£ < 33 \ fiz. % r\s 4* PRO"**- o z LU (9 T U.S. ENVIRONMENTAL PROTECTION AGENCY OFFICE OF INSPECTOR GENERAL Catalyst for Improving the Environment Quick Reaction Report Agreed-Upon Procedures on EPA's Fiscal Year 2011 Third Quarter Financial Statements Report No. 11-2-0699 September 23, 2011 ------- Report Contributors: Paul Curtis Robert Smith Guillermo Mejia Demetrios Papakonstantinou Abbreviations EPA U.S. Environmental Protection Agency FY Fiscal year GL General ledger OCFO Office of the Chief Financial Officer OIG Office of Inspector General OMB Office of Management and Budget RGLTS Report of General Ledger Balance by Treasury Symbol SFFAS Statement of Federal Financial Accounting Standards Hotline To report fraud, waste, or abuse, contact us through one of the following methods: e-mail: OIG Hotiirie@epa.aov write: EPA Inspector General Hotline phone: 1-888-546-8740 1200 Pennsylvania Avenue NW fax: 703-347-8330 Mailcode 8431P (Room N-4330) online: http://www.epa.aov/oig/hotline.htm Washington, DC 20460 ------- tfED *. U.S. Environmental Protection Agency 11-2-0699 ? r| Office of Inspector General September 23,2011 < sgsi At a Glance Catalyst for Improving the Environment Why We Performed These Agreed-Upon Procedures We performed agreed-upon procedures on the U.S. Environmental Protection Agency's (EPA's) Fiscal Year (FY) 2011 Third Quarter Financial Statements. We did so to assist EPA in evaluating whether its quarterly financial statements were compiled consistently with the Treasury United States Standard General Ledger Crosswalk, and to identify significant fluctuations in financial line item balances from the previous year. Background Agencies submit unaudited interim financial statements to the Office of Management and Budget 21 days after the end of each of the first three quarters of the fiscal year. Comparative interim financial statements are limited to a Balance Sheet, Statement of Net Costs, and Statement of Budgetary Resources. For further information, contact our Office of Congressional, Public Affairs and Management at (202) 566-2391. The full report is at: www.epa.aov/oia/reports/2011/ 20110923-11 -2-0699.pdf Agreed-Upon Procedures on EPA's Fiscal Year 2011 Third Quarter Financiai Statements What We Found We performed certain agreed-upon procedures on the Agency's FY 2011 Third Quarter Financial Statements. We compared the statements with EPA's crosswalk, recomputed them for mathematical accuracy, and compared them with balances separately generated by us. Below are the results of our performance of the agreed-upon procedures: The financial statements generated by the Office of Inspector General agreed with EPA's FY 2011 Third Quarter Financial Statements for the Consolidated Balance Sheet, Consolidated Statements of Net Cost, Net Cost by Goal, Consolidating Statement of Changes in Net Position (including Earmarked Funds), Combined Statement of Budgetary Resources, and Statement of Custodial Activity. The Agency identified 13 fluctuations in its financial statements and submitted them to the Office of Management and Budget. Our analysis identified 12 additional significant variances. We found that EPA's Treasury Symbols were in compliance with Statement of Federal Financial Accounting Standards 27. We found that the on-top entry to record child agency balances agreed with the child trial balance support. We found that the Agency properly reversed the FY 2010 on-tops in FY 2011. The elimination and consolidation entries appear reasonable and complete. No differences were found in the comparison of the FY 2011 beginning balances to the FY 2010 ending balances. The agreed-upon procedures do not constitute an audit of the quarterly financial statements or any part thereof, the objective of which would be the expression of an opinion on the quarterly financial statements or any part thereof. ------- UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. 20460 THE INSPECTOR GENERAL September 23, 2011 SUBJECT: Agreed-Upon Procedures on EPA's Fiscal Year 2011 Third Quarter Financial Statements Report No. 11-2-0699 FROM: Arthur A. Elkins, Jr. Inspector General TO: Barbara Bennett Chief Financial Officer The U.S. Environmental Protection Agency (EPA), Office of Inspector General, conducted these agreed-upon procedures on EPA's Fiscal Year 2011 Third Quarter Financial Statements. This report is provided solely to assist you in evaluating whether the Fiscal Year 2011 Third Quarter Financial Statements were compiled in a manner consistent with the Treasury United States Standard General Ledger Crosswalk, and to identify significant fluctuations in financial line balances from the previous year. Our report is intended solely for your information and use, and should not be used by those who have not agreed to the procedures or taken responsibility for the sufficiency of the procedures for their purposes. No written response to this report is required. If you have any questions, please do not hesitate to contact Paul Curtis at (202) 566-2523 or curtis.paul@,epa.gov, or Bob Smith at (202) 566-2531 or smith.robertl@,epa.gov. ------- Agreed-Upon Procedures on EPA's Fiscal Year 2011 Third Quarter Financial Statements 11-2-0699 Table of Contents Purpose 1 Background 1 Scope and Methodology 1 Results of Agreed-Upon Procedures 2 Status of Recommendations and Potential Monetary Benefits 6 Appendices A OIG-Identified Significant Fluctuations Between 06/30/11 and 06/30/10 7 B Distribution 9 ------- Purpose We performed these agreed-upon procedures at the request of the Office of the Chief Financial Officer (OCFO). We did so to assist the U.S. Environmental Protection Agency (EPA) in evaluating whether its Fiscal Year (FY) 2011 Third Quarter Financial Statements were compiled consistently with the Treasury United States Standard General Ledger Crosswalk and to identify significant fluctuations in financial line item balances from the previous year. Background According to Office of Management and Budget (OMB) Circular A-136, Financial Reporting Requirements, interim unaudited financial statements, without notes, are required on a quarterly basis. Agencies submit unaudited interim financial statements to OMB 21 days after the end of each of the first three quarters of the fiscal year. Comparative interim financial statements are limited to a Balance Sheet, Statement of Net Cost, and Statement of Budgetary Resources. Agencies should include management's explanation of significant variances in types or amounts of assets, liabilities, costs, revenues, obligations, and outlays, along with the submitted statements. The analysis should be only on the significant variances between the current quarter and the same quarter from the prior year. Management has discretion on what constitutes a significant variance. EPA prepares consolidated comparative interim financial statements for submission to OMB. In addition to the three required interim statements, EPA prepares and submits a comparative Consolidated Statement of Net Cost by Goal, Consolidating Statement of Changes in Net Position, and Statement of Custodial Activity. Scope and Methodology We performed certain agreed-upon procedures, enumerated below, on EPA's unaudited consolidated FY 2011 Third Quarter Financial Statements. The adequacy of these procedures is the OCFO's responsibility. Consequently, we make no representation regarding the sufficiency of the procedures. The agreed-upon procedures do not constitute an audit of the quarterly financial statements or any part thereof, the objective of which would be the expression of an opinion on the quarterly financial statements or any part thereof. Accordingly, we do not express such an opinion. Were we to perform additional procedures, other matters might come to our attention that we would report to assist the OCFO. This agreed-upon procedures engagement was conducted using applicable generally accepted government auditing standards, which incorporate attestation standards issued by the American Institute of Certified Public Accountants. These standards provide guidance for performing and reporting the results of agreed-upon procedures. We performed the agreed-upon procedures from August 8 to September 7, 2011. We based our procedures on EPA's FY 2011 Third Quarter Financial Statements and supporting schedules, general ledger (GL) balances, and manual on-top adjustments. 11-2-0699 1 ------- Results of Agreed-Upon Procedures Procedure 1 Obtain EPA's third quarter financial statements, adjusted trial balance, on-top entries, and support for the statements (including Earmarked Funds). Import the Report of General Ledger Balance by Treasury Symbol (RGLTS); enter the Agency's on-top entries into ProSystem; and generate an adjusted trial balance, Consolidated Balance Sheet, Consolidated Statement of Net Cost, and Consolidating Statement of Changes in Net Position. Results of Procedure 1 We obtained the Agency's third quarter financial statements, adjusted trial balance, on- top entries, and support for the statements (including Earmarked Funds and Child Agency Trial Balances). We imported the RGLTS and entered the Agency's on-top adjusting entries to beginning balances into Prosystem to generate an adjusted trial balance, Consolidated Balance Sheet, Consolidated Statement of Net Cost, and Consolidating Statement of Changes in Net Position. Procedure 1.a Compare the ProSystem-generated adjusted trial balance to the Agency's adjusted trial balance and note any differences. Results of Procedure 1.a We compared the Prosystem-generated adjusted trial balance based upon the Agency's support to the Agency's adjusted trial balance. The Agency's adjusted trial balance for the FY 2011 third quarter agreed with our Prosystem-adjusted trial balance amounts, except for immaterial rounding differences. We verified that the statements complied with and are in accordance with EPA's crosswalk. Procedure 1.b Compare the ProSystem-generated financial statements to EPA's financial statements and note any differences. Results of Procedure 1.b We compared the Prosystem-generated financial statements to EPA's financial statements (Consolidated Balance Sheet, Consolidated Statement of Net Cost, and Consolidating Statement of Changes in Net Position). We did not note any differences. 11-2-0699 2 ------- Procedure 1.c Enter the FY 2011 and 2010 GL balances and on-top entries into Excel spreadsheets. Prepare the Combined Statement of Budgetary Resources and Statement of Custodial Activity, compare to the Agency's statements, and note any differences. Results of Procedure 1.c We entered the FY 2011 GL balances and on-top adjustment entries into an Excel spreadsheet. We prepared and compared the Office of Inspector General (OIG) Combined Statement of Budgetary Resources and Statement of Custodial Activity to the Agency's statements. Combined Statement of Budgetary Resources: The Agency's balances for the FY 2011 third quarter agreed with our amounts for this statement except for immaterial rounding differences. Statement of Custodial Activity: The Agency's balances for the FY 2011 third quarter agreed with our amounts for this statement except for immaterial rounding differences. Procedure 1.d Extract GL ending balances for Earmarked Funds from the RGLTS using Interactive Data Extraction Analysis and enter into ProSystem. Enter on-top entries, generate a Consolidating Statement of Changes in Net Position-Earmarked Funds, and compare to EPA's Consolidating Statement of Changes in Net Position-Earmarked Funds. Results of Procedure 1.d We extracted the GL ending balances from the RGLTS for Earmarked Funds, generated a Consolidating Statement of Changes in Net Position-Earmarked Funds, and compared it to EPA's Consolidating Statement of Changes-Net Position for Earmarked Funds. We did not note any differences. Procedure 1.e Compare the Agency's third quarter Consolidated Statement of Net Cost by Goal to the consolidated totals from the Consolidated Statement of Net Cost and note any differences. Results of Procedure 1.e We compared the Agency's third quarter Consolidated Statement of Net Cost by Goal to the consolidated totals (total costs, total earned revenue, and net cost of operations) from the Consolidated Statement of Net Cost. The amounts agreed. 11-2-0699 3 ------- Procedure 1.f Mathematically verify accuracy of the Consolidated All Other column on the Consolidating Statement of Changes in Net Position in the Agency's financial statements. Results of Procedure 1.f We mathematically verified the accuracy of the Consolidated All Other column in the Agency's financial statements on the Consolidating Statement of Changes in Net Position in the Agency's financial statements. Procedure 1.g Identify significant fluctuations in balances by comparing current year balances to prior year balances. (Criteria: Percentage change of 10 percent or more and dollar change exceeding $50 million.) Results of Procedure 1.g The Agency identified 13 significant fluctuations in the Consolidated Balance Sheet, Consolidated Statement of Net Cost, and Combined Statement of Budgetary Resources. Our analysis identified eight additional significant fluctuations in these statements. We also identified four significant fluctuations in the Consolidating Statement of Changes in Net Position (a nonrequired statement). OIG- and Agency-identified fluctuations are detailed in appendix A. Procedure 2 Obtain and compare EPA's identified Earmarked Treasury Symbols to Federal Accounting Standards Advisory Board Statement of Federal Financial Accounting Standards (SFFAS) 27, Identifying and Reporting Earmarked Funds, for compliance. Results of Procedure 2 We obtained and compared EPA's identified Earmarked Treasury Symbols to SFFAS 27. We found that EPA's Treasury Symbols are in compliance with SFFAS 27. Earmarked Treasury Symbols consist of the following trust funds: Hazardous Substance Superfund; Federal Insecticide, Fungicide, and Rodenticide Act Fund; Revolving Fund for Certification and Other Services; Licenses and Other Services; Environmental Services; Exxon Valdez Settlement Fund; Pesticide Registration Improvement Act Fund; Oil Spill Response Fund; Contributed Funds; and Leaking Underground Storage Tank Trust Fund. 11-2-0699 4 ------- Procedure 3 Obtain and compare FY 2011 and 2010 Child Trial Balances to the child on-top entry. Results of Procedure 3 We obtained and compared EPA's FY 2011 and 2010 Child Trial Balances to the child on-top entry. We found that the on-top entry to record child agency balances agreed with the child trial balance support. Procedure 4 Compare the FY 2011 reversals to the FY 2010 on-top adjustments and EPA's Closing Instructions to assess whether EPA followed the guidance in the instructions. Results of Procedure 4 We compared the FY 2011 reversals to the FY 2010 on-top adjustments and to EPA's closing instructions to assess whether EPA followed the guidance in the instructions. We found that the Agency reversed the FY 2010 on-tops properly in FY 2011. Procedure 5 Compare the RGLTS FY 2011 beginning balances to the FY 2010 ending balances and note any differences. Results of Procedure 5 We compared the RGLTS FY 2011 beginning balances to FY 2010 ending balances and found no differences Procedure 6 Review elimination and consolidation entries prepared by the Reporting and Analysis Staff for reasonableness and completeness. Results of Procedure 6 We reviewed elimination and consolidation entries prepared by the Reporting and Analysis Staff. The elimination and consolidation entries appeared reasonable and complete. 11-2-0699 5 ------- Status of Recommendations and Potential Monetary Benefits RECOMMENDATIONS Rec. No. Page No. Subject Status1 Planned Completion Action Official Date No recommendations POTENTIAL MONETARY BENEFITS (in $000s) Claimed Amount Agreed To Amount 1 11-2-0699 6 ------- Appendix A OIG-ldentified Significant Fluctuations Between 06/30/11 and 06/30/10 (Dollars In thousands) Notes for each table are as follows: •j ..... . EPA-identified significant fluctuation also identified by OIG in the third quarter analysis reported to OMB. 2 OIG-identified significant fluctuation not identified by EPA in the third quarter analysis reported to OMB. Consolidated Balance Sheet FY 2011 FY 2010 Difference % ASSETS Fund Balance With Treasury1 $14,697,168 $17,447,250 ($2,750,082) -15.76% Accounts Receivable, Net1 $405,444 $352,427 $53,017 15.04% Property, Plant and Equipment1 $933,104 $823,207 $109,897 13.35% NET POSITION Unexpended Appropriations - Other Funds1 $13,425,540 $16,353,716 ($2,928,176) -17.91% Cumulative Results of Operations - Other Funds2 $661,080 $585,867 $75,213 12.84% Source: FY 2011 Financial Statements provided by EPA. Consolidating Statement of Changes in Net Position FY 2011 All Other Funds FY 2010 All Other Funds Difference % CUMULATIVE RESULTS OF OPERATIONS Budgetary Financing Resources Trust Fund Appropriations2 ($1,156,073) ($1,280,570) $124,497 -9.72% BUDGETARY FINANCING RESOURCES Appropriations Received2 $8,583,237 $10,180,421 ($1,597,184) -15.69% Source: FY 2011 Financial Statements provided by EPA. Consolidating Statement of Changes in Net Position FY 2011 Consolidated Earmarked Funds FY 2010 Consolidated Earmarked Funds Difference % CUMULATIVE RESULTS OF OPERATIONS Budgetary Financing Resources Trust Fund Appropriations2 $1,156,073 $1,280,570 ($124,497) -9.72% Source: FY 2011 Financial Statements provided by EPA. 11-2-0699 7 ------- Combined Statement of Budgetary Resources FY 2011 FY 2010 Difference % BUDGETARY RESOURCES Recoveries of Prior Year Unpaid Obligations2 $205,369 $277,201 ($71,832) -25.91% Appropriation1 $8,658,352 $10,255,083 ($1,596,731) -15.57% Collected1 $436,415 $741,526 ($305,111) -41.15% Advance Received1 $85,831 $293,563 ($207,732) -70.76% Without Advance from Federal Sources1 ($24,680) ($99,295) $74,615 -75.14% Anticipated for Rest of Year, Without Advances1 $185,190 $277,346 ($92,156) -33.23% Permanently Not Available1 ($157,556) ($41,500) ($116,056) 279.65% STATUS OF BUDGETARY RESOURCES Reimbursable2 $501,800 $451,208 $50,592 11.21% Apportioned1 $8,548,673 $9,587,875 ($1,039,202) -10.84% Unobligated Balances Not Available2 $185,731 $433,916 ($248,185) -57.20% CHANGE IN OBLIGATED BALANCE Unpaid Obligations, Brought Forward, October 11 $13,872,909 $15,788,389 ($1,915,480) -12.13% Less: Recoveries of Prior Year Unpaid Obligations, Actual2 ($205,369) ($277,201) $71,832 -25.91% Change in Uncollected Customer Payments from Federal Sources2 $4,494 $69,953 ($65,459) -93.58% Unpaid Obligations2 $10,304,328 $12,232,169 ($1,927,841) -15.76% Less: Uncollected Customer Payments from Federal Sources2 ($435,462) ($503,871) $68,409 -13.58% NET OUTLAYS Less: Offsetting Collections1 ($545,191) ($1,062,830) $517,639 -48.70% Source: FY 2011 Financial Statements provided by EPA. 11-2-0699 8 ------- Appendix B Distribution Chief Financial Officer Deputy Chief Financial Officer Director, Office of Financial Management, Office of the Chief Financial Officer Director, Reporting and Analysis Staff, Office of the Chief Financial Officer Director, Office of Financial Services, Office of the Chief Financial Officer 11-2-0699 9 ------- |