reconcile Accounts Receivable 29
UNLIQUIDATED OBLIGATIONS
9 Unneeded Funds Not Deobligated Timely 32
INFORMATION TECHNOLOGY
10 EPA Needs to Consistently Enforce Restricted Entry Access to Server Rooms 35
11 EPA Needs to Ensure That Its Information Technology Assets
Are Properly Monitored and Secured 37
12 EPA Needs to Establish Procedures for Protecting
Information Technology Assets From Environmental Threats 39
13 EPA Needs to Configure Server Room Cameras to
Fully Monitor Information Technology Assets 41
14 EPA Needs to Document Management's Approval for
Authorizing Changes to the Accounting Posting Module 43
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1 - EPA Failed to Capitalize Software Costs, Leading to
Restated Fiscal 2013 Financial Statements
The agency's accounting for software is a material weakness. In fiscal 2014, the agency found it
had undercapitalized software by expensing approximately $255 million in software costs over a
7-year period. The undercapitalized software and related equity accounts indicate the agency has
a material weakness in internal controls over identifying and capitalizing software because such
controls failed to detect and correct the errors, resulting in a misstatement of the fiscal 2013
financial statements. The material misstatement of the fiscal 2013 financial statements
contributed to our determination that the agency's accounting for software is a material
weakness.
The agency identified approximately $255 million in software costs that should have been
capitalized, based on its OMB Circular A-123 review of all software projects in development and
put into production over the last 7 years. The agency's policy is to capitalize software costs
exceeding its annual capitalization threshold of $250,000. SFFAS No. 10, Accounting for
Internal Use Software, requires entities to capitalize the cost of software which meets the criteria
for general property, plant, and equipment. The agency did not capitalize all appropriate
software costs because it did not enter transactions under $25,000 into the general ledger as
capital property, incorrectly combined credit transactions with debit transactions, and entered
incorrect accounting data due to data entry errors. Understating the capitalized software and
related equity accounts materially misstated the fiscal 2013 financial statements. The agency
corrected the capitalized software values for fiscal 2014 and restated the fiscal 2013 financial
statements.
In fiscal 2014, the agency conducted an OMB Circular A-123 review of its capital software
process and identified internal control deficiencies related to capitalizing software. The agency
therefore reviewed all software projects in development and put into production over the last
7 years to determine the correct value and accounting information for software projects. The
agency identified approximately $255 million in software costs that should have been
capitalized. EPA could not determine the uncapitalized software for each individual year, but the
cumulative effect of uncapitalized software over 7 years was material to the financial statements.
The agency's policy is to capitalize software costs exceeding its annual capitalization threshold
of $250,000 and depreciate the costs over 7 years. However, the agency did not capitalize all
appropriate software costs because:
• It did not enter transactions under $25,000 into the general ledger as capital property.
• When the agency found credit transactions, it combined them with other debit
transactions to make the transaction amount correct.
• Data entry errors for some transactions caused incorrect accounting strings.
The agency corrected the capitalized software values for fiscal 2014 and restated the fiscal 2013
financial statements. The agency's approach to correcting software projects was to compare
expenditures identified by an IT project code to costs recorded in the fixed asset subsystem. Any
differences identified were considered a capital expense for the software project. The agency
processed a correcting entry in Compass for expenditures that it had not previously capitalized.
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The agency did not examine the supporting documentation for the payments to verify they
should be capitalized. Without reviewing individual invoices to support the software costs
capitalized, the agency has no assurance that such costs represent actual costs that should be
capitalized or other operating expenses. Our review of the agency's capitalized costs indicated it
capitalized some costs that should not have been capitalized, such as annual licensing fees and
data conversion fees. The capitalization of such costs was due to the process the agency used to
capitalize costs. Had the agency examined the invoices instead of relying on the system, errors
could have been caught and corrected.
Understating the capitalized software materially misstated the fiscal 2013 financial statements
and the beginning balance in equity for fiscal 2014, which indicated a material internal control
weakness. The undercapitalized software resulted in a material misstatement of the financial
statements that was not prevented or detected and led to the restatement of the fiscal 2013
financial statements.
Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management:
1. Require project officers to track and accumulate software costs by project from inception
through date placed in service.
We recommend that the Chief Financial Officer:
2. Require the Reporting and Analysis Staff to coordinate with Office of Administration and
Resources Management project officers to receive software project cost support once
placed into service.
3. Document and support project costs for all software costs placed into service over the
past 7 years.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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2 - EPA Did Not Capitalize Lab Renovation Costs
The EPA did not capitalize approximately $8 million of Research Triangle Park (RTF) lab
renovations. SFFAS No. 6, Accounting for Property, Plant, and Equipment, states "the cost of
acquiring property, plant and equipment (PP&E) may include: .. .fixed equipment and related
installation costs required for activities in a building or facility...." The agency did not believe it
should capitalize the lab renovation because it was a bulk purchase of equipment where each unit
price was less than $25,000. As a result, the EPA did not properly classify the lab renovation as a
capital improvement.
To fund the cost of the renovations, the EPA used Science and Technology (S&T) funds that
allows for the procurement of laboratory equipment and supplies. The agency funded the
renovation costs based on an internal legal decision that gave a general definition of construction
costs. The 1999 legal opinion states:
"Guided by the dictionary references to "construction" that contemplate a
permanent, usable and functioning facility, you must consider the purpose the
equipment will serve in the Facility, i.e., whether the equipment is necessary for
the basic operation or structural integrity of the Facility. If the equipment is
necessary for the basic operation or structural integrity of the Facility ..., then
such equipment must be considered to be part of the Facility construction.
Further, you should establish how the equipment has historically been funded. If
the equipment has historically been funded as a construction cost in other agency
building projects, then it must be considered a construction cost with regard to the
Facility. If the equipment's purpose is for programmatic functions and is not
necessary for the basic operation or structural integrity of the Facility, and if
similar equipment has historically been funded as a program item, then it must be
funded from the relevant program appropriation account...."
The EPA November 2011 memorandum, Justification for Utilizing Program Appropriations for
Laboratory Refurbishing., further explains the agency's use of S&T funds for the RTF lab
renovation. The memorandum stated, "renovations are expected to cost approximately
$8 million. Nearly half of this amount will be associated with the cost of the equipment itself,
with most of the balance going to installation cost." The agency believed the primary purpose of
the contract was the acquisition and installation of equipment. Attachment A, Statement of Work
for Indefinite-Deli very/Indefinite-Quantity Contract for the U.S. EPA RTF/RTF Laboratory
Renovation Project at Research Triangle Park, North Carolina Statement of Work, states: "The
renovation work will range from light laboratory modifications to the complete retrofit of office
space into laboratory space."
The Building and Facilities (B&F) appropriation states the appropriation is: "For construction,
repair, improvement, extension, alteration, and purchase of fixed equipment or facilities of or for
use by the Environmental Protection Agency."
SFFAS No. 6 states that "Cost shall include all costs incurred to bring the PP&E to a form and
location suitable for its intended use. For example, the cost of acquiring PP&E may include:
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.. .fixed equipment and related installation costs required for the activities in a building or
facility...."
The EPA used S&T funds to renovate labs at the RTF main campus, which included fume hoods
and laboratory casework (removal/reconfiguration of existing laboratory bench tops and
cabinets) to accommodate research activities. While some cost of the renovation may be
associated with moving fume hood equipment, the EPA could not provide a breakdown in a
timely manner to determine cost associated with the equipment installation and the renovation.
The agency used the wrong funding object class code, which caused the renovation costs to be
expensed and not capitalized. The agency said the lab renovation was a bulk purchase of
equipment, where each unit price was less than $25,000. Therefore, the agency did not believe it
should capitalize the lab renovation. However, the agency also acknowledged that its policy on
bulk purchases applies to all PP&E and not just personal property.
The agency renovated an entire space to create laboratories, which should not be broken down
into individual units to determine capitalization. In accordance with SFFAS No. 6 and our
analysis of the costs incurred and nature of the expenditures, the entire cost of the RTF lab
renovation should be capitalized. The agency agreed and said it would book and capitalize the
RTF renovation costs.
During our analysis of the RTF lab renovation, we noted several concerns about the legal opinion
that the agency relied upon:
• The opinion is possibly dated—it was written in 1999, and the legal definition of
"construction" may well have changed since that time.
• The opinion relies entirely on dictionary definitions of construction—it is likely that there
are legal sources that should be considered when defining "construction."
• The opinion does not specifically address the funding of EPA lab renovations, which
could include equipment costs and construction projects.
• The opinion in its entirety is a little over two pages—it did not provide a developed legal
analysis and developed examples.
Given the potential problems identified above, the OIG anticipates that the agency's Office of
General Counsel will review the opinion to determine whether it is legally acceptable and, if
"yes," so state in a written position for use by the agency. If the opinion is deemed not to be
legally acceptable, the Office of General Counsel should execute a new opinion based on
established legal positions.
When the EPA determined to expense the renovation cost in the general ledger and use S&T
funding for renovation, it potentially compromised the accuracy of the EPA's capital property
accounts, depreciation and operating expenses, as well as the accuracy of the agency's financial
statements.
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Recommendations
We recommend that the Chief Financial Officer:
4. Capitalize and book the RTF lab renovation costs and calculate depreciation.
5. Improve and maintain support for how EPA lab renovation projects are funded.
6. Review funding sources of all current and future lab renovations to ensure correct
funding is utilized.
7. Develop policies and procedures for capital improvements/betterments to real property,
specifically, to address EPA lab renovations which could include bulk purchases of
equipment and funding from agency program appropriations other than the B&F
appropriation.
8. Request the Office of General Counsel to determine whether the legal opinion referenced
herein represents a legally acceptable position regarding the definition of "construction,"
and provides adequate examples to guide determinations of when renovation work should
be funded out of agency program appropriations (e.g., S&T) or B&F funds.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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3 - EPA's Internal Controls Over Accountable Personnel Inventory
Process Need Improvement
The EPA reported a $2.6 million difference between the amount of accountable personal
property recorded in the property management system (Maximo) and the amount of physical
inventory for fiscal 2014. The EPA also identified 573 property items not recorded in Maximo.
The EPA requires property management personnel to annually inventory accountable personal
property and add it to Maximo when acquired. The EPA did not record the property items in
Maximo due to various reasons. The primary cause was property management personnel did not
update Maximo timely and accurately. Recording untimely and inaccurate accountable personal
property information could compromise the EPA's property management system, prevent the
proper capitalization of property, misstate the agency's financial statements, and result in asset
loss and misappropriation.
The EPA's Facilities Management and Services Division administers 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
accountable area's personal property records must be maintained in Compass, which includes a
fixed asset subsystem updated by Maximo. Thus, Compass will provide all needed data for
effective personal property management (i.e., location, procurement, utilization and disposal).
Section 3.7.3 states that control and accountability of personal property shall be established in
Compass upon receipt of such property and must be maintained until disposal of the property.
All actions affecting the control and accountability of accountable property must be supported by
appropriate authorized transaction documents.
The EPA's Property Bulletin No. 14-004 states, "It is imperative that the agency be a good
steward of a property under its control. When accountable property comes into a Property
Management Officer's custodial area, the property record must appear in the property tracking
system within 5 days of installation or on-site receipt."
The EPA's Personal Property Management Policy states that a Board of Survey shall serve as a
fact-finding body to determine negligence surrounding the loss, damage or destruction of
property. It is the Board of Survey's responsibility to conduct an investigation, submit a signed
report of survey to the proper approval authority, and authorize the removal of items from
property records.
The EPA reported a $2.6 million difference between the amount of accountable personal
property recorded in Maximo and the amount of physical inventory for year 2014. The difference
included $696,977 of capitalized property in the system but not in inventory. The EPA also
identified 573 property items not recorded in Maximo. We identified other examples of improper
management of accountable personal property:
• The EPA inaccurately recorded in Maximo the location of 22 pieces of equipment valued
at $227,000. One piece of capitalized property was physically located in RTF, North
Carolina, as of December 2013, but the inventoried record documented the equipment
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location as Seattle, Washington, in May 2014. The agency could not determine how the
inventory record was improperly updated.
• In August 2014, we found a $29,616 capitalized piece of equipment delivered directly to
a program office and not decaled or entered into the property management system when
placed into service September 30, 2013. The EPA did not include the property in
inventory for over a year.
The primary reason that the EPA did not record the property items in Maximo was that property
management personnel were not updating Maximo timely and accurately. Other reasons included:
• A program office did not notify the property management officer when it received a piece
of capitalized equipment.
• Property management personnel did not always decal property entered into the property
management system.
• A lack of Board of Survey investigations hindered the removal of items from property
records.
Proper management of the EPA's accountable personal property depends on property
management personnel maintaining an accurate inventory in the property management system.
The EPA's problems in maintaining accurate property records indicates a need for improved
internal controls. Recording untimely and inaccurate accountable personal property information
could compromise the EPA's property management system, prevent the proper capitalization of
property, misstate the agency's financial statements, and result in asset loss and
misappropriation.
Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management
require the Director, Facilities Management and Services Division, to:
9. Update inventory records according to EPA's Property Bulletin No. 14-004.
10. Identify the personal property records missing from the agency's property management
system and record them in the system.
11. Conduct Board of Survey investigations more frequently to adequately address missing
and uninventoried property. Document the results of Board of Survey investigations and
update the property management records accordingly.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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4 - EPA's Property Management System Does Not Reconcile to Its
Accounting System (Compass)
The EPA did not reconcile $100 million of capital equipment within its property management
subsystem (Maximo) to relevant financial data within its accounting system (Compass).
Resource Management Directive, Technical Interpretation, 2540-11-T2, Reconciliation
Requirements for Capital Property, requires reconciliations between the property module and
general ledger be performed monthly by the responsible security organization. Various factors
contributed to the EPA's failure to reconcile the property module and the general ledger, such as:
(1) incomplete capitalized property records, which resulted in inappropriately expensed capital
equipment; and (2) an integration error between Maximo and Compass. The inability to reconcile
the property subsystem with Compass can compromise the effectiveness and reliability of
financial reporting. We previously reported on this issue in our 2012 financial statement audit
report.
Resource Management Directive, 2540-11-T2, states, "Reconciliations between the property
module and general ledger within Compass shall be performed monthly by the responsible
security organization. The results of the reconciliation shall be verified quarterly by the
cognizant regional finance management officer, Research Triangle Park Finance Center,
Cincinnati Finance Center and Las Vegas Finance Center." Property Bulletin 14-004,
Property Timelines and Deadlines states "a property manager has [5 days] to update the property
management system after a piece of property arrives at, is moved to, or leaves one location for
another."
Maximo interfaces with Compass when capitalized equipment is added to the property system.
However, if a property record is not created in Maximo, the equipment will not be recorded as a
capital asset within the agency's financial system.
We found capitalized equipment that was not entered into Maximo timely, an integration error
between Maximo and Compass, and examples of capital equipment shipped directly to a
program office without notifying the property management officer. All of these examples
contributed to the reconciliation issues. Specific examples include:
• A $29,600 piece of capitalized equipment with an in-service date of September 2013 was
received by a program office and not decaled until found by RTF's property accountant
while working on the Maximo/Compass reconciliation. The RTF property management
officer decaled the equipment and entered the capital property record into Maximo in
August 2014, or 11 months after the equipment was received.
• An $80,500 piece of capital equipment was received and immediately placed into service
in March 2012. A property accountable officer found the equipment in May 2014. The
property accountable officer decaled and entered the capital equipment into Maximo
2 years and 2 months after the equipment was placed into service. Until the decal was
entered into Maximo, the piece of equipment was not recognized as capital equipment
and depreciated.
• As part of our sampling, we identified a capital asset that was recorded in Maximo with
an in-service date of December 13, 2013, but not processed as a capitalized asset in
Compass. An integration error between Maximo and Compass prevented a $797,385
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capital asset to push over to Compass. A software contractor fixed the integration error
and it was correctly processed as a capital asset in September 2014.
Inaccurate personal property records compromise the EPA's property control system and
can lead to the loss or misappropriation of agency assets. The failure to reconcile the
property subsystem with Compass can compromise the effectiveness and reliability of
financial reporting, including possible misstatements within the financial statements.
Recommendations
We recommend that the Chief Financial Officer:
12. Research and resolve differences between Compass and the property management system
timely.
We recommend that the Assistant Administrator for Administration and Resources Management:
13. Require the Office of Administration, Facilities Management and Services Division, to
verify the correctness and update all capitalized property records in the official property
system as required.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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5 - Cincinnati Finance Center Should Clear Suspense Transactions
Timely
The Cincinnati Finance Center (CFC) is not clearing collection and disbursement transactions from
the federal budget clearing (suspense) account within 60 days after posting. As of February 28,
2014, we identified 179 federal disbursement and collection transactions totaling $18,369,054
remaining in suspense beyond 60 days. EPA guidance requires each servicing finance office to
classify and transfer transactions in the agency's federal budget clearing accounts to appropriate
general ledger accounts within 60 days. CFC did not clear suspense accounts timely primarily
because EPA project officers did not provide timely disbursement approvals needed to clear the
suspense accounts. Untimely clearing of suspense transactions was also due to:
• Waiting for final documentation/breakdown details.
• Disputing with another agency a receivable charge.
• Researching transactions and following up with regions.
Untimely clearing of suspense transactions influences the agency's ability to reflect financial
activity in the correct fund.
CFC records federal disbursements and collections in suspense account 68F3885. The
accounting system notifies the project officers by email of a transaction waiting for their
approval. The system sends follow-up emails at 20 days, 30 days, and then weekly if the project
officer does not act on the approval request. Disbursement transactions remain in suspense until
an EPA project officer approves or disapproves them. When the EPA approves a disbursement,
the system removes the transaction from the suspense account and charges it to the appropriate
receipt or expenditure accounts. Collection transactions remain in suspense until the CFC applies
them to the corresponding receivable.
The EPA's Statement of Transactions SF 224 Desktop Reporting Procedures requires each
servicing finance office to classify and transfer transactions in the agency's federal budget
clearing accounts to appropriate general ledger accounts within 60 days.
Treasury Financial Manual, Volume 1, Bulletin No. 2011-06, dated June 30, 2012, directs
federal agencies to certify annually that suspense account F3885 for the preceding yearend does
not include any items or transactions more than 60 days old. If there are transactions more than
60 days old, the federal agency must clearly explain the reason.
CFC is not clearing federal collection and disbursement transactions from suspense within
60 days after posting. We identified five collection transactions totaling $167,989 and 174
disbursement transactions totaling $18,201,064 in suspense accounts longer than 60 days.
CFC did not clear suspense accounts timely primarily because EPA project officers did not
provide timely disbursement approvals needed to clear the suspense accounts. CFC staff stated
that they were not required to follow up with the project officers to obtain their approval. CFC
relied on the system-generated reminder emails to the project officers and did not make many
follow-up attempts to get the project officers' approval. Untimely clearing of suspense
transactions influences the agency's ability to reflect financial activity in the correct fund.
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Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management:
14. Require project officers to approve federal disbursements timely.
We recommend that the Chief Financial Officer:
15. Require CFC staff to follow up with project officers and regions to obtain the necessary
disbursement approvals and information needed to clear transactions timely from the
federal budget clearing (suspense) account.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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6 - EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund
In fiscal 2013, the EPA recorded an $11.3 million Clean Air Act engine nonconformance penalty
collection to an incorrect fund. The EPA recorded the collection to the Environmental Services
Special Fund (for vehicle emission test fees) instead of the fines and penalties fund. Agency
guidance directs servicing finance offices to analyze each collection to determine the reason for
the remittance. According to the U.S. Treasury Financial Manual, engine nonconformance
penalties belong in the fines and penalties fund 1099. Neither CFC nor the Washington Finance
Center (WFC) followed procedures for analyzing the collection. CFC, which should have
recorded the collection, incorrectly sent the collection to WFC, which then recorded the
collection as a vehicle emission test fee in the Environmental Services Special Fund. By
recording the nonconformance penalty as a motor vehicle test fee, the EPA overstated the
Environmental Services Special Fund and understated its custodial liability to the Treasury.
The Clean Air Act (42 U.S. Code Section 7525) authorized the EPA to establish a mechanism for
manufacturers of heavy-duty highway engines to pay a penalty instead of meeting current
emission standards. Nonconformance penalties are monetary penalties assessed on a per-engine
basis that allow an engine manufacturer to sell engines that do not meet the emission standards.
The EPA's Resources Management Directives System 2540-03, Cash Management Collections
and Deposits, provides the agency's policies and procedures for collecting receipts and
depositing funds. The policy directs servicing finance offices to analyze each collection it
receives to determine the reason for the remittance and collection type, which helps the EPA to
classify the collection to the proper fund.
SFFAS No. 7, Accounting for Revenue and Other Financing Sources, provides standards for
classifying, recognizing and measuring revenue resources inflows. Nonexchange revenue arises
primarily from the federal government's power to demand payment from the public and includes
fines and penalties. Nonexchange revenue should be measured by the collecting entities but
recognized by the entities legally entitled to the revenue. The EPA nonconformance penalty
represents nonexchange revenue collected by the EPA for the Treasury general fund.
The U.S. Department of the Treasury's Treasury Financial Manual contains the receipt,
appropriation, and other fund account symbols and titles assigned by the Treasury consistent
with the Comptroller General of the United States. According to the Treasury, fund 1099
represents Fines, Penalties, and Forfeitures, Not Otherwise Classified.
In fiscal 2013, the EPA recorded an $11.3 million Clean Air Act engine nonconformance penalty
collection received in November 2012 to the Environmental Services Special Fund instead of the
fines and penalties fund. The EPA uses the Environmental Services Special Fund for vehicle
emission test fees. Any fees collected to this special fund remain available for appropriation to
carry out the agency's vehicle emission tests. Engine nonconformance penalties are violations of
emission standards and should be recorded in the fines and penalties fund.
For the $11.3 million penalty collection, neither CFC nor WFC recognized the proper collection
type, or followed their control procedures for recording fines and penalties and vehicle emission
test fee collections, respectively. While CFC received the collection on November 1, 2012, the
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collection staff did not recognize the collection as a nonconformance penalty or notify accounts
receivable staff about the collection to determine whether an account receivable was established.
Instead, CFC sent the collection to WFC in error. WFC did not recognize the nonconformance
penalty collection and improperly recorded the collection as a motor vehicle emission test fee in
the Environmental Services Special Fund.
When we brought the error to the CFC's attention in August 2014, CFC recorded the
$11.3 million nonconformance penalty receivable and requested that WFC return the collection
to CFC. As of September 4, 2014, the collection remained in the Environmental Services Special
Fund and not applied to the receivable. Until the EPA reclassifies the collection to the fines and
penalties fund, the EPA's custodial liability will be understated and the Environmental Services
Special Fund will be overstated by $11.3 million.
Recommendation
We recommend that the Chief Financial Officer:
16. Reclassify the $11.3 million collection from the Environmental Services Special Fund to
the fines and penalties fund using appropriate entries to ensure that current year general
ledger accounts and financial statements are properly stated.
Agency Comments and OIG Evaluation
The agency agreed with our finding and recommendation.
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7 - Originating Offices Did Not Timely Forward Accounts Receivable
Source Documents to the Finance Center
The EPA and the Department of Justice (DOJ) did not timely forward 40 accounts receivable
source documents totaling $61.7 million to finance centers for recording in the agency's financial
system. The EPA's policies state that the originating offices and action officials must forward
action documents that establish a receivable to the finance center within 5 business days of
receipt. We identified various reasons for the delays in forwarding source documents to the
finance centers. Delaying the recording of accounts receivable could result in a material
misstatement of the financial statements.
The EPA's Resources Management Directive Systems 2540-9-P1, Billing and Collecting, require
the originating offices and action officials to forward all action documents that establish an
account receivable to the finance center within 5 business days.
Resources Management Directive Systems 2550D-14-T1, Superfund Accounts Receivable and
Billings, states the Regional Legal Enforcement Office is responsible for forwarding copies to
the finance center of signed administrative settlement agreements and other administrative
source documentation establishing amounts due to the EPA within 5 workdays of receipt of
document. In addition, the Office of Regional Counsel Legal Enforcement Office shall work
with the appropriate finance center on an ongoing basis to keep the finance center abreast of
anticipated executed settlement agreements, including those executed jointly by the EPA and the
DOJ, to prevent the untimely recording of accounts receivable by the finance center.
Resources Management Directive Systems 2540-9-P3, Administrative and Judicial Civil
Penalties, states the DOJ's Environmental and Natural Resource Division emails CFC
supporting documentation for all penalty payments owed pursuant to a judicial order. The DOJ
notifies the EPA of a final order/judgment and provides a copy to the CFC at the time the DOJ
requests its Financial Litigation Unit to issue payment instructions to the defendant.
According to the Government Accountability Office's Standards for Internal Control in the
Federal Government, transactions should be promptly recorded to maintain their relevance and
value to management in controlling operations and making decisions.
The responsible offices did not provide source documents timely to the finance centers. We
found that:
• The EPA's originating offices did not timely provide administrative legal documents to
the appropriate finance center for 25 receivables totaling $28.3 million.
• The DOJ's Environmental and Natural Resource Division did not timely forward judicial
documents to CFC for 15 receivables totaling $33.4 million.
The following information provides additional detail and perspective for the 40 receivables not
provided timely. We found eight documents received late totaling $56,880,970 out of 45
statistical samples totaling $100,003,739 that we reviewed. We found another 32 documents
received late totaling $4,830,162 out of 197 documents reviewed totaling $62,473,742. The
details of the 32 documents and the areas we reviewed are:
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• From our review of the agency's reconciliation of the DOJ Environmental and Natural
Resource Division debts assessed report, we found 28 documents received late totaling
$4,239,256 out of 112 receivables reviewed totaling $50,253,837.
• From our review of the agency's Integrated Compliance Information System database
reconciliation, we found three documents received late totaling $502,006 out of 84
receivables reviewed totaling $12,131,005.
• From our analysis of the agency's collection effort, we found one document received late
for one receivable totaling $88,900.
Although we could not determine the cause for all the delays in recording the receivables or
providing source documents to the finance centers, we identified the following causes:
• For some accounts receivable, the regional office personnel did not timely provide CFC
with the Superfund Accounts Receivable Standard Control Form, which has information
that CFC uses to record the receivable.
• For one grant disallowed costs accounts receivable, the originating office did not deem
necessary to forward source documents to the finance center within 5 business days
because the grantee expressed a need to negotiate a payment plan.
• Regional and state-prepared stipulated penalty letters did not include CFC on the mailing
list.
Some regional enforcement office personnel did not timely forward bankruptcy legal documents
or administrative settlement agreements to the finance center; however, we did not identify the
cause.
When the responsible offices do not timely provide source documents to the finance centers, the
EPA cannot record accounts receivable in a timely manner. Delaying the recording of accounts
receivable could result in a material misstatement of the financial statements.
Recommendations
We recommend that the Assistant Administrator for Enforcement and Compliance Assurance:
17. Require enforcement officers to include CFC on the stipulated penalty letters mailing list.
18. Remind personnel to timely forward legal documents or administrative settlement
agreements to the finance center.
19. Work with the DOJ to forward DOJ legal documents timely to CFC.
We recommend that the Chief Financial Officer:
20. Work with the Office of Enforcement and Compliance Assurance to update EPA
Superfund guidance to require originating offices to timely forward the Superfund
Accounts Receivable Control Forms to the finance center.
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We recommend the Assistant Administrator for Administration and Resources Management:
21. Require the Office of Grants and Debarment to instruct personnel to forward source
documents for grant disallowed costs timely to the finance center even if the bill is under
dispute or in negotiation for a payment plan.
22. Require the Office of Grants and Debarment to follow up to ensure that the EPA
forwards the documents timely.
Agency Comments and OIG Evaluation
The agency agreed with the recommendations, but disagreed that the finding was a significant
deficiency under FMFIA. The OIG identified the issue as an internal control significant deficiency
because of the high frequency of delays in processing receivables and the dollar value of those
receivables.
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8 - EPA Did Not Properly Reconcile Accounts Receivable
The EPA did not properly reconcile the March 31, 2014, accounts receivable subsidiary ledger to
the general ledger. The EPA improperly treated a general ledger error as an addition to the detail
receivables. The EPA combined federal and non-federal receivables in the reconciliation,
although federal accounting guidance requires separate reporting. EPA guidance directs the
agency to perform quarterly accounts receivable reconciliations, investigate discrepancies and
correct any differences. Several factors caused the improper reconciliation:
• The EPA considers journal vouchers as accounts receivable bill detail in the
reconciliation.
• Compass consolidates receivable data at the agency level but not at the finance center
level.
• The reconciliation did not distinguish between federal and non-federal receivables.
• Accounts receivable detail reports used for the reconciliation were not accurate.
When the agency cannot accurately reconcile the accounts receivable subsidiary ledger to the
general ledger and correct differences, the agency cannot ensure financial statements are
properly stated.
The EPA Resources Management Directive Systems 2540-9-T2, Receivables and Billings,
directs EPA's Reporting and Analysis Staff (RAS) to perform quarterly accounts receivable
reconciliations and Office of Financial Services to research discrepancies, and correct any
differences.
SFFAS No. 1, Accounting for Selected Assets and Liabilities, requires federal agencies report
receivables from federal entities separately from receivables from non-federal entities.
The 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.
OMB Circular A-123, Appendix D, requires financial management systems to provide complete,
reliable, consistent and timely financial management information on federal government
operations.
The EPA's March 31, 2014 accounts receivable reconciliation did not properly reconcile the
accounts receivable subsidiary ledger to the general ledger. The accounts receivable subsidiary
ledger maintains the activity and current balances for each account receivable. The general
ledger is a control account with the total of all accounts receivable. The agency reconciliation:
• Included journal vouchers as accounts receivable subsidiary ledger bill detail. RAS
included a $51.4 million journal voucher that the agency incorrectly prepared using a
billed account receivable general ledger account instead of the proper unbilled general
ledger account, as accounts receivable bill detail. As a result, RAS included unbilled
receivables as billed receivables in the reconciliation.
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• Commingled bill charge lines of interest, handling, penalty and memo receivable
amounts with the accounts receivable bill principal amounts. The agency maintains
separate general ledger control accounts for receivable principal, interest, handling,
penalties charges and memo accounts receivable.
• Contained variances from prior years which should have been previously resolved.
• Combined federal and non-federal general ledger accounts and billings. SFFAS No. 1
requires federal agencies to report federal receivables separately from non-federal
receivables.
The agency's current accounts receivable reconciliation process does not identify and resolve
differences between the accounts receivable general ledger control accounts and their
corresponding accounts receivable detail accounts to ensure that both the control and detail
accounts are properly stated. The following factors contributed to the deficiency:
• The EPA considers journal vouchers as accounts receivable bill detail in the
reconciliation. RAS reported that it includes journal vouchers as receivable bill detail
because it records journal vouchers in the general ledger, but not at the accounts
receivable bill level. Because the EPA did not consider journal vouchers as variances to
be corrected, the agency did not thoroughly analyze the journal voucher transactions and
identify the error or its effect.
• The EPA did not configure Compass to consolidate data at the finance center level.
Finance center level activity occurring during the year closes to the agency level. When
the agency closes the yearly finance center activity to general ledger accounts at the
overall agency level the finance centers have no beginning balances the next year. This
consolidated closing impedes the agency's ability to identify and reconcile differences at
the finance center level.
• The agency's accounts receivable reconciliation does not distinguish between federal and
non-federal receivables because its approach is to reconcile all open receivables as a
whole. The agency's approach reduces the assurance that federal and non-federal
receivables are properly classified.
• Two Compass Business Object reports developed specifically for the accounts receivable
reconciliation are not accurate. The accounts receivable principal detail report includes
non-principal bill charges of interest, handling, penalty and memo receivables. The bill
charges report does not include all interest, handling and penalty charges. Therefore, the
report totals do not readily compare to the general ledger control account balances.
The purpose of a reconciliation is to identify and resolve differences between the accounts
receivable subsidiary ledger bill detail and the accounts receivable general ledger control
accounts to ensure accuracy and completeness in the financial statements. When the agency
cannot accurately reconcile the accounts receivable subsidiary ledger to the general ledger
control accounts, the agency cannot ensure:
• Accounts receivable general ledger control account balances are accurate.
• Accounts receivable subsidiary ledger bill detail is accurate.
• Federal and non-federal receivables are properly classified in the financial statements.
• Financial statements are properly stated.
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Recommendations
We recommend that the Chief Financial Officer:
23. Investigate variances between the general ledger control accounts and the accounts
receivable subsidiary ledger bill detail and correct errors by recording entries to the
control accounts and/or the accounts receivable bill detail, as needed.
24. Reconcile federal and non-federal accounts receivable separately.
25. Develop accurate reports for accounts receivable principal charges and non-principal
charges.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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9 - Unneeded Funds Not Deobligated Timely
The EPA did not deobligate unneeded funds totaling $4.4 million identified during the fiscal
2014 annual review of unliquidated obligations. Federal and agency guidance require
unliquidated obligations to be reviewed annually, and EPA requires responsible offices to review
inactive unliquidated obligations and take appropriate action to deobligate unneeded funds.
However, the EPA did not take timely actions to notify the appropriate offices to deobligate the
unneeded funds. As a result, the EPA has no assurance that unliquidated obligations are accurate
and represent valid and viable obligations, and that obligated funds are being used efficiently.
The Government Accountability Office's Policy and Procedures Manual for Guidance of
Federal Agencies, Title 7, Chapter 3, requires each agency to review its unliquidated obligations
at least once a year to reasonably assure itself that all transactions meeting the criteria of legally
valid obligations have been included. In addition, EPA's Resource Management Directive
2520-03-PI requires all responsible parties to conduct complete periodically—but at least
annually—a review of all current and prior year unliquidated obligations to ensure that all
recorded obligations are still valid and properly documented. According to the directive:
• An inactive obligation is one in which there has been no activity for 6 months or more
(180 days).
• A valid obligation is one for which appropriated funds are still available for the purpose
and time period specified, and for which an actual need still exists within the life of the
appropriation.
EPA's Resource Management Directive 2520-03-PI requires that all unneeded funds must be
identified and deobligated no later than September 30 (annually). The directive also states that all
responsible officials must certify that their office/region completed their inactive obligations
review and took the necessary actions to deobligate the funds. Two certifications are required:
(a) the FMFIA Assurance Letter, which was due August 15, 2014, according to the agency's
fiscal 2014 assurance letter guidance; and (b) the Review of Unliquidated Obligations Year-end
Certification, which was due October 10, 2014, based on the agency's fiscal 2014 Year-End
Closing Instructions. According to the assurance letter guidance, the Assurance Letter must
include certification that the review of assigned unliquidated obligations has been completed and
the necessary action has been taken to deobligate unneeded funds. The form also states that the
year-end certification certifies that each office has deobligated unneeded funds.
We found that during the fiscal 2014 annual unliquidated obligations review, the agency
identified unneeded funds totaling $4.4 million which remained open as of September 30, 2014,
and also as of October 8, 2014—the completion date of our analysis. Specifically:
• During our analysis of the agency's unliquidated obligations certifications, we found that
several regions and headquarters' program offices identified inactive unliquidated
obligations for deobligation totaling $4.4 million. However, timely action was not taken
to deobligate the funds before or on September 30, 2014, and before the October 10,
2014, certification due date.
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Table 1: Funds for deobligation
Program offices/regions
Office of the Administrator
Office of Air and Radiation
Office of Administration and Resources Management
Office of Enforcement and Compliance Assurance
Office of Environmental Information
Office of Chemical Safety and Pollution Prevention
Office of General Counsel
Office of International and Tribal Affairs
Office of Research and Development
Office of Solid Waste and Emergency Response
Office of Water
Region 4
Region 5
Region 6
Region 7
Region 10
Total
Amount
$72,916.54
98,902.82
172,759.01
$6,159.11
3,638,706.39
3,829.94
4,405.77
4,117.00
24,374.70
211,523.58
22,435.27
4,080.04
239.94
12,148.09
78,615.35
8,689.83
$4,363,903.38
Source: OIG analysis.
• The Enterprise Desktop Solutions Division in the Office of Technology Operations and
Planning of the Office of Environmental Information identified $2.3 million in unneeded
working capital unliquidated obligation funds for deobligation. The division had not
completed processing the unliquidated obligations within the required deadline date.
Similarly, the National Computer Center in in the Office of Technology Operations and
Planning identified $1.3 million in unneeded unliquidated obligations funds for
deobligation. The National Computer Center had not processed deobligations for the
unliquidated obligations by the National Computer Center's deadline date.
• Region 7 identified $78,615 in simplified acquisitions, contracts and/or training
unliquidated obligations, but did not deobligate them by their due date. The region noted
on its unliquidated obligations certification that the funds were not deobligated due to the
loss of resources under Voluntary Early Retirement Authority/Voluntary Separation
Incentive Payment.
• Other program offices and regions noted in their certification letters that processing of
their identified unliquidated obligations were incomplete as of their certification dates.
By not taking timely and appropriate action to deobligate unneeded funds, EPA has no assurance
that the unliquidated obligations are accurate and represent valid and viable obligations affecting
the financial statements. Furthermore, inadequate unliquidated obligation reviews could affect
the financial statements by not identifying unneeded funds that should be deobligated. The
deobligation of these funds would allow for more effective utilization of resources for other
environmental purposes.
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Recommendation
We recommend that the Chief Financial Officer
26. Require headquarters program offices and regional offices to deobligate unneeded funds
identified during the annual unliquidated obligation reviews.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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10 - EPA Needs to Consistently Enforce Restricted Entry Access to
Server Rooms
The EPA did not consistently enforce restricted access at the Las Vegas Finance Center (LVFC)
and the Andrew W. Breidenbach Environmental Research Center (AWBERC) server rooms. We
found that personnel were granted access to server rooms without proper approval and that
unauthorized personnel had access to a server room door. Specifically, a contractor was granted
access to the LVFC server room without the office director's approval. Additionally, we noticed
that the approved access list for AWBERC's rear server room door did not match the computer
access list in the Facility Commander software, which allowed unauthorized staff to use the
server room door.
National Institute of Standards and Technology (NIST) Special Publication (SP) 800-53,
Revision 4, April 2013, Security and Privacy Controls for Federal Information Systems and
Organizations, PE-2, Physical Access Authorizations, states that the organization develops,
approves and maintains a list of individuals with authorized access to the facility where the
information system resides; reviews the access list detailing authorized facility access by
individuals; and removes individuals from the facility access list when access is no longer
required. EPA Chief Information Officer Transmittal No. 12-003, Information Security - Interim
Physical and Environmental Protection Procedures, VI.9, August 6, 2012, states that, "Physical
access authorizations for all physical access points (including designated entry/exit points) to the
facility where the information system resided must be enforced." In addition, the EPA's Operating
Procedures for Management and Monitoring of the La Plaza Door Access Systems requires that,
access to the LVFC server room must be authorized by the office director of LVFC or her
designee. Finally, the Office of Administration and Resources Management (OARM)/Information
Resources Management Division (IRMD), Server Room Access Procedure, dated January 30,
2013, states, "Server room access shall be limited to a list of personnel approved by the
Authorizing Officials."
EPA management did not ensure personnel followed access control procedures outlined in
standard operating procedures for the LVFC and AWBERC server rooms for granting,
monitoring and removing access to its facilities. In Las Vegas, a contractor for the National
Center for Radiation Field Operations was granted access to the LVFC server room without the
LVFC director's signature on the authorization form. The authorization form was signed by the
director of the National Center for Radiation Field Operations as required, but because the
server room is under the control of the finance center, a signature from the office director of
the finance center was required. As such, inappropriate access was granted to the server room
without the required prior approval from the LVFC office director and access remained despite
monthly door access reviews conducted by LVFC personnel.
In Cincinnati, the OARM/IRMD list of authorized personnel allowed to access AWBERC rear
server room door did not match the computer access list in the Facility Commander system
software, which is under the control of the OARM/Safety and Security Office. The
OARM/IRMD access list contained three names, while the computer access list contained
10 names. This occurred because OARM/Safety and Security Office did not make the required
changes once OARM/IRMD updated its access list. In both instances, according to the agency,
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corrective actions were made to resolve the access control issues during our audit, but will not
be verified by the audit team until the next audit cycle.
The Office of the Chief Financial Officer (OCFO) indicated it took corrective actions at LVFC and
AWBERC to obtain approvals for personnel authorized to enter the server room and update
personnel listing in the facility access system. EPA personnel at AWBERC corrected the noted
weakness during our site visit. Due to the time constrains of our audit, we were unable to re-visit
LVFC to validate the actions taken. However, a breakdown in OFCO's processes to ensure
compliance with established policies and procedures ultimately contributed to the weaknesses we
found. As such, it is incumbent upon management to routinely test its established control
environment identify where it could be strengthened.
If agency personnel do not follow access control procedures, there is uncertainty as to whether
all access privileges are authorized. This leaves agency IT assets vulnerable to unauthorized
access and damage.
Recommendation
We recommend that the Chief Financial Officer:
27. Require the Information Security Officer to conduct an access control review with all
offices that warehouse IT assets. This would include ensuring:
a. Appropriate approving officials approve access for all personnel entering the
respective server rooms.
b. The offices update access rosters and post them according to local procedures.
c. The offices create plans of action and milestones within the EPA information
security weakness tracking systems to track when the office would complete the
access control review if the respective office is unable or lacks the capability to
complete the review within the next 30 days.
Agency Comments and OIG Evaluation
The EPA concurred with our recommendation and indicated that LVFC completed a 100-percent
certification of its door access in July 2014. However, management did not specify when it
would remediate the weaknesses noted at the AWBERC server room. Management also did not
indicate when the OCFO Information Security Officer would conduct or coordinate an access
control review at all locations that operate IT assets on behalf of the OCFO. We consider
Recommendation 27 to be unresolved pending the agency's response to the final report.
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11 - EPA Needs to Ensure that Its Information Technology Assets
Are Properly Monitored and Secured
The EPA did not ensure that IT assets at the LVFC server room, AWBERC server room, and
RTF National Computer Center computer room were properly monitored and secured. We found
that a card reader located at the LVFC server room did not consistently log or document alerts of
attempts by unauthorized users to gain access, while server racks within the CFC's AWBERC
telecommunication room and the National Computer Center computer room were unlocked.
NIST SP 800-53, Revision 4, April 2013, Security and Privacy Controls for Federal Information
Systems and Organizations, PE-3, Physical Access Control, states that the organization employs
guards and/or alarms to monitor every physical access point to the facility where information
systems reside, and uses lockable physical casings to protect information system components
from unauthorized physical access. EPA Chief Information Officer Transmittal No. 12-003,
Information Security - Interim Physical and Environmental Protection Procedures, VI.9,
May 4, 2012, states that: (1) physical access devices must be functioning properly; and (2) all
equipment that stores, processes, or transmits EPA information must be located in an appropriate
locked rack, room or enclosure.
EPA management did not periodically test the card reader to the LVFC server room to ensure it
was consistently logging access to the server room. This meant that attempts by unauthorized
personnel were not always logged and documented in the physical access control tracking
software. In Cincinnati, the server room racks in the AWBERC telecommunication room were
unlocked, as well as the server racks in the National Computer Center computer room. Unlocked
server racks leave information technology assets vulnerable to tampering and damage. Officials
at the RTF and Cincinnati locations stated that they believed the information technology assets
were secure because they were in a controlled area and only authorized personnel have access to
the areas where the server racks are located. Although, personnel have authorized access to the
server room and computer room, not all personnel have authorized access to the same
information technology assets. As a result, information technology assets are exposed to
unauthorized personnel.
Subsequent to our site visits, OCFO indicated that it took corrective action to replace and test the
faulty card reader within the LVFC. However, due to the time constraints of our audit, we were
unable to re-visit the LVFC to verify that the actions taken remediated the problem. Ultimately,
the lack of a regular process to test the LVFC card reader system is what lead to management not
discovering the faulty card reader before our visit. It is incumbent upon management to regularly
review its control environment to determine where it could be strengthened. If agency personnel
do not follow security control procedures in monitoring and securing information technology
assets, this leaves agency information technology assets vulnerable to unauthorized access and
damage.
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Recommendations
We recommend that the Chief Financial Officer:
28. Require LVFC to implement a process to regularly test the card reader system within the
finance center.
29. Require the Information Security Officer to conduct an access control review with all
offices that warehouse IT assets. This would include ensuring all offices:
a. Lock all server racks to prevent unauthorized access.
b. Create plans of action and milestones within the EPA information security
weakness tracking systems to track the security of server racks if the respective
office is unable to immediately or lacks the capability to lock the server racks
within the next 30 days.
Agency Comments and OIG Evaluation
EPA concurred with our recommendations. Management indicated that LVFC would implement
a quarterly process to test card readers within the finance center. We consider
Recommendation 28 to be resolved. Management also indicated that AWBERC took steps to
remediate the identified weakness. However, management did not indicate when the National
Computer Center would remediate the identified weakness or when the OCFO Information
Security Officer would conduct or coordinate a review of card readers and security of server
racks at all locations that operate IT assets on behalf of the OCFO. We consider
Recommendation 29 to be unresolved pending the agency's response to the final report.
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12 - EPA Needs to Establish Procedures for Protecting
Information Technology Assets From Environmental Threats
The EPA lacks processes to enable personnel to monitor environmental factors that are used to
protect IT assets. Specifically, finance center server rooms lack processes to protect IT assets
from temperature and humidity damage. Additionally, one finance center had incorrectly
installed water sensors, making the servers vulnerable to flooding before personnel could be
alerted to the problem.
NIST SP 800-53 A, Revision 1, Guide for Assessing the Security Controls in Federal Information
Systems and Organizations, June 2010, PE-14, Temperature and Humidity Controls., specifies
ensuring that temperature and humidity levels within the facility where information systems
reside be defined, maintained and monitored by the organization. Additionally, NIST SP 800-53,
Revision 4, Security and Privacy Controls for Federal Information Systems and Organizations,
April 2013, PE-18, Location of Information System Components, specifies that information
system components be positioned to minimize potential damage from environmental hazards
such as flooding.
EPA finance center IT personnel rely on preventative maintenance measures performed on
environmental monitoring equipment located in the server rooms to ensure thresholds and alert
triggers are established and implemented. However, these humidity and temperature
thresholds—the lowest and highest levels the server room temperature can reach before alerting
relevant personnel—were undocumented and, in one case, humidity monitoring was not
implemented at all. While periodic servicing of environmental monitoring equipment and checks
by IT personnel are performed, these checks did not always provide assurance that the equipment
was operating as management intended because management had not approved the specific
measures the equipment checker and equipment were to meet. Additionally, we found personnel
placed water sensors above the lowest shelf on one server rack. The placement of this sensor
prevented personnel from being notified of possible water issues before damage could have
happened to the IT equipment located on the lower shelf of the server rack.
Lack of environmental monitoring and established thresholds for temperature and humidity
increase the likelihood that damage to EPA servers from environmental factors goes undetected
before serious harm is caused. Additionally, the inability to detect and alert IT personnel about
server room flooding increases the likelihood of damage to the server room and IT equipment,
and could result in a disruption of business operations. In both cases, the potential damage posed
to the EPA production servers housed in the finance center server rooms puts the availability of
the EPA's financial data at risk.
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Recommendations
We recommend that the Chief Financial Officer:
30. Require the Information Security Officer to coordinate with the responsible offices that
warehouse or manage information technology assets for CFC to:
a. Implement a process for monitoring humidity levels in the Norwood server room.
b. Reposition the water sensors in the Norwood server room at the appropriate
height to prevent water damage to servers.
31. Require the Information Security Officer to coordinate with the responsible offices that
warehouse or manage information technology assets for the LVFC, CFC and RTF
Finance Center to:
a. Establish and document threshold levels for temperature and humidity monitoring
in the server rooms.
b. Create plans of action and milestones within the EPA information security
weakness tracking systems to track the remediation of the noted environmental
control weaknesses if the respective office is unable to immediately correct, or
lacks the capability to correct, the weakness within the next 30 days.
32. Require the Information Security Officer to develop a process to monitor the completion
of all plans of action and milestones that were entered into the EPA information security
weakness tracking system.
Agency Comments and OIG Evaluation
The EPA concurred with our recommendations. The EPA indicated it implemented humidity
monitoring and adjusted the flood sensors at the Norwood server room. We consider
Recommendation 30 to be resolved. Management also indicated it resolved noted weaknesses at
the AWBERC server rooms. Management also indicated that the LVFC and RTF Information
Security Officers would coordinate with responsible individuals to resolve weaknesses at their
respective locations. However, management did not provide a date when the Information
Security Officers would complete this action and management did not provide a date when the
office Information Security Officers would ensure all open security weaknesses are entered into
the agency security weakness tracking system. As such, we consider Recommendations 31 and
32 to be unresolved pending the agency's response to the final report.
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13 - EPA Needs to Configure Server Room Cameras to
Fully Monitor Information Technology Assets
Closed circuit television (CCTV) system cameras at the EPA finance centers do not provide
enough visibility to monitor production servers and valuable IT assets for unauthorized changes.
We found that CCTV cameras within one server room did not monitor the racks containing EPA
production servers and other IT assets. Additionally, the storage time for those CCTV cameras'
feeds did not provide the required 30-day playback time. We also observed an EPA server room
whose visibility was controlled by a non-automated light switch that was not coordinated with
the CCTV system. Lastly, one server room lacked consistent lighting to ensure server room
activity could be recorded.
NIST SP 800-53, Revision 4, Guide for Assessing the Security and Privacy Controls for Federal
Information Systems and Organizations, April 2013, PE-6, Monitoring Physical Access, specifies
that physical access to information systems be monitored in order to detect and respond to
security incidents. Additionally, the Statement of Work pertaining to the EPA Cincinnati
Security Management Program Contract for CCTV monitoring states that video for server rooms
be stored for up to 30 days. Finance center personnel stated that the server room video is required
to be searchable for up to 30 days to investigate unauthorized changes made to IT assets not
initially detected.
EPA management did not ensure that full visibility of IT assets were captured by server room
CCTV camera feeds. Management relied upon established access control procedures (e.g., card
readers, visitor logs and access rosters) to prevent unauthorized individuals from entering the
server room. However, these controls would not help detect when someone had unauthorized
access to equipment in the server room or made unauthorized changes to equipment because we
found that the posted access roster did not match the individuals who had access to the server
room and the server room cabinets were not always locked. Furthermore, the digital video
recording storage space is not large enough to record 30 days' worth of video due to the amount
and quality of camera feeds shared on a single server room camera server. The EPA server room
with impaired video recording quality had its lighting controlled by a non-automated light switch
that was not coordinated with the CCTV system. Therefore, someone could enter the room and
not be seen on camera or turn off the lift to mask their actions.
While the EPA monitors the entrances of server rooms, visibility of the entire room, including
the server racks, is needed. Without this visibility, security personnel will not have the evidence
to discover the source of incidents affecting IT assets housed in the server room. Sufficient
storage of server room CCTV video is also needed for review and to respond to security
incidents not detected at the time of occurrence. Without ample storage and playback time,
facilities management will not have enough video to evaluate evolving security incidents. These
vulnerabilities could expose EPA assets to unauthorized changes, thus jeopardizing the
confidentiality, integrity and availability of the EPA's financial data.
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Recommendation
We recommend that the Chief Financial Officer:
33. Require the Information Security Officer to coordinate with the responsible offices within
the Office of Administration and Resources Management to develop and implement a
strategy to improve CCTV coverage for the OCFO's IT assets. The improved CCTV
coverage and strategy should include:
a. Improving camera-monitoring systems at the AWBERC server room to increase
visibility of the server racks and within the telecomm room and to coordinate
monitoring of the Norwood server room with automated lighting.
b. Increasing CCTV monitoring storage time to meet EPA-approved storage
requirements detailed in the EPA's Cincinnati Security Management Program
Contract.
c. Requiring offices to create plans of action and milestones within the EPA's
information security weakness tracking system to track the completion of any
CCTV improvement tasks that cannot be completed within the next 30 days.
d. Developing a process to monitor the completion of all plans of action and
milestones that were entered into the EPA information security weakness tracking
system.
Agency Comments and OIG Evaluation
EPA concurred with our recommendation. EPA indicated that it increased the video retention
period for the AWBERC server room and made several additional upgrades to the video
cameras. We consider Recommendation 33 to be resolved.
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14 - EPA Needs to Document Management's Approval for
Authorizing Changes to the Accounting Posting Module
The EPA lacks management's written approval for authorizing changes to the Compass
accounting posting model to prevent unauthorized changes. OCFO does not officially document
management's approval when making updates to the recording of general ledger account activity
within the Compass accounting posting module. The Government Accountability Office's
Standards for Internal Control in the Federal Government (November 1999) states that all
transactions and significant events need to be clearly documented. OMB Circular A-123,
Revisions to OMB Circular A-123, Management's Responsibility for Internal Control
(December 2004), states that management's control activities such as proper authorization and
appropriate documentation are internal controls that help safeguard against unauthorized use of
assets.
OCFO's RAS maintains a tracking document that identifies unusual postings to general ledger
accounts based on RAS internal analytical reviews and inquiries submitted by agency personnel
through the OCFO Help Desk. RAS management indicated that after RAS accountants conduct
thorough research on each activity, RAS meets bi-weekly to discuss any potential updates to the
accounting posting model. RAS management indicated that, during these meetings, management
will verbally agree to any changes that need to be made to the accounting posting model.
However, there was no documentation, such as meeting minutes or management's written
approval or signage on the tracking sheet which demonstrates managerial approval has been
granted to update the accounting posting module to properly record and post transactions to the
appropriate general ledger accounts. Management has limited assurance that any changes made
to the posting model were made based on their approvals. Written approvals will add a layer of
accountability for such significant events since updating the accounting posting module affects
the recording of general ledgers accounts and, ultimately, the fair presentation of the EPA's
financial statements.
Recommendation
We recommend that the Chief Financial Officer:
34. Maintain written documentation that demonstrates management has approved changes to
the Compass accounting posting module.
Agency Comments and OIG Evaluation
EPA concurred with our recommendation and indicated it implemented a procedure to document
approved changes to the posting models. We consider Recommendation 34 to be resolved.
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Attachment 2
Compliance With Laws and Regulations
Table of Contents
15 EPA Did Not Comply With Federal Accounting Standards
for Recording Interest 45
16 EPA's 2014 FMFIA Annual Assurance Statement Is Inaccurate 48
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15 - EPA Did Not Comply With Federal Accounting Standards for
Recording Interest
The EPA did not record all applicable interest for some Superfund, installment and grant
accounts receivable in the accounting system as required by applicable laws, federal accounting
standards and EPA policy. The EPA did not record the proper interest due to Compass
accounting system problems and nonconformance to the terms in the receivable legal source
documents. By not recording all applicable interest, the EPA did not collect all the funds to
which it was entitled and did not comply with applicable laws, federal accounting standards and
EPA policy. The Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA) Section 107 states that the amounts recoverable in an action under this section shall
include interest on the amounts recoverable. Such interest shall accrue from the later of the date
payment of a specified amount is demanded in writing or the date of the expenditure concerned.
The Debt Collection Act of 1982 [Public Law 97-365, Section 1 l(e)(l)] addresses the collection
of amounts owed to the federal government and provides for a minimum annual rate of interest
to be charged on overdue debts owed.
SFFAS No. 1, Assets and Liabilities, paragraph 53, states that interest receivable should be
recognized for the amount of interest income earned but not received for an accounting period.
The EPA Resources Management Directive Systems 2550D, Chapter 14, Superfund Accounts
Receivable and Billings, page 14, states that pursuant to Section 107 of CERCLA, the EPA will
assess interest on all overdue amounts.
The EPA Resources Management Directive Systems 2540-9-P2, Non-Federal Delinquent Debt,
pages 6-7, directs the agency to assess and record overdue interest, handling and penalty charges
in 30-day increments for late payments as appropriate. The finance centers calculate interest,
handling and penalty charges manually, or rely on the agency financial management system to
automatically calculate and post all charges. The EPA Resources Management Directive Systems
2540-9-P1, Billing and Collecting, pages 6-7, directs the EPA to assess interest, handling and
penalty charges on audit disallowances not paid by the debtor within 30 days from the date of the
letter.
The EPA did not record all applicable interest for seven Superfund receivables, six installment
receivables and one grant receivable in the accounting system. Table 2 lists the receivables
without all applicable interest recorded that we identified during our fiscal 2014 review through
June 30, 2014.
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Table 2: Receivables without all applicable interest recorded
Bill number
Bill type
Reason for unrecorded interest
Superfund Receivables
SN2791426T0035
SN2721326S0027
SN2721226S0021
SN 2700733S041
SN 042602T048X
SN 042602T049X
SF2731429T0067
Superfund oversight
Superfund oversight
Superfund oversight
Superfund oversight
Superfund oversight
Superfund oversight
Superfund cost recovery
Compass did not accrue interest
Did not follow legal document terms
Did not follow legal document terms
Compass did not accrue interest
Compass deleted interest
Compass deleted interest
Waive interest flag not unchecked
Installment Receivables
SN2711429S0008
SN2721329S0039
NN EPAE-5:09-CV-00272
NNEPAK-6:13-CV-02188
NN FIFRA-01 -201 2-0043
NNCWA-08-20 14-00 18
Superfund cost recovery
Superfund cost recovery
Fine and penalty
Fine and penalty
Fine and penalty
Fine and penalty
Compass functionality
Compass functionality
Compass functionality
Compass functionality
Compass functionality
Compass functionality
Grant Receivable
LG3314AR107
Grant ineligible costs
Did not follow legal document terms
Source: OIG analysis of EPA data.
Compass system problems and finance center nonconformance to the terms in the accounts
receivable legal source documents contributed to the noncompliance. Specifically:
• Compass was unable to calculate and record interest on installment receivables. Finance
center staff manually entered installment interest either from calculations in billing
documents, or on a cash basis upon payment receipt.
• Compass has periodically either deleted or stopped recording Superfund interest.
Compass deleted some Superfund interest for at least two receivables in June 2014.
Compass stopped recording Superfund interest from December 2013 to January 2014. In
the prior fiscal year, the EPA reported that a Compass defect removed the interest from
CFC Superfund bills from December 2012 until February 2013, when the EPA fixed the
defect.
• Due to Compass configurations for Superfund receivables where interest is compounded,
CFC must manually mark Superfund receivables in order for interest to accrue when
receivables reach the due date. CFC marks past due receivables by unchecking the waive
interest flag in Compass. For some Superfund receivables, Compass did not record
interest after CFC unchecked the flag when receivables became past due.
• Finance center staff did not always follow the language in the legal source documents
that contained the terms and instructions for recording principal and interest receivable.
-S Finance center staff relied on instructions from the EPA attorneys for assessing
interest. If the EPA attorneys did not notify staff of interest assessments, the staff
did not record the interest.
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-S Finance center staff did not record the correct document date for grant receivable
audit disallowance documents not received timely and used the Compass entry
date as the account receivable document date.
When the EPA did not record the interest, the agency did not collect all the funds to which it was
entitled and did not comply with applicable laws, federal accounting standards and EPA policy.
Recommendations
We recommend that the Chief Financial Officer:
35. Instruct CFC to perform an analysis of delinquent receivables to determine whether
interest is being properly recorded in Compass in accordance with the applicable laws,
federal accounting standards and EPA policy, and record any unrecorded interest.
36. Instruct CFC to follow the terms in the legal source documents when recording interest
receivables.
37. Instruct LVFC to follow EPA policy and the terms of the legal source document and
record the document effective date in Compass as the account receivable document date
for grant receivables.
38. Determine and correct the cause of Compass system problems related to Superfund and
installment interest.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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16 - EPA's 2014 FMFIA Annual Assurance Statement Is Inaccurate
In May 2014, the EPA identified a $193 million error in its capitalized software accounts, which
resulted in the restatement of its fiscal 2013 financial statements. In spite of this material error,
the EPA did not report capitalized software as a material weakness in its draft fiscal 2014
FMFIA Annual Assurance Statement. OMB Circular A-123 defines material weaknesses in
internal control as a "Reportable condition, or combination of reportable conditions, that results
in more than a remote likelihood that a material misstatement of the financial statements, or other
significant financial reports, will not be prevented or detected." OMB Circular A-123 also states
that "management is precluded from concluding that the agency's internal control is effective
(unqualified statement of assurance) if there are one or more material weaknesses." While EPA
management is restating the fiscal 2013 financial statements, the agency does not consider this
software capitalization error to be a material weakness. Because the EPA did not report
capitalized software as a material weakness in its initial fiscal 2014 draft FMFIA Annual
Assurance Statement, the agency is not in compliance with FMFIA reporting requirements.
Subsequently, the agency agreed to declare weaknesses over software as a material weakness.
As part of the agency's OMB Circular A-123 review the EPA evaluated accounting for capital
software. The A-123 review found several significant internal control deficiencies in accounting
for capital software:
• "Transactions were not entered into the system [EPA's accounting system].
• "Incorrect accounting entries were entered in the system.
• "Transaction entries plugged in system."
The EPA's accounting for capital software resulted in significant adjusting entries, material
misstatement of the financial statements, and a restatement of the fiscal 2013 financial
statements. OMB Circular A-123 defines material weaknesses in internal control as a "reportable
condition, or combination of reportable conditions, that results in more than a remote likelihood
that a material misstatement of the financial statements, or other significant financial reports, will
not be prevented or detected." The EPA's capitalized software error clearly meets the OMB
Circular A-123 definition of a material weakness because this error necessitated a restatement of
the fiscal 2013 financial statements.
The agency determined that accounting for personal property and software is an agency-level
weakness in its revised draft FY 2014 Integrity Act report. We have advised the agency that the
capitalized software error is a material weakness. OMB Circular A-123 also states that
"management is precluded from concluding that the agency's internal control is effective
(unqualified statement of assurance) if there are one or more material weaknesses." Since the
capitalized software error is a material weakness, the EPA's FMFIA Assurance Statement cannot
state that there is a reasonable assurance that the EPA's internal controls were operating
effectively.
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Recommendation
We recommend that the Chief Financial Officer:
39. Comply with the material weakness reporting requirements as prescribed by
OMB Circular A-123, which are:
a. Material weaknesses and a summary of corrective actions shall be reported to
OMB and Congress through the Performance and Accountability Report.
b. Progress against corrective action plans should be periodically assessed and
reported to agency management.
Agency Comments and OIG Evaluation
The agency agreed with our recommendations. However, the agency disagreed with the facts of
our finding, stating it believed that the draft Annual Financial Report language was misinterpreted
by the OIG. The agency indicated the noncompliance was an agency-level weakness. The OIG
still believes the issue is a material weakness. EPA Order 1000.24 CH2, Management's
Responsibility for Internal Control, defines an agency weakness as a control deficiency that does
not reach the level of materiality of a material weakness. Therefore, reporting the material
weakness as an agency-level weakness is inaccurate and does not comply with the FMFIA
reporting requirement. Subsequently, the agency agreed to declare weaknesses of its accounting
for software a material weakness.
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Attachment 3
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, 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. 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 four of these on-site reviews in fiscal 2014, including two
regional offices and two 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 3: Significant deficiencies—Issues not fully resolved
Posting Models in Compass Materially Misstated General Ledger Activities and Balances
In fiscal 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 fiscal 2012.
However, during fiscal 2014, we continued to find posting model errors. While the agency has
corrected the errors identified in fiscal 2014, 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 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 fiscal 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 fiscal 2014, the EPA had not developed
reports at the security organization level needed to reconcile accounts receivable, update allowance
for doubtful account estimates, and 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 fiscal 2012, we found that CFC did not timely receive accounts receivable judicial legal
documents from DOJ and the EPA. In fiscal 2013, the EPA revised agency accounts receivable
guidance to remove the requirement for Regional Legal Enforcement Offices to forward copies of
executed judicial orders to CFC within 5 workdays. In fiscal 2014, the EPA's Office of Enforcement
and Compliance Assurance, in conjunction with OCFO, met with DOJ and conducted quarterly
reviews of the timeliness in providing civil judicial documents to CFC. The Office of Enforcement and
Compliance Assurance reported its corrective action as completed. However, in fiscal 2014, we again
reported untimely receipt of accounts receivable legal documents as a significant
deficiency; therefore, EPA's corrective actions were not yet effective.
• Property Internal Controls Need Improvement
In our fiscal 2013 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 fiscal 2014, we found that some capital property items
valued at approximately $1.1 million in RTP 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 fiscal 2013, 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, 2014.
EPA Should Improve Controls Over Expense Accrual Reversals
In fiscal 2012, the EPA did not reverse approximately $108 million of fiscal 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,
the 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 fiscal 2012 accruals and reversals. The EPA also performed accrual
reviews prior to the issuance of the fiscal 2013 quarterly financial statements. In the fiscal 2013 audit,
the EPA extended the target due date to update Policy Announcement No. 95-11 until June 2014.
However, during the fiscal 2014 audit, the EPA further extended the target due date to not update the
policy until December 31, 2015, due to the additional workload and resource constraints.
Financial Management System User Account Management Needs Improvement
EPA had previously considered these recommendations closed; however, OCFO agreed in fiscal
2014 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 OARM 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 4
Status of Current Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Rec.
No.
1
Page
No.
14
Subject
Require project officers to track and accumulate
Status1
0
Action Official
Assistant Administrator
Planned
Completion
Date
3/31/15
10
software costs by project from inception through
date placed in service.
14 Require the Reporting and Analysis Staff to
coordinate with Office of Administration and
Resources Management project officers to
receive software project cost support once placed
into service.
14 Document and support project costs for all
software costs placed into service over the past
7 years.
17 Capitalize and book the RTP lab renovation
costs and calculate depreciation.
17 Improve and mai ntai n support for how EPA lab
renovation projects are funded.
17 Review funding sources of all current and future
lab renovations to ensure correct funding is
utilized.
17 Develop pol icies and procedures for capital
improvements/betterments to real property,
specifically, to address EPA lab renovations
which could include bulk purchases of equipment
and funding from agency program appropriations
other than the B&F appropriation.
17 Request the Office of General Counsel to
determine whether the legal opinion referenced
herein represents a legally acceptable position
regarding the definition of "construction," and
provides adequate examples to guide
determinations of when renovation work should
be funded out of agency program appropriations
(e.g., S&T) or B&F funds.
19 Require the Director, Facilities Management and
Services Division, to update inventory records
according to EPA's Property Bulletin No. 14-004.
19 Require the Director, Facilities Management and
Services Division, to identify the personal
property records missing from the agency's
property management system and record them in
the system.
for Administration and
Resources Management
Chief Financial Officer
Chief Financial Officer
Assistant Administrator
for Administration and
Resources Management
Assistant Administrator
for Administration and
Resources Management
10/31/18
Chief Financial Officer 10//31/18
Chief Financial Officer 11/30/14
Chief Financial Officer 3/31/16
Chief Financial Officer 3/31/16
Chief Financial Officer 3/31/16
3/31/15
12/1/14
12/1/14
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Claimed Agreed To
Amount Amount
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RECOMMENDATIONS
Rec. Page
No. No.
12
13
14
15
16
17
18
19
20
21
22
Subject
Status1
Action Official
19 Require the Director, Facilities Management and
Services Division, to conduct Board of Survey
investigations more frequently to adequately
address missing and uninventoried property.
Document the results of Board of Survey
investigations and update the property
management records accordingly.
21 Research and resolve differences between
Compass and the property management system
timely.
21 Require the Office of Administration, Facilities
Management and Services Division, to verify the
correctness and update all capitalized property
records in the official property system as
required.
23 Require project officers to approve federal
disbursements timely.
23 Require CFC staff to follow up with project 0
officers and regions to obtain the necessary
disbursement approvals and information needed
to clear transactions timely from the federal
budget clearing (suspense) account.
25 Reclassify the $11.3 million collection from the C
Environmental Services Special Fund to the fines
and penalties fund using appropriate entries to
ensure that current year general ledger accounts
and financial statements are properly stated.
27 Require enforcement officers to include CFC on
the stipulated penalty letters mailing list.
27 Remind personnel to timely forward legal
documents or administrative settlement
agreements to the finance center.
27 Work with the DOJ to forward DOJ legal
documents timely to CFC.
27 Work with the Office of Enforcement and
Compliance Assurance to update EPA
Superfund guidance to require originating offices
to timely forward the Superfund Accounts
Receivable Control Forms to the finance center.
28 Require the Office of Grants and Debarment to
instruct personnel to forward source documents
for grant disallowed costs timely to the finance
center even if the bill is under dispute or in
negotiation for a payment plan.
28 Require the Office of Grants and Debarment to
follow up to ensure that the EPA forwards the
documents timely.
0
Assistant Administrator
for Administration and
Resources Management
Planned
Completion
Date
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Claimed Agreed To
Amount Amount
12/1/14
Chief Financial Officer 9/30/15
Assistant Administrator 5/30/15
for Administration and
Resources Management
Assistant Administrator 3/31/15
for Administration and
Resources Management
Chief Financial Officer 3/31/15
Chief Financial Officer 9/10/14
Assistant Administrator 5/31/15
for Enforcement and
Compliance Assurance
Assistant Administrator 5/31/15
for Enforcement and
Compliance Assurance
Assistant Administrator 3/28/14
for Enforcement and
Compliance Assurance
Chief Financial Officer 9/30/15
Assistant Administrator 11/16/12
for Administration and
Resources Management
Assistant Administrator 1/31/15
for Administration and
Resources Management
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0021
OIG-53
-------
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Rec. Page
No. No.
23
24
25
26
27
28
29
Subject
Status1
Planned
Completion
Action Official Date
Claimed Agreed To
Amount Amount
31 Investigate variances between the general ledger 0
control accounts and the accounts receivable
subsidiary ledger bill detail and correct errors by
recording entries to the control accounts and/or
the accounts receivable bill detail, as needed.
31 Reconcile federal and non-federal accounts
receivable separately.
31 Develop accurate reports for accounts receivable
principal charges and non-principal charges.
34 Require headquarters program offices and
regional offices to deobligate unneeded funds
identified during the annual unliquidated
obligation reviews.
36 Require the Information Security Officer to
conduct an access control review with all offices
that warehouse IT assets. This would include
ensuring:
a. Appropriate approving officials approve
access for all personnel entering the
respective server rooms.
b. The offices update access rosters and post
them according to local procedures.
c. The offices create plans of action and
milestones within the EPA information
security weakness tracking systems to
track when the office would complete the
access control review if the respective
office is unable or lacks the capability to
complete the review within the next
30 days.
38 Require LVFC to implement a process to
regularly test the card reader system within the
finance center.
38 Require the Information Security Officer to
conduct an access control review with all offices
that warehouse IT assets. This would include
ensuring all offices:
a. Lock all server racks to prevent
unauthorized access.
b. Create plans of action and milestones
within the EPA information security
weakness tracking systems to track the
security of server racks if the respective
office is unable to immediately or lacks the
capability to lock the server racks within
the next 30 days.
0
Chief Financial Officer 12/31/14
Chief Financial Officer 7/31/15
Chief Financial Officer 7/30/14
Chief Financial Officer 9/30/15
Chief Financial Officer
$4,364
$4,364
Chief Financial Officer 12/31/14
Chief Financial Officer
15-1-
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OIG-54
-------
RECOMMENDATIONS
Rec.
No.
No.
Subject
Status1
Action Official
Planned
Completion
Date
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Claimed Agreed To
Amount Amount
30 40 Require the Information Security Officer to
coordinate with the responsible offices that
warehouse or manage information technology
assets for CFC to:
a. Implement a process for monitoring
humidity levels in the Norwood server
room.
b. Reposition the water sensors in the
Norwood server room at the appropriate
height to prevent water damage to servers.
31 40 Require the Information Security Officer to
coordinate with the responsible offices that
warehouse or manage information technology
assets for the LVFC, CFC and RTP Finance
Center to:
a. Establish and document threshold levels
for temperature and humidity monitoring in
the server rooms.
b. Create plans of action and milestones
within the EPA information security
weakness tracking systems to track the
remediation of the noted environmental
control weaknesses if the respective office
is unable to immediately correct, or lacks
the capability to correct, the weakness
within the next 30 days.
32 40 Require the Information Security Officer to
develop a process to monitor the completion of
all plans of action and milestones that were
entered into the EPA information security
weakness tracking system.
Chief Financial Officer
10/31/14
Chief Financial Officer
Chief Financial Officer
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OIG-55
-------
RECOMMENDATIONS
Rec.
No.
No.
Subject
Status1
Planned
Completion
Action Official Date
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Claimed Agreed To
Amount Amount
33 42 Require the Information Security Officer to C
coordinate with the responsible offices within the
Office of Administration and Resources
Management to develop and implement a
strategy to improve CCTV coverage for the
OCFO's IT assets. The improved CCTV
coverage and strategy should include:
a. Improving camera-monitoring systems at
the AWBERC server room to increase
visibility of the server racks and within the
telecomm room and to coordinate
monitoring of the Norwood server room
with automated lighting.
b. Increasing CCTV monitoring storage time
to meet EPA-approved storage
requirements detailed in the EPA's
Cincinnati Security Management Program
Contract.
c. Requiring offices to create plans of action
and milestones within the EPAs
information security weakness tracking
system to track the completion of any
CCTV improvement tasks that cannot be
completed within the next 30 days.
d. Developing a process to monitor the
completion of all plans of action and
milestones that were entered into the EPA
information security weakness tracking
system.
34 43 Maintain written documentation that C
demonstrates management has approved
changes to the Compass accounting posting
module.
35 47 Instruct CFC to perform an analysis of delinquent C
receivables to determine whether interest is
being properly recorded in Compass in
accordance with the applicable laws, federal
accounting standards and EPA policy, and
record any unrecorded interest.
36 47 Instruct CFC to follow the terms in the legal 0
source documents when recording interest
receivables.
37 47 Instruct LVFC to follow EPA policy and the terms 0
of the legal source document and record the
document effective date in Compass as the
account receivable document date for grant
receivables.
38 47 Determine and correct the cause of Compass 0
system problems related to Superfund and
installment interest.
Chief Financial Officer 9/30/14
Chief Financial Officer
Chief Financial Officer
11/1/14
11/1/14
Chief Financial Officer
Chief Financial Officer
Chief Financial Officer
7/31/15
1/31/15
11/30/14
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OIG-56
-------
RECOMMENDATIONS
Rec.
No.
No.
Subject
Status1
Action Official
Planned
Completion
Date
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Claimed Agreed To
Amount Amount
39 49 Comply with the material weakness reporting
requirements as prescribed by OMB Circular
A-123, which are:
a. Material weaknesses and a summary of
corrective actions shall be reported to
OMB and Congress through the
Performance and Accountability Report.
b. Progress against corrective action plans
should be periodically assessed and
reported to agency management.
Chief Financial Officer
3/31/15
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.
15-1-
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OIG-57
-------
Appendix II
Agency Response to Draft Report
November 13, 2014
MEMORANDUM
SUBJECT: Response to Office of Inspector General Draft Audit Report No. OA-FY14-0281, "Audit
of EPA 's Fiscal 2014 and 2013 (Restated) Consolidated Financial Statements, " dated
November 10, 2014
FROM: David A. Bloom
Acting Chief Financial Officer
TO: Paul C. Curtis, Director
Financial Statement Audits
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. 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 all 39 recommendations. We have attached a technical comments document
which explains the agency's position on several report findings.
AGENCY'S RESPONSE TO DRAFT AUDIT RECOMMENDATIONS
Agreements
No.
Recommendation
High-Level Intended
Corrective Action(s)
Estimated Completion
by Quarter and FY
Require project officers to
track and accumulate
software costs by project
from inception through date
placed in service.
Concur. OCFO will share a
corrective action plan for
personal property and software
with the OIG in 2nd quarter F Y
2015.
March 31,2015.
Require the Reporting and
Analysis Staff to coordinate
with Office of
Administration and
Resources Management
project officers to receive
Concur. OCFO will share a
corrective action plan for
personal property and software
with the OIG in 2nd quarter F Y
2015.
October 31,2018.
15-1-0021
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software project cost
support once placed into
service.
Document and support
project costs for all software
costs placed into service
over the past 7 years.
Concur. OCFO will share a
corrective action plan for
personal property and software
with the OIG in 2nd quarter F Y
2015.
October 31,2018.
Capitalize and book the
RTF lab renovation costs
and calculate depreciation.
Concur. OCFO has booked the
lab renovation costs and
calculated the requisite
depreciation.
Completed November
2014.
Improve and maintain
support for how EPA lab
renovation projects are
funded.
Concur. OCFO will review and
revise policies and procedures to
clarify how EPA lab renovation
projects are funded.
March 31,2016.
Review funding sources of
all current and future lab
renovations to ensure
correct funding is utilized.
Concur. OCFO will review
and revise policies and
procedures to clarify how
reviews of funding sources
shall be conducted for future
lab renovations to ensure
correct funding is utilized.
March 31,2016.
Develop policies and
procedures for capital
improvements/betterments
to real property,
specifically, to address EPA
lab renovations which could
include bulk purchases of
equipment and funding from
agency program
appropriations other than
the B&F appropriation.
Concur. OCFO will review
and revise policies and
procedures to clarify for
capital improvements/
betterments to real property,
specifically, EPA lab
renovations which could
include bulk purchases of
equipment and funding from
Agency program
appropriations other than the
B&F appropriation.
March 31,2016.
Request the Office of
General Counsel determine
whether the legal opinion
referenced herein represents
a legally acceptable position
regarding the definition of
"construction," and provides
adequate examples to guide
determinations of when
renovation work should be
funded out of agency
Concur. OCFO will request
an updated legal opinion
more specific to EPA lab
renovation projects, which
include equipment costs and
funding sources other than
B&F as part of the process
to revise and clarify policies
and procedures on lab
renovations.
March 31,2015.
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9
10
11
12
program appropriations (e.g.
S&T) or B&F funds.
Update inventory records
according to EPA's
Property Bulletin No. 14-
004.
Identify the personal
property records missing
from the agency's property
management system and
record them in the system.
Conduct Board of Survey
investigations more
frequently to adequately
address missing and
uninventoried property.
Document the results of
Board of Surveys and
update the property
management records
accordingly.
Research and resolve
differences between
Compass and the property
management system timely.
Concur. FMSD currently
communicates with the agency's
property managers, monthly, to
discuss operational requirements
and business processes. All
assets identified and
acknowledged as unaccounted
for after the close of FY14 will
be entered into the system and
verified electronically by close
of business on December 1,
2014.
In addition, OARM will require
all agency Senior Resource
Officials (SRO) to certify semi-
annually that assets are updated
in accordance with EPA's
Property Bulletin No. 14-004,
and reassess certification
frequency in one year.
Concur. OARM has made
contact with the Programs and
Regions to identify missing
assets. Assets will be entered
into Maximo and verified
through Compass.
Concur. OARM will notify the
agency's property managers to
perform and review
investigations during the annual
inventory and as soon as assets
are noted as unaccounted.
Concur. OCFO has begun to
resolve the differences between
Compass and Maximo as
required by the Resource
Management Directive System
on property.
December 1, 2014.
December 1, 2014.
December 1, 2014.
September 3 0,2015.
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13 Require the Office of
Administration, Facilities
Management and Service
Division, to verify the
correctness and update all
capitalized property records
in the official property
system as required.
Concur. OARM will work with
the Office of the Chief Financial
Officer to develop
recommendations and an
implementation plan for an
improved business process to
verify that capital assets are
updated in the agency's property
management system.
May 30, 2015.
14 Require project officers to
approve federal
disbursements timely.
Concur. OCFO and OARM will
work together with agency
project officers to approve
federal disbursement timely.
OCFO's new Interagency
Agreement Policy will require
POs to review and approve
disbursements timely.
March 31,2015.
15 Require CFC staff to follow
up with project officers and
regions to obtain the
necessary disbursement
approvals and information
needed to clear transactions
timely from the federal
budget clearing (suspense)
account.
Concur. OCFO will follow up
with project officers and regions
to obtain disbursement
approvals and information to
clear suspense transactions.
March 31,2015.
16 Reclassify the $11.3 million
collection from the
Environmental Services
Special Fund to the fines
and penalties fund using
appropriate entries to ensure
that current year general
ledger accounts and
financial statements are
properly stated.
Concur. OCFO completed on
September 10, 2014. The
collection has been reclassified
from the Environmental
Services Special Fund to the
Fines and Penalties fund using
appropriate entries to ensure that
current year general ledger
accounts and financial
statements are properly stated.
Steps have been taken to follow
agency guidance which directs
servicing finance offices to
analyze each collection to
determine the reason for the
remittance and collection type.
Completed September 10,
2014.
17 Require enforcement
officers to include CFC on
stipulated penalty letters
mailing list.
Concur. OECA will issue a
memorandum to senior
enforcement managers in the
Regions and Headquarters
May 31, 2015. See
attached technical
document comments.
15-1-0021
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reminding enforcement
personnel of the importance of
providing timely documentation
to the Cincinnati Finance Center
of all EPA-issued stipulated
penalty demands. This
memorandum will further
request all enforcement
personnel to copy the CFC on
any penalty demand issued by a
Region or Headquarters,
regardless of whether the
stipulated penalty arose from
violations of a civil judicial
consent decree or judgment or
violations of an administrative
settlement or judgment.
18 Remind personnel to timely
forward legal documents or
administrative settlement
agreements to the finance
center.
Concur. OECA will issue a
memorandum to senior
enforcement managers in the
Regions and Headquarters
reminding enforcement
personnel of the importance of
providing timely documentation
to the CFC of all accounts
receivable that arise from
administrative enforcement
actions and EPA-issued
stipulated penalty demands.
These include civil penalties
imposed under settlement
agreements under any
environmental statute and cost
recovery and cash-out
administrative settlements under
CERCLA. This memorandum
will further request all
enforcement personnel to copy
the CFC on any penalty demand
issued by a Region or
Headquarters, regardless of
whether the stipulated penalty
arose from violations of a civil
judicial consent decree or
judgment or violations of an
May 31, 2015. See
attached technical
document comments.
15-1-0021
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administrative settlement or
judgment.
19 Work with the DO J to
forward DOJ legal
documents timely to CFC.
Concur. OECA is already
working with DOJ from an
earlier recommendation in OIG
Report No. 13-1-0054.
Completed March 28,
2014. See attached
technical document
comments.
20 Work with the Office of
Enforcement and
Compliance Assurance to
update EPA Superfund
guidance to require
originating offices to timely
forward the Superfund
Accounts Receivable
Control Forms to the
finance center.
Concur. Procedures to forward
control forms were discussed
during SF Lean held in Kansas
City in May 2014. OCFO will
update guidance to require
originating offices to timely
forward the Superfund Accounts
Receivable Control Forms to the
finance center.
September 3 0,2015.
21 Require the Office of Grants
and Debarment to instruct
personnel to forward source
documents for grant
disallowed costs timely to
the finance center even if
the bill is under dispute or
in negotiation for a payment
plan.
Concur. The agency has already
provided instructions to the
Grants Management Office
(GMO) community.
Completed. See attached
technical document
comments.
22 Require the Office of Grants
and Debarment to follow up
to ensure that the EPA
forwards the documents
timely.
Concur. OARM, as part of its
ongoing outreach to the GMO
community, will ensure the
GMOs are aware of the
requirement.
January 31,2015. See
attached technical
document comments.
23 Investigate variances
between the general ledger
control accounts and the
accounts receivable
subsidiary ledger bill detail
and correct errors by
recording entries to the
control accounts and/or the
accounts receivable bill
detail, as needed.
Concur. OCFO corrected many
of the variances from the prior
year in the 3rd and 4th quarter of
fiscal year 2014. The remaining
variances will be corrected in
the first quarter fiscal year 2015.
December 31,2014.
24 Reconcile federal and non-
federal accounts receivable
separately.
Concur. OCFO will design a
framework for providing timely
and accurate reconciliations of
federal and non-federal accounts
receivable.
July 31,2015.
15-1-0021
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25 Develop accurate reports for
accounts receivable
principal charges and non-
principal charges.
Concur. The agency
acknowledges that we made an
error for not reporting principal,
interest, handling charges and
penalties correctly for March
2014. The agency has corrected
the error in the subsequent
reconciliation and will continue
for all reconciliations going
forward. The agency has
accurate reports.
Completed July 30,2014
(Ongoing quarterly
activity).
26 Require headquarters
program offices and
regional offices to
deobligate unneeded funds
identified during the annual
unliquidated obligation
reviews.
Concur. As a part of our new
ULO tool implementation,
OCFO will reiterate and help
verify timely deobligations of
funds deemed unneeded by the
program/region.
September 3 0,2015.
27 Require the Information
Security Officer to conduct
an access control review
with all offices that
warehouse information
technology assets. This
would include ensuring:
a. Appropriate approving
officials approve access for
all personnel entering the
respective server rooms.
b. The offices update access
rosters and post them
according to local
procedures.
c. The offices create plans
of action and milestones
within the EPA information
security weakness tracking
systems to track when the
office would complete the
access control review if the
respective office is unable
or lack the capability to
complete the review within
the next 30 days.
Concur. In July 2014, the Las
Vegas Finance Center
completed a 100%
recertification of all the Las
Vegas La Plaza IT related
security controlled area doors,
including the server room that
required all site Office
Directors/Managers to review
and recertify door access for all
individuals with existing access.
Completed July 2014.
28 Require LVFC to
implement a process to
Concur. LVFC will implement a
quarterly testing process for the
December 31,2014.
15-1-0021
-------
regularly test the card reader
system within the finance
center.
card readers within the center
beginning in the first quarter of
FY2015.
29 Require the Information
Security Officer to conduct
an access control review
with all offices that
warehouse information
technology assets. This
would include ensuring all
offices:
a. Lock all server racks to
prevent unauthorized
access.
b. Create plans of action and
milestones within the EPA
information security
weakness tracking systems
to track the security of
server racks if the respective
office is unable to
immediately or lack the
capability to lock the server
racks within the next 30
days.
Concur. OARM Cincinnati has
locked the cabinet in the
AWBERC telecommunications
room. Access to the AWBERC
telecommunications room has
been further restricted to
personnel that need access to the
installed equipment. A PIV
Card reader has been added to
the door to control and track
access, and the lock has been
changed to remove it from the
building master keys.
Completed Summer 2014.
30 Require the Information
Security Officer coordinate
with the responsible offices
that warehouse or manage
information technology
assets for CFC to:
a. Implement a process for
monitoring humidity levels
in the Norwood server
room.
b. Reposition the water
sensors in the Norwood
server room at the
appropriate height to
prevent water damage to
servers.
Concur. In October 2014,
OARM Cincinnati added
humidity sensors in the
Norwood server room which
includes humidity thresholds
through the facility alarm
system. The Norwood server
room water sensors have been
relocated to more appropriate
locations and heights in the
room.
Completed October 2014.
Require the Information
Security Officer coordinate
with the responsible offices
that warehouse or manage
information technology
Concur.
a. The OARM-Cincinnati server
room temperature and humidity
are monitored 24/7 in the
AWBERC Boiler Room, and
Completed October 2014.
15-1-0021
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assets for the LVFC, CFC
and RTF Finance Center to:
a. Establish and document
threshold levels for
temperature and humidity
monitoring in the server
rooms.
b. Create plans of action and
milestones within the EPA
information security
weakness tracking systems
to track the remediation of
the noted environmental
control weaknesses if the
respective office is unable
to immediately or lack the
capability correct the
weakness within the next 30
days.
thresholds are set, and
monitored. RTF and LV ISOs
will coordinate IT asset
warehousing issues with the
responsible offices.
b. No POAMs are required.
32 Require the Information
Security Officer to develop
a process to monitor the
completion of all plans of
action and milestones that
were entered into the EPA
information security
weakness tracking system.
Concur. The agency has already
completed all the recommended
action.
Completed—In place prior
to audit.
33 Require the Information
Security Officer to
coordinate with the
responsible offices within
the Office of Administration
and Resources Management
to develop and implement a
strategy to improve CCTV
coverage for the OCFO's IT
assets. The improved CCTV
coverage and strategy
should include:
a. Improving camera-
monitoring systems at the
AWBERC server room to
increase visibility of the
server racks and within the
telecomm room and to
coordinate monitoring of the
Concur. OARM Cincinnati was
in the process of calibrating
DVR video retention times after
upgrading the video surveillance
systems capacity during the
Office of the Inspector General
review. Adequate historical data
was not maintained during the
upgrade. The video retention
period for the AWBERC server
room has been increased to in
excess of 30 days. OARM
Cincinnati has installed seven
additional infrared surveillance
cameras in the AWBERC server
room, and one in the AWBERC
telecommunications room. The
Norwood camera has been
replaced with an infrared
Completed September
2014.
15-1-0021
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Norwood server room with
automated lighting.
b. Increasing CCTV
monitoring storage time to
meet EPA-approved storage
requirements detailed in the
EPA's Cincinnati Security
Management Program
Contract.
c. Requiring offices to
create plans of action and
milestones within the EPA's
information security
weakness tracking system to
track the completion of any
CCTV improvement tasks
that cannot be completed
within the next 30 days.
d. Developing a process to
monitor the completion of
all plans of action and
milestones that were entered
into the EPA information
security weakness tracking
system.
camera. The installation of
infrared cameras eliminates the
need for automatic lighting in
the server rooms.
34 Maintain written
documentation that
demonstrates management
has approved changes to the
Compass accounting
posting module.
Concur. OCFO management
implemented a procedure to
document via email the posting
model changes that are
approved. Email approvals will
be filed with the posting model
tracking spreadsheet in the
posting model binder.
Completed November 1,
2014.
35 Instruct CFC to perform an
analysis of delinquent
receivables to determine
whether interest is being
properly recorded in
Compass in accordance with
the applicable laws, federal
accounting standards and
EPA policy, and record any
unrecorded interest.
Concur. OCFO will continue to
review delinquent receivables to
ensure interest is accruing
properly and will continue to
work closely on Compass issues
to resolve them on a long-term
basis in cases where interest has
not been calculated in Compass
(and it should be).
Completed November 1,
2014. (Ongoing activity)
36 Instruct CFC to follow the
terms in the legal source
Concur. OCFO will explore
having Compass functionality
enhanced to allow for interest to
July 31,2015.
15-1-0021
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documents when recording
interest receivables.
be calculated from a date other
than the receivable date.
37
Instruct LVFC to follow
EPA policy and the terms of
the legal source document
and record the document
effective date in Compass as
the account receivable
document date for grant
receivables.
Concur. OCFO will also work
with the Grants Management
Officers to ensure source
documentation for grant
receivables is submitted to the
LVFC in a timely manner.
January 31,2015.
38
Determine and correct the
cause of Compass system
problems related to
Superfund and installment
interest.
Concur. OCFO will continue to
research and confirm system
issues related to Superfund and
installment interest. OCFO
intends to implement a software
patch in November 2014 to
correct the known system issues
related to interest.
November 30, 2014.
39
Comply with the material
weakness reporting
requirements as prescribed
by OMB Circular A-123,
which are:
a. Material weaknesses and
a summary of corrective
actions shall be reported to
OMB and Congress through
the Performance and
Accountability Report.
b. Progress against
corrective action plans
should be periodically
assessed and reported to
agency management.
Concur. OCFO has followed the
appropriate A-123 steps to
report an internal control
weakness. OCFO will continue
to apprise agency management
of progress of addressing
corrective actions.
a. Completed November 7,
2014. See attached
technical document
comments.
b. March 31,2015.
CONTACT INFORMATION
If you have any questions regarding this response, please contact Jeanne Conklin, Acting Director,
Office of Financial Management on (202) 564-5342.
Attachment
cc: Mark Hague
Charles Sheehan
Nanci Gelb
Cynthia Giles
15-1-0021
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Kevin Christensen
Rich Eyermann
Jeanne Conklin
Meshell Jones-Peeler
Stefan Silzer
Susan Shinkman
Cyndy Mackey
John Showman
Vaughn Noga
Quentin Jones
Robert Hill
Paul Curtis
Christopher Osborne
Istanbul Yusuf
Richard Gray
Leo Gueriguian
Steven Blankenship
David Shelby
Lisa Ayala
John O'Connor
Aileen Atcherson
Sherri Anthony
Dale Miller
Jill Beresford
Pat Watson
Nicole Modafari
Margaret Hiatt
Wanda Arrington
Arthur Budelier
Cynthia Poteat
Robert Hairston
Sheila May
Gwendolyn Spriggs
Sandy Womack
Brandon McDowell
Debra Lang
Lorna Washington
Susan Lindenblad
Janice Kern
Bernie Davis-Ray
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Attachment
Technical Comments Related to OIG's Draft Audit Report No. OA-FY14-0281, "Audit of
EPA's Fiscal 2014 and 2013 (Restated) Consolidated Financial Statements," dated
November 10, 2014
• OIG Finding #16 - "EPA's 2014 FMFIA Annual Assurance Statement is Inaccurate"
Agency Response: Concur.
Agency Position on Finding: The agency disagrees with the facts as stated in this OIG Finding.
The agency had every intention of fully disclosing internal controls over software through the
FMFIA process. The facts are as follows:
• In May 2014, the agency's A-123 process identified internal control weaknesses in its
accounting for software transactions. The extent of the value of the errors was not known
during the A-123 review.
• On June 30, 2014, the EPA provided its A-123 work papers on software to the OIG.
• From May through August 2014, OCFO conducted further research to determine the
magnitude of the software errors and possible accounting solutions.
• On August 7, 2014, OCFO stated in its FY 2014 FMFIA assurance letter "Additional
research was being performed to provide process improvements on recommended
corrective actions" from the A-123 findings.
• On August 28, 2014, OCFO disclosed in a white paper to the OIG that the software issue
identified in the A-123 was an accounting error that could be remedied and provided the
agency's corrective action plan.
• The agency began processing the software accounting corrections. The correction
process continued through late October. The value of the corrections was not fully
known until mid-October. After the agency determined the magnitude of the software
errors, the agency restated its FY 2013 financial statements to have the correct beginning
balance for the FY 2014 financial statements.
• On October 23, 2014, OCFO proposed at the annual EPA Senior Leadership Council
Management Integrity Meeting that a new agency-level weakness be declared due to
issues surrounding personal property including software. The SLC approved the proposal
and declared a new agency-level weakness. OIG staff attended this meeting.
• The OIG misinterpreted the agency's draft APR language as an intent not to report a
material weakness. The agency fully intended to include language in the AFR.
• On November 7, 2014, OCFO provided draft assurance language to OMB disclosing the
new material weakness with updated charts for the AFR.
• OCFO will work with the OIG during next year's FMFIA process and the drafting of the
AFR to avoid unnecessary confusion over this process.
• OIG Finding #7- "Originating Offices Did Not Timely Forward Accounts Receivable
Source Documents to the Finance Center"
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Agency Response: Concur on Recommendations, Not "Significant Deficiency" Designation
Agency Position on Finding: The agency disagrees with OIG's finding that the identified delays
in providing accounts receivable documentation to the Cincinnati Finance Center (CFC)
constitute a significant deficiency under FMFIA. Such delays did not present a reasonable
possibility that a material misstatement of EPA's financial statement would not be prevented, or
detected and corrected in a timely manner. In support of the agency's position, we offer the
following:
• Two of the 40 cases in which the OIG identified delays in providing accounts receivable
documentation to CFC are not accounts receivable arising from an enforcement case
brought by EPA or DOJ.
- One of the civil judicial cases cited by OIG, involving a civil penalty of more than
$29.9 million, was a citizen suit brought under the Clean Water Act in which the
United States was not a party. This $29.9 million in civil penalties accounted for
almost 50 percent of the $61.7 million in accounts receivable for which
documentation was identified by the OIG as untimely.
- One of the accounts receivable on OIG's list of untimely administrative cases
involved disallowed costs in the amount of $135,346 under a grant involving the
Pueblo of Acoma. Because this does not appear to relate to an enforcement action,
OECA cannot address the cause of this delay.
• In 27 of the remaining 38 cases, documentation was provided to CFC within 30 days of
the effective date of the order/consent decree giving rise to the accounts receivable.
Since these receivables were not payable until at least 30 days after the effective date,
CFC received documentation in sufficient time to ensure that there was not a material
misstatement of EPA's financial statement. Furthermore, the total accounts receivable
for the 11 cases for which documentation was not received by CFC within 30 days
equaled only $2.3 million of the $61.7 million attributed to cases in which the
documentation was not timely provided to CFC.
• DOJ, and not EPA, has responsibility for providing accounts receivable documentation
to CFC. OECA continues to meet quarterly with DOJ in an effort to address untimely
documentation.
1. Require enforcement officers to include CFC on stipulated penalties mailing list.
EPA has significantly improved the timeliness of documentation relating to
administrative penalties. In both FY 2013 and FY 2014, EPA has been timely in
providing administrative penalty documentation to CFC at least 95 percent of the time.
Although OECA recognizes that there is room for improvement in the timeliness of
documentation related to EPA-issued stipulated penalty demands, the delays and the
stipulated penalty amounts associated with delayed documentation were not sufficient to
constitute a significant deficiency under FMFIA.
2. Remind personnel to timely forward legal documents or administrative settlement
agreements to the finance center.
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With regard to civil penalties assessed under administrative settlement agreements, EPA
has been timely in providing penalty documentation to CFC at least 95 percent of the
time for both FY 2013 and FY 2014. OECA recognizes that there is room for
improvement in the timeliness of documentation related to non-penalty settlements (e.g.,
administrative cost recovery and cash-out settlements under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA)). However,
OECA does not agree that the delays and the accounts receivable amounts associated
with delayed documentation were sufficient to constitute a significant deficiency under
FMFIA.
3. Work with the DOJ to forward DOJ legal documents timely to CFC.
OECA completed this corrective action as of March 28, 2014, in response to a
recommendation addressing the same issue made by the OIG in its Audit of EPA 's Fiscal
2012 and 2011 Consolidated Financial Statements (No. 13-1-0054; November 15, 2012).
In its 2012 Audit Report, the OIG found that some civil judicial documents that give rise
to accounts receivable were not being timely provided to the CFC, resulting in late
recording of receivables. In response, OECA agreed to meet with CFC and the
Department of Justice (DOJ) on a quarterly basis, beginning the second quarter of FY
2013 through the second quarter of FY 2014, to assess the timely transmission of civil
judicial orders that give rise to accounts receivable. OECA met with CFC and DOJ in
June, September, and December 2013, and March 2014 to discuss the timely provision
(i.e., within five business days) of civil judicial documents by DOJ and other accounts
receivable issues, including the process for tracking how timely such documents are
provided using data provided by OCFO, and reconciling DOJ and EPA tracking systems.
By memorandum dated March 28, 2014, OECA verified that it had completed this
corrective action.
In any event, OECA and CFC intend to continue to review the timeliness data each
quarter and to address with DOJ any issues that are identified, typically in a quarterly
meeting on accounts receivable issues. Additionally, CFC and DOJ recently assisted
OECA with its regional accounts receivable evaluations to determine how effectively the
accounts receivable process is working within the Agency and to identify areas needing
improvement. OECA is currently drafting a national report that will summarize the
evaluation results and will identify areas needing improvement and provide best
practices.
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5. Instruct personnel to forward source documents for grant disallowed costs timely to
the finance center even if the bill is under dispute or in negotiation for a payment
plan.
The agency has already provided instructions to the Grants Management Office (GMO)
community as follows:
OGD and OCFO have addressed this issue in EPA Manual 2750 Audit Management
Procedures issued September 28, 2012 (see Part II, Section B.3. Assistance Agreements.)
On November 16, 2012, OGD issued a guidance memo to the GMOs on unallowed costs
in advanced administrative reviews and single/OIG audit final decisions. The memo
emphasized that LVFC must be notified of all actions regarding the disallowance of
costs. It also instructed GMOs to include standard payment instructions in Management
Decision Letters to recipients and to copy the Las Vegas Finance Center on Management
Decision Letters to ensure compliance with the 5-day requirement in RMDS 2540-9-1.
OGD's IPERIA guidance, PN-2013-G03, issued October 1, 2013, provides that "[w]hen
it is determined that unallowed costs are to be repaid, GMOs must also ensure that
LVFC is copied on all management decision letters."
Further, OGD has revised Section 4.5.3.4 on Cost Disallowance in its Assistance
Agreement Almanac to state that:
EPA's LVFC must be copied on all enforcement actions where costs are disallowed and
repayment requested. According to Policy RMDS 2540-9, the Agency is required to
establish an account receivable in its financial system within 5 days of the debt being
established.
Similarly, Section 4.7.3 on Audit Resolution and Follow-up has been revised (for
Management Decision Letters to Recipients) to state:
The letter advising the recipient of EPA 's management decision must be signed by the
Action Official or their designee and mailed to the recipient via certified mail, return
receipt requested, within 5 calendar days ofOlG concurrence (when applicable). The
letter will become the agency's final decision unless disputed by the recipient. If the
Action Official's decision includes an audit disallowance requiring repayment of funds,
the letter also constitutes a written demand for payment under the EPA claims
collection requirements f1ittp://intranet.epa.gov/fmdvally/policies/direct/2540-09pro_2.pd£),
Section III, "Non Federal Delinquent Debt" and a copy must be provided to the Las
Vegas Finance Center (LVFC) in order to establish an account for the debt within 5
days that the management decision is issued.
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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 Public Affairs
Agency Audit Follow-Up Coordinator
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
Deputy Director of Operations, Office of Financial Services, Office of the Chief Financial Officer
Director, Financial Policy and Planning Staff, 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
Deputy Director of Strategic Planning and Oversight, Office of Financial Services
Office of the Chief Financial Officer
Director, Payroll Management and Outreach Staff, Office of the Chief Financial Officer
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
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OIG Challenge #1 - Improved Oversight of States Authorized to Accomplish Environmental Goals
Agency Response: In its FY 2014 Action Plan (http://www2.epa.gov/planandbudget/fy-2014-cross-
agency-strategies-action-plans) for its Cross-Agency Strategy on partnerships, the EPA commits to
collaborate with states to identify opportunities to redefine the EPA-state oversight relationship and
improve the effectiveness and efficiency of state-federal interactions in EPA's oversight of state delegated
programs. By September 2014, the agency will complete an assessment of ongoing initiatives and near and
long-term ideas for improving the oversight process for National Pollutant Discharge Elimination System
(NPDES), Title V, and RCRA Subtitle C permitting programs.
Direct oversight of delegated and approved CAA programs is the responsibility of each regional office, a
role for which the national air program office provides support and assistance when necessary and
appropriate. The EPA's Office of Air and Radiation is co-chairing a cross-agency workgroup to identify
common principles and best practices that may enhance the effectiveness and efficiency of oversight
practices across several delegated programs, including the CAA Title V operating permit program. The
national program is looking for ways to reduce the states' administrative burden by implementing such
changes as cost-effective, streamlined administrative processes for the State Implementation Plan; rules
written to minimize state burdens; electronic emissions reporting for sources; delayed deployment of the
near-road monitoring network; and priorities established with states in EPA's annual National Program
Guidance. As part of the cross-agency effort, OAR will work with regions to implement improvements in
the Title V program. In addition, OAR incorporates state oversight responsibilities into the Annual
Commitment System suite of regional performance measures. These measures track completion of Title V
program evaluations and regions' reviews of draft permits that will be issued by states.
EPA's regional offices have primary responsibility for Permit Quality Reviews of authorized state NPDES
programs. Some recent improvements to the review process by regional offices include: improved
processes for setting water quality-based phosphorus effluent limits in three states (Region 2); prioritized
corrective measures, and tracking of Tier 1 (high priority) actions for the U.S. Virgin Islands authorized
NPDES program (Region 2); implementation of a process to prioritize review of state-issued NPDES
permits utilizing a selection tool intended to identify permits that have a greater environmental and
community impact (Region 6).
EPA's Office of Water is working cooperatively with states in other ways. Region 9 is working with the
Hawaii Department of Health to improve financial management of the Hawaii D WSRF. Hawaii has had one
of the highest percentages of unliquidated obligations of any state DWSRF, and Region 9 is actively
overseeing the program to ensure available funds are spent quickly and financial processes are modified to
improve future performance. The EPA's Region 2 office is providing technical assistance to states impacted
by Hurricane Sandy by reviewing states' resource needs for rebuilding their wastewater infrastructure and
for design of green infrastructure and resilient reconstruction.
OIG Challenge #2 - Limited Controls Hamper the Safe Reuse of Contaminated Sites
Agency Response: The EPA has advanced significant efforts to oversee and manage the long-term
stewardship of contaminated sites within its control. Cleaning up contaminated sites and ensuring their
safe reuse over the long term is an agency priority and central to the EPA's mission. The EPA'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 with the
most direct control through its authority to order the cleanup, provide oversight, seek penalties for non-
compliance, and negotiate the cleanup process. The agency can delegate all or parts of the Resource
Conservation and Recovery Act (RCRA) Program to states to manage in lieu of EPA. For the RCRA
Corrective Action Program, 44 states are authorized to implement the federal program and have the
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primary decision-making responsibility to ensure safe long-term remedies. In unauthorized states, and
where work-share arrangements have been made, EPA regional offices are the leads for ensuring
protective long-term remedies. The agency retains enforcement authority at state delegated sites to ensure
the proper cleanup and management of hazardous wastes. The Brownfields Program provides funding to
eligible entities to clean up sites. Brownfield sites are cleaned up in accordance with state cleanup levels
and oversight Cleanups being conducted under the Underground Storage Tank Program are typically
conducted and overseen through state programs; however, EPA typically conducts cleanups from leaking
underground storage tanks on tribal lands. The 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.
The 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, the maintenance for long-term stewardship in many circumstances rests with a
state, local, trust or other private entity.
The Superfund, Corrective Action, Brownfields and Underground Storage Tanks 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 (ICs)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 and
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. land owners 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 ICs.
RAU is an internal performance measure, and is not an external designation of any type. When requested,
the Superfund Program can issue Ready for Reuse (RFR) Determinations which are status reports
documenting that a property can support an intended use, as long as all required response conditions and
use limitations identified in the site's response decision documents and land title documents continue to be
met However, RFR determinations are only reflections of the environmental status of a property at a point
in time. They do make any claims about the activities taken by individuals who are legally responsible for
ensuring the maintenance and integrity of ICs.
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. The 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.
The EPA and its state and tribal co-implementers may select 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 (PIME guidance), 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. In addition, the
PIME guidance highlights a number of factors for those entities that are implementing ICs to consider,
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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 a guide, Institutional Controls: A Guide to Preparing Institutional Controls
Implementation and Assurance Plans at Contaminated Sites, which will assist regions in systematically
establishing and documenting the activities associated with implementing and ensuring the long-term
stewardship of ICs. Among other things, 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. 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. The Office of Brownfields and Land Revitalization prepares a
report annually 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 on
EPA OBLR website 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. The EPA continues to include training sessions on ICs as part of its national
brownfields program. The EPA will also continue to develop and maintain information systems like
"Cleanups in My Community" (http://www.epa.gov/cimc) to educate and inform the public regarding
federally funded contaminated site assessment and cleanup activities.
Promoting reuse involves communities in clean-up and reuse discussions. The EPA will continue to explore
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; and
• Site Reuse Fact Sheets (which highlight critical remedial components in place, long-term
maintenance activities, and ICs).
The November 2002 Draft Vapor Intrusion (VI) guidance is still relevant for vapor intrusion investigations.
In conjunction with the additional resources published by EPA that were used in preparing the Final VI
guidance, information is currently available to all EPA regions for implementing VI evaluations that rely on
multiple lines of evidence and reflect current practices. Use of these resources ensures consistency in the
evaluation of VI across all EPA regions for sites currently being investigated, as well as protectiveness of
selected remedies during the Five Year Review process. These findings inform RAU decisions. Two
companion guidance documents were drafted in 2012 to address VI risks from both petroleum and non-
petroleum-based subsurface contaminants. EPA held a public review of the draft guidances in 2013 and
received over 1,500 comments from over 100 commenters. The EPA plans to submit the guidance to OMB
for inter-agency review.
EPA guidance requires that the most current toxicity values be used when evaluating human risks.
Selection of toxicity values to be used in evaluating these risks is recommended following a hierarchy of
peer-reviewed toxicity value data. This hierarchy was issued in 2003 and expanded in 2013; further, EPA
has updated the toxicity values for two common chlorinated volatile contaminants often identified at
Superfund sites as VI chemicals of concern, namely tetrachloroethylene (also known as perchloroethylene
or PCE) and TCE. These values are considered Tier 1 values in EPA's hierarchy as they are listed in EPA's
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Integrated Risk Information System (IRIS); PCE was updated on February 10, 2012 while TCE was updated
in September 28, 2011.
OIG Challenge #3 - Regulatory and Resource Limitations Constrain EPA's Assessment and
Management of Chemical Risks
Agency Response: The 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 reforming chemicals management legislation that will
modernize and strengthen the tools available in TSCA to increase confidence that chemicals used in
commerce are safe [http://www.epa.gov/oppt/existingchemicalspubslprinciples.html].
However, until legislative reform takes place, the EPA has adopted and is following an Existing
Chemicals Strategy released in February 2012, which outlines a comprehensive approach for
prioritizing chemicals for risk assessment and risk reduction, increasing the public's access to chemical
data and advancing innovation safer products and green chemistry. Integral to this approach are the
key steps of identifying chemicals for assessment, collecting and making effective use of chemical data,
and pursuing action to reduce risks posed by existing chemicals found to pose unreasonable risks to
human health and the environment
The EPA has taken a number of specific steps to strengthen its chemical safety work within existing
authorities. Among them are the following:
• EPA has identified 83 TSCA Work Plan Chemicals for assessment under TSCA to help focus and
direct activities of the Existing Chemicals Program over the FY 2014-2018 Strategic Plan cycle.
Significant progress has already been made on assessments for an initial group of seven Work Plan
Chemicals, including a final risk assessment for Trichloroethylene released June 2014.
• 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), by expanding
electronic reporting of Pre-Manufacture Notices and other submissions under TSCA, by improving
public access to non-confidential chemical information via the agency's new online ChemView
database, and by reviewing, and where appropriate, challenging: 1) new submissions under TSCA
where Confidential Business Information is claimed in health and safety studies, and 2) all CBI
cases submitted prior to August 2010 (the work on the more than 22,000 prior CBI submissions is
scheduled for completion a year ahead of schedule in FY 2014).
In 2009, GAO identified EPA's IRIS Program as a high risk area needing broad-based transformation
to address issues of transparency, program management, and timeliness. The GAO included IRIS in its
FY 2013 High Risk Report (GAO-13-283), and conducted a third review of the IRIS Program in FY
2014.
In 2014, EPA's regulatory programs (e.g. air, water, toxics, Superfund) and regional offices were asked
to identify their programmatic needs for IRIS assessments from which the program will develop a
comprehensive and coordinated 5-year workplan. The following enhancements and actions address
many of GAO's concerns including issues related to transparency and development of timely and
credible assessments:
• Identifying and prioritizing EPA regulatory and regional program needs for IRIS assessments;
• Public release of materials in the early stages of developing an assessment;
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• Public meetings early in the assessment development process to identify available
scientific information and any data gaps for the chemical being assessed;
• Increased use of the IRIS website to share information about assessment schedules and public
meetings;
• "Stopping rules" to help ensure that IRIS assessments are not delayed by new research
findings or ongoing debate of scientific issues after certain process points have passed;
• Expanded practices for peer review, including establishing a standing committee of EPA's
Science Advisory Board, the Chemical Assessment Advisory Committee, to review IRIS
assessments and evaluate conflicts of interest for the peer reviewers;
• Increased number of scientific workshops on critical issues in risk assessment;
• Report to Congress describing the agency's progress in implementing the
improvements in the IRIS process; and
• Partnership with the National Academies' National Research Council (NRC) to sponsor an NRG
review of the IRIS assessment development process and the changes being implemented or
planned by the EPA.
OIG Challenge #4 - Improved Workload Analysis to Accomplish Mission Efficiently and Effectively
Agency Response: In FY 2014, EPA incorporated workload guidance into its draft Funds Control Manual
and analyzed grants specialist and project officer workloads. This analysis was designed to inform business
process re-engineering and supplement efforts to improve the transparency of EPA grants management In
a related workforce planning effort, all of EPA's regions and program offices developed in-depth plans for
critical occupations and future skill needs.
Based on the results of its benchmarking survey of 23 other Federal Agencies' workload tools, EPA is
focusing efforts on streamlining critical, detail-oriented and process-oriented functions. Analyses of these
functions such as permit or grant writing are aimed at better understanding these tasks' workflows, work
drivers and process interactions in order to design efforts to gain efficiencies during this fiscally
challenging time.
Based on its survey of 1,000+ frontline managers, benchmarking of 23 other agencies' efforts, and reviews
of grants and water and air permitting, the EPA does not believe that using existing federal government
workload models would be a prudent investment of EPA resources, the agency believes that workload
models are more suited for replicable processes. Furthermore, many of these models are designed to
calculate optimal staffing levels which are often unrealistic in times of shrinking resources. Since most of
EPA's workloads are highly variable and non-linear, EPA cannot rely on models to dictate staffing.
The EPA does not believe that existing federal government workload models are appropriate to plan for
EPA's workload, which is highly variable and non-linear. The agency believes that workload models are
more suited for highly replicable processes and, furthermore, that during a time of shrinking resources it
may not be practical to calculate "optimal" staffing levels.
The EPA is focusing its efforts on streamlining critical, detail-oriented and process-oriented functions, such
as permit or grant writing, to better understand workflows associated with those tasks and to gain
efficiencies during this fiscally challenging time. The EPA will apply lessons learned from its survey of
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1,000+ frontline managers, benchmarking of 23 other agencies' efforts, and reviews of water and air
permitting.
In FY 2014, EPA incorporated workload guidance into its draft Funds Control Manual and will analyze
grants specialist and project officer workloads, particularly to support business process re-engineering and
LEAN efforts. All of EPA's regions and program offices developed in-depth plans for critical occupations and
future skill needs.
OIG Challenge #5 - Enhance Information Technology Security to Combat Cyber Threats
Agency Response: The EPA acknowledges that advanced persistent cyber threats pose a significant
challenge. The agency has undertaken a number of actions, including implementing specific automated
tools to address cyber security challenges. The following highlights activities that EPA is conducting under
the four challenge areas:
Strengthening user authentication
• The EPA continues to seek out strong user authentication and identification practices for its Network
Directory Services System (DSS) to strengthen security. For example, the agency is reviewing users
with container administrator access rights and reducing the number of users per program or
regional office with this level of access to no more than three.
• The agency conducts continuous monitoring of privileged user access to the DSS, including roles,
responsibilities, and procedures, to ensure that the activities of privileged users are appropriate
Correcting known weaknesses in incident response capability
• The EPA has deployed a Security Information and Event Management tool and continues to expand
its field of coverage to encompass as many enterprise assets as possible.
• The agency's Computer Security Incident Response Capability sends security alerts with actionable
instructions and milestones. Critical security issues are also reported in daily briefings to senior
management.
Developing a vulnerability remediation program
• The EPA has implemented a process to communicate weaknesses identified during audits,
assessments, vulnerability scans, and other oversight activities.
• Remediation activities from audits, continuous monitoring assessments, and server vulnerability scans
are tracked via the Plan of Action & Milestone (POA&M) Monitoring and Validation Process.
Remediation activities are reviewed and validated, and results reported monthly to Senior Information
Officers, Information Management Officers, and Information Security Officers.
• The agency also conducts monthly vulnerability scans and transmits the results to Information Security
Officers and system owners for remediation according to agency policy.
Developing a strategy to analyze needed and current skill set for personnel with significant
security responsibilities
• The EPA is developing role-based training (RBT) and credentialing programs that encompass
all agency roles with significant information security responsibilities. Roles have been
documented using standard terminology and definitions of responsibilities.
• A database has been developed to map the information security training to EPA roles, resulting in
the ability to define a training curriculum for each role. External sources of training are also
incorporated into the RBT program.
• A new set of EPA-specific credentials for information security roles is in development.
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OIG Challenge #6 - Improved Management Oversight to Combat Fraud and Abuse in Time and
Attendance, Computer Usage, and Real Property Management
Agency Response: The agency has made several significant and permanent enhancements to internal
controls over the past fiscal year to address this management challenge.
For T&A, the agency has enhanced its payroll system, PeoplePlus, with new controls. The system now:
• Generates automatic reminders for employees, managers and supervisors to submit and
approve time cards on time;
• No longer supports an "approve all" feature for managers, forcing them to review every
employee's T&A individually;
• Automatically monitors and requires documentation when an employee's time is entered
and/or approved by alternates for three or more pay periods per quarter;
• Verifies that employees enter their time correctly, timekeepers sign off on and supervisors
certify;
• No longer allows default pay, ensuring that only employees who are in a legitimate pay status
receive their pay.
During the first quarter of 2015, additional controls will be in place to ensure timecards are coded
properly.
For employee travel, the agency:
• Created a new framework for approval of executive travel and payroll;
• Created new controls for high-dollar high-risk travel and above-per-diem lodging;
• Strengthened travel-related policies in a new guidance on premium class travel areas, including the
14 hour rule, "mission critical" travel, and travel made with reasonable accommodations
considerations;
• Developed a new checklist, located on EPA's intranet, to guide travel approvers; and
• Began implementing a new travel system, Concur. The agency is applying the new controls and
policies alongside the new system and offering associated training.
Regarding Real Property management, triggered by the OIG's concern over the management and oversight
of property in the EPA's headquarters' main warehouse in Landover Maryland, the agency has issued and
amended various policy and guidance documents. Changes include:
• Revised and new standard operating procedures for warehouse operations and property
management;
• New security plans that cover surveillance and CCTV footage retention;
• Discontinued document shredding services to reduce susceptibility to fraud and abuse;
• Expanded requirements for solicited warehouse inventory and management services; and
• Established regular site visits by senior management to ensure internal controls are effective and in
compliance with operating policies and procedures.
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PROGRESS IN ADDRESSING FY 2014 WEAKNESSES
AND SIGNIFICANT DEFICIENCIES
In FY 2014, 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 2014, as
well as those that are new or for which corrective actions are still underway.
FY 2014 Weaknesses and
Significant Deficiencies
Material Weakness
1. EPA Failed to Capitalize Software Costs, Leading to Restated Fiscal 2013 Financial Statements"
Aaencv Weaknesses
1. Electronic Content Management at EPA: e-Discovery, Email Records and FOIA
2. Streamlining EPA's Process for Developing Chemical Assessments Under IRIS
3. Strengthening the Agency's Management and Accounting of Personal Property and Software**
1. EPA Double Counted Contractor-Held Property*
2, EPA Should Improve Compliance With Internal Controls for Accounts Receivable*
3. Compass and Maximo Cannot Be Reconciled*
4. Internal Controls Over EPA's Accountable Personal Property Inventory Process Needs Improvements*
5. EPA Needs to Improve Access Control Procedures for Key Fin ancial Systems*
6. EPA Needs to Improve Processes for Following Up on Identified Network Vulnerabilities*
7. EPA's High Number of Accounting Corrections Indicates an Internal Weakness*
8. Software Improperly Recorded in Compass*
9. Improvements Needed in Controls for Headquarters Personal Property
10. EPA Should Improve Controls Over Expense Accrual Reversals
11. EPA Did Not Capitalize Lab Renovation Costs**
12. EPA's Internal Controls Over Accountable Personnel Inventory Process Needs Improvement**
13. EPA's Property Management System Does Not Reconcile to Its Accounting System (Compass) **
14. Cincinnati Finance Center Should Clear Suspense Transactions Timely**
15. EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund**
16. Originating Offices Did Not Timely Forward Accounts Receivable Source Documents to the Finance Center*
17. EPA Did Not Properly Reconcile Accounts Receivable**
18. Unneeded Funds Not Deobligated Timely**
19. EPA Needs to Consistently Enforce Restricted Entry Access to Server Rooms**
20. EPA Needs to Ensure That Its Information Technology Assets Are Properly Monitored and Secured**
21. EPA Needs to Establish Procedures for Protecting Information Technology Assets From Environmental
Threats**
22. EPA Needs to Configure Server Room Cameras to Fully Monitor Information Technology Assets**
23. EPA Needs to Document Management's Approval forAuthorizing Changes to the Accounting Posting
Module**
*AII corrective actions were completed in FY2014
** Items identified as new in FY2014
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Material Weaknesses
EPA Failed to Capitalize Software Costs. Leading to Restated Fiscal 2013 Financial Statements
In FY 2014, the agency found it had undercapitalized software which resulted in a material misstatement of
financial statements and led to the restatement of the FY 2013 financial statements.
The steps the agency performed to uncover these costs are:
• May 2014, the agency's A-123 process identified internal control weaknesses in its accounting for
software transactions. The extent of the value of the errors was not known during the A-123
review.
• June 2014, the EPA provided its A-123 work papers on software to the OIG.
• May through August 2014, the agency conducted further research to determine the magnitude of
the software errors and possible accounting solutions.
• August 2014, the agency notified the OIG thatthe software issue identified in the A-123 was an
accounting error that could be remedied and provided the agency's corrective action plan.
• The agency began processing the software accounting corrections. The correction process
continued through late October. The value of the corrections was not fully known until mid-
October. After the agency determined the magnitude of the software errors, the agency restated its
FY 2013 financial statements to have the correct beginning balance for the FY 2014 financial
statements.
The OIG declared the material misstatement of the financial statements contributed to the assessment that
the agency's accounting for software is a material weakens. The Agency will share a corrective action plan
for software with the OIG in the second quarter of 2015, with an anticipated completion date of FY 2018.
Agency Weaknesses
Electronic Content Management at EPA: e-Discovery. Email Records and FOIA
In FY 2009, the EPA declared Electronic Content Management at the EPA 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
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 includes 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.
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• 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 subareas 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 utilized.
The projected closure date for this agency-level weakness is FY 2015.
Streamlining EPA's Process for Developing Chemical Assessments Under IRIS
In FY 2 009, the EPA declared Streamlining EPA's Process for Developing Chemical Assessments Under IRIS an
agency-level weakness. The Government Accountability Office 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, the GAO stated that the agency needs to take actions to increase the transparency of the Integrated
Risk Information System and enhance its ability under the Toxic Substances Control Act to obtain health
and safety information from the chemical industry.
In May 2009, the agency released a new IRIS process for completing health assessments. The goals of the
process were 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
27 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, the EPA's IRIS Program is developing assessments of
health effects for chemicals found in environmental mixtures such as polycyclic aromatic hydrocarbons,
phthalates and polychlorinated biphenyls. 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.
In 2014, EPA's regulatory programs (e.g. air, water, toxics, Superfund) and regional offices were asked
to identify their programmatic needs for IRIS assessments from which the program will develop a
comprehensive and coordinated 5-year workplan. The following enhancements and actions address many
of GAO's concerns, including issues related to transparency, and development of timely and credible
assessments:
• Identifying and prioritizing EPA regulatory and regional program needs for IRIS assessments;
• Public release of materials in the early stages of developing an assessment;
• Public meetings early in the assessment development process to identify available scientific
information and identify any data gaps for the chemical being assessed;
• Increased usage of IRIS website to share information about assessment schedules and public
meetings;
• "Stopping rules" to help ensure that IRIS assessments are not delayed by new research findings
or ongoing debate of scientific issues after certain process points have passed;
• Expanded practices for peer review, including establishing a standing committee of EPA's Science
Advisory Board, the Chemical Assessment Advisory Committee, to review IRIS assessments, and
evaluating conflicts of interest for the peer reviewers;
• Increased number of scientific workshops on critical issues in risk assessment;
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• Report to Congress describing the agency's progress in implementing the improvements in the
IRIS process; and
• Partnership with the National Academies' National Research Council to sponsor an NRG review of
the IRIS assessment development process and the changes being implemented or planned by EPA.
The projected closure date for this agency-level weakness is FY 2015.
Strengthening the Agency's Management and Accounting of Personal Property and Software
In FY 2014, the EPA declared Strengthening the Agency's Property Managment System an agency-level
weakness. Property management has been an audit issue for the past several years. Some of the challenges
the Agency has faced are: procedures for capitalizing internal-use software do not produce required results
in Compass; coordination of processes for managing inventory across offices needs improvements; and,
guidance related to the assignment of accounting codes for property such as laboratory equipment is
outdated and unclear. While the Agency has made several critical improvements to the management of
property, there still exist an opportunity to clarify and improve how we manage and account for personal
property and software. Planned actions are: the EPA will perform process improvements using LEAN
techniques; update and clarify guidance including the Personal Property Policy and Procedures Manual;
and strengthen procedures for the accounting, depreciation and valuation of software projects.
Significant Deficiencies
EPA Double Counted Contractor Held-Property
During the FY 2011 Financial Statement Audit, the OIG stated that the EPA double counted contractor-held
property in its financial system because it did not remove from its financial system property that had been
transferred to contractors.
To remedy this issue, the EPA reviewed current policies and procedures and revised them as needed to
ensure the agency meets its responsibilities for removing from its financial system property that is
transferred to contractors. The agency took the following actions to address this deficiency:
• Conducted ten desk audits on contracts with contractor-held property to ensure property items
assigned to the contract did not appear in the agency's inventory. Property duplications identified
were corrected.
• Published updates to the property manual, via property bulletin #1, Government Furnished
Property, which will assist contracting officers and property managers in determining the
disposition of agency property.
• Conducted two webinars for contracting officers and property managers to review parameters for
contractor-held property management
The agency has completed all corrective actions for this significant deficiency and will continue to perform
desk audits to ensure contractor held property is not being double counted.
EPA Should Improve Compliance with Internal Controls for Accounts Receivable
During the FY 2012 Financial Statement Audit, the OIG found that some civil judicial documents that give
rise to accounts receivable were not being timely provided to the Cincinnati Finance Center, resulting in
late recording of receivables.
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The EPA already has a process in place whereby the Department of Justice Environment and Natural
Resources Division transmits judicial documents to the EPA's Cincinnati Finance Center. In the case of
payments due to the United States under CERCLA cases referred to DOJ, the EPA and DOJ have an
Interagency Agreement in place. Under the IA, 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 IA
requires that within 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 addressed the concerns raised by DIG and has completed all corrective actions for this
deficiency. Specifically, the agency:
• Worked collaboratively to revise Resource Management Directives System 2550D-14 to ensure
consistent and current practices on providing penalty documentation for civil judicial actions.
• Established quarterly meetings with EPA and DOJ to discuss accounts receivable issues.
The agency plans to conduct quarterly reviews of timeliness data and to engage with DOJ to address any
issues identified.
Compass and Maximo Cannot be Reconciled
During the FY 2012 Financial Statement Audit, the DIG found that the EPA could not reconcile capital
equipment property management data within its property management subsystem, Maximo.
The agency has completed all corrective actions for this significant deficiency. The EPA can reconcile
capital equipment within its property management subsystem - Maximo - to relevant data within
Compass. The agency's Finance Centers recently completed this reconciliation.
Internal Controls Over EPA's Accountable Personal Property Inventory Process Needs
Improvements
During the FY 2013 Financial Statement Audit, the DIG 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, DIG 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 agency has established a comprehensive system of management controls and continues to refine those
controls to ensure their effectiveness. To address the deficiency, the agency has completed the following
corrective actions:
• Amended the EPA Personal Property Policy and Procedures Manual to require posting within five
days of installation or on-site receipt.
• Identified and updated missing personal property records in the official property system.
• Revised the agency's property guidance to ensure all future reconciliations occur by September 1.
• Required updates of capital assets records, per the Personal Property Policy and Procedure Manual.
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The agency will continue to monitor the effectiveness of the actions taken to correct the deficiency.
EPA Needs to Improve Access Control Procedures for Key Financial Systems
During the FY 2013 Financial Statement Audit, the OIG found thatthe EPA did not maintain up-to-date
system access control lists for two key OCFO financial systems.
The agency has completed all corrective actions for this deficiency. The agency conducted reviews of the
access control list for financial applications to ensure they are up-to-date and reflect current necessary
system privileges of personnel. Additionally, the agency issued a memorandum to personnel responsible
for controlling access to financial systems on the importance of adhering to access control procedures.
EPA Needs to Improve Processes for Following Up on Identified Network Vulnerabilities
During the FY 2013 Financial Statement Audit, the OIG stated that the process for resolving and tracking
network vulnerabilities for the OCFO was not operating in accordance with agency policy. In particular, the
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 has completed the following corrective actions for this deficiency:
• Developed a detailed listing of information technology assets by IP address, system name, and server
name and provided the list to staff responsible for receiving and analyzing monthly Vulnerability
Management (VM) reports.
• Issued a memorandum to staff involved in the monthly VM process, reiterating the importance of
following the roles and responsibilities outlined in the VM standard operating procedures.
• Conducted monthly meetings with information system security officers to reviews the VM reports and
associated resolution.
The agency will continue to monitor the effectiveness of the actions taken to correct the deficiency.
EPA's High Number of Accounting Corrections Indicates an Internal Control Weakness
During the FY 2013 Financial Statement Audit, the OIG stated that the 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 OMB directs agencies to apply the U.S. 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 agency has completed all corrective actions for this deficiency and has established a process for
regularly reviewing posting models to ensure that the proper accounts are impacted. Specifically, the
agency added an additional review of all journal vouchers that will track which journal vouchers are
associated with posting model corrections. This tracking will allow the agency to determine adjustments
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trends and address any systematic issues. As deemed necessary, the agency will expand the scope of
review to address additional issues.
The agency will continue to monitor the effectiveness of the actions taken to correct the deficiency.
Software Improperly Recorded in Compass Financials
During the FY 2013 Financial Statement Audit, the 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. The misstatement impacts the accuracy and reliability of
information reported in the EPA's financial statements.
The agency has completed all corrective actions for this deficiency. The FD01 posting model was reviewed
and the appropriate changes made to reflect the proper general ledger account. To help mitigate the risk of
this type of incorrect posting in the future, the agency established a relationship edit for the fixed asset
transfer transaction type to ensure the asset is capitalized. Also, the agency will provide refresher training
to users responsible for these type of transactions.
Improvements Needed in Controls for Headquarters Personal Property
During the FY 2010 Financial Statement Audit, the OIG identified improvements needed in the controls for
personal property at the 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:
• Developed mandatory training for all managers and supervisors, which 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.
• Published updates to the Property Management Manual, via property bulletin #1,
Government Furnished Property.
Although the agency 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 Should Improve Controls over Expense Accrual Reversals
During the FY 2012 Financial Statement Audit, the 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 projected closure date for this significant deficiency is FY 2016.
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EPA Did Not Capitalize Lab Renovation Costs
During the FY 2014 Financial Statement Audit, the OIG declared that the Agency did not capitalize
approximately $8 million of Research Triangle Park (RTF) lab renovations.
In early FY 2015, the Agency booked the lab renovation costs and calculated the requisite depreciation. The
Agency will continue to review and revise its policies and procedures related to lab funding and
renovations by the second quarter of FY 2016.
EPA's Internal Controls Over Accountable Personnel Inventory Process Needs Improvement
During the FY 2014 Financial Statement Audit, the OIG declared that the Agency reported a $2.6 million
difference between the amount of accountable personal property recorded in the property management
system (Maximo) and the amount of physical inventory for fiscal year 2014. The EPA also identified 573
property items not recorded in Maximo.
The Agency is working to update its inventory and personal property records and plans to close this
significant deficiency by the second quarter of FY 2015.
EPA's Property Management System Does Not Reconcile to Its Accounting System (Compass)
During the FY 2014 Financial Statement Audit, the OIG declared that the Agency did not reconcile $100
million of capital equipment within its property management subsystem—Maximo—to relevant financial
data within Compass.
The Agency has begun to resolve the differences between Compass and Maximo as required by the
Resource Management Directive System on property and will develop recommendations and an
implementation plan for an improved business process to verify that capital assets are updated in the
agency's property management system by the end of FY 2015.
Cincinnati Finance Center Should Clear Suspense Transactions Timely
During the FY2014 Financial Statement Audit, the OIG declared that the agency did not clear suspense
accounts timely primarily because EPA project officers did not provide timely disbursement approvals
needed to clear the suspense accounts.
The Agency will work together with project officers to approve federal disbursement timely. The Agency's
new Interagency Agreement Policy will require POs to review and approve disbursements timely. The
projected closure date for this significant deficiency is FY 2015.
EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund
During the FY 2014 Financial Statement Audit, the OIG declared that the Agency recorded an $11.3 million
Clean Air Act engine nonconformance penalty collection to the Environmental Services Special Fund (for
vehicle emission test fees) instead of the Fines and Penalties fund.
The collection has been reclassified from the Environmental Services Special Fund to the Fines and
Penalties fund using appropriate entries to ensure that current year general ledger accounts and financial
statements are properly stated. Steps have been taken to follow agency guidance which directs servicing
finance offices to analyze each collection to determine the reason for the remittance and collection type.
This significant deficiency was closed in FY 2014.
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Originating Offices Did Not Timely Forward Accounts Receivable Source Documents to the Finance
Center
During the FY2014 Financial Statement Audit, the OIG declared that the Agency did not timely forward 40
accounts receivable source documents totaling $61.7 million to the finance center for recording in the
Agency's financial system.
The Agency will issue a joint memorandum to senior enforcement managers in the Regions and
Headquarters reminding enforcement personnel of the importance of providing timely documentation to
the CFC of all accounts receivable that arise from administrative enforcement actions and EPA-issued
stipulated penalty demands. The Agency plans to complete the remaining recommended actions in FY
2015.
EPA Did Not Properly Reconcile Accounts Receivable
During the FY2014 Financial Statement Audit, the OIG declared that the Agency did not properly reconcile
the March 31, 2014 accounts receivable subsidiary ledger to the general ledger. The Agency improperly
treated a general ledger error as an addition to the detail receivables.
The Agency has corrected the error in the subsequent reconciliation and will correct the remaining
variances and design a framework for providing timely and accurate reconciliations in FY 2015.
Unneeded Funds Not Obligated Timely
During the FY 2014 Financial Statement Audit, the OIG declared that the Agency did not deobligate
unneeded funds—totaling $4.4 million—identified during the fiscal 2014 annual review of unliquidated
obligations.
The Agency has corrected the error in the subsequent reconciliation during FY 2014 and will continue for
all reconciliations going forward.
EPA Needs to Consistently Enforce Restricted Entry Access to Server Rooms
During the FY 2014 Financial Statement Audit, the OIG declared that the Agency did not consistently
enforce restricted access at the Las Vegas Finance Center (LVFC) and the Andrew W. Breidenbach
Environmental Research Center (AWBERC) server rooms. This leaves agency information technology
assets vulnerable to unauthorized access and damage.
The Las Vegas Finance Center completed a 100% re-certification of all the Las Vegas La Plaza IT related
security controlled area doors, including the server room that required all site Office Directors/Managers
to review and re-certify door access for all individuals with existing access. The closure date for this
significant deficiency was completed July 2014.
EPA Needs to Ensure that its Information Technology Assets Are Properly Monitored and Secured
During the FY 2 014 Financial Statement Audit, the OIG declared that the Agency did not ensure that
information technology assets at the LVFC server room, AWBERC server room, and RTF National Computer
Center (NCC) computer room were properly monitored and secured.
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The Agency will ensure that LVFC implements a quarterly testing process for the card readers within the
center beginning in the first quarter of FY2015. The closure date for this significant deficiency is scheduled
to be completed December 31, 2014.
EPA Needs to Establish Procedures for Protecting Information Technology Assets From
Environmental Threats
During the FY 2014 Financial Statement Audit, the OIG declared that the Agency lacks processes to enable
personnel to monitor environmental factors that are used to protect information technology (IT) assets.
Specifically, finance center server rooms lack processes to protect information technology assets from
temperature and humidity damage.
The Agency will add humidity sensors in the server rooms, relocate water sensors to more appropriate
locations and heights in the rooms and monitor 24/7 temperature and humidity. The closure date for this
significant deficiency was completed October 2014.
EPA Needs to Configure Server Room Cameras to Fully Monitor Information Technology Assets
During the FY 2014 Financial Statement Audit, the OIG declared that closed circuit television (CCTV)
system cameras at the EPA finance centers do not provide enough visibility to monitor production servers
and valuable IT assets for unauthorized changes.
The Agency has calibrated the DVR video retention times after upgrading the video surveillance systems
capacity. The video retention period for the AWBERC server room has been increased to in excess of 30
days. Seven additional infrared surveillance cameras installed in the server rooms, and one in the
telecommunications room. Cameras has been replaced with an infrared camera. The closure date for this
significant deficiency was completed September 2014.
EPA Needs to Document Management's Approval for Authorizing Changes to the Accounting Posting
Module
During the FY 2014 Financial Statement Audit, the OIG declared that the Agency lacks management's
written approval for authorizing changes to the Compass accounting posting model to prevent
unauthorized changes.
The Agency implemented a procedure to document via email the posting model changes that are approved.
The closure date for this significant deficiency was completed November 1, 2014.
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Summary of Financial Statement Audit*
Audit Opinion
Restatement
Unmodified
YES
Material Weaknesses
Property Management
Total Material Weaknesses
Beginning
Balance
0
0
New
1
1
Resolved
0
0
Consolidated
0
0
Ending
Balance
1
1
Summary of Management Assurance"
Effectiveness of Internal Control Over Financial Reporting (FMFIA § 2) (A-123 Appendix A)
Statement of Assurance
Qualified
Material Weaknesses
Property Management
Total Material Weaknesses
Beginning
Balance
0
0
New
1
1
Resolved
0
0
Consolidated
0
0
Reassessed
0
0
Ending
Balance
1
1
Effectiveness of Internal Control Over Operations (FMFIA § 2)
Statement of Assurance
Unqualified
Material Weaknesses
Total Material Weaknesses
Beginning
Balance
0
New
0
Resolved
0
Consolidated
0
Reassessed
0
Ending
Balance
0
Conformance With Financial Management System Requirements (FMFIA § 4)
Statement of Assurance
Systems Conform to Financial Management System Requirements
Non-Conformances
Total Non-Conformances
Beginning
Balance
0
New
0
Resolved
0
Consolidated
0
Reassessed
0
Ending
Balance
0
Compliance With FFMIA
1 . System Requirement
2. Accounting Standards
3. USSGL at Transaction Level
Agency
No lack of substantial
non-compliance noted
Lack of substantial non-
compliance noted
No lack of substantial
non-compliance noted
Auditor
No lack of substantial non-
compliance noted
Lack of substantial non-compliance
noted
No lack of substantial non-
compliance noted
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IMPROPER PAYMENTS COMPLIANCE
The Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments
Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery
Improvement Act of 2012 (IPERIA)2, requires executive branch agencies 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 to the President and Congress through their annual Agency
Financial Report or Performance and Accountability Report
The EPA is dedicated to reducing fraud, waste, and abuse and presents the following detailed improper
payment information in accordance with IPIA, as amended; OMB implementing guidance in Circular A-123,
Appendix C, Requirements for Effective Measurement and Remediation of Improper Payments; and IPIA
reporting requirements contained in OMB Circular A-136, Financial Reporting Requirements.
Effective for FY 2014 reporting, OMB issued revised implementation guidance to federal agencies. The
guidance, OMB memorandum M-15-02, directs agencies to take the following steps:
1) Review all programs and activities to identify those that are susceptible to significant improper
payments, defined as gross annual improper payments exceeding both 1.5 percent of program outlays
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 risk-susceptible programs and
activities and progress in reducing them.
IPIA 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
discounts3, 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 term "payment" means any payment or transfer of Federal funds (including a commitment for future
payment, such as cash, securities, loans, loan guarantees, and insurance subsidies) to any non-Federal
person, non-Federal entity, or Federal employee, that is made by a Federal agency, a Federal contractor, a
Federal grantee, or a governmental or other organization administering a Federal program or activity. The
term "payment" includes Federal awards subject to the Single Audit Act Amendments of 1996 that are
expended by both recipients and sub-recipients.
2 From this point, unless otherwise indicated, the term "IPIA" denotes "IPIA, as amended by IPERA and IPERIA."
3 Applicable discounts are "only those discounts where it is both advantageous and within the agency's control to claim
them."
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The information in this report describes the Agency's efforts to prevent, detect, and reduce improper
payments in its principal payment streams. The 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 7 correspond to the tables required in OMB Circular
A-136 and that Figures A through J provide additional data collected by the Agency to demonstrate results
of its improper payments program.
Risk Assessments
OMB Circular A-12 3, Appendix C, requires that agencies conduct risk assessments of their programs or
activities to determine whether they are susceptible to significant improper payments. Since IPERIA
expands the definition of an improper payment to include payments to Federal employees, the Agency
incorporated three new payment streams into its improper payment reporting in FY 2014, including
payroll, travel, and purchase cards. The EPA performed risk assessments in each of these new areas. In
addition, the Agency has begun reporting improper payments information on the Hurricane Sandy
payment stream.
In FY 2014, the Agency conducted quantitative risk assessments in the following areas: grants, contracts,
commodities, the CWSRF and the DWSRF. Quantitative risk assessments involve statistical sampling of
expenditures to identify improper payments. By contrast, the EPA conducted qualitative risk assessments
for travel and purchase cards. Qualitative risk assessments consist of a questionnaire and scorecard to
examine a payment stream's susceptibility to significant improper payments by evaluating a variety of risk
factors while also identifying any internal controls designed to mitigate those risks. For payroll, the Agency
took a hybrid approach and conducted a risk assessment utilizing both quantitative and qualitative
methods.
For FY 2014 reporting, the majority of EPA's payment streams were determined to be at low risk of
improper payments. The CWSRF, DWSRF, and Hurricane Sandy programs were considered to be
susceptible to significant improper payments even though the Agency's statistical sampling in these areas
did not exceed the OMB threshold for risk-susceptibility. The SRFs remain risk-susceptible unless the
Agency requests and OMB approves their removal from the risk-susceptible list, and Hurricane Sandy is
automatically considered risk-susceptible by statute. None of the Agency's programs were found to be at
high risk of improper payments, defined as exceeding $750 million of annual estimated improper
payments. Figure A, "Risk Assessment Results," summarizes the Agency's risk assessment results for all
payment streams.
Figure A: Risk Assessment Results
Payment Stream
Grants
Contracts
Commodities
Purchase Cards
Travel
Payroll
CWSRF
DWSRF
Hurricane Sandy
Type of Risk
Assessment
Quantitative
Quantitative
Quantitative
Qualitative
Qualitative
Both
Quantitative
Quantitative
Quantitative
Scope
Period
CY 2013m
FY2014
FY2014
FY2013
FY2013
FY2013
FY2013
FY2013
FY2013
Low Risk
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
Risk-
Susceptible
No
No
No
No
No
No
Yes
Yes
Yes
High Risk
No
No
No
No
No
No
No
No
No
(l) In this table, "CY" refers to "Calendar Year."
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A) State Revolving Funds
Based on prior year IPIA results, the SRFs are considered to be risk-susceptible programs. In FY 2013, the
Agency developed a rigorous sampling methodology to determine a statistically valid estimate of improper
payments for each SRF. The same sampling methodology was applied in FY 2014 and used to calculate
error rates for each SRF, which are published in Table 1, "Improper Payments Reduction Outlook."
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 the 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 Agency's state reviews, the 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.
B) Hurricane Sandy
On January 29, 2013, the President signed into law the Disaster Relief Appropriations Act, which provides a
total of $50.5 billion in aid for Hurricane Sandy disaster victims and their communities. The EPA was
appropriated over $600 million of funds under the Act for Hurricane Sandy recovery and other disaster-
related activities, which includes $500 million for CWSRF, $100 million for DWSRF, and $7 million for non-
SRF grants. Sequestration reduced these amounts by 5% for a total of $577 million.
Pursuantto OMB Memorandum M-13-07, Accountability for Funds Provided by the Disaster Relief
Appropriations Act, programs and activities receiving funds under the Act were automatically deemed
susceptible to significant improper payments and were required to calculate and report an improper
payment estimate. As a result, the EPA designed and submitted a statistical sampling plan for testing
Hurricane Sandy expenditures. The sampling plan describes the methodology used for deriving a
statistically valid estimate of improper payments and is summarized in the "Statistical Sampling" section.
The Agency implemented the sampling plan in FY 2014, grouping all Hurricane Sandy appropriated funds
into a consolidated payment stream and sampling expenditures on the basis of expenditures made during
the preceding fiscal year. No improper payments were identified in the sample.
Given the time required to plan, design and build complicated construction projects, the EPA forecast that
the states will expend the SRF portion of the Hurricane Sandy funding over many years. For this reason, the
Agency requested and obtained a waiver from OMB from the Act's two-year expenditure requirement
C) Grants
The Agency's grants payment stream remains at low risk of improper payments. The preceding calendar
year remains the basis for improper payments reporting; thus, for the FY 2014 improper payments
reporting cycle, the Agency is publishing the results of recipient reviews closed during calendar year 2013.
Each year, the OARM's Office of Grants and Debarment (OGD) conducts advanced monitoring reviews on
recipients with active grant awards. Transaction testing is performed, and the results obtained constitute a
quantitative risk assessment for improper payments. OGD selects the recipients via random attribute
sampling and stratifies the recipients into five categories: state governments, local governments, tribes,
universities, and nonprofits. A proportionate number is randomly selected from each group for review.
Grants Management Offices may substitute a minimal number of recipients that they believe may be at a
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higher risk of non-compliance, as long as both recipients originate from the same category. Using a
standard protocol, an onsite or desk review is performed, and each 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 a sample of grant funds drawn for the
period.
When the advanced monitoring review is closed, results from transaction testing are finalized. Some
reviews cannot be closed during the calendar year in which they were originally selected because
recipients have appellate rights whenever the Agency questions costs, which may require time to resolve.
For example, the review of a recipient selected for CY2011 may not be finally closed until CY2013 due to
unresolved questioned costs. Therefore, improper payment results are reported during the calendar year
in which the reviews are closed. For CY 2013, the Agency closed 123 recipient reviews. Of these closed
reviews, 35 recipients were randomly selected in CY 2013; 56 recipients were selected in CY 2012; 22 were
selected in CY 2011; and 10 were selected in prior years. Collectively, these 123 reviews inform the
improper payment results presented in Figure B, "EPA's Review of Grantees."
Figure B: EPA's Review of Grantees m
Improper Payment
Results
Total grant outlays
[non-SRFs]
Total dollars tested
Improper payments
[unallowable costs]
Recovered costs
Error rate
Estimated improper
payments
CY2009
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
$2,495,597,052
$17,035,826
$64,136
$64,136
0.376%
$9,395,354
CY 20 13 Review
(2)
$1,926,031,850
$69,707,428
$68,328
$68,328
0.098%
$1,887,918
(l) In this table, "CY" refers to "Calendar Year."
[2) Values reported in this column reflect the results of transaction testing on active grant recipient reviews closed in
CY 2013. Other improper payments identified from audits, enforcement actions, and overpayments/adjustments
are reported in Table 6, "Overpayments Recaptured Outside of Payment Recapture Audits."
The Agency also responds to single audits and OIG audits to recover improper payments. These are
additional sources of improper payments discovered outside the scope of transaction testing conducted
during the review of randomly selected recipients. In addition to the 123 recipient reviews reported above
in Figure B, there were 71 single audits and 3 OIG audits closed in CY 2013. Improper payments identified
from these sources are separately reported in Table 6, "Overpayments Recaptured Outside of Payment
Recapture Audits." Table 6 also presents improper payments originating from Grant Adjustments and other
Enforcement Actions, which occur when a recipient draws down funds but does not fully expend them
before the award period ends, or when it has been determined that a recipient received improper
payments by other means. The excess funds must be returned to the EPA prior to closeout of the grant and
are considered overpayments, which are tracked and recovered by the Office of the Chief Financial Officer's
Las Vegas Finance Center (LVFC).
In addition, the Agency maintains internal controls to help prevent improper payments in grants. Since
2008, the EPA has implemented annual "baseline" monitoring of all active assistance agreements to review
fund drawdowns for appropriateness. As part of the baseline monitoring, each assistance agreement is
reviewed pro grammatically by a Project Officer and administratively by a Grants Specialist, both of whom
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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 progress reports submitted by recipients to ensure that projects are on schedule and progress
matches the amount of funding used. Additionally, LVFC routinely monitors grant payments made under
the Agency's Automated Standard Application Payment system for irregularities.
D) Commercial Payments (Contracts and Commodities)
The contracts and commodities payment streams are collectively known as the commercial payments. The
commercial payment streams had very low error rates and were determined to be at low risk of improper
payments. Given the historically 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 all 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 review of invoices on each contract they administer,
and DCAA performs audits on cost-reimbursable contracts at the request of the Agency.
Figures C and D summarize the agency's improper payment results for the commercial payments.
Figure C: EPA Review of Contract Payments
Fiscal Year
2014
2013
2012
2011
2010
$ Outlays
$1,169,273,000
$1,298,211,000
$1,496,608,000
$1,600,132,000
$1,474,833,000
Number of Erroneous
Payments
77 fof 27,266]
43 [of 29,645]
29 fof 33,473]
21 [of 38,965]
35 fof 39,060]
$ Erroneous Payments
$424,500
$406,800
$953,700
$162,900
$882,600
Error Rate for
Dollars
0.04%
0.03%
0.06%
0.01%
0.06%
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Figure D: EPA Review of Commodity Payments
Fiscal Year
$ Outlays
Number of Erroneous
Payments
$ Erroneous Payments
Error Rate for
Dollars
2014
$227,626,000
65 (of 29,576)
$490,300
0.22%
2013
$259,846,000
197 (of 33,467)
$156,800
0.06%
2012
$289,558,000
50 (of 3 4,9 08)
$363,600
0.13%
2011
$326,151,000
44 (of 40,083)
$2,178,600
0.67%
2010
$330,352,000
34 (of 39,571)
$166,300
0.05%
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).
The revised OMB guidance acknowledges these situations by clarifying the term "applicable discounts" as it
relates to the definition of an improper payment The guidance specifies that "applicable discounts" are
"only those discounts where it is both advantageous and within the agency's control to claim them." As a
result, effective in FY 2015, the Agency will utilize this definition as the basis for improper payments
reporting.
For FY 2014 reporting, the Agency counted as improper payments any discounts that were taken outside
the discount period or in the incorrect amount Based on these criteria, only one discount was determined
to be an improper payment, and it is captured in the totals in Figure D, "EPA Review of Commodity
Payments."
E) Payroll
Following the enactment of IPERIA, which requires agencies to evaluate payments to federal employees as
a source of improper payments, this is the first year in which the EPA is formally assessing the risk of
improper payments in its payroll payment stream. For the FY 2014 improper payments reporting cycle and
beyond, the Agency is utilizing the prior fiscal year as the basis for improper payments reporting. In FY
2013, the Agency disbursed over $2.2 billion in payroll payments. To determine risk-susceptibility for
erroneous payments, the EPA performed both a quantitative risk assessment utilizing statistical sampling,
in which no improper payments were identified, and a qualitative risk assessment to examine a variety of
risk factors. Both methods confirmed that EPA payroll is at low risk of improper payments. The following
paragraphs summarize key internal controls related to the prevention, identification and recovery of
improper payments in the payroll area.
On a bi-weekly basis, employees, timekeepers and managers are required to attest, review or approve
employee time in the Agency's T&A system, PeoplePlus, prior to the time entry and approval deadlines.
Automated reminder notifications are sent as needed. When corrections are made to an employee's
timesheet, PeoplePlus overwrites the original timesheet with the corrected version to prevent duplicate
payments. The original timecards, as well as all corrected entries, are maintained in the EPA Audit
Summary Page and the Payable Time Detail. The OCFO's Office of Financial Services performs quarterly
reviews of all PeoplePlus access roles to identify separated employees who no longer need functional user
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access. As an additional control, the recertification of roles assigned in PeoplePlus ensures that the
authority to approve employee time is only granted to the appropriate front line managers and supervisors
assigned to review employee time. Finally, the review of certifications ensures that authorized managers
have certified that the hours reported on automatically approved timecards are accurate.
OFS reviews the Default Pay Report every pay period to ensure all required corrections were made and
resubmitted for removal from the report. In addition, OFS confirms that the Mass Approval Report was
approved by agency managers. Terminated employees are annotated on the Default Pay Report and are
subsequently removed from the payroll system by OARM. If the employee is determined to have been
overpaid, an Account Receivable is established.
F) Purchase Cards
The Agency's purchase card program is newly required for risk assessment under IPERIA. A qualitative risk
assessment was conducted in FY 2014 using the preceding fiscal year as the scope period. In FY 2013, there
were $24.3 million of outlays made by the purchase card program, which is administered by 0AM and
supported by the OCFO's Cincinnati Finance Center. The Agency's improper payment risk assessment
evaluated a variety of risk factors, including those identified in both the OMB guidance and the Government
Charge Card Abuse Prevention Act of 2012, and determined that the purchase card program is at low risk
of significant improper payments.
G) Travel
The Agency's travel program is also newly required for risk assessment under IPERIA. A qualitative risk
assessment was conducted in FY 2014 using the preceding fiscal year as the scope period. In FY 2013, there
were $38.8 million of outlays in the travel program, which is administered by the OCFO's Cincinnati
Finance Center. The Agency's risk assessment evaluated a variety of improper payment risk factors,
including those identified in both the OMB guidance and the Government Charge Card Abuse Prevention
Act, and determined that the travel program is at low risk of significant improper payments.
Statistical Sampling
A) State Revolving Funds
The statistical sampling methodology used for the CWSRF and DWSRF programs draws a random,
statistically valid, stratified sample of payments made by each SRF during the preceding federal fiscal year.
For FY 2014 reporting, statistical sampling was conducted on each SRF's universe of FY 2013 payments,
which consist of state cash draws made for base and ARRA funding. The samples were randomly selected
and stratified by dollar amount, then tested for improper payments during the annual state reviews
conducted by the Agency's financial analysts. In states where no samples were selected for review,
supplemental transaction testing was conducted to ensure that at least four transactions were reviewed
per state. Results of these supplemental reviews are reported in Table 6, "Overpayments Recaptured
Outside of Payment Recapture Audits."
The sampling methodology for the CWSRF and DWSRF programs 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. The CWSRF sample conservatively assumes an estimated proportion of
erroneous payments of 3.0 percent, while the DWSRF sample utilizes the FY 2013 error rate of 4.06%.
Given the variability in the distribution of dollar payments within each SRF, the Agency uses stratified
random 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. The dollar value
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of sampled DWSRF payments represents 20.7 percent of all DWSRF dollars paid. Similarly, the dollar value
of sampled CWSRF payments represents 26.4 percent of all CWSRF dollars paid. The following figures
provide an overview of the sampling undertaken in each SRF for FY 2014 reporting, and sampling results
are presented in the "Improper Payment Reporting" section.
Figure E: Stratification of Clean Water State Revolving Fund Payments
Stratum
1
2
Payment Range
<$100,000
$100,000 -$999,999
$1,000,000 -$1,999,999
$2,000,000 -$3,999,999
$4,000,000 -$10,999,999
$11,000,000 - $40,999,999
>$40,999,999
Total
Total
Number of
Payments
1,373
781
182
132
86
20
3
2,577
Total Dollars
$33,506,960
$275,306,049
$259,816,871
$373,788,463
$536,933,051
$375,646,815
$246,903,957
$2,101,902,16
6
Number of
Payments
Sampled
16
14
2
48
30
9
1
120
Dollars
Sampled
$318,570
$5,105,638
$2,130,984
$134,845,354
$198,786,398
$164,930,212
$48,903,957
$555,021,113
Figure F: Stratification of Drinking Water State Revolving Fund Payments
Stratum
1
2
Payment Range
<$100,000
$100,000 -$524,999
$525,000 -$2,099,999
$2,100,000 -$8,399,999
$8,400,000 -$33,599,999
>$33,599,999
Total
Total
Number of
Payments
3,103
1,269
330
58
5
1
4,766
Total Dollars
$82,003,941
$312,634,472
$313,125,084
$197,449,605
$73,954,647
$52,393,780
$1,031,561,52
9
Number of
Payments
Sampled
40
22
83
15
2
1
163
Dollars
Sampled
$1,365,022
$5,553,761
$83,254,795
$46,647,701
$24,769,229
$52,393,780
$213,984,288
B) Hurricane Sandy
In FY 2014, the Agency developed a statistical sampling methodology for Hurricane Sandy funding. It was
used to determine a statistically valid estimate of improper payments for current year reporting and will be
used in future years. The EPA grouped all Hurricane Sandy appropriated funds into a consolidated payment
stream and sampled expenditures on the basis of the preceding fiscal year.
The Agency applied a disproportionate stratified random sampling methodology in order to select
payments for review. For FY 2014 reporting, the Hurricane Sandy payment population was divided into
three strata by payment type, including contracts, payroll, and commodities. Within each stratum, a simple
random sample of payments was selected for review. The strata for contracts and commodities were tested
in their entirety due to the small number of actual transactions, and the stratum for payroll was sampled in
proportion to the dollars within that stratum. The impact of this stratification approach is to maximize the
total number of dollars being selected for review while also ensuring the efficient use of Agency resources.
Beginning next year, any grant related expenditures will be included as an additional stratum, to include all
SRF and non-SRF grant draws. The SRF funds were obligated in late September 2014, and actual SRF draws
will begin in FY 2015, making them eligible for improper payments reporting starting in FY 2016.
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Figure G, "Stratification of Hurricane Sandy Payments," summarizes the population of Hurricane Sandy
expenditures sampled for FY 2014 reporting. No improper payments were identified.
Figure G: Stratification of Hurricane Sandy Payments
Payment
Type
Payroll
Contracts
Commodities
Total
Total Number of
Payments
173
9
1
183
Total Dollars
$131,783
$226,112
$14,976
$372,872
Payments
Sampled
65
9
1
75
Dollars
Sampled
$48,530
$226,112
$14,976
$289,618
Corrective Actions
The Agency identifies and tracks the reasons for any improper payments and also takes appropriate actions
to recover overpayments and prevent future errors. Pursuant to OMB guidance, a corrective action plan is
required for each risk-susceptible program; for the EPA, this includes both SRFs and Hurricane Sandy. In FY
2014, all improper payments identified in the SRFs were the result of administrative or process errors
made by state agencies, and there were no improper payments identified in the Hurricane Sandy payment
stream. Figure I, "Matrix of Improper Payment Categories for CWSRF in FY 2014", summarizes the amount
of improper payments identified in the CWSRF program and classifies them by type and category. Figure J
presents similar information for DWSRF.
The Agency has developed a multi-year corrective action plan to assist in tracking corrective actions taken
and planned. It demonstrates how the EPA has improved its improper payment activities while also
addressing weaknesses identified in prior year OIG audits. The Agency's corrective action plan is presented
in Figure H, "Corrective Action Plan for Risk-Susceptible Programs." The plan is being implemented and will
guide the Agency's progress in reducing improper payments over time.
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Figure H: Corrective Action Plan for Risk-Susceptible Programs
Description
Utilize documentation of state internal
control procedures.
Publish DWSRF Eligibility Handbook.
Tested a selection of cash draws with a
negative dollar value.
Conducted webinars, including
materials on improper payments and
internal controls, audits, and
proportionality.
Conducted training for regions/states.
Participated in state annual reviews to
ensure proper understanding of SRF
proportionality and transaction testing.
Developed clarifying materials on
adequate documentation.
Developed a spreadsheet to track the
recovery of prior year improper
payments.
Published revised standard operating
procedures on transaction testing.
Developed a robust sampling
methodology for identifying improper
payments.
Designated senior Agency official for
ensuring SRF compliance with IPIA.
Conducted training for regions to
ensure a proper understanding of SRF
proportionality errors.
Compared the Program Evaluation
Reports and transaction testing
worksheets to ensure data integrity.
Determined baseline measurements for
current year reporting and set
appropriate out-year reduction targets.
Program
DWSRF
DWSRF
Both SRFs
DWSRF
Both SRFs
CWSRF
DWSRF
Both SRFs
Both SRFs
Both SRFs
Hurricane
Sandy
Both SRFs
Both SRFs
Both SRFs
Both SRFs
Hurricane
Sandy
Target
Completion
FY2015
FY2015
FY2014
FY2014
FY2014
FY2014
FY2014
FY2014
FY2013
FY2013
FY2014
FY2013
FY2013
FY2013
FY2013
FY2014
Status
In progress
In progress
Implemented
in FY 2014.
Completed in
FY2014.
Completed in
FY2014.
Completed in
FY2014.
Completed in
FY2014.
Completed in
FY2014.
Completed in
FY 2013 and
FY2014.
Completed.
Will update
annually.
Completed in
FY2013.
Completed in
FY2013.
Implemented
in FY 2013.
Completed in
FY2013.
Completed in
FY2014.
Anticipated Results
Strengthen state procedures.
Reduce improper payments due to ineligible
expenses.
Determined whether large negative draws are
refunds of previous erroneous cash draws made
by the state. Will be performed annually.
Strengthen internal controls and oversight of both
programs.
Improve transaction testing to ensure accuracy in
reporting.
Ensure a better understanding of SRF
proportionality to reduce improper payments.
Reduce improper payments due to inadequate
documentation. Presented at the DWSRF webinar
"Improper Payments & Internal Controls."
Ensure prompt resolution of improper payments
and more accurate reporting of recovered /
outstanding amounts.
Ensure consistency in improper payments
reporting across the regions and incorporate DIG
recommendations from prior year IPIA audits.
The methodologies are statistically valid,
providing the level of precision required by OMB
and allowing EPA to identify the root causes of
error while ensuring accurate results.
Appointed the Office of Water's Deputy Assistant
Administrator as the senior agency official
responsible for SRF compliance with IPIA.
Applied lessons learned and clarified when
certain payments should be identified as
improper to ensure greater accuracy in reporting.
Improved internal business processes to capture
improper payments from multiple sources. Will
be performed annually.
Provided an accurate reflection of each program's
improper payment rate and established
reasonable reduction targets over time. Reduction
targets are reviewed annually for
appropriateness.
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Improper Payment Reporting
Table 1 summarizes the Agency's improper payment results in its risk-susceptible programs, including the
Clean Water SRF, the Drinking Water SRF, and Hurricane Sandy.
Table 1: Improper Payment Reduction Outlook
[Dollars in millions)
Program
Clean
Water
CDC-
Drinking
Water
SRF
Hurricane
Sandy
FY13
Outlays
$2,150
$1,358
n/a
FY13
IP%
0.73%
4.06%
n/a
FY13
IP$
$15.6
$55.2
n/a
FY14
Outlays
$2,102
$1,032
0.4
FY14
IP%
0.22%
1.29%
0%
FY14
IP$
$4.7
m
$13.4
m
$0
FY14
Over-
$0.4
(2)
$13.4
(2)
$0
FY14
Under-
$4.3
(2)
$0
(2)
$0
FY15
Outlays
$1,525
(est.)
$1,000
(est.)
$1.3
FY15
IP%
1.5%
target
2.5%
target
1.5%
target
FY15
IP$
$23
(est.)
$25
(est.)
$0
(est.)
FY16
Outlays
$1,325
(est.)
$925
(est.)
$12
(est.)
FY16
IP%
1.5%
target
2.0%
target
1.5%
target
FY16
IP$
$20
(est.)
$19
(est.)
$0.2
(est.)
FY17
Outlays
$1,250
(est.)
$875
(est.)
$139
(est.)
FY17
IP%
1.5%
target
2.0%
target
1.5%
target
FY17
IP$
$19
(est.)
$18
(est.)
$2
(est.)
(1) These are estimates derived by extrapolating the error rate identified from sampling to the full population of each program's
payments.
(2) These are estimates derived by taking the ratio of actual overpayments or underpayments to total errors in the sample, then
multiplying by the estimate of total improper payments calculated for each SRF.
Recapture of Improper Payments
The Agency's payment recapture audit program is part of its overall program of internal control over
disbursements. The program includes establishing and assessing internal controls to prevent improper
payments, reviewing disbursements to identify improper payments, assessing root causes of error,
developing corrective action plans, and tracking the recovery of improper payments.
The EPA's payment recapture audit program is led by Agency employees who continuously monitor its
payment streams to prevent, identify and recover improper payments. No programs or activities are
excluded from these reviews.
The SRFs and Hurricane Sandy were the EPA's risk-susceptible programs in FY 2014. Since there were no
improper payments identified in Hurricane Sandy, there were no recoveries to report As most of the
Hurricane Sandy funding is SRF related, Hurricane Sandy will follow the same process and procedures as
general transaction testing in the SRFs. 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 are resolved 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 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
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Since inception, the Agency's improper payments program has recovered approximately $46.7 million
across all payment streams. This amount consists of approximately $3.0 million from contracts and $4.7
million from commodities (beginning in FY 2004 for each), $0.8 million from grants (beginning with the CY
2006 review), $24.7 million from the combined SRFs during the state fiscal year 2009 through 2012
reviews, $12.5 million from the DWSRF program since FY 2013, and $1 million from the CWSRF program
since FY 2013.
Figures I and J, "Matrix of Improper Payment Categories," classify the types of improper payments made by
each SRF in FY 2014. In addition, the tables that follow provide detailed information concerning the
Agency's efforts at identifying and recapturing improper payments across all payment streams.
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Figure I: Matrix of Improper Payment Categories for CWSRF in FY 2014
($ in millions)
Reason for Improper Payment
Program Design or Structural Issue
Inability to Authenticate Eligibility
Death Data
Financial Data
Failure to Verify: Excluded Party Data
Prisoner Data
Other Eligibility Data
Federal Agency
Administrative or Process „ , .
„ . . , , State or Local Agency
hrror Made hy
Other Party
Medical Necessity
Insufficient Documentation to Determine
Other Reason
Type of Improper Payment
Overpayments
$0.4 m
Underpayments
$4.3 m
^^^^
(1) These figures represent extrapolated estimates. Also see Table 1, note #2.
Figure J: Matrix of Improper Payment Categories for DWSRF in FY 2014
[$ in millions)
Reason for Improper Payment
Program Design or Structural
Issue
Inability to Authenticate Eligibility
Death Data
Financial Data
Failure to Verify:
Excluded Party Data
Prisoner Data
Other Eligibility Data
Administrative or Process
Error Made by
Federal Agency
State or Local Agency
Other Party
Medical Necessity
Insufficient Documentation to
Determine
Other Reason
Type of Improper Payment
Overpayments
$13.4 m
Underpayments
$om
^Hm^=~
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Table 2: Payment Recapture Audit Reporting (1>(2>
Program
or Activity
CWSRF P>
DWSRF P>
Grants (5>
Contracts (8>
Commodities (8>
Payroll (9>
Type of
Payment
Grants
Grants
Grants
Contracts
Small
Durchases
Payroll
Amount
Subject to
Review for CY
Reporting
$2,101,902,166
$1,031,561,529
$1,926,031,850
$1,169,273,101
$227,625,587
$2,243,593,488
Actual Amount
Reviewed and
Reported
(CY)
$555,021,113
$213,984,288
$69,707,428
$1,169,273,101
$227,625,587
$538,981
Amount
Identified
for
Recovery
(CY)
$163,403
$2,455,882
$68,328
$244,389
$322,564
$0
Amount
Recovered
(CY)
$163,403
$2,455,882
$68,328
$244,389
$312,306
$0
%of
Amount
Recovered
of Amount
Identified
(CY)
100%
100%
100%
100%
96.8%
0%
Amount
Outstanding
(CY)
$0
$0
$0
$0
$10,258
$0
%of
Amount
Out-
standing
of Amount
Identified
(CY)
0%
0%
0%
0%
3.2%
0%
Amount
Determined
Not to Be
Collectable
(CY)
$0
$0
$0
$0
$0
$0
% of Amount
Determined
Not to Be
Collectable of
Amount
Identified
(CY)
0%
0%
0%
0%
0%
0%
Amounts
Identified for
Recovery
(PYs)
$808,022 (4>
$10,032,644
$803,023 (6>
$2,792,958
$4,447,707
n/a
Amounts
Recovered
(PYs)
$808,022
$10,032,644
$685,915
$2,792,955
$4,444,037
n/a
Cumulative
Amounts
Identified for
Recovery
(CY + PYs)
$971,425
$12,488,526
$871 ,351 (6>
$3,037,347
$4,770,271
$0
Cumulative
Amounts
Recovered
(CY + PYs)
$971 ,425
$12,488,526
$754,243
$3,037,344
$4,756,343
$0
Cumulative
Amounts
Outstanding
(CY + PYs)
$0
$0
$1 17,108 (6>
$3
$13,929
$0
Cumulative
Amounts
Determined
Not to Be
Collectable
(CY + PYs)
$0
$0
$1 17,108 (7>
$0
1,217
$0
(1) This table shows the results of the Agency's internal payment recapture audit program, which specifically includes data gathered from statistical sampling.
(2) In this table, "CY" refers to "Current Year" and "PY" refers to "Prior Year."
(3) For CWSRF and DWSRF, "CY" refers to the agency's FY 2014 review of state cash draws made in FY 2013.
(4) Initially reported as $1,025,022 in the FY 2013 AFR, this amount was subsequently reduced due to an Agency determination that a portion totaling $217,000 was a proper payment.
(5) For grants, "CY" refers to reviews closed in calendar year 2013, and "PYs" refers to reviews closed in calendar years 2006 through 2012.
(6) Prior Year amounts reflected in these three columns are each reduced by $54,980 due to an Agency determination of a grantee's appeal in 2014 for a review closed during Calendar Year
2011. The $54,980 was initially reported as an improper payment in the FY 2012 AFR but has been reversed.
(7) 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
Department of Justice or the Department of Treasury for collection.
(8) For contracts and commodities, "CY" refers to FY 2014, and "PYs" refers to FY 2004-2013.
(9) Payroll figures reflect the results of statistical sampling conducted for the quantitative portion of the payroll risk assessment.
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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
$163,403
$2,455,882
$68,328
$244,389
$322,563
CY
Amount
Recovered
$163,403
$2,455,882
$68,328
$244,389
$312,306
CY
Recovery Rate (Amount
Recovered/Amount
Identified)
100%
100%
100%
100%
96.8%
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%
Table 4: Aging of Outstanding Overpayments M ra
Program or
Activity
CWSRF C3)
DWSRF C3)
Grants M
Contracts
Commodities
Type of Payment
Grants
Grants
Grants
Contracts
Small Purchases
CY Amount Outstanding
(0 to 6 Months)
$0
$0
$0
$0
$8,457
CY Amount Outstanding
(6 Months to 1 Year)
$0
$0
$0
$0
$1,801
CY Amount Outstanding
(Over 1 Year)
$0
$0
$0
$3
$3,670
(1) This table shows the age of outstanding overpayments identified by statistical sampling, as reported in Table 2.
(2) In this table, "CY" refers to "Current Year."
(3) For each SRF, the "Current Year" refers to the FY 2014 improper payment review, which evaluated state cash draws made during FY 2013. The date on
which an improper payment is identified is the starting point for determining the amount of time outstanding.
(4) For grants, "Current Year" results are for reviews closed in calendar year 2013.
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Table 5: Disposition of Recaptured Funds
Program or
Activity
CWSRF
Type of
Payment
Grants
Agency Expenses to
Administer the Program
$56,000
Payment
Recapture
Auditor Fees
$0
Financial
Management
Improvement
Activities
$0
Original
Purpose
$0
Office of
Inspector
General
$0
Returned to
Treasury
$0
DWSRF C2)
Grants
$56,000
$0
$0
$0
$0
$0
Grants
Grants
$614,700 C3)
$0
$0
$0
$0
$0
Contracts
Contracts
$40,300
$0
$0
$0
$0
$0
Commodities
Small purchases
$40,300
$0
$0
$0
$0
$0
(1) All SRF recoveries are automatically returned to the program since the SRFs are funded with no-year money that does not expire.
(2) Includes CY 2013 costs for post award monitoring contract and the cost of EPA personnel performing reviews.
(3) The same cost estimate applies to both contracts and commodities.
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Table 6: Overpayments Recaptured Outside of Payment Recapture Audits d,2)
Source of Recovery
CWSRF OIG and single audits
DWSRF OIG and single audits
CWSRF supplemental reviews
DWSRF supplemental reviews
DWSRF [other]
Grant enforcement actions
Grant OIG and single audits
Grant adjustments W
Grants [other]
Payroll
Travel
DCAA audits
Amount
Identified
(CY)
$0
$0
$53,685
$2,293,689
$628,561
$90,360
$285,327
$666,209
$0
$396,100
$3,600
$43,780
Amount
Recovered
(CY)
$0
$0
$53,685
$2,133,625
$628,561
$17,372
$24,562
$666,209
$0
$308,816
$3,600
$43,780
Amount
Identified
(PY)
$0
$6,127,575
$672,880 C3)
$13,308,985
n/a
$12 7,461 W
$173,866
$943,2 38 C8)
$236,168
n/a
n/a
$1,670
Amount
Recovered
(PY)
$0
$6,127,575
$672,880
$13,307,435
n/a
$122,242 Ct5)
$173,866
$904,653
$236,168
n/a
n/a
$1,670
Cumulative
Amount
Identified
(CY + PYs)
$0
$6,127,575
$726,565
$15,602,674
$628,561
$217,821
$560,173 M
$1,609,447 C8)
$236,168
$396,100
$3,600
$142,648
Cumulative
Amount
Recovered (CY
+ PYs)
$0
$6,127,575
$726,565
$15,440,700
$628,561
$139,614
$299,408 M
$1,570,862
$236,168
$308,816
$3,600
$142,648
(1) This table includes improper payments identified by means other than statistical sampling.
(2) Amounts shown in this table include principal only, as late payment interest, penalties and handling charges are not considered part of the original improper payment
amount and are not counted as recoveries.
(3) This amount was originally reported as $687,136 in the FY13 APR as the current year amount identified. It has been corrected, resulting in a slight reduction.
(4) The unrecovered amount of $5,219 (i.e.,the difference between $127,461 and $122,242) is from a receivable that remains atTreasury pending collection.
(5) This amount increased from $102,641, as reported in the FY 2013 APR, to $122,242 to reflect the recovery of $19,601 made during the FY 2014 improper payments
reporting cycle.
(6) The unrecovered amount of $260,765 (i.e., the difference between $560,173 and $299,408) is from an OIG audit of a recipient whose debt was referred to DO] for collection.
(7) These are final adjustments made for 82 assistance agreements during grant closeout.
(8) Prior year amounts reported for grant adjustments in the FY 2013 APR have been modified slightly to reflect principal only. Also see note #2.
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Accountability
The Agency continues to strengthen internal controls in key payment processes and has taken steps to hold
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 the Office of the Chief Financial Officer to ensure compliance with all IPERA 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.
Statutory or Regulatory Barriers
None.
Do Not Pay Initiative
The enactmentof IPERIA in January 2013 codified requirements for federal agencies to implement the Do
Not Pay (DNP) initiative, which is a government-wide solution designed to prevent payment errors and
detect waste, fraud, and abuse in programs administered by the federal government
Since March 2013, the EPA has used Treasury's DNP system for reviewing disbursements for improper
payments. Treasury analyzes each agency's payments and provides a monthly report itemizing any
payments made to potentially ineligible recipients. These potential matches are identified when the name
of an agency's payee matches the name of an individual or entity listed in federal databases contained in
Treasury's DNP system. In FY 2 014, the EPA utilized the following DNP databases on a post-payment basis:
the Death Master File (DMF) and the System for Award Management (SAM) Exclusion List.4 Additionally,
the Agency payments are monitored by the Treasury Offset Program, which is a pre-payment tool used by
Treasury to offset federal payments to recipients with delinquent federal nontax debt.
Treasury's monthly DNP report is reviewed by LVFC. LVFC uses the online single search feature in the DNP
portal to determine whether the potential matches identified by Treasury are conclusive. For conclusive
matches, OCFO would notify the appropriate Contracting Officer or Grants Official, which would review the
payment records, supporting documentation, and any circumstances involved to determine whether the
payment was proper or improper. Within thirty days of the receipt of Treasury's DNP report, the Agency
submits an adjudication report back to Treasury detailing the results of its analysis, including the dollar
value of any improper payments identified, recovery status, and outstanding items requiring further
research.
In FY 20145, approximately $1.6 billion of EPA payments were screened on a post-payment basis by the
DNP system's DMF and SAM Exclusion List No improper payments were identified. In addition, over
67,000 EPA payments totaling $4.3 billion were made via the Automated Standard Application for
Payments.6 ASAP's grantee listing is continuously monitored against DNP data sources for changes in
4 The SAM Exclusion List was formerly known as the General Service Administration's Excluded Parties List System.
5 DNP statistics were available from October 1, 2013 to July 31, 2014.
6 EPA grant recipients are highly encouraged to obtain an ASAP account.
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grantee status. Table 7, "Implementation of the DNP Initiative to Prevent Improper Payments," summarizes
results from the EPA's utilization of Treasury's DNP system.
Table 7: Implementation of the Do Not Pay Initiative to Prevent Improper Payments M
(October 1, 2013 to July 31, 2014)
Reviews with
the DMF only
Reviews with
the SAM
Exclusion List
Number [#)
of payments
reviewed for
improper
payments
137,214
137,414
Dollars [$) of
payments
reviewed for
improper
payments
$1,565,548,114
$1,565,829,083
Number [#)
of payments
stopped
0
0
Dollars [$) of
payments
stopped
$0
$0
Number [#)
of improper
payments
reviewed and
not stopped
0
0
Dollars [$) of
improper
payments
reviewed and
not stopped
$0
$0
In addition, the EPA conducts pre-award verification prior to issuing grant and contract awards. The
Agency consults the SAM, which contains a variety of federal databases, prior to the issuance of an award.
Although some of these databases are separate from the DNP system, they are useful in preventing
improper payments to ineligible recipients.
In FY 2015, the Agency plans to work with Treasury to pursue use of the DNP statistical matching service.
Statistical matching would return aggregate results showing the number and dollar volume of any
conclusive matches without divulging personally identifiable information. This service would allow the
Agency to evaluate the appropriateness of DNP databases in relation to the types of payments it makes,
while remaining in full compliance with IPERIA and the Computer Matching and Privacy Protection Act
Conclusions
The Agency commits to the following activities in FY 2015:
• Pursue recovery of outstanding overpayments from FY 2014.
• Review and refine sampling strategies as appropriate.
• Continue sampling Hurricane Sandy relief funding for improper payments until fully disbursed.
• Continue utilizing Treasury's DNP program to identify payments to potentially ineligible recipients.
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FREEZE THE FOOTPRINT
Consistent with Section 3 of the OMB Memorandum-12-12, Promoting Efficient Spending to Support
Agency Operations and OMB Management Procedures Memorandum 2013-02, the "Freeze the Footprint"
policy implementing guidance, the EPA is committed to freezing its total square footage of their domestic
office and warehouse inventory compared to the FY 2012 baseline.
Freeze the Footprint Baseline Comparison
Square Footage (SF)
FY2012 Baseline
5,906,847
FY2013
5,815,321
Change
(91,526)
The EPA's FTP baseline, derived from the Agency's FY 2012 Federal Real Property Profile submission and
FY 2012 GSA OAs, is 5,906,847 square feet (SF). The EPA's Freeze the Footprint total in FY 2013 was
5,815,321 SF, a reduction of 91,526 SF from the baseline.
Reporting of Operation & Maintenance Costs - Owned and Direct Lease Buildings
Operations &
Maintenance Costs
FY2012 Reported Cost
$1,749,429
FY2013
$2,106,253
Change
$356,824
The EPA remains committed to reducing its environmental footprint through efficient management of its
real property portfolio. The Agency will continue to take steps to monitor and assess space utilization at
each of its facilities and will take the appropriate steps to reduce underutilized space. Additionally, the
Agency will continue to implement sustainable design, construction, and operations/maintenance projects.
In the coming years, the EPA will continue to explore options for teleworking, office sharing, and hoteling
as alternative work strategies once associated costs and impacts are identified.
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APPENDIX A
PUBLIC ACCESS
136
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The 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 the EPA's historical
database.
American Recovery and Reinvestment Act of 2009: www.epa.gov/recovery
EPA newsroom: www.epa.gov/newsroom
News releases: www.epa.gov/newsroom/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
Hotlines and clearinghouses: www.epa.gov/epahome/hotline.htm
Publications: www.epa.gov/epahome/publications.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: www.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: www.epa.gov/planandbudget
Careers: www.epa.gov/careers/
EZ Hire: www.epa.gov/ezhire
EPA en Espanol: www.epa.gov/espanol
EPA 4^: ^filfi&; www.epa.gov/chinese
EPA ^3^: m$.f$.: www.epa.gov/chinese/simple/
EPA tie'ng Viet: www.epa.gov/Vietnamese
EPA t-1"^"0!: www.epa.gov/korean
137
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APPENDIX B
ACRONYMS AND ABBREVIATIONS
138
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APR
AP
APG
APR
ARRA
ATO
Agency Financial Report
Administration Priorities
Agency Priority Goal
Annual Performance Report
American Recovery and Reinvestment Act
Antimony Trioxide
CAA Clean Air Act
CBI Confidential Business Information
CCS Carbon Capture and Storage
CERCLA Comprehensive Environmental Response Compensation and Liability Act
CFC Cincinnati Finance Center
CFO Chief Financial Officer
CO Contracting Officer
CAP Cross-Agency Priority
CWA Clean Water Act
CWSRF Clean Water State Revolving Fund
DCAA Defense Contract Audit Agency
DCM Dichloromethane
DFE Design for the Environment
DHS U.S. Department of Homeland Security
DMF Death Master File
DNP Do Not Pay
DOJ U.S. Department of Justice
DOT U.S. Department of Transportation
DSS Directory Service System
DWSRF Drinking Water State Revolving Fund
EAS U.S. Environmental Protection Agency Acquisition System
ECHO Enforcement and Compliance History Online
EDSP Endocrine Disrupter Screening Program
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
FFDCA Federal Food, Drug and Cosmetic Act
FFMIA Federal Financial Management Improvement Act of 1996
FIFRA Federal Insecticide, Fungicide and Rodenticide Act
FISMA Federal Information Security Management Act
FMFIA Federal Managers' Financial Integrity Act of 1982
FY Fiscal Year
GAAP Generally Accepted Accounting Principles
GAO Government Accountability Office
GHG Greenhouse Gas
GPRMA Government Performance and Results Modernization Act of 2010
139
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GSA U.S. General Services Administration
HERO Healthy Environmental Research Online database
HFC Hydrofluorocarbon
HHCB l,3,4,6,7,8-Hexahydro-4,6,6,7,8,8-hexamethylcyclopenta-Y-2-benzopyran
1C Institutional Control
ICIS Integrated Compliance Information System
ICR Information Collection Request
IFMS Integrated Financial Management System
IP Improper Payment
IPERA Improper Payments Elimination and Recovery Act
IPERIA Improper Payments Elimination and Recovery Improvement Act
IPIA Improper Payments Information Act
IRIS Integrated Risk Information System
KPI Key Performance Indicators
LUST Leaking Underground Storage Tank
LVFC Las Vegas Finance Center
MIA Management Integrity Advisor
NAS National Academy of Sciences
NIST National Institutes of Standards and Technology
NPDES National Pollutant Discharge Elimination System
NPL National Priorities List
NPM National Program Manager
0AM Office of Acquisition Management
OARM Office of Administration and Resources Management
OCFO Office of the Chief Financial Officer
OECA Office of Enforcement and Compliance Assurance
OEI Office of Environmental Information
OFM Office of Financial Management
OGD Office of Grants and Debarment
DIG Office of Inspector General
OMB Office of Management and Budget
0PM Office of Personnel Management
ORD Office of Research and Development
PAH Polyaromatic Hydrocarbon
PAR Performance and Accountability Report
PCBs Polychlorinated Biphenyls
PCE Perchloroethylene/tetrachloroethylene
PCS Permit Compliance System
PP&E Plant, Property and Equipment
PRP Potential Responsible Parties
QIC Quality Assurance/Quality Control
R&D Research and Development
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RA Remedial Action
RAU Ready for Anticipated Use
RBT Role-based Training
RCRA Resource Conservation and Recovery Act
RFR Ready for Reuse
RMDS Resource Management Directives System
RP Responsible Party
RTF Research Triangle Park
SAM System for Award Management
SDWA Safe Drinking Water Act
SFFAS Statement of Federal Financial Accounting Standards
SNUR Significant New Use Rule
SC>2 Sulfur Dioxide
SRF State Revolving Fund
SSC Superfund State Contracts
STAG State and Tribal Assistance Grants
T&A Time and Attendance
TCE Trichloroethylene
TMDL Total Maximum Daily Load
TSCA Toxic Substances Control Act
TVA Tennessee Valley Authority
UIC Underground Injection Control
UST Underground Storage Tanks
UV Ultraviolet
VI Vapor Intrustion
VOC Volatile Organic Compound
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 2014 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
1200 Pennsylvania Ave., NW
Washington, D.C. 20460
ocfoinfo@epa.gov
This report is available at
http://www.epa.gov/planandbudget
Printed copies of this report are available from the EPA's National Service Center for Environmental
Publications at 1-800-490-9198 or by email at nscep@bps-lmit.com.
U.S. Environmental Protection Agency
Fiscal Year 2014 Agency Financial Report
EPA-190-R-14-008
November 17,2014
142
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