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%%PR0^ OFFICE OF INSPECTOR GENERAL
Financial Management
EPA's Fiscal Years 2016
and 2015 Consolidated
Financial Statements
Report No. 17-F-0046
November 15, 2016
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Abbreviations
AAMS
Agency Asset Management System
CFC
Cincinnati Finance Center
CFR
Code of Federal Regulations
CIO
Chief Information Officer
CMA
Continuous Monitoring Assessment
EPA
U.S. Environmental Protection Agency
FFMIA
Federal Financial Management Improvement Act of 1996
FMFIA
Federal Managers' Financial Integrity Act of 1982
FY
Fiscal Year
GAO
U.S. Government Accountability Office
IGMS
Integrated Grants Management System
NCC
National Computer Center
NIST
National Institute of Standards and Technology
OARM
Office of Administration and Resources Management
OCFO
Office of the Chief Financial Officer
OEI
Office of Environmental Information
OIG
Office of Inspector General
OLEM
Office of Land and Emergency Management
OMB
Office of Management and Budget
PII
Personally Identifiable Information
PPL
PeoplePlus
PTS
Payment Tracking System
RTP
Research Triangle Park
SFFAS
Statement of Federal Financial Accounting Standards
SOC
Service Organization Controls
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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
17-F-0046
November 15, 2016
Why We Did This Review
We performed this audit in
accordance with the Government
Management Reform Act, which
requires the U.S. Environmental
Protection Agency (EPA) to
prepare, and the Office of
Inspector General to audit, the
agency's financial statements
each year. Our primary
objectives were to determine
whether:
• EPA's consolidated financial
statements were fairly stated
in all material respects.
• EPA's internal controls over
financial reporting were in
place.
• EPA management complied
with applicable laws and
regulations.
The requirement for audited
financial statements was enacted
to help bring about improvements
in agencies' financial
management practices, systems
and controls so that timely,
reliable information is available
for managing federal programs.
This report addresses the
following EPA goal or
cross-agency strategy:
• Embracing EPA as a high-
performing organization.
Send all inquiries to our public
affairs office at (202) 566-2391
or www.epa.gov/oia.
Listing of OIG reports.
EPA's Fiscal Years 2016 and 2015
Consolidated Financial Statements
EPA Receives an Unmodified Opinion
We rendered an unmodified opinion on the
EPA's consolidated financial statements for
fiscal years 2016 and 2015, meaning they were
fairly presented and free of material
misstatement.
Internal Control Material Weaknesses and
Significant Deficiencies Noted
We noted the following material weaknesses:
• EPA's accounting for software continues to be a material weakness.
• EPA incorrectly recorded unearned revenue for Superfund special
accounts, and did not reconcile unearned revenue for those accounts.
We noted significant deficiencies involving:
• EPA wrote off cash differences with Treasury without adequate support.
• EPA did not clear suspense transactions timely.
• EPA erroneously reclassified a real property capital lease.
• EPA did not have controls to monitor direct access to the Compass
Financials database.
• EPA did not have adequate documenting for restoring application controls
at the National Computer Center.
• EPA needs to improve offsite storage of data backups.
Noncompliance With Laws and Regulations Noted
We found that the EPA did not comply with the Hazardous Waste Electronic
Manifest Establishment Act in that it used appropriated funds to cover contract
costs unrelated to the electronic manifest project.
Recommendations and Planned Agency Corrective Actions
The EPA agreed with our findings and recommendations except for a
recommendation to develop a process for obtaining the current inventory listing
and document the process in the National Computer Center's Disaster
Recovery Plan and Information System Contingency Plan. We consider the
recommendation unresolved pending the agency's response to the final report.
We found the EPA's
financial statements to be
fairly presented and free
of material misstatement.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
November 15, 2016
MEMORANDUM
SUBJECT: EPA's Fiscal Years 2016 and 2015 Consolidated Financial Statements
Report No. 17-F-0046
Office of the Chief Financial Officer
Donna Vizian, Acting Assistant Administrator
Office of Administration and Resources Management
Ann Dunkin, Chief Information Officer
Office of Environmental Information
Attached is our report on the U.S. Environmental Protection Agency's (EPA's) fiscal years 2016 and
2015 consolidated financial statements. The project number for this audit was OA-FY16-0136. We are
reporting two internal control material weaknesses and six significant deficiencies. Attachment 1
contains details on the material weaknesses and significant deficiencies. We also noted four instances of
noncompliance, one of which is discussed in Attachment 2.
This audit report represents the opinion of the Office of Inspector General, and the findings in this report
do not necessarily represent the final EPA position. EPA managers, in accordance with established EPA
audit resolution procedures, will make final determinations on the findings in this audit report.
Accordingly, the findings described in this audit report are not binding upon the EPA in any enforcement
proceeding brought by the EPA or the Department of Justice.
Action Required
The agency agreed with all recommendations in our report except for Recommendation 12, which we
consider unresolved pending the agency's response to the final report. In accordance with EPA Manual
2750, you are required to provide a written response to this report within 60 calendar days of the final
report date. The response should address all issues and recommendations contained in Attachments 1
and 2. For corrective actions planned but not completed by the response date, reference to specific
milestone dates will assist us in deciding whether to close this report in our audit tracking system.
FROM: Paul C. Curtis, Director
Financial Statement Audits
TO:
David Bloom, Deputy Chief Financial Officer
Your response will be posted on the Office of Inspector General's public website, along with our
memorandum commenting on your response. Your response should be provided as an Adobe PDF file
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that complies with the accessibility requirements of Section 508 of the Rehabilitation Act of 1973, as
amended. The final response should not contain data that you do not want to be released to the public;
if your response contains such data, you should identify the data for redaction or removal along with
corresponding justification.
This report will be available at www.epa.gov/oig.
Attachments
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EPA's Fiscal Years 2016 and 2015
Consolidated Financial Statements
17-F-0046
Table of Contents
Inspector General's Report on EPA's Fiscal Years
2016 and 2015 Consolidated Financial Statements 1
Report on the Financial Statements 1
Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis 2
Evaluation of Internal Controls 3
Tests of Compliance With Laws, Regulations, Contracts and Grant Agreements 7
Prior Audit Coverage 9
Agency Comments and OIG Evaluation 10
Attachments 11
1. Internal Control Material Weaknesses and Significant Deficiencies 11
Material Weaknesses
PROPERTY
EPA's Accounting for Software Continues to Be a
Material Weakness 12
SPECIAL ACCOUNTS
EPA Did Not Properly Record or Reconcile Unearned Revenue
for Superfund Special Accounts 14
Significant Deficiencies
CASH
EPA Wrote Off Unresolved Cash Differences With Treasury
Without Adequate Support 17
SUSPENSE ACCOUNT
EPA Should Clear Suspense Transactions Timely 19
-continued-
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EPA's Fiscal Years 2016 and 2015
Consolidated Financial Statements
17-F-0046
CAPITALIZED LEASES
EPA Improperly Reclassified a Real Property Capital Lease 21
INFORMATION TECHNOLOGY
EPA Needs Controls to Monitor Direct Access to the
Compass Financials Database 23
EPA Needs Documentation to Restore Financial and Mixed-
Financial Applications Housed at the National Computer Center 26
EPA Needs to Improve Offsite Storage of Backups 28
2. Compliance With Laws and Regulations 31
EPA Did Not Comply With the e-Manifest Act 32
3. Status of Prior Audit Report Recommendations 34
4. Status of Current Recommendations and Potential Monetary Benefits 38
Appendices
I. EPA's FYs 2016 and 2015 Consolidated Financial Statements
II. Agency Response to Draft Report
III. Distribution
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Inspector General's Report on EPA's Fiscal Years
2016 and 2015 Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
Report on the Financial Statements
We have audited the accompanying financial statements of the U.S. Environmental Protection
Agency (EPA), which comprise the consolidated balance sheet, as of September 30, 2016, and
September 30, 2015, and the related consolidated statements of net cost, net cost by major
program, changes in net position, and custodial activity; the combined statement of budgetary
resources for the years then ended; and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation and maintenance of internal controls
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based upon our
audit. We conducted our audit in accordance with generally accepted government auditing
standards; the standards applicable to financial statements contained in Government Auditing
Standards, issued by the Comptroller General of the United States; and Office of
Management and Budget (OMB) Bulletin No. 15-02, Audit Requirements for Federal
Financial Statements. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
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The financial statements include expenses of grantees, contractors and other federal agencies.
Our audit work pertaining to these expenses included testing only within the EPA. The
U.S. Treasury collects and accounts for excise taxes that are deposited into the Leaking
Underground Storage Tank Trust Fund. The U.S. Treasury is also responsible for investing
amounts not needed for current disbursements and transferring funds to the EPA as
authorized in legislation. Since the U.S. Treasury, and not the EPA, is responsible for these
activities, our audit work did not cover these activities.
The Office of Inspector General (OIG) is not independent with respect to amounts pertaining
to OIG operations that are presented in the financial statements. The amounts included for
the OIG are not material to the EPA's financial statements. The OIG is organizationally
independent with respect to all other aspects of the agency's activities.
Opinion
In our opinion, the consolidated financial statements, including the accompanying notes,
present fairly, in all material respects, the consolidated assets, liabilities, net position, net
cost, net cost by major program, changes in net position, custodial activity, and combined
budgetary resources of the EPA as of and for the years ended September 30, 2016 and 2015,
in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter- Asbestos Loans
As discussed in Note 7, Loans Receivable, Net, presents information concerning the EPA's
Asbestos Loan Program loans disbursed from obligations made prior to fiscal year
(FY) 1992. The note states it presents the net loan present value less the subsidy present
value. The EPA has no outstanding asbestos loans as of September 30, 2015, as shown in the
footnote. Accordingly, it should also no longer have a subsidy allowance for receivables that
no longer exist. The amounts contained in Note 7 are not material to the EPA's financial
statements and our report is not modified with respect to this matter.
Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis
Our audit was conducted for the purpose of forming an opinion on the financial statements as a
whole. The Required Supplementary Stewardship Information, Required Supplementary
Information, Supplemental Information, and Management's Discussion and Analysis are presented
for purposes of additional analysis and are not a required part of the basic financial statements.
Such information is the responsibility of management. We obtained information from the EPA
management about its methods for preparing Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and Management's Discussion
and Analysis, and reviewed this information for consistency with the financial statements.
We did not identify any material inconsistencies between the information presented in the EPA's
consolidated financial statements and the information presented in the EPA's Required
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Supplementary Stewardship Information, Required Supplementary Information, Supplemental
Information, and Management's Discussion and Analysis.
Our audit was not designed to express an opinion and, accordingly, we do not express an opinion
on the EPA's Required Supplementary Stewardship Information, Required Supplementary
Information, Supplemental Information, and Management's Discussion and Analysis.
Evaluation of Internal Controls
As defined by OMB, internal control, as it relates to the financial statements, is a process,
affected by the agency's management and other personnel, that is designed to provide reasonable
assurance that the following objectives are met:
• Reliability of financial reporting—Transactions are properly recorded, processed and
summarized to permit the preparation of the financial statements in accordance with
generally accepted accounting principles, and assets are safeguarded against loss from
unauthorized acquisition, use or disposition.
• Compliance with laws, regulations, contracts and grant agreements—Transactions
are executed in accordance with provisions of applicable laws, including those governing
the use of budget authority, regulations, contracts and grant agreements, noncompliance
with which could have a material effect on the financial statements.
Opinion on Internal Controls. In planning and performing our audit, we considered the EPA's
internal controls over financial reporting by obtaining an understanding of the agency's internal
controls, determining whether internal controls had been placed in operation, assessing control
risk, and performing tests of controls. We did this as a basis for designing our auditing
procedures for the purpose of expressing an opinion on the financial statements and to comply
with OMB audit guidance, not to express an opinion on internal control. Accordingly, we do not
express an opinion on internal control over financial reporting nor on management's assertion on
internal controls included in Management's Discussion and Analysis. We limited our internal
control testing to those controls necessary to achieve the objectives described in OMB Bulletin
No. 15-02, Audit Requirements for Federal Financial Statements. We did not test all internal
controls relevant to operating objectives as broadly defined by the Federal Managers' Financial
Integrity Act of 1982 (FMFIA), such as those controls relevant to ensuring efficient operations.
Material Weaknesses and Significant Deficiencies. Our consideration of the internal controls
over financial reporting would not necessarily disclose all matters in the internal control over
financial reporting that might be significant deficiencies. Under standards issued by the
American Institute of Certified Public Accountants, a significant deficiency is a deficiency, or
combination of deficiencies, in internal control that is less severe than a material weakness, yet
important enough to merit attention by those charged with governance. A material weakness is a
deficiency, or combination of deficiencies, in internal control such that there is a reasonable
possibility that a material misstatement of the entity's financial statements will not be prevented,
or detected and corrected in a timely manner. Because of inherent limitations in internal controls,
misstatements, losses or noncompliance may nevertheless occur and not be detected. We noted
certain matters discussed below involving the internal control and its operation that we consider
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to be significant deficiencies, two of which we consider to be material weaknesses. These issues
are summarized below and detailed in Attachment 1.
Material Weaknesses
PROPERTY
EPA's Accounting for Software Continues to Be a Material Weakness
The EPA's accounting for software, noted during our FY 2014 audit of financial
statements, continues to be a material weakness. The EPA wrote off approximately
$132 million in software costs (Software-In-Development and Capitalized Software) and
associated amortization totaling $16.5 million without adequate support. Specifically, the
EPA expensed approximately $146 million of Software-In-Development and Capitalized
Software costs but could only provide adequate support to write off $14 million of such
costs. We previously reported the EPA's accounting for software as a material weakness
in our FYs 2014 and 2015 audits. While we note that the agency has taken steps to
address its software material weakness, the EPA continues to experience problems in
adequately documenting capitalized software transactions. Federal standards require
appropriate documentation of transactions, and that internal controls be maintained.
Failure to properly record capital software transactions in the agency's property
management system and Compass Financials—the agency's accounting system—
compromises the accuracy of the EPA's property accounts and depreciation and
operating expenses, as well as the accuracy of the agency's financial statements.
Consequently, we continue to report accounting for software as a material weakness.
SPECIAL ACCOUNTS
EPA Did Not Properly Record or Reconcile Unearned Revenue for
Superfund Special Accounts
The EPA did not properly record and reconcile unearned revenue for Superfund special
accounts. Specifically:
• The EPA did not properly record $167,870,721 of unearned revenue in Superfund
special accounts. Federal guidance directs agencies to record cash advances
received for long-term projects as unearned revenue, and recognize exchange
[earned] revenue at a time that a government entity provides goods or services to
the public or to another government entity. In FY 2016, the EPA erroneously
reduced earned revenue recognized for unbilled oversight costs, did not properly
reduce unearned revenue and recognize earned revenue for expenses incurred
during FY 2016, and did not reduce unearned revenue for special accounts
allowance for doubtful accounts. The EPA made these errors because it did not
modify the accounting model for special accounts in Compass Financials. As a
result, the EPA materially misstated unearned revenue and related revenue and
expense accounts by $167,870,721 on the financial statements.
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• The EPA did not perform a comprehensive reconciliation for Superfund special
accounts unearned revenue general ledger balances and the special accounts
database detail. We reported a related significant deficiency in FY 2016, in that
the EPA did not modify the accounting model for special accounts and, as a
result, materially misstated unearned revenue by $168 million. The
U.S. Government Accountability Office's (GAO's) internal control standards
require accurate and timely recording of transactions and events, and comparison
of file totals with control totals. The EPA did not perform a comprehensive
reconciliation of special accounts because it expected the posting model to change
in FY 2016 and the policy to be updated. As a result, the EPA could not ensure
the accuracy of the unearned revenue and financial statements.
Significant Deficiencies
CASH
EPA Wrote Off Unresolved Cash Differences With Treasury
Without Adequate Support
The EPA wrote off unresolved cash differences, with a net effect of approximately
$500,000, without adequate support to match its records with the U.S. Treasury's
reported balances. Treasury guidance directs agencies to correct any disclosed differences
in the month following the reporting month, and GAO guidance states that all
transactions should be clearly documented. The EPA's Office of the Chief Financial
Officer (OCFO) did not adequately monitor and research its cash differences with the
Treasury and ensure all adjustments were adequately supported. Writing off unresolved
cash differences without adequate support may result in the EPA's Fund Balance with
Treasury and financial statements being misstated, and may increase the risk of fraud.
SUSPENSE ACCOUNT
EPA Should Clear Suspense Transactions Timely
The Cincinnati Finance Center (CFC) is not clearing transactions from the federal budget
clearing (suspense) account within 60 business days after posting. As of March 31, 2016, we
identified 83 federal transactions, totaling $8,035,276, remaining in suspense beyond
60 business days. We previously reported the EPA's clearing of suspense transactions as a
significant deficiency in our FYs 2015 and 2014 financial audit reports. In following up on
the agency's proposed corrective actions, we found that the EPA did not correct the
significant deficiency or completely implement its corrective actions. EPA guidance requires
each servicing finance office to classify and transfer transactions in the agency's federal
budget clearing account to appropriate general ledger accounts within 60 business days.
CFC did not clear the suspense account timely in FY 2016 because EPA project officers did
not provide timely disbursement approvals needed to clear the suspense account. Project
officers experienced accounting system issues and other problems and delays in
administering interagency agreements, which delayed the disbursement approvals. Untimely
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clearing of suspense transactions impairs the agency's ability to reflect financial activity in
the correct fund.
CAPITALIZED LEASES
EPA Improperly Reclassified a Real Property Capital Lease
The EPA erroneously reclassified the Research Triangle Park (RTP), North Carolina, real
property capital lease to an operating lease. The EPA removed a capital lease, valued at
$19.6 million, from the accounting records. Federal accounting standards provide specific
standards for classifying leases. During FY 2016, the EPA decided to convert the RTP
capital lease to an operating lease because it believed the lease classification was
incorrect. However, the EPA did not retest the lease against the capital lease criteria to
determine whether the RTP lease classification changed when it exercised the renewal
option; therefore, it should have remained a capital lease until such determination had
been made. As a result, the EPA misstated the capital lease, the lease liability, related
expense accounts and equity.
INFORMATION TECHNOLOGY
EPA Needs Controls to Monitor Direct Access to the Compass Financials
Database
The EPA did not establish controls to monitor direct access to data within the Compass
Financials database. Federal requirements indicate that agencies must establish controls
to prevent and detect unauthorized access to agency data. The EPA's OCFO relied on
directive controls, and did not establish controls to prevent or detect unauthorized access
to the Compass Financials database. A breach of information in Compass Financials,
which houses Personally Identifiable Information belonging to employees and vendors,
could cost the EPA as much as $3.5 million, including the costs to detect, recover,
investigate and manage the incident response, along with costs that result in after-the-fact
activities and efforts to contain additional costs.
EPA Needs Documentation to Restore Financial and Mixed-Financial
Applications Housed at the National Computer Center
The EPA's Disaster Recovery Plan and Information System Contingency Plan for the
operations of the National Computer Center, located in RTP, North Carolina, lack
documentation for obtaining equipment to restore operations and network connectivity
for the financial and mixed-financial applications housed at the National Computer
Center in the event of a disaster.
EPA Needs to Improve Off site Storage of Backups
In the event of a disaster, the EPA would not be able to readily recover financial and
mixed-financial data from its Payment Tracking System, PeoplePlus, and Agency Asset
Management System, all located at the National Computer Center in RTP, North
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Carolina. The EPA would also not be able to readily recover data from its Integrated
Grants Management System Potomac Yard servers, located in Arlington, Virginia. This
occurred because the EPA did not implement a data backup storage plan or provide
oversight to ensure data backups are stored as required for these critical financial and
mixed-financial applications.
Attachment 3 contains the status of issues reported in prior years' reports. The issues included in
the attachment should be considered among the EPA's significant deficiencies for FY 2016.
We reported less significant internal control matters to the agency during the course of the audit.
We will not issue a separate management letter.
Comparison of EPA's FMFIA Report With Our Evaluation of Internal Controls
OMB Bulletin No. 15-02, Audit Requirements for Federal Financial Statements, requires the
OIG to compare material weaknesses disclosed during the audit with those material weaknesses
reported in the agency's FMFIA report that relate to the financial statements, and identify
material weaknesses disclosed by the audit that were not reported in the agency's FMFIA report.
For financial statement audit and financial reporting purposes, OMB defines material weaknesses
in internal control as a deficiency or combination of deficiencies in internal control such that
there is a reasonable possibility that a material misstatement of the entity's financial statements
will not be prevented, or detected and corrected, on a timely basis.
The agency reported Capitalized Software and Accounting for Unearned Revenue as material
weaknesses in FY 2016. Capitalized software continues to be reported as a material weakness in
the design or operation of internal controls. The agency is in the process of developing a
corrective account plan for Accounting for Unearned Revenue.
Tests of Compliance With Laws, Regulations, Contracts and
Grant Agreements
The EPA management is responsible for complying with laws, regulations, contracts and grant
agreements 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, including those governing the use of budgetary
authority, regulations, contracts and grant agreements that have a direct effect on the
determination of material amounts and disclosures in the financial statements; and perform
certain other limited procedures as described in Codifications of Statements on Auditing
Standards AU-C 250.14-16, Consideration of Laws and Regulations in an Audit of Financial
Statements. OMB Bulletin No. 15-02, Audit Requirements for Federal Financial Statements,
requires that we evaluate compliance with federal financial statement system requirements,
including the requirements referred to in the Federal Financial Management Improvement Act of
1996 (FFMIA). We limited our tests of compliance to these provisions and did not test
compliance with all laws and regulations applicable to the EPA.
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Opinion on Compliance With Laws, Regulations, Contracts and Grant Agreements
Providing an opinion on compliance with certain provisions of laws, regulations, contracts
and grant agreements was not an objective of our audit and, accordingly, we do not express
such an opinion. A number of ongoing investigations involving the EPA's grantees and
contractors could disclose violations of laws and regulations, but a determination about these
cases has not been made.
We identified three matters involving compliance with laws and regulations that came to our
attention during the course of the audit, as follows:
EPA Did Not Comply With the e-Manifest Act
In FY 2015, the EPA used Electronic Manifest (e-Manifest) appropriated funds totaling
$22,294 to cover contract costs unrelated to the e-Manifest project. According to the
Hazardous Waste Electronic Manifest Establishment Act, the EPA shall take all necessary
measures to ensure that amounts in the e-Manifest fund are used only to carry out the goals
of establishing, operating, maintaining, upgrading, managing, supporting and overseeing the
e-Manifest system. The EPA did not have adequate oversight to prevent the inappropriate
use of the e-Manifest funds. As a result, the EPA is not in compliance with the e-Manifest
Act. Further details on this noncompliance are in Attachment 2.
Fee Target for Pesticide Fund Exceeded
The EPA chose to significantly exceed the statutory Pesticide Maintenance fee target set
out by the Federal Insecticide, Fungicide, and Rodenticide Act. We reported this fee issue
in our report on the pesticide fund's 2014 financial statements report, Fiscal Years 2014
and 2013 Financial Statements for the Pesticides Reregistration and Expedited
Processing Fund (Report No. 16-F-0322). issued September 22, 2016. Therefore,
no further details are provided in this report.
Antideficiency Act Violations Reported
The EPA's Office of General Counsel reported two separate Antideficiency Act violations
on October 19, 2016, related to the EPA accepting the services of unpaid peer grant
reviewers without obtaining a written waiver of compensation from those individuals, and
accepting the services of unpaid post-graduate legal fellows who were statutorily entitled
to compensation. As the EPA plans on reporting the violations in FY 2017, we have no
recommendations. See EPA Note 37 to the financial statements, Miscellaneous Receipt
Act Violations and Potential Antideficiency Act Violations, for further details retailed to
these Antideficiency Act violations and other violations found by the agency.
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
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the transaction level. To meet the FFMIA requirement, we performed tests of compliance
with FFMIA Section 803(a) requirements and used the OMB guidance, Memorandum
M-09-06-23, Implementation Guidance for the Federal Financial Management Improvement
Act, dated January 9, 2009, for determining substantial noncompliance with FFMIA.
The results of our tests did not disclose any instances of noncompliance with FFMIA
requirements, including where the agency's financial management systems did not
substantially comply with the applicable federal accounting standard.
We identified one significant matter involving compliance with laws and regulations related
to the agency's financial management systems that came to our attention during the course of
the audit. We found that the EPA did not comply with federal standards for recording
interest. We also reported this issue in our 2015 and 2014 audits. We will not issue a separate
management letter.
EPA Did Not Comply With Federal Accounting Standards for Recording
Interest
We found that the EPA did not implement a correction in the Compass Financials system
related to Superfund and installment interest. By not recording all applicable interest, the
EPA did not collect all the funds to which it was entitled, and did not comply with
applicable laws, standards and policies. We had previously reported in our audits of the
FYs 2015 and 2014 financial statements that the EPA did not comply with accounting
standards for recording interest. Further details on this noncompliance issue are in
Attachment 3.
Audit Work Required Under the Hazardous Substance Superfund Trust Fund
Our audit work was also performed to meet the requirements in 42 U.S. Code §961 l(k) with
respect to the Hazardous Substance Superfund Trust Fund, to conduct an annual audit of
payments, obligations, reimbursements or other uses of the fund. The significant deficiencies
reported above also relate to Superfund.
Prior Audit Coverage
During previous financial or financial-related audits, we reported weaknesses that impacted our
audit objectives in the following areas:
• The EPA failed to capitalize software costs, leading to restated FY 2013 financial
statements.
• The EPA did not capitalize lab renovation costs.
• The EPA's internal controls over the accountable personal property inventory process
need improvement.
• The EPA's property management system does not reconcile to its accounting system.
• Originating offices did not timely forward accounts receivable source documents to the
finance center.
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• The EPA did not properly reconcile accounts receivable.
• The EPA incorrectly recorded Superfund special account collections and receivables.
• The EPA did not record more than $8 million in accounts receivable for a $9 million
Superfund judgment.
• The EPA did not comply with federal accounting standards for recording interest.
• Compass reporting limitations impair accounting operations and internal controls.
• The EPA should improve compliance with internal controls for accounts receivable.
• The EPA should improve controls over expense accrual reversals.
• The EPA should improve its efforts to resolve the EPA's long-standing cash differences
with the Treasury.
• Financial management system user account management needs improvement.
• The OCFO lacks internal controls when assuming responsibility for account management
procedures of financial systems.
• Financial and mixed-financial applications did not comply with required account
management controls.
Attachment 3 summarizes the current status of corrective actions taken on prior audit report
recommendations related to these issues. We found during our audit that the issues reported on
prior audits and listed in Attachment 3 still exist and should be considered as outstanding
significant deficiencies and noncompliance issues unless otherwise noted.
Agency Comments and OIG Evaluation
In a memorandum dated November 10, 2016, the Chief Financial Officer responded to our draft
report.
The EPA agreed with all of our findings and recommendations except for our finding on how the
EPA Needs documentation to restore financial and mixed-financial applications housed at the
National Computer Center, and the associated Recommendation 12, which we consider
unresolved. The EPA has already completed nine of our recommendations. The rationale for our
conclusions and a summary of the agency comments are included in the appropriate sections of
this report, and the agency's complete response is included as Appendix II to this report.
This report is intended solely for the information and use of the management of the EPA, OMB
and Congress, and is not intended to be and should not be used by anyone other than these
specified parties.
Paul C. Curtis
Certified Public Accountant
Director, Financial Statement Audits
Office of Inspector General
U.S. Environmental Protection Agency
November 14, 2016
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Attachment 1
Internal Control Material Weaknesses and
Significant Deficiencies
Table of Contents
Material Weaknesses
PROPERTY
1 EPA's Accounting for Software Continues to Be a Material Weakness 12
SPECIAL ACCOUNTS
2 EPA Did Not Properly Record or Reconcile Unearned Revenue for
Superfund Special Accounts 14
Significant Deficiencies
CASH
3 EPA Wrote Off Unresolved Cash Differences With Treasury
Without Adequate Support 17
SUSPENSE ACCOUNT
4 EPA Should Clear Suspense Transactions Timely 19
CAPITALIZED LEASES
5 EPA Improperly Reclassified a Real Property Capital Lease 21
INFORMATION TECHNOLOGY
6 EPA Needs Controls to Monitor Direct Access to the
Compass Financials Database 23
7 EPA Needs Documentation to Restore Financial and Mixed-
Financial Applications Housed at the National Computer Center 26
8 EPA Needs to Improve Offsite Storage of Backups 28
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1 - EPA's Accounting for Software Continues to Be a
Material Weakness
The EPA wrote off approximately $132 million in software costs (Software-In-Development and
Capitalized Software) and associated amortization totaling $16.5 million without adequate
support. Specifically, the EPA expensed approximately $146 million of Software-In-Development
and Capitalized Software costs but could only provide adequate support to write off $14 million
of such costs. We previously reported the EPA's accounting for software as a material weakness
in our FYs 2014 and 2015 audits. While we note that the agency has taken steps to address its
software material weakness, the EPA continues to experience problems in adequately
documenting capitalized software transactions. Federal standards require appropriate
documentation of transactions and that internal controls be maintained. Failure to properly record
capital software transactions in the agency's property management system and Compass
Financials—the agency's accounting system—compromises the accuracy of the EPA's property
accounts and depreciation and operating expenses, as well as the accuracy of the agency's
financial statements. Consequently, we continue to report accounting for software as a material
weakness.
The Statement of Federal Financial Accounting Standards (SFFAS) No. 10, Accounting for
Internal Use Software, requires entities to capitalize the cost of software that meets the criteria for
general property, plant and equipment. Software life cycle includes three phases: planning,
development and operations. Capitalized Software costs should include the full costs (direct and
indirect) incurred during the software development stage. The Software-in-Development general
ledger account represents cost incurred in the software development. Upon completion, costs
incurred are capitalized and transferred to the Internal-Use Software general ledger account. The
statement also requires that entities amortize in a systematic and rational manner over the
estimated useful life of the software; amortization should begin when that module or component
has been successfully tested. The agency's practice is to capitalize software costs exceeding its
annual capitalization threshold of $250,000 over 7 years.
Beginning in FY 2015, the EPA took steps to improve its internal accounting and controls over
software costs. In FY 2016, the EPA stated it reviewed software projects and met with program
offices to validate software costs in development and asset values in production. The EPA
wrote off approximately $132 million in software costs and associated amortization totaling
$16.5 million without adequate support. We found that the EPA expensed approximately
$146 million in software costs recorded, in addition to $24.5 million in associated amortization
costs, but could only provide adequate support for $14 million and $8 million, respectively.
GAO's Standards for Internal Control in the Federal Government defines the five standards for
the minimum level of quality acceptable for internal control in government. Management
should design control activities to achieve objectives and respond to risks. The standard for
control activities requires appropriate documentation of transactions and internal controls.
Management is to clearly document internal control, and all transactions and other significant
events, in a manner that allows the documentation to be readily available for examination.
Because the audit trail of supporting documentation was insufficient in determining the validity
of the actions taken on the software projects analyzed, this affected our ability to conclude that
the entries made were accurately recorded.
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Failure to properly record property transactions in the agency's property management system
and Compass compromises the accuracy of the EPA's property accounts, depreciation and
operating expenses, as well as the accuracy of the agency's financial statements. The agency
indicated it does not expect to complete corrective actions on this material weakness until 2018;
thus, we continue to report this material weakness but have no additional recommendations.
Agency Comments and OIG Evaluation
The agency concurred with our finding.
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2 - EPA Did Not Properly Record or Reconcile Unearned Revenue
for Superfund Special Accounts
The EPA did not properly record and reconcile unearned revenue for Superfund special
accounts. Details follow.
EPA Incorrectly Recorded Unearned Revenue for Superfund Special Accounts
The EPA did not properly record $167,870,721 of unearned revenue in Superfund special
accounts. SFFAS No. 7 directs agencies to record cash advances received for long-term
projects as unearned revenue, and recognize exchange [earned] revenue at a time that a
government entity provides goods or services to the public or to another government entity.
In FY 2016, the EPA erroneously reduced earned revenue recognized for unbilled oversight
costs, did not properly reduce unearned revenue and recognize earned revenue for expenses
incurred during FY 2016, and did not reduce unearned revenue for special accounts
allowance for doubtful accounts. The EPA made these errors because it did not modify the
accounting model for special accounts in Compass Financials, the agency's accounting
system. As a result, the EPA materially misstated unearned revenue and related revenue
and expense accounts by $167,870,721 on the financial statements.
Section 122(b)(3) of the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. 9622(b)(3)) and Executive Order 12580 authorize the EPA to retain
and use funds received through an agreement with potentially responsible parties to address
past and/or future response costs. The EPA retains these funds in site-specific accounts called
"special accounts." The EPA should record special account settlement funds received as
unearned revenue, and should reduce unearned revenue and recognize earned revenue as
expenses are incurred.
The EPA made three errors that overstated the special account unearned revenue:
• The EPA reclassified $152,676,743 from earned revenue to unearned revenue.
The entry included $19,606,777 of earned revenue for unbilled oversight that should
not have been removed.
• The EPA did not reduce unearned revenue and recognized earned revenue for
$138,579,298 of expenses incurred during FY 2016.
• The entry to record the $9,684,646 allowance for doubtful accounts did not reduce
unearned revenue.
Consequently, due to the accounting errors, the EPA materially misstated $167,870,721 of
unearned revenue and related revenue and expense accounts. Adjustments required are as
follows:
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Table 1: Required Adjustments
Adjustment
(Decrease)
Unearned Revenue
Recognize earned revenue for expenses paid from special accounts
($138,579,298)
Re-establish earned revenue for unbilled oversight
(19,606,777)
Reduce unearned revenue for special accounts allowance for
doubtful accounts
(9,684,646)
Total
($167,870,721)
Source: OIG analysis.
EPA Needs to Reconcile Superfund Special Accounts Unearned Revenue
The EPA did not perform a comprehensive reconciliation for Superfund special accounts
unearned revenue general ledger balances and the special accounts database detail. We
reported a related significant deficiency in FY 2016, in that the EPA did not modify the
accounting model for special accounts and, as a result, materially misstated unearned revenue
by $168 million. The GAO's internal control standards require accurate and timely recording
of transactions and events, and comparison of file totals with control totals. The EPA did not
perform a comprehensive reconciliation of special accounts because it expected the posting
model to change in FY 2016 and the policy to be updated. As a result, the EPA could not
ensure the accuracy of the unearned revenue and financial statements.
GAO's Standards for Internal Control in the Federal Government requires accurate and
timely recording of transactions and events, and comparison of file totals with control totals.
The EPA reconciled the general ledger to the special accounts database for special accounts
collected for future costs. However, the EPA did not reconcile special accounts collected
from past costs. Those special account transactions did not post to the proper unearned
revenue accounts due to the incorrect posting model. The EPA waited for year-end to correct
the unearned revenue accounts with a journal voucher entry, and did not determine whether
the general ledger agreed with the database detail.
The EPA chose not to reconcile the unearned revenue (past costs) because it expected the
posting model to change in FY 2016, and needed to update the policy. Therefore, during
FY 2016, the EPA did not analyze the entries recorded by the accounting model, and did not
have a process to verify the accuracy of the general ledger balances.
Without a comprehensive reconciliation of special accounts, the EPA could not ensure the
reliability of the unearned revenue balances and the financial statements. If the EPA had
performed a comprehensive reconciliation, it could have found other errors in unearned
revenue.
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Recommendations
We recommend that the Chief Financial Officer:
1. Record the necessary adjusting entries to reduce unearned revenue by $167,870,721 to
ensure current year financial statements are properly stated.
2. Modify the accounting model in Compass Financials to properly record all special
account receivables and collections as unearned revenue, and reduce the unearned
revenue and recognize earned revenue as expenses are incurred.
3. Prepare a comprehensive quarterly reconciliation of Superfund special accounts general
ledger balances to the special accounts database detail.
Agency Comments and OIG Evaluation
The agency concurred with our findings and recommendations, and made the appropriate
adjustment to the current year financial statements.
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3 - EPA Wrote Off Unresolved Cash Differences With Treasury
Without Adequate Support
The EPA wrote off unresolved cash differences, with a net effect of approximately $500,000,
without adequate support to match its records with the U.S. Treasury's reported balances.
Treasury guidance directs agencies to correct any disclosed differences in the month following
the reporting month, and GAO guidance states that all transactions should be clearly
documented. The EPA's OCFO did not adequately monitor and research its cash differences with
the Treasury and ensure all adjustments were adequately supported. Writing off unresolved cash
differences without adequate support may result in the EPA's Fund Balance with Treasury and
financial statements being misstated, and may increase the risk of fraud.
Treasury Financial Manual, Volume 1, Section 3335, ReconcilingFMS 224, Section II, states
that "[i]n the month following the reporting month, agencies should correct any disclosed
differences." The GAO's Standards for Internal Control in the Federal Government (September
2014) requires that all transactions be clearly documented. The EPA's Resource Management
Directives System No. 2540-01, Overview of Chapter 2540: Financial and Accounting
Management, states that the "EPA will maintain records at the transaction level that...
[pjrovide clear audit trails of financial transactions that include all materials created in support of
a financial transaction or event."
We found that the EPA wrote off unresolved cash differences, with a net effect of approximately
$500,000, without adequate support to match its records with the Treasury's reported balances.
We identified two EPA adjusting entries in Compass Financials to permanently eliminate
unresolved cash differences at the agency's "Payroll" accounting point and at the Washington
Finance Center. Some of these cash differences had been unresolved since FY 2015. The
supporting documentation for the entries indicated that management requested the write-offs to
clear the cash differences, and to complete the corrective action in our prior-year audit
recommendation to research and resolve the cash differences. However, the agency did not
provide the reasons for the write offs by individual cash transaction, as required by GAO
standards for internal control.
At the time the agency made the adjustments to match its records with the Treasury, the agency
had not researched the differences and obtained proper documentation to support the
adjustments. Therefore, the OCFO did not follow its internal control procedures to adequately
monitor and research its cash differences with the Treasury and ensure that all adjustments were
adequately supported. Writing off unresolved cash differences without adequate support may
result in the EPA's Fund Balance with Treasury and financial statements being misstated, and
may increase the risk of fraud.
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Recommendation
We recommend that the Chief Financial Officer:
4. Reverse the cash difference write-off entries in Compass Financials and continue
researching the cash differences until adequate documentation exists to support the
adjustments.
Agency Comments and OIG Evaluation
The agency concurred with our finding and recommendation, and reversed the cash difference
write-off.
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4 - EPA Should Clear Suspense Transactions Timely
CFC is not clearing transactions from the federal budget clearing (suspense) account within
60 business days after posting. As of March 31, 2016, we identified 83 federal transactions, totaling
$8,035,276, remaining in suspense beyond 60 business days. We previously reported the EPA's
clearing of suspense transactions as a significant deficiency in our FYs 2015 and 2014 financial
audit reports. In following up on the agency's proposed corrective actions, we found that the EPA
did not correct the significant deficiency or completely implement its corrective actions. EPA
guidance requires each servicing finance office to classify and transfer transactions in the agency's
federal budget clearing account to appropriate general ledger accounts within 60 business days.
CFC did not clear the suspense account timely in FY 2016 because EPA project officers did not
provide timely disbursement approvals needed to clear the suspense account. Project officers
experienced accounting system issues and other problems and delays in administering interagency
agreements, which delayed the disbursement approvals. Untimely clearing of suspense transactions
impairs the agency's ability to reflect financial activity in the correct fund.
CFC records federal disbursements and collections in suspense account 68F3885. Disbursement
transactions remain in the suspense account until an EPA project officer approves or disapproves
the transaction. When the EPA project officer approves a disbursement, the system removes the
transaction from the suspense account and charges it to the appropriate receipt or expenditure
accounts. Collection transactions remain in the suspense account until CFC applies them to the
corresponding receivable.
The EPA's Resource Management Directive System No. 2540-03-P1, Fund Balance with
Treasury Management Standard Form 224 Reconciliation, dated June 24, 2015, requires, in part,
each servicing finance office to review, classify and transfer transactions posted to Treasury
Account Symbol 68F3885 to the appropriate general ledger account within 60 business days.
Treasury Financial Manual, Volume 1, Bulletin No. 2016-04, dated April 7, 2016, directs, in
part, federal agencies to certify annually that suspense account F3885 for the preceding year-end
does not include any items or transactions more than 60 days old. If there are transactions more
than 60 days old, the federal agency must clearly explain the reason.
CFC did not clear the suspense account timely because EPA project officers did not provide
timely disbursement approvals needed to clear the suspense account. CFC staff provided various
reasons for untimely disbursement approvals:
• Some agencies do not provide timely supporting documentation for the invoices, which
delays the project officer approval.
• Some project officers may not manage interagency agreement funds well, leading to added
time managing interagency agreements before approving the invoices.
• Some program managers may not properly oversee how the project officers manage the
interagency agreements.
• An accounting system issue caused multiple rejects of obligations associated with
disbursement transactions in the suspense account. The project officer could not approve
the disbursements until the EPA cleared the rejected obligation transactions, which took
months to correct.
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• The EPA's transition to a new process for background investigation payments delayed the
related Working Capital Fund funding needed to approve disbursements.
Untimely clearing of suspense transactions impairs the agency's ability to reflect financial activity
in the correct fund. This may reduce financial statement accuracy and increase the complexity of
reconciling the EPA's intergovernmental balances with other agencies.
We identified and communicated the issue of untimely clearing of suspense transactions to the
agency during our FYs 2015 and 2014 financial statement audits. During our 2016 financial
statement audit, we found that the EPA had not completed the corrective action for our FY 2015
recommendation that the Assistant Administrator for Administration and Resources Management
require project officers to approve federal disbursements timely. The EPA's planned corrective
action is to complete a comprehensive review of the existing EPA interagency agreement manual
and identify necessary changes for the updated version. The EPA has not corrected the
significant deficiency and has extended its completion date for this corrective action to
October 15, 2016. Since the EPA is currently working on this corrective action, we will not
repeat the recommendation in the FY 2016 financial audit report.
Recommendation
We recommend that the Assistant Administrator for Administration and Resources Management:
5. Develop and implement a plan for supervisors of interagency agreement project officers
to monitor the timeliness of individual project officer invoice approvals.
Agency Comments and OIG Evaluation
The agency concurred with our finding and recommendation, and has already commenced
corrective actions, with planned completion in the second quarter 2017.
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5 - EPA Improperly Reclassified a Real Property Capital Lease
The EPA erroneously reclassified the Research Triangle Park (RTP), North Carolina, real
property capital lease to an operating lease. The EPA removed a capital lease, valued at
$19.6 million, from the accounting records. Federal accounting standards provide specific
standards for classifying leases. During FY 2016, the EPA decided to convert the RTP capital
lease to an operating lease because it believed the lease classification was incorrect. However,
the EPA did not retest the lease against the capital lease criteria to determine whether the RTP
lease classification changed when it exercised the renewal option; therefore, it should have
remained a capital lease until such determination had been made. As a result, the EPA misstated
the capital lease, the lease liability, related expense accounts and equity.
SFFAS No. 5, Accounting for Liabilities of the Federal Government, and SFFAS No. 6,
Accounting for Property, Plant and Equipment, define capital leases as leases that transfer
substantially all the benefits and risks of ownership to the lessee. If, at its inception, a lease meets
one or more of the following four criteria, the lease should be classified as a capital lease by the
lessee. Otherwise, the lease should be classified as an operating lease.
• The lease transfers ownership of the property to the lessee by the end of the lease term.
• The lease contains an option to purchase the leased property at a bargain price.
• The lease term is equal to or greater than 75 percent of the estimated economic life of the
leased property.
• The present value of the rental and other minimum lease payments, excluding that
portion of the payments representing executor costs, equals or exceeds 90 percent of the
fair value of the leased property.
In 1996, OCFO performed an analysis applying the capital lease criteria to several real property
leases to determine proper lease classification. The RTP capital lease, whose lease term
commenced February 1995, was one of the leases analyzed. Based on the OCFO's application of
the lease criteria using the total 30-year term, it was determined that the RTP real property lease
met the 90-percent test criteria and should be reported as a capital lease. The agency booked the
capital lease and amortized the lease using the total term, which included the renewal option.
During FY 2016, after the initial 20-year lease term ended, the agency decided to convert the
capital lease to an operating lease with a 10-year renewal option because it believed the lease
was incorrectly classified using a 30-year lease term. We do not agree with the agency's decision
to convert the RTP capital lease to an operating lease, and believe a change in lease terms would
be the only instance to necessitate reclassification if the capital lease criteria were not met.
However, the agency did not provide adequate support that the capital lease criteria were applied
to the lease renewal option to determine its proper classification. As a result, we believe the RTP
capital lease should remain on the books until the capital lease criteria has been applied and
classification determined.
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For FY 2016, the capital lease should be reflected as follows on the agency's financial
statements:
Table 2: Appropriate capital lease entries
Description
Amount
Assets Under Capital Lease
$24,485,000
Capital Lease Liability
(18,655,299)
Accumulated Amortization
(17,683,611)
Amortization Expense
816,167
Source: OIG analysis.
Failure to properly account for capital property transactions in the agency's accounting system—
Compass Financials—compromises the accuracy of the EPA's property accounts, depreciation
and operating expenses, and the agency's financial statements.
Recommendations
We recommend that the Chief Financial Officer:
6. Reverse the journal voucher entries made to reclassify the Research Triangle Park capital
lease to an operating lease.
7. Record the necessary adjusting entries for the Research Triangle Park lease to ensure
current-year activity is properly stated on the fiscal year 2016 financial statements.
8. Determine the proper classification of the Research Triangle Park real property lease
using the capital lease criteria.
Agency Comments and OIG Evaluation
The agency concurred with our findings and recommendations, took corrective actions, and made
the necessary adjustments for the FY 2016 financial statements.
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6 - EPA Needs Controls to Monitor Direct Access to the
Compass Financials Database
The EPA did not establish controls to monitor direct access to
data within the Compass Financials database. Federal
requirements indicate that agencies must establish controls to
prevent and detect unauthorized access to agency data. The
EPA's OCFO relied on directive controls, and did not establish
controls to prevent or detect unauthorized access to the
Compass Financials database. A breach of information in Compass Financials, which houses
Personally Identifiable Information (PII) belonging to employees and vendors, could cost the
EPA as much as $3.5 million, including the costs to detect, recover, investigate and manage the
incident response, along with costs that result in after-the-fact activities and efforts to contain
additional costs.
There were 35 open accounts with access to the Compass Financials database that the agency
indicated were not needed. These accounts included: duplicate accounts, accounts belonging to
individuals who do not require access, and accounts with generic names that could not be
identified as belonging to specific individuals. A summary of unnecessary accounts is in
Figure 1. The Compass Financials' database extract indicated that only two of the 35 accounts
had been used, and none of the 35 accounts have been locked to prevent them from accessing the
database.
Figure 1: Summary of unnecessary accounts
6 Accounts that are unnecessary as
they are duplicates, but belong to
individuals who require access to
Compass.
3 Accounts were unnecessary and not
assigned to individuals.
26 Accounts belonging to 33
individuals who are no longer
working on the Compass project and
hence do not require access
0 5 10 15 20 25 30
Source: OIG-generated.
The Federal Information Security Modernization Act tasked the National Institute of Standards
and Technology (NIST) with the responsibility of developing minimum information security
requirements. The requirements are provided in NIST Special Publication 800-53, Security and
Privacy Controls for Federal Information Systems and Organizations, Revision 4, which is
applicable to all federal information systems. This includes information systems used or operated
Directive controls are actions
taken by management designed
to establish the desired
outcomes, but not designed to
prevent or detect possible
undesired outcomes.
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by an executive agency, a contractor of an executive agency, or another organization on behalf of
an executive agency. NIST Special Publication 800-53 AC-2 (7) provides guidance with regard
to account management. In particular, organizations are responsible for:
• Establishing and administering privileged user accounts in accordance with a role-based
access scheme that organizes allowed information system access and privileges into roles.
• Monitoring privileged role assignments.
• Taking organization-defined actions when privileged role assignments are no longer
appropriate.
EPA's Information Security - Access Control Procedure, CIO 2150-P-01.2, covers information
systems used, managed or operated on behalf of the agency, and states that information owners
shall ensure service providers:
a) Monitor privileged role assignments.
b) Disable access when privileged role assignments are no longer appropriate.
OMB Memorandum M-13-23, Appendix D, to OMB Circular A-123, Section 7C,
Compliance with the Federal Financial Management Improvement Act of 1996, provides that:
[SJervice organizations are required to provide customer agencies with a Report on
Controls at a Service Organization Relevant to User Entities' Internal Control over
Financial Reporting (also known as a SOC [Service Organization Controls] 1).
The SOC 1 is an important tool for agency management and auditors as they
evaluate the effect of the controls at the service organization on the user entities'
controls for financial reporting.
OCFO did not establish controls to monitor direct access to data within the Compass Financials
database. Compass Financials is owned and operated by a service provider that hosts the
application at its data center, and the service provider is responsible for developing and
maintaining the application. Our review indicated that the service provider was performing
limited logging of administrative access to the database. Additionally, the EPA did not ensure
that the service provider monitored privileged role assignments or disabled access when the
privileged role assignments were no longer necessary.
Further, while the service provider did provide the EPA with a Statement on Standards for
Attestation Engagements 16 SOC 1 type 2 report that covered the service provider's enterprise
and end-user computing and network, the report did not cover application maintenance and
support. The agency also had a security review of NIST Special Publication 800-53 controls
conducted by EPA contractors as part of the Continuous Monitoring Assessment (CMA) of
Compass Financials. This CMA covered the application areas not covered by the SOC report and
included testing of the Oracle database. The CMA review produced 11 findings and
recommendations to the agency covering access controls. However, it is unclear what actions the
agency took or planned to take to address these weaknesses. Upon analysis of the CMA
documentation, the status of the recommendations are listed as Planned/Pending and lack
scheduled completion dates. Furthermore, these findings and recommendations were not entered
into the EPA's system used for tracking remediation of the associated corrective actions.
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Unauthorized access of PII contained in the Compass Financials database could cost the EPA
$3.5 million. This estimate was based on the most recent 2015 Cost of Cyber Crime Study:
Global, conducted by the Ponemon Institute, where the average number of records was
approximately 17,500 and the per-record cost was $198 per breach. It is possible that the cost of
a Compass Financials data breach could be more, but we could not develop a specific estimate
because OCFO was unable to provide us with a reliable count of records with unique PII within
the Compass Financials database. The database contains multiple tables that contain PII, and
some of the tables contain records with duplicate PII.
Recommendations
We recommend that the Chief Financial Officer:
9. Work with the Compass Financials service provider to establish controls for creating and
locking administrative accounts.
10. Work with the Compass Financials service provider to develop and implement a
methodology to monitor accounts with administrative capabilities.
11. Enter the Continuous Monitoring Assessment recommendations into the agency's system
used for monitoring the remediation of information security corrective actions.
Agency Comments and OIG Evaluation
The EPA concurred with our recommendations and provided planned dates to complete
corrective actions. We consider these recommendations resolved with corrective actions pending.
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7 - EPA Needs Documentation to Restore Financial and Mixed-
Financial Applications Housed at the National Computer Center
The EPA's Disaster Recovery Plan and Information System Contingency Plan for the National
Computer Center's (NCC's) operations lack documentation for obtaining equipment to restore
operations and network connectivity for the financial and mixed-financial applications housed at
NCC, located in Research Triangle Park, North Carolina, in the event of a disaster.
OMB Circular A-130, Appendix III, Security of Federal Automated Information Resources,
states that: "Agency plans should assure that there is an ability to recover and provide service
sufficient to meet the minimal needs of users of the system." Furthermore, NIST Special
Publication 800-53, Security and Privacy Controls for Federal Information Systems and
Organizations, Revision 4, requires an organization to develop a contingency plan that
"[ajddresses eventual, full information system restoration without deterioration of the security
safeguards originally planned and implemented."
NCC representatives indicated that a static listing of the NCC's hardware would need continuous
updates to reflect current NCC operations. Our review of the provided documentation disclosed
that the hardware inventory within the Information System Contingency Plan is over 5 years old,
and the Disaster Recovery Plan's equipment listing does not contain all the necessary equipment
to restore primary operations. Further, neither plan includes instructions on obtaining the
specifications of equipment needed to restore the NCC's primary operations and network
connectivity.
Upon further discussions with the Office of Environmental Information (OEI), the
representatives indicated that they rely on systems outside the computer center to recover
operations at the NCC. However our review of the provided Disaster Recovery Plan and
Information Security Contingency Plan disclosed these systems were not documented in either of
the plans.
Because the EPA lacks a current equipment listing or a methodology to determine the
specifications for equipment needed to recover the primary NCC operations, the agency would
experience delays in restoring the following key financial and mixed-financial applications
housed at NCC:
• OCFO General Support System, which supports the following major financial and
mixed-financial applications:
o Payment Tracking System.
o PeoplePlus (the EPA's time and attendance reporting system).
• Office of Administration and Resources Management's:
o Agency Asset Management System.
o Integrated Grants Management System Pre-Award Module of the Integrated
Grants Management System Application.
Operation of these financial and mixed-financial applications would not be recovered in a
timeframe in the best interest of the agency. This could result in the EPA being unable to use
these applications to effectively track, evaluate and analyze the cost of operations in
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accomplishing program initiatives and activities designed to protect human health and the
environment.
Recommendation
We recommend that the Chief Information Officer, Office of Environmental Information:
12. Develop a process for obtaining the current inventory listing and document the process in
the National Computer Center's Disaster Recovery Plan and Information System
Contingency Plan.
Agency Comments and OIG Evaluation
The agency did not concur with our finding and Recommendation 12. The EPA stated the OIG
made incorrect assumptions related to the sources of information it uses to restore the NCC
during emergencies, and stipulated that the agency relies upon other technologies to restore the
computer center. The EPA also indicated it maintains a Hosting System Information
Contingency Plan that includes the information needed to restore the computer center's physical
environment.
Our initial assumptions related to the system the EPA uses to identify the inventory needed to
restore the computer center was based upon an interview with EPA personnel directly
responsible for overseeing the computer center recovery process. We updated the draft report to
include our analysis of the additional documents provided by the EPA and further interviews
with EPA representatives. We further updated the final report to clarify EPA processes for
restoring the computer center. Our analysis determined that despite the EPA indicating it
maintains other technologies to restore the computer center, these technologies are not
documented within the documentation the agency cites in its response and the other
documentation the EPA provided during the audit. Furthermore, our analysis of the EPA's
documentation found that the hardware inventory is over 5 years old, and the documentation
does not contain all the equipment necessary to restore the computer center. As such, we believe
it is incumbent upon management to develop a process to keep current the documents the EPA
relies upon for restoring the computer center as required by federal guidance. We therefore
consider Recommendation 12 unresolved pending the agency's response to the final report.
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8 - EPA Needs to Improve Offsite Storage of Backups
In the event of a disaster, the EPA would not be able to readily recover financial and mixed-
financial data from its Payment Tracking System (PTS), PeoplePlus (PPL), and Agency Asset
Management System (AAMS), all located at NCC in Research Triangle Park, North Carolina.
The EPA would also not be able to readily recover data from its Integrated Grants Management
System (IGMS) Potomac Yard servers, located in Arlington, Virginia. This occurred because the
EPA did not implement a data backup storage plan or provide oversight to ensure data backups
are stored as required for these critical financial and mixed-financial applications
NIST Special Publication 800-53, Security and Privacy Controls for Federal Information
Systems and Organizations, Revision 4, requires agencies to establish alternate sites for the
storage and retrieval of information system backups.
Th eEPA Chief Information Officer Transmittal 2150-P-06.2, Information Security -
Contingency Planning Procedures, reflects the above guidance and states:
Backup copies of the operating system and other critical information system
software, as well as copies of the information system inventory (e.g., hardware,
software, and firmware components), shall be stored in a separate secure facility
or in a fire-rated container that is not collocated with the operational system.
Further, the EPA OEI's Backup, Restoration, and Tape Retention Procedures for Task Order
1688, Sub-task 3.3, Shared Services Hosting, applicable to the IGMS Potomac Yard servers,
states "[o]nce the 'full' backup jobs are completed, they are removed from the tape changer" and
"...taken to the off-site storage."
We found the following regarding backup for the agency's critical financial and mixed-financial
applications:
Payment Tracking System and PeoplePlus
Data backups for OCFO's PTS and PPL applications are not being sent to an alternate
storage location, even though the system security plans for both applications indicate that
backups need to be stored offsite. The PTS and PPL applications are supported by
OCFO's General Support System. The applications are backed up to a Virtual Tape
Library located at NCC, which also houses their production servers.
OCFO's Director for the Office of Technology Solutions signed a waiver accepting the
risk of not having an alternate data storage process for the General Support System, even
though the Director did not have the authority to accept such risks without an approved
waiver signed by the Chief Information Officer (CIO) in OEI. CIO 2150-P-06.2 states
that the CIO "[a]ccept[s] risks to the organization related to contingency planning" and
may grant waivers ".. .for sufficient reasons exercising judgment in the best interests of
the agency." Thus the waiver was not signed by the appropriate official. Further, our
analysis of the waiver documentation disclosed that the waiver only covers the OCFO
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General Support System, which provides core infrastructure for hosting major OCFO
applications, and does not cover the applications themselves.
Agency Asset Management System
The Office of Administration and Resources Management (OARM) had not implemented
an alternate data storage plan for the AAMS application. When OARM implemented
AAMS, the office originally planned to (1) operate the application at the EPA's Potomac
Yard server room and (2) implement alternate data storage on a backup server located at
the NCC. However, our analysis showed that AAMS servers are located at NCC, and the
application is being backed up to a Virtual Tape Library also located at NCC. Our review
also noted that the AAMS system security plan is outdated and has not been updated to
reflect the application's current operating environment. Further, OARM had not taken
steps to implement compensation controls to protect the AAMS data backups located at
NCC, and management has not taken steps to seek a waiver from the CIO for not having
an alternate storage site for AAMS data backups.
Integrated Grants Management System
OEI personnel at the EPA Potomac Yard server room are not ensuring data backups are
taken to the required alternate data storage site. Backups for the IGMS application's
servers, owned by OARM, are located at the EPA's Potomac Yard server room. The
IGMS Potomac Yard servers are being backed up to tape by OEI personnel in accordance
with established agency policy. However, not all full backup tapes are being transferred
to the William Jefferson Clinton North Building alternate storage location, in
Washington, D.C., once the backups are completed, in accordance with procedures. OEI
contractors responsible for the OARM Potomac Yard server backups stated that there is
no set timeframe for rotation of full backup tapes, and the tapes are taken to the alternate
storage site after backup is finished and they have an opportunity to transport the tapes.
Additionally, there is no oversight of the Potomac Yard tape rotation, as there are no logs
to verify that the backup media is transported to an alternate storage site in a timely
manner.
In the event of a disaster at NCC that would potentially destroy both the production servers and
the Virtual Tape Library storing the PTS, PPL and AAMS data, there would be no backups for
these critical servers available. This would result in the loss of both the production and backup
data for these critical applications. As a result, the EPA would not be able to readily use PTS for
the processing of contract payments in accordance with established payment schedules, and the
reporting and tracking of information to assist in the payment process. Additionally, the ability to
use PPL to automatically send employee time and attendance data to the payroll provider, as well
as the functionality to assign labor costs to the various accounting appropriations for payroll
dollars, would not be readily available.
OEI personnel responsible for managing NCC indicated they rely upon the data in AAMS to
determine what equipment the agency needs to purchase to restore full network capabilities if the
NCC has to relocate to an alternate processing site. Thus, without having a viable AAMS data
backup, the EPA faces the possibility that it would not be able to restore its network and the
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hundreds of applications hosted atNCC within 30 days, as outlined in the NCC Disaster
Recovery Plan, version 8.3.
In the event of a disaster at the Potomac Yard facility that destroys the local backups, the IGMS
servers backed up there would not be readily recoverable to the most recent backup points.
Recommendations
We recommend that the Chief Financial Officer:
13. Either obtain a waiver for not having an alternate storage location for the PeoplePlus and
Payment Tracking System backups approved by the Chief Information Officer, or
develop and implement a process for storing the PeoplePlus and Payment Tracking
System backups at an alternate location.
We recommend that the Assistant Administrator for Administration and Resources Management:
14. Develop and implement a process for storing the Agency Asset Management System
backups at an alternate storage location.
15. Update the Agency Asset Management System security plan to reflect the application's
current data backup processes.
We recommend that the Chief Information Officer, Office of Environmental Information:
16. Ensure the contractor has a process to monitor that the Integrated Grants Management
System data backups at Potomac Yard are rotated to the alternate storage location.
Agency Comments and OIG Evaluation
The EPA concurred with our recommendations and indicated it completed all corrective actions
in October 2016. We consider these recommendations closed with corrective actions completed.
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Attachment 2
Compliance With Laws and Regulations
Table of Contents
9 EPA Did Not Comply With the e-Manifest Act 32
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9 - EPA Did Not Comply With the e-Manifest Act
In FY 2015, the EPA used e-Manifest appropriated funds totaling $22,294 to cover contract costs
unrelated to the e-Manifest project. According to the Hazardous Waste Electronic Manifest
Establishment Act (e-Manifest Act), the EPA shall take all necessary measures to ensure that
amounts in the e-Manifest fund are used only to carry out the goals of establishing, operating,
maintaining, upgrading, managing, supporting and overseeing the e-Manifest system. The EPA
did not have adequate oversight to prevent the inappropriate use of the e-Manifest funds. As a
result, the EPA is not in compliance with the e-Manifest Act.
According to the e-Manifest Act, at Section 2, Subsection (d)(2)(C), the EPA "shall carry out all
necessary measures to ensure that amounts in the e-Manifest fund are used only to carry out the
goals of establishing, operating, maintaining, upgrading, managing, supporting, and overseeing
the [e-Manifest] system."
The Federal Acquisition Regulation, at 48 CFR (Code of Federal Regulations) Section 1.602-l(b),
requires contracting officers to ensure that all requirements of law, executive orders, regulations
and all other applicable procedures have been met. The Federal Acquisition Regulation, at 48 CFR
Section 1.602-2(a), also requires that contracting officers ensure sufficient funds are available for
obligation. The EPA's Comptroller Policy Announcement No. 00-10, "Implementation of 5 CFR,
Part 1315 - Prompt Payment," Section II.B.(4), further requires the project officers to distribute
invoice amounts by account number to assure that costs are charged to the proper appropriation or
funding source.
Various EPA offices have responsibilities in ensuring that the agency complies with the
e-Manifest Act:
• OARM is responsible for the EPA's acquisition activities, including administering
contracts. OARM's contracting officers manage the contracts and are responsible for
ensuring that there are sufficient funds available for obligation.
• The Office of Land and Emergency Management (OLEM) oversees the e-Manifest
project, and assigns related contracts to project officers. OLEM's project officers certify
the contract invoices for payment, and are responsible for ensuring that costs are
allocated to the proper appropriation.
• OCFO provides financial services for the agency and makes payments to EPA
contractors. OCFO relies on the EPA project officers' invoice allocations to disburse
contract payments.
We found that the EPA used e-Manifest appropriated funds totaling $22,294 to cover contract
costs unrelated to the e-Manifest project. In 2012, the EPA awarded a service contract to a
contractor for multiple work assignments funded by different appropriations. In 2014, the EPA
added a work assignment with the purpose to provide support for the e-Manifest rulemaking.
During 2015, the EPA received various invoices for work related to the e-Manifest project, as
well as other work assignments, performed under this contract. The invoices listed all costs by
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work assignment, and an OLEM project officer distributed the invoice amounts by appropriation.
The invoiced amounts were paid by OCFO from the e-Manifest funds.
During the final months of the performance period for the contract in 2015, certain work
assignments did not have sufficient obligations available to cover the invoiced amounts. The
obligated funds for these work assignments were under other appropriations not related to the
e-Manifest project. However, to certify the invoices for payment, the project officer allocated the
invoiced amounts from these work assignments to the e-Manifest appropriation, because the
e-Manifest appropriation had obligated funds available. The project officer was not aware of the
restrictions over the e-Manifest appropriations. In addition, OARM's contracting officer did not
ensure that the EPA met the requirements of the e-Manifest Act, and that there were sufficient
funds available for obligation for the various other work assignments. Therefore, the EPA did not
have adequate oversight to prevent the inappropriate use of the e-Manifest funds.
As a discussed above, the EPA expended e-Manifest funds on non-e-Manifest purposes, thus
violating the requirements of the e-Manifest Act. In addition, by not having adequate oversight to
prevent the inappropriate use of funds, the EPA was at risk of exceeding the amount of funds that
were available in another appropriation. We determined that, as of the end of FY 2015, the
money taken from the e-Manifest funds and used for other work assignments was not returned to
the e-Manifest appropriation. Because the EPA did not return the money to the e-Manifest fund
by the end of the fiscal year, the agency may be at risk of violating the Antideficiency Act. We
did not determine whether the EPA violated the Anti deficiency Act, since such work was not
within the scope of our audit, but given the risk level here we believe the agency should
investigate the matter.
We are issuing a separate report on e-Manifest and will present our recommendations in that
report.
Agency Comments and OIG Evaluation
The agency concurred with our finding.
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Attachment 3
Status of Prior Audit Report Recommendations
The EPA continued working to strengthen its audit management to address audit findings timely
and complete corrective actions expeditiously and effectively to improve environmental results.
In FY 2016, the EPA's Chief Financial Officer, as the Agency Follow-Up Official, issued a
memorandum to senior agency leadership reminding senior managers of their stewardship
responsibilities for developing effective corrective actions, and implementing them timely. Other
notable actions included:
• The agency continued working to make improvements to EPA Manual 2750,
Audit Management Procedures, which was last revised in FY 2012. Manual 2750 is a
comprehensive audit management guide that addresses OIG, GAO and Defense Contract
Audit Agency audits. OCFO expects to release the updated policy by December 2016.
• OCFO issued progress reports highlighting the status of management decisions and
corrective actions. The reports are shared with program office and regional managers
throughout the agency to keep them informed of the status of progress on their audits.
EPA sustained its commitment to engage early with the OIG on audits findings, and to develop
effective corrective actions to address OIG recommendations. Of the 42 OIG audit reports issued
with recommendations in FY 2016, the OIG closed 31, or 74 percent, upon issuance to the
agency, and none exceeded 180 days without reaching management decision. The EPA also
reported it implemented 390 corrective actions in FY 2016.
Table 3: Significant deficiencies—issues not fully resolved
• EPA Failed to Capitalize Software Costs, Leading to Restated FY 2013 Financial Statements
In our FY 2014 audit, we identified the agency's accounting for software as a material weakness. In
FY 2014, the agency found it had undercapitalized software by expensing approximately $255 million
in software costs over a 7-year period. The undercapitalized software and related equity accounts
indicate the agency has a material weakness in internal controls over identifying and capitalizing
software because such controls failed to detect and correct the errors, resulting in a misstatement of
the FY 2013 financial statements. During FY 2015, the agency took corrective actions to improve its
accounting for software. While the agency has made progress and taken steps to correct weaknesses,
all corrective actions have not been completed. The EPA continues to experience problems in its
cleanup efforts. During FY 2016, the EPA wrote off approximately $132 million in software costs
without adequate support. Corrective actions for the remaining recommendations are not due to be
completed until 2018.
• EPA Did Not Capitalize Lab Renovation Costs
In our FY 2014 audit, we found that the EPA did not capitalize approximately $8 million of RTP lab
renovations. As a result, the EPA did not properly classify the lab renovations as a capital
improvement. The agency capitalized and booked the RTP lab renovation cost and related
depreciation. The EPA Office of General Counsel believed that the 1999 legal opinion is still a viable
legal opinion, but did not provide examples to guide the agency's determinations of when renovation
work should be funded from agency program appropriations or Building and Facilities funds.
Therefore, the corrective action was partially completed. In addition, corrective actions for other
recommendations related to this finding are not due until September 2017.
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•
EPA's Internal Controls Over Accountable Personal Property Inventory Process Need
Improvement
In our FY 2014 audit, we noted that the EPA reported a $2.6 million difference between the amount of
accountable personal property recorded in the property management system (Maximo) and the
amount of physical inventory for FY 2014. The EPA also identified 573 property items not recorded in
Maximo. During FY 2015, we found that the agency made progress and has taken steps to correct its
differences between the amount of personal property recorded in Maximo and the amount of physical
inventory. The agency has implemented the corrective actions. However, we have not assessed the
effectiveness of these actions.
•
EPA's Property Management System Does Not Reconcile to Its Accounting System (Compass)
During FY 2014, we found that the EPA did not reconcile $100 million of capital equipment within its
property management subsystem (Maximo) to relevant financial data within its accounting system
(Compass). The inability to reconcile the property subsystem with Compass can compromise the
effectiveness and reliability of financial reporting. We previously reported on this issue in our 2012 and
2013 financial statement audit reports. In FY 2014, the agency issued procedures to reconcile capital
property. The agency stated it had begun to resolve the differences between Maximo and Compass;
however, problems continue to exist. In FY 2015 and 2016, we again reported this weakness as a
significant deficiency; therefore, the EPA's corrective actions were not yet effective. In FY 2016, the
agency stated that it would not be able to complete the reconciliation, and pushed the date back to
June 2017.
•
Originating Offices Did Not Timely Forward Accounts Receivable Source Documents to the
Finance Center
In FY 2014, we found that the EPA and Department of Justice did not timely forward accounts
receivable source documents to finance centers. During FY 2015, the EPA's Office of Enforcement
and Compliance Assurance, in a memorandum, reminded the regions to timely provide accounts
receivable enforcement documentation to the finance center. In addition, OCFO updated the EPA's
Superfund guidance to direct originating offices to timely send accounts receivable control forms to the
finance center. In 2016, while we noted improvements in CFC's timely receipt of legal documents, we
still identified instances of untimely receipt, particularly related to stipulated penalties. Therefore, the
agency's corrective actions are not completely effective, and we will continue to evaluate the
timeliness of receipt of accounts receivable source documents from the EPA and Department of
Justice in FY 2017.
•
EPA Did Not Properly Reconcile Accounts Receivable
During FY 2014, we found that the EPA did not properly reconcile its accounts receivable subsidiary
ledger to the general ledger. In FY 2015, the EPA did not correct the significant deficiency or did not
completely implement its corrective actions for reconciling accounts receivable. Therefore, we reported
the agency's accounts receivable reconciliation process as a significant deficiency again in FY 2015.
During FY 2016, the EPA improved its accounts receivable reconciliation process by reconciling
federal and non-federal receivables separately and developing new reports. While the agency has
made progress in correcting the accounts receivable reconciliation deficiencies in FY 2016, we were
not able to determine the effectiveness of the actions.
•
EPA Incorrectly Recorded Superfund Special Account Collections and Receivables
In FY 2015, the EPA misstated earned and unearned revenue for Superfund special accounts. The
EPA changed its accounting practice to record special accounts settlement proceeds as unearned
revenue for 2015. However, in FY 2016 the EPA did not modify the accounting model for special
accounts in Compass Financials, the agency's accounting system. As a result, the EPA materially
misstated earned and unearned revenue in FY 2016. Therefore, we consider the EPA's corrective
action not effective and will further evaluate the effectiveness of agency actions during FY 2017.
•
EPA Did Not Record More Than $8 Million in Accounts Receivable for a $9 Million Superfund
Judgment
In FY 2015 we found that the EPA did not record as a Superfund accounts receivable more than
$8 million of a $9 million judgment. During FY 2016, the EPA did not correct the prior-year error. In
FY 2016 the EPA also recorded another Superfund receivable at the initial payment amount, which
was 90 percent of the total estimated costs. While the EPA corrected the FY 2016 error, the prior year
error remains uncorrected. Therefore, we consider the EPA's corrective action not effective, and will
further evaluate agency corrective actions during FY 2017.
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• EPA Did Not Comply With Federal Accounting Standards for Recording Interest
In FY 2014, we found that the EPA did not record all applicable interest for some accounts receivable
in the accounting system as required by applicable laws, federal accounting standards and EPA policy.
The EPA made some improvements in recording interest during FY 2015, but was still considered not
in compliance primarily due to Compass system problems. During FY 2016, the EPA made further
improvements in recording Superfund and installment interest; however, all corrective actions have not
been completed and some completed actions are not completely effective. Therefore, we will continue
to evaluate the agency's recording of interest in FY 2017.
• Compass Reporting Limitations Impair Accounting Operations and Internal Controls
In FY 2012, we reported that following the agency's conversion of its accounting system to Compass,
the EPA was unable to obtain reports it needed for many accounting applications. Following the
conversion, accounts receivable reports used by the finance centers for reconciliations and calculating
allowance for doubtful accounts were no longer available at the finance center level. Since the
conversion, the EPA has not developed accounts receivable reports at the finance center level, which
are needed to reconcile accounts receivable and update allowance for doubtful account estimates.
• EPA Should Improve Compliance With Internal Controls for Accounts Receivable
During FY 2012, we found that CFC did not timely receive accounts receivable judicial legal
documents from the Department of Justice and EPA. In FY 2013, the EPA revised agency accounts
receivable guidance to remove the requirement for Regional Legal Enforcement Offices to forward
copies of executed judicial orders to CFC within 5 workdays. In FY 2014, the Office of Enforcement
and Compliance Assurance reported its corrective action as completed; however, we reported
untimely receipt of accounts receivable legal documents as a significant deficiency in FY 2014.
Although we noted some improvement in the EPA's receipt of legal documents, we still identified
instances of untimely receipt in FY 2015 and 2016. Therefore, we do not consider the agency's
corrective actions completely effective, and will continue to evaluate the effectiveness in FY 2017.
• EPA Should Improve Controls Over Expense Accrual Reversals
In FY 2012, the EPA did not reverse approximately $108 million of FY 2011 year-end expense
accruals. The EPA did not reverse the accrual transactions because the Compass posting
configuration for the applicable fund category was inaccurate. By not reversing the accruals timely,
EPA materially overstated the accrued liability and expense amounts in the quarterly financial
statements. EPA's Policy Announcement No. 95-11, Policies and Procedures for Recognizing Year-
End Accounts Payable and Related Accruals, requires the agency to "recognize and report all
accounts payable and related accruals in its year-end financial reports." In our audit report issued
November 16, 2012, we recommended that the EPA update its Policy Announcement 95-11 to require
reconciliations of accruals and accrual reversals. EPA officials concurred with our finding and
recommendations, and took corrective action by implementing an independent review of the FY 2012
accruals and reversals. The EPA also performed accrual reviews prior to the issuance of the FY 2013
quarterly financial statements. In the FY 2013 audit, the EPA extended the target due date to update
Policy Announcement 95-11 until June 2014. In the FY 2014 audit, the EPA extended the target due
date to update the policy until December 31, 2015, due to the additional workload and resource
constraints. In FY 2015, the EPA extended the target due date to update the policy until December 31,
2016. This was done to enable the EPA to use the opportunity to explore new methods to streamline
the accrual processes and take advantage of efficiencies available in the Compass upgrade scheduled
for February 2016, prior to revising the policy. In the FY 2016 audit, the EPA indicated it anticipated
being able to meet its targeted completion date (December 31, 2016), but did not anticipate completing
action sooner, due to an implementation of a Compass version enhancement and development of a
new accrual processing system.
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• EPA Should Improve Its Efforts to Resolve EPA's Long-Standing Cash Differences With Treasury
During our FY 2015 audit, we found that the EPA had not resolved $2.6 million in long-standing cash
differences between EPA and Treasury balances. Based on our findings, we recommended in our
FY 2015 report that the Chief Financial Officer require the General Ledger Analysis and Reporting
Branch to monitor and work with the finance centers to resolve all internal cash differences, to ensure
the EPA resolves all of the differences with Treasury. We also recommended that the Chief Financial
Officer require the Payroll accounting point and Washington Finance Center to research and resolve
cash differences. The agency agreed with our finding and recommendations. According to the
agency's corrective action status report as of June 27, 2016, the agency completed corrective action
for the first recommendation. However, the Chief Financial Officer has not completed its corrective
action for the Payroll accounting point and the Washington Finance Center, and those accounting
points still have long-standing unresolved cash differences. The EPA is currently working on resolving
cash differences and completing its corrective action by December 31, 2016. We again reported
unresolved long-standing cash differences as a significant deficiency in our FY 2016 report.
• Financial Management System User Account Management Needs Improvement
During our FY 2009 audit, we found that the EPA had not established policies that clearly defined
incompatible functions and associated processes, to ensure that proper separation of duties is
enforced within the financial system application. Based on our findings, we recommended in our
FY 2009 report that OCFO ensure that all new financial management systems and those undergoing
upgrades include a system requirement that the fielded system include an automated control to
enforce separation of duties. The agency agreed with our finding and recommendation and the EPA
had considered this recommendation closed; however, OCFO agreed in FY 2015 to develop
alternative corrective actions for this recommendation. According to OCFO, the revised planned
completion date for these corrective actions is December 31, 2017.
• OCFO Lacks Internal Controls When Assuming Responsibility for Account Management
Procedures of Financial Systems
During our FY 2015 audit, we found that OCFO's Application Management Staff assumed
responsibility for managing oversight of users' access to the Payment Tracking System without
ensuring the system had documentation covering key account management procedures. Based on our
findings, we recommended in our FY 2015 report that the Chief Financial Officer implement an internal
control process for transferring the management of an application's user access to the Application
Management Staff. We also recommended that the Chief Financial Officer conduct an inventory of
OCFO systems managed by the Application Management Staff and create or update supporting
access management documentation for each application. Further, we recommended that the Chief
Financial Officer work with the contracting officer to update applicable contract clauses and distribute
updated access management documentation to contractors supporting the user account management
function for applications managed by the Application Management Staff. The agency agreed with our
finding and recommendations. According to its corrective action status report as of June 27, 2016, the
agency plans to complete corrective actions for the first and second recommendations by
December 31, 2017, and by March 31, 2018, for the last recommendation.
• Financial and Mixed-Financial Applications Did Not Comply With Required Account
Management Controls
During our FY 2015 audit, we found that the EPA lacked management oversight to ensure responsible
individuals fully develop and implement required account management controls for the EPA's financial
and mixed-financial systems. Based on our findings, we recommended in our FY 2015 report that the
Chief Financial Officer review and update account management documentation and establish
procedures for financial systems. We also recommended that the Chief Financial Officer issue a
memorandum emphasizing the need to follow access control procedures, conduct an inventory of
financial systems to ensure the systems are entered into Xacta for monitoring of compliance with
required information systems security controls, and implement a process to notify the Chief Financial
Officer of the status of corrective actions entered into Xacta. The agency agreed with our finding and
recommendations. According to its corrective action status report as of June 27, 2016, the agency
completed corrective actions for all but the first recommendation. The EPA is currently working on
reviewing and updating account management documentation and establishing procedures for financial
systems. The revised planned completion date for this corrective action is December 31, 2017.
Source: OIG analysis.
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No.
16
16
16
18
20
22
22
22
25
25
25
27
30
Attachment 4
Status of Current Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Subject
Status1
Action Official
Planned
Completion
Date
Potential
Monetary
Benefits
(in $000s)
Record the necessary adjusting entries to reduce unearned
revenue by $167,870,721 to ensure current year financial
statements are properly stated.
Modify the accounting model in Compass Financials to properly
record all special account receivables and collections as
unearned revenue, and reduce the unearned revenue and
recognize earned revenue as expenses are incurred.
Prepare a comprehensive quarterly reconciliation of Superfund
special accounts general ledger balances to the special accounts
database detail.
Chief Financial Officer
Chief Financial Officer
Chief Financial Officer
11/1/16
3/31/17
12/31/16
Reverse the cash difference write-off entries in Compass
Financials and continue researching the cash differences until
adequate documentation exists to support the adjustments.
Develop and implement a plan for supervisors of interagency
agreement project officers to monitor the timeliness of individual
project officer invoice approvals.
Reverse the journal voucher entries made to reclassify the
Research Triangle Park capital lease to an operating lease.
Record the necessary adjusting entries for the Research
Triangle Park lease to ensure current-year activity is properly
stated on the fiscal year 2016 financial statements.
Determinethe proper classification ofthe Research Triangle
Park real property lease using the capital lease criteria.
Work with the Compass Financials service provider to establish
controls for creating and locking administrative accounts.
Work with the Compass Financials service provider to develop
and implement a methodology to monitor accounts with
administrative capabilities.
Enter the Continuous Monitoring Assessment recommendations
into the agency's system used for monitoring the remediation of
information security corrective actions.
Develop a process for obtaining the current inventory listing and
document the process in the National Computer Center's
Disaster Recovery Plan and Information System Contingency
Plan.
Chief Financial Officer 10/31/16
O Assistant Administrator for 3/31/17
Administration and
Resources Management
C Chief Financial Officer 11/8/16
Chief Financial Officer 11/8/06
Chief Financial Officer 11/8/16
O Chief Financial Officer 9/30/21
O Chief Financial Officer
O Chief Financial Officer
U Chief Information Officer,
Office of Environmental
Information
9/30/21
3/31/17
Either obtain a waiver for not having an alternate storage
location for the PeoplePlus and Payment Tracking System
backups approved by the Chief Information Officer, or develop
and implement a process for storing the PeoplePlus and
Payment Tracking System backups at an alternate location.
Chief Financial Officer
10/18/16
38
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RECOMMENDATIONS
Rec.
No.
No.
Subject
Status1
Action Official
Planned
Completion
Date
Potential
Monetary
Benefits
(in $000s)
14 30 Develop and implement a process for storing the Agency Asset
Management System backups at an alternate storage location.
15 30 Update the Agency Asset Management System security plan to
reflect the application's current data backup processes.
16 30 Ensure the contractor has a process to monitor that the
Integrated Grants Management System data backups at
Potomac Yard are rotated to the alternate storage location.
Assistant Administrator for 10/4/16
Administration and
Resources Management
Assistant Administrator for 10/4/16
Administration and
Resources Management
Chief Information Officer, 10/11/16
Office of Environmental
Information
1 O = Recommendation is open with agreed-to corrective actions pending.
C = Recommendation is closed with all agreed-to actions completed.
U = Recommendation is unresolved with resolution efforts in progress.
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39
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Appendix I
EPA's FYs 2016 and 2015
Consolidated Financial Statements
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EPA's Fiscal 2016 and 2015
Consolidated Financial Statements
Financial Section
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Table of Contents
Page
Principal Financial Statements 1
Financial Statements 1
Consolidated Balance Sheet 1
Consolidated Statement of Net Cost 2
Statement of Net Cost by Major Program 3
Combining Statement of Changes in Net Position 4-5
Combining Statement of Budgetary Resources 6
Statement of Custodial Activity 7
Notes to Financial Statements 8
Note 1. Summary of Significant Accounting Policies 8-17
Note 2. Fund Balance with Treasury (FBWT) 17-18
Note 3. Cash and Other Monetary Assets 18
Note 4. Investments 18
Note 5. Accounts Receivable, Net 19
Note 6. Other Assets 19
Note 7. Loans Receivable, Net 19-20
Note 8. Accounts Payable and Accrued Liabilities 21
Note 9. General Property, Plant and Equipment, Net 21
Note 10. Debt Due to Treasury 21
Note 11. Stewardship Land 22
Note 12. Custodial Liability 22
Note 13. Other Liabilities 23
Note 14. Leases 24
Note 15. FECA Actuarial Liabilities 25
Note 16 Superfund Cash out Advances 25
Note 17. Commitments and Contingencies 25-26
Note 18. Funds from Dedicated Collections 27-30
Note 19. Intragovernmental Costs and Exchange Revenue 31
Note 20. Cost of Stewardship Land 31
Note 21. Environmental Cleanup Costs 32
Note 22. State Credits 33
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Note 23. Preauthorized Mixed Funding Agreements 33
Note 24. Custodial Revenues and Accounts Receivable 33
Note 25. Reconciliation of President's Budget to
Statement of Budgetary Resources 34
Note 26. Recoveries and Resources Not Available,
Statement of Budgetary Resources 34
Note 27. Unobligated Balances Available 34
Note 28. Undelivered Orders at the End of the Period 34
Note 29. Offsetting Receipts 35
Note 30. Transfers-In and Out, Statement of Changes in Net Position 35
Note 31. Imputed Financing 36
Note 32. Payroll and Benefits Payable 36
Note 33. Other Adjustments, Statement of Changes in Net Position 37
Note 34. Non-exchange Revenue, Statement of Changes in Net Position 37
Note 35. Reconciliation of Net Cost of Operations to Budget 38
Note 36. Amounts Held By Treasury (Unaudited) 39-41
Note 37. Miscellaneous Receipts Act Violations and
Potential Anti-deficiency Act Violations 42-43
Note 38. Other Information 43
Required Supplementary Information (Unaudited) 44
Deferred Maintenance 44-47
Stewardship Land 47
Supplemental Combined Statement of Budgetary Resources 48
Required Supplementary Stewardship Information (Unaudited) 49
Investment in the Nation's Research and Development 49
Investment in the Nation's Infrastructure 50
Human Capital 51
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Principal Financial Statements:
United States Environmental Protection Agency
CONSOLIDATED BALANCE SHEET
As of September 30, 2016 and 2015
(Dollars in Thousands)
FY 2016
FY 2015
Assets:
Intragovernmental:
Fund Balance With Treasury (Note 2)
$
8,341,156 $
8,646,354
Investments (Note 4)
5,308,734
5,738,556
Accounts Receivable, Net (Note 5)
7,210
10,688
Other (Note 6)
206,693
216,802
Total Intragovernmental
13,863,793
14,612,400
Cash and Other Monetary Assets (Note 3)
10
10
Accounts Receivable, Net (Note 5)
486,814
415,757
Loans Receivable, Net - Non-Federal (Note 7)
-
337
Property, Plant & Equipment, Net (Note 9)
1,041,200
1,054,915
Other (Note 6)
7,074
6,842
Total Assets
$
15,398,891 $
16,090,261
Stewardship PP& E (Note 11)
Liabilities:
Intragovernmental:
$
Accounts Payable and Accrued Liabilities (Note 8)
73,891 $
67,037
Debt Due to Treasury (Note 10)
-
38
Custodial Liability (Note 12)
42,579
35,067
Other (Notes 13)
82,412
86,998
Total Intragovernmental
198,882
189,140
Accounts Payable & Accrued Liabilities (Note 8)
521,056
529,977
Pensions & Other Actuarial Liabilities (Note 15)
45,037
46,166
Environmental Cleanup Costs (Note 21)
36,103
36,165
Cashout Advances, Superfund (Note 16)
3,264,224
3,322,735
Commitments & Contingencies (Note 17)
-
901
Payroll & Benefits Payable (Note 32)
210,797
195,615
Other (Note 13)
425,621
409,793
Total Liabilities
$
4,701,720 $
4,730,492
Net Position:
Unexpended Appropriations - Funds from Dedicated Collections (Note 18)
4,080
16,579
Unexpended Appropriations - Other Funds
7,263,400
7,783,251
Cumulative Results of Operations - Funds from Dedicated Collections (Note 18)
2,577,360
2,776,111
Cumulative Results of Operations - Other Funds
852,331
783,828
Total Net Position
10,697,171
11,359,769
Total Liabilities and Net Position
$
15,398,891 $
16,090,261
The accompanying notes are an integral part of these financial statements.
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United States Environmental Protection Agency
CONSOLIDATED STATEMENT OF NET COST
For the Fiscal Years Ended September 30, 2016 and 2015
(Dollars in Thousands)
Costs:
Gross Costs (Note 19)
Less:
Earned Revenue (Note 19)
Net cost of operations (notes 25 and 35)
FY 2016 FY 2015
$ 9,176,572 $ 9,512,628
448,388 775,606
$ 8,728,184 $ 8,737,022
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The accompanying notes are an integral part of these financial statements.
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United States Environmental Protection Agency
STATEMENT OF NET COST BY MAJOR PROGRAM
For the Fiscal Year Ended September 30, 2016
(Dollars in Thousands)
Environ.
Programs
& Mgmt.
Leaking
Underground
Storage Tanks
Science &
Technology
Superfund
State and
Tribal
Assistance
Agreements
Other
Consolidated
Totals
Costs:
Intragovernmental
With the Public
$ 942,545
1,764,864
4,820
95,761
195,740
596,663
65,405
1,147,693
57,263
3,927,269
65,317
313,132
1,331,090
7,845,482
Total Costs
$ 2,707,409
100,581
792,403
1,213,098
3,984,632
378,449
9,176,572
Less:
Earned Revenue, Federal
Earned Revenue, non-
Federal
$ 29,960
1,575
-
7,217
1,084
43,894
302,087
-
22,933
39,638
104,004
344,384
Total Earned Revenue (Note
19)
31,535
8,301
345,981
62,571
448,338
Net Cost of Operations
S 2,675,874
100,581
784,102
867,117
3,984,632
315,878
8,728,184
United States Environmental Protection Agency
STATEMENT OF NET COST BY MAJOR PROGRAM
For the Fiscal Year Ended September 30, 2015
(Dollars in Thousands)
. Leaking State and
Environ. Underground Tribal
Programs Storage Science & Assistance
& Mgmt. Tanks Technology Superfund Agreements
Other
Consolidated
Totals
Costs:
Intragovernmental $
With the Public
861,034
1,945,883
5,763
92,508
188,337
582,449
269,064
1,068,955
71,070
4,231,828
(113,862)
309,599
1,281,406
8,231,222
Total Costs $
2,806,917
98,271
770,786
1,338,019
4,302,898
195,737
9,512,628
Less:
Earned Revenue, Federal $
Earned Revenue, non-
Federal
26,765
29,489
-
6,529
1,323
6,760
627,421
-
36,812
40,507
76,866
698,740
Total Earned Revenue
(Note 19)
56,254
.
7,852
634,181
.
77,319
775,606
Net Cost of Operations S
2,750,663
98,271
762,934
703,838
4,302,898
118,418
8,737,022
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The accompanying notes are an integral part of these financial statements.
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United States Environmental Protection Agency
COMBINING STATEMENT OF CHANGES IN NET POSITION
For the Fiscal Year Ended September 30, 2016
(Dollars
in
Thousands)
FY 2016 Funds
FY 2016
FY 2016
from Dedicated
All Other
Consolidated
Collections
Funds
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
$
2,776,112
783,828
3,559,940
Adjustment:
(a) Changes in Accounting (Note 1)
-
-
-
(b) Correction (Note 1)
-
-
-
Beginning Balances, as Adjusted
2,776,112
783,828
3,559,940
Budgetary Financing Sources:
Appropriations Used
1,807
8,263,715
8,265,522
Non-exchange Revenue - Securities Invest. (Note 34)
38,303
-
38,303
Non-exchange Revenue - Other (Note 34)
231,305
-
231,305
Transfers In/Out (Note 30)
(9,600)
28,789
19,189
Trust Fund Appropriations
711,684
(811,684)
(100,000)
Other
-
-
-
Total Budgetary Financing Sources
973,499
7,480,820
8,454,319
Other Financing Sources (Non-Exchange)
Transfers In/Out (Note 30)
-
-
-
Imputed Financing Sources (Note 31)
23,954
119,663
143,617
Total Other Financing Sources
23,954
119,663
143,617
Net Cost of Operations
(1,196,204)
(7,531,980)
(8,728,184)
Net Change
(198,751)
68,503
(130,248)
Cumulative Results of Operations
$
2,577,361
852,331
3,429,692
FY 2016 Funds
FY 2016
FY 2016
from Dedicated
All Other
Consolidated
Collections
Funds
Total
Unexpended Appropriations:
Net Position - Beginning of Period
$
16,579
7,783,251
7,799,830
Beginning Balances, as Adjusted
16,579
7,783,251
7,799,830
Budgetary Financing Sources:
Appropriations Received
3,674
7,783,578
7,787,252
Appropriations Transferred In/Out (Note 31)
(13,294)
12,716
(577)
Other Adjustments (Note 33)
(1,072)
(52,429)
(53,501)
Appropriations Used
(1,807)
(8,263,716)
(8,265,522)
Total Budgetary Financing Sources
(12,499)
(519,851)
(532,350)
Total Unexpended Appropriations
4,080
7,263,400
7,267,482
Total Net Position
$
2,581,442
8,115,732
10,697,174
The accompanying notes are an integral part of these financial statements.
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United States Environmental Protection Agency
COMBINING STATEMENT OF CHANGES IN NET POSITION
For the Fiscal Year Ended September 30, 2015
(Dollars in Thousands)
FY 2015
Funds from
FY 2015
FY 2015
Dedicated
All Other
Consolidated
Collections
Funds
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
$ 3,642,573
929,540
4,572,113
Adjustment:
(a) Changes in Accounting (Note 1)
(1,261,097)
-
(1,261,097)
(b) Correction (Note 1)
(9,420)
-
(9,420)
Beginning Balances, as Adjusted
2,372,056
929,540
3,301,596
Budgetary Financing Sources:
Appropriations Used
(2,109)
8,616,081
8,613,972
Non-exchange Revenue - Securities Invest. (Note 34)
26,707
-
26,707
Non-exchange Revenue - Other (Note 34)
203,384
3
203,387
Transfers In/Out (Note 30)
(10,208)
28,253
18,045
Trust Fund Appropriations
981,089
(981,089)
-
Other
(1,044)
12
(1,032)
Total Budgetary Financing Sources
1,197,819
7,663,260
8,861,079
Other Financing Sources (Non-Exchange)
Transfers In/Out (Note 30)
29
(29)
-
Imputed Financing Sources (Note 31)
23,596
110,691
134,287
Total Other Financing Sources
23,625
110,662
134,287
Net Cost of Operations
(817,388)
(7,919,634)
(8,737,022)
Net Change
404,056
(145,712)
258,344
Cumulative Results of Operations
$ 2,776,112
783,828
3,559,940
FY 2015
Funds from
FY 2015
FY 2015
Dedicated
All Other
Consolidated
Collections
Funds
Total
Unexpended Appropriations:
Net Position - Beginning of Period
$ (2,497)
8,508,269
8,505,772
Beginning Balances, as Adjusted
(2,497)
8,508,269
8,505,772
Budgetary Financing Sources:
Appropriations Received
3,674
7,958,419
7,962,093
Appropriations Transferred In/Out (Note 31)
13,293
(13,293)
-
Other Adjustments (Note 33)
-
(54,063)
54,063
Appropriations Used
2,109
(8,616,081)
(8,613,972)
Total Budgetary Financing Sources
19,076
(725,018)
(705,942)
Total Unexpended Appropriations
16,579
7,783,251
7,799,830
Total Net Position
$ 2,792,690
8,567,079
11,359,769
The accompanying notes are an integral part of these financial statements.
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United States Environmental Protection Agency
COMBINING STATEMENT OF BUDGETARY RESOURCES
For the Fiscal Years Ended September 30, 2016 and 2015
(Dollars in Thousands)
FY 2016 FY 2015
Budgetary Resources
Unobligated balance, brought forward, October 1: $ 4,350,630 $ 2,963,076
Adjustment to unobligated balance brought forward, 961
Unobligated Balance Brought Forward, October 1, as adjusted 4,351,591
Recoveries of prior year unpaid obligations (Note 26) 234,361 227,283
Other changes in unobligated balance (13,622) (15,107)
Unobligated balance from prior year budget authority, net 4,572,330 3,175,252
Appropriations (discretionary and mandatory) 9,096,422 10,560,343
Borrowing Authority (discretionary and mandatory) - 290
Spending Authority from offsetting collection (discretionary and mandatory) 610,181 738,244
Total Budgetary Resources $ 14,278,933 $ 14,474,129
Status of budgetary resources
New obligations and upward adjustments (total) $ 10,036,882 $ 10,123,499
Unobligated Balance, end of year:
Apportioned, unexpired accounts 4,086,727 4,242,190
Unapportioned, unexpired accounts 36,008 108,440
Unobligated balance, end of period (total) (Note 27) 4,122,735 4,350,630
Expired unobligated balance, end of year 119,316
Total Status of Budgetary Resources $ 14,278,933 $ 14,474,129
Change in obligated balance Unpaid Obligations
Unpaid Obligations:
Unpaid obligations, brought forward, October 1 (gross)
$ 9,104,831
$ 9,692,881
New obligations and upward adjustments
10,036,882
10,123,499
Outlays (gross)
(10,212,494)
(10,484,265)
Recoveries of prior year unpaid obligations
(234,361)
(227,283)
Unpaid obligations, end of year (gross)
8,694,858
9,104,832
Uncollected Payments:
Uncollected customer payments from Fed. Sources, brought forward, October 1)
(235,529)
(259,642)
Change in uncollected customer payments from Federal sources
(13,111)
24,113
Uncollected customer payments from Federal Sources, end of year
(248,640)
(235,529)
Memorandum entries:
Obligated balance, start of year
$ 8,869,302
$ 9,433,183
Obligated balance, end of year (net)
$ 8,446,218
$ 8,869,303
Judgct authority and outlays, net
Budget authority, gross (discretionary and mandatory)
$ 9,706,603
$ 11,298,877
Actual offsetting collections (discretionary and mandatory)
(597,070)
(762,357)
Change in uncollected cust. Payments from Fed sources (discretionary &
mandatory)
(13,111)
24,113
Budget Authority, net (discretionary and mandatory)
$ 9,096,422
$ 10,560,633
Outlays, gross (discretionary and mandatory)
10,212,494
10,484,265
Actual offsetting collections (discretionary and mandatory)
(597,070)
(762,357)
Outlays, net (discretionary and mandatory)
9,615,424
9,721,908
Distributed offsetting receipts (Note 29)
(886,453)
(2,716,279)
Agency outlays, net (discretionary and mandatory)
$ 8,728,971
$ 7,005,629
The accompanying notes are an integral part of these financial statements.
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United States Environmental Protection Agency
STATEMENT OF CUSTODIAL ACTIVITY
For the Fiscal Years Ended September 30, 2016 and 2015
(Dollars in Thousands)
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties
Other
Total Cash Collections
Accrual Adjustment
Total Custodial Revenue (Note 24)
Disposition of Collections:
Transferred to Others (General Fund)
Increases/Decreases in Amounts Yet to be Transferred
Total Disposition of Collections
Net Custodial Revenue Activity
FY 2016
95,473
(4,333)
91,140
7,786
98,926
91,140
7,786
98,926
FY 2015
198,087
56,334
254,421
(60,173)
194,248
254,423
(60,174)
194,248
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The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Notes to the Financial Statements
Fiscal Year Ended September 30, 2016 and September 30, 2015
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Reporting Entities
The EPA was created in 1970 by executive reorganization from various components of other federal agencies to
better marshal and coordinate federal pollution control efforts. The agency is generally organized around the
media and substances it regulates - air, water, hazardous waste, pesticides, and toxic substances.
The FY 2016 financial statements are presented on a consolidated basis for the Balance Sheet, Statements of
Net Cost, and Custodial Activity, and a combined basis for the Statements of Changes in Net Position and
Budgetary Resources. These financial statements include the accounts of all funds described in this note by their
respective Treasury fund group.
B. Basis of Presentation
These accompanying financial statements have been prepared to report the financial position and results of
operations of the U. S. Environmental Protection Agency (EPA or agency) as required by the Chief Financial
Officers Act of 1990 and the Government Management Reform Act of 1994. The reports have been prepared
from the financial system and records of the Agency in accordance with Office of Management and Budget
(OMB) Circular No. A-136, Financial Reporting Requirements, and the EPA accounting policies, which are
summarized in this note. The Statement of Net Cost has been prepared with cost segregated by the agency's
major programs.
C. Budgets and Budgetary Accounting
I. General Funds
Congress enacts an annual appropriation for State and Tribal Assistance Grants (STAG), Buildings and
Facilities (B&F), and for Payments to the Hazardous Substance Superfund to be available until expended, as
well as annual appropriations for Science and Technology (S&T), Environmental Programs and Management
(EPM) and for the Office of Inspector General (OIG) to be available for two fiscal years. When the
appropriations for the General Funds are enacted, Treasury issues a warrant for the respective appropriations.
As the agency disburses obligated amounts, the balance of funds available to the appropriation is reduced at
U.S. Treasury (Treasury).
The EPA's Fiscal Year 2014 Appropriation Act established a new three-year appropriation account to provide
funds to carry out section 3024 of the Solid Waste Disposal Act, including the development, operation,
maintenance, and upgrading of the hazardous waste electronic manifest system. The Agency is authorized to
establish and collect user fees for this account that will be used for the electronic manifest system.
The Asbestos Loan Program is a commercial activity financed from a combination of two sources, one for the
long-term costs of the loans and another for the remaining non-subsidized portion of the loans. Congress
adopted a one-year appropriation, available for obligation in the fiscal year for which it was appropriated, to
cover the estimated long-term cost of the asbestos loans. The long-term costs are defined as the net present
value of the estimated cash flows associated with the loans. The portion of each loan disbursement that did not
represent long-term cost is financed under permanent indefinite borrowing authority established with the
Treasury. A permanent indefinite appropriation is available to finance the costs of subsidy re-estimates that
occur in subsequent years after the loans were disbursed.
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Funds transferred from other federal agencies are processed as non-expenditure transfers. As the Agency
disburses the obligated amounts, the balance of funding available to the appropriation is reduced at the U.S.
Treasury.
Clearing accounts and receipt accounts receive no appropriated funds. Amounts are recorded to the clearing
accounts pending further disposition. Amounts recorded to the receipt accounts capture amounts collected for or
payable to the Treasury General Fund.
II. Revolving Funds
Funding of the Reregi strati on and Expedited Processing Fund (FIFRA) and Pesticide Registration Funds
(PRIA) is provided by fees collected from industry to offset costs incurred by the agency in carrying out these
programs. Each year the agency submits an apportionment request to OMB based on the anticipated collections
of industry fees.
Funding of the Working Capital Fund (WCF) is provided by fees collected from other Agency appropriations
and other federal agencies to offset costs incurred for providing the agency administrative support for computer
and telecommunication services, financial system services, employee relocation services, background
investigations, conference planning and postage.
III. Special Funds
The Environmental Services Receipt Account obtains fees associated with environmental programs. Exxon
Valdez Settlement Fund uses funding collected from reimbursement from the Exxon Valdez settlement. The
Natural Resource Damages Trust Fund was established for funds received for critical damage assessments and
restoration of natural resources injured as a result of the Deepwater Horizon oil spill.
IV. Deposit Funds
Deposit accounts receive no appropriated funds. Amounts are recorded to the deposit accounts pending further
disposition. Until determination is made, these are not EPA's funds. The amounts are reported to the US
Treasury through the Government-wide Treasury Account Symbol Adjusted Trial Balance System (GTAS).
V. Trust Funds
Congress enacts an annual appropriation amount for the Superfund, Leaking Underground Storage Tank
(LUST) and the Inland Oil Spill Programs Accounts to remain available until expended. Transfer accounts for
the Superfund and LUST Trust Funds have been established for purposes of carrying out the program activities.
As the agency disburses obligated amounts from the transfer account, the agency draws down monies from the
Superfund and LUST Trust Funds at Treasury to cover the amounts being disbursed. The agency draws down
all the appropriated monies from the Principal Fund of the Oil Spill Liability Trust Fund when Congress enacts
the Inland Oil Spill Programs appropriation amount to the EPA's Inland Oil Spill Programs account.
In 2015 EPA established a new receipt account for Superfund special account collections. This allows the
Agency to invest the funds until draw down is needed for special accounts disbursements.
D. Basis of Accounting
Generally Accepted Accounting Principles (GAAP) for federal entities is the standard prescribed by the Federal
Accounting Standards Advisory Board (FASAB), which is the official standard-setting body for the Federal
Government and the American Institute of Certified Public Accountants (AICPA). The financial statements are
prepared in accordance with GAAP for federal entities.
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Transactions are recorded on an accrual accounting basis and on a budgetary basis (where budgets are issued).
Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is
incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates compliance with legal
constraints and controls over the use of federal funds posted in accordance with Office of Management and
Budget (OMB) directives and the Treasury regulations.
EPA uses a modified matching principle since federal entities recognize unfunded (without budgetary
resources) liabilities in accordance with FASAB Statement of Federal Financial Accounting Standards (SFFAS)
No. 5 "Accounting for Liabilities of the Federal Government."
E. Revenues and Other Financing Sources
The following EPA policies and procedures to account for inflow of revenue and other financing sources are in
accordance with SFFAS No. 7, "Accounting for Revenues and Other Financing Sources."
I. 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, state cost share payments
under Superfund State Contracts (SSCs), and settlement proceeds from Potentially Responsible Parties (PRPs)
under Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Section 122(b)(3)
placed in to special accounts. Special Accounts and corresponding interest are classified as mandatory
appropriations due to the 'retain and use' authority under CERCLA 122(b) (3). Cost recovery settlements that
are not placed in special accounts continue to be deposited in the Superfund Trust Fund.
II. Special Accounts Funds Accounting Process Change
Below is a summary of the accounting process changes the agency made in FY 2015 and their impact.
a) In FY 2015 the agency developed a new business process for managing its special accounts funds. The
agency moved the Anadarko settlement collections to the Superfund Trust Fund to invest in U.S.
Government Securities. A summary of the Anadarko settlement is provided below in paragraph X of this
Note 1. This change impacted the budgetary accounts (U.S. Standard General Ledger Accounts-
Authority Resources from Invested Balances and Unfilled Customer Order Collected). The impact is
shown on Statement of Budgetary Resources lines "Appropriations" and "Spending Authority from
Offsetting Collections" as follows:
i. Appropriations (Mandatory) increased by $1.4 Billion.
ii. Spending Authority from Offsetting Collections was not used to record the Anadarko collection.
b) For collections in prior years, except for the Anadarko settlement, which is approximately $1.4 Billion,
the funds were treated as Reimbursable Authority and are shown on Statement of Budgetary Resources
line "Spending Authority from Offsetting Collections."
c) The summary of investments in U.S. Government Securities is provided below in paragraph G of this
Note 1.
d) Prior to FY2015, the Agency recorded special accounts funds proceeds as earned and/or unearned
revenue to account for past and prospective cleanup activities based on the consent decree. Effective FY
2016, the Agency changed its accounting treatment to record special accounts funds settlement proceeds
as unearned revenue after determining that collections previously recorded as past costs were being used
for future site cleanup. EPA reclassified $1.1 Billion from equity to unearned in fiscal year 2015 to
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reflect this change in accounting. In FY2016, EPA collected an additional $290 million in past costs that
was classified as unearned revenue, intended for future site cleanups.
III. Other Funds
Most of the other funds, including those under the Credit Reform Act of 1990, receive program guidance and
funding needed to support loan programs through appropriations which may be used within statutory limits for
operating and capital expenditures. The Asbestos Direct Loan Financing fund 4322 receives additional funding
to support the outstanding loans through collections from the Program fund 0118 for the subsidized portion of
the loan.
The FIFRA and PRIA funds receive funding through fees collected for services provided and interest on
invested funds. The WCF receives revenue through fees collected for services provided to the agency program
offices. Such revenue is eliminated with related Agency program expenses upon consolidation of the agency's
financial statements. The Exxon Valdez Settlement Fund receives funding through reimbursements.
Appropriated funds are recognized as Other Financing Sources expended when goods and services have been
rendered without regard to payment of cash. Other revenues are recognized when earned (i.e., when services
have been rendered).
F. Funds with the Treasury
The agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements are handled
by Treasury. The major funds maintained with Treasury are Appropriated Funds, Revolving Funds, Trust
Funds, Special Funds, Deposit Funds, and Clearing Accounts. These funds have balances available to pay
current liabilities and finance authorized obligations, as applicable.
G. Investments in U.S. Government Securities
Investments in U.S. Government securities are maintained by Treasury and are reported at amortized cost net of
unamortized discounts. Discounts are amortized over the term of the investments and reported as interest
income. No provision is made for unrealized gains or losses on these securities because, in the majority of
cases, they are held to maturity (see Note 4).
H. Notes Receivable
The Agency records notes receivable at their face value and any accrued interest as of the date of receipt.
I. Marketable Securities
The agency records marketable securities at cost as of the date of receipt. Marketable securities are held by
Treasury and reported at their cost value in the financial statements until sold (see Note 4).
J. Accounts Receivable and Interest Receivable
The majority of receivables for non-Superfund funds represent penalties and interest receivable for general fund
receipt accounts, unbilled intragovernmental reimbursements receivable, allocations receivable from Superfund
(eliminated in consolidated totals), and refunds receivable for the STAG appropriation.
Superfund accounts receivable represent recovery of costs from PRPs as provided under CERCLA as amended
by Superfund Amendments and Reauthorization Act of 1986 (SARA). Since there is no assurance that these
funds will be recovered, cost recovery expenditures are expensed when incurred (see Note 5).
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The agency records accounts receivable from PRPs for Superfund site response costs when a consent decree,
judgment, administrative order, or settlement is entered. These agreements are generally negotiated after at least
some, but not necessarily all, of the site response costs have been incurred. It is the agency's position that until a
consent decree or other form of settlement is obtained, the amount recoverable should not be recorded.
The agency also records accounts receivable from states for a percentage of Superfund site remedial action costs
incurred by the agency within those states. As agreed to under SSCs, cost sharing arrangements may vary
according to whether a site was privately or publicly operated at the time of hazardous substance disposal and
whether the Agency response action was removal or remedial. SSC agreements are usually for 10 percent or 50
percent of site remedial action costs, depending on who has the primary responsibility for the site (i.e., publicly
or privately owned). States may pay the full amount of their share in advance or incrementally throughout the
remedial action process.
K. Advances and Prepayments
Advances and prepayments represent funds paid to other entities both internal and external to the agency for
which a budgetary expenditure has not yet occurred.
L. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. Loans receivable resulting from
obligations on or before September 30, 1991, are reduced by the allowance for uncollectible loans. Loans
receivable resulting from loans obligated on or after October 1, 1991, are reduced by an allowance equal to the
present value of the subsidy costs associated with these loans. The subsidy cost is calculated based on the
interest rate differential between the loans and Treasury borrowing, the estimated delinquencies and defaults net
of recoveries offset by fees collected and other estimated cash flows associated with these loans.
M. Appropriated Amounts Held by Treasury
Cash available to the agency that is not needed immediately for current disbursements of the Superfund and
LUST Trust Funds and amounts appropriated from the Superfund Trust Fund to the OIG, remains in the
respective Trust Funds managed by Treasury.
N. Property, Plant, and Equipment
EPA accounts for its personal and real property accounting records in accordance with SFFAS No. 6,
"Accounting for Property, Plant and Equipment" as amended. For EPA-held property, the Fixed Assets
Subsystem (FAS) maintains the official records and automatically generates depreciation entries monthly based
on in-service dates.
A purchase of EPA-held or contract personal property is capitalized if it is valued at $25 thousand or more and
has an estimated useful life of at least two years. For contractor held property, depreciation is taken on a
modified straight-line basis over a period of six years depreciating 10 percent the first and sixth year, and 20
percent in years two through five. Detailed records are maintained and accounted for in contractor systems, not
in FAS for contractor-held property. Acquisitions of EPA-held personal property are depreciated using the
straight-line method over the specific asset's useful life, ranging from two to 15 years.
Personal property also consists of capital leases. To be defined as a capital lease, it must, at its inception, have a
lease term of two or more years and the lower of the fair value or present value of the projected minimum lease
payments must be $75 thousand or more. Capital leases may also contain real property (therefore considered in
the real property category as well), but these need to meet an $85 thousand capitalization threshold. In addition,
the lease must meet one of the following criteria: transfers ownership at the end of the lease to the EPA;
contains a bargain purchase option; the lease term is equal to 75 percent or more of the estimated economic
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service life; or the present value of the projected cash flows of the lease and other minimum lease payments is
equal to or exceeds 90 percent of the fair value. As of January 30, 2016, EPA's last capital lease ended.
Superfund contract property used as part of the remedy for site-specific response actions is capitalized in
accordance with the agency's capitalization threshold. This property is part of the remedy at the site and
eventually becomes part of the site itself. Once the response action has been completed and the remedy
implemented, the EPA retains control of the property (i.e., pump and treat facility) for 10 years or less, and
transfers its interest in the facility to the respective state for mandatory operation and maintenance - usually 20
years or more. Consistent with the EPA's 10 year retention period, depreciation for this property is based on a
10 year life. However, if any property is transferred to a state in a year or less, this property is charged to
expense. If any property is sold prior to EPA relinquishing interest, the proceeds from the sale of that property
shall be applied against contract payments or refunded as required by the Federal Acquisition Regulations.
An exception to the accounting of contract property includes equipment purchased by the WCF. This property
is retained in FAS, depreciated utilizing the straight-line method based upon the asset's in-service date and
useful life and is reflected on the WCF statements.
Real property consists of land, buildings, capital and leasehold improvements and capital leases. Real property,
other than land, is capitalized when the value is $85 thousand or more. Land is capitalized regardless of cost.
Buildings are valued at an estimated original cost basis, and land is valued at fair market value if purchased
prior to FY 1997. Real property purchased after FY 1996 is valued at actual cost. Depreciation for real property
is calculated using the straight-line method over the specific asset's useful life, ranging from 10 to 102 years.
Leasehold improvements are amortized over the lesser of their useful life or the unexpired lease term. Additions
to property and improvements not meeting the capitalization criteria, expenditures for minor alterations, and
repairs and maintenance are expensed when incurred.
Software for the WCF, a revenue generating activity, is capitalized if the purchase price is $100 thousand or
more with an estimated useful life of two years or more. All other funds capitalize software if those investments
are considered Capital Planning and Investment Control (CPIC) or CPIC Lite systems with the provisions of
SFFAS No. 10, "Accounting for Internal Use Software." Once software enters the production life cycle phase, it
is depreciated using the straight-line method over the specific asset's useful life ranging from two to five years.
O. Liabilities
Liabilities represent the amount of monies or other resources that are more likely than not to be paid by the
agency as the result of an agency transaction or event that has already occurred and can be reasonably
estimated. However, no liability can be paid by the agency without an appropriation or other collections
authorized for retention. Liabilities for which an appropriation has not been enacted are classified as unfunded
liabilities and there is no certainty that the appropriations will be enacted. Liabilities of the agency arising from
other than contracts can be abrogated by the Government acting in its sovereign capacity.
P. Borrowing Payable to the Treasury
Borrowing payable to Treasury results from loans from Treasury to fund the Asbestos direct loans. Periodic
principal payments are made to Treasury based on the collections of loans receivable.
Q. Interest Payable to Treasury
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt.
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R. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Sick leave earned but not taken is not
accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is accrued as an
unfunded liability. Accrued unfunded annual leave is included in Note 32 as a component of "Payroll and
Benefits Payable."
S. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to January 1, 1987,
may participate in the Civil Service Retirement System (CSRS). On January 1, 1987, the Federal Employees
Retirement System (FERS) went into effect pursuant to Public Law 99-335. Most employees hired after
December 31, 1986, are automatically covered by FERS and Social Security. Employees hired prior to January
1, 1987, elected to either join FERS and Social Security or remain in CSRS. A primary feature of FERS is that
it offers a savings plan to which the Agency automatically contributes one percent of pay and matches any
employee contributions up to an additional four percent of pay. The Agency also contributes the employer's
matching share for Social Security.
With the issuance of SFFAS No. 5, "Accounting for Liabilities of the Federal Government," accounting and
reporting standards were established for liabilities relating to the federal employee benefit programs
(Retirement, Health Benefits, and Life Insurance). SFFAS No. 5 requires that the employing agencies recognize
the cost of pensions and other retirement benefits during their employees' active years of service. SFFAS No. 5
requires that the Office of Personnel Management (OPM), as administrator of the CSRS and FERS, the Federal
Employees Health Benefits Program, and the Federal Employees Group Life Insurance Program, provide
federal agencies with the actuarial cost factors to compute the liability for each program.
T. Prior Period Adjustments
Prior period adjustments, if any, are made in accordance with SFFAS No. 21, "Reporting Corrections of Errors
and Changes in Accounting Principles." Specifically, prior period adjustments will only be made for material
prior period errors to: (1) the current period financial statements, and (2) the prior period financial statements
presented for comparison. Adjustments related to changes in accounting principles will only be made to the
current period financial statements, but not to prior period financial statements presented for comparison.
EPA received updated information in early FY 2015 from the Bureau of Fiscal Service related to excise taxes
collected in FY 2014 on behalf of the Leaking Underground Storage Tank Trust Fund. This necessitated an
adjustment to beginning Net Position.
U. Recovery Act Funds
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009
(Recovery Act). The Act was enacted to create jobs in the United States, encourage technical advances, assist in
modernizing the nation's infrastructure, and enhance energy independence. The EPA was charged with the task
of distributing funds to invest in projects aimed at creating advances in science, health, and environmental
protection that will provide long-term economic benefits.
The EPA managed almost $7.22 billion in Recovery Act funded projects and programs to achieve these goals,
offered resources to help other "green" agencies, and administered environmental laws that governed Recovery
activities.
As of September 30, 2016, EPA expended over $7.1 billion, with $2.1 million de-obligated and returned to
Treasury. The EPA, in collaboration with states, tribes, local governments, territories and other partners,
administered the funds it received under the Recovery Act through four appropriations. The funds include:
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a) $6.4 billion for State and Tribal Assistance Grants (STAG) that in turn include:
I. $4 billion for assistance to help communities with water quality and wastewater infrastructure
needs and $2 billion for drinking water infrastructure needs (Clean Water and Drinking Water
State Revolving Fund programs and Water Quality Planning program).
II. $2 billion for drinking water state revolving fund (DWSRF).
III. $100 million for competitive grants to evaluate and clean up former industrial and commercial
sites (Brownfields program).
IV. $300 million for grants and loans to help regional, state and local governments, tribal agencies,
and non-profit organizations with projects that reduce diesel emissions (Clean Diesel programs).
(b) $600 million for the cleanup of hazardous sites (Superfund program);
(c) $200 million for cleanup of petroleum leaks from underground storage tanks (Leaking Underground
Storage Tank program); and
(d) $20 million for audits and investigations conducted by the Inspector General (IG).
The vast majority of the contracts awarded under the Recovery Act used competitive contracts. The EPA
remains committed to ensuring transparency and accountability in spending Recovery Act funds in accordance
with OMB guidance.
An EPA Stimulus Steering Committee directed EPA's Recovery Act management and guided transparency
efforts. EPA's Stewardship Plan laid out the agency's risk mitigation plan, including risk assessment, internal
controls and monitoring activities. The Stewardship Plan was divided into seven functional areas: grants,
interagency agreements, contracts, human capital/payroll, budget execution, performance reporting and
financial reporting. The Plan was developed based on Government Accountability Office (GAO) standards for
internal control. Under each functional area, risks were assessed and related control, communication and
monitoring activities identified for each program. The Plan was updated based on OMB guidance.
EPA has the three-year EPM treasury account symbol 6809/110108 that was established to track the appropriate
operation and maintenance of the funds. EPA's other Recovery Act programs are the following: Office of
Inspector General (IG), treasury symbol 6809/120113; State and Tribal Assistance Grants, treasury symbol
6809/100102; Payment to the Superfund, treasury symbol 6809/100249; Superfund, treasury account symbol
6809/108195; and Leaking Underground Storage Tank, treasury account symbol 6809/108196. Please note
almost all of these programs are now closed with only a few remaining projects remaining open - primarily for
long term rate adjustments and trailing costs.
V. Deepwater Horizon Oil Spill
On April 20, 2010, the Deepwater Horizon drilling rig exploded, releasing large volumes of oil into the Gulf of
Mexico. As a responsible party, BP is required by the 1990 Oil Pollution Act to fund the cost of the response
and cleanup operations. On September 10, 2012, the President designated EPA and USDA as additional trustees
for the Natural Resource Damage and Assessment Council for restoration solely conjunction with injury to,
destruction of, loss of, or loss of the use of natural resources, including their supporting ecosystems, resulting
from the Deepwater Horizon Oil Spill. In FY 2016, EPA received an advance of $184,000 from BP and $2,056
million from the U.S. Coast Guard, to participate in addressing injured natural resources and service resulting
from the Deepwater Horizon Oil Spill.
On October 5, 2015, the United States and the five Gulf states announced a settlement with BP to resolve civil
claims against BP arising from the April 20, 2010 well blowout and oil spill. The proposed settlement resolves
the governments' civil claims under the CWA and natural resources damage claims under the Oil Pollution Act,
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as well as economic damage claims of the five Gulf States and local governments. All together this settlement is
worth $20.8 billion. The settlement includes $5.5 billion for federal CWA penalties; 80% of which will go to
restoration efforts in the Gulf region pursuant to the RESTORE Act. The settlement also includes $8.1 billion in
natural resource damages, including $1 billion that BP already committed to pay for early restoration, for joint
use by the federal and state trustees to restore injured resources. The natural resource damages money will fund
Gulf restoration projects that will be selected by the federal and state trustees to meet five restoration goals and
13 restoration project categories, e.g., restoring water quality, reducing nutrients, restoring and conserving
habitat, etc. For more information: Deepwater Horizon at https://www.iustice.gov/enrd/deepwater-horizon
W. Hurricane Sandy
On January 29, 2013, President Obama signed into law the Disaster Relief Appropriations Act (Disaster Relief
Act) which provided aid for Hurricane Sandy disaster victims and their communities. Because relief funding of
this magnitude often carries additional risk, the Disaster Relief Act required federal agencies supporting Sandy
recovery and other disaster-related activities to write and implement and Internal Control Plan to prevent waste,
fraud and abuse of these funds. The EPA Hurricane Sandy Internal Control Plan was reviewed and approved by
OMB, GAO and the IG in FY 2013.
EPA received a post sequestration appropriation of $577 million in Hurricane Sandy funds for the following
programs (all amounts are post sequestration):
a) The Clean Water State Revolving Fund received $475 million for work on clean water infrastructure
projects in New York and New Jersey.
b) The Drinking Water State Revolving Fund received $95 million for work on drinking water
infrastructure projects in New York and New Jersey.
c) The Leaking Underground Storage Tanks program received $4.75 million for work on projects impacted
by Hurricane Sandy.
d) The Superfund program received $1.9 million for work on Superfund sites impacted by Hurricane
Sandy.
e) EPA also received $689,000 to make repairs to EPA facilities impacted by Hurricane Sandy and conduct
additional water quality monitoring.
As of September 30, 2016, EPA obligated $577 million of these funds and expended $ 16.9 million.
X. Anadarko Settlement
On November 10, 2014, the U.S. District Court for the Southern District of New York (SDNY) approved the
historic $5.15 billion settlement agreement that was announced by EPA and the Department of Justice (DOJ) on
April 3, 2014, resolving fraudulent conveyance claims against Kerr-McGee Corporation and related subsidiaries
of Anadarko Petroleum Corporation. The deadline for any appeals from the district court's decision passed on
January 20, 2015, without any appeal being filed. The settlement agreement went into effect on January 21,
2015.
Of the environmental recovery in this settlement, nearly $1.6 billion will help pay for cleanup work associated
with 16 EPA-lead sites. There were new collections of $1.7 million for FY 2016.
Y. Puerto Rico Insolvency
As of October 4, 2016 EPA issued notices of noncompliance to the Puerto Rico Environmental Quality Board
(PREQB), the Puerto Rico Department of Health (PRDOH), the Puerto Rico Infrastructure Financing Authority
(PRIFA), and the Puerto Rico Government Development Bank (GDB) advising that the agencies are not
complying with their obligations to manage and preserve the clean water and drinking water State Revolving
Funds in Puerto Rico properly, separately and in perpetuity. GDB has not been disbursing funds from the
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Revolving Fund accounts to pay for many of the projects that were authorized to receive grants or loans and has
stated it does not have repayment funds available to make payments. Because all or a portion of the
approximately $188 million State Revolving Funds is not currently available for eligible uses it triggers
violations of various requirements of the Clean Water and Safe Drinking Water Acts. The notice of
noncompliance gives PREQB and PRDOH thirty days to submit corrective action plans for approval."
Z. Use of Estimates
The preparation of financial statements requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
AA. Reclassifications
The Statement of Net Cost by major program was reclassified in the prior year in order to conform to the
current year presentation.
Note 2. Fund Balance with Treasury (FBWT)
Fund Balance with Treasury as of September 30, 2016 and September 30, 2015, consists of the following:
Entity
Assets
FY 2016
Non-
Entity
Assets
Total
Entity
Assets
FY 2015
Non-
Entity
Assets
Total
Trust Funds:
Superfund
$ 113,897
-
113,897
$
39,078
-
39,078
LUST
52,354
-
52,354
24,358
-
24,358
Oil Spill & Misc
9,835
-
9,835
7,694
-
7,694
Revolving Funds:
FIFRA/Tolerance
31,654
-
31,654
22,400
-
22,400
Working Capital
116,853
-
116,853
72,238
-
72,238
Cr. Reform Finan.
-
-
-
36
-
36
E-Manifest
5,230
-
5,230
3,411
-
3,411
NRDA
3,027
-
3,027
3,196
-
3,196
Appropriated
7,558,470
-
7,558,470
8,044,387
-
8,044,387
Other Fund Types
444,471
5,355
449,826
419,081
10,475
429,556
Total
$ 8,335,801
5,355
8,341,156
$
8,635,879
10,475
8,646,354
Entity fund balances, except for special fund receipt accounts, are available to pay current liabilities and to
finance authorized purchase commitments (see Status of Fund Balances below). Entity Assets for Other Fund
Types consist of special purpose funds and special fund receipt accounts, such as the Pesticide Registration
funds and the Environmental Services receipt account. The Non-Entity Assets for Other Fund Types consist of
clearing accounts and deposit funds, which are either awaiting documentation for the determination of proper
disposition or being held by EPA for other entities.
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Status of Fund Balances with Treasury:
FY 2016
FY 2015
Unobligated Amounts in Fund Balance:
Available for Obligation
$ 4,086,786 $
4,226,754
Unavailable for Obligation
155,324
108,424
Net Receivables from Invested Balances
(4,826,953)
(4,991,953)
Balances in Treasury Trust Fund (Note 36)
14,268
3,867
Obligated Balance not yet Disbursed
8,446,266
8,851,913
Non-Budgetary FBWT
465,465
447,349
Totals
$ 8,341,156 $
8,646,354
The funds available for obligation may be apportioned by OMB for new obligations at the beginning of the
following fiscal year. Funds unavailable for obligation are mostly balances in expired funds, which are available
only for adjustments of existing obligations. For FY 2016 and FY 2015 no differences existed between
Treasury's accounts and EPA's statements for fund balances with Treasury.
Note 3. Cash and Other Monetary Assets
As of September 30, 2016 and September 30, 2015, the balance in the imprest fund was $10 thousand.
Note 4. Investments
As of September 30, 2016 and September 30, 2015 investments related to Superfund and LUST consist of the
following:
Amortized Interest Market
(Premium) _ . ,, Investments, ., ,
„ , / Receivable .. , Value
Cost Discount Net
Intragovernmental Securities:
Non-Marketable FY 2016 $ 5,298,243 (7,209) 3,282 5,308,734 5,308,734
Non-Marketable FY 2015 $ 5,731,240 (4,278) 3,038 5,738,556 5,738,556
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from
responsible parties (RPs). Some RPs file for bankruptcy under Title 11 of the U.S. Code. In bankruptcy
settlements, EPA is an unsecured creditor and is entitled to receive a percentage of the assets remaining after
secured creditors have been satisfied. Some RPs satisfy their debts by issuing securities of the reorganized
company. The Agency does not intend to exercise ownership rights to these securities, and instead will convert
them to cash as soon as practicable. All investments in Treasury securities are funds from dedicated collections
(see Note 18).
The Federal Government does not set aside assets to pay future benefits or other expenditures associated with
funds from dedicated collections. The cash receipts collected from the public for dedicated collection funds are
deposited in the U.S. Treasury, which uses the cash for general Government purposes. Treasury securities are
issued to EPA as evidence of its receipts. Treasury securities are an asset to EPA and a liability to the U.S.
Treasury. Because EPA and the U.S. Treasury are both parts of the Government, these assets and liabilities
offset each other from the standpoint of the Government as a whole. For this reason, they do not represent an
asset or liability in the U.S. Government-wide financial statements.
Treasury securities provide EPA with authority to draw upon the U.S. Treasury to make future benefit payments
or other expenditures. When EPA requires redemption of these securities to make expenditures, the Government
finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing
from the public or repaying less debt, or by curtailing other expenditures. This is the same way that the
Government finances all other expenditures.
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Note 5. Accounts Receivable, Net
The Accounts Receivable as of September 30, 2016 and September 30, 2015 consist of the following:
FY 2016
FY 2015
Intragovernmental:
Accounts & Interest Receivable
$
8,618
$
11,372
Less: Allowance for Uncollectibles
(1,408)
(684)
Total
$
7,210
$
10,688
Non-Federal:
Unbilled Accounts Receivable
$
150,538
$
124,494
Accounts & Interest Receivable
2,395,903
2,416,585
Less: Allowance for Uncollectibles
(2,059,627)
(2,125,322)
Total
$
486,814
$
415,757
The Allowance for Uncollectible Accounts is determined both on a specific identification basis, as a result of a
case-by-case review of receivables, and on a percentage basis for receivables not specifically identified.
Note 6. Other Assets
Other Assets as of September 30, 2016 and September 30, 2015 consist of the following:
FY 2016
FY 2015
Intragovernmental:
Advances to Federal Agencies
$
206,597
$
216,692
Advances for Postage
96
110
Total
$
206,693
$
216,802
Non-Federal:
Travel Advances
$
187
$
339
Other Advances
6,598
6,121
Inventory for Sale
289
382
Total
$
7,074
$
6,842
Note 7. Loans Receivable, Net
Loans Receivable consists of Asbestos Loan Program loans disbursed from obligations made prior to FY 1992
and are presented net of allowances for estimated uncollectible loans, if an allowance was considered necessary.
Loans disbursed from obligations made after FY 1991 are governed by the Federal Credit Reform Act, which
mandates that the present value of the subsidy costs (i.e., interest rate differentials, interest subsidies, anticipated
delinquencies, and defaults) associated with direct loans be recognized as an expense in the year the loan is
made. The net loan present value is the gross loan receivable less the subsidy present value. The amounts as of
September 30, 2016 and September 30, 2015 are as follows:
Loans
Receivable,
Gross
Direct Loans Obligated Prior to FY $
1992
Direct Loans Obligated After FY
1991 2
Total $
* 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).
FY 2016
Allowance*
Value of
Assets
Related
to Direct
Loans
Loans
Receivable,
Gross
FY 2015
Allowance*
Value of
Assets
Related
to Direct
Loans
337
337
337
337
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Subsidy Expenses for Credit Reform Loans (reported on a cash basis):
Interest Rate Technical
Re-estimate Re-estimate Total
Upward Subsidy Reestimate - FY 2016 $ - - -
Downward Subsidy Reestimate - FY 2016 - - -
FY 2016 Totals $ . .
Upward Subsidy Reestimate - FY 2015
Downward Subsidy Reestimate - FY 2015
FY 2015 Totals
Schedule for Reconciling Subsidy Cost Allowance Balances
(Post-1991 Direct Loans)
FY2016 FY2015
Beginning balance of the subsidy cost allowance $ 337 $ 366
Add: subsidy expense for direct loans disbursed during the - -
reporting years by component:
Interest rate differential costs
Default costs (net of recoveries)
Fees and other collections
Other subsidy costs
Total of the above subsidy expense components 337 366
Adjustments:
Loan Modification
Fees received
Foreclosed property acquired
Loans written off
Subsidy allowance amortization
Other (337) (31)
End balance of the subsidy cost allowance before reestimates - (31)
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate - 2
(b) Technical/default reestimate
Total of the above reestimate components 2_
Ending Balance of the subsidy cost allowance $ $ 337
EPA has not disbursed Direct Loans since 1993.
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Note 8. Accounts Payable and Accrued Liabilities
The Accounts Payable and Accrued Liabilities are current liabilities and consist of the following amounts as of
September 30, 2016 and September 30, 2015:
FY 2016 FY 2015
Intragovernmental:
Accounts Payable $ 2,157 $ 824
Subsidy Payable - (339)
Allocation Liability 578
Accrued Liabilities 71,156 66,552
Total $ 73,891 $ 67,037
FY 2016 FY 2015
Non-Federal:
Accounts Payable '
P 63,833 $
69,361
Advances Payable
19
5
Interest Payable
5
5
Grant Liabilities
309,716
304,929
Other Accrued Liabilities
147,483
155,677
Total i
6 521,056 $
529,977
Other Accrued Liabilities primarily relate to contractor accruals.
Note 9. General Property, Plant, and Equipment, Net
General property, plant, and equipment (PP&E) consist of software, real property, EPA and contractor-held
personal property, and capital leases.
As of September 30, 2016 and September 30, 2015, General PP&E consisted of the following:
FY 2016 FY 2015
Acquisition
Accumulated
Net Book
Acquisition
Accumulated
Net Book
Value
Depreciation
Value
Value
Depreciation
Value
EPA-Held
$ 296,381
(196,484)
99,897 3
5 291,669
(188,779)
102,890
Equipment
Software
1,000,681
(545,672)
455,009
964,670
(503,328)
461,342
Contractor Held
37,261
(25,579)
11,682
37,261
(21,746)
15,515
Equip.
Land and
721,809
(253,182)
468,627
707,564
(239,925)
467,639
Buildings
Capital Leases
24,485
(18,500)
5,985
30,613
(23,084)
7,529
Total
$ 2,080,617
(1,039,417)
1,041,200 J
5 2,031,777
(976,862)
1,054,915
Note 10. Debt Due to Treasury
The debt due to Treasury consists of borrowings to finance the Asbestos Loan Program. The debt to Treasury
as of September 30, 2016 and September 30, 2015 is as follows:
FY 2016 FY 2015
All Other Funds Beginning Net Ending Beginning Net Ending
Balance Borrowing Balance Balance Borrowing Balance
Intragovernmental:
Debt to Treasury $ 34 (34) - $ 62 (24) 38
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Note 11. Stewardship Land
The Agency acquires title to certain property and property rights under the authorities provided in Section
104(j) CERCLA related to remedial clean-up sites. The property rights are in the form of fee interests
(ownership) and easements to allow access to clean-up sites or to restrict usage of remediated sites. The
Agency takes title to the land during remediation and transfers it to state or local governments upon the
completion of clean-up. A site with "land acquired" may have more than one acquisition property. Sites are not
counted as a withdrawal until all acquired properties have been transferred under the terms of 104(j).
As of September 30, 2016, and 2015, the Agency possesses the following land and land rights:
FY 2016 FY2015
Superfund Sites with Easements
Beginning Balance 36 35
Additions 2 1
Withdrawals 0_ 0
Ending Balance 38 36
Superfund Sites with Land Acquired
Beginning Balance 35 34
Additions 0 1
Withdrawals ]_ 0
Ending Balance 34 35
Note 12. Custodial Liability
Custodial Liability represents the amount of net accounts receivable that, when collected, will be deposited to
the Treasury General Fund. Included in the custodial liability are amounts for fines and penalties, interest
assessments, repayments of loans, and miscellaneous other accounts receivable. As of September 30, 2016 and
2015, custodial liability is approximately $42,579 thousand and $35,067 thousand, respectively.
17-F-0046
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Note 13. Other Liabilities
Other Liabilities consist of the following as of September 30, 2016:
Covered by Not Covered by
Budgetary Resources Budgetary Resources
Total
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Taxes $ 14,879 - 14,879
WCF Advances 2,354 - 2,354
Other Advances 6,709 - 6,709
Advances, HSSTF Cashout 51,259 - 51,259
Deferred HSSTF Cashout (24,359) - (24,359)
Non-Current
Unfunded FECA Liability - 9,295 9,295
Unfunded Unemployment Liability - 276 276
Payable to Treasury Judgment Fund - 22,000 22,000
Total Intragovernmental $ 50,841 31,571 82,412
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal $ 399,766 - 399,766
Liability for Deposit Funds, Non-Federal 7,200 - 7,200
Non-Current
Capital Lease Liability - 18,655 18,655
Total Non-Federal $ 409,966 18,655 425,621
Other Liabilities consist of the following as of September 30, 2015:
Covered by -T ^ ^
D , . „ Not Covered by Total
Budgetary Resources _ , ^ _ • miuu
Budgetary Resources
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Taxes $ 10,132 - 10,132
WCF Advances 1,155 - 1,155
Other Advances 4,881 - 4,881
Advances, HSSTF Cashout 38,310 - 38,310
Deferred HSSTF Cashout 730 - 730
Non-Current
Unfunded FECA Liability - 9,737 9,737
Unfunded Unemployment Liability 53 53
Payable to Treasury Judgment Fund - 22,000 22,000
Total Intragovernmental $ 55,208 31,790 86,998
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal $ 378,033 - 378,033
Liability for Deposit Funds, Non-Federal 12,170 - 12,170
Non-Current
Capital Lease Liability - 19,590 19,590
Total Non-Federal $ 390,203 19,590 409,793
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Note 14. Leases
A. Capital Leases:
The value of assets held under Capital Leases as of September 30, 2016 and 2015 are as follows:
FY 2016
FY 2015
Summary of Assets Under Capital Lease:
Real Property
Personal Property
$
24,485
$
30,613
Total
$
24,485
$
30,613
Accumulated Amortization
$
18,500
$
$23,084
EPA as one capital lease for land and buildings housing scientific laboratories. This lease includes a base rental
charge and escalation clauses based upon either rising operating costs and/or real estate taxes. The base
operating costs are adjusted annually according to escalators in the Consumer Price Indices published by the
Bureau of Labor Statistics, U.S. Department of Labor. EPA's lease will terminate in FY 2025.
Future Payments Due:
Fiscal Year Capital Leases
2017 $ 4,215
2018 4,215
2019 4,215
2020 4,125
After 5 Years 18,265
Total Future Minimum Lease Payments 35,125
Less: Imputed Interest $ (16,470)
Net Lease Liability 18,755
Liability not Covered by Budgetary Resources $ 18,755
B. Operating Leases:
The GSA provides leased real property (land and buildings) as office space for EPA employees. GSA charges a
Standard Level User Charge that approximates the commercial rental rates for similar properties. EPA has three
direct operating leases for land and buildings housing scientific laboratories and computer facilities. The leases
include a base rental charge and escalation clauses based upon either rising operating costs and/or real estate
taxes. The base operating costs are adjusted annually according to escalators in the Consumer Price Indices
published by the Bureau of Labor Statistics. The two leases expire in FY 2017 and FY 2020. These lease
charges are expended from the EPM appropriation.
The total minimum future operating lease costs are listed below:
Operating
Leases, Land
Fiscal Year and Buildings
2017 $ 83
2018 53
2019 53
2020 9
Total Future Minimum Lease Payments $ 198
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Note 15. FECA Actuarial Liabilities
The Federal Employees' Compensation Act (FECA) provides income and medical cost protection to covered
federal civilian employees injured on the job, employees who have incurred a work-related occupational
disease, and beneficiaries of employees whose death is attributable to a job-related injury or occupational
disease. Annually, EPA is allocated the portion of the long-term FECA actuarial liability attributable to the
entity. The liability is calculated to estimate the expected liability for death, disability, medical and
miscellaneous costs for approved compensation cases. The liability amounts and the calculation methodologies
are provided by the Department of Labor.
The FECA Actuarial Liability as of September 30, 2016 and 2015 was $45.04 million and $46.17 million,
respectively. The estimated future costs are recorded as an unfunded liability. The FY 2016 present value of
these estimated outflows is calculated using a discount rate of 2.781 percent in the first year, and 2.781 percent
in the years thereafter. The estimated future costs are recorded as an unfunded liability.
Note 16. Superfund Cashout Advances
Cashout advances are funds received by EPA, a state, or another PRP under the terms of a settlement agreement
(e.g., consent decree) to finance response action costs at a specified Superfund site. Under CERCLA Section
122(b)(3), cashout funds received by EPA are placed in site-specific, interest bearing accounts known as special
accounts and are used for potential future work at such sites in accordance with the terms of the settlement
agreement. Funds placed in special accounts may be disbursed to PRPs, to states that take responsibility for the
site, or to other federal agencies to conduct or finance response actions in lieu of EPA without further
appropriation by Congress. As of September 30, 2016 and 2015, cashouts are approximately $3,264 million and
$3,323 million, respectively.
Note 17. Commitments and Contingencies
EPA may be a party in various administrative proceedings, actions and claims brought by or against it. These
include:
a) Various personnel actions, suits, or claims brought against the Agency by employees and others.
b) Various contract and assistance program claims brought against the Agency by vendors, grantees and
others.
c) The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include the
collection of fines and penalties from responsible parties.
d) Claims against recipients for improperly spent assistance funds which may be settled by a reduction of
future EPA funding to the grantee or the provision of additional grantee matching funds.
As of September 30, 2016 there were no accrued liabilities for commitments and potential loss contingencies.
The amount of accrued liabilities as of September 30, 2015 was $901 thousand. The 2015 amount comprised of
two cases discussed below.
A. Gold King Mine
On August 5, 2015, EPA was conducting an investigation of the Gold King Mine near Silverton,
Colorado. While excavating part of the mine, pressurized water began leaking above the mine tunnel, spilling
about three million gallons of contaminated water stored behind the collapsed material in Cement Creek, a
tributary of the Animas River. In fiscal year 2016 and subsequent fiscal years, the Agency has received and
anticipates receiving administrative tort legal claims for compensation from individuals and entities who may
have suffered personal injury or property damage from the spill. Subject to the materiality threshold, the
Agency will begin to report on such matters when claims are filed and contingent legal liabilities are known.
See Section B in regards to two cases that have been filed under CERCLA relating to Gold King Mine.
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B. Superfund
Under CERCLA Section 106(a), EPA issues administrative orders that require parties to clean up contaminated
sites. CERCLA Section 106(b) allows a party that has complied with such an order to petition EPA for
reimbursement from the fund of its reasonable costs of responding to the order, plus interest. To be eligible for
reimbursement, the party must demonstrate either that it was not a liable party under CERCLA Section 107(a)
for the response action ordered, or that the Agency's selection of the response action was arbitrary and
capricious or otherwise not in accordance with law.
As of September 30, 2016, there is one case pending against EPA that is reported under Environmental
Liabilities below: Bob's Home Service Landfill ($900 thousand) is reported as a reasonably possible liability.
There are three matters concerning CERCLA involving the Appvion Lower Fox River and Green Bay Site, the
Hudson Oil Refinery site (associated with Land O'Lakes) and New Mexico v. EPA et al., Navajo Nation v.
EPA et al. The amounts are estimated at $174 million, $17.6 million and $10 million respectively but they are
only reasonably possible and the final outcomes are not probable.
C. Judgment Fund
In cases that are paid by the U.S. Treasury Judgment Fund, EPA must recognize the full cost of a claim
regardless of which entity is actually paying the claim. Until these claims are settled or a court judgment is
assessed and the Judgment Fund is determined to be the appropriate source for the payment, claims that are
probable and estimable must be recognized as an expense and liability of the Agency. For these cases, at the
time of settlement or judgment, the liability will be reduced and an imputed financing source recognized. See
Interpretation of Federal Financial Accounting Standards No. 2, "Accounting for Treasury Judgment Fund
Transactions." EPA has a $22 million liability to the Treasury Judgment Fund for a payment made by the Fund
to settle a contract dispute claim. As of September 30, 2016, there is no other case pending in the court.
D. Other Commitments
Since 1991, the United States has had a non-cancellable agreement, subject to the availability of funds, with the
United Nations Environment Programme (UNEP) to provide funds to the Multilateral Fund for the
Implementation of the Montreal Protocol. In keeping with this agreement, the U.S. Department of State
continues to negotiate successive three-year agreements for the level of funds that the United States will provide
to the Multilateral Fund for this purpose. Since 1991, the Department of State which has primary responsibility
for international commitments of the U.S., has provided the bulk of funds to the Multilateral Fund, with EPA
providing a lesser amount. Since commitments to the Multilateral Fund are ongoing, future EPA payments
totaling $27 million have been deemed reasonably possible and are anticipated to be paid in years 2015-2017.
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Note 18. Fund from Dedicated Collections (Unaudited)
Environmental
Services
LUST
Superfund
Other
Funds from
Dedicated
Collections
Total Funds
from
Dedicated
Collections
Balance sheet as of September 30, 2016
Assets
Fund Balance with Treasury
$ 421,414
52,354
113,898
72,802
660,468
Investments
-
500,831
4,807,903
-
5,308,734
Accounts Receivable, Net
-
52,806
362,806
30
415,642
Other Assets
-
426
79,923
2,882
83,231
Total Assets
$ 424,414
606,417
5,364,530
75,714
6,468,075
Other Liabilities
9
59,874
3,756,388
70,364
3,886,635
Total Liabilities
$ 9
59,874
3,756,388
70,364
3,886,635
Unexpended Appropriation
4
4,076
4,080
Cumulative Results of Operations
421,405
546,543
1,608,138
1,274
2,577,360
Total Liabilities and Net Position
$ 421,414
606,417
5,364,530
75,714
6,468,075
Statement of Net Cost for the Period
Ended September 30,2016
Gross Program Costs
$
100,581
1,422,150
69,449
1,592,180
Less: Earned Revenues
5
-
345,981
49,990
395,976
Net Cost of Operations
$ (5)
100,581
1,076,169
19,459
1,196,204
Statement of Changes in Net Position for
the Period ended September 30, 2016
Net Position, Beginning of Period
Nonexchange Revenue- Securities
Investments
$ 397,831
543,481
960
1,844,999
37,311
6,379
32
2,792,690
38,303
Nonexchange Revenue
23,569
202,681
8,490
(3,435)
231,305
Other Budgetary Finance Sources
-
(100,000)
769,602
21,790
691,392
Other Financing Sources
-
2
23,909
43
23,954
Net Cost of Operations
5
(100,581)
(1,076,169)
(19,459)
(1,196,204)
Change in Net Position
$ 23,574
3,062
(236,857)
(1,029)
(211,250)
Net Position
$ 421,405
546,543
1,608,142
5,350
2,581,440
17-F-0046
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Environmental
Services
LUST
Superfund
Other
Funds from
Dedicated
Collections
Total Funds
from
Dedicated
Collections
Balance sheet as of September 30, 2015
Assets
Fund Balance with Treasury
$ 397,838
24,358
39,078
57,944
519,218
Investments
-
525,253
5,213,303
-
5,738,556
Accounts Receivable, Net
-
78,881
275,550
2,935
357,366
Other Assets
_
599
98,252
2,590
101,441
Total Assets
$ 397,838
629,091
5,626,183
63,469
6,716,581
Other Liabilities
7
85,610
3,781,184
57,090
3,923,891
Total Liabilities
$ 7
85,610
3,781,184
57,090
3,923,891
Unexpended Appropriation
-
13,297
3,281
16,578
Cumulative Results of Operations
397,831
543,481
1,831,702
3,098
2,776,112
Total Liabilities and Net Position
$ 397,838
629,091
5,626,183
63,469
6,716,581
Statement of Net Cost for the Period
Ended September 30, 2015
Gross Program Costs
-
98,271
1,338,018
75,535
1,511,824
Less: Earned Revenues
_
_
634,182
60,254
694,436
Net Cost of Operations
$
98,271
703,836
15,281
817,388
Statement of Changes in Net Position for
the Period ended September 30, 2015
Net Position, Beginning of Period
Nonexchange Revenue- Securities
Investments
$ 370,045
462,786
587
1,532,727
26,118
4,001
3
2,369,559
26,708
Nonexchange Revenue
27,786
178,379
1,285
(4,067)
203,383
Other Budgetary Finance Sources
-
965,088
21,718
986,806
Other Financing Sources
Net Cost of Operations
-
(98,271)
23,617
(703,836)
5
(15,281)
23,622
(817,388)
Change in Net Position
$ 27,786
80,695
312,272
2,378
423,131
Net Position $ 397,831 543,481 1,844,999 6,379 2,792,690
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A. Funds from Dedicated Collections are as follows:
i. Environmental Services Receipt Account:
The Environmental Services Receipt Account authorized by a 1990 act, "To amend the Clean Air Act (P.L.
101-549)," was established for the deposit of fee receipts associated with environmental programs, including
radon measurement proficiency ratings and training, motor vehicle engine certifications, and water pollution
permits. Receipts in this special fund can only be appropriated to the S&T and EPM appropriations to meet the
expenses of the programs that generate the receipts if authorized by Congress in the Agency's appropriations
bill.
ii. Leaking Underground Storage Tank (LUST) Trust Fund:
The LUST Trust Fund, was authorized by the SARA as amended by the Omnibus Budget Reconciliation Act of
1990. The LUST appropriation provides funding to respond to releases from leaking underground petroleum
tanks. The Agency oversees cleanup and enforcement programs which are implemented by the states. Funds are
allocated to the states through cooperative agreements to clean up those sites posing the greatest threat to human
health and the environment. Funds are used for grants to non-state entities including Indian tribes under Section
8001 of the Resource Conservation and Recovery Act.
iii. Superfund Trust Fund:
In 1980, the Superfund Trust Fund, was established by CERCLA to provide resources to respond to and clean
up hazardous substance emergencies and abandoned, uncontrolled hazardous waste sites. The Superfund Trust
Fund financing is shared by federal and state governments as well as industry. The EPA allocates funds from its
appropriation to other federal agencies to carry out CERCLA. Risks to public health and the environment at
uncontrolled hazardous waste sites qualifying for the Agency's National Priorities List (NPL) are reduced
and addressed through a process involving site assessment and analysis and the design and implementation of
cleanup remedies. NPL cleanups and removals are conducted and financed by the EPA, private parties, or other
federal agencies. The Superfund Trust Fund includes Treasury's collections, special account receipts from
settlement agreements, and investment activity.
B. Other Funds from Dedicated Collections:
i. Inland Oil Spill Programs Account:
The Inland Oil Spill Programs Account was authorized by the Oil Pollution Act of 1990 (OPA). Monies are
appropriated from the Oil Spill Liability Trust Fund to EPA's Inland Oil Spill Programs Account each year.
The Agency is responsible for directing, monitoring and providing technical assistance for major inland oil spill
response activities. This involves setting oil prevention and response standards, initiating enforcement actions
for compliance with OPA and Spill Prevention Control and Countermeasure requirements, and directing
response actions when appropriate. The Agency carries out research to improve response actions to oil spills
including research on the use of remediation techniques such as dispersants and bioremediation. Funding for
specific oil spill cleanup actions is provided through the U.S. Coast Guard from the Oil Spill Liability Trust
Fund through reimbursable Pollution Removal Funding Agreements (PRFAs) and other inter-agency
agreements.
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II. Pesticide Registration Fund:
The Pesticide Registration Fund authorized by a 2004 Act, "Consolidated Appropriations Act (P.L. 108-199),"
and reauthorized until September 30, 2019, for the expedited processing of certain registration petitions and
associated establishment of tolerances for pesticides to be used in or on food and animal feed. Fees covering
these activities, as authorized under the FIFRA Amendments of 1988, are to be paid by industry and deposited
into this fund group.
hi. Reregistration and Expedited Processing Fund:
The Revolving Fund, was authorized by the FIFRA of 1972, as amended by the FIFRA Amendments of 1988
and as amended by the Food Quality Protection Act of 1996. Pesticide maintenance fees are paid by industry to
offset the costs of pesticide re-registration and reassessment of tolerances for pesticides used in or on food and
animal feed, as required by law.
iv. Tolerance Revolving Fund:
The Tolerance Revolving Fund, was authorized in 1963 for the deposit of tolerance fees. Fees are paid by
industry for federal services to set pesticide chemical residue limits in or on food and animal feed. The fees
collected prior to January 2, 1997, were accounted for under this fund. Presently collection of these fees is
prohibited by statute, enacted in the Consolidated Appropriations Act, 2004 (P.L. 108-199).
v. Exxon Valdez Settlement Fund:
The Exxon Valdez Settlement Fund authorized by P.L. 102-389, "Making appropriations for the Department of
Veterans Affairs and Housing and Urban Development, and for sundry independent agencies, boards,
commissions, corporations, and offices for the fiscal year ending September 30, 1993," has funds available to
carry out authorized environmental restoration activities. Funding is derived from the collection of
reimbursements under the Exxon Valdez settlement as a result of an oil spill.
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Note 19. Intragovernmental Costs and Exchange Revenue
Exchange, or earned revenues on the Statement of Net Cost include income from services provided to federal
agencies and the public, interest revenue (with the exception of interest earned on trust fund investments), and
miscellaneous earned revenue.
FY2016 FY2015
Intragover
n-mental
With
the
Public
Total
Intragover
n-mental
With
the
Public
Total
Programs & Management
<
t
c
Program Costs
Earned Revenue
942,545
29,960
1,764,864
1,575
2,707,409
31,535
861,034
26,765
1,945,883
29,489
2,806,917
56,254
NET COSTS
912,585
1,763,289
2,675,874
834,269
1,916,394
2,750,663
Leaking Underground Storage
Tanks
Program Costs
Earned Revenue
4,820
95,761
100,581
5,763
92,508
98,271
NET COSTS
4,820
95,761
100,581
5,763
92,508
98,271
Science & Technology
Program Costs
Earned Revenue
195,740
7,217
596,663
1,084
792,403
8,301
188,337
6,529
582,449
1,323
770,786
7,852
NET COSTS
188,523
595,579
784,102
181,808
581,126
762,934
Superfund
Program Costs
Earned Revenue
65,405
43,894
1,147,693
302,087
1,213,098
345,981
269,064
6,760
1,068,955
627,421
1,338,019
634,181
NET COSTS
21,511
845,606
867,117
262,304
441,534
703,838
State and Tribal Assistance
Agreements
Program Costs
Earned Revenue
57,263
3,927,369
3,984,632
71,070
4,231,828
4,302,898
NET COSTS
57,263
3,927,369
3,984,632
71,070
4,231,828
4,302,898
Other
Program Costs
Earned Revenue
65,317
22,933
313,132
39,638
378,449
62,571
(113,862)
36,812
309,599
40,507
195,737
77,319
NET COSTS
42,384
273,494
315,878
(150,674)
269,092
118,418
Total
Program Costs
Earned Revenue
1,331,090
104,004
7,845,482
344,384
9,176,572
448,388
1,281,406
76,866
8,231,222
698,740
9,512,628
775,606
NET COSTS !
5 1,227,086
7,501,098
8,728,184 5
5 1,204,540
7,532,482
8,737,022
Intragovernmental costs relate to the source of goods or services not the classification of the related revenue.
Note 20. Cost of Stewardship Land
EPA had two acquisitions of stewardship land at a cost of $120,000 for the year ending September 30, 2016.
EPA also had a property transfer to the State of Idaho via Quit Claim Deed. These costs are included in the
Statement of Net Cost.
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Note 21. Environmental Cleanup Costs
Annually EPA is required to disclose its audited estimated future costs associated with:
a) Clean up of hazardous waste and restoration of the facility when a facility is closed, and
b) Costs to remediate known environmental contamination resulting from the Agency's operations.
EPA has 16 sites responsible for clean-up cost incurred under federal, state, and/or local regulations to remove
from, contain, or dispose of hazardous material fund located at these facilities.
EPA is required to report the estimated costs related to:
a) Clean-up from federal operations resulting in hazardous waste,
b) Accidental damage to non-federal property caused by federal operations, and
c) Other damage to federal property caused by federal operations or natural forces.
The key to distinguishing between future clean-up costs versus an environmental liability is to determine
whether the event (accident, damage, etc.) has already occurred and whether we can reasonably estimate the
cost to remediate the site.
EPA has elected to recognize the estimated total clean-up cost as a liability and record changes to the estimate
in subsequent years.
As of September 30, 2016, EPA has one site that requires clean-up stemming from its activities. The claimants'
chances of success are characterized as reasonably possible with costs amounting to $900 thousand that may be
paid out of the Treasury Judgment Fund. For sites that had previously been listed, it was determined by EPA's
Office of General Counsel to discontinue reporting the potential environmental liabilities for the following
reasons: (1) although EPA has been put on notice that it is subject to a contribution claim under CERCLA, no
direct demand for compensation has been made to EPA; (2) any demand against EPA will be resolved only after
the Superfund clean-up work is completed, which may be years in the future; and (3) there was no legal activity
on these matters in FY 2016 or in FY 2015.
Accrued Clean-up Cost
EPA has 16 sites that will require permanent closure, and EPA is responsible to fund the environmental clean-
up of those sites. As of September 30, 2016 the estimated costs for site clean-up were $36.1 million unfunded
and $1.1 million funded respectively. In 2015, the estimated costs for site clean-up were $36.2 million
unfunded, $3.8 million funded, respectively. Since the clean-up costs associated with permanent closure were
not primarily recovered through user fees, EPA has elected to recognize the estimated total clean-up cost as a
liability and record changes to the estimate in subsequent years.
In FY 2016, the estimate for unfunded clean-up cost decreased by $62 thousand from the FY 2015 estimate.
This decrease is primarily due to decommissioning of the facilities, Environmental due diligence and sample
analysis, and asbestos abatement. Also, in FY 2016 a decrease of $2.7 million were incurred compared to FY
2015 was the result of the consolidating of EPA sites at UNLV.
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Note 22. State Credits
Authorizing statutory language for Superfund and related federal regulations requires states to enter into
Superfund State Contracts (SSC) when EPA assumes the lead for a remedial action in their state. The SSC
defines the state's role in the remedial action and obtains the state's assurance that it will share in the cost of the
remedial action. Under Superfund's authorizing statutory language, states will provide EPA with a 10 percent
cost share for remedial action costs incurred at privately owned or operated sites, and at least 50 percent of all
response activities (i.e., removal, remedial planning, remedial action, and enforcement) at publicly operated
sites. In some cases, states may use EPA-approved credits to reduce all or part of their cost share requirement
that would otherwise be borne by the states. The credit is limited to state site-specific expenses EPA has
determined to be reasonable, documented, direct out-of-pocket expenditures of non-federal funds for remedial
action.
Once EPA has reviewed and approved a state's claim for credit, the state must first apply the credit at the site
where it was earned. The state may apply any excess/remaining credit to another site when approved by EPA.
As of September 30, 2016 and 2015, the total remaining state credits have been estimated at $22.2 million and
$22.4 million, respectively.
Note 23. Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response actions at their
sites with the understanding that EPA will reimburse them a certain percentage of their total response action
costs. EPA's authority to enter into mixed funding agreements is provided under CERCLA Section 111(a) (2).
Under CERCLA Section 122(b)(1), as amended by SARA, PRPs may assert a claim against the Superfund
Trust Fund for a portion of the costs they incurred while conducting a preauthorized response action agreed to
under a mixed funding agreement. As of September 30, 2016, EPA had 4 outstanding preauthorized mixed
funding agreements with obligations totaling $4.74 million. As of September 30, 2015, EPA had 4 outstanding
preauthorized mixed funding agreements with obligations totaling $6.19 million. A liability is not recognized
for these amounts until all work has been performed by the PRP and has been approved by EPA for payment.
Further, EPA will not disburse any funds under these agreements until the PRP's application, claim and claims
adjustment processes have been reviewed and approved by EPA.
Note 24. Custodial Revenues and Accounts Receivable
FY 2016
Fines, Penalties and Other Miscellaneous Receipts $ 98,926
Accounts Receivable for Fines, Penalties and Other Miscellaneous Receipts:
Accounts Receivable 195,188
Less: Allowance for Uncollectible Accounts (150,599)
Total $ 44,589
FY 2015
$ 193,850
170,246
(133,444)
$ 36,802
EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous receipts.
Collectability by EPA of the fines and penalties is based on the PRPs' willingness and ability to pay.
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Note 25. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited
FY 2016 Statement of Budgetary Resources will be reconciled to the amounts included in the FY 2016 Budget
of the United States Government when they become available. The Budget of the United States Government
with actual numbers for FY 2016 has not yet been published. We expect it will be published by early 2017, and
it will be available on the OMB website Office of Management and Budget at https://www.whitehouse.gov/
The actual amounts published for the year ended September 30, 2015 are listed immediately below (dollars in
millions):
FY 2015 Budgetary Offsetting
Resources Obligations Receipts Net Outlays
Statement of Budgetary Resources $ 14,355 10,112 2,716 9,723
Reported in Budget of the U. S. $
Government 14,355 10,112 2,716 9,723
Note 26. Recoveries and Resources Not Available, Statement of Budgetary Resources
Recoveries of Prior Year Obligations, Temporarily Not Available, and Permanently Not Available on the
Statement of Budgetary Resources consist of the following amounts for September 30, 2016 and September 30,
2015:
FY 2016 FY 2015
Recoveries of Prior Year Obligations - Downward adjustments of prior
years' obligations $ 234,361 $ 227,283
Temporarily Not Available - Rescinded Authority (2,855) (7,466)
Permanently Not Available:
Payments to Treasury (34) (28)
Rescinded authority (40,000) (40,000)
Canceled authority (13,589) (74,171)
Total Permanently Not Available $ (53,623) $ (114,199)
Note 27. Unobligated Balances Available
Unobligated balances are a combination of two lines on the Statement of Budgetary Resources: Apportioned,
Unobligated Balances and Unobligated Balances Not Available. Unexpired unobligated balances are available
to be apportioned by the OMB for new obligations at the beginning of the following fiscal year. The expired
unobligated balances are only available for upward adjustments of existing obligations.
The unobligated balances available consist of the following as of September 30, 2016 and September 30, 2015:
FY 2016 FY 2015
Unexpired Unobligated Balance
$ 4,122,735 !
S 4,242,295
Expired Unobligated Balance
119,316
108,335
Total
$ 4,242,051 !
$ 4,350,630
Note 28. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders at September 30, 2016 and 2015 were $8.26 billion and
$8.65 billion, respectively.
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Note 29. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt accounts offset
gross outlays. For September 30, 2016 and 2015, the following receipts were generated from these activities:
FY 2016
FY 2015
Trust Fund Recoveries
$ 30,833 $
274,173
Special Fund Environmental Service
23,577
27,784
Trust Fund Appropriation
811,684
2,389,251
Miscellaneous Receipt and Clearing Accounts
20,359
25,071
Total
$ 886,453 $
2,716,279
Note 30. Transfers-In and Out, Statement of Changes in Net Position
A. Appropriation Transfers, In/Out:
For September 30, 2016 and September 30, 2015, the Appropriation Transfers under Budgetary Financing
Sources on the Statement of Changes in Net Position are comprised of non-expenditure transfers that affect
Unexpended Appropriations for non-invested appropriations. These amounts are included in the Budget
Authority, Net Transfers and Prior Year Unobligated Balance, and Net Transfers lines on the Statement of
Budgetary Resources. Details of the Appropriation Transfers on the Statement of Changes in Net Position and
reconciliation with the Statement of Budgetary Resources follow for September 30, 2016 and September 30,
2015:
FY 2016 FY 2015
Fund/Type of Account
Net Transfers from Invested Funds
$ 1,283,737 $
2,576,013
Transfers to Another Agency
981
-
Allocations Rescinded
-
-
Total of Net Transfers on Statement of Budgetary Resources
$ 1,284,718 $
2,576,013
B. Transfers In/Out Without Reimbursement, Budgetary:
For September 30, 2016 and September 30, 2015, Transfers In/Out under Budgetary Financing Sources on the
Statement of Changes in Net Position consist of transfers between EPA funds. These transfers affect
Cumulative Results of Operations. Details of the transfers-in and transfers-out, expenditure and non-
expenditure, follow for September 30, 2016 and September 30, 2015:
FY 2016 FY 2015
Fund from
Fund from
Dedicated
Other
Dedicated
Other
Collections
Funds
Collections
Funds
Type of Transfer/Funds
Transfers-in (out) nonexpenditure, Earmark to S&T and OIG
funds Capital Transfer
$ (28,789)
28,789 3
i (28,089)
28,089
Transfers-in nonexpenditure, Oil Spill
(18,209)
-
(18,209)
-
Transfers-in (out) nonexpenditure, Superfund
(43,402)
-
29,296
-
Transfer-out LUST
100,000
-
-
-
Total Transfer in (out) without Reimbursement, Budgetary
$ 9,600
28,790 3
i (17,002)
28,089
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Note 31. Imputed Financing
In accordance with SFFAS No. 5, "Accounting for Liabilities of the Federal Government," federal agencies
must recognize the portion of employees' pensions and other retirement benefits to be paid by the OPM trust
funds. These amounts are recorded as imputed costs and imputed financing for each agency. Each year the
OPM provides federal agencies with cost factors to calculate these imputed costs and financing that apply to the
current year. These cost factors are multiplied by the current year's salaries or number of employees, as
applicable, to provide an estimate of the imputed financing that the OPM trust funds will provide for each
agency. The estimates for FY 2016 were $116.4 million. For FY 2015, the estimates were $120.1 million.
SFFAS No. 4, "Managerial Cost Accounting Standards and Concepts" and SFFAS No. 30, "Inter-Entity Cost
Implementation," requires federal agencies to recognize the costs of goods and services received from other
federal entities that are not fully reimbursed, if material. EPA estimates imputed costs for inter-entity
transactions that are not at full cost and records imputed costs and financing for these unreimbursed costs
subject to materiality. EPA applies its Headquarters General and Administrative indirect cost rate to expenses
incurred for inter-entity transactions for which other federal agencies did not include indirect costs to estimate
the amount of unreimbursed (i.e., imputed) costs. For FY 2016 total imputed costs were $21.3 million.
In addition to the pension and retirement benefits described above, EPA also records imputed costs and
financing for Treasury Judgment Fund payments made on behalf of the Agency. Entries are made in
accordance with the Interpretation of Federal Financial Accounting Standards No. 2, "Accounting for Treasury
Judgment Fund Transactions." For FY 2016 entries for Judgment Fund payments totaled $5.9 million. For FY
2015, entries for Judgment Fund payments totaled $5.1 million.
Note 32. Payroll and Benefits Payable
Payroll and benefits payable to EPA employees for the years ending September 30, 2016 and 2015 consist of
the following:
Covered by Not Covered
Budgetary by Budgetary Total
Resources Resources
FY 2016 Payroll & Benefits Payable
Accrued Funded Payroll & Benefits
Withholdings Payable
Employer Contributions Payable-TSP
Accrued Unfunded Annual Leave
Total - Current
40,899 - 40,899
19,230 - 19,231
597 - 597
150,071 150,071
60,726 150,071 210,797
FY 2015 Payroll & Benefits Payable
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Payable-TSP
Accrued Unfunded Annual Leave
Total - Current
20,677
30,347
510
144,081
51,534
144,081
20,677
30,347
510
144,081
195,615
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Note 33. Other Adjustments, Statement of Changes in Net Position
The Other Adjustments under Budgetary Financing Sources on the Statement of Changes in Net Position
consist of rescissions to appropriated funds and cancellation of funds that expired 7 years earlier. These
amounts affect Unexpended Appropriations.
Other Funds Other Funds
FY 2016 FY 2015
Rescissions to General Appropriations $ - $
Canceled General Authority 53,501 54,063
$
Total Other Adjustments 53,501 $ 54,063
Note 34. Non-exchange Revenue, Statement of Changes in Net Position
Non-exchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net Position as of
September 30, 2016 and September 30, 2015 consists of the following Funds from Dedicated Collections items:
Funds from Funds from
Dedicated Collections Dedicated Collections
FY 2016 FY 2015
Interest on Trust Fund $ 38,303 $ 26,707
Tax Revenue, Net of Refunds 202,681 178,382
Fines and Penalties Revenue 8,490 1,286
Special Receipt Fund Revenue 20,134 23,719
$
Total Nonexchange Revenue 269,608 $ 230,094
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Note 35. Reconciliation of Net Cost of Operations to Budget:
FY 2016
FY 2015
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated:
Obligations Incurred $
Less: Spending Authority from Offsetting Collections and Recoveries
10,036,882 3
(844,542)
5 10,123,499
(965,527)
Obligations, Net of Offsetting Collections $
9,192,340 3
5 9,157,972
Less: Offsetting Receipts
(886,453)
(2,716,279)
Net Obligations $
Other Resources:
Imputed Financing Sources
8,305,887 3
143,616
5 6,441,693
134,286
$
Net Other Resources Used to Finance Activities
143,616 3
5 134,286
Total Resources Used To Finance Activities $
8,449,503 3
5 6,575,979
RESOURCES USED TO FINANCE ITEMS
NOT PART OF THE NET COST OF OPERATIONS:
Change in Budgetary Resources Obligated $
Resources that Fund Prior Periods Expenses
Budgetary Offsetting Collections and Receipts that Do Not Affect Net Cost of Operations:
Credit Program Collections Increasing Loan Liabilities for Guarantees or Subsidy
Allowances
Offsetting Receipts Not Affecting Net Cost
Resources that Finance Asset Acquisition
Adjustments to Expenditure Transfers that Do Not Affect Net Cost
307,188 3
497
53,730
(85,805)
5 (316,397)
5,916
302,032
(41,368)
Total Resources Used to Finance Items Not Part of the Net Cost of Operations $
275,610 3
5 (49,817)
Total Resources Used to Finance the Net Cost of Operations $
8,725,113 3
5 6,526,162
COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL
NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD:
Components Requiring or Generating Resources in Future Periods:
Increase in Annual Leave Liability $
Increase in Environmental and Disposal Liability
Increase in Unfunded Contingencies
Upward/Downward Reestimates of Credit Subsidy Expense
Increase in Public Exchange Revenue Receivables
Increase in Workers Compensation Costs
Other
5,990 3
(62)
(901)
2,151
(108,262)
(1,347)
(88)
5 (6,696)
14,556
(1,940)
2,022,910
13,872
98
Total Components of Net Cost of Operations that Require or Generate Resources in Future Periods $
Components Not Requiring/Generating Resources:
Depreciation and Amortization
Expenses Not Requiring Budgetary Resources
(102,519) 3
91,604
13,986
5 2,042,800
167,844
216
$
Total Components of Net Cost that Will Not Require or Generate Resources
Total Components of Net Cost of Operations That Will Not Require or Generate Resources in the
Current Period
105,590 3
3,071
5 168,060
2,210,860
Net Cost of Operations S
8,728,184 5
5 8,737,022
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Note 36. Amounts Held by Treasury (Unaudited)
Amounts held by Treasury for future appropriations consist of amounts held in trusteeship by Treasury in the
Superfund and LUST Trust Funds.
A. Superfund
Superfund is supported by general revenues, cost recoveries of funds spent to clean up hazardous waste sites,
interest income, and fines and penalties.
The following reflects the Superfund Trust Fund maintained by Treasury as of September 30, 2016 and 2015.
The amounts contained in these notes have been provided by Treasury. As indicated, a portion of the outlays
represents amounts received by EPA's Superfund Trust Fund; such funds are eliminated on consolidation with
the Superfund Trust Fund maintained by Treasury.
EPA
Treasury
Combined
SUPERFUND FY 2016
Undistributed Balances
Uninvested Fund Balance
$
439
439
Total Undisbursed Balance
Interest Receivable
Investments, Net
4,740,927
439
3,282
63,693
439
3,282
4,804,620
Total Assets
$ 4,740,927
67,414
4,808,341
Liabilities & Equity
Equity
$ 4,740,927
67,414
4,808,341
Total Liabilities and Equity
$ 4,740,927
67,414
4,808,341
Receipts
Corporate Environmental
$
Cost Recoveries
-
30,833
30,833
Fines & Penalties
-
7,277
7,277
Total Revenue
-
38,110
38,110
Appropriations Received
-
811,684
811,684
Interest Income
-
37,311
37,311
Total Receipts
$
887,105
887,105
Outlays
Transfers to/from EPA, Net
$ 1,120,585
(1,120,585)
_
Total Outlays
1,120,585
(1,120,585)
-
Net Income
$ 1,120,585
(233,480)
887,105
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In FY 2016, the EPA received an appropriation of $1,106 million for Superfund. Treasury's Bureau of Fiscal
Service (BFS), the manager of the Superfund Trust Fund assets, records a liability to EPA for the amount of the
appropriation. BFS does this to indicate those trust fund assets that have been assigned for use and, therefore,
are not available for appropriation. As of September 30, 2016 and 2015, the Treasury Trust Fund has a liability
to EPA for previously appropriated funds and special accounts of $4.8 billion and $5.2 billion, respectively.
EPA Treasury Combined
SUPERFUND FY 2015
Undistributed Balances
Uninvested Fund Balance
$
101
101
Total Undisbursed Balance
Interest Receivable
Investments, Net
3,504,925
101
3,038
1,705,340
101
3,038
5,210,265
Total Assets
$ 3,504,925
1,708,479
5,213,404
Liabilities & Equity
Equity
$ 3,504,925
1,708,478
5,213,403
Total Liabilities and Equity
$ 3,504,925
1,708,478
5,213,403
Receipts
Cost Recoveries
$
1,681,291
1,681,291
Fines & Penalties
-
1,398
1,398
Total Revenue
-
1,682,689
1,682,689
Appropriations Received
-
981,089
981,089
Interest Income
-
26,118
26,118
Total Receipts
$
2,689,896
2,689,896
Outlays
Transfers to/from EPA, Net
$ 1,105,206
(1,105,206)
_
Total Outlays
1,105,206
(1,105,206)
-
Net Income
$ $ 1,105,206
1,584,690
2,689,896
B. LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2016 and 2015,
there were no fund receipts from cost recoveries. The amounts contained in these notes are provided by
Treasury. Outlays represent appropriations received by EPA's LUST Trust Fund; such funds are eliminated on
consolidation with the LUST Trust Fund maintained by Treasury.
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EPA
Treasury
Combined
LUST FY 2016
Undistributed Balances
Uninvested Fund Balance
$
13,830
13,830
Total Undisbursed Balance
-
-
-
Interest Receivable
-
-
-
Investments, Net
52,806
448,025
500,831
Total Assets
$ 52,806
461,855
514,661
Liabilities & Equity
Equity
52,806
461,855
514,661
Receipts
Highway TF Tax
$
191,562
191,562
Airport TF Tax
-
11,013
11,013
Inland TF Tax
-
106
106
Total Revenue
-
202,681
202,681
Interest Income
-
961
961
Total Receipts
$
203,642
203,642
Outlays
Transfers to/from EPA, Net
$ 191,941
(191,941)
Total Outlays
$ 191,941
(191,941)
-
Net Income
$ $ 191,941
11,701
203,642
EPA Treasury Combined
LUST FY 2015
Undistributed Balances
Uninvested Fund Balance
$
3,767
3,767
Total Undisbursed Balance
-
3,767
3,767
Interest Receivable
-
-
-
Investments, Net
78,865
446,388
525,253
Total Assets
$ 78,865
450,155
529,020
Liabilities & Equity
Equity
78,865
450,155
529,020
Receipts
Highway TF Tax
$
166,941
166,941
Airport TF Tax
Inland TF Tax
-
99
11,341
99
11,341
Total Revenue
-
178,381
178,381
Interest Income
-
587
587
Total Receipts
$
178,968
178,968
Outlays
Transfers to/from EPA, Net
$ 91,941
(91,941)
Total Outlays
$ 91,941
(91,941)
-
Net Income $ $ 91,941 87,027 178,968
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Note 37. Miscellaneous Receipts Act Violations and Potential Anti-deficiency Act Violations
A. Miscellaneous Receipt Act Violations
The EPA experienced seven Miscellaneous Receipts Act violations that occurred between FY 1983 through
2012. EPA is also evaluating three related potential Anti-deficiency Act violations. EPA discovered the
violations when it reviewed business processes associated with Superfund removal and remediation projects
that were partially financed by state funds. In FY 2015, the EPA determined that the Agency accepted state
funds in excess of its statutory authority. In addition, the Agency may have used some of those state funds to
accomplish work outside the scope of its statutory authority.
Miscellaneous
Anti-
deficiency
Act
Violations
Amounts
returned to
1983
$
83
-
83
1984
164
164
-
1987
23
-
23
1989
165
165
-
1995
134
134
-
2009
394
-
394
2012
544
-
544
$
1,507
463
1,044
The Miscellaneous Receipts Act violations where the Agency had not already spent the funds were rectified
when the EPA transferred funds to Treasury on September 9, 2015 and a surplus warrant was issued on
September 14, 2015 in the amount of $1,044 thousand. With respect to the Miscellaneous Receipts Act
violations where EPA may have spent the funds for impermissible purposes, as of the date of the audit report,
EPA is reviewing the proposed transmission of, as required by OMB circular A-l 1, Section 145, written
notifications to the (1) President, (2) President of the Senate, (3) Speaker of the House of Representatives, (4)
Comptroller General, and (5) the Director of OMB for Anti-deficiency Act violations.
B. Voluntary Services Prohibition
In FY 2016 the EPA determined that the Agency had experienced two separate Anti-deficiency Act Voluntary
Services Prohibition violations. 31 U.S.C. § 1342 prohibits EPA from accepting voluntary services for the
United States, or employing personal services not authorized by law, except in the cases of emergency
involving the safety of human life or the protection of property.
The first violation occurred from January through April 2014 when the EPA accepted unpaid peer reviews for
environmental education grants. At least one of the peer reviewers did not sign a written agreement in advance
that states that the services are offered without the expectation of payment, and expressly waives any future pay
claims against the government which constitutes a violation of the Voluntary Services Prohibition. The Agency
was also unable to determine if there were any more peer reviewers who only had oral agreements.
The second violations occurred in the Honors Law Clerk Program where at least seven post-graduates provided
services to the Agency at varying points between 2011 and 2015. Written and signed waivers were unable to be
located but are ineffective under 5 U.S.C. §§ 5331-5338 which the principle of equal pay for substantially equal
work applies.
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As of the date of the audit report, EPA is reviewing the proposed transmission of, as required by OMB circular
A-l 1, Section 145, written notifications to the (1) President, (2) President of the Senate, (3) Speaker of the
House of Representatives, (4) Comptroller General, and (5) the Director of OMB for Anti-deficiency Act
violation related to the Voluntary Services Provision.
Note 38. Other information
The EPA received a disclaimer of opinion on audits of the FIFRA and PRIA financial statements for fiscal year
2014 issued by the Office of Inspector General on September 22, 2016 (report numbers 16-F-0322 and 16-F-
0322, respectively). A disclaimer of opinion means that OIG was unable to obtain sufficient evidence to
determine if the statements were fairly presented and free of material misstatement. EPA had previously
received unmodified, or clean, opinion on these financial statements for FY 2013, meaning they were fairly
presented and free of material misstatement.
OIG noted a material weakness in that the EPA could not adequately support $34 million of its FY 2014 FIFRA
Fund costs and $28 million of its FY 2014 PRIA Fund costs. EPA receives its funding for these programs both
from fees paid by pesticide manufacturers and from amounts appropriated by the Congress. In FY 2014, the
EPA allocated its pesticide funding to use appropriated amounts, which would expire, and retained funding
received from fees.
Therefore, significant payroll amounts paid from appropriations were not charged directly to the FIFRA and
PRIA Funds or other pesticide programs. This resulted in the loss of the audit trail for reporting separate costs
and liabilities for the FIFRA and PRIA Funds and other pesticide programs.
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Required Supplementary Information (Unaudited)
Environmental Protection Agency
As of September 30, 2016, and September 30, 2015
(Dollars in Thousands)
Deferred Maintenance:
Deferred maintenance is maintenance that was not performed when it should have been, that was scheduled and
not performed, or that was delayed for a future period. Maintenance is the act of keeping property, plant, and
equipment (PP&E) in acceptable operating condition and includes preventive maintenance, normal repairs,
replacement of parts and structural components, and other activities needed to preserve the asset so that it can
deliver acceptable performance and achieve its expected life. Maintenance excludes activities aimed at
expanding the capacity of an asset or otherwise upgrading it to serve needs different from or significantly
greater than those originally intended.
Deferred Maintenance is described as the act of keeping fixed assets in acceptable condition.
Such activities include: Preventive maintenance, replacement of parts, systems, or components, and other
activities needed to preserve or maintain the asset.
The deferred maintenance as of Fiscal Year 2016:
FY2016 FY2015
Asset Category
Buildings
$ 132,449 $
123,833
EPA Held Equipment
370
250
Vehicles
9
9
Total Deferred Maintenance
$ 132,828 $
124,092
In Fiscal Year 2016, in accordance with SFFAS No. 42, Deferred Maintenance and Repairs: Amending
Statements of Federal Financial Accounting Standards 6, 14, 29 and 32, agencies are required to:
a) Describe their maintenance and repairs policies and how they are applied.
b) Discuss how they rank and prioritize maintenance and repair activities among other activities.
c) Identify factors considered in determining acceptable condition standards.
d) State whether deferred maintenance and repairs relate solely to capitalized or fully depreciated general
PP&E.
e) Identify PP&E for which management does not measure and/or report deferred maintenance and repairs
and the rational for the exclusion of other than non-capitalized or fully depreciated general PP&E.
f) Provide beginning and ending deferred maintenance and repairs balances by
g) Explain significant changes from the prior year.
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The EPA presents the above Deferred Maintenance and Repairs (DM&R) information by asset category as
follows:
Buildings:
Policy
Explanation
Maintenance and repairs policies and how
they are applied.
The maintenance and repair policy is to maintain
facilities and real property installed equipment to fully
meet mission needs at each site. Systems are maintained
to function efficiently at full capacity and to meet or
exceed life expectancy of buildings and building
systems.
How we rank and prioritize maintenance
and repair activities among other activities.
Building and facility program projects are scored and
ranked individually based on seven weighted factors to
determine priority needs. High scoring projects are
prioritized above lower scoring projects. The seven
factors considered are: health and safety, energy
conservation, environmental compliance, program
requirements, repair and upkeep, space alteration, and
operational urgency. R&I projects are identified and
prioritized on a local basis.
Factors considered in determining
acceptable condition standards.
The nine building systems must function at a level that
fully meet mission needs. The nine building systems are:
structure, roof, exterior components and finish, interior
finish, HVAC, electrical, plumbing, conveyance, and
specialized program support equipment. Each system is
rated from 0 to 5 during facility assessments. Ratings are
used to determine facility condition index and estimated
deferred maintenance.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
Facilities assessments and the resulting DM&R estimates
are applied to capitalize PP&E only. Full facility
assessments using the NASA parametric model are used
to determine facilities and systems indices and deferred
maintenance estimates.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than
non-capitalized or fully depreciated general
PP&E.
Buildings are not excluded from DM&R estimates.
Explain significant changes from the prior
year.
This is the second year detailed assessments were
performed.
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EPA held Equipment:
Policy
Explanation
Maintenance and repairs policies and how
they are applied.
Managers of the equipment consider manufacturers
recommendations in determining maintenance
requirements.
How we rank and prioritize maintenance
and repair activities among other activities.
Equipment is maintained based on manufacture's
recommendations.
Factors considered in determining
acceptable condition standards.
Manufacturer recommendations.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
DM&R relates to all EPA Held Equipment as determined
by individual site managers.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than
non-capitalized or fully depreciated general
PP&E.
Individual site managers determine the need to measure
and/or report DM&R based on mission needs.
Explain significant changes from the prior
year.
Individual site equipment managers decide on a case-by-
case basis the need to maintain equipment.
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Vehicles
Policy
Explanation
Maintenance and repairs policies and how they
are applied.
Vehicle managers maintain vehicles owned by the EPA
in accordance with the recommendations of the
manufacturer.
How we rank and prioritize maintenance and
repair activities among other activities.
The goal is to maintain the vehicle as built and as
recommended by the manufacturer. Repairs and
maintenance are also described as system critical or
minor. System critical repairs and maintenance are high
priority and are immediately taken care of. Minor
repairs are lower priority and may be taken care of at a
later date (time/scheduling permitting). These are not
critical to in-field functionality, but the repairs are
needed to maintain the vehicle as built.
Factors considered in determining acceptable
condition standards.
The vehicle is inspected to insure that it (the vehicle)
and related specialized equipment are in good working
order. The criteria being that the vehicle is being
maintained as built and as recommended by the
manufacturer.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
All vehicles are capitalized.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than non-
capitalized or fully depreciated general PP&E.
None.
Explain significant changes from the prior
year.
This is the second year vehicles have been reported.
Stewardship Land
Stewardship land is acquired as contaminated sites in need of remediation and clean-up; thus the quality of the
land is far-below the standard for usable and manageable land. Easements on stewardship lands are in good and
usable condition but acquired in order to gain access to contaminated sites.
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Supplemental Combined Statement of Budgetary Resources
Environmental Protection Agency
For the Period Ending September 30, 2016
(Dollars in Thousands)
Env. Prog.
& Mgmt.
Leaking
Underground
Storage Tank
Superfund
Science &
Tech.
State &
Tribal Ass.
Grants
Other
Total
BUDGETARY RESOURCES
Unobligated Balance, Brought Forward, October 1:
Adjustment to Unobligated Balance
$
317,507
3,674
3,545,711
961
147,732
159,248
176,758
4,350,597
961
Unobligated balance brought forward, October 1, as
adjusted
317,507
3,674
3,546,672
147,732
159,248
176,758
4,351,591
Recoveries of Prior Year Unpaid Obligations
50,765
2,548
88,626
23,703
58,220
10,499
234,361
Other changes in unobligated balance
(7,648)
.
.
(4,551)
.
(1,423)
(13,622
Unobligated balance from prior year budget authority, net
360,624
6,222
3,635,298
166,884
217,468
185,834
4,572,330
Appropriations (discretionary and mandatory)
2,635,279
191,941
1,119,440
734,648
3,478,161
936,953
9,096,422
Spending authority from offsetting collections
48,836
5
211,256
27,075
2,642
320,367
610,181
Total Budgetary Resources
$
3,044,739
198,168
4,965,994
928,607
3,698,271
1,443,154
14,278,933
STATUS OF BUDGETARY RESOURCES
Obligations incurred
2,736,790
194,549
1,559,222
810,105
3,510,496
1,225,720
10,036,882
Unobligated balance, end of year:
Apportioned
246,802
3,619
3,406,617
98,142
176,775
154,772
4,086,727
Unapportioned
.
.
155
.
11,000
24,853
36,008
Total unobligated balance, end of period
Expired unobligated balance, end of year
246,802
61,147
3,619
3,406,772
98,142
20,360
187,775
179,625
37,809
4,122,735
119,316
Total Status of Budgetary Resources
$
3,044,739
198,168
4,965,994
928,607
3,698,271
1,443,154
14,278,933
CHANGE IN OBLIGATED BALANCE
Unpaid Obligations
$
Unpaid Obligations, Brought Forward, October 1 (gross)
1,181,909
95,313
1,402,122
337,017
5,887,395
201,075
9,104,831
Obligations incurred
Outlays (gross)
2,736,790
(2,635,504
)
194,549
(200,072)
1,559,222
(1,426,596)
810,105
(776,782)
3,510,496
(3,983,776)
1,225,720
(1,189,764
)
10,036,882
(10,212,49
4)
Recoveries of prior year unpaid obligations
(50,765)
(2,548)
(88,626)
(23,703)
(58,220)
(10,499)
(234,361)
Unpaid obligations, end of year (gross)
$
1,232,430
87,242
1,446,122
346,637
5,355,895
226,532
8,694,858
Uncollected Payments
Uncollected customer payments from Federal Sources,
brought forward, Oct. 1
Change in uncollected customer payments from Federal sources
$
(63,201)
(9,876)
-
(7,976)
(2,081)
(17,821)
1,271
-
(143,531)
(2,425)
(232,529)
(13,111)
Uncollected customer payments from Federal sources, end of
year
$
(73,077)
.
(10,057)
(16,550)
.
(145,956)
(245,640)
BUDGET AUTHORITY AND OUTLAYS, NET:
Budget authority, gross (discretionary and mandatory)
Actual offsetting collections (discretionary and
mandatory)
Change in uncollected customer payments from Federal sources
$
2,684,115
(38,960)
(9,876)
191,946
(5)
1,330,696
(209,175)
(2,081)
761,723
(28,346)
1,271
3,480,803
(2,642)
1,257,320
(317,942)
(2,425)
9,706,603
(597,070)
(13,111)
Budget authority, net (discretionary and mandatory)
$
2,635,279
191,941
1,119,440
734,648
3,478,161
936,953
9,096,422
Outlays, gross (discretionary and mandatory)
Actual offsetting collections (discretionary and
mandatory)
$
2,635,504
(38,960)
200,072
(5)
1,426,596
(209,175)
776,782
(28,346)
3,983,776
(2,642)
1,189,764
(317,942)
10,212,494
(597,070)
Outlays, net (discretionary and mandatory)
2,596,544
200,067
1,217,421
748,436
3,981,134
871,822
9,615,424
Distributed offsetting receipts
.
.
(842,517)
.
.
(43,936)
(886,453)
Agency outlays, net (discretionary and mandatory)
$
2,596,544
200,067
374,904
748,436
3,981,134
827,886
8,728,971
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Required Supplemental Stewardship Information (Unaudited)
Environmental Protection Agency
Required Supplemental Stewardship Information (Unaudited)
For the Year Ended September 30, 2016
(Dollars in Thousands)
Investment in The Nation's Research and Development:
EPA's Office of Research and Development provides the crucial underpinnings for EPA decision-making.
Through conducting cutting-edge science and technical analysis, ORD develops sustainable solutions to
our environmental problems and employ more innovative and effective approaches to reducing
environmental risks. ORD is the scientific research arm of the EPA, whose leading-edge research helps
provide the solid underpinning of science and technology to the agency. Public and private sector
institutions have long been significant contributors to our nation's environment and human health
research agenda. EPA, however, is unique among scientific institutions in this country in combining
research, analysis, and the integration of scientific information across the full spectrum of health and
ecological issues and across the risk assessment and risk management paradigm. Research enables us to
identify the most important sources of risk to human health and the environment, and by so doing,
informs our priority-setting, ensures credibility for our policies, and guides our deployment of resources.
It gives us the understanding, the framework, and technologies we need to detect, abate, and avoid
environmental problems.
Among the Agency's highest priorities are research programs that address: the development and
application of alternative techniques for prioritizing chemicals for further testing through computational
toxicology; the environmental effects of pollutants on children's health; the potential risks and effects of
manufactured nanomaterials on human health and the environment; the impacts of global change and
providing information to policy makers to help them adapt to a changing climate; the potential risks of
unregulated contaminants in drinking water; the health effects of air pollutants such as particulate matter;
the protection of the nation's ecosystems; and the provision of near-term, appropriate, affordable, reliable,
tested, and effective technologies and guidance for potential threats to homeland security. EPA also
supports regulatory decision-making with chemical risk assessments.
For FY 2016, the full cost of the Agency's Research and Development activities totaled over $623
million. Below is a breakout of the expenses (dollars in thousands):1
FY2012 FY2013 FY2014 FY2015 FY2016
Programmatic Expenses $ 580,278 $ 531,901 $ 510,911 $ 535,352 $ 54U90
Allocated Expenses $ 133,637 $ 78,189 $ 73,622 $ 78,028 $ 82,646
See Section II of the PAR for more detailed information on the results of the Agency's investment in
research and development.
1 Allocated Expenses calculated specifically for the Required Supplemental Stewardship Information report and do not
represent the overall agency indirect cost rates.
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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. The Agency also is appropriated funds to finance the
construction of infrastructure outside the Revolving Funds programs. These are reported below as Other
Infrastructure Grants.
a) Construction Grants Program:
During the 1970s and 1980s, the Construction Grants Program was a source of federal funds, providing
more than $60 billion of direct grants for the construction of public wastewater treatment projects. These
projects, which constituted a significant contribution to the nation's water infrastructure, included sewage
treatment plants, pumping stations, and collection and intercept sewers, rehabilitation of sewer systems,
and the control of combined sewer overflows. The construction grants led to the improvement of water
quality in thousands of municipalities nationwide.
Congress set 1990 as the last year that funds would be appropriated for Construction Grants. Projects
funded in 1990 and prior will continue until completion. After 1990, EPA shifted the focus of municipal
financial assistance from grants to loans that are provided by State Revolving Funds, however, EPA
continues to provide direct grant funding for the District of Columbia and territories.
b) 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's investments in the nation's Water Infrastructure are outlined below (dollars in thousands):
FY2012
FY2013
FY2014
FY2015
FY2016
Construction Grants
$
14,306
$
6,944
$
1,447
$
17,462
$
11,344
Clean Water SRF
1,925,057
1,976,537
1,534,453
1,715,630
1,459,820
Drinking Water SRF
1,240,042
1,027,613
1,187,212
1,268,360
1,213,201
Other Infrastructure Grants
196,085
166,050
118,706
96,439
62,011
Allocated Expenses
777,375
524,326
516,102
590,595
529,815
Total
$
4,152,865
$
3,701,470
$
3,357,920
$
3,688,486
$
3,276,191
See the Goal 2 - Clean and Safe Water portion in Section II of the PAR for more detailed information on
the results of the Agency's investment in infrastructure.
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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):
FY2012 FY2013 FY2014 FY2015 FY2016
Training and Awareness Grants $ 21,233 $ 20,769 $ 23,255 $ 27,047 $ 29,116
Fellowships 10,514 11,157 8,082 6,579 4,630
Allocated Expenses 7,311 4,118 4,226 5,146 5,336
Total $ 39,058 $ 36,044 $ 35,563 $ 38,772 $ 39,082
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Appendix II
Agency Response to Draft Report
17-F-0046
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
itafeltu
| I WASHINGTON, D C. 20460
MEMORANDUM
SUBJECT: Response to Office of Inspector Genera! Draft Audit Report No. OA-TY16-0136. "HI'. I's
Fiscal ) ears 2016 ami 2015 Consolidated Financial Statements, " dated November 8
G*201(> ^
I );WiJck'. -Meruity t hief financial Oiricef
Office of the Chief financial Officer
TO1: Paul C. Curtis, Director
Financial Statements Audits
1 hank yon tor the opportunity to respond lo the issues and recommendations in the subject draft audit
report. I he following is a summary ot the agency's overall position, along with its position on each of
the report recommendations. We have provided high-level intended corrective actions and estimated
completion dales to the extent we can.
HT.M'Y'S OVI RAI.Li'OSi I'lON
I he agency concurs with 15 ol the recommendations and non-concurs with one recommendation. To
address specific findings or technical inaccuracies in the report, please see the attached "I ethnical
Comments document.
A(iFNCY'S RESPONSK TO DRAFT AUDIT K1 • COMMKNDATIONS
Agreements
No. Rccom m end n lion
We recommend thai the Chief
financial Officer record the
necessary adjusting entries to
reduce unearned revenue by
$167,870,721 to ensure current
year financial statements are
properly stated.
Ili«h-l.iMl Intended Corrective
Aelion(s)
The agency made the necessary
adjusting entries.
KstimuUed
Completion In
Otnirfer ;»nd l-A
Completed
11-1/2016
1 ! ' i ' _ * ••'j i a , • i ;
17-F-0046 Recycled/Recyc(able ¦ Printed wtlh Process Chlorine Free Recycled Paper
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2
We recommend that the Chief
Financial Officer modify the
accounting model in Compass
Financial to properly record all
special account receivables and
col lections as unearned
revenue, and reduce the
unearned revenue and recognize
earned re\ enue as expenses are
incurred.
The agency will modify accounting
models in Compass to properly record
Super fund special account receivables
once OMB and Treasury ha\e
appro\ed the agency's accounting
approach.
By March 3 I,
2017
3
We recommend that the Chief
Financial Officer prepare a
comprehcnsive quarte r I \
reconciliation of Super fund
special accounts general
ledger balances to the special
accounts database detail.
The agency will conduct ihe quarterly
reconciliation of Superlund Special
Accounts general ledger to the Special
Accounts database detail.
First quarter 2017
4
We recommend that the Chief
Financial Officer re\erse the
cash difference write-off entries
in Compass and continue
researching the cash differences
until adequate documentation
exists to support the
adjustments.
The agencv reversed the cash ditlerenee
write-off entries in compass and will
continue to research the cash
differences.
Completed
10/31/2016
5
We recommend that the
Assistant Administrator for
Administration and Resources
Management develop and
implement a plan for
supervisors of interagency
agreement project officers to
monitor the timeliness of
individual project officer
invoice approvals.
We recommend that the Chief
f inancial Officer reverse the
journal voucher entries made to
reclassify the Research Triangle
Park capital lease to an
| operating lease.
In September 2015. the agency took
corrective action that addresses this
recommendation by including specific
mention of timely invoice approvals in
the Office of Urants and Debarment's
annual Performance Appraisal and
Recognition Svstcni Ciuidanee. The one
remaining corrective action is for the
Office of the Controller to provide
quarterlv reports to the agency's Senior
Resource Officials on the status oi
individual project officer invoice
approvals.
Second quarter
2017
8
The agency reversed the journal res iew
entries made to reclassify the Research
friangie Park capital lease to an
operating lease.
Completed
11/8/2016
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7
We recommend thai the Chief
Financial Officer record ihc
necessar> adjlisting entries for
lhe Research Triangle Park
lease to ensure current-year
activity is properly stated on the
fiscal year 2016 financial
statements.
The agency recorded the necessary
adjusting entries for the Research
Triangle Park lease.
Completed
1 1 S2016
S
We recommend that the Chief
Financial Officer determine the
proper classification of the
Research friangle Park real
property lease using the capital
lease criteria.
The agency determined the proper
classification of the Research Iriangle
Park real property lease using the capital
lease criteria.
Completed
U S 2016
9
We recommend that the Chief
financial Officer work with the
Compass Financials scr\ ice
provider to establish controls
for creating and locking
administrative accounts.
The agency w ill work w ith the serv ice
provider to analyze alternatives for
controls and establish an action plan.
Fourth quarter
2021
10
We recommend thai the Chief
1 inancial Officer work with the
Compass Financials service
pro\ ider lo develop and
implement a methodology to
monitor accounts with
administrative capabilities.
The agency will work with the service
prov ider to analy/e alternative
methodologies and establish an action
plan.
Fourth quarter
2021
11
We recommend that the Chief
1 inancial Officer enter the
Continuous Monitoring
Assessment recommendations
into the agency's system used
for monitoring the remediation
of information security
corrective actions.
The agency will analy/e the entries
currently in Xacta and make any
corrections as appropriate.
Second quarter
2017
13
We recommend that the Chief The agency's PeoplePlus alternate
1-inancial < )f!icer either obtain a storage is in place and is located at
waiver foi not hav ing an Potomac Yard. In addition. P I S is a
alternate storage location for the tracking system that tracks [Inancial
PeoplePlus and Payment information already in Compass.
Tracking System backups Compass is the actual payment system
approved by the Chief | for the Agency. Compass has an
Information Officer, or develop !
Completed
10/18/2016
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and implement a process for
storing the PeopicPlus and
Pavment Tracking S\stem
backups at an alternate location.
alternate storage site in Philadelphia,
PA,
l4~~j
We recommend that the
Assistant Administrator for
Administration and Resources
Management develop and
implement a process for storing
the A gene \ Asset Management
Svstem backups at an alternate
storage location.
As outlined in the agency's updated
AAMS Security Plan effective 10-4/16,
a back-up process is already
implemented with the alternate site in
Potomac Yard.
Completed
10/4/16
15
We recommend that the
Assistant Administrator for
Administration and Resources
Management update the .Agency
Asset Management S\stem
security plan to reflect the
application s current data
backup processes.
The agency's AAMS Security Plan was
updated and implemented effective
10 4 16 reflecting AAMS" current data
backup processes.
Completed
104'16
16
We recommend that the Chief
Information Officer implement
an oversight process to monitor
that personnel responsible for
the Integrated Grants
Management Sxstem data
backups at Potomac Yards
follow established procedures
for rotation of backup tapes to
the alternate storage location.
The agency will direct contractors to
include the number of tapes moved to
the offsite storage location in the weekly
management report,.
Completed
10/11/16
Disagreements
No. Recommendation
12 j Wc recommend tliat the
1 Chicflnformation Officer
develop a process and
inventor) listing in its
1 Disaster Reco\ er\ Plan for
recovering operations of a
primarv location in the
event of a disaster at the
J National Computer
Center.
! A sen cv E \ n 1 a n a t i on/Kespon m Proposed Alternative |
! The agenc\ does not concur \: A
with the statement of facts or the
recommendation and. therefore,
does not intend to provide a
eorreeti\ c action.
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CONTACT INFORMATION
If you have any questions regarding this response, please contact OCFO's Audit Follow-up Coordinator,
Nic (irzegozewski. at 2()2-o64-22(-)2.
Attachment
cc: Matin Stanislaus
Avi Garbow
Slicehan. Charles
Christcnscn. K.e\in
k_\cnnann. Richard
1 loward Osborne
Stefan Sil/er
i I o ward Corcoran
Nichole Oisielano
Jeanne Conklin
Sai'ah Sow el I
O'Connor. John
Carol 1 orris
Kalhy O'Brien
Quentin Jones
Robert Mill
Lisa Aval a
Vick> Blackmond
Carmelita Chadw ick-( iallo
Oregon 1 uebbering
Daily i.a\ergne
Ruth-Alene Soward
John Showman
1 a nnann I iitehens
Marian Cooper
Michael I lardy
Denise Polk
Vaughn Noga
James Wool ford
Steven Fine
Harrell Watkins
Robert MeKinne)
Mesheli Jones-Peeler
Richard (ira>
Sherri Anthony
Dale Miller
1 .orna Washington
Saiuh \\ omack
Bill Samuel
Rud\ Bre\ aid
\\ anda Arlington
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Arthur Muddier
Margaret lliatt
Robert i. Smith
Nicholas Grzegevewski
Tai-1 anu Westermann
Brandon McDowell
.ludi Maguire
Jennifer I luhlar
keeia Thornton
Susan i.indenblad
Gar\ Sternberg
Bettye Belle-Daniel
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Attachment
Technical Comments Related to OKi's Draft Audit Report No. OA-FY16-0136, '¦'"Audit of EPA's
Fiscal 20!( lituntcial Statements," dated November 10, 2016
OKi Recommendation #12: OKi recommends that the ('hief Information Officer develop a process
ami inventory listing in its Disaster Recovery Plan for recovering operations of a primary location in
the event of a disaster at the Sational Computer ('enter
Agency Comments:
1 his recommendation is based on the assumption that C >I• J relies on information from AAMS for
reconstitution of s\ stems. OEI does not rely on AAVIS information for reconstitution of
EHD/NSOD-managed systems. AAMS is used by C11• J only for inventor> tracking purposes UE1
relies on other systems located outside the NCC, for reconstitution purposes, including
EM7/Infraview, B igfix. McAfee (formerly loundstone). and. soon. Cl)\l.
'I'he NCC also maintains a 1 iosting S) stem Information Contingency Plan (Version 3,2, August
26. 201 5) which was pro\ ided to the Ki. I his includes all the information required to
reconstitute the Nt'C's physical equipment.
Based on the information above, OEI does not agree with the statement of facts or the recommendation.
OK» Recommendation #16: OKi recommends thai the ( IO implement an oversight process to monitor
OEI personnel responsible for the Integrated Grants Management System data backups follow
established procedures for rotation of backup tapes to the alternate storage location, a process already
exists.
Agency Comments:
OEI backs up the I QMS Notes servers at Potomac Yards to tape. OEI performs full backups on a
weekly basis as well as nightly incremental backups. Tapes are rotated to VJC East weekly, and
are retained for 30 da\s before being reused. Periodically, federal staff ha\e accompanied the
contractor when they have transported the tapes to the alternate location in W.IC East.
OEI has recently implemented new procedures to provide additional oversight of the process.
Oi l has directed the contractor to include the number of tapes moved to the alternate location in
its management report each week. '1 his report will provide documentation required to confirm
timely tape movement offsite.
'1 he l( IMS Pre-awaid servers are hosted at NCC in K I I3. I hese servers are backed up to backup
appliances in the NCC. full backups of these servers have a retention period of W
davs. Incremental backups of these servers ha\e a retention period of 30 days. These backups are
replicated nightlv to backup appliances in Potomac Yard with a retention period ol 14 days
allowing restoration of that data to alternate hardware shuuld the priman location become
unavailable.
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2
TECHNICAL C'LARIKl CATIONS:
The agency has the following technical clarifications on the AAMS system that should be considered,
1. OARVT s Office of Administration is the system owner for AAMS and it is an independent system,
separate and distinct from OCFO's systems: PTS and Compass Financials,
2. The Compass Maximo system, owned and operated by OCFO, was retired when AAMS went live
on Fcbruan 22. 2016.
I'he AAMS priman s\stem location is the National Computing Center, with an alternate site location at
Potomac Yard. It is a Major Application with a Moderate Securit} Categorization. This information is
reflected in the FY 20]6 system assessment and the attached S\slem Securit} Plan. V 1.1. dated October
4. 2016. which pro\ ides more detailed information about the AAMS system, access controls,
configuration, risk management and eonlingenc} plans. Backup up processes and procedures are located
in the inlbrmation S\stem (. ontingenc) Plan. Re\. 2.2. dated August .¦>. 2016.
3. AAMS has not subscribed to the NCC's Critical Application Recovery sendees due to: 1) the
moderate securit} categorization of AAMS: 2} established alternate site located at PY that includes a
copy ol the production database export from the \'CC servers; 3) undergoing development ol the
contingency database at PY to allow for real-time data replication: 4) duplicate cost avoidance.
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Appendix III
Distribution
Office of the Administrator
Chief Financial Officer
Assistant Administrator for Administration and Resources Management
Chief Information Officer, Office of Environmental Information
Assistant Administrator for Land and Emergency Management
Agency Audit Foilow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Assistant Deputy Chief Financial Officer
Associate Chief Financial Officer
Controller, Office of the Controller, Office of the Chief Financial Officer
Deputy Controller, Office of the Controller, Office of the Chief Financial Officer
Director, Office of Budget, Office of the Chief Financial Officer
Director, Office of Planning, Analysis and Accountability, Office of the Chief Financial Officer
Director, Office of Technology Solutions, Office of the Chief Financial Officer
Director, Research Triangle Park Finance Center, Office of the Chief Financial Officer
Director, Cincinnati Finance Center, Office of the Chief Financial Officer
Director, Las Vegas Finance Center, Office of the Chief Financial Officer
Director, Office of Resource and Information Management, Office of the Chief Financial Officer
Principal Deputy Assistant Administrator, Office of Administration and Resources Management
Director, Office of Policy and Resource Management, Office of Administration and
Resources Management
Deputy Director, Office of Policy and Resource Management, Office of Administration and
Resources Management
Director, Office of Grants and Debarment, Office of Administration and Resources Management
Director, Office of Acquisition Management, Office of Administration and Resources
Management
Director, Office of Administration, Office of Administration and Resources Management
Director, Office of Superfund Remediation and Technology Innovation, Office of Land and
Emergency Management
Principal Deputy Assistant Administrator, Office of Environmental Information
Director, Office of Information Technology Operations, Office of Environmental Information
Director, Office of Information Security and Privacy, Office of Environmental Information
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Environmental Information
Audit Follow-Up Coordinator, Office of Land and Emergency Management
Audit Follow-Up Coordinator, Office of Grants and Debarment, Office of Administration and
Resources Management
17-F-0046
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