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ABOUT THIS REPORT
The U.S. Environmental Protection Agency (EPA)
is pleased to present our Fiscal Year 2017 Agency
Financial Report (AFR). This report provides
high-level financial and performance results for
the fiscal year (FY) spanning October 1 through
September 30.
The information, data, and analyses presented in
this AFR provides assistance to the President,
Congress, and the public in evaluating the
agency's yearly activities and accomplishments
towards creating a healthy environment where
Americans live, work, and play.
The AFR is one of two annual documents
outlining EPA's efforts in promoting transparency
of the Agency's activities and expenditures. The
financial information within the AFR is
supplemented by EPA's Annual Performance
Report (APR). EPA's FY 2017 APR presents the
Agency's FY 2017 performance results measured
against the targets established in its FY 2017
Performance Plan and Budget and discusses
progress toward achieving the goals established
in its FY 2014-2018 Strategic Plan. EPA's FY
2017 APR will also be included with the Agency's
FY 2019 Congressional Budget Justification
submission, and will be posted on the Agency's
website.
The FY 2017 AFR contains EPA's FY 2017
Financial Statements Audit Report and its FY
2017 Management Integrity Act Report, including
the Administrator's statement assuring the
soundness of the Agency's internal controls. In
compliance with the Inspector General Act of
1978 as amended, the AFR also presents EPA's
report on FY 2017 progress in addressing Office
of Inspector General (OIG) audit
recommendations.
The AFR is prepared in accordance with the Chief
Financial Officers (CFO) Act and Office of
Management and Budget (OMB) Circular A-136,
Financial Reporting Requirements, and fulfills the
requirements set forth in OMB Circular A-ll,
Preparation, Submission and Execution of the
Budget, and the Government Performance and
Results Act Modernization Act of 2010
(GPRAMA).
Together, APR and AFR present a complete
picture of the Agency's activities,
accomplishments, progress, and finances for each
fiscal year. EPA's prior fiscal year APR and AFR
are available on EPA's internet at:
http://www2.epa.gov/planandbudget/results.
How the Report Is Organized
EPA's FY 2017 AFR is organized into three
sections to provide all stakeholders with clear
insight into the Agency's fiscal activity over the
past year.
Section I—Management's Discussion and
Analysis
Section I contains information on EPA's mission
and organizational structure; selected Agency
performance results; an analysis of the financial
statements and stewardship figures; information
on systems, legal compliance, and controls; and
other management initiatives.
Section II—Financial Section
Section II includes the Agency's independently
audited financial statements, which are in
compliance with the CFO Act, and the related
Independent Auditors' Report and other
information on the agency's financial
management.
Section III—Other Accompanying Information
This section contains additional material as
specified under OMB Circular A-136, Financial
Reporting Requirements, and the Reports
Consolidation Act of 2000. The subsection titled
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"Management Challenges and Integrity
Weaknesses" details EPA's progress toward
strengthening management practices to achieve
program results and presents OIG's list of top
management challenges and the Agency's
response.
Appendices
The appendices include links to relevant Agency
websites and a glossary of acronyms and
abbreviations.
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TABLE OF CONTENTS
ABOUT THIS REPORT 1
SECTION I MANA CEMENT'S DISCUSSION AND ANAL YSIS 5
About EPA[[[6
History and Purpose 6
Mission 6
Organization 7
Regional Map 8
Collaborating with Partners and Stakeholders 8
FY 2017 Program Performance[[[ 9
A Framework for Performance Management 9
Financial Analysis and Stewardship Information[[[ 10
Sound Financial Management: Good for the Environment, Good for the Nation 10
Financial Condition and Results 11
Financial Management for the Future 15
Limitations of the Principal Financial Statements 16
Improving Management and Results 17
Office of Inspector General Audits, Evaluations, and Investigations 17
Grants Management 17
Accountability: Systems, Controls, and Legal Compliance[[[18
Federal Managers' Financial Integrity Act (FMFIA) 18
Management Assurances 20
Federal Financial Management Improvement Act (FFMIA) 20
SECTION II - FINANCIAL SECTION 21
EPA'S Fiscal 2017 and 2016 Consolidated Financial Statements[[[22
Audit of EPA's Fiscal Years 2017 and 2016 Consolidated Financial Statements 78
SECTION III - OTHER ACCOMPANYING INFORMA TION[[[ Ill
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III. Sampling and Estimation 147
Fraud Reduction Report 149
Fraud Reduction and Data Analytics Act of 2015 149
Civil Monetary Penalty Adjustment for Inflation[[[ 151
Grants Oversight & New Efficiency (GONE) Act Requirements 155
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SECTION I
MANAGEMENT'S DISCUSSION AND
ANALYSIS
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ABOUT EPA
History and Purpose
EPA integrates environmental research, monitoring,
standard-setting, and enforcement functions under the
banner of a single agency. In doing so, the Agency continues
to ensure environmental protection remains an integral part
of all U.S. policies, whether they concern economic growth,
natural resource use, energy, transportation, agriculture, or
human health.
Since its commencement, EPA has made great strides in
protecting the nation's air, water, and land. Concentrated
cleanup efforts have helped remedy the mistakes of the past,
while EPA's work to monitor and regulate pollutants, evaluate
new chemicals, and inspire better decision-making are
helping to safeguard our environmental future.
EPA does not work alone. Addressing the complex environmental issues facing the nation and the world
requires assiduous, efficient cooperation among a diverse and dynamic group of stakeholders, from state,
tribal, and local governments to foreign governments and international organizations.
Everyone has a role to play in creating a healthy, sustainable environment. By serving as the primary
federal source of rigorously researched, scientific information on the environment, EPA empowers
individuals and organizations to better recognize and engage in environmental protection and develop
lasting solutions in their own backyards and around the world.
Mission
EPA's mission is to protect human health and the environment.
In carrying out this mission, EPA relies on the best available
scientific information to inform policy decisions and enforcement
actions that protect diverse, sustainable ecosystems and
safeguard the nation's human health and environment. Rigorous,
peer-reviewed science is the foundation for EPA's decision-
making and the basis for understanding and addressing future
environmental concerns. By ensuring scientifically sound
environmental information is easily accessible to all stakeholders,
EPA advances its mission and furthers fostering public trust and
understanding of its work.
All Americans are entitled to a clean, healthy environment where they live, work, and play. Established in
1970 as the hazards of environmental pollution became increasingly evident, EPA has worked for over four
decades to identify, evaluate, and execute scientifically sound, sustainable solutions to existing and
emerging environmental concerns.
"EPA Scientists and researchers work every day to
foster innovation that leads to discoveries to better
protect human health and the environment."
https://www.epa.gov/innovation/research -
innovation
What EPA Does
S Enforce environmental laws
¦S Responds to the release of
hazardous substances
Gives grants to states, local
communities, and tribes
¦S Studies environmental issues
¦S Sponsors partnerships
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Organization
EPA's headquarters are located in Washington, D,C. Together, EPA's headquarters offices, 10 regional
offices, and more than a dozen laboratories and field offices across the country employ a diverse, highly
educated, and technically trained workforce of roughly 15,000 people.
Office of the Chief
Financial Officer
Manages Agency's annual budget
and performance plan,
coordinates EPA's strategic
planning efforts, provides financial
services forihe Agency, & makes
all Agencv payment transact Ions.
Office of Chemical Safety
and Pollution Prevention
Works to protect peopl e and the
environment from potential risks
from pesticides and toxic
chemicals through Innovative
partnerships and collaboration, &
proactively preventing pollution.
Serves as the scientificresearch
arm of EPA. whose leading edge
research helps provide the solid
underpinning of science and
technology for the Agency.
Office Research and
Development
Provides legal support for Agency
rules and policies, case-by-case
decisions,defensive litigation,
operations,and legislation.
Office of
General Counsel
Ensures drink I ng water is safe,
restores & maintalnsoceans,
watersheds, and their aquatic
ecosystems protecting human
health, support economic &
recreational activities, & healthy
habitats for fish, plants, ft wildlife.
Office of Water
Office of Inspector General
Kelps the Agency protect the
environ rnent in a more efficient
and cost-effective manner.
Office of Enforcement and
Compliance Assurance
Tackles pollution problems
through vigorous civil & criminal
enforcements target I ng serious
water, air, & chem ical hazards and
advances environ mental J ustice by
protecting vulnerable
Office of Air and Radiation
Develops national programs,
policies, and regulations for
controlling air pollution and
radiation exposure.
Provides national leadership,
policy, & management of many
essential Agency support
functions.
Office of Administration
Resources Management
Office of Environmental
Information
Manages the 11 f e cycle of
information to support EPA's
mission of protecting human
health and the environment.
Region 8
Denver, CO
Region 5
Chicago, IL
Region 10
Seattle, WA
Region 9
San Francisco, CA
Region 6
Dallas, TX
Region 7
Kansas City, KS
Region 4
Atlanta, GA
Region 3
Philadelphia, PA
Provides overall supervision of the
Agency and is responsible directly to
the President of the United States.
Office of the
Administrator
Works carry out Agency's mission
whIleadvancing U.S. national
interests through international
environmental col laboratlon and
strengthening environmental
protection lit Indian Country.
Office of International and
Tribal Affairs
Office of Land and
Emergency Management
Serves as the scientific research
arm of EPA, whose leading edge
research hel ps provide the solid
underpinning of sdence and
technology for the Agency.
Region 1
Boston, MA
Region 2
New York, NY
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Regional Map
EPA's partnerships with states, tribes, local governments, and the global community are paramount to the
success of the national environmental protection enterprise. EPA places high value on cultivating these
partnerships and has implemented a cross-agency strategy during the FY2014-2018 Strategic Plan period,
"Launching a New Era of State, Tribal, Local and International Partnerships," to focus its work. EPA
collaborated with its partners to improve coordination, advocate innovation, and leverage resources. Along
with its co-regulators, EPA worked with the regulated community, private industry, nonprofit
organizations, and the public to use new tools and methodologies to enhance coordination, manage
resources effectively, and share information. For example, through tools such as "Enforcement and
Compliance History Online" (ECHO), the agency has improved the availability and transparency of
environmental data.
EPA Offices arid Facilites
% EPA National Headquarters jg EPA Regional Headquarters • EPA Regional and Program Laboratories and Facilities
Collaborating with Partners and Stakeholders
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FY 2017 PROGRAM PERFORMANCE
Detailed FY 2017 performance results will be presented in EPA's FY2017 APR. EPA has chosen to produce
an AFR and an APR, and will include its FY 2017 APR with its FY2019 Annual Performance Plan and Budget.
These reports, along with FY 2016 performance results are posted to the EPA internet at
http://www.epa.gov/planandbudget concurrent with the publication of the FY 2019 President's Budget.
A Framework for Performance Management
In compliance with GPRMA, EPA develops a Strategic Plan, which establishes long-term strategic goals,
objectives, and measures to carry out the Agency's mission of protecting human health and the
environment. To further its strategic goals and objectives, the agency has developed a performance
management framework, which supports the analysis of annual performance results and progress toward
longer-term strategic objectives as an integral part of formulating and justifying agency resource requests.
EPA's Performance Management Framework
EPA Strategic Plan
Age ncy P ri ority G o als
Strategic Foresight
j Strategic
I Planning
Annual Performance Report
Program Evaluations
Performance Progress Reviews
• EPA Annual Plan and Budget
Annual Planning
and Budgeting
k
Assessment
and Reporting
(Accountability)
/
Agency Priority Goal Action
Plans
Operations
and Execution /
National Program
Manager Guidance
Regional Performance
Commitments/Annual
ConimitmentSystem (ACS)
EPA and State/Tribal
Grant Work Plans
The Agency also develops Data Quality Records (DQRs) to present validation or verification information for
selected performance measures and information systems, consistent with guidelines from 0MB. The DQR
documents the management controls, responsibilities, quality procedures, and other metadata associated
with the data lifecycle for individual performance measures, and is intended to enhance the transparency,
objectivity, and usefulness of the performance results.
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FINANCIAL ANALYSIS AND STEWARDSHIP
INFORMATION
Sound Financial Management: Good for the Environment^ Good for the Nation
The financial management overview below highlights some of the EPA's most significant financial
achievements carried out during the Agency's efforts to execute its mission to protect human health and
the environment during FY 2017:
• DATA Act In FY 2017, the EPA submitted its
first Data Accountability and Transparency Act
(DATA) reporting to the U.S. Treasury's Data
Broker. The DATA Act provides an easier way to
understand how the Federal government spends
taxpayer dollars by setting data standards to
improve the quality of Federal spending data,
and through the creation of a standard data
exchange codifying this information into
readable formats. This report contained
information compiled and reconciled through
the Agency's internal DATA Act Evaluation and
Approval Repository. Use of this repository
ensures the integrity of the Agency's data
associated with the 57 DATA Act reporting
standards provided to Congress through
USASpending.gov on a quarterly basis.
• Payroll Cost Allocation. This fiscal year the
Agency implemented a new Payroll Cost
Allocation (PCA) process linked to the
PeoplePlus 9.2 Enhancement initiative. This
effort improves the efficiency of the Agency's
time and attendance system and cost allocation
process. On October 1, 2017, PCA moved from
PeoplePlus to Compass Financials allowing the
Agency to utilize the cost functionality in the
software, improving financial system
integration.
• IPERA Reporting. The EPA continues to
maintain sustained low improper payment rates
across its principal payment streams. In FY
2017, statistical sampling in the Clean Water
State Revolving Fund (CWSRF) and the Drinking
Water State Revolving Fund (DWSRF) revealed
very low improper payment rates of 0.18% and
0.06%, respectively, which is well below the
statutory threshold of 1.5%. As a result, the
agency plans to request removal of these
programs from OMB's high-risk list. In addition,
the OIG's Improper Payments Elimination and
Recovery Act (IPERA) compliance audit of the
agency's FY 2016 reporting determined EPA was
in full compliance with IPERA. This marked the
fourth consecutive year of compliance for EPA,
and the agency anticipates achieving a fifth year
of compliance in FY 2017.
Financial Leans, The EPA has sustained
operational excellence and maintained a culture
of continuous improvement by completing four
financial Lean events in FY 2017. These events
have helped to reduce and remove waste,
created a more transparent business process for
customers, and streamlined each process in
preparation for financial system enhancement.
The Agency plans to continue streamlining
financial processes to meet its goals of payment
process modernization and to reduce the
financial burden on taxpayers.
Enterprise Risk Management, To continue
strengthening the Agency's approach on
enterprise risk, which is defined as significant
risk to accomplishing the Agency's mission, the
EPA held two "Risk Based" trainings focused on
implementing Enterprise Risk Management and
identifying roles and responsibilities of the
agency's strategic planners and management
integrity advisors. The Agency also established a
risk liaison community designed to strengthen
risk-based decision making, and developed a
risk assessment tool to support senior leaders in
completing key phases of the risk assessment
process.
Agency Financial Statements, For the 18th
consecutive year, the EPA's OIG issued a "clean"
audit opinion, unmodified, in the Agency's
financial statements. This achievement
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underscores EPA's commitment to presenting
reliable and accurate financial data that is
represented fairly in all material aspects.
Data Governance. An intra-agency governing
body was established for the financial data
existing within EPA's IT systems. The primary
function of the body is to provide leadership and
oversight over the review and approval of data
governance strategies and objectives. EPA's data
governance group ensured policies, processes
and procedures aligned to deliver data that is
accurate, consistent, complete, and available to
key stakeholders within the appropriate user
community. This group also manages and
communicates the Agency's data governance
process, and continuously works toward
improving the Agency's financial systems
process.
Travel, This fiscal year, the 01G performed a risk
assessment on the EPA's travel card payments
and purchases. By successfully implementing
internal controls, set forth in guidance from
OMB and the Agency's travel policy, the OIG
stated a "low risk" declaration for erroneous or
illegal travel card purchases and payment.
Financial Condition and Results
Financial statements are formal financial records
that document EPA's activities at the transaction
level, where a "financial event" occurs. A financial
event is any occurrence having financial
consequences to the federal government related
to the receipt of appropriations or other financial
resources; acquisition of goods or services;
payments or collections; recognition of
guarantees, benefits to be provided, and other
potential liabilities; or other reportable financial
activities.
EPA prepares four consolidated statements (a
balance sheet, a statement of net cost, a statement
of changes in net position, and a statement of
custodial activity) and one combined statement,
the Statement of Budgetary Resources. Together,
these statements with their accompanying notes
provide the complete picture of EPA's financial
situation. The complete statements with
accompanying notes, as well as the auditors'
opinion, are available in Section II of this report.
5)
I
%
Key Terms
Assets: What EPA owns and manages.
Liabilities: Amounts EPA owes because of past
transactions or events.
Net position: The difference between EPA's assets
and liabilities.
Net cost of operations: The difference between the
costs incurred by EPA's programs and EPA's
revenues.
The balance sheet displays assets, liabilities, and
net position as of September 30, 2017, and
September 30, 2016. The statement of net cost
shows EPA's gross cost to operate, minus
exchange revenue earned
from its activities. Together, these two
statements provide information about key
components of EPA's financial condition—assets,
liabilities, net position, and net cost of operations.
The balance sheet trend chart depicts the
Agency's financial activity levels since FY 2015.
$18
$16
$14
$12
$10
$8
$6
$4
$2
Balance Sheet Trend
(dollars in billions)
Net Position
Net Cost or
Operations
12015 ¦ 2016
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EPA Resources and Spending
The figure below depicts EPA's aggregate budgetary resources (congressional appropriations and some
agency collections), obligations (authorized commitment of funds), and total outlays (cash payments) for
each of the last five fiscal years. The Statement of Budgetary Resources in Section II provides more
information on the makeup of the Agency's resources.
EPA Financial Trends
(dollars in billions)
2013 2014 2015 2016 2017
Budgetary Resources U Obligations * Total Outlays
Assets—What EPA Owns and Manages
EPA's assets totaled $15.24 billion at the end of FY 2017, a decrease of $154 million from the FY 2016 level.
In FY 2017, approximately 91 percent of EPA's assets fall into two categories: fund balance with Treasury
and investments. All of EPA's investments are backed by U.S. government securities. The graph below
compares the Agency's FY 2017 and FY 2016 assets by major categories.
FY 2017 COMPOSITION OF ASSETS
Accounts Receivable (Net) 3% ^^.Other Assets
Property, Plant,
and Equipment
(Net)
5%
Investments
35%
Fund Balance
with Treasury
56%
Receivable
Investments
FY 2016 COMPOSITION OF ASSETS
Accounts Receivable (Net) 3%
Fund Balance
with Treasury
54%
Property, Plant*
and
(Net)
7%
35%
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Liabilities—What EPA Owes
EPA's liabilities were $4,73 billion at the end of FY 2017, an increase of $26 million from the FY 2016 level.
In FY 2017, EPA's largest liability (74 percent) was Superfund cashout advances that the Agency uses to
pay for cleanup of contaminated sites under the Superfund program. Additional categories include payroll
and benefits payable, salaries, pensions and other actuarial liabilities, EPA's debt due to Treasury, custodial
liabilities that are necessary to maintain assets for which EPA serves as custodian, environmental cleanup
costs, and other miscellaneous liabilities. The graphs compare FY 2017 and FY 2016 liabilities by major
categories.
FY 2017 COMPOSITION OF LIABILITIES
FY 2016 COMPOSITION OF LIABILITIES
Payroll and Benefits
5%
Other
Accounts Payable
and Accrued
Liabilities
13%
Cashout Advances, Superfunt
74%
Payroll and Benefits
5%
Other
Accounts Payable
and Accr ued
Liabilities
13%
Cashout Advances, Supe
69%
Net Cost of Operations—How EPA Used Its Funds
The graph that follows show how EPA's funds are expended among its five program goal areas in FY 2017
and FY 2016.
FY 2017 NET COST BY GOAL
ntal
Compliance & Environm
Stewardship
8%
Healthy
Communities
Ecosystems
9%
Land
Preservation &J
Restoration
22%
Clean & Safe
Water
48%
Communities
FY 2016 NET COST BY GOAL
Compliance & En vironmental
Stewardship
6%
Healthy
& Ecosystems
7%
Land
Preservation &
Restoration
23%
Clean & Safe
Water
52%
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Stewardship Funds
EPA serves as a steward on behalf of the American people. The chart below presents four categories of
stewardship: land, research and development, infrastructure, and human capital. In FY 2017, EPA devoted
a total of $3.5 billion to its stewardship activities.
FY 2016 STEWARDSHIP
Infrastructure
81%
FY 2017 STEWARDSHIP
Land
Research & / q%
18%
Development
Infrastructure
Human
Capital
1%
Research &
Per the Federal Accounting Standards Advisory Board (FASAB), stewardship investments consist of
expenditures made by the Agency for the long-term benefit of the nation that do not result in the federal
government acquiring tangible assets.
• The largest infrastructure programs are the CWSRF and DWSRF programs that provide grant funds
to states for the construction of wastewater and drinking water treatment facilities. States lend the
majority of these funds to localities or utilities to fund the construction and or upgrade of facilities
(some may also be used for loan forgiveness or given as grants). Loan repayments then revolve at
the State level to fund future water infrastructure projects. EPA's budget included nearly $2.3
billion in FY 2017 appropriated funds for states' use. In addition, states lent billions of dollars from
funds they received as repayments from previous State Revolving Fund (SRF) loans. These funds
provide assistance to public drinking water and wastewater systems for the enhancement of water
infrastructure, allowing for cleaner waterbodies and crucial access to safer drinking water for
millions of people.
• Research and development activities enable EPA to identify and assess important risks to human
health and the environment. This critical research investment provides the basis for EPA's
regulatory work, including regulations to protect children's health and at-risk communities,
drinking water, and the nation's ecosystems.
• Land includes contaminated sites to which EPA acquires title under the Superfund authority. This
land needs remediation and cleanup because its quality is well below any usable and manageable
standards. To gain access to contaminated sites, EPA acquires easements that are in good and
usable condition. These easements also serve to isolate the site and restrict usage while the cleanup
is taking place.
A detailed discussion of this information is available in Section III of this report, under the Required
Supplementary Stewardship Information.
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Financial Management for the Future
During times of environmental challenges, sound stewardship of the EPA's financial resources continues to
be critical to the Agency's ability to protect the environment and human health locally, nationally, and
internationally. Reliable, accurate, and timely financial information is essential to ensure cost-effective
decisions for addressing land, water, air and ecosystem issues. To strengthen the EPA's financial
stewardship capabilities, the Agency focuses on the fundamental elements of financial management: people
and systems.
People: EPA leverages every available tool to recruit the best people with the necessary skills to meet
tomorrow's financial challenges. Staff members are trained in financial analysis and forecasting to
understand financial data and what it means. EPA is integrating financial information into everyday
decision-making so that it maximizes the use of its resources.
Systems: In FY 2017, the EPA continued using a component-based approach to managing its financial
systems. The system, called Compass, is based on a commercial-off-the-shelf software solution that
addresses the Agency's most critical business needs. Compass has improved the EPA's financial
stewardship by strengthening accountability, data integrity, and internal controls, on the following
business areas:
• General ledger
• Accounts payable
• Accounts receivable
• Property
• Project cost
• Intra-governmental transactions
• Budget execution
Compass provides core budget execution and accounting functions and facilitates more efficient
transaction processing. The system posts updates to ledgers and tables as transactions are processed and
generates source data for the preparation of financial statements and budgetary reports. Compass is
integrated with 15 agency systems that support diverse functions, such as budget planning, execution, and
tracking; recovery of Superfund site-specific cleanup costs; property inventory; Agency travel; payroll;
document and payment tracking; and research planning. Compass is a Web-based, open architecture
application managed at the CGI Federal Phoenix Data Center, a certified shared service provider in
compliance with the Financial Management Line of Business.
The EPA's financial systems modernization strategy builds on Compass and the previous migration to a
Human Resources shared service provider through the implementation of additional components, subject
to future review by 0MB:
• Budget formulation
• Digital Accountability and Transparency Act of 2014 implementation
• Time and attendance system modernization/activating Compass' payroll cost allocation component
• Superfund imaging and cost accounting
• Payment systems, such as for travel, purchase card, and grant payments
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The Agency continues to use an agile approach to develop, test, and refine Budget Formulation System
modules, including performance and document preparation. The EPA is building partnerships with other
agencies to expand use of the Budget Formulation System. The Agency is continuing to work on
strengthening its financial data/reporting, particularly in its efforts to implement DATA Act requirements.
Limitations of the Principal Financial Statements
The EPA prepared the principal financial statements to report the financial position and results of its
operations of the reporting entity, pursuant to the requirements of 31 U.S.C. 3515 (b). The EPA has
prepared the statements from the books and records of the entity in accordance with federal generally
accepted accounting principles and the formats prescribed by OMB. Reports used to monitor and control
budgetary resources are prepared from the same books and records. The financial statements should be
read with the realization that they are for a component of the U.S. government.
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IMPROVING MANAGEMENT AND RESULTS
Office of Inspector General Audits, Evaluations, and Investigations
OIG contributes to the EPA's mission to improve human health and environmental protection by assessing
the efficiency and effectiveness of the Agency's program management and results. OIG ensures that Agency
resources are used as intended, develops recommendations for improvements and cost savings, and
provides oversight and advisory assistance in helping EPA carry out its objectives. The OIG detects and
prevents fraud, waste and abuse to help the Agency protect human health and the environment more
efficiently and cost effectively. The OIG performs its mission through independent oversight of the
programs and operations of the EPA. OIG also contributes to the oversight integrity of and public
confidence in the Agency's programs and to the security of its resources by preventing and detecting
possible fraud, waste, and abuse and pursuing judicial and administrative remedies.
In FY 2017, OIG identified key management challenges and internal control weaknesses. OIG audits,
evaluations, and investigations resulted in:
• 335 recommendations accounting for over $847 million in potential savings and recoveries;
• 208 actions taken by the Agency for improvement from OIG recommendations; and
• 298 criminal, civil, or administrative enforcement actions.
Grants Management
EPA has two major grants management metrics, one for grant competition, the other for grants closeout.
For FY 2017, the Agency exceeded the grant competition metric by 6%, and was just 1% shy of the 99%
grant closeout target.
Grants Management Performance Measures for EPA
Performance Measure
Target
Progress in FY 2017
Progress in FY 2016
Percentage of eligible grants
closed out
90%*
88.2% of grants that expired in
2016
90.6% of grants that expired in
2015
99%**
98% of grants that expired in
2015 and earlier
99.3% of grants that expired in
2014 and earlier
Percentage of new grants
subject to the competition
policy that are competed***
90%
96%
96%
*Percentage of open grants that expired in 2016 that were closed in performance year.
**Percentage of open grants that expired in 2015 and earlier that were closed in performance year.
***The Environmental Protection Agency Policy for Competition of Assistance Agreements establishes requirements
for the competition of assistance agreements (grants, cooperative agreements, and fellowships) to the maximum
extent practicable.
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ACCOUNTABILITY: SYSTEMS, CONTROLS, AND
I FGAl COMPLIANCE
Federal Managers' Financial Integrity Act (FMFIA)
FMFIA requires agencies to conduct annual
evaluations of their internal controls over
programs and financial systems and report the
results to the President and Congress. In addition,
agencies are required to report on the
effectiveness of internal controls over financial
reporting, which includes safeguarding of assets
and compliance with applicable laws and
regulations in accordance with the requirements
of OMB Circular A-123, Appendix A.
Each year, the EPA's national program and
regional offices conduct assessments and submit
annual assurance letters attesting to the
soundness of the internal controls within their
organizations. These assurance letters provide
the basis for the Administrator's annual
statement of assurance on the adequacy of the
EPA's internal controls over programmatic
operations and financial systems.
In FY 2017, the EPA identified no material
weaknesses related to effective and efficient
operations. The Agency continues to address
material weaknesses identified in previous years
and expects to complete corrective actions for all
of the material weaknesses within FY 2018.
Section III of this report provides details about
the Agency's corrective actions underway to
address these previously identified material
weaknesses. The EPA continues to emphasize the
importance of maintaining effective internal
controls.
Internal Controls over Financial Reporting
To evaluate its internal controls over financial
reporting (as required by OMB Circular A-123,
Appendix A), the Agency evaluated 435 key
controls that span across eight financial
processes (including general IT controls). Based
on this evaluation, no material weaknesses were
identified. Subsequent to the Agency's review, the
EPA's OIG identified no new material weaknesses
during the FY 2017 financial statement audit.
Internal Controls over Financial Management
Systems
The Federal Financial Management Improvement
Act requires agencies to ensure that financial
management systems consistently provide
reliable data that comply with government-wide
principles, standards, and requirements. Based
on the Agency's evaluation of its financial
management systems, no material weaknesses
were identified. The assessment included a
review of the Agency's core financial system,
Compass Financials, as well as those considered
as financially related or mixed systems that
support or interface with the core financial
system. The EPA has determined that its financial
management systems substantially comply with
FFMIA requirements.
Based on the results of the Agency's and OIG's FY
2017 evaluations, the Administrator can provide
reasonable assurance on the adequacy and
effectiveness of EPA's internal controls and
financial systems.
18
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Fiscal Year 2017 Annual Assurance Statement
The U.S. Environmental Protection Agency's management is responsible for establishing and maintaining
effective internal control and financial management systems that meet the objectives of the Federal
Managers' Financial Integrity Act.
In accordance with Section 2 of FMFIA and the Office of Management and Budget Circular A-123,
Management's Responsibility for Enterprise Risk Management and Internal Control, the Agency assessed its
internal control over the effectiveness and efficiency of operations and compliance with applicable laws
and regulations. Section 4 of FMFIA and the Federal Financial Management Improvement Act of 1996
requires management to ensure financial management systems provide reliable, consistent disclosure of
financial data. In accordance with Appendix D of 0MB Circular A-123, the Agency evaluated whether
financial management systems substantially comply with FMFIA requirements. Additionally, in accordance
with Appendix A of 0MB Circular A-123, the Agency conducted an assessment of the effectiveness of its
internal control over financial reporting.
The EPA did not identify any new material weaknesses during FY 2017. The Agency continues to address
previously identified material weaknesses and expects to complete corrective actions for all of the material
weaknesses within FY 2018.
Based on the results of the EPA's assessments, I can provide reasonable assurance that the Agency's
internal control over programmatic operations was operating effectively and financial management
systems conform to government-wide standards as of September 30, 2017. The Agency's internal control
over financial reporting was operating effectively.
NOV 07 ?¦!•./
I Sw.-u l*iliits
Administrati*
Dale
19
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Management Assurances
The EPA did not identify any new material weaknesses for FY 2017. However, the Agency continues to
address material weaknesses identified in and previous years. The agency expects to complete corrective
actions for these weaknesses within FY 2018. Section III of this report provides details about the Agency's
corrective actions underway to address a previously identified material weakness, and a number of other
less severe deficiencies. The EPA will continue monitoring progress toward correcting these issues. The
EPA continues to emphasize the importance of maintaining effective internal controls.
Federal Financial Management Improvement Act (FFMIA)
FFMIA requires that agencies implement and maintain financial management systems that comply with 1)
federal financial management system requirements, 2) applicable federal accounting standards, and 3) the
U.S. Standard General Ledger (USSGL). Annually, Agency heads are required to assess and report on
whether these systems comply with FFMIA.
The EPA's FY 2017 assessment included the following:
• A-123 review found no significant deficiencies.
• The Agency continues to address a material weakness related to undercapitalized software,
identified by the Agency and addressed in the OIG's FY 2014 financial statement audit. The Agency
expects to complete all corrective actions for this material weakness within FY 2018.
• The Agency's annual Federal Information Security Modernization Act Report did not disclose any
material weaknesses.
• The Agency conducted other systems-related activities, including:
o Third-party control assessments
o Network scanning for vulnerabilities
o Annual certification for access to the Agency's accounting system
Based on the assessment described above, the agency is in compliance with the FFMIA for FY 2017.
20
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SECTION II - FINANCIAL SECTION
21
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EPA'S FISCAL 2017 AND 2016
CONSOLIDATED FINANCIAL STATEMENTS
22
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EPA's Fiscal 2017 and 2016
Consolidated Financial Statements
Financial Section
-------
Table of Contents
Principal Financial Statements 26
CONSOLIDATED BALANCE SHEET 26
CONSOLIDATED STATEMENT 01 NET COST 27
CONSOLIDATED STATEMENT OF NET COST BY MAJOR PROGRAM 28
CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION 29
COMBINED STATEMENT OF BUDGETARY RESOURCES 31
STATEMENT 01 CUSTODIAL ACTIVITY 32
Notes to the Financial Statements 33
Note 1. Summary of Significant Accounting Policies 33
Note 2. Fund Balance with Treasury (FBWT) 41
Note 3. Cash and Other Monetary Assets 42
Note 4. Investments 42
Note 5. Accounts Receivable, Net 43
Note 6. Other Assets 43
Note 7. Loans Receivable, Net 43
Note 8. Accounts Payable and Accrued Liabilities 45
Note 9. General Property, Plant, and Equipment, Net 45
Note 10. Debt Due to Treasury 46
Note 11. Stewardship Property Plant & Equipment 46
Note 12. Custodial Liability 46
Note 13. Other Liabilities 47
Note 14. Leases 48
Note 15. FECA Actuarial Liabilities 50
Note 16. Cashout Advances, Superfund 50
Note 17. Commitments and Contingencies 50
Note 18. Fund from Dedicated Collections (Unaudited) 52
Note 19. Intragovernmental Costs and Exchange Revenue 56
Note 20. Cost of Stewardship Land 56
Note 21. Environmental Cleanup Costs 57
Note 22. State Credits 58
Note 23. Preauthorized Mixed Funding Agreements 58
Note 24. Custodial Revenues and Accounts Receivable 58
Note 25. Reconciliation of President's Budget to the Statement of Budgetary Resources 60
Note 26. Recoveries and Resources Not Available, Statement of Budgetary Resources 60
Note 27. Unobligated Balances Available 60
24
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Note 28. Undelivered Orders at the End of the Period 61
Note 29. Offsetting Receipts 61
Note 30. Transfers-In and Out, Statement of Changes in Net Position 61
Note 31. Imputed Financing 62
Note 32. Payroll and Benefits Payable 63
Note 33. Other Adjustments, Statement of Changes in Net Position 63
Note 34. Non-Exchange Revenue, Statement of Changes in Net Position 63
Note 35. Reconciliation of Net Cost of Operations to Budget 64
Note 36. Amounts Held by Treasury (Unaudited) 65
Note 37. Miscellaneous Receipts Violation, Anti-Deficiency Act Violations and Potential Anti-Deficiency
Act Violations 68
Note 38. Other Information 69
Required Supplementary Information (Unaudited) 70
Deferred Maintenance 70
Stewardship Land 73
Supplemental Combined Statement of Budgetary Resources 74
Required Supplemental Stewardshiplnformation (Unaudited) 75
Investment in The Nation's Research and Development: 75
Investment in The Nation's Infrastructure: 76
Human Capital 77
25
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Principal Financial Statements
United States Environmental Protection Agency
CONSOLIDATED BALANCE SHEET
As of September 30, 2017, and 2016
(Dollars in Thousands)
FY 2017
FY 2016
Assets:
Intragovernmental:
Fund Balance with Treasury (Note 2) $
8,464,107
$
8,341,156
Investments (Note 4)
5,326,013
5,308,734
Accounts Receivable, Net (Note 5)
17,804
7,210
Other (Note 6)
200,822
206,693
Total Intragovernmental
14,008,746
13,863,793
Cash and Other Monetary Assets (Note 3)
10
10
Accounts Receivable, Net (Note 5)
508,171
486,814
Property, Plant & Equipment, Net (Note 9)
719,488
1,041,200
Other (Note 6)
8,241
7,074
Total Assets $
15,244,656
$
15,398,891
Stewardship PP& E (Note 11)
Liabilities:
Intragovernmental:
Accounts Payable and Accrued Liabilities (Note 8) $
97,035
$
73,891
Debt Due to Treasury (Note 10)
-
-
Custodial Liability (Note 12)
22,548
42,579
Other (Notes 13)
134,983
82,412
Total Intragovernmental
254,566
198,882
Accounts Payable & Accrued Liabilities (Note 8)
523,713
521,056
Pensions & Other Actuarial Liabilities (Note 15)
45,245
45,037
Environmental Cleanup Costs (Note 21)
39,544
36,103
Cash-out Advances, Superfund (Note 16)
3,514,426
3,264,224
Commitments & Contingencies (Note 17)
-
-
Payroll & Benefits Payable (Note 32)
205,632
210,797
Other (Note 13)
145,328
425,621
Total Liabilities $
4,728,454
$
4,701,720
Net Position:
Unexpended Appropriations - Funds from Dedicated Collections (Note 18)
3,697
4,080
Unexpended Appropriations - Other Funds
7,302,077
7,263,400
Cumulative Results of Operations - Funds from Dedicated Collections (Note 18)
2,638,364
2,577,360
Cumulative Results of Operations - Other Funds
572,065
852,331
Total Net Position
10,516,203
10,697,171
Total Liabilities and Net Position $
15,244,656
$
15,398,891
The accompanying notes are an integral part of these statements.
26
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United States Environmental Protection Agency
CONSOLIDATED STATEMENT OF NET COST
For the Fiscal Years Ended September 30, 2017 and 2016
(Dollars in Thousands)
FY 2017 FY 2016
Costs:
Gross Costs (Note 19) $ 9,024,232 $ 9,176,572
Less:
Earned Revenue (Note 19) 532,663 448,388
Net cost of operations (notes 25 and 35) $ 8,491,569 $ 8,728,184
The accompanying notes are an integral part of these statements.
27
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United States Environmental Protection Agency
CONSOLIDATED STATEMENT OF NET COST BY MAJOR PROGRAM
For the Fiscal Years Ended September 30, 2017
(Dollars in Thousands)
Environ.
Programs
& Mgmt.
Leaking
Underground
Storage Science &
Tanks Technology Superfund
State and
Tribal
Assistance
Agreements
Other
Consolidated
Totals
Costs:
Intragovernmental
WCF Eliminations
With the Public
$ 924,012
2,093,973
4,437 200,358 275,695
85,996 612,169 1,219,020
54,159
3,395,913
112,492
(211,512)
257,520
1,571,153
(211,512)
7,664,591
Total Costs
$ 3,017,985
90,433 812,527 1,494,715
3,450,072
158,500
9,024,232
Less:
Earned Revenue, Federal
WCF Eliminations
Earned Revenue, non-Federal
$ 40,400
10,275
7,356 26,733
1,274 389,103
-
231,229
(211,290)
37,583
305,718
(211,290)
438,235
Total Earned Revenue
(Notel9)
50,675
8,630 415,836
57,522
532,663
Net Cost of Operations
S 2,967,310
90,433 803,897 1,078,879
3,450,072
100,978
8,491,569
The accompanying notes are an integral part of these statements.
United States Environmental Protection Agency
CONSOLIDATED STATEMENT OF NET COST BY MAJOR PROGRAM
For the Fiscal Year Ended September 30, 2016
(Dollars in Thousands)
Environ.
Programs
& Mgmt.
Leaking
Underground
Storage Science &
Tanks Technology Superfund
State and
Tribal
Assistance
Agreements
Other
Consolidated
Totals
Costs:
Intragovernmental
With the Public
$ 942,545
1,764,864
4,820 195,740 65,405
95,761 596,663 1,147,693
57,263
3,927,269
65,317
313,132
1,331,090
7,845,482
Total Costs
$ 2,707,409
100,581 792,403 1,213,098
3,984,632
378,449
9,176,572
Less:
Earned Revenue, Federal
Earned Revenue, non-Federal
$ 29,960
1,575
7,217 43,894
1,084 302,087
-
22,933
39,638
104,004
344,384
Total Earned Revenue
(Notel9)
31,535
8,301 345,981
62,571
448,388
Net Cost of Operations
S 2,675,874
100,581 784,102 867,117
3,984,632
315,878
8,728,184
The accompanying notes are an integral part of these statements.
28
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United States Environmental Protection Agency
CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION
For the Fiscal Years Ended September 30, 2017
(Dollars
in Thousands)
FY 2017
Funds from
FY 2017
FY 2017
Dedicated
All Other
Consolidated
Collections
Funds
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
$
2,577,361
$
852,331
$
3,429,692
Beginning Balances, as Adjusted
2,577,361
852,331
3,429,692
Budgetary Financing Sources:
Appropriations Used
2,991
7,945,939
7,948,930
Non-exchange Revenue - Securities Invest. (Note 34)
47,445
-
47,445
Non-exchange Revenue - Other (Note 34)
246,289
-
246,289
Transfers In/Out (Note 30)
(13,211)
24,041
10,830
Trust Fund Appropriations
953,850
(1,038,131)
(84,281)
Total Budgetary Financing Sources
1,237,364
6,931,849
8,169,213
Other Financing Sources (Non-Exchange):
Imputed Financing Sources (Note 31)
13,425
89,669
103,094
Total Other Financing Sources
13,425
89,668
103,094
Net Cost of Operations
(1,189,785)
(7,301,784)
(8,491,569)
Net Change
61,004
(280,266)
(219,262)
Cumulative Results of Operations
$
2,638,364
$
572,065
$
3,210,429
FY 2017
Funds from
FY 2017
FY 2017
Dedicated
All Other
Consolidated
Collections
Funds
Total
Unexpended Appropriations:
Net Position - Beginning of Period
$
4,080
$
7,263,400
$
7,267,480
Beginning Balances, as Adjusted
4,080
7,263,400
7,267,480
Budgetary Financing Sources:
Appropriations Received
3,178
8,107,870
8,111,048
Other Adjustments (Note 33)
(570)
(123,254)
(123,824)
Appropriations Used
(2,991)
(7,945,939)
(7,948,930)
Total Budgetary Financing Sources
(383)
38,677
38,294
Total Unexpended Appropriations
3,697
7,302,077
7,305,774
Total Net Position
$
2,642,061
$
7,834,599
$
10,516,203
The accompanying notes are an integral part of these statements.
29
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United States Environmental Protection Agency
CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION
For the Fiscal Year Ended September 30, 2016
(Dollars in Thousands)
FY 2016 Funds
from Dedicated
Collections
FY 2016
All Other
Funds
FY 2016
Consolidated
Total
Cumulative Results of Operations:
Net Position - Beginning of Period
Beginning Balances, as Adjusted
$
2,776,112
2,776,112
$
783,828
783,828
$
3,559,940
3,559,940
Budgetary Financing Sources:
Appropriations Used
Non-exchange Revenue - Securities Invest. (Note 34)
Non-exchange Revenue - Other (Note 34)
Transfers In/Out (Note 30)
Trust Fund Appropriations
Total Budgetary Financing Sources
1,807
38,303
231,305
(9,600)
711,684
973,499
8,263,715
28,789
(811,684)
7,480,820
8,265,522
38,303
231,305
19,189
(100,000)
8,454,319
Other Financing Sources (Non-Exchange)
Transfers In/Out (Note 30)
Imputed Financing Sources (Note 31)
23,954
119,663
143,617
Total Other Financing Sources
23,954
119,663
143,617
Net Cost of Operations
(1,196,204)
(7,531,980)
(8,728,184)
Net Change
(198,751)
68,503
(130,248)
Cumulative Results of Operations
$
2,577,361
$
852,331
$
3,429,692
FY 2016 Funds
from Dedicated
Collections
FY 2016
All Other
Funds
FY 2016
Consolidated
Total
Unexpended Appropriations:
Net Position - Beginning of Period
$
16,579
$
7,783,251
$
7,799,830
Beginning Balances, as Adjusted
16,579
7,783,251
7,799,830
Budgetary Financing Sources:
Appropriations Received
Appropriations Transferred In/Out (Note 30)
Other Adjustments (Note 33)
Appropriations Used
3,674
(13,294)
(1,072)
(1,807)
7,783,578
12,716
(52,429)
(8,263,716)
7,787,252
(577)
(53,501)
(8,265,522)
Total Budgetary Financing Sources
(12,499)
(519,851)
(532,350)
Total Unexpended Appropriations
4,080
7,263,400
7,267,482
Total Net Position
$
2,581,442
$
8,115,732
$
10,697,174
The accompanying notes are an integral part of these statements.
30
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United States Environmental Protection Agency
COMBINED STATEMENT OF BUDGETARY RESOURCES
For the Fiscal Year Ended September 30, 2017 and 2016
(Dollars in Thousands)
FY 2017
FY 2016
BUDGETARY RESOURCES
Unobligated balance, brought forward, October 1:
$ 4,242,051 $
4,350,630
Adjustment to Un-Obligation Balance (Allocation Transfer Agencies)
21,150
961
Unobligated Balance Brought Forward, October 1, as adjusted
4,263,201
4,351,591
Recoveries of prior year unpaid obligations (Note 26)
330,486
234,361
Other changes in unobligated balance
(42,261)
(13,622)
Unobligated balance from prior year budget authority, net
4,551,426
4,572,330
Appropriations (discretionary and mandatory)
9,370,266
9,096,422
Spending Authority from offsetting collection (discretionary and mandatory)
680,152
610,181
Total Budgetary Resources
$ 14,601,844 $
14,278,933
STATUS OF BUDGETARY RESOURCES
New obligations and upward adjustments (total)
$ 10,354,618 $
10,036,882
Unobligated Balance, end of year:
Apportioned
4,152,585
4,086,727
Unapportioned
1,992
36,008
Total Unobligated balance, end of period (Note 27)
4,154,577
4,122,735
Expired unobligated balance, end of year
92,649
119,316
Total Status of Budgetary Resources
$ 14,601,844 $
14,278,933
CHANGE IN OBLIGATED BALANCE
Unpaid Obligations:
Unpaid obligations, brought forward, October 1 (gross)
$ 8,694,969 $
9,104,831
Obligations incurred, net
10,354,618
10,036,882
Outlays (gross)
(9,916,836)
(10,212,494)
Recoveries of prior year unpaid obligations
(330,486)
(234,361)
Unpaid obligations, end of year (gross)
$ 8,802,265 $
8,694,858
Uncollected Payments
Uncollected customer payments from Federal Sources, brought forward, October 1)
(248,640)
(235,529)
Change in uncollected customer payments from federal sources
(56,729)
(13,111)
Uncollected customer payments from Federal Sources, end of year
(305,369)
(248,640)
Memorandum entries:
Obligated balance, start of year
$ 8,446,218 $
8,869,302
Obligated balance, end of year (net)
$ 8,496,895 $
8,446,218
BUDGET AUTHORITY AND OUTLAYS, NET:
Budget authority, gross (discretionary and mandatory)
$ 10,050,418 $
9,706,603
Actual offsetting collections (discretionary and mandatory)
(644,573)
(597,070)
Change in uncollected customer payments from Federal sources (discretionary and mandatory) (56,729)
(13,111)
Budget Authority, net (discretionary and mandatory)
$ 9,349,116 $
9,096,422
Outlays, gross (discretionary and mandatory)
$ 9,916,836 $
10,212,494
Actual offsetting collections (discretionary and mandatory)
(644,573)
(597,070)
Outlays, net (discretionary and mandatory)
9,272,263
9,615,424
Distributed offsetting receipts (Note 29)
(1,109,453)
(886,453)
Agency outlays, net (discretionary and mandatory)
$ 8,162,810 $
8,728,971
The accompanying notes are an integral part of these statements.
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United States Environmental Protection Agency
STATEMENT OF CUSTODIAL ACTIVITY
For the Fiscal Year Ended September 30, 2017 and 2016
(Dollars in Thousands)
Revenue Activity:
Sources of Cash Collections:
Fines and Penalties
Other
Total Cash Collections
Accrual Adjustment
Total Custodial Revenue (Note 24)
FY 2017 FY 2016
$ 1,571,258 $ 95,473
29,301 (4,333)
1,600,559 91,140
(19,545) 7,786
1,581,014 98,926
Disposition of Collections:
Transferred to Others (General Fund)
Increases/Decreases in Amounts Yet to be Transferred
Total Disposition of Collections
Net Custodial Revenue Activity
1,600,593
(19,579)
1,581,014
91,140
7,786
98,926
The accompanying notes are an integral part of these statements.
32
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Environmental Protection Agency
Notes to the Financial Statements
Fiscal Year Ended September 30, 2017 and September 30, 2016
(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 2017 financial statements are presented on a consolidated basis for the Balance Sheet, Statement of
Net Cost, Statement of Net Costs by Major Program, Statement of Changes in Net Position, Statement of
Custodial Activity and a combined basis 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 (the 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-13 6, Financial Reporting Requirements, and the EPA
accounting policies, which are summarized in this note.
C. Budgets and Budgetary Accounting
I. General Funds
Congress enacts 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 for the respective appropriations.
As the Agency disburses obligated amounts, the balance of funds available in the appropriation is reduced at
the U.S. Treasury (Treasury).
The EPA provided support for hurricane and wildfire relief via reimbursable agreements with other federal
agencies. As of September 30, 2017, reimbursable agreements for Hurricane's Harvey, Irma, Maria, and
Nate totaled $75.4 million. Reimbursable agreements for wildfire response totaled $51.0 million. These
transactions are recorded in the Environmental Programs and Management appropriation.
The EPA has one 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.
33
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The Water Infrastructure Finance and Innovation Act of 2014 (WIFIA) established a Federal credit program
administered by the EPA for eligible water and wastewater infrastructure projects. The program is financed
from appropriations to cover the estimated long-term cost of the loan. The long-term cost of the loans are
defined as the net present value of the estimated cash flows associated with the loans. A permanent indefinite
appropriation is available to finance the costs of re-estimated loans that occur in subsequent years after the
loans were disbursed. The Agency received a two-year appropriation in fiscal year 2017 to finance the
administration and subsidy portions of the program. As of September 30, 2017, no loan amounts have been
obligated or disbursed.
Funds transferred from other federal agencies are processed as non-expenditure transfers. 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.
II. 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, continuity of operations, and postage.
The Natural Resource Damages Trust Fund (NRDA) was established for funds received for critical damage
assessments and restoration of natural resources injured as a result of the Deepwater Horizon oil spill.
III. Special Funds
The Environmental Services Receipts Account Fund obtains fees associated with environmental programs.
IV. Deposit Funds
Deposit accounts receive no appropriated funds. Amounts are recorded to the deposit accounts pending
further disposition. Until a determination is made, these are not the EPA's funds. The amounts are reported
to the US Treasury through the Government-Wide Treasury Account Symbol Adjusted Trial Balance System
V. Trust Funds
Congress enacts an annual appropriation for the Superfund, Leaking Underground Storage Tank (LUST) and
the Inland Oil Spill Programs accounts to remain available until expended. Transfer accounts for the
Superfund and LUST Trust Funds have 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 Funds held 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 enacts the Inland Oil Spill Programs appropriation amount to the EPA's Inland Oil Spill Programs
account.
In 2015, the EPA established a receipt account for Superfund special account collections. Special accounts
are comprised of reimbursements from other federal agencies, state cost share payments under Superfund
State Contracts (SSCs), and settlement proceeds from Potentially Responsible Parties (PRPs) under
34
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Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Section 122(b)(3).
This allows the Agency to invest the funds until draw down is needed for special accounts disbursements.
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 a budgetary basis. 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 OMB directives and the U.S. 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 the 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."
I. Superfund
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 PRPs under
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Section 122(b)(3)
which are placed into Special Accounts. Special Accounts and corresponding interest are classified as
mandatory appropriations due to the 'retain and use' authority under CERCLA 122(b) (3). Cost recovery
settlements that are not placed in special accounts are deposited in the Superfund Trust Fund.
II. Other Funds
Funds under the Federal 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 WIFIA program receives additional funding to support the awarding, servicing and
collections of loans and loan guarantees through application fees collected in the program fund. WIFIA
authorizes the EPA to charge fees to recover all or a portion of the Agency's cost of providing credit
assistance and the costs of retaining expert firms, including financial engineering, and legal services, to assist
in the underwriting and servicing of Federal credit instruments. The fees are to cover costs to the extent not
covered by congressional appropriations.
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 services provided from the Agency
program offices. Such revenue is eliminated with related Agency program expenses upon consolidation of
the Agency's financial statements.
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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 U.S. Government Securities
Investments in U.S. 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).
J. Accounts Receivable and Interest Receivable
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 also records allocations receivable from the Superfund Trust Fund, which are eliminated in the
consolidated totals.
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.
The majority of remaining receivables for non-Superfund funds represent penalties and interest receivable
for general fund receipt accounts, unbilled intragovernmental reimbursements receivable, and refunds
receivable for the STAG appropriation.
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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. 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.
M. Property, Plant, and Equipment
The 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 contractor-held 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 includes 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 $150 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 cash flows 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 the 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. 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. In FY 2017,
the EPA increased the capitalization threshold for real property, other than land, to $150 thousand from $85
thousand for buildings and improvements and $25 thousand for plumbing, heating, and sanitation projects.
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The new threshold will be applied prospectively. 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 50 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.
Internal use software includes purchased commercial off-the-shelf software, contractor-developed software,
and software that was internally developed by Agency employees. In FY 2017, the EPA reviewed its
capitalization threshold levels for PP&E. The Agency performed an analysis of the values of software assets,
reviewed capitalization of other federal entities, and evaluated the materiality of software account
balances. Based on the review, the Agency increased the capitalization threshold from $250 thousand to $5
million to better align with major software acquisition investments. The $5 million threshold will be applied
prospectively to software acquisitions and modifications/enhancements placed into service after September
30, 2016. Software assets placed into service prior to October 1, 2016 were capitalized at the $250 thousand
threshold. Internal use software is capitalized at full cost (direct and indirect) and amortized using the
straight-line method over its useful life, not exceeding five years.
Internal use software purchased or developed for the working capital fund is capitalized at $250 thousand
and is amortized using the straight-line method over its useful life, not exceeding 5 years
N. 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.
O. Borrowing Payable to the Treasury
Borrowing payable to Treasury results from loans from Treasury to fund the WIFIA direct loans. Periodic
principal payments are made to Treasury based on the collections of loans receivable. As of September 30,
2017, no loans have been disbursed.
P. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Annual leave earned but not taken at
the end of the fiscal year is accrued as an unfunded liability. Accrued unfunded annual leave is included in
the Balance Sheet as a component of "Payroll and Benefits Payable." Sick leave earned but not taken is not
accrued as a liability. It is expensed as it is used.
Q. 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, 1987, the Federal Employees
Retirement System (FERS) went into effect pursuant to Public Law 99-335. Most employees hired after
December 31, 1986, are automatically covered by FERS and Social Security. Employees hired prior to
January 1, 1987, elected to either join FERS and Social Security or remain in CSRS. A primary feature of
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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.
R. Prior Period Adjustments
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.
S. 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. On September 10, 2012, the President designated the EPA and United
States Department of Agriculture as additional trustees for the Natural Resource Damage and Assessment
Council for restoration solely 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
2016, the EPA received an advance of $184 thousand from BP and $2 million from the U.S. Coast Guard, to
participate in addressing injured natural resources and service resulting from the Deepwater Horizon Oil
Spill. In FY2017, the EPA returned the reminder of the fund amount of $440 thousand.
T. Hurricane Sandy
On January 29, 2013, President Obama signed into law the Disaster Relief Appropriations Act (Disaster
Relief Act) which provided aid for Hurricane Sandy disaster victims and their communities. Because relief
funding of this magnitude often carries additional risk, the Disaster Relief Act required federal agencies
supporting Sandy recovery and other disaster-related activities to write and implement and Internal Control
Plan to prevent waste, fraud and abuse of these funds. The EPA Hurricane Sandy Internal Control Plan was
reviewed and approved by OMB, GAO and the IG in FY 2013.
The EPA received a post sequestration appropriation of $577 million in Hurricane Sandy funds for the
following programs (all amounts are post sequestration):
a) The Clean Water State Revolving Fund received $475 million for work on clean water infrastructure
projects in New York and New Jersey.
b) The Drinking Water State Revolving Fund received $95 million for work on drinking water
infrastructure projects in New York and New Jersey.
c) The Leaking Underground Storage Tanks program received $5 million for work on projects impacted
by Hurricane Sandy.
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d) The Superfund program received $2 million for work on Superfund sites impacted by Hurricane
Sandy.
e) The EPA also received $689 thousand to make repairs to the EPA facilities impacted by Hurricane
Sandy and conduct additional water quality monitoring.
U. Puerto Rico Insolvency
In February 2016, the Puerto Rico Aqueduct and Sewer Authority (PRASA) requested a restructuring of the
Clean Water and Drinking Water SRF debt due to a lack of cash flows and inability to access the municipal
bond market. PRASA is the primary utility for Puerto Rico and, at the time of their request, the debt
outstanding to the SRFs was $547 million. Annual debt service to the SRFs is approximately $37 million
per year.
In June 2016, the EPA and the Puerto Rico SRFs agreed to a 1 year forbearance on principal and interest
payments. In June 2017, the 1 year forbearance which was to end on June 30, 2017, was extended for an
additional 6 months, ending December 30, 2017.
In May, following PRASA's fiscal plan approval by the Puerto Rico Oversight, Management, and Economic
Stability Act (PROMESA) oversight board created by Congress, the EPA and the Puerto Rico SRFs began
negotiations with PRASA on restructuring current debt and setting terms for future debt. If a restructuring
agreement between the SRFs and PRASA is reached prior to the end of current forbearance, the restructuring
agreement will supersede the forbearance. PRASA continues to work with the EPA in its fiduciary and
oversight capacity, the Commonwealth SRF Agencies, and private debt holders to restructure its debt
obligations owed the Commonwealth SRF Agencies.
V. 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, including environmental and grant 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, 2017 and September 30, 2016, consists of the following:
Entity
Assets
FY 2017
Non-Entity
Assets
Total
Entity
Assets
FY 2016
Non-Entity
Assets
Total
Fund Balances
Trust Funds:
Superfund
$
155,259
-
155,259 $
113,897
-
113,897
LUST
68,266
-
68,266
52,354
-
52,354
Oil Spill & Misc.
11,129
-
11,129
9,835
-
9,835
Revolving Funds:
FIFRA/T olerance
43,614
-
43,614
31,654
-
31,654
Working Capital
101,524
-
101,524
116,853
-
116,853
E-Manifest
5,385
-
5,385
5,230
-
5,230
NRDA
2,729
-
2,729
3,027
-
3,027
Appropriated
7,604,790
-
7,604,790
7,558,470
-
7,558,470
Other Fund Types
467,626
3,785
471,411
444,471
5,335
449,826
Total
$
8,460,322
3,785
8,464,107 $
8,335,801
5,335
8,341,156
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 the EPA for other entities.
Status of Fund Balances with Treasury:
Unobligated Amounts in Fund Balance:
FY 2017 FY 2016
Available for Obligation $ 4,154,001 $ 4,086,786
Unavailable for Obligation 94,641 155,324
Net Receivables from Invested Balances (4,797,519) (4,826,953)
Balances in Treasury Trust Fund (Note 36) 15,112 14,268
Obligated Balance not yet Disbursed 8,496,895 8,446,266
Non-Budgetary FBWT 500,977 465,465
Totals $ 8,464,107 $ 8,341,156
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 2017 and FY 2016 no differences existed
between Treasury's accounts and the EPA's statements for fund balances with Treasury.
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Note 3. Cash and Other Monetary Assets
As of September 30, 2017, and September 30, 2016, the balance in the imprest fund was $10 thousand.
Note 4. Investments
As of September 30, 2017, and September 30, 2016, investments related to Superfund and LUST consist of
the following:
Amortized
(Premium) Interest Investments, Market
Cost Discount Receivable Net Value
Intragovernmental Securities:
Non-Marketable FY 2017 $ 5,329,067 6,455 3,401 5,326,013 5,326,013
Non-Marketable FY 2016 $ 5,298,243 (7,209) 3,282 5,308,734 5,308,734
CERCLA, as amended by SARA, authorizes the 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, the 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 18).
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 the EPA as evidence of its receipts. Treasury securities are an asset to the EPA and a
liability to the U.S. Treasury. Because the 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 the EPA with authority to draw upon the U.S. Treasury to make future benefit
payments or other expenditures. When the 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.
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Note 5. Accounts Receivable, Net
The Accounts Receivable as of September 30, 2017 and September 30, 2016 consist of the following:
FY 2017
FY 2016
Intr agovernmental:
Accounts & Interest Receivable
$
19,227
$
8,618
Less: Allowance for Un-collectibles
(1,423)
(1,408)
Total
$
17,804
$
7,210
Non-Federal:
Unbilled Accounts Receivable
$
206,044
$
150,538
Accounts & Interest Receivable
2,413,358
2,395,903
Less: Allowance for Un-collectibles
(2,111,231)
(2,059,627)
Total
$
508,171
$
486,814
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, 2017 and September 30, 2016 consist of the following:
FY 2017
FY 2016
Intragovernmental:
Advances to Federal Agencies
$
200,703
$
206,597
Advances for Postage
119
96
Total
$
200,822
$
206,693
Non-Federal:
Travel Advances
$
79
$
187
Securities from Debt Settlement
1,863
-
Other Advances
6,196
6,598
Inventory for Sale
103
289
Total
$
8,241
$
7,074
Note 7. Loans Receivable, Net
Loans Receivable generally consists of 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 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. As of
September 30, 2017, the EPA has not disbursed any loans for the WIFIA program, but has incurred $1.79
million in administrative expenses.
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Schedule for Reconciling Subsidy Cost Allowance Balances
(Post-1991 Direct Loans)
FY2017
FY2016
Beginning balance of the subsidy cost allowance $
S 337
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
-
Total of the above subsidy expense components
337
Adjustments:
Loan Modification
-
Fees received
-
Foreclosed property acquired
-
Loans written off
-
Subsidy allowance amortization
-
Other
(337)
End balance of the subsidy cost allowance before reestimates
-
Add or subtract subsidy reestimates by component:
(a) Interest rate reestimate
-
(b) Technical/default reestimate
-
Total of the above reestimate components
-
Ending Balance of the subsidy cost allowance $ - J
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, 2017 and September 30, 2016:
FY 2017 FY 2016
Intragovernmental:
Accounts Payable $ 4,199 $ 2,157
Allocation Liability - 578
Accrued Liabilities 92,836 71,156
Total $ 97,035 $ 73,891
Non-Federal:
Accounts Payable
Advances Payable
Interest Payable
Grant Liabilities
Other Accrued Liabilities
Total
FY 2017
FY 2016
58,212
17
5
296,157
169,322
523,713
63,833
19
5
309,716
147,483
521,056
Other Accrued Liabilities are mostly comprised of 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, 2017, and September 30, 2016, General PP&E consisted of the following:
FY 2017
FY 2016
Acquisition
Accumulated
Net Book
Acquisition
Accumulated
Net Book
Value
Depreciation
Value
Value
Depreciation
Value
EPA-Held Equipment !
S 304,068
(198,897)
105,171 3
5 296,381
(196,484)
99,897
Software (production)
437,334
(364,300)
73,034
733,326
(545,672)
187,654
Software (development)
47,377
-
47,377
267,355
-
267,358
Contractor-Held Equip.
39,759
(24,117)
15,642
37,261
(25,579)
11,682
Land and Buildings
742,932
(269,779)
473,153
721,809
(253,182)
468,627
Capital Leases
24,485
(19,374)
5,111
24,485
(18,500)
5,985
Total !
$ 1,595,955
(876,467)
719,488 5
5 2,080,617
(1,039,417)
1,041,200
In FY 2015, the Agency initiated an intensive remediation effort to address the material weakness in how the
Agency accounts for software. The Agency disclosed a material weakness through its internal control review
of software capitalization processes in FY 2014. The material weakness was cited in the, "Audit of the
EPA's Fiscal Year's 2014 and 2013 (Restated) Consolidated Financial Statements" report, dated November
17, 2014. The significant decrease in software acquisition value from FY 2016 to FY 2017 is attributable to
the Agency's ongoing software material weakness remediation efforts. A key part of this remediation effort
has been improving procedures for validating expenditures that require capitalization and improving
communications between Agency program offices and the accounting office. In FY 2017, there was an
increase in software acquisition values totaling $46.8 million. There were also decreases totaling $562.8
million due to software disposals, reclassification of capitalized software costs to expense, and adjustments
to asset values, including depreciation. The increase in the Agency's capitalization threshold was effective
on October 1, 2016 and did not have a material effect in the change in software asset values.
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Note 10. Debt Due to Treasury
As of September 30, 2017, the EPA does not have any debt due to Treasury. In FY 2017, the EPA did not
borrow funds to finance the WIFIA Loan Program. The debt to Treasury as of September 30, 2017 and
September 30, 2016 is as follows:
All Other Funds
FY 2017 FY 2016
Beginning Net Ending Beginning Net Ending
Balance Borrowing Balance Balance Borrowing Balance
Intragovernmental:
Debt to Treasury $ - - - $ 34 (34)
Note 11. Stewardship Property Plant & Equipment
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, 2017, and 2016, the Agency possessed the following land and land rights:
FY 2017 FY2016
Superfund Sites with Easements:
Beginning Balance
$ 38 $
36
Additions
1
2
Withdrawals
-
-
Ending Balance
$ 39 $
38
Superfund Sites with Land Acquired:
Beginning Balance
$ 34 $
35
Additions
1
-
Withdrawals
1
1
Ending Balance
$ 34 $
34
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, 2017,
and September 30, 2016, custodial liability is approximately $22.5 million and $42.6 million, respectively.
46
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Note 13. Other Liabilities
Other Liabilities consist of the following
as of September 30, 2017:
Covered by
Not Covered by
' 1 ol
Budgetary Resources
Budgetary Resources
1 Oldl
Other Liabilities - Intragovernmental:
Current
Employer Contributions & Payroll Taxes
$ 19,119
-
19,119
WCF Advances
1,676
-
1,676
Other Advances
9,235
-
9,235
Advances, Superfund Cash-out
65,807
-
65,807
Deferred Superfund Cash-out
7,853
-
7,853
Liability for Deposit Funds
53
-
53
Non-Current
Unfunded FECA Liability
-
8,839
8,839
Unfunded Unemployment Liability
-
401
401
Payable to Treasury Judgment Fund
-
22,000
22,000
Total Intragovernmental
$ 103,743
31,240
134,983
Other Liabilities - Non-Federal:
Current
Unearned Advances, Non-Federal
$ 121,339
-
121,339
Liability for Deposit Funds, Non-Federal
6,441
-
6,441
Non-Current
Capital Lease Liability
-
17,548
17,548
Total Non-Federal
$ 127,780
17,548
145,328
Other Liabilities consist of the following
as of September 30, 2016:
Covered by
Not Covered by
' 1 ol
Budgetary Resources
Budgetary Resources
1 Oldl
Other Liabilities - Intragovernmental
Current
Employer Contributions & Payroll Taxes
$ 14,879
-
14,879
WCF Advances
2,354
-
2,354
Other Advances
6,709
-
6,709
Advances, Superfund Cash-out
51,259
-
51,259
Deferred Superfund Cash-out
(24,359)
-
(24,359)
Non-Current
Unfunded FECA Liability
-
9,295
9,295
Unfunded Unemployment Liability
-
276
276
Payable to Treasury Judgment Fund
-
22,000
22,000
Total Intragovernmental
$ 50,841
31,571
82,412
Other Liabilities - Non-Federal
Current
Unearned Advances, Non-Federal
$ 399,766
-
399,766
Liability for Deposit Funds, Non-Federal
7,200
-
7,200
Non-Current
Capital Lease Liability
-
18,655
18,655
Total Non-Federal
$ 409,966
18,655
425,621
In FY 2017, the EPA reclassified liabilities from "Other" to "Superfund Cashout Advances" for presentation
purposes, leading to a variance of $280.2 million between fiscal years 2016 and 2017.
47
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Note 14. Leases
A. Capital Leases:
The value of assets held under Capital Leases as of September 30, 2017 and 2016 are as follows:
FY 2017 FY 2016
Summary of Assets Under Capital Lease:
Real Property $ 24,485 $ 24,485
Personal Property
Total
$
24,485
$
24,485
Accumulated Amortization
$
19,374
$
18,500
The EPA has one capital lease for land and buildings housing scientific laboratories. This lease includes 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. The EPA's lease will terminate in
FY 2025.
Future Payments Due:
Fiscal Year Capital Leases
2018 $ 4,215
2019 4,215
2020 4,215
2021 4,215
2022 4,215
After 5 Years 9,835
Total Future Minimum Lease Payments 30,910
Less: Imputed Interest (13,362)
Net Lease Liability 17,548
Liability not Covered by Budgetary Resources $ 17,548
B. Operating Leases:
The GSA provides leased real property (land and buildings) as office space for the EPA employees. GSA
charges a Standard Level User Charge that approximates the commercial rental rates for similar properties.
The EPA has three 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. These charges are expended from the
EPM appropriation.
The total minimum future operating lease costs are listed below:
Operating
Leases, Land
Fiscal Year and Buildings
2018 $ 84
2019 53
2020 9
Total Future Minimum Lease Payments $ 146
48
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49
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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, the 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, 2017 and 2016 was $45.2 million and $45.0 million,
respectively. The estimated future costs are recorded as an unfunded liability. The FY 2017 present value of
these estimated outflows is calculated using a discount rate of 2.683 percent in the first year, and 2.683
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 the EPA, a state, or another responsible party 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), cash-out funds received by the 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 the EPA without further appropriation by Congress. As of September 30, 2017, and September 30,
2016, cash-out advances are $3.5 billion and $3.3 billion respectively.
Note 17. Commitments and Contingencies
The EPA may be a party in various administrative proceedings, actions and claims brought by or against it.
These include:
a) Various personnel actions, suits, or claims brought against the Agency by employees and others.
b) Various contract and assistance program claims brought against the Agency by vendors, grantees and
others.
c) The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to include the
collection of fines and penalties from responsible parties.
d) 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, 2017, and 2016 there were no accrued liabilities for commitments and potential loss
contingencies.
50
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A. Gold King Mine
On August 5, 2015, the EPA was conducting an investigation of the Gold King Mine near Silverton,
Colorado. While excavating part of the mine, pressurized water began leaking above the mine tunnel,
spilling about three million gallons of contaminated water stored behind the collapsed material in Cement
Creek, a tributary of the Animas River. In fiscal year 2017 and subsequent fiscal years, the Agency has
received and anticipates receiving administrative tort legal claims for compensation from individuals and
entities who may have suffered personal injury or property damage from the spill. Subject to the materiality
threshold, the Agency will begin to report on such matters when claims are filed and contingent legal
liabilities are known. See Section B in regards to cases that have been filed under CERCLA relating to Gold
King Mine.
B. Superfund
Under CERCLA Section 106(a), the 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
the 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, 2017, there is one case pending against the EPA that is reported under Environmental
Liabilities below: Bob's Home Service Landfill ($900 thousand) is reported as a reasonably possible liability.
There are six matters concerning Land O' Lakes (Hudson Oil Refinery Superfund Site), CERCLA 106(b)
Petition No. 15-01, CERCLA, New Mexico v. EPA et al., Navajo Nation v. EPA et al., McDaniel et al., and
Jan Burgess et al. The amounts are estimated at $18 million, $20 million, $154 million, $160 million, $70
million and $722 million respectively but they are only reasonably possible and the final outcomes are not
probable.
C. Judgment Fund
In cases that are paid by the U.S. Treasury Judgment Fund, the 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 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." The 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, 2017, there is no other case pending in the
court.
51
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Note 18. Fund from Dedicated Collections (Unaudited)
Environmental
Services
LUST
Superfund
Other
Funds from
Dedicated
Collections
Total Funds
from
Dedicated
Collections
Balance sheet as of September 30,
2017
Assets
Fund Balance with Treasury
Investments
Accounts Receivable, Net
Other Assets
$ 444,637
68,265
529,482
37,647
699
155,260
4,796,531
416,861
20,558
85,847
26
599
754,009
5,326,013
454,534
21,856
Total Assets
$ 444,637
636,093
5,389,210
86,472
6,556,412
Other Liabilities
44,841
3,789,256
80,254
3,914,351
Total Liabilities
$
44,841
3,789,256
80,254
3,914,351
Unexpended Appropriation
Cumulative Results of Operations
444,637
591,252
(2)
1,599,956
3,699
2,519
3,697
2,638,364
Total Liabilities and Net Position
$ 444,637
636,093
5,389,210
86,472
6,556,412
Statement of Net Cost for the Period
Ended September 30,2017
Gross Program Costs
Less: Earned Revenues
$
90,432
1,495,192
416,036
67,414
47,217
1,653,038
463,253
Net Cost of Operations
$
90,432
1,079,156
20,197
1,189,785
Statement of Changes in Net
Position for the Period ended
September 30,2017
Net Position, Beginning of Period
$ 421,406
546,543
1,608,142
5,350
2,581,441
Non-exchange Revenue- Securities
Investments
Non-exchange Revenue
Other Budgetary Finance Sources
Other Financing Sources
Net Cost of Operations
23,231
3,048
225,193
(93,100)
(90,432)
44,166
(701)
1,014,090
13,413
(1,079,156)
230
(1,434)
22,257
12
(19,721)
47,444
246,289
943,247
13,245
(1,189,785)
Change in Net Position
23,231
44,709
(8,188)
868
60,620
Net Position
$ 444,637
591,252
1,599,954
6,218
2,642,061
52
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Environmental
Services
LUST
Superfund
Other
Funds from
Dedicated
Collections
Total Funds
from
Dedicated
Collections
Balance sheet as of September 30,
2016
Assets
Fund Balance with Treasury
$ 421,414
52,354
113,898
72,802
660,468
Investments
-
500,831
4,807,903
-
5,308,734
Accounts Receivable, Net
-
52,806
362,806
30
415,642
Other Assets
-
426
79,923
2,882
83,231
Total Assets
$ 424,414
606,417
5,364,530
75,714
6,468,075
Other Liabilities
9
59,874
3,756,388
70,364
3,886,635
Total Liabilities
$ g
59,874
3,756,388
70,364
3,886,635
Unexpended Appropriation
-
-
4
4,076
4,080
Cumulative Results of Operations
421,405
546,543
1,608,138
1,274
2,577,360
Total Liabilities and Net Position
$ 421,414
606,417
5,364,530
75,714
6,468,075
Statement of Net Cost for the Period
Ended September 30,2016
Gross Program Costs
$
100,581
1,422,150
69,449
1,592,180
Less: Earned Revenues
5
-
345,981
49,990
395,976
Net Cost of Operations
$ (5)
100,581
1,076,169
19,459
1,196,204
Statement of Changes in Net Position
for the Period ended September 30,
2016
Net Position, Beginning of Period
$ 397,831
543,481
1,844,999
6,379
2,792,690
Non-exchange Revenue- Securities
Investments
-
960
37,311
32
38,303
Non-exchange Revenue
23,569
202,681
8,490
(3,435)
231,305
Other Budgetary Finance Sources
-
(100,000)
769,602
21,790
691,392
Other Financing Sources
-
2
23,909
43
23,954
Net Cost of Operations
5
(100,581)
(1,076,169)
(19,459)
(1,196,204)
Change in Net Position
23,574
3,062
(236,857)
(1,029)
(211,250)
Net Position
$ 421,405
546,543
1,608,142
5,350
2,581,440
53
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A. Funds from Dedicated Collections are as follows
i. 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.
ii. 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 and prevention grants 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.
iii. 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 shared by federal and state governments as well as industry. The EPA
allocates funds from its appropriation to the Department of Justice 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.
B. Other Funds from Dedicated Collections
i. Inland Oil Spill Programs Account:
The Inland Oil Spill Programs Account was authorized by the Oil Pollution Act of 1990 (OPA). Monies are
appropriated from the Oil Spill Liability Trust Fund to the EPA's Inland Oil Spill Programs 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.
ii. 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.
54
-------
hi. 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.
iv. 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).
55
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Note 19. Intragovernmental Costs and Exchange Revenue
Exchange, or earned revenues on the Statement of Net Cost include income from services provided to
Federal agencies and the public, interest revenue (apart from interest earned on trust fund investments), and
miscellaneous earned revenue.
FY2017 FY2016
Intragovern
-mental
With the
Public
Total
Intragovern
-mental
With the
Public
Total
Env. Programs &
Management:
Program Costs
Earned Revenue
$ $924,012
40,400
2,093,973
10,275
3,017,985
50,675
$ 942,545
29,960
1,764,864
1,575
2,707,409
31,535
NET COSTS
883,612
2,083,698
2,967,310
912,585
1,763,289
2,675,874
Leaking Underground
Storage Tanks:
Program Costs
Earned Revenue
4,437
85,996
90,433
4,820
95,761
100,581
NET COSTS
4,437
85,996
90,433
4,820
95,761
100,581
Science & Technology:
Program Costs
Earned Revenue
200,358
7,356
612,169
1,274
812,527
8,630
195,740
7,217
596,663
1,084
792,403
8,301
NET COSTS
193,002
610,895
803,897
188,523
595,579
784,102
Superfund:
Program Costs
Earned Revenue
275,695
26,733
1,219,020
389,103
1,494,715
415,836
65,405
43,894
1,147,693
302,087
1,213,098
345,981
NET COSTS
248,962
829,917
1,078,879
21,511
845,606
867,117
State and Tribal
Assistance Agreements:
Program Costs
Earned Revenue
54,159
3,395,913
3,450,072
57,263
3,927,369
3,984,632
NET COSTS
54,159
3,395,913
3,450,072
57,263
3,927,369
3,984,632
Other:
Program Costs
WCF Eliminations
Earned Revenue
WCF Eliminations
112,492
(211,512)
231,229
(211,290)
257,520
37,583
343,721
(211,512)
295,103
(211,290)
65,317
22,933
313,132
39,638
378,449
62,571
NET COSTS
(118,959)
219,937
100,978
42,384
273,494
315,878
Total
Program Costs
Earned Revenue
1,359,641
94,428
7,664,591
438,235
9,024,232
532,663
1,331,090
104,004
7,845,482
344,384
9,176,572
448,388
NET COSTS
$ 1,265,213
7,226,356
8,491,569
s 1,227,086
7,501,098
8,728,184
Intragovernmental costs relate to the source of goods or services not the classification of the related revenue.
Note 20. Cost of Stewardship Land
The EPA had one acquisition of Superfund site with Easements, and one acquisition of Superfund site with
Land acquired as of September 30, 2017. The acquisition of Superfund site with Easements contains four 20
year easements at the site, with no acquisition cost. The acquisition of Superfund site with land acquired was
valued at $36 thousand with an option for an additional 12 months ($18 thousand). The EPA also had a
property transfer of ownership via a Quit Claim Deed.
56
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Note 21. Environmental Cleanup Costs
Annually, the EPA is required to disclose its audited estimated future costs associated with:
a) Clean up of hazardous waste and restoration of the facility when a facility is closed, and
b) Costs to remediate known environmental contamination resulting from the Agency's
operations.
The EPA has 19 sites responsible for clean-up cost incurred under federal, state, and/or local regulations to
remove from, contain, or dispose of hazardous material fund located at these facilities.
The EPA is required to report the estimated costs related to:
a) Clean-up from federal operations resulting in hazardous waste
b) Accidental damage to nonfederal property caused by federal operations, and
c) Other damage to federal property caused by federal operations or natural forces.
The key to distinguishing between future clean-up costs versus an environmental liability is to determine
whether the event (accident, damage, etc.) has already occurred and whether we can reasonably estimate the
cost to remediate the site.
The EPA has elected to recognize the estimated total clean-up cost as a liability and record changes to the
estimate in subsequent years.
As of September 30, 2017, the EPA has 1 site that requires clean-up stemming from its activities. The
claimants' chances of success are characterized as reasonably possible with costs amounting to $900
thousand that may be paid out of the Treasury Judgment Fund. For sites that had previously been listed, it
was determined by the EPA's Office of General Counsel to discontinue reporting the potential environmental
liabilities for the following reasons: (1) although the 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 the EPA; (2) any
demand against the EPA will be resolved only after the Superfund clean-up work is completed, which may
be years in the future; and (3) there was no legal activity on these matters in FY 2017 and FY 2016.
A. Accrued Clean-up Cost
The EPA has 19 sites and is required to fund the environmental clean-up of those sites. As of September 30,
2017, the estimated costs for site clean-up were $39.5 million unfunded, and $500 thousand funded,
respectively. In 2016 the estimated costs for site clean-up were $36.1 million unfunded, $1.1 million funded,
respectively. Since the clean-up costs associated with permanent closure were not primarily recovered
through user fees, the EPA has elected to recognize the estimated total clean-up cost as a liability and record
changes to the estimate in subsequent years.
In FY 2017, the estimate for unfunded clean-up cost increased by $3.4 million from the FY 2016 estimate.
This increase is primarily due to the closure of several EPA buildings in various regions.
57
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Note 22. State Credits
Authorizing statutory language for Superfund and related Federal regulations requires states to enter into
Superfund State Contracts (SSC) when the 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 the 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 the EPA has determined to be reasonable, documented, direct out-of-pocket expenditures of non-
Federal funds for remedial action.
Once the 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
the EPA. As of September 30, 2017, and September 30, 2016, the total remaining state credits have been
estimated at $22.2 million, and $22.2 million, respectively.
Note 23. Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, PRPs agree to perform response actions at their
sites with the understanding that the EPA will reimburse them a certain percentage of their total response
action costs. The 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, 2017, the EPA had 4
outstanding preauthorized mixed funding agreements with obligations totaling $1.4 million. As of September
30, 2016, the EPA had 4 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 the EPA for payment. Further, the 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 the EPA.
Note 24. Custodial Revenues and Accounts Receivable
FY 2017
FY 2016
Fines, Penalties and Other Miscellaneous Receipts
$ 1,581,014 $
98,926
Accounts Receivable for Fines, Penalties and Other
Miscellaneous Receipts:
Accounts Receivable
149,522
195,188
Less: Allowance for Uncollectible Accounts
(124,493)
(150,599)
Total
$ 25,029 $
44,589
58
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The EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous
receipts. Collectability by the EPA of the fines and penalties is based on the respondents' willingness and
ability to pay.
In FY 2017, Volkswagen paid a civil penalty to the EPA of $1.5 billion to resolve allegations that
Volkswagen violated the Clean Air Act by selling approximately 590 thousand model year 2009 to 2016
diesel motor vehicles equipped with "defeat devices" that circumvented emissions testing. These funds were
transferred to the U.S. Treasury on September 30, 2017.
59
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Note 25. Reconciliation of President's Budget to the Statement of Budgetary Resources
Budgetary resources, obligations incurred and outlays, as presented in the audited FY 2017 Statement of
Budgetary Resources, will be reconciled to the amounts included in the FY 2017 Budget of the United States
Government when they become available. The Budget of the United States Government with actual numbers
for FY 2017 has not yet been published. We expect it will be published by early 2018, and it will be
available on the Office of Management and Budget website at Office of Management and Budget website at
https://www.whitehouse.gov/
The actual amounts published for the year ended September 30, 2016 are listed immediately below (dollars
in millions):
FY 2016 Budgetary Offsetting
Resources Obligations Receipts Net Outlays
Statement of Budgetary Resources $ 14,154 10,031 886 9,615
Reported in Budget of the U. S. $
Government 14,154 10,031 886 9,615
Note 26. 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, 2017 and September
30, 2016:
FY 2017 FY 2016
Recoveries of Prior Year Obligations - Downward adjustments of
prior years' obligations
$ 330,486 $
234,361
Temporarily Not Available - Rescinded Authority
(10,555)
(2,855)
Permanently Not Available:
Payments to Treasury
-
(34)
Rescinded authority
(90,348)
(40,000)
Canceled authority
(46,483)
(13,589)
Total Permanently Not Available $ (136,831) $ (53,623)
Note 27. 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, 2017 and September 30,
2016:
Unexpired Unobligated Balance
Expired Unobligated Balance
Total
FY 2017 FY 2016
$ 4,154,577 $ 4,122,735
92,649 119,316
$ 4,247,226 $ 4,242,051
60
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Note 28. Undelivered Orders at the End of the Period
Budgetary resources obligated for undelivered orders at September 30, 2017 and September 30, 2016 were
$8.32 billion and $8.26 billion, respectively.
Note 29. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt accounts offset
gross outlays. For September 30, 2017 and September 30, 2016, the following receipts were generated from
these activities:
FY 2017 FY 2016
Trust Fund Recoveries
$ (49,379) $
30,833
Special Fund Environmental Service
23,222
23,577
Trust Fund Appropriation
1,135,527
811,684
Miscellaneous Receipt and Clearing Accounts
83
20,359
Total
$ 1,109,453 $
886,453
Note 30. Transfers-In and Out, Statement of Changes in Net Position
A. Appropriation Transfers, In/Out:
For September 30, 2017 and September 30, 2016, 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, 2017 and September
30, 2016:
FY 2017 FY 2016
Fund/Type of Account
Net Transfers from Invested Funds $ 1,195,715 $ 1,183,737
Transfer from LUST to DOT Highway Trust Fund 93,100 100,000
Transfers to Another Agency 870 981
Allocations Rescinded 6,900
Total of Net Transfers on Statement of Budgetary Resources $ 1,296,585 $ 1,284,718
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B. Transfers In/Out Without Reimbursement, Budgetary:
For September 30, 2017 and September 30, 2016, 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 non-
expenditure, follow for September 30, 2017 and September 30, 2016:
FY 2017 FY 2016
Fund from
Fund from
Dedicated
Other
Dedicated
Other
Collections
Funds
Collections
Funds
Type of Transfer/Funds
Transfers-in (out) non-expenditure, Earmark to S&T and OIG
funds Capital Transfer
$ (24,274)
24,041 !
£ (28,789)
28,789
Transfers-in non-expenditure, Oil Spill
(18,209)
-
(18,209)
-
Transfers-in (out) non-expenditure, Superfund
54,464
-
(43,402)
-
Transfers-in non-expenditure, NRDA
(870)
-
-
-
Transfer-out LUST
100
-
100,000
-
Total Transfer in (out) without Reimbursement, Budgetary
$ 13,211
24,041 !
£ 9,600
28,789
Note 31. 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 2017 were $77.3 million. For FY 2016, the estimates were $116.4 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. The 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. The 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 the amount of unreimbursed (i.e., imputed) costs. For FY 2017 total imputed costs were $22.2
million.
In addition to the pension and retirement benefits described above, the 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 2017 entries for Judgment Fund payments totaled $3.6
million. For FY 2016, entries for Judgment Fund payments totaled $5.9 million.
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Note 32. Payroll and Benefits Payable
Payroll and benefits payable to the EPA employees for the years ending September 30, 2017 and September
30, 2016 consist of the following:
Covered by Not Covered
Budgetary by Budgetary Total
Resources Resources
FY 2017 Payroll & Benefits Payable
Accrued Funded Payroll & Benefits
Withholdings Payable
Employer Contributions Payable-TSP
Accrued Unfunded Annual Leave
$ 31,095
32,311
638
31,095
32,311
638
141,588 141,588
Total - Current
$ 64,044
141,588 205,632
FY 2016 Payroll & Benefits Payable
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Payable-TSP
Accrued Unfunded Annual Leave
$ 40,899
19,230
597
40,899
19,231
597
150,071 150,071
Total - Current
$ 60,726
150,071 210,797
Note 33. 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
FY 2017
Other Funds
FY 2016
Canceled General Authority
Total Other Adjustments
123,824
$ 123,824
53,501
$ 53,501
Note 34. 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, 2017 and September 30, 2016 consists of the following Funds from Dedicated Collections
items:
Funds from
Dedicated Collections
FY 2017
Funds from Dedicated
Collections FY 2016
Interest on Trust Fund
$ 47,445 $
38,303
Tax Revenue, Net of Refunds
225,194
202,681
Fines and Penalties Revenue
(701)
8,490
Special Receipt Fund Revenue
21,796
20,134
Total Non-Exchange Revenue
$ 293,734 $
269,608
63
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Note 35. Reconciliation of Net Cost of Operations to Budget
FY 2017
FY 2016
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated:
Obligations Incurred
S 10,354,618 $
10,036,882
Less: Spending Authority from Offsetting Collections and Recoveries
(1,031,789)
(844,542)
Obligations, Net of Offsetting Collections
9,322,829
9,192,340
Less: Offsetting Receipts
(1,109,453)
(886,453)
Net Obligations
8,213,376
8,305,887
Other Resources:
Imputed Financing Sources
103,093
143,616
Total Resources Used to Finance Activities
S 8,316,469 $
8,449,503
RESOURCES USED TO FINANCE ITEMS
NOT PART OF THE NET COST OF OPERATIONS:
Change in Budgetary Resources Obligated
S (66,195) $
307,188
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
31
497
Offsetting Receipts Not Affecting Net Cost
72,980
53,730
Resources that Finance Asset Acquisition
(121,053)
(85,805)
Adjustments to Expenditure Transfers that Do Not Affect Net Cost
(8,819)
-
Total Resources Used to Finance Items Not Part of the Net Cost of Operations
(123,056)
275,610
Total Resources Used to Finance the Net Cost of Operations
S 8,193,413 $
8,725,113
COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL
NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD:
Components Requiring or Generating Resources in Future Periods:
Increase in Annual Leave Liability
S (8,483) $
5,990
Increase in Environmental and Disposal Liability
3,441
(62)
Increase in Unfunded Contingencies
-
(901)
Upward/Downward Re-estimates of Credit Subsidy Expense
-
2,151
Increase in Public Exchange Revenue Receivables
(159,362)
(108,262)
Increase in Workers Compensation Costs
(123)
(1,347)
Other
105
(88)
Total Components of Net Cost of Operations that Require or Generate Resources in Future Periods
(164,422)
(102,519)
Components Not Requiring/Generating Resources:
Depreciation and Amortization
108,927
91,604
Expenses Not Requiring Budgetary Resources
353,651
13,986
Total Components of Net Cost that Will Not Require or Generate Resources
462,578
105,590
Total Components of Net Cost of Operations That Will Not Require or Generate Resources in the
Current Period
298,156
3,071
Net Cost of Operations
S 8,491,569 $
8,728,184
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Note 36. 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.
A. 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, 2017 and
September 30, 2016. The amounts contained in these notes have been provided by Treasury. As indicated, a
portion of the outlays represents amounts received by the EPA's Superfund Trust Fund; such funds are
eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
EPA Treasury Combined
SUPERFUND FY 2017
Undistributed Balances
Un-invested Fund Balance $
1,422
1,422
Total Undisbursed Balance
Interest Receivable
Investments, Net
4,704,616
1,422
3,387
88,528
1,422
3,387
4,793,144
Total Assets $
: 4,704,616
93,337
4,797,953
Liabilities & Equity
Equity $
: 4,704,616
93,337
4,797,753
Total Liabilities and Equity $
: 4,704,616
93,337
4,797,753
Receipts
Cost Recoveries $
Fines & Penalties
49,379
2,592
49,379
2,592
Total Revenue
Appropriations Received
Interest Income
-
51,971
1,038,131
44,166
51,971
1,038,131
44,166
Total Receipts $
1,134,268
1,134,268
Outlays
Transfers to/from EPA, Net $
: 1,119,857
(1,119,857)
Total Outlays
1,119,857
(1,119,857)
-
Net Income $
; 1,119,857
14,411
1,134,268
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In FY 2017, the EPA received an appropriation of $1.1 billion for Superfund. Treasury's Bureau of Fiscal
Service (BFS), the manager of the Superfund Trust Fund assets, records a liability to the EPA for the amount
of the appropriation. BFS does this to indicate those trust fund assets that have been assigned for use and,
therefore, are not available for appropriation. As of September 30, 2017, and September 30, 2016, the
Treasury Trust Fund has a liability to the EPA for previously appropriated funds and special accounts of $4.8
for both fiscal years.
EPA Treasury Combined
SUPERFUND FY 2016
Undistributed Balances
Un-invested Fund Balance
$
439
439
Total Undisbursed Balance
-
439
439
Interest Receivable
-
3,282
3,282
Investments, Net
4,740,927
63,693
4,804,620
Total Assets
$ 4,740,927
67,414
4,808,341
Liabilities & Equity
Equity
$ 4,740,927
67,414
4,808,341
Total Liabilities and Equity
$ 4,740,927
67,414
4,808,341
Receipts
Corporate Environmental
$
Cost Recoveries
-
30,833
30,833
Fines & Penalties
-
7,277
7,277
Total Revenue
-
38,110
38,110
Appropriations Received
-
811,684
811,684
Interest Income
-
37,311
37,311
Total Receipts
$
887,105
887,105
Outlays
Transfers to/from EPA, Net
$ 1,120,585
(1,120,585)
Total Outlays
1,120,585
(1,120,585)
-
Net Income $ 1,120,585 (233,480) 887,105
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B. LUST
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2017 and
2016, there were no fund receipts from cost recoveries. The amounts contained in these notes are provided
by Treasury. Outlays represent appropriations received by the EPA's LUST Trust Fund; such funds are
eliminated on consolidation with the LUST Trust Fund maintained by Treasury.
EPA
Treasury
Combined
LUST FY 2017
Undistributed Balances
Un-invested Fund Balance
$
13,690
13,690
Total Undisbursed Balance
Interest Receivable
Investments, Net
37,647
13,690
14
491,821
13,690
14
529,468
Total Assets
$ 37,647
505,525
543,172
Liabilities & Equity
Equity
37,647
505,525
543,172
Receipts
Highway TF Tax
Airport TF Tax
Inland TF Tax
$
213,392
11,752
49
213,392
11,752
49
Total Revenue
Interest Income
-
225,193
3,048
225,193
3,048
Total Receipts
$
228,241
228,241
Outlays
Transfers to/from EPA, Net
$ 107,000
(107,000)
Total Outlays
$ 107,000
(107,000)
-
Net Income
$ 107,000
121,241
228,241
EPA
Treasury
Combined
LUST FY 2016
Undistributed Balances
Un-invested Fund Balance
$
13,830
13,830
Total Undisbursed Balance
Interest Receivable
Investments, Net
52,806
448,025
500,831
Total Assets
$ 52,806
461,855
514,661
Liabilities & Equity
Equity
52,806
461,855
514,661
Receipts
Highway TF Tax
Airport TF Tax
Inland TF Tax
$
191,562
11,013
106
191,562
11,013
106
Total Revenue
Interest Income
-
202,681
961
202,681
961
Total Receipts
$
203,642
203,642
Outlays
Transfers to/from EPA, Net
$ 191,941
(191,941)
Total Outlays
$ 191,941
(191,941)
-
Net Income
$ $ 191,941
11,701
203,642
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Note 37. Miscellaneous Receipts Violation, Anti-Deficiency Act Violations and Potential Anti-
Deficiency Act Violations
A. Miscellaneous Receipt Act Violation
In 2007 and 2014 The Office of Pesticide Programs established the per-product maintenance fee to
purposefully collect fees above the FIFRA § 4 statutory target with the understanding that the EPA could
"make up" for shortfalls in prior years' collections. The FIFRA § 4 does not authorize the EPA to
purposefully over-collect fees where the statutory target was not met in prior years to reach the target "on
average" over a given number of years. As of 2016, the Agency had collected $1,072 in fees in excess of its
statutory authority. In compliance with the Miscellaneous Receipts Act, in May 2016, the EPA deposited the
excess fees collected into the General Fund of the Treasury.
B. Anti-Deficiency Act Violations
On February 10, 2017, the EPA reported violations of the Anti-deficiency Act (ADA), as required by 31
U.S.C. § 1351, which occurred in the Hazardous Substance Superfund account in Fiscal Years 1986, 1989,
and 1995 in connection with the use of funds from state partners in the Superfund Remedial and Superfund
Emergency Response and Removal programs in the total amount of $463 as required, by OMB circular A-
11, Section 145, in writing to the (1) President, (2) President of the Senate, (3) Speaker of the House of
Representatives, (4) Comptroller General, and (5) the Director of OMB.
C. Potential Anti-Deficiency Act Violations
In FY 2016 the EPA determined that the Agency had experienced two separate Anti-Deficiency Act
Voluntary Services Prohibition violations. 31 U.S.C. § 1342 prohibits the EPA from accepting voluntary
services for the United States, or employing personal services not authorized by law, except in the cases of
emergency involving the safety of human life or the protection of property.
The first violation occurred from January through April 2014 when the EPA accepted unpaid peer reviews
for environmental education grants. At least one of the peer reviewers did not sign a written agreement in
advance that states that the services are offered without the expectation of payment, and expressly waives
any future pay claims against the government which constitutes a violation of the Voluntary Services
Prohibition. The Agency was also unable to determine if there were any more peer reviewers who only had
oral agreements.
The second violations occurred in the Honors Law Clerk Program where at least seven post-graduates
provided services to the Agency at varying points between 2011 and 2015. Written and signed waivers were
unable to be located but are ineffective under 5 U.S.C. §§ 5331-5338 which the principle of equal pay for
substantially equal work applies.
In FY 2017, the Agency reviewed whether other voluntary and intern programs might also have had similar
issues and included language in its budgetary and supervisory guidance reminding Agency managers to pay
close attention to all Federal requirements when accepting voluntary services on behalf of the Agency.
As of the date of the audit report, the EPA is reviewing the proposed transmission of, as required by OMB
circular A-l 1, Section 145, written notifications to the (1) President, (2) President of the Senate, (3) Speaker
of the House of Representatives, (4) Comptroller General, and (5) the Director of OMB for Anti-Deficiency
Act violation related to the Voluntary Services Provision.
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Note 38. Other Information
The EPA received a disclaimer of opinion on audits of the FIFRA and PRIA financial statements for fiscal
years 2014 through 2016 issued by the Office of Inspector General (report numbers 16-F-0322, 17-F-0364
and 16-F-0322, 17-F-0365 respectively). A disclaimer of opinion means that OIG was unable to obtain
sufficient evidence to determine if the statements were fairly presented and free of material misstatement.
The EPA had previously received unmodified, or clean, opinion on these financial statements for FY 2013.
OIG noted a material weakness in that the EPA could not adequately support $34 million of its FY 2014
FIFRA Fund costs and $28 million of its FY 2014 PRIA Fund costs. The EPA receives its funding for these
programs both from fees paid by pesticide manufacturers and from amounts appropriated by the Congress. In
FY 2014, the EPA allocated its pesticide funding to use appropriated amounts, which would expire, and
retained funding received from fees.
Therefore, significant payroll amounts paid from appropriations were not charged directly to the FIFRA and
PRIA Funds or other pesticide programs. This resulted in the loss of the audit trail for reporting separate
costs and liabilities for the FIFRA and PRIA Funds and other pesticide programs. The OIG noted the same
material weaknesses in FY 2015 and FY 2016 for FIFRA and PRIA fund costs.
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Required Supplementary Information (Unaudited)
Environmental Protection Agency
As of September 30, 2017, and September 30, 2016
(Dollars in Thousands)
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.
Deferred Maintenance is described as the act of keeping fixed assets in acceptable condition.
Such activities include: Preventive maintenance, replacement of parts, systems, or components, and other
activities needed to preserve or maintain the asset.
The deferred maintenance as of Fiscal Year 2017:
FY2017 FY2016
Asset Category
Buildings
$ 143,583 $
132,449
EPA Held Equipment
620
370
Vehicles
9
9
Total Deferred Maintenance
$ 144,212 $
132,828
In Fiscal Year 2017, in accordance with SFFAS No. 42, Deferred Maintenance and Repairs: Amending
Statements of Federal Financial Accounting Standards 6, 14, 29 and 32, agencies are required to:
a) Describe their maintenance and repairs policies and how they are applied.
b) Discuss how they rank and prioritize maintenance and repair activities among other activities.
c) Identify factors considered in determining acceptable condition standards.
d) State whether deferred maintenance and repairs relate solely to capitalized or fully depreciated
general PP&E.
e) Identify PP&E for which management does not measure and/or report deferred maintenance and
repairs and the rational for the exclusion of other than non-capitalized or fully depreciated general
PP&E.
f) Provide beginning and ending deferred maintenance and repairs balances by
g) Explain significant changes from the prior year.
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The EPA presents the above Deferred Maintenance and Repairs (DM&R) information by asset category as
follows:
Buildings:
Policy
Explanation
Maintenance and repairs policies and how
they are applied.
The maintenance and repair policy is to maintain
facilities and real property installed equipment to fully
meet mission needs at each site. Systems are maintained
to function efficiently at full capacity and to meet or
exceed life expectancy of buildings and building
systems.
How we rank and prioritize maintenance
and repair activities among other activities.
Building and facility program projects are scored and
ranked individually based on seven weighted factors to
determine priority needs. High scoring projects are
prioritized above lower scoring projects. The seven
factors considered are: health and safety, energy
conservation, environmental compliance, program
requirements, repair and upkeep, space alteration, and
operational urgency. Repair and Improvement (R&I)
projects are identified and prioritized on a local basis.
Factors considered in determining
acceptable condition standards.
The nine building systems must function at a level that
fully meet mission needs. The nine building systems are:
structure, roof, exterior components and finish, interior
finish, HVAC, electrical, plumbing, conveyance, and
specialized program support equipment. Each system is
rated from 0 to 5 during facility assessments. Ratings are
used to determine facility condition index and estimated
deferred maintenance.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
Facilities assessments and the resulting DM&R estimates
are applied to capitalize PP&E only. Full facility
assessments using the NASA parametric model are used
to determine facilities and systems indices and deferred
maintenance estimates.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than
non-capitalized or fully depreciated general
PP&E.
Buildings are not excluded from DM&R estimates.
Explain significant changes from the prior
year.
No significant changes.
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EPA held Equipment
Policy
Explanation
Maintenance and repairs policies and how
they are applied.
Managers of the equipment consider manufacturers
recommendations in determining maintenance
requirements.
How we rank and prioritize maintenance
and repair activities among other activities.
Equipment is maintained based on manufacture's
recommendations.
Factors considered in determining
acceptable condition standards.
Manufacturer recommendations.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
DM&R relates to all EPA Held Equipment as determined
by individual site managers.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than
non-capitalized or fully depreciated general
PP&E.
Individual site managers determine the need to measure
and/or report DM&R based on mission needs.
Explain significant changes from the prior
year.
Individual site equipment managers decide on a case-by-
case basis the need to maintain equipment.
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Vehicles
Policy
Explanation
Maintenance and repairs policies and how they
are applied.
Vehicle managers maintain vehicles owned by the EPA
in accordance with the recommendations of the
manufacturer.
How we rank and prioritize maintenance and
repair activities among other activities.
The goal is to maintain the vehicle as built and as
recommended by the manufacturer. Repairs and
maintenance are also described as system critical or
minor. System critical repairs and maintenance are high
priority and are immediately taken care of. Minor
repairs are lower priority and may be taken care of at a
later date (time/scheduling permitting). These are not
critical to in-field functionality, but the repairs are
needed to maintain the vehicle as built.
Factors considered in determining acceptable
condition standards.
The vehicle is inspected to insure that it (the vehicle)
and related specialized equipment are in good working
order. The criteria being that the vehicle is being
maintained as built and as recommended by the
manufacturer.
State whether DM&R relate solely to
capitalized general PP&E and stewardship
PP&E or also to non-capitalized or fully
depreciated general PP&E.
All vehicles are capitalized.
PP&E for which management does not
measure and/or report DM&R and the
rationale for the exclusion of other than non-
capitalized or fully depreciated general PP&E.
None.
Explain significant changes from the prior
year.
No significant changes.
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.
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Supplemental Combined Statement of Budgetary Resources
Environmental Protection Agency
For the Period Ending September 30, 2017
(Dollars in Thousands)
Env. Prog.
& Mgmt.
Leaking
Underground
Storage Tank
Science &
Tech
Superfund
State &
Tribal Ass.
Grants
Other
Total
BUDGETARY RESOURCES
Unobligated Balance, Brought Forward, October 1:
Adjustment to Unobligated Balance
$
307,949
947
3,619
2
118,502
85
3,406,772
18,933
187,775
975
217,434
208
4,242,051
21,150
Unobligated balance brought forward, October 1, as
adjusted
308,896
3,621
118,587
3,425,705
188,750
217,642
4,263,201
Recoveries of Prior Year Unpaid Obligations
80,569
475
35,967
112,978
62,851
37,646
330,486
Other changes in unobligated balance
(5,722)
.
(3,211)
(233)
.
(33,095)
(42,261)
Unobligated balance from prior year budget
authority, net
383,743
4,096
151,343
3,538,450
251,601
222,193
4,551,426
Appropriations (discretionary and mandatory)
2,600,999
185,041
706,473
1,126,420
3,565,963
1,185,370
9,370,266
Spending authority from offsetting collections
78,873
.
20,991
306,306
.
273,982
680,152
Total Budgetary Resources
$
3,063,615
189,137
878,807
4,971,176
3,817,564
1,681,545
14,601,844
STATUS OF BUDGETARY RESOURCES
Obligations incurred
2,761,123
185,494
781,819
1,581,191
3,589,195
1,455,796
10,354,618
Unobligated balance, end of year:
Apportioned
234,514
3,642
77,358
3,389,986
228,369
218,716
4,152,585
Un-apportioned
.
.
.
.
.
1,992
1,992
Total unobligated balance, end of period
Expired unobligated balance, end of year
234,514
67,977
3,642
77,358
19,361
3,389,986
228,369
220,708
5,041
4,154,577
92,649
Total Status of Budgetary Resources
$
3,063,614
189,136
878,808
4,971,177
3,817,564
1,681,545
14,601,844
CHANGE IN OBLIGATED BALANCE
Unpaid Obligations
Unpaid Obligations, Brought Forward, October 1
(gross)
$
1,232,532
87,242
346,646
1,446,122
5,355,895
226,532
8,694,969
Obligations incurred
2,761,123
185,494
781,819
1,581,191
3,589,195
1,455,796
10,354,618
Outlays (gross)
(2,671,914
(183,681)
(781,295)
(1,430,019)
(3,453,280)
(1,396,647)
(9,916,836)
Recoveries of prior year unpaid obligations
(80,569)
(475)
(35,967)
(112,978)
(62,851)
(37,646)
(330,486)
Unpaid obligations, end of year (gross)
$
1,241,172
88,580
311,203
1,484,316
5,428,959
248,035
8,802,265
Uncollected Payments
Uncollected customer payments from Federal
Sources, brought forward, Oct. 1
Change in uncollected customer payments from
Federal sources
$
(73,077)
(37,746)
-
(16,550)
4,456
(10,057)
1,004
-
(148,956)
(24,443)
(248,640)
(56,729)
Uncollected customer payments from Federal
sources, end of year
$
(110,823)
.
(12,094)
(9,053)
.
(173,399)
(305,369)
BUDGET AUTHORITY AND OUTLAYS, NET:
Budget authority, gross (discretionary and
mandatory)
Actual offsetting collections (discretionary and
mandatory)
Change in uncollected customer payments from
Federal sources
$
2,679,872
(42,074)
(37,746)
185,041
(2)
727,464
(25,532)
4,456
1,432,726
(326,243)
1,004
3,565,963
(975)
1,459,352
(249,747)
(24,443)
10,050,418
(644,573)
(56,729)
Budget authority, net (discretionary and mandatory)
$
2,600,052
185,039
706,388
1,107,487
3,564,988
1,185,162
9,349,116
Outlays, gross (discretionary and mandatory)
Actual offsetting collections (discretionary and
mandatory)
$
2,671,914
(42,074)
183,681
(2)
781,295
(25,532)
1,430,019
(326,243)
3,453,280
(975)
1,396,647
(249,747)
9,916,836
(644,573)
Outlays, net (discretionary and mandatory)
2,629,840
183,679
755,763
1,103,776
3,452,305
1,146,900
9,272,263
Distributed offsetting receipts
.
.
.
(1,086,148)
.
(23,305)
(1,109,453)
Agency outlays, net (discretionary and mandatory)
$
2,629,840
183,679
755,763
17,628
3,452,305
1,123,595
8,162,810
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Required Supplemental Stewardshiplnformation (Unaudited)
Environmental Protection Agency
Required Supplemental Stewardship Information (Unaudited)
For the Year Ended September 30, 2017
(Dollars in Thousands)
Investment in The Nation's Research and Development:
The EPA's Office of Research and Development provides the crucial underpinnings for the 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. The 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 and application
of alternative techniques for prioritizing chemicals for further testing through computational toxicology; the
environmental effects of pollutants 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. The EPA also supports
regulatory decision-making with chemical risk assessments.
For FY 2017, the full cost of the Agency's Research and Development activities totaled over $635 million.
Below is a breakout of the expenses (dollars in thousands):1
FY2013 FY2014 FY2015 FY2016 FY2017
Programmatic Expenses $ 531,901 $ 510,911 $ 535,352 $ 541,190 $ 532,153
Allocated Expenses $ 78,189 $ 73,622 $ 78,028 $ 82,646 $ 103,451
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 calculated specifically for the Required Supplemental Stewardship Information report and do not represent
the overall Agency indirect cost rates.
75
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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,
primarily through the two SRF programs and the WIFIA program.
WIFIA: The EPA provides through the WIFIA program long-term, low cost supplemental credit assistance
under customized terms to creditworthy water and wastewater projects. The WIFIA program directly
supports the Agency's goal to ensure waters are clean through improved water infrastructure. The program
requires a small appropriation compared to its potential loan volume. For example, the FY17 WIFIA
appropriation of $30 million could spur up to $5 billion in total infrastructure investment. The WIFIA
program is designed to attract private participation, encourage new revenue streams for infrastructure
investment, and allow public agencies to get more projects done.
State Revolving Funds: The 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.
Construction Grants Program: During the 1970s and 1980s, the Construction Grants Program provided 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, the EPA
shifted the focus of municipal financial assistance from grants to loans that are provided by State Revolving
Funds.
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 appropriated 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 AFR for more detailed information on the
results of the Agency's investment in infrastructure.
WIFIA
Drinking Water SRF
Other Infrastructure Grants
Allocated Expenses
Construction Grants
Clean Water SRF
FY2013 FY2014 FY2015 FY2016 FY2017
$ 6,944 $ 1,447 $ 17,462 $ 11,344 $ 8,686
$ 1,976,537 $ 1,534,453 $ 1,715,630 $ 1,459,820 $ 1,247,919
$ 1,027,613 $ 1,187,212 $ 1,268,360 $ 1,213,201 $ 994,297
$ 166,050 $ 118,706 $ 96,439 $ 62,011 $ 44,916
$ 524,326 $ 516,102 $ 590,595 $ 529,815 $ 480,415
$ 0$ 0$ 0$ 0$ 30,000
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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):
FY2013 FY2014 FY2015 FY2016 FY2017
Training and Awareness Grants $ 20,769 $ 23,255 $ 27,047 $ 29,116 $ 22,090
Fellowships 11,157 8,082 6,579 4,630 2,077
Allocated Expenses 4,118 4,226 5,146 5,336 4,073
Total $ 36,044 $ 35,563 $ 38,772 $ 39,082 $ 28,240
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AUDIT OF EPA'S FISCAL YEARS 2017 AND 2016
CONSOLIDATED FINANCIAL STATEMENTS
78
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^tDSr^o
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o I U.S. ENVIRONMENTAL PROTECTION AGENCY
VPR0^° OFFICE OF INSPECTOR GENERAL
Operating efficiently and effectively
EPA's Fiscal Years 2017
and 2016 Consolidated
Financial Statements
Report No. 18-F-0039
November 15, 2017
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Abbreviations
EPA U.S. Environmental Protection Agency
FAC-P/PM Federal Acquisition Certification for Program and Project Managers
FFMIA Federal Financial Management Improvement Act of 1996
FMFIA Federal Managers' Financial Integrity Act of 1982
FY Fiscal Year
GAO U.S. Government Accountability Office
IT Information Technology
OCFO Office of the Chief Financial Officer
OIG Office of Inspector General
OMB Office of Management and Budget
SFFAS Statement of Federal Financial Accounting Standards
U.S.C. United States Code
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OIG Hotline@epa.gov
Learn more about our OIG Hotline.
EPA Office of Inspector General
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Washington, DC 20460
(202) 566-2391
www.epa.gov/oiq
Subscribe to our Email Updates
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^tD sx
* o •,
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
18-F-0039
November 15, 2017
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's (EPA's)
Office of Inspector General to
audit the financial statements
prepared by the agency each
year. Our primary objectives
were to determine whether:
• The EPA's consolidated
financial statements were
fairly stated in all material
respects.
• The 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 control so that timely,
reliable information is available
for managing federal programs.
This report addresses the
following:
• Operating efficiently and
effectively.
Send all inquiries to our public
affairs office at (202) 566-2391
or www.epa.gov/oiq.
EPA's Fiscal Years 2017 and 2016
Consolidated Financial Statements
EPA Receives an Unmodified Opinion
We rendered an unmodified opinion on the
EPA's consolidated financial statements for
fiscal years 2017 and 2016, meaning they were
fairly presented and free of material
misstatement.
Internal Control Material Weaknesses and
Significant Deficiencies Noted
We noted the following material weaknesses:
• The EPA's accounting for software continues to be a material weakness.
• The EPA incorrectly recorded unearned revenue for Superfund special
accounts and did not reconcile unearned revenue for those accounts.
We noted the following significant deficiencies:
• Additional efforts are needed to resolve the EPA's cash difference with the
U.S. Treasury.
• The EPA needs to appoint a Project Manager to oversee the management
of Compass Financials, which is the agency's accounting system, and to
improve acquisition planning.
Compliance With Laws and Regulations
We did not note any significant noncompliance with laws and regulations.
Recommendations and Planned Agency Corrective Actions
The EPA agreed with our findings and recommendation and expects to
complete the corrective action in fiscal year 2018.
We found the EPA's
financial statements to be
fairly presented and free
of material misstatement.
Listing of OIG reports.
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^EDSX
* A \
ssbi
November 15, 2017
MEMORANDUM
SUBJECT: EPA's Fiscal Years 2017 and 2016 Consolidated Financial Statements
Report No. 18-F-0039
FROM: Paul C. Curtis, Director
Financial Statement Audits
TO: David Bloom, Acting Chief Financial Officer
Attached is our report on the U.S. Environmental Protection Agency's (EPA's) fiscal years 2017 and
2016 consolidated financial statements. The project number for this audit was OA-FY17-0206. We are
reporting two internal control material weaknesses and two significant deficiencies. Attachment 1
contains details on the material weaknesses and significant deficiencies. We did not note any instances of
noncompliance.
This audit report represents the opinion of the Office of Inspector General, 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
The agency agreed with the recommendation in this report and, therefore, no further response is
required. If you nonetheless choose to provide a response, your response will be posted on the Office of
Inspector General'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 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 www.epa.gov/oig.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
Attachments
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EPA's Fiscal Years 2017 and 2016
Consolidated Financial Statements
18-F-0039
Table of Contents
Inspector General's Report on EPA's Fiscal Years
2017 and 2016 Consolidated Financial Statements 1
Report on the Financial Statements 1
Review of EPA's Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and
Management's Discussion and Analysis 2
Report on Internal Control Over Financial Reporting 3
Tests of Compliance With Laws, Regulations, Contracts and Grant Agreements 6
Prior Audit Coverage 7
Agency Comments and OIG Evaluation 7
Attachments
1. Internal Control Material Weaknesses and Significant Deficiencies 9
Material Weaknesses
PROPERTY
EPA's Accounting for Software Continues to Be a
Material Weakness 10
SPECIAL ACCOUNTS
EPA Did Not Properly Record or Reconcile Unearned Revenue for
Superfund Special Accounts 12
Significant Deficiencies
CASH
Additional Efforts Needed to Resolve EPA's Cash Differences
With Treasury 13
INFORMATION TECHNOLOGY
EPA Needs to Appoint a Project Manager to Oversee Management
of Compass Financials and Improve Acquisition Planning 15
-continued-
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EPA's Fiscal Years 2017 and 2016
Consolidated Financial Statements
18-F-0039
2. Status of Prior Audit Report Recommendations 19
3. Status of Current Recommendations and Potential Monetary Benefits 23
Appendices
I. EPA's FYs 2017 and 2016 Consolidated Financial Statements
II. Agency Response to Draft Report
III. Distribution
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Inspector General's Report on EPA's Fiscal Years
2017 and 2016 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, 2017, and
September 30, 2016, and the related consolidated statements of net cost, net cost by major
program, 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 control
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 No. 17-03, 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 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.
18-F-0039
85
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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,
presents fairly, in all material respects, the consolidated assets, liabilities, net position, net
cost, net cost by major program, changes in net position, custodial activity, and combined
budgetary resources of the EPA as of and for the years ended September 30, 2017 and 2016,
in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter—Software Capitalization
As described in Note 1 to the financial statements, in fiscal year (FY) 2017, the agency
changed its capitalization policy by increasing the capitalization threshold from $250,000 to
$5 million for new purchases in FY 2017 and thereafter. Statement of Federal Financial
Accounting Standards (SFFAS) No. 10, Accounting for Internal Use Software, allows for
agencies to select their own capitalization threshold. However, the standard states that
agencies should consider whether period cost would be distorted or asset values understated
by expensing the purchase. We found that the EPA did not consider the cost impact on the
financial statements and instead relied mainly on the capitalization policy of several other
agencies that also have adopted a higher capitalization threshold. We could not
independently determine the impact that the change in the capitalization threshold will have
on the agency's statements. In addition, the agency wrote off approximately $300 million in
software development costs that could not be readily charged to a project or for projects
abandoned. Such costs were unrelated to the change in capitalization threshold. Our opinion
is not modified in respect to this matter.
Review of EPA's 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, 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
18-F-0039
86
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management about its methods for preparing Required Supplementary Stewardship Information,
Required Supplementary Information, Supplemental Information, and Management's Discussion
and Analysis, and we 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 Required
Supplementary Stewardship Information, 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 Required Supplementary Stewardship Information, Required Supplementary
Information, Supplemental Information, and Management's Discussion and Analysis.
Report on Internal Control Over Financial Reporting
Opinion on Internal Control. In planning and performing our audit, we considered the EPA's
internal control over financial reporting by obtaining an understanding of the agency's internal
control, determining whether internal control 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 control 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. 17-03, 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).
Material Weaknesses and Significant Deficiencies. Our consideration of the internal control
over financial reporting would not necessarily disclose all matters in the internal control over
financial reporting that might be significant deficiencies. A deficiency in internal control exists
when the design or operation of a control does not allow management or employees, in the
normal course of performing their assigned functions, to prevent or to detect and correct
misstatements on a timely basis. A material weakness is 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
in a timely manner. A significant deficiency is a deficiency or a combination of deficiencies in
internal control that is less severe than a material weakness yet is important enough to merit
attention by those charged with governance.
Because of inherent limitations in internal control, 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, two of which we
consider to be material weaknesses. These issues are summarized below and detailed in
Attachment 1.
18-F-0039
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Material Weaknesses
PROPERTY
EPA's Accounting for Software Continues to Be a Material Weakness
We previously reported the EPA's accounting for software as a material weakness in our
FYs 2014 through 2016 audits. While we note that the agency has taken steps to address
its software material weakness, the EPA continues to experience problems in adequately
documenting capitalized software transactions. In FY 2017, we found that the EPA had
misposted entries leading to misstated depreciation and amortization expense and loss on
disposal of asset costs. Federal standards require that transactions be appropriately
documented and that internal control be maintained. Failure to properly record capital
software transactions in the agency's property management system and Compass
Financials—the agency's accounting system—compromises the accuracy of the EPA's
property accounts and depreciation and operating expenses, as well as the accuracy of the
agency's financial statements. Consequently, we continue to report accounting for
software as a material weakness.
SPECIAL ACCOUNTS
EPA Did Not Properly Record or Reconcile Unearned Revenue for
Superfund Special Accounts
The EPA did not modify the accounting model in the accounting system to properly
record all Superfund special accounts activity or perform a comprehensive reconciliation
of Superfund special accounts general ledger balances to the special accounts database
detail during FY 2017. In OIG Report No. 17-F-0046. Audit of EPA's Fiscal Years 2016
and 2015 Consolidated Financial Statements, issued November 15, 2016, we reported as
a material weakness that the EPA did not properly record or reconcile unearned revenue
for Superfund special accounts in FY 2016. During FY 2017, we found that the EPA did
not implement the corrective actions to complete the new posting model change, nor did
the agency perform a comprehensive reconciliation of special accounts. As a result, the
EPA cannot ensure the accuracy of the unearned revenue and financial statements.
Significant Deficiencies
CASH
Additional Efforts Needed to Resolve EPA's Cash Differences With Treasury
As of September 30, 2017, there was $2.2 million in cash differences between the EPA
and U.S. Treasury cash balances. We previously reported the EPA's long-standing cash
differences with Treasury as a significant deficiency in our FYs 2015 and 2016 audit
reports on the financial statements. Treasury's guidance requires the EPA to correct and
resolve any differences between the Treasury's and EPA's Fund Balance with Treasury.
However, the EPA's Office of the Chief Financial Officer (OCFO) did not have effective
18-F-0039
88
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internal control to adequately monitor the internal cash differences and ensure that the
EPA resolved the differences with Treasury. Unresolved differences may result in
misstatements of the EPA's Fund Balance with Treasury and financial statements, as well
as increase the risk of fraud.
INFORMATION TECHNOLOGY
EPA Needs to Appoint a Project Manager to Oversee Management of
Compass Financials and Improve Acquisition Planning
EPA's Compass Financials application—a major information technology (IT)
investment—lacks an oversight structure to ensure that personnel implement agency
policies and procedures and guide the project through the acquisition process. OMB
Circular A-130, Managing Information as a Strategic Resource, Appendix I-13-j(2),
requires agencies to provide oversight of information systems that are used by contractors
or that collect or maintain federal information. This oversight includes the responsibility
to implement policies and procedures for security controls and accountability for
information systems. Paragraph 7.1.1.2 of the EPA's Acquisition Guide requires
acquisition planning for all acquisitions. The guide defines "acquisition planning" as the
process by which all personnel responsible for an acquisition coordinate to fulfill agency
needs in a timely manner and at a reasonable cost.
Attachment 2 contains the status of issues reported in prior years' reports. The issues included in
the attachment should be considered among the EPA's significant deficiencies for FY 2017.
We reported less significant internal control matters to the agency 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 Control
OMB Bulletin No. 17-03, 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. The OIG is also
required to 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 Capitalized Software and Accounting for Unearned Revenue as material
weaknesses in FY 2017. Capitalized software continues to be reported as a material weakness in
the design or operation of internal control. The agency is in the process of developing a
corrective action plan for Accounting for Unearned Revenue.
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Tests of Compliance With Laws, Regulations, Contracts and
Grant Agreements
EPA management is responsible for complying with laws, regulations, contracts and grant
agreements 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, including those governing the use of budgetary
authority, regulations, contracts and grant agreements that have a direct effect on the
determination of material amounts and disclosures in the financial statements. We also
performed certain other limited procedures as described in Codifications of Statements on
Auditing Standards, AU-C 250.14-16, "Consideration of Laws and Regulations in an Audit of
Financial Statements." OMB Bulletin 17-03, Audit Requirements for Federal Financial
Statements, requires that we evaluate compliance with federal financial statement 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, Regulations, Contracts and Grant Agreements
Providing an opinion on compliance with certain provisions of laws, regulations, contracts
and grant agreements 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.
We did not identify any significant matters involving compliance with laws and regulations
that came to our attention during the course of the audit.
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 Memorandum M-09-06-23,
Implementation Guidance for the Federal Financial Management Improvement Act, dated
January 9, 2009, to determine substantial noncompliance with FFMIA.
The results of our tests did not disclose any instances of noncompliance with FFMIA
requirements, including where the agency's financial management systems did not
substantially comply with the applicable federal accounting standard.
We did not identify any significant matters involving compliance with laws and regulations
related to the agency's financial management systems that came to our attention during the
course of the audit.
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Audit Work Required Under the Hazardous Substance Superfund Trust Fund
Our audit work was also performed to meet the requirements in 42 U.S.C. § 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 weaknesses that impacted our
audit objectives in the following areas:
• The EPA undercapitalized software costs, leading to restated FY 2013 financial
statements and a continued material weakness.
• The EPA did not capitalize lab renovation costs.
• The EPA's internal controls over the accountable personal property inventory process
need improvement.
• The EPA's property management system does not reconcile to its accounting system.
• The EPA did not properly record or reconcile unearned revenue for Superfund special
accounts.
• Originating offices did not forward accounts receivable source documents in a timely
manner to the finance center.
• The EPA should improve controls over expense accrual reversals.
• The EPA should improve its efforts to resolve its long-standing cash differences with the
U.S. Treasury.
• Financial management system user account management needs improvement.
• The OCFO lacks internal controls when assuming responsibility for account management
procedures of financial systems.
• Financial and mixed-financial applications did not comply with required account
management controls.
• The EPA needs controls to monitor direct access to its accounting system.
Attachment 2 summarizes the current status of corrective actions taken on prior audit report
recommendations related to these issues. We found during our audit that the issues reported in
prior audits and listed in Attachment 2 still exist and should be considered as outstanding
significant deficiencies and noncompliance issues unless otherwise noted.
Agency Comments and OIG Evaluation
In a memorandum dated November 13, 2017, the Chief Financial Officer responded to our draft
report. The EPA agreed with our findings and recommendation and expects to complete the
corrective action in FY 2018.
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.
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This report is intended solely for the information and use of the management of the EPA, OMB
and Congress, and it is not intended to be and should not be used by anyone other than these
specified parties.
Paul C. Curtis
Certified Public Accountant
Director, Financial Statement Audits
Office of Inspector General
U.S. Environmental Protection Agency
November 14, 2017
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Attachment 1
Internal Control Material Weaknesses and
Significant Deficiencies
Table of Contents
Material Weaknesses
PROPERTY
1 EPA's Accounting for Software Continues to Be a Material Weakness 10
SPECIAL ACCOUNTS
2 EPA Did Not Properly Record or Reconcile Unearned Revenue for
Superfund Special Accounts 12
Significant Deficiencies
CASH
3 Additional Efforts Needed to Resolve EPA's Cash Differences With Treasury 13
INFORMATION TECHNOLOGY
4 EPA Needs to Appoint a Project Manager to Oversee
Management of Compass Financials and Improve Acquisition Planning 15
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1 - EPA's Accounting for Software Continues to Be a
Material Weakness
We previously reported the EPA's accounting for software as a material weakness in our
FYs 2014 through 2016 audits. While we note that the agency has taken steps to address its
software material weakness, the EPA continues to experience problems in adequately
documenting capitalized software transactions. In FY 2017, we found that the EPA had
misposted entries, leading to misstated depreciation and amortization expense and loss on
disposal of asset costs. Federal standards require that transactions be appropriately documented
and that internal control be maintained. Failure to properly record capital software transactions in
the agency's property management system and Compass Financials—the agency's accounting
system—compromises the accuracy of the EPA's property accounts and depreciation and
operating expenses, as well as the accuracy of the agency's financial statements. Consequently,
we continue to report accounting for software as a material weakness.
SFFAS No. 10, Accounting for Internal Use Software, requires entities to capitalize the costs of
software that meet the criteria for general property, plant and equipment. Software life cycle
includes three phases: planning, development and operations. Capitalized software costs should
include the full costs (direct and indirect) incurred during the software development stage. The
Software-In-Development general ledger account represents costs incurred in the software
development.1 Upon completion, costs incurred are capitalized and transferred to the Internal-
Use Software general ledger account.2 The SSFAS also requires that entities amortize in a
systematic and rational manner over the estimated useful life of the software; amortization should
begin when that module or component has been successfully tested. The agency's practice is to
capitalize software costs exceeding its annual capitalization threshold of $250,000 over 7 years.
In FY 2017, the agency increased its capitalization threshold for new software projects to
$5 million.
Beginning in FY 2015, the EPA took steps to improve its internal accounting and controls over
software costs. In FY 2017, the EPA stated that it reviewed software projects and met with
program offices to validate software costs in development and asset values in production.
During its efforts to validate software costs, the EPA wrote off approximately $300 million in
software development costs, $295 million in capitalized software, and $181 million in associated
amortization by reversing entries and creating large abnormal balances in depreciation and
amortization expense and other accounts. The agency subsequently corrected the abnormal
balance in depreciation and amortization expense, an account that is listed in Note 35,
Reconciliation of Net Cost of Operations to Budget. Other accounts that were not corrected are
included as components of gross costs in the statement of net costs and have no material impact.
The U.S. Government Accountability Office's (GAO'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. Management should design control activities to achieve
objectives and respond to risks. The standard for control activities requires appropriate
documentation of transactions and internal control. Management is to clearly document internal
1 Treasury Financial Manual, United States Standard General Ledger Bulletin No. 2017-06, Part 1, Section II:
Accounts and Definitions.
2 Ibid.
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control, all transactions and other significant events in a manner that allows the documentation
to be readily available for examination. Because the audit trail of supporting documentation was
insufficient in determining the validity of the actions taken on the software projects analyzed,
our ability to conclude that the entries made were accurately recorded was affected.
Failure to properly record property transactions in the agency's property management system
and Compass compromises the accuracy of the EPA's property accounts, depreciation and
operating expenses, as well as the accuracy of the agency's financial statements. The agency
indicated that it does not expect to complete corrective actions on this material weakness until
2018; thus, we continue to report this material weakness but have no additional
recommendations.
Agency Comments and OIG Evaluation
The agency plans to complete corrective actions on this material weakness in FY 2018.
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2 - EPA Did Not Properly Record or Reconcile Unearned Revenue for
Superfund Special Accounts
The EPA did not modify the accounting model in the accounting system to properly record all
Superfund special accounts activity or perform a comprehensive reconciliation of Superfund
special accounts general ledger balances to the special accounts database detail during FY 2017.
In OIG Report No. 17-F-0046. Audit of EPA's Fiscal Years 2016 and 2015 Consolidated
Financial Statements, issued November 15, 2016, we reported, as a material weakness, that the
EPA did not properly record or reconcile unearned revenue for Superfund special accounts in
FY 2016. During FY 2017, we found that the EPA did not implement the corrective actions to
complete the new posting model change, nor did the agency perform a comprehensive
reconciliation of special accounts. As a result, the EPA cannot ensure the accuracy of the
unearned revenue and financial statements.
Federal guidance directs agencies to record cash advances received for long-term projects as
unearned revenue:
• The SFFAS applies to general purpose financial reports of the U.S. Government reporting
entities. SFFAS No. 7 is the accounting standard for revenue and other financing sources
and directs agencies to record a cash advance for long-term projects as unearned revenue.
Revenue should be recognized as costs are incurred to provide the goods and services.
• Section 122(b)(3) of the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. 9622(b)(3)) and Executive Order 12580 authorize the EPA to
retain and use funds received through an agreement with potentially responsible parties to
address past and/or future response costs. The EPA retains these funds in site-specific
accounts called "special accounts." The EPA should record special account settlement
funds received as unearned revenue, and the agency should reduce unearned revenue and
recognize earned revenue as expenses are incurred.
• The GAO's Standards for Internal Control in the Federal Government requires accurate
and timely recording of transactions and events, as well as comparison of file totals with
control totals.
Attachment 2 includes our FY 2016 recommendations to the OCFO and the status of the EPA's
corrective actions. The agency does not expect to complete corrective actions on this material
weakness until 2018; thus, we continue to report this material weakness but have no additional
recommendations.
Agency Comments and OIG Evaluation
The agency concurred with our findings and recommendations and plans to complete corrective
actions in FY 2018.
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3 - Additional Efforts Needed to Resolve EPA's
Cash Differences With Treasury
As of September 30, 2017, there was $2.2 million in cash differences between the EPA and
U.S. Treasury cash balances. We previously reported the EPA's long-standing cash differences
with Treasury as a significant deficiency in our FYs 2015 and 2016 audit reports of the financial
statements. Treasury's guidance requires the EPA to correct and resolve any differences between
the Treasury's and EPA's Fund Balance with Treasury. However, the EPA's OCFO did not have
effective internal controls to adequately monitor the internal cash differences and ensure that the
EPA resolved the differences with Treasury. Unresolved differences may result in misstatements
of the EPA's Fund Balance with Treasury and financial statements, as well as increase the risk of
fraud.
The Treasury Financial Manual, Volume 1, Section 3335, "Reconciling FMS 224, Section II,"
states that agencies should reconcile regional finance center transactions separately from
Intra-governmental Payments and Collections transactions by comparing transactions reported in
their accounting systems with the transactions reported to Treasury by the regional finance
centers and through the Intra-governmental Payment and Collection system. In the month
following the reporting month, agencies should correct any disclosed differences. Therefore, for
our review, we considered cash differences to be long-standing if they were unresolved for more
than 1 month after the initial reporting month.
The EPA's Resource Management Directive System No. 2540-03-PI, Fund Balance with
Treasury Management Standard Form 224 Reconciliation, requires the EPA to review and track
monthly the differences between the Treasury's and EPA's Fund Balance. The directive requires
the OCFO's General Ledger Analysis and Reporting Branch to review monthly the agency
financial system of record and to report issues to the respective finance center. The General
Ledger Analysis and Reporting Branch is responsible for tracking all budget clearing account
items from posting to final disposition. The EPA finance centers are required to provide
comments, as needed, to the General Ledger Analysis and Reporting Branch on the monthly cash
differences report.
The OCFO prepares a monthly cash difference report by accounting point and treasury symbol to
identify and resolve differences between the Treasury and EPA records. We found that the
EPA's Washington Finance Center continues to have long-standing unresolved cash differences.
As of September 30, 2017, the General Ledger Analysis and Reporting Branch reported
$73.5 million in cash differences, including long-standing differences of $2.2 million, at the
Washington Finance Center. These long-standing differences remained unresolved for at least
4 months.
The OCFO did not adequately monitor the internal cash differences at the transaction level to
ensure that the EPA resolved the differences with Treasury. The General Ledger Analysis and
Reporting Branch relied on the accounting points to resolve individual cash differences.
However, the Washington Finance Center did not resolve its long-standing differences.
Therefore, the General Ledger Analysis and Reporting Branch did not have effective internal
controls to resolve the individual cash differences.
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By not adequately monitoring and resolving all cash differences, the EPA increases the risk of
unrecorded transactions and fraud. Unrecorded transactions misstate the EPA's Fund Balance
with Treasury and the financial statements. During our FY 2015 financial statements audit, we
found that the EPA had not resolved $2.6 million in long-standing cash differences between the
EPA and Treasury balances. Based on our findings, we recommended in our FY 2015 report—
OIG Report No. 16-F-0040. Audit of EPA's Fiscal Years 2015 and 2014 Consolidated Financial
Statements, issued November 16, 2015—that the OCFO do the following:
• Require the General Ledger Analysis and Reporting Branch to monitor and work with the
finance centers to resolve all internal cash differences to ensure the EPA resolves all of
the differences with Treasury.
• Require the Payroll accounting point and Washington Finance Center to research and
resolve cash differences.
During our FY 2016 audit, we found that the EPA had made efforts to identify and resolve its
long-standing cash differences. Furthermore, the EPA was still working on completing its
corrective action to require the Payroll accounting point and the Washington Finance Center to
research and resolve cash differences. We therefore did not make any additional
recommendations regarding this issue in our FY 2016 financial audit report, OIG Report No.
17-F-0046. EPA's Fiscal Years 2016 and 2015 Consolidated Financial Statements, issued
November 15, 2016.
During our current audit, we noted major improvements, but long-standing unresolved cash
differences of $2.2 million remain at the Washington Finance Center. However, since the EPA is
still working on resolving cash differences and completing its corrective action, we do not make
any new recommendations in our FY 2017 financial audit report.
Agency Comments and OIG Evaluation
The agency responded that it will continue to research efforts to resolve the remaining
differences.
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4 - EPA Needs to Appoint a Project Manager to Oversee Management
of Compass Financials and Improve Acquisition Planning
The EPA's Compass Financials application—a major IT investment—lacks an oversight
structure to ensure that personnel implement agency policies and procedures and guide the
project through the acquisition process. OMB Circular A-130, Managing Information as a
Strategic Resource, at Appendix I-13-j(2), requires agencies to provide oversight of information
systems that are used by contractors or that collect or maintain federal information. This
oversight includes the responsibility to implement policies and procedures for security controls
and accountability for information systems. Paragraph 7.1.1.2 of the EPA's Acquisition Guide
requires acquisition planning for all acquisitions. The guide defines "acquisition planning" as the
process by which all personnel responsible for an acquisition coordinate to fulfill agency needs
in a timely manner and at a reasonable cost.
Hiring a Project Manager for Compass Financials
As of April 9, 2017, the EPA did not have a Project Manager assigned to oversee the
management of Compass Financials. During the audit and after inquires by the OIG, the EPA
issued a public and internal vacancy announcement on June 28, 2017, to recruit and fill the IT
Project Manager position within the OCFO. OCFO representatives attributed the delay in hiring
a Project Manager for Compass Financials to EPA restrictions and a hold placed on hiring.
However, despite these restrictions and hold, the EPA could have appointed an internal
employee to serve as the acting Project Manager until the office was capable of filling the
position permanently.
The OMB specifies that major acquisitions be overseen by personnel possessing the Federal
Acquisition Certification for Program and Project Managers (FAC-P/PM). Attachment 1,
Section 5, of OMB's December 16, 2013, memorandum regarding the FAC-P/PM outlines the
certification requirements that managers must meet to oversee major acquisitions:
Program managers assigned to programs considered major acquisitions by their
agency, and as defined by Office of Management and Budget (OMB) Circular
A-l 1 (IT and non-IT), must be senior-level certified unless an extension is granted
by the appropriate agency official. ... Project managers assigned to lead projects
within these major acquisitions must be, at a minimum, mid-level certified.
In addition, Attachment 4 (Sections 4 and 5) of OMB's 2013 memorandum emphasizes that
Program and Project Managers "managing major IT investments shall hold senior level
FAC-P/PM-IT specialization." This memorandum also indicates that Project Managers who do
not already have their FAC-P/PM-IT must obtain it within 1 year of being assigned to a relevant
project.
The absence of a Project Manager leaves the EPA without a knowledgeable expert to fulfill
critical oversight responsibilities, including coordinating with agency representatives, making
technical and programmatic decisions, and reviewing legislation and authoritative issuances for
Compass Financials and other systems.
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Issuing a Follow-On Contract for Hosting Compass Financials
The lack of an assigned Project Manager contributed, in part, to the OCFO not having a
permanent contract to manage costs for operating Compass Financials. The original contract for
Compass Financials, which was awarded in February 2007, provided for licensing, hosting and
maintenance services under a sole source procurement. As a result of the EPA's Federal
Information Technology Acquisition Reform Act3 process in August 2015, the agency's Chief
Information Officer decided to split the hosting from the
licensing and maintenance of Compass Financials into separate
contracts. The Office of Environmental Information estimated
that the EPA could achieve $3 million in cost savings over
7 years by procuring the most competitive hosting solution for
Compass Financials.
The Federal information
Technology Acquisition
Reform Act puts federal
agency Chief information
Officers in control of IT
investments and seeks to
enable effective planning and
budgeting for IT resources.
Although the original contract expired in February 12, 2017, a
solicitation for the hosting of Compass Financials was not
released until December 2016. To maintain the services of the incumbent vendor until a new
contract was awarded, the Office of Acquisition Management—within the EPA's Office of
Administration and Resources Management—had to procure sole source extensions of the
original contract. Figure 1 shows the timeline of contract renewal events.
Figure 1: Timeline of contract renewal events
4th Extension
07/31/2017—
11/3012017
2nd Extension
05/12/17-
06/30/17
3rd Extension
07/01/2017-
07/30/2017
1st Extension
02/12/17-
05/11/17
Source: OIG-generated diagram.
As of September 30, 2017, the original contract was on its fourth extension. These extensions
cost the EPA over $7.4 million (Table 1). The cost of the fourth extension increased $11,703
over the average cost per day of the first three extensions, from $21,003 to $32,706; therefore,
the total cost of the fourth extension was $1,416,118 more than the average cost of the first three
extensions. The fourth extension covered the software license and operations and maintenance,
in addition to "change requests and enhancements arising from new, previously unidentified,
missed, or incomplete Compass Financials requirements."
3 The Federal Information Technology Acquisition Reform Act became law as part of the National Defense
Authorization Act for FY 2015 (Title VIII, Subtitle D. H.R. 3979).
/ \ y
August 2015 December 2016
The EPA The EPA approved a sole source
decided to spilt procurement to extend the original
the hosting and Compass Financials contract due
maintenance of to delays in the acquisition process
Compass for the new contract. Additionally,
Financials into the EPA released the solicitation
two separate for the new contract for Compass
contracts. Financials hosting services.
February 2017
The original
Compass
Finamals
contract
expired.
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Table 1: Summary of extensions
Extension
Period
Cost
Number of
days extended
Cost per day
1st extension
02/12/17-05/11/17
$1,857,628
88
$21,109.41
2nd extension
05/12/17-06/30/17
1,059,353
49
21,619.45
3rd extension
07/01/17-07/31/17
608,438
30
20,281.27
4th extension
08/01/17-11/30/17
3,957,527
121
$32,706.83
Total Cost
$7,482,946
Source: OIG-generated table based on contract task orders.
In addition, based on the Office of Environmental Information's $3 million cost-savings estimate
for competitively procuring hosting services for Compass Financials, the EPA may have
overspent $250,000 by having to extend the sole source contract.
The Contracting Officer for the Compass Financials contract indicated that the Office of
Acquisition Management had to accommodate requests from lawyers, perform several market
research efforts, and revise the new solicitation several times. These initiatives all delayed the
solicitation and award of the new hosting contract.
Information obtained from the Office of Environmental Information indicates that 17 of the
EPA's systems are currently hosted by contractors. The EPA should therefore be familiar with
the acquisition process for hosting services and should have been able to implement a timely
acquisition plan to contract the hosting of Compass Financials. We attribute this deficiency to the
EPA not developing an agencywide acquisition planning strategy for all the agency's systems.
We did not make a recommendation regarding this issue in this report. On June 24, 2016, the
OIG initiated an audit of EPA's acquisition planning. The findings and recommendations
resulting from that audit are detailed in OIG Report No. 18-P0038. Improved Acquisition
Planning Will Help EPA Reduce Hundreds of Millions of Dollars in High-Risk Contracts, issued
November 15, 2017.
Action Taken as a Result of Our Audit
As a result of this audit finding, the OCFO outlined corrective actions and provided a completion
date for its corrective action. The EPA indicated that a Project Manager for Compass Financials
was appointed on October 1, 2017. However, it is incumbent upon the OCFO to monitor the
Project Manager's progress in obtaining the FAC-P/PM-IT within the 1-year deadline and to take
corrective actions if the Project Manager is unable to complete the certification requirements.
Recommendation
We recommend that the Chief Financial Officer:
1. Require the Compass Financials Project Manager to obtain the Federal Acquisition
Certification for Program and Project Managers with the Information Technology
specialization within the 1-year deadline, as required by the Office of Management and
Budget, and take corrective actions if the Project Manager is not able to complete the
certification requirements by the deadline.
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Agency Comments and OIG Evaluation
The OCFO agreed with our finding and recommendation. The office stated it would complete the
corrective action by October 1, 2018. We consider this recommendation resolved with corrective
action pending.
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Attachment 2
Status of Prior Audit Report Recommendations
The EPA is working to strengthen its audit management procedures to address audit findings in a
timely manner and to complete corrective actions expeditiously and effectively. Strengthened
procedures will also help improve environmental results. In FY 2017, the EPA's acting Chief
Financial Officer, as the Agency Follow-Up Official, issued a memorandum to senior agency
leadership, reminding senior managers of their stewardship responsibilities for developing and
promptly implementing effective corrective actions. The agency also accomplished these other
notable actions to strengthen its audit management procedures:
• Completed the revised EPA Manual 2750, Audit Management Procedures, effective
March 28, 2017. EPA Manual 2750 is a comprehensive audit management guide that
addresses OIG, GAO and Defense Contract Audit Agency audits. The document was posted
on the EPA intranet on May 5, 2017.
• Issued progress reports by the OCFO highlighting the status of management decisions and
corrective actions. The reports are shared with program office and regional managers
throughout the agency to keep them informed of the status of progress on their audits.
In addition, the EPA maintained its commitment to engage early with the OIG on audit findings
and to develop effective corrective actions that address OIG recommendations. Table 2 outlines
the status of past significant deficiency findings that have not been resolved to date.
Table 2: Significant deficiency issues not fully resolved
• EPA's Accounting for Software Continues to Be a Material Weakness
In our FYs 2014, 2015 and 2016 audits, we identified the agency's accounting for software as a
material weakness. In FY 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 that the agency has a material weakness in internal control over
identifying and capitalizing software; internal control failed to detect and correct the errors, resulting in
a misstatement of the FY 2013 financial statements. During FY 2017, the agency continued to take
corrective actions to improve its accounting for software. While the agency has made progress and
taken steps to correct weaknesses, not all corrective actions have been completed. Corrective actions
for the remaining recommendations are not due to be completed until 2018.
• EPA Did Not Capitalize Lab Renovation Costs
In our FY 2014 audit, we found that the EPA did not capitalize approximately $8 million of Research
Triangle Park lab renovations. As a result, the EPA did not properly classify the lab renovations as a
capital improvement. The agency capitalized and booked the Research Triangle Park lab renovation
costs and related depreciation. One corrective action was partially completed: The EPA Office of
General Counsel believed that the 1999 legal opinion was still a viable legal opinion but did not provide
examples to guide the agency's determinations of when renovation work should be funded from
agency program appropriations or Building and Facilities funds. Corrective actions for other
recommendations related to this finding were not due until September 2017; however, the agency
revised the expected completion date to February 28, 2018.
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• EPA's Internal Controls Over Accountable Personal Property Inventory Process Need
Improvement
In our FY 2014 audit, we noted that 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 FY 2014. The EPA also identified 573 property items not recorded in
Maximo. During our FY 2015 audit, we found that the agency made progress and took steps to correct
the differences between the amount of personal property recorded in Maximo and the amount of
physical inventory. However, although the agency implemented its corrective actions, we have not
assessed the effectiveness of these actions.
• EPA's Property Management System Does Not Reconcile to Its Accounting System (Compass)
During our FY 2014 audit, we found that 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). 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
FYs 2012 and 2013 financial statement audit reports. In FY 2014, the agency issued procedures to
reconcile capital property. The agency stated that it had begun to resolve the differences between
Maximo and Compass; however, problems continue to exist. In FYs 2015 and 2016, we again reported
this weakness as a significant deficiency; therefore, the EPA's corrective actions were not yet effective.
In FY 2017, the agency informed us that this corrective action was actually completed in
September 2016; however, no supporting documentation has been provided to date. Therefore, we
were not able to assess the effectiveness of the action.
• EPA Did Not Properly Record or Reconcile Unearned Revenue for Superfund Special Accounts
During FY 2015, the EPA misstated earned and unearned revenue for Superfund special accounts.
The EPA changed its accounting practice in FY 2015 to record settlement proceeds in Superfund
special accounts as unearned revenue. However, in our FY 2016 audit, we found that the EPA did not
properly record $168 million of unearned revenue for Superfund special accounts or perform a
comprehensive reconciliation of Superfund special accounts unearned revenue general ledger
balances to the special accounts database detail. The EPA made these errors because it did not
modify the accounting model for special accounts in Compass Financials. During our FY 2017 audit,
we found that the EPA would not be able to complete its corrective actions to modify the accounting
model or reconcile Superfund special accounts unearned revenue general ledger balances to the
special accounts database detail until FY 2018.
• Originating Offices Did Not Timely Forward Accounts Receivable Source Documents to the
Finance Center
In FY 2014, we found that the EPA and the Department of Justice did not forward accounts receivable
source documents to the finance center in a timely manner. During FY 2015, the EPA's Office of
Enforcement and Compliance Assurance issued a memorandum reminding the regions to provide
accounts receivable enforcement documentation to the finance center in a timely manner. In addition,
the OCFO updated the EPA's Superfund guidance to direct originating offices to send accounts
receivable control forms to the finance center in a timely manner. While we have noted some
improvements in the Cincinnati Finance Center's timely receipt of legal documents, we still identified
instances of untimely receipt during FYs 2015, 2016 and 2017. Therefore, the agency's corrective
actions are not completely effective, and we will continue to evaluate how timely the receipt of
accounts receivable source documents is in FY 2018.
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• EPA Should Improve Controls Over Expense Accrual Reversals
In FY 2012, the EPA did not reverse approximately $108 million of FY 2011 year-end expense
accruals. The EPA did not reverse the accrual transactions because the Compass posting
configuration for the applicable fund category was inaccurate. By not reversing the accruals in a timely
manner, the EPA materially overstated the accrued liability and expense amounts in the quarterly
financial statements. The EPA's Policy Announcement No. 95-11, Policies and Procedures for
Recognizing Year-End Accounts Payable and Related Accruals, requires the agency to "recognize and
report all accounts payable and related accruals in its year-end financial reports." In our audit report
issued November 16, 2012, we recommended that the EPA update Policy Announcement No. 95-11 to
require reconciliations of accruals and accrual reversals. EPA officials concurred with our finding and
recommendation and took corrective action by implementing an independent review of the FY 2012
accruals and reversals. The EPA also performed accrual reviews prior to the issuance of the FY 2013
quarterly financial statements. During the FY 2013 audit, the EPA extended the target completion date
for updating Policy Announcement No. 95-11 to June 2014. During our FY 2014 audit, the EPA
extended the target completion date again to December 31, 2015, due to workload and resource
constraints. In FY 2015, the EPA again revised the date to December 31, 2016, to explore new
methods to streamline the accrual processes and take advantage of efficiencies available in the
Compass upgrade scheduled for February 2016. During our FY 2016 audit, the EPA anticipated being
able to meet its targeted completion date (December 31, 2016). In FY 2017, the EPA developed
Resource Management Directive System 2540-04-P3, Accounts Payable Policies and Procedures for
Recognizing Year-End Accrued Liabilities for Grants, which superseded Policy Announcement
No. 95-11. Resource Management Directive System 2540-04-P3 addresses the EPA's requirements
for recording accrued liabilities for grants in the EPA's financial system. In addition, the EPA stated
that it updated the policy for the accounts payable grants and it started drafting the policy for other
types of accruals in April 2017. The policy drafting process entails identification of accrual process
holders with primary points of contact, documentation gathering, development of the policy for each
type of accrual by working with primary points of contact, and final review of the policy document. The
EPA projected a June 2018 completion date for updating the policy for all accruals.
• EPA Should Improve Its Efforts to Resolve EPA's Long-Standing Cash Differences With Treasury
During our FY 2015 audit, we found that the EPA had not resolved $2.6 million in long-standing cash
differences between the EPA and Treasury balances. Based on our findings, we recommended that
the Chief Financial Officer require the General Ledger Analysis and Reporting Branch to monitor and
work with the finance centers to resolve all internal cash differences to enable the EPA to resolve all
differences with Treasury. We also recommended that the Chief Financial Officer require the Payroll
accounting point and Washington Finance Center to research and resolve cash differences. The
agency agreed with our finding and recommendations. According to the agency's corrective action
status report, as of November 2, 2016, the agency completed its corrective action for the first
recommendation. During our FY 2016 audit, we found that the EPA made efforts to identify and
resolve its long-standing cash differences and that the agency was working on completing its
corrective action to require the Payroll accounting point and the Washington Finance Center to
research and resolve cash differences. We did not make any additional recommendations regarding
this issue in our FY 2016 financial audit report but included it as an unresolved significant deficiency.
During our FY 2017 audit, we noted major improvements, but long-standing unresolved cash
differences of $2.2 million remain at the Washington Finance Center. Since the EPA is still working on
resolving cash differences and completing its corrective action, we did not make any new
recommendations in our FY 2017 financial audit report.
• Financial Management System User Account Management Needs Improvement
During our FY 2009 audit, we found that the EPA had not established policies that clearly define
incompatible functions and associated processes to ensure that proper separation of duties are
enforced within the financial system application. Based on our findings, we recommended in our
FY 2009 report that the OCFO ensure that all new and updated financial management systems include
an automated control to enforce separation of duties. The agency agreed with our finding and
recommendation. The EPA had considered this recommendation closed; however, the OCFO agreed
in FY 2016 to develop alternative corrective actions for this recommendation, with a planned
completion date of December 31, 2017. In FY 2017, the OCFO extended the completion date to
December 31, 2018.
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• OCFO Lacks Internal Controls When Assuming Responsibility for Account Management
Procedures of Financial Systems
During our FY 2015 audit, we found that the OCFO's Application Management staff assumed
responsibility for managing oversight of users' access to the Payment Tracking System without
ensuring that the system had documentation covering key account management procedures. Based
on our findings, we recommended in our FY 2015 report that the Chief Financial Officer implement an
internal control process for transferring the management of an application's user access to the
Application Management staff. We also recommended that the Chief Financial Officer conduct an
inventory of OCFO systems managed by the Application Management staff and create or update
supporting access management documentation for each application. Further, we recommended that
the Chief Financial Officer work with the Contracting Officer to update applicable contract clauses and
distribute updated access management documentation to contractors supporting the user account
management function for applications managed by the Application Management staff. The agency
agreed with our finding and recommendations. In FY 2017, the OCFO extended the completion date
for the first and second recommendations to December 31, 2018, In addition, the OCFO modified the
corrective action for the third recommendation but is adhering to the original expected completion date
of March 31, 2018.
• Financial and Mixed-Financial Applications Did Not Comply With Required Account
Management Controls
During our FY 2015 audit, we found that the EPA lacked management oversight to ensure that
responsible individuals fully develop and implement required account management controls for the
EPA's financial and mixed-financial systems. Based on our finding, we recommended in our FY 2015
report that the Chief Financial Officer review and update account management documentation and
establish procedures for financial systems. We also recommended that the Chief Financial Officer
issue a memorandum emphasizing the need to follow access control procedures, conduct an inventory
of financial systems to ensure the systems are entered into Xacta to monitor compliance with required
information systems security controls, and implement a process to notify the OCFO of the status of
corrective actions entered into Xacta. The agency agreed with our finding and recommendations.
According to the agency's corrective action status report, as of June 27, 2016, the agency completed
corrective actions for all but the first recommendation. The EPA is currently working on reviewing and
updating account management documentation and establishing procedures for financial systems, but
in FY 2017, the OCFO extended the completion date for this corrective action to December 31, 2018.
• EPA Needs Controls to Monitor Direct Access to the Compass Financials Database
During our FY 2016 audit, we found that the EPA did not establish controls to monitor direct access to
data within the Compass Financials database. Based on our findings, we recommended in our
FY 2016 report that the Chief Financial Officer work with the Compass Financials service provider to
establish controls for creating and locking administrative accounts. We also recommended that the
Chief Financial Officer work with the Compass Financials service provider to develop and implement a
methodology to monitor accounts with administrative capabilities. Further, we recommended that the
Chief Financial Officer enter the Continuous Monitoring Assessment recommendations into the
agency's system used for monitoring the remediation of information security corrective actions. The
agency concurred with our recommendations. According to the agency's corrective action status
report, as of August 1, 2017, the agency is adhering to the planned completion date of September 30,
2021, for the first and second recommendations. Corrective actions for the third recommendation have
been completed.
Source: OIG analysis.
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Attachment 3
Status of Current Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Potential
Planned Monetary
Rec. Page Completion Benefits
No. No. Subject Status1 Action Official Date (In $000s)
1 17 Require the Compass Financials Project Manager to obtain the R Chief Financial Officer 10/1/18
Federal Acquisition Certification for Program and Project
Managers with the Information Technology specialization within
the 1-year deadline, as required by the Office of Management
and Budget, and take corrective actions if the Project Manager is
not able to complete the certification requirements by the
deadline.
1 C = Corrective action completed.
R = Recommendation resolved with corrective action pending.
U = Recommendation unresolved with resolution efforts in progress.
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Appendix I
EPA's FYs 2017 and 2016
Consolidated Financial Statements
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Appendix II
Agency Response to Draft Report
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Appendix III
Distribution
The Administrator
Chief of Staff
Chief of Staff for Operations
Deputy Chief of Staff for Operations
Chief Financial Officer
Assistant Administrator for Administration and Resources Management
Assistant Administrator and Chief Information Officer, Office of Environmental Information
Assistant Administrator for Land and Emergency Management
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Associate Chief Financial Officer
Controller, Office of the Chief Financial Officer
Deputy Controller, Office of the Chief Financial Officer
Director, Office of Budget, Office of the Chief Financial Officer
Director, Office of Planning, Analysis and Accountability, Office of the Chief Financial Officer
Director, Office of Technology Solutions, 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 Resource and Information Management, Office of the Chief Financial Officer
Deputy Assistant Administrator, Office of Administration and Resources Management
Director, Office of Grants and Debarment, Office of Administration and Resources Management
Director, Office of Acquisition Management, Office of Administration and Resources
Management
Director, Office of Administration, Office of Administration and Resources Management
Director, Office of Resources, Operations and Management, Office of Administration and
Resources Management
Deputy Director, Office of Resources, Operations and Management, Office of Administration
and Resources Management
Director, Office of Superfund Remediation and Technology Innovation, Office of Land and
Emergency Management
Principal Deputy Assistant Administrator and Deputy Chief Information Officer, Office of
Environmental Information
Director, Office of Information Technology Operations, Office of Environmental Information
Director, Office of Information Security and Privacy, Office of Environmental Information
Audit Follow-Up Coordinator, Office of the Administrator
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 Environmental Information
Audit Follow-Up Coordinator, Office of Land and Emergency Management
Audit Follow-Up Coordinator, Office of Grants and Debarment, Office of Administration and
Resources Management
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SECTION III -
OTHER ACCOMPANYING INFORMATION
in
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MANAGEMENT INTEGRITY AND CHALLENGES
Overview of EPA's Efforts
Management challenges and integrity weaknesses represent vulnerabilities in program operations that may
impair EPA's ability to achieve its mission and threaten the Agency's safeguards against fraud, waste, abuse
and mismanagement These areas are identified through internal agency reviews and independent reviews
by EPA's external evaluators, such as OMB, the U.S. Government Accountability Office (GAO) and EPA's OIG.
This section of the AFR discusses in detail two components related to challenges and weaknesses: 1) key
management challenges identified by EPA's OIG, followed by the Agency's response and 2) a brief discussion
of EPA's progress in addressing its FY 2017 management integrity weaknesses.
Under the FMFIA, all federal agencies must provide reasonable assurance that policies, procedures and
guidance are adequate to support the achievement of their intended mission, goals and objectives. (See
Section I, "Management Discussion and Analysis," for the Administrator's assurance statement.) Agencies
also must report any material weaknesses identified through internal and/or external reviews and their
strategies to remedy the problems. Material weaknesses are vulnerabilities that could significantly impair or
threaten fulfillment of the Agency's programs or mission. In FY 2017, no new material weaknesses were
identified by OIG or the Agency. (See following subsection for a discussion of EPA's current material
weakness.)
The Agency's senior managers remain committed to maintaining effective and efficient internal controls to
ensure that program activities are carried out in accordance with applicable laws and sound management
policy. The Agency will continue to address its remaining weaknesses and report on its progress.
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2017 KEY MANAGEMENT CHALLENGES
Office of Inspector General-Identified Key Management Challenges
The Reports Consolidation Act of 2000 requires the OIG to report on the agency's most serious management
and performance challenges, known as the key management challenges. Management challenges represent
vulnerabilities in program operations and their susceptibility to fraud, waste, abuse or mismanagement. For
FY 2017, the OIG identified three challenges. The table below includes issues the OIG identified as key
management challenges facing the EPA, the years in which the OIG identified the challenge, and the
relationship of the challenge to the agency's goals in its strategic plan
f http://epa.gov/planandbudget/strategicplan.html].
OIG-Identified Key Management Challenges for the EPA
FY 2015
FY 2016
FY 2017
EPA
strategic
goal
Oversight of States, Territories, and Tribes Authorized to
Accomplish Environmental Goals: The EPA must establish
consistent baselines and monitoring programs.
•
•
•
Cross-Goal
Enhancing Information Technology Security to Combat
Cyber Threats (formerly Limited Capability to Respond to
Cyber Security Attacks): The EPA has a limited capacity to
effectively respond to external network threats. Although the
Agency has deployed new tools to improve its architecture,
these tools raise new security challenges. The EPA has
reported that over 5,000 servers and user workstations may
have been compromised from recent cyber security attacks.
•
•
•
Cross- Goal
Workforce Planning / Workload Analysis: The EPA's
human capital is of concern in part due to requirements
released under the President's Management Agenda. The OIG
identified significant concerns with the EPA's management of
human capital. The EPA has not developed analytical
methods or collected data needed to measure its workload
and the corresponding workforce levels necessaiy to cany
out that workload.
•
•
•
Cross- Goal
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FY 2017
EPA Management
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17-N-0219
May 18, 2017
114
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Abbreviations
DWSRF
Drinking Water State Revolving Fund
EPA
U.S. Environmental Protection Agency
FTE
Full-Time Equivalent
FY
Fiscal Year
GAO
U.S. Government Accountability Office
MATS
Management Audit Tracking System
OIG
Office of Inspector General
SDWA
Safe Drinking Water Act
Are you aware of fraud, waste or abuse in an
EPA program?
EPA Inspector General Hotline
1200 Pennsylvania Avenue, NW(2431T)
Washington, DC 20460
(888) 546-8740
(202) 566-2599 (fax)
EPA Office of Inspector General
1200 Pennsylvania Avenue, NW (2410T)
Washington, DC 20460
(202) 566-2391
www.epa.aov/oia
Learn more about our OIG Hotline.
Subscribe to our Email Updates
Follow us on Twitter @EPAoia
Send us your Project Suggestions
115
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o
2
U.S. Environmental Protection Agency
Office of Inspector General
V
^1 At a Glance
17-N-0219
May 18, 2017
^ PRO^°
What Are Management
Challenges?
According to the Government
Performance and Results Act
Modernization Act of 2010,
major management challenges
are programs or management
functions, within or across
agencies, that have greater
vulnerability to waste, fraud,
abuse and mismanagement,
where a failure to perform well
could seriously affect the ability
of an agency or the federal
government to achieve its
mission or goals.
As required by the Reports
Consolidation Act of 2000,
we are providing issues we
consider as the U.S.
Environmental Protection
Agency's (EPA's) major
management challenges for
fiscal year 2017.
This report addresses all of the
EPA's strategic goals and
cross-agency strategies.
EPA's Fiscal Year 2017 Management Challenges
What We Found
Attention to agency management challenges could result in stronger
results and protection for the public, and increased confidence in
management integrity and accountability.
The EPA Needs to Improve Oversight of States, Territories and Tribes
Authorized to Accomplish Environmental Goals:
• The EPA has made important progress, but our work continues to identify
challenges throughout agency programs and locations, and many of our
recommendations are still not fully implemented.
The EPA Needs to Improve Its Workload Analysis to Accomplish Its Mission
Efficiently and Effectively:
• The EPA needs to identify its workload needs so that it can more effectively
prioritize and allocate limited resources to accomplish its work.
The EPA Needs to Enhance Information Technology Security to Combat
Cyber Threats:
• Though the EPA continues to initiate actions to further strengthen or improve
its information security program, the agency lacks a holistic approach to
managing accountability over its contractors, and lacks follow-up on
corrective actions taken.
Send all inquiries to our public
affairs office at (202) 566-2391
or visit www.epa.gov/oia.
Listing of OIG reports.
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WASHINGTON, D.C. 20460
INSPECTOR GENERAL
THE
May 18, 2017
MEMORANDUM
SUBJECT: EPA's Fiscal Year 2017 Management Challenges Report No.
17-N-0219
FROM: Arthur A. Elkins Jr.
TO: Scott Pruitt,
Administrator
We are providing you with a list of areas that the Office of Inspector General (OIG) considers as major
management challenges confronting the U.S. Environmental Protection Agency (EPA). The project number for
this report was OPE-FY17-0003. According to the Government Performance and Results Act Modernization Act
of 2010, major management challenges are programs or management functions, within or across agencies, that
have greater vulnerability to waste, fraud, abuse and mismanagement, where a failure to perform well could
seriously affect the ability of an agency or the federal government to achieve its mission or goals.
The Inspector General Act of 1978, as amended, directs Inspectors General to provide leadership to the agency
through audits, evaluations and investigations, as well as additional analysis of agency operations. The enclosed
management challenges reflect findings and themes resulting from many such efforts. Drawing high-level agency
attention to these key issues is an essential component of the OIG's mission.
The Reports Consolidation Act of 2000 requires our office to annually report what we consider the most serious
management and performance challenges facing the agency. Additional challenges may exist in areas that we have
not yet reviewed, and other significant findings could result from additional work. The attachment summarizes
what we consider to be the most serious management and performance challenges facing the agency, and assesses
the agency's progress in addressing those challenges.
Challenges
Page
The EPA Needs to Improve Oversight of States, Territories and Tribes Authorized to
Accomplish Environmental Goals
1
The EPA Needs to Improve Its Workload Analysis to Accomplish Its Mission Efficiently and
Effectively
7
The EPA Needs to Enhance Information Technology Security to Combat Cyber Threats
11
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Like the U.S. Government Accountability Office does with its High-Risk List, each year we assess the agency's
efforts against the following five criteria required to justify removal of management challenges from the prior
year's list:
1. Demonstrated top leadership commitment.
2. Agency capacity - people and resources to reduce risks, and processes for reporting and
accountability.
3. Corrective action plan - analysis identifying root causes, targeted plans to address root causes, and
solutions.
4. Monitoring efforts - established performance measures and data collection/analysis.
5. Demonstrated progress - evidence of implemented corrective actions and appropriate adjustments to
action plans based on data.
The U.S. Government Accountability Office's 2017 High-Risk Series report describes these five criteria as a road
map for efforts to improve and ultimately address high-risk issues. Addressing some of the criteria leads to
progress, while satisfying all of the criteria is central to removal from the list.
This year, we retained three management challenges from last year's list due to persistent issues, and dropped one
issue (management oversight to combat waste, fraud and abuse). The management challenge was removed due to
agency efforts in addressing issues we identified.
We will post this report to our website at www.epa.gov/oig. We welcome the opportunity to discuss our list of
challenges and any comments you or your staff might have.
Attachment
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CHALLENGE: The EPA Needs to Improve Oversight of States, Territories and
Tribes Authorized to Accomplish Environmental Goals
CHALLENGE FOR THE AGENCY
In recent years, our work has identified the absence of robust
oversight by the U.S. Environmental Protection Agency (EPA) of
states, territories and tribes authorized to implement
environmental programs under several statutes. The EPA has
made important progress, but recent and ongoing EPA Office of
Inspector General (OIG) and U.S. Government Accountability
Office (GAO) work continues to support this as an agency
management challenge.
BACKGROUND
To accomplish its mission, the EPA develops regulations and establishes programs that implement environmental
laws. Many federal environmental laws establish state, territorial and tribal regulatory programs that give states,
territories and tribes the opportunity to enact and enforce laws. The EPA may authorize states, territories and tribes
to implement environmental laws when they request authorization and the EPA determines a state, territory or tribe
capable of operating the program consistent with federal standards. The EPA performs oversight of state, territorial
and tribal programs to provide reasonable assurance that they achieve national goals to protect human health and
the environment. Oversight of state, territorial and tribal activities requires that the EPA establish and maintain
consistent national baselines that state, territorial and tribal programs must meet; monitor state, territorial and
tribal programs to determine whether they meet federal standards; and ensure that federal dollars expended help
achieve oversight objectives.
The EPA relies heavily on authorized states, territories and tribes to obtain environmental program performance
data and implement compliance and enforcement programs. For example:
• Forty-nine states, five territories (American Samoa, Guam, Commonwealth of the Northern Mariana
Islands, Puerto Rico and the U.S. Virgin Islands) and one tribe administer the Public Water Supply
Supervision program under the Safe Drinking Water Act.
• Forty-eight states, one territory (Guam), and the District of Columbia are authorized to administer the
Resource Conservation and Recovery Act hazardous waste program.
• Forty-six states fully and one territory (U.S. Virgin Islands) partially administer point source programs
(National Pollutant Discharge Elimination System) under the Clean Water Act.
• Every state and territory, as weil as one tribe, administer Title V of the Clean Air Act, designed to
regulate the largest sources of air pollution.
These states, territories and tribes perform a critical role in supporting the EPA's duty to execute and enforce
environmental laws. However, the EPA has the authority and responsibility to enforce environmental laws when
states, territories and tribes do not. Many EPA programs implement a variety of formal and informal oversight
processes that are not always consistent across EPA regions and the states, territories and tribes.
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THE AGENCY'S PROGRESS
We have identified EPA oversight of authorized state, territorial and tribal programs as an agency management
challenge since fiscal year (FY) 2008. The EPA has made progress in reviewing and measuring inconsistencies in its
oversight of state, territorial and tribal programs; using EPA authority when states, territories and tribes have failed
to use their delegated authority; and revising EPA policies to improve consistency in oversight.
Since 2008, the EPA has made state oversight an agency priority. The EPA included oversight in the EPA's FYs 2012-
2015 Action Plans for Strengthening State, Tribal, and International Partnerships. The EPA formed a senior-level
workgroup that noted additional recommendations on state oversight, including improving consistency for
identifying regional and state roles during EPA program review, and developing an initial set of common principles.
In 2013, the EPA developed the new key performance indicator, referred to as Oversight of State Delegations Key
Performance Indicator. The EPA also adopted a cross-agency strategy on "Launching a New Era of State, Tribal, Local,
and International Partnerships" in its FYs 2014-2018 Strategic Plan, and revised its planning and commitment-setting
process beginning in FY 2017 to provide "earlier and more meaningful engagement with states and tribes."
In 2016, the EPA released "Promoting Environmental Program Health and Integrity: Principles and Best Practices for
Oversight of State Permitting Programs," for the agency and states to use to enhance the efficiency and effectiveness
of the oversight system. The agency developed this document to "deliver on a commitment in the EPA's cross-agency
strategy to launch a new era of state, tribal, local and international partnerships and to help respond to
recommendations for strengthening oversight from the EPA's Office of Inspector General." According to the agency, it
continues to improve its state oversight practices to ensure consistency by, for example, establishing the State
Program Health and Integrity Workgroup. This interagency workgroup is composed of the EPA's national program
offices for air, enforcement and water, as well as states and media associations; it gathers and analyzes information on
oversight of state practices, identifies gaps, and develops solutions. In August 2016, as a result of the efforts from the
workgroup, the agency released a set of principles and best practices for EPA and state collaboration in promoting
environmental program health and integrity.
The EPA has made additional changes in response to recommendations in our reports. For example:
• In 2016, the EPA completed all corrective actions to address recommendations from a September 2014
report where we found that the EPA was not adequately overseeing significant portions of most states'
Clean Water Act pretreatment and permit programs. We recommended that the EPA improve sharing
of Toxic Release Inventory data, develop a list of chemicals beyond the priority pollutants for inclusion
among the chemicals subject to discharge permits, confirm compliance with hazardous waste
notification requirements, and track required submittals of toxicity tests and violations. Because of the
completed corrective actions, there is greater assurance that states are using permits to minimize
potentially harmful contamination of water resources.
• In response to a February 2015 report, the EPA completed all corrective actions to address findings that
EPA Region 8 was not conducting inspections at establishments in North Dakota that produce pesticides
or inspections of pesticides imported into the state. In response to our recommendations, the EPA
initiated inspections, developed a multi-year plan for future inspections, compiled a list of the
inspections conducted annually for Region 8's North Dakota end-of-year report, and reviewed the end-
of year report to confirm that inspections have been initiated. It is expected that these corrective
actions will help address the risk that pesticides are not in compliance with federal law, toxics are going
undetected, and adverse human health and environmental impacts are occurring.
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• The EPA completed all corrective actions to address recommendations from a July 2014 report. That
report found that while the EPA and the states we reviewed took many actions to reduce Drinking
Water State Revolving Fund (DWSRF) unliquidated balances, those actions had not reduced DWSRF
unliquidated balances to below 13 percent of the cumulative federal capitalization grants awarded,
which the Office of Water stated was the focus of its efforts. As a result, $231 million of capitalization
grant funds remained idle, loans were not issued, and communities did not implement needed drinking
water improvements. We also noted that states' fundable lists did not reflect projects that would be
funded in the current year, and overestimated the number of projects that will receive funding. The
completed corrective actions—such as requiring states with unliquidated obligations that exceed the
Office of Water's 13-percent-cutoff goal to project future cash flows to ensure funds are expended as
efficiently as possible—should help address the issues reported.
• In our September 2015 early warning report, we recommended that EPA Region 9 exercise fiduciary
responsibility and withhold FY 2015 funds of $8,787,000 for the Hawaii DWSRF capitalization grant until
the region is satisfied with corrective action plan implementation progress. After being briefed on our
report, EPA Region 9 initiated an enforcement action against the Hawaii Department of Health for not
meeting its loan commitment and disbursement targets. EPA Region 9 advised Hawaii that the FY 2015
DWSRF capitalization grant would be withheld and the region may withhold further awards.
• In 2009, we found that High Priority Violations under the Clean Air Act were not being addressed in a
timely manner because regions and states did not follow policy, EPA headquarters did not oversee
regional and state High Priority Violations performance, and EPA regions did not oversee state High
Priority Violations performance. We recommended that the EPA revise the High Priority Violations
policy to improve the EPA's ability to oversee High Priority Violation cases and clarify the roles and
responsibilities of EPA headquarters and regions, the states, and local agencies. The EPA issued its
revised policy in August 2014.
WHAT REMAINS TO BE DONE
The agency's activities under this management challenge do not meet the following criteria required to justify removal:
(1) an action plan, (2) monitoring efforts, and (3) demonstrated progress. EPA leadership needs to demonstrate an
organizational commitment to correcting problems with the agency's oversight of key state programs designed to
protect human health and the environment. To demonstrate this commitment, the agency should show it has the
capacity and has developed a framework for addressing oversight issues. The agency also needs to develop a system for
monitoring state, tribal and territory oversight effectiveness so that it can work toward demonstrating its progress in
correcting this management challenge. As such, we are maintaining this issue as a management challenge for FY 2017,
and we continue to conduct reviews of the EPA's oversight of authorized programs:
• In an October 2016 report, we found that EPA Region 5 had the authority and sufficient information to
issue a Safe Drinking Water Act (SDWA) Section 1431 emergency order to protect residents in Flint,
Michigan, from lead-contaminated water as early as June 2015. EPA Region 5 had information that
systems designed to protect Flint drinking water from lead contamination were not in place, Flint
residents had reported multiple abnormalities in the water, and test results from some homes showed
lead levels above the federal action level. However, EPA Region 5 did not issue an emergency order
until January 21, 2016, because the region concluded the state's actions were a jurisdictional bar
preventing the EPA from issuing a SDWA Section 1431 emergency order. This occurred despite the
EPA's 1991 guidance on SDWA Section 1431 orders clarifying that if state actions are deemed
insufficient the EPA can and should proceed with a SDWA Section 1431 order. EPA Region 5 did not
intervene under SDWA Section 1431, the conditions in Flint persisted, and the state continued to delay
taking action to require corrosion control or provide alternative drinking water supplies. Corrective
actions are pending.
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• In a June 2016 report on the EPA's financial oversight of Superfund state contracts, we found that the
EPA incurred total obligations and expenditures in excess of the authorized cost ceiling for 51 of the 504
active and closed contracts; did not perform timely, complete and accurate financial closings for 20
such contracts to ensure that both the EPA and the state had satisfied their cost share requirement;
and did not have all the up-to-date information needed for an accurate Superfund state contract
accrual calculation. The agency agreed with the recommendations, and corrective actions are pending.
• In a May 2016 report, we found that EPA Region 9 needed improved internal controls for oversight of
Guam's consolidated cooperative agreements. We noted that EPA Region 9 project files were not
readily available to third parties, and EPA Region 9 did not ensure reliability of Guam Environmental
Protection Agency Safe Drinking Water Information System data. Without adequate internal controls
and oversight, more than $67 million in consolidated cooperative agreement funds may not be
administered efficiently and effectively, thus reducing the impact those funds could have on protecting
human health and the environment. The agency agreed with our recommendations, and corrective
actions are pending.
• In March 2016, we reported that EPA efforts to bring small drinking water systems into compliance
through enforcement and compliance assistance resulted in some improvement overtime. However,
across EPA Regions 2, 6 and 7, we found inconsistencies in adherence to the EPA's Enforcement
Response Policy. Within our sample, 10 of the systems never received a formal enforcement order, only
three of 20 enforcement orders met the timeliness standard in the Enforcement Response Policy, and
few cases were escalated by the EPA or state when noncompliance persisted. The agency agreed with
our recommendations and proposed adequate corrective actions, which are pending.
• In a July 2015 report, we found that the EPA needs to improve oversight of permit issuance for
hydraulic fracturing using diesel fuels, and address any related compliance issues. Evidence shows that
companies have used diesel fuels during hydraulic fracturing without EPA or primacy state underground
injection control Class II permits. The EPA has also not determined whether primacy states and tribes
are following the agency's interpretive memorandum for issuing permits for hydraulic fracturing using
diesel fuels. Enhanced EPA oversight can increase assurance that risks associated with diesel fuel
hydraulic fracturing are being adequately addressed. The agency agreed with our recommendations or
proposed actions that met the intent of our recommendations. The corrective actions are pending.
• In an April 2015 report, we found that the U.S. Virgin Islands did not meet program requirements for
numerous activities related to implementing Clean Air Act, Clean Water Act, SDWA and Underground
Storage Tank/Leaking Underground Storage Tank programs. EPA Region 2 oversight had not identified
program deficiencies uncovered by our review, or implemented procedures to ensure that deficiencies
identified by EPA Region 2 were corrected. Moreover, we found that deficiencies continued in the U.S.
Virgin Islands despite EPA Region 2 oversight uncovering them in prior years. Since the EPA retains
responsibility for programs implemented on its behalf—such as those in the U.S. Virgin Islands—we
concluded that the agency needs to act to ensure that the public and environment are protected. We
made 19 recommendations, ranging from withdrawing the U.S. Virgin Islands' authority to implement
EPA programs, to providing additional EPA oversight. The EPA agreed, and has committed to taking
appropriate corrective actions. Two recommendations with agreed-to corrective actions remain
pending.
• In October 2014, we reported weaknesses in EPA oversight of state and local Title V programs' fee
revenue practices. Title V permitting requirements are designed to reduce violations and improve
enforcement of air pollution laws for the largest sources of air pollution, such as petroleum refineries
and chemical production plants. We found that Title V program expenses often exceeded revenue, even
though the Clean Air Act requires these programs to be solely funded by permit fees. We
recommended that the EPA assess, update and re-issue its 1993 Title V fee guidance as appropriate;
establish a fee oversight strategy to ensure consistent and timely actions to identify and address
violations; emphasize and require periodic reviews of Title V fee revenue and accounting practices;
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address shortfalls in staff expertise as regions update their workforce plans; and pursue corrective
actions as necessary. The EPA has committed to taking appropriate corrective actions, and completion
of actions is pending.
GAO has also conducted reviews of the EPA's oversight of states, territories and tribes, and made recommendations
to address identified deficiencies. For example, in 2016, GAO reported that the EPA had not collected necessary
information or conducted oversight activities to determine whether state and EPA-managed Underground Injection
Control class II programs are protecting underground sources of drinking water. Some of the recommendations from
GAO were that the EPA require programs to report well-specific inspections data, clarify guidance on enforcement
data reporting, and analyze the resources needed to oversee programs. In 2015, GAO found that financial indicators
collected by the EPA as part of its oversight responsibilities do not show states' abilities to sustain their Clean Water
and Drinking Water State Revolving Funds. GAO recommended that the EPA update its financial indicator guidance
to include measures for identifying the growth of the states' funds. GAO also recommended that, during the reviews,
the EPA develop projections of state programs by predicting the future lending capacity.
While important progress has been made, our work continues to identify challenges throughout agency programs
and locations, and many of our recommendations remain to be fully implemented. We continue to perform work in
this area and will continue to monitor the agency's progress in addressing this challenge.
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CHALLENGE: The EPA Needs to Improve Its Workload Analysis to Accomplish
Its Mission Efficiently and Effectively
CHALLENGE FOR THE AGENCY
The EPA has not fully implemented controls and
a methodology to determine workforce levels
based upon analysis of the agency's workload.
The EPA's program and regional offices have not
conducted a systematic workload analysis or
identified workforce needs for budget
justification purposes. The EPA's ability to assess
its workload—and subsequently estimate workforce levels necessary to carry out that workload— is critically
important to mission accomplishment. Due to the broad implications for accomplishing the EPA's mission, we have
included this as an agency management challenge since 2012.
BACKGROUND
in 2010, we reported that the EPA did not have policies and procedures requiring that workforce levels be
determined based upon workload analysis. In 2011, we reported that the EPA does not require program offices to
collect and maintain workload data. Without such data, program offices are limited in their ability to analyze their
workload and justify resource needs. The GAO also reported in October 2011 that the EPA's process for budgeting
and allocating resources does not fully consider the agency's current workload. In March 2010, the GAO reported
that it had brought this issue to the attention of EPA officials through reports in 2001, 2005, 2008 and 2009.
Since 2005, EPA offices have studied workload issues at least six different times, spending nearly $3 million for various
contractors to study the issues. However, for the most part, the EPA has not used the findings resulting from these
studies. According to the EPA, the results and recommendations from the completed studies were generally not
feasible to implement.
Over the past decade, the EPA's workforce levels have declined, with significant reductions in FYs 2012 through
2015, when levels declined by over 2,100 positions (including losses due to earlyouts and buyouts in 2014).
Without a clear understanding of its workload, it is unclear whether this decline jeopardizes the EPA's ability to
meet its statutory requirements and overall mission to protect human health and the environment, or if the
decline represents a natural and justifiable progression, because the EPA has completed major regulations
implementing environmental statutes and states have assumed primacy over most media programs.
THE AGENCY'S PROGRESS
The agency has not yet adopted an overall plan to address workforce analysis, but has initiated some limited pilots
and surveys to address the issue.
In 2013, we conducted a follow-up review of actions the EPA has taken to address previous OIG recommendations.
We found that the EPA:
• Initiated pilot projects in Regions 1 and 6 to analyze the workload for air State Implementation Plans
and permits, as well as water grants arid permits.
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Surveyed numerous front-line agency managers on the functions performed, thereby creating an
inventory of common functions among program offices.
• Through the Office of the Chief Financial Officer, consulted with 23 other federal agencies about their
workload methodologies. As a result of that analysis, the EPA selected an approach referred to as the
"Table Top" method used by the U.S. Coast Guard, designed to use subject matter experts and actual
data to provide estimates of workload. The Table Top approach provides flexibility in implementation,
which allows for differences in organizational functions and workloads rather than attempting to fit all
regions and programs into a one-size-fits-all approach. The EPA has conducted limited testing on this
approach within two program areas— grants and Superfund Cost Recovery. According to EPA officials,
while the methodology appears promising for grants, it became overly complicated for Superfund Cost
Recovery.
The EPA did not report a workable agencywide workforce analysis plan from these limited 2013 actions.
During 2014, the EPA continued to test the workload model in other areas, including:
• Working with Grant Project Officers to evaluate and try to balance uneven workloads.
• Developing a Project Officer Estimator Tool for organizations to examine Project Officer workloads.
• Working with Grants Specialists to refine the Interagency & Grants Estimator Tool.
• Submitting a Draft Funds Control Manual to the Office of Management and Budget, and receiving and
incorporating the Office of Management and Budget's comments.
The EPA did not report a workable agencywide workforce analysis plan from these 2014 actions.
In January 2016, the EPA issued a draft Funds Control Manual. The manual is intended to fulfill the EPA's corrective
actions for several unimplemented recommendations from prior OIG reports on workload analysis. The manual
highlights several tools the EPA has developed to help programs examine and understand connections between
hours of work (or full-time equivalents (FTEs)) and specific tasks, products, results or outcomes. The EPA says that
the tools are designed to complement existing financial, budget and program information that organizations already
track and use.
The manual highlights four major types of workload analysis tools that the EPA has used: surveys, benchmarking,
existing data, and analytical tools (such as the U.S. Coast Guard's Table Top analytical framework). In response to
many stakeholders' requests (including OIG's) to explain how the EPA's work hours tie to specific results produced,
the manual says it is important to stress that it is extremely difficult to demonstrate this tie for many agency
activities (such as research or regulatory development), so workload analyses generally should be targeted at task-
driven areas, such as grants or contract awards.
The EPA has yet to implement and report the results of the funds management manual.
In the latest response to this management challenge, the EPA stated that rather than trying to create detailed FTE
models, the agency focused its workload analysis on current operations. The agency found that detailed FTE models
created a sense of false precision; quickly became out of date due to changing regulations, requirements and
systems; and were overly sensitive to relatively small changes in the inputs.
In the FY 2016 Agency Financial Report, the agency responded:
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As acknowledged by the OIG, the inherent difficulties in applying workload analysis to the highly
variable, multi-year, and non-linear activities that comprise the majority of the EPA's work, limit the
utility of detailed FTE-based workload analyses for broader agency program estimates. The agency has
found greater value in using trend and macro-level workload reviews to estimate program needs. For
example, as part of the FY 2016 budget process, the agency examined broad workload trends as a basis
to move resources to address major challenges identified. As a result, the agency provided 65
additional FTEs for air program work and 40 FTEs for the Office of General Counsel legal support. In
each of these areas, the agency's senior management considered longerterm trends and overall
staffing rather than individual tasks and portions of FTEs. For legal work, the agency considered
statistics showing increased litigation and legal review requirements. It is important to note that the
"current flexibility to move resources" granted by Congress remains extremely limited and the
increased resources requested in the President's Budget were not appropriated. Nonetheless, the
agency maximized the available flexibilities and provided the full FTE increments to those programs in
FY 2016.
WHAT REMAINS TO BE DONE
The agency's activities under this management challenge do not meet the following criteria required to justify
removal: (1) agency capacity, (2) an action plan, and (3) monitoring efforts. The EPA has not developed and
implemented a definitive workload analysis system. The EPA needs to more broadly quantify what its full workload
entails so that it can more effectively prioritize and allocate available resources to accomplish agency work. The
EPA's ability to assess its workload and estimate workforce levels necessary to carry out that workload is critical to
mission accomplishment. As such, we are maintaining workload analysis as a management challenge for FY 2017. In
February 2016, we announced the start of preliminary research on the EPA's Superfund workload allocation. The
evaluation objective is to determine whether the EPA's distribution of Superfund resources among EPA regions
supports the current regional workload.
The agency also needs to complete its workforce planning tool. The agency is piloting a workforce planning tool during
the first quarter of FY 2017. The tool compares needed skills with the current supply of skills so that competency gaps
can be identified and addressed through strategic hiring and training/development. The EPA states that the use of the
tool will (1) allow the agency to assess the workforce regularly at all organization levels, ensuring agency employees
possess the skills and abilities necessary to meet current and future mission goals and objectives; and (2) align
workforce planning with agency and organizational strategic plans, corresponding action plans and budget. According
to the agency, the pilot will allow insight and emphasis on workforce flexibility and development to facilitate faster
adjustment to change and improved workplace performance, supporting maximum responsiveness as job functions,
roles and technology evolve. It is expected that the workforce planning tool will be available agencywide by the end of
FY 2017. We will continue to monitor agency progress through this and other ongoing work.
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CHALLENGE: The EPA Needs to Enhance Information Technology Security to
Combat Cyber Threats
CHALLENGE FOR THE AGENCY
Information security and implementing a
robust cybersecurity mechanism capable of
combating the ever -increasing threat to the
agency's data and network remains a
management challenge at the EPA. Despite
progress made by the agency to strengthen
cybersecurity, recent audit work continues to
highlight that fully implementing in formation
security throughout the EPA requires
continued senior level emphasis to address
long -standing weaknesses within the
information security program. Most notably,
the EPA has yet to implement practices for its
information security program to be
considered effective for the five
Cybersecurity Framework Security Functions
defined by the National Institute of Standards
and Technology. Likewise, our audits note the
need for management to take further action to resolve audit findings designed to improve the effectiveness and
efficiency of the agency's computer network operations, and address emerging challenges the agency faces in
managing contractors that provide critical support for agency systems.
BACKGROUND
We first reported information security as a management challenge in FY 2001, and the growing reliance on
interconnected networks and systems—as well as more sophisticated and financially supported adversaries—make this
area equally important today. The EPA's Office of Environmental Information is primarily responsible for information
technology management. Over the years, the agency made strides to strengthen its policy framework and processes,
and made marked improvements in securing the EPA's network infrastructure and systems. However, during this same
period, cyber threats have become increasingly sophisticated, which continues to underscore the need to proactively
manage and bolster the agency's cybersecurity capabilities.
Cyber attacks could have a devastating impact on the EPA's computer systems and network, thereby potentially
disrupting agency operations, as well as the lives and operations of employees and businesses who entrust the agency
with their most sensitive personal or confidential business information. GAO has recognized information security as a
governmentwide high-risk area since 1997. In September 2016, GAO reported that:
• Cyber incidents in FY 2016 grew 1,300 percent from the previous year.
• Federal agencies reported 77,183 incidents in FY 2015—over 10,000 more than the previous year.
• Federal agencies inconsistently implemented key laws and policies designed to establish a framework for
overseeing federal information security.
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Identify
Risk Management
Contractor Systems
Protect
Configuration
Management
Identity and Access
Management
Security and Privacy
Training
Recover
Contingency
Planning
Cybersecurity
Framework
Detect
Respond
Information Security
Continuous
Monitoring
Incident Response
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GAO notes that federal systems are "inherently at risk," and that this poses challenges because the information
technology environment is complex, diverse and often geographically dispersed. Like other agencies, the EPA has a
similarly complex information technology environment that is widely dispersed throughout 24 headquarters and
regional offices across the nation. As such, the increased presence of cyber threats to systems that support EPA
operations calls on management vigilance and commitment to protect the agency's network. If the EPA is to realize a
fully implemented information security program or have effective processes to identify, respond to and correct security
vulnerabilities that place agency data and systems at risk, more effort is needed to increase the agency's capabilities to
achieve effective practices for the five Cybersecurity Framework Security Functions.
THE AGENCY'S PROGRESS
In response to our FY 2016 management challenges, the EPA indicated that it "understands the threat and
pervasiveness of cyber-attacks and is aware of the potential impact to the Agency's mission if information assets are
compromised." The EPA cited that it has published 5-year Information Security and Continuous Monitoring and Risk
Management strategic plans. The EPA explained that these plans identify where the agency will provide risk-based
protection for the agency's network. The EPA also noted the following plans or actions taken to address our growing
concerns:
• Establish a 30-day maximum number of days that an account can remain inactive before the system
automatically disables the account's technology function in the agency.
• Develop a process to manage annual security assessments, which includes oversight by the Senior Agency
Information Security Official.
• Coordinate with the U.S. Department of Homeland Security and U.S. General Services Administration to
implement capabilities under the Continuous Diagnostics and Mitigation Program, which includes
vulnerability management.
We acknowledge that the EPA continues to initiate actions to further strengthen or improve its information security
program. However, our audit work from the past 6 years continues to highlight that the EPA faces challenges in
addressing outstanding weaknesses within its information security program, and in managing contractors that provide
key support in operating or managing systems on behalf of the agency.
Addressing Outstanding Weaknesses
Our FY 2016 report on the agency's progress in completing corrective actions associated with information technology
security recommendations made in FYs 2010-2012 found that the agency did not ensure that agreed-to corrective
actions were:
• Fully implemented or carried out timely.
• Recorded accurately or managed effectively in the Management Audit Tracking System (MATS).
• Verified to have actually fixed the identified weakness.
Despite steps taken to correct many of the recommendations highlighted in this report, our current audit work
disclosed that further management emphasis is needed to address the overarching concern with how the EPA manages
the weaknesses within the agency's information security program. For example, the program office responsible for
overseeing the EPA's information security program lacks a permanent or full-time employee to serve as its Audit
Follow-Up Coordinator—a critical position for monitoring the completion of audit recommendations that impact the
agencywide information security program. Furthermore, as noted in the EPA's December 2016 Enterprise Information
Security Metric Report, several offices made little to no progress in completing plans of actions and milestones that
address weaknesses in the EPA's information security program. Our audit determined that emphasis is needed to
ensure completion of agency agreed-to weaknesses in the program.
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Analysis of the EPA's actions taken to address information security audit recommendations
Agency
Completed
OIG Report and Agreed-to
Recommendation Corrective
Reviewed Action(s)?
Corrective
Action(s) Timely
Completed as
Agreed-to?
Completion
Date
Accurately
Recorded in
MATS?
Documentation
Maintained to
Support Actions
Taken Readily
Available?
Agency Verified
Action(s) Taken
Actually Fixed the
Deficiency?
Agency
Continued to
Implement the
Action(s)?
Report 10-P-0058
Recommendation 2-1
No
No
No
No
No
No
Report 11-P-0159
Recommendation 2
No
No
No
No
No
No
Report 11-P-0277
Recommendation 2
No
No
No
No
No
No
Report 12-P-0836
Recommendation 12
No
No
No
No
No
No
Report 12-P-0899
Recommendation 8
No
No
No
No
No
No
Report 13-P-0257
Recommendation 5
Yes
Yes
No
No
Yes
Yes
Compliance
Percentage by
Element Reviewed
17%
17%
0%
0%
17%
17%
Source: OIG analysis.
Our FY 2016 annual audit of the EPA's information security program disclosed that more work is needed by the agency
to achieve managed and measurable information security functions to manage cybersecurity risks. In this regard, the
EPA's information security program was not graded as effective for any of the Cybersecurity Framework Security
Functions defined by the National Institute of Standards and Technology. The table below summarizes the four areas
where the EPA did not receive a positive rating and significant management emphasis is needed.
Results of testing assessed as "Not Met"
Cybersecurity
Framework FISMA Metric
Security Function Domain Federal Information Security Modernization Act Metric
Risk
Management
Contractor
System
EPA did not implement an insider threat detection and prevention program,
including the development of comprehensive policies, procedures, guidance and
governance structures, in accordance with Executive Order 13587 and the
National Insider Threat Policy.
EPA did not establish or implement a process to ensure that contracts/
statements of work/solicitations for systems and services include appropriate
information security and privacy requirements and material disclosures; Federal
Acquisition Regulation clauses; and clauses on protection, detection and
reporting of information.
EPA did not obtain sufficient assurance that the security controls of systems
operated on the organization's behalf by contractors or other entities and
services provided on the organization's behalf meet Federal Information Security
Modernization Act requirements, Office of Management and Budget policy, and
applicable National Institute of Standards and Technology guidelines.
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Protect
Identity and
Access
Management
Security and
Privacy
Training
EPA did not ensure that all users are only granted access based on least
privilege and separation-of-duties principles.
EPA did not ensure that accounts are terminated or deactivated once access is
no longer required or after a period of inactivity, according to organizational
policy.
EPA did not identify and track status of specialized security and privacy training
For all personnel (including employees, contractors and other organization users)
/vith significant information security and privacy responsibilities requiring
specialized training.
Respond
Incident
Response
EPA did not integrate incident response activities with organizational risk
management, continuous monitoring, continuity of operations, and other
mission/business areas, as appropriate.
EPA did not capture qualitative and quantitative performance metrics on the
performance of its incident response program. The organization did not ensure
that the data supporting the metrics was obtained accurately and in a
reproducible format, or that data is analyzed and correlated in ways that are
effective for risk management.
EPA did not implement its defined incident response technologies. Also, the
tools are not interoperable to the extent practicable; do not cover all components
of the organization's network; and have not been configured to collect and retain
relevant and meaningful data consistent with the organization's incident
response policy, procedures and plans.
EPA incident response stakeholders did not implement, monitor and analyze
qualitative and quantitative performance measures across the organization and
did not collect, analyze and report data on the effectiveness of the organization's
incident response program.
EPA did not implement processes for consistently implementing, monitoring and
analyzing qualitative and quantitative performance measures across the
organization; and is not collecting, analyzing and reporting data on the
effectiveness of its processes for performing incident response.
EPA data supporting incident response measures and metrics are not obtained
accurately, consistently and in a reproducible format.
Cybersecurity
Framework FISMA Metric
Security Function Domain Federal Information Security Modernization Act Metric
EPA uses technologies for consistently implementing, monitoring and analyzing
qualitative and quantitative performance across the organization; however, the
data are not consistently collected, analyzed and reported on the effectiveness
of its technologies for performing incident response activities.
EPA has not defined or implemented incident response performance measures
that include data on the implementation of its incident response program for all
sections of the network.
Recover
Contingency
Planning
EPA did not test its Business Continuity Plan and Disaster Recovery Plan for
effectiveness and update plans as necessary.
EPA did not determine alternate processing and storage sites based upon risk
assessments that ensure that the potential disruption of the organization's ability
to initiate and sustain operations is minimized, and are not subject to the same
physical and/or cybersecurity risks as the primary sites.
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Source: OIG analysis.
FISMA: Federal Information Security Modernization Act
In addition, our FY 2016 annual report of EPA financial statements disclosed that information technology processes
need to be improved to protect the integrity of EPA data used for decision-making, and that the EPA lags behind in
taking steps to remediate long-standing information system controls needed to protect financial data. In particular, our
audit noted that the EPA lacks (1) documentation to identify the equipment needed to restore operations and network
connectivity for the financial and mixed-financial applications housed at its data center, (2) controls to monitor the
actions of contractors with direct access to data within the agency's core financial application, and (3) offsite data
storage plans for key financial applications. Additionally, the EPA has yet to remediate a FY 2009 weakness to
implement controls within its financial systems to ensure personnel with incompatible duties cannot process financial
transactions. Also, the agency has yet to address multiple long-standing weaknesses with regard to how the EPA
manages user accounts for its financial applications.
Managing Contractors
Increased management oversight is needed to ensure agency contractors comply with mandated information system
security requirements.
• In our FY 2015 report on EPA contract systems, we noted that personnel with oversight responsibilities
for contractor systems were not aware of the requirements outlined in EPA information security
procedures. As a result, EPA contractors did not conduct the required annual security assessments, did
not provide security assessment results to the agency for review, and did not establish the required
incident response capability. Data breaches costing from $1.4 million to over $12 million could have
occurred for the systems included in our review if compromised.
• Our FY 2015 audit of the EPA's administration of cloud services disclosed that the EPA is not fully aware
of the extent of its use of cloud services, and thereby is missing an opportunity to help make the most
efficient use of its limited resources regarding cloud-based acquisitions. We found that inadequate
oversight of a cloud service provider resulted in the agency placing an EPA system within the vendor's
network that (1) did not comply with federal security requirements, and (2) contained vendor terms of
service that were not compliant with the Federal Risk and Authorization Management Program.
• Our FY 2015 annual audit of the EPA's information security program disclosed that agency management
of contractor systems requires significant management attention to correct deficiencies noted in this
area. We found that significant improvements are needed to (1) ensure contractors comply with
required security controls, (2) maintain an accurate inventory of contractor systems, and (3) identify
contractor systems that interface with EPA systems.
The EPA took steps to address some of the recommendations noted in the above reports.
Nonetheless, current audit work continues to note that the EPA lacks a holistic approach to managing accountability
over its contractors and ensuring personnel responsible for overseeing contractors are aware of their responsibilities.
• Our FY 2016 annual audit of the EPA's information security program disclosed that the agency did not
identify and track the status of specialized security training for contractors with significant information
security responsibilities.
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WHAT REMAINS TO BE DONE
The agency's activities under this management challenge do not meet the following criteria required to justify
removal: (1) agency capacity, (2) an action plan, (3) monitoring efforts, and
(4) demonstrated progress. The EPA has taken steps to address many of our audit recommendations. However, the
following actions remain to address cybersecurity challenges:
1. Verify that the Audit Follow-Up Coordinator function in the Office of Environmental Information has
sufficient staffing to be effective, and ensure managers and staff understand the process for this function
and report concerns with workload.
2. Develop and implement a process that:
a) Strengthens internal controls for monitoring and completing corrective actions on all open audits.
b) Maintains appropriate documentation to support completion of corrective actions; if delegated to
sub-offices, the process should include regular inspections by the Office of Environmental
Information's Audit Follow-Up Coordinator.
c) Specifies when sub-offices must report corrective actions as completed.
d) Requires verification that corrective actions fixed the issue(s) that led to the recommendation.
e) Requires sub-offices to continue to use the improved processes.
f) Requires Office of Environmental Information managers to update the office's Audit Follow-Up
Coordinator on the status of upcoming corrective actions.
3. Take steps to remediate weaknesses identified during the FY 2016 annual audit of the EPA's information
security program.
4. Develop a process to train EPA Contract Officer Representatives on their responsibilities for monitoring
the contractors to ensure they meet specified EPA information security responsibilities. This includes (a)
monitoring that contractors that operate information systems on behalf of the EPA perform the mandated
information security assessments, and (b) ensuring that contractors with significant information security
responsibilities complete required role-based training.
5. Implement plans to review all EPA contracts and task orders, and place the EPA-developed contract clause
requiring contractors to complete role-based training into all EPA contracts and task orders.
6. Implement a process to create a listing of agency contractor personnel with significant information
security responsibilities who require role-based training; validate that the identified contractor personnel
complete the annual role-based training requirement, and report the information as required by the
Federal Information Security Modernization Act.
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Agency Response to Office of Inspector General-Identified Key Management Challenges
Challenge #1 - EPA Needs to Improve Oversight of States, Territories and Tribes Authorized to
Accomplish Environmental Goals
Agency Response: The Agency continues to make state oversight an Agency priority and to improve
oversight practices to ensure consistency. Some examples of the efforts the Agency has taken to address
OIG's concerns include:
Established the State Program Health and Integrity Workgroup. This inter-agency workgroup, which
began in FY 2012, composed of the EPA's national program offices for air, enforcement and water,
gathers and analyzes information on oversight of state practices, identifies gaps and develops
solutions.
Reviewed a minimum of two percent of 40 CFR Part 70 Title V permits issued by states and
conducted at least one evaluation per region of a state, local, or tribal Title V permitting program.
Completed draft guidance documents on program evaluation and fee oversight, strategy in response
to an OIG audit The guidance documents are scheduled to be finalized and issued in the Spring 2018.
In developing the draft guidance document, the EPA considered the scope and frequency of fee
assessments and their relationship to the National Program Guidance element that currently
provides for each region to conduct at least one Title V program evaluation each year. The final
guidance will be consistent with Agency "Principles and Best Practices for Oversight of State
Permitting Programs," issued August 30, 2016.
Working with the states to have revised Memorandums of Agreements (MOA) to reflect program
changes from the 2005 Energy Policy Act by October 2018. The OIG evaluated the Underground
Storage Tank (UST) prevention program and recommended that EPA work with the states to revise
their current MOA to reflect program changes and address oversight of municipalities conducting
inspections. The EPA agreed with the recommendation and at the time was in the process of revising
the UST regulation, addressing among other things, state program approval (SPA) for the UST
program. The EPA published the revised UST regulations in July 2015. In the final regulation, the
EPA provided states who currently have SPA three years from the rule's effective date to submit
their applications for a reinstatement of their SPA. The EPA agreed to time the revision and updates
of the MOA with the re-SPA timeframe, which is October 2018.
Established a state-EPA workgroup to take action on the financial indicators developed in response
to recommendations concerning State Revolving Fund oversight The workgroup developed three
new indicators that directly address the GAO recommendations. The new indicators will be
recalculated for each state on an annual basis. The EPA's Office of Water will draft a memorandum
and send it to the regional offices and states introducing the new indicators and providing guidance
on how they support the EPA's oversight efforts. The office expects to initiate the formal close out of
the GAO report in calendar year 2017. The Agency believes that a range of financial indicators will
provide stakeholders with a complete understanding of the financial sustainability of the Drinking
Water State Revolving Funds and Clean Water State Revolving Funds.
Improved collaboration and coordination with states in implementing Safe Drinking Water Act
regulation for Public Water Systems and Underground Injection Control regulations regarding
hydraulic fracturing activities. For example, the agency coordinates with states where use of diesel
fuels in hydraulic fracturing has been reported and evaluates any information regarding injection of
diesel fuels for hydraulic fracturing on a case by case basis.
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Challenge #2 - EPA Needs to Improve Its Workload Analysis to Accomplish Mission Efficiently and
Effectively
Agency Response: As acknowledged by OIG, there are inherent difficulties in applying workload analyses
for the highly variable, multi-year, and non-linear activities that comprise most of the EPA's work. These
difficulties limit the utility of detailed full time equivalent (FTE) based workload analyses for broader
Agency program estimates. For example, during the FY 2016 budget process, the Agency examined broad
workload trends as a basis to move resources to address major challenges. In each specific area, Agency
senior management considered longer-term trends and overall staffing rather than individual tasks and
portions of FTEs, such as increased programmatic requirements. As a result, in its FY 2016 President's
Budget proposal, the Agency requested and received additional FTE for these programs. In FY 2016,
Congress passed additional Toxic Substances Control Act (TSCA) fees legislation and for FY 2016, FY 2017
and moving forward, the Agency is examining fee-associated workload.
The Agency's strategy is to find the best value to be derived from detailed workload analysis. Rather than
detailed FTE models, the EPA focused workload analyses on current operations. The Agency found that
detailed FTE models created a sense of false precision, quickly became out-of-date due to changing
regulations, requirements and systems, and were overly sensitive to relatively small changes in the input.
Reflecting on this experience, the workload analysis guidance that the EPA added to the Funds Control
Manual (per the IG's recommendation) provides information about several types of workload analyses
rather than solely discussing FTE workload models. Instead, the guidance discusses several workload tools
that EPA programs can use to help manage their program operations and resources.
Over the last few years, the EPA workload analyses examined task-driven functions, focusing on
understanding how much time managers and staff invest in each function's major tasks. The analyses helped
the EPA identify major challenges and opportunities, target streamlining and Lean efforts, clarify guidance,
prioritize training, and structure other support efforts and initiatives. Analyses included:
Grants and Interagency Agreement Officers - I-GET (Interagency Agreement and Grants Officer
Estimator Tool)
Project officers - POET (Project Officer Estimator Tool)
IT security officers - (Information Security Task Force) analyses of Information Security Officer
duties
Funds Control Officers - FCO workload review
Fee-related duties - Existing and new fees workload review
EPA will continue to use workload and trend analyses to better understand Agency programs and as a factor
to inform budget decisions. In an era of limited financial resources, making difficult trade-offs between
many different environmental programs remains one of the Agency's senior management's greatest
responsibilities and challenge. The EPA will continue working with the OIG on completing the current
Superfund allocation review.
Challenge #3 - EPA Needs to Enhance Information Technology Security to Combat Cyber Threats
Agency Response: The Agency is committed to protecting its information and technology assets. The EPA
understands the prevalence and complexity of the ever-growing cyber security attacks and is aware of the
potential impact to the Agency's mission if information assets are compromised. The Agency has established
and implemented adequate processes for tracking audit recommendations and the status of corrective
actions that will help address concerns associated with this management challenge.
The Agency is developing a process to train EPA Contract Officer Representatives on their responsibilities
for monitoring the contractors to ensure they meet specified EPA information security responsibilities. This
includes:
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Monitoring contractors that operate information systems on behalf of the EPA to ensure they
perform the mandated information security assessments.
Ensuring that contractors with significant information security responsibilities complete role-based
training.
Additionally, the Agency has developed standard contract clauses to help ensure contractors implement and
follow the EPA and federal information security directives, including requiring contractors to complete role-
based training. The Agency plans to use a checklist to guide the inclusion of pertinent clauses in all
applicable contracts. The Agency plans to oversee the inclusion of the clauses during the Federal
Information Technology Acquisition Reform Act reviews and will develop and implement a method to
review existing contracts to ensure the clauses are included, as appropriate. The Agency plans to implement
the inclusion of standard contract clauses by the end of the first quarter of FY 2018.
The Agency will make every effort to complete corrective actions for all open recommendations by the
originally agreed-upon completion dates, where feasible, by utilizing and refining processes already in place.
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PROGRESS IN ADDRESSING FY 2017 WEAKNESSES
EPA continued to address previously identified material weaknesses. In FY 2017, the Agency did not identify
any new material weaknesses. Corrective actions are currently underway and the Agency expects to
complete corrective actions within FY 2018.
Material Weaknesses
EPA Failed to Capitalize Software Costs
In FY 2014, the Agency found it had
undercapitalized software, which resulted in a
material misstatement of financial statements and
led to the restatement of the FY 2013 financial
statements.
To address this weakness, the EPA developed a
corrective action plan to resolve the issues
identified in the FY 2014 audit. The plan includes
using LEAN techniques to improve the accuracy of
recording information technology (IT)
transactions in the fixed asset system, and
correcting data entries related to depreciation of
IT software assets. Additionally, the Agency plans
to validate the costs of IT software development
projects prior to moving into production. To
ensure that software project costs are
appropriately capitalized, the Office of the Chief
Financial Officer is working with the Office of
Environmental Information and other EPA
program offices to evaluate software projects
costs before capitalizing. The projected closure
date for this material weakness is FY 2018.
EPA Cannot Adequately Support FIFRA and
PRIA Costs
During the FY 2014 financial statement audits for
the Pesticides Reregistration and Expedited
Processing Fund and the Pesticides Registration
Fund, OIG indicated that EPA could not
adequately support payroll costs in the amounts
of $34 and $28 million, respectively.
To address these material weaknesses, the
Agency has developed an approach to account for
employee time on FIFRA and PRIA costs within
the EPA pay administration system. The Agency
developed and implemented new codes, trained
necessary employees on the use of the codes, and
established requirements for employees and
supervisors to ensure proper coding as part of the
Agency's official timekeeping process. This
process improvement gives the Agency the ability
to capture direct and indirect costs of both the
FIFRA and PRIA programs. The Agency will
continue to track and monitor the use of the time
accounting codes to make sure that coding is
consistent, concerns are addressed, and ensure
continued compliance. The Agency expects the
corrective actions for these weaknesses will be
implemented fully in FY 2018.
EPA's Accounting for Unearned Revenue
During the FY 2016 financial statement audit, OIG
identified material weakness related to the
recording and reconciliation of unearned revenue
for Superfund special accounts.
To address this material weakness, the Agency
engaged in deliberations with OMB and the
Department of Treasury to develop a new process
for managing and accounting for Special Account
collections and receivables. In January 2017, OMB
provided final approval on the revised process,
including updated posting models for recording
special account transactions. The Agency is
implementing the new account process for special
accounts, which will involve updating accounting
posting models and converting prior accounting
data into the approved process. Once the changes
in the accounting system and posting models have
been made, the EPA will reconcile the general
ledger to the special accounts collected from past
costs. The projected closure date for this material
weakness is FY 2018.
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Summary of Financial Statement Audit
Audit Opinion
Unmodified
Restatement
No
Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Ending
Balance
Software Cost
1
0
0
0
1
Unearned Revenue
1
0
0
0
1
Total Material Weaknesses
2
0
0
0
2
Summary of Management Assurance
Effectiveness of Internal Control Over Financial Reporting (FMFIA§ 2) (A-123 Appendix A)
Statement of Assurance
Modified
Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
FIFRAFund Costs
1
0
0
0
0
1
PRIA Fund Costs
1
0
0
0
0
1
Total Material Weaknesses
2
0
0
0
0
2
Effectiveness of Internal Control Over Operations (FMFIA § 2)
Statement of Assurance
Unmodified
Material Weaknesses
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
Total Material Weaknesses
0
0
0
0
0
0
Conformance With Financial Management System Requirements (FMFIA § 4)
Statement of Assurance
Systems Conform to Financial Management System Requirements
Non-Conformances
Beginning
Balance
New
Resolved
Consolidated
Reassessed
Ending
Balance
Total Non-Conformances
0
0
0
0
0
0
Compliance With Section 803(a) of FFMIA
Agency
Auditor
1. Federal Financial Management System
Requirement
No lack of compliance
noted.
No lack of compliance noted.
2. Applicable Federal Accounting
Standards
No lack of compliance
noted.
No lack of compliance noted.
3. USSGL at Transaction Level
No lack of compliance
noted.
No lack of compliance noted.
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REDUCE THE FOOTPRINT
Consistent with Section 3 of the OMB Memorandum-12-12, Promoting Efficient Spending to Support Agency
Operations and OMB Management Procedures Memorandum 2013-02, the "Reduce the Footprint" (RTF)
policy implementing guidance, all CFO Act departments and agencies shall not increase the total square
footage of their domestic office and warehouse inventory compared to the FY 2015 baseline.
Reduce the Footprint Baseline Comparison
FY 2015 Baseline
FY 2016
Change
Square Footage (SF)
5,364,495
5,139,810
(224,685)
EPA's baseline, derived from the Agency's FY 2015 Federal Real Property Profile (FRPP) submission and
FY 2015 U.S. General Services Administration (GSA) Occupancy Agreement, is 5,364,495 square feet(SF).
The Reduce the Footprint offset square footage is composed of office and warehouse assets reported as
excess to GSA. EPA's RTF total in FY 2016 was 5,139,810 SF, a reduction of 224,685 SF from the baseline.
Reporting of Operation & Maintenance Costs-Owned and Direct Lease Buildings
FY 2015 Reported Cost
FY 2016
Change
Operations & Maintenance Costs
$1,106,924.21
$950,268.76
($156,655.45)
The EPA remains committed to reducing its environmental footprint through efficient management of its
real property portfolio. The Agency will continue to take steps to monitor and assess space utilization at
each of its facilities and will take the appropriate steps to reduce underutilized space. Additionally, the
Agency will continue to implement sustainable design, construction, and operations/maintenance
projects. In the coming years, the EPA will continue to explore options for teleworking, office sharing and
hoteling as alternative work strategies once associated costs and impacts are identified.
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PAYMENT INTEGRITY
The Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments
Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery
Improvement Act of 2012 (IPERIA), requires executive branch agencies to review all programs and
activities annually, identify those that may be susceptible to significant improper payments and report the
results of their improper payment activities to the President and Congress through their annual Agency
Financial Report or Performance and Accountability Report
The EPA is dedicated to reducing fraud, waste, and abuse and presents the following improper payment
information in accordance with IPIA, as amended; OMB implementing guidance in Circular A-123,
Appendix C, Requirements for Effective Measurement and Remediation of Improper Payments; and IPIA
reporting requirements contained in OMB Circular A-136, Financial Reporting Requirements.
OMB implementing guidance directs federal agencies to take the following steps:
1) Review all programs and activities to identify those that are susceptible to significant improper
payments, defined as gross annual improper payments exceeding (1] both 1.5 percent of program
outlays and $10 million of estimated improper payments or (2) $100 million of estimated improper
payments (regardless of the rate).
2) Obtain a statistically valid estimate of the annual amount of improper payments in programs identified
as susceptible to significant improper payments.
3) Implement a plan to reduce improper payments in these programs.
4) Report annually an estimate of the annual amount and rate of improper payments.
IPIA defines an improper payment as any payment that should not have been made or that was made in an
incorrect amount under statutory, contractual, administrative, or other legally applicable requirements.
Incorrect amounts are overpayments or underpayments that are made to eligible recipients (including
inappropriate denials of payment or service, any payment that does not account for credit for applicable
discounts1, payments that are for the incorrect amount, and duplicate payments). An improper payment
also includes any payment that was made to an ineligible recipient for an ineligible good or service, or
payments for goods or services not received (except for such payments authorized by law). In addition,
when an agency's review is unable to discern whether a payment was proper as a result of insufficient or
lack of documentation, this payment must also be considered an improper payment
The term "payment" means any payment or transfer of federal funds (including a commitment for future
payment, such as cash, securities, loans, loan guarantees, and insurance subsidies) to any non-federal
person, non-federal entity, or federal employee, that is made by a federal agency, a federal contractor, a
federal grantee, or a governmental or other organization administering a federal program or activity. The
term "payment" includes federal awards subject to the Single Audit Act Amendments of 1996 thatare
expended by both recipients and sub-recipients.
OMB Circular A-12 3, Appendix C, requires that agencies conduct risk assessments of their programs or
activities at least once every three years to determine whether they are susceptible to significant improper
payments. Based on this three-year risk assessment cycle, the EPA was not required to complete any new
risk assessments in FY 2017.
1 As footnoted in OMB Circular A-123, Appendix C, "Applicable discounts are only those discounts where it is both
advantageous and within the agency's control to claim them."
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However, the EPA has four programs that are currently identified as susceptible to significant improper
payments, which include the Clean Water SRF, the Drinking Water SRF, non-SRF grants, and Hurricane
Sandy funding. The SRFs were deemed susceptible to significant improper payments upon the enactment of
IPIA, and Hurricane Sandy is automatically considered susceptible to significant improper payments by the
Disaster Relief Appropriations Act, 2013. The grants payment stream was identified as susceptible to
significant improper payments during the Agency's risk assessment process conducted in FY 2016 and is
reporting baseline improper payment measurements in FY 2017. None of the Agency's programs were
identified as high priority, defined as exceeding $750 million of annual estimated improper payments.
Table 1 summarizes the risk level for each of the Agency's payment streams.
Table 1: Risk Level
Payment Stream
Low Risk
Susceptible to
Significant IPs
Commodities
X
Contracts
X
CWSRF
X
DWSRF
X
Grants
X
Hurricane Sandy
X
Payroll
X
Purchase Cards
X
Travel
X
I. Payment Reporting
The following tables provide information about the four EPA programs that are identified as susceptible to
significant improper payments, all four of which have reported results below the statutory threshold. The
website https: //paymentaccuracy.gov/ contains more detailed information on improper payments and
also includes all of the information reported in prior year AFRs that is not included in the FY 2017 AFR.
Table 2.1: Payment Integrity Outlook
($ in millions)
Program
Outlays
Est. Amount
Properly
Paid
Est. Amount
Improperly
Paid
Percent
Properly
Paid
Percent
Improperly
Paid
FY 2018
Target
CWSRF
$1,431.39
$1,428.77
$2.62
99.82%
0.18%
1.00% (1)
DWSRF
$1,183.94
$1,183.18
$0.76
99.94%
0.06%
1.00% (1)
Grants
$1,726.94
$1,714.57
$12.37
99.28%
0.72%
2.95% (2)
Hurricane Sandy
$14.32
$14.28
$0.04
99.72%
0.28%
1.50% (3)
Total
$4,356.59
$4,340.80
$15.79
99.64%
0.36%
n/a
(1) For the SRFs, given reported improper payments rates below the IPERA threshold for more than two consecutive years, EPA
will request relief from annual reporting starting in FY 2018. Ifapproved, statistical sampling will be discontinued. The SRFs
would return to a three-year risk assessment cycle, and reduction targets would no longer be required.
(2) For grants, statistical sampling will become more robust in FY 2018, resulting in the review of five times as many recipients.
The expanded sample size will provide more precise estimates but is expected to increase the amount of improper payments
identified. In addition, responsibility for leading the grant improper payment reviews is being transferred to a different office,
which is developing new procedures and review criteria. Added emphasis will be placed on the detection of recipient
overdraws, likely resulting in more errors identified. Documentation errors, which accounted for all of the improper payments
identified in the FY 2017 statistical sample, are expected to be identified in proportion to the larger sample size. For these
reasons, it is anticipated that the improper payment rate for grants may increase substantially in FY 2018.
(3) Hurricane Sandy outlays are expected to increase substantially, which will likely result in the identification of additional
improper payments.
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Table 2.2 Payment Integrity Outlook (Continued)
($ in millions)
Program
Est. Amount
Overpaid
Est. Amount
Underpaid
Percent of
Sample
Overpaid
Percent of
Sample
Underpaid
Start Date
for Sampled
Data
End Date
for Sampled
Data
CWSRF
$2.02
$0.60
77.2%
22.8%
10/01/15
9/30/16
DWSRF
$0.54
$0.22
70.6%
29.4%
10/01/15
9/30/16
Grants
$12.37
$0.00
100%
0%
4/01/15
3/30/16
Hurricane Sandy
$0.04
$0.00
100%
0%
10/01/15
9/30/16
Total
$14.97
$0.82
n/a
n/a
n/a
n/a
Table 3 provides information on the estimated amount of improper payments made directly by the federal
government and the amount of improper payments made by recipients of federal money.
Table 3: Origin of Improper Payments
($ in millions)
Program
Est. Amount
Improperly Paid by
Federal Government
Est. Amount
Improperly Paid by
Recipients of Federal
Money
CWSRF
$0.00
$2.62
DWSRF
$0.00
$0.76
Grants
$0.00
$12.37
Hurricane Sandy
$0.00
$0.04
Total
$0.00
$15.79
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Table 4 identifies the root causes of error in each program.
Table 4: Improper Payment Root Cause Category Matrix
($ in millions]
CWSRF
DWSRF
Grants
Hurricane Sandy
Reason for Improper Payment
Over-
pay
Under-
pay
Over-
pay
Under-
pay
Over-
pay
Under-
pay
Over-
pay
Under-
pay
Program Design or Structural
Issue
Inability to Authenticate
Eligibility
Death Data
Financial Data
Failure to
Verify:
Excluded
Parly Data
Prisoner Data
Other
Eligibility Data
Administrative
or Process
Error Made by:
Federal
Agency
State or Local
Agency
$2.02
$0.60
$0.54
$0.22
$0.04
$0.00
Other Party
Medical Necessity
Insufficient Documentation to
Determine
$12.37
$0.00
Other Reason
Total
$2.02
$0.60
$0.54
$0.22
$12.37
$0.00
$0.04
$0.00
II. Recapture of Improper Payments Reporting
IPERA requires agencies to conduct payment recapture audit reviews in any program expending more than
$1 million annually. Since the EPA's payment streams exceed this expenditure threshold, payment
recapture activities are conducted, and the work is performed internally by Agency employees who
continuously monitor each payment stream to identify and recapture overpayments. None of the Agency's
payment streams have been excluded from review. Past experience has demonstrated that the low dollar
value of improper payments recovered by an external payment recapture auditor resulted in an effort that
was not cost-effective for the contractor. Therefore, EPA no longer uses a contractor to recapture
overpayments but operates an internal program utilizing Agency resources. The Agency's payment
recapture audit program is part of its overall program of internal control over disbursements, which
includes establishing and assessing internal controls to prevent improper payments, reviewing
disbursements, assessing root causes of error, developing corrective action plans where appropriate, and
tracking the recovery of overpayments. Additional information is provided below for each payment stream
in order to describe the actions and methods used to recoup overpayments, a justification of any
overpayments determined not to be collectible, and any conditions giving rise to improper payments and
how those conditions are being resolved.
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A) Commodities and Contracts
Commodities and contracts, also known as commercial payments, are low risk payment streams. Given
their historically low percentage of improper payments, the Agency relies on its internal review process to
detect and recover overpayments. The Agency produces monthly reports for each payment stream and
uses these reports as its primary tool for tracking and resolving improper payments. These reports identify
the number and dollar amount of improper payments, the source and reason for the improper payment, the
number of preventive reviews conducted, and the value of recoveries.
The commercial payments are subject to financial review, invoice approval, and payment certification.
Since all commercial payments are subject to rigorous internal controls, the Agency relies upon its system
of internal controls to minimize errors. The following is a brief summary of the internal controls in place
over the Agency's commercial invoice payment process.
The payment processing cycle requires that all invoices be subjected to rigorous review and approval by
separate entities. Steps taken to ensure payment accuracy and validity, which serve to prevent improper
payments, include 1) the RTP Finance Center's review for adequate funding and proper invoice acceptance;
2) comprehensive system edits to guard against duplicate payments, exceeding ceiling cost and fees, billing
against incorrect period of performance dates, and payment to wrong vendor; 3) electronic submission of
the invoice to Project Officers and Approving Officials for validation of proper receipt of goods and services,
period of performance dates, labor rates, and appropriateness of payment, citing disallowances or
disapprovals of costs if appropriate; and 4) review by the RTP Finance Center of suspensions and
disallowances, if taken, prior to the final payment certification for Treasury processing. Additional
preventive reviews are performed by the RTP Finance Center on all credit and re-submitted invoices.
Additionally, EPA Contracting Officers perform annual reviews of invoices on each contract they
administer, and Defense Contract Audit Agency (DCAA) audits are performed on cost-reimbursable
contracts at the request of the Agency.
Vendors doing business with federal agencies occasionally offer discounts when invoices are paid in full
and within the specified discount period (e.g., within 10 days of billing). The EPA makes its best effort to
take all discounts, as they represent a form of savings to the Agency. However, there are valid reasons for
which it is not feasible to take every discount that is offered, including: 1) an insufficient discount period to
process a discount offer, such as a discount offer in which the required processing time for payment
exceeds the number of days of the offer; and 2) a situation in which it is not economically advantageous to
take the discount. Specifically, if the discount rate exceeds the Treasury's current value of funds rate, taking
the discount saves the government money, so the discount is accepted by paying the invoice early.
However, if the discount rate is less than the current value of funds rate, taking the discount is not cost-
effective for the government, so the discount is rejected, and the invoice is paid as close to the payment due
date as possible. Improper payments stemming from lost discounts totaled $5 6K in FY 2017 for
commodities and contracts combined and are tracked in the monthly improper payment reports.
Improper payments can result from typographical errors, payments to incorrect vendors, duplicate
payments, or lost discounts. Numerous training sessions have been conducted, and standard operating
procedures have been reviewed and updated to ensure the most current processes are properly
documented. Any significant changes in policy or procedures are communicated in a timely manner.
Despite the Agency's best efforts to collect all overpayments, some overpayments are not recoverable. For
example, lost discounts can result when the Agency is unable to pay an invoice within the time period
specified by the vendor. While reported as improper payments, lost discounts are not recoverable and are
excluded from the recovery percentage for both contracts and commodities.
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B) Clean and Drinking Water State Revolving Funds
For the SRFs, the Agency both identifies and recovers improper payments during the state review process.
The EPA Regions are required to conduct annual reviews of state SRF programs using checklists developed
by Headquarters. Included in the checklist are questions about potential improper payments which the
Regions discuss with the state SRF staff during the reviews. Errors in the SRFs most often arise from
duplicate payments, funds drawn from the wrong account, incorrect proportionality used for drawing
federal funds, ineligible expenses, transcription errors, or inadequate cost documentation. Many of the
payment errors are immediately corrected by the state or are resolved by adjusting a subsequent cash
draw. For issues requiring more detailed analysis, the state provides the Agency with a plan for resolving
the improper payments and reaches an agreement on the planned course of action. The agreement is
described in EPA's Program Evaluation Report, and the Agency follows up with the state to ensure
compliance.
C) Grants
For the Agency's grants payment stream, errors principally consist of ineligible expenses or lack of
supporting documentation. When overpayments arise, EPA seeks to recover them either by establishing a
receivable and collecting money from the recipient or by offsetting future payment requests. The Agency
follows established debt collection procedures to recapture overpayments.
The EPA identifies overpayments in grants both through statistical sampling and through non-statistical
means. The statistical sampling process is described in Section III, "Sampling and Estimation." As part of its
non-statistical activity, the Agency conducts transaction testing of active grant recipients through Advanced
Administrative Monitoring reviews. Recipients are randomly selected via random attribute sampling and
are stratified by recipient type, including state governments, local governments, tribes, universities and
nonprofits. Using a standard protocol, an onsite or desk review is performed, and each recipient's
administrative and financial management controls are examined. The reviews include an analysis of the
recipient's administrative policies and procedures and the testing of a judgmental sample of three non-
consecutive draws.
In addition, the Agency responds to single audits and OIG audits and uses them as a means of identifying
and recovering improper payments. The Agency follows established processes for evaluating questioned
costs, validating or disallowing costs where appropriate, and seeking the recovery of any sustained
overpayments. The EPA also identifies improper payments originating from enforcement actions, grant
adjustments, and recipient overdraws. Grant adjustments arise when a recipient must return any
unexpended drawn amounts prior to closeout of the grant Recipient overdraws occur when funds are
erroneously drawn in advance of immediate cash needs, and the recipient is directed to repay the funds
while also being reminded of the immediate cash needs rule. Depending on the type of error, improper
payment information is tracked by the Office of the Controller and the Office of Grants and Debarment, and
the records of each are reconciled to ensure complete and accurate reporting. For current year reporting,
three overpayments totaling $206K were determined to be not recoverable and were written off due to the
debtor's inability to pay. As shown in Table 5, "Overpayment Payment Recaptures with and without
Recapture Audit Programs," most grant overpayments identified by the Agency have been recovered in full.
The EPA also seeks to prevent improper payments. Prior to the issuance of a grant award, Grants
Management Offices (GMO) conduct pre-award certification of all recipients that receive awards in excess
of $200K to ensure their written policies and procedures specify acceptable internal controls for
safeguarding federal funds. Re-certifications are conducted every four years. In addition, GMOs are
required to ensure that recipients are not listed in the Excluded Parties List System within the System for
Award Management. EPA conducts annual baseline monitoring reviews of all recipients to ensure overall
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compliance with assistance agreement terms and conditions, as well as all applicable federal regulations. If
deemed necessary, recipients can be placed on a reimbursement payment plan and are required to submit
cost documentation (receipts, invoices, etc.) for review and approval prior to receiving reimbursement
These measures help prevent improper payments from occurring.
D) Hurricane Sandy
Hurricane Sandy funding is comprised of expenditures related to its various component streams, which
included contracts, grants, and payroll for FY 2017 reporting. Statistical sampling was performed, and
there were no improper payments identified in either the contracts or payroll samples. Some
overpayments were identified in the grants samples, as these funds were drawn from the wrong account
The error was corrected, and the recipient has taken corrective action to prevent recurrence.
E) Payroll
Payroll is at low risk of significant improper payments. It is a largely automated process driven by the
submission of employee time and attendance records and personnel actions. When a debt is identified, the
employee is notified of the debt, given the right to dispute the debt, provided payment options, and an
accounts receivable is recorded. For out-of-service debt, the EPA establishes the debt and tracks recovery
status. Out-of-service debt can arise when an employee leaves the Agency and owes funds back to the EPA
following separation. A small portion of the EPA's out-of-service debt was uncollectible as a result of the
separating employee retiring on disability. In-service debt is monitored by the Interior Business Center
(IBC), which the EPA utilizes as a shared service provider. IBC provides personnel and payroll support to
multiple federal agencies. In-service debt can arise for a variety of reasons during the period of
employment. For both in-service and out-of-service debt, recoveries are actively pursued by establishing
receivables and following existing debt collection procedures.
The following internal controls are related to the prevention, identification and recovery of improper
payments in payroll. On a bi-weekly basis, employees, timekeepers and managers are required to attest,
review or approve employee time in the Agency's time and attendance system, PeoplePlus, prior to the
time entry and approval deadlines. Automated reminder notifications are sent as needed. When corrections
are made to an employee's timesheet, PeoplePlus overwrites the original timesheet with the corrected
version to prevent duplicate payments. The original timecards, as well as all corrected entries, are
maintained in the EPA Audit Summary Page and the Payable Time Detail. OCFO's Office of Technology
Solutions performs quarterly reviews of all PeoplePlus access roles to identify separated employees who no
longer need functional user access. As an additional control, the recertification of roles assigned in
PeoplePlus ensures that the authority to approve employee time is only granted to the appropriate front
line managers and supervisors assigned to review employee time. The review of certifications ensures that
authorized managers have certified the hours reported on automatically approved timecards are accurate.
F) Purchase Cards and Travel
Purchase cards and travel are at low risk of significant improper payments. For purchase cards, improper
payments can include ineligible purchases. For travel, improper payments can include ineligible expenses
and insufficient or missing supporting documentation. When an overpayment is identified for travel, the
Agency establishes a receivable, and existing procedures are followed to ensure prompt recovery. Two
small travel overpayments were identified in FY 2017 and were recovered in full. For purchase cards, no
overpayments were identified.
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The following tables quantify the Agency's efforts to identify and recapture improper payments across all
payment streams.
Table 5: Overpayment Payment Recaptures with and without Recapture Audit Programs (l)
($ in millions)
Overpayments Recaptured through Payment
Recapture Audits
Overpayments Recaptured
Outside of Payment
Recapture Audits
Program
Amount
Identified
in FY 2017
Amount
Recovered
in FY 2017
Recapture
Rate in
FY 2017
FY 2018
Recapture
Rate Target
Amount
Identified in
FY 2017
Amount
Recovered
in FY 2017
Commodities (2)
$0.4090
$0.3562
87.1%
90.0%
$0.00
$0.00
Contracts (2)
$0,545
$0,490
89.9%
90.0%
$0.00
$0.00
CWSRF
$0.13
$0.13
100%
90.6%
$3.78
$1.56
DWSRF
$0.09
$0.09
100%
90.6%
$1.20
$1.20
Grants
$0.02
$0.00
0%
89.0%
$9.48
$9.35
Hurricane Sandy
$0.02
$0.02
100%
90.6%
$0.03
$0.03
Payroll
n/a
n/a
n/a
n/a
$0.84
$0.68
Purchase Cards
n/a
n/a
n/a
n/a
$0.00
$0.00
Travel
n/a
n/a
n/a
n/a
$0.00
$0.01
Other (3)
n/a
n/a
n/a
n/a
$1.66
$1.07
Total
$1,214
$1,086
89.5%
n/a
$16.99
$13.90
(1) Amounts shown in the "Overpayments Recaptured Through Payment Recapture Audits" portion of this table were
recovered by the Agency's internal payment recapture audit program via statistical sampling. Amounts in the
"Overpayments Recaptured Outside of Payment Recapture Audits" portion of the table were recovered through additional
means available to the Agency.
(2) Amounts for contracts and commodities do not include lost discounts, which are uncollectible.
(3) Includes sensitive pay areas that cut across multiple payment streams.
Table 6: Disposition of Funds Recaptured Through Payment Recapture Audit Programs
($ in millions]
Program or
Amount
Agency
Payment
Financial
Original
Office of
Returned
Activity
Recaptured
Expenses to
Recapture
Management
Purpose
Inspector
to
[i)
Administer
Auditor
Improvement
General
Treasury
the Program
Fees
Activities
Commodities
$0.3562
$0.08
$0.00
$0.00
$0.28
$0.00
$0.00
Contracts
$0,490
$0.08
$0.00
$0.00
$0.41
$0.00
$0.00
CWSRF
$0.13
$0.06
$0.00
$0.00
$0.07
$0.00
$0.00
DWSRF
$0.09
$0.06
$0.00
$0.00
$0.03
$0.00
$0.00
Grants
$0.00
$0.77
$0.00
$0.00
$0.00
$0.00
$0.00
Hurricane Sandy
$0.02
$0.01
$0.00
$0.00
$0.01
$0.00
$0.00
Total
$1,086
$1.06
$0.00
$0.00
$0.80
$0.00
$0.00
(1) None of the recaptured amounts displayed in this column originated from expired discretionary fund accounts
appropriated after the enactment of IPERA (i.e., July 22,2010], of which the OIG would receive up to 5%.
146
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Table 7: Aging of Outstanding Overpayments Identified in the Payment Recapture Audits d,2)
($ in millions]
Program or
Amount
Amount
Amount
Amount
Activity
Outstanding
(0 to 6 Months)
Outstanding
(6 Months to 1
Year)
Outstanding
(Over 1 Year)
determined to
not be
collectable
Commodities
$0.05
$0.00
$0.00
$0.00
Contracts
$0.10
$0.00
$0.00
$0.00
CWSRF
$0.00
$0.00
$0.00
$0.00
DWSRF
$0.00
$0.00
$0.00
$0.00
Grants
$0.02
$0.00
$0.00
$0.00
Hurricane Sandy
$0.00
$0.00
$0.00
$0.00
Total
$0.17
$0.00
$0.00
$0.00
(1) This table shows the age of outstanding overpayments identified by statistical sampling, consistent with Table 5.
(2) The aging of an overpayment begins at the time the overpayment is detected.
III. Sampling and Estimation
A) Clean and Drinking Water State Revolving Funds
The SRFs are state-administered programs that provide federal funds to the states and Puerto Rico to
capitalize revolving loan fund programs. The states receive invoices from fund recipients, review them for
eligibility and accuracy, and electronically submit cash draw requests for batches of invoices to the EPA. A
cash draw is a disbursement from Treasury for the payment of state grants. Each disbursement can refer to
a single invoice or a batch of invoices. The Agency makes payments to the revolving loan funds and
conducts annual onsite reviews in each state. During the Agency's state reviews, the EPA conducts
improper payment sampling reviews invoices for eligibility, confirms that the total amount of invoices
matches the amount of cash drawn, and examines accounting records to confirm that the states made
matching deposits.
Although the SRFs did not exceed the IPERA threshold, they are deemed by OMB to be susceptible to
significant improper payments. In FY 2013, the Agency developed a rigorous sampling methodology to
determine a statistically valid estimate of improper payments for each SRF. This methodology continues to
be applied annually and is used to calculate error rates for each SRF.
The statistical sampling methodology used for the CWSRF and DWSRF programs draws a random,
statistically valid, stratified sample of payments made by each SRF during the preceding federal fiscal year.
For FY 2017 reporting, statistical sampling was conducted on the universe of payments made by each SRF
in FY 2016. The samples were randomly selected and stratified by dollar amount, then tested for improper
payments during the annual state reviews conducted by regional financial analysts. In states where no
samples were randomly selected for review, supplemental transaction testing was conducted to ensure
that at least four transactions were reviewed per state.
The sampling methodology for the CWSRF and DWSRF programs provides a sample size sufficient to
estimate the proportion of erroneous payments within a margin of error of plus or minus 2.5 percent and a
95 percent confidence level. The CWSRF and DWSRF samples conservatively assume an estimated
proportion of erroneous payments of 3.0 percent. Given the variability in the distribution of dollar
payments within each SRF, the Agency uses stratified random sampling which involves a greater
probability of selecting larger payments relative to the smaller payments and increases the precision of the
estimated percentage of erroneous payments.
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B) Grants
Based on the quantitative risk assessment performed in FY 2016, the grants payment stream was
determined to have exceeded the statutory threshold for significant improper payments. As a result, a valid
statistical sampling methodology was developed to ensure accurate improper payment measurements. The
EPA submitted the sampling methodology to OMB in September 2016 and began applying it during the FY
2017 reporting cycle, enabling the calculation of a baseline measurement for the grants payment stream.
The sampling methodology provides a sample size sufficient to estimate the proportion of erroneous
payments within a margin of error of plus or minus 2.5 percent and a 95 percent confidence level. The
sample size consists of fifteen recipients with active grant awards in which drawdowns occurred during the
twelve-month sampling timeframe from April 1, 2015 to March 31, 2016. The EPA used a two-stage
random sampling approach to draw the sample. Stage 1 stratified recipients by type and resulted in the
selection of fifteen recipients using probability proportionate to size. Stage 2 used simple random sampling
to select four draws per recipient for a total of 60 draws.
C) Hurricane Sandy
On January 29, 2013, the President signed into law the Disaster Relief Appropriations Act, which provided a
total of $50.5 billion in aid for Hurricane Sandy disaster victims and their communities. The EPA was
appropriated over $600 million of funds under the Act for Hurricane Sandy recovery and other disaster-
related activities. The funding included $500 million for CWSRF, $100 million for DWSRF, and $7 million
for non-SRF grants. Sequestration reduced these amounts by 5 percent for a total of $577 million.
Pursuant to OMB Memorandum M-13-07, Accountability for Funds Provided by the Disaster Relief
Appropriations Act, programs and activities receiving funds under the Act were automatically deemed
susceptible to significant improper payments and were required to calculate and report an improper
payment estimate. As a result, the EPA designed a statistical sampling plan for testing Hurricane Sandy
expenditures. The sampling plan describes the methodology used for deriving a statistically valid estimate
of improper payments. The Agency implemented the sampling plan for use in FY 2014 reporting and
beyond, grouping all Hurricane Sandy appropriated funds into a consolidated payment stream, stratifying
them by component stream, conducting statistical sampling within each stratum, and reporting improper
payments on the basis of expenditures made during the preceding fiscal year.
The Agency applies a disproportionate stratified random sampling methodology to select payments for
review. The impact of this stratified approach is to maximize the total number of dollars being selected for
review while also ensuring the efficient use of resources. The sampling methodology provides a sample size
sufficient to estimate the proportion of erroneous payments within a margin of error of plus or minus 2.5
percent and a 95 percent confidence level. The sampling of Hurricane Sandy funding conservatively
assumes an estimated proportion of erroneous payments of 3.0 percent. For FY 2017 reporting, the
Hurricane Sandy payment population was divided into three strata by payment type, including grants,
contracts, and payroll. Within each stratum, a simple random sample of payments was selected for review.
It is important to note that the stratum for grants-related expenditures includes both SRF and non-SRF
grant draws. Given the time required to plan, design and build complex construction projects, EPA forecasts
that states will expend the SRF portion of Hurricane Sandy funding over many years. For this reason, the
Agency requested and obtained from OMB a waiver from the Act's two-year expenditure requirement.
Improper payment sampling will continue annually until all funds have been expended.
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FRAUD REDUCTION REPORT
Fraud Reduction and Data Analytics Act of 2015
The Fraud Reduction and Data Analytics Act of
2015 requires agencies to improve financial and
administrative controls to assess and mitigate
fraud risk. This year, federal agencies are
required to discuss efforts undertaken in FY 2017
and the final quarter of FY 2016. The EPA is in the
process of aligning strategic and internal control
reviews with the development of the FY 2018 -
2022 EPA Strategic Plan revision. The framework
for this consolidation will be implemented in FY
2018 and will position the agency to make risk-
based decisions about our strategic direction.
In FY 2017, the Agency performed an assessment
of fraud risk and responded to the Statement on
Auditing Standards Number 122, Consideration
of Fraud in a Financial Statement Audit, AU-C
Section 240. In its response, the EPA discussed
the controls related to the financial statement
process, reporting, controls in the finance
centers, improper payments reporting, and
unliquidated obligation reviews.
Enterprise Risk Management and Internal
Control Reviews
The EPA continues to advance our Enterprise
Risk Management (ERM) program, through the
use of the Committee of Sponsoring
Organizations framework, to promote reasonable
assurance of achieving compliance with
applicable laws and regulations, effective and
efficient operations, and reliable financial
reporting. Through robust strategic planning and
internal control review process the Agency has
implemented a forward-looking assessment of
risks and of the actions needed to address those
risks.
operating effectively in accordance with GAO's
five internal control standards and associated
principles.
The Agency utilized cross-organizational
workgroups to perform the reviews. The EPA's
FY 2017 A-123 Planning and Scoping document
summarizes the areas of review for internal
controls over financial reporting to include the
five GAO components and associated principles.
Documentation is maintained in accordance with
EPA records management schedules. There were
no deficiencies identified that rise to the level of a
material or agency-level weakness. During FY
2017, the Agency reviewed seven significant
financial processes that involved testing of 11 key
controls.
The results of the internal control reviews
conducted provided the basis for the Agency's FY
2017 statement of assurance on the effectiveness
of internal controls. The process areas reviewed
were Accounts Receivable, Payroll, Obligations,
Superfund Cost Recovery, Collections, Property,
Payments (includes Refund Payments and Transit
Subsidy Payments). In addition, all program and
regional offices completed certifications for
Unimplemented OIG and GAO Recommendations,
and Sensitive Payment follow-up. Additionally,
Region 2 provided a Hurricane Sandy
certification and USA Spending certification.
Although not specifically aimed at detecting
fraud, EPA's management certifies annually their
system of internal controls. As no indications of
fraud have been reported in these annual
certifications, we have issued a statement that the
agency can provide reasonable assurance of
compliance with the Federal Managers Financial
Integrity Act and OMB Circular A-123.
For FY 2017, the Agency developed and issued
robust guidance to senior managers on their
responsibilities for assessing internal controls.
The guidance required all organizations to
conduct planned reviews on key programs areas
that support the 2014-2018 Strategic Plan and
determine whether internal controls for those
programs were designed, implemented, and
149
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Improper Payment
In FY 2016 the Agency reported very low
improper payment rates. This was achieved by
collaborating early with the payment stream
community to ensure adherence to internal
guidelines and controls. In addition, the OIG's
audit of EPA's FY 2016 improper payments
reporting determined the Agency to be in full
compliance with existing improper payment
litigation.
The Agency continues to monitors its payment
streams to ensure compliance with improper
payment legislation in accordance with OMB's
threshold for significant improper payments (i.e.,
$10 million and 1.5% of program payments; or
$100 million, regardless of the rate). The Agency
emphasizes the prevention of improper
payments through a program of internal control
over disbursements and has proven effective at
recovering overpayments. The Agency also
coordinates with the OIG's Office of Investigations
to report any criminal restitution amounts as
improper payments.
For FY 2017, EPA is conducting statistical
sampling in the grants payment stream, which
was newly identified as risk-susceptible in FY
2016, and will establish baseline improper
payment measurements. In response to the
improper payment rate for grants excluding State
Revolving Funds, the Agency will now need to
meet OMBs improper payment requirements,
which includes enhanced statistical sampling, a
corrective action plan, annual improper payment
reduction targets, and quarterly high-dollar
overpayment reporting
The Agency continues to conduct statistical
sampling in the Clean Water SRF, Drinking Water
SRF, and for Hurricane Sandy funding.
Furthermore, in accordance with Improper
Payments Elimination and Recovery
Improvement Act, the EPA continues to use
Treasury's Do Not Pay (DNP) program, which is a
web-based tool that incorporates existing federal
databases, such as the Death Master File and the
Excluded Parties List. Agency payments are
compared against these databases to verify
recipient eligibility. The EPA has been using the
DNP program since March 2013, and promptly
follows up on any payments made to potentially
ineligible recipients. In FY 2017 to date, 100
percent of all EPA payments reviewed by the DNP
portal were determined to be valid payments,
indicating low risk of waste, fraud and abuse.
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CIVIL MONETARY PENALTY ADJUSTMENT FOR
INFLATION
Report on Inflationary Adjustments to Civil Monetary Penalties: Pursuant to the Federal Civil Penalties
Inflation Adjustment Act Improvement Act of 2015 ("2015 Act"), EPA and other federal agencies are
required, starting in January 2017, to annually adjust their statutory civil penalties amounts by January 15
each year to account for inflation. In accordance with this requirement, EPA promulgated the 2017 Civil
Monetary Penalty Inflation Adjustment Rule (2017 Rule) on January 12, 2017, which became effective on
January 15, 2017. For details on the 2017 Rule, see 82 Fed. Reg. 3633-3637 (January 12, 2017), codified in
Table 2 of 40 CFR § 19.4. EPA will amend 40 CFR § 19.4 in January 2018 to adjust penalty levels to reflect
changes in inflation since the last adjustment.
TABLE REFLECTING EPA'S CURRENT CIVIL PENALTY AMOUNTS, AS ADJUSTED FOR INFLATION
U.S. Code
Citation
Environmental
Statute
Year Statutory
Penalty Authority
was Enacted
Latest Year of
Adjustment
(via statute or
regulation)
Statutoiy Civil
Penalties for
Violations
Occurring after
November 2, 2015
and Assessed on
or after Januaiy
15, 2017
7 U.S.C.
136/.(a)(l)
FEDERAL
INSECTICIDE,
FUNGICIDE, AND
RODENTICIDE ACT
(FIFRA)
1972
2017
$19,057
7 U.S.C.
136/.fa]f2]
FIFRA
1972
2017
$2,795
7 U.S.C.
136/.fa]f2]
FIFRA
1978
2017
$2,795/$l,801
15 U.S.C.
2615(a)(1)
TOXIC SUBSTANCES
CONTROL ACT
(TSCA)
2016
2017
$38,114
15 U.S.C.
2647(a)
TSCA
1986
2017
$10,957
15 U.S.C.
2647(g)
TSCA
1990
2017
$9,054
31 U.S.C.
3802(a)(1)
PROGRAM FRAUD
CIVIL REMEDIES
ACT (PFCRA)
1986
2017
$10,957
31 U.S.C.
3802(a)(2)
PFCRA
1986
2017
$10,957
33 U.S.C.
1319(d)
CLEAN WATER ACT
(CWA)
1987
2017
$52,414
33 U.S.C.
1319(g)(2)(A)
CWA
1987
2017
$20,965/$52,414
33 U.S.C.
1319(g)(2)(B)
CWA
1987
2017
$20,965/$262,066
33 u s r
1321(b)(6)(B) (i)
CWA
1990
2017
$18,107/$45,268
33 U.S.C.
1321(b) (6)(B)(ii
1
CWA
1990
2017
$18,107/$226,338
33 U.S.C.
1321(b)(7)(A)
CWA
1990
2017
$45,268/$l,811
33 U.S.C.
1321(b)(7)(B)
CWA
1990
2017
$45,268
151
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U.S. Code
Citation
Environmental
Statute
Year Statutory
Penalty Authority
was Enacted
Latest Year of
Adjustment
(via statute or
regulation)
Statutoiy Civil
Penalties for
Violations
Occurring after
November 2, 2015
and Assessed on
or after Januaiy
15, 2017
33 U.S.C.
1321(b)(7)(C)
CWA
1990
2017
$45,268
33 U.S.C.
1321(b)(7)(D)
CWA
1990
2017
$181,071/$5,432
33 U.S.C.
1414b (d)(1)
MARINE
PROTECTION,
RESEARCH, AND
SANCTUARIES ACT
(MPRSA)
1988
2017
$1,206
33 U.S.C.
1415(a)
MPRSA
1972
2017
$190,568/$251,382
33 U.S.C. 1901
note (see
1409(a)(2)(A))
CERTAIN ALASKAN
CRUISE SHIP
OPERATIONS
(CACSO)
2000
2017
$13,893/$34,731
33 U.S.C. 1901
note (see
1409(a)(2)(B))
CACSO
2000
2017
$13,893/$173,656
33 U.S.C. 1901
note (see
1409(b)(1))
CACSO
2000
2017
$34,731
33 U.S.C.
1908(b)(1)
ACT TO PREVENT
POLLUTION FROM
SHIPS (APPS)
1980
2017
$71,264
33 U.S.C.
1908(b)(2)
APPS
1980
2017
$14,252
42 U.S.C. 300g-
3(b)
SAFE DRINKING
WATER ACT
(SDWA)
1986
2017
$54,789
42 U.S.C. 300g-
3(g)(3)(A)
SDWA
1986
2017
$54,789
42 U.S.C. 300g-
3(g)(3)(B)
SDWA
1986/1996
2017
$10,957/$38,175
42 U.S.C. 300g-
3(g)(3)(C)
SDWA
1996
2017
$38,175
42 U.S.C. 300h-
2(b)(1)
SDWA
1986
2017
$54,789
42 U.S.C. 300h-
2(c)(1)
SDWA
1986
2017
$21,916/$273,945
42 U.S.C. 300h-
2(c)(2)
SDWA
1986
2017
$10,957/$273,945
42 U.S.C. 300h-
3(c)
SDWA
1974
2017
$19,057/$40,654
42 U.S.C. 300i(b)
SDWA
1996
2017
$22,906
42 U.S.C. 300i-
1(c)
SDWA
2002
2017
$133,331/$1,333,3
12
42 U.S.C.
300jfe)(2)
SDWA
1974
2017
$9,528
42 U.S.C. 300j-
4(c)
SDWA
1986
2017
$54,789
42 U.S.C. 300j-
6(b)(2)
SDWA
1996
2017
$38,175
42 U.S.C. 300j-
23(d)
SDWA
1988
2017
$10,055/$100,554
152
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U.S. Code
Citation
Environmental
Statute
Year Statutory
Penalty Authority
was Enacted
Latest Year of
Adjustment
(via statute or
regulation)
Statutoiy Civil
Penalties for
Violations
Occurring after
November 2, 2015
and Assessed on
or after Januaiy
15, 2017
42 U.S.C.
4852d(b) (5)
RESIDENTIAL LEAD-
BASED PAINT
HAZARD
REDUCTION ACT OF
1992
1992
2017
$17,047
42 U.S.C.
4910fa]f2]
NOISE CONTROL
ACT OF 1972
1978
2017
$36,025
42 U.S.C.
6928(a)(3)
RESOURCE
CONSERVATION
AND RECOVERY ACT
(RCRA)
1976
2017
$95,284
42 U.S.C. 6928(c)
RCRA
1984
2017
$57,391
42 U.S.C.
6928(g)
RCRA
1980
2017
$71,264
42 U.S.C.
6928(h)(2)
RCRA
1984
2017
$57,391
42 U.S.C.
6934(e)
RCRA
1980
2017
$14,252
42 U.S.C.
6973(b)
RCRA
1980
2017
$14,252
42 U.S.C.
6991e(a)(3)
RCRA
1984
2017
$57,391
42 U.S.C.
6991e(d)(l)
RCRA
1984
2017
$22,957
42 U.S.C.
6991e(d)(2)
RCRA
1984
2017
$22,957
42 U.S.C.
7413(b)
CLEAN AIR ACT
(CAA)
1977
2017
$95,284
42 U.S.C.
7413(d)(1)
CAA
1990
2017
$45,268/$362,141
42 U.S.C.
7413(d)(3)
CAA
1990
2017
$9,054
42 U.S.C.
7524(a)
CAA
1990
2017
$45,268/$4,527
42 U.S.C.
7524(c)(1)
CAA
1990
2017
$362,141
42 U.S.C.
7545(d)(1)
CAA
1990
2017
$45,268
42 U.S.C.
9604(e)(5)(B)
COMPREHENSIVE
ENVIRONMENTAL
RESPONSE,
COMPENSATION,
AND LIABILITY ACT
(CERCLA)
1986
2017
$54,789
42 U.S.C.
9606(b)(1)
CERCLA
1986
2017
$54,789
42 U.S.C.
9609(a)(1)
CERCLA
1986
2017
$54,789
42 U.S.C.
9609(b)
CERCLA
1986
2017
$54,789/$164,367
42 U.S.C. 9609(c)
CERCLA
1986
2017
$54,789/$164,367
153
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U.S. Code
Citation
Environmental
Statute
Year Statutory
Penalty Authority
was Enacted
Latest Year of
Adjustment
(via statute or
regulation)
Statutoiy Civil
Penalties for
Violations
Occurring after
November 2, 2015
and Assessed on
or after Januaiy
15, 2017
42 U.S.C.
11045(a)
EMERGENCY
PLANNING AND
COMMUNITY
RIGHT-TO-KNOW
ACT (EPCRA)
1986
2017
$54,789
42 U.S.C.
11045(b)(1)(A)
EPCRA
1986
2017
$54,789
42 U.S.C.
11045(b)(2)
EPCRA
1986
2017
$54,789/$164,367
42 U.S.C.
11045(b)(3)
EPCRA
1986
2017
$54,789/$164,367
42 U.S.C.
11045(c)(1)
EPCRA
1986
2017
$54,789
42 U.S.C.
11045(c)(2)
EPCRA
1986
2017
$21,916
42 U.S.C.
EPCRA
1986
2017
$54,789
11045(d)(1)
42 U.S.C.
14304(a)(1)
MERCURY-
CONTAINING AND
RECHARGEABLE
BATTERY
MANAGEMENT ACT
(BATTERY ACT)
1996
2017
$15,271
42 U.S.C.
14304(g)
BATTERY ACT
1996
2017
$15,271
154
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GRANTS OVERSIGHT & NEW EFFICIENCY (GONE)
ACT REQUIREMENTS
The EPA has tracked assistance agreement closeout performance since its first five-year Grants
Management Plan was issued in 2002. The EPA reports to the Office of Management and Budget in its
Annual Financial Report on two grants closeout performance measures: 90% of recently expired grants
and 99% of grants that expired in earlier years. The Agency has consistently exceeded or met these targets
or, in limited instances, missed them by 1% or less. Below is a summary table showing the total number of
federal grant and cooperative agreement awards and balances for which closeout has not yet occurred, but
for which the period of performance has elapsed by more than two years.
CATEGORY
2-3 Years
>3-5 Years
>5 Years
Number of
Grants/Cooperative
FY14-15
FY12-14
Before FY12
Agreements with Zero
29
11
3
Dollar Balances
Number of
Grants/Cooperative
Agreements with
12
3
0
Undisbursed Balances
Total Amount of
Undisbursed Balances
$7,762,717
$1,640,660
0
The timely closeout of grants can be delayed for a variety of reasons, but generally these include open
audits with unresolved findings and where recipient appeal rights have not yet been exhausted; or lack of
required documentation from the recipient EPA monitors unliquidated obligations (ULOs) on expired
assistance agreements as well, requiring an annual review of ULOs to determine if funds are no longer
needed and can be deobligated and the assistance agreement closed out
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BIENNIAL REVIEW OF USER FEES
In accordance with OMB Circular A-25, User Charges, and the CFO's Act of 1990, the Agency assesses EPA
activities that convey special benefits to recipients beyond those accruing to the general public. The
purpose of this review is to
a. Ensure that each service, sale, or use of Government goods or resources provided by the
EPA to specific recipients be self-sustaining;
b. Promote efficient allocation of the Nation's resources by establishing charges for special
benefits provided to the recipient that are at least as great as costs to the Government of
providing the special benefits; and
c. Allow the private sector to compete with the Government without disadvantage in
supplying comparable services, resources, or goods where appropriate.
The review may also make recommendations to adjust existing fees to reflect unanticipated changes in cost
or market price.
There were no assessments scheduled for FY 2017. The next biennial user fee review will take place in FY
2018 and will 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.
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APPENDIX A
PUBLIC ACCESS
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EPA invites the public to access its website at www.epa.gov to obtain the latest environmental news,
browse Agency topics, learn about environmental conditions in their communities, obtain information on
interest groups, research laws and regulations, search specific program areas, or access EPA's historical
database.
American Recovery and Reinvestment Act of 2009: www.epa.gov/recoverv
EPA newsroom: www.epa.gov/newsroom
News releases: www.epa.gov/newsroom/news-releases
Regional newsrooms: www2.epa.gov/newsroom/news-releases#regions
Laws, regulations, guidance and dockets: www2.epa.gov/laws-regulations
Major environmental laws: www2.epa.gov/laws-regulations/laws-and-executive-orders
EPA's Federal Register website: www.epa.gov/fedrgstr
Where you live: h ttps: / /www3.epa.gov/mvem/envmap /find.htm 1
Community Information: https: //www.epa.gov/communitvhealth
EPA regional offices: www.epa.gov/epahome/regions.htm
Information sources: https://www.epa.gov/quality/epa-information-quality-guidelines
Hotlines and clearinghouses: https: //www.epa.gov/home/epa-hotlines
Publications: https://nepis.epa.gov/EPA/html/pubindex.html
Education resources: www.epa.gov/students/
Office of Environmental Education: www.epa.gov/education
About EPA: www.epa.gov/aboutepa
EPA organizational structure: www.epa.gov/aboutepa/epa-organizational-structure
EPA programs with a geographic focus: www.epa.gov/epahome/places.htm
Partnerships: https://archive.epa.gov/partners/web/html/index-5.html
Central Data Exchange: www.epa.gov/cdx
Business Guide to Climate Change Partnerships: https://archive.epa.gov/partners/web/html/
EPA for business and nonprofits: www.epa.gov/home/epa-businesses-and-non-profits
Small Business Gateway: www.epa.gov/osbp/
Grants, fellowships, and environmental financing: www.epa.gov/epahome/grants.htm
Budget and performance: www.epa.gov/planandbudget
Careers: www.epa.gov/careers/
EPA en Espanol: espanol.epa.gov
EPA tieng Viet: https://www.epa.gov/lep/vietnamese
EPA : www.epa.gov/korean
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APPENDIX B
ACRONYMS AND ABBREVIATIONS
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AFR Agency Financial Report FIFRA
AICPA American Institute of Certified
Public Accountants FMFIA
APPS Act to Prevent Pollution from
Ships FRPP
APR Annual Performance Report FTE
FY
B&F building and facilities
BFS Bureau of Fiscal Services GAAP
CAA Clean Air Act GAO
CACSO Certain Alaskan Cruise Ship GMO
Operations GPRAMA
CERCLA Comprehensive Environmental
Response Compensation and
Liability Act GSA
CFO Chief Financial Officer
CO contracting officer GTAS
CSRS Civil Service Retirement System
CWA Clean Water Act
CWSRF Clean Water State Revolving Fund HVAC
DATA Data Accountability and
Transparency Act IBC
DCAA Defense Contract Audit Agency IPERA
DM&R Deferred Maintenance and
Repairs IPERIA
DNP Do Not Pay
DQR Data Quality Records IPIA
DWSRF Drinking Water State Revolving
Fund IT
ECHO Enforcement and Compliance LUST
History Online
EPA U.S. Environmental Protection MATS
Agency
EPCRA Emergency Planning and MOA
Community Right-to-know Act MPRSA
EPM Environmental Programs and
Management
ERM Enterprise Risk Management NASA
FAS Fixed Assets Subsystem NPL
FASAB Federal Accounting Standards NRDA
Advisory Board
FECA Federal Employees Compensation
Act OCFO
FERS Federal Employees Retirement
System OIG
FFMIA Federal Financial Management OMB
Improvement Act of 1996 OPA
Federal Insecticide, Fungicide and
Rodenticide Act
Federal Managers' Financial
Integrity Act of 1982
Federal Real Property Profile
Full-time Equivalent
fiscal year
generally accepted accounting
principles
Government Accountability Office
Grants Management Officer
Government Performance and
Results Act Modernization Act of
2010
U.S. General Services
Administration
Government-Wide Treasury
Account Symbol
heating, ventilation, and air
conditioning
Interior Business Center
Improper Payments Elimination
and Recovery Act
Improper Payments Elimination
and Recovery Improvement Act
Improper Payments Information
Act
information technology
leaking underground storage tank
Management Audit Tracking
System
Memorandum of Agreement
Marine, Protection, Research, and
Sanctuaries Act
National Aeronautics and Space
Administration
National Priorities List
Natural Resource Damages
Assessment
Office of the Chief Financial
Officer
Office of Inspector General
Office of Management and Budget
Oil Pollution Act
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OPM
Office of Personnel Management
SARA
Superfund Amendments &
ORD
Office of Research and
Reauthorization Act
Development
SDWA
Safe Drinking Water Act
PCA
Payroll Cost Allocation
SFFAS
Statement of Federal Financial
PFCRA
Program Fraud Civil Liberties Act
Accounting Standards
PP&E
Plant, Property and Equipment
SPA
state program approval
PRASA
Puerto Rico Aqueduct and Sewer
SRAF
Service Receipts Account Fund
Authority
SRF
State Revolving Fund
PRFA
Pollution Removal Funding
SSC
Superfund State Contracts
Agreements
S&T
Science & Technology
PRIA
Pesticides Registration
STAG
State and Tribal Assistance Grants
Improvement Act
PROMESA
Puerto Rico Oversight,
TSCA
Toxic Substances Control Act
Management, and Economic
Stability Act
ULO
unliquidated obligations
PRP
Potential Responsible Party
USDA
U.S. Department of Agriculture
USSGL
U.S. Standard General Ledger
RCRA
Resource Conservation and
UST
Underground Storage Tank
Recovery Act
R&I
repair and improvement
WCF
Working Capital Fund
RTF
Reduce the Footprint
WIFIA
Water Infrastructure Finance and
RTP
Research Triangle Park
Innovation Act
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WE WELCOME YOUR COMMENTS!
Thank you for your interest in the U.S. Environmental Protection Agency's Fiscal Year 2017 Agency
Financial Report. We welcome your comments on how we can make this report a more informative
document for our readers. Please send your comments to:
Office of the Chief Financial Officer
Office of Financial Management
Environmental Protection Agency
1200 Pennsylvania Ave., NW
Washington, D.C. 20460
ocfoinfo@epa.gov
This report is available at
http: //www.epa. gov/planandbudget
Printed copies of this report are available from EPA's National Service Center for Environmental
Publications at 1-800-490-9198 or by email at nscep@bps-lmitcom.
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PR 0^°
U.S. Environmental Protection Agency
Fiscal Year 2017 Agency Financial Report
EPA-190-R-l 7-002
November 15,2017
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