OFFICE OF INSPECTOR GENERAL
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Catalyst for Improving the linvimnment
Audit Report
Audit of EPA's
Fiscal 2003 and 2002
Financial Statements
Report No. 2004-1-00021
November 21, 2003
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Abbreviations
EPA
Environmental Protection Agency
FFMIA
Federal Financial Management Improvement Act
FMD
Financial Management Division
FMFIA
Federal Managers' Financial Integrity Act
IAG
Interagency Agreement
IFMS
Integrated Financial Management System
JFMIP
Joint Financial Management Improvement Program
OCFO
Office of the Chief Financial Officer
OIG
Office of Inspector General
OMB
Office of Management and Budget
RSSI
Required Supplemental Stewardship Information
ssc
State Superfund Contracts
Cover photo: Provided by Christine Baughman, OIG
(Jefferson Memorial and Tidal Basin, Washington, D.C.)
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
November 21, 2003
MEMORANDUM
SUBJECT: Audit of EPA's Fiscal 2003 and 2002 Financial Statements
Report No. 2004-1-00021
FROM: Paul C. Curtis, Director
Financial Audits (2422T)
TO: Linda M. Combs
Chief Financial Officer (271 OA)
Morris X. Winn
Assistant Administrator for
Administration and Resources Management (3101 A)
Howard F. Corcoran
Director, Office of Grants and Debarment (3901R)
Attached is our audit report on the Agency's fiscal 2003 and 2002 financial statements.
The report reflects our view that the Agency is not in full compliance with the managerial cost
accounting standard; however, the level of compliance does not meet Office of Management
and Budget's definition of substantial noncompliance. We also recognize that the Agency has
made significant improvements and has started a process that will, when fully implemented,
provide managers with the type of cost information they need to effectively manage their
programs. The audit report also addresses the deficit in the Superfund Trust Fund. During
Fiscal 2003, the Superfund Trust Fund, managed by the U.S. Treasury Bureau of Public Debt,
transferred funds to the U.S. Environmental Protection Agency (EPA) in excess of assets
available to be transferred by $82.7 million. The audit report also contains other findings that
describe issues the Office of Inspector General (OIG) has identified and corrective actions the
OIG recommends.
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This audit report represents the opinion of the OIG, and the findings contained 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 matters in this
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audit report. Accordingly, the findings described in this audit report are not binding upon EPA
in any enforcement proceeding brought by EPA or the Department of Justice. We have no
objections to the further release of this report to the public.
In accordance with EPA Manual 2750, Audit Management Process, the primary action official
is required to provide us with a written response to the final audit report within 90 days of the
final audit report date. Since this report deals primarily with financial management issues, we
are requesting the Chief Financial Officer, as the primary action official, to take the lead in
coordinating and providing us a written response to this report. 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 or not to close this report in our audit tracking system.
Should you or your staff have any questions about the report, please contact me at
(202) 566-2523, or Melissa Heist, Assistant Inspector General, Office of Audit, at
(202) 566-0899.
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Executive Summary
Introduction
We performed this audit in accordance with the Government Management Reform Act, which
requires the Environmental Protection Agency (EPA, or the Agency) to prepare, and the Office
of Inspector General (OIG) to audit, the Agency's financial statements each year. 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.
Objectives
Our primary objectives were to determine whether:
• EPA's internal controls over financial reporting related to the financial statements were in
place; and statements were fairly presented in all material respects in conformity with
generally accepted accounting principles; and
• EPA management complied with applicable laws and regulations which, if not followed,
could have a direct and material effect on the financial statements.
Results in Brief
Opinions on EPA's Fiscal 2003 and 2002 Financial Statements
In our opinion, the consolidating financial statements present fairly, in all material respects, the
consolidated and individual assets, liabilities, net position, net cost, net cost by goal, changes in
net position, budgetary resources, reconciliation of net cost to budgetary obligations, and
custodial activity of the U.S. Environmental Protection Agency and its subsidiary funds, the
Superfund Trust Fund and All Other Appropriated Funds, as of and for the years ended
September 30, 2003 and 2002, in accordance with accounting principles generally accepted in
the United States of America.
As more fully described in the notes to the financial statements, the Superfund Trust Fund,
managed by the U.S. Treasury Bureau of Public Debt, transferred funds to EPA in excess of the
assets available to be transferred by $82.7 million in fiscal 2003. In our opinion, because
recoveries have declined and the investment principal upon which interest is earned has steadily
decreased, the current deficit of $82.7 million and future Superfund Trust Fund financing would
have to be covered by appropriations from the Treasury's general fund in order for the Superfund
Trust Fund to continue operations.
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Review of EPA's Required Supplemental Stewardship Information, Required
Supplemental Information, and Management Discussion and Analysis
We inquired of EPA's management as to their methods for preparing Required Supplemental
Stewardship Information (RSSI), Required Supplemental Information, and Management
Discussion and Analysis, and reviewed this information for consistency with the principal
financial statements. However, our audit was not designed to express, and we are not
expressing, an opinion on this information.
We did not identify any material inconsistencies between the information presented in EPA's
financial statements and the information presented in EPA's RSSI, Required Supplemental
Information, and Management Discussion and Analysis. Office of Management and Budget
(OMB) Bulletin No. 01-09, Form and Content of Agency Financial Statements, requires agencies
to report, as Required Supplemental Information, their intragovernmental assets and liabilities by
Federal trading partner. We did find EPA continues to experience difficulties in reconciling
some of its intragovernmental transactions due to some Federal entities not providing
information for reconciliations. We note that this is a government-wide issue that needs to be
resolved.
Evaluation of Internal Controls
The objective of our audit was not to provide assurance on internal controls and, accordingly, we
do not express an opinion on internal controls. Material weaknesses are situations where internal
controls do not reduce, to a relatively low level, the risk that errors, fraud, or noncompliance in
amounts material to the financial statements may occur and not be detected in a timely manner
by employees in the normal course of performing their assigned functions. In evaluating the
Agency's internal controls, we noted certain matters discussed below involving the internal
control and its operation that we consider to be reportable conditions. However, none of the
reportable conditions is believed to be a material weakness.
In evaluating the Agency's internal control structure, we identified eight reportable conditions in
the following areas, which are detailed further in Attachment 1:
• Documentation of standard vouchers needs improvements.
• Continued improvement is needed in EPA's interagency agreement invoice approval process.
• Improvement is needed in reconciling State Superfund Contracts.
• EPA did not promptly record marketable securities received in fiscal 2003.
• Automated application processing controls for the Integrated Financial Management System
(IFMS) could not be assessed.
• The IFMS suspense file used for input of financial transactions needs to be reconciled to the
general ledger.
• Further improvements are needed in managing EPA's accounts receivable.
• Internal controls for correcting errors in IFMS need improvement.
Tests of Compliance with Laws and Regulations
As part of obtaining reasonable assurance about whether the Agency's financial statements were
free of material misstatement, we performed tests of compliance with certain provisions of laws
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and regulations for which noncompliance could have a direct and material effect on the
determination of financial statement amounts. Providing an opinion on compliance with all laws
and regulations applicable to the Agency was not an objective of our audit. Accordingly, we do
not express such an opinion.
We did not identify any instances of noncompliance with laws and regulations that would result
in material misstatements to the audited financial statements. However, we did note the
following noncompliance issues, which are discussed further in Attachment 2.
Compliance with the Federal Financial Management Improvement Act. The Federal
Financial Management Improvement Act (FFMIA) requires that, as a part of our annual financial
statement audit, we determine whether EPA's financial management systems substantially
comply with Federal financial management system requirements, applicable accounting
standards, and the Standard General Ledger at the transaction level.
We did not identify any instances of substantial (as defined by OMB) noncompliance with
FFMIA requirements. We recognize improvements the Office of the Chief Financial Officer
(OCFO) has made in cost accounting and believe that while there are still noncompliance issues
with cost accounting, those noncompliances no longer meet OMB's definition of substantial
noncompliance.
We also identified the following two additional instances of FFMIA noncompliance:
• Reconciliation of intragovernmental transactions was not in compliance with OMB and
Treasury Financial Manual requirements. However, it does not meet the OMB criteria
for substantial noncompliance.
• The fiscal 1999 Remediation Plan to correct some FFMIA issues has not been completed.
Compliance with the Treasury Financial Manual. The Agency is not in compliance with the
Treasury Financial Manual for preparation of the SF 224.
Agency Comments and OIG Evaluation
In a memorandum received November 10, 2003, OCFO responded to our draft report. OCFO
generally agreed to take sufficient corrective actions.
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Table of Contents
Executive Summary
Inspector General's Report on EPA's
Fiscal 2003 and 2002 Financial Statements 1
Review of EPA's Required Supplemental Stewardship Information, Required
Supplemental Information, and Management Discussion and Analysis 2
Evaluation of Internal Controls 2
Tests of Compliance with Laws and Regulations 7
Prior Audit Coverage 8
Agency Comments and OIG Evaluation 9
Attachments
1. Reportable Conditions
2. Compliance with Laws and Regulations
Federal Financial Management Improvement Act Noncompliance Issues
Other Noncompliance Issues
3. Status of Prior Audit Report Recommendations
Appendices
I. EPA's Fiscal 2003 and 2002 Financial Statements
II. Agency's Response to Draft Report
III. Report Distribution List
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Inspector General's Report on EPA's
Fiscal 2003 and 2002 Financial Statements
The Administrator
U.S. Environmental Protection Agency
We have audited the consolidating balance sheets of the U.S. Environmental Protection Agency
(EPA, or the Agency) and its subsidiary funds, the Superfund Trust Fund (Superfund) and All
Other Appropriated Funds (All Other), as of September 30, 2003 and 2002, and the related
consolidating statements of net cost, changes in net position and financing, and consolidated
statements of net cost by goal, custodial activity, and combined statements of budgetary
resources for the years then ended. These financial statements are the responsibility of EPA's
management. Our responsibility is to express an opinion on these financial statements based
upon our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America; 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 01-02, 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
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The financial statements include expenses of grantees, contractors, and other Federal agencies.
Our audit work pertaining to these expenses included testing only within EPA. Audits of grants,
contracts, and interagency agreements performed at a later date may disclose questioned costs of
an amount undeterminable at this time. In addition, the United States Treasury collects and
accounts for excise taxes that are deposited into the Superfund and Leaking Underground
Storage Tank Trust Funds.1 The United States Treasury is also responsible for investing
amounts not needed for current disbursements and transferring funds to EPA as authorized in
legislation. Since the United States Treasury, and not EPA, is responsible for these activities,
our audit work did not cover these activities.
As more fully described in Note 36 to the financial statements, the Superfund Trust Fund,
managed by the U.S. Treasury Bureau of Public Debt, transferred funds to EPA in excess of the
assets available to be transferred by $82.7 million in fiscal 2003. EPA's view is that the shortfall
for fiscal 2003 will be covered by the collection of cost recoveries and receipt of interest income
over time. In our opinion, because cost recoveries have declined and the investment principal
1 The Leaking Underground Storage Tank Trust Fund is included in the All Other Appropriated Funds column of the
financial statements.
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upon which the interest is earned has steadily decreased, the current deficit of $82.7 million and
future Superfund Trust Fund appropriations would have to be covered by appropriations from the
Treasury's general fund in order for the Superfund Trust Fund to continue operations.
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 EPA's financial statements. The OIG is organizationally independent with
respect to all other assets of the Agency's activities.
In our opinion, the consolidating financial statements present fairly, in all material respects, the
consolidated and individual assets, liabilities, net position, net cost, net cost by goal, changes in
net position, budgetary resources, reconciliation of net cost to budgetary obligations and
custodial activity of the U.S. Environmental Protection Agency and its subsidiary funds, the
Superfund Trust Fund and All Other Appropriated Funds, as of and for the years ended
September 30, 2003 and 2002, in conformity with accounting principles generally accepted in
the United States of America.
Review of EPA's Required Supplemental Stewardship Information,
Required Supplemental Information, and Management Discussion and Analysis
We inquired of EPA's management as to their methods for preparing Required Supplemental
Stewardship Information (RSSI), Required Supplemental Information, and Management
Discussion and Analysis, and reviewed this information for consistency with the financial
statements. However, our audit was not designed to express an opinion and, accordingly, we do
not express an opinion.
We did not identify any material inconsistencies between the information presented in EPA's
financial statements and the information presented in EPA's RSSI, Required Supplemental
Information, and Management Discussion and Analysis. OMB Bulletin No. 01-09, Form and
Content of Agency Financial Statements, requires agencies to report, as Required Supplemental
Information, their intragovernmental assets and liabilities by Federal trading partner. We did
find EPA continues to experience difficulties in reconciling some of its intragovernmental
transactions due to some Federal entities not providing information for reconciliations, (see
Attachment 2 for additional details on this issue).
Evaluation of Internal Controls
As defined by OMB, internal control, as it relates to the financial statements, is a process,
effected by the Agency's management and other personnel, 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 and RSSI in accordance
with generally accepted accounting principles; and assets are safeguarded against loss
from unauthorized acquisition, use, or disposition.
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Reliability of performance reporting - Transactions and other data that support
reported performance measures are properly recorded, processed, and summarized to
permit the preparation of performance information in accordance with criteria stated by
management.
Compliance with applicable laws and regulations - Transactions are executed in
accordance with laws governing the use of budget authority and other laws and
regulations that could have a direct and material effect on the financial statements or
RSSI; and any other laws, regulations, and government-wide policies identified by OMB.
In planning and performing our audit, we considered EPA's internal controls over financial
reporting by obtaining an understanding of the Agency's internal controls, determined whether
internal controls had been placed in operation, assessed control risk, and performed tests of
controls in order to determine our auditing procedures for the purpose of expressing our opinion
on the financial statements. We limited our internal control testing to those controls necessary to
achieve the objectives described in OMB Bulletin No. 01-02, Audit Requirements for Federal
Financial Statements, as supplemented by an OMB memorandum dated January 4, 2001,
Revised Implementation Guidance for the Federal Financial Management Improvement Act. We
did not test all internal controls relevant to operating objectives as broadly defined by the Federal
Managers' Financial Integrity Act of 1982, such as those controls relevant to ensuring efficient
operations. The objective of our audit was not to provide assurance on internal controls and,
accordingly, we do not express an opinion on internal controls.
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 reportable conditions.
Under standards issued by the American Institute of Certified Public Accountants, reportable
conditions are matters coming to our attention relating to significant deficiencies in the design or
operation of the internal control that, in our judgment, could adversely affect the Agency's
ability to record, process, summarize, and report financial data consistent with the assertions by
management in the financial statements. Material weaknesses are reportable conditions in which
the design or operation of one or more of the internal control components does not reduce to a
relatively low level the risk that misstatements in amounts that would be material in relation to
the financial statements being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. 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 reportable conditions, although none of the reportable
conditions is believed to be a material weakness.
In addition, we considered EPA's internal control over the RSSI by obtaining an understanding
of the Agency's internal controls, determined whether these internal controls had been placed in
operation, assessed control risk, and performed tests of controls as required by OMB Bulletin
No. 01-02. Our procedures were not designed to provide assurance on these internal controls
and, accordingly, we do not express an opinion on such controls.
Finally, with respect to internal controls related to performance measures presented in EPA's
Fiscal Year 2003 Annual Report, Section 1, Overview and Analysis (which addresses
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requirements for a Management's Discussion and Analysis), we obtained an understanding of the
design of significant internal controls relating to the existence and completeness assertions, as
required by OMB Bulletin No. 01-02. Our procedures were not designed to provide assurance
on internal control over reported performance measures and, accordingly, we do not express an
opinion on such controls.
Reportable Conditions
Reportable conditions are internal control weakness matters coming to the auditor's attention
that, in the auditor's judgment, should be communicated because they represent significant
deficiencies in the design or operation of internal control that could adversely affect the
organization's ability to meet the OMB objectives for financial reporting discussed above.
In evaluating the Agency's internal control structure, we identified eight reportable conditions, as
follows:
Documentation and Approval of Standard Vouchers
EPA's Financial Reports and Analysis Branch did not always adequately document
standard vouchers for transfer requests from Treasury to EPA Trust Fund accounts
(Superfund and Leaking Underground Storage Tank Trust Funds) prior to the
transactions being entered into the Integrated Financial Management System (IFMS).
The Branch uses a formula to determine the amount of the monthly transfer, but
occasionally requests additional funds to be transferred along with the calculated amount.
Specifically, the Agency requested additional funds in 10 transfers with no
documentation to support the request. Establishing written procedures to calculate the
monthly transfer process would reduce the potential for errors occurring.
Improvement Needed in EPA's Interagency Agreement Invoice Approval
Process
EPA project officers did not always fulfill their oversight duties related to reviewing and
approving interagency agreement invoices. We continued to find instances where project
officers at EPA did not receive supporting cost documentation to substantiate invoice
amounts and approve invoices for payment. We found instances in five program offices
where project officers regularly approved invoices without the detailed documentation to
support costs. Without proper identification of accounting information and a review of
the cost documentation, transactions may be recorded in the accounting system with
limited assurance that invoices are valid, appropriate, and allowable under the terms and
conditions of the interagency agreement, and that costs are charged to the appropriate
goal/objective. We recommend that the Agency determine the root cause of the problem
and develop effective procedures to ensure that project officers properly manage the
entire process.
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Improvement Needed in Reconciling State Superfund Contracts
Unearned Revenue
EPA did not reconcile the unearned revenue from State Superfund Contracts (SSC).
When EPA assumes the lead for a Superfund site remedial action in a State, the SSC
clarifies EPA's and the State's responsibilities to complete the remedial action. EPA
records a liability (unearned revenue), when billing a State for its share of the estimated
site costs. EPA recognizes earned revenue as costs are incurred on the site. We found
that EPA did not reconcile the unearned revenue from SSCs to the general ledger.
Financial Management Division did not prepare a reconciliation because they relied on an
analysis of current year account activity. As a result, EPA could not ensure the accuracy
of the SSC unearned revenue accounts, which totaled approximately $29 million.
EPA Did Not Promptly Record Marketable Securities Received in
Fiscal 2003
EPA did not promptly record marketable securities received in fiscal 2003 from
companies in settlement of debts. As of September 30, 2003, stocks and warrants with an
aggregate value of $1,922,512 were not recorded in EPA's accounting system. The
securities were not recorded because the regional financial management offices receiving
the securities either were waiting on guidance from headquarters, or were awaiting
receipt of a settlement agreement.
IFMS Suspense File Needs to Be Reconciled to General Ledger
For fiscal 2003, the IFMS suspense file was not in compliance with Joint Financial
Management Improvement Program (JFMIP) requirement TD-04 — that the Application
Program Interface provide internal controls, such as control totals and record counts, to
ensure integrity. Specifically, no formal process or written procedures existed for
reconciling financial data processed from the suspense file to the general ledger accounts.
The suspense file is important because it receives input of financial transactions from
IFMS users and many other financial and mixed systems, which are to be posted to the
general ledger accounts. The IFMS contractor created custom reports for analysis
purposes, which represented the best available data, although the contractor would not
confirm that either the status or dollar amount were accurate. Our subsequent analysis of
the account did not indicate that the suspense file contained transactions that were not
posted to the proper accounting period. However, we are still concerned about the
number of uncleared transactions that could remain in the suspense file due to the current
lack of automated controls. These incomplete, rejected, and held transactions could be
incorrectly processed in the wrong fiscal period, creating the potential to affect the
Agency's financial data.
Automated Application Processing Controls for IFMS Could Not Be
Assessed
We continue to be unable to assess the adequacy of the automated internal control
structure as it relates to automated input, processing, and output controls for IFMS.
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IFMS applications have a direct and material impact on the Agency's financial
statements. Therefore, an assessment of each application's automated input, processing,
and output controls, as well as compensating manual controls, is necessary to determine
the reliance we can place on the financial statements. During past financial statement
audits, we attempted to evaluate controls without systems documentation, but these
alternatives proved to be inefficient and impractical.
Further Improvements Needed in Managing EPA's Accounts Receivable
We noted two issues that negatively impact EPA's accounting for accounts receivable.
First, we noted numerous instances where the financial management offices did not
timely record receivables due to late submission of supporting documentation from
Department of Justice, Regional Counsel, or the program offices. Failure to record
receivables promptly could result in EPA not collecting monies due timely. Second, one
regional financial management office did not properly calculate its allowance for
doubtful accounts as the region did not prepare quarterly allowance calculations and
update its percentage analysis formulas. As a result, the allowance was overstated
$35,772,165 and $8,052,967 for "Superfund" and "All Other," respectively. The Agency
subsequently properly adjusted the accounts.
Internal Controls for Correcting Errors in IFMS Need Improvement
EPA's Financial Systems Branch bypassed IFMS manual online data entry controls when
making a systemic correction of erroneous transactions. Rather than using the journal
voucher process to correct the errors, the Branch had a programmer reverse the
transactions by processing negative debits and positive credits. The correction resulted in
7,336 negative debit and positive credit transactions totaling $222 million. As a result,
the audit trail for these transactions was hidden and basic evidence requirements for the
transactions were circumvented.
Attachment 1 describes each of the above reportable conditions in more detail, and contains our
recommendations on actions that should be taken to correct these conditions. We have also
reported other less significant matters involving the internal control structure and its operation in
separate position papers during the course of our audit. We will not be issuing a separate
management letter.
Comparison of EPA'S FMFIA Report with Our Evaluation of Internal Controls
OMB Bulletin No. 01-02, Audit Requirements for Federal Financial Statements, requires us to
compare material weaknesses disclosed during the audit with those material weaknesses reported
in the Agency's Federal Managers' Financial Integrity Act (FMFIA, or Integrity Act) report that
relate to the financial statements and identify material weaknesses disclosed by audit that were
not reported in the Agency's FMFIA report. EPA reported on Integrity Act decisions in EPA's
Fiscal Year 2003 Annual Report. For a discussion on Agency-reported Integrity Act
management issues, please refer to EPA's Fiscal Year 2003 Annual Report, Section I, Overview
and Analysis.
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For reporting under FMFIA, material weaknesses are defined differently than they are for
financial statement audit purposes. OMB Circular A-123, Management Accountability and
Control, defines a material weakness as a deficiency that the Agency head determines to be
significant enough to be reported outside the Agency.
For financial statement audit purposes, OMB defines material weaknesses in internal control as
reportable conditions in which the design or operation of the internal control does not reduce to a
relatively low level the risk that errors, fraud, or noncompliance in amounts that would be
material in relation to the financial statements or RSSI being audited, or material to a
performance measure or aggregation of related performance measures, may occur and not be
detected within a timely period by employees in the normal course of performing their assigned
functions.
The Agency did not report any material weaknesses for fiscal 2003 as part of the Integrity Act
process. Our financial statement audit did not detect any material weaknesses that should have
been reported as part of the Integrity Act process.
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
regulations specified in OMB Bulletin No. 01-02, Audit Requirements for Federal Financial
Statements, as supplemented by an OMB Memorandum dated January 4, 2001, Revised
Implementation Guidance for the Federal Financial Management Improvement Act. 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 (FFMIA) of 1996. We limited our tests of compliance to these provisions and
did not test compliance with all laws and regulations applicable to EPA.
Providing an opinion on compliance with certain provisions of laws and regulations was not an
objective of our audit and, accordingly, we do not express such an opinion. There are a number
of ongoing investigations involving EPA's grantees and contractors that could disclose violations
of laws and regulations, but a determination about these cases has not been made.
None of the noncompliances discussed below would result in material misstatements to the
audited financial statements.
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. OMB Bulletin No. 01-02, as supplemented by an OMB memorandum dated
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January 4, 2001, Revised Implementation Guidance for the Federal Financial Management
Improvement Act, substantially changed the guidance for determining whether or not an Agency
substantially complied with the Federal financial management systems requirements, applicable
Federal accounting standards, and the United States Government Standard General Ledger at the
transaction level. The document is intended to focus Agency and auditor activities on the
essential requirements of FFMIA. The document lists the specific requirements of FFMIA, as
well as factors to consider in reviewing systems and for determining substantial compliance with
FFMIA. It also provides guidance to Agency heads for developing corrective action plans to
bring an Agency into compliance with FFMIA. To meet the FFMIA requirement, we performed
tests of compliance with FFMIA section 803(a) requirements and used the OMB guidance,
revised on January 4, 2001, for determining substantial noncompliance with FFMIA.
The results of our tests did not disclose any instances where the Agency's financial management
systems did not substantially comply with the applicable Federal accounting standard, the United
States Standard General Ledger at the transaction level, or the Federal financial management
system requirements.
We recognize improvements the Office of the Chief Financial Officer (OCFO) has made in cost
accounting and believe that while there are still noncompliance issues with cost accounting,
those noncompliances no longer meet OMB's definition of substantial noncompliance.
However, the Agency was not in compliance with Statement of Federal Financial Accounting
Standards No. 4 that requires EPA to provide full costs per output to management in a timely
fashion.
We identified two other FFMIA noncompliances, related to reconciliation of intragovernmental
transactions and completion of the fiscal 1999 FFMIA remediation plan. However, these
noncompliances do not meet the definition of substantial noncompliance as described in OMB
guidance.
Our tests also noted one other instance of noncompliance with laws and regulations, related to
the Treasury Financial Manual for preparation of SF 224 "Statement of Transactions."
Attachment 2 provides additional details, as well as our recommendations on actions that should
be taken on these matters. We have reported other less significant matters involving compliance
with laws and regulations in position papers during our audit. We will not be issuing a separate
management letter.
Prior Audit Coverage
During previous financial or financial-related audits, weaknesses that impacted our audit
objectives were reported in the following areas:
¦ Reconciliation and reporting intragovernmental transactions, assets and liabilities by
Federal trading partner.
¦ Complying with Statement of Federal Financial Accounting Standards No. 4,
including accounting for the cost to achieve goals and identifying and allocating
indirect costs.
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¦ Accounting for capitalized property.
¦ Recording accrued liabilities for grants.
¦ Interagency Agreement invoice approval process.
¦ Documenting EPA's IFMS.
¦ Complying with Federal financial management system security requirements.
¦ Accounting for payments for grants funded from multiple appropriations.
¦ Preparation and Reconciliation of Statements of Transactions
¦ Documentation and approval of journal vouchers.
¦ Timely repayment of Asbestos Loan Debt to Treasury.
¦ Assessing automated application processing controls for IFMS.
¦ Reconciling Unearned Revenue for State Superfund Contracts.
Attachment 3, Status of Prior Audit Report Recommendations, summarizes the current status of
corrective actions taken on prior audit report recommendations with corrective actions in
process.
The Chief Financial Officer, as the Agency's Audit Follow-up Official, oversees EPA's followup
on audit findings and recommendations, including resolution and implementation of corrective
actions. For these prior audits, final action occurs when the Agency completes implementation
of the corrective actions to remedy weaknesses identified in the audit.
We acknowledge that many actions and initiatives have been taken to resolve prior financial
statement audit issues. We also recognize that the issues we have reported are complex, and
require extensive, long-term corrective actions and coordination by the Chief Financial Officer
with various Assistant Administrators, Regional Administrators, and Office Directors before they
can be completely resolved. A few issues have been unresolved for many years. The OIG will
continue to work with the Office of Chief Financial Officer in helping to resolve all audit issues
resulting from our financial statement audits.
Agency Comments and OIG Evaluation
In a memorandum received November 10, 2003, OCFO responded to our draft report. OCFO
noted that it is continuing to make progress in enhancing managerial cost accounting. Regarding
our concerns related to the Superfund Trust Fund shortfall and the decline in cost recoveries,
OCFO indicated the Superfund program will continue to operate as long as Congress continues
to appropriate funds for it, and noted EPA's fiscal 2003 appropriation came from Trust Fund
assets and the general fund. Further, OCFO indicated it would like to work with the OIG to allay
concerns about suspense fund records.
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.
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This report is intended solely for the information and use of the management of EPA, OMB, and
Congress, and is not intended to be and should not be used by anyone other than these specified
parties.
Paul C. Curtis, Director
Financial Audits
Office of Inspector General
U.S. Environmental Protection Agency
November 16, 2003
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Attachment 1
Reportable Conditions
Table of Contents
Page
1 - Documentation of Standard Vouchers Needs Improvement 12
2 - Continued Improvement Needed In EPA's Interagency Agreement
Invoice Approval Process 13
3 - Improvement Needed in Reconciling State Superfund Contracts
Unearned Revenue 14
4 - EPA Did Not Promptly Record Marketable Securities Received in Fiscal 2003 15
5 - Automated Application Processing Controls for IFMS
Could Not Be Assessed 16
6 - IFMS Suspense File Needs to Be Reconciled to General Ledger 17
7 - Further Improvements Needed in Managing EPA's Accounts Receivable 20
8 - Internal Controls For Correcting Errors in IFMS Need Improvement 22
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1 - Documentation of Standard Vouchers Needs Improvement
EPA's Financial Reports and Analysis Branch did not always adequately document standard
vouchers for transfer requests from Treasury to EPA Trust Fund accounts (Superfund and
Leaking Underground Storage Tank Trust Funds) prior to transactions being entered into IFMS.
The Branch uses a formula to determine the amount of the monthly transfer, but we noted
instances in which they requested additional funds to be transferred along with the calculated
amount. Specifically, the Agency requested additional funds (between $4 and $39 million) in 10
transfers with no documentation to support the requests.
The General Accounting Office's Standards for Internal Control in the Federal Government
(November 1999) requires that all transactions be documented and readily available for
examination. OMB 's Statement of Federal Financial Accounting Concepts Number 1,
Objectives of Federal Financial Reporting (September 1993), emphasizes sound controls over
internal processes. EPA's Comptroller Policy Announcement No. 93-02, Policies for
Documenting Agency Financial Transactions, generally echoes the need for adequate source
documentation. The policy further provides that the lack of adequate supporting documentation
raises questions about the validity and integrity of the Agency's financial information contained
in IFMS and increases the risk of fraud, waste, and abuse by increasing the possibility that
unauthorized or inaccurate information is entered into the accounting system.
While we detected no effect on the financial statements, we are concerned about the vulnerability
associated with executing transactions without adequate supporting documentation. EPA also
prevents these dollars from earning interest with the Treasury by requesting transfers into EPA
Trust Fund accounts and maintaining month-to-month balances containing excess money.
Recommendations
We recommend that the Office of the Chief Financial Officer:
1. Establish written procedures to calculate the amount of the monthly transfer from
Treasury to EPA Trust Fund accounts.
2. Require that all transfers and requests have supporting documentation attached to the
standard voucher that shows how the amount requested from Treasury was derived.
Agency Comment
OCFO indicated it has developed a plan of action to address the recommendation and will
establish written procedures for calculating the amount of monthly transfers from Treasury to
EPA Trust Fund accounts, and will provide complete documentation to support the amount of
the transfers.
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2 - Continued Improvement Needed In EPA's
Interagency Agreement Invoice Approval Process
EPA project officers did not always fulfill their oversight duties related to reviewing and
approving interagency agreement (IAG) invoices. We noted this problem in prior audit reports,
and we continued to find instances where project officers at EPA did not receive supporting cost
documentation to substantiate invoice amounts and approve the invoices for payment.
Specifically, we found instances in five program offices where project officers regularly
approved invoices without the detailed documentation to support costs. We also found one
instance where a project officer was delinquent in approving several IAG invoices, did not track
costs and remaining dollars, and relied on the work of assignment managers to monitor the IAGs.
It is a project officer's responsibility to approve IAG vouchers and billings after first determining
that performance is in accordance with the agreement. Further, without proper identification of
accounting information and a review of the cost documentation, transactions may be recorded in
the accounting system with limited assurance that invoices are valid, appropriate, and allowable
under the terms and conditions of the IAG, and that costs are charged to the appropriate
goal/objective.
Project officers play a key role in the Agency's management of IAGs. Working with the Grants
Management Office, they have both technical and administrative responsibilities, which include:
initiating and negotiating terms and conditions; monitoring the project to make sure the other
agency is performing the services at an acceptable level; and monitoring costs by reviewing,
approving, or disapproving all bills based on the terms of the IAG. Their responsibilities are
outlined in the Project Officer Training Manual.
Prior to serving as a project officer, Agency policy requires employees who manage IAGs to
successfully complete basic certification training (.Managing Your Financial Assistance
Agreement - Project Officer Responsibilities) to ensure they know how to manage the entire
process, and a refresher course every 3 years.
Recommendation
3. We recommend that the Director, Office of Grants and Debarment determine the root
cause of the problem and develop effective procedures to ensure that project officers
properly manage the entire process.
Agency Comment
The response indicated the Office of Grants and Debarment agrees with the recommendation and
will issue a long-term training plan that calls for developing a stand-alone IAG project officer
training course. Until that course is in place, the Office will further emphasize in its current
training courses the importance of collecting and reviewing invoice documentation. The office
will also issue guidance on the need to strengthen the IAG invoice approval process, and will
incorporate IAG program reviews as part of its Grants Management Reviews.
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3 - Improvement Needed in Reconciling
State Superfund Contracts Unearned Revenue
EPA did not reconcile the unearned revenue from State Superfund Contracts (SSC) to the general
ledger. When EPA assumes the lead for a Superfund site remedial action, EPA records a liability
(unearned revenue) when billing a State for their share of the estimated site costs. EPA
recognizes earned revenue as costs are incurred on the site. Financial Management Division
(FMD) did not prepare a reconciliation because they relied on an analysis of current year account
activity. As a result, EPA could not ensure the accuracy of the SSC unearned revenue accounts,
which totaled approximately $29 million.
The Chief Financial Officers Act requires the Agency's Chief Financial Officer to develop and
maintain an integrated agency accounting and financial management system, including financial
reporting and internal controls, that provides for complete, reliable, consistent, and timely
information. EPA should have adequate internal controls to ensure that it performs annual
reconciliations of the SSC unearned revenue accounts.
We reported this issue in our report on the fiscal 2002 financial statement audit. At that time,
FMD agreed with our recommendations to: (1) calculate annually the combined unearned
revenue from SSCs for all accounting points and reconcile the amount to the general ledger, and
(2) improve the reliability of Regional SSC spreadsheet calculations for the year-end unearned
revenue adjustments by providing Regional finance offices with additional training and
conducting a review of the completed spreadsheets. FMD completed the additional training and
spreadsheet review, but has not yet reconciled the calculated unearned revenue to the general
ledger. FMD issued "Process for Monitoring Unearned Advance Activity, Hazardous Substance
Superfund, General Ledger Account 2312," which provided a process for analyzing the
component activities within account 2312. However, the guidance did not provide for
reconciling the spreadsheet with account 2312. Due to the complexity of the accounting for
unearned revenue, we believe a proper reconciliation is needed to ensure the reliability.
For fiscal 2003, we calculated unearned revenue from SSCs for the 10 regions and attempted to
reconcile it to account 2312. We found a variance of $20,667,897 between the calculated
unearned revenue of $49,562,423 and the adjusted1 general ledger balance of $28,894,526.
Recommendation
4. We recommend that the Office of the Chief Financial Officer have FMD calculate
annually the combined unearned revenue from SSCs for all accounting points and
reconcile the amount to the consolidated balance of general ledger account 2312.
Agency Comment
OCFO agreed with our finding and indicated FMD will calculate and analyze SSC expenditures
and reconcile IFMS balances annually, and make adjustments as needed.
1 The September 30, 2003 general ledger balance in account 2312 was $24,030,329. We removed the non-SSC related balance of
$246,903 and added FMD's on-top adjustment of $5,111,100 to arrive at an adjusted balance of $28,894,526.
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4 - EPA Did Not Promptly Record
Marketable Securities Received in Fiscal 2003
EPA did not promptly record marketable securities received in fiscal 2003 from companies in
settlement of debts. As of September 30, 2003, stocks and warrants with an aggregate value of
$1,922,512 were not recorded in EPA's accounting system. The securities were not recorded
because the regional financial management offices receiving the securities either were waiting on
guidance from headquarters or were awaiting receipt of a settlement agreement.
• On May 22 and June 16, 2003, Sterling Chemical, Inc., issued stocks and warrants, and
the securities were recorded in Washington Finance Center's securities logbook as
received on August 12, 2003. They were subsequently sent to Region 6 for recording in
the system. However, Region 6 did not record the securities in the accounting system as
of September 30, 2003, because they did not have the proper settlement agreement from
the Department of Justice.
• On January 15, 2003, Metal Management, Inc., issued stocks, and the securities were
received in the Region 5 finance office on July 31, 2003. However, the securities were
not recorded in the accounting system as of September 30, 2003, because the Region was
waiting on guidance from Headquarters.
The Statement of Federal Financial Accounting Standards No. 3, "Accounting for Inventory and
Related Property," states that monetary instruments should be recognized as an asset upon
receipt at its fair market value. Office of the Comptroller Transmittal No. 97-01, dated
October 9, 1996, also requires the recording of marketable securities at their fair market value at
the time of receipt.
Recommendations
We recommend that the Office of the Chief Financial Officer have the Director, Financial
Management Division:
5. Develop stricter guidelines governing the recording of marketable securities and ensure
that Finance Offices record financial instruments at fair market value when received.
6. (a) Develop procedures for financial management offices for sending securities between
offices to ensure that the receiving financial management office has sufficient
information to record the securities; or (b) record marketable securities in IFMS when
received directly from Department of Justice and prepare an Intragovernmental Payment
and Collection System entry to the appropriate regional finance office.
Agency Comment
OCFO agreed with our finding and indicated the Financial Management Division will develop
and issue policy and procedures for timely recording of marketable securities.
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5 - Automated Application Processing Controls for IMFS
Could Not Be Assessed
We continue to be unable to assess the adequacy of the automated application control structure
as it relates to automated input, processing, and output controls for IFMS. IFMS applications
have a direct and material impact on the Agency's financial statements. Therefore, an
assessment of each application's automated input, processing, and output controls, as well as
compensating manual controls, is necessary to determine the reliance we can place on the
financial statements. During past financial statement audits, we attempted to evaluate controls
without systems documentation, but these alternatives proved to be inefficient and impractical.
Since 1995, Agency officials have maintained that the current level of documentation is
sufficient for operations and will address systems documentation when the core system is
replaced. Nevertheless, Agency officials have taken actions on a number of our
recommendations, including completing a system documentation analysis, developing updated
accounts receivable documentation, and completing an analysis for creating a comprehensive
IFMS data dictionary.
As part of our fiscal 2003 financial statement audit, we evaluated the Agency's IFMS
replacement activities and found that EPA has continued to take steps to replace its core financial
systems. As part of the Financial Replacement System project, the Agency performed the
following activities in fiscal 2003:
• Met with five other Federal agencies in various stages of replacing their financial
system(s) to receive information on their approaches and best practices.
• Surveyed nine Federal agencies on their core financial systems acquisition processes.
• Performed a formal work force assessment of other Federal agencies (how many
civilians, contractors, etc.).
• Contracted to do an Application Integration Software tool study; subsequently, OCFO
decided to address integration and normalize data.
Although planning for replacing IFMS was started in fiscal 1997, OCFO has not progressed
beyond the planning stage. OCFO states they have a planned target date of 2006 for replacing
the core system and that a commercial off- the-shelf software package will be delivered with
systems documentation (business logic, data dictionaries, entity relationships, etc.). However,
until the new system is in place and we have had a chance to audit it, we cannot assess the
adequacy of the automated internal control structure.
Agency Comment
The Agency agreed with our findings.
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6 - IFMS Suspense File Needs to Be Reconciled
to General Ledger
The IFMS suspense file was not in compliance with JFMIP requirement TD-04, which requires
that the Application Program Interface provide internal controls, such as control totals and record
counts, to ensure integrity. Specifically, no formal process or written procedures existed for
reconciling financial data processed from the suspense file to the general ledger accounts. The
suspense file is important because it receives input of financial transactions from IFMS users and
many other financial and mixed systems, which are to be posted to the general ledger accounts.
The IFMS Nightly Cycle Comments Report, generated from IFMS, only provides a count of the
number of transaction lines processed; it does not provide a control total of dollars received and
processed by IFMS. The routine reconciliation by control totals is important to maintain the
completeness, accuracy, and reliability of general ledger data and EPA's financial statements.
Although the Financial Systems Branch certified IFMS in its fiscal 2003 FMFIA Certification
memorandum, management provided no evidence it conducted an adequate checklist review to
determine the current state of compliance with all applicable JFMIP core system requirements.
In addition, OCFO management had not assessed applicable JFMIP requirements for systems'
interfaces in its previous FMFIA evaluations and certifications.
The JFMIP Core Financial System Requirements, dated November 2001, state that interfaces,
where one system feeds data to another system following normal business and transaction cycles
(such as recording payroll data in general ledger control accounts at specific time intervals) may
be acceptable as long as the supporting detail is maintained and accessible to managers.
Additionally, for determining compliance with FFMIA, the implementation guidance issued by
OMB requires that reconciliation between systems, where interfaces are appropriate, be
maintained to ensure data accuracy. In particular, these requirements state, "To ensure that data
can move effectively between the Core financial system and other financial applications operated
by the agency, the Core system must provide internal controls with the API [Application
Program Interface] (e.g., control totals, record counts) to ensure the integrity of received and
processed transactions. (TD-04)."
However, we found that no process or report existed to reconcile both the total number of dollars
and transactions processed from the suspense file to the general ledger accounts. Under such
conditions, the IFMS staff have been assuming the following:
• All transactions transmitted into IFMS and not shown as 'rejected' in the IFMS suspense
file are posted correctly and completely within the IFMS general ledger.
• All rejected transactions that subsequently are corrected and resubmitted, and no longer
list as 'rejected' in the IFMS suspense file, have been posted correctly and completely to
the IFMS general ledger.
• Feeder systems' staffs are properly identifying and correcting rejected transactions.
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Consequently, OCFO does not have adequate assurance that data from users or subsystems is
accurately or completely posted into the IFMS general ledger. Due to the lack of automated
controls, incomplete, rejected, and held transactions could be processed to the wrong fiscal
period.
The IFMS suspense file contained 117,456 transaction records on October 10, 2003, the date
when the fiscal 2003 General Ledger closed its books. The IFMS suspense file serves as the pass
through for all financial transactions entered into IFMS. The table below indicates the status of
transactions in the file, based on a custom report generated by the IFMS contractor:
System Status
No. of Transactions
Dollars
ACCPT
83,531
$4,771,498,565.63
BHOLD
319
2,954,224.29
BRJCT
253
2,073,816.62
BSCHD
14
7,537.64
DELET
22
40,450,229.18
HELD
6,711
122,160,901.57
PEND1
585
8,216,249.90
PEND2
15
999,068.00
REJCT
25,935
1,042,816,014.72
SCHED
71
5,332,526.06
Total
117,456
$5,996,509,133.61
Due to the absence of an automated reconciliation process, the IFMS contractor invested
significant time manually determining the status of these transactions and creating custom
reports for analysis purposes. The custom reports represented the best available data, although
the contractor would not confirm that either the status or dollar amounts were totally accurate.
Subsequently, the contractor and OCFO staff manually analyzed the data line by line and
discovered many rejected and incomplete transactions. OCFO also asked regional staff to
perform additional manual reviews of the suspense fund data in order to clarify the status,
appropriate posting periods, and materiality of these transactions. All of the manual effort and
risk could have been minimized if management had implemented automated internal controls to
reconcile control totals and record counts for financial data processed from the suspense file to
the IFMS general ledger accounts.
To ensure that the general ledger contained complete and accurate data for preparing the
financial statements, we tested statistically sampled transactions to determine whether any should
have been posted during the fiscal 2003 period. We did not find any errors. We found that
transactions were either properly posted in fiscal 2003, were properly rejected by IFMS, or had
other valid reasons for not being posted.
The Agency has merged the requirements of OMB Circulars A-123 and A-127 to assess and
certify financial system requirements under FMFIA. However, the Financial Systems Branch's
annual FMFIA certification did not formally identify a requirement to review financial systems
for compliance with all applicable JFMIP Federal system requirements or provide a quality
assurance process to ensure IFMS was in compliance with the JFMIP standards. While the
Agency formally reminded financial managers to complete the fiscal 2003 FMFIA Certification
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and also issued guidance regarding the content of Quality Assurance Workplans, in neither
instance did the Agency direct users to review financial systems against current JFMIP
requirements. During fiscal 2003, the IFMS manager did not conduct an adequate review of
JFMIP compliance and, instead, submitted a list of the JFMIP noncompliance items identified
during the April 2002 review. Therefore, management has no assurance that IFMS meets the
current JFMIP functional and technical requirements for Federal financial systems. Without this
assurance, management carries a greater risk that financial data may not contain complete and
accurate information.
Recommendations
We recommend that the Office of the Chief Financial Officer:
7. Establish and test a formal reconciliation process that includes total dollar and record
counts for the data processed from the IFMS suspense file to the general ledger accounts.
8. Update the formal quality assurance process to ensure IFMS is evaluated annually
regarding its compliance with all applicable JFMIP Federal system requirements and
certified as part of the FMFIA review. Also, complete the checklist review of IFMS for
compliance with all current applicable JFMIP core systems requirements.
Agency Comment and OIG Evaluation
In responding to this finding, the Director for Financial Management concurred with our
recommendations and indicated that the Financial Systems Branch is in the process of
developing a reconciliation process. Additionally, in response to our discussions, OCFO
subsequently issued Comptroller Policy Announcement No. 03-09, which establishes policies
and procedures for reconciling the IFMS suspense table to the general ledger. OCFO's response
also emphasized that IFMS is evaluated annually as a part of OCFO's FMFIA certification
process and stated that JFMIP checklist reviews were completed for IFMS in both 2002 and
2003. We noted that the 2002 evaluation did not address compliance with system interface
requirements. In response, the Agency stated it was not cost beneficial to invest in incorporating
these new JFMIP financial system requirements into a legacy system. Furthermore, the
referenced 2003 checklist review did not exist at the time of OCFO's FMFIA certification and
was performed as a result of our audit inquiries.
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7 - Further Improvements Needed in Managing
EPA's Accounts Receivable
We noted two issues that negatively impacted EPA's accounting for accounts receivable:
• We noted numerous instances where the financial management offices did not record
receivables timely due to late submission of supporting documentation from Department
of Justice, Regional Counsel, or program offices. Failure to record receivables promptly
could result in EPA not timely collecting monies due.
• One regional financial management office did not properly calculate its allowance for
doubtful accounts, because the region did not prepare quarterly allowance calculations
and update its percentage analysis formulas. As a result, the allowance was overstated
$35,772,165 and $8,052,967 for "Superfund" and "All Other," respectively.
EPA's Resource Management Directive System guidelines require financial management offices
to ensure accounts receivable are recorded timely. However, there are no guidelines requiring
these offices to periodically follow up with the Department of Justice, Regional Counsel, and
program offices to determine the status of pending transactions. Further, EPA's Resource
Management Directive System guidelines require financial management offices to assess the
collectibility of accounts receivable quarterly. However, the Financial Management Division has
not established followup procedures to verify that the financial management offices follow these
Resource Management Directive System guidelines.
Recommendations
We recommend the Director, Financial Management Division:
9. Periodically request written verification of recent judgments and claims from the
Department of Justice, Directors of Office of Regional Counsel, and other program
offices to ensure legal documents on such judgments and claims are being promptly
forwarded to the financial management offices.
10. Establish procedures to verify that year-end and period-end transactions are processed by
the financial management offices.
11. Establish procedures to verify that financial management offices are conducting quarterly
reviews of the allowance for doubtful accounts and updating the percentages based on the
collection rate in accordance with OCFO policies.
Agency Comment and OIG Evaluation
OCFO indicated it will develop necessary policies and procedures to ensure legal documents are
promptly forwarded. OCFO also stated it has implemented procedures to: (1) verify that year-
end or period-end transactions are processed, and (2) review the allowance for doubtful accounts
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and update percentages based on collection experience from prior years. We recognize that the
Agency has established procedures to verify year-end transactions and to review the allowance
for doubtful accounts; however, our findings indicate that such procedures are either not being
properly implemented or are only partially effective. In addition, the allowance for doubtful
accounts was originally materially misstated and was corrected only after our analysis, therefore,
additional controls are needed.
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8 - Internal Controls for Correcting Errors in IFMS
Need Improvement
EPA's Financial Systems Branch bypassed IFMS manual online data entry controls when
making a systemic correction of erroneous transactions. Rather than using the journal voucher
process to correct the errors, the Branch had a programmer reverse the transactions by processing
negative debits and positive credits. The correction resulted in 7,336 negative debit and positive
credit transactions totaling $222 million. As a result, the audit trail for these transactions was
hidden and basic evidence requirements for the transactions were circumvented.
OMB Circular No. A-127 (Revised), Financial Management Systems, requires that internal
controls over data entry and transaction processing shall be applied consistently throughout the
system to ensure the validity of information and protection of Federal government resources.
EPA's Comptroller Policy Announcement No. 93-02 requires that all financial transactions
recorded in the accounting system be supported by adequate source documentation because lack
of adequate supporting documentation raises questions about the validity and integrity of the
financial information contained in IFMS. The policy further notes that failure to require
adequate source documentation before recording transactions in the Agency's accounting system
increases the risk of fraud, waste, and abuse by increasing the possibility that unauthorized or
inaccurate information is entered into the accounting system.
We performed an additional review of IFMS, specifically analyzing the 7,336 negative
transactions, and determined that none of the transactions had a material impact on the financial
statements. However, we are concerned that posting negative debits and positive credits
increases the possibility of unauthorized, inaccurate, or fraudulent information being entered into
the accounting system.
Recommendations
We recommend that the Office of the Chief Financial Officer:
12. Establish policies and procedures to ensure that negative transactions are not entered into
IFMS and that standard double entry bookkeeping be followed.
13. Reduce IFMS's vulnerability to fraud and abuse by allowing only designated system
operators, instead of programmers, to post accounting entries.
Agency Comment and OIG Evaluation
OCFO indicated it believes that Comptroller Policy 93-02 documents the Agency's procedures
for processing financial transactions, and the Financial Systems Branch is in the process of
updating related Standard Operating Procedures to ensure transactions are processed using
standard accounting protocol.
We believe the negative debits and positive credits posted to IFMS are evidence that procedures
are not working properly and need to be addressed.
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Attachment 2
Compliance with Laws and Regulations
Table of Contents
Page
Federal Financial Management Improvement Act
Noncompliance Issues 2
9 - EPA Continues to Make Efforts to Improve Its
Cost Accounting Processes 24
10 - EPA Continues to Experience Difficulties in Reconciling
Intragovernmental Transactions 27
11- EPA Needs to Revise and Resubmit FFMIA Remediation Plan 28
Other Noncompliance Issues
12- EPA Not in Compliance Regarding
Preparation and Reconciliation of SF 224 30
2 We are reporting these noncompliance issues under FFMIA as they directly relate to FFMIA reporting
requirements; however, we note that the issues do not meet the OMB criteria for substantial noncompliance under
FFMIA.
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9 - EPA Continues to Make Efforts to Improve
Its Cost Accounting Processes
Since fiscal 1999, we have reported that EPA has not fully complied with the requirements of
Statement of Federal Financial Accounting Standards No. 4, Managerial Cost Accounting
Concepts and Standards for the Federal Government. We have taken this position largely
because EPA has not produced general purpose financial reports that show the full cost of its
outputs as required by the Standard. During fiscal 2003, EPA created enhanced reporting
capabilities that allow EPA to determine the direct cost of outputs using the Financial Data
Warehouse. Because of this new capability and continued efforts by EPA, we believe that EPA
is no longer in substantial noncompliance with the standard. However, the reporting capability
does not allow for full costs, such as grant accruals. We believe the Agency still needs to go
further to produce full cost reports that are useful to managers.
Noteworthy Improvements Made
While we believe EPA is not preparing reports that show full costs, the Agency has made
noteworthy progress in its efforts to improve cost accounting within EPA. For example:
• Beginning in January 2003, by using the Financial Data Warehouse, any EPA employee
can determine most of the direct costs assigned to any EPA output.
• OCFO completed a managerial cost information assessment project and published
numerous "fact sheets" on various aspects of EPA's accounting system. The fact sheets
are available to all EPA employees through the OCFO intranet site.
We are especially pleased that OCFO completed the managerial cost information assessment
project. This project was begun in December 2002 with the final report being issued in
September 2003. The first goal of the assessment was to identify the cost information needs of
budget and program managers and then, based on the data collected, consider changes to the
Agency's cost information systems that would further enhance their usability. The second goal
was to assess trends in the use of cost information and, based on the findings, optimize the
OCFO Reporting and Business Intelligence Tool ("ORBIT") to best meet the reporting needs of
EPA managers.
The managerial cost information assessment project resulted in six key findings and numerous
recommendations to address the findings, and it also identified the next steps OCFO plans to take
to improve the cost information available to Agency managers. The assessment report stated:
"OCFO will work with EPA managers to both meet the cost information needs highlighted by
the needs assessment, and ensure managers are provided with timely, reliable, and consistent cost
information." We look forward to monitoring the OCFO's continued progress toward fully
implementing an effective cost accounting system.
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EPA Should Develop Better Formal Outputs
In our fiscal 2002 financial statement audit report, we stated that one of the factors that hinders
the quality of EPA's cost accounting information is how OCFO has chosen to define its cost
accounting "outputs." Statement of Federal Financial Accounting Standards No. 4 defines an
output as a discrete product or service, but we believe that many of the Agency's sub objectives
are too general to fit this definition. We recommended that the OCFO promote change of the
Agency's cost accounting outputs, so they will represent discrete products or services produced
by the Agency. OCFO did not agree with this recommendation and has stated that under the new
five-goal accounting structure, the official EPA cost accounting output will still be the Program
Results Code subobjective. We believe that in light of the results of the managerial cost
information assessment project and the changes that will occur in the Agency's accounting
structure in fiscal 2004, OCFO should reconsider this decision.
The managerial cost information assessment project report states: "The EPA appreciates that in
order to effectively manage for results it needs to know the full costs of programs, projects, and
activities." The assessment project report also suggests that Agency managers believe there is a
need for all kinds of cost information, but the assessment report does not say that managers are
interested in subobjective cost information. Since managers are more interested in knowing the
costs of programs, projects, and activities than the cost of a subobjective, OCFO should
reconsider its decision to retain the subobjective as the official Agency cost accounting output.
Late in fiscal 1998, when it initiated its 10-goal accounting structure, OCFO decided that the
subobjective would be the official Agency cost accounting output. Much has changed since
then. The Agency will be using a new five-goal accounting structure beginning in fiscal 2004.
OCFO is much more knowledgeable of the cost information needs of Agency managers than it
was in fiscal 1998. Changing the official Agency cost accounting output from the Program
Results Code subobjective to a different output that reflects the costs of programs, projects, and
activities will be more useful to Agency managers.
Recommendations
We recommend that the Office of the Chief Financial Officer:
14. Continue its efforts to improve Agency financial and cost accounting systems, including
its strategy to further educate users on the types of cost information available from the
OCFO systems, and how to use the systems to obtain the information they need to
effectively manage their programs.
15. Reconsider its decision to retain the Program Results Code subobjective as the official
Agency cost accounting output, and change the Agency's outputs to something more
meaningful and useful to Agency managers.
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Agency Comments and OIG Evaluation
OCFO will continue to work with Agency managers and staff to identify their cost
information needs and incorporate those requirements into the Agency's accounting
processes. The subobjective will continue to be the Agency's cost accounting output.
Having the Agency output at the subobjective level does not preclude the Agency from
accounting for discrete programs or projects below the subobjective level. The revised
accounting structure for the new strategic plan will allow the Agency to do just that.
We recognize that OCFO is continuing to take steps to improve the quality of cost
information available to EPA managers, but we continue to believe that full compliance with
Statement of Federal Financial Accounting Standards No. 4 will not be achieved until OCFO
produces reports that show the full costs of Agency outputs. We believe the OCFO should
strive to provide timely reports that show the full cost of an output that is meaningful to
Agency managers.
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10 - EPA Continues to Experience Difficulties in Reconciling
Intragovernmental Transactions
EPA continues to experience difficulties in reconciling some of its intragovernmental
transactions due to some Federal entities not providing information for reconciliations.
Without the proper confirmations from its trading partners, EPA has limited assurance that
intragovernmental balances are accurate. EPA has experienced similar occurrences the past
2 years that prohibited the Agency from fully complying with the applicable requirements.
OMB Bulletin 01-09, Form and Content of Agency Financial Statements, dated September 25,
2001, requires Federal agencies to reconcile and confirm intragovernmental assets, liabilities,
and revenue with their trading partners quarterly. This information is to be presented in the
financial statements as Required Supplementary Information and should agree with line items
reported on the balance sheet. However, intragovernmental transactions have been classified by
GAO as a government-wide material weakness due to the lack of standardization in recording
and processing intragovernmental activities. To resolve the issue, OMB established standard
business rules (Memorandum M-03-01, October 4, 2002) to be used in intragovernmental
exchange activities. The Federal Intragovernmental Transactions Accounting Policies Guide
was updated in fiscal 2003 to provide procedures for the confirmation process and tools to
facilitate quarterly reconciliation. Agencies now submit quarterly intragovernmental balances to
Treasury's Financial Management Services to consolidate the financial data and provide each
agency with reports to facilitate reconciliation.
EPA's OCFO issued policies and procedures in December 2002 requiring collection of data on
intragovernmental transactions based on the standard business rules OMB developed in October
2002. The Agency sent confirmation worksheets to its trading partners, and we were told they
received 2 responses out of 14 sent. The OIG acknowledges and commends EPA's efforts to
reconcile intragovernmental transactions as required by Federal financial reporting requirements.
OIG suggests that EPA continue its efforts in reconciling the Agency's intragovernmental
transactions to comply with Federal financial reporting requirements.
Agency Comment
The Agency agreed with our findings.
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11 - EPA Needs to Revise and Resubmit FFMIA Remediation Plan
In last year's financial statement audit report, we concluded that EPA's 2002 report to OMB had
incorrectly reported the successful completion of its 1999 FFMIA Remediation Plan for financial
management systems. For this year, we found that EPA had taken all necessary actions to
correct significant weaknesses in the 1999 Remediation Plan, except for establishing a personnel
certification program for granting access to non-Federal personnel, such as contractors. EPA's
Office of Administration was continuing to work with the Office of Acquisition Management to
develop an appropriate Agency program for certifying non-Federal workers. The FFMIA
requires the OIG to report on the Agency's progress to remediate significant weaknesses in
financial management systems.
As part of our followup work, we assessed OCFO actions to ensure both Federal and non-Federal
employees received appropriate screening before being granted sensitive access rights to major
financial or mixed-financial systems. We reviewed OCFO Policy 98-08, Amendment 1 (dated
March 29, 2002), which established personnel security policy by requiring a National Agency
Check with Inquiries for both employees and non-employees before granting access to EPA's
IFMS. This policy describes the type of screening that is appropriate for non-Federal personnel,
such as contractor personnel, but it is only applicable to the IFMS contractors. We did not
receive a copy of Policy 98-08 until after we had concluded our audit fieldwork and, therefore,
did not have time to verify the implementation of OCFO's personnel access policy for IFMS
non-Federal personnel. We plan to evaluate the Policy's implementation during the fiscal 2004
financial statement audit.
Several other financial or mixed systems are material to the presentation of financial statements
(such as the Integrated Grants Management System, Contract Payment System, and the payroll
system). We believe contractors (and other non-Federal, high access users) should be subjected
to the same scrutiny as required for access to IFMS. Memorandums of Understanding between
the IFMS system manager and subsystems managers appear to cite Office of Environmental
Information policies and make general statements that require following "both Federal and
agency guidelines regarding systems." However, neither the Memorandum of Understanding
language nor any of the referenced Federal and Agency policies/guidelines stipulate clear
baseline security requirements for screening contractor personnel with access to financial data.
Thus, it is not clear what is required of non-Federal personnel for access to financial and mixed-
financial systems.
Recommendations
We continue to recommend that the Office of the Chief Financial Officer revise its 1999
Remediation Plan to state when EPA will establish a security certification process for all its
major financial and mixed-financial systems. Specifically, we recommend that the Office of the
Chief Financial Officer:
16. Identify the party responsible for establishing a security certification process.
28
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17. Indicate an estimated milestone date as to when the certification process will be applied
to persons with sensitive access rights to major financial and mixed systems. OCFO also
needs to submit the revised Remediation Plan to OMB.
Agency Comment and OIG Evaluation
OCFO stated EPA's 1999 Remediation Plan already has been updated and submitted to OMB.
The plan includes responsibilities for establishing a security certification process for non-Federal
workers, and established milestones for issuing the certification policy. The milestones for
issuing the policy are July 2004 for contractor personnel and July 2005 for grantee personnel.
We will evaluate the adequacy of grant and personnel security procedures in Fiscal 2004 for all
financial and mixed financial system.
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12 - EPA Not in Compliance Regarding
Preparation and Reconciliation of SF 224
EPA continues to experience difficulties in completing the required SF 224 "Statement of
Transactions" and reconciling transactions on the Statement of Differences (FMS 6652). Such
actions are required by Comptroller Policy and Treasury Financial Manual. During fiscal 2003,
EPA reported adjusted rather than actual amounts on the SF 224. Most outstanding items or
differences are researched and cleared within 60 days, although some differences have remained
longer than a year. By reporting adjusted amounts on the SF 224, the Agency prevented
differences from being reported by Treasury on the FMS 6652.
EPA's new Comptroller Policy No. 03-04, "Accelerated Monthly Standard Form 224 (SF 224),
'Statement of Transactions,' Process - Revised Policies and Procedures," states EPA will:
• Prepare its SF 224 report in accordance with Volume One of the Treasury Financial
Manual, Part 2-3300 (1-TFM 2-3300).
• Reconcile cash differences between Treasury and EPA records allowing no more than
one current month and one prior month cash reconciliation differences each reporting
period.
The Treasury Financial Manual states, "Each reporting office will prepare the [SF 224] directly
from its accounts promptly at the close of each accounting month."
EPA had already taken steps to re-engineer its financial processes relating to SF 224 reporting.
Most Agency locations we audited are now reporting SF 224 properly, but we still found
instances in which differences are being manually adjusted in the suspense account. Subsequent
reconciling and clearing of the differences can take a great deal of time and effort, in some cases
up to a year, to research due to supporting documentation not being readily available. We found:
(1) instances where the Monthly Statement of Difference Reconciliation Report was not prepared
timely and accurately; (2) instances where written justifications in some of EPA's monthly cash
reconciliations were not provided; and (3) a reconciliation spreadsheet was prepared agreeing to
the adjusted amount in suspense (Treasury Symbol 68F3875) instead of a reconciliation to the
Statement of Differences (FMS 6652) being completed in accordance with the Comptroller's
policy.
Recommendations
We recommend that the Office of the Chief Financial Officer:
18. Discontinue including the adjusted amount on the SF 224, thus enabling Treasury to
report these amounts through the Statement of Differences (FMS 6652).
19. Make source documentation readily available to improve timely clearing of reconciling
items included in the suspense account and on the Statement of Differences (FMS 6652).
30
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Agency Comment and OIG Evaluation
OCFO noted that it believes the characterization of the entire Agency as not being in
compliance with Treasury regulations does not fairly represent EPA's status given that the
majority of the finance offices comply with Treasury regulations. OCFO asserts only 4 of its
26 Agency locations have differences, with only 1 of those locations still adjusting current
unrecorded transactions to suspense accounts on the SF 224. OCFO indicated it has provided
OIG with an analysis of the suspense differences between the IFMS reports on cash
transactions and the SF 224. The OIG recognizes the improvements the Agency has made in
preparing the SF 224; however, we believe that all Agency locations should be in compliance
with Treasury regulations for preparation of the SF 224.
31
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32
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Attachment 3
Status of Prior
Audit Report Recommendations
EPA's position is that "audit follow-up is an integral part of good management," and "corrective
action taken by management on resolved findings and recommendations is essential to improving
the effectiveness and efficiency of Government operations." The Chief Financial Officer is the
Agency Audit Follow-Up Official and is responsible for ensuring that corrective actions are
implemented. To resolve long-standing audit recommendations, the Deputy Chief Financial
Officer formed an Audit Follow-Up Council in July 2000. The Council reviews the progress on
audit findings, discusses approaches to resolving audit issues, and provides coordination and
support across OCFO on audit-related matters. Council membership consists of the Deputy
Chief Financial Officer, the OCFO Audit Follow-Up Coordinator, the Comptroller, Comptroller
Division Directors, and the Director of the Office of Planning, Analysis, and Accountability.
The Agency has continued to make substantial progress in completing corrective actions from
prior years. These seven issue areas from prior financial statement audits, with corrective actions
in process, are listed in the following table.
Audit Issue Areas with Corrective Actions in Process
• Automated Application Processing Controls for IFMS:
While the Agency continues to make progress, until EPA implements the planned
replacement automated accounting system that addresses past issues, we will continue to
disclose a reportable condition concerning the current accounting system and its
automated application processing controls. Please see Attachment 1 for additional
information.
• Financial System Security Plans:
The Agency has established a personnel security policy for access to its IFMS. However,
it is not clear what is required of non-Federal personnel for access to other financial and
mixed-financial systems. Therefore, EPA still needs to revise its 1999 FFMIA
Remediation Plan, establish a milestone for completion, and submit the revised Plan to
OMB. Please see Attachment 2 for additional information.
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Audit Issue Areas with Corrective Actions in Process
• Managerial Cost Accounting Standards:
In the audits of the fiscal 1999, 2000, 2001, and 2002 financial statements, we reported
that EPA did not comply with the managerial cost accounting standard. The Chief
Financial Officer, while acknowledging the desirability for continuing improvements as
envisioned by the standard, has disagreed with our conclusion that EPA did not comply
with the standard. Because of Agency actions taken during fiscal 2003 to enhance
reporting capabilities and ongoing efforts to improve cost accounting processes, we
believe EPA is no longer in substantial noncompliance with the standard. However, we
believe the Agency still needs to go further to produce full cost reports that are useful to
managers. Please refer to Attachment 2 for details on this issue.
• Reconciling Unearned Revenue for State Superfund Contracts:
The Agency reported that all planned corrective actions from this fiscal 2002 finding had
been completed. However, we found that EPA still did not reconcile the unearned
revenue from State Superfund Contracts to the general ledger. While it issued guidance
on monitoring unearned advance activity, the guidance did not provide for the needed
reconciliation. Please see Attachment 1 for additional information.
• Integrated Grants Management System Security Plan:
In our audit of the 2002 financial statements, we recommended that the Integrated Grants
Management System Security Plan be revised to include all applicable elements of
Federally-accepted security plans for major financial computer applications. The Agency
agreed to complete this revision by December 31, 2003, and is on target to meet this
commitment.
• Preparation and Reconciliation of Statements of Transactions:
The Agency reported that all planned corrective actions from this fiscal 2002 finding had
been completed. However, we found that EPA continued to experience difficulties in
completing the required Statements of Transactions (SF 224) and reconciling the Treasury
Statements of Difference (Form 6652). The required process was not always followed.
Please see Attachment 2 for additional information.
• Documentation of Standard Vouchers Need Improvement:
The Agency issued a memo on Documentation and Approval of Journal and Standard
Vouchers. However, we found that documentation for some standard vouchers was still
inadequate. Please see Attachment 1 for additional details.
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Appendix I
EPA's Fiscal 2003 and 2002
Financial Statements
35
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36
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November 2003
EPA's FY2003 CFO
AUDITED FINANCIAL
STATEMENTS
Produced by the U.S. Environmental Protection Agency
Office of the Chief Financial Officer
Office of the Comptroller
Financial Management Division
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EPA's FY 2003 Financial Statements
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TABLE OF CONTENTS
Overview and Analysis 3
Principal Financial Statements 31
EPA's FY 2003 Financial Statements Page 1
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Note: All components of EPA's FY2003 CFO Audited Financial Statements are
included in EPA '.s FY 2003 Annual Report (Publication Number: EPA-190-R-03-
002). The "Overview and Analysis" section of this report serves as Section I of the
Annual Report. The "Principal Financial Statements" section of this report is
contained in Section III of the Annual Report.
Page 2
EPA's FY 2003 Financial Statements
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OVERVIEW
AND
ANALYSIS
EPA's FY 2003 Financial Statements
Page 3
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Page 4 EPA's FY 2003 Financial Statements
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OVERVIEW AND ANALYSIS
INTRODUCTION
The U.S. Environmental Protection Agency (EPA) has a clear mission: to protect human
health and the environment. Under this mission, the Agency is responsible for ensuring that the
nation's air is safe to breathe, the water is clean and safe to drink, and the land is restored and
protected. In FY 2000, under the Government Performance and Results Act (GPRA), EPA
issued its second Strategic Plan, with 10 long-term strategic goals identifying the environmental
results that the Agency would work to achieve and reflecting the sound financial and
management practices it would employ. Since then, the Agency has been working to sharpen its
focus on achieving measurable environmental results, and has revised its Strategic Plan, as well
as EPA's supporting financial architecture.
With the release of EPA's revised 2003 Strategic Plan in September 2003, the Agency
moved from 10 strategic goals-including both outcome-oriented goals, such as Clean Air, and
functional or support goals, such as Effective Management-to five goals centered on
environmental and human health results. By directing attention to fewer outcome-oriented goals,
EPA hopes to develop effective strategies that achieve better environmental results and use
taxpayer dollars more wisely and effectively. EPA regional offices, for example, working with
their state and tribal partners, will be better able to conduct regional strategic planning activities
and address regional or geographic priorities under the Agency's five national goals.1
With this Annual Report, the Agency begins framing its performance and results under its
2003 Strategic Plan.
Discussion of fiscal
year (FY) 2003
performance in terms
of the more
outcome-oriented,
five-goal structure
enables the Agency to
present a stronger
focus on achieving
mission results of
protecting human
health and the
environment. EPA has
cross-walked its
FY 2003 Annual
Performance Goals, established in the FY 2003 Annual Plan under the 10-goal architecture of
EPA CHANGED ITS STRATEGIC GOALS IN FY 2003
2000 Strategic Plan
2003 Strategic Plan
1. Clean Air
1. Clean Air & Global Climate Change
2. Clean & Safe Water
2. Clean & Safe Water
3. Safe Food
3. Land Preservation & Restoration
4. Preventing Pollution
4. Healthy Communities & Ecosystems
5. Better Waste Management
5. Compliance & Environmental
6. Reduced Global & Cross
Stewardship
Border Environmental Risks
7. Quality Environmental Information
8. Sound Science
9. A Credible Deterrent to Pollution
10. Effective Management
EPA's FY 2003 Financial Statements
Page 5
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EPA's 2000 Strategic Plan, to the new five-goal framework of the 2003 Strategic Plan. The
Agency also included a sixth chapter to discuss annual results for supporting programs.
The Agency is submitting this year's report on an accelerated schedule of
November 17, 2003, sooner than the statutory deadline of January 31, 2004. Operating under
this new schedule will position the Agency to meet the statutory deadline of November 15, 2004,
for FY 2004 reporting. A significant implication of the accelerated schedule is that final
performance data for several key programs were not available in time for this report's release.
As allowed by GPRA, performance data not available at the time of this document's publication
will be reported in EPA's FY 2004 and future Annual Reports.
This Annual Report provides an assessment of the Agency's environmental,
programmatic, and financial performance. Building on the previous year's results, EPA made
progress during FY 2003 toward protecting human health and the environment by using a mix of
tools and approaches, and by working closely with its valued partners whose contributions were
critical to many of the results achieved.
This report contains three sections. Section I, Overview and Analysis, provides a broad
picture of EPA's environmental and fiscal performance during FY 2003.* It also summarizes
EPA's accomplishments in financial management and in addressing programmatic management
challenges and audit management activities for FY 2003, as well as progress toward enhancing
the Agency's capacity for achieving results. Section n, Performance Results, describes in greater
detail the results that EPA-working with its federal, state, tribal, and local government
partners-achieved under each of the Agency's five new goals. It also presents progress toward
meeting the Annual Performance Goals established in EPA's FY 2003 Annual Plan. Section HI,
FY 2003 Audited Financial Statements, summarizes EPA's financial activities and achievements
and presents the Agency's annual financial statements, which have been independently audited
by EPA's Inspector General.
PERFORMANCE RESULTS
Building on FY 2002 accomplishments, EPA and its partners made significant progress
during FY 2003 toward protecting the nation's air, water, and land. The section below describes
key environmental and program results, summarizes the Agency's performance in meeting its
FY 2003 annual performance goals, and discusses some of EPA's current performance issues and
concerns.
* The Overview and Analysis also addresses requirements for a "Management's Discussion and
Analysis" of the annual financial statements included in EPA's FY 2003 Annual Report. Because the FY
2003 Annual Report consolidates a number of specific reports, some required components of the
"Management's Discussion and Analysis" are presented in greater detail elsewhere in this report. In
particular, EPA's mission statement and organization chart appear at the front of the report. For a
discussion of the Agency's performance goals and results, refer to Section II. Financial statements, along
with a discussion of systems, controls, and legal compliance, are presented in Section III.
Page 6
EPA's FY 2003 Financial Statements
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Environmental Accomplishments
Clean Air and Global Climate Chan2e. In FY 2003, an additional 6.8 million people in
the United States are now breathing healthier air. Work by EPA and its partners through
FY 2003 led to decreased emissions of the six principal air pollutants for which EPA has
established National Ambient Air Quality Standards under the Clean Air Act: carbon monoxide,
ground-level ozone, particulate matter, nitrogen dioxide, sulfur dioxide, and lead. For example,
92 percent of the geographic areas in the country that were not meeting the clean air standard for
carbon monoxide are now measuring clean air. The same is true for 49 percent of those areas
that were not previously meeting the 1-hour ozone standard and 81 percent of the areas that were
not attaining the particulate matter (PM10) standard.
In FY 2003, EPA proposed new emission
standards for non-road diesel engines used in
construction, agricultural, and industrial
operations. This proposal will reduce emission
levels for particulate matter and nitrogen oxide by
more than 90 percent, and eliminate 99 percent of
the sulfur content in fuel used by these engines,
resulting in significant health benefits.2
In addition to the six common air
pollutants, the Clean Air Act identifies 188 toxic
air pollutants to be regulated. In FY 2003, EPA
issued rules regulating 29 major sources of toxic
air pollutants. The Agency estimates that when
fully implemented, these rules will prevent more
than 140,000 tons of toxic air emissions each year.
Clean and Safe Water. In FY 2003, the nation maintained the quality of its drinking
water, sustaining gains made in the past decade. EPA estimates that as a result of its support for
state and tribal drinking water programs in FY 2003, the percentage of the population served by
community water systems receiving drinking water that meets existing health-based standards
remained high. The nation also increased its knowledge of the quality of fresh waters in new
biennial reporting from states and tribes.
During FY 2003, for the first time, 13 states were able to identify specific water where all
fish are safe to eat. This was due in part to increased monitoring of the health of the nation's
surface waters. In calendar year 2002, 15 percent of river miles (representing 544,036 miles) and
33 percent of lake acres (representing 13,413,763 acres) were under one or more advisories not
only for risks to the general population, but also to recreational and subsistence fishers, and
sensitive sub-populations such as pregnant women, nursing mothers, and children. State and
local agencies also reported that beaches were open 95 percent of the beach days (the number of
days in a specific beach's recreational season) during calendar year 2002.
EPA's New FY 2003 Emission Standards for
Non-road Diesel Engines:
Will Annually Reduce
825,000 tons of nitrogen dioxide.
125,00 tons of particulate matter.
And Annually Prevent
More than 9,600 premature deaths.
8,300 hospitalizations.
16,000 heart attacks.
5,700 children's asthma-related
emergency room visits.
260,000 respiratory problems in
children.
EPA's FY 2003 Financial Statements
Page 7
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Land Preservation and Restoration. EPA continues to make substantial progress toward
cleaning up contaminated lands and safely managing hazardous waste. In FY 2003, the Agency
achieved its performance goal of completing the cleanup ("construction completes") of and
reducing the risks
posed to human health
at 40 sites on the
Superfund National
Priorities List (NPL).
Since the program's
inception, the Agency
has completed all
remedial cleanup
construction activities
at 886 Superfund
sites, or 58 percent of
the sites on the NPL.
This work, and that at
non-NPL sites, has
included providing alternative drinking water supplies to nearly 613,000 people to protect them
from contaminated groundwater and surface water, and relocating more than 33,000 people in
instances where contamination posed the most severe immediate risk.
In FY 2003, EPA met its targets of 197 and 158 for achieving intermediate environmental
indicators for the Resource Conservation and Recovery Act's (RCRA's) Corrective Action
Program. Adequate controls were put in place to prevent human exposures to hazardous waste at
an additional 230 facilities, and migration of contaminated groundwater is under control at 175
facilities. As a result, actual or potential threats from releases of hazardous wastes have been
reduced at nearly 73 percent of the 1,174 high priority RCRA corrective action facilities and
migration of contaminated groundwater has been controlled at 61 percent of those facilities.
The Agency surpassed its annual performance goal for the number of hazardous waste
management facilities operating with approved permits. These permits require that controls be
put in place to prevent dangerous releases to air, soil, and groundwater at facilities. Based on
preliminary results for FY 2003, 83.2 percent of the nation's management facilities have
approved controls in place, or 6 percent more facilities than the Agency's FY 2003 annual goal.
Healthy Communities and Ecosystems. Throughout FY 2003, EPA achieved significant
results toward preventing or reducing risks in communities from chemicals, microorganisms, and
pesticides. For example, in FY 2003, EPA continued to make progress toward its goal of
evaluating the potential risk of 20 chemicals to which children have a high likelihood of
exposure.3 EPA and other federal partner actions have also made significant progress toward the
national goal of eliminating childhood lead poisoning by 2010. Specifically, the incidence of
children 1 to 5 years of age with elevated blood lead levels has been reduced approximately by
half in the last decade.4 Newly released Centers for Disease Control data from 1999 and 2000
Superfund: Protecting People from Environmental Contamination
Since its inception in 1980, EPA's Superfund Program has:
Provided alternative drinking water supplies to nearly 613,000 people at
NPL and non-NPL sites to protect them from contaminated ground and
surface water.
Treated or removed 951 million cubic yards of hazardous solid waste.
Addressed (treated, contained, or disposed of) 379 billion gallons of
hazardous liquid waste (including contaminated groundwater).
Relocated more than 33,000 people at NPL and non-NPL sites in
instances where contamination posed the most severe immediate threats.
Page 8
EPA's FY 2003 Financial Statements
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show the number of children younger than 6 years old with elevated blood lead levels has fallen
to approximately 400,000, a decrease from an estimated 900,000 for the period 1991 through
1994. Through reviewing risks posed by older pesticides, EPA has eliminated or restricted many
uses of organophosphate pesticides in and around the home, thus reducing exposure to children
of chemicals that affect the functioning of the nervous system by 60 percent.5
In FY 2003, EPA also worked to build community capabilities to make sound
environmental and human health decisions. Under its Brownfields Program, the Agency
provided $118.6 million in grants to states, tribes, local governments, and stakeholders to assess,
clean up, and redevelop brownfield properties. Since 1995, EPA has assessed a total of 4,300
brownfield properties. Property assessment and cleanup completed under the Brownfields
Program are the first steps towards reuse and redevelopment. The cleanup and redevelopment of
these properties enables the leveraging of $5.1 billion in public and private investments, as well
as the leveraging of 25,000 jobs.6
EPA continues to make progress towards its goal of protecting and restoring 250,000
acres of estuarine habitat by 2008, with more than 118,000 acres protected and/or restored in
FY 2003.7 EPA has also made progress in protecting and restoring ecosystems in the Gulf of
Mexico, the Great Lakes, and Chesapeake Bay. A cumulative total of 6,662 acres of coastal and
marine habitat has been restored or protected in the Gulf of Mexico, exceeding the target for
FY 2003 and contributing toward a 10-year goal of 20,000 acres. Levels of the most critical,
persistent pollutants around the Great Lakes (including mercury, polychlorinated biphenyls
(PCBs), dioxin, benzo(a)pyrene, and hexachlorobenzene) continue to decrease, as part of a
downward trend in toxic substances in the Great Lakes over the last 15 years. By FY 2003, more
than 89,500 acres of submerged aquatic vegetation (SAV) have been measured, which is an
indicator of the health of the Chesapeake Bay. This represents a strong recovery of SAV in the
middle bay, and significant progress towards the goal of 185,000 acres by 2010.8
During FY 2003, EPA made progress in addressing cross-border and global
environmental issues as well. For example, the number of residents along the U.S. Mexico
border who were protected against health risks, beach pollution, and damaged ecosystems as a
result of improved water and wastewater sanitation systems has increased by 152,000 for a
cumulative total of approximately 872,000 residents. Also, in cooperation with the New
Independent States (NIS) of the former USSR, EPA and its partners have eliminated Russia's
production of ozone-depleting substances and have helped prevent the deterioration of drinking
water supplies for 700,000 people in the NIS.
Sound science must be the basis of standard-setting and guide EPA in identifying and
addressing emerging issues, as well as updating and advancing its understanding of long-standing
human health and environmental challenges. In FY 2003, EPA completed a draft report on the
condition of the nation's estuaries that provides the first scientifically defensible baseline from
which to measure trends in the health and status of these vital ecosystems.9 In addition, in
FY 2003 EPA reported on the performance and cost of control technologies to reduce emissions
from coal-fired utility boilers, identified as one of the most significant contributors of mercury to
EPA's FY 2003 Financial Statements
Page 9
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the air. This information will support the development of regulations that will cost-effectively
reduce human health and environmental risks from mercury.10
Compliance and Environmental Stewardship. In FY 2003, EPA prevented or eliminated
the release of millions of pounds of pollutants through programs that promote and monitor
compliance with environmental laws, pollution prevention efforts, and environmental
stewardship. EPA also finalized several enforcement actions that significantly advanced
environmental and human health protection by reducing 633 million pounds of pollutants.
Further, in FY 2003, 848 facilities disclosed and corrected violations of environmental
regulations, due to EPA's compliance incentive policies.
In FY 2003, EPA's Green Chemistry Challenge Awards Program continued to make
significant progress toward reducing the amount of toxic substances and waste released into the
environment. From the program's creation in 1996 through the end of FY 2003, 326 million
pounds and 7 million gallons of hazardous chemicals and solvents have been eliminated from the
environment, including chlorofluorocarbons; volatile organic solvents; persistent, toxic, and
bioaccumulative chemicals and solvents; and very corrosive, and toxic chemical substances. For
example, in FY 2003 under the Agency's Hospitals for a Healthy Environment Program, 1,062
hospitals voluntarily eliminated mercury use and reduced hospital waste containing hazardous
substances by 50 percent.
Based on the most recent available Toxics Release Inventory data, industry is releasing 42
percent less priority chemicals in hazardous waste than in 1991. There are 30 priority chemicals
contained in hazardous waste that EPA's National Waste Minimization Partnership Program
focuses on reducing or eliminating through waste minimization. They include 27 persistent,
bioaccumulative, and toxic organics and cadmium, lead, and mercury.11 The reduction represents
substantial progress toward meeting EPA's longer-term goal of reducing priority chemical
releases by 50 percent by FY 2008. Further, in FY 2003, EPA obtained final commitments from
industry for the voluntary elimination of nearly 13,000 pounds of priority chemicals in wastes
annually, through the Agency's Waste Minimization Partnership Program. EPA has also
obtained commitments for an additional 151,000 pounds of priority chemicals and 114 grams of
dioxin annually, pending final approval.
The President's Management Agenda
EPA recognizes that managing its organization and its resources effectively is a critical
part of achieving long-term environmental results. In FY 2003, the Agency made significant
progress in implementing the President's Management Agenda (PMA) reforms for Strategic
Management of Human Capital, Competitive Sourcing, Expanding E-Government, Improved
Financial Performance, and Budget and Performance Integration.12
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EPA's FY 2003 Financial Statements
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EPA CONTINUES STEADY PROGRESS TOWARD PMA GOALS
(As of September 30, 2003)
INITIATIVE
STATUS
PROGRESS
HIGHLIGHTS
Human Capital
Red
Green
Made progress in aligning Agency human capital activities with Agency strategic
planning and budgeting processes.
Completed draft of Investing in Our People II, EPA's Strategy for Human Capital,
2003-2008.
Included Human Capital Cross-Goal Strategy in EPA's 2003 Strategic Plan.
Pilot tested National Strategic Workforce Planning System.
Continued implementing EPA's comprehensive Workforce Development Strategy.
Developed draft human capital accountability plan.
Competitive
Sourcing
Red
Green
Created EPA Competitive Sourcing Council to set course for Agency effort.
Established Agency Competitive Sourcing Office to implement the initiative,
reporting directly to the Agency's Competitive Sourcing Official.
Completed three competitions with other cost comparisons underway.
Received "green" progress scores for each quarter in FY 2003.
Expanded E-
Government
Yellow
Green
As federal agency lead, established the project management office and launched
Regulations.gov, providing online access to federal rulemakings for public comment.
Active participant in 14 of 25 federal e-Gov projects. These 14 projects cover 3 of
the 4 project categories.
Completed two significant components of EPA's Modernization Blueprint, which
created the necessary infrastructure for the Agency's target architecture.
Secured and verified 94 percent of EPA's operational IT systems.
Improved
Financial
Performance
Green
Green
Earned "green" status score, one of only three agencies to do so.
Achieved greater financial accountability by resolving all material weaknesses and
maintained less than 1 percent erroneous payments rate.
Tripled grants awarded under competition policy from 24 percent in 2002 to 75.4
percent in 2003.
Developed new reporting tool to increase real-time access to financial and
performance data to support day-to-day decision making.
Budget and
Performance
Integration
Yellow
Green
Issued revised 2003 Strategic Plan with five outcome-oriented goals focused on
results and included social costs and benefits.
Developed new financial architecture to plan and track resources and performance
data across the goals in the 2003 Strategic Plan, and further integrate planning,
budgeting, and accountability.
Received "green" progress scores for each quarter of FY 2003.
EPA also continued to strengthen its oversight of Agency grants, which comprise slightly
less than half of EPA's budget, to ensure achievement of the highest fiduciary standards. In
FY 2003, the Agency developed its first long-term Grants Management Plan, which provides the
EPA's FY 2003 Financial Statements
Page 11
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framework for more effective and efficient management, including improving competition and
linking grant work plans to the Agency's mission results of protecting human health and the
environment. Of particular note, EPA increased the percentage of grants awarded to nonprofit
recipients subject to the Agency's grants competition policy by threefold in FY 2003-75.4
percent, as compared to 24 percent during FY 2002.
Effectively managing its information resources is important not only to EPA, but also to
the Agency's federal, state, local, and tribal partners. EPA made significant progress during
FY 2003 toward achieving its goal of an information exchange network that will make
environmental information held at all levels of government accessible to all users. Through the
exchange network program, EPA, the states, and tribes are migrating from old, inaccessible
information systems to digital, high-quality, integrated air, water, and waste information systems.
These new systems have "network portals" through which data can be exchanged over the
Internet, among EPA, states, tribes, the regulated community, and the public. As a result of the
progress made on the network this year, 49 states are now reporting electronically through EPA's
network portal, and the number of users (states, tribes, industry) of the portal increased by 113
percent (from 7,647 at the end of FY 2002 to 16,335 in FY 2003).
Summary of Performance Data
In FY 2003, EPA met 73 percent of the annual performance goals (APGs) for which data
are provided in this report. (EPA had committed
to a total of 64 APGs in its FY 2003 Annual Plan,
however, because data for 23 of these APGs will
not be available until later in FY 2004 or beyond,
they are not included in these tallies.) EPA also
made significant progress toward the 11 APGs
that were not achieved in FY 2003. Charts
presenting EPA's performance results for each of
the Agency's FY 2003 APGs are provided with
each chapter in Section II.
Performance Issues and Concerns
Despite the best efforts of EPA and its
partners, the Agency was not able to meet all
planned targets for FY 2003. EPA did not meet 11 of the 41 FY 2003 APGs for which
performance data are currently available. However, the Agency does not expect the shortfall in
meeting these APGs to compromise progress toward achieving its long-range goals and strategic
objectives. The Agency is considering the various causes of these shortfalls as it adjusts APGs
and program strategies for FY 2004 and beyond. The performance data charts in Section II
provide more complete information on missed targets. Below are several examples of
performance goals EPA did not meet, and what the Agency is doing to meet the target in the
future.
EPA's Updated Performance
Results for Prior Years
Q_
<
O
100
80
~
19
18
29
15
60
-
¦
40
77
79
79
¦
20
| | ¦ Met ¦ Not Met
¦ Data Lags |
1
•
«
Years
During FY 2003 final performance results data became available for a number of APGs
from prior years: nine for FY 2002, seven for FY 2001, seven for FY 2000, and four for FY
1999 APGs. The information above includes these additional results. Delays in reporting
cycles and targets set beyond the fiscal year continue to affect four FY 2002 APGs, two FY
2001 APGs, two FY 2000 APGs, and three FY 1999 APGs.
Page 12
EPA's FY 2003 Financial Statements
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Under the Agency's Clean Air and Global Climate Change Goal, EPA had anticipated
that seven areas would be redesignated to attainment of the ozone standard in FY 2003, but due
to delays in the redesignation process for many areas, the Agency fell short of its target and
achieved only five. Many areas are awaiting the 8-hour designation decisions to develop clean
air plans to meet attainment. In FY 2004, EPA will have information to determine how many
areas are monitoring clean air under the 1-hour ozone standard. EPA and states continue to work
together to ensure progress in meeting the present ozone standards.
Under the Agency's Clean Water Goal, EPA missed its targets for issuing National
Pollutant Discharge Elimination System (NPDES) permits for major point sources as well as
pollutant loading reductions. NPDES permits help reduce or eliminate discharges into the
nation's waters of inadequately treated wastewater from municipal and industrial facilities and of
pollutants from urban stormwater, combined sewer overflows, and concentrated animal feeding
operations. In FY 2003, permits issued covered 84 percent of the targeted 90 percent for major
point sources. While EPA and states met the goal for issuing minor permits, the continuing
challenge for issuing major permits is due to competing priorities and the increasing complexity
of permitting in a watershed context. This challenge is being addressed by the Permitting for
Environmental Results initiative, designed to address the permit backlog and focus resources on
attaining the most significant environmental results. In FY 2003, 2,200 million pounds of
industrial discharges of pollutants to the nation's waters were eliminated, which failed to meet
the target of 2,500 million pounds. The pollutant loadings reduction target was not met due to a
delay in issuing a key permit in FY 2003, which will be issued in FY 2004.
In FY 2003, EPA anticipated that the Great Lakes ecosystem components would improve,
including progress on fish contaminants, beach closures, air toxics, and trophic status. Although
EPA and state partners have made progress in removing contaminants from the Great Lakes
ecosystem, concentrations of certain contaminants in Lake Erie and Lake Superior fish are no
longer decreasing. Other significant challenges to the Great Lakes that EPA and partners are
attempting to address include an apparent increase of phosphorus levels in Lake Erie in FY 2003
of 18.3 Ug/1 from a targeted 10 Ug/1 and continuing entry of non-native species (e.g. zebra
mussels). EPA is developing positive working relationships with the environmental community
to establish effective programs, coordinate authorities and resources, report on progress, and hold
forums for information exchange and collective decision making. This will ensure the protection
of the Great Lakes and the achievement of the objectives of the Great Lakes Water Quality
Agreement.
IMPROVING RESULTS
With the release of its revised Strategic Plan in FY 2003, the Agency accomplished an
important and far-reaching milestone. The Strategic Plan contains five outcome-oriented
strategic goals and supporting objectives and sub-objectives that focus on environmental results
and reflect the work of the EPA regional offices, the states, and tribes. In FY 2003, the Agency
also established a new financial architecture under the goal/objective framework of the new
Strategic Plan.
EPA's FY 2003 Financial Statements
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In FY 2003, EPA improved its capacity for managing for results in other key ways as
well. Agency program and regional offices worked with the Environmental Council of the States
(ECOS) on strengthening the alignment between Agency and state planning, budgeting, and
accountability processes. EPA also improved its ability to conduct and apply the results of
program evaluations, track and measure performance, address environmental data issues, and
anticipate future trends and issues.
Strengthening Partnerships
Many of the Agency's FY 2003 performance results discussed in Section II would not
have been accomplished without strong participation by and support from the Agency's federal,
state, and tribal partners. Over the past 3 decades, EPA has delegated or authorized primary
responsibility to states for implementing many day-to-day program activities, such as issuing
permits, conducting compliance and enforcement programs, and monitoring environmental
conditions. As in previous years, EPA continued to collaborate closely with states and tribes and
is committed to strengthening vital partnerships with such organizations as ECOS and the Tribal
Caucus. For example, to increase the role states and tribes play in the Agency's annual planning
and budgeting, ECOS and tribal representatives attended EPA's FY 2005 Annual Planning
Meeting and presented their respective recommendations for the Agency's FY 2005 budget
priorities. Similarly, during FY 2003, EPA regional offices consulted with states and tribes in
developing the regional strategies that will contribute to achieving national objectives in the 2003
Strategic Plan.
In addition to soliciting state input and participation in its annual planning processes,
EPA worked closely with ECOS and other partner organizations in FY 2003 in finalizing the
2003 Strategic Plan. EPA requested and carefully considered all of the comments it received at
each stage of developing the plan, from discussion on the strategic goals and objectives to
comments on the full-text draft. For example, in FY 2003, ECOS and other stakeholders
participated in a meeting to discuss the goals and desired environmental results the Agency wants
to achieve in the coming years. EPA's regional offices also conducted outreach with states and
tribes to obtain their views on their unique issues and problems, which were considered by the
Agency in drafting the final document. Additional input was sought in two formal rounds of
review of the draft strategic plan, in December 2002 and March 2003.
In FY 2003, EPA and ECOS convened a joint workgroup to identify and implement
improvements to EPA's planning, budgeting, and accountability processes. The workgroup has
focused on improvements in two primary areas: better alignment of EPA's planning and
budgeting process with state processes, and refinement of the Performance Partnership
Agreement process. The input from this joint workgroup has already lead to improvements in
EPA processes, and has significantly enhanced the Agency's FY 2005 planning and budgeting
process by fostering increased state involvement.
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EPA's FY 2003 Financial Statements
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During FY 2003, EPA also collaborated with its partners in many programmatic areas.
Agency support ranged from providing important environmental information to key decision
makers, to designing and implementing environmental programs. For example, in FY 2003,
EPA, the National Oceanographic and Atmospheric Administration, the U.S. Geological Survey,
and the Delaware River Basin Commission developed partnerships with 24 coastal states to
monitor the health of their coastal resources. In addition, in April 2003, EPA announced the
creation of the "Clean School Bus USA Program"-a new national partnership with industry,
communities, and local governments designed to minimize air pollution caused by school buses.
The program encourages local efforts to eliminate unnecessary school bus idling, install effective
emission control systems on new buses, and replace the oldest school buses in a fleet. Also,
in FY 2003, EPA worked with the City of Chicago and several locomotive companies to
implement a voluntary program to reduce locomotive idling emissions. This project examined
both the actual emission reductions (estimated at 90 percent) for pollutants such as nitrogen
oxides, particulate matter, hydrocarbons, and carbon monoxide, as well as the market potential of
the locomotive idle reduction technology. EPA will use this information to develop guidance on
how states can take credit for these programs as part of their air quality planning process.
In addition, tribes continued to work with EPA to develop their own regulatory
infrastructure and implement their own regulatory programs. In FY 2003, the St. Regis Mohawk
Tribe submitted its Tribal Air Implementation Plan to the Agency for review so the tribe could
establish a minor source permit program; the Nez Perce Tribe developed, and is implementing, a
smoke management plan to address and manage grass burning on their reservation; and the
Navajo Nation and the Southern Ute Tribe are both developing permitting programs under the
Clean Air Act to enable them to regulate major sources of air pollution on their reservations.
Using Program Evaluation
EPA uses program evaluations and analyses to inform management decisions, enhance
organizational learning, promote effective strategies, and improve environmental results. In
FY 2003, the Agency continued to build its capacity to conduct program evaluations in
anticipation of the use of the Administration's Program Assessment Rating Tool (PART) to
evaluate, for FY 2004 and 2005, 20 key programs that account for almost half of the Agency's
budget. The PART is an evaluation and accountability tool that the Office of Management and
Budget (OMB) and federal agencies use to determine the strengths and weaknesses of federal
programs, with a particular focus on program effectiveness.13 In FY 2003, EPA used the results
of these program assessments to set priorities and make funding decisions that were reflected in
the Agency's FY 2005 budget request. EPA is continuing to prepare more focused and outcome-
oriented performance measures, as identified in the PART assessments. For example, as a result
of the PART assessments, the Agency has developed multi-year Performance Measurement
Development Plans for air toxics risk reduction, wetlands, safe drinking water in tribal lands,
surface water quality standards in the Mexico Border region, site cleanup, and land reuse.
To complement its outcome-based environmental performance measures, EPA also
focused on developing efficiency measures for programs that have undergone PART
EPA's FY 2003 Financial Statements
Page 15
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assessments. In FY 2003, the Agency began developing efficiency measures to better assess how
program results relate to the resources invested or time spent to achieve those results. For
example, EPA developed an efficiency measure in its Enforcement Program to track the pounds
of pollutants reduced against the time EPA staff spend in enforcement activities. Under the
Pesticides Program, EPA will be tracking the average number of days that it takes to make
registration decisions for conventional and new reduced-risk pesticide ingredients.
Other types of program evaluations were conducted as well. In FY 2003, EPA completed
an evaluation of the partnership between EPA Region 8 and the National Park Service, which
found that the preliminary goals of the partnership have been met. The report recommended that
the partnership map its goals to performance measures and enlist broader institutional support for
a scaled-up effort. In the human resources area, an evaluation found that the EPA Intern Program
is effectively hiring a diverse group of high-potential employees. The evaluation provided
findings and recommendations on all phases of the program, including recruitment and hiring;
activities during the 2-year development program (training, rotations, development); and
retention after the program is complete.14
Improving Environmental Indicators. Performance Measurement, and Data Quality
In FY 2003, to help assess the current state of the environment and provide a baseline of
environmental information for measuring future performance, EPA issued its first Draft Report
on the Environment. The report describes what EPA does and does not know about the current
state of the environment at the national level. The report also describes draft measures-or
environmental indicators-that can be used to track the status of the environment and human
health over time. This information and the Agency's continued efforts to refine it will be critical
to EPA's strategic planning efforts. Information on key environmental indicators will inform
priority setting and help EPA to focus its resources on the areas of greatest concern, manage its
work more effectively to achieve measurable results, and report more clearly on progress in
achieving environmental and human health goals to the American people.
Also in FY 2003, EPA continued to set annual performance goals and measures that are
increasingly focused on environmental outcomes, instead of activity-based outputs. The Agency
increased the percentage of annual performance goals that are classified as environmental or
intermediate outcomes to approximately 39 percent of the total in the FY 2004 Annual
Performance Plan (published in FY 2003)-up from 35 percent in the previous year's plan.
Likewise, the percentage of annual performance measures classified as outcomes grew to
approximately 51 percent, up from 40 percent the previous year.
Finally, during FY 2003 the Agency continued to improve its ability to ensure that the
performance and financial data it collects and uses are reliable and complete. EPA worked to
detect and correct errors in environmental data, standardize reporting, and exchange and integrate
electronic data and data quality information among its federal, state, and local data-sharing
partners.15
Page 16
EPA's FY 2003 Financial Statements
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Considering Future Trends and Looking Ahead to FY 2004
EPA realizes that today's environmental issues are far more complex than those of 20 or
30 years ago, and that new areas of focus will challenge its ability to assess and measure its
performance. The environmental problems the Agency faces today are difficult to define, and
possible solutions are more difficult to identify than before. Population growth, and the
resources that are consumed to sustain this growth, are altering the Earth in new ways, and rapid
scientific advances and technological developments pose new issues as well as important
opportunities for human health and the environment.
In FY 2003, the Agency held its first competition to promote the development and use of
futures analysis at EPA. Futures analysis represents an effort to think years ahead-to examine
how to better accommodate emerging driving forces that are likely to transform how and what we
do. The purpose of the competition is to build a knowledge base and skill level that will enable
EPA and its partners to incorporate futures analysis into the Agency's annual, strategic, and
long-term planning processes. This competition was initiated, in part, in response to numerous
recommendations from the National Advisory Council for Environmental Policy and
Technology, the EPA Scenario Project, and the Agency's senior-level Managing for Improved
Results Steering Group, among others, to develop and improve environmental foresight capacity
at EPA. Six Agency program offices and 7 regional offices, either by themselves or in teams,
submitted 20 high-caliber proposals to compete for support in undertaking futures analysis
projects. While the proposals addressed a wide range of ideas and issues that the Agency will
face in the future, the two selected for support will be identifying environmental impacts of and
regulatory issues regarding hydrogen fuel cells, and analyzing the potential impacts of different
land-use forms on agriculture.
In looking ahead to FY 2004, the Agency expects to improve further the use of
performance information in its planning and budgeting activities. In FY 2004, the Agency will
operate under the five-goal 2003 Strategic Plan and account for its resources at a finer level of
detail, by programs and projects. The environmental indicator information contained in the Draft
Report on the Environment will inform Agency planning and budgeting decisions, and PART
will be used to assess the effectiveness of an additional 20 percent of the Agency's resources and
programs in the development of EPA's FY 2006 budget. EPA will continue its work with its
state partners on improving the alignment of state and EPA planning and budgeting processes,
and EPA regions and states will finalize strategies in regional plans and use them as the basis for
setting annual performance commitments to achieve Agency environmental goals and objectives.
This streamlined approach is expected to reduce transaction costs for the EPA and states and to
enhance performance.
FINANCIAL ANALYSIS
EPA is proud to be one of only three federal agencies to earn a status score of "green" for
Improved Financial Performance on the President's Management Agenda. Agency efforts to
achieve greater financial accountability included resolving all previously reported material
EPA's FY 2003 Financial Statements
Page 17
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weaknesses, maintaining a less than 1 percent erroneous payments rate, and improving access to
timely cost accounting information for program management. The financial statements provided
in Section in, a snapshot of EPA's financial position at the end of FY 2003, are another
important aspect of Agency accountability. These financial statements are prepared in
accordance with established federal accounting standards and are audited by EPA's Inspector
General. In addition to the financial statements, other views of how the Agency spends its
resources are depicted in the following discussion.
EPA Resources: 1999 to 2003
The EPA Financial Trends chart16 depicts
EPA's aggregate budgetary resources (congressional
appropriations and some Agency collections),
obligations (authorized commitment of funds), and total J
outlays (cash payments) for each of the last 5 fiscal %
years. The Statement of Budgetary Resources in J
Section HI provides more detail on the makeup of the a
Agency's resources.
Years
EPA FY 2003 Spending
As published in the Treasury Department's annual
Statement of Receipts and Outlays, EPA's net outlays are
relatively small compared to those of other federal agencies
and the entire federal government. A comparison of EPA
with selected cabinet-level departments is displayed.
Agencies
EPA Financial Trends
Budgetary Resources- Obligation9-a- Total Outlay;
Government Net Outlays
By Selected Agencies
EPA Commerce State Interior NASA Energy
FY 2003 OBLIGATIONS BY APPROPRIATION
(Dollars in Thousands)
APPROPRIATION
OBLIGATIONS
State & Tribal Assistance Grants
$3,902,081 (41.7%)
All Other
$3,909,840 (41.8%)
Superfund
$1,550,401 (16.5%)
TOTAL
$9,362,322 (100.0%)
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EPA's FY 2003 Financial Statements
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Costs by Funding Source
I All Other
Superfund
FY 2003 Cost Categories
2001
Years
FY 2003 obligations incurred in connection with EPA's
activities are presented by appropriation. Also presented are
charts for EPA's costs (expenses
for services rendered or activities
performed) by funding source and
by spending category.17 The
difference between the costs
depicted in these graphs and the
Statement of Net Costs in Section
HI is that net costs reflect a
reduction for any related offsetting
income, such as Superfund cost
A Other
recovery receipts.
FY 2003 Major Grant Categories
Grant programs comprise more than 55 percent of EPA's costs. As
depicted in the Major Grant Categories chart, nearly half of the Agency's
grants are awarded under two state revolving funds that support the
Agency's Clean and Safe Water Goal. Other major EPA environmental
grant programs include assistance to states and tribes, consistent with
EPA's authorizing statutes, and research grants to universities and
nonprofit institutions.
Homeland Security Spending
Superfund
EPA's actions regarding homeland security are described in Goal Chapters 2, 3 and 4 in
Section II of this report. During FY 2003, the Agency obligated a total of $118 million18 for
homeland security activities-preparedness, response, mitigation, and recovery. Most of these
resources have been devoted to preparedness ($100.1 million), which addresses many potential
kinds of terrorism incidents. Response covers the immediate actions taken in response to
terrorist attacks. Mitigation is action taken to reduce the risk and potential damage caused by
future events, and recovery constitutes actions to rebuild and otherwise return to normal (refer to
Sustained Progress in Addressing Management Issues available at
http: www.epa.isov ocfo finstatement 2003ar 2003ar.htm for further discussion).
Superfund Cost Recovery
The Superfund Program was enacted under the
Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) of 1980 to address public health and
environmental threats from abandoned toxic waste dumps and
releases of hazardous substances. CERCLA also established the
Cumulative Superfund Cost Recoveries
I998-2D03
$3.5
$3.0
EPA's FY 2003 Financial Statements
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Hazardous Substance Response Trust Fund, now known as the Hazardous Substance Superfund
(Trust Fund), to finance the remediation of abandoned hazardous waste sites and emergency
responses to chemical spills and other incidents.
The Trust Fund was largely funded by excise taxes charged on crude oil and petroleum
and on the sale or use of certain chemicals, and a corporate environmental tax levied on
corporations having a taxable annual income in excess of $2 million. The authority to tax
expired on December 31, 1995. Consequently, Trust Fund revenues have declined over the
years. Cost recoveries, fines and penalties, interest, and transfers from the general fund currently
finance the Trust Fund. For FY 2003, Congress appropriated the Superfund Program $1.3
billion, of which $632 million came from the general fund.
Under CERCLA Section 122(b)(3), EPA may retain and use the proceeds received under
settlement agreements to conduct response actions at Superfund sites. Funds received under
these settlements are placed in interest-bearing, site-specific special accounts. Having the
authority to combine both past and future cost settlement amounts has increased the amount of
resources available in special accounts to fund EPA-lead site responses and to reimburse
responsible parties for response work performed at sites pursuant to a settlement agreement with
EPA. As of September 30, 2003, EPA had established 343 special accounts with $1.1 billion in
receipts. These accounts earned an additional $175.6 million in interest.19
Financial Management Performance
Internally EPA continues to track finance office and Senior Resource Officials' (SROs')
performance in key financial management areas. Semiannually, EPA measures finance office
performance for processing payments, reconciling cash, and managing accounts receivable.
Annually, the Agency measures the SROs' performance for management of budgets, contracts,
Superfund billings, and property. In FY 2003, the finance offices and SROs generally met or
exceeded their performance goals for these measures. Where targets were missed, corrective
actions to improve performance were implemented. Additionally, EPA reports to OMB a
required set of monthly and quarterly financial indicators that measure Agency cash
reconciliation, accounts receivable, and vendor payment performance.
Financial Management Performance Measures
98.7%
99.1%
99.2%
More than 99 percent of EPA's vendor payments were
made on time; interest penalties totaled less than a V2 percent of
all vendor disbursements. The chart depicts EPA's
performance in several financial management areas. Although
only 58.2 percent of eligible debts were referred to Treasury,
almost 99.7 percent of eligible dollars were referred.
Electronic Salary
Payments
Electronic Travel
Payments
Eligible Debts Referre i
94.2%
to Treasury
20
EPA made significant progress in FY 2003 in
improving its financial performance by reviewing internal
2000
2001
Years
2002
2003
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EPA's FY 2003 Financial Statements
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controls to assess the potential for making erroneous payments under the State Revolving Funds
managed by the Water Program. EPA completed its review of the State Revolving Funds in
October 2002, and continued monitoring of the funds during FY 2003. The review identified a
very low incidence rate of erroneous payments; specifically, less than Vi percent for both funds.
The review will be expanded in FY 2004 to assess the potential for significant erroneous
payments in all Agency funds and to comply with the Improper Payments Act requirements.
Innovative Environmental Financing: The Advantage of Public-Private Partnerships
EPA leverages federal funds through several innovative environmental financing efforts
that are mutually beneficial public-private partnerships, such as the Clean Water and Drinking
Water State Revolving Funds, the Brownfields Program, and the Environmental Finance
Program.
State Revolving Funds {SRFs). The Clean Water SRF (CWSRF) provides assistance for
the implementation of wastewater and nonpoint-source pollution control and estuaries projects.
The Drinking Water SRF (DWSRF) helps finance improvements to water systems to sustain
their technical capacity to provide safe, affordable drinking water to consumers. The DWSRF
also funds other state activities that support their drinking water programs (refer to Section II,
Goal 2, for more information on the SRFs).
EPA awards capitalization grants to states, which then make loans to municipalities and
other entities for construction of infrastructure projects and implementation of other water quality
activities. State matching funds and leveraged bond proceeds expand the capital available in the
SRFs to address priority water quality and public health needs. Loan repayments and earnings
ensure funding for these activities far into the future. The flexibility and revolving nature of the
SRFs provide states with a powerful tool to apply needed funding toward their clean water and
drinking water infrastructure needs. These top-priority needs are estimated in two EPA
documents: the new Clean Watersheds Needs Survey 2000 Report to Congress20 (reporting clean
water needs at $182.2 billion, an increase of $26.6 billion from the last Survey) and the Drinking
Water Infrastructure Needs Survey Second Report to Congress21 (reporting $ 150.9 billion for
drinking water).
As of early FY 2003, CWSRFs have converted nearly $21 billion in federal capitalization
grants into more than $43.4 billion in assistance to municipalities and other entities for
wastewater projects. In recent years, CWSRFs have directed approximately $4 billion in annual
loan assistance to wastewater projects. On average, $115 million of these funds are used each
year to manage polluted runoff, making the CWSRF an effective tool in addressing
nonpoint-source problems.22
The newer DWSRFs have converted $5 billion in federal capitalization grants into more
than $8.1 billion available for drinking water assistance, of which $6.4 billion cumulative has
been provided. Assistance totaling $1.3 billion was provided in FY 2003.23 In addition to loans,
EPA's FY 2003 Financial Statements
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$796 million DWSRF grants have been set aside by states to fund a variety of programs and
activities that enhance water system management and protect sources of drinking water.
Brownfields Program. Since 1995, the Brownfields Program has been one of EPA's
most successful public-private partnerships, leveraging public and private investments and
creating jobs in cleanup, construction, and redevelopment. Brownfields are abandoned, idle, or
underused industrial and commercial properties where redevelopment or expansion is
complicated by real or perceived contamination. The Small Business Liability Relief and
Brownfields Revitalization Act, implemented in FY 2003, further promotes brownfields
redevelopment by providing financial assistance for assessment and cleanup, reforming
Superfund liability, and enhancing state response programs. In addition to the activities that have
been carried out in the past, the new legislation has expanded EPA's ability to address sites
contaminated with petroleum and permits EPA to establish grants for brownfields cleanups.
Environmental Finance Program. The Environmental Finance Program assists the public
and private sectors in finding creative approaches to funding environmental programs, projects,
and activities. The program seeks to lower costs, increase investment, and build capacity by
creating strong partnerships with state and local governments and the private sector. It leverages
its resources through support of three distinct, but related, components that provide financial
outreach services to these partners: the federally chartered Environmental Financial Advisory
Board (EFAB), the university-based Environmental Finance Center Network (EFCN), and the
online data base, Environmental Financing Information Network (EFIN).24 A good example of
how these components work together to leverage results is represented by the EFIN document
Paying for Sustainable Environmental Systems: A Guidebook of Financial Tools. EFAB and the
EFCN, working with EPA staff, developed this working tool, which helps environmental
practitioners in the public and private sectors find the appropriate methods to pay for
environmental protection efforts. The Guidebook destination on the EFIN website is accessed,
on average, more than 6,000 times a month. In addition, hundreds of hard copies and more than
5,000 CD-ROM copies of the Guidebook have been provided in response to specific requests.
New Financial Management Initiatives
Cost Accounting. To assess how well EPA's financial systems and information meet the
cost accounting requirements of program managers, the Agency reviewed the needs and
capabilities in all offices. Based on the results of this effort, the Agency created additional
coding structures within IFMS to capture and report cost information. These efforts contributed
to the EPA achieving the President's Management Agenda criterion for integrated financial and
performance management. EPA has shown that real-time use of financial and performance data
improves environmental performance and supports the Agency's goals for achieving cleaner air,
water, and land.
Financial information is integral to program management, as managers review costs and
outcomes and seek ways to deliver better environmental results with greater efficiency. For
example, EPA offices can now track information technology expenses, including related
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EPA's FY 2003 Financial Statements
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maintenance, development, and security costs. EPA's Office of Prevention, Pesticides and Toxic
Substances uses a separate feature of IFMS to obtain detailed information about resource use in
certain program areas (e.g., asbestos and mercury). In numerous briefings for OMB, EPA
program managers have demonstrated how they access integrated financial and performance
information, generate reports, analyze data, and make day-to-day decisions based on their
findings. Currently the Agency is assessing the viability of establishing links between
Agency-wide cost systems and programmatic systems for several program offices.
Brownfields Site Codes. Under the new Brownfields Law, grants awarded in FY 2003
and beyond have new funding limitations. Legal financial maximum limits now apply to funding
used at properties with petroleum-only contamination, health monitoring funding, institutional
controls monitoring and enforcement funding, insurance funding, and revolving loan fund
subgrant funding. In FY 2003, EPA established new site codes in its financial systems to track
each of these activities and better control funding.
Financial Replacement System (FinRS). FinRS will replace legacy systems that are
inefficient by today's standards. It will improve integration among systems, as well as EPA's
ability to perform core financial management functions, and provide additional functionality.
EPA structured development of the FinRS suite of applications to deliver both short-term and
long-term results.
With the FY 2004 implementation of the Payroll Time and Labor system, which fully
supports the e-Payroll initiative, the Agency will realize substantial on-going cost savings. In
addition, EPA will realize benefits from standardizing interfaces through use of an Enterprise
Application Integration tool. The Agency will improve ad-hoc financial reporting by
re-engineering the Financial Data Warehouse to include enhanced business activity monitoring
capabilities (e.g., expanded integration with environmental indicators and administrative areas)
and implementing BusinessObjects, a modern web-based reporting software. Finally, the
cornerstone of the FinRS suite of applications will include the implementation of a new Joint
Financial Management Improvement Program (JFMIP) certified core financial system that
complies with recently established federal financial management system requirements.
FedTrip. This year EPA implemented the on-line reservation booking engine known as
FedTrip as the first component of government-wide e-Travel services. When all components are
fully implemented, e-Travel service will offer end-to-end travel services from planning to
voucher reimbursement. This effort is part of the expansion of electronic government, a key area
in the President's Management Agenda.
SUSTAINED PROGRESS IN ADDRESSING MANAGEMENT ISSUES
The Reports Consolidation Act of 200025 authorizes agencies to consolidate various
management reports and submit them as part of their annual reports. This section provides a
comprehensive discussion of EPA's progress in strengthening its management practices to
achieve program results. It includes the strategies implemented and progress made in addressing
EPA's FY 2003 Financial Statements
Page 23
-------
management concerns identified under the Federal Managers Financial Integrity Act (FMFIA);26
the Agency's efforts to carry out corrective actions on audits issued by EPA's Office of Inspector
General (OIG); and the OIG's list of top management challenges facing the Agency.
FY 2003 Integrity Act Report
Fiscal Year 2003
Annual Assurance Statement
I am pleased to give an unqualified statement of
assurance that the Agency's programs and
resources are protected from fraud, waste, and
mismanagement, based on EPA's annual
self-assessment of its internal management and
financial control systems.
In FY 2003, for the 2nd year, EPA reported
no material weaknesses under FMFIA and
resolved almost one third of its less severe, internal
Agency weaknesses tracked by the Administrator
(see chart). To identify management issues and
monitor progress in addressing them, Agency
senior leaders use a system of internal and
independent reviews and program evaluations,
audits by the General Accounting Office (GAO)
and EPA's OIG, and performance measurement.
These efforts ensure that program activities are
effectively carried out in accordance with
applicable laws and sound management policy, and
provide reasonable assurance that Agency
resources are protected against fraud, waste, abuse, and mismanagement. In FY 2003, the Office
of Management and Budget (OMB) recognized EPA's success in correcting material weaknesses,
which contributed to the Agency achievement of a "green" status score in Improved Financial
L
Marianne L. Horinko
Acting Administrator
October 23. 2003
Date
Performance, a key initiative of the
President's Management Agenda.27
In FY 2003, EPA addressed a wide
range of major management challenges,
thereby strengthening its ability to achieve
environmental and human health results.
EPA's advancements in establishing and
implementing effective management controls
in environmental programs include:
3 Year Trend of Material and
Agency-Level Weaknesses
201
18.
16.
ci 14.
" 12.
o
_§ 10-1
rt i
o „
^ 4.
2.
0
19
16
| Material
Agency
10
A* ~
2001
2002
2003
Years
Using a comprehensive, integrated
strategy to address risks from all
sources of air toxics—major, area,
mobile, and indoor sources28. EPA is on target to complete all of its 10-year Maximum
Achievable Control Technology (MACT) standards by February 27, 2004.29
Improving water quality by reducing the backlog of National Pollutant Discharge
Elimination System (NPDES) permits30 and increasing the focus on water permit
prioritization for environmental results.
Page 24
EPA's FY 2003 Financial Statements
-------
• Enhancing EPA's program to prevent risks to human health and/or the environment from
land application of sewage sludge by increasing public involvement, expanding
biosolids-related research, and actively enforcing safe land-application.31
The Agency also addressed a number of management challenges in administrative and
management program areas, which provide the infrastructure supporting EPA's efforts to achieve
results. Following are examples of FY 2003 accomplishments toward continued improvement
in effective management of resources:
EPA is aggressively implementing a comprehensive approach to managing its grants
awards, which make slightly less than half of the Agency's budget.32 To improve
oversight for the award and administration of assistance agreements, EPA established a
competition policy that in FY 2003 more than tripled the percentage of competitive
awards to nonprofit organizations covered by the policy. The Agency also established a
new post-award monitoring policy that will significantly increase oversight and
strengthen accountability for grants management.
EPA strengthened its data management and information technology systems. During
FY 2003 the Agency developed new management controls to ensure consistent quality
management practices throughout EPA; launched a modernized RCRAInfo system33 that
reduces burden and provides better data; and enhanced its comprehensive information
technology investment review process, which is integrated with EPA planning and
budgeting.
• EPA completed a draft of its new Strategy for Human Capital, Investing in Our People II,
2003 through 2008, and included a human capital cross-goal strategy in the Agency's
2003 Strategic Plan. These efforts reflect progress in aligning workforce planning,
recruitment, and staff development efforts with the Agency's environmental goals.
For more information, visit http://vvvvvv.epa.uov/ocfo/finstatement/2003ar/2003ar.htm.
FY 2003 Management's Report on Audits
The Inspector General Act of 1978, as amended,34 requires federal agencies to report to
Congress on the status of their progress in carrying out audit recommendations. Audit
management serves as a tool in assessing the Agency's ability to meet its strategic objectives.
EPA continues to strengthen its audit management practices and has improved its ability to
address and complete corrective actions in a timely manner.
In FY 2003, EPA was responsible for addressing OIG recommendations and tracking
follow-up activities on 211 audits. The Agency achieved final action on 115 audits, which
include Program Evaluation/Program Performance Audits, Assistance Agreements Audits,
EPA's FY 2003 Financial Statements
Page 25
-------
Contracts Audits, and Single Audits. Results achieved during FY 2003 for the Agency's audit
management activities are summarized below:
Final Corrective Action Taken. EPA completed final corrective actions on 18
performance and 97 financial audits. Of the 97 financial audits, the OIG questioned costs of
more than $90.7 million. After careful review, the OIG and the Agency agreed to disallow
approximately $45.3 million of these questioned costs. In the performance audit arena, EPA
management and the OIG did not identify funds that could be put to better use.
Final Corrective Action Not Taken. As of the end of FY 2003, 91 audits were without
final action and have not been fully resolved (excluding those audits with management decisions
under administrative appeal by the grantee).
Final Corrective Action Not Taken Beyond 1 Year. Of the 91 audits listed above, EPA
officials had not completed final action on 26 audits within 1 year after the management
decision. Because of the complexity of the issues, it often takes Agency management more than
1 year after management decisions are reached with the OIG to complete the agreed-upon
corrective actions.
Audits A waiting 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. In FY 2003, 61 audits were in administrative
appeal.
Page 26
EPA's FY 2003 Financial Statements
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DISALLOWED COSTS & FUNDS PUT TO BETTER USE
October 1, 2002 - September 30, 2003
Disallowed Costs
(Financial Audits)
Better Use
(Performance Audits)
Category
Number Value
Number Value
A. Audits with management decisions but without final action at the
beginning of FY 2003.
91 $ 149,435,120
25 $0
B. Audits for which management decisions were made during FY 2003.
(i) Management decisions with disallowed costs. (14)
(ii) Management decisions with no disallowed costs. (83)
97 $ 8,718,387
20 $0
C. Total audits pending final action during FY 2003. {A + B}
188 $ 158,153,507
45 $0
D. Final action taken during FY 2003:
(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.
97 $ 43,683,647
$ 8,806,994
$ 1,963,726
$ 0
$ 1,240,050
$ 526,821
$ 31,146,056
18 $0
$0
$0
E. Audit reports needing final action at the end of FY 2003. {C - D}
91 $ 114,469,860
27 $0
For more information, visit http://www.epa.gov/ocfo/fmstatement/2003ar/2003ar.htm.
OIG KEY MANAGEMENT CHALLENGES REQUIRING SUSTAINED AGENCY
ATTENTION (Prepared by EPA '.s Office of the Inspector General)
EPA made progress in addressing the top 10 management challenges identified by the
that OIG over the past 3 years. These efforts included issuing new standards and policies,
providing training, and beginning the implementation of cross-cutting strategies in the Agency's
2003 Strategic Plan. Nonetheless, EPA has not taken all actions necessary to address the
challenges and ensure that the actions taken have been effective. If EPA does not take sufficient
actions, the challenges will continue to impede the Agency's ability to meet its goals. For
example, despite the Agency issuing new standards and policies to improve its management of
assistance agreements, the OIG continues to find instances where EPA is not adequately
overseeing these agreements. To address the issue, EPA needs to allocate sufficient resources,
hold management and staff accountable for complying with policies, establish success measures,
and monitor progress.
EPA's 10 management challenges identified by the OIG for FY 2001-FY 2003 are
presented in the following table. Many of these issues are long-standing problems that existed
for many years. The table shows the year in which the OIG noted the problems and describes the
relationship to EPA's strategic goals and the President's Management Agenda. For more
information, visit http://vvvvvv.epa.uov/ocfo/finstatement/2003ar/2003ar.htm.
EPA's FY 2003 Financial Statements
Page 27
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EPA's Top Management Challenges
Reported by the Office of Inspector General
FY
200135
FY
200236
FY
200337
Link to
EPA's
Strategic
Goal
Link to
President's
Management
Agenda
Linking Mission and Management:
Developing more outcome-based targets.
!
!
!
Cross-Goal
Budget and
Performance
Integration
Information Resources Management and
Data Quality: Improving the quality of data
used.
!
!
!
Cross-Goal
Expanded
E-Government
Human Capital Management: Implementing
a strategy to develop staff.
!
!
!
Cross-Goal
Human Capital
EPA's Use of Assistance Agreements to
Accomplish Its Mission: Improving
management of the billions of dollars of grants
awarded by EPA.
!
!
!
Cross-Goal
Improved
Financial
Performance
Protecting Critical Infrastructure from
Non-Traditional Attacks: Protecting physical
and cyber-based infrastructures, such as in
water sector.
!
!
!
Cross-Goal
Challenges in Addressing Air Toxics
Program Phase 1 & Phase 2 Goals: Reducing
air toxic emissions by improving approach and
measures.
!
!
Goal 1
EPA's Working Relationships with States:
Improving structure for working with States.
!
!
!
Cross-Goal
Information Security: Protecting information
systems by preventing intrusion and abuse.
!
!
!
Cross-Goal
Expanded
E-Government
Backlog of National Pollutant Discharge
Elimination System Permits: Addressing
permit renewal backlog for water discharges.
!
!
!
Goal 2
Management of Biosolids: Improving sewage
sludge management to sufficiently protect the
public.
!
!
Goal 2
Endnotes
1. EPA's 2003 Strategic Plan available at http://www.epa.gov/ocfopage.
2. Information available at http://www.epa.gov/otaa/cauip-hd.htm. http://www.epa.gov/otaa/dicscl.htm. and
http ://www. epa. gov/otaq/nonroad.htm.
3. US EPA, Office of Pollution Prevention and Toxics, Voluntary Children's Chemicals Evaluation Program
(VCCEP) Commitment Tracking System.
Page 28
EPA's FY 2003 Financial Statements
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4. Centers for Disease Control, National Center for Health Statistics, National Health and Nutrition Examination
Survey: 1999-2002. Available at http://www.cdc. gov/nchs/nhanes. htm.
5. Organophosphates are a class of widely used, older pesticides of concern for adverse effects.
6. Due to the grantee reporting cycle, the Brownfields Program can only report data on the first two quarters of
FY 2003. Data are from the Brownfields Management System. More information at
http ://www. epa. uo\/brownfields/.
7. The specific language for this strategic target reads as follows: "By 2008, working with National Estuary Program
(NEP) partners, protect or restore an additional 250,000 acres of habitat within the study areas for the 28 estuaries
that are part of the NEP."
8. Information on the Submerged Aquatic Vegetation measure available at http://www.chesapeakebav.net/status.
9. Information about EPA's National Coastal Assessment available at http://www.epa.gov/emap/nca/index.html.
10. Performance and Cost of Mercury and Multipollutant Emission Control Technology Applications on Electric
Utility Boilers (EPA-600/R-03/110).
11. Additional information is available at http://www.epa.gov/epaoswer/hazwaste/minimize/chemlist.htm.
12. Additional information about the President's Management Agenda can be found in Chapter 6 and at
http://www.whitehouse.gov/omb/budget/IV2002/mgmt.pdf.
13. EPA's PART evaluation information available at http://www.whitehouse.gov/omb/budget/IV2004/pma.html.
14. Appendix A contains a complete list of program evaluations conducted in FY 2003.
15. For complete information on the quality of the data contained in the Performance Data Charts in Section II -
Performance Results, please see EPA's FY 2004 Final Annual Plan at the following website:
http ://www. epa. gov/ocfopage/budget/budget. htm. See also
http ://www. epa. gov/ocfo/finstatement/2003ar/2003ar.htm.
16. Section III, FY 2003 Statement of Budgetary Resources.
17. Section III, FY 2003 Statement of Net Costs.
18. US EPA, Office of the Chief Financial Officer, EPA's FY 2003 Budget Automation System.
19. US Department of the Treasury, FY 2003 Superfund Trust Fund Financial Statements.
20. US EPA Office of Water, The Clean Watersheds Needs Survey 2000 Report to Congress, EPA-832-R-03-001,
Washington, D.C., September, 2003, http://www.epa.gov/owm/mtb/cwns/index.htm.
21. US EPA Office of Water, Drinking Water Infrastructure Needs Survey Second Report to Congress, EPA816-R-
01-004, Washington, D.C., February, 2001, http://www.epa.gov/safewater/needs.html.
22. US EPA, Office of Water, Clean Water State Revolving Fund National Information Management System,
http ://www. epa. gov/r5 water/cwsrf.
EPA's FY 2003 Financial Statements Page 29
-------
23. US EPA, Office of Ground Water and Drinking Water's Drinking Water National Information Management
System, http://www.epa.gov/OGWDW/dwsrf/dwnims.html.
24. EFIN is available at http://www.epa.gov/efinpage.
25. Reports Consolidation Act of 2000, Public Law 106-531 (January 24, 2000).
26. Federal Managers Financial Integrity Act of 1982, Public Law 97-255 (September 8, 1982).
27. Executive Office of the President, Office of Management and Budget, Federal Management: The President's
Management Agenda available at http://www.whitehouse.gov/omb/budintegration/pma.
28. US EPA, National Ambient Air Quality Standards available at http ://www. epa. gov/airs/critcria. html.
29. Ibid.
30. US EPA, Office of Water, National Pollutant Discharge Elimination System (NPDES), Backlog Reduction
available at http://cfpub.epa.gov/npdes/permitissuance/backlog.cfm.
31. Federal Register, April 9, 2003, at 68 FR 17379-17395.
32. US EPA, EPA Grants Information and Control System (GICS) database.
3 3. Available at http ://www. epa. gov/epaoswer/hazwaste/data/index. htm#rcra-info.
34. Inspector General Act of 1978, as amended, Public Law 95-452, October 12, 1978.
35. OIG Memorandum of December 17, 2001 to EPA Administrator, "EPA's Key Management Challenges".
36. OIG Memorandum of September 6, 2002 to EPA Administrator, "EPA's Key Management Challenges".
37. OIG Memorandum of May 22, 2003 to EPA Administrator, "EPA's Key Management Challenges".
Page 30
EPA's FY 2003 Financial Statements
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PRINCIPAL
FINANCIAL
STATEMENTS
EPA's FY 2003 Financial Statements
Page 31
-------
CONTENTS
Financial Statements
Consolidating Balance Sheet
Consolidating Statement of Net Cost
Consolidated Statement of Net Cost by Goal
Consolidating Statement of Changes in Net Position
Combined Statement of Budgetary Resources
Consolidating Statement of Financing
Consolidated Statement of Custodial Activity
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balance with Treasury
Note 3. Cash
Note 4. Investments
Note 5. Accounts Receivable
Note 6. Other Assets
Note 7. Loans Receivable, Net - Non-Federal
Note 8. Accounts Payable and Accrued Liabilities
Note 9. General Plant, Property and Equipment
Note 10. Debt
Note 11. Custodial Liability
Note 12. Other Liabilities
Note 13. Leases
Note 14. Pensions and Other Actuarial Benefits
Note 15. Cashout Advances, Superfund
Note 16. Unexpended Appropriations, All Other Funds
Note 17. Amounts Held by Treasury
Note 18. Commitments and Contingencies
Note 19. Exchange Revenues, Statement of Net Cost
Note 20. Environmental Cleanup Costs
Note 21. Superfund State Credits
Note 22. Superfund Preauthorized Mixed Funding Agreements
Note 23. Income and Expenses from Other Appropriations
Note 24. Custodial Revenues and Accounts Receivable
Note 25. Statement of Budgetary Resources
Note 26. Recoveries and Permanently Not Available, Statement of Budgetary Resources
Note 27. Unobligated Balances Available
Note 28. Offsetting Receipts
Note 29. Statement of Financing
Note 30. Costs Not Assigned to Goals
Page 32
EPA's FY 2003 Financial Statements
-------
Notes to Financial Statements (continued)
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. Nonexchange Revenue, Statement of Changes in Net Position
Note 36. Hazardous Substance (Superfund) Trust Fund Balances
Supplemental Information Requested by OMB
Required Supplemental Information
Deferred Maintenance (Unaudited)
Intragovernmental Assets (Unaudited)
Intragovernmental Liabilities (Unaudited)
Intragovernmental Revenues and Costs (Unaudited)
Supplemental Statement of Budgetary Resources (Unaudited)
Working Capital Fund Supplemental Balance Sheet (Unaudited)
Working Capital Fund Supplemental Statement of Net Cost (Unaudited)
Working Capital Fund Supplemental Statement of Changes in Net Position (Unaudited)
Working Capital Fund Supplemental Statement of Budgetary Resources (Unaudited)
Working Capital Fund Supplemental Statement of Financing (Unaudited)
Required Supplemental Stewardship Information
Annual Stewardship Information (Unaudited)
EPA's FY 2003 Financial Statements
Page 33
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Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 2003 and 2002
(Dollars in Thousands)
ASSETS
Intragovernmental
Fund Balance With Treasury (Note 2)
Investments (Notes 4 and 17)
Accounts Receivable, Net (Note 5)
Other (Note 6)
Total Intragovernmental
Superfund
Trust Fund
FY 2003
Superfund
Trust Fund
FY 2002
All
Others
FY 2003
All
Others
FY 2002
Combined
Totals
FY 2003
$ 26,448
2,516,147
34,665
7,414
$ 2,584,674
$ 32,229
3,309,975
33,309
4,520
$ 3,380,033
$ 11,758,357
2,114,684
119,941
3,827
$ 13,996,809
$ 11,688,934
1,952,052
72,298
4,578
$ 13,717,862
$ 11,784,805
4,630,831
154,606
11,241
$ 16,581,483
Cash and Other Monetary Assets (Note 3)
Accounts Receivable, Net (Note 5)
Loans Receivable, Net - Non-Federal (Note 7)
Property, Plant and Equipment, Net (Note 9)
Other (Note 6)
Total Assets
0
428,486
0
45,855
680
0
411,437
0
38,746
780
10
65,296
53,506
579,471
3,502
10
49,398
64,646
551,336
4,937
10
493,782
53,506
625,326
4,182
$ 3,059,695 $ 3,830,996 $ 14,698,594 $ 14,388,189 $ 17,758,289
LIABILITIES
Intragovernmental
Accounts Payable and Accrued Liabilities (Note 8) $ 145,631 $ 116,239 $ 70,156 $ 43,983 $ 215,787
Debt Due to Treasury (Note 10) 0 0 21,189 24,290 21,189
Custodial Liability (Note 11) 0 0 78,776 69,706 78,776
Other (Note 12) 30,600 23,727 21,611 26,381 52,211
Total Intragovernmental $ 176,231 $ 139,966 $ 191,732 $ 164,360 $ 367,963
Accounts Payable and Accrued Liabilities (Note 8)
165,550
145,805
722,784
511,236
888,334
Pensions and Other Actuarial Liabilities (Note 14)
7,937
7,698
36,159
31,759
44,096
Environmental Cleanup Costs (Note 20)
0
0
8,880
13,309
8,880
Cashout Advances, Superfund (Note 15)
279,092
337,139
0
0
279,092
Commitments and Contingencies (Note 18)
0
0
18
20
18
Payroll and Benefits Payable (Note 33)
31,039
39,136
142,791
177,432
173,830
Other (Notes 12 and 13)
49,809
45,515
53,105
47,479
102,914
Total Liabilities J
; 709,658 $
715,259 $
1,155,469 $
945,595 $
1,865,127
NET POSITION
Unexpended Appropriations (Note 16) $ 0 $ 0 $ 10,768,236 $ 10,923,889 $ 10,768,236
Cumulative Results of Operations (Notes 17 and 36) 2,350,037 3,115,737 2,774,889 2,518,705 5,124,926
Total Net Position 2,350,037 3,115,737 13,543,125 13,442,594 15,893,162
Total Liabilities and Net Position $ 3,059,695 $ 3,830,996 $ 14,698,594 $ 14,388,189 $ 17,758,289
The accompanying notes are an integral part of these statements.
Page 34
EPA's FY 2003 Financial Statements
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Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 2003 and 2002
(Dollars in Thousands)
Intra- Intra-
Combined agency agency Consolidated Consolidated
Totals Elimination Elimination Totals Totals
FY 2002 FY 2003 FY 2002 FY 2003 FY 2002
ASSETS
Intragovernmental
Fund Balance With Treasury (Note 2)
Investments (Notes 4 and 17)
Accounts Receivable, Net (Note 5)
Other (Note 6)
Total Intragovernmental
11,721,163
5,262,027
105,607
9,098
0
0
(89,789)
(7,269)
0
0
(47,412)
(4,447)
11,784,805
4,630,831
64,817
3,972
11,721,163
5,262,027
58,195
4,651
$ 17,097,895 $ (97,058) $ (51,859) $ 16,484,425 $ 17,046,036
Cash and Other Monetary Assets (Note 3)
Accounts Receivable, Net (Note 5)
Loans Receivable, Net - Non-Federal (Note 7)
Property, Plant and Equipment, Net (Note 9)
Other (Note 6)
Total Assets
10
460,835
64,646
590,082
5,717
10
493,782
53,506
625,326
4,182
10
460,835
64,646
590,082
5,717
$ 18,219,185 $ (97,058) $ (51,859) $ 17,661,231 $ 18,167,326
LIABILITIES
Intragovernmental
Accounts Payable and Accrued Liabilities (Note 8)
Debt Due to Treasury (Note 10)
Custodial Liability (Note 11)
Other (Note 12)
Total Intragovernmental
160,222
24,290
69,706
50,108
(89,789) $
0
0
(7,269)
(47,480) $
0
0
(4,379)
125,998
21,189
78,776
44,942
112,742
24,290
69,706
45,729
304,326 $ (97,058) $ (51,859) $ 270,905 $ 252,467
Accounts Payable and Accrued Liabilities (Note 8)
Pensions and Other Actuarial Liabilities (Note 14)
Environmental Cleanup Costs (Note 20)
Cashout Advances, Superfund (Note 15)
Commitments and Contingencies (Note 18)
Payroll and Benefits Payable (Note 33)
Other (Notes 12 and 13)
Total Liabilities
657,041
39,457
13,309
337,139
20
216,568
92,994
888,334
44,096
8,880
279,092
18
173,830
102,914
657,041
39,457
13,309
337,139
20
216,568
92,994
$ 1,660,854 $ (97,058) $ (51,859) $ 1,768,069 $ 1,608,995
NET POSITION
Unexpended Appropriations (Note 16) $ 10,923,889 $ 0 $ 0 $ 10,768,236 $ 10,923,889
Cumulative Results of Operations (Notes 17 and 36) 5,634,442 0 0 5,124,926 5,634,442
Total Net Position
16,558,331
0
0
15,893,162
16,558,331
Total Liabilities and Net Position
$ 18,219,185 $
(97,058) $
(51,859) 3
i 17,661,231 $
; 18,167,326
The accompanying notes are an integral part of these statements.
EPA's FY 2003 Financial Statements
Page 35
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Environmental Protection Agency
Consolidating Statement of Net Cost
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
Superfund
Superfund
All
All
Combined
Trust Fund
Trust Fund
Others
Others
Totals
FY 2003
FY 2002
FY 2003
FY 2002
FY 2003
:osts
Intragovernmental $
341,817 !
i 348,980 $
816,624 $
782,110 J
; 1,158,441
With the Public
1,246,427
1,209,338
6,427,497
5,678,789
7,673,924
Expenses from Other Appropriations (Note 23)
75,597
114,297
(75,597)
(114,297)
0
Total Costs $
1,663,841 !
i 1,672,615 $
7,168,524 $
6,346,602 $
; 8,832,365
Less:
Earned Revenues, Federal (Note 19)
16,682
22,932
124,233
104,318
140,915
Earned Revenues, Non-Federal (Note 19)
394,295
477,768
31,304
24,927
425,599
Total Earned Revenues (Note 19) $ 410,977 500,700 $ 155,537 129,245 $ 566,514
NET COST OF OPERATIONS $ 1,252,864* $ 1,171,915 $ 7,012,987 $ 6,217,357 $ 8,265,851
Environmental Protection Agency
Consolidating Statement of Net Cost
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
COSTS
Intragovernmental $
With the Public
Expenses from Other Appropriations (Note 23)
Total Costs $
Less:
Earned Revenues, Federal (Note 19)
Earned Revenues, Non-Federal (Note 19)
Total Earned Revenues (Note 19)
NET COST OF OPERATIONS $
Combined Intra-agency Intra-agency Consolidated Consolidated
Totals Eliminations Eliminations Totals Totals
FY 2002 FY 2003 FY 2002 FY 2003 FY 2002
1,131,090 $
6,888,127
0
(20,240) $
0
(20,795) $
0
0
1,138,201 $
7,673,924
0
1,110,295
6,888,127
0
8,019,217 $
(20,240) $
(20,795) $
8,812,125 $
7,998,422
127,250
502,695
(20,240)
0
(20,795)
0
120,675
425,599
106,455
502,695
629,945 $
(20,240)
(20,795) $
546,274
609,150
7,389,272 $
0 $
0 $
8,265,851 $
7,389,272
Page 36
The accompanying notes are an integral part of these statements.
EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2003
(Dollars in Thousands)
Clean and Prevent Better Waste
Clean Air Safe Water Safe Food Pollution Management Global Risks
COSTS
Intragovernmental $
With the Public
84,961 $
532,480
; 139,303 $
3,817,701
31,028 $
97,848
54,492 $
281,634
; 409,312 $
1,581,550
35,643
219,692
Total Costs $
617,441 $
; 3,957,004 $
128,876 $
336,126 $
; 1,990,862 $
255,335
Less:
Earned Revenue, Federal
3,234
5,394
37
1,197
80,029
3,911
Earned Revenue, Non-Federal
71
1,876
20,729
300
396,738
1,652
Total Earned Revenue $
3,305
7,270 $
20,766
1,497 $
; 476,767 $
5,563
Management Cost Allocation
55,231
83,892
24,379
36,784
136,240
15,031
NET COST OF $
669,367 $
; 4,033,626 $
132,489 $
371,413 $
; 1,650,335 $
264,803
OPERATIONS
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2002
(Dollars in Thousands)
Clean and
Clean Air Safe Water
COSTS
Intragovernmental $ 101,347 $ 183,063
With the Public 487,461 3,264,051
Total Costs $
588,808 $
3,447,114
Less:
Earned Revenue, Federal
266
3,744
Earned Revenue, Non-Federal
25
2,290
Total Earned Revenue $ 291 6,034
Management Cost Allocation 59,337 87,575
NET COST OF $ 647,854 $ 3,528,655
OPERATIONS
Prevent Better Waste
Safe Food Pollution Management Global Risks
$ 37,022 $ 55,734 $ 440,640 $ 36,020
91,795 253,462 1,488,511 206,938
; 128,817 $
309,196 $
1,929,151 $
242,958
109
1,497
92,691
4,081
14,960
1,193
473,739
586
; 15,069
2,690 $
566,430 $
4,667
26,585
37,863
143,513
16,636
; 140,333 $
344,369 $
1,506,234 $
254,927
The accompanying notes are an integral part of these statements.
EPA's FY 2003 Financial Statements
Page 37
-------
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2003
(Dollars in
Thousands)
Environ.
Sound
Credible
Effective
Not Assigned
Consolidated
Information
Science
Deterrent
Management
to Goals*
Total
COSTS
Intragovernmental $
174,224 $
51,118 $
93,695 :
$ 40,751 $
23,674 $
1,138,201
With the Public
191,351
293,552
325,968
343,036
(10,888)
7,673,924
Total Costs $
365,575 $
344,670 $
419,663 :
$ 383,787 $
12,786 $
8,812,125
Less:
Earned Revenue, Federal
126,261
1,198
272
(100,428)
(430)
120,675
Earned Revenue, Non-Federal
121
364
1,220
1,367
1,161
425,599
Total Earned Revenue $
126,382
1,562 $
1,492
(99,061) $
731 $
546,274
Management Cost Allocation
26,018
28,766
76,507
(482,848)
0
0
NET COST OF $
265,211 $
371,874 $
494,678 :
$ 0 $
12,055 $
8,265,851
OPERATIONS
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2002
(Dollars in Thousands)
Environ.
Information
Sound
Science
Credible
Deterrent
Effective
Management
Not Assigned
to Goals*
Consolidated
Total
COSTS
Intragovernmental $
With the Public
Total Costs $
60,624
193,241
253,865
$ 62,030 <
263,592
$ 325,622 <
S 106,374 $
281,171
S 387,545 $
23,393 $
366,798
390,191 $
4,048 3
(8,893)
(4,845) 3
i 1,110,295
6,888,127
i 7,998,422
Less:
Earned Revenue, Federal
Earned Revenue, Non-Federal
130,237
154
800
84
234
914
(125,025)
3,300
(2,179)
5,450
106,455
502,695
Total Earned Revenue $
130,391
884 <
S 1,148
(121,725) $
3,271 a
S 609,150
Management Cost Allocation
28,089
30,408
81,910
(511,916)
0
0
NET COST OF $
151,563
$ 355,146 <
S 468,307 $
0 $
(8,116) a
S 7,389,272
OPERATIONS
* See Note 30.
The accompanying notes are an integral part of these statements.
Page 38
EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
Cumulative
Cumulative
Cumulative
Cumulative
Cumulative
Results of
Results of
Results of
Results of
Results of
Operations
Operations
Operations
Operations
Operations
Superfund
Superfund
All
All
Consolidated
Trust Fund
Trust Fund
Others
Others
Totals
FY 2003
FY 2002
FY 2003
FY 2002
FY 2003*
Net Position - Beginning of Period 3
i 3,115,737 !
$ 3,477,720 <
S 2,518,705 !
i 2,335,136 3
6 5,634,442
Prior Period Adjustments
0
0
0
0
0
Beginning Balances, as Adjusted 3
i 3,115,737 I
S 3,477,720 <
S 2,518,705 !
i 2,335,136 3
6 5,634,442
Budgetary Financing Sources:
Appropriations Received
0
0
0
0
0
Appropriations Transferred In/Out (Note 31)
0
0
0
0
0
Other Adjustments (Note 34)
0
0
0
0
0
Appropriations Used
0
0
7,496,463
6,784,295
7,496,463
Nonexchange Revenue (Note 35)
(49,692)
108,038
260,515
260,111
210,823
Transfers In/Out (Note 31)
(191,131)
(103,448)
111,614
63,672
(79,517)
Trust Fund Appropriations
632,307
676,292
(632,307)
(676,292)
0
Income from Other Appropriations (Note 23)
75,597
114,297
(75,597)
(114,297)
0
Total Budgetary Financing Sources 3
i 467,081 !
$ 795,179 <
S 7,160,688 !
i 6,317,489 3
6 7,627,769
Other Financing Sources:
Transfers In/Out (Note 31)
84
47
287
398
371
Imputed Financing Sources (Note 32)
19,999
14,706
108,196
83,039
128,195
Total Other Financing Sources 3
i 20,083 :
$ 14,753 <
S 108,483 !
i 83,437 3
6 128,566
Net Cost of Operations
(1,252,864)
(1,171,915)
(7,012,987)
(6,217,357)
(8,265,851)
Net Position-End of Period 3
i 2,350,037 !
$ 3,115,737 !
i 2,774,889 !
i 2,518,705 3
6 5,124,926
* This statement does not have any intra-agency eliminations for FY 2003 or 2002.
The accompanying notes are an integral part of these statements.
EPA's FY 2003 Financial Statements Page 39
-------
Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
Cumulative
Results of Unexpended Unexpended
Operations Appropriations Appropriations
Consolidated
All
All
Consolidated
Consolidated
Totals
Others
Others
Totals
Totals
FY 2002*
FY 2003
FY 2002
FY 2003*
FY 2002*
Net Position - Beginning of Period $
5,812,856 $
10,923,889 3
; 10,358,961 ;
i 16,558,331 $
16,171,817
Prior Period Adjustments
0
0
0
0
0
Beginning Balances, as Adjusted $
5,812,856 $
10,923,889 3
; 10,358,961 3
6 16,558,331 $
16,171,817
Budgetary Financing Sources:
Appropriations Received
0
7,408,126
7,356,085
7,408,126
7,356,085
Appropriations Transferred In/Out (Note 31)
0
4,550
28,598
4,550
28,598
Other Adjustments (Note 34)
0
(71,866)
(35,460)
(71,866)
(35,460)
Appropriations Used
6,784,295
(7,496,463)
(6,784,295)
0
0
Nonexchange Revenue (Note 35)
368,149
0
0
210,823
368,149
Transfers In/Out (Note 31)
(39,776)
0
0
(79,517)
(39,776)
Trust Fund Appropriations
0
0
0
0
0
Income from Other Appropriations (Note 23)
0
0
0
0
0
Total Budgetary Financing Sources $
7,112,668 $
(155,653) 3
! 564,928 3
6 7,472,116 $
7,677,596
Other Financing Sources:
Transfers In/Out (Note 31)
445
0
0
371
445
Imputed Financing Sources (Note 32)
97,745
0
0
128,195
97,745
Total Other Financing Sources $
98,190 $
0 3
; o ;
i 128,566 $
98,190
Net Cost of Operations
(7,389,272)
0
0
(8,265,851)
(7,389,272)
Net Position-End of Period $
5,634,442 $
10,768,236 3
; 10,923,889 ;
i 15,893,162 $
16,558,331
* This statement does not have any intra-agency eliminations for FY 2003 or 2002.
The accompanying notes are an integral part of these statements.
Page 40 EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
Superfund
Superfund
All
Trust Fund
Trust Fund
Others
FY 2003
FY 2002
FY 2003
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $
0 $
0 $
7,424,350
Borrowing Authority
0
0
0
Net Transfers
1,286,342
1,329,490
76,863
Other
0
0
0
Unobligated Balances:
Beginning of Period
750,994
714,321
2,045,248
Net Transfers, Actual
0
0
0
Anticipated Transfers Balance
0
0
0
Spending Authority from Offsetting Collections:
Earned and Collected
211,066
193,835
273,703
Receivable from Federal Sources
(1,728)
3,523
5,074
Change in Unfilled Customer Orders
Advance Received
(41,608)
(22,548)
(20,362)
Without Advance from Federal Sources
5,259
1,749
(28,473)
Anticipated for Rest of Year
0
0
0
Transfers from Trust Funds
(9,642)
0
96,135
Total Spending Authority from Collections $
163,347 $
176,559 $
326,077
Recoveries of Prior Year Obligations (Note 26)
124,797
230,628
114,437
Permanently Not Available (Note 26)
(8,274)
(2,000)
(76,182)
Total Budgetary Resources (Note 25) $
2,317,206 $
2,448,998 $
9,910,793
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $
1,373,144 $
1,548,650 $
7,539,595
Reimbursable
177,257
149,354
272,326
Total Obligations Incurred (Note 25) $
1,550,401 $
1,698,004 $
7,811,921
Unobligated Balances:
Apportioned (Note 27)
766,786
726,589
2,011,471
Exempt from Apportionment
0
0
0
Unobligated Balances Not Available (Note 27)
19
24,405
87,401
Total Status of Budgetary Resources $
2,317,206 $
2,448,998 $
9,910,793
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $
1,262,257 $
1,290,817 $
7,371,407
Obligated Balances, Net - Beginning of Period
2,021,759
2,108,696
9,608,652
Accounts Receivable
1,965
3,694
118,037
Unfilled Customer Orders from Federal Sources
71,707
66,448
224,874
Undelivered Orders, Unpaid
(1,612,994)
(1,831,268)
(9,077,583)
Accounts Payable
(299,181)
(260,633)
(847,544)
Total Outlays (Note 25) $
1,445,513 $
1,377,754 $
7,397,843
Disbursements $
1,605,329 $
1,549,041 $
7,706,933
Collections
(159,816)
(171,287)
(309,090)
Less: Offsetting Receipts (Note 28)
(146,502)
(248,252)
(643,956)
Net Outlays $
1,299,011 $
1,129,502 $
6,753,887
The accompanying notes are an integral part of these statements.
EPA's FY 2003 Financial Statements
Page 41
-------
Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
All
Combined
Combined
Others
Totals
Totals
FY 2002
FY 2003
FY 2002
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $
7,371,085 $
7,424,350 $
7,371,085
Borrowing Authority
0
0
0
Net Transfers
101,010
1,363,205
1,430,500
Other
0
0
0
Unobligated Balances:
Beginning of Period
1,911,304
2,796,242
2,625,625
Net Transfers, Actual
500
0
500
Anticipated Transfers Balance
0
0
0
Spending Authority from Offsetting Collections:
Earned and Collected
262,102
484,769
455,937
Receivable from Federal Sources
1,410
3,346
4,933
Change in Unfilled Customer Orders
0
Advance Received
2,133
(61,970)
(20,415)
Without Advance from Federal Sources
62,549
(23,214)
64,298
Anticipated for Rest of Year
0
0
0
Transfers from Trust Funds
48,671
86,493
48,671
Total Spending Authority from Collections $
376,865 $
489,424 $
553,424
Recoveries of Prior Year Obligations (Note 26)
89,440
239,234
320,068
Permanently Not Available (Note 26)
(42,292)
(84,456)
(44,292)
Total Budgetary Resources (Note 25) $
9,807,912 $
12,227,999 $
12,256,910
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $
7,514,054 $
8,912,739 $
9,062,704
Reimbursable
248,610
449,583
397,964
Total Obligations Incurred (Note 25) $
7,762,664 $
9,362,322 $
9,460,668
Unobligated Balances:
Apportioned (Note 27)
1,917,637
2,778,257
2,644,226
Exempt from Apportionment
0
0
0
Unobligated Balances Not Available (Note 27)
127,611
87,420
152,016
Total Status of Budgetary Resources $
9,807,912 $
12,227,999 $
12,256,910
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $
7,296,359 $
8,633,664 $
8,587,176
Obligated Balances, Net - Beginning of Period
9,324,855
11,630,411
11,433,551
Accounts Receivable
72,577
120,002
76,271
Unfilled Customer Orders from Federal Sources
253,348
296,581
319,796
Undelivered Orders, Unpaid
(9,277,925)
(10,690,577)
(11,109,193)
Accounts Payable
(656,652)
(1,146,725)
(917,285)
Total Outlays (Note 25) $
7,012,562 $
8,843,356 $
8,390,316
Disbursements $
7,323,740 $
9,312,262 $
8,872,781
Collections
(311,178)
(468,906)
(482,465)
Less: Offsetting Receipts (Note 28)
(687,650)
(790,458)
(935,902)
Net Outlays $
6,324,912 $
8,052,898 $
7,454,414
The accompanying notes are an integral part of these statements.
Page 42
EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
Superfund
Superfund
All
Trust Fund
Trust Fund
Others
FY 2003
FY 2002
FY 2003
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred
$ 1,550,401 $
1,698,004 $
7,811,921
Less: Spending Authority from Offsetting
Collections and Recoveries
(288,144)
(407,187)
(440,514)
Obligations, Net of Offsetting Collections
$ 1,262,257 $
1,290,817 $
7,371,407
Less: Offsetting Receipts (Note 28)
(146,502)
(248,252)
(643,956)
Net Obligations
$ 1,115,755 $
1,042,565 $
6,727,451
Other Resources
Transfers In/Out without Reimbursement,
Property (Note 31)
$ 84 $
47 $
(84)
Imputed Financing Sources (Note 32)
19,999
14,706
108,196
Income from Other Appropriations (Note 23)
75,597
114,297
(75,597)
Net Other Resources Used to Finance Activities
$ 95,680 $
129,050 $
32,515
Total Resources Used To Finance Activities
$ 1,211,435 $
1,171,615 $
6,759,966
RESOURCES USED TO FINANCE ITEMS
NOT PART OF NET COST OF OPERATIONS
Change in Budgetary Resources Obligated
$ 179,096 $
64,738 $
165,667
Resources that Fund Prior Period Expenses (Note 29)
0
(1,590)
0
Budgetary Offsetting Collections and Receipts
that Do Not Affect Net Cost of Operations
Credit Program Collections Increasing Loan
Liabilities for Guarantees of Subsidy Allowances
0
0
4,980
Offsetting Receipts Not Affecting Net Cost
146,502
248,252
11,649
Resources that Finance Asset Acquisition
(16,287)
(6,587)
(66,321)
Adjustments to Expenditure Transfers
that Do Not Affect Net Cost
(105,777)
(48,758)
96,135
Total Resources Used to Finance Items Not
Part of the Net Cost of Operations
$ 203,534 $
256,055 $
212,110
Total Resources Used to Finance the Net
Cost of Operations
$ 1,414,969 $
1,427,670 $
6,972,076
The accompanying notes are an integral part of these statements.
EPA's FY 2003 Financial Statements
Page 43
-------
Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
Superfund Superfund
Trust Fund Trust Fund
FY 2003 FY 2002
COMPONENTS OF NET COST OF OPERATIONS
THAT Wil l, NOT REQUIRE OR GENERATE
RESOURCES IN THE CURRENT PERIOD
Components Requiring or Generating Resources in
Future Periods
All
Others
FY 2003
Increase in Annual Leave Liability (Note 29) $
1,088 $
0 $
5,647
Increase in Environmental and Disposal Liability (Note 29)
0
0
(3,276)
Up/Downward Reestimates of Subsidy Expense
0
0
170
Increase in Public Exchange Revenue Receivable
(205,844)
(305,035)
(1,706)
Increase in Workers Compensation Costs (Note 29)
246
0
4,591
Total Components of Net Cost of Operations that
Requires or Generates Resources in the Future $
(204,510) $
(305,035) $
5,426
Components Not Requiring/Generating Resources
Depreciation and Amortization
8,915
7,854
36,289
Revaluation of Assets or Liabilities
0
0
0
Expenses Not Requiring Budgetary Resources
33,490
41,426
(804)
Total Components of Net Cost of Operations
that Will Not Require or Generate Resources $
42,405 $
49,280 $
35,485
Total Components of Net Cost of Operations
That Will Not Require or Generate
Resources in the Current Period
Net Cost of Operations
(162,105)
1,252,864 $
(255,755)
40,911
1,171,915 $
7,012,987
The accompanying notes are an integral part of these statements.
Page 44
EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
All
Consolidated
Consolidated
Others
Totals*
Totals*
FY 2002
FY 2003
FY 2002
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred $
7,762,664 $
9,362,322 $
9,460,668
Less: Spending Authority from Offsetting
0
0
Collections and Recoveries
(466,305)
(728,658)
(873,492)
Obligations, Net of Offsetting Collections $
; 7,296,359 $
8,633,664 $
8,587,176
Less: Offsetting Receipts (Note 28)
(687,650)
(790,458)
(935,902)
Net Obligations $
6,608,709 $
7,843,206 $
7,651,274
Other Resources
Transfers In/Out without Reimbursement,
Property (Note 31) $
(47) $
0 $
0
Imputed Financing Sources (Note 32)
83,039
128,195
97,745
Income from Other Appropriations (Note 23)
(114,297)
0
0
Net Other Resources Used to Finance Activities $
(31,305) $
128,195 $
97,745
Total Resources Used To Finance Activities $
; 6,577,404 $
7,971,401 $
7,749,019
RESOURCES USED TO FINANCE ITEMS
NOT PART OF NET COST OF OPERATIONS
Change in Budgetary Resources Obligated $
(422,293) $
344,763 $
(357,555)
Resources that Fund Prior Period Expenses (Note 29)
(399)
0
(1,989)
Budgetary Offsetting Collections and Receipts
that Do Not Affect Net Cost of Operations
Credit Program Collections Increasing Loan
Liabilities for Guarantees of Subsidy Allowances
4,394
4,980
4,394
Offsetting Receipts Not Affecting Net Cost
11,358
158,151
259,610
Resources that Finance Asset Acquisition
(53,692)
(82,608)
(60,279)
Adjustments to Expenditure Transfers
that Do Not Affect Net Cost
48,670
(9,642)
(88)
Total Resources Used to Finance Items Not
Part of the Net Cost of Operations $
(411,962) $
415,644 $
(155,907)
Total Resources Used to Finance the Net
Cost of Operations $
6,165,442 $
8,387,045 $
7,593,112
* This statement did not have any intra-agency eliminations for FY 2003 or 2002.
The accompanying notes are an integral part of these statements.
EPA's FY 2003 Financial Statements Page 45
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Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
COMPONENTS OF NET COST OF OPERATIONS
THAT Wil l, NOT REQUIRE OR GENERATE
RESOURCES IN THE CURRENT PERIOD
Components Requiring or Generating Resources in
Future Periods
Increase in Annual Leave Liability (Note 29) $
Increase in Environmental and Disposal Liability (Note 29)
Up/Downward Reestimates of Subsidy Expense
Increase in Public Exchange Revenue Receivable
Increase in Workers Compensation Costs (Note 29)
Total Components of Net Cost of Operations that
Requires or Generates Resources in the Future $
Components Not Requiring/Generating Resources
Depreciation and Amortization
Revaluation of Assets or Liabilities
Expenses Not Requiring Budgetary Resources
Total Components of Net Cost of Operations
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
Net Cost of Operations $
All Consolidated Consolidated
Others Totals* Totals*
FY 2002 FY 2003 FY 2002
0 $ 6,735 $ 0
578 (3,276) 578
(371) 170 (371)
(2,422) (207,550) (307,457)
0 4,837 0
(2,215) $ (199,084) $ (307,250)
27,022 45,204 34,876
0 0 0
27,108 32,686 68,534
54,130 $ 77,890 $ 103,410
51,915 (121,194) (203,840)
6,217,357 $ 8,265,851 $ 7,389,272
* This statement did not have any intra-agency eliminations for FY 2003 or 2002.
The accompanying notes are an integral part of these statements.
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Environmental Protection Agency
Consolidated Statement of Custodial Activity
For the Years Ended September 30, 2003 and 2002
(Dollars in Thousands)
Revenue Activity:
Sources of Collections
Fines and Penalties
Other
Total Cash Collections
Accrual Adjustment
Total Custodial Revenue (Note 24)
FY 2003
FY 2002
161,544 $ 94,237
5,793 9,322
167,337 $ 103,559
7,172 (8,070)
174,509 $
95,489
Disposition of Collections:
Transferred to Others (General Fund) $ 165,440 $ 103,818
Increases/Decreases in Amounts to be Transferred 9,069 (8,329)
Total Disposition of Collections $ 174,509 $ 95,489
Net Custodial Revenue Activity (Note 24) $ 0 $ 0
The accompanying notes are an integral part of these statements.
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Environmental Protection Agency
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Basis of Presentation
These consolidating financial statements have been prepared to report the financial position and
results of operations of the Environmental Protection Agency (Agency) for the Hazardous Substance
Superfund (Superfund) Trust Fund and All Other Funds, 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 "Form and Content for
Agency Financial Statements," specified by the Office of Management and Budget (OMB) in
Bulletin 01-09, and the Agency's accounting policies which are summarized in this note. In addition
to preparing the reports required by Bulletin 01-09, Statement of Net Cost has been prepared by the
Agency's strategic goals.
B. Reporting Entities
The Environmental Protection Agency (EPA) was created in 1970 by executive reorganization from
various components of other federal agencies in order to better marshal and coordinate federal
pollution control efforts. The Agency is generally organized around the media and substances it
regulates — air, water, land, hazardous waste, pesticides and toxic substances. For FY 2003 the
reporting entities are grouped as the Superfund Trust Fund and All Other Funds.
Superfund Trust Fund
In 1980, the Hazardous Substance Superfund, commonly referred to as the Superfund Trust Fund,
was established by the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (CERCLA) to provide resources needed 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 Agency 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 Agency, private parties, or other federal agencies. The Superfund Trust Fund
includes the Department of the Treasury (Treasury) collections and investment activity. The
Superfund Trust Fund is accounted for under Treasury symbol number 8145.
The accompanying financial statements include the accounts of all funds described in this note. EPA
uses an expense allocation methodology as a financial statement estimate to present EPA programs'
full cost. This methodology is used because Superfund programs may charge some costs directly to
the Superfund Trust Fund and charge the remainder of their costs to All Other Funds in the Agency-
wide appropriations. These amounts are presented as Expenses from Other Appropriations on the
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Statement of Net Cost and as Income from Other Appropriations on the Statement of Changes in Net
Position and the Statement of Financing.
The Superfund Trust Fund is allocated to general support services costs (e.g., rent, communications,
utilities, and mail operations) that were initially charged to the Agency's Science and Technology
(S&T) and Environment Programs and Management (EPM) appropriations. During the year, these
costs are allocated from the S&T and EPM appropriations to the Superfund Trust Fund based on a
ratio of Superfund direct labor hours to the Agency total of all direct labor hours, using budgeted or
actual full-time equivalent personnel charged to these appropriations. Agency general support
services cost charges to the Superfund Trust Fund may not exceed the ceilings established in its
appropriation. The related general support services costs charged to the Superfund Trust Funds were
$49.1 million for FY 2002 and $11.9 million for FY 2003.
All Other Funds
All Other Funds include other Trust Fund appropriations, General Fund appropriations, Revolving
Funds, Special Funds, the Agency Budgetary Clearing accounts, Deposit Funds, General Fund
Receipt accounts, the Environmental Services Special Fund Receipt Account, the Miscellaneous
Contributed Funds Trust Fund, and General Fund appropriations transferred from other federal
agencies as authorized by the Economy Act of 1932. General Fund appropriation activities that no
longer receive current definite appropriations but have unexpended authority are the Asbestos Loan
Program and Energy, Research and Development. Detailed descriptions of All Other Funds are as
follows:
The Leaking Underground Storage Tank (LUST) Trust Fund was authorized by the Superfund
Amendments and Reauthorization Act of 1986 (SARA) as amended by the Omnibus Budget
Reconciliation Act of 1990. The LUST appropriation provides funding to respond to releases from
leaking underground petroleum tanks. The Agency oversees cleanup and enforcement programs
which are implemented by the states. Funds are allocated to the states through cooperative
agreements to clean up those sites posing the greatest threat to human health and environment. Funds
are used for grants to non-state entities including Indian tribes under section 8001 of the Resource
Conservation and Recovery Act. The program is financed by a one cent a gallon tax on motor fuels
which will expire in 2005, and is accounted for under Treasury symbol number 8153.
The Oil Spill Response Trust Fund was authorized by the Oil Pollution Act of 1990 (OPA). Monies
were appropriated to the Oil Spill Response Trust Fund in 1993. 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 oil spill cleanup actions is provided through the Department of
Transportation under the Oil Spill Liability Trust Fund and reimbursable funding from other federal
agencies. The Oil Spill Response Trust Fund is accounted for under Treasury symbol number 8221.
The State and Tribal Assistance Grants (STAG) appropriation provides funds for environmental
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programs and infrastructure assistance including capitalization grants for State revolving funds and
performance partnership grants. Environmental programs and infrastructure supported are: Clean and
Safe Water; Capitalization grants for the Drinking Water State Revolving Funds; Clean Air; Direct
grants for Water and Wastewater Infrastructure needs, Partnership grants to meet Health Standards,
Protect Watersheds, Decrease Wetland Loss, and Address Agricultural and Urban Runoff and Storm
Water; Better Waste Management; Preventing Pollution and Reducing Risk in Communities, Homes,
Workplaces and Ecosystems; and Reduction of Global and Cross Border Environmental Risks.
STAG is accounted for under Treasury symbol 0103.
The Science and Technology (S&T) appropriation finances salaries, travel, science, technology,
research and development activities including laboratory and center supplies, certain operating
expenses, grants, contracts, intergovernmental agreements, and purchases of scientific equipment.
These activities provide the scientific basis for the Agency's regulatory actions. In FY 2003,
Superfund research costs were appropriated in Superfund and transferred to S&T to allow for proper
accounting of the costs. Environmental scientific and technological activities and programs include
Clean Air; Clean and Safe Water; Americans Right to Know About Their Environment; Better
Waste Management; Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces,
and Ecosystems; and Safe Food. The S&T appropriation is accounted for under Treasury symbol
0107.
The Environmental Programs and Management (EPM) appropriation includes funds for salaries,
travel, contracts, grants, and cooperative agreements for pollution abatement, control, and
compliance activities and administrative activities of the Agency's operating programs. Areas
supported from this appropriation include: Clean Air; Clean and Safe Water; Preventing Pollution
and Reducing Risk in Communities, Homes, Workplaces, and Ecosystems; Better Waste
Management, Restoration of Contaminated Waste Sites, and Emergency Response; Reduction of
Global and Cross Border Environmental Risks; Americans' Right to Know About Their
Environment; Sound Science; Improved Understanding of Environmental Risk; and Greater
Innovation to Address Environmental Problems; Credible Deterrent to Pollution and Greater
Compliance with the Law; and Effective Management. The EPM appropriation is accounted for
under Treasury symbol 0108.
The Office of Inspector General appropriation provides funds for audit and investigative functions to
identify and recommend corrective actions on management and administrative deficiencies that
create the conditions for existing or potential instances of fraud, waste and mismanagement.
Additional funds for audit and investigative activities associated with the Superfund and the LUST
Trust Funds are appropriated under those Trust Fund accounts and transferred to the Office of
Inspector General account. The audit function provides contract, internal controls and performance,
and financial and grant audit services. The Office of Inspector General appropriation is accounted for
under Treasury symbol 0112 and includes expenses incurred and reimbursed from the appropriated
trust funds accounted for under Treasury symbols 8145 and 8153.
The Buildings and Facilities (B&F) appropriation provides for the construction, repair, improvement,
extension, alteration, and purchase of fixed equipment or facilities that are owned or used by the
EPA. The B&F appropriation is accounted for under Treasury symbol 0110.
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The Payment to the Hazardous Substance Superfund appropriation authorizes appropriations from
the General Fund of the Treasury to finance activities conducted through the Hazardous Substance
Superfund Program. Payment to the Hazardous Substance Superfund appropriation is accounted for
under Treasury symbol 0250.
The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act of 1986
to finance control of asbestos building materials in schools. Funds have not been appropriated for
this Program since FY 1993. For FY 1993 and FY1992, the program was funded by a subsidy
appropriated from the General Fund for the actual cost of financing the loans, and by borrowing from
Treasury for the unsubsidized portion of the loan. The Program Fund disburses the subsidy to the
Financing Fund for increases in the subsidy. The Financing Fund receives the subsidy payment,
borrows from Treasury and collects the asbestos loans. The Asbestos Loan Program is accounted for
under Treasury symbol 0118 for the subsidy and administrative support; under Treasury symbol 4322
for loan disbursements, loans receivable and loan collections on post FY 1991 loans; and under
Treasury symbol 2917 for pre FY 1992 loans receivable and loan collections.
The FIFRA Revolving Fund was authorized by the Federal Insecticide, Fungicide and Rodenticide
Act (FIFRA) of 1972 as amended in 1988 and as amended by the Food Quality Protection Act of
1996. Fees are paid by industry to offset costs of accelerated reregi strati on, expedited processing of
pesticides, and establishing tolerances for pesticide chemicals in or on food and animal feed. The
FIFRA Revolving Fund is accounted for under Treasury symbol number 4310.
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees are
paid by industry for federal services to set pesticide chemical residue limits in or on food and animal
feed. Effective January 2, 1997, fees collected are now being collected and deposited in the
Reregi strati on and Expedited Processing Revolving (FIFRA) Fund (4310). The fees collected prior
to this date are accounted for under Treasury symbol number 4311.
The Working Capital Fund (WCF) includes two activities: computer support services and postage.
The WCF derives revenue from these activities based upon a fee for services. WCF's customers
currently consist solely of Agency program offices. Accordingly, revenues generated by WCF and
expenses recorded by the program offices for use of such services, along with the related
advances/liabilities, are eliminated on consolidation. The WCF is accounted for under Treasury
symbol 4565.
The Exxon Valdez Settlement Fund 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. The Exxon Valdez Settlement fund is accounted for
under Treasury symbol number 5297.
Allocations and appropriations transferred to the Agency from other federal agencies include funds
from: (1) the Appalachian Regional Commission and the Department of Commerce, which provide
economic assistance to state and local developmental activities; (2) the Agency for International
Development, which provides assistance on environmental matters at international levels; and (3) the
General Services Administration which provides funds for rental of buildings and operations, repairs,
and maintenance of rental space. The transfer allocations are accounted for under Treasury symbols
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0200, 1010, and 4542; and the appropriation transfers are accounted for under 0108.
The EPA Department of the Treasury Clearing Accounts include: (1) the Budgetary Suspense
Account; (2) the Unavailable Check Cancellations and Overpayments Account; and (3) the
Undistributed Intraagency Payments and Collections (IPAC) Account. These are accounted for under
Treasury symbols 3875, 3880 and 3885, respectively
Deposit funds include: Fees for Ocean Dumping; Nonconformance Penalties; Clean Air Allowance
Auction and Sale; Advances without Orders; and Suspense and payroll deposits for Savings Bonds,
and State and City Income Taxes Withheld. These funds are accounted for under Treasury symbols
6050, 6264, 6265, 6266, 6275 and 6500, respectively.
General Fund Receipt Accounts include: Hazardous Waste Permits; Miscellaneous Fines, Penalties
and Forfeitures; General Fund Interest; Interest from Credit Reform Financing Accounts; Fees and
Other Charges for Administrative and Professional Services; and Miscellaneous Recoveries and
Refunds. These accounts are accounted for under Treasury symbols 0895, 1099, 1435, 1499, 3200
and 3220, respectively.
The Environmental Services Receipt account 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 will be appropriated to the S&T and the EPM appropriations to meet the expenses of the
programs that generate the receipts. Environmental Services are unavailable receipts accounted for
under Treasury symbol 5295.
The Miscellaneous Contributed Funds Trust Fund includes gifts for pollution control programs that
are usually designated for a specific use by donors and/or deposits from pesticide registrants to cover
the costs of petition hearings when such hearings result in unfavorable decisions to the petitioner.
The Miscellaneous Contributed Funds Trust Fund is accounted for under Treasury symbol 8741.
C. Budgets and Budgetary Accounting
Superfund
Congress adopts an annual appropriation amount to be available until expended for the Superfund
Trust Fund. A transfer account for the Superfund 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 Trust Fund at Treasury to cover the
amounts being disbursed.
All Other Funds
Congress adopts an annual appropriation amount for the LUST and the Oil Spill Response Trust
Funds to remain available until expended. A transfer account for the 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 LUST Trust Fund at
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Treasury to cover the amounts being disbursed. The Agency draws down all the appropriated monies
from the Treasury's Oil Spill Liability Trust Fund to the Oil Spill Response Trust Fund when
Congress adopts the appropriation amount. Congress adopts an annual appropriation for STAG,
B&F, and for Payments to the Hazardous Substance Superfund to be available until expended, as
well as annual appropriations for S&T, EPM and for the Office of the Inspector General to be
available for two fiscal years. When the appropriations for the General Funds are enacted, Treasury
issues a warrant to the respective appropriations. As the Agency disburses obligated amounts, the
balance of funds available to the appropriation is reduced at Treasury.
The Asbestos Loan Program is a commercial activity financed by a combination from two sources,
one for the long term costs of the loans and another for the remaining non-subsidized portion of the
loans. Congress adapted 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 was financed under a
permanent indefinite borrowing authority established with the Treasury. A permanent indefinite
appropriation is available to finance the costs of subsidy re-estimates that occur after the year in
which the loan was disbursed.
Funding of the FIFRA and the Tolerance Revolving Funds is provided by fees collected from
industry to offset costs incurred by the Agency in carrying out these programs. Each year the Agency
submits an apportionment request to OMB based on the anticipated collections of industry fees.
Funding of the WCF is provided by fees collected from other Agency appropriations to offset costs
incurred for providing the Agency administrative support for computer support and postage.
Funds transferred from other federal agencies are funded by a non expenditure transfer of funds from
the other federal agencies. As the Agency disburses the obligated amounts, the balance of funding
available to the appropriation is reduced at Treasury.
Clearing accounts, deposit accounts, and receipt accounts receive no budget. The amounts are
recorded to the clearing and deposit accounts pending further disposition. Amounts recorded to the
receipt accounts capture amounts receivable to or collected for the Treasury General Fund.
D. Basis of Accounting
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.
All interfund balances and transactions are eliminated.
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E. Revenues and Other Financing Sources.
The following EPA policies and procedures to account for inflow of revenue and other financing
sources are in accordance with Statement of Federal Financial Accounting Standards Number Seven
(SFFAS No. 7), "Accounting for Revenues and Other Financing Sources," which was effective for
accounting periods after September 30, 1997.
Superfund
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 under Inter-Agency Agreements (IAGs), state cost share payments under Superfund State
Contracts (SSCs), and settlement proceeds from Potentially Responsible Parties, under CERCLA
Section 122(b)(3), placed in special accounts. Special accounts were previously limited to settlement
amounts for future costs. However, beginning in FY 2001, cost recovery amounts received under
CERCLA Section 122(b)(3) settlements could be placed in special accounts. Cost recovery
settlements that are not placed in special accounts continue to be deposited in the Trust Fund.
All Other Funds
The majority of "All Other Funds" appropriations receive funding needed to support programs
through appropriations, which may be used, within statutory limits, for operating and capital
expenditures. However, under Credit Reform provisions, the Asbestos Loan Program received
funding to support the subsidy cost of loans through appropriations which may be used with statutory
limits. The Asbestos Direct Loan Financing fund, an off-budget fund, receives additional funding to
support the outstanding loans through collections from the Program fund for the subsidized portion
of the loan. The last year Congress provided appropriations to make new loans was 1993. The
FIFRA and the Tolerance Revolving Funds receive funding, which is now deposited with the FIFRA
Revolving Fund, through fees collected for services provided. The FIFRA Revolving Fund also
receives interest on invested funds. The WCF receives revenue through fees collected for services
provided to Agency program offices. Such revenue is eliminated with related Agency program
expenses upon consolidation of the Agency's financial statements. The Exxon Valdez Settlement
Fund received funding through reimbursements.
Appropriated funds are recognized as Other Financing Sources when earned, i.e., 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 funds maintained with Treasury are Appropriated Funds, Revolving
Funds and Trust Funds. These funds have balances available to pay current liabilities and finance
authorized purchase commitments. (See Note 2)
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G. Investments in U.S. Government Securities
Investments in U.S. Government securities are maintained by Treasury and are reported at amortized
cost net of unamortized discounts. Discounts are amortized over the term of the investments and
reported as interest income. No provision is made for unrealized gains or losses on these securities
because, in the majority of cases, they are held to maturity. (See Note 4)
H. Notes Receivable
The Agency records notes receivable at their face value and any accrued interest as of the date of
receipt.
I. Marketable Securities
The Agency records marketable securities at cost as of the date of receipt. Marketable securities are
held by Treasury and reported at their cost value in the financial statements until sold. (See Note 6)
J. Accounts Receivable and Interest Receivable (See Note 5)
Superfund
CERCLA as amended by SARA provides for the recovery of costs from potentially responsible
parties (PRPs). However, cost recovery expenditures are expensed when incurred since there is no
assurance that these funds will be recovered.
It is the Agency's policy to record 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 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 Superfund State
Contracts (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% or 50% of site remedial action
costs. States may pay the full amount of their share in advance, or incrementally throughout the
remedial action process. Allowances for uncollectible state cost share receivables have not been
recorded, because the Agency has not had collection problems with these agreements.
All Other Funds
The majority of receivables for All Other Funds represent interest receivable for Asbestos and
FIFRA activities.
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K. Advances and Prepayments
Advances and prepayments represent funds advanced or prepaid to other entities both internal and
external to the Agency for which a budgetary expenditure has not yet occurred. (See Note 6)
L. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. The amounts of Asbestos
Loan Program loans obligated but not disbursed is disclosed in Note 7. 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. (See Note 7)
M. Appropriated Amounts Held by Treasury
For the Superfund and LUST Trust Funds, and for amounts appropriated from these Trust Funds to
the Office of Inspector General, cash available to the Agency that is not needed immediately for
current disbursements remains in the respective Trust Funds managed by Treasury. (See Note 17)
N. Property, Plant, and Equipment
EPA accounts for its personal and real property accounting records in accordance with SFFAS No. 6,
"Accounting for Property, Plant and Equipment." For EPA-held property, the Fixed Assets
Subsystem (FAS) automatically generates depreciation entries monthly based on acquisition dates.
(See Note 9)
Purchases of EPA-held and contractor-held personal property are capitalized if it is valued at $25
thousand or more and has an estimated useful life of at least two years. Prior to implementing FAS,
depreciation was taken on a modified straight-line basis over a period of six years depreciating 10%
the first and sixth year, and 20% in years two through five. This modified straight-line method is still
used for contractor-held property; detailed records are maintained and accounted for in contractor
systems, not in FAS. All EPA-held personal property purchased before the implementation of FAS
was assumed to have an estimated useful life of five years. New 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.
Real property consists of land, buildings, and capital and leasehold improvements. Real property,
other than land, is capitalized when the value is $75 thousand or more. Land is capitalized regardless
of cost. Buildings were valued at an estimated original cost basis, and land was valued at fair market
value if purchased prior to FY 1997. Real property purchased during and after FY 1997 are valued at
actual costs. Depreciation for real property is calculated using the straight-line method over the
specific asset's useful life, ranging from ten to 102 years. Leasehold improvements are amortized
over the lesser of their useful life or the unexpired lease term. Additions to property and
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improvements not meeting the capitalization criteria, expenditures for minor alterations, and repairs
and maintenance are expensed as incurred.
In FY 1997, EPA's Working Capital Fund, a revenue generating activity, implemented requirements
to capitalize software if the purchase price was $100 thousand or more with an estimated useful life
of two years or more. In FY 2001 the Agency began capitalizing software for All Other Funds whose
acquisition value is $500 thousand or more in accordance with the provisions of SFFAS No. 10,
"Accounting for Internal Use Software." Software is depreciated using the straight-line method over
the specific asset's useful life ranging from two to ten years.
O. Liabilities
Liabilities represent the amount of monies or other resources that are likely to be paid by the Agency
as the result of a transaction or event that has already occurred. However, no liability can be paid by
the Agency without an appropriation or other collection of revenue for services provided. Liabilities
for which an appropriation has not been enacted are classified as unfunded liabilities and there is no
certainty that the appropriations will be enacted. Liabilities of 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
described in part B and C of this note. 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 to
Treasury. At the end of FY 2002 and FY 2003, there was no outstanding interest payable to Treasury
since payment was made through September 30.
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 the Statement of
Financial Position as a component of "Payroll and Benefits Payable." (See Note 33)
S. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to January 1,
1984, may participate in the Civil Service Retirement System (CSRS). 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 CSRS. A primary feature of FERS is that it offers a savings plan to which the Agency
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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," which
was effective for the FY 1997 financial statements, accounting and reporting standards were
established for liabilities relating to the federal employee benefit programs (Retirement, Health
Benefits and Life Insurance). SFFAS No. 5 requires that the employing agencies recognize the cost
of pensions and other retirement benefits during their employees' active years of service. SFFAS No.
5 requires that the Office of Personnel Management, as administrator of the Civil Service Retirement
and Federal Employees Retirement Systems, the Federal Employees Health Benefits Program, and
the Federal Employees Group Life Insurance Program, provide the Agency with the 'Cost Factors' to
compute EPA's liability for each program.
T. Prior Period Adjustments
Prior period adjustments will be made in accordance with SFFAS No. 21, "Reporting Corrections of
Errors and Changes in Accounting Principles," which was effective for FY 2002. EPA will make
prior period adjustments for material errors as follows in accordance with SFFAS No. 21. Prior
period adjustments will only be made for material prior period errors to: (1) the current period
financial statements and (2) the prior period financial statements presented for comparison.
Adjustments related to changes in accounting principles will only be made to the current period
financial statements, but not to prior period financial statements presented for comparison.
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EPA's FY 2003 Financial Statements
-------
Note 2. Fund Balances with Treasury
Fund Balances with Treasury as of September 30, 2003 and 2002, consist of the following:
Trust Funds:
Superfund
LUST
Oil Spill
Revolving Funds:
FIFRA/T olerance
Working Capital
Entity
Assets
26,448
34,008
5,505
1,826
57,780
FY 2003
Non-Entity
Assets
Total
26,448
34,008
5,505
1,826
57,780
Entity
Assets
32,229
16,405
3,796
3,028
57,380
FY 2002
Non-Entity
Assets
0
0
0
0
0
Total
32,229
16,405
3,796
3,028
57,380
Appropriated
Other Fund Types
Total
11,527,765
111,225
11,764,557
0
20,248
11,527,765
131,473
20,248 $ 11,784,805
11,504,638
99,575
11,717,051
0
4,112
4,112
11,504,638
103,687
11,721,163
Entity fund balances, except for Other Fund Types, include balances that are available to pay current
liabilities and to finance authorized purchase commitments (see Status of Fund Balances below).
Other Fund Types are not presently subject to obligation.
Entity Assets for Other Fund Types consist of the Environmental Services Receipt account, which is
a special fund receipt account. Upon Congress appropriating the funds, EPA will use these special
fund receipts in the S&T and EPM appropriations. 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 accounting disposition or being held by EPA for other entities.
Status of Fund Balances:
FY 2003 FY 2002
Superfund
All Others
Superfund
All Others
Unobligated Amounts in Fund Balances:
Available for Obligation
$ 766,786 !
S 2,011,471 :
S 726,589 !
S 1,917,637
Unavailable for Obligation
19
87,404
24,417
127,611
Net Receivables from Invested Balances
(2,579,726)
(66,574)
(2,742,412)
(80,875)
Balances in Treasury Trust Fund (Note 17)
866
12,377
1,876
12,232
Obligated Balance not yet Disbursed
1,838,503
9,582,206
2,021,759
9,608,642
Balances not subject to Obligation
0
131,473
0
103,687
Totals
$ 26,448 !
S 11,758,357 !
S 32,229 !
S 11,688,934
EPA's FY 2003 Financial Statements
Page 59
-------
The funds available for obligation may be apportioned by the OMB for new obligations at the
beginning of the following FY. Funds unavailable for obligation are mostly balances in expired
funds, which are available only for upward adjustments of existing obligations.
For FY 2003, no differences existed between Treasury's accounts and EPA's statements for fund
balances with Treasury. For FY 2002, the amounts on the agency financial statements were $2,828
thousand less than the balances on Treasury's records. These differences consist mainly of
unrecorded transactions from the last two months of FY 2002 that were recorded by the agency in
FY 2003. The FY 2002 differences for Superfund and All Other Funds are $1,301 thousand and
$1,527 thousand, respectively.
Note 3. Cash
In All Others, as of September 30, 2003 and 2002, cash consisted of imprest funds totaling $10
thousand.
Note 4. Investments
As of September 30, 2003 and 2002, investments consisted of the following:
Unamortized
(Premium)
Interest
Investments,
Market
Cost
Discount
Receivable
Net
Value
Superfund
Intragovernmental
Securities:
Non-Marketable
FY 2003 :
K 7. 507 97.7
oc
oc
$ 37 «
K 7516 147
$
7516 147
FY 2002 :
K 3 7.34 357.
$ f67. 650*1
$ 17.973 «
K 3 309 975
$
3 309 975
All Others
Intragovernmental
Securities:
Non-Marketable
FY 2003 !
K 7.037 560
$ f51 790s!
$ 7.5 834 «
K 7114 684
$
7 114 684
FY 2002 !
K 1 897 769
$ H6 757N>
$ 7.7.531 «
K 1 957 057
$
1 957 057
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites
from responsible parties (RP). 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.
Page 60
EPA's FY 2003 Financial Statements
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Note 5. Accounts Receivable
The Accounts Receivable for September 30, 2003 and 2002, consist of the following:
FY 2003 FY 2002
Superfund All Others Superfund All Others
Intragovernmental Assets:
Accounts & Interest Receivable
Non-Federal Assets:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Uncollectibles
Total
S ™ 665 ft 119 941
$ 33 309 S 77. 798
$ 2,210
101,392
(54,204)
S 49 398
109,272 $ 1,668 $ 87,443
815,119 113,130 783,279
(495,905) (49,502) (459,285)
478 486 $ 65 296 $ 411 437
The Allowance for Doubtful Accounts is determined on a specific identification basis as a result of a
case-by-case review of receivables, and a reserve on a percentage basis for those not specifically
identified.
Note 6. Other Assets
Other Assets for September 30, 2003, consist of the following:
Superfund All Combined
Intragovernmental Assets: Trust Fund Others Totals
Advances to Federal Agencies $ 146 $ 3,233 $ 3,379
Advances to Working Capital Fund 7,268 0 7,268
Advances for Postage 0 594 594
Total Intragovernmental Assets $ 7,414 $ 3,827 $ 11,241
Non-Federal Assets:
Travel Advances $ (51) $ (918) $ (969)
Letter of Credit Advances 0 601 601
Grant Advances 0 1,544 1,544
Other Advances 731 95 826
Operating Materials and Supplies 0 217 217
Inventory for Sale 0 51 51
Securities Received in Settlement for Debt 0 1.912 1.912
Total Non-Federal Assets $ 680 $ 3.502 $ 4.182
EPA's FY 2003 Financial Statements
Page 61
-------
Other Assets for September 30, 2002, consist of the following:
Superfund
Trust Fund
Intragovernmental Assets:
Advances to Federal Agencies
Advances to Working Capital Fund
Advances for Postage
Total Intragovernmental Assets
Non-Federal Assets:
Travel Advances
Letter of Credit Advances
Grant Advances
Other Advances
Operating Materials and Supplies
Inventory for Sale
Total Non-Federal Assets
141
4,379
0
4,520
(13)
0
0
793
0
0
All
Others
Combined
Totals
4,163
0
415
4,578
(911)
2,388
3,054
148
216
42
780
4.937
4,304
4,379
415
9,098
(924)
2,388
3,054
941
216
42
5.717
Note 7. Loans Receivable, Net - Non-Federal
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 are net of an
allowance for estimated uncollectible loans, if an allowance was considered necessary. Loans
disbursed from obligations made after FY 1991 are governed by the Federal Credit Reform Act. The
Act mandates that the present value of the subsidy costs (i.e., interest rate differentials, interest
subsidies, anticipated delinquencies, and defaults) associated with direct loans be recognized as an
expense in the year the loan is made. The net present value of loans is the amount of the gross loan
receivable less the present value of the subsidy.
An analysis of loans receivable and the nature and amounts of the subsidy and administrative
expenses associated entirely with Asbestos Loan Program loans as of September 30, 2003 and 2002,
is provided in the following sections.
FY 2003
FY 2002
Direct Loans
Obligated Prior to
FY 1992
Direct Loans
Obligated After
FY 1991
Total
Loans
Receivable,
Gross
33,245
Allowance*
Value of
Assets Related
to Direct
Loans
0 $ 33,245
34,597 (14,336)
67.842 S f14-33ffi
Loans
Receivable,
Gross
41,181
Allowance*
Value of
Assets Related
to Direct
Loans
0 $ 41,181
20,261 38,664 (15,199) 23,465
53.506 K 79.845 S nS.TW K dd (.If.
Page 62
EPA's FY 2003 Financial Statements
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* 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 Post Credit Reform Loans (reported on a cash basis):
Interest Rate
Technical
Fee
Re-estimate
Re-estimate
Offsets
Total
Direct Loan Subsidy Expense - FY 2003
$ 377
$ 528 3
i 0 $
; 905
Downward Subsidy Reestimate - FY 2003
(170)
(201)
0
(371)
FY 2003 Totals
$ 207
$ 327 3
i 0 $
; 534
Direct Loan Subsidy Expense - FY 2002
$ 115
$ 157 3
i 0 $
; 272
Downward Subsidy Reestimate - FY 2002
(496)
(816)
0
(1,312)
FY 2002 Totals
$ (381)
$ (659) 3
i 0 $
; (i,040)
Note 8. Accounts Payable and Accrued Liabilities
The Accounts Payable and Accrued Liabilities, both Federal and Non-Federal, are current liabilities
consisting of the following amounts as of September 30, 2003:
Superfund Combined
Trust Fund All Other Funds Total
Federal:
Accounts Payable to other Federal Agencies $ 593 $ 618 $ 1,211
Liability for Allocation Transfers 20,017 20,017
Expenditure Transfers Payable to other EPA 86,087 86,087
Funds
Accrued Liabilities, Federal 38,934 69,538 108,472
Total $ 145,631 $ 70,156 $ 215,787
Non-Federal:
Accounts Payable, Non-Federal $ 45,880 $ 71,160 $ 117,040
Advances Payable, Non-Federal 3 13 16
Interest Payable 553 2 555
Grant Liabilities 21,714 545,872 567,586
Other Accrued Liabilities, Non-Federal 97.400 105.737 203.137
Total $ 165,550 $ 722,784 $ 888,334
EPA's FY 2003 Financial Statements
Page 63
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The Accounts Payable and Accrued Liabilities, both Federal and Non-Federal, consisted of the
following amounts as of September 30, 2002:
Superfund
Combined
Trust Fund
All Other Funds
Total
Federal:
Accounts Payable to other Federal Agencies 3
> 4,964 $
; 620 $
5,584
Liability for Allocation Transfers
20,017
20,017
Expenditure Transfers Payable to other EPA
45,701
45,701
Funds
Accrued Liabilities, Federal
45,557
43,363
88,920
Total 3
i 116,239 $
; 43,983 $
160,222
Non-Federal:
Accounts Payable, Non-Federal 3
> 43,344 $
; 74,260 $
117,604
Advances Payable, Non-Federal
14
3
17
Interest Payable
333
1
334
Grant Liabilities
14,590
348,474
363,064
Other Accrued Liabilities, Non-Federal
87,524
88,498
176,022
Total 3
i 145,805 $
; 511,236 $
657,041
Note 9. General Plant, Property and Equipment
Superfund property, plant and equipment, consists of personal property items held by contractors and
the Agency. EPA also has property funded by various other Agency appropriations. The property
funded by these appropriations are presented in the aggregate under "All Others" and consists of
software; real, EPA-Held and Contractor-Held personal, and capitalized-leased property.
As of September 30, 2003, Plant, Property and Equipment consisted of the following:
Superfund
All Others
Acquisition Accumulated Net Book Acquisition Accumulated Net Book
EPA-Held Equipment
Software
Contractor-Held
Property:
Superfund
Site-Specific
General
Land and Buildings
Capital Leases
Total
Value
28,990
3,649
40,505
7,607
80,751
Depreciation
$ (15,664)
(138)
(16,642)
(2,452)
Value
13,326
3,511
23,863
5,155
$ (34,896) $ 45,855
Value
158,199
53,888
15,679
536,212
41,535
Depreciation
$ (97,785)
(4,397)
(6,429)
(100,826)
(16,605)
Value
60,414
49,491
9,250
435,386
24,930
805,513 $ (226,042) $ 579,471
Page 64
EPA's FY 2003 Financial Statements
-------
As of September 30, 2002, Plant, Property and Equipment consisted of the following:
Superfund
All Others
EPA-Held Equipment
Software
Contractor-Held
Property:
Superfund
Site-Specific
General
Land and Buildings
Capital Leases
Total
Note 10. Debt
Acquisition
Value
$ 25,968
961
32,472
10,407
$ 69,808
Accumulated
Depreciation
$ (15,245)
(85)
(12,065)
(3,667)
Net Book
Value
$ 10,723
876
20,407
6,740
$ (31,062) $ 38,746
Acquisition
Value
$ 148,693
26,358
0
18,412
521,515
41,614
Accumulated
Depreciation
$ (92,920)
(2,520)
0
(9,689)
(85,238)
(14,889)
756,592 $ (205,256)
Net Book
Value
$ 55,773
23,838
0
8,723
436,277
26,725
551,336
The Debt consisted of the following as of September 30, 2003 and 2002:
FY 2003
FY 2002
All Others
Other Debt:
Debt to Treasury
Classification of Debt:
Intragovernmental Debt
Beginning Net Ending Beginning Net Ending
Balance Borrowing Balance Balance Borrowing Balance
74 790 $ n ion $ 71 189 $ 31 174 $ f6SM) $=24222
189
74 790
Note 11. 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.
EPA's FY 2003 Financial Statements
Page 65
-------
Note 12. Other Liabilities
The Other Liabilities, both intragovernmental and Non-Federal, for September 30, 2003 are as
follows:
Other Liabilities - Intragovernmental
Covered by
Not Covered by
Budgetary Resources
Budsetarv Resources
Total
Superfund - Current
Employer Contributions & Payroll Taxes
$ 1,379
0 J
I 1,379
Other Advances
1,811
0
1,811
Advances, HRSTF Cashout
25,016
0
25,016
Deferred HRSTF Cashout
947
0
947
Superfund - Non-Current
Unfunded FECA Liability
0
1,447
1,447
Total Superfund
$ 29,153
$ 1,447 J
i 30,600
All Other - Current
Employer Contributions & Payroll Taxes
$ 6,589
$ 0 J
P 6,589
WCF Advances
7,269
0
7,269
Other Advances
1,674
0
1,674
Liability for Deposit Funds
(515)
0
(515)
Resources Payable to Treasury
1
0
1
Subsidy Payable to Treasury
0
0
0
All Other - Non-Current
Unfunded FECA Liability
0
6,593
6,593
Total All Other
$ 15018
$ 6 593 <
K 91611
Other Liabilities - Non-Federal
Superfund - Current
Unearned Advances, Non- Federal
* 40 8DQ
* n <
K AO 8DQ
All Other - Current
Unearned Advances, Non- Federal
$ 5,044
$ 0 J
I 5,044
Liability for Deposit Funds, Non-Federal
12,261
0
12,261
All Other - Non-Current
Capital Lease Liability
0
35,800
35,800
Total All Other
$ 17.305
$ 35.800 J
I 53.105
Page 66
EPA's FY 2003 Financial Statements
-------
The Other Liabilities, both intragovernmental and Non-Federal, for September 30, 2002, are as
follows:
Other Liabilities - Intragovernmental Covered by Not Covered by
Budgetary Resources
Budgetary Resources
Total
Superfund - Current
Employer Contributions & Payroll Taxes
$ 3,169
0 J
I 3,169
Other Advances
2,470
0
2,470
Advances, HRSTF Cashout
16,618
0
16,618
Deferred HRSTF Cashout
30
0
30
Superfund - Non-Current
Unfunded FECA Liability
0
1,440
1,440
Total Superfund
« 77 787
« 1 440 <
E 73 777
All Other - Current
Employer Contributions & Payroll Taxes
$ 13,883
$ 0 J
i 13,883
WCF Advances
4,379
0
4,379
Other Advances
1,435
0
1,435
Liability for Deposit Funds
(91)
0
(91)
Resources Payable to Treasury
2
0
2
Subsidy Payable to Treasury
371
0
371
All Other - Non-Current
Unfunded FECA Liability
0
6,402
6,402
Total All Other $ 19 979 $ 6 407. $ 7.6 381
Other Liabilities - Non-Federal
Superfund - Current
Unearned Advances, Non-Federal
All Other - Current
Unearned Advances, Non-Federal
Liability for Deposit Funds, Non-Federal
All Other - Non-Current
Capital Lease Liability
Total All Other
4S sis
6,569
4,181
0 $ 6,569
0 4,181
0
10.750
36,729
36.729 $
36,729
47.479
EPA's FY 2003 Financial Statements
Page 67
-------
Note 13. Leases
The Capital Leases as of September 30, 2003 and 2002, consist of the following:
Capital Leases, All Other Funds:
Summary of Assets Under
FY 2003
FY
2002
Capital Lease:
Real Property
$ 40,913
$
40.
,913
Personal Property
622
701
Total
JK 41 535
$
41
614
Accumulated Amortization
JK 16 605
$
14
889
EPA has three capital leases for land and buildings housing scientific laboratories and/or computer
facilities. All of these leases include a base rental charge and escalator 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 has capital leases for seven shuttle buses terminating in FY 2007.
The real property leases terminate in fiscal years 2010, 2013, and 2025. The charges are expended
out of the Environmental Programs and Management (EPM) appropriation. The total future
minimum lease payments of the capital leases are listed below.
Future Payments Due: All Others
Fiscal Year
2004 $ 6,439
2005 6,439
2006 6,439
2007 6,331
2008 6,295
After 5 Years 77309
Total Future Minimum Lease Payments 109,252
Less: Imputed Interest (73;452)
Net Capital Lease Liability $ 35J800
Liabilities not Covered by
Budgetary Resources (See Note 12)
Operating Leases:
The General Services Administration (GSA) provides leased real property (land and buildings) as
office space for EPA employees. GSA charges a Standard Level Users Charge that approximates the
commercial rental rates for similar properties.
EPA has five direct operating leases for land and buildings housing scientific laboratories and/or
computer facilities during FY 2003. Most of these leases include a base rental charge and escalator
Page 68
EPA's FY 2003 Financial Statements
-------
clauses based upon either rising operating costs and/or real estate taxes. The base operating costs are
adjusted annually according to escalators in the Consumer Price Indices published by the Bureau of
Labor Statistics (U.S. Department of Labor). Two of these operating leases that were due to expire in
FY 2002 were extended: one until FY 2003 and the other on a monthly basis. Two others expire in
fiscal years 2017 and 2020. The fifth lease that expired in FY 2001 was extended until FY 2007. The
charges are expended from the EPM appropriation. The total minimum future costs of operating
leases are listed below.
Fiscal Year Superfund All Others Total Land & Buildings
2004 $ 0 $ 108 $ 108
2005 0 87 87
2006 0 87 87
2007 0 81 81
2008 0 74 74
Beyond 2008 0_ 772_ 772
Total Future
Minimum $ 0 $ 1,209 $ 1,209
Lease Payments
Note 14. Pension and Other Actuarial Liabilities
FECA provides income and medical cost protection to covered Federal civilian employees injured on
the job, employees who have incurred a work-related occupational disease, and beneficiaries of
employees whose death is attributable to a job-related injury or occupational disease. Annually, 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 at September 30, 2003 and 2002, consisted of the following:
FY 2003 FY 2002
Superfund All Other Superfund All Other
FECA Actuarial Liability $ 7,937 $ 36,159 $ 7,698 $ 31,759
The FY 2003 present value of these estimated outflows are calculated using a discount rate of 3.84
percent in the first year, and 4.35 percent in the years thereafter. The estimated future costs are
recorded as an unfunded liability.
EPA's FY 2003 Financial Statements
Page 69
-------
Note 15. Cashout Advances, Superfund
Cashouts are funds received by EPA, a state, or another Potentially Responsible Party 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 in accordance with
the terms of the settlement agreement. Funds placed in special accounts may be used without further
appropriation by Congress.
Note 16. Unexpended Appropriations, All Other Funds
As of September 30, 2003 and 2002, the Unexpended Appropriations consisted of the following for
All Other Funds:
Unexpended Appropriations: FY 2003 FY 2002
Note 17. Amounts Held by Treasury
Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship by
Treasury in the Superfund Trust Fund and the LUST Trust Fund.
Superfund (Audited)
Superfund is supported primarily by general revenues, cost recoveries of funds spent to clean up
hazardous waste sites, interest income, and fines and penalties. Prior to December 31, 1995, the fund
was also supported by other taxes on crude and petroleum and on the sale or use of certain
chemicals. The authority to assess those taxes and the environmental tax on corporations also
expired on December 31, 1995, and has not been renewed by Congress. It is not known if or when
such taxes will be reassessed in the future. (See Note 36 for more information on the status of this
trust fund.)
The following reflects the Superfund Trust Fund maintained by the U.S. Department of Treasury as
of September 30, 2003 and 2002. The amounts contained in these statements have been provided by
the Treasury and are audited. Outlays represent amounts received by EPA's Superfund Trust Fund;
such funds are eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
Unobligated
Available
Unavailable
$ 1,797,410 $ 1,725,016
41,667 52,896
8,929,159 9,145,977
Undelivered Orders
Total
S 10 768 236 $ 10 923 889
Page 70
EPA's FY 2003 Financial Statements
-------
SUPERFUND FY 2003
EPA
Treasury
Combined
Undistributed Balances
Available for Investment
$ 0 $
866 $
866
Total Undisbursed Balance
0
866
866
Interest Receivable
0
37
37
Investments, Net of Discounts
2,599,744
(83,634)
2,516,110
Total Assets
$ ? 599 744 $
C8? 73n $
? 517013
Liabilities & Equity
Equity (Note 36)
$ 2,599,744 $
(82,731) $
2,517,013
Total Liabilities and Equity
$ ? 599 744 $
C8? 73n $
? 517 013
Receipts
Corporate Environmental
$ 0 $
(99,355) $
(99,355)
Cost Recoveries
0
146,502
146,502
Fines & Penalties
0
2,873
2,873
Total Revenue
0
50,020
50,020
Appropriations Received
0
632,307
632,307
Interest Income
0
48,945
48,945
Total Receipts
0
731 X7?.
731 X7?.
Outlays
Transfers to/from EPA, Net
1,278,068
(1,278,068)
0
Transfers to CDC
0
(80,200)
(80,200)
Total Outlays
1,278,068
(1,358,268)
(80,200)
Net Income
$ 1 X78 068 $
<"69.6 996s! $
651 07?
EPA's FY 2003 Financial Statements
Page 71
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SUPERFUND FY 2002
EPA
Treasurv
Combined
Undistributed Balances
Available for Investment
$ 0 $
1,876 $
1,876
Total Undisbursed Balance
0
1,876
1,876
Interest Receivable
0
12,973
12,973
Investments, Net of Discounts
2,762,430
534,572
3,297,002
Total Assets
$ ?. 76?. 430 $
549 4? 1 $
3 311 851
Liabilities & Equity
Equity (Note 36)
$ 2,762,430 $
549,421 $
3,311,851
Total Liabilities and Equity
$ ?. 76?. 430 $
549 4? 1 $
3 311 851
Receipts
Corporate Environmental
$ 0 $
7,466 $
7,466
Cost Recoveries
0
248,252
248,252
Fines & Penalties
0
1,444
1,444
Total Revenue
0
257,162
257,162
Appropriations Received
0
676,292
676,292
Interest Income
0
110,577
110,577
Total Receipts
0
1 044 031
1 044 031
Outlays
Transfers to EPA
1,329,490
(1,329,490)
0
Transfers to CDC
0
(49,502)
(49,502)
Total Outlays
1,329,490
(1,378,992)
(49,502)
Net Income
$ 1 3?9 490 $
H34 96n $
994 5?9
LUST (Audited)
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2003
and 2002 there were no fund receipts from cost recoveries. The following represents LUST Trust
Fund as maintained by Treasury. The amounts contained in these statements have been provided by
Treasury and are audited. Outlays represent appropriations received by EPA's LUST Trust Fund;
such funds are eliminated on consolidation with the LUST Trust Fund maintained by Treasury.
Page 72
EPA's FY 2003 Financial Statements
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LUST FY 2003
EPA
Treasury
Combined
Undistributed Balances
Available for Investment $
0 $
12,377 $
12,377
Total Undisbursed Balance
0
12,377
12,377
Interest Receivable
0
25,834
25,834
Investments, Net of Discounts
66,574
2,022,279
2,088,853
Total Assets $
66 574 $
7 060 490 $
7 17.7 064
Liabilities & Equity
Equity $
66,574 $
2,060,490 $
2,127,064
Total Liabilities and Equity $
66 574 $
7 060 490 $
7 177 064
Receipts
Highway TF Tax $
0 $
177,340 $
177,340
Airport TF Tax
0
12,241
12,241
Inland TF Tax
0
448
448
Refund Gasoline Tax
0
(2,064)
(2,064)
Refund Diesel Tax
0
(3,214)
(3,214)
Refund Aviation Tax
0
(274)
(274)
Total Revenue
0
184,477
184,477
Interest Income
0
64,447
64,447
Total Receipts
0
248,924
248,924
Outlays
Transfers to/from EPA, Net
71,843
(71,843)
0
Total Outlays
71,843
(71,843)
0
Net Income $
71 843 $
177 081 $
748 974
EPA's FY 2003 Financial Statements
Page 73
-------
LUST FY 2002
EPA
Treasury
Combined
Undistributed Balances
Available for Investment $
0 $
12,232 $
12,232
Total Undisbursed Balance
0
12,232
12,232
Interest Receivable
0
22,531
22,531
Investments, Net of Discounts
80,875
1,848,646
1,929,521
Total Assets $
80 875 $
1 883 409 $
1 964 984
Liabilities & Equity
Equity $
80,875 $
1,883,409 $
1,964,284
Total Liabilities and Equity $
80 875 $
1 883 409 $
1 964 784
Receipts
Highway TF Tax 3
> 0 $
173,351 $
173,351
Airport TF Tax
0
13,199
13,199
Inland TF Tax
0
474
474
Refund Gasoline Tax
0
(2,167)
(2,167)
Refund Diesel Tax
0
(3,357)
(3,357)
Refund Aviation Tax
0
(310)
(310)
Total Revenue
0
181,190
181,190
Interest Income
0
67,563
67,563
Total Receipts
0
248,753
248,753
Outlays
Transfers to/from EPA, Net
72,912
(72,912)
0
Total Outlays
72,912
(72,912)
0
Net Income 3
5 77.91?.$
175 841 $
7.48 753
Note 18. Commitments and Contingencies
EPA may be a party in various administrative proceedings, legal actions and claims brought by or
against it. These include:
Various personnel actions, suits, or claims brought against the Agency by employees and others.
Various contract and assistance program claims brought against the Agency by vendors, grantees
and others.
The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include
the collection of fines and penalties from responsible parties.
Claims against recipients for improperly spent assistance funds which may be settled by a
reduction of future EPA funding to the grantee or the provision of additional grantee matching
funds.
Page 74
EPA's FY 2003 Financial Statements
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Superfund
Under CERCLA f 106(a), EPA issues administrative orders that require parties to clean up
contaminated sites. CERCLA f 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 f 107(a) for the response action ordered, or that the Agency's selection of the
response action was arbitrary and capricious or otherwise not in accordance with law.
There are currently four CERCLA f 106(b) administrative claims. If the claimants are successful, the
total losses on the administrative and judicial claims could amount to approximately $55.4 million.
The Environmental Appeals Board has not yet issued final decisions on any of these administrative
claims; therefore, a definite estimate of the amount of the contingent loss cannot be made. The
claimants' chance of success overall is characterized as reasonably possible.
All Other
There are four claims which may be considered threatened litigation involving all other appropriated
funds of the Agency. If the claimants are successful, the total losses of the claim could amount to
$89.5 million. The largest claim (maximum amount $73.1 million) was filed with GSA and the
parties currently are in discovery. EPA is contesting the Federal Tort Claims Act action ($15.36
million) and awaiting final Department of Labor decisions on two related claims (totaling $1.05
million). The claimants' chance of success overall is characterized as reasonably possible.
Judgement Fund
In cases that are paid by the U.S. Treasury Judgement Fund, the Agency must recognize the full cost
of a claim regardless of who is actually paying the claim. Until these claims are settled or a court
judgement is assessed and the Judgement 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 judgement, the liability will be reduced and
an imputed financing source recognized. See Interpretation of Federal Financial Accounting
Standards No. 2, Accounting for Treasury Judgement Fund Transactions.
As of September 30, 2003, there are no material claims pending in the Treasury Judgement Fund.
Note 19. Exchange Revenues, Statement of Net Cost
Exchange revenues on the Statement of Net Cost include income from services provided,
non-custodial interest revenue (with the exception of interest earned on trust fund investments), and
non-custodial miscellaneous earned revenue.
EPA's FY 2003 Financial Statements
Page 75
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Note 20. Environmental Cleanup Costs
As of September 30, 2003, the EPA has two sites that require clean up stemming from its activities.
Costs amounting to $18 thousand may be paid out of the Treasury Judgement Fund. (The $18
thousand represents the lower end of a range estimate, of which the maximum of the range will total
$30 thousand.) The claimants' chances of success are characterized as reasonably possible. As of
September 30, 2002, EPA had one site requiring clean up with costs amounting to $20 thousand that
may have been paid out of the Treasury Judgement Fund. (The $20 thousand represents the lower
end of the range estimate, of which the maximum was $200 thousand.) The claimant's chance of
success was characterized as probable. EPA also holds title to a site in Edison, New Jersey which
was formerly an Army Depot. While EPA did not cause the contamination, the Agency could
potentially be liable for a portion of the cleanup costs. However, it is expected that the Department of
Defense and General Services Administration will bear all or most of the cost of remediation.
Accrued Cleanup Cost
The EPA has 12 sites that will require future clean up associated with permanent closure and three
sites with clean up presently underway. The estimated costs will be approximately $9 million. Since
the cleanup costs associated with permanent closure are 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.
The FY 2003 estimate for unfunded cleanup costs decreased by $3.3 million from the FY 2002
estimate. This decrease is due in large part to the funding of the cleanup at several facilities in
Denver and Research Triangle Park (RTP) associated with the ongoing consolidation at the Denver
Federal Center and RTP Campus, respectively. Of the $9 million in estimated cleanup costs,
approximately $2.7 million represents the estimated expense to close the current RTP facility. These
costs will be incurred within the next year. The remaining amount represents the future
decontamination and decommissioning costs of EPA's other research facilities. There was a net
decrease of approximately $1.2 million in funded cleanup costs from FY 2002 to FY 2003. EPA
could also be potentially liable for cleanup costs, at a GSA-leased site; however, the amounts are not
known.
Note 21. Superfund State Credits
Authorizing statutory language for Superfund and related Federal regulations require States to enter
into Superfund State Contracts (SSCs) 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
they will share in the cost of the remedial action. Under Superfund's authorizing statutory language,
states will provide EPA with a ten percent cost share for remedial action costs incurred at privately
owned or operated sites, and at least fifty 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. 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.
Page 76
EPA's FY 2003 Financial Statements
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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, 2003, the total remaining state credits have been estimated at
$9.6 million. The estimated ending credit balance on September 30, 2002, was $11.2 million.
Note 22. Superfund Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, Potentially Responsible Parties (PRPs)
agree to perform response actions at their sites with the understanding that EPA will reimburse the
PRPs a certain percentage of their total response action costs. EPA's authority to enter into mixed
funding agreements is provided under Section 111(a)(2) of CERCLA. Under Section 122(b)(1) of
CERCLA, as amended by SARA, a PRP may assert a claim against the Superfund Trust Fund for a
portion of the costs they incurred while conducting a preauthorized response action agreed to under a
mixed funding agreement. As of September 30, 2003, EPA had 13 outstanding preauthorized mixed
funding agreements with obligations totaling $32.1 million. A liability is not recognized for these
amounts until all work has been performed by the PRP and has been approved by EPA for payment.
Further, EPA will not disburse any funds under these agreements until the PRP's application, claim,
and claims adjustment processes have been reviewed and approved by EPA.
Note 23. Income and Expenses from other Appropriations
The Statement of Net Cost reports program costs that include the full costs of the program outputs
and consist of the direct costs and all other costs that can be directly traced, assigned on a cause and
effect basis, or reasonably allocated to program outputs.
During FY 2003 and 2002, EPA had one appropriation which funded a variety of programmatic and
non-programmatic activities across the Agency, subject to statutory requirements. The EPM
appropriation was created to fund personnel compensation and benefits, travel, procurement, and
contract activities.
All of the expenses from EPM were distributed among EPA's two Reporting Entities: Superfund and
All Others. This distribution is calculated using a combination of specific identification of expenses
to Reporting Entities, and a weighted average that distributes expenses proportionately to total
programmatic expenses.
As illustrated below, this estimate does not impact the net effect of the Statement of Net Costs.
FY 2003
FY 2002
Income From
Other
Appropriations
Expenses From
Other Net
Appropriations Effect
Income From
Other
Appropriations
Expenses From
Other Net
Appropriations Effect
Superfund
All Others
Total
75,597
(75.597)
(75,597) $
75,597
JL $_
JL $_
0 $
0
114,297
(114,297)
J1 $_
(114,297) $
114,297
JL $.
JL $_
EPA's FY 2003 Financial Statements
Page 77
-------
Note 24. Custodial Revenues and Accounts Receivable
EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous
receipts. Collectibility by EPA of the fines and penalties is based on the responsible parties'
willingness and ability to pay.
Fines, Penalties and Other Misc Revenue (EPA)
FY 2003
174 509 $_
FY 2002
Accounts Receivable for Fines, Penalties and
Other Miscellaneous Receipts
Accounts Receivable
Less: Allowance for Doubtful Accounts
Total
117,191
(40,311)
76 880 $_
107,779
(39,383)
68 396
Note 25. Statement of Budgetary Resources
Reconciliations of budgetary resources, obligations incurred, and outlays, as presented in the audited
Statements of Budgetary Resources, to amounts included in the Budget of the United States
Government for the years ended September 30, 2003 and 2002, are as follows:
FY 2003
Superfund
Statement of Budgetary Resources
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other
Budget of the United States Government
All Other
Statement of Budgetary Resources
Less: Funds Reported by Other Federal
Entities
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other
Budget of the United States Government
Budgetary Obligations
Resources Incurred Outlays
2,317,206 $ 1,550,401
0
(353)
622
0
2,317,206 $ 1,550,401
1,445,513
1.313
1,446,826
9,910,793 $ 7,811,921 $ 7,397,843
(36)
26
9 911 "67 ft 7 811971 ft 7 397 833
Page 78
EPA's FY 2003 Financial Statements
-------
FY 2002 Budgetary Obligations
Resources Incurred Outlays
Superfund
Statement of Budgetary Resources $ 2,448,998 $ 1,698,004 $ 1,377,754
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other (17.463) (17.463) (1.313)
Budget of the United States Government $ 2,431,535 $ 1,680,541 $ 1,376,441
All Other
Statement of Budgetary Resources $ 9,807,912 $ 7,762,664 $ 7,012,562
Less: Funds Reported by Other Federal
Entities (24,419) (24,066) (24,582)
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other 0_ (622) (26)
Budget of the United States Government $^^22^42^
Note 26. Recoveries and Permanently Not Available, Statement of Budgetary Resources
Details of Recoveries of Prior Year Obligations and Permanently Not Available on the Statement of
Budgetary Resources are represented by the following categories:
Superfund
Recoveries of Prior Year Obligations
Less: Rescinded Authority
Total
FY 2003
FY 2002
124,797 $
230,628
(8,274)
(2,000)
1 16 593 S
998 698
FY 2003
FY 2002
114,437 $
89,440
(3,101)
(6,834)
(49,362)
(1,588)
(23,719)
(33,870)
38 955 S
47 148
All Others
Recoveries of Prior Year Obligations
Less: Payments to Treasury
Rescinded Authority
Canceled Authority
Total
Note 27. Unobligated Balances Available
Availability of unobligated balances are shown comparatively for FY 2003 and FY 2002. The
unexpired authority is available to be apportioned by the OMB for new obligations at the beginning
of FY 2004. Expired authority is available for upward adjustments of obligations incurred as of the
end of the fiscal year.
Superfund FY 2003 FY 2002
Unexpired Unobligated Balance $ 766,786 $ 726,589
Authority Not Available for Apportionment 0 24,386
Expired Unobligated Balance 19_ 19_
Total $ i (¦>(¦> ans $ 7sn qqa
EPA's FY 2003 Financial Statements
Page 79
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All Others FY 2003 FY 2002
Unexpired Unobligated Balance $ 2,011,471 $ 1,917,637
Authority Not Available for Apportionment 0 1,150
Expired Unobligated Balance 87,401 126,461
Total $ 7.098 879 $ 7 041 7.48
Note 28. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund or trust fund receipt accounts
offset gross outlays. For FY 2003 and 2002, the following receipts were generated from these
activities:
Superfund FY 2003 FY 2002
Trust Fund Recoveries 146,502 $ 248,252
Total 107 $ 748 717
All Others
Special Fund Environmental Service 11,649 $ 11,358
Trust Fund Appropriation 632.307 676.292
Total 643,956 $ 687,650
Note 29. Statement of Financing
Specific components requiring or generating resources in future periods and resources that fund
expenses recognized in prior periods are related to changes in liabilities not covered by budgetary
resources. For FY 2003 and 2002, the following line items are reconciled to the increases or
decreases in those liabilities.
Statement of Financing lines FY 2003:
Components requiring or generating resources
in future periods:
Increase in annual leave liability $
Increases in environmental liabilities
Increase in workers compensation costs
Total $
Superfund Trust All Other Combined
Fund Funds Total
1,088 $ 5,647 $ 6,735
0 (3,276) (3,276)
246 4,591 4,837
1,334 $ 6,962 $ 8,296
Increases (Decreases) in Liabilities Not
Covered by Budgetary Resources and
Reconciling Items
Unfunded Annual Leave Liability $
1,088 $
5,888 $
6,976
Unfunded Contingent Liability
0
(2)
(2)
Unfunded Workers Compensation Liability
7
191
198
Actuarial Workers Compensation Liability
239
4,400
4,639
Subsidy Payable to Treasury
0
(371)
(371)
Unfunded Clean-up Costs Liability
0
(3,274)
(3,274)
Negative subsidy entries
0
201
201
Subsidy re-estimate entries
0
(71)
(71)
Total $
1,334 $
6,962 $
8,296
Page 80
EPA's FY 2003 Financial Statements
-------
Statement of Financing lines FY 2002:
Superfund Trust
All Other
Combined
Fund
Funds
Total
Resources that fund expenses recognized in '
S $
3
prior periods
(1,590)
(399)
(1,989)
Increases in environmental liabilities
0
578
578
Total '
S (1,590) $
179 3
S (1,411)
Increases (Decreases) in Liabilities Not
Covered by Budgetary Resources and
Reconciling Items
Unfunded Annual Leave Liability '
S 2,206 $
5,375 $
7,581
Unfunded Contingent Liability
(3,778)
(6,000)
(9,778)
Unfunded Workers Compensation Liability
14
61
75
Actuarial Workers Compensation Liability
(32)
(143)
(175)
Subsidy Payable to Treasury
0
(942)
(942)
Unfunded Clean-up Costs Liability
0
578
578
Negative subsidy entries
0
616
616
Subsidy re-estimate entries
0
634
634
Total '
S (1,590) $
179 3
S (1,411)
Note 30. Costs Not Assigned to Goals
FY 2003's Statement of Net Cost by Goal has $12.8 million in gross costs not assigned to goals. This
amount is comprised of decreases of $3.3 million in environmental cleanup costs, $1.4 million in bad
debt expenses, and $1.2 million in capitalized overhead charges; offset by increases of $0.4 million
in undistributed Federal payroll-related costs, $3.8 million in depreciation expenses not assigned,
$0.2 million in imputed costs, $0.3 million in other unfunded expenses, and $14 million in operating
program expenses.
For FY 2002's Statement of Net Cost by Goal, -$4.8 million in gross costs were not assigned to
goals. This amount was comprised of decreases of $6 million in unfunded contingent liabilities and
$2.5 million in bad debt expenses; offset by increases of $2 million interest on borrowing, $0.6
million in environmental cleanup costs, $0.6 million in undistributed Federal payroll-related costs,
and $0.5 million in other interest costs.
Note 31. Transfers-In and Out, Statement of Changes in Net Position
Appropriation Transfers. In/Out:
For FY 2003 and 2002, the Appropriation Transfers under Budgetary Financing Sources on the
Statement of Changes in Net Position are comprised of nonexpenditure transfers which affect
Unexpended Appropriations for non-invested appropriations. These amounts are included in the
Budget Authority, Net Transfers and Prior Year Unobligated Balance, Net Transfers lines on the
Statement of Budgetary Resources. Detail of the Appropriation Transfers on the Statement of
Changes in Net Position and a reconciliation with the Statement of Budgetary Resources follow:
EPA's FY 2003 Financial Statements
Page 81
-------
Super- Super- All Other All Other
fund fund Funds Funds
Fund/Type of Account FY 2003 FY 2002 FY 2003 FY 2002
GSA Building Fund $
0 $
0
0 $
23,948
EPM (from current year balances)
0
0
4,550
3,750
EPM (from prior year balances)
0
0
0
500
STAG
0
0
0
400
Total Appropriation Transfers $
0
0
4,550
28,598
Net Transfers from Invested Funds*
1,278,068
1,329,490
71,843
72,912
Allocations Rescinded*
8,274
0
470
0
Total of Net Transfers on Statement
of Budgetary Resources $
1 9.86 34?.
1 379 490
76 863 X
101 510
* Portion of transfers on Statement of Budgetary Resources that are not part ofAppropriation
Transfers on Statement of Changes in Net Position
Transfers In/Out Without Reimbursement. Budgetary:
For FY 2003 and 2002, Transfers In/Out under Budgetary Financing Sources on the Statement of
Changes in Net Position are comprised of transfers to or from other Federal agencies and between
EPA funds. These transfers affect Cumulative Results of Operations. A breakdown of the transfers-in
and transfers-out, expenditure and nonexpenditure, follows:
Type of Transfer/Funds Superfund Superfund All Others All Others
FY 2003 FY 2002 FY 2003 FY 2002
Transfers-in(out), expenditure, Superfund to $ (85,608) $ (36,891) $ 85,608 $ 36,891
S&T fund
Transfers-in(out), expenditure, Superfund to (12,659) (11,867) 12,659 11,867
OIG fond
Transfers-out, nonexpenditure, from (5,155) (5,188)
Superfund to other Federal agencies
Transfer-out, expenditure, to Superfund (9,642)
Special Accounts
Transfers-out, nonexpenditure, from (80,200) (49,502)
Treasury trust fund to CDC
Transfers-in, nonexpenditure, Oil Spill 15,480 15,000
Transfer-in(out), cancelled funds 2,133 (2,133) (86)
Total Transfers in(out) without $ (191,131) $ (103,448) $ 111,614 $ 63,672
Reimbursement, Budgetary
Transfers In/Out without Reimbursement. Other Financing Sources:
For FY 2003 and 2002, Transfers In/Out without Reimbursement under Other Financing Sources on
the Statement of Changes in Net Position are comprised of 1) transfers of property, plant and
Page 82
EPA's FY 2003 Financial Statements
-------
equipment between EPA funds and 2) transfers of negative subsidy to a special receipt fund for the
credit reform funds. The amounts reported on the Statement of Changes in Net Position are as
follows:
Type of Transfer/Funds Superfund Superfund All Others All Others
FY2003 FY 2002 FY2003 FY 2002
Transfer-in(out) of property, $ 84 $ 47 $ (84) $ (47)
between Superfund and EPM
Transfer-out of prior year negative 371 (371)
subsidy, to be paid in following
year
Adjustment to transfer-out of prior
year negative subsidy, paid out in
current year and adjusted to funded 0 816
expenses
Total Transfers in(out) without $ 84 $ 47 $ 287 $ 398
Reimbursement, Budgetary
Note 32. Imputed Financing
In accordance with SFFAS No. 5, "Liabilities of the Federal Government," Federal agencies must
recognize the portion of employees' pensions and other retirement benefits to be paid by the Office
of Personnel Management (OPM) trust funds. These amounts are recorded as imputed costs and
imputed financing for the agency. Each year the OPM provides federal agencies with cost factors to
calculate these imputed costs and financing that apply to the current year. These cost factors are
multiplied by the current year's salaries or number of employees, as applicable, to provide an
estimate of the imputed financing that the OPM trust funds will provide for each agency. The
estimates for FY 2003 were $17.8 million and $103.2 million for Superfund and All Other Funds,
respectively. For FY 2002, the estimates were $14.7 million and $83 million for Superfund and All
Other Funds, respectively.
In addition to the pension and retirement benefits described above, EPA also records imputed costs
and financing for Treasury Judgement Fund payments on behalf of the agency. Entries are made in
accordance with the Interpretation of Federal Financial Accounting Standards No. 2, Accounting for
Treasury Judgement Fund Transactions. For FY 2003 entries for Judgement Fund payments totaled
$2.2 million and $5 million for Superfund and All Other Funds, respectively. For FY 2002, no
Judgement Fund payments were made on EPA's behalf.
Note 33. Payroll and Benefits Payable
The amounts that relate to payroll and benefits payable to EPA employees for the years ending
September 30, 2003 and 2002, are detailed in the following tables.
EPA's FY 2003 Financial Statements
Page 83
-------
FY 2003 Payroll and
Benefits Payables
Superfund - Current
Accrued Funded Payroll and
Benefits
Withholdings Payable
Employer Contributions
Payable, non Federal (TSP)
Other Post-employment
Benefits Payable
Accrued Unfunded Annual
Leave
Total - Superfund - Current
Covered by
Budgetary Resources
4,097
3,007
197
Not Covered by
Budgetary Resources
0
0
0
0
23,735
Total
4,097
3,007
197
7W $
^7^ $
23,735
3i m<)
All Other Funds - Current
Accrued Funded Payroll and
Benefits
Withholdings Payable
Employer Contributions
Payable, non Federal (TSP)
Other Post-employment
Benefits Payable
Accrued Funded Leave, WCF
Accrued Unfunded Annual
Leave
Total - All Other Funds -
Current
17,645
14,366
940
33
320
109,487
^ ^04 $
109 *87
17,645
14,366
940
33
320
109,487
1*7 7Q1
FY 2002 Payroll and
Benefits Payables
Superfund - Current
Accrued Funded Payroll and
Benefits
Withholdings Payable
Employer Contributions
Payable, non Federal (TSP)
Other Post-employment
Benefits Payable
Accrued Unfunded Annual
Leave
Total - Superfund - Current
Covered by
Budgetary Resources
9,146
6,897
443
3
0
Not Covered by
Budgetary Resources
0
0
0
0
22,647
Total
1**80 $
^ $
9,146
6,897
443
22,647
"() IV,
All Other Funds - Current
Accrued Funded Payroll and
Benefits
Withholdings Payable
Employer Contributions
Payable, non Federal (TSP)
Other Post-employment
Benefits Payable
Accrued Funded Leave, WCF
Accrued Unfunded Annual
Leave
Total - All Other Funds -
Current
41,309
30,233
1,943
29
320
0
103,598
7^ ™ $
im ™
41,309
30,233
1,943
29
320
103,598
177 dM
Page 84
EPA's FY 2003 Financial Statements
-------
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 are comprised of rescissions to appropriated funds and cancellations of funds that expired
five years earlier. These amounts affected Unexpended Appropriations for All Other Funds for FY
2003 and 2002.
Rescissions to General Appropriations
Canceled General Authority
Total Other Adjustments
FY 2003
48,147 $
23,719
71 $
FY 2002
1,588
33,872
Note 35. Nonexchange Revenue, Statement of Changes in Net Position
The Nonexchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net
Position for FY 2003 and 2002 are comprised of the following items:
FY 2003
Interest on Trust Fund Investments
Tax Revenue, Net of Refunds*
Fines and Penalties Revenue
Special Receipt Fund Revenue
Total Nonexchange Revenue
Superfund Trust
Fund
48,945
(99,355)
718
0
All Other
Funds
64,447 $
184,477
0
11,591
Combined
Total
113,392
85,122
718
11.591
9ina-^
FY 2002
Interest on Trust Fund Investments
Tax Revenue, Net of Refunds
Fines and Penalties Revenue **
Special Receipt Fund Revenue
Total Nonexchange Revenue
Superfund Trust All Other Combined
Fund Funds Total
110,577 $ 67,563 $ 178,140
7,466
(10,005)
0
181,190
0
11,358
insrm $ 111 $
188,656
(10,005)
11,358
* In FY 2003, the Superfund trust fund refunded $99,355 thousand in previously accrued corporate environmental taxes.
** FY 2002fines and penalties revenue included the following negative items: a $9,664 thousand write-off and $1,339
thousand allowance for uncollectible accounts.
EPA's FY 2003 Financial Statements
Page 85
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Note 36. Hazardous Substance (Superfund) Trust Fund Balance
In FY 2003, the EPA received an appropriation for Superfund of $1,264 billion. The funding source
for the appropriation consisted of $632 million from the Superfund Trust Fund, and $632 million
from Treasury's general fund. Treasury's Bureau of Public Debt (BPD), the manager of 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. The Superfund Trust Fund has a liability to EPA for previously appropriated funds as
of September 30, 2003 and 2002 of $2.6 billion and $3.3 billion, respectively. Unappropriated funds
available for future appropriations as of September 30, 2003 and 2002 was $0 and $549 million,
respectively.
During FY 2003, the Superfund Trust Fund revenue from cost recoveries and investment interest was
less than anticipated. In addition, the Internal Revenue Service issued approximately $99 million in
corporate net tax refunds that were previously deposited in the Trust Fund. Due to these
circumstances, and when combined with the FY 2003 Superfund appropriation, the amount
appropriated to EPA for Superfund activities exceeded the assets available for appropriation in the
Trust Fund as of September 30, 2003 by $82.7 million. The Agency expects the Trust Fund to
continue to receive revenues from cost recoveries and investment interest. Nevertheless, such
revenue is not expected to be sufficient to cover the same level of funding from the Trust Fund as in
past years. In EPA's view, the shortfall for FY 2003 will be covered by the collection of cost
recoveries and receipt of interest income to the Trust Fund over time.
Page 86
EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
As of September 30, 2003
(Dollars in Thousands)
(Unaudited)
Deferred Maintenance
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.
No deferred maintenance was reported for any of the four categories.
Intragovernmental Assets
Intragovernmental amounts represent transactions between all federal departments and agencies and
are reported by trading partner (entities that EPA did business with during FY 2003).
Trading
Investments
Accounts Receivable
Partner
Code
Asencv
Sunerfund All Other
Superfund
All Other !
4
Government Printing Office
11
Executive Office of the President
127
12
Department of Agriculture
58
36
13
Department of Commerce
1
49
14
Department of Interior
13,589
758
15
Department of Justice
101
(15)
17
Department of the Navy
58
321
18
U. S. Postal Service
47
19
Department of State
19
(61)
20
Department of the Treasury
2,516,147 2,114,684
36
130
21
Department of the Army
11,081
159
31
Nuclear Regulatory Commission
2
1
45
Equal Employment Opportunity
Commission
64
47
General Services Administration
14
20
49
National Science Foundation
36
57
Department of the Air Force
92
(4)
Other
Superfund All Other
58
823
19
594
2,418
EPA's FY 2003 Financial Statements
Page 87
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Trading Investments Accounts Receivable Other
Partner
Code Agency Superfund All Other Superfund All Other Superfund All Other
61 Consumer Product Safety
7,269
Commission
3
64
Tennessee Valley Authority
6
68
EPA (between Superfund and All
Other)
89,789
69
Department of Transportation
18
7,995
70
Department of Homeland
Security
15,950
72
Agency for International
Development
617
75
Department of Health and Human
Services
528
1,146
80
National Aeronautics and Space
Administration
39
86
Department of Housing and
Urban Development
29
89
Department of Energy
124
1,308
96
US Army Corps of Engineers
156
827
97
US Department of Defense
8,742
201
99
Treasury General Fund
7
0
Unassigned
m
403
Total
$2,516,147 $2,114,684
$34,665
$119,941
15 (27}
$7,414 $3,827
Intragovernmental Liabilities
Trading
Accounts Payable
Accrued Liabilities
Other Liabilities
Partner
Code
Asencv
Superfund All Other
Superfund
All Other
Superfund
All Other
3
Library of Congress
$ 6
$ 150
$ 60
4
Government Printing Office
51
1,297
(1)
489
5
General Accounting Office
(367)
(1)
10
The Judiciary
(18)
11
Executive Office of the President
3
16
12
Department of Agriculture
818
1,882
2,170
1,015
13
Department of Commerce
888
981
3,042
3,066
14
Department of Interior
901
4,359
2,957
49
308
15
Department of Justice
617 58
2,381
79
570
(117)
16
Department of Labor
2,258
210
502
1,447
6,612
17
Department of the Navy
351
20
73
873
(319)
18
United States Postal Service
1
364
14
1
19
Department of State
1
269
716
Page 88
EPA's FY 2003 Financial Statements
-------
Trading Agency Superfund All Other Superfund All Other Superfund All Other
Partner
Code
20 Department of the Treasury 38 200 143 4
21 Department of the Army 27 2,334 (17)
24 Office of Personnel Management 79 549 1,004 4,745
31 US Nuclear Regulatory
Commission 5 15
33 Smithsonian Institution 3 17 (57)
36 Dept. of Veterans Affairs 5 60 74
45 EEOC 18 (68)
47 General Services Administration 377 4,505 37,445 10,767 (20,885)
49 National Science Foundation 6 13 45
57 Department of the Air Force 2,386
59 Nat'l Foundation on Arts and
Humanities 12
64 Tennessee Valley Authority 159 59
68 EPA (between Superfund and All
Others) 86,087 3,702 7,269
69 Department of Transportation 4,169 4,159 8,968
70 Department of Homeland Security 15,318 22 48 (420)
73 Small Business Administration 17
75 Department of Health and Eluman
Services 16 1,139 8,547 8,150
80 National Aeronautics and Space
Administration 187 31
86 Department of Housing and
Urban Development 418
89 Department of Energy 370 4,167 (335)
93 Federal Mediation Service 10
95 Independent Agencies 495 1,490
96 US Army Corps of Engineers 650 160 15,564 1,793 5
97 Office of the Secretary of Defense (351) 1 163 482 7,346 4
99 Treasury General Fund 375 1,793
0 Unassigned [38) 16 302 538
Total 106607 618 28 034 6OS38 2H6nn 71 611
For All Other Funds' remaining intragovernmental liabilities, $21,189 thousand in Debt is assigned
to the Department of the Treasury (trading partner Code 20), and $78,776 thousand in Custodial
Liability is assigned to the Treasury General Fund (trading partner Code 99).
EPA has confirmed the year-end intragovernmental fiduciary assets, liabilities, revenue, and
expenses with the Bureau of Public Debt, the Department of Labor, and the OPM. EPA has also been
in contact with several other Federal agencies to reconcile non-fiduciary intragovernmental balances
for year-end as required.
EPA's FY 2003 Financial Statements
Page 89
-------
Intragovernmental Revenues and Costs
EPA's intragovernmental earned revenues are not reported by trading partners because they are
below OMB's threshold of $500 million.
Super-fund All Others
$16,682 $124,233
16,682 124,233
Intragovernmental Earned Revenue
Associated Costs to generate above
Revenue (Budget Functional
Classification 304)
Page 90
EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
Supplemental Statement of Budgetary Resources
As of September 30, 2003
(Dollars in Thousands)
Environ-
mental
Science
Total
Programs &
and
LUST
All
All
STAG
Manage-
Technology
FIFRA
Trust Fund
Other
Other
ment
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $
3,859,994 !
$ 2,111,604 $
720,821 $
o :
i o $
731,931 !
i 7,424,350
Borrowing Authority
0
Net Transfers
4,550
72,313
76,863
Other
0
Unobligated Balances:
Beginning of Period
1,365,927
354,150
225,477
376
3,227
96,091
2,045,248
Net Transfers, Actual
0
Anticipated Transfers Balance
0
Spending Authority-Offsetting Collections
Earned and Collected
4,853
86,932
5,526
22,838
28
153,526
273,703
Receivable from Federal Sources
6,423
1,247
(2,596)
5,074
Change in Unfilled Customer Orders
Advance Received
(1,470)
807
216
(19,915)
(20,362)
Without Advance from Federal Sources
(54,402)
194
25,735
(28,473)
Anticipated for Rest of Year
Transfers from Trust Funds
83,475
12,660
96,135
Total Spending Authority from $
4,853 !
$ 37,483 $
91,249 $
23,054 !
i 28 $
169,410 :
i 326,077
Collections
Recoveries of Prior Year Obligations
97,227
11,437
3,475
168
231
1,899
114,437
Permanently Not Available
(25,090)
(32,011)
(10,675)
(470)
(7,936)
(76,182)
Total Budgetary Resources $
5,302,911 !
S 2,487,213 $
1,030,347 $
23,598 !
i 75,329 $
991,395 !
i 9,910,793
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $
3,902,080 !
$ 2,098,541 $
731,821 $
o :
i 71,433 $
735,720 !
i 7,539,595
Reimbursable
92,976
4,292
22,708
152,350
272,326
Total Obligations Incurred $
3,902,080 !
$ 2,191,517 $
736,113 $
22,708 !
i 71,433 $
888,070 !
i 7,811,921
Unobligated Balances:
Apportioned
1,400,831
227,577
277,195
890
3,896
101,082
2,011,471
Exempt from Apportionment
0
Unobligated Balances Not Available
68,119
17,039
2,243
87,401
Total Status of Budgetary Resources $
5,302,911 !
$ 2,487,213 $
1,030,347 $
23,598 !
i 75,329 $
991,395 !
i 9,910,793
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $
3,800,000 :
$ 2,142,597 $
641,389 $
(514) :
i 71,174 $
716,761 !
i 7,371,407
Obligated Balances, Net - Beginning
8,236,011
700,676
563,359
2,621
81,819
24,166
9,608,652
Accounts Receivable
22,103
83,297
12,637
118,037
Unfilled Customer Orders-Federal Sources
124,890
10,768
89,216
224,874
Undelivered Orders
(7,857,036)
(583,687)
(475,383)
149
(76,421)
(85,205)
(9,077,583)
Accounts Payable
(495,044)
(203,829)
(93,556)
(1,053)
(7,886)
(46,176)
(847,544)
Total Outlays $
3,683,931 !
$ 2,202,750 $
729,874 $
1,203 :
i 68,686 $
711,399 !
i 7,397,843
Disbursements $
3,688,785 !
$ 2,288,212 $
779,435 $
24,258 !
i 68,714 $
857,529 !
i 7,706,933
Collections
(4,854)
(85,462)
(49,561)
(23,055)
(28)
(146,130)
(309,090)
Less: Offsetting Receipts
(643,956)
(643,956)
Net Outlays $
3,683,931 !
$ 2,202,750 $
729,874 $
1,203 :
i 68,686 $
67,443 !
i 6,753,887
EPA's FY 2003 Financial Statements
Page 91
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Balance Sheet
As of September 30, 2003
(Dollars in Thousands)
Unaudited
ASSETS
Intragovernmental
Fund Balance With Treasury $ 57,780
Accounts Receivable, Net Federal 23,869
Other 595
Total Intragovernmental $ 82,244
General Property, Plant and Equipment, Net 10,919
Other Non Federal Assets 5J_
Total Assets $ 93,214
LIABILITIES
Intragovernmental
Accounts Payable & Accrued Liabilities, Federal $ 24,595
Other Federal Liabilities 25,500
Total Intragovernmental $ 50,095
Accounts Payable & Accrued Liabilities, Non Federal 9,836
Payroll and Benefits Payable Non Federal 1,513
Total Liabilities $ 61,444
NET POSITION
Cumulative Results of Operations $ 31,770
Total Net Position 31,770
Total Liabilities and Net Position $ 93,214
Page 92
EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Net Cost
For the Year Ended September 30, 2003
(Dollars in Thousands)
Unaudited
COSTS
Intragovernmental $ 70,863
With the Public 61,351
Total Costs $ 132,214
Less:
Earned Revenues, Federal 130,499
Earned Revenues, Non Federal 0
Total Earned Revenues $ 130,499
NET COST OF OPERATIONS $ 1,715
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Changes in Net Position
For the Year Ended September 30, 2003
(Dollars in Thousands)
Unaudited
Net Position-Beginning of Period $ 31,025
Prior Period Adjustments 0
Beginning Balances, as adjusted $ 31,025
Other Financing Sources:
Transfers In/Out (111)
Imputed Financing Sources 2,571
Total Other Financing Sources $ 2,460
Net Cost of Operations (1,715)
Net Position-End of Period $ 31,770
EPA's FY 2003 Financial Statements
Page 93
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Budgetary Resources
For the Year Ended September 30, 2003
(Dollars in Thousands)
Unaudited
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received
Borrowing Authority
Net Transfers
Other
Unobligated Balances:
Beginning of Period
Net Transfers, Actual
Anticipated Transfers Balance
Spending Authority from Offsetting Collections:
Earned and Collected
Receivable from Federal Sources
Change in Unfilled Customer Orders
Advance Received
Without Advance from Federal Sources
Anticipated for Rest of Year
Transfers from Trust Funds
Total Spending Authority from Offsetting Collections
Recoveries of Prior Year Obligations
Permanently Not Available
Total Budgetary Resources
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Reimbursable
Unobligated Balances:
Apportioned
Exempt from Apportionment
Unobligated Balances Not Available
Total Status of Budgetary Resources
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net
Obligated Balances, Net - Beginning of Period
Accounts Receivable
Unfilled Customer Orders from Federal Sources
Undelivered Orders
Accounts Payable
Total Outlays
Disbursements
Collections
Less: Offsetting Receipts
Net Outlays
27,162
130,506
0
(19,800)
22,408
133,114
239
0
160,515
138,191
22,324
0
0
160,515
4,838
30,218
114
26,083
(26,944)
(34,710)
(401)
110,305
(110,706)
0
(401)
Page 94
EPA's FY 2003 Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Financing
For the Year Ended September 30, 2003
(Dollars in Thousands)
Unaudited
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred $ 138,191
Less: Spending Authority from Offsetting Collections and Recoveries (133,353)
Obligations Net of Offsetting Collections and Recoveries $ 4,838
Less: Offsetting Receipts 0
Net Obligations $ 4,838
Other Resources
Transfers In/Out Without Reimbursement, Property $ (111)
Imputed Financing Sources 2,571
Other (+/-) 0
Income from Other Appropriations 0
Net Other Resources Used to Finance Activities $ 2,460
Total Resources Used To Finance Activities $ 7,298
RESOURCES USED TO FINANCE ITEMS NOT PART OF
NET COST OF OPERATIONS
Change in Budgetary Resources Obligated $ (6,487)
Resources that Fund Prior Period Expenses
Budgetary Offsetting Collections and Receipts that Do Not
Affect Net Cost of Operations
Credit Program Collections Increasing Loan Liabilities for Guarantees of
Subsidy Allowances
Offsetting Receipts Not Affecting Net Cost of Operations
Resources that Finance the Acquisition of Assets (6,151)
Other Resources or Adjustments to Net Obligated
Resources that Do Not Affect Net Cost of Operations
Total Resources Used to Finance Items Not Part of Net Cost of Operations $ (12,638)
Total Resources Used to Finance the Net Cost of Operations $ (5,340)
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 $ 86
Increase in Environmental and Disposal Liability
Upward/Downward Reestimates of Credit Subsidy Expense
Increase in Exchange Revenue Receivable from the Public
Increase in workers compensation costs
Total Components of Net Cost of Operations that Will
Require or Generate Resources in Future Periods $ 86
Components Not Requiring or Generating Resources
Depreciation and Amortization $ 6,089
Revaluation of Assets or Liabilities 0
Other Expenses Not Requiring Budgetary Resources 880
Total Components of Net Cost of Operations that Will
Not Require or Generate Resources $ 6,969
Total Components of Net Cost of Operations That Will Not
Require or Generate Resources in the Current Period $ 7.055
Net Cost of Operations
EPA's FY 2003 Financial Statements
Page 95
-------
Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30, 2003
(Dollars in Thousands)
INVESTMENT IN THE NATION'S RESEARCH AND DEVELOPMENT:
Public and private sector institutions have long been significant contributors to our nation's environment and
human health research agenda. The Environmental Protection Agency's (EPA) Office of Research and
Development, 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 both risk assessment and risk management. Science 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 and
technologies we need to detect, abate, and avoid environmental problems. Science provides the crucial
underpinning for EPA decisions and challenges us to apply the best available science and technical analysis
to our environmental problems and to practice more integrated, efficient and effective approaches to
reducing environmental risks.
Among the Agency's highest priorities are research programs that address the effects of the environment on
children's health, the potential risks of unregulated contaminants in drinking water, the health effects of air
pollutants such as particulate matter, and the protection of the nation's ecosystems. For FY 2003, the full
cost of the Agency's Research and Development activities totaled over $700 million. Below is a breakout of
the expenses (dollars in thousands):
FY 1999 FY 2000 FY 2001 FY 2002 FY 2003
Programmatic Expenses 543,777 541,117 555,794 559,218 593,295
Allocated Expenses 58,728 59,523 90,039 123,307 106,971
INVESTMENT IN THE NATION'S INFRASTRUCTURE
The Agency makes significant investments in the nation's drinking water and clean water infrastructure. The
investments are the result of three programs: the Construction Grants Program which is being phased out
and two State Revolving Fund (SRF) programs.
Construction Grants Program: During the 1970s and 1980s, the Construction Grants Program was a source
of Federal funds, providing more than $60 billion of direct grants for the construction of public wastewater
treatment projects. These projects, which constituted a significant contribution to the 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. Beyond 1990, EPA shifted the focus of municipal financial
assistance from grants to loans that are provided by State Revolving Funds.
Page 96
EPA's FY 2003 Financial Statements
-------
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. These are reported below as Other Infrastructure Grants.
The Agency's expenses related to investments in the nation's Water Infrastructure are outlined below
(dollars in thousands):
FY 1999
FY 2000
FY 2001
FY 2002
FY 2003
Construction Grants
414,528
55,766
63,344
149,841
15,845
Clean Water SRF
925,744
1,564,894
1,548,270
1,389,048
1,295,394
Safe Drinking Water SRF
387,429
588,116
728,921
708,528
842,936
Other Infrastructure Grants
245,606
212,124
282,914
367,259
582,091
Allocated Expenses
213,117
266,299
424,999
576,536
493,349
STEWARDSHIP LAND
The Agency acquires title to certain land and land rights under the authorities provided in Section 104 (J)
CERCLA related to remedial clean-up sites. The land rights are in the form of easements to allow access to
clean-up sites or to restrict usage of remediated sites. In some instances, the Agency takes title to the land
during remediation and returns it to private ownership 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.
As of September 30, 2003 the Agency possesses the following land and land rights:
Superfund Sites with Easements
Beginning Balance 31
Additions 1
Withdrawals 1
Ending Balance 3 1
Superfund Sites with Land
Acquired
Beginning Balance 24
Additions 2
Withdrawals 1
Ending Balance 25
EPA's FY 2003 Financial Statements
Page 97
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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):
Training and Awareness Grants
Fellowships
Allocated Expenses
FY 1999 FY 2000 FY 2001 FY 2002 FY 2003
46,630 49,265 48,697 49,444 47,827
10,239 9,570 11,451 8,728 6,572
6,142 6,472 9,744 12,827 9,808
Page 98
EPA's FY 2003 Financial Statements
-------
Appendix II
Agency's Response to Draft Report
MEMORANDUM
SUBJECT: Response to the Draft Audit Report on EPA's Fiscal 2003 Financial Statements
FROM: Linda M. Combs /s/ Mike Ryan for
Chief Financial Officer (271 OA)
TO: Paul C. Curtis, CPA
Director, Financial Statement Audits (2422T)
Thank you for providing us with the opportunity to respond to the findings and
recommendations made in the "Draft Audit of EPA's Fiscal 2003 and 2002 Financial
Statements." Attached is our response to the specific audit findings and recommendations made
in the report.
I appreciate the OIG's recognition of the various actions and initiatives the OCFO has
taken to resolve current and prior financial statement audit issues. As acknowledged, we in
OCFO continue to make progress in enhancing our managerial cost accounting. We completed a
cost information outreach initiative that is currently providing positive results. Agency program
managers are using cost information to make decisions and effectively manage their programs.
Furthermore, the Office of Management and Budget has recognized our success in this area as
part of the President's Management Agenda.
We appreciate your concern with the Superfund Trust Fund (Trust Fund) deficit,
however, we would like to clarify the funding sources for the Trust Fund. Congress appropriates
funds annually to EPA, not Treasury's Bureau of Public Debt. The funding source can vary - it
is primarily Treasury's General Fund, but there are other funding sources, such as the Trust
Fund. Once there is an appropriation, the funds are made available to EPA. The Superfund
Program will continue to operate as long as Congress continues to appropriate funds for the
Superfund Program. Accordingly, the Trust Fund will remain as long as funds are appropriated
and deposited. Of the $1,264 billion appropriated to the Superfund in FY 2003, $632 million
came from Trust Fund assets and the remaining $632 million came from the General Fund.
Based on the appropriation, general revenues were transferred into and deposited in the Trust
fund. The mere fact that Congress has appropriated funds to EPA in excess of available Trust
Fund assets does not mean that the Superfund Program will cease operations.
-------
In addition, my staff and I would like to work with you to allay the recent concerns about
the suspense file records. By bringing this issue to our attention at such a late date in the
process, it is essential that we be given the opportunity to address the concerns prior to the
issuance of the final report.
If you have any questions concerning our response to the draft audit report, please contact
Juliette McNeil, Director of the Financial Management Division at 564-4905.
Attachments
cc: Mike Ryan
2
-------
RESPONSE to DRAFT AUDIT of EPA's FISCAL 2003 and 2002
FINANCIAL STATEMENTS
REPORTABLE CONDITIONS
1 - Documentation of Standard Vouchers Needs Improvement
We recommend that the Office of the Chief Financial Officer (OCFO):
1-1. Establish written procedures to calculate the amount of the monthly transfer from
Treasury to EPA Trust Fund Accounts.
Agency Comments:
We have developed a plan of action to address the recommendations and will
established written procedures.
Corrective Action Target Completion Date Action Official
Develop written procedures March 2004 FRAB
were necessary for calculating the
monthly transfers from Treasury
to EPA
1-2. Require that all transfers and requests have supporting documentation attached to
the standard voucher that shows how the amount requested from Treasury was
derived.
Agency Comments.
We will provide complete documentation to support the amount of the transfers. The
additional documentation supporting the funding transfers has already been implemented.
2 - Continued Improvement Needed in EPA's Interagency Agreement (IAG) Invoice
Approval Process
1-3. We recommend that the Director, Office of Grants and Debarment (OGD),
determine the root cause of the problem and develop effective procedures to ensure
that project officers properly manage the entire process.
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Agency Comments:
In view of the audit findings, OGD agrees with the OIG's recommendation on the need
for corrective action. OGD will issue a long-term training plan that calls for developing a
stand-alone IAG project officer training course. This course will allow EPA to provide
more in-depth training to Project Officers on IAG core competencies. Until the stand-
alone course is developed, OGD will further emphasize, in its current training courses,
the importance of collecting and reviewing invoice documentation to substantiate costs.
OGD will also issue guidance to program offices on the need to strengthen the IAG
invoice approval process.
To better monitor whether IAG project officers are effectively managing their
agreements, OGD will incorporate IAG program reviews as part of their Grants
Management Reviews.
Corrective Action Target Completion Date Action Official
Issue a long term training plan for December 2003 OGD
developing a stand-alone IAG Project
Officer training course.
Complete IAG Project Officer training December 2004 OGD
course.
Issue guidance on strengthening
the IAG invoice approval process March 2004 OGD
Revise the tri-annual review
protocol to incorporate the
review of the IAG program September 2004 OGD
3 - Improvement Needed in Reconciling State Superfund Contracts Unearned Revenue
1-4. We recommend that the OCFO have the Financial Management Division (FMD)
calculate annually the combined unearned revenue from SSCs for all accounting
points and reconcile the amount to the consolidated balance of general ledger
account 2312.
Agency Comments:
FMD will calculate and analyze SSC expenditures and reconcile IFMS balances annually.
Where adjustments are necessary, FMD will work with the regions.
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Corrective Action
Target Completion Date
Action Official
Calculate and analyze Annually FRAB
SSC expenditures & reconcile to
IFMS.
4 - EPA Did Not Promptly Record Marketable Securities Received in Fiscal 2003
We recommend that the OCFO have the Director, FMD:
1-5. Develop stricter guidelines governing the recording of marketable securities
and ensure that Finance Offices record financial instruments at fair market value
when received.
1-6. Develop procedures for Financial Management Offices for sending securities
between offices to ensure that the receiving Financial Management Office has
sufficient information to record the securities in IFMS when received directly from
the Department of Justice and prepare an Intragovernmental Payment and
Collection System entry to the appropriate regional finance office.
Agency Comments:
FMD will develop and issue policy and procedures for timely recording marketable
securities.
Corrective Action Target Completion Date Action Official
Issue policy and procedures April 2004 FPPCB
on recording marketable securities
5 - Automated Application Processing Controls for Integrated Financial Management
System Could Not be Assessed.
Agency Comments:
The OCFO has a planned target date of 2006 for replacing IFMS. A commercial off-
shelf-package will be delivered with systems documentation.
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6 - Integrated Financial Management System Suspense File Needs to be Reconciled to the
General Ledger
We recommend that the OCFO:
1-7. Establish and test a formal reconciliation process that includes total dollar and
record counts for the data processed from the IFMS suspense file to the general
ledger accounts.
Agency Comments:
Comptroller Policy Announcement No. 03-09 establishes policies and procedures for
reconciling the IFMS suspense table (SUSF) to the IFMS general ledger. To simplify the
reconciliation process, the Financial Systems Branch (FSB) is in the process of
developing a standard automated reconciliation process. This process currently is in the
testing and validation phase and is expected to be operational during the second quarter
of FY 2004.
We disagree with the assertion in the audit report that OCFO does not have adequate
assurance that data from users or subsystems is accurate or completely posted into the
IFMS general ledger. OCFO has numerous controls in place to verify that all
transactions are posted to the general ledger. For example, daily reviews of the IFMS
SUSF are performed by regional offices and finance centers to ensure that all valid
transactions that should be processed, including rejects and records on hold, are
processed. At year-end a special review of the IFMS SUSF is performed to ensure that
all applicable transactions are processed and recorded in the appropriate fiscal year.
Additionally, the audit report states that as of October 10, 2003, the IFMS SUSF
contained 435,329 records and that the dollar amounts could not be quantified. Further,
the audit report states that OCFO is "attempting to categorize 56% of the records that had
no status." The number of records in the IFMS SUSF as of September 30, 2003, total
109,001. All records have a status code and the amounts are readily available by
reviewing each transaction on-line. We have contacted several of our finance offices
requesting that they re-review their SUSF IFMS records and again assess if any FY 2003
transactions have been inadvertently omitted. All reports thus far indicate that all FY
2003 records were processed in FY 2003.
Because of the potential impact of this finding on the audit opinion and the considerable
factual inaccuracies that may exist, I ask that OIG staff reconvene this week with FSB
staff to validate the facts prior to issuance of the final audit report.
Corrective Action Target Completion Date Action Official
Develop a standardized March 2004 FSB
automated reconciliation
process for SUSF/IFMS GL
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1-8. Update the formal quality assurance process to ensure IFMS is
evaluated annually regarding its compliance with all applicable JFMIP
Federal system requirements and certified as part of the FMFIA review.
Also, complete the checklist review of IFMS for compliance with all
applicable JFMIP core systems requirements.
Agency Comments:
IFMS is evaluated annually as part of the FMFIA review. The most recent IFMS
JFMIP check list was completed in 2003. In addition, IFMS was evaluated
against JFMIP requirements in 2002 to identify noncompliance areas and estimate
the cost to incorporate new requirements. It was determined that the cost would
be at least ten million dollars. As a result, OCFO management determined that it
would not be cost beneficial to invest in new requirements for this legacy system.
Corrective Action Target Completion Date Action Official
Continue to evaluate IFMS Annually FSB
as part of the FMFIA review
7 - Further Improvements Needed in Managing EPA's Accounts Receivable
We recommend the Director, FMD:
1-9. Periodically follow-up with the DO J, Directors of Office of Regional
Counsel and Other Program Offices with a quality assurance letter to ensure
legal documents are being promptly forwarded to the financial management
offices.
Agency Comments:
FMD will develop policy and procedures requiring periodic quality assurance
letters to ensure legal documents are promptly forwarded to the financial
management offices.
Corrective Action Target Completion Date Action Official
Develop policy and March 2004 PCAB
procedures for ensuring
legal documentation reaches
the intended party.
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1-10. Establish procedures to verify that year-end transactions are processed
by the Financial Management Offices.
Agency Comments:
FMD has implemented procedures to verify that year-end or period-end
transactions are processed by the Financial Management Offices as
documented for FY 2003 in the Annual Year End Closing instructions (see page
10, paragraph K; page 11, paragraph L; and Attachments 9 and 10).
1-11. Establish procedures to verify that Financial Management Offices are
conducting quarterly reviews of the allowance for doubtful accounts and
updating the percentages based on the collection rate in accordance with
OCFO policies.
Agency Comments:
FMD has established procedures to review the allowance for doubtful accounts
and update percentages based on collection experience from prior years.
These procedures are included in the Resource Management Directives (RMDS)
2540, Chapter 9, paragraph 10.A.1.
8 - Internal Controls for Correcting Errors in IFMS Need Improvement
We recommend that the OCFO:
1-12. Establish policies and procedures to ensure that negative transactions
are not entered into IFMS and the standard double entry bookkeeping be
followed.
1-13. Reduce IFMS's Vulnerability to fraud and abuse by establishing an
edit check or other system control to prevent negative transactions from
being entered into IFMS.
Agency Comments:
We believe that Comptroller Policy 93-02 documents the Agency's procedures for
processing financial transactions. The Financial Systems Branch (FSB) is in the
process of updating related Standard Operating Procedures (SOPs) to insure
transactions are processed using standard accounting protocol.
Corrective Action Target Completion Date Action Official
Establish/update SOPs April 2004 FSB
for processing accounting
transactions.
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COMPLIANCE WITH LAWS AND REGULATIONS
9 - EPA Continues to Make Efforts to Improve Its Costs Accounting Processes
We recommend that the OCFO:
2-1. Continue with its efforts to improve Agency financial and cost
accounting systems including its strategy that further educates users on the
types of cost information available from OCFO systems, and how to use the
systems to obtain the information they need to effectively manage their
programs.
Agency Comments:
EPA has a cost information assessment under way. In phase II we will continue
to educate users on the benefit of cost information. The assessment is designed to
elicit from Agency managers additional cost information needs and types of
information all ready available in OCFO systems. OCFO will continue to work
with Agency managers and staff to identify their cost information needs and
incorporate those requirements into the Agency's accounting processes, where
practicable.
2-2. Reconsider their decision to retain the PRC subobjectives as the official
Agency cost accounting output and to change the Agency's output to
something more meaningful and useful to Agency managers.
Agency Comments:
The Agency's cost accounting output will continue to be the subobjective.
Having the Agency output as a subobjective does not preclude the Agency from
accounting for discrete programs or projects below the subobjective level. The
revised accounting structure for the new strategic plan will allow the Agency to
do just that. Moreover, the Agency accounts for projects below the subobjective
level now, one example being the Superfund Program. We expect that Phase II of
our cost information assessment will identify other projects and activities that
may be at a level lower than subobjective or even below the Program/Project
level. If practicable to do so, the Agency will establish procedures to collect cost
information in the Agency's accounting system.
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10 - EPA Continues to Experience Difficulties in Reconciling Intragovernmental
Transactions
Agency Comments: EPA will continue its efforts to reconcile the Agency's
intragovernmental transactions and comply with Federal financial reporting
requirements.
11 - EPA Needs to Revise and Resubmit Federal Financial Management
Improvement Act Remediation Plan
We continue to recommend that OCFO revise its 1999 Remediation Plan to
recognize when EPA will establish a security certification process for all its
major financial and mixed-financial systems. Specifically, we recommend
that OCFO:
2-3. Identify the party responsible for establishing a security certification
process.
2-4. Indicate an estimated milestone date as to when the certification process
will be applied to persons with sensitive access rights to major financial and
mixed systems. OCFO also needs to submit the revised Remediation Plan to
Office of Management and Budget (OMB).
Agency Comments:
EPA's 1999 Remediation Plan already has been updated and submitted to the
OMB. The updated plan shows (1) that Office of Administration and Resources
Management is the party responsible for establishing a security certification
process for non-federal workers, and (2) the estimated milestones for issuing the
security certification policy is July 2004 for contractor personnel, and July 2005
for grantee personnel. The revised Remediation Plan was included in the FY
2004 - FY 2009 Financial Management Five Year Plan and provided to the Office
of Management and Budget in October 2003.
We concur with your analysis that the OCFO taken steps to ensure that a
certification process for contractors using EPA's IFMS is in place. This
certification process is contained in OCFO Policy Announcement No. 98-08.
The audit report also stated that EPA's Memorandums of Understanding (MOUs)
with other financial or mixed systems that interface with IFMS do not stipulate
clear baseline security requirements for screening contractor personnel with
access to financial data. However, the MOUs clearly reference the
Interconnection Security Agreement, which requires compliance with IFMS'
Security Plan. Under the Security Plan, background screening is required for
contractor personnel. Further, we have surveyed our interfacing system owners
(e.g., EPAYS, IDOTS, and CPS) and found that contractor personnel do not have
access to them.
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12 - EPA Not in Compliance Regarding Preparation and Reconciliation of SF 224
We recommend that the OCFO:
2-5. Discontinue including the adjusted amount on the SF 224, thus enabling
Treasury to report these amounts through the Statement of differences (FMS
6652).
2-6. Make source documentation readily available to improve timely
clearing of reconciling items included in the suspense account and on the
Statement of Difference (FMS 6652).
Agency Comments:
We believe that the characterization of the entire agency as not being in
compliance with Treasury regulations does not fairly represent EPA's status given
that the majority of the finance offices comply with Treasury regulations.
Specifically, EPA currently has 26 agency locations that prepare monthly
SF 224 reports for Treasury. Only one of those locations (Accounting Point (AP)
15-Washington Finance Center) is still adjusting current unrecorded transactions
to suspense accounts on the SF 224. The other 25 locations are reporting current
transactions from the general ledger in accordance with current regulations and
policy.
We have provided the OIG with an analysis of the suspense differences between
the IFMS reports on cash transactions and the SF 224, Treasury Undisbursed
amounts as of September 30, 2003 (Attachment 1). AP 15 and three other
locations had differences in the suspense accounts at year-end. Two of the
locations' differences are minor unresolved amounts from the months just prior to
the implementation of the current policy, and the remaining office's difference is
from an error made between funds in the "thirteenth" month pre-closing ledger.
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Appendix III
Report Distribution List
Chief Financial Officer (271 OA)
Inspector General (2410)
Assistant Administrator for Administration and Resources Management (3101 A)
Comptroller (2731 A)
Assistant Administrator for Environmental Information (281 OA)
Acting Assistant Administrator for Solid Waste and Emergency Response (5101T)
Director, Office of Policy and Resources Management, OARM (3102 A)
Director, Office of Grants and Debarment (3901R)
Director, Office of Technology Operations and Planning (281 OA)
Director, Office of Budget (2732A)
Director, Grants Administration Division (3903R)
Director, Facilities Management and Services Division (3204R)
Director, Office of Financial Management (2733R)
Director, Office of Financial Services (2734R)
Director, Office of Human Resources (361 OA)
Director, Office of Planning, Analysis, and Accountability (2721A)
Director, Office of Enterprise Technology and Innovation (2731 A)
Financial Management Officers at Regions 1 through 10,
Cincinnati, Las Vegas, and Research Triangle Park
Chief, Financial Reports and Analysis Staff (2733R)
Chief, Program Costing Staff (2733R)
Chief, Financial Systems Staff (2733R)
Chief, Financial Policy and Planning Staff (2733R)
Chief, Washington Financial Management Center (2734R)
Agency Audit Follow-up Coordinator (2724A)
Agency Follow-up Official (271 OA)
Audit Liaison for the Office of the Chief Financial Officer (271 OA)
Audit Liaison for the Office of Administration and Resources Management (3102A)
Audit Liaison for the Office of Solid Waste and Emergency Response (5103T)
Audit Liaison for the Office of Administration (3201 A)
Audit Liaison for the Office of Environmental Information (2812A, 2831 A)
Audit Liaison for the Office of Enforcement and Compliance Assurance (2201 A)
Audit Liaison for the Grants Administration Division (3910R)
Audit Liaison for the Administrator's Office (1104A)
Audit Liaison for the Financial Management and Financial Services Divisions (2733R)
Audit Liaison for the Office of General Counsel (2311 A)
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