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U.S. Environmental Protection Agency	09 x 0217
	\ Office of Inspector General	August 19,2009
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At a Glance
Why We Did This Review
The Office of Inspector
General (OIG) of the
U.S. Environmental Protection
Agency (EPA) has concerns
with the impact the American
Recovery and Reinvestment
Act (ARRA) of 2009 will
have on EPA's grant accrual
calculation for the Fiscal Year
2009 financial statements. We
are alerting EPA management
of our concerns.
Background
In February 2009, EPA was
provided with $7.2 billion
under the ARRA for projects
and programs administered by
EPA. The funds were to be
awarded to grantees
expeditiously. Grant accruals
in the financial statements
represent grantee costs
incurred but not billed.
For further information,
contact our Office of
Congressional, Public Affairs
and Management at
(202) 566-2391.
To view the full report,
click on the following link:
www.epa.aov/oia/reports/2009/
20090819-09-X-0217.pdf
Catalyst for Improving the Environment
EPA Should Revise its Grant Accrual Methodology
to Address Impact of Recovery Act Funds
What We Found
EPA's grant accruals for the Fiscal Year 2009 financial statements may not include
adjustments for additional funds received under the ARRA. EPA has historically
computed grant accruals based on the results of a grantee billing practice survey.
The survey documents grantees' billing practices, the cumulative effect of which is
used to calculate accrual percentages. Once the grant accrual percentages are
calculated, they are applied to current year grantee expenditures paid to calculate
EPA's liability for grantee expenditures incurred but not yet billed to EPA.
EPA currently plans to combine ARRA grants with traditional grants and use the
combined universe as the basis for its grant accrual calculation. Traditional grants
have longer periods of performance than grants with ARRA funds. Only
51 percent of the grant funds have been expended on traditional grants over the
past 5 years. ARRA funds are intended to be used faster than traditional grant
awards. Consequently, the results of the sample will be skewed because the
billing practices for ARRA grants will be different than EPA's traditional grants
and not representative of all grants, including ARRA grants. This could misstate
the financial statements regarding grant expenditures incurred but not billed.
What We Recommend
We recommend that the Chief Financial Officer modify the current grant accrual
methodology to account for the increase in and nature of grant expenditures due to
the ARRA. The revised methodology should separate the two distinct types of
grants - ARRA and EPA's traditional grants. EPA should use its historical
method for computing the accrual for traditional grants and develop a separate
process for the ARRA grants that will consider the intent to expeditiously award
and expend ARRA funds. The separate methodology could include amounts
reported by recipients on the total amount of funds received and the amount spent
on projects and activities, as required by Office of Management and Budget
(OMB) Memorandum M09-21, Implementing Guidance for the Reports on Use of
Funds Pursuant to the American Recovery and Reinvestment Act of2009.
The Office of the Chief Financial Officer (OCFO) agreed with OIG's
recommendations for the Fiscal Year 2009 grant accruals. OCFO will analyze the
difference between the grantee's reported expense and EPA records and determine
the grant accrual amount for ARRA funds. OCFO is considering other methods
for calculating the grant accrual rate for ARRA funds in the event the required
OMB reports are not available.

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