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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Financial Management
Audit of EPA's
Fiscal Years 2014 and 2013
(Restated) Consolidated
Financial Statements
Report No. 15-1-0021
November 17, 2014
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Abbreviations
AWBERC
Andrew W. Breidenbach Environmental Research Center
B&F
Building and Facilities
CCTV
Closed Circuit Television
CERCLA
Comprehensive Environmental Response, Compensation and Liability Act
CFC
Cincinnati Finance Center
DOJ
Department of Justice
EPA
U.S. Environmental Protection Agency
FFMIA
Federal Financial Management Improvement Act of 1996
FMFIA
Federal Managers' Financial Integrity Act of 1982
IRMD
Information Resources Management Division
IT
Information Technology
LVFC
Las Vegas Finance Center
NIST
National Institute of Standards and Technology
OARM
Office of Administration and Resources Management
OCFO
Office of the Chief Financial Officer
OIG
Office of Inspector General
OMB
Office of Management and Budget
PP&E
Property, Plant and Equipment
RAS
Reporting and Analysis Staff
RSSI
Required Supplementary Stewardship Information
RTP
Research Triangle Park
S&T
Science and Technology
SFFAS
Statement of Federal Financial Accounting Standards
SP
Special Publication
WFC
Washington Finance Center
Are you aware of fraud, waste or abuse in an
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More information at www.epa.gov/oiq/hotline.html.
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW(2410T)
Washington, DC 20460
(202) 566-2391
www.epa.gov/oig
Subscribe to our Email Updates
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^tDS7-/)^ 15-1-0021
* U.S. Environmental Protection Agency November 17,2014
\ Office of Inspector General
|
At a Glance
Why We Did This Review
We performed this audit in
accordance with the Government
Management Reform Act, which
requires the U.S. Environmental
Protection Agency (EPA) to
prepare, and the Office of
Inspector General to audit, the
agency's financial statements
each year. Our primary objectives
were to determine whether:
EPA's consolidated financial
statements were fairly stated
in all material respects.
EPA's internal controls over
financial reporting were in
place.
EPA management complied
with applicable laws and
regulations.
The requirement for audited
financial statements was enacted
to help bring about improvements
in agencies' financial
management practices, systems
and controls so that timely,
reliable information is available
for managing federal programs.
This report addresses the
following EPA goal or
cross-agency strategy:
Embracing EPA as a high-
performing organization.
Send all inquiries to our public
affairs office at (202) 566-2391
or visit www.epa.gov/oiq.
The full report is at:
www.epa.qov/oiq/reports/2014/
20141117-15-1-0021.pdf
Audit of EPA's Fiscal Years 2014 and 2013
(Restated) Consolidated Financial Statements
Financial Statements Receive an Unmodified Opinion
We rendered an unmodified opinion on the
EPA's consolidated financial statements for
fiscal 2014 and 2013 (restated), meaning that
they were fairly presented and free of material
misstatement.
Internal Control Material Weakness and Significant Deficiencies Noted
We noted the following material weakness:
Software costs were not capitalized, leading to the fiscal 2013 financial
statements needing to be restated.
We noted the following significant deficiencies:
Lab renovation costs were not capitalized.
Controls over accountable personnel inventory process need improving.
The property management and accounting systems do not reconcile.
The Cincinnati Finance Center should clear suspense transactions timely.
A fiscal 2013 collection was recorded to an incorrect fund.
Originating offices did not timely forward accounts receivable documents.
Accounts receivable were not properly reconciled.
Unliquidated funds were not deobligated timely.
Restricted entry access to server rooms was not consistently enforced.
Information technology assets need to be better monitored and secured.
Information technology assets need to be better protected from threats.
Server room cameras need to be reconfigured to fully monitor assets.
Documentation is needed for approval of posting module changes.
Noncompliances With Laws and Regulations Noted
We noted the following instances of noncompliance with laws and regulations:
Standards for recording interest were not sufficiently followed.
EPA's 2014 Federal Managers' Financial Integrity Act Annual Assurance
Statement is inaccurate.
Recommendations and Planned Agency Corrective Actions
The agency generally agreed with our findings and recommendations. The
agency disagreed that the timely forwarding of receivables was an internal
control significant deficiency, and with certain details of its Federal Managers'
Financial Integrity Act Annual Assurance Statement material weakness.
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
OFFICE OF
1 PR0 INSPECTOR GENERAL
% WASHINGTON, D.C. 20460
November 17, 2014
MEMORANDUM
SUBJECT: Audit of EPA's Fiscal Years 2014 and 2013 (Restated) Consolidated Financial Statements
Report No. 15-1-0021
FROM: Paul C. Curtis, Director /
Financial Statement Audits
TO: David Bloom, Acting Chief Financial Officer
Office of the Chief Financial Officer
Nanci Gelb, Assistant Administrator
Office of Administration and Resources Management
Cynthia Giles, Assistant Administrator
Office of Enforcement and Compliance Assurance
Attached is our report on the U.S. Environmental Protection Agency's (EPA's) fiscal 2014 and 2013
(restated) consolidated financial statements. We are reporting an internal control material weakness, as
well as 13 significant deficiencies. Attachment 1 contains details on the material weakness and
significant deficiencies. We also noted two instances of noncompliance, which are discussed in
Attachment 2.
This audit report represents the opinion of the Office of Inspector General (OIG), and the findings in this
report do not necessarily represent the final EPA position. EPA managers, in accordance with
established EPA audit resolution procedures, will make final determinations on the findings in this audit
report. Accordingly, the findings described in this audit report are not binding upon the EPA in any
enforcement proceeding brought by the EPA or the Department of Justice.
Action Required
In accordance with EPA Manual 2750, you are required to provide a written response to this report
within 60 calendar days of the final report date. The response should address all issues and
recommendations contained in Attachments 1 and 2. For corrective actions planned but not completed
by the response date, reference to specific milestone dates will assist us in deciding whether to close this
report in our audit tracking system. Your response will be posted on the OIG's public website, along
with our memorandum commenting on your response. Your response should be provided as an Adobe
PDF file that complies with the accessibility requirements of Section 508 of the Rehabilitation Act of
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1973, as amended. The final response should not contain data that you do not want to be released to the
public; if your response contains such data, you should identify the data for redaction or removal along
with corresponding justification.
This report will be available at http://www.epa.gov/oig.
Attachments
cc: See Appendix III, Distribution
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Audit of EPA's Fiscal Years 2014 and 2013
Consolidated Financial Statements
15-1-0021
Table of Contents
Inspector General's Report on EPA's Fiscal 2014 and
2013 (Restated) Consolidated Financial Statements 1
Report on the Financial Statements 1
Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information,
and Management's Discussion and Analysis 2
Evaluation of Internal Controls 3
Tests of Compliance With Laws and Regulations 8
Prior Audit Coverage 10
Agency Comments and OIG Evaluation 11
Attachments 12
1. Internal Control Material Weakness and Significant Deficiencies 12
Material Weakness
EPA Failed to Capitalize Software Costs, Leading to
Restated Fiscal 2013 Financial Statements 13
Significant Deficiencies
PROPERTY
EPA Did Not Capitalize Lab Renovation Costs 15
EPA's Internal Controls Over Accountable Personnel Inventory
Process Need Improvement 18
EPA's Property Management System Does Not Reconcile
to Its Accounting System (Compass) 20
SUSPENSE ACCOUNT
Cincinnati Finance Center Should Clear Suspense Transactions Timely 22
RECEIVABLES AND COLLECTIONS
EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund 24
Originating Offices Did Not Timely Forward Accounts Receivable
Source Documents to the Finance Center 26
EPA Did Not Properly Reconcile Accounts Receivable 29
-continued-
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Audit of EPA's Fiscal Years 2014 and 2013 15-1 -0021
Consolidated Financial Statements
UNLIQUIDATED OBLIGATIONS
Unneeded Funds Not Deobligated Timely 32
INFORMATION TECHNOLOGY
EPA Needs to Consistently Enforce Restricted Entry Access to
Server Rooms 35
EPA Needs to Ensure That Its Information Technology Assets
Are Properly Monitored and Secured 37
EPA Needs to Establish Procedures for Protecting
Information Technology Assets From Environmental Threats 39
EPA Needs to Configure Server Room Cameras to Fully Monitor
Information Technology Assets 41
EPA Needs to Document Management's Approval for Authorizing
Changes to the Accounting Posting Module 43
2. Compliance With Laws and Regulations 44
EPA Did Not Comply With Federal Accounting Standards for
Recording Interest 45
EPA's 2014 FMFIA Annual Assurance Statement Is Inaccurate 48
3. Status of Prior Audit Report Recommendations 50
4. Status of Current Recommendations and Potential Monetary Benefits 52
Appendices
I. EPA's Fiscal 2014 and 2013 (Restated) Consolidated Financial Statements
II. Agency Response to Draft Report
III. Distribution
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Inspector General's Report on EPA's
Fiscal 2014 and 2013 (Restated)
Consolidated Financial Statements
The Administrator
U.S. Environmental Protection Agency
Report on the Financial Statements
We have audited the accompanying financial statements of the U.S. Environmental Protection
Agency (EPA), which comprise the consolidated balance sheet, as of September 30, 2014, and
September 30, 2013 (restated), and the related consolidated statements of net cost, net cost by
goal, changes in net position, and custodial activity; the combined statement of budgetary
resources for the years then ended; and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation and maintenance of internal controls
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based upon our
audit. We conducted our audit in accordance with generally accepted government auditing
standards; the standards applicable to financial statements contained in Government Auditing
Standards, issued by the Comptroller General of the United States; and Office of
Management and Budget (OMB) Bulletin 14-02, Audit Requirements for Federal Financial
Statements. These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatements.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
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The financial statements include expenses of grantees, contractors and other federal agencies.
Our audit work pertaining to these expenses included testing only within the EPA. The
U.S. Treasury collects and accounts for excise taxes that are deposited into the Leaking
Underground Storage Tank Trust Fund. The U.S. Treasury is also responsible for investing
amounts not needed for current disbursements and transferring funds to the EPA as
authorized in legislation. Since the U.S. Treasury, and not the EPA, is responsible for these
activities, our audit work did not cover these activities.
The Office of Inspector General (OIG) is not independent with respect to amounts pertaining
to OIG operations that are presented in the financial statements. The amounts included for
the OIG are not material to the EPA's financial statements. The OIG is organizationally
independent with respect to all other aspects of the agency's activities.
Opinion
In our opinion, the consolidated financial statements, including the accompanying notes,
present fairly, in all material respects, the consolidated assets, liabilities, net position, net
cost, net cost by goal, changes in net position, custodial activity, and combined budgetary
resources of the EPA as of and for the years ended September 30, 2014 and 2013 (restated),
in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matters
Restated Financial Statements. As discussed in Note 38 in the consolidated financial
statements, the agency has restated the financial statements for fiscal 2013 due to material
errors found in expensing software costs that otherwise should have been capitalized. The
agency's internal control review found it had previously expensed approximately
$193 million in software costs that should have been capitalized. Due to the material errors
found in expensing software costs that should have been capitalized, our report on the EPA's
Consolidated Financial Statements, dated December 16, 2013, is not to be relied upon. That
report is replaced by this report on the restated fiscal 2013 EPA consolidated financial
statements. We report the internal control deficiency that resulted in the material errors as a
material weakness in the Internal Control section of this report.
Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis
Our audit was conducted for the purpose of forming an opinion on the financial statements as a
whole. The Required Supplementary Stewardship Information (RSSI), Required Supplementary
Information, Supplemental Information, and Management's Discussion and Analysis are
presented for purposes of additional analysis and are not a required part of the basic financial
statements. Such information is the responsibility of management. We obtained information from
the EPA management about its methods for preparing the RSSI, Required Supplementary
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Information, Supplemental Information, and Management's Discussion and Analysis, and
reviewed this information for consistency with the financial statements.
We did not identify any material inconsistencies between the information presented in the EPA's
consolidated financial statements and the information presented in the EPA's RSSI, Required
Supplementary Information, Supplemental Information, and Management's Discussion and
Analysis.
Our audit was not designed to express an opinion and, accordingly, we do not express an opinion
on the EPA's RSSI, Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis.
Evaluation of Internal Controls
As defined by OMB, internal control, as it relates to the financial statements, is a process,
affected by the agency's management and other personnel, that is designed to provide reasonable
assurance that the following objectives are met:
Reliability of financial reportingTransactions are properly recorded, processed and
summarized to permit the preparation of the financial statements in accordance with
generally accepted accounting principles, and assets are safeguarded against loss from
unauthorized acquisition, use or disposition.
Compliance with applicable laws, regulations and governmentwide policies
Transactions are executed in accordance with laws governing the use of budget authority,
governmentwide policies, laws identified by OMB, and other laws and regulations that
could have a direct and material effect on the financial statements.
Opinion on Internal Controls. In planning and performing our audit, we considered the EPA's
internal controls over financial reporting by obtaining an understanding of the agency's internal
controls, determining whether internal controls had been placed in operation, assessing control
risk, and performing tests of controls. We did this as a basis for designing our auditing
procedures for the purpose of expressing an opinion on the financial statements and to comply
with OMB audit guidance, not to express an opinion on internal control. Accordingly, we do not
express an opinion on internal control over financial reporting nor on management's assertion on
internal controls included in Management's Discussion and Analysis. We limited our internal
control testing to those controls necessary to achieve the objectives described in OMB Bulletin
No. 14-02, Audit Requirements for Federal Financial Statements. We did not test all internal
controls relevant to operating objectives as broadly defined by the Federal Managers' Financial
Integrity Act of 1982 (FMFIA), such as those controls relevant to ensuring efficient operations.
Material Weakness and Significant Deficiencies. Our consideration of the internal controls
over financial reporting would not necessarily disclose all matters in the internal control over
financial reporting that might be significant deficiencies. Under standards issued by the
American Institute of Certified Public Accountants, a significant deficiency is a deficiency, or
combination of deficiencies, that is less severe than a material weakness, yet important enough to
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merit attention by those charged with governance. A material weakness is a deficiency, or
combination of deficiencies, such that there is a reasonable possibility that a material
misstatement of the entity's financial statements will not be prevented, or detected and corrected
in a timely manner. Because of inherent limitations in internal controls, misstatements, losses or
noncompliance may nevertheless occur and not be detected. We noted certain matters discussed
below involving the internal control and its operation that we consider to be significant
deficiencies. Because of the material and significant errors found in software, other property, and
inventory, we consider the property management and accounting system to be a material
weakness. These issues are summarized below and detailed in Attachment 1.
Material Weakness
EPA Failed to Capitalize Software Costs, Leading to Restated Fiscal 2013
Financial Statements
The agency's accounting for software is a material weakness. In fiscal 2014, the agency
found it had undercapitalized software by expensing approximately $255 million in
software costs over a 7-year period. The undercapitalized software and related equity
accounts indicate the agency has a material weakness in internal controls over identifying
and capitalizing software because such controls failed to detect and correct the errors,
resulting in a misstatement of the fiscal 2013 financial statements. The material
misstatement of the fiscal 2013 financial statements contributed to our determination that
the agency's accounting for software is a material weakness.
Significant Deficiencies
PROPERTY
EPA Did Not Capitalize Lab Renovation Costs
The EPA did not capitalize approximately $8 million of Research Triangle Park lab
renovations. The Statement of Federal Financial Accounting Standards (SFFAS) No. 6,
Accounting for Property, Plant, and Equipment, states "the cost of acquiring property,
plant and equipment (PP&E) may include: .. .fixed equipment and related installation
costs required for activities in a building or facility...." The agency did not believe it
should capitalize the lab renovation because it was a bulk purchase of equipment where
each unit price was less than $25,000. As a result, the EPA did not properly classify the
lab renovation as a capital improvement.
EPA's Internal Controls Over Accountable Personal Inventory Process
Need Improvement
The EPA reported a $2.6 million difference between the amount of accountable personal
property recorded in the property management system (Maximo) and the amount of
physical inventory for fiscal 2014. The EPA also identified 573 property items not
recorded in Maximo. The EPA requires property management personnel to annually
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inventory accountable personal property and add it to Maximo when acquired. The EPA
did not record the property items in Maximo due to various reasons. The primary cause
was property management personnel did not update Maximo timely and accurately.
Recording untimely and inaccurate accountable personal property information could
compromise the EPA's property management system, prevent the proper capitalization of
property, misstate the agency's financial statements, and result in asset loss and
misappropriation.
EPA's Property Management System Does Not Reconcile to Its
Accounting System (Compass)
The EPA did not reconcile $100 million of capital equipment within its property
management subsystem (Maximo) to relevant financial data within its accounting system
(Compass). Resource Management Directive, Technical Interpretation, 2540-11-T2,
Reconciliation Requirements for Capital Property, requires reconciliations between the
property module and general ledger be performed monthly by the responsible security
organization. Various factors contributed to the EPA's failure to reconcile the property
module and the general ledger, such as: (1) incomplete capitalized property records,
which resulted in inappropriately expensed capital equipment; and (2) an integration error
between Maximo and Compass. The inability to reconcile the property subsystem with
Compass can compromise the effectiveness and reliability of financial reporting. We
previously reported on this issue in our 2012 financial statement audit report.
SUSPENSE ACCOUNT
Cincinnati Finance Center Should Clear Suspense Transactions Timely
The Cincinnati Finance Center (CFC) is not clearing collection and disbursement
transactions from the federal budget clearing (suspense) account within 60 days after
posting. As of February 28, 2014, we identified 179 federal disbursement and collection
transactions totaling $18,369,054 remaining in suspense beyond 60 days. EPA guidance
requires each servicing finance office to classify and transfer transactions in the agency's
federal budget clearing accounts to appropriate general ledger accounts within 60 days.
Untimely clearing of suspense transactions influences the agency's ability to reflect financial
activity in the correct fund.
RECEIVABLES AND COLLECTIONS
EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund
In fiscal 2013, the EPA recorded an $11.3 million Clean Air Act engine nonconformance
penalty collection to an incorrect fund. The EPA recorded the collection to the
Environmental Services Special Fund (for vehicle emission test fees) instead of the fines
and penalties fund. Agency guidance directs servicing finance offices to analyze each
collection to determine the reason for the remittance. According to the U.S. Treasury
Financial Manual, engine nonconformance penalties belong in the fines and penalties
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fund 1099. Neither CFC nor the Washington Finance Center followed procedures for
analyzing the collection. CFC, which should have recorded the collection, incorrectly
sent the collection to the Washington Finance Center, which then recorded the collection
as a vehicle emission test fee in the Environmental Services Special Fund. By recording
the nonconformance penalty as a motor vehicle test fee, the EPA overstated the
Environmental Services Special Fund and understated its custodial liability to the
Treasury.
Originating Offices Did Not Timeiy Forward Accounts Receivable Source
Documents to the Finance Center
The EPA and the Department of Justice did not timely forward 40 accounts receivable
source documents totaling $61.7 million to finance centers for recording in the agency's
financial system. The EPA's policies state that the originating offices and action officials
must forward action documents that establish a receivable to the finance center within 5
business days of receipt. We identified various reasons for the delays in forwarding
source documents to the finance centers. Delaying the recording of accounts receivable
could result in a material misstatement of the financial statements.
EPA Did Not Properly Reconcile Accounts Receivable
The EPA did not properly reconcile the March 31, 2014, accounts receivable subsidiary
ledger to the general ledger. The EPA improperly treated a general ledger error as an
addition to the detail receivables. The EPA combined federal and non-federal receivables
in the reconciliation, although federal accounting guidance requires separate reporting.
EPA guidance directs the agency to perform quarterly accounts receivable
reconciliations, investigate discrepancies and correct any differences. When the agency
cannot accurately reconcile the accounts receivable subsidiary ledger to the general
ledger and correct differences, the agency cannot ensure financial statements are properly
stated.
UNLIQUIDATED OBLIGATIONS
Unneeded Funds Not Deobligated Timely
The EPA did not deobligate unneeded funds totaling $4.4 million identified during the
fiscal 2014 annual review of unliquidated obligations. Federal and agency guidance
require unliquidated obligations to be reviewed annually, and EPA requires responsible
offices to review inactive unliquidated obligations and take appropriate action to
deobligate unneeded funds. However, the EPA did not take timely actions to notify the
appropriate offices to deobligate the unneeded funds. As a result, the EPA has no
assurance that unliquidated obligations are accurate and represent valid and viable
obligations, and that obligated funds are being used efficiently.
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INFORMATION TECHNOLOGY
EPA Needs to Consistently Enforce Restricted Entry Access to
Server Rooms
The EPA did not consistently enforce restricted access at the Las Vegas Finance Center
and the Andrew W. Breidenbach Environmental Research Center server rooms. We
found that personnel were granted access to server rooms without proper approval and
that unauthorized personnel had access to a server room door. Specifically, a contractor
was granted access to the Las Vegas server room without the office director's approval.
Additionally, we noticed that the approved access list for the Breidenbach Center's rear
server room door did not match the computer access list in the Facility Commander
software, which allowed unauthorized staff to use the server room door.
EPA Needs to Ensure That Its Information Technology Assets Are
Properly Monitored and Secured
The EPA did not ensure that information technology (IT) assets at the Las Vegas Finance
Center server room, Andrew W. Breidenbach Environmental Research Center server
room, and Research Triangle Park National Computer Center computer room were
properly monitored and secured. We found that a card reader located at the Las Vegas
server room did not consistently log or document alerts of attempts by unauthorized users
to gain access, while server racks within the Breidenbach Center telecommunication
room and the National Computer Center computer room were unlocked.
EPA Needs to Establish Procedures for Protecting Information Technology
Assets From Environmental Threats
The EPA lacks processes to enable personnel to monitor environmental factors that are
used to protect IT assets. Specifically, finance center server rooms lack processes to
protect IT assets from temperature and humidity damage. Additionally, one finance
center had incorrectly installed water sensors, making the servers vulnerable to flooding
before personnel could be alerted to the problem.
EPA Needs to Configure Server Room Cameras to Fully Monitor
Information Technology Assets
Closed circuit television system cameras at the EPA finance centers do not provide
enough visibility to monitor production servers and valuable IT assets for unauthorized
changes. We found that cameras within one server room did not monitor the racks
containing EPA production servers and other IT assets. Additionally, the storage time for
those cameras' feed did not provide the required 30-day playback time. We also observed
an EPA server room for which visibility was controlled by a non-automated light switch
that was not coordinated with the closed circuit television system. Lastly, one server
room lacked consistent lighting to ensure server room activity could be recorded.
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EPA Needs to Document Management's Approval for Authorizing
Changes to the Accounting Posting Module
The EPA lacks management's written approval for authorizing changes to the Compass
accounting posting model to prevent unauthorized changes. The Office of the Chief
Financial Officer does not officially document management's approval when making
updates to the recording of general ledger account activity within the Compass accounting
posting module. The Government Accountability Office's Standards for Internal Control
in the Federal Government (November 1999) states that all transactions and significant
events need to be clearly documented. Revisions to OMB Circular A-123, Management's
Responsibility for Internal Control (December 2004), state that management's control
activities such as proper authorization and appropriate documentation are internal controls
that help safeguard against unauthorized use of assets.
Attachment 3 contains the status of issues reported in prior years' reports. The issues included in
Attachment 3 should be considered among the EPA's significant deficiencies for fiscal 2014.
We reported to the agency on less significant internal control matters during the course of the
audit. We will not issue a separate management letter.
Comparison of EPA's FMFIA Report With Our Evaluation of Internal Controls
OMB Bulletin No. 14-02, Audit Requirements for Federal Financial Statements, requires the
OIG to compare material weaknesses disclosed during the audit with those material weaknesses
reported in the agency's FMFIA report that relate to the financial statements, and identify
material weaknesses disclosed by the audit that were not reported in the agency's FMFIA report.
For financial statement audit and financial reporting purposes, OMB defines material weaknesses
in internal control as a deficiency or combination of deficiencies in internal control such that
there is a reasonable possibility that a material misstatement of the entity's financial statements
will not be prevented, or detected and corrected, on a timely basis.
The agency reported that no material weaknesses had been found in the design or operation of
internal controls over financial reporting as of June 30, 2014. During our audit, the agency
informed us that it intends to report the under capitalization of software and personal property as
agency-level weaknesses. We consider the under capitalization of software to be a material
weakness. As explained in Note 38, the under capitalization caused a material understatement of
capitalized software over a number of years. The agency's internal control system did not detect
or prevent this material understatement. Details concerning our findings on the material
weakness and significant deficiencies can be found in Attachment 1. Subsequently, the agency
agreed to declare weaknesses over its accounting for software as a material weakness.
Tests of Compliance With Laws and Regulations
EPA management is responsible for complying with laws and regulations applicable to the
agency. As part of obtaining reasonable assurance about whether the agency's financial
statements are free of material misstatement, we performed tests of its compliance with certain
provisions of laws and regulations, noncompliance with which could have a direct and material
effect on the determination of financial statement amounts, and certain other laws and
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regulations specified in OMB Bulletin No. 14-02, Audit Requirements for Federal Financial
Statements. The OMB guidance requires that we evaluate compliance with federal financial
management system requirements, including the requirements referred to in the Federal Financial
Management Improvement Act of 1996 (FFMIA). We limited our tests of compliance to these
provisions and did not test compliance with all laws and regulations applicable to the EPA.
Opinion on Compliance With Laws and Regulations
Providing an opinion on compliance with certain provisions of laws and regulations was not
an objective of our audit and, accordingly, we do not express such an opinion. A number of
ongoing investigations involving the EPA's grantees and contractors could disclose
violations of laws and regulations, but a determination about these cases has not been made.
Federal Financial Management Improvement Act Noncompliance
Under FFMIA, we are required to report whether the agency's financial management systems
substantially comply with the federal financial management systems requirements, applicable
federal accounting standards, and the United States Government Standard General Ledger at
the transaction level. To meet the FFMIA requirement, we performed tests of compliance
with FFMIA Section 803(a) requirements and used the OMB guidance, Memorandum
M-09-06-23, Implementation Guidance for the Federal Financial Management Improvement
Act, dated January 9, 2009, for determining substantial noncompliance with FFMIA.
We identified an instance of substantial noncompliance with FFMIA requirements. The
agency was not in substantial compliance with SFFAS No. 10, Accounting for Internal Use
Software, for under capitalizing software costs. See Attachment 1 for the detailed description
of this issue. Our results of our tests did not disclose any other instances of substantial
noncompliance with FFMIA requirements.
We identified two significant matters involving compliance with laws and regulations that
came to our attention during the course of the audit. We found that the EPA did not comply
with federal standards for recording interest, and the EPA's 2014 FMFIA Annual Assurance
Statement did not report software as a material weakness. Attachment 2 provides additional
details, as well as our recommendations on actions that should be taken on these matters.
We will not issue a separate management letter.
EPA Did Not Comply With Federal Accounting Standards for
Recording Interest
The EPA did not record all applicable interest for some Superfund, installment and grant
accounts receivable in the accounting system as required by applicable laws, federal
accounting standards and EPA policy. The EPA did not record the proper interest due to
Compass accounting system problems and nonconformance to the terms in the receivable
legal source documents. By not recording all applicable interest, the EPA did not collect
all the funds to which it was entitled and did not comply with applicable laws, federal
accounting standards and EPA policy.
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EPA's 2014 FMFIA Annual Assurance Statement Is Inaccurate
In May 2014, the EPA identified a $193 million error in its capitalized software accounts,
which resulted in the restatement of its fiscal 2013 financial statements. In spite of this
material error, the EPA did not report capitalized software as a material weakness in its
draft fiscal 2014 FMFIA Annual Assurance Statement. OMB Circular A-123 defines
material weaknesses in internal control as a "Reportable condition, or combination of
reportable conditions, that results in more than a remote likelihood that a material
misstatement of the financial statements, or other significant financial reports, will not be
prevented or detected." OMB Circular A-123 also states that "management is precluded
from concluding that the agency's internal control is effective (unqualified statement of
assurance) if there are one or more material weaknesses." While EPA management is
restating the fiscal 2013 financial statements, the agency does not consider this software
capitalization error to be a material weakness. Because the EPA did not report capitalized
software as a material weakness in its initial fiscal 2014 draft FMFIA Annual Assurance
Statement, the agency is not in compliance with FMFIA reporting requirements.
Subsequently, the agency has agreed to declare weaknesses over its accounting for
software as a material weakness.
Audit Work Required Under the Hazardous Substance Superfund Trust Fund
Our audit work was also performed to meet the requirements in 42 U.S. Code §961 l(k) with
respect to the Hazardous Substance Superfund Trust Fund, to conduct an annual audit of
payments, obligations, reimbursements or other uses of the fund. The significant deficiencies
reported above also relate to Superfund.
Prior Audit Coverage
During previous financial or financial-related audits, we reported the following weaknesses that
impacted our audit objectives:
Posting models materially misstated general ledger activities and balances.
Compass reporting limitations impair accounting operations and internal controls.
EPA should improve compliance with internal controls for accounts receivable.
Property internal controls need improvement.
Compass and Maximo cannot be reconciled.
EPA should improve controls over expense accrual reversals.
Financial management system user account management needs improvement.
Attachment 3 summarizes the current status of corrective actions taken on prior audit report
recommendations related to these issues.
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Agency Comments and OIG Evaluation
In a memorandum dated November 13, 2014, the acting Chief Financial Officer responded to our
draft report.
The rationale for our conclusions and a summary of the agency comments are included in
the appropriate sections of this report, and the agency's complete response is included as
Appendix II to this report.
This report is intended solely for the information and use of the management of the EPA, OMB
and Congress, and is not intended to be and should not be used by anyone other than those
specified parties.
Paul C. Curtis
Certified Public Accountant
Director, Financial Statement Audits
Office of Inspector General
U.S. Environmental Protection Agency
November 17, 2014
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Attachment 1
Internal Control Material Weakness
and Significant Deficiencies
Table of Contents
Material Weakness
1 EPA Failed to Capitalize Software Costs, Leading to
Restated Fiscal 2013 Financial Statements 13
Significant Deficiencies
PROPERTY
2 EPA Did Not Capitalize Lab Renovation Costs 15
3 EPA's Internal Controls Over Accountable Personnel Inventory
Process Need Improvement 18
4 EPA's Property Management System Does Not Reconcile
to Its Accounting System (Compass) 20
SUSPENSE ACCOUNT
5 Cincinnati Finance Center Should Clear Suspense Transactions Timely 22
RECEIVABLES AND COLLECTIONS
6 EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund 24
7 Originating Offices Did Not Timely Forward Accounts Receivable
Source Documents to the Finance Center 26
8 EPA Did Not Properly Reconcile Accounts Receivable 29
UNLIQUIDATED OBLIGATIONS
9 Unneeded Funds Not Deobligated Timely 32
INFORMATION TECHNOLOGY
10 EPA Needs to Consistently Enforce Restricted Entry Access to Server Rooms 35
11 EPA Needs to Ensure That Its Information Technology Assets
Are Properly Monitored and Secured 37
12 EPA Needs to Establish Procedures for Protecting
Information Technology Assets From Environmental Threats 39
13 EPA Needs to Configure Server Room Cameras to
Fully Monitor Information Technology Assets 41
14 EPA Needs to Document Management's Approval for
Authorizing Changes to the Accounting Posting Module 43
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1 - EPA Failed to Capitalize Software Costs, Leading to
Restated Fiscal 2013 Financial Statements
The agency's accounting for software is a material weakness. In fiscal 2014, the agency found it
had undercapitalized software by expensing approximately $255 million in software costs over a
7-year period. The undercapitalized software and related equity accounts indicate the agency has
a material weakness in internal controls over identifying and capitalizing software because such
controls failed to detect and correct the errors, resulting in a misstatement of the fiscal 2013
financial statements. The material misstatement of the fiscal 2013 financial statements
contributed to our determination that the agency's accounting for software is a material
weakness.
The agency identified approximately $255 million in software costs that should have been
capitalized, based on its OMB Circular A-123 review of all software projects in development and
put into production over the last 7 years. The agency's policy is to capitalize software costs
exceeding its annual capitalization threshold of $250,000. SFFAS No. 10, Accounting for
Internal Use Software, requires entities to capitalize the cost of software which meets the criteria
for general property, plant, and equipment. The agency did not capitalize all appropriate
software costs because it did not enter transactions under $25,000 into the general ledger as
capital property, incorrectly combined credit transactions with debit transactions, and entered
incorrect accounting data due to data entry errors. Understating the capitalized software and
related equity accounts materially misstated the fiscal 2013 financial statements. The agency
corrected the capitalized software values for fiscal 2014 and restated the fiscal 2013 financial
statements.
In fiscal 2014, the agency conducted an OMB Circular A-123 review of its capital software
process and identified internal control deficiencies related to capitalizing software. The agency
therefore reviewed all software projects in development and put into production over the last
7 years to determine the correct value and accounting information for software projects. The
agency identified approximately $255 million in software costs that should have been
capitalized. EPA could not determine the uncapitalized software for each individual year, but the
cumulative effect of uncapitalized software over 7 years was material to the financial statements.
The agency's policy is to capitalize software costs exceeding its annual capitalization threshold
of $250,000 and depreciate the costs over 7 years. However, the agency did not capitalize all
appropriate software costs because:
It did not enter transactions under $25,000 into the general ledger as capital property.
When the agency found credit transactions, it combined them with other debit
transactions to make the transaction amount correct.
Data entry errors for some transactions caused incorrect accounting strings.
The agency corrected the capitalized software values for fiscal 2014 and restated the fiscal 2013
financial statements. The agency's approach to correcting software projects was to compare
expenditures identified by an IT project code to costs recorded in the fixed asset subsystem. Any
differences identified were considered a capital expense for the software project. The agency
processed a correcting entry in Compass for expenditures that it had not previously capitalized.
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The agency did not examine the supporting documentation for the payments to verify they
should be capitalized. Without reviewing individual invoices to support the software costs
capitalized, the agency has no assurance that such costs represent actual costs that should be
capitalized or other operating expenses. Our review of the agency's capitalized costs indicated it
capitalized some costs that should not have been capitalized, such as annual licensing fees and
data conversion fees. The capitalization of such costs was due to the process the agency used to
capitalize costs. Had the agency examined the invoices instead of relying on the system, errors
could have been caught and corrected.
Understating the capitalized software materially misstated the fiscal 2013 financial statements
and the beginning balance in equity for fiscal 2014, which indicated a material internal control
weakness. The undercapitalized software resulted in a material misstatement of the financial
statements that was not prevented or detected and led to the restatement of the fiscal 2013
financial statements.
Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management:
1. Require project officers to track and accumulate software costs by project from inception
through date placed in service.
We recommend that the Chief Financial Officer:
2. Require the Reporting and Analysis Staff to coordinate with Office of Administration and
Resources Management project officers to receive software project cost support once
placed into service.
3. Document and support project costs for all software costs placed into service over the
past 7 years.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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2 - EPA Did Not Capitalize Lab Renovation Costs
The EPA did not capitalize approximately $8 million of Research Triangle Park (RTP) lab
renovations. SFFAS No. 6, Accounting for Property, Plant, and Equipment, states "the cost of
acquiring property, plant and equipment (PP&E) may include: .. .fixed equipment and related
installation costs required for activities in a building or facility...." The agency did not believe it
should capitalize the lab renovation because it was a bulk purchase of equipment where each unit
price was less than $25,000. As a result, the EPA did not properly classify the lab renovation as a
capital improvement.
To fund the cost of the renovations, the EPA used Science and Technology (S&T) funds that
allows for the procurement of laboratory equipment and supplies. The agency funded the
renovation costs based on an internal legal decision that gave a general definition of construction
costs. The 1999 legal opinion states:
"Guided by the dictionary references to "construction" that contemplate a
permanent, usable and functioning facility, you must consider the purpose the
equipment will serve in the Facility, i.e., whether the equipment is necessary for
the basic operation or structural integrity of the Facility. If the equipment is
necessary for the basic operation or structural integrity of the Facility ..., then
such equipment must be considered to be part of the Facility construction.
Further, you should establish how the equipment has historically been funded. If
the equipment has historically been funded as a construction cost in other agency
building projects, then it must be considered a construction cost with regard to the
Facility. If the equipment's purpose is for programmatic functions and is not
necessary for the basic operation or structural integrity of the Facility, and if
similar equipment has historically been funded as a program item, then it must be
funded from the relevant program appropriation account...."
The EPA November 2011 memorandum, Justification for Utilizing Program Appropriations for
Laboratory Refurbishing, further explains the agency's use of S&T funds for the RTP lab
renovation. The memorandum stated, "renovations are expected to cost approximately
$8 million. Nearly half of this amount will be associated with the cost of the equipment itself,
with most of the balance going to installation cost." The agency believed the primary purpose of
the contract was the acquisition and installation of equipment. Attachment A, Statement of Work
for Indefinite-Delivery/Indefinite-Quantity Contract for the U.S. EPA RTP/RTF Laboratory
Renovation Project at Research Triangle Park, North Carolina Statement of Work, states: "The
renovation work will range from light laboratory modifications to the complete retrofit of office
space into laboratory space."
The Building and Facilities (B&F) appropriation states the appropriation is: "For construction,
repair, improvement, extension, alteration, and purchase of fixed equipment or facilities of or for
use by the Environmental Protection Agency."
SFFAS No. 6 states that "Cost shall include all costs incurred to bring the PP&E to a form and
location suitable for its intended use. For example, the cost of acquiring PP&E may include:
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.. .fixed equipment and related installation costs required for the activities in a building or
facility...."
The EPA used S&T funds to renovate labs at the RTP main campus, which included fume hoods
and laboratory casework (removal/reconfiguration of existing laboratory bench tops and
cabinets) to accommodate research activities. While some cost of the renovation may be
associated with moving fume hood equipment, the EPA could not provide a breakdown in a
timely manner to determine cost associated with the equipment installation and the renovation.
The agency used the wrong funding object class code, which caused the renovation costs to be
expensed and not capitalized. The agency said the lab renovation was a bulk purchase of
equipment, where each unit price was less than $25,000. Therefore, the agency did not believe it
should capitalize the lab renovation. However, the agency also acknowledged that its policy on
bulk purchases applies to all PP&E and not just personal property.
The agency renovated an entire space to create laboratories, which should not be broken down
into individual units to determine capitalization. In accordance with SFFAS No. 6 and our
analysis of the costs incurred and nature of the expenditures, the entire cost of the RTP lab
renovation should be capitalized. The agency agreed and said it would book and capitalize the
RTP renovation costs.
During our analysis of the RTP lab renovation, we noted several concerns about the legal opinion
that the agency relied upon:
The opinion is possibly datedit was written in 1999, and the legal definition of
"construction" may well have changed since that time.
The opinion relies entirely on dictionary definitions of constructionit is likely that there
are legal sources that should be considered when defining "construction."
The opinion does not specifically address the funding of EPA lab renovations, which
could include equipment costs and construction projects.
The opinion in its entirety is a little over two pagesit did not provide a developed legal
analysis and developed examples.
Given the potential problems identified above, the OIG anticipates that the agency's Office of
General Counsel will review the opinion to determine whether it is legally acceptable and, if
"yes," so state in a written position for use by the agency. If the opinion is deemed not to be
legally acceptable, the Office of General Counsel should execute a new opinion based on
established legal positions.
When the EPA determined to expense the renovation cost in the general ledger and use S&T
funding for renovation, it potentially compromised the accuracy of the EPA's capital property
accounts, depreciation and operating expenses, as well as the accuracy of the agency's financial
statements.
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Recommendations
We recommend that the Chief Financial Officer:
4. Capitalize and book the RTP lab renovation costs and calculate depreciation.
5. Improve and maintain support for how EPA lab renovation projects are funded.
6. Review funding sources of all current and future lab renovations to ensure correct
funding is utilized.
7. Develop policies and procedures for capital improvements/betterments to real property,
specifically, to address EPA lab renovations which could include bulk purchases of
equipment and funding from agency program appropriations other than the B&F
appropriation.
8. Request the Office of General Counsel to determine whether the legal opinion referenced
herein represents a legally acceptable position regarding the definition of "construction,"
and provides adequate examples to guide determinations of when renovation work should
be funded out of agency program appropriations (e.g., S&T) or B&F funds.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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3 - EPA's Internal Controls Over Accountable Personnel Inventory
Process Need Improvement
The EPA reported a $2.6 million difference between the amount of accountable personal
property recorded in the property management system (Maximo) and the amount of physical
inventory for fiscal 2014. The EPA also identified 573 property items not recorded in Maximo.
The EPA requires property management personnel to annually inventory accountable personal
property and add it to Maximo when acquired. The EPA did not record the property items in
Maximo due to various reasons. The primary cause was property management personnel did not
update Maximo timely and accurately. Recording untimely and inaccurate accountable personal
property information could compromise the EPA's property management system, prevent the
proper capitalization of property, misstate the agency's financial statements, and result in asset
loss and misappropriation.
The EPA's Facilities Management and Services Division administers the EPA personal property
management program. The EPA's Personal Property and Procedures Manual, Section 3.2.1,
defines accountable personal property as "Personal property with an acquisition cost of $5,000 or
more, all leased personal property, and sensitive items." Section 3.1.1 states that each
accountable area's personal property records must be maintained in Compass, which includes a
fixed asset subsystem updated by Maximo. Thus, Compass will provide all needed data for
effective personal property management (i.e., location, procurement, utilization and disposal).
Section 3.7.3 states that control and accountability of personal property shall be established in
Compass upon receipt of such property and must be maintained until disposal of the property.
All actions affecting the control and accountability of accountable property must be supported by
appropriate authorized transaction documents.
The EPA's Property Bulletin No. 14-004 states, "It is imperative that the agency be a good
steward of a property under its control. When accountable property comes into a Property
Management Officer's custodial area, the property record must appear in the property tracking
system within 5 days of installation or on-site receipt."
The EPA's Personal Property Management Policy states that a Board of Survey shall serve as a
fact-finding body to determine negligence surrounding the loss, damage or destruction of
property. It is the Board of Survey's responsibility to conduct an investigation, submit a signed
report of survey to the proper approval authority, and authorize the removal of items from
property records.
The EPA reported a $2.6 million difference between the amount of accountable personal
property recorded in Maximo and the amount of physical inventory for year 2014. The difference
included $696,977 of capitalized property in the system but not in inventory. The EPA also
identified 573 property items not recorded in Maximo. We identified other examples of improper
management of accountable personal property:
The EPA inaccurately recorded in Maximo the location of 22 pieces of equipment valued
at $227,000. One piece of capitalized property was physically located in RTP, North
Carolina, as of December 2013, but the inventoried record documented the equipment
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location as Seattle, Washington, in May 2014. The agency could not determine how the
inventory record was improperly updated.
In August 2014, we found a $29,616 capitalized piece of equipment delivered directly to
a program office and not decaled or entered into the property management system when
placed into service September 30, 2013. The EPA did not include the property in
inventory for over a year.
The primary reason that the EPA did not record the property items in Maximo was that property
management personnel were not updating Maximo timely and accurately. Other reasons included:
A program office did not notify the property management officer when it received a piece
of capitalized equipment.
Property management personnel did not always decal property entered into the property
management system.
A lack of Board of Survey investigations hindered the removal of items from property
records.
Proper management of the EPA's accountable personal property depends on property
management personnel maintaining an accurate inventory in the property management system.
The EPA's problems in maintaining accurate property records indicates a need for improved
internal controls. Recording untimely and inaccurate accountable personal property information
could compromise the EPA's property management system, prevent the proper capitalization of
property, misstate the agency's financial statements, and result in asset loss and
misappropriation.
Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management
require the Director, Facilities Management and Services Division, to:
9. Update inventory records according to EPA's Property Bulletin No. 14-004.
10. Identify the personal property records missing from the agency's property management
system and record them in the system.
11. Conduct Board of Survey investigations more frequently to adequately address missing
and uninventoried property. Document the results of Board of Survey investigations and
update the property management records accordingly.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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4 - EPA's Property Management System Does Not Reconcile to Its
Accounting System (Compass)
The EPA did not reconcile $100 million of capital equipment within its property management
subsystem (Maximo) to relevant financial data within its accounting system (Compass).
Resource Management Directive, Technical Interpretation, 2540-11-T2, Reconciliation
Requirements for Capital Property, requires reconciliations between the property module and
general ledger be performed monthly by the responsible security organization. Various factors
contributed to the EPA's failure to reconcile the property module and the general ledger, such as:
(1) incomplete capitalized property records, which resulted in inappropriately expensed capital
equipment; and (2) an integration error between Maximo and Compass. The inability to reconcile
the property subsystem with Compass can compromise the effectiveness and reliability of
financial reporting. We previously reported on this issue in our 2012 financial statement audit
report.
Resource Management Directive, 2540-11-T2, states, "Reconciliations between the property
module and general ledger within Compass shall be performed monthly by the responsible
security organization. The results of the reconciliation shall be verified quarterly by the
cognizant regional finance management officer, Research Triangle Park Finance Center,
Cincinnati Finance Center and Las Vegas Finance Center." Property Bulletin 14-004,
Property Timelines and Deadlines states "a property manager has [5 days] to update the property
management system after a piece of property arrives at, is moved to, or leaves one location for
another."
Maximo interfaces with Compass when capitalized equipment is added to the property system.
However, if a property record is not created in Maximo, the equipment will not be recorded as a
capital asset within the agency's financial system.
We found capitalized equipment that was not entered into Maximo timely, an integration error
between Maximo and Compass, and examples of capital equipment shipped directly to a
program office without notifying the property management officer. All of these examples
contributed to the reconciliation issues. Specific examples include:
A $29,600 piece of capitalized equipment with an in-service date of September 2013 was
received by a program office and not decaled until found by RTP's property accountant
while working on the Maximo/Compass reconciliation. The RTP property management
officer decaled the equipment and entered the capital property record into Maximo in
August 2014, or 11 months after the equipment was received.
An $80,500 piece of capital equipment was received and immediately placed into service
in March 2012. A property accountable officer found the equipment in May 2014. The
property accountable officer decaled and entered the capital equipment into Maximo
2 years and 2 months after the equipment was placed into service. Until the decal was
entered into Maximo, the piece of equipment was not recognized as capital equipment
and depreciated.
As part of our sampling, we identified a capital asset that was recorded in Maximo with
an in-service date of December 13, 2013, but not processed as a capitalized asset in
Compass. An integration error between Maximo and Compass prevented a $797,385
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capital asset to push over to Compass. A software contractor fixed the integration error
and it was correctly processed as a capital asset in September 2014.
Inaccurate personal property records compromise the EPA's property control system and
can lead to the loss or misappropriation of agency assets. The failure to reconcile the
property subsystem with Compass can compromise the effectiveness and reliability of
financial reporting, including possible misstatements within the financial statements.
Recommendations
We recommend that the Chief Financial Officer:
12. Research and resolve differences between Compass and the property management system
timely.
We recommend that the Assistant Administrator for Administration and Resources Management:
13. Require the Office of Administration, Facilities Management and Services Division, to
verify the correctness and update all capitalized property records in the official property
system as required.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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5 - Cincinnati Finance Center Should Clear Suspense Transactions
Timely
The Cincinnati Finance Center (CFC) is not clearing collection and disbursement transactions from
the federal budget clearing (suspense) account within 60 days after posting. As of February 28,
2014, we identified 179 federal disbursement and collection transactions totaling $18,369,054
remaining in suspense beyond 60 days. EPA guidance requires each servicing finance office to
classify and transfer transactions in the agency's federal budget clearing accounts to appropriate
general ledger accounts within 60 days. CFC did not clear suspense accounts timely primarily
because EPA project officers did not provide timely disbursement approvals needed to clear the
suspense accounts. Untimely clearing of suspense transactions was also due to:
Waiting for final documentation/breakdown details.
Disputing with another agency a receivable charge.
Researching transactions and following up with regions.
Untimely clearing of suspense transactions influences the agency's ability to reflect financial
activity in the correct fund.
CFC records federal disbursements and collections in suspense account 68F3885. The
accounting system notifies the project officers by email of a transaction waiting for their
approval. The system sends follow-up emails at 20 days, 30 days, and then weekly if the project
officer does not act on the approval request. Disbursement transactions remain in suspense until
an EPA project officer approves or disapproves them. When the EPA approves a disbursement,
the system removes the transaction from the suspense account and charges it to the appropriate
receipt or expenditure accounts. Collection transactions remain in suspense until the CFC applies
them to the corresponding receivable.
The EPA's Statement of Transactions SF 224 Desktop Reporting Procedures requires each
servicing finance office to classify and transfer transactions in the agency's federal budget
clearing accounts to appropriate general ledger accounts within 60 days.
Treasury Financial Manual, Volume 1, Bulletin No. 2011-06, dated June 30, 2012, directs
federal agencies to certify annually that suspense account F3885 for the preceding yearend does
not include any items or transactions more than 60 days old. If there are transactions more than
60 days old, the federal agency must clearly explain the reason.
CFC is not clearing federal collection and disbursement transactions from suspense within
60 days after posting. We identified five collection transactions totaling $167,989 and 174
disbursement transactions totaling $18,201,064 in suspense accounts longer than 60 days.
CFC did not clear suspense accounts timely primarily because EPA project officers did not
provide timely disbursement approvals needed to clear the suspense accounts. CFC staff stated
that they were not required to follow up with the project officers to obtain their approval. CFC
relied on the system-generated reminder emails to the project officers and did not make many
follow-up attempts to get the project officers' approval. Untimely clearing of suspense
transactions influences the agency's ability to reflect financial activity in the correct fund.
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Recommendations
We recommend that the Assistant Administrator for Administration and Resources Management:
14. Require project officers to approve federal disbursements timely.
We recommend that the Chief Financial Officer:
15. Require CFC staff to follow up with project officers and regions to obtain the necessary
disbursement approvals and information needed to clear transactions timely from the
federal budget clearing (suspense) account.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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6-
EPA Recorded a Fiscal 2013 Collection to an Incorrect Fund
In fiscal 2013, the EPA recorded an $11.3 million Clean Air Act engine nonconformance penalty
collection to an incorrect fund. The EPA recorded the collection to the Environmental Services
Special Fund (for vehicle emission test fees) instead of the fines and penalties fund. Agency
guidance directs servicing finance offices to analyze each collection to determine the reason for
the remittance. According to the U.S. Treasury Financial Manual, engine nonconformance
penalties belong in the fines and penalties fund 1099. Neither CFC nor the Washington Finance
Center (WFC) followed procedures for analyzing the collection. CFC, which should have
recorded the collection, incorrectly sent the collection to WFC, which then recorded the
collection as a vehicle emission test fee in the Environmental Services Special Fund. By
recording the nonconformance penalty as a motor vehicle test fee, the EPA overstated the
Environmental Services Special Fund and understated its custodial liability to the Treasury.
The Clean Air Act (42 U.S. Code Section 7525) authorized the EPA to establish a mechanism for
manufacturers of heavy-duty highway engines to pay a penalty instead of meeting current
emission standards. Nonconformance penalties are monetary penalties assessed on a per-engine
basis that allow an engine manufacturer to sell engines that do not meet the emission standards.
The EPA's Resources Management Directives System 2540-03, Cash Management Collections
and Deposits, provides the agency's policies and procedures for collecting receipts and
depositing funds. The policy directs servicing finance offices to analyze each collection it
receives to determine the reason for the remittance and collection type, which helps the EPA to
classify the collection to the proper fund.
SFFAS No. 7, Accounting for Revenue and Other Financing Sources, provides standards for
classifying, recognizing and measuring revenue resources inflows. Nonexchange revenue arises
primarily from the federal government's power to demand payment from the public and includes
fines and penalties. Nonexchange revenue should be measured by the collecting entities but
recognized by the entities legally entitled to the revenue. The EPA nonconformance penalty
represents nonexchange revenue collected by the EPA for the Treasury general fund.
The U.S. Department of the Treasury's Treasury Financial Manual contains the receipt,
appropriation, and other fund account symbols and titles assigned by the Treasury consistent
with the Comptroller General of the United States. According to the Treasury, fund 1099
represents Fines, Penalties, and Forfeitures, Not Otherwise Classified.
In fiscal 2013, the EPA recorded an $11.3 million Clean Air Act engine nonconformance penalty
collection received in November 2012 to the Environmental Services Special Fund instead of the
fines and penalties fund. The EPA uses the Environmental Services Special Fund for vehicle
emission test fees. Any fees collected to this special fund remain available for appropriation to
carry out the agency's vehicle emission tests. Engine nonconformance penalties are violations of
emission standards and should be recorded in the fines and penalties fund.
For the $11.3 million penalty collection, neither CFC nor WFC recognized the proper collection
type, or followed their control procedures for recording fines and penalties and vehicle emission
test fee collections, respectively. While CFC received the collection on November 1, 2012, the
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collection staff did not recognize the collection as a nonconformance penalty or notify accounts
receivable staff about the collection to determine whether an account receivable was established.
Instead, CFC sent the collection to WFC in error. WFC did not recognize the nonconformance
penalty collection and improperly recorded the collection as a motor vehicle emission test fee in
the Environmental Services Special Fund.
When we brought the error to the CFC's attention in August 2014, CFC recorded the
$11.3 million nonconformance penalty receivable and requested that WFC return the collection
to CFC. As of September 4, 2014, the collection remained in the Environmental Services Special
Fund and not applied to the receivable. Until the EPA reclassifies the collection to the fines and
penalties fund, the EPA's custodial liability will be understated and the Environmental Services
Special Fund will be overstated by $11.3 million.
Recommendation
We recommend that the Chief Financial Officer:
16. Reclassify the $11.3 million collection from the Environmental Services Special Fund to
the fines and penalties fund using appropriate entries to ensure that current year general
ledger accounts and financial statements are properly stated.
Agency Comments and OIG Evaluation
The agency agreed with our finding and recommendation.
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7 - Originating Offices Did Not Timely Forward Accounts Receivable
Source Documents to the Finance Center
The EPA and the Department of Justice (DOJ) did not timely forward 40 accounts receivable
source documents totaling $61.7 million to finance centers for recording in the agency's financial
system. The EPA's policies state that the originating offices and action officials must forward
action documents that establish a receivable to the finance center within 5 business days of
receipt. We identified various reasons for the delays in forwarding source documents to the
finance centers. Delaying the recording of accounts receivable could result in a material
misstatement of the financial statements.
The EPA's Resources Management Directive Systems 2540-9-P1, Billing and Collecting, require
the originating offices and action officials to forward all action documents that establish an
account receivable to the finance center within 5 business days.
Resources Management Directive Systems 2550D-14-T1, Superfund Accounts Receivable and
Billings, states the Regional Legal Enforcement Office is responsible for forwarding copies to
the finance center of signed administrative settlement agreements and other administrative
source documentation establishing amounts due to the EPA within 5 workdays of receipt of
document. In addition, the Office of Regional Counsel Legal Enforcement Office shall work
with the appropriate finance center on an ongoing basis to keep the finance center abreast of
anticipated executed settlement agreements, including those executed jointly by the EPA and the
DOJ, to prevent the untimely recording of accounts receivable by the finance center.
Resources Management Directive Systems 2540-9-P3, Administrative and Judicial Civil
Penalties, states the DOJ's Environmental and Natural Resource Division emails CFC
supporting documentation for all penalty payments owed pursuant to a judicial order. The DOJ
notifies the EPA of a final order/judgment and provides a copy to the CFC at the time the DOJ
requests its Financial Litigation Unit to issue payment instructions to the defendant.
According to the Government Accountability Office's Standards for Internal Control in the
Federal Government, transactions should be promptly recorded to maintain their relevance and
value to management in controlling operations and making decisions.
The responsible offices did not provide source documents timely to the finance centers. We
found that:
The EPA's originating offices did not timely provide administrative legal documents to
the appropriate finance center for 25 receivables totaling $28.3 million.
The DOJ's Environmental and Natural Resource Division did not timely forward judicial
documents to CFC for 15 receivables totaling $33.4 million.
The following information provides additional detail and perspective for the 40 receivables not
provided timely. We found eight documents received late totaling $56,880,970 out of 45
statistical samples totaling $100,003,739 that we reviewed. We found another 32 documents
received late totaling $4,830,162 out of 197 documents reviewed totaling $62,473,742. The
details of the 32 documents and the areas we reviewed are:
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From our review of the agency's reconciliation of the DOJ Environmental and Natural
Resource Division debts assessed report, we found 28 documents received late totaling
$4,239,256 out of 112 receivables reviewed totaling $50,253,837.
From our review of the agency's Integrated Compliance Information System database
reconciliation, we found three documents received late totaling $502,006 out of 84
receivables reviewed totaling $12,131,005.
From our analysis of the agency's collection effort, we found one document received late
for one receivable totaling $88,900.
Although we could not determine the cause for all the delays in recording the receivables or
providing source documents to the finance centers, we identified the following causes:
For some accounts receivable, the regional office personnel did not timely provide CFC
with the Superfund Accounts Receivable Standard Control Form, which has information
that CFC uses to record the receivable.
For one grant disallowed costs accounts receivable, the originating office did not deem
necessary to forward source documents to the finance center within 5 business days
because the grantee expressed a need to negotiate a payment plan.
Regional and state-prepared stipulated penalty letters did not include CFC on the mailing
list.
Some regional enforcement office personnel did not timely forward bankruptcy legal documents
or administrative settlement agreements to the finance center; however, we did not identify the
cause.
When the responsible offices do not timely provide source documents to the finance centers, the
EPA cannot record accounts receivable in a timely manner. Delaying the recording of accounts
receivable could result in a material misstatement of the financial statements.
Recommendations
We recommend that the Assistant Administrator for Enforcement and Compliance Assurance:
17. Require enforcement officers to include CFC on the stipulated penalty letters mailing list.
18. Remind personnel to timely forward legal documents or administrative settlement
agreements to the finance center.
19. Work with the DOJ to forward DOJ legal documents timely to CFC.
We recommend that the Chief Financial Officer:
20. Work with the Office of Enforcement and Compliance Assurance to update EPA
Superfund guidance to require originating offices to timely forward the Superfund
Accounts Receivable Control Forms to the finance center.
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We recommend the Assistant Administrator for Administration and Resources Management:
21. Require the Office of Grants and Debarment to instruct personnel to forward source
documents for grant disallowed costs timely to the finance center even if the bill is under
dispute or in negotiation for a payment plan.
22. Require the Office of Grants and Debarment to follow up to ensure that the EPA
forwards the documents timely.
Agency Comments and OIG Evaluation
The agency agreed with the recommendations, but disagreed that the finding was a significant
deficiency under FMFIA. The OIG identified the issue as an internal control significant deficiency
because of the high frequency of delays in processing receivables and the dollar value of those
receivables.
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8 - EPA Did Not Properly Reconcile Accounts Receivable
The EPA did not properly reconcile the March 31, 2014, accounts receivable subsidiary ledger to
the general ledger. The EPA improperly treated a general ledger error as an addition to the detail
receivables. The EPA combined federal and non-federal receivables in the reconciliation,
although federal accounting guidance requires separate reporting. EPA guidance directs the
agency to perform quarterly accounts receivable reconciliations, investigate discrepancies and
correct any differences. Several factors caused the improper reconciliation:
The EPA considers journal vouchers as accounts receivable bill detail in the
reconciliation.
Compass consolidates receivable data at the agency level but not at the finance center
level.
The reconciliation did not distinguish between federal and non-federal receivables.
Accounts receivable detail reports used for the reconciliation were not accurate.
When the agency cannot accurately reconcile the accounts receivable subsidiary ledger to the
general ledger and correct differences, the agency cannot ensure financial statements are
properly stated.
The EPA Resources Management Directive Systems 2540-9-T2, Receivables and Billings,
directs EPA's Reporting and Analysis Staff (RAS) to perform quarterly accounts receivable
reconciliations and Office of Financial Services to research discrepancies, and correct any
differences.
SFFAS No. 1, Accounting for Selected Assets and Liabilities, requires federal agencies report
receivables from federal entities separately from receivables from non-federal entities.
The Government Accountability Office's Standards for Internal Control in the Federal
Government defines the five standards for the minimum level of quality acceptable for internal
control in government. The standard for control activities requires accurate and timely recording
of transactions and events.
OMB Circular A-123, Appendix D, requires financial management systems to provide complete,
reliable, consistent and timely financial management information on federal government
operations.
The EPA's March 31, 2014 accounts receivable reconciliation did not properly reconcile the
accounts receivable subsidiary ledger to the general ledger. The accounts receivable subsidiary
ledger maintains the activity and current balances for each account receivable. The general
ledger is a control account with the total of all accounts receivable. The agency reconciliation:
Included journal vouchers as accounts receivable subsidiary ledger bill detail. RAS
included a $51.4 million journal voucher that the agency incorrectly prepared using a
billed account receivable general ledger account instead of the proper unbilled general
ledger account, as accounts receivable bill detail. As a result, RAS included unbilled
receivables as billed receivables in the reconciliation.
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Commingled bill charge lines of interest, handling, penalty and memo receivable
amounts with the accounts receivable bill principal amounts. The agency maintains
separate general ledger control accounts for receivable principal, interest, handling,
penalties charges and memo accounts receivable.
Contained variances from prior years which should have been previously resolved.
Combined federal and non-federal general ledger accounts and billings. SFFAS No. 1
requires federal agencies to report federal receivables separately from non-federal
receivables.
The agency's current accounts receivable reconciliation process does not identify and resolve
differences between the accounts receivable general ledger control accounts and their
corresponding accounts receivable detail accounts to ensure that both the control and detail
accounts are properly stated. The following factors contributed to the deficiency:
The EPA considers journal vouchers as accounts receivable bill detail in the
reconciliation. RAS reported that it includes journal vouchers as receivable bill detail
because it records journal vouchers in the general ledger, but not at the accounts
receivable bill level. Because the EPA did not consider journal vouchers as variances to
be corrected, the agency did not thoroughly analyze the journal voucher transactions and
identify the error or its effect.
The EPA did not configure Compass to consolidate data at the finance center level.
Finance center level activity occurring during the year closes to the agency level. When
the agency closes the yearly finance center activity to general ledger accounts at the
overall agency level the finance centers have no beginning balances the next year. This
consolidated closing impedes the agency's ability to identify and reconcile differences at
the finance center level.
The agency's accounts receivable reconciliation does not distinguish between federal and
non-federal receivables because its approach is to reconcile all open receivables as a
whole. The agency's approach reduces the assurance that federal and non-federal
receivables are properly classified.
Two Compass Business Object reports developed specifically for the accounts receivable
reconciliation are not accurate. The accounts receivable principal detail report includes
non-principal bill charges of interest, handling, penalty and memo receivables. The bill
charges report does not include all interest, handling and penalty charges. Therefore, the
report totals do not readily compare to the general ledger control account balances.
The purpose of a reconciliation is to identify and resolve differences between the accounts
receivable subsidiary ledger bill detail and the accounts receivable general ledger control
accounts to ensure accuracy and completeness in the financial statements. When the agency
cannot accurately reconcile the accounts receivable subsidiary ledger to the general ledger
control accounts, the agency cannot ensure:
Accounts receivable general ledger control account balances are accurate.
Accounts receivable subsidiary ledger bill detail is accurate.
Federal and non-federal receivables are properly classified in the financial statements.
Financial statements are properly stated.
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Recommendations
We recommend that the Chief Financial Officer:
23. Investigate variances between the general ledger control accounts and the accounts
receivable subsidiary ledger bill detail and correct errors by recording entries to the
control accounts and/or the accounts receivable bill detail, as needed.
24. Reconcile federal and non-federal accounts receivable separately.
25. Develop accurate reports for accounts receivable principal charges and non-principal
charges.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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9 - Unneeded Funds Not Deobligated Timely
The EPA did not deobligate unneeded funds totaling $4.4 million identified during the fiscal
2014 annual review of unliquidated obligations. Federal and agency guidance require
unliquidated obligations to be reviewed annually, and EPA requires responsible offices to review
inactive unliquidated obligations and take appropriate action to deobligate unneeded funds.
However, the EPA did not take timely actions to notify the appropriate offices to deobligate the
unneeded funds. As a result, the EPA has no assurance that unliquidated obligations are accurate
and represent valid and viable obligations, and that obligated funds are being used efficiently.
The Government Accountability Office's Policy and Procedures Manual for Guidance of
Federal Agencies, Title 7, Chapter 3, requires each agency to review its unliquidated obligations
at least once a year to reasonably assure itself that all transactions meeting the criteria of legally
valid obligations have been included. In addition, EPA's Resource Management Directive
2520-03-PI requires all responsible parties to conduct complete periodicallybut at least
annuallya review of all current and prior year unliquidated obligations to ensure that all
recorded obligations are still valid and properly documented. According to the directive:
An inactive obligation is one in which there has been no activity for 6 months or more
(180 days).
A valid obligation is one for which appropriated funds are still available for the purpose
and time period specified, and for which an actual need still exists within the life of the
appropriation.
EPA's Resource Management Directive 2520-03-PI requires that all unneeded funds must be
identified and deobligated no later than September 30 (annually). The directive also states that all
responsible officials must certify that their office/region completed their inactive obligations
review and took the necessary actions to deobligate the funds. Two certifications are required:
(a) the FMFIA Assurance Letter, which was due August 15, 2014, according to the agency's
fiscal 2014 assurance letter guidance; and (b) the Review of Unliquidated Obligations Year-end
Certification, which was due October 10, 2014, based on the agency's fiscal 2014 Year-End
Closing Instructions. According to the assurance letter guidance, the Assurance Letter must
include certification that the review of assigned unliquidated obligations has been completed and
the necessary action has been taken to deobligate unneeded funds. The form also states that the
year-end certification certifies that each office has deobligated unneeded funds.
We found that during the fiscal 2014 annual unliquidated obligations review, the agency
identified unneeded funds totaling $4.4 million which remained open as of September 30, 2014,
and also as of October 8, 2014the completion date of our analysis. Specifically:
During our analysis of the agency's unliquidated obligations certifications, we found that
several regions and headquarters' program offices identified inactive unliquidated
obligations for deobligation totaling $4.4 million. However, timely action was not taken
to deobligate the funds before or on September 30, 2014, and before the October 10,
2014, certification due date.
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Table 1: Funds for deobligation
Program offices/regions
Amount
Office of the Administrator
$72,916.54
Office of Air and Radiation
98,902.82
Office of Administration and Resources Management
172,759.01
Office of Enforcement and Compliance Assurance
$6,159.11
Office of Environmental Information
3,638,706.39
Office of Chemical Safety and Pollution Prevention
3,829.94
Office of General Counsel
4,405.77
Office of International and Tribal Affairs
4,117.00
Office of Research and Development
24,374.70
Office of Solid Waste and Emergency Response
211,523.58
Office of Water
22,435.27
Region 4
4,080.04
Region 5
239.94
Region 6
12,148.09
Region 7
78,615.35
Region 10
8,689.83
Total
$4,363,903.38
Source: OIG analysis.
The Enterprise Desktop Solutions Division in the Office of Technology Operations and
Planning of the Office of Environmental Information identified $2.3 million in unneeded
working capital unliquidated obligation funds for deobligation. The division had not
completed processing the unliquidated obligations within the required deadline date.
Similarly, the National Computer Center in in the Office of Technology Operations and
Planning identified $1.3 million in unneeded unliquidated obligations funds for
deobligation. The National Computer Center had not processed deobligations for the
unliquidated obligations by the National Computer Center's deadline date.
Region 7 identified $78,615 in simplified acquisitions, contracts and/or training
unliquidated obligations, but did not deobligate them by their due date. The region noted
on its unliquidated obligations certification that the funds were not deobligated due to the
loss of resources under Voluntary Early Retirement Authority/Voluntary Separation
Incentive Payment.
Other program offices and regions noted in their certification letters that processing of
their identified unliquidated obligations were incomplete as of their certification dates.
By not taking timely and appropriate action to deobligate unneeded funds, EPA has no assurance
that the unliquidated obligations are accurate and represent valid and viable obligations affecting
the financial statements. Furthermore, inadequate unliquidated obligation reviews could affect
the financial statements by not identifying unneeded funds that should be deobligated. The
deobligation of these funds would allow for more effective utilization of resources for other
environmental purposes.
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Recommendation
We recommend that the Chief Financial Officer
26. Require headquarters program offices and regional offices to deobligate unneeded funds
identified during the annual unliquidated obligation reviews.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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10 - EPA Needs to Consistently Enforce Restricted Entry Access to
Server Rooms
The EPA did not consistently enforce restricted access at the Las Vegas Finance Center (LVFC)
and the Andrew W. Breidenbach Environmental Research Center (AWBERC) server rooms. We
found that personnel were granted access to server rooms without proper approval and that
unauthorized personnel had access to a server room door. Specifically, a contractor was granted
access to the LVFC server room without the office director's approval. Additionally, we noticed
that the approved access list for AWBERC's rear server room door did not match the computer
access list in the Facility Commander software, which allowed unauthorized staff to use the
server room door.
National Institute of Standards and Technology (NIST) Special Publication (SP) 800-53,
Revision 4, April 2013, Security and Privacy Controls for Federal Information Systems and
Organizations, PE-2, Physical Access Authorizations, states that the organization develops,
approves and maintains a list of individuals with authorized access to the facility where the
information system resides; reviews the access list detailing authorized facility access by
individuals; and removes individuals from the facility access list when access is no longer
required. EPA Chief Information Officer Transmittal No. 12-003, Information Security - Interim
Physical and Environmental Protection Procedures, VI .9, August 6, 2012, states that, "Physical
access authorizations for all physical access points (including designated entry/exit points) to the
facility where the information system resided must be enforced." In addition, the EPA's Operating
Procedures for Management and Monitoring of the La Plaza Door Access Systems requires that,
access to the LVFC server room must be authorized by the office director of LVFC or her
designee. Finally, the Office of Administration and Resources Management (OARM)/Information
Resources Management Division (IRMD), Server Room Access Procedure, dated January 30,
2013, states, "Server room access shall be limited to a list of personnel approved by the
Authorizing Officials."
EPA management did not ensure personnel followed access control procedures outlined in
standard operating procedures for the LVFC and AWBERC server rooms for granting,
monitoring and removing access to its facilities. In Las Vegas, a contractor for the National
Center for Radiation Field Operations was granted access to the LVFC server room without the
LVFC director's signature on the authorization form. The authorization form was signed by the
director of the National Center for Radiation Field Operations as required, but because the
server room is under the control of the finance center, a signature from the office director of
the finance center was required. As such, inappropriate access was granted to the server room
without the required prior approval from the LVFC office director and access remained despite
monthly door access reviews conducted by LVFC personnel.
In Cincinnati, the OARM/IRMD list of authorized personnel allowed to access AWBERC rear
server room door did not match the computer access list in the Facility Commander system
software, which is under the control of the OARM/Safety and Security Office. The
OARM/IRMD access list contained three names, while the computer access list contained
10 names. This occurred because OARM/Safety and Security Office did not make the required
changes once OARM/IRMD updated its access list. In both instances, according to the agency,
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corrective actions were made to resolve the access control issues during our audit, but will not
be verified by the audit team until the next audit cycle.
The Office of the Chief Financial Officer (OCFO) indicated it took corrective actions at LVFC and
AWBERC to obtain approvals for personnel authorized to enter the server room and update
personnel listing in the facility access system. EPA personnel at AWBERC corrected the noted
weakness during our site visit. Due to the time constrains of our audit, we were unable to re-visit
LVFC to validate the actions taken. However, a breakdown in OFCO's processes to ensure
compliance with established policies and procedures ultimately contributed to the weaknesses we
found. As such, it is incumbent upon management to routinely test its established control
environment identify where it could be strengthened.
If agency personnel do not follow access control procedures, there is uncertainty as to whether
all access privileges are authorized. This leaves agency IT assets vulnerable to unauthorized
access and damage.
Recommendation
We recommend that the Chief Financial Officer:
27. Require the Information Security Officer to conduct an access control review with all
offices that warehouse IT assets. This would include ensuring:
a. Appropriate approving officials approve access for all personnel entering the
respective server rooms.
b. The offices update access rosters and post them according to local procedures.
c. The offices create plans of action and milestones within the EPA information
security weakness tracking systems to track when the office would complete the
access control review if the respective office is unable or lacks the capability to
complete the review within the next 30 days.
Agency Comments and OIG Evaluation
The EPA concurred with our recommendation and indicated that LVFC completed a 100-percent
certification of its door access in July 2014. However, management did not specify when it
would remediate the weaknesses noted at the AWBERC server room. Management also did not
indicate when the OCFO Information Security Officer would conduct or coordinate an access
control review at all locations that operate IT assets on behalf of the OCFO. We consider
Recommendation 27 to be unresolved pending the agency's response to the final report.
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11 - EPA Needs to Ensure that Its Information Technology Assets
Are Properly Monitored and Secured
The EPA did not ensure that IT assets at the LVFC server room, AWBERC server room, and
RTP National Computer Center computer room were properly monitored and secured. We found
that a card reader located at the LVFC server room did not consistently log or document alerts of
attempts by unauthorized users to gain access, while server racks within the CFC's AWBERC
telecommunication room and the National Computer Center computer room were unlocked.
NIST SP 800-53, Revision 4, April 2013, Security and Privacy Controls for Federal Information
Systems and Organizations, PE-3, Physical Access Control, states that the organization employs
guards and/or alarms to monitor every physical access point to the facility where information
systems reside, and uses lockable physical casings to protect information system components
from unauthorized physical access. EPA Chief Information Officer Transmittal No. 12-003,
Information Security - Interim Physical and Environmental Protection Procedures, VI .9,
May 4, 2012, states that: (1) physical access devices must be functioning properly; and (2) all
equipment that stores, processes, or transmits EPA information must be located in an appropriate
locked rack, room or enclosure.
EPA management did not periodically test the card reader to the LVFC server room to ensure it
was consistently logging access to the server room. This meant that attempts by unauthorized
personnel were not always logged and documented in the physical access control tracking
software. In Cincinnati, the server room racks in the AWBERC telecommunication room were
unlocked, as well as the server racks in the National Computer Center computer room. Unlocked
server racks leave information technology assets vulnerable to tampering and damage. Officials
at the RTP and Cincinnati locations stated that they believed the information technology assets
were secure because they were in a controlled area and only authorized personnel have access to
the areas where the server racks are located. Although, personnel have authorized access to the
server room and computer room, not all personnel have authorized access to the same
information technology assets. As a result, information technology assets are exposed to
unauthorized personnel.
Subsequent to our site visits, OCFO indicated that it took corrective action to replace and test the
faulty card reader within the LVFC. However, due to the time constraints of our audit, we were
unable to re-visit the LVFC to verify that the actions taken remediated the problem. Ultimately,
the lack of a regular process to test the LVFC card reader system is what lead to management not
discovering the faulty card reader before our visit. It is incumbent upon management to regularly
review its control environment to determine where it could be strengthened. If agency personnel
do not follow security control procedures in monitoring and securing information technology
assets, this leaves agency information technology assets vulnerable to unauthorized access and
damage.
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Recommendations
We recommend that the Chief Financial Officer:
28. Require LVFC to implement a process to regularly test the card reader system within the
finance center.
29. Require the Information Security Officer to conduct an access control review with all
offices that warehouse IT assets. This would include ensuring all offices:
a. Lock all server racks to prevent unauthorized access.
b. Create plans of action and milestones within the EPA information security
weakness tracking systems to track the security of server racks if the respective
office is unable to immediately or lacks the capability to lock the server racks
within the next 30 days.
Agency Comments and OIG Evaluation
EPA concurred with our recommendations. Management indicated that LVFC would implement
a quarterly process to test card readers within the finance center. We consider
Recommendation 28 to be resolved. Management also indicated that AWBERC took steps to
remediate the identified weakness. However, management did not indicate when the National
Computer Center would remediate the identified weakness or when the OCFO Information
Security Officer would conduct or coordinate a review of card readers and security of server
racks at all locations that operate IT assets on behalf of the OCFO. We consider
Recommendation 29 to be unresolved pending the agency's response to the final report.
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12 - EPA Needs to Establish Procedures for Protecting
Information Technology Assets From Environmental Threats
The EPA lacks processes to enable personnel to monitor environmental factors that are used to
protect IT assets. Specifically, finance center server rooms lack processes to protect IT assets
from temperature and humidity damage. Additionally, one finance center had incorrectly
installed water sensors, making the servers vulnerable to flooding before personnel could be
alerted to the problem.
NIST SP 800-53 A, Revision 1, Guide for Assessing the Security Controls in Federal Information
Systems and Organizations, June 2010, PE-14, Temperature and Humidity Controls, specifies
ensuring that temperature and humidity levels within the facility where information systems
reside be defined, maintained and monitored by the organization. Additionally, NIST SP 800-53,
Revision 4, Security and Privacy Controls for Federal Information Systems and Organizations,
April 2013, PE-18, Location of Information System Components, specifies that information
system components be positioned to minimize potential damage from environmental hazards
such as flooding.
EPA finance center IT personnel rely on preventative maintenance measures performed on
environmental monitoring equipment located in the server rooms to ensure thresholds and alert
triggers are established and implemented. However, these humidity and temperature
thresholdsthe lowest and highest levels the server room temperature can reach before alerting
relevant personnelwere undocumented and, in one case, humidity monitoring was not
implemented at all. While periodic servicing of environmental monitoring equipment and checks
by IT personnel are performed, these checks did not always provide assurance that the equipment
was operating as management intended because management had not approved the specific
measures the equipment checker and equipment were to meet. Additionally, we found personnel
placed water sensors above the lowest shelf on one server rack. The placement of this sensor
prevented personnel from being notified of possible water issues before damage could have
happened to the IT equipment located on the lower shelf of the server rack.
Lack of environmental monitoring and established thresholds for temperature and humidity
increase the likelihood that damage to EPA servers from environmental factors goes undetected
before serious harm is caused. Additionally, the inability to detect and alert IT personnel about
server room flooding increases the likelihood of damage to the server room and IT equipment,
and could result in a disruption of business operations. In both cases, the potential damage posed
to the EPA production servers housed in the finance center server rooms puts the availability of
the EPA's financial data at risk.
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Recommendations
We recommend that the Chief Financial Officer:
30. Require the Information Security Officer to coordinate with the responsible offices that
warehouse or manage information technology assets for CFC to:
a. Implement a process for monitoring humidity levels in the Norwood server room.
b. Reposition the water sensors in the Norwood server room at the appropriate
height to prevent water damage to servers.
31. Require the Information Security Officer to coordinate with the responsible offices that
warehouse or manage information technology assets for the LVFC, CFC and RTP
Finance Center to:
a. Establish and document threshold levels for temperature and humidity monitoring
in the server rooms.
b. Create plans of action and milestones within the EPA information security
weakness tracking systems to track the remediation of the noted environmental
control weaknesses if the respective office is unable to immediately correct, or
lacks the capability to correct, the weakness within the next 30 days.
32. Require the Information Security Officer to develop a process to monitor the completion
of all plans of action and milestones that were entered into the EPA information security
weakness tracking system.
Agency Comments and OIG Evaluation
The EPA concurred with our recommendations. The EPA indicated it implemented humidity
monitoring and adjusted the flood sensors at the Norwood server room. We consider
Recommendation 30 to be resolved. Management also indicated it resolved noted weaknesses at
the AWBERC server rooms. Management also indicated that the LVFC and RTP Information
Security Officers would coordinate with responsible individuals to resolve weaknesses at their
respective locations. However, management did not provide a date when the Information
Security Officers would complete this action and management did not provide a date when the
office Information Security Officers would ensure all open security weaknesses are entered into
the agency security weakness tracking system. As such, we consider Recommendations 31 and
32 to be unresolved pending the agency's response to the final report.
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13 - EPA Needs to Configure Server Room Cameras to
Fully Monitor Information Technology Assets
Closed circuit television (CCTV) system cameras at the EPA finance centers do not provide
enough visibility to monitor production servers and valuable IT assets for unauthorized changes.
We found that CCTV cameras within one server room did not monitor the racks containing EPA
production servers and other IT assets. Additionally, the storage time for those CCTV cameras'
feeds did not provide the required 30-day playback time. We also observed an EPA server room
whose visibility was controlled by a non-automated light switch that was not coordinated with
the CCTV system. Lastly, one server room lacked consistent lighting to ensure server room
activity could be recorded.
NIST SP 800-53, Revision 4, Guide for Assessing the Security and Privacy Controls for Federal
Information Systems and Organizations, April 2013, PE-6, Monitoring Physical Access, specifies
that physical access to information systems be monitored in order to detect and respond to
security incidents. Additionally, the Statement of Work pertaining to the EPA Cincinnati
Security Management Program Contract for CCTV monitoring states that video for server rooms
be stored for up to 30 days. Finance center personnel stated that the server room video is required
to be searchable for up to 30 days to investigate unauthorized changes made to IT assets not
initially detected.
EPA management did not ensure that full visibility of IT assets were captured by server room
CCTV camera feeds. Management relied upon established access control procedures (e.g., card
readers, visitor logs and access rosters) to prevent unauthorized individuals from entering the
server room. However, these controls would not help detect when someone had unauthorized
access to equipment in the server room or made unauthorized changes to equipment because we
found that the posted access roster did not match the individuals who had access to the server
room and the server room cabinets were not always locked. Furthermore, the digital video
recording storage space is not large enough to record 30 days' worth of video due to the amount
and quality of camera feeds shared on a single server room camera server. The EPA server room
with impaired video recording quality had its lighting controlled by a non-automated light switch
that was not coordinated with the CCTV system. Therefore, someone could enter the room and
not be seen on camera or turn off the lift to mask their actions.
While the EPA monitors the entrances of server rooms, visibility of the entire room, including
the server racks, is needed. Without this visibility, security personnel will not have the evidence
to discover the source of incidents affecting IT assets housed in the server room. Sufficient
storage of server room CCTV video is also needed for review and to respond to security
incidents not detected at the time of occurrence. Without ample storage and playback time,
facilities management will not have enough video to evaluate evolving security incidents. These
vulnerabilities could expose EPA assets to unauthorized changes, thus jeopardizing the
confidentiality, integrity and availability of the EPA's financial data.
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Recommendation
We recommend that the Chief Financial Officer:
33. Require the Information Security Officer to coordinate with the responsible offices within
the Office of Administration and Resources Management to develop and implement a
strategy to improve CCTV coverage for the OCFO's IT assets. The improved CCTV
coverage and strategy should include:
a. Improving camera-monitoring systems at the AWBERC server room to increase
visibility of the server racks and within the telecomm room and to coordinate
monitoring of the Norwood server room with automated lighting.
b. Increasing CCTV monitoring storage time to meet EPA-approved storage
requirements detailed in the EPA's Cincinnati Security Management Program
Contract.
c. Requiring offices to create plans of action and milestones within the EPA's
information security weakness tracking system to track the completion of any
CCTV improvement tasks that cannot be completed within the next 30 days.
d. Developing a process to monitor the completion of all plans of action and
milestones that were entered into the EPA information security weakness tracking
system.
Agency Comments and OIG Evaluation
EPA concurred with our recommendation. EPA indicated that it increased the video retention
period for the AWBERC server room and made several additional upgrades to the video
cameras. We consider Recommendation 33 to be resolved.
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14 - EPA Needs to Document Management's Approval for
Authorizing Changes to the Accounting Posting Module
The EPA lacks management's written approval for authorizing changes to the Compass
accounting posting model to prevent unauthorized changes. OCFO does not officially document
management's approval when making updates to the recording of general ledger account activity
within the Compass accounting posting module. The Government Accountability Office's
Standards for Internal Control in the Federal Government (November 1999) states that all
transactions and significant events need to be clearly documented. OMB Circular A-123,
Revisions to OMB Circular A-123, Management's Responsibility for Internal Control
(December 2004), states that management's control activities such as proper authorization and
appropriate documentation are internal controls that help safeguard against unauthorized use of
assets.
OCFO's RAS maintains a tracking document that identifies unusual postings to general ledger
accounts based on RAS internal analytical reviews and inquiries submitted by agency personnel
through the OCFO Help Desk. RAS management indicated that after RAS accountants conduct
thorough research on each activity, RAS meets bi-weekly to discuss any potential updates to the
accounting posting model. RAS management indicated that, during these meetings, management
will verbally agree to any changes that need to be made to the accounting posting model.
However, there was no documentation, such as meeting minutes or management's written
approval or signage on the tracking sheet which demonstrates managerial approval has been
granted to update the accounting posting module to properly record and post transactions to the
appropriate general ledger accounts. Management has limited assurance that any changes made
to the posting model were made based on their approvals. Written approvals will add a layer of
accountability for such significant events since updating the accounting posting module affects
the recording of general ledgers accounts and, ultimately, the fair presentation of the EPA's
financial statements.
Recommendation
We recommend that the Chief Financial Officer:
34. Maintain written documentation that demonstrates management has approved changes to
the Compass accounting posting module.
Agency Comments and OIG Evaluation
EPA concurred with our recommendation and indicated it implemented a procedure to document
approved changes to the posting models. We consider Recommendation 34 to be resolved.
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Attachment 2
Compliance With Laws and Regulations
Table of Contents
15 EPA Did Not Comply With Federal Accounting Standards
for Recording Interest 45
16 EPA's 2014 FMFIA Annual Assurance Statement Is Inaccurate 48
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15 - EPA Did Not Comply With Federal Accounting Standards for
Recording Interest
The EPA did not record all applicable interest for some Superfund, installment and grant
accounts receivable in the accounting system as required by applicable laws, federal accounting
standards and EPA policy. The EPA did not record the proper interest due to Compass
accounting system problems and nonconformance to the terms in the receivable legal source
documents. By not recording all applicable interest, the EPA did not collect all the funds to
which it was entitled and did not comply with applicable laws, federal accounting standards and
EPA policy. The Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA) Section 107 states that the amounts recoverable in an action under this section shall
include interest on the amounts recoverable. Such interest shall accrue from the later of the date
payment of a specified amount is demanded in writing or the date of the expenditure concerned.
The Debt Collection Act of 1982 [Public Law 97-365, Section 11(e)(1)] addresses the collection
of amounts owed to the federal government and provides for a minimum annual rate of interest
to be charged on overdue debts owed.
SFFAS No. 1, Assets and Liabilities, paragraph 53, states that interest receivable should be
recognized for the amount of interest income earned but not received for an accounting period.
The EPA Resources Management Directive Systems 2550D, Chapter 14, Superfund Accounts
Receivable and Billings, page 14, states that pursuant to Section 107 of CERCLA, the EPA will
assess interest on all overdue amounts.
The EPA Resources Management Directive Systems 2540-9-P2, Non-Federal Delinquent Debt,
pages 6-7, directs the agency to assess and record overdue interest, handling and penalty charges
in 30-day increments for late payments as appropriate. The finance centers calculate interest,
handling and penalty charges manually, or rely on the agency financial management system to
automatically calculate and post all charges. The EPA Resources Management Directive Systems
2540-9-P1, Billing and Collecting, pages 6-7, directs the EPA to assess interest, handling and
penalty charges on audit disallowances not paid by the debtor within 30 days from the date of the
letter.
The EPA did not record all applicable interest for seven Superfund receivables, six installment
receivables and one grant receivable in the accounting system. Table 2 lists the receivables
without all applicable interest recorded that we identified during our fiscal 2014 review through
June 30, 2014.
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Table 2: Receivables without all applicable interest recorded
Bill number
Bill typo
Reason for unrecorded interest
Superfund Receivables
SN 2791426T0035
Superfund oversight
Compass did not accrue interest
SN 2721326S0027
Superfund oversight
Did not follow legal document terms
SN 2721226S0021
Superfund oversight
Did not follow legal document terms
SN 2700733S041
Superfund oversight
Compass did not accrue interest
SN 042602T048X
Superfund oversight
Compass deleted interest
SN 042602T049X
Superfund oversight
Compass deleted interest
SF 2731429T0067
Superfund cost recovery
Waive interest flag not unchecked
Installment Receivables
SN 2711429S0008
Superfund cost recovery
Compass functionality
SN 2721329S0039
Superfund cost recovery
Compass functionality
NN EPAE-5:09-CV-00272
Fine and penalty
Compass functionality
NN EPAK-6:13-CV-02188
Fine and penalty
Compass functionality
NN FIFRA-01 -2012-0043
Fine and penalty
Compass functionality
NN CWA-08-2014-0018
Fine and penalty
Compass functionality
Grant Receivable
LG 3314AR107
Grant ineligible costs
Did not follow legal document terms
Source: OIG analysis of EPA data.
Compass system problems and finance center nonconformance to the terms in the accounts
receivable legal source documents contributed to the noncompliance. Specifically:
Compass was unable to calculate and record interest on installment receivables. Finance
center staff manually entered installment interest either from calculations in billing
documents, or on a cash basis upon payment receipt.
Compass has periodically either deleted or stopped recording Superfund interest.
Compass deleted some Superfund interest for at least two receivables in June 2014.
Compass stopped recording Superfund interest from December 2013 to January 2014. In
the prior fiscal year, the EPA reported that a Compass defect removed the interest from
CFC Superfund bills from December 2012 until February 2013, when the EPA fixed the
defect.
Due to Compass configurations for Superfund receivables where interest is compounded,
CFC must manually mark Superfund receivables in order for interest to accrue when
receivables reach the due date. CFC marks past due receivables by unchecking the waive
interest flag in Compass. For some Superfund receivables, Compass did not record
interest after CFC unchecked the flag when receivables became past due.
Finance center staff did not always follow the language in the legal source documents
that contained the terms and instructions for recording principal and interest receivable.
S Finance center staff relied on instructions from the EPA attorneys for assessing
interest. If the EPA attorneys did not notify staff of interest assessments, the staff
did not record the interest.
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¦S Finance center staff did not record the correct document date for grant receivable
audit disallowance documents not received timely and used the Compass entry
date as the account receivable document date.
When the EPA did not record the interest, the agency did not collect all the funds to which it was
entitled and did not comply with applicable laws, federal accounting standards and EPA policy.
Recommendations
We recommend that the Chief Financial Officer:
35. Instruct CFC to perform an analysis of delinquent receivables to determine whether
interest is being properly recorded in Compass in accordance with the applicable laws,
federal accounting standards and EPA policy, and record any unrecorded interest.
36. Instruct CFC to follow the terms in the legal source documents when recording interest
receivables.
37. Instruct LVFC to follow EPA policy and the terms of the legal source document and
record the document effective date in Compass as the account receivable document date
for grant receivables.
38. Determine and correct the cause of Compass system problems related to Superfund and
installment interest.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations.
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16 - EPA's 2014 FMFIA Annual Assurance Statement Is Inaccurate
In May 2014, the EPA identified a $193 million error in its capitalized software accounts, which
resulted in the restatement of its fiscal 2013 financial statements. In spite of this material error,
the EPA did not report capitalized software as a material weakness in its draft fiscal 2014
FMFIA Annual Assurance Statement. OMB Circular A-123 defines material weaknesses in
internal control as a "Reportable condition, or combination of reportable conditions, that results
in more than a remote likelihood that a material misstatement of the financial statements, or other
significant financial reports, will not be prevented or detected." OMB Circular A-123 also states
that "management is precluded from concluding that the agency's internal control is effective
(unqualified statement of assurance) if there are one or more material weaknesses." While EPA
management is restating the fiscal 2013 financial statements, the agency does not consider this
software capitalization error to be a material weakness. Because the EPA did not report
capitalized software as a material weakness in its initial fiscal 2014 draft FMFIA Annual
Assurance Statement, the agency is not in compliance with FMFIA reporting requirements.
Subsequently, the agency agreed to declare weaknesses over software as a material weakness.
As part of the agency's OMB Circular A-123 review the EPA evaluated accounting for capital
software. The A-123 review found several significant internal control deficiencies in accounting
for capital software:
"Transactions were not entered into the system [EPA's accounting system],
"Incorrect accounting entries were entered in the system.
"Transaction entries plugged in system."
The EPA's accounting for capital software resulted in significant adjusting entries, material
misstatement of the financial statements, and a restatement of the fiscal 2013 financial
statements. OMB Circular A-123 defines material weaknesses in internal control as a "reportable
condition, or combination of reportable conditions, that results in more than a remote likelihood
that a material misstatement of the financial statements, or other significant financial reports, will
not be prevented or detected." The EPA's capitalized software error clearly meets the OMB
Circular A-123 definition of a material weakness because this error necessitated a restatement of
the fiscal 2013 financial statements.
The agency determined that accounting for personal property and software is an agency-level
weakness in its revised draft FY 2014 Integrity Act report. We have advised the agency that the
capitalized software error is a material weakness. OMB Circular A-123 also states that
"management is precluded from concluding that the agency's internal control is effective
(unqualified statement of assurance) if there are one or more material weaknesses." Since the
capitalized software error is a material weakness, the EPA's FMFIA Assurance Statement cannot
state that there is a reasonable assurance that the EPA's internal controls were operating
effectively.
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Recommendation
We recommend that the Chief Financial Officer:
39. Comply with the material weakness reporting requirements as prescribed by
OMB Circular A-123, which are:
a. Material weaknesses and a summary of corrective actions shall be reported to
OMB and Congress through the Performance and Accountability Report.
b. Progress against corrective action plans should be periodically assessed and
reported to agency management.
Agency Comments and OIG Evaluation
The agency agreed with our recommendations. However, the agency disagreed with the facts of
our finding, stating it believed that the draft Annual Financial Report language was misinterpreted
by the OIG. The agency indicated the noncompliance was an agency-level weakness. The OIG
still believes the issue is a material weakness. EPA Order 1000.24 CH2, Management's
Responsibility for Internal Control, defines an agency weakness as a control deficiency that does
not reach the level of materiality of a material weakness. Therefore, reporting the material
weakness as an agency-level weakness is inaccurate and does not comply with the FMFIA
reporting requirement. Subsequently, the agency agreed to declare weaknesses of its accounting
for software a material weakness.
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Attachment 3
Status of Prior Audit Report Recommendations
The EPA is continuing to strengthen its audit management to address audit follow-up issues and
complete corrective actions expeditiously and effectively to improve environmental results. The
Chief Financial Officer is the agency follow-up official and is responsible for ensuring that
corrective actions are implemented. EPA Manual 2750, Audit Management Procedures, is a
comprehensive audit management guide that addresses OIG, Government Accountability Office,
and Defense Contract Audit Agency audits. OCFO continued to issue a quarterly report that
highlights the status of management decisions and corrective actions. This report is shared with
program office and regional managers throughout the agency to keep them informed of the status
of progress on their audits. Additionally, OCFO continued to conduct reviews of national and
program offices, which it initiated in fiscal 2009. The reviews focus on offices' audit follow-up
procedures and their use of the Management Audit Tracking System. The reviews are designed
to promote sound audit management; increase agency awareness of, and accountability for,
completing unimplemented corrective actions; and ensure that audit follow-up data are accurate
and complete. OCFO completed four of these on-site reviews in fiscal 2014, including two
regional offices and two national program offices. These reviews will be performed on an
ongoing, rotating basis.
The agency has continued to make progress in completing corrective actions from prior years.
The status of issues from prior financial statement audits and other audits with findings and
recommendations that could have a material effect on the financial statements, and have
corrective actions that are not completed or have not been demonstrated to be fully effective, are
listed in the following table.
Table 3: Significant deficienciesIssues not fully resolved
Posting Models in Compass Materially Misstated General Ledger Activities and Balances
In fiscal 2012, the EPA materially misstated general ledger activity and balances due to incorrect
posting models. The EPA corrected posting model errors that were identified during fiscal 2012.
However, during fiscal 2014, we continued to find posting model errors. While the agency has
corrected the errors identified in fiscal 2014, such errors will continue to occur until the EPA conducts
a diligent review of the posting models. The EPA has implemented corrective actions to correct
activity in accounts incorrectly impacted by improper posting models, develop internal control
procedures to confirm the proper accounts are impacted for transactions, and perform analytical
reviews of account activity on a quarterly basis to verify account activity is reasonable. The EPA's
remaining corrective action is to complete a thorough review of all posting models.
Compass Reporting Limitations Impair Accounting Operations and Internal Controls
The EPA did not agree that the reporting limitations we identified in fiscal 2012 in several accounting
areas significantly impair the effectiveness of the agency's accounting operations and internal
controls. However, the EPA stated that it will continue to analyze the agency's reports, identify any
concerns and develop new reports for users as needed. In fiscal 2014, the EPA had not developed
reports at the security organization level needed to reconcile accounts receivable, update allowance
for doubtful account estimates, and reconcile property financial data in Compass to the property
management data in Maximo. The EPA needs to complete corrective action in these areas to develop
reports to provide users with accurate data on a timely basis.
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EPA Should Improve Compliance With Internal Controls for Accounts Receivable
During fiscal 2012, we found that CFC did not timely receive accounts receivable judicial legal
documents from DOJ and the EPA. In fiscal 2013, the EPA revised agency accounts receivable
guidance to remove the requirement for Regional Legal Enforcement Offices to forward copies of
executed judicial orders to CFC within 5 workdays. In fiscal 2014, the EPA's Office of Enforcement
and Compliance Assurance, in conjunction with OCFO, met with DOJ and conducted quarterly
reviews of the timeliness in providing civil judicial documents to CFC. The Office of Enforcement and
Compliance Assurance reported its corrective action as completed. However, in fiscal 2014, we again
reported untimely receipt of accounts receivable legal documents as a significant
deficiency; therefore, EPA's corrective actions were not yet effective.
Property Internal Controls Need Improvement
In our fiscal 2013 audit, we found that Compass did not sufficiently reject personal property
information entries that were not accurate. As a result, the agency could possibly lose accountability
and control over property. We identified personal property items for which the location was not
properly identified, and items were physically located in accountable areas other than the locations
identified in the property system. During fiscal 2014, we found that some capital property items
valued at approximately $1.1 million in RTP were not in the exact location as recorded in the Fixed
Assets System. The EPA transferred the pieces of equipment to a new location, but did not update
the system.
Compass and Maximo Cannot Be Reconciled
During fiscal 2013, we found that the EPA could not reconcile capital equipment property
management data within its property management subsystemMaximoto relevant financial data
within Compass. The inability to reconcile the property subsystem with Compass could compromise
the effectiveness and reliability of financial reporting. The EPA could not reconcile Maximo and
Compass because historical property data did not migrate properly from the Integrated Financial
Management System to Compass. We recommended that the EPA develop procedures to reconcile
capitalized property in the agency's system with Maximo. According to agency officials, they identified
the need to develop additional procedures to reconcile capital property. The EPA is currently
reviewing the policy and the target completion date is December 31, 2014.
EPA Should Improve Controls Over Expense Accrual Reversals
In fiscal 2012, the EPA did not reverse approximately $108 million of fiscal 2011 year-end expense
accruals. The agency did not reverse the accrual transactions because the Compass posting
configuration for the applicable fund category was inaccurate. By not reversing the accruals timely,
the EPA materially overstated the accrued liability and expense amounts in the quarterly financial
statements. EPA's Policy Announcement No. 95-11, Policies and Procedures for Recognizing
Year-End Accounts Payable and Related Accruals, require the agency to "recognize and report all
accounts payable and related accruals in its year-end financial reports." In our final audit report
issued November 16, 2012, we recommended that the agency update the EPA's Policy
Announcement 95-11 to require reconciliations of accruals and accrual reversals. Agency officials
concurred with our finding and recommendations and took corrective action by implementing an
independent review of the fiscal 2012 accruals and reversals. The EPA also performed accrual
reviews prior to the issuance of the fiscal 2013 quarterly financial statements. In the fiscal 2013 audit,
the EPA extended the target due date to update Policy Announcement No. 95-11 until June 2014.
However, during the fiscal 2014 audit, the EPA further extended the target due date to not update the
policy until December 31, 2015, due to the additional workload and resource constraints.
Financial Management System User Account Management Needs Improvement
EPA had previously considered these recommendations closed; however, OCFO agreed in fiscal
2014 to develop alternative corrective action for Recommendation 27. OCFO is in the process of
developing our proposal. Regarding Recommendation 32, OCFO has been receiving automated
human resources data/reports and is working with OARM on the implementation of the Human
Resources Line of Business which will further respond to this recommendation.
Source: OIG analysis.
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No.
14
14
14
17
17
17
17
17
19
19
Attachment 4
Status of Current Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Subject
Status1
Planned
Completion
Action Official Date
Require project officers to track and accumulate
software costs by project from inception through
date placed in service.
Require the Reporting and Analysis Staff to
coordinate with Office of Administration and
Resources Management project officers to
receive software project cost support once placed
into service.
Document and support project costs for all
software costs placed into service over the past
7 years.
Capitalize and book the RTP lab renovation
costs and calculate depreciation.
Improve and maintain support for how EPA lab
renovation projects are funded.
Review funding sources of all current and future
lab renovations to ensure correct funding is
utilized.
Develop policies and procedures for capital
improvements/betterments to real property,
specifically, to address EPA lab renovations
which could include bulk purchases of equipment
and funding from agency program appropriations
other than the B&F appropriation.
Request the Office of General Counsel to
determine whether the legal opinion referenced
herein represents a legally acceptable position
regarding the definition of "construction," and
provides adequate examples to guide
determinations of when renovation work should
be funded out of agency program appropriations
(e.g., S&T) or B&F funds.
Require the Director, Facilities Management and
Services Division, to update inventory records
according to EPA's Property Bulletin No. 14-004.
Require the Director, Facilities Management and
Services Division, to identify the personal
property records missing from the agency's
property management system and record them in
the system.
Claimed
Amount
Agreed To
Amount
Assistant Administrator 3/31/15
for Administration and
Resources Management
Chief Financial Officer 10/31/18
Chief Financial Officer 10//31/18
Chief Financial Officer 11/30/14
Chief Financial Officer 3/31/16
Chief Financial Officer 3/31/16
Chief Financial Officer 3/31/16
Chief Financial Officer 3/31/15
Assistant Administrator 12/1/14
for Administration and
Resources Management
Assistant Administrator 12/1/14
for Administration and
Resources Management
52
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No.
19
21
21
23
23
25
27
27
27
27
28
28
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Subject
Status1
Action Official
Planned
Completion
Date
Claimed Agreed To
Amount Amount
Require the Director, Facilities Management and
Services Division, to conduct Board of Survey
investigations more frequently to adequately
address missing and uninventoried property.
Document the results of Board of Survey
investigations and update the property
management records accordingly.
Research and resolve differences between
Compass and the property management system
timely.
Require the Office of Administration, Facilities
Management and Services Division, to verify the
correctness and update all capitalized property
records in the official property system as
required.
Require project officers to approve federal
disbursements timely.
Require CFC staff to follow up with project
officers and regions to obtain the necessary
disbursement approvals and information needed
to clear transactions timely from the federal
budget clearing (suspense) account.
Reclassify the $11.3 million collection from the
Environmental Services Special Fund to the fines
and penalties fund using appropriate entries to
ensure that current year general ledger accounts
and financial statements are properly stated.
Require enforcement officers to include CFC on
the stipulated penalty letters mailing list.
Remind personnel to timely forward legal
documents or administrative settlement
agreements to the finance center.
Work with the DOJ to forward DOJ legal
documents timely to CFC.
Work with the Office of Enforcement and
Compliance Assurance to update EPA
Superfund guidance to require originating offices
to timely forward the Superfund Accounts
Receivable Control Forms to the finance center.
Assistant Administrator 12/1/14
for Administration and
Resources Management
Chief Financial Officer 9/30/15
Assistant Administrator 5/30/15
for Administration and
Resources Management
Assistant Administrator 3/31/15
for Administration and
Resources Management
Chief Financial Officer 3/31/15
Chief Financial Officer 9/10/14
Assistant Administrator 5/31/15
for Enforcement and
Compliance Assurance
Assistant Administrator 5/31/15
for Enforcement and
Compliance Assurance
Assistant Administrator 3/28/14
for Enforcement and
Compliance Assurance
Chief Financial Officer 9/30/15
Require the Office of Grants and Debarment to
instruct personnel to forward source documents
for grant disallowed costs timely to the finance
center even if the bill is under dispute or in
negotiation for a payment plan.
Require the Office of Grants and Debarment to
follow up to ensure that the EPA forwards the
documents timely.
Assistant Administrator 11/16/12
for Administration and
Resources Management
Assistant Administrator 1/31/15
for Administration and
Resources Management
53
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RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec. Page
No. No.
Subject
Status1
Planned
Completion
Action Official Date
Claimed Agreed To
Amount Amount
23 31 Investigate variances between the general ledger
control accounts and the accounts receivable
subsidiary ledger bill detail and correct errors by
recording entries to the control accounts and/or
the accounts receivable bill detail, as needed.
24
25
26
27
28
31 Reconcile federal and non-federal accounts
receivable separately.
31 Develop accurate reports for accounts receivable
principal charges and non-principal charges.
34 Require headquarters program offices and
regional offices to deobligate unneeded funds
identified during the annual unliquidated
obligation reviews.
36 Require the Information Security Officer to
conduct an access control review with all offices
that warehouse IT assets. This would include
ensuring:
a. Appropriate approving officials approve
access for all personnel entering the
respective server rooms.
b. The offices update access rosters and post
them according to local procedures.
c. The offices create plans of action and
milestones within the EPA information
security weakness tracking systems to
track when the office would complete the
access control review if the respective
office is unable or lacks the capability to
complete the review within the next
30 days.
38 Require LVFC to implement a process to
regularly test the card reader system within the
finance center.
29 38 Require the Information Security Officer to
conduct an access control review with all offices
that warehouse IT assets. This would include
ensuring all offices:
a. Lock all server racks to prevent
unauthorized access.
b. Create plans of action and milestones
within the EPA information security
weakness tracking systems to track the
security of server racks if the respective
office is unable to immediately or lacks the
capability to lock the server racks within
the next 30 days.
Chief Financial Officer 12/31/14
Chief Financial Officer 7/31/15
Chief Financial Officer 7/30/14
Chief Financial Officer 9/30/15
Chief Financial Officer
$4,364
$4,364
Chief Financial Officer 12/31/14
Chief Financial Officer
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RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Claimed Agreed To
Amount Amount
coordinate with the responsible offices that
warehouse or manage information technology
assets for CFC to:
a. Implement a process for monitoring
humidity levels in the Norwood server
room.
b. Reposition the water sensors in the
Norwood server room at the appropriate
height to prevent water damage to servers.
31 40 Require the Information Security Officer to U Chief Financial Officer
coordinate with the responsible offices that
warehouse or manage information technology
assets for the LVFC, CFC and RTP Finance
Center to:
a. Establish and document threshold levels
for temperature and humidity monitoring in
the server rooms.
b. Create plans of action and milestones
within the EPA information security
weakness tracking systems to track the
remediation of the noted environmental
control weaknesses if the respective office
is unable to immediately correct, or lacks
the capability to correct, the weakness
within the next 30 days.
32 40 Require the Information Security Officer to U Chief Financial Officer
develop a process to monitor the completion of
all plans of action and milestones that were
entered into the EPA information security
weakness tracking system.
Rec. Page
No. No. Subject
30 40 Require the Information Security Officer to
Planned
Completion
Status1 Action Official Date
C Chief Financial Officer 10/31/14
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POTENTIAL MONETARY
RECOMMENDATIONS BENEFITS (In $000s)
Planned
Rec. Page Completion Claimed Agreed To
No. No. Subject Status1 Action Official Date Amount Amount
33 42 Require the Information Security Officer to C Chief Financial Officer 9/30/14
coordinate with the responsible offices within the
Office of Administration and Resources
Management to develop and implement a
strategy to improve CCTV coverage for the
OCFO's IT assets. The improved CCTV
coverage and strategy should include:
a. Improving camera-monitoring systems at
the AWBERC server room to increase
visibility of the server racks and within the
telecomm room and to coordinate
monitoring of the Norwood server room
with automated lighting.
b. Increasing CCTV monitoring storage time
to meet EPA-approved storage
requirements detailed in the EPA's
Cincinnati Security Management Program
Contract.
c. Requiring offices to create plans of action
and milestones within the EPA's
information security weakness tracking
system to track the completion of any
CCTV improvement tasks that cannot be
completed within the next 30 days.
d. Developing a process to monitor the
completion of all plans of action and
milestones that were entered into the EPA
information security weakness tracking
system.
34 43 Maintain written documentation that C Chief Financial Officer 11/1/14
demonstrates management has approved
changes to the Compass accounting posting
module.
35 47 Instruct CFC to perform an analysis of delinquent C Chief Financial Officer 11/1/14
receivables to determine whether interest is
being properly recorded in Compass in
accordance with the applicable laws, federal
accounting standards and EPA policy, and
record any unrecorded interest.
36 47 Instruct CFC to follow the terms in the legal 0 Chief Financial Officer 7/31/15
source documents when recording interest
receivables.
37 47 Instruct LVFC to follow EPA policy and the terms 0 Chief Financial Officer 1/31/15
of the legal source document and record the
document effective date in Compass as the
account receivable document date for grant
receivables.
38 47 Determine and correct the cause of Compass 0 Chief Financial Officer 11/30/14
system problems related to Superfund and
installment interest.
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RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Planned
Rec. Page Completion Claimed Agreed To
No. No. Subject Status1 Action Official Date Amount Amount
39 49 Comply with the material weakness reporting 0 Chief Financial Officer 3/31/15
requirements as prescribed by OMB Circular
A-123, which are:
a. Material weaknesses and a summary of
corrective actions shall be reported to
OMB and Congress through the
Performance and Accountability Report.
b. Progress against corrective action plans
should be periodically assessed and
reported to agency management.
1 0 = Recommendation is open with agreed-to corrective actions pending.
C = Recommendation is closed with all agreed-to actions completed.
U = Recommendation is unresolved with resolution efforts in progress.
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Appendix I
EPA's Fiscal 2014 and 2013 (Restated)
Consolidated Financial Statements
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EPA\v Fiscal 2014 and 2013 (with Restatements)
Consolidated Financial Statements
FINANCIAL
SECTION
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1
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Principal Financial Statements
Financial Statements
1. Consolidated Balance Sheet
2. Consolidated Statement of Net Cost
3. Consolidated Statement of Net Cost by Goal
4. Consolidating Statement of Changes in Net Position
5. Combined Statement of Budgetary Resources
6. Statement of Custodial Activity
Notes to Financial Statements
Note 1.
Summary of Significant Accounting Policies
Note 2.
Fund Balance with Treasury (FBWT)
Note 3.
Cash and Other Monetary Assets
Note 4.
Investments
Note 5.
Accounts Receivable, Net
Note 6.
Other Assets
Note 7.
Loans Receivable, Net
Note 8.
Accounts Payable and Accrued Liabilities
Note 9.
General Property, Plant and Equipment, Net
Note 10.
Debt Due to Treasury
Note 11.
Stewardship Land
Note 12.
Custodial Liability
Note 13.
Other Liabilities
Note 14.
Leases
Note 15.
FECA Actuarial Liabilities
Note 16.
Cashout Advances, Superfund
Note 17.
Unexpended Appropriations - Other Funds
Note 18.
Commitments and Contingencies
Note 19.
Funds from Dedicated Collections
Note 20.
Intragovernmental Costs and Exchange Revenue
Note 21.
Cost of Stewardship Land
Note 22
Environmental Cleanup Costs
Note 23.
State Credits
Note 24.
Preauthorized Mixed Funding Agreements
Note 25.
Custodial Revenues and Accounts Receivable
Note 26.
Reconciliation of President's Budget to Statement of Budgetary Resources
Note 27.
Recoveries and Resources Not Available, Statement of Budgetary Resources
Note 28.
Unobligated Balances Available
Note 29.
Undelivered Orders at the End of the Period
Note 30.
Offsetting Receipts
2
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Note 31. Transfers-In and Out, Statement of Changes in Net Position
Note 32. Imputed Financing
Note 33. Payroll and Benefits Payable
Note 34. Other Adjustments, Statement of Changes in Net Position
Note 35. Non-exchange Revenue, Statement of Changes in Net Position
Note 36. Reconciliation of Net Cost of Operations to Budget
Note 37. Amounts Held By Treasury (Unaudited)
Note 38. Restatements
Required Supplementary Information (Unaudited)
1. Deferred Maintenance
2. Stewardship Land
3. Supplemental Combined Statement of Budgetary Resources
Required Supplementary Stewardship Information (Unaudited)
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Environmental Protection Agency]
Consolidated Balance Sheet
For the Periods Ending September 30, 2014 and 2013 (Restated)
(Dollars in Thousands)
Restated
FY2014 FY 2013
ASSETS
Intragovernmental:
Fund Balance With Treasury (Note 2) $ 9,370,002 $ 9,944,179
Investments (Note 4) 3,900,385 4,577,071
Accounts Receivable, Net (Note 5) 10,573 14,327
Other (Note 6) 229,018 243,654
Total Intragovernmental $ 13,509,978 $ 14,779,231
Cash and Other Monetary Assets (Note 3)
Accounts Receivable, Net (Note 5)
Loans Receivable, Net - Non-Federal (Note 7)
Property, Plant & Equipment, Net (Notes 9 and 38)
Other (Note 6)
Total Assets (Note 38)
10 10
526,859 849,173
398 57
1,185,888 1,152,950
3,288 5,756
$ 15,226,421 S 16,787,177
Stewardship PP&E (Note 11)
LIABILITIES
Intragovernmental:
Accounts Payable and Accrued Liabilities (Note 8)
Debt Due to Treasury (Note 10)
Custodial Liability (Note 12)
Other (Note 13)
T otal Intragovernmental
Accounts Payable & Accrued Liabilities (Note 8)
Pensions & Other Actuarial Liabilities (Note 15)
Environmental Cleanup Costs (Note 22)
Cashout Advances, Superfund (Note 16)
Commitments & Contingencies (Note 18)
Payroll & Benefits Payable (Note 33)
Other (Note 13)
T otal Liabilities
68,609 $
55,961
62
28
96,495
94,441
92,435
102,693
257,601 $
253,123
535,250 $
619,734
49,060
51,818
21,610
21,549
971,666
1,011,585
901
25,200
198,265
267,955
114,183
125,908
2,148,536 $
2,376,872
NET POSITION
Unexpended Appropriations - Funds from Dedicated Collections (Note 17)
Unexpended Appropriations - Other Funds (Note 17)
Cumulative Results of Operations - Funds from Dedicated Collections (Note 19)
Cumulative Results of Operations - Other Funds (Note 38)
Total Net Position (Note 38)
Total liabilities and Net Position (Note 38) $
(2,497)
-
8,508,269
8,980,012
3,642,573
4,576,942
929,540
853,351
13,077,885
14,410,305
15,226,421 S
16,787,177
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Consolidated Statement of Net Cost
For the Periods Ending September 30, 2014 and 2013 (Restated)
(Dollars in Thousands)
Restated
FY2014 FY 2013
COSTS
Gross Costs (Notes 20 and 38) $ 9,054,107 $ 9,904,065
Less:
Earned Revenue (Notes 20 and 38) 548,690 600,897
NET COST OF OPERATIONS (Notes 20 and 38) $ 8,505,417 $ 9,303,168
The accompanying notes are an integral part of these financial statements.
5
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Environmental Protection Agency
Statement of Net Cost by Goal
For the Period Ending September 30, 2014
(Dollars in Thousands)
Costs:
Intragovernmental
With the Public
Total Costs
162,818
836,368
Clean & Safe
Water
412,244
4,160,915
Land Pre serration
& Restoration
338,293
1,774,828
Healthy
Communities &
Ecosystems
$ 149,398
518,293
Compliance &
Environmental
Stewardship
$ 248,160
452,790
Less:
Earned Revenue, Federal 16,972 5,570 41,185 12,361 5,701
Earned Revenue, non Federal 865 24,837 350,118 44,643 46,438
Total Earned Revenue (Note 20) 17,837 30,407 391,303 57,004 52,139
NET COST OF OPERATIONS $ 981,349 $ 4,542,752 $ 1,721,818 $ 610,687 $ 648,811
Costs:
Intragovernmental
With the Public
Total Costs
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
NET COST OF OPERATIONS
Consolidated
Totals
$ 1,310,913
$ 7,743,194
9,054,107
$ 81,789
$ 466,901
548,690
$ 8,505,417
The accompanying notes are an integral part of these financial statements.
6
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Environmental Protection Agency
Statement of Net Cost by Goal
For the Period Ending September 30, 2013 (Restated)
(Dollars in Thousands)
Clean Air
Clean & Safe
Water
Land
Preservation &
Restoration
Healthy
Communities &
Restated
Compliance &
Environmental
Costs:
Intragovernmental (Note 38)
With the Public
$ 166,921
903,413
$
405,439
4,723,286
$ 341,138
1,902,661
$ 163,742
538,325
$ 72,243
686,897
Total Costs (Notes 20 and 38)
1,070,334
5,128,725
2,243,799
702,067
759,140
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
21,275
1,444
7,733
29,976
67,803
237,781
12,732
31,837
3,489
186,827
Total Earned Revenue (Note 20)
22,719
37,709
305,584
44,569
190,316
NET COST OF
OPERATIONS (Notes 20 and38)
$ 1,047,615
$
5,091,016
$ 1,938,215
$ 657,498
$ 568,824
Costs:
Intragovernmental
With the Public
Total Costs (Notes 20 and 38)
Less:
Earned Revenue, Federal
Earned Revenue, non Federal
Total Earned Revenue (Note 20)
NET COST OF
OPERATIONS (Notes 20 and38)
Consolidated
Totals
$ 1,149,483
$ 8,754,582
9,904,065
$ 113,032
$ 487,865
600,897
$ 9,303,168
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The accompanying notes are an integral part of these financial statements.
7
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Period Ending September 30, 2014
(Dollars in Thousands)
FY 2014
Funds from
Dedicated
Collections
FY 2014
All Other
Funds
FY 2014
Consolidated
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
4,576,942
731,208
5,308,150
Beginning Balances, as Adjusted
$
4,576,942
$
731,208
$
5,308,150
Budgetary Financing Sources:
Other Adjustments
Appropriations Used
Nonexehange Revenue - Securities Investment (Note 35)
Nonexchange Revenue - Other (Note 35)
Transfers In/Out (Note 31)
Trust Fund Appropriations
(2,122)
1,984
29,919
192,559
(1,012,576)
940,508
8,385,104
2
28,825
(938,387)
(2,122)
8,387,088
29,919
192,561
(983,751)
2,121
Total Budgetary Financing Sources
$
150,272
$
7,475,544
$
7,625,816
Other Financing Sources (Non-Exchange)
Transfers In/Out (Note 31)
Imputed Financing Sources (Note 32)
(53)
23,124
(298)
120,790
(350)
143,914
Total Other Financing Sources
$
23,071
$
120,492
$
143,564
Net Cost of Operations
(1,107,713)
(7,397,704)
(8,505,417)
Net Change
(934,370)
198,332
(736,037)
Cumulative Results of Operations (Note 38)
$
3,642,573
$
929,540
$
4,572,113
FY 2014
Funds from
Dedicated
Collections
FY 2014
All Other
Funds
FY 2014
Consolidated
Total
Unexpended Appropriations:
Net Position - Beginning of Period
_
8,980,012
8,980,012
Beginning Balances, as Adjusted
-
8,980,012
8,980,012
Budgetary Financing Sources:
Appropriations Received
Other Adjustments (Note 34)
Appropriations Used
3,674
(4,187)
(1,984)
7,933,169
(19,808)
(8,385,104)
7,936,843
(23,995)
(8,387,088)
Total Budgetary Financing Sources
(2,497)
(471,743)
(474,240)
Total Unexpended Appropriations
(2,497)
8,508,269
8,505,772
TOTAL NET POSITION (Note 38)
S
3,640,076
S
9,437,809
S
13,077,885
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Period Ending September 30, 2013 (Restated)
(Dollars in Thousands)
FY 2013 (Restated) (Restated)
Funds from
Dedicated
Collections
FY 2013
All Other
Funds
FY 2013
Consolidated
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
Adjustment:
(a) Changes in Accounting Principles
(b) Correction of Errors (Note 38)
4,504,199
677,051
100,530
5,181,250
100,530
Beginning Balances, as Adjusted $
4,504,199 $
777,581 $
5,281,780
Budgetary Financing Sources:
Appropriations Used
Nonexehange Revenue - Securities Investment (Note 35)
Nonexchange Revenue - Other (Note 35)
Transfers In/Out (Note 31)
Trust Fund Appropriations
28,717
195,107
(12,594)
1,087,088
9,160,169
29,885
(1,087,088)
9,160,169
28,717
195,107
17,291
Total Budgetary Financing Sources
1,298,318
8,102,966
9,401,284
Other Financing Sources (Non-Exchange)
Transfers In/Out (Note 31)
Imputed Financing Sources (Note 32)
25,151
125,776
150,927
Total Other Financing Sources $
25,151 $
125,776 $
150,927
Net Cost of Operations (Note 38)
(1,250,726)
(8,052,442)
(9,303,168)
Net Change (Note 38)
72,743
176,300
249,043
Cumulative Results of Operations (Note 38) $
4,576,942 $
953,881 $
5,530,823
FY 2013
Funds from
Dedicated
Collections
(Restated)
FY 2013
All Other
Funds
(Restated)
FY 2013
Consolidated
Total
Unexpended Appropriations:
Net Position - Beginning of Period
_
9,811,870
9,811,870
Beginning Balances, as Adjusted
9,811,870
9,811,870
Budgetary Financing Sources:
Appropriations Received
Appropriations Transferred In/Out (Note 31)
Other Adjustments (Note 34)
Appropriations Used
-
8,782,272
(453,961)
(9,160,169)
8,782,272
(453,961)
(9,160,169)
Total Budgetary Financing Sources
-
(831,858)
(831,858)
Total Unexpended Appropriations
-
8,980,012
8,980,012
TOTAL NET POSITION (Note 38) S
4,576,942 S
9,933,893 S
14,510,835
The accompanying notes are an integral part of these financial statements.
9
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Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Periods Ending September 30, 2014 and 2013
(Dollars in Thousands)
FY 2014 FY 2013
BUDGETARY RESOURCES
Unobligated balance, brought forward, October 1:
$ 3,242,602 $
2,786,404
Unobligated Balance Brought Forward, October 1, as adjusted
3,242,602
2,786,404
Recoveries of prior year unpaid obligations (Note 27)
397,697
286,170
Other changes in unobligated balance
(62,229)
(25,506)
Unobligated balance from prior year budget authority, net
3,578,070
3,047,068
Appropriations (discretionary and mandatory)
10,172,972
9,585,239
Spending Authority from offsetting collection (discretionary and mandatory)
887,854
664,260
Total Budgetary Resources
$ 14,638,896 $
13,296,567
STATUS OF BUDGETARY RESOURCES
Obligations Incurred
Unobligated Balance, end of year:
Apportioned
Unapportioned
Total Unobligated balance, end of period (Note 28)
Total Status of Budgetary Resources
11,676,560 $
10,090,120
894,141
2,068,195
2,962,336
14,638,896 $
3,008,632
197,815
3,206,447
13,296,567
CHANGE IN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid obligations, brought forward, October 1 (gross)
Obligations incurred, net
Outlays (gross)
Recoveries of prior year unpaid obligations
Unpaid obligations, end of year (gross)
9,784,031
11,676,560
(11,370,070)
(397,697)
9,692,826 $
11,311,842
10,090,120
(11,331,761)
(286,170)
9,784,031
Uncollected Payments
Uncollected customer payments from Federal Sources, brought forward, October 1)
Change in uncollected customerpayments from federal s ources
Uncollected customerpayments from Federal Sources, end of year
(296,176)
36,534
(259,642) $
(305,514)
9,338
(296,176)
Memorandum entries:
Obligated balance, start of year
Obligated balance, end of year (net)
9,487,855
9,433,183
11,006,328
9,487,856
BUDGET AUTHORITY AND OUTLAYS, NET:
Budget authority, gross (discretionary and mandatory)
Actual oifs etting collections (discretionary and mandatory)
Change in uncollected customerpayments fromFederal sources (discretionary and mandatory)
Budget Authority, net (discretionary and mandatory)
11,060,827
(924,388)
36,534
10,172,973
10,249,499
(673,598)
9,338
9,585,239
Outlays, gros s (dis cretionary and mandatory)
Actual oifs etting collections (discretionary and mandatory)
Outlays, net (dis cretionary and mandatory)
Distributed offsetting receipts (Note 30)
Agency outlays, net (dis cretionary and mandatory
11,370,070
(924,388)
10,445,682
(1,045,029)
9,400,653
11,331,761
(673,598)
10,658,163
(1,173,784)
9,484,379
The accompanying notes are an integral part of these financial statements.
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Environmental Protection Agency
Statement of Custodial Activity
For the Periods Ending September 30, 2014 and 2013
(Dollars in Thousands)
FY 2014
FY 2013
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties
Other
Total Cash Collections
Accrual Adjustment
Total Custodial Revenue (Note 25)
119,295
(2,040)
117,255
2,218
119,473
150,444
17,346
167,790
(20,167)
147,623
Disposition of Collections:
Transferred to Others (General Fund)
Increases/Decreases in Amounts to be Transferred
Total Disposition of Collections
117,255
2,218
119,473
167,790
(20,167)
147,623
Net Custodial Revenue Activity
The accompanying notes are an integral part of these financial statements.
11
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Environmental Protection Agency
Notes to the Financial Statements
Fiscal Year Ended September 30, 2014 and September 30, 2013
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Reporting Entities
The EPA was created in 1970 by executive reorganization from various components of other
federal agencies to better marshal and coordinate federal pollution control efforts. The
agency is generally organized around the media and substances it regulates - air, water,
hazardous waste, pesticides, and toxic substances.
The FY 2014 financial statements are presented on a consolidated basis for the Balance
Sheet, Statements of Net Cost, Changes in Net Position and Custodial Activity and a
combined basis for the Statement of Budgetary Resources. These financial statements
include the accounts of all funds described in this note by their respective Treasury fund
group.
B. Basis of Presentation
These accompanying financial statements have been prepared to report the financial position
and results of operations of the U. S. Environmental Protection Agency (EPA or agency) as
required by the Chief Financial Officers Act of 1990 and the Government Management
Reform Act of 1994. The reports have been prepared from the financial system and records
of the Agency in accordance with Office of Management and Budget (OMB) Circular No. A-
136, Financial Reporting Requirements, and the EPA accounting policies, which are
summarized in this note. The Statement of Net Cost has been prepared with cost segregated
by the agency's strategic goals.
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C. Budgets and Budgetary Accounting
General Funds
Congress adopts an annual appropriation for State and Tribal Assistance Grants
(STAG), Buildings and Facilities (B&F), and for Payments to the Hazardous
Substance Superfund to be available until expended, as well as annual appropriations
for Science and Technology (S&T), Environmental Programs and Management
(EPM) and for the Office of Inspector General (OIG) to be available for two fiscal
years. When the appropriations for the General Funds are enacted, Treasury issues a
warrant to the respective appropriations. As the agency disburses obligated amounts,
the balance of funds available to the appropriation is reduced at Treasury.
The EPA's Fiscal Year 2014 Appropriation Act established a new three year
appropriation account to provide funds to carry out section 3024 of the Solid Waste
Disposal Act, including the development, operation, maintenance, and upgrading of
the hazardous waste electronic manifest system. The Agency is authorized to
establish and collect user fees for this account that will be used for the electronic
manifest system.
The Asbestos Loan Program is a commercial activity financed from a combination of
two sources, one for the long term costs of the loans and another for the remaining
non-subsidized portion of the loans. Congress adopted a one year appropriation,
available for obligation in the fiscal year for which it was appropriated, to cover the
estimated long term cost of the asbestos loans. The long term costs are defined as the
net present value of the estimated cash flows associated with the loans. The portion of
each loan disbursement that did not represent long term cost is financed under
permanent indefinite borrowing authority established with the Treasury. A permanent
indefinite appropriation is available to finance the costs of subsidy reestimates that
occur in subsequent years after the loans were disbursed.
Funds transferred from other federal agencies are processed as non-expenditure
transfers. As the Agency disburses the obligated amounts, the balance of funding
available to the appropriation is reduced at Treasury.
Clearing accounts and receipt accounts receive no appropriated funds. Amounts are
recorded to the clearing accounts pending further disposition. Amounts recorded to
the receipt accounts capture amounts collected for or payable to the Treasury General
Fund.
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1. 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.
2. Special Funds
The Environmental Services Receipt Account obtains fees associated with
environmental programs.
Exxon Valdez uses funding collected from reimbursement from the Exxon Valdez
settlement.
The National Resource Damages Trust Fund was established for funds received for
critical damage assessments and restoration of natural resources injured as a result of
the Deepwater Horizon oil spill.
3. Deposit Funds
Deposit accounts receive no appropriated funds. Amounts are recorded to the deposit
accounts pending further disposition. Until determination is made, these are not
EPA's funds. The amounts are reported to the US Treasury through the
Governmentwide Treasury Account Symbol Adjusted Trial Balance System (GTAS).
5. Trust Funds
Congress adopts an annual appropriation amount for the Superfund, Leaking
Underground Storage Tank (LUST) and the Oil Spill Response Accounts to remain
available until expended. A transfer account for the Superfund and LUST Trust Fund
has been established for purposes of carrying out the program activities. As the
agency disburses obligated amounts from the transfer account, the agency draws
down monies from the Superfund and LUST Trust Fund at Treasury to cover the
amounts being disbursed. The agency draws down all the appropriated monies from
the Principal Fund of the Oil Spill Liability Trust Fund when Congress adopts the
Inland Oil Spill Programs appropriation amount to the EPA's Oil Spill Response
Account.
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D. Basis of Accounting
Generally Accepted Accounting Principles (GAAP) for Federal entities is the standard
prescribed by the Federal Accounting Standards Advisory Board (FASAB), which is the
official standard-setting body for the Federal government and the American Institute of
Certified Public Accountants (AICPA). The financial statements are prepared in
accordance with GAAP for Federal entities.
Transactions are recorded on an accrual accounting basis and on a budgetary basis (where
budgets are issued). Under the accrual method, revenues are recognized when earned and
expenses are recognized when a liability is incurred, without regard to receipt or payment
of cash. Budgetary accounting facilitates compliance with legal constraints and controls
over the use of federal funds posted in accordance with Office of Management and
Budget (OMB) directives and the US Treasury regulations.
EPA uses a modified matching principle since Federal entities recognize unfunded
(without budgetary resources) liabilities in accordance with FASAB Statement of Federal
Financial Accounting Standards (SFFAS) No. 5 "Accounting for Liabilities of the
Federal Government."
E. Revenues and Other Financing Sources
The following EPA policies and procedures to account for inflow of revenue and other
financing sources are in accordance with SFFAS No. 7, "Accounting for Revenues and
Other Financing Sources."
The Superfund program receives most of its funding through appropriations that may be
used within specific statutory limits for operating and capital expenditures (primarily
equipment). Additional financing for the Superfund program is obtained through:
reimbursements from other federal agencies, state cost share payments under Superfund
State Contracts (SSCs), and settlement proceeds from Potentially Responsible Parties
(PRPs) under Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA) Section 122(b)(3) placed in special accounts. Cost recovery settlements that
are not placed in special accounts continue to be deposited in the Trust Fund.
Most of the other funds, including those under the Credit Reform Act of 1990, receive
program guidance and funding needed to support loan programs through appropriations
which may be used within statutory limits for operating and capital expenditures. The
Asbestos Direct Loan Financing fund 4322 receives additional funding to support the
outstanding loans through collections from the Program fund 0118 for the subsidized
portion of the loan.
The FIFRA and PRIA funds receive funding through fees collected for services provided
and interest on invested funds. The WCF receives revenue through fees collected for
15
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services provided to the agency program offices. Such revenue is eliminated with related
Agency program expenses upon consolidation of the agency's financial statements. The
Exxon Valdez Settlement Fund receives funding through reimbursements.
Appropriated funds are recognized as Other Financing Sources expended when goods
and services have been rendered without regard to payment of cash. Other revenues are
recognized when earned (i.e., when services have been rendered).
F. Funds with the Treasury
The agency does not maintain cash in commercial bank accounts. Cash receipts and
disbursements are handled by Treasury. The major funds maintained with Treasury are
Appropriated Funds, Revolving Funds, Trust Funds, Special Funds, Deposit Funds, and
Clearing Accounts. These funds have balances available to pay current liabilities and
finance authorized obligations, as applicable.
G. Investments in US Government Securities
Investments in US Government securities are maintained by Treasury and are reported at
amortized cost net of unamortized discounts. Discounts are amortized over the term of
the investments and reported as interest income. No provision is made for unrealized
gains or losses on these securities because, in the majority of cases, they are held to
maturity (see Note 4).
H. Notes Receivable
The Agency records notes receivable at their face value and any accrued interest as of the
date of receipt.
I. Marketable Securities
The agency records marketable securities at cost as of the date of receipt. Marketable
securities are held by Treasury and reported at their cost value in the financial statements
until sold (see Note 4).
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J. Accounts Receivable and Interest Receivable
The majority of receivables for non-Superfund funds represent penalties and interest
receivable for general fund receipt accounts, unbilled intragovernmental reimbursements
receivable, allocations receivable from Superfund (eliminated in consolidated totals), and
refunds receivable for the STAG appropriation.
Superfund accounts receivable represent recovery of costs from PRPs as provided under
CERCLA as amended by Superfund Amendments and Reauthorization Act of 1986
(SARA). Since there is no assurance that these funds will be recovered, cost recovery
expenditures are expensed when incurred (see Note 5).
The agency records accounts receivable from PRPs for Superfund site response costs
when a consent decree, judgment, administrative order, or settlement is entered. These
agreements are generally negotiated after at least some, but not necessarily all, of the site
response costs have been incurred. It is the agency's position that until a consent decree
or other form of settlement is obtained, the amount recoverable should not be recorded.
The agency also records accounts receivable from states for a percentage of Superfund
site remedial action costs incurred by the agency within those states. As agreed to under
SSCs, cost sharing arrangements may vary according to whether a site was privately or
publicly operated at the time of hazardous substance disposal and whether the Agency
response action was removal or remedial. SSC agreements are usually for 10 percent or
50 percent of site remedial action costs, depending on who has the primary responsibility
for the site (i.e., publicly or privately owned). States may pay the full amount of their
share in advance or incrementally throughout the remedial action process.
K. Advances and Prepayments
Advances and prepayments represent funds paid to other entities both internal and
external to the agency for which a budgetary expenditure has not yet occurred.
L. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. Loans receivable
resulting from obligations on or before September 30, 1991, are reduced by the allowance
for uncollectible loans. Loans receivable resulting from loans obligated on or after
October 1, 1991, are reduced by an allowance equal to the present value of the subsidy
costs associated with these loans. The subsidy cost is calculated based on the interest rate
differential between the loans and Treasury borrowing, the estimated delinquencies and
defaults net of recoveries offset by fees collected and other estimated cash flows
associated with these loans.
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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 service life; or the present value of the
projected cashflows of the lease and other minimum lease payments is equal to or
exceeds 90 percent of the fair value.
Superfund contract property used as part of the remedy for site-specific response actions
is capitalized in accordance with the agency's capitalization threshold. This property is
part of the remedy at the site and eventually becomes part of the site itself. Once the
response action has been completed and the remedy implemented, the EPA retains
control of the property (i.e., pump and treat facility) for 10 years or less, and transfers its
interest in the facility to the respective state for mandatory operation and maintenance -
usually 20 years or more. Consistent with the EPA's 10 year retention period,
depreciation for this property is based on a 10 year life. However, if any property is
transferred to a state in a year or less, this property is charged to expense. If any property
is sold prior to EPA relinquishing interest, the proceeds from the sale of that property
shall be applied against contract payments or refunded as required by the Federal
Acquisition Regulations.
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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 10 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.
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Q. Interest Payable to Treasury
The Asbestos Loan Program makes periodic interest payments to Treasury based on its
debt.
R. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Sick leave
earned but not taken is not accrued as a liability. Annual leave earned but not taken as of
the end of the fiscal year is accrued as an unfunded liability. Accrued unfunded annual
leave is included in Note 33 as a component of "Payroll and Benefits Payable."
S. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior
to January 1, 1987, may participate in the Civil Service Retirement System (CSRS). On
January 1, 1984, the Federal Employees Retirement System (FERS) went into effect
pursuant to Public Law 99-335. Most employees hired after December 31, 1983, are
automatically covered by FERS and Social Security. Employees hired prior to January 1,
1984, elected to either join FERS and Social Security or remain in CSRS. A primary
feature of FERS is that it offers a savings plan to which the Agency automatically
contributes one percent of pay and matches any employee contributions up to an
additional four percent of pay. The Agency also contributes the employer's matching
share for Social Security.
With the issuance of SFFAS No. 5, "Accounting for Liabilities of the Federal
Government," accounting and reporting standards were established for liabilities relating
to the federal employee benefit programs (Retirement, Health Benefits, and Life
Insurance). SFFAS No. 5 requires that the employing agencies recognize the cost of
pensions and other retirement benefits during their employees' active years of service.
SFFAS No. 5 requires that the Office of Personnel Management (OPM), as administrator
of the CSRS and FERS, the Federal Employees Health Benefits Program, and the Federal
Employees Group Life Insurance Program, provide federal agencies with the actuarial
cost factors to compute the liability for each program.
T. Prior Period Adjustments and Restatements
Prior period adjustments, if any, are made in accordance with SFFAS No. 21, "Reporting
Corrections of Errors and Changes in Accounting Principles." Specifically, prior period
adjustments will only be made for material prior period errors to: (1) the current period
financial statements, and (2) the prior period financial statements presented for
comparison. Adjustments related to changes in accounting principles will only be made
to the current period financial statements, but not to prior period financial statements
presented for comparison.
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For detailed information on the restatements made to the FY 2013 Consolidated Financial
Statements, refer to Footnote 38, Restatements.
U. Recovery Act Funds
On February 17, 2009, President Obama signed the American Recovery and
Reinvestment Act of 2009 (Recovery Act). The Act was enacted to create jobs in the
United States, encourage technical advances, assist in modernizing the nation's
infrastructure, and enhance energy independence. The EPA was charged with the task of
distributing funds to invest in various projects aimed at creating advances in science,
health, and environmental protection that will provide long-term economic benefits.
The EPA manages almost $7.22 billion in Recovery Act funded projects and programs
that will help achieve these goals, offer resources to help other "green" agencies, and
administer environmental laws that will govern Recovery activities. As of September 30,
2014, EPA has paid out $7.1 billion.
The EPA, in collaboration with states, tribes, local governments, territories and other
partners, is administering the funds it received under the Recovery Act through four
appropriations. The funds include:
State and Tribal Assistance Grants (STAG) that in turn include:
o $4 billion for assistance to help communities with water quality and
wastewater infrastructure needs and $2 billion for drinking water
infrastructure needs (Clean Water and Drinking Water State Revolving
Fund programs and Water Quality Planning program);
o $100 million for competitive grants to evaluate and clean up former
industrial and commercial sites (Brownfields program);
o $300 million for grants and loans to help regional, state and local
governments, tribal agencies, and non-profit organizations with projects
that reduce diesel emissions (Clean Diesel programs);
$600 million for the cleanup of hazardous sites (Superfund program);
$200 million for cleanup of petroleum leaks from underground storage tanks
(Leaking Underground Storage Tank program); and
$20 million for audits and investigations conducted by the Inspector General (IG).
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The vast majority of the contracts awarded under the Recovery Act have used
competitive contracts. The EPA is committed fully to ensuring transparency and
accountability throughout the agency in spending Recovery Act funds in accordance with
OMB guidance.
EPA set up a Stimulus Steering Committee that meets to review and report on the status
of the distribution of the Recovery Act Funds to ensure transparency and accuracy. EPA
also developed a Stewardship Plan which is an Agency-level risk mitigation plan that sets
out the Agency's Recovery Act risk assessment, internal controls and monitoring
activities. The Stewardship Plan is divided into seven functional areas: grants,
interagency agreements, contracts, human capital/payroll, budget execution, performance
reporting and financial reporting. The Stewardship Plan was developed around
Government Accountability Office (GAO) standards for internal control. Under each
functional area, risks are assessed and related control, communication and monitoring
activities are identified for each impacted program. The Plan is a dynamic document and
will be updated as revised OMB guidance is issued or additional risks are uncovered.
EPA has the three-year EPM treasury account symbol 6809/110108 that was established
to track the appropriate operation and maintenance of the funds. EPA's other Recovery
Act programs are the following: Office of Inspector General (IG), treasury symbol
6809/120113; State and Tribal Assistance Grants, treasury symbol 6809/100102;
Payment to the Superfund, treasury symbol 6809/100249; Superfund, treasury account
symbol 6809/108195; and Leaking Underground Storage Tank, treasury account symbol
6809/108196.
V. Deepwater Horizon Oil Spill
On April 20, 2010, the Deepwater Horizon drilling rig exploded, releasing large volumes
of oil into the Gulf of Mexico. As a responsible party, BP is required by the 1990 Oil
Pollution Act to fund the cost of the response and cleanup operations. In FY 201 1, the
EPA worked on the cleanup effort in conjunction with the US Coast Guard who was
named the lead Federal On-Scene Coordinator and continues to assist the Department of
Justice on the pending civil litigation.
On September 10, 2012, the President designated EPA and USD A as additional trustees
for the National Resource Damage and Assessment Council for restoration solely in
conjunction with injury to, destruction of, loss of, or loss of the use of natural resources,
including their supporting ecosystems, resulting from the Deepwater Horizon Oil Spill. In
FY 2013, EPA received an advance of $1,053 million from BP, to participate in
addressing injured natural resources and service resulting from the Deepwater Horizon
Oil Spill.
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W. Hurricane Sandy
On January 29, 2013, President Obama signed into law the Disaster Relief
Appropriations Act (Disaster Relief Act) which provides aid for Hurricane Sandy disaster
victims and their communities. Because relief funding of this magnitude often carries
additional risk, agencies must ensure that the funds appropriated under the Act are used
for their intended purposes. The Disaster Relief Act required Federal agencies supporting
Sandy recovery and other disaster-related activities to implement internal controls to
prevent waste, fraud and abuse of these funds. EPA implemented an internal control plan.
The EPA Hurricane Sandy Internal Control Plan was submitted to OMB, GAO and the
IG during March 2013.
EPA received a post sequestration appropriation of $577 million in Hurricane Sandy
funds. As of the end of FY 2014, $433,005 in Hurricane Sandy funds have been
expended. These funds are for the following programs (all amounts are post
sequestration):
The Clean Water State Revolving Fund received $475 million for work on clean
water infrastructure projects in New York and New Jersey.
The Drinking Water State Revolving Fund received $95 million for work on
drinking water infrastructure projects in New York and New Jersey.
The Leaking Underground Storage Tanks program received $4.75 million for
work on projects impacted by Hurricane Sandy.
The Superfund program received $1.9 million for work on Superfund sites
impacted by Hurricane Sandy.
EPA also received $689,000 to make repairs to EPA facilities impacted by
Hurricane Sandy and conduct additional water quality monitoring.
X. Use of Estimates
The preparation of financial statements requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
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Note 2. Fund Balance with Treasury (FBWT)
Fund Balance with Treasury as of September 30, 2014 and September 30, 2013, consists of
the following:
FY2014
FY2013
Entity
Assets
Non-Entity
Assets
Total
Entity
Assets
Non-Entity
Assets
Total
Trust Funds:
Superfund
$ 18,817 $
- $
18,817 $
40,254 $
- $
40,254
LUST
32,390
-
32,390
38,368
-
38,368
Oil Spin
4,020
-
4,020
5,082
-
5,082
Revolving Funds:
FIFRA/Tolerance
16,480
-
16,480
11,820
-
11,820
Working Capital
83,214
-
83,214
66,663
-
66,663
Cr. Reform Finan.
398
-
398
370
-
370
NRDA
549
-
549
1,037
-
1,037
Appropriated
8,821,029
-
8,821,029
9,402,247
-
9,402,247
Other Fund Types
389,306
3,799
393,105
377,460
878
378,338
Total
$ 9,366,203 $
3,799 $
9,370,002 $
9,943,301 $
878 $
9,944,179
Entity fund balances, except for special fund receipt accounts, are available to pay current
liabilities and to finance authorized purchase commitments (see Status of Fund Balances
below). Entity Assets for Other Fund Types consist of special purpose funds and special
fund receipt accounts, such as the Pesticide Registration funds and the Environmental
Services receipt account. The Non-Entity Assets for Other Fund Types consist of clearing
accounts and deposit funds, which are either awaiting documentation for the determination of
proper disposition or being held by EPA for other entities.
Status of Fund Balances:
FY2014
FY2013
Unobligated Amounts in Fund Balance:
Available for Obligation
Unavailable for Obligation
Net Receivables from Invested Balances
Balances in Treasury Trust Fund (Note 37)
Obligated Balance not yet Disbursed
Non-Budgetary FBWT
Anticipated Resources
Sequestration
894,141
2,068,195
(3,416,491)
12,140
9,433,183
378,834
3,008,631
199,569
(3,114,699)
2,492
9,487,855
360,331
Totals
9,370,002
9,944,179
The funds available for obligation may be apportioned by OMB for new obligations at the
beginning of the following fiscal year. Funds unavailable for obligation are mostly balances
in expired funds, which are available only for adjustments of existing obligations. For FY
2014 and FY 2013 no differences existed between Treasury's accounts and EPA's statements
for fund balances with Treasury.
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Note 3. Cash and Other Monetary Assets
As of September 30, 2014 and September 30, 2013, the balance in the imprest fund was $10
thousand.
Note 4. Investments
As of September 30, 2014 and September 30, 2013 investments related to Superfund and
LUST consist of the following:
Cost
Intragowrnmental Securities:
Non-Marketable FY2014 $ 3,886,652 $
Non-Marketable FY2013 $ 4,510,044 $
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund
sites from responsible parties (RPs). Some RPs file for bankruptcy under Title 11 of the U.S.
Code. In bankruptcy settlements, EPA is an unsecured creditor and is entitled to receive a
percentage of the assets remaining after secured creditors have been satisfied. Some RPs
satisfy their debts by issuing securities of the reorganized company. The Agency does not
intend to exercise ownership rights to these securities, and instead will convert them to cash
as soon as practicable. All investments in Treasury securities are funds from dedicated
collections (see Note 19).
The Federal Government does not set aside assets to pay future benefits or other expenditures
associated with funds from dedicated collections. The cash receipts collected from the public
for dedicated collection funds are deposited in the U.S. Treasury, which uses the cash for
general Government purposes. Treasury securities are issued to EPA as evidence of its
receipts. Treasury securities are an asset to EPA and a liability to the U.S. Treasury.
Because EPA and the U.S. Treasury are both parts of the Government, these assets and
liabilities offset each other from the standpoint of the Government as a whole. For this
reason, they do not represent an asset or liability in the U.S. Government-wide financial
statements.
Treasury securities provide EPA with authority to draw upon the U.S. Treasury to make
future benefit payments or other expenditures. When EPA requires redemption of these
securities to make expenditures, the Government finances those expenditures out of
accumulated cash balances, by raising taxes or other receipts, by borrowing from the public
or repaying less debt, or by curtailing other expenditures. This is the same way that the
Government finances all other expenditures.
25
Amortized T . . T . . i A
interest Inwstments, Market
(Premium) Recdvahk. Net Value
Discount
(8,836) $ 4,897 $ 3,900,385 $ 3,900,385
(60,737) $ 6,290 $ 4,577,071 $ 4,577,071
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Note 5. Accounts Receivable, Net
The Accounts Receivable as of September 30, 2014 and September 30, 2013 consist of the
following:
FY2014 FY 2013
Intragovernmental:
Accounts & Interest Receivable $ 11,266 $ 15,163
Less: Allowance forUncollectibles (693) (836)
Total $ 10,573 $ 14,327
Non-Federal:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Uncollectibles
Total
$ 126,170 $ 142,251
2,303,339 2,484,674
(1,902,650) (1,777,752)
$ 526,859 $ 849,173
The Allowance for Uncollectible Accounts is determined both on a specific identification
basis, as a result of a case-by-case review of receivables, and on a percentage basis for
receivables not specifically identified.
Note 6. Other Assets
Other Assets as of September 30, 2014 and September 30, 2013 consist of the following:
Intragovernmental: FY2014 FY 2013
Advances to Federal Agencies $ 228,982 $ 243,586
Advances for Postage 36_ 68
Total $ 229,018 $ 243,654
Non-Federal:
Travel Advances $ 4 $ 318
Other Advances 2,914 5,052
Operating Materials and Supplies - 85
Inventory for Sale 370 301
Total $ 3,288 $ 5,756
Note 7. Loans Receivable, Net
Loans Receivable consists of Asbestos Loan Program loans disbursed from obligations made
prior to FY 1992 and are presented net of allowances for estimated uncollectible loans, if an
allowance was considered necessary. Loans disbursed from obligations made after FY 1991
are governed by the Federal Credit Reform Act, which mandates that the present value of the
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subsidy costs (i.e., interest rate differentials, interest subsidies, anticipated delinquencies, and
defaults) associated with direct loans be recognized as an expense in the year the loan is
made. The net loan present value is the gross loan receivable less the subsidy present value.
The amounts as of September 30, 2014 and September 30, 2013 are as follows:
FY 2014 FY2013
Loans Value of Assets Loans Value of Assets
Receivable, Allowance* Relatedto Receivable, Allowance* Related to
Gross Direct Loans Gross Direct Loans
Direct Loans
Obligated After FY
1991
32
366
398
30
27
57
Total $
1 1
366 $
398 $
30 $
27 $
57
* Allowance for Pre-Credit Reform loans (prior to FY 1992) is the Allowance for Estimated
Uncollectible Loans, and the Allowance for Post Credit Reform Loans (after FY 1991) is the
Allowance for Subsidy Cost (present value).
Subsidy Expenses for Credit Reform Loans (reported on a cash basis):
Interest Rate Technical Total
Re-estimate Re-estimate
Upward Subsidy Reestimate - FY2014 $ 302 $ 96 $ 398
Downward Subsidy Reestimate - FY2014 -
FY2014 Totals $
302 $
96 $
398
Upward Subsidy Reestimate - FY2013 $
$
$
Downward Subsidy Reestimate - FY2013
247
85
332
FY2013 Totals $
247 $
85 $
332
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Schedule for Reconciling Sutasidy Cost Allowance Balances
(Post-1991 Direct Loans)
FY2014
FY 2013
Beginning balance ofthe subsidy cost allowance $ 27 $ (360)
Add: subsidy expense for direct loans disbursed during the
reporting years by component:
Interest rate differential costs
Default costs (net of recoveries)
Fees and other collections
Other subsidy costs
$ 96
Total ofthe above subsidy expense components
$ 123 $
(360)
Adjustments:
Loan Modification
Fees received
Foreclosed property acquired
Loans written off
Subsidy allowance amortization
$ 304 $
(11)
Other
End balance ofthe subsidy cost allowance before reestimates
$ 304 $
(11)
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate
(47)
302
(b) Technical/default reestimate
(14)
96
Total ofthe above reestimate components
$ (61)
398
Eliding Balance of the subsidy cost allowance
$ 366 $
27
EPA has not disbursed Direct Loans since 1993.
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Note 8. Accounts Payable and Accrued Liabilities
The Accounts Payable and Accrued Liabilities are current liabilities and consist of the
following amounts as of September 30, 2014 and September 30, 2013:
FY2014 FY 2013
Intr agove rnmental:
Accounts Payable $ 533 $ 642
Accrued Liabilities 68,076 55,319
Total » 68,609 $ 55,961
Non-Federal: FY2014 FY2013
Accounts Payable $ 75,387 $ 78,614
Advances Payable 11 3
Interest Payable 7 7
Grant Liabilities 308,521 378,230
Other Accrued Liabilities 151,324 162,880
Total $ 535,250 $ 619,734
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, 2014 and September 30, 2013 (restated), General PP&E consist of the
following:
Acquisition
Value
FY 2014
Accumulated
Depreciation
Net Book Value
Acquisition
Value
Restated
FY2013
Accumulated
Depreciation
Net Book
Value
EPA-Held Equipment $
291,021 $
(182,473) $
108,548 $
273,725 $
(169,592) $
104,133
Software In Production (Note 38)
639,600
(420,968)
218,632
597,594
(405,003)
192,591
Software In Development (Note 38)
353,693
353,693
347,732
347,732
Contractor Held Equip.
36,085
(18,345)
17,740
48,158
(18,631)
29,527
Land and Buildings
702,658
(223,647)
479,011
680,344
(210,467)
469,877
Capital Leases
35,285
(27,021)
8,264
35,440
(26,350)
9,090
Total $ 2,058,342 $ (872,454) $ 1,185,888 $ 1,982,993 $ (830,043) $ 1,152,950
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Note 10. Debt Due to Treasury
The debt due to Treasury consists of borrowings to finance the Asbestos Loan Program. The
debt to Treasury as of September 30, 2014 and September 30, 2013 is as follows:
All Other Funds FY2014 FY2013
Beginning Net Ending Beginning Net Ending
Balance Borrowing Balance Balance Borrowing Balance
Intr agowrnmental:
Debt to Treasury $ 28 $ 34 $ 62 $ 1,063 $ (1,035) $ 28
Note 11. Stewardship Land
The Agency acquires title to certain property and property rights under the authorities
provided in Section 104(j) CERCLA related to remedial clean-up sites. The property rights
are in the form of fee interests (ownership) and easements to allow access to clean-up sites or
to restrict usage of remediated sites. The Agency takes title to the land during remediation
and transfers it to state or local governments upon the completion of clean-up. A site with
"land acquired" may have more than one acquisition property. Sites are not counted as a
withdrawal until all acquired properties have been transferred under the terms of 104(j).
As of September 30, 2014 and 2013, the Agency possesses the following land and land
rights:
FY2014 FY2013
Superfund Sites with
Easements
Beginning Balance 36 36
Additions 0 0
Withdrawals 1_ 0
Ending Balance 35_ 36
Superfund Sites with
Land Acquired
Beginning Balance 33 34
Additions 1 0
Withdrawals 0_ 1_
Ending Balance 34 33
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Note 12. Custodial Liability
Custodial Liability represents the amount of net accounts receivable that, when collected,
will be deposited to the Treasury General Fund. Included in the custodial liability are
amounts for fines and penalties, interest assessments, repayments of loans, and miscellaneous
other accounts receivable. As of September 30, 2014 and September 30, 2013, custodial
liability is approximately $96 million and $94 million, respectively.
Note 13. Other Liabilities
Other Liabilities consist of the following as of September 30, 2014:
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Ta?es
W CF Advances
Other Advances
Advances, HRSTF Cashout
Deferred HRSTF Cashout
Liability for Deposit Funds
Non-Current
Unfunded FECA Liability
Unfunded Unemployment Liability
Payable to Treasury Judgment Fund
Total Intragovernmental
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal
Liability for Deposit Funds, Non-Federal
Non-Current
Capital Lease Liability
Total Non-Federal
Covered by
Budgetary
Resources
11,200
1,208
6,568
30,693
49,669
Not Covered by
Budgetary
Resources
20,566
200
22,000
42,766
89,682 $
4,123
20,378
Total
11,200
1,208
6,568
30,693
20,566
200
22,000
92,435
89,682
4,123
20,378
93,805
20,378
114,183
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Other Liabilities consist of the following as of September 30, 2013:
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Ta?es
W CF Advances
Other Advances
Advances, HRSTF Cashout
Deferred HRSTF Cashout
Liability for Deposit Funds
Resources Payable to Treasury
Non-Current
Unfunded FECA Liability
Unfunded Unemployment Liability
Payable to Treasury Judgment Fund
Total Intragovernmental
Other Liabilities - Non-Federal
Current
Unearned Advances
Liability for Deposit Funds
Non-Current
Capital Lease Liability
Total Non-Federal
Covered by
Budgetary
Resources
26,599
1,526
8,814
32,736
274
5
69,954
103,813
1,052
Not Covered by
Budgetary
Resources
10,581
158
22,000
32,739
21,043
Total
104,865
21,043
26,599
1,526
8,814
32,736
274
5
10,581
158
22,000
102,693
103,813
1,052
21,043
125,908
Note 14. Leases
Capital Leases:
The value of assets held under Capital Leases as of September 30, 2014 and 2013 are as
follows:
Summary of Assets Under Capital Lease: FY2014 FY2013
Real Property $ 35,285 $ 35,440
Personal Property - -
Total
$ 35,285 $
35,440
Accumulated Amortization
$ 27,021 $
26,350
EPA had two capital leases for land and buildings housing scientific laboratories and
computer facilities. Both leases include a base rental charge and escalation clauses based
upon either rising operating costs and/or real estate taxes. The base operating costs are
adjusted annually according to escalators in the Consumer Price Indices published by the
Bureau of Labor Statistics, U.S. Department of Labor. EPA's leases terminate in FY 2025.
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The total future minimum capital lease payments are listed below.
Future Payments Due:
Fiscal Year Capital Leases
2015 4,215
2016 4,215
2017 4,215
2018 4,215
After 5 y e ars 26,695
Total Future Minimum Lease Payments 43,555
Less: Imputed Interest $ (23,177)
Net Capital Lease Liability 20,378
Liabilities not Covered by Budgetary Resources $ 20,378
Operating Leases:
The GSA provides leased real property (land and buildings) as office space for EPA
employees. GSA charges a Standard Level User Charge that approximates the commercial
rental rates for similar properties.
EPA had two direct operating leases for land and buildings housing scientific laboratories
and computer facilities. The leases include a base rental charge and escalation clauses based
upon either rising operating costs and/or real estate taxes. The base operating costs are
adjusted annually according to escalators in the Consumer Price Indices published by the
Bureau of Labor Statistics. The two leases expire in FY 2017 and FY 2020. These charges
are expended from the EPM appropriation.
The total minimum future operating lease costs are listed below:
Operating Leases, Land and
Buildings
Fiscal Year
2015 $ 89
2016 89
2017 89
2018 83
Beyond 2018 114
Total Future Minimum Lease Payments $ 464
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Note 15. FECA Actuarial Liabilities
The Federal Employees' Compensation Act (FECA) provides income and medical cost
protection to covered Federal civilian employees injured on the job, employees who have
incurred a work-related occupational disease, and beneficiaries of employees whose death is
attributable to a job-related injury or occupational disease. Annually, EPA is allocated the
portion of the long term FECA actuarial liability attributable to the entity. The liability is
calculated to estimate the expected liability for death, disability, medical and miscellaneous
costs for approved compensation cases. The liability amounts and the calculation
methodologies are provided by the Department of Labor.
The FECA Actuarial Liability as of September 30, 2014 and 2013 was $49.06 million and
$51.81 million, respectively. The estimated future costs are recorded as an unfunded
liability. The FY 2014 present value of these estimated outflows is calculated using a
discount rate of 3.455 percent in the first year, and 3.455 percent in the years thereafter. The
estimated future costs are recorded as an unfunded liability.
Note 16. Cashout Advances, Superfund
Cashout advances are funds received by EPA, a state, or another PRP under the terms of a
settlement agreement (e.g., consent decree) to finance response action costs at a specified
Superfund site. Under CERCLA Section 122(b)(3), cashout funds received by EPA are
placed in site-specific, interest bearing accounts known as special accounts and are used for
potential future work at such sites in accordance with the terms of the settlement agreement.
Funds placed in special accounts may be disbursed to PRPs, to states that take responsibility
for the site, or to other Federal agencies to conduct or finance response actions in lieu of EPA
without further appropriation by Congress. As of September 30, 2014 and September 30,
2013, cashouts are approximately $972 million and $1,012 billion respectively.
Note 17. Unexpended Appropriations Other Funds
As of September 30, 2014 and 2013, the Unexpended Appropriations consist of the
following:
Unexpended Appropriations:
Unobligated
Available
Unavailable
Undelivered Orders
Total
FY2014
FY2013
527,068 $
88,317
7,890,387
8,505,772
1,061,402
95,043
7,823,567
8,980,012
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Note 18. Commitments and Contingencies
EPA may be a party in various administrative proceedings, actions and claims brought by or
against it. These include:
Various personnel actions, suits, or claims brought against the Agency by employees
and others.
Various contract and assistance program claims brought against the Agency by
vendors, grantees and others.
The legal recovery of Superfund costs incurred for pollution cleanup of specific sites,
to include the collection of fines and penalties from responsible parties.
Claims against recipients for improperly spent assistance funds which may be settled
by a reduction of future EPA funding to the grantee or the provision of additional
grantee matching funds.
As of September 30, 2014 and 2013 total accrued liabilities for commitments and potential
loss contingencies is $901 thousand and $25.2 million, respectively. The largest portion of
last year's value was settled. The recorded amount is comprised of two cases and discussed
below.
Superfund
Under CERCLA Section 106(a), EPA issues administrative orders that require parties to
clean up contaminated sites. CERCLA Section 106(b) allows a party that has complied with
such an order to petition EPA for reimbursement from the fund of its reasonable costs of
responding to the order, plus interest. To be eligible for reimbursement, the party must
demonstrate either that it was not a liable party under CERCLA Section 107(a) for the
response action ordered, or that the Agency's selection of the response action was arbitrary
and capricious or otherwise not in accordance with law.
As of September 30, 2014, there are two cases pending against EPA that are reported under
Environmental Liabilities below: Bob's Home Service Landfill ($900 thousand) and the
Seaboard Chemical/Riverdale Landfill Site matter ($1 thousand) are reported as a probable
liability. The $901 thousand will be recorded as an accrual.
There is also one new matter concerning section 107 of CERCLA involving the Appvion
Lower Fox River and Green Bay Site. The amount is estimated at $174 million but is only
possible and the final outcome is not probable
Judgment Fund
In cases that are paid by the U.S. Treasury Judgment Fund, EPA must recognize the full cost
of a claim regardless of which entity is actually paying the claim. Until these claims are
settled or a court judgment is assessed and the Judgment Fund is determined to be the
35
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appropriate source for the payment, claims that are probable and estimable must be
recognized as an expense and liability of the Agency. For these cases, at the time of
settlement or judgment, the liability will be reduced and an imputed financing source
recognized. See Interpretation of Federal Financial Accounting Standards No. 2,
"Accounting for Treasury Judgment Fund Transactions." EPA has a $22 million liability to
the Treasury Judgment Fund for a payment made by the Fund to settle a contract dispute
claim.
As of September 30, 2014, there was one case pending Trinity Marine Products. Inc. v.
United States. The case has been denied twice, but Trinity appealed to US Court of Appeals
for the Fifth Circuit. The possibility of loss is only reasonably possible so no liability has
been accrued. An estimate of possible damages is $1 million to $4.4 million.
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.
15-1-0021
36
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Note 19. Funds from Dedicated Collections (Unaudited)
Balance sheet as of September 30,2014
Assets
Fund Balance with Treasury
Investments
Accounts Receivable, Net
Other Assets
Environmental
Services
$ 370,053 I
LIST
S 32,760 !
446,455
85,924
686
Superfund
S 27,393 3
3,453,929
319,640
119,991
Other Funds from
Dedicated Collections
> 42,168 3
5,407
3,145
Total Funds from
Dedicated Collections
1 472,374
3,900,384
410,971
123,822
Total Assets
370,053
565,825
3,920,953
50,720
4,907,551
Other Liabilities
$ 8 I
S 93,619 !
S 1,127,129 3
> 46,719 3
1 1,267,475
Total Liabilities
$ 8 !
S 93,619 !
S 1,127,129 3
S 46,719 3
i 1,267,475
Unexpended Appropriations
Cumulative Results of Operations
$ - :
$ 370,045 I
5 (4,187)
S 476,393 !
- 3
$ 2,793,824 3
S 1,690 3
S 2,311 3
i (2,497)
1 3,642,573
Total Liabilities and Net Position
$ 370,053 I
S 565,825 !
S 3,920,953 3
S 50,720 3
1 4,907,551
Statement of Changes in Net Cost for the
Period Bided September 30,2014
Gross Program Costs
Less: Earned Revenues
$ - :
5 103,665 ;
2,829
S 1,395,175 3
405,391
S 83,808 3
66,715
1 1,582,648
474,935
Net Cost of Operations
$ - :
S 100,836 :
S 989,784 3
S 17,093 3
1 1,107,713
Statement of Changes in Net Position for the
Period ended September 30,2014
Net Position, Beginning of Period
Nonexchange Revenue- Securities Investments
Nonexchange Revenue
Other Budgetary Finance Sources
Other Financing Sources
Net Cost of Operations
$ 358,632 I
11,413
S 1,390,286 !
4,350
182,340
(1,004,187)
253
(100,836)
S 2,827,897 3
25,565
732
909,562
19,852
(990,741)
S 127 3
3
(1,926)
22,045
845
(17,093)
1 4,576,942
29,918
192,559
(72,580)
20,950
(1,108,670)
Change in Net Position
$ 11,413 !
5 (918,080) t
6 (35,030) 3
> 3,874 3
i (937,823)
Net Position $ 370,045 $ 472,206 $ 2,792,867 $ 4,001 $ 3,639,119
15-1-0021
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Environmental LUST Superfund Other Earmarked Total Earmarked
Balance sheetas of September30,2013 Services Funds Funds
Assets
Fund Balance with Treasury $
358,632 $
38,368 $
40,254 $
36,767 $
474,021
Investments
-
1,360,530
3,216,541
-
4,577,071
Accounts Receivable, Net
-
-
739,813
3,193
743,006
Other Assets
-
361
108,930
3,086
112,377
Total Assets
358,632
1,399,259
4,105,538
43,046
5,906,475
Other Liabilities $
- $
8,973 $
1,277,641 $
42,919 $
1,329,533
Total Liabilities $
- $
8,973 $
1,277,641 $
42,919 $
1,329,533
Cumulative Results of Operations $
358,632 $
1,390,286 $
2,827,897 $
127 $
4,576,942
Total Liabilities and Net Position $
358,632 $
1,399,259 $
4,105,538 $
43,046 $
5,906,475
Statement of Changes in Net Cost for the
Period Ended September 30,2013
Gross ProgramCosts $
- $
114,051 $
1,558,007 $
74,237 $
1,746,295
Less: Earned Revenues
(470)
-
441,908
54,131
495,569
Net Cost of Operations $
470 $
114,051 $
1,116,099 $
20,106 $
1,250,726
Statement of Changes in Net Position for the
Period ended September 30,2013
Net Position, Beginning of Period $
325,719 $
1,336,906 $
2,834,688 $
6,886 $
4,504,199
Nonexehange Revenue- Securities Investments
-
4,904
23,810
3
28,717
Nonexehange Revenue
33,383
162,167
(430)
(12)
195,108
Other Budgetary Finance Sources
-
-
1,062,303
12,190
1,074,493
Other Financing Sources
-
360
23,625
1,166
25,151
Net Cost of Operations
(470)
(114,051)
(1,116,099)
(20,106)
(1,250,726)
Change in Net Position $
32,913 $
53,380 $
(6,791) $
(6,759) $
72,743
Net Pos ition $
358,632 $
1,390,286 $
2,827,897 $
127 $
4,576,942
Funds from Dedicated Collections are as follows:
Environmental Services Receipt Account: The Environmental Services Receipt Account
authorized by a 1990 act, "To amend the Clean Air Act (P.L. 101-549)," was established for
the deposit of fee receipts associated with environmental programs, including radon
measurement proficiency ratings and training, motor vehicle engine certifications, and water
pollution permits. Receipts in this special fund can only be appropriated to the S&T and EPM
appropriations to meet the expenses of the programs that generate the receipts if authorized
by Congress in the Agency's appropriations bill.
Leaking Underground Storage Tank (LUST) Trust Fund: The LUST Trust Fund, was
authorized by the SARA as amended by the Omnibus Budget Reconciliation Act of 1990.
The LUST appropriation provides funding to respond to releases from leaking underground
petroleum tanks. The Agency oversees cleanup and enforcement programs which are
implemented by the states. Funds are allocated to the states through cooperative agreements
to clean up those sites posing the greatest threat to human health and the environment. Funds
are used for grants to non-state entities including Indian tribes under Section 8001 of the
Resource Conservation and Recovery Act.
Superfund Trust Fund: In 1980, the Superfund Trust Fund, was established by CERCLA to
provide resources to respond to and clean up hazardous substance emergencies and
abandoned, uncontrolled hazardous waste sites. The Superfund Trust Fund financing is
38
15-1-0021
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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.
Other Funds from Dedicated Collections:
Oil Spill Liability Trust Fund: The Oil Spill Liability Trust Fund, was authorized by the Oil
Pollution Act of 1990 (OPA). Monies are appropriated from the Oil Spill Liability Trust
Fund to EPA's Oil Spill Response Account each year. The Agency is responsible for
directing, monitoring and providing technical assistance for major inland oil spill response
activities. This involves setting oil prevention and response standards, initiating enforcement
actions for compliance with OPA and Spill Prevention Control and Countermeasure
requirements, and directing response actions when appropriate. The Agency carries out
research to improve response actions to oil spills including research on the use of remediation
techniques such as dispersants and bioremediation. Funding for specific oil spill cleanup
actions is provided through the U.S. Coast Guard from the Oil Spill Liability Trust Fund
through reimbursable Pollution Removal Funding Agreements (PRFAs) and other inter-
agency agreements.
Pesticide Registration Fund: The Pesticide Registration Fund authorized by a 2004 Act,
"Consolidated Appropriations Act (P.L. 108-199)," and reauthorized until September 30,
2019, for the expedited processing of certain registration petitions and associated
establishment of tolerances for pesticides to be used in or on food and animal feed. Fees
covering these activities, as authorized under the FIFRA Amendments of 1988, are to be paid
by industry and deposited into this fund group.
Reregistration and Expedited Processing Fund: The Revolving Fund, was authorized by the
FIFRA of 1972, as amended by the FIFRA Amendments of 1988 and as amended by the
Food Quality Protection Act of 1996. Pesticide maintenance fees are paid by industry to
offset the costs of pesticide re-registration and reassessment of tolerances for pesticides used
in or on food and animal feed, as required by law.
Tolerance Revolving Fund: The Tolerance Revolving Fund, was authorized in 1963 for the
deposit of tolerance fees. Fees are paid by industry for Federal services to set pesticide
chemical residue limits in or on food and animal feed. The fees collected prior to January 2,
1997, were accounted for under this fund. Presently collection of these fees is prohibited by
statute, enacted in the Consolidated Appropriations Act, 2004 (P.L. 108-199).
Exxon Valdez Settlement Fund: The Exxon Valdez Settlement Fund authorized by P.L. 102-
389, "Making appropriations for the Department of Veterans Affairs and Housing and Urban
39
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Development, and for sundry independent agencies, boards, commissions, corporations, and
offices for the fiscal year ending September 30, 1993," has funds available to carry out
authorized environmental restoration activities. Funding is derived from the collection of
reimbursements under the Exxon Valdez settlement as a result of an oil spill.
Note 20. Intragovernmental Costs and Exchange Revenue (Restated)
Exchange, or earned revenues on the Statement of Net Cost include income from services
provided to Federal agencies and the public, interest revenue (with the exception of interest
earned on trust fund investments), and miscellaneous earned revenue.
Restated
FY2014 FY2013
Clean Air
Program Costs
Earned Revenue
Intragovernm
ental
$ 162,818 !
16,972
With the
Public
S 836,368 !
865
Total
5 999,186
17,837
Intragowrnm
ental
$ 166,921 3
21,275
With the
Public
5 903,413 S
1,444
Total
J 1,070,334
22,719
NET COST
$ 145,846 !
5 835,503 !
5 981,349
$ 145,646 3
5 901,969 S
J 1,047,615
Clean and Safe Water
Program Costs
Earned Revenue
$ 412,244 !
5,570
5 4,160,915 !
24,837
5 4,573,159
30,407
$ 405,439 3
7,733
5 4,723,286 S
29,976
; 5,128,725
37,709
NET COSTS
$ 406,674 !
5 4,136,078 !
5 4,542,752
$ 397,706 3
5 4,693,310 S
J 5,091,016
Land Preservation &
Restoration
Program Costs
Earned Revenue
$ 338,293 !
41,185
5 1,774,828 !
350,118
5 2,113,121
391,303
$ 341,138 3
67,803
5 1,902,661 S
237,781
; 2,243,799
305,584
NET COSTS
$ 297,108 !
5 1,424,710 !
5 1,721,818
$ 273,335 3
5 1,664,880 S
J 1,938,215
Healthy Communities &
Ecosystems
Program Costs
Earned Revenue
$ 149,398 !
12,361
5 518,293 !
44,643
5 667,691
57,004
$ 163,742 3
12,732
5 538,325 S
31,837
J 702,067
44,569
NET COSTS
$ 137,037 !
5 473,650 !
5 610,687
$ 151,010 3
5 506,488 S
J 657,498
Compliance &
Environmental
Stewardship
Program Costs (Note 38)
Earned Revenue
$ 248,160 !
5,701
5 452,790 !
46,438
S 700,950
52,139
$ 72,243 3
3,489
5 686,897 S
186,827
J 759,140
190,316
NET COSTS
$ 242,459 !
5 406,352 !
S 648,811
$ 68,754 3
5 500,070 S
J 568,824
Total
Program Costs
Earned Revenue
$ 1,310,913 !
81,789
5 7,743,194 !
466,901
S 9,054,107
548,690
$ 1,149,483 3
113,032
5 8,754,582 S
487,865
J 9,904,065
600,897
NET COSTS
$ 1,229,124 !
5 7,276,293 !
S 8,505,417
$ 1,036,451 3
5 8,266,717 S
J 9,303,168
Intragovernmental costs relate to the source of goods or services not the classification of the
related revenue.
40
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Note 21. Cost of Stewardship Land
EPA had one acquisition of stewardship land at a cost of $45,600 for the year ending
September 30, 2014. There were no costs related to the acquisition of stewardship land for
the year ending September 30, 2013. These costs are included in the Statement of Net Cost.
Note 22. Environmental Cleanup Costs
As of September 30, 2014, EPA has 2 sites that require clean up stemming from its activities.
Two claimants' chances of success are characterized as probable with costs amounting to
$180 thousand that may be paid out of the Treasury Judgment Fund. For sites that had
previously been listed, it was determined by EPA's Office of General Counsel to discontinue
reporting the potential environmental liabilities for the following reasons: (1) although EPA
has been put on notice that it is subject to a contribution claim under CERCLA, no direct
demand for compensation has been made to EPA; (2) any demand against EPA will be
resolved only after the Superfund cleanup work is completed, which may be years in the
future; and (3) there was no legal activity on these matters in FY 2013 or in FY 2012.
Accrued Cleanup Cost:
EPA has 15 sites that will require permanent closure, and EPA is responsible to fund the
environmental cleanup of those sites. As of September 30, 2014 and 2013, the estimated
costs for site cleanup were $21.6 million and $21.6 million, respectively. Since the cleanup
costs associated with permanent closure were not primarily recovered through user fees, EPA
has elected to recognize the estimated total cleanup cost as a liability and record changes to
the estimate in subsequent years.
Note 23. State Credits
Authorizing statutory language for Superfund and related Federal regulations requires states
to enter into Superfund State Contracts (SSC) when EPA assumes the lead for a remedial
action in their state. The SSC defines the state's role in the remedial action and obtains the
state's assurance that it will share in the cost of the remedial action. Under Superfund's
authorizing statutory language, states will provide EPA with a 10 percent cost share for
remedial action costs incurred at privately owned or operated sites, and at least 50 percent of
all response activities (i.e., removal, remedial planning, remedial action, and enforcement) at
publicly operated sites. In some cases, states may use EPA-approved credits to reduce all or
part of their cost share requirement that would otherwise be borne by the states. The credit is
limited to state site-specific expenses EPA has determined to be reasonable, documented,
direct out-of-pocket expenditures of non-Federal funds for remedial action.
Once EPA has reviewed and approved a state's claim for credit, the state must first apply the
credit at the site where it was earned. The state may apply any excess/remaining credit to
another site when approved by EPA. As of September 30, 2014 and September 30, 2013, the
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total remaining state credits have been estimated at $24.5 million and $25.1 million,
respectively.
Note 24. Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response
actions at their sites with the understanding that EPA will reimburse them a certain percentage of
their total response action costs. EPA's authority to enter into mixed funding agreements is
provided under CERCLA Section 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, 2014, EPA had 3 outstanding preauthorized mixed funding
agreements with obligations totaling $4.7 million. As of September 30, 2013, EPA had 3
outstanding preauthorized mixed funding agreements with obligations totaling $4.7 million. A
liability is not recognized for these amounts until all work has been performed by the PRP and
has been approved by EPA for payment. Further, EPA will not disburse any funds under these
agreements until the PRP's application, claim and claims adjustment processes have been
reviewed and approved by EPA.
Note 25. Custodial Revenues and Accounts Receivable
FY 2014
FY2013
Fines, Penalties and Other Mscellaneous Receipts
$ 119,474 $
147,623
Accounts Receivable for Fines, Penalties and Other
Miscellaneous Receipts:
Accounts Receivable
$ 229,581 $
190,630
Less: Allowance for Uncollectible Accounts
(132,606)
(95,873)
Total
$ 96,975 $
94,757
EPA uses the accrual basis of accounting for the collection of fines, penalties and
miscellaneous receipts. Collectability by EPA of the fines and penalties is based on the
PRPs' willingness and ability to pay.
Note 26. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited
FY 2014 Statement of Budgetary Resources will be reconciled to the amounts included in the
FY 2015 Budget of the United States Government when they become available. The Budget
of the United States Government with actual numbers for FY 2014 has not yet been
published. We expect it will be published by early 2015, and it will be available on the OMB
website at http://www.whitehouse.gov/.
42
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The actual amounts published for the year ended September 30, 2013 are listed immediately
below:
FY 2013
Budgetary
Offsetting
Resources
Obligations
Receipts
Net Outlays
Statement of Budgetary Resources $
; 13,296,567 $
10,090,120 $
1,173,784 $
9,484,379
Reported in Budget of the U. S. Government $
; 13,296,567 $
10,090,120 $
1,173,784 $
9,484,379
Note 27. Recoveries and Resources Not Available, Statement of Budgetary Resources
Recoveries of Prior Year Obligations, Temporarily Not Available, and Permanently Not
Available on the Statement of Budgetary Resources consist of the following amounts for
September 30, 2014 and September 30, 2013:
FY2014 FY 2013
Recoveries of Prior Year Obligations - Downward
adjustments of prior years'obligations $ 397,697 $ 286,170
Temporarily Not Available - Rescinded Authority (2,002) (84,183)
Permanently Not Available:
Payments to Treasury - (1,035)
Rescinded authority - (437,313)
Canceled authority (60,107) (16,649)
Total Permanently Not Available $ (60,107) $ (454,997)
Note 28. Unobligated Balances Available
Unobligated balances are a combination of two lines on the Statement of Budgetary
Resources: Apportioned, Unobligated Balances and Unobligated Balances Not Available.
Unexpired unobligated balances are available to be apportioned by the OMB for new
obligations at the beginning of the following fiscal year. The expired unobligated balances
are only available for upward adjustments of existing obligations.
The unobligated balances available consist of the following as of September 30, 2014 and
September 30, 2013:
FY 2014 FY2013
Unexpired Unobligated Balance $ 2,852,876 $ 3,022,122
Expired Unobligated Balance 109,460 184,325
Total $ 2,962,336 $ 3,206,447
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Note 29. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders at September 30, 2014 and September
30, 2013 were $9.25 billion and $9.23 billion, respectively.
Note 30. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt
accounts offset gross outlays. For September 30, 2014 and September 30, 2013, the
following receipts were generated from these activities:
FY 2014
FY2013
Trust Fund Recoveries $
79,755 $
34,987
Special Fund Environmental Service
11,421
32,917
Trust Fund Appropriation
938,387
1,087,088
Miscellaneous Receipt and Clearing Accounts
15,466
18,792
Total $
1,045,029 $
1,173,784
Note 31. Transfers-In and Out, Statement of Changes in Net Position
Appropriation Transfers, In/Out:
For September 30, 2014 and September 30, 2013, the Appropriation Transfers under
Budgetary Financing Sources on the Statement of Changes in Net Position are comprised of
non-expenditure transfers that affect Unexpended Appropriations for non-invested
appropriations. These amounts are included in the Budget Authority, Net Transfers and Prior
Year Unobligated Balance, and Net Transfers lines on the Statement of Budgetary Resources.
Details of the Appropriation Transfers on the Statement of Changes in Net Position and
reconciliation with the Statement of Budgetary Resources follow for September 30, 2014 and
September 30, 2013:
Fond/Type of Account FY 2014 FY 2013
Army Corps ofEngineers $ - S
Total Appropriation Transfers S - S
(Other Funds)
Net Transfers from Invested Funds
Transfers to Another Agency
Allocations Rescinded
Total of Net Transfers on Statement
of Budgetary Resources
$ 2,172,898 S 1,176,496
(5,100)
81,518
$ 2,172,898 S 1,252,914
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Transfers In/Out Without Reimbursement, Budgetary:
For September 30, 2014 and September 30, 2013, 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 nonexpenditure, follow for September 30,
2014 and September 30, 2013:
Type of Transfer/Funds FY2014 FY2013
Rindfrom Fund from
Dedicated Dedicated
Collections Other F\inds Collections Other F\inds
Transfers-in (out) nonexpenditure,
Earmark to S&T and OIG funds $ (28,987) $ 28,987 $ (29,885) $ 29,885
Capital Transfer
Transfers-in nonexpenditure, Oil Spill (18,209) 12,190
Transfers-in (out) nonexpenditure,
Superfund 30,947 5,100
Transfer-out LUST 1,000,000
Total Transfer in (out) without
Reimbursement, Budgetary $ 983,751 $ 28,987 $ (12,595) $ 29,885
Note 32. Imputed Financing
In accordance with SFFAS No. 5, "Accounting for Liabilities of the Federal Government,"
Federal agencies must recognize the portion of employees' pensions and other retirement
benefits to be paid by the OPM trust funds. These amounts are recorded as imputed costs
and imputed financing for each agency. Each year the OPM provides Federal agencies with
cost factors to calculate these imputed costs and financing that apply to the current year.
These cost factors are multiplied by the current year's salaries or number of employees, as
applicable, to provide an estimate of the imputed financing that the OPM trust funds will
provide for each agency. The estimates for FY 2014 were $143.9 million. For FY 2013, the
estimates were $150.9 million.
SFFAS No. 4, "Managerial Cost Accounting Standards and Concepts" and SFFAS No. 30,
"Inter-Entity Cost Implementation," requires Federal agencies to recognize the costs of goods
and services received from other Federal entities that are not fully reimbursed, if material.
EPA estimates imputed costs for inter-entity transactions that are not at full cost and records
imputed costs and financing for these unreimbursed costs subject to materiality. EPA applies
its Headquarters General and Administrative indirect cost rate to expenses incurred for inter-
entity transactions for which other Federal agencies did not include indirect costs to estimate
45
15-1-0021
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the amount of unreimbursed (i.e., imputed) costs. For FY 2014 total imputed costs were $9.1
million.
In addition to the pension and retirement benefits described above, EPA also records imputed
costs and financing for Treasury Judgment Fund payments made on behalf of the Agency.
Entries are made in accordance with the Interpretation of Federal Financial Accounting
Standards No. 2, "Accounting for Treasury Judgment Fund Transactions." For FY 2014
entries for Judgment Fund payments totaled $16.6 million. For FY 2013, entries for
Judgment Fund payments totaled $1.4 million.
Note 33. Payroll and Benefits Payable
Payroll and benefits payable to EPA employees for the years ending September 30, 2014 and
September 30, 2013 consist of the following:
FY2014 Payroll & Benefits Payable
Accrued Funded Payroll & Benefits
Withholdings Payable
Employer Contributions Pay able-TSP
Accrued Unfunded Annual Leave
Total - Current
Covered by
Budgetary
Resources
15,674
30,412
1,403
47,489
Not Covered
by Budgetary
Resources
150,776
150,776
Total
15,674
30,412
1,403
150,776
198,265
FY2013 Payroll & Benefits Payable
Accrued Funded Payroll and Benefits $
Withholdings Payable
Employer Contributions Pay able-TSP
Accrued Unfunded Annual Leave
Total - Current $
71,807 $ - $ 71,807
31,475 - 31,475
6,944 - 6,944
^ 157,729 157,729
110,226 $ 157,729 $ 267,955
EPA experienced a large decrease in accrued payroll in FY 2014 due to a shortened accrual
period and smaller agency payroll costs.
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Note 34. Other Adjustments, Statement of Changes in Net Position
The Other Adjustments under Budgetary Financing Sources on the Statement of Changes in
Net Position consist of rescissions to appropriated funds and cancellation of funds that
expired 7 years earlier. These amounts affect Unexpended Appropriations.
Other Funds Other Funds
FY 2014 FY2013
Rescissions to General
Appropriations $ $ 437,280
Canceled General Authority 23,995 16,681
Total Other Adjustments $ 23,995 $ 453,961
Note 35. Non-exchange Revenue, Statement of Changes in Net Position
Non-exchange Revenue, Budgetary Financing Sources, on the Statement of Changes in Net
Position as of September 30, 2014 and September 30, 2013 consists of the following Funds
from Dedicated Collections items:
Interest on Trust Fund
TaxRevenue, Net of Refunds
Fines and Penalties Revenue
Special Receipt Fund Revenue
Total Nonexchange Revenue
Funds from
Dedicated
Collections
FY2014
29,919 $
718
182,355
9,488
222,480 $
Funds from
Dedicated
Collections
FY2013
28,717
162,212
(475)
33,371
223,825
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47
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Note 36. Reconciliation of Net Cost of Operations to Budget (Restated)
Restated
FY 2014
FY 2013
RESOURCES USED TO FINANCE ACTIVITIES
Budgetary Resources Obligated
Obligations Incurred
$ 11,676,561 $
10,090,120
Less: Spending Authority from Offsetting Collections and Recoveries
(1,285,551)
(950,430)
Obligations, Net of Offsetting Collections
$ 10,391,010 $
9,139,690
Less: Offsetting Receipts
(2,029,100)
(1,155,006)
Net Obligations
$ 8,361,910 $
7,984,684
Other Resources
Donations of Property
$ - $
-
Transfers In/Out without Reimbursement, Property
(351)
-
Imputed Financing Sources
$ 143,914
150,927
Other Resources to Finance Activities
-
Net Other Resources Used to Finance Activities
$ 143,563 $
150,927
Total Resources Used to Finance Activities
$ 8,505,473 $
8,135,611
RESOURCES USED TO FINANCE ITEMS
NOT PART OF THE NET COST OF OPERATIONS:
Change in Budgetary Resources Obligated
$ 185,191 $
1,276,867
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:
9
819
Offsetting Receipts Not Affecting Net Cost
90,713
67,917
Resources that Finance Asset Acquisition
(353,695)
(106,802)
Other Resources Not Affecting Net Cost
-
Total Resources Used to Finance Items Not Part of the Net Cost of Operations
$ (77,782) $
1,238,801
Total Resources Used to Finance the Net Cost of Operations
$ 8,427,691 $
9,374,412
Restated
COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL
FY 2014
FY 2013
NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD:
Components Requiring or Generating Resources in Future Periods:
Increase in Annual Leave Liability
$ (7,048) $
(525)
Increase in Environmental and Disposal Liability
60
(10)
Increase in Unfunded Contingencies
(24,299)
20
Upward/ Downward Reestimates of Credit Subsidy Expense
61
(730)
Increase in Public Exchange Revenue Receivables
(141,954)
(237,175)
Increase in Workers Compensation Costs
10,027
5,180
Other
(42,238)
(49)
Total Components of Net Cost of Operations that Require or
Generate Resources in Future Periods
$ (205,391) $
(233,289)
Components Not Requiring/ Generating Resources:
Depreciation and Amortization
$ 191,543 $
81,041
Expenses Not Requiring Budgetary Resources
91,574
105,622
Total Components of Net Cost that Will Not Require or Generate Resources
$ 283,117 $
186,663
Total Components ofNet Cost ofOperations That Will Not Require or
$ 77,726 $
(46,626)
Generate Resources in the Current Period
Net Cost of Operations
$ 8,505,417 $
9,327,786
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Note 37. Amounts Held by Treasury (Unaudited)
Amounts held by Treasury for future appropriations consist of amounts held in trusteeship by
Treasury in the Superfund and LUST Trust Funds.
Superfund
Superfund is supported by general revenues, cost recoveries of funds spent to clean up
hazardous waste sites, interest income, and fines and penalties.
The following reflects the Superfund Trust Fund maintained by Treasury as of September 30,
2014 and September 30, 2013. The amounts contained in these notes have been provided by
Treasury. As indicated, a portion of the outlays represents amounts received by EPA's
Superfund Trust Fund; such funds are eliminated on consolidation with the Superfund Trust
Fund maintained by Treasury.
SUPERFUND FY2014 EPA Treasury Combined
Undistributed Balances
Uninvested Fund Balance $
- $
122 $
122
Total Undisbursed Balance
-
122
122
Interest Receivable
-
3,242
3,242
Investments, Net
3,331,307
119,381
3,450,688
Total Assets $
3,331,307 $
122,745 $
3,454,052
Liabilities & Equity
Equity $
3,331,307 $
122,745 $
3,454,052
Total Liabilities and Equity $
3,331,307 $
122,745 $
3,454,052
Receipts
Corporate Environmental
-
15
15
Cost Recoveries
-
79,754
79,754
Fines & Penalties
-
1,035
1,035
Total Revenue
-
80,804
80,804
Appropriations Received
-
940,509
940,509
Interest Income
-
25,565
25,565
Total Receipts $
- $
1,046,878 $
1,046,878
Outlays
Transfers to/fromEPA, Net $
1,109,279 $
(1,109,279) $
-
Total Outlays
1,109,279
(1,109,279)
-
Net Income $
1,109,279 $
(62,401) $
1,046,878
In FY 2014, the EPA received an appropriation of $940 million for Superfund. Treasury's
Bureau of Public Debt (BPD), the manager of the Superfund Trust Fund assets, records a
liability to EPA for the amount of the appropriation. BPD does this to indicate those trust
fund assets that have been assigned for use and, therefore, are not available for appropriation.
49
15-1-0021
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As of September 30, 2014 and September 30, 2013, the Treasury Trust Fund has a liability to
EPA for previously appropriated funds of $3.41 billion and $3.01 billion, respectively.
SI PI RI IM) I Y2013
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance $
- $
(433) $
(433)
Total Undisbursed Balance
-
(433)
(433)
Interest Receivable
-
3,851
3,851
Investments, Net
3,028,841
197,366
3,226,207
Total Assets $
3,028,841 $
200,784 $
3,229,625
Liabilities & Equity
Receipts and Outlays
-
-
Equity $
3,028,841 $
200,784 $
3,229,625
Total Liabilities and Equity $
3,028,841 $
200,784 $
3,229,625
Receipts
Corporate Environmental
-
46
46
Cost Recoveries
-
34,986
34,986
Fines & Penalties
-
3,478
3,478
Total Revenue
-
38,510
38,510
Appropriations Received
-
1,087,088
1,087,088
Interest Income
-
23,810
23,810
Total Receipts $
- $
1,149,408 $
1,149,408
Outlays
Transfers to/fromEPA, Net $
1,097,586 $
(1,097,586) $
-
Total Outlays
1,097,586
(1,097,586)
-
Net Income $ 1,097,586 $ 51,822 $ 1,149,408
LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In
FY 2014 and 2013, there were no fund receipts from cost recoveries. The amounts contained
in these notes are provided by Treasury. Outlays represent appropriations received by EPA's
LUST Trust Fund; such funds are eliminated on consolidation with the LUST Trust Fund
maintained by Treasury.
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LUST FY2014
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance 3
5 - $
2,596 $
2,596
Total Undisbursed Balance
-
2,596
2,596
Interest Receivable
-
1,655
1,655
Investments, Net
85,924
358,877
444,801
Total Assets 3
> 85,924 $
363,128 $
449,052
Liabilities & Equity
Equity 3
> 85,924 $
363,128 $
449,052
Receipts
Highway TF Tax 3
5 - $
172,913 $
172,913
Airport TF Tax
-
72
72
Inland TF Tax
-
9,354
9,354
Total Revenue
-
182,339
182,339
Interest Income
-
4,350
4,350
Total Receipts 3
5 - $
186,689 $
186,689
Outlays
Transfers to/fromEPA, Net 3
> 1,094,566 $
(1,094,566) $
-
Total Outlays
1,094,566
(1,094,566)
-
Net Income 3
> 1,094,566 $
(907,877) $
186,689
LUST FY2013
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance 3
5 - $
2,925 $
2,925
Total Undisbursed Balance
-
2,925
2,925
Interest Receivable
-
2,439
2,439
Investments, Net
85,858
1,272,232
1,358,090
Total Assets 3
5 85,858 $
1,277,596 $
1,363,454
Liabilities & Equity
Equity 3
5 85,858 $
1,277,596 $
1,363,454
Receipts
Highway TF Tax 3
5 - $
103,695 $
103,695
Airport TF Tax
-
10,601
10,601
Inland TF Tax
-
62
62
Total Revenue
-
114,358
114,358
Interest Income
-
(4,904)
(4,904)
Total Receipts 3
5 - $
109,454 $
109,454
Outlays
Transfers to/fromEPA, Net 3
5 103,695 $
(103,695) $
-
Total Outlays
103,695
(103,695)
-
Net Income 3
5 103,695 $
5,759 $
109,454
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Note 38. Restatements
In accordance with OMB Circular A-123, the EPA performed a review of its capital software
in FY 2014. The review identified the following issues:
1. Entries under $25,000 were not capitalized.
2. Some entries had incorrect accounting strings.
3. Credit/debit lines were combined to correct transaction amounts.
To address these findings, the EPA revised its capitalized software procedures, resulting in
the agency correcting values and accounting for all software projects. The EPA performed
corrections to fix the value of the software assets that were determined to be understated.
As a result of the agency corrections, the agency restated FY 2013 financial statements and
are presented in the FY 2014 and FY 2013 comparative financial statements. The changes
impacted the FY 2013 Balance Sheet, Statement of Net Cost and Statement of Changes to
Net Position.
Restated Software Calculations
S oftware
FY 2013 Beginning FY 2013 Restated FY 2013 FY2013 Restated FY 2013
Balance Adjustment Beginning Balance Activity Fnding Balance
In-Development
235,168
102,247
337,415
10,317
347,732
In-Production
Accumulated Depreciation
In-Production Net Book Value
379,921
(231,598)
148,323
165,802
(132,831)
32,971
545,723
(364,429)
181,294
51,871
(40,574)
11,297
597,594
(405,003)
192,591
Total: 383,491 135,218 518,709 21,614 540,323
15-1-0021
52
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FY 2013,
as Previously
Reported
Adjustment
FY 2013,
as Restated
Consolidated Balance Sheet
Property, Plant & Equipment, Net ( Note 38)
1,030,807
122,143
1,152,950
Total Assets
16,665,034
122,143
16,787,177
Cumulative Results of Operations - Other Funds (Note 38)
731,208
122,143
853,351
Total Net Position
14,288,162
122,143
14,410,305
Total Liabilities and Net Position
16,665,034
122,143
16,787,177
Consolidated Statement of Net Cost
Gross Costs (Note 20)
10,026,208
(122,143)
9,904,065
Net Cost of Operations
9,425,311
(122,143)
9,303,168
Statement of Net Cost by Goal
Compliance & Environmental Stewardship:
Intragovernmental
Costs
194,386
(122,143)
72,243
Total Costs
881,283
(122,143)
759,140
Net Cost of Operations
690,967
(122,143)
568,824
Consolidated Intragovernmental
1,271,626
(122,143)
1,149,483
Total Costs
10,026,208
(122,143)
9,904,065
Net Cost of Operations
9,425,311
(122,143)
9,303,168
Consolidating Statement of Changes in Net Position
Net Position Beginning of Period
677,051
100,530
777,581
Net Cost of Operations - All Other Funds
(8,174,585)
122,143
(8,052,442)
Total - Net Cost of Operations
(9,425,311)
122,143
(9,303,168)
Net Change - All Other Funds
54,157
122,143
176,300
Net Change - Consolidated Total
126,900
122,143
249,043
Cumulative Results of Operations - All Other Funds
731,208
222,673
953,881
Total - Cumulative Results of Operations
5,308,150
222,673
5,530,823
Net Position - All Other Funds
9,711,220
222,673
9,933,893
Total Net Position
14,288,162
222,673
14,510,835
53
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Rx. *1UW m :y i i > > # Cr n'; H hi ' y Ss s fV i' # * 'rd i i v; ii «<, ^ w ,i» -; =
Environmental Protection Agency
As of September 30, 2014
(Dollars in Thousands)
1. Deferred Maintenance
Deferred maintenance is maintenance that was not performed when it should have been, that
was scheduled and not performed, or that was delayed for a future period. Maintenance is the
act of keeping property, plant, and equipment (PP&E) in acceptable operating condition and
includes preventive maintenance, normal repairs, replacement of parts and structural
components, and other activities needed to preserve the asset so that it can deliver acceptable
performance and achieve its expected life. Maintenance excludes activities aimed at
expanding the capacity of an asset or otherwise upgrading it to serve needs different from or
significantly greater than those originally intended.
The EPA classifies tangible property, plant, and equipment as follows: (1) EPA-Held
Equipment, (2) Contractor-Held Equipment, (3) Land and Buildings, and, (4) Capital Leases.
The condition assessment survey method of measuring deferred maintenance is utilized. The
Agency adopts requirements or standards for acceptable operating condition in conformance
with industry practices. The deferred maintenance as of September 2014 is:
2014
Assets Category:
Buildings $ 42,833
EPA Held Equipment 675
Total Defrerred Maintenance $ 43,508
2. Stewardship Land
Stewardship land is acquired as contaminated sites in need of remediation and clean-up; thus
the quality of the land is far-below the standard for usable and manageable land. Easements
on stewardship lands are in good and usable condition but acquired in order to gain access to
contaminated sites.
54
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Environmental Protection Agency
As of September 30, 2013
(Dollars in Thousands)
3. Supplemental Combined Statement of Budgetary Resources
For the Period Ending September 30, 2013
EPM
FIFRA
LUST
S&T
STAG
OTHER
TOTAL
BUDGETARY RESOURCES
Unobligated Balance, Brought Forward, October 1:
$
325,813
$
13,280
$
19,340
$
164,222
$
1,443,654
$
2,488,300
$
4,454,609
Unobligated balance brought forward, October 1, as adjusted
325,813
13,280
19,340
164,222
1,443,654
2,488,300
4,454,609
Recoveries ofPrior Year Unpaid Obligations
48,784
2,380
16,312
151,490
178,730
397,696
Other changes in unobligated balance
(32,755)
(4,188)
(20,005)
(5,282)
(62,230)
Unobligated balance from prior year budget authority, net
341,842
13,280
17,532
160,529
1,595,144
2,661,748
4,790,075
Appropriations (discretionary and mandatory)
2,624,149
(2,001)
1,180,424
759,156
3,535,161
5,189,041
13,285,930
Spending authority from offsetting collections (discretionary and mandatory)
162,626
45,332
3
52,288
536
1,791,071
2,051,856
Total Budgetary Resources
$
3,128,617
$
56,611
$
1,197,959
$
971,973
$
5,130,841
$
9,641,860
$
20,127,861
STATUS OF BUDGETARY RESOURCES
Obligations incurred
$
3,929,902
$
26,881
$
1,210,881
$
1,178,210
$
11,078,157
$
4,311,488
$
21,735,519
Unobligated balance, end ofyear:
Apportioned
287,348
4,042
1,533
124,750
156,252
320,215
894,140
Unapportioned
53,439
7,496
1,271
22,305
60,377
1,922,738
2,067,626
Total unobligated balance, end of period
340,787
11,538
2,804
147,055
216,629
2,242,953
2,961,766
Total Status of Budgetary Resources
$
4,270,689
$
38,419
$
1,213,685
$
1,325,265
$
11,294,786
$
6,554,441
$
24,697,285
CHANGE IN OBLIGATED BALANCE
Unpaid Obligations
Unpaid Obligations, Brought Forward, October 1 (gross)
$
1,151,357
$
2,940
$
102,038
$
366,469
$
5,988,581
$
1,478,928
$
9,090,313
Obligations incurred
3,929,902
26,881
1,210,881
1,178,210
11,078,157
4,311,488
21,735,519
Outlays (gross)
(2,751,509)
(29,495)
(1,105,209)
(806,008)
(4,287,414)
(2,670,917)
(11,650,552)
Recoveries ofprioryearunpaid obligations
(48,784)
(2,380)
(16,312)
(151,490)
(178,730)
(397,696)
Unpaid obligations, end ofyear (gross)
$
2,280,966
$
326
$
205,330
$
722,359
$
12,627,834
$
2,940,769
$
18,777,584
Uncollected Payments
Uncollected customer payments from Federal Sources, brought forward, October 1 $
(61,884)
$
(2,940) $
$
(19,911) $
$
(177,847) $
(262,582)
Change in uncollected customer payments from Federal sources
(61,884)
(19,911)
(177,847)
(259,642)
Uncollected customer payments fromFederalsources, end ofyear
$
(123,768) $
(2,940) $
$
(39,822) $
$
(355,694) $
(522,224)
Memorandum Entries
Obligated balance, start ofyear
$
1,089,473
$
$
102,038
$
346,558
$
5,988,581
$
1,301,081
$
8,827,731
Obligated balance, end ofyear (net)
$
2,157,198
$
(2,614) $
205,330
$
682,537
$
12,627,834
$
2,585,075
$
18,255,360
BUDGET AUTHORITY AND OUTLAYS, NET:
Budget authority,gross (discretionary and mandatory)
$
2,786,775
$
43,331
$
1,180,427
$
811,444
$
3,535,697
$
6,980,112
$
15,337,786
Actual offsetting collections (discretionary and mandatory)
(100,743)
(41)
(3)
32,377
(536)
(1,613,223)
(1,682,169)
Change in uncollected customer payments from Federal sources
(61,884)
(19,911)
(177,847)
(259,642)
Budget authority, net (discretionary and mandatory)
$
2,624,148
$
43,290
$
1,180,424
$
823,910
$
3,535,161
$
5,189,042
$
13,395,975
Outlays, gross (discretionary and mandatory)
$
2,751,509
$
29,495
$
1,105,209
$
806,008
$
4,287,414
$
2,670,917
$
11,650,552
Actual offsetting collections (discretionary and mandatory)
(100,743)
(41)
(3)
32,377
(536)
(1,613,223)
(1,682,169)
Outlays, net (discretionary and mandatory)
2,650,766
29,454
1,105,206
838,385
4,286,878
1,057,694
9,968,383
Distributed offsetting receipts
(1,173,784)
(1,173,784)
Agency outlays, net (discretionary and mandatory)
$
2,650,766
$
29,454
$
1,105,206
$
838,385
$
4,286,878
$
(116,090) $
8,794,599
55
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Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30, 2014
(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. Public and private sector institutions have long been significant contributors to our
nation's environment and human health research agenda. EPA, however, is unique among scientific
institutions in this country in combining research, analysis, and the integration of scientific information
across the full spectrum of health and ecological issues and across the risk assessment and risk
management paradigm. Research enables us to identify the most important sources of risk to human
health and the environment, and by so doing, informs our priority-setting, ensures credibility for our
policies, and guides our deployment of resources. It gives us the understanding, the framework, and
technologies we need to detect, abate, and avoid environmental problems.
Among the Agency's highest priorities are research programs that address: the development of alternative
techniques for prioritizing chemicals for further testing through computational toxicology; the
environmental effects on children's health; the potential risks and effects of manufactured nanomaterials
on human health and the environment; the impacts of global change and providing information to policy
makers to help them adapt to a changing climate; the potential risks of unregulated contaminants in
drinking water; the health effects of air pollutants such as particulate matter; the protection of the nation's
ecosystems; and the provision of near-term, appropriate, affordable, reliable, tested, and effective
technologies and guidance for potential threats to homeland security. EPA also supports regulatory
decision-making with chemical risk assessments.
For FY 2014, the full cost of the Agency's Research and Development activities totaled over $584M.
Below is a breakout of the expenses (dollars in thousands):
See Section II of the PAR for more detailed information on the results of the Agency's investment in
research and development.
1 Allocated Expenses are calculated specifically for the Required Supplemental Stewardship Information report and do not
represent the overall agency indirect cost rates.
Programmatic Expenses
Allocated Expenses1
FY2010 FY2011 FY2012 FY2013 FY2014
590,790 597,558 580,278 531,901 510,911
71,958 80,730 133,637 78,189 73,622
56
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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.
Construction Grants Program: During the 1970s and 1980s, the Construction Grants Program was a
source of Federal funds, providing more than $60 billion of direct grants for the construction of public
wastewater treatment projects. These projects, which constituted a significant contribution to the nation's
water infrastructure, included sewage treatment plants, pumping stations, and collection and intercept
sewers, rehabilitation of sewer systems, and the control of combined sewer overflows. The construction
grants led to the improvement of water quality in thousands of municipalities nationwide.
Congress set 1990 as the last year that funds would be appropriated for Construction Grants. Projects
funded in 1990 and prior will continue until completion. After 1990, EPA shifted the focus of municipal
financial assistance from grants to loans that are provided by State Revolving Funds, however, EPA
continues to provide direct grant funding for the District of Columbia and territories.
State Revolving Funds: EPA provides capital, in the form of capitalization grants, to state revolving funds
which state governments use to make loans to individuals, businesses, and governmental entities for the
construction of wastewater and drinking water treatment infrastructure. When the loans are repaid to the
state revolving fund, the collections are used to finance new loans for new construction projects. The
capital is reused by the states and is not returned to the Federal Government.
The Agency also is appropriated funds to finance the construction of infrastructure outside the Revolving
Funds programs. These are reported below as Other Infrastructure Grants.
The Agency's investments in the nation's Water Infrastructure are outlined below (dollars in thousands):
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.
Drinking Water SRF
Other Infrastructure Grants
Allocated Expenses
Construction Grants
Clean Water SRF
FY2010 FY2011 FY2012 FY2013 FY2014
18,186 35,339 14,306 6,944 1,447
2,966,479 2,299,721 1,925,057 1,976,537 1,534,453
1,938,296 1,454,274 1,240,042 1,027,613 1,187,212
264,227 269,699 196,085 166,050 118,706
631,799 548,375 777,375 524,326 516,102
57
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HUMAN CAPITAL
Agencies are required to report expenses incurred to train the public with the intent of increasing or
maintaining the nation's economic productive capacity. Training, public awareness, and research
fellowships are components of many of the Agency's programs and are effective in achieving the
Agency's mission of protecting public health and the environment, but the focus is on enhancing the
nation's environmental, not economic, capacity.
The Agency's expenses related to investments in the Human Capital are outlined below (dollars in
thousands):
Training and Awareness Grants
Fellowships
Allocated Expenses
FY2010 FY2011 FY2012 FY2013 FY2014
25,714 23,386 21,233 20,769 23,255
6,905 9,538 10,514 11,157 8,082
3,973 4,448 7,311 4,118 4,226
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Schedule of Spending (Unaudited)
The Schedule of Spending (SOS) presents an overview of how and where EPA is spending money. The
SOS that follows reflects total budgetary resources available to the Agency, gross outlays, and fiscal year-
to-date total obligations for the Agency.
What Money is Available to Spend represents the authority that EPA was given to spend by law and the
status of that authority. In this section:
Total Resources represents amounts approved for spending by law.
Less Amount Not Agreed to be Spent represents amounts that EPA was allowed to spend but did
not take actions to spend.
Less Amount Not Available to be Spent represents the amount of total budgetary resources that
were not approved for spending.
Total Amounts Agreed to be Spent represents the amount of spending actions taken by EPA for
the fiscal year. This represents contracts, orders and other legally binding obligations of the federal
government to pay for goods and services when received.
How was the Money Spent identifies the major categories for which EPA made payments during the year.
In this section:
Total Spending represents the sum of all payments EPA made during each year against Amounts
Agreed to be Spent. Balances include payments made to liquidate Amounts Agreed to be Spent
originating in both the current as well as from prior fiscal years.
Amounts Remaining to be Spent represents the difference between Total Spending versus
Amounts Agreed to be Spent. Since payments can relate to spending activity initiated in the
current and prior years, it is not unusual for total payments in a fiscal year to exceed the amount of
the new spending actions originated that year, that are reported under Amounts Agreed to be
Spent. When this condition occurs, negative amounts will be displayed as the balance of Amounts
Remaining to be Spent.
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59
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Environmental Protection Agency
FY 2014 Schedule of Spending
For the Periods Ending September 30, 2014 and 2013 (Restated)
(Dollars in Thousands)
What Money is Available to Spend?
Total Resources
Less: Amount Not Agreed to be Spent
Less: Amount Not Ava liable to be Spent
Total Amount Agreed to be Spent
How was the Money Spent?
Clean Air
Contra cts
Gra nts
Payroll
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
Clean & Safe Water
Contra cts
Gra nts
Payroll
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
I ns ura nee
Land Preservation & Restoration
Contra cts
Financial Transfers
Gra nts
Payroll
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
I ns ura nee
Healthy Communities & Ecosystems
Contra cts
Gra nts
Payroll
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
I ns ura nee
Compliance & Environmental Stewardship
Contra cts
Gra nts
Payroll
Rent, Communications and Utilities
Structures and Equipment
Tra ve I
I ns ura nee
Tota I Spe ndi ng
Amounts Remianing to be Spent
Total Amounts Agreed to be Spent
2014
2013
$
14,638,896
$
13,296,567
894,141
3,008,632
2,068,195
197,815
$
11,676,560
$
10,090,120
$
197,993
$
213,753
322,990
381,548
448,930
491,748
4,701
5,918
13,002
12,674
1,476
3,902
$
989,092
$
1,109,543
$
354,021
$
372,225
4,231,201
4,252,790
523,143
544,225
1,864
1,892
3,412
4,192
3,987
5,035
104
115
$
5,117,732
$
5,180,474
$
2,009,856
$
2,142,423
1,000,000
-
546,321
582,121
724,351
733,652
2,657
2,767
9,456
9,694
8,968
11,636
12,341
15,611
$
4,313,950
$
3,497,904
$
144,564
$
149,325
60,255
65,882
506,930
508,493
1,786
1,900
1,254
2,517
3,124
3,749
20
28
$
717,933
$
731,894
$
94,292
$
100,268
30,499
32,356
615,615
663,765
1,789
1,898
1,755
1,782
3,424
5,069
677
800
$
748,051
$
805,938
$
11,886,758
$
11,325,753
(210,198)
(1,235,633)
$ 11,676,560 $ 10,090,120
15-1-0021
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Appendix II
Agency Response to Draft Report
November 13, 2014
MEMORANDUM
SUBJECT: Response to Office of Inspector General Draft Audit Report No. OA-FY14-0281, "Audit
of EPA's Fiscal 2014 and 2013 (Restated) Consolidated Financial Statements, " dated
November 10, 2014
FROM: David A. Bloom
Acting Chief Financial Officer
TO: Paul C. Curtis, Director
Financial Statement Audits
Thank you for the opportunity to respond to the issues and recommendations in the subject draft audit
report. Following is a summary of the agency's overall position, along with its position on each of the
report recommendations. We have provided high-level intended corrective actions and estimated
completion dates to the extent we can.
AGENCY'S OVERALL POSITION
The agency concurs with all 39 recommendations. We have attached a technical comments document
which explains the agency's position on several report findings.
AGENCY'S RESPONSE TO DRAFT AUDIT RECOMMENDATIONS
Agreements
No.
Recommendation
High-Level Intended
Corrective Action(s)
Estimated Completion
by Quarter and FY
1
Require project officers to
track and accumulate
software costs by project
from inception through date
placed in service.
Concur. OCFO will share a
corrective action plan for
personal property and software
with the OIG in 2nd quarter FY
2015.
March 31, 2015.
2
Require the Reporting and
Analysis Staff to coordinate
with Office of
Administration and
Resources Management
project officers to receive
Concur. OCFO will share a
corrective action plan for
personal property and software
with the OIG in 2nd quarter FY
2015.
October 31, 2018.
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software project cost
support once placed into
service.
3
Document and support
project costs for all software
costs placed into service
over the past 7 years.
Concur. OCFO will share a
corrective action plan for
personal property and software
with the OIG in 2nd quarter FY
2015.
October 31, 2018.
4
Capitalize and book the
RTP lab renovation costs
and calculate depreciation.
Concur. OCFO has booked the
lab renovation costs and
calculated the requisite
depreciation.
Completed November
2014.
5
Improve and maintain
support for how EPA lab
renovation projects are
funded.
Concur. OCFO will review and
revise policies and procedures to
clarify how EPA lab renovation
projects are funded.
March 31, 2016.
6
Review funding sources of
all current and future lab
renovations to ensure
correct funding is utilized.
Concur. OCFO will review
and revise policies and
procedures to clarify how
reviews of funding sources
shall be conducted for future
lab renovations to ensure
correct funding is utilized.
March 31, 2016.
7
Develop policies and
procedures for capital
improvements/betterments
to real property,
specifically, to address EPA
lab renovations which could
include bulk purchases of
equipment and funding from
agency program
appropriations other than
the B&F appropriation.
Concur. OCFO will review
and revise policies and
procedures to clarify for
capital improvements/
betterments to real property,
specifically, EPA lab
renovations which could
include bulk purchases of
equipment and funding from
Agency program
appropriations other than the
B&F appropriation.
March 31, 2016.
8
Request the Office of
General Counsel determine
whether the legal opinion
referenced herein represents
a legally acceptable position
regarding the definition of
"construction," and provides
adequate examples to guide
determinations of when
renovation work should be
funded out of agency
Concur. OCFO will request
an updated legal opinion
more specific to EPA lab
renovation projects, which
include equipment costs and
funding sources other than
B&F as part of the process
to revise and clarify policies
and procedures on lab
renovations.
March 31, 2015.
15-1-0021
-------
program appropriations (e.g.
S&T) or B&F funds.
9
Update inventory records
according to EPA's
Property Bulletin No. 14-
004.
Concur. FMSD currently
communicates with the agency's
property managers, monthly, to
discuss operational requirements
and business processes. All
assets identified and
acknowledged as unaccounted
for after the close of FY14 will
be entered into the system and
verified electronically by close
of business on December 1,
2014.
In addition, OARM will require
all agency Senior Resource
Officials (SRO) to certify semi-
annually that assets are updated
in accordance with EPA's
Property Bulletin No. 14-004,
and reassess certification
frequency in one year.
December 1, 2014.
10
Identify the personal
property records missing
from the agency's property
management system and
record them in the system.
Concur. OARM has made
contact with the Programs and
Regions to identify missing
assets. Assets will be entered
into Maximo and verified
through Compass.
December 1, 2014.
11
Conduct Board of Survey
investigations more
frequently to adequately
address missing and
uninventoried property.
Document the results of
Board of Surveys and
update the property
management records
accordingly.
Concur. OARM will notify the
agency's property managers to
perform and review
investigations during the annual
inventory and as soon as assets
are noted as unaccounted.
December 1, 2014.
12
Research and resolve
differences between
Compass and the property
management system timely.
Concur. OCFO has begun to
resolve the differences between
Compass and Maximo as
required by the Resource
Management Directive System
on property.
September 30, 2015.
15-1-0021
-------
13
Require the Office of
Administration, Facilities
Management and Service
Division, to verify the
correctness and update all
capitalized property records
in the official property
system as required.
Concur. OARM will work with
the Office of the Chief Financial
Officer to develop
recommendations and an
implementation plan for an
improved business process to
verify that capital assets are
updated in the agency's property
management system.
May 30, 2015.
14
Require project officers to
approve federal
disbursements timely.
Concur. OCFO and OARM will
work together with agency
project officers to approve
federal disbursement timely.
OCFO's new Interagency
Agreement Policy will require
POs to review and approve
disbursements timely.
March 31, 2015.
15
Require CFC staff to follow
up with project officers and
regions to obtain the
necessary disbursement
approvals and information
needed to clear transactions
timely from the federal
budget clearing (suspense)
account.
Concur. OCFO will follow up
with project officers and regions
to obtain disbursement
approvals and information to
clear suspense transactions.
March 31, 2015.
16
Reclassify the $11.3 million
collection from the
Environmental Services
Special Fund to the fines
and penalties fund using
appropriate entries to ensure
that current year general
ledger accounts and
financial statements are
properly stated.
Concur. OCFO completed on
September 10, 2014. The
collection has been reclassified
from the Environmental
Services Special Fund to the
Fines and Penalties fund using
appropriate entries to ensure that
current year general ledger
accounts and financial
statements are properly stated.
Steps have been taken to follow
agency guidance which directs
servicing finance offices to
analyze each collection to
determine the reason for the
remittance and collection type.
Completed September 10,
2014.
17
Require enforcement
officers to include CFC on
stipulated penalty letters
mailing list.
Concur. OECA will issue a
memorandum to senior
enforcement managers in the
Regions and Headquarters
May 31, 2015. See
attached technical
document comments.
15-1-0021
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reminding enforcement
personnel of the importance of
providing timely documentation
to the Cincinnati Finance Center
of all EPA-issued stipulated
penalty demands. This
memorandum will further
request all enforcement
personnel to copy the CFC on
any penalty demand issued by a
Region or Headquarters,
regardless of whether the
stipulated penalty arose from
violations of a civil judicial
consent decree or judgment or
violations of an administrative
settlement or judgment.
18
Remind personnel to timely
forward legal documents or
administrative settlement
agreements to the finance
center.
Concur. OECA will issue a
memorandum to senior
enforcement managers in the
Regions and Headquarters
reminding enforcement
personnel of the importance of
providing timely documentation
to the CFC of all accounts
receivable that arise from
administrative enforcement
actions and EPA-issued
stipulated penalty demands.
These include civil penalties
imposed under settlement
agreements under any
environmental statute and cost
recovery and cash-out
administrative settlements under
CERCLA. This memorandum
will further request all
enforcement personnel to copy
the CFC on any penalty demand
issued by a Region or
Headquarters, regardless of
whether the stipulated penalty
arose from violations of a civil
judicial consent decree or
judgment or violations of an
May 31, 2015. See
attached technical
document comments.
15-1-0021
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administrative settlement or
judgment.
19
Work with the DO J to
forward DOJ legal
documents timely to CFC.
Concur. OECA is already
working with DOJ from an
earlier recommendation in OIG
Report No. 13-1-0054.
Completed March 28,
2014. See attached
technical document
comments.
20
Work with the Office of
Enforcement and
Compliance Assurance to
update EPA Superfund
guidance to require
originating offices to timely
forward the Superfund
Accounts Receivable
Control Forms to the
finance center.
Concur. Procedures to forward
control forms were discussed
during SF Lean held in Kansas
City in May 2014. OCFO will
update guidance to require
originating offices to timely
forward the Superfund Accounts
Receivable Control Forms to the
finance center.
September 30, 2015.
21
Require the Office of Grants
and Debarment to instruct
personnel to forward source
documents for grant
disallowed costs timely to
the finance center even if
the bill is under dispute or
in negotiation for a payment
plan.
Concur. The agency has already
provided instructions to the
Grants Management Office
(GMO) community.
Completed. See attached
technical document
comments.
22
Require the Office of Grants
and Debarment to follow up
to ensure that the EPA
forwards the documents
timely.
Concur. OARM, as part of its
ongoing outreach to the GMO
community, will ensure the
GMOs are aware of the
requirement.
January 31, 2015. See
attached technical
document comments.
23
Investigate variances
between the general ledger
control accounts and the
accounts receivable
subsidiary ledger bill detail
and correct errors by
recording entries to the
control accounts and/or the
accounts receivable bill
detail, as needed.
Concur. OCFO corrected many
of the variances from the prior
year in the 3rd and 4th quarter of
fiscal year 2014. The remaining
variances will be corrected in
the first quarter fiscal year 2015.
December 31, 2014.
24
Reconcile federal and non-
federal accounts receivable
separately.
Concur. OCFO will design a
framework for providing timely
and accurate reconciliations of
federal and non-federal accounts
receivable.
July 31,2015.
15-1-0021
-------
25
Develop accurate reports for
accounts receivable
principal charges and non-
principal charges.
Concur. The agency
acknowledges that we made an
error for not reporting principal,
interest, handling charges and
penalties correctly for March
2014. The agency has corrected
the error in the subsequent
reconciliation and will continue
for all reconciliations going
forward. The agency has
accurate reports.
Completed July 30, 2014
(Ongoing quarterly
activity).
26
Require headquarters
program offices and
regional offices to
deobligate unneeded funds
identified during the annual
unliquidated obligation
reviews.
Concur. As a part of our new
ULO tool implementation,
OCFO will reiterate and help
verify timely deobligations of
funds deemed unneeded by the
program/region.
September 30, 2015.
27
Require the Information
Security Officer to conduct
an access control review
with all offices that
warehouse information
technology assets. This
would include ensuring:
a. Appropriate approving
officials approve access for
all personnel entering the
respective server rooms.
b. The offices update access
rosters and post them
according to local
procedures.
c. The offices create plans
of action and milestones
within the EPA information
security weakness tracking
systems to track when the
office would complete the
access control review if the
respective office is unable
or lack the capability to
complete the review within
the next 30 days.
Concur. In July 2014, the Las
Vegas Finance Center
completed a 100%
recertification of all the Las
Vegas La Plaza IT related
security controlled area doors,
including the server room that
required all site Office
Directors/Managers to review
and recertify door access for all
individuals with existing access.
Completed July 2014.
28
Require LVFC to
implement a process to
Concur. LVFC will implement a
quarterly testing process for the
December 31, 2014.
15-1-0021
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regularly test the card reader
system within the finance
center.
card readers within the center
beginning in the first quarter of
FY2015.
29
Require the Information
Security Officer to conduct
an access control review
with all offices that
warehouse information
technology assets. This
would include ensuring all
offices:
a. Lock all server racks to
prevent unauthorized
access.
b. Create plans of action and
milestones within the EPA
information security
weakness tracking systems
to track the security of
server racks if the respective
office is unable to
immediately or lack the
capability to lock the server
racks within the next 30
days.
Concur. OARM Cincinnati has
locked the cabinet in the
AWBERC telecommunications
room. Access to the AWBERC
telecommunications room has
been further restricted to
personnel that need access to the
installed equipment. A PIV
Card reader has been added to
the door to control and track
access, and the lock has been
changed to remove it from the
building master keys.
Completed Summer 2014.
30
Require the Information
Security Officer coordinate
with the responsible offices
that warehouse or manage
information technology
assets for CFC to:
a. Implement a process for
monitoring humidity levels
in the Norwood server
room.
b. Reposition the water
sensors in the Norwood
server room at the
appropriate height to
prevent water damage to
servers.
Concur. In October 2014,
OARM Cincinnati added
humidity sensors in the
Norwood server room which
includes humidity thresholds
through the facility alarm
system. The Norwood server
room water sensors have been
relocated to more appropriate
locations and heights in the
room.
Completed October 2014.
31
Require the Information
Security Officer coordinate
with the responsible offices
that warehouse or manage
information technology
Concur.
a. The OARM-Cincinnati server
room temperature and humidity
are monitored 24/7 in the
AWBERC Boiler Room, and
Completed October 2014.
15-1-0021
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assets for the LVFC, CFC
and RTP Finance Center to:
a. Establish and document
threshold levels for
temperature and humidity
monitoring in the server
rooms.
b. Create plans of action and
milestones within the EPA
information security
weakness tracking systems
to track the remediation of
the noted environmental
control weaknesses if the
respective office is unable
to immediately or lack the
capability correct the
weakness within the next 30
days.
thresholds are set, and
monitored. RTP and LV ISOs
will coordinate IT asset
warehousing issues with the
responsible offices,
b. No POAMs are required.
32
Require the Information
Security Officer to develop
a process to monitor the
completion of all plans of
action and milestones that
were entered into the EPA
information security
weakness tracking system.
Concur. The agency has already
completed all the recommended
action.
CompletedIn place prior
to audit.
33
Require the Information
Security Officer to
coordinate with the
responsible offices within
the Office of Administration
and Resources Management
to develop and implement a
strategy to improve CCTV
coverage for the OCFO's IT
assets. The improved CCTV
coverage and strategy
should include:
a. Improving camera-
monitoring systems at the
AWBERC server room to
increase visibility of the
server racks and within the
telecomm room and to
coordinate monitoring of the
Concur. OARM Cincinnati was
in the process of calibrating
DVR video retention times after
upgrading the video surveillance
systems capacity during the
Office of the Inspector General
review. Adequate historical data
was not maintained during the
upgrade. The video retention
period for the AWBERC server
room has been increased to in
excess of 30 days. OARM
Cincinnati has installed seven
additional infrared surveillance
cameras in the AWBERC server
room, and one in the AWBERC
telecommunications room. The
Norwood camera has been
replaced with an infrared
Completed September
2014.
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Norwood server room with
automated lighting.
b. Increasing CCTV
monitoring storage time to
meet EPA-approved storage
requirements detailed in the
EPA's Cincinnati Security
Management Program
Contract.
c. Requiring offices to
create plans of action and
milestones within the EPA's
information security
weakness tracking system to
track the completion of any
CCTV improvement tasks
that cannot be completed
within the next 30 days.
d. Developing a process to
monitor the completion of
all plans of action and
milestones that were entered
into the EPA information
security weakness tracking
system.
camera. The installation of
infrared cameras eliminates the
need for automatic lighting in
the server rooms.
34
Maintain written
documentation that
demonstrates management
has approved changes to the
Compass accounting
posting module.
Concur. OCFO management
implemented a procedure to
document via email the posting
model changes that are
approved. Email approvals will
be filed with the posting model
tracking spreadsheet in the
posting model binder.
Completed November 1,
2014.
35
Instruct CFC to perform an
analysis of delinquent
receivables to determine
whether interest is being
properly recorded in
Compass in accordance with
the applicable laws, federal
accounting standards and
EPA policy, and record any
unrecorded interest.
Concur. OCFO will continue to
review delinquent receivables to
ensure interest is accruing
properly and will continue to
work closely on Compass issues
to resolve them on a long-term
basis in cases where interest has
not been calculated in Compass
(and it should be).
Completed November 1,
2014. (Ongoing activity)
36
Instruct CFC to follow the
terms in the legal source
Concur. OCFO will explore
having Compass functionality
enhanced to allow for interest to
July 31,2015.
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documents when recording
interest receivables.
be calculated from a date other
than the receivable date.
37
Instruct LVFC to follow
EPA policy and the terms of
the legal source document
and record the document
effective date in Compass as
the account receivable
document date for grant
receivables.
Concur. OCFO will also work
with the Grants Management
Officers to ensure source
documentation for grant
receivables is submitted to the
LVFC in a timely manner.
January 31, 2015.
38
Determine and correct the
cause of Compass system
problems related to
Superfund and installment
interest.
Concur. OCFO will continue to
research and confirm system
issues related to Superfund and
installment interest. OCFO
intends to implement a software
patch in November 2014 to
correct the known system issues
related to interest.
November 30, 2014.
39
Comply with the material
weakness reporting
requirements as prescribed
by OMB Circular A-123,
which are:
a. Material weaknesses and
a summary of corrective
actions shall be reported to
OMB and Congress through
the Performance and
Accountability Report.
b. Progress against
corrective action plans
should be periodically
assessed and reported to
agency management.
Concur. OCFO has followed the
appropriate A-123 steps to
report an internal control
weakness. OCFO will continue
to apprise agency management
of progress of addressing
corrective actions.
a. Completed November 7,
2014. See attached
technical document
comments.
b. March 31, 2015.
CONTACT INFORMATION
If you have any questions regarding this response, please contact Jeanne Conklin, Acting Director,
Office of Financial Management on (202) 564-5342.
Attachment
cc: Mark Hague
Charles Sheehan
Nanci Gelb
Cynthia Giles
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Kevin Christensen
Rich Eyermann
Jeanne Conklin
Meshell Jones-Peeler
Stefan Silzer
Susan Shinkman
Cyndy Mackey
John Showman
Vaughn Noga
Quentin Jones
Robert Hill
Paul Curtis
Christopher Osborne
Istanbul Yusuf
Richard Gray
Leo Gueriguian
Steven Blankenship
David Shelby
Lisa Ayala
John O'Connor
Aileen Atcherson
Sherri Anthony
Dale Miller
Jill Beresford
Pat Watson
Nicole Modafari
Margaret Hiatt
Wanda Arrington
Arthur Budelier
Cynthia Poteat
Robert Hairston
Sheila May
Gwendolyn Spriggs
Sandy Womack
Brandon McDowell
Debra Lang
Lorna Washington
Susan Lindenblad
Janice Kern
Bernie Davis-Ray
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Attachment
Technical Comments Related to OIG's Draft Audit Report No. OA-FY14-0281, "Audit of
EPA '.s Fiscal 2014 and 2013 (Restated) Consolidated Financial Statements," dated
November 10, 2014
OIG Finding #16 - "EPA's 2014 FMFIA Annual Assurance Statement is Inaccurate"
Agency Response: Concur.
Agency Position on Finding: The agency disagrees with the facts as stated in this OIG Finding.
The agency had every intention of fully disclosing internal controls over software through the
FMFIA process. The facts are as follows:
In May 2014, the agency's A-123 process identified internal control weaknesses in its
accounting for software transactions. The extent of the value of the errors was not known
during the A-123 review.
On June 30, 2014, the EPA provided its A-123 work papers on software to the OIG.
From May through August 2014, OCFO conducted further research to determine the
magnitude of the software errors and possible accounting solutions.
On August 7, 2014, OCFO stated in its FY 2014 FMFIA assurance letter "Additional
research was being performed to provide process improvements on recommended
corrective actions" from the A-123 findings.
On August 28, 2014, OCFO disclosed in a white paper to the OIG that the software issue
identified in the A-123 was an accounting error that could be remedied and provided the
agency's corrective action plan.
The agency began processing the software accounting corrections. The correction
process continued through late October. The value of the corrections was not fully
known until mid-October. After the agency determined the magnitude of the software
errors, the agency restated its FY 2013 financial statements to have the correct beginning
balance for the FY 2014 financial statements.
On October 23, 2014, OCFO proposed at the annual EPA Senior Leadership Council
Management Integrity Meeting that a new agency-level weakness be declared due to
issues surrounding personal property including software. The SLC approved the proposal
and declared a new agency-level weakness. OIG staff attended this meeting.
The OIG misinterpreted the agency's draft AFR language as an intent not to report a
material weakness. The agency fully intended to include language in the AFR.
On November 7, 2014, OCFO provided draft assurance language to OMB disclosing the
new material weakness with updated charts for the AFR.
OCFO will work with the OIG during next year's FMFIA process and the drafting of the
AFR to avoid unnecessary confusion over this process.
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OIG Finding #7- "Originating Offices Did Not Timely Forward Accounts Receivable
Source Documents to the Finance Center"
Agency Response: Concur on Recommendations, Not "Significant Deficiency" Designation
Agency Position on Finding: The agency disagrees with OIG's finding that the identified delays
in providing accounts receivable documentation to the Cincinnati Finance Center (CFC)
constitute a significant deficiency under FMFIA. Such delays did not present a reasonable
possibility that a material misstatement of EPA's financial statement would not be prevented, or
detected and corrected in a timely manner. In support of the agency's position, we offer the
following:
Two of the 40 cases in which the OIG identified delays in providing accounts receivable
documentation to CFC are not accounts receivable arising from an enforcement case
brought by EPA or DOJ.
One of the civil judicial cases cited by OIG, involving a civil penalty of more than
$29.9 million, was a citizen suit brought under the Clean Water Act in which the
United States was not a party. This $29.9 million in civil penalties accounted for
almost 50 percent of the $61.7 million in accounts receivable for which
documentation was identified by the OIG as untimely.
One of the accounts receivable on OIG's list of untimely administrative cases
involved disallowed costs in the amount of $135,346 under a grant involving the
Pueblo of Acoma. Because this does not appear to relate to an enforcement action,
OECA cannot address the cause of this delay.
In 27 of the remaining 38 cases, documentation was provided to CFC within 30 days of
the effective date of the order/consent decree giving rise to the accounts receivable.
Since these receivables were not payable until at least 30 days after the effective date,
CFC received documentation in sufficient time to ensure that there was not a material
misstatement of EPA's financial statement. Furthermore, the total accounts receivable
for the 11 cases for which documentation was not received by CFC within 30 days
equaled only $2.3 million of the $61.7 million attributed to cases in which the
documentation was not timely provided to CFC.
DOJ, and not EPA, has responsibility for providing accounts receivable documentation
to CFC. OECA continues to meet quarterly with DOJ in an effort to address untimely
documentation.
1. Require enforcement officers to include CFC on stipulated penalties mailing list.
EPA has significantly improved the timeliness of documentation relating to
administrative penalties. In both FY 2013 and FY 2014, EPA has been timely in
providing administrative penalty documentation to CFC at least 95 percent of the time.
Although OECA recognizes that there is room for improvement in the timeliness of
documentation related to EPA-issued stipulated penalty demands, the delays and the
stipulated penalty amounts associated with delayed documentation were not sufficient to
constitute a significant deficiency under FMFIA.
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2. Remind personnel to timely forward legal documents or administrative settlement
agreements to the finance center.
With regard to civil penalties assessed under administrative settlement agreements, EPA
has been timely in providing penalty documentation to CFC at least 95 percent of the
time for both FY 2013 and FY 2014. OECA recognizes that there is room for
improvement in the timeliness of documentation related to non-penalty settlements (e.g.,
administrative cost recovery and cash-out settlements under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA)). However,
OECA does not agree that the delays and the accounts receivable amounts associated
with delayed documentation were sufficient to constitute a significant deficiency under
FMFIA.
3. Work with the DOJ to forward DOJ legal documents timely to CFC.
OECA completed this corrective action as of March 28, 2014, in response to a
recommendation addressing the same issue made by the OIG in its Audit of EPA's Fiscal
2012 and 2011 Consolidated Financial Statements (No. 13-1-0054; November 15, 2012).
In its 2012 Audit Report, the OIG found that some civil judicial documents that give rise
to accounts receivable were not being timely provided to the CFC, resulting in late
recording of receivables. In response, OECA agreed to meet with CFC and the
Department of Justice (DOJ) on a quarterly basis, beginning the second quarter of FY
2013 through the second quarter of FY 2014, to assess the timely transmission of civil
judicial orders that give rise to accounts receivable. OECA met with CFC and DOJ in
June, September, and December 2013, and March 2014 to discuss the timely provision
{i.e., within five business days) of civil judicial documents by DOJ and other accounts
receivable issues, including the process for tracking how timely such documents are
provided using data provided by OCFO, and reconciling DOJ and EPA tracking systems.
By memorandum dated March 28, 2014, OECA verified that it had completed this
corrective action.
In any event, OECA and CFC intend to continue to review the timeliness data each
quarter and to address with DOJ any issues that are identified, typically in a quarterly
meeting on accounts receivable issues. Additionally, CFC and DOJ recently assisted
OECA with its regional accounts receivable evaluations to determine how effectively the
accounts receivable process is working within the Agency and to identify areas needing
improvement. OECA is currently drafting a national report that will summarize the
evaluation results and will identify areas needing improvement and provide best
practices.
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5. Instruct personnel to forward source documents for grant disallowed costs timely to
the finance center even if the bill is under dispute or in negotiation for a payment
plan.
The agency has already provided instructions to the Grants Management Office (GMO)
community as follows:
OGD and OCFO have addressed this issue in EPA Manual 2750 Audit Management
Procedures issued September 28, 2012 (see Part II, Section B.3. Assistance Agreements.)
On November 16, 2012, OGD issued a guidance memo to the GMOs on unallowed costs
in advanced administrative reviews and single/OIG audit final decisions. The memo
emphasized that LVFC must be notified of all actions regarding the disallowance of
costs. It also instructed GMOs to include standard payment instructions in Management
Decision Letters to recipients and to copy the Las Vegas Finance Center on Management
Decision Letters to ensure compliance with the 5-day requirement in RMDS 2540-9-1.
OGD's IPERIA guidance, PN-2013-G03, issued October 1, 2013, provides that "[w]hen
it is determined that unallowed costs are to be repaid, GMOs must also ensure that
LVFC is copied on all management decision letters."
Further, OGD has revised Section 4.5.3.4 on Cost Disallowance in its Assistance
Agreement Almanac to state that:
EPA's LVFC must be copied on all enforcement actions where costs are disallowed and
repayment requested. According to Policy RMDS 2540-9, the Agency is required to
establish an account receivable in its financial system within 5 days of the debt being
established.
Similarly, Section 4.7.3 on Audit Resolution and Follow-up has been revised (for
Management Decision Letters to Recipients) to state:
The letter advising the recipient of EPA 's management decision must be signed by the
Action Official or their designee and mailed to the recipient via certified mail, return
receipt requested, within 5 calendar days of OIG concurrence (when applicable). The
letter will become the agency's final decision unless disputed by the recipient. If the
Action Official's decision includes an audit disallowance requiring repayment of funds,
the letter also constitutes a written demand for payment under the EPA claims
collection requirements (http://intranet.epa.gov/fmdvallv/policies/direct/2540-
09pro 2.pdf). Section III, "Non Federal Delinquent Debt" and a copy must be provided
to the Las Vesas Finance Center (LVFC) in order to establish an account for the debt
within 5 days that the management decision is issued.
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Appendix III
Distribution
Office of the Administrator
Chief Financial Officer
Assistant Administrator for Administration and Resources Management
Assistant Administrator for Enforcement and Compliance Assurance
Assistant Administrator for Environmental Information and Chief Information Officer
Assistant Administrator for Solid Waste and Emergency Response
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Agency Audit Follow-Up Coordinator
Director, Office of Policy and Resource Management, Office of Administration and
Resources Management
Director, Office of Grants and Debarment, Office of Administration and Resources Management
Director, Office of Administration, Office of Administration and Resources Management
Director, Office of Civil Enforcement, Office of Enforcement and Compliance Assurance
Director, Office of Site Remediation Enforcement, Office of Enforcement and Compliance
Assurance
Director, Office of Technology Operations and Planning, Office of Environmental Information
Director, Office of Budget, Office of the Chief Financial Officer
Director, Office of Financial Management, Office of the Chief Financial Officer
Deputy Director of Operations, Office of Financial Services, Office of the Chief Financial Officer
Director, Financial Policy and Planning Staff, Office of the Chief Financial Officer
Director, Research Triangle Park Finance Center, Office of the Chief Financial Officer
Director, Cincinnati Finance Center, Office of the Chief Financial Officer
Director, Las Vegas Finance Center, Office of the Chief Financial Officer
Director, Office of Planning, Analysis and Accountability, Office of the Chief Financial Officer
Director, Reporting and Analysis Staff, Office of the Chief Financial Officer
Director, Office of Technology Solutions, Office of the Chief Financial Officer
Deputy Director of Strategic Planning and Oversight, Office of Financial Services
Office of the Chief Financial Officer
Director, Payroll Management and Outreach Staff, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Enforcement and Compliance Assurance
Audit Follow-Up Coordinator, Office of Solid Waste and Emergency Response
Audit Follow-Up Coordinator, Office of Environmental Information
Audit Follow-Up Coordinator, Office of Grants and Debarment, Office of Administration and
Resources Management
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