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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
13-1-0054
November 15, 2012
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-Cutting Strategy:
•	Strengthening EPA's
Workforce and Capabilities
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.qov/oiq/reports/2013/
20121115-13-1-0054.pdf
Audit of EPA's Fiscal 2012 and 2011
Consolidated Financial Statements
EPA Receives an Unqualified Opinion
We rendered an unqualified opinion on EPA's consolidated financial
statements for fiscal 2012 and 2011, meaning that they were fairly presented
and free of material misstatements.
Internal Control Material Weakness/Significant Deficiencies Noted
In October 2011, EPA replaced the Integrated Financial Management System
with a new system, Compass Financials (Compass), and we determined that
Compass reporting and system limitations represented a material weakness. In
addition, we noted the following significant deficiencies, some of which involve
Compass and contributed to the material weakness:
•	Posting models in Compass materially misstated general ledger activity
and balances.
•	Compass reporting limitations impair accounting operations and internal
controls.
•	EPA did not reverse approximately $108 million in expense accruals.
•	Compass system limitations impair internal controls of financial operations.
•	Accounts receivable internal controls contained numerous deficiencies.
•	EPA did not timely clear Fund Balance with Treasury Statement of
Differences transactions.
•	Compass did not have sufficient controls over personal property entries.
•	Compass and the Maximo property system cannot be reconciled.
•	EPA did not monitor the testing of networked information technology assets
to identify commonly known vulnerabilities.
•	EPA lacks reliable information on security controls for financial systems.
Noncompliance With Laws and Regulations Noted
EPA has limited assurance that its Compass service provider's controls are
designed and operating as intended.
Recommendations and Planned Agency Corrective Actions
The Agency disagreed with most of our findings but accepted many of our
recommendations. In particular, the Agency stated it identified and then fixed or
remediated most of the limitations of its new Compass system and, thus, there
were no material issues during the preparation of the financial statements. The
Agency characterized the errors we found as normal problems during collection
and verification activities. However, we disagree that was the case. The errors
we found occurred primarily because of posting models deficiencies in the new
system and the failure of internal controls to detect and correct the errors.

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