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I VMfS ? U.S. ENVIRONMENTAL PROTECTION AGENCY
\OFFICE OF INSPECTOR GENERAL
EPA Did Not Conduct
Thorough Biennial
User Fee Reviews
Report No. 14-P-0129	March 4, 2014

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Report Contributors:	Paul Curtis
Arthur Budelier
Sheree James
Denise Patten
Wendy Swan
Abbreviations
CFO
Chief Financial Officer
CFO Act
Chief Financial Officers Act of 1990
EPA
U.S. Environmental Protection Agency
FY
Fiscal year
GAO
U.S. Government Accountability Office
IOAA
Independent Offices Appropriation Act
NPDES
National Pollutant Discharge Elimination System
OCFO
Office of the Chief Financial Officer
OFM
Office of Financial Management
OIG
Office of Inspector General
OMB
Office of Management and Budget
ORD
Office of Research and Development
SFFAS
Statement of Federal Financial Accounting Standards
Suggestions for Audits or Evaluations
To make suggestions for audits or evaluations,
contact us through one of the following methods:
email:	OIG WEBCOMMENTS@epa.gov
phone:	1-202-566-2391
fax:	1-202-566-2599
online:	http://www.epa.g0v/0ig/c0ntact.html#Full Info
write: EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW
Mailcode 2431T
Washington, DC 20460
Hotline
To report fraud, waste or abuse, contact
us through one of the following methods:
email:	OIG Hotline@epa.gov
phone:	1-888-546-8740
fax:	1-202-566-2599
online:	http://www.epa.gov/oig/hotline.htm
write: EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW
Mailcode 2431T
Washington, DC 20460

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tfED STA/.
*.	U.S. Environmental Protection Agency	14-P-0129
f ftJL \	Office of Inspector General	March 4 2014
^	At a Glance
Why We Did This Review
We performed this audit to
determine whether the
U.S. Environmental Protection
Agency (EPA) conducts
biennial reviews of the
agency's user fees and
royalties programs, and
reviews all agency programs
to determine whether fees
should be assessed for
government services they
provide.
The Chief Financial Officers
Act of 1990 (CFO Act) directs
the Chief Financial Officer
(CFO) to review, on a biennial
basis, the agency's fees and
other charges for services
provided. Office of
Management and Budget
(OMB) Circular A-25 provides
for federal user fee reviews.
The EPA's Office of the Chief
Financial Officer (OCFO)
oversees the EPA program
offices' biennial user fee
reviews.
This report addresses the
following EPA theme:
• Embracing EPA as a high
performing organization.
For further information,
contact our public affairs office
at (202) 566-2391.
The full report is at:
www.epa.qov/oiq/reports/2014/
20140304-14-P-0129.pdf
EPA Did Not Conduct Thorough
Biennial User Fee Reviews
What We Found
The EPA did not conduct thorough biennial user
fee reviews for fiscal years 2008-2009 and 2010-
2011, and did not review all agency programs to
determine whether they should assess fees for
government services they provide. The EPA did
not fully comply with the requirements to:
The EPA may not have
recovered all program costs
and collected millions of
dollars that could have been
available to reduce the
federal budget deficit.
•	Conduct cost reviews to determine the full cost of providing a service.
•	Report biennial review results to OMB.
•	Request user fee exceptions by letter to the OMB Director.
•	Review all programs for fee potential.
The EPA's OCFO did not fully oversee the biennial reviews or provide internal
review guidance, and the EPA's program offices were not fully aware of biennial
review requirements. Consequently, the EPA may not have recovered millions of
dollars in program costs and collected funds that could have been available to
reduce the federal budget deficit. We identified an EPA program—the Office of
Water's National Pollutant Discharge Elimination System (NPDES) program—with
the potential to charge fees up to $8.9 million per year to recover its costs of
providing a service.
The EPA began improving its biennial review process with the fiscal years 2012-
2013 review by issuing a biennial user fee review guide, training user fee program
personnel on biennial reviews, and increasing headquarters oversight of reviews.
Recommendations and Planned Agency Corrective Actions
We recommend that the CFO discuss biennial user fee results in the Agency
Financial Report, coordinate requests for an exception to charging fees, and
request fee exception programs to provide complete information about program
fees and costs and help determine whether fees should be assessed. We also
recommend that the Office of Water conduct an analysis to determine the EPA's
full cost of issuing NPDES permits and determine whether it should charge fees
for the permits. We had also recommended that the Office of Water propose a
regulation to allow the EPA to charge NPDES permit fees, as appropriate.
The agency concurred and provided acceptable corrective actions and milestone
completion dates for all recommendations except one—to propose a regulation to
allow the EPA to charge NPDES permit fees. We revised our recommendation by
removing the proposal for a regulation to charge NPDES fees and adding the
option for requesting an exception to fees, to which the Office of Water agreed.

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^ED sx
I	\	UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
1	I	WASHINGTON, D.C. 20460
41 PROl*
THE INSPECTOR GENERAL
March 4, 2014
MEMORANDUM
SUBJECT: EPA Did Not Conduct Thorough Biennial User Fee Reviews
Report No. 14-P-0129
FROM: Arthur A. Elkins Jr. /tiSW u'
TO:	Maryann Froehlich, Acting Chief Financial Officer
Office of the Chief Financial Officer
Nancy K. Stoner, Acting Assistant Administrator
Office of Water
This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the
U.S. Environmental Protection Agency (EPA). This report contains findings that describe the problems
the OIG has identified and corrective actions the OIG recommends. The offices we identified with
primary jurisdiction over the audit issues and the responsibility for taking corrective action are the
Office of the Chief Financial Officer's Office of Financial Management and the Office of Water's
Office of Wastewater Management. This report represents the opinion of the OIG and does not
necessarily represent the final EPA position. Final determinations on matters in this report will be made
by EPA managers in accordance with established audit resolution procedures.
Action Required
The agency agreed with recommendations 1 through 4 and completed the corrective actions. These
recommendations are closed and no further action is required. The agency stated that it agrees with our
revised recommendation 5 and took the corrective action to request the Office of Management and
Budget (OMB) for an exception to charging National Pollutant Discharge Elimination System program
fees. Therefore, you are not required to provide a written response for recommendation 5. However, it
will remain open until the OMB approves your request. Should you choose to provide a final response,
we will post your response on the OIG's public website, along with our memorandum commenting on
your response. You should provide your response as an Adobe PDF file that complies with the
accessibility requirements of Section 508 of the Rehabilitation Act of 1973, as amended. We will post
this report to our website at http://www.epa.gov/oig.
If you or your staff have any questions regarding this report, please contact Richard Eyermann,
acting Assistant Inspector General for Audit, at (202) 566-0565 or evermann.richard@epa.gov;
or Paul Curtis, Product Line Director for Financial Statement Audits, at (202) 566-2523 or
curtis.paul@epa.gov.

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EPA Did Not Conduct Thorough
Biennial User Fee Reviews
14-P-0129
Table of C
Chapters
1	Introduction		1
Purpose		1
Background		1
Scope and Methodology		3
2	EPA Should Conduct More Thorough Biennial User Fee Reviews 		4
EPA Programs Generally Did Not Conduct Cost Reviews		4
EPA Reports to OMB Were Not Complete		6
EPA Did Not Follow OMB Policy to Request User Fee Exceptions		7
EPA Did Not Review All Its Programs for Fee Potential		7
Improvements Made for FYs 2012-2013 Biennial Review		8
Conclusion		8
Recommendations		9
Preliminary Agency Actions		9
Agency Comments and OIG Evaluation		9
3	NPDES Permit Program Should Consider Charging Fees		10
EPA Did Not Propose NPDES Fees Since Early 1990s		10
Conclusion		11
Recommendations		11
Agency Comments and OIG Evaluation		11
Status of Recommendations and Potential Monetary Benefits		12
Appendices
A Details on Scope and Methodology	 13
B Agency Response to Draft Report	 16
C Distribution	 19

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Chapter 1
Introduction
Purpose
We performed this audit to evaluate the U.S. Environmental Protection Agency's
(EPA's) biennial user fee reviews. With the Administration's current focus on
reducing the federal budget deficit, we wanted to determine whether the EPA was
conducting effective reviews of its user fee programs. The objectives of our audit
were to determine whether the EPA:
•	Conducts biennial reviews of the EPA's user fees and royalties programs.
•	Reviews all agency programs to determine whether fees should be
assessed for government services they provide.
Background
In recent Office of Inspector General (OIG) reviews of two EPA user fee
programs, we found that the programs were not conducting biennial cost reviews1
as required by the Chief Financial Officers Act of 1990 (CFO Act) and as directed
by Office of Management and Budget (OMB) Circular A-25. Without a cost
study, the EPA programs did not have the cost data necessary to determine
whether they should adjust their fees. Based on the findings in those reports,
we conducted this additional work to determine the extent of biennial user fee
reviews for all EPA fee programs.
For budget purposes, the U.S. Government Accountability Office (GAO) defines
user fees as fees assessed on users for goods or services provided by the federal
government.2 User financing, in the form of user fees, is one approach to
financing federal programs or activities. User fees assign part or all of the costs of
these programs and activities—the cost of providing a benefit that is above and
beyond what is normally available to the general public—to readily identifiable
users of those programs and activities. Because user fees represent a charge for a
service or benefit received from a government program, payers may expect a tight
link between their payments and the cost of providing services.
1	EPA OIG reports, EPA Should Update Its Fees Rule to Recover More Motor Vehicle and Engine Compliance
Program Costs, Report No. ll-P-0701, September 23, 2011; and EPA Is Not Recovering All Its Costs of the
Lead-Based Paint Fees Program, Report No. 13-P-0163, February 20, 2013.
2	See GAO.. I Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington, D.C.:
September 2005).
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Statutory Authorities
The Independent Offices Appropriation Act (10AA) of 1952 authorizes federal
agencies to charge fees for the services they provide. The 10AA requires that each
charge be fair and based on the costs to the government, the value of the service
to the recipient, the public policy or interest served, and other relevant facts.
The 10AA states that each service provided by a federal agency should be self-
sustaining to the extent possible. In many instances, Congress has provided
specific statutory authority to federal agencies to assess user fees.
The CFO Act requires the Chief Financial Officer (CFO) to review, on a biennial
basis, the fees, royalties, rents and other charges imposed by the agency for
services and things of value it provides. The CFO shall make recommendations
on revising those charges to reflect costs incurred by the agency in providing
those services and things of value.
Federal Policy, Standards and Guidance
OMB Circular A-25, User Charges, dated July 8, 1993, implements Title V of the
10AA. It establishes federal policy regarding charges for government goods and
services that convey special benefits to recipients beyond those accruing to the
general public. It establishes that user charges should be set at a level sufficient to
recover the full cost of providing the service, resource or good. It requires the
agency to review the user charges for agency programs biennially, to include
(1) assurance that existing charges are adjusted to reflect unanticipated changes in
costs or market values, and (2) a review of all other agency programs to determine
whether fees should be assessed for government services or the user of
government goods or services. Agencies will generally implement user charges
through the promulgation of regulations. When there are statutory prohibitions or
limitations on charges, agencies should propose legislation to permit charges to be
established. Agencies should discuss the results of the biennial review of user fees
and any resultant proposals in the Agency Financial Report.
The Statement of Federal Financial Accounting Standards (SFFAS) No. 4,
Managerial Cost Accounting Standards and Concepts, dated July 31, 1995,
provides that full cost should be considered as a primary basis for setting fees for
government goods and services. The full cost of an output is the total amount of
resources used to produce the output, including direct and indirect costs. Indirect
costs are costs that are jointly or commonly used to produce two or more types of
outputs but are not specifically identifiable with any of the outputs. Typical
examples of indirect costs include general and administrative services; general
research and technical support; security; rent; employee health and recreation
facilities; and operating and maintenance costs for buildings, equipment and
utilities.
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The GAO's Standards for Internal Controls in the Federal Government requires
that internal controls provide reasonable assurance of reliable financial reporting.
GAO's report, Federal User Fees-A Design Guide, GAO-08-386SP, dated
May 2008, states that agencies must substantively review and report on their fees
on a regular basis. This is to ensure that Congress, stakeholders and agencies have
complete information about changing program costs and whether authorized
activities align with program activities. Transparent processes for reviewing and
updating fees help assure payers and other stakeholders that fees are set fairly and
accurately and are spent on the programs and activities Congress intended.
Responsible Offices
The offices we identified with primary jurisdiction over the audit issues and the
responsibility for taking corrective action on our recommendations are the Office
of Financial Management within the Office of the Chief Financial Officer
(OCFO) and the Office of Wastewater Management within the Office of Water.
Scope and Methodology
We conducted this audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives. We conducted our audit from February through
August 2013. Appendix A contains details on our scope and methodology.
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Chapter 2
EPA Should Conduct More Thorough
Biennial User Fee Reviews
The EPA did not conduct thorough biennial user fee reviews for fiscal years
(FYs) 2008-2009 and 2010-2011. Although the EPA prepared a biennial user fee
review report, the EPA did not fully comply with the requirements to:
•	Conduct cost reviews to determine the full cost of providing a service.
•	Report biennial review results to OMB.
•	Request user fee exceptions by letter to the OMB Director.
•	Review all programs for fee potential.
The CFO Act and OMB Circular A-25 require the agency to perform biennial cost
reviews of agency user fee program charges and make recommendations on
revising those charges to reflect agency costs incurred. The EPA's OCFO did not
fully oversee the biennial reviews or provide internal review guidance, and EPA
program offices were not fully aware of the biennial review requirements. By not
performing fully compliant biennial user fee reviews, the EPA may not have
recovered all related program costs and collected funds that otherwise could have
been available to reduce the federal budget deficit. We identified an EPA
program—the Office of Water's National Pollutant Discharge Elimination System
(NPDES) program—with the potential to charge fees up to $8.9 million per year
to recover its costs of providing a service. The EPA began improving its biennial
review process with the FYs 2012-2013 review by issuing a biennial user fee
review guide, training user fee program personnel to perform biennial reviews,
and increasing headquarters oversight of the reviews.
EPA Programs Generally Did Not Conduct Cost Reviews
The EPA's programs that charge user fees, and programs with exceptions from
charging user fees, generally did not conduct cost reviews to determine the full
cost of providing a service. The programs need cost reviews to determine their
actual costs and decide whether they need to adjust fees to reflect changes in costs
or propose new charges, as required by OMB Circular A-25.
OCFO's Office of Financial Management (OFM) had oversight responsibility for
the EPA's biennial user fee reviews but did not provide sufficient oversight. OFM
requested the EPA's programs to provide updated fee descriptions and indicate
whether fees (1) recover the full cost of the service provided, and (2) were revised
or adjusted to reflect changes in the cost or value of the service. Since the user fee
programs generally did not conduct cost reviews, the programs could not indicate
whether they recovered the full cost of the service provided or revised fees to
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reflect changes in the costs. OFM did not fully evaluate the information it
received or follow up with the programs to obtain all the cost information it
needed. OFM's biennial user fee report to OMB did not indicate whether fees
recovered the full cost of the service provided, and for some types of fees whether
the fees were revised or adjusted.
Some fee programs—including pesticides maintenance, pesticides registration,
Clean Air Act Part 71 Operating Permits and Freedom of Information Act—
performed a cost analysis to comply with reporting requirements other than the
biennial review requirement. Some of these cost analyses did not include all
indirect costs to obtain the full cost of their services, as directed by SFFAS No. 4
and OMB Circular A-25.
EPA's Office of Research and Development (ORD) did not conduct biennial cost
reviews for its programs that collected licensing fees and royalties. However,
ORD may not be subject to the OMB Circular A-25 requirement to biennially
review program costs because ORD does not base its licensing fees and royalties
on total program costs. OMB Circular A-25 provides guidance regarding the
assessment of user charges under statutes other than the 10 AA, but only to the
extent permitted by law and not inconsistent with the statute. ORD programs
generally establish their fees by individual agreement, based on specific statutory
authority instead of full cost recovery guidance in SFFAS No. 4 and
OMB Circular A-25. For example:
•	The Stevenson-Wydler Technology Innovation Act of 1980 promotes the
use of federally funded technology developments by state and local
governments and the private sector. ORD collects licensing fees and
royalties from negotiated license agreements on patented technologies that
the EPA owns. ORD receives an up-front negotiated licensing fee and
annual royalties based on a percentage or amount of the licensee's profit
from sale or use of the technology.
•	The Environmental Research, Development, and Demonstration
Authorization Act of 1980 (42 U.S. Code § 4370), Reimbursement for Use
of Facilities,, authorizes the Administrator to allow appropriate use of EPA
research and test facilities by outside groups or individuals and allows the
agency to receive reimbursement for costs incurred or waive
reimbursement for nonprofit private or public entities when the
Administrator finds this to be in the public interest. ORD uses outside
user's agreements to charge users for use of its research and test facilities.
•	The Federal Technology Transfer Act of 1986 authorizes government
laboratories to enter into cooperative research and development
agreements with universities and the private sector for technological
transfer for commercial purposes. These agreements are for joint research
projects where both parties receive benefits. When a fee is involved, it
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usually reimburses the EPA only for the cost of supplies, travel or
contractor costs.
From the EPA's list of programs with user fee exceptions, we identified the
NPDES program as a potential fee program. The NPDES program has the
potential to charge fees up to $8.9 million per year to recover its costs of issuing
permits. Chapter 3 discusses the NPDES permit program's potential for proposing
fees.
EPA Reports to OMB Were Not Complete
The EPA's biennial user fee reports to OMB were not complete. The EPA
included a summary biennial user fees report, Biennial User Fees, in the
Agency Financial Report, and submitted more detail in a memorandum to OMB
describing the programs with existing fees, proposed fees and fee exceptions. The
EPA's summary report in the FY 2011 Agency Financial Report did not discuss
the results of the biennial review and any resultant fee proposals. Further, the
EPA's more detailed memorandum report to OMB provided incomplete cost
information. According to OMB Circular A-25, agencies should discuss the
results of the biennial review of user fees and any resultant proposals in the
Agency Financial Report. However, the EPA's reports were not complete because
the fee programs updated the fee descriptions from the prior biennial review
without conducting a thorough cost review, and OCFO did not provide sufficient
oversight and validate those reviews. Without complete information, the reports to
OMB did not clearly present the condition of EPA fee programs and provide
stakeholders with complete information. Transparent processes for reviewing and
updating fees help assure payers and others that fees are set fairly and accurately.
We found the following areas where the EPA's reports were not complete:
•	The EPA's FY 2011 Agency Financial Report did not discuss the results
of the biennial reviews.
•	Prior to FY 2010, the EPA reported its financial performance in the annual
Performance and Accountability Report but its FY 2009 Performance and
Accountability Report did not include a biennial user fee report.
•	The EPA's FYs 2008-2009 and 2010-2011 detailed biennial user fee
reports included the revenue collected for each existing fee program but
not the related program costs. Programs that requested an exception from
charging fees did not report their program costs.
•	The EPA could not provide documentation to support its transmittal of the
FY 2011 detailed biennial user fees memorandum report to OMB.
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EPA Did Not Follow OMB Policy to Request User Fee Exceptions
The EPA did not follow the OMB Circular A-25 procedure for requesting user fee
exceptions by letter to the OMB Director for programs that did not charge fees.
OMB Circular A-25 provides that agency heads request an exception by letter to
the OMB Director. EPA program managers and staff did not have the EPA
Administrator request fee exceptions by letter to the OMB Director because they
were not aware of the OMB requirement to do so. By not getting fee exception
approval from OMB, the EPA did not have OMB's assurance that fees were not
necessary. The EPA may not have charged appropriate fees in programs to reduce
the federal budget deficit.
The OCFO stated it included the programs reporting exceptions in each biennial
review detailed report to the OMB. Since the OCFO did not receive feedback
from the OMB on its detailed reports, the OCFO believed that its method of
reporting agency user fee activities was acceptable to OMB. However, when we
asked the OMB about EPA user fee exceptions, the OMB stated that it had not
received or granted user fee exceptions to the EPA in recent years. The OMB
stated that agency heads may request an exception by letter to the OMB Director.
EPA Did Not Review All Its Programs for Fee Potential
Prior to the FYs 2012-2013 biennial review, the EPA did not review all agency
programs to determine whether they should assess fees for government services
they provide. OMB Circular A-25 directs the agency to conduct biennial reviews
of programs with user charges and all other programs to determine whether it
should assess fees for government services it provides. Program office personnel
were not aware of the biennial review requirement, and OCFO did not provide
internal guidance for reviewing all agency programs. By not reviewing all agency
programs, the EPA may not have identified all programs eligible for user fee
charges and may have missed an opportunity to charge appropriate fees.
OCFO and program office personnel stated that for biennial reviews conducted
through the FYs 2010-2011 review, they reviewed the identified user fee
programs but did not review all other agency programs. With our own limited
research, we identified the EPA's Underground Injection Control permitting
program under the Safe Drinking Water Act as a potential user fee program. The
EPA did not include the program in the biennial review, although the program
provided a service to specific recipients for which the EPA did not charge fees.
This is an example of an activity that the EPA should include in the biennial
review to determine whether user fees should be assessed.
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Improvements Made for FYs 2012-2013 Biennial Review
Based on the findings of previous OIG audits of fee programs, the OCFO has
taken action to help the EPA's fee programs conduct a more thorough FYs 2012-
2013 review. The OCFO issued a biennial user fee review guide on March 8,
2013, and conducted biennial user fee review training for the user fee programs
on March 21, 2013. The OCFO's guidance for the FYs 2012-2013 review
provides the roles and responsibilities, review procedures and summary cost
worksheets for completing the review. Some significant provisions are:
•	OFM conducts the biennial user fee reviews.
•	Program offices provide the costs of the program activities.
•	Program offices review all activities for potential new users.
•	The Office of Budget collaborates with program offices to review
opportunities for new or updated fees.
The OCFO increased its oversight of the FYs 2012-2013 biennial review by
assigning an OCFO staff member to each existing fee program to oversee its
review. Based on a prior OIG audit recommendation,3 the OCFO also conducted a
FY 2011 biennial cost review of the EPA's Motor Vehicle and Engine
Compliance Program in the Office of Air and Radiation. The OCFO used the
review experience to help develop its review process for future biennial reviews.
Conclusion
The EPA did not conduct thorough biennial user fee reviews for FYs 2008-2009
and 2010-2011. The EPA should follow the OMB biennial review policy to
conduct cost reviews, include complete information in OMB reports, request user
fee exceptions, and review all programs for fee potential. By not performing fully
compliant biennial user fee reviews in the past, the EPA may not have recovered
all related program costs and collected funds that otherwise could have been
available to reduce the federal budget deficit. We believe that the EPA could help
the federal government reduce the budget deficit by performing more thorough
biennial user fee reviews that identify potential additional revenue. We identified
an EPA program with the potential to charge fees up to $8.9 million per year to
recover its costs of providing a service.
3 EPA OIG report, EPA Should Update Its Fees Rule to Recover More Motor Vehicle and Engine Compliance
Program Costs, Report No. 1 l-P-0701, September 23, 2011, recommended that the EPA conduct biennial reviews
of the Motor Vehicle and Engine Compliance Program.
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Recommendations
We recommend that the Chief Financial Officer:
1.	Include in the Agency Financial Report a discussion of the biennial user fee
review results and any resultant proposals, to fully comply with OMB
Circular A-25 reporting requirements.
2.	Coordinate with programs that have claimed an exemption to charging fees
under OMB Circular A-25 to have the EPA Administrator request an
exception by letter to the OMB Director.
3.	Request the fee exception programs to report their program costs to OCFO
to provide complete information about program fees and costs and to help
determine whether fee exception programs should assess fees.
Preliminary Agency Actions
The OCFO issued a biennial user fee review guide that instructed the program
offices to provide costs of the program activities and review all activities for
potential users. The OCFO also increased its oversight of the FYs 2012-2013
biennial review. Therefore, we make no recommendations to develop a review
guide, conduct cost reviews, review all activities for potential users and increase
headquarters oversight.
Agency Comments and OIG Evaluation
The agency agreed with our findings and recommendations and provided intended
corrective actions and estimated completion dates.
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Chapter 3
NPDES Permit Program
Should Consider Charging Fees
The EPA did not review the NPDES program's permit costs since the early 1990s
to determine whether the agency should assess fees for permits in the states,
territories and tribes in which the EPA is the permitting authority. Title V of the
10AA authorizes an agency to charge a fee for a service the agency provides. Due
to other priorities, the EPA has not considered whether it should assess fees for
NPDES permits or reintroduce a proposal for a fee regulation since the EPA
withdrew an internal proposal from the early 1990s for a regulation to allow the
EPA to charge fees for issuing federal NPDES permits. By not proposing the fees,
the EPA may have missed an opportunity to charge appropriate fees to recover its
costs. Based on the EPA's recent cost estimate of $8.9 million per year for issuing
federal permits, the NPDES program has the potential to charge up to $8.9 million
in fees to recover its costs.
EPA Did Not Propose NPDES Fees Since Early 1990s
Although the Clean Water Act does not address the subject of federal fees for
federally issued NPDES permits, the 10AA authorizes federal agencies to charge
fees for the services they provide. The EPA did not review the NPDES permit
program costs since the EPA considered— but withdrew—a proposal from the
early 1990s for a regulation under the authority of the 10AA to allow the EPA to
charge fees for issuing federal NPDES permits. Due to other priorities, the Office
of Water did not consider whether it should assess fees for NPDES permits or
attempt a new proposed regulation to charge NPDES fees.
The Office of Water included the NPDES permit program on the FYs 2008-2009
and 2010-2011 user fee exceptions list that it forwarded to the OCFO for
inclusion in the biennial user fee reports to OMB. The Office of Water believed
that OMB approved an exception for NPDES because the Office of Water did not
receive a response from OCFO or OMB about the exception. The Office of Water
stated that it assumed that OCFO had received a waiver from OMB that granted
the NPDES permit program an exception from charging fees. However, OMB
stated that it had not received or approved any fees exception requests from the
EPA in recent years. By not proposing NPDES fees, the EPA may have missed an
opportunity to charge appropriate fees to recover its costs.
On May 13, 2013, subsequent to the start of our audit, the NPDES permitting
program provided an analysis of its estimated annual direct labor costs totaling
$8,875,031. Due to time constraints, the cost analysis did not include other direct
costs, such as contracts, supplies and travel. According to the Office of Water, the
NPDES permit actions may include those types of costs, but the total amount of
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such costs would not significantly alter the estimate. The analysis also did not
include indirect costs needed for full costing, as required by SFFAS No. 4 and
OMB Circular A-25. Based on the EPA's cost estimate for issuing federal
permits, the NPDES program has the potential to charge up to $8.9 million
per year in fees to recover its costs.
Conclusion
According to the OMB's FY 2014 budget overview, the President is committed to
continuing to reduce the federal budget deficit. We believe that the EPA could
help the federal government in this endeavor by collecting fees to recover its
NPDES permitting costs. The EPA has authority under the 10AA to charge fees
for NPDES permits, and the OMB Circular A-25 general policy is that user
charges will be instituted through the promulgation of regulations. Therefore, the
EPA should consider recovering its NPDES permit program costs by charging
fees for NPDES permits. The EPA could collect an estimated $8.9 million in fees
per year, which would help reduce the federal budget deficit.
Recommendations
We recommend that the Assistant Administrator for Water:
4.	Conduct a cost analysis of all direct and indirect costs to determine the
EPA's full cost of issuing NPDES permits.
5.	Apply federal user fee policy in determining whether to (a) charge fees for
issuing federal NPDES permits in which the EPA is the permitting
authority, or (b) request an exception from OMB to charging fees.
Agency Comments and OIG Evaluation
The agency agreed with recommendation 4 and provided its corrective action and
completion date. The agency did not agree with part of our original
recommendation 5 in the draft report to propose a regulation to allow the EPA to
charge fees, as appropriate. The Office of Water stated that it was working with
the OCFO to request an exception from an NPDES user fee. We agreed with the
agency's proposed alternative action and we revised recommendation 5
accordingly. We removed the proposal for a regulation to charge fees and added
an option for requesting an exception to fees, to which the Office of Water stated
that it will agree. Although the EPA requested a fees exception on December 6,
2013, we consider recommendation 5 to be open until the OMB approves the
request.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Planned
Completion
Action Official	Date
Claimed
Amount
Ag reed-To
Amount
Include in the Agency Financial Report a
discussion of the biennial user fee review results
and any resultant proposals, to fully comply with
OMB Circular A-25 reporting requirements.
Coordinate with programs that have claimed an
exemption to charging fees under OMB Circular
A-25 to have the EPA Administrator request an
exception by letter to the OMB Director.
Request the fee exception programs to report their
program costs to OCFO to provide complete
information about program fees and costs and to
help determine whether fee exception programs
should assess fees.
Conduct a cost analysis of all direct and indirect
costs to determine the EPA's full cost of issuing
NPDES permits.
Apply federal user fee policy in determining
whether to (a) charge fees for issuing federal
NPDES permits in which the EPA is the permitting
authority, or (b) request an exception from OMB to
charging fees.
Chief Financial Officer 12/31/13
Chief Financial Officer 12/31/13
Chief Financial Officer 6/30/13
Assistant Administrator 6/30/13
for Water
Assistant Administrator
for Water
$17.8004
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.
4 OIG's policy is to base efficiencies from recurring events on the projected monetary benefit for the current and
following year. The potential monetary benefit represents the recurring cost savings from a proposed regulation to
allow the EPA to charge NPDES permit fees, based on the estimated program costs for the current and following
year.
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Appendix A
Details on Scope and Methodology
We reviewed the EPA's processes for conducting biennial user fee reviews. To gain an
understanding of the processes, we:
•	Reviewed the applicable laws, federal policy, standards and guidance, and relevant prior
audit reports.
•	Reviewed the EPA's biennial review procedures and biennial review reports for
FYs 2008-2009 and 2010-2011.
•	Interviewed personnel in OCFO and program offices with user fees or royalties, proposed
user fees and exceptions to user fees.
•	Examined OCFO's March 2013 biennial user fee review guide and training materials.
•	Reviewed the EPA's 13 program offices' FY 2012 management integrity assurance
letters for reported internal control weaknesses.
We interviewed personnel regarding the following programs and their biennial user fee reviews:
•	Pesticides maintenance fee (Federal Insecticide, Fungicide, and Rodenticide Act).
•	Pesticides registration service fee (Pesticide Registration Improvement Extension Act).
•	Premanufacture Notice program.
•	Operating permits program (Clean Air Act, 40 Code of Federal Regulations,
Parts 70 and 71).
•	Research and development licensing fees and royalties.
•	Freedom of Information Act.
•	NPDES permitting.
•	Acid Rain Allowance Transfer program.
•	ENERGY STAR program.
•	Resource Conservation and Recovery Act permitting.
We examined OCFO's work plan and supporting documentation for its biennial user fee review
of the FY 2011 Motor Vehicle and Engine Compliance Program. We did not verify the accuracy
of that program's biennial review cost analysis.
We did not assess the reliability of data in any information systems because their use did not
materially affect our findings, conclusions or recommendations. We accessed fee collection
information in Compass Financials, the agency's accounting system. We did not review the
internal controls over Compass Financials from which we obtained financial data, but relied on
the review conducted during the audit of the EPA's FY 2012 financial statements.
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Prior Reports Reviewed
We reviewed the prior EPA OIG and GAO reports listed in table A-l. The two EPA OIG reports
had findings and recommendations related to fee collections and recovery of program costs. The
three GAO reports contained information relevant to our review. We used the information and
issues disclosed in the EPA OIG and GAO reports to help identify issues as we conducted our
audit.
Table A-1: Prior reports reviewed
Report Title
Report No.
Date
EPA Is Not Recovering All Its Costs of the Lead-Based
Paint Fees Program
EPA OIG 13-P-0163
February 20, 2013
2012 Annual Report: Opportunities to Reduce
Duplication, Overlap and Fragmentation, Achieve
Savings, and Enhance Revenue
GAO-12-342SP
February 28, 2012
EPA Should Update Its Fees Rule to Recover More
Motor Vehicle and Engine Compliance Program Costs
EPA OIG 11-P-0701
September 23, 2011
Federal User Fees: A Design Guide
GAO-08-386SP
May 29, 2008
Federal User Fees: Some Agencies Do Not Comply
with Review Requirements
GAO/GGD-98-161
June 30,1998
Source: OIG analysis.
EPA OIG Report No. 13-P-0163 disclosed that an EPA program was not collecting enough fees
to recover all the costs of administering its program. The EPA had not conducted a formal cost
study to determine its actual program costs, and needed to update its fees rule to reflect the
amount of fees necessary for the program to recover its costs. The EPA agreed with the report's
recommendations and said it planned to update the fees rule and conduct biennial reviews.
GAO Report No. GAO-12-342SP presented cost savings or revenue enhancement opportunities,
including GAO's 2011 survey of federal agency fee reviews. The survey responses indicated that
for most fees, agencies (1) had not discussed fee review results in annual reports, and (2) had not
reviewed the fees and were inconsistent in their ability to provide fee review documentation.
EPA OIG Report No. 1 l-P-0701 disclosed that an EPA program was not collecting enough fees
to recover all reasonable program costs, based on the EPA's rough cost estimate conducted
during our audit. The program had not conducted a formal cost study since 2004 to determine its
actual program costs, and had not updated the fees rule to recover more costs. The EPA agreed
with the report's recommendations and said it planned to update the fees rule and conduct
biennial reviews.
GAO Report No. GAO-08-386SP reported on a study of how user fee design characteristics may
influence the effectiveness of user fees. GAO examined how the four key design and
implementation characteristics of user fees—how fees are set, collected, used and reviewed—
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may affect the economic efficiency, equity, revenue adequacy and administrative burden of cost-
based fees. The principles outlined in the design guide present a framework for user fee design.
GAO Report No. GAO/GGD-98-161 was a response to a congressional request to review
agencies' adherence to the user fee review and reporting requirements in the CFO Act and
OMB Circular A-25. The report disclosed that six of the 24 agencies reviewed all of their
reported user fees at least every 2 years as required by OMB Circular A-25 during FYs 1993
through 1997, three reviewed all of their reported fees at least once, 11 reviewed some of their
reported fees, and four did not review any of their reported fees during this period. The agencies
provided various reasons for not reviewing fees, including insufficient cost data and that some of
the fees being set by legislation could not be changed without new legislation.
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Appendix B
Agency Response to Draft Report
(Received September 27, 2013)
MEMORANDUM
SUBJECT: Response to Office of Inspector General Draft Report, Project No. OA-FY13-0103
"EPA Did Not Conduct Thorough Biennial User Fee Reviews," dated August 12,
2013
FROM: Maryann Froehlich/s/
Acting Chief Financial Officer
Nancy K. Stoner, Acting Assistant Administrator /s/
Office of Water
TO:	Richard Eyermann, Acting Assistant Inspector General
Office of Audit
Thank you for the opportunity to respond to the issues and recommendations in the subject audit
report. The following is a summary of the agency's overall position, along with our responses on
each of the report recommendations. For those report recommendations with which the agency
agrees, we have provided high-level intended corrective actions and estimated completion dates.
AGENCY'S OVERALL POSITION
The agency concurs with the OIG's overall recommendations. During FY 2013, the EPA
improved its biennial review process by issuing a biennial user fee review; conducting webinars
to train personnel on the review process, and increasing oversight of these reviews. As part of
our implementation guidance we also evaluated the cost of providing the government services
and fees for both existing and potential programs.
The agency will:
•	Discuss the results of the FY 2013 biennial user fee review in the Agency's Financial
Report.
•	Make recommendations, to the Office of Management and Budget Director, for
exceptions to charge user fees for the EPA programs that meet the criteria outlined in the
OMB Circular A-25, Section 6c.
However, the Office of Water does not concur with the recommendation to propose a regulation
to allow the EPA to charge fees.
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CONTACT INFORMATION
If you have any questions regarding this response, please contact Stefan Silzer, Director of the
Office of Financial Management on (202) 564-5389 or Sheila Frace, Deputy Office Director,
Office of Wastewater Management, Office of Water on (202) 564-0748.
Attachment
cc: David Bloom
Joshua Baylson
Stefan Silzer
John O'Connor
Carol Terris
Jeanne Conklin
Meshell Jones-Peeler
Dale Miller
Sandy Dickens
Barbara Freggens
Janet McCabe
Betsy Shaw
Maureen Hingeley
Jim Jones
Mike Shapiro
Andrew Sawyers
Sheila Frace
Deborah Nagle
Brian Frazer
Louis Eby
Marilyn Ramos
Lek Kadeli
Arthur Elkins
Charles Sheehan
Aracely Nunez-Mattocks
Alan Larsen
Carolyn Copper
Patricia Hill
Patrick F. Sullivan
Paul Curtis
Arthur Budelier
Susan Barvenik
Wendy Swan
Sheree James
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AGENCY'S RESPONSE TO REPORT RECOMMENDATIONS
No.
Recommendation
High-Level Intended
Corrective Action(s)
Estimated Completion
by Quarter and
Fiscal Year
1
Include in the Agency
Financial Report a discussion
of the biennial user fee
review results and any
resultant proposals, to fully
comply with OMB Circular
A-25 reporting requirements.
The Office of the Chief
Financial Officer concurs with
the overall recommendation.
The EPA will include a
discussion of the results of the
biennial user fee review in the
FY 2013 Agency Financial
Report AFR.
1st Quarter FY 2014
2
Coordinate with programs
that have claimed an
exemption to charging fees
under OMB Circular A-25,
section 6c (2) or (3) to have
the EPA Administrator
request an exception by letter
to the OMB Director.
The OCFO concurs with the
overall recommendation. The
agency will submit a request to
the Director of the OMB for
exceptions to charge user fees
for the EPA programs that meet
the criteria outlined in Circular
A-25, Section 6c.
1st Quarter FY 2014
3
Request the fee exception
programs to report their
program costs to OCFO to
provide complete
information about program
fees and costs and to help
determine whether fee
exception programs should
assess fees.
The OCFO concurs with the
overall recommendation.
During the agency's FY 2013
biennial user fee review, the
agency requested and received
the estimated costs from its
existing and potential fee
programs.
Completed
3rd Quarter FY 2013
4
Conduct a cost analysis of all
direct and indirect costs to
determine the EPA's full cost
of issuing National Pollutant
Discharge Elimination
System permits.
The Office of Water concurs
with the overall
recommendation. The OW
conducted the required NPDES
cost analysis.
Completed
3rd Quarter FY 2013
5
Apply federal user fee policy
in determining whether to
charge fees for issuing
federal NPDES permits in
which the EPA is the
permitting authority and
propose a regulation to allow
the EPA to charge fees, as
appropriate.
The OW does not concur with
the recommendation to propose
a regulation to allow the EPA to
charge fees. We are working
with OCFO to request an
exception from a NPDES user
fee.
1st Quarter FY 2014
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Appendix C
Distribution
Office of the Administrator
Chief Financial Officer
Assistant Administrator for Water
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Deputy Chief Financial Officer
Principal Deputy Assistant Administrator for Water
Director, Office of Financial Management, Office of the Chief Financial Officer
Deputy Director, Office of Financial Management, Office of the Chief Financial Officer
Director, Office of Financial Services, Office of the Chief Financial Officer
Deputy Director, Office of Financial Services, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of Water
Audit Follow-Up Coordinator, Office of Financial Management, Office of the
Chief Financial Officer
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