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Office of Inspector General
Audit Report
FINANCIAL MANAGEMENT
Audit of EPA's Fiscal 2001 and 2000
Financial Statements
Audit Report 2002-1-00082
February 26, 2002
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Inspector General Divisions Conducting the Audit
Lead Division: Financial Audit Division
Washington, DC
Assist Divisions: Mid-Atlantic Audit Division
Philadelphia, PA
Southern Audit Division
Atlanta, GA, and Research Triangle Park, NC
Northern Audit Division
Chicago, IL, and Cincinnati, OH
Eastern Audit Division
New York, NY, and Boston, MA
Western Audit Division
San Francisco, CA
Information Technology Audits Staff
Washington, DC
Abbreviations
APG
Annual Performance Goal
CFMC
Cincinnati Financial Management Center
EPA
Environmental Protection Agency
FFMIA
Federal Financial Management Improvement Act
FinRS
Financial Replacement System
FMFIA
Federal Managers' Financial Integrity Act
GAD
Grants Administration Division
IAG
Interagency Agreement
IFMS
Integrated Financial Management System
OCFO
Office of the Chief Financial Officer
OEI
Office of Environmental Information
OIG
Office of Inspector General
OMB
Office of Management and Budget
RSI
Required Supplementary Information
RSSI
Required Supplemental Stewardship Information
SFFAS
Statement of Federal Financial Accounting Standard
Cover photo of Yosemite by Katherine Thompson, Western Audit Division (Sacramento)
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Washington, DC 20460
A
i«fel
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% PRO^ THE INSPECTOR GENERAL
February 26, 2002
MEMORANDUM
SUBJECT: Audit Report on EPA's Fiscal 2001 and 2000 Financial Statements
FROM: Paul C. C
Project Manager
Financial Audit Division (2422)
TO: Michael W.S. Ryan
Deputy Chief Financial Officer (271 OA)
Dave O'Connor
Acting Assistant Administrator for
Administration and Resources Management (3101 A)
Attached is our audit report on the Agency's fiscal 2001 and 2000 financial statements.
The report recognizes that the Agency significantly improved the preparation process for the
fiscal 2001 financial statements compared to prior year efforts.
Our report reflects our view that the Agency is not in substantial compliance with the
managerial cost accounting standard. The audit report also contains other findings that describe
issues the Office of Inspector General (OIG) has identified and corrective actions the OIG
recommends.
This audit report represents the opinion of the OIG, and the findings contained in this
report do not necessarily represent the final Environmental Protection Agency (EPA) position.
Final determinations on matters in this audit report will be made by EPA managers in accordance
with established EPA audit resolution procedures, Accordingly, the findings described in this
audit report are not binding upon EPA in any enforcement proceeding brought by EPA or the
Department of Justice. We have no objections to the further release of this report to the public.
In this particular audit, the OIG did not measure the audited offices' performance against
the standards established by the National Contingency Plan, The findings contained in this audit
report are not binding in any enforcement proceeding brought by EPA or the Department of
Justice under Section 107 of the Comprehensive Environmental Response, Compensation, and
Liability Act to recover costs incurred not inconsistent with the National Contingency Plan,
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2
In accordance with EPA Order 2750, Audit Management Process, the primary action
official is required to provide us with a written response to the final audit report within 90 days
of the final audit report date. Since this report deals primarily with financial management
issues, we are requesting the Deputy Chief Financial Officer, as the primary action official, to
take the lead in coordinating and providing us a written response to this report. The response
should address all issues and recommendations contained in Attachments 1 and 2. For
corrective actions planned but not completed by the response date, reference to specific
milestone dates will assist us in deciding whether or not to close this report in our audit
tracking system.
Should you or your staff have any questions about the report, please contact me at
(202) 260-8442 or Edward Gekosky at (202) 260-1072.
Attachment
cc: See Appendix III, Report Distribution List
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Executive Summary
Introduction
We performed this audit in accordance with the Government Management Reform Act, which
requires the Environmental Protection Agency (EPA, or the Agency) to prepare, and the
Office of Inspector General (OIG) to audit, the Agency=s financial statements each year. The
requirement for audited financial statements was enacted to help bring about improvements in
agencies' financial management practices, systems, and controls so that timely, reliable
information is available for managing Federal programs.
Objectives
Our primary objectives were to determine whether:
EPA=s financial statements were fairly presented in all material respects in conformity
with generally accepted accounting principles;
EPA's internal control over financial reporting related to the financial statements were
in place; and
EPA management complied with applicable laws and regulations which, if not
followed, could have a direct and material effect on the financial statements.
Results in Brief
Opinions on EPA's Fiscal 2001 and 2000 Financial Statements
In our opinion, the consolidating financial statements present fairly the consolidated and
individual assets, liabilities, net position, net cost, net cost by goal, changes in net position,
reconciliation of net cost to budgetary obligations, and custodial activity of the U.S.
Environmental Protection Agency and its subsidiary funds, the Superfund Trust Fund and All
Other Appropriated Funds, as of and for the years ended September 30, 2001 and 2000, and
budgetary resources as of and for the year ended September 30, 2001, in accordance with
generally accepted accounting principles.
Review of EPA's Required Supplemental Stewardship Information,
Required Supplemental Information, and Management Discussion and Analysis
We inquired of EPA's management as to their methods of preparing its Required Supplemental
Stewardship Information (RSSI), Required Supplemental Information, and Management
Discussion and Analysis, and reviewed this information for consistency with the principal
Audit Report 2002-1-00082
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financial statements. However, our audit was not designed to express, and we are not
expressing, an opinion on this information.
We did not identify any material inconsistencies between the information presented in EPA's
financial statements and the information presented in EPA's RSSI, Required Supplementary
Information, and Management Discussion and Analysis. Office of Management and Budget
(OMB) Bulletin No. 01-09, Form and Content of Agency Financial Statements, requires
agencies to report, as Required Supplemental Information, their intra-governmental assets
and liabilities by Federal trading partner. We did find that, through no fault of EPA, other
Federal agencies were unable to reconcile EPA's reported transactions with their records.
We note that this is a government-wide issue that needs to be resolved.
Evaluation of Internal Controls
The objective of our audit was not to provide assurance on internal controls and, accordingly,
we do not express an opinion on internal controls. Material weaknesses are situations where
internal controls do not reduce, to a relatively low level, the risk that errors, fraud, or
noncompliance in amounts material to the financial statements may occur and not be detected
in a timely manner by employees in the normal course of performing their assigned functions.
In evaluating the Agency's internal controls, we noted certain matters discussed below
involving the internal control and its operation that we consider to be reportable conditions.
However, none of the reportable conditions is believed to be a material weakness.
In evaluating the Agency's internal control structure, we identified three reportable conditions
in the following areas, which are detailed further in Attachment 1:
Accounting for Internal Use Software
EPA's Interagency Agreement Invoice Approval Process
Automated Application Processing Controls for the Integrated Financial Management
System
Tests of Compliance with Laws and Regulations
As part of obtaining reasonable assurance about whether the Agency's financial statements
were free of material misstatement, we performed tests of its compliance with certain
provisions of laws and regulations, noncompliance which could have a direct and material
effect on the determination of financial statement amounts. Providing an opinion on
compliance with certain provisions of laws and regulations was not an objective of our audit.
Accordingly, we do not express such an opinion.
We did not identify any instances of noncompliance with laws and regulations that would
result in material misstatements to the audited financial statements. However, we did note the
following noncompliance issues.
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Audit Report 2002-1-00082
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Compliance with the Federal Financial Management Improvement Act
The Federal Financial Management Improvement Act (FFMIA) requires that, as a part of our
annual financial statement audit, we determine whether EPA's financial management systems
substantially comply with Federal financial management system requirements, applicable
accounting standards, and the Standard General Ledger at the transaction level.
We identified the following instance of substantial (as defined by OMB) noncompliance with
FFMIA requirements, and one other noncompliance with FFMIA, which are discussed further
in Attachment 2:
The Agency was not in substantial compliance with Statement of Federal Financial
Accounting Standards (SFFAS) No. 4 that requires EPA to: (1) determine the full
costs of its activities, (2) accumulate and report cost of activities on a regular basis for
management information purposes, and (3) use appropriate costing methodologies to
accumulate and assign costs to outputs.
Reconciliation of intra-governmental transactions is reported as a noncompliance, but it
does not meet the OMB criteria for substantial noncompliance.
Agency Comments and OIG Evaluation
In memorandums dated February 12 and 25, 2002, the Comptroller responded to our draft
report. The OCFO generally concurred with our findings and is in process of implementing
corrective actions. However, the OCFO took exception to two issues, Managerial Cost
Accounting and Internal Use Software.
The OCFO believes they are complying with the Managerial Cost Accounting Standard and is
currently preparing a response to the points raised in the Inspector General's
December 12, 2001 memorandum to the Administrator regarding the impasse over FFMIA
compliance.
The OCFO acknowledged that SFFAS No. 10, Accounting for Internal Use Software, was not
implemented until the end of the fiscal year. However, the OCFO believes that by doing so,
EPA was able to use the most recent guidance and develop more accurate and complete costs.
We do not agree with the OCFO, we found that some of the data and costs for systems that
were not capitalized were either incomplete or ambiguous.
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Audit Report 2002-1-00082
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Table of Contents
Page
Executive Summary i
Inspector General's Report on EPA's
Fiscal 2001 and 2000 Financial Statements 1
Review of EPA's Required Supplemental Stewardship Information,
Required Supplemental Information, and Management Discussion
and Analysis 2
Evaluation of Internal Controls 2
Tests of Compliance with Laws and Regulations 6
Prior Audit Coverage 8
Agency Comments and OIG Evaluation 9
Attachments
1. Reportable Conditions
2. Compliance with Laws and Regulations
Substantial Noncompliance with
Federal Financial Management Improvement Act
Other Noncompliance Issue with
Federal Financial Management Improvement Act
3. Status of Prior Audit Report Recommendations
Appendices
I EPA's Fiscal 2001 and 2000 Financial Statements
II Agency's Response to Draft Report
III Report Distribution List
Audit Report 2002-1-00082
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Audit Report 2002-1-00082
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Inspector General's Report on EPA's
Fiscal 2001 and 2000 Financial Statements
The Administrator
U.S. Environmental Protection Agency
We have audited the consolidating balance sheets of the U.S. Environmental Protection
Agency (EPA, or the Agency) and its subsidiary funds, the Superfund Trust Fund (Superfund)
and All Other Appropriated Funds (All Other), as of September 30, 2001 and 2000, and the
related consolidating statements of net cost and changes in net position, consolidated
statements of net cost by goal, combined statements of financing, and consolidated statements
of custodial activity for the years then ended, and the related combined statement of budgetary
resources for the year ended September 30, 2001. These financial statements are the
responsibility of EPA's management. Our responsibility is to express an opinion on these
financial statements based upon our audit.
We conducted our audit in accordance with generally accepted 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 01-02, 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 includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The financial statements include expense of grantees, contractors, and other Federal agencies.
Our audit work pertaining to these expenses included testing only within EPA. Audits of
grants, contracts, and interagency agreements performed at a later date may disclose
questioned costs of an amount undeterminable at this time. In addition, the United States
Treasury collects and accounts for excise taxes that are deposited into the Superfund and
Leaking Underground Storage Tank Trust Funds.1 The United States Treasury is also
responsible for investing amounts not needed for current disbursements and transferring funds
to EPA as authorized in legislation. Since the United States Treasury, and not 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 its operations that are presented in the financial statements. The amounts included for the
l The Leaking Underground Storage Tank Trust Fund is included in the All Other Appropriated Funds
column of the financial statements.
Audit Report 2002-1-00082
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OIG are not material to EPA's financial statements. The OIG is organizationally independent
with respect to all other aspects of the Agency's activities.
In our opinion, the consolidating financial statements present fairly the consolidated and
individual assets, liabilities, net position, net cost, net cost by goal, changes in net position,
reconciliation of net cost to budgetary obligations, and custodial activity of the U.S.
Environmental Protection Agency and its subsidiary funds, the Superfund Trust Fund and All
Other Appropriated Funds, as of and for the years ended September 30, 2001 and 2000, and
budgetary resources as of and for the year ended September 30, 2001, in accordance with
generally accepted accounting principles.
Review of EPA's Required Supplemental Stewardship Information,
Required Supplemental Information, and Management Discussion and Analysis
We inquired of EPA's management as to their methods of preparing its Required Supplemental
Stewardship Information (RSSI), Required Supplementary Information (RSI), and
Management Discussion and Analysis, and reviewed this information for consistency with the
financial statements. However, our audit was not designed to express an opinion and,
accordingly, we do not express an opinion.
We did not identify any material inconsistencies between the information presented in EPA's
financial statements and the information presented in EPA's RSSI, Required Supplementary
Information, and Management Discussion and Analysis. OMB Bulletin No. 01-09, Form and
Content of Agency Financial Statements, requires agencies to report, as Required
Supplemental Information, their intra-governmental assets and liabilities by Federal trading
partner. We did find that, through no fault of EPA, other Federal agencies were unable to
reconcile EPA's reported transactions with their records (see Attachment 2 for additional
details on this issue).
Evaluation of Internal Controls
As defined by OMB, internal control, as it relates to the financial statements, is a process,
affected by the Agency's management and other personnel, designed to provide reasonable
assurance that the following objectives are met:
Reliability of financial reporting - Transactions are properly recorded, processed,
and summarized to permit the timely and reliable preparation of the financial statements
and RSSI in accordance with generally accepted accounting principles; and assets are
safeguarded against loss from unauthorized acquisition, use, or disposition.
Reliability of performance reporting - Transactions and other data that support
reported performance measures are properly recorded, processed, and summarized to
permit the preparation of performance information in accordance with criteria stated by
management.
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Compliance with applicable laws and regulations - Transactions are executed in
accordance with laws governing the use of budget authority and other laws and
regulations that could have a direct and material effect on the financial statements or
RSSI; and any other laws, regulations, and government-wide policies identified by
OMB.
In planning and performing our audit, we considered EPA's internal controls over financial
reporting by obtaining an understanding of the Agency's internal controls, determined whether
internal controls had been placed in operation, assessed control risk, and performed tests of
controls in order to determine our auditing procedures for the purpose of expressing our
opinion on the financial statements. We limited our internal control testing to those controls
necessary to achieve the objectives described in OMB Bulletin No. 01-02, Audit Requirements
for Federal Financial Statements, as supplemented by an OMB memorandum dated January 4,
2001, Revised Implementation Guidance for the Federal Financial Management
Improvement Act. We did not test all internal controls relevant to operating objectives as
broadly defined by the Federal Managers' Financial Integrity Act of 1982, such as those
controls relevant to ensuring efficient operations. The objective of our audit was not to
provide assurance on internal controls and, accordingly, we do not express an opinion on
internal controls.
Our consideration of the internal controls over financial reporting would not necessarily
disclose all matters in the internal control over financial reporting that might be reportable
conditions. Under standards issued by the American Institute of Certified Public Accountants,
reportable conditions are matters coming to our attention relating to significant deficiencies in
the design or operation of the internal control that, in our judgment, could adversely affect the
Agency's ability to record, process, summarize, and report financial data consistent with the
assertions by management in the financial statements. Material weaknesses are reportable
conditions in which the design or operation of one or more of the internal control components
does not reduce to a relatively low level the risk that misstatements in amounts that would be
material in relation to the financial statements being audited may occur and not be detected
within a timely period by employees in the normal course of performing their assigned
functions. Because of inherent limitations in internal controls, misstatements, losses, or
noncompliance may nevertheless occur and not be detected. However, we noted certain
matters discussed below involving the internal control and its operation that we consider to be
reportable conditions, although none of the reportable conditions is believed to be a material
weakness.
In addition, we considered EPA's internal control over the RSSI by obtaining an understanding
of the Agency's internal controls, determined whether these internal controls had been placed
in operation, assessed control risk, and performed tests of controls as required by OMB
Bulletin No. 01-02. Our procedures were not designed to provide assurance on these internal
controls and, accordingly, we do not express an opinion on such controls.
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Finally, with respect to internal control related to performance measures presented in EPA's
Fiscal Year 2001 Annual Report, Section 1, Overview and Analysis (which addresses
requirements for a Management's Discussion and Analysis), we obtained an understanding of
the design of significant internal controls relating to the existence and completeness assertions,
as required by OMB Bulletin No. 01-02. Our procedures were not designed to provide
assurance on internal control over reported performance measures and, accordingly, we do not
express an opinion on such controls.
Reportable Conditions
Reportable conditions are internal control weakness matters coming to the auditor's attention
that, in the auditor's judgment, should be communicated because they represent significant
deficiencies in the design or operation of internal control that could adversely affect the
organization's ability to meet the OMB objectives for financial reporting discussed above.
In evaluating the Agency's internal control structure, we identified three reportable conditions,
as follows:
Implementation of Internal Use Software Standard
EPA did not implement Statement of Federal Financial Accounting Standard (SFFAS)
No. 10, Accounting for Internal Use Software, until the end of fiscal 2001, even
though the standard was applicable for the entire fiscal year. In addition, some of the
supporting documentation used to identify capitalized software costs was insufficient to
determine whether such costs exceeded the capitalization threshold. Since EPA issued
guidance for capitalizing internally-developed software at the end of fiscal 2001, we do
not have recommendations.
EPA's Interagency Agreement Invoice Approval Process
Some EPA project officers did not fulfill oversight duties related to reviewing and
approving Interagency Agreement (IAG) invoices. We noted deficiencies in this area
in prior reports, and we continue to find instances where project offices at EPA's
Headquarters and the Cincinnati Financial Management Center (CFMC) did not timely
approve IAG invoices because they did not receive the supporting cost information
from other Federal agencies to substantiate invoice amounts. Additionally, CFMC
continued to use the "first-in first-out" accounting basis (charging the first line of
accounting) to allocate costs charged on IAGs with multiple goals/subobjectives, which
provides limited assurance that costs were charged to the appropriate
goals/subobj ectives.
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Audit Report 2002-1-00082
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Automated Application Processing Controls
We continue to be unable to assess the adequacy of the automated internal control
structure as it relates to automated input, processing, and output controls for the
Integrated Financial Management System (IFMS). IFMS applications have a direct
and material impact on the Agency's financial statements. Therefore, an assessment of
each application's automated input, processing, and output controls, as well as
compensating manual controls, is necessary to determine the reliance we can place on
the financial statements.
Attachment 1 describes each of the above reportable conditions in more detail, our
recommendations, and Agency comments on actions that should be taken to correct these
conditions.
Comparison of EPA'S FMFIA Report with Our Evaluation of Internal Controls
OMB Bulletin No. 01-02, Audit Requirements for Federal Financial Statements, requires us
to compare material weaknesses disclosed during the audit with those material weaknesses
reported in the Agency's Federal Managers: Financial Integrity Act (FMFIA or Integrity Act)
report that relate to the financial statements and identify material weaknesses disclosed by
audit that were not reported in the Agency's FMFIA report. EPA reports on Integrity Act
decisions in EPA's Fiscal Year 2001 Annual Report. For a discussion on Agency reported
Integrity Act material weaknesses and corrective action strategy, please refer to EPA's Fiscal
Year 2001 Annual Report, Section III, FY 2001 Management Accomplishments and
Challenges.
For reporting under FMFIA, material weaknesses are defined differently than they are defined
for financial statement audit purposes. OMB Circular A-123, Management Accountability
and Control, defines a material weakness as a deficiency that the Agency head determines to
be significant enough to be reported outside the Agency.
For financial statement audit purposes, OMB defines material weaknesses in internal control as
reportable conditions in which the design or operation of the internal control does not reduce
to a relatively low level the risk that errors, fraud, or noncompliance in amounts that would be
material in relation to the financial statements or RSSI being audited, or material to a
performance measure or aggregation of related performance measures, may occur and not be
detected within a timely period by employees in the normal course of performing their assigned
functions. Our audit did not disclose any material weakness that was not reported by the
Agency as part of the Integrity Act process.
As a part of the fiscal 2001 Integrity Act process, the Agency reported the following material
weaknesses that relate to the Agency=s financial statements:
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Information System Security - The Office of Environmental Information recognizes
that past improvements to its information security program have not resulted in a
complete, comprehensive information security program. Therefore, this office is
expanding its existing material and Agency weaknesses, Information Systems Security
Plans, and Cyber Security to address all security-related deficiencies. In fiscal 2001,
Office of Environmental Information reported that it had developed an approach to
correct the information systems security weakness and plans to evaluate the
effectiveness of its guidance and security measures through continued testings and
audits. Corrective actions are expected to be completed in fiscal 2002.
Construction Grants Close Out - In 1992, EPA designated this area as an Agency
weakness, and in 1996 reclassified it as a material weakness due to a concern that lack
of Agency-wide attention might result in the loss of resources to properly complete the
program. Corrective actions are expected to be completed in fiscal 2002.
Tests of Compliance with Laws and Regulations
EPA management is responsible for complying with laws and regulations 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 and regulations, noncompliance with which could have a direct and material
effect on the determination of financial statement amounts, and certain other laws and
regulations specified in OMB Bulletin No. 01-02, Audit Requirements for Federal Financial
Statements, as supplemented by an OMB Memorandum dated January 4, 2001, Revised
Implementation Guidance for the Federal Financial Management Improvement Act. The
OMB guidance requires that we evaluate compliance with Federal financial management
system requirements, including the requirements referred to in the Federal Financial
Management Improvement Act (FFMIA) of 1996. We limited our tests of compliance to these
provisions and did not test compliance with all laws and regulations applicable to EPA.
Providing an opinion on compliance with certain provisions of laws and regulations was not an
objective of our audit and, accordingly, we do not express such an opinion. There are a
number of ongoing investigations involving EPA's grantees and contractors that could disclose
violations of laws and regulations, but a determination about these cases has not been made.
None of the noncompliances discussed below would result in material misstatements to the
audited financial statements.
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. OMB Bulletin No. 01-02, as supplemented by an OMB memorandum
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dated January 4, 2001, Revised Implementation Guidance for the Federal Financial
Management Improvement Act, substantially changed the guidance for determining whether or
not an Agency substantially complied with the Federal financial management systems
requirements, applicable Federal accounting standards, and the United States Government
Standard General Ledger at the transaction level. The document is intended to focus Agency
and auditor activities on the essential requirements of FFMIA. The document lists the specific
requirements of FFMIA, as well as factors to consider in reviewing systems and for
determining substantial compliance with FFMIA. It also provides guidance to Agency heads
for developing corrective action plans to bring an Agency into compliance with FFMIA. To
meet the FFMIA requirement, we performed tests of compliance with FFMIA section 803(a)
requirements and used the OMB guidance, revised on January 4, 2001, for determining
substantial noncompliance with FFMIA.
The results of our tests disclosed one instance where the Agency's financial management
systems did not substantially comply with the applicable Federal accounting standard.
We identified a substantial noncompliance with the SFFAS No. 4 accounting standard for
managerial cost accounting, which is described more fully in Attachment 2.
In addition to the above instance of substantial noncompliance, we identified one other
noncompliance, related to reconciliation of intra-governmental transactions. However, this
noncompliance does not meet the definition of a substantial noncompliance as described in
OMB guidance.
Attachment 2 provides additional details, as well as our recommendations and Agency
comments on actions that should be taken on these matters.
Appropriation Law Noncompliance
Since fiscal 1994, we have reported that EPA was not complying with appropriation law when
making disbursements for grants funded with more than one appropriation. Specifically,
disbursements for these grants were made using the oldest available funding (appropriation)
first, which may or may not have been the appropriation that benefitted from the work
performed. Therefore, EPA was not in compliance with Title 31, U.S. Code, Section 1301,
which requires EPA to match disbursements to the benefitting appropriation. A January 13,
2000, Office of General Counsel decision concluded that making disbursements for multiple
appropriation grants using the oldest available funding violates Title 31, U.S. Code, Section
1301 and is an inappropriate method of charging, except in limited situations. In fiscal 2001,
EPA adopted new procedures for allocating costs on such grants for new awards, although
existing grants are still being disbursed using the oldest available funding first. Since EPA has
issued guidance for new awards, and since the remaining obligated balances will dissipate and
the problem will be corrected, we are not making any recommendations. See Attachment 3 for
a description of the Agency's corrective action plans and milestones.
Audit Report 2002-1-00082
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Prior Audit Coverage
During previous financial or financial-related audits, weaknesses that impacted our audit
objectives were reported in the following areas:
The Agency's process for preparing financial statements, including the
Statements of Budgetary Resources, Financing, and Net Cost.
• Complying with FFMIA requirements.
Reviewing unliquidated obligations.
Reporting intra-governmental assets and liabilities by Federal trading partner.
Complying with SFFAS No. 4, including accounting for the cost to achieve
goals and identifying and allocating indirect costs.
Accounting for capitalized property.
Recording accrued liabilities for grants.
IAG invoice approval process.
• Documenting EPA's IFMS.
Complying with Federal financial management system security requirements.
Accounting for payments for grants funded from multiple appropriations.
Reviewing Agency user fees.
Documentation and approval of journal vouchers.
Timely repayment of Asbestos Loan Debt to Treasury.
Automated application processing controls for the IFMS could not be assessed.
Reconciliation of intra-governmental transactions.
Financial system security plans continue to be noncompliant.
Attachment 3, Status of Prior Audit Report Recommendations, summarizes the current status
of corrective actions taken on prior audit report recommendations in each of these areas.
The Chief Financial Officer, as the Agency=s Audit Follow-up Official, oversees EPA=s follow-
up on audit findings and recommendations, including resolution and implementation of
corrective actions. For these prior audits, final action occurs when the Agency completes
implementation of the corrective actions to remedy weaknesses identified in the audit.
We acknowledge that many actions and initiatives have been taken to resolve prior financial
statement audit issues. We also recognize that the issues we have reported are complex, and
require extensive, long-term corrective actions and coordination by the Chief Financial Officer
with various Assistant Administrators, Regional Administrators, and Office Directors before
they can be completely resolved. A number of issues have been unresolved for many years.
In response to our inquiries on actions taken by the Office of the Chief Financial Officer
(OCFO) to resolve long outstanding audit recommendations, a representative informed us of a
number of efforts that were conducted in fiscal 2000. The OCFO continued efforts to stress
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the importance of timely and effective audit management practices. The OIG and OCFO held
a joint meeting with the Audit Follow-up Coordinators to: (1) reinforce their roles and
responsibilities; (2) review expectations for audit follow-up, as laid out in EPA Order 2750,
Audit Management Process; and (3) reemphasize the importance to Audit Follow-up
Coordinators in keeping their managers and the OIG informed of progress.
The OIG will continue to work with the OCFO in helping to resolve all audit issues resulting
from our financial statement audits.
In memorandums dated February 12 and 25,2002, the Comptroller responded to our draft
report. The OCFO generally concurred with our findings and is in process of implementing
corrective actions. However, the OCFO took exception to two issues, Managerial Cost
Accounting and Internal Use Software.
The OCFO believes they are complying with the Managerial Cost Accounting Standard and
is currently preparing a response to the points raised in the Inspector General's December 12,
2001 memorandum to the Administrator regarding the impasse over FFMIA compliance.
The OCFO acknowledged that SSFAS No. 10 was not implemented until the end of the fiscal
year. However, the OCFO believes by doing so, EPA was able to use the most recent
guidance and develop more accurate and complete costs. We do not agree with the OCFO,
we found that some of the data and costs for systems that were not capitalized were either
incomplete or ambiguous.
The rationale for our conclusions and a summary of the Agency comments is included in the
appropriate sections of this report and the Agency's complete response is included as
Appendix II to this report.
This report is intended solely for the information and use of the management of EPA, OMB,
and Congress, and is not intended to be and should not be used by anyone other than these
specified parties.
Paul C. Curtis
Financial Audit Division
Office of Inspector General
U.S. Environmental Protection Agency
February 26, 2002
Agency Comments and OIG Evaluation
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Attachment 1
Reportable Conditions
Table of Contents
Page
1 - EPA Did Not Implement Accounting for
Internal Use Software Standard Timely 1-1
2 - Additional Improvements Needed in EPA's
Interagency Agreement Invoice Approval Process 1-3
3 - Automated Application Processing Controls for
Integrated Financial Management System Could Not Be Assessed 1-5
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EPA Did Not Implement
Accounting for Internal Use Software Standard Timely
EPA did not implement SFFAS No. 10, Accounting for Internal Use Software, until the end of
fiscal 2001. This required EPA to adopt an alternative method for capitalizing software. Also,
we found that some of the supporting documentation used in this alternative method to identify
capitalized software costs was insufficient. As a result, the capitalized software balance (net of
accumulated depreciation) of $11 million, may not represent all capitalized software costs.
SFFAS No. 10, issued in June 1998, provides the Federal accounting standard for capitalizing
internal use software. Use of the standard was required starting with fiscal 2001. However,
EPA did not issue its own implementing guidance on the standard (Comptroller Policy
Announcement No. 01-10) until September 28, 2001, only 2 days before the end of fiscal
2001. The EPA guidance informed program managers on how to determine whether
internally-developed software should be capitalized and how to identify and record it in the
Agency's accounting system. The policy also established an EPA threshold of $500,000 for
capitalizing internally-developed software. Because of the lateness of the guidance, the
SFFAS criteria was not used for capitalizing internally-developed software during fiscal 2001.
Instead, the Agency used a year-end cost accumulation process to implement SSFAS No. 10.
As a result of not having adequate guidance in place during most of fiscal 2001, EPA
personnel had to review each of its systems to determine whether costs should be capitalized.
EPA reviewed costs listed in Exhibit 53 of its Budget Submission to OMB, which lists all of
EPA's large software systems and hardware costs for the current year, to identify systems that
met the $500,000 threshold in current year developmental costs. Current year costs for
software systems are divided into "steady state" (maintenance) costs and development,
modification, and enhancement costs. However, we found that:
• Not all costs listed as development, modification, and enhancement costs on the Exhibit 53
should be capitalized. To determine which costs should be capitalized, Agency personnel
had to seek additional documentation (the Capital Planning and Investment Control
Proposal) on each system's cost. This documentation provides information on how funds
are being spent for the system and milestones for the project.
Investment information for several systems that were not capitalized were either
incomplete or ambiguous. For these systems, we could not determine whether the total
systems development costs would reach the $500,000 in capitalized costs threshold.
Since EPA has issued its guidance for capitalizing internally-developed software, we do not
believe a recommendation is needed at this time.
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Agency Comments and OIG Evaluation
The OCFO acknowledged that SFFAS No. 10 was not implemented until the end of the fiscal
year. However, the OCFO believes that by doing so, EPA was able to use the most recent
guidance and develop more accurate and complete costs. The OCFO went on to say that the
amount capitalized reflected verifiable and compliant software balances, that systems not
capitalized either did not meet the $500,000 dollar threshold or capitalization criteria, and that
their review provided for a consistent application of the requirements of SFFAS No. 10.
The OIG recognizes the efforts the Agency went through to identify software systems and
capitalize costs, and we agree that the costs capitalized reflect verifiable costs. However, such
costs may not represent all capitalized software costs. The Agency's efforts were based upon
an alternative method to determine costs after the end of the fiscal year from sources that were
not designed to capture costs for a software system.. As a result, we found that some of the
data and costs for systems that were not capitalized were either incomplete or ambiguous.
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Additional Improvements Needed in EPA's
Interagency Agreement Invoice Approval Process
Some EPA project officers did not fulfill oversight duties related to reviewing and approving
IAG invoices. We noted deficiencies in this area in prior reports, and we continue to find
instances where program offices at EPA Headquarters and Regions did not timely approve
IAG invoices or identify the proper line of accounting on the Project Officer Approval Form.
We also noted additional instances where project officers do not receive supporting cost
documentation from other Federal agencies to substantiate invoice amounts. We found five
instances in various program offices where the project officer approved the invoice without the
detailed documentation. And one instance where the project officer did not sign the approval
document. Without project officer approval or proper identification of accounting information,
transactions may be recorded in the accounting system with limited assurance that invoices are
valid, appropriate, and allowable under the terms of the IAG, and that costs are charged to the
appropriate goal, objective, or subobjective.
Project Officer Responsibilities Outlined
The Resources Management Directive System, Section 2550C, Chapter 4, Interagency
Agreements, paragraph 5(g), states that the project officer is responsible for:
Providing technical and managerial oversight.
Receiving and reviewing detailed cost information submitted by other agencies, which
should be provided on a project-by-project basis.
Approving vouchers and OP AC (On-Line Payment and Collection System) billings
received from other agencies after determining that performance is in accordance with
the agreement.
Forwarding approved vouchers to CFMC for payment within 5 days after receipt.
Also, paragraph 10(d) states it is the responsibility of the project officer to monitor Funds-Out
disbursement agreements. This responsibility includes monitoring EPA's receipt of goods or
services to ensure their delivery in accordance with the terms of the agreement, reviewing
detailed cost information required of the agency providing the goods or services, and resolving
any discrepancies which may arise.
EPA's training manual for project officers, Managing Your Financial Assistance Agreement,
3rd Edition, October 1996, Module VIII, provides guidance on OP AC billing. CFMC charges
a bill to the appropriate IAG and submits the invoice to the project officer for approval. If
there is a problem with the bill, EPA has 90 days to "charge back" the funds to the appropriate
account.
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Progress Being Made But Further Improvements Needed
We recognize that the Agency has taken corrective actions in response to our previous
recommendations and plans to take additional corrective actions. In response to our previous
recommendations, the Grants Administration Division issued Fact Sheet No. 12 dated
February 7, 2000, "Project Officer's Responsibility for Payments Under Interagency
Agreements." The fact sheet directs program leaders to assure project officers disapprove
IAG invoices unless adequate information on progress and costs incurred are reasonable. In
addition, the fact sheet advises project officers to request the necessary information from the
receiving agency (with Grants Administration Division or Financial Services Branch assistance,
if necessary) and to request Financial Management Division to suspend or charge back
payment if information is not provided promptly. In addition, the Agency stated they plan to
implement an automated process during FY 2002.
Since our finding on IAG invoices is similar to what we previously found, and since EPA
appears to be taking steps to implement its corrective actions, we are not repeating our
previous recommendations. We will continue to evaluate the effectiveness of the Agency's
corrective action plans during subsequent financial statement audits. Attachment 3, "Status of
Prior Audit Report Recommendations" notes our previous recommendations on this issue and
the status of corrective actions.
Agency Comments and OIG Evaluation
The agency agreed with our findings.
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Automated Application Processing Controls for
Integrated Financial Management System
Could Not Be Assessed
As we first reported in our fiscal 1995 financial statement audit report, we continue to be
unable to assess the adequacy of the automated internal control structure as it relates to
automated input, processing, and output controls for IFMS. IFMS applications have a direct
and material impact on the Agency's financial statements. Therefore, an assessment of each
application's automated input, processing, and output controls, as well as compensating
manual controls, is necessary to determine the reliance we can place on the financial
statements.
Prior Reports Noted Issues
During past financial statement audits, we attempted to evaluate controls without
documentation, but these alternatives proved to be inefficient and impractical. Program level
transaction flowcharts or similarly descriptive narrative system documentation were not
available. Furthermore, we previously concluded that the IFMS user manuals and other EPA
contractor baseline Federal financial systems manuals did not contain the level of detail
necessary to construct tests of automated internal controls that would satisfy our field work
standards.
Since 1995, Agency officials have maintained that the current level of documentation is
sufficient. Nevertheless, Agency officials have taken actions on a number of our
recommendations, including completing a system documentation analysis, developing updated
accounts receivable documentation, and completing an analysis for creating a comprehensive
IFMS data dictionary.
Our fiscal 2000 financial statement audit work indicated EPA upgraded its user documentation
in 1999, and that it was adequate for users' needs for entering data. However, we determined
that the combined upgraded users' and technical systems documentation still did not address
critical system operational controls, such as access to tables or data, electronic approvals, and
use of supervisory overrides. Furthermore, neither the users nor technical systems
documentation addressed transaction "processing" edits and data flows. Lastly, the Agency
has not developed a data dictionary.
Fiscal 2001 Review Results
As part of our fiscal 2001 financial statement audit, we evaluated the Agency's IFMS
replacement activities and found that EPA has taken tangible steps to replace IFMS with the
Financial Replacement System (FinRS) project. In fiscal 2001, the Agency performed the
following activities:
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Included a budget for FinRS in its annual submission to OMB, Exhibit 300B. The
milestones and costs associated with FinRS were estimated using a reasonable
method.
Formed the Systems Planning and Integration Staff, which reports directly to the
Controller and is responsible for the development of the overall financial system plan.
The Systems Planning and Integration Staffs mission and responsibilities are
appropriate for replacing IFMS.
Initiated a contract to develop a high level strategic financial systems assessment that
includes alternatives for the replacement of financial systems, along with a
cost/benefit analysis of the solutions.
In conclusion, we believe that the steps described above indicate EPA is moving in a credible
fashion towards replacing IFMS. However, until the new system is in place and we have had
a chance to audit it, we cannot assess the adequacy of the automated internal control
structure.
Agency Comments and OIG Evaluation
The agency agreed with our findings.
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Attachment 2
Compliance with Laws and Regulations
Table of Contents
Substantial Noncompliance with Federal Financial Management
Improvement Act
Page
4 - EPA Did Not Comply with
Managerial Cost Accounting Standard 2-1
Other Noncompliance Issue with Federal Financial Management
Improvement Act2
5 - EPA Continues to Experience Difficulties in Reconciling
Intra-Governmental Transactions 2-5
2 We are reporting this noncompliance issue under FFMIA as it directly relates to FFMIA reporting
requirements; however, we note that the issue does not meet the OMB criteria for substantial noncompliance
under FFMIA.
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EPA Did Not Comply with
Managerial Cost Accounting Standard
EPA did not comply during fiscal 2001 with SFFAS No. 4, Managerial Cost Accounting Concepts
and Standards for the Federal Government. Specifically, EPA did not comply with the
requirements to provide cost per output to management in a timely fashion. In addition, under
EPA's current cost accounting structure, when costs by output are produced, such costs are not in
sufficient detail to be useful to managers. To comply with the Standard, EPA needs to:
Educate managers on the importance of, possibilities for, and effective use of a cost
accounting system.
Canvass managers on the level of detail and types of reports needed to effectively manage
their programs.
Develop a cost accounting system that is flexible enough to handle the Agency's diverse
missions.
Ensure that the system is being utilized on a regular basis.
When making decisions, EPA managers often focus their financial consideration on the availability
of funds. Much less concern is given to the cost of operations. While some cost information is
available, it is generally not in sufficient detail to be used in a meaningful way by Agency decision
makers. In our view, EPA needs to elevate the actual cost of operations as a factor in EPA
decisions so that the cost of key activities is just as important a consideration as whether funds are
available in a budget.
Agency Disagreed with OIG Position in the Past
In our audits of fiscal 1999 and 2000 financial statements, we concluded that EPA did not comply
with SFFAS No. 4. OCFO did not agree; and despite numerous discussions between our offices,
we have not reached agreement on this issue. In many areas, the Standard allows for broad
interpretation of what constitutes compliance. We believe this flexibility, along with varying
interpretations by other government agencies, are the causes of our disagreement. However, we
do believe that there are several litmus tests of compliance with the standard. For example, the
standard requires cost per output to be provided to management in a timely fashion. However,
EPA did not do this. Therefore, while there is room to debate some areas of the standard, this
basic requirement was not satisfied. Accordingly, for reasons discussed below, we continue to
believe that EPA does not comply with the Standard. We do believe that OCFO supports creating
systems that can provide managers the detailed information necessary to support results-based
decisions. However, we believe this process needs to be intensified and visibility heightened.
Objectives and Purpose of Standard
Compliance with the standard, to us, means that a meaningful, useful system is in place and is
being effectively utilized by the Agency. The specific objectives of SFFAS No. 4 are listed at
paragraph 22 of the standard. They include:
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Provide program managers with relevant and reliable information relating costs to outputs
and activities. Based on this information, program managers can respond to inquiries about
the costs of the activities they manage. The cost information will assist them in improving
operational economy and efficiency.
Provide relevant and reliable cost information to assist the Congress and executives in
making decisions about allocating Federal resources, authorizing and modifying programs,
and evaluating program performance.
Ensure consistency in costs reported in general purpose financial reports and to program
managers. This includes standardizing terminology for managerial cost accounting to
improve communication among Federal organizations and users of cost information.
The focus of the statement is on cost information needed to improve Federal financial management
and management decisions. The standard identifies five essential cost information areas: (1)
budgeting and cost control, (2) performance measurement, (3) determining reimbursements and
setting fees and prices, (4) program evaluations, and (5) making economic choice decisions.
In recent years, cost accounting has become increasingly important, and Congress has placed a
greater emphasis on improving information to manage Federal programs. The FFMIA of 1996
was intended to ensure agencies develop and use systems that generate reliable, timely, and
consistent information necessary for managing current operations. Also, the managerial cost
accounting concepts and requirements contained in the Standard require each Federal agency to
produce reliable and timely information on the full costs of Federal programs, their activities, and
outputs.
The development of cost information is also important because The President's Management
Agenda for Fiscal Year 2002 emphasizes the need to achieve effective and efficient competition
between public and private sources. To facilitate this competition, agencies will need to develop
cost information for activities that may be subject to competition with the private sector or other
Federal entities in the future. Additionally, the Administration plans to integrate information about
costs and program performance into a single oversight process.
More Meaningful Cost Information Needed
In our opinion, EPA's cost accounting system does not completely satisfy the aforementioned
objectives of the standard.
To comply with the cost accounting standard, EPA systems should provide program managers
with enough basic cost information to accomplish objectives associated with planning, decision
making, control, and reporting, as well as accommodating managers' particular cost information
needs that may arise due to special situations or circumstances. This cost information should be
detailed enough to allow managers to compare alternative courses of action and make decisions by
assessing costs and benefits. Agency cost information should also be specific enough to account
for activities that cross program lines.
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At a minimum, EPA managers should know the cost of Agency efforts to meet Annual
Performance Goals (APGs). In fiscal 2000, EPA committed to 73 APGs. However, EPA's cost
accounting system was not designed to capture the costs associated with these APGs, or compare
the costs against a budget for the APGs. Instead, EPA is working to capture costs by sub-
objectives. While the sub-objectives are an integral part of EPA's budget structure, they present
costs at too high a level to be useful to managers for activity-based assessments and decision-
making purposes. Also, in most cases, the costs associated with the sub-objectives cannot be tied
to the costs of an APG. Sometimes the sub-objectives are too broad or vague to tie to a particular
APG, and other times the costs associated with an APG are spread over multiple sub-objectives.
To be truly meaningful, EPA's cost accounting system should provide managers with cost
information about their basic outputs. For example:
Managers in the Office of Pesticides should know how much it costs to perform a tolerance
reassessment.
Managers in the Office of Enforcement and Compliance Assurance should know the costs
of the various enforcement actions.
Managers in the Office of Water should know how much it costs to develop the new
standard for arsenic in drinking water.
However, EPA's current cost accounting system cannot provide managers with this level of cost
information, and the information that is provided relevant to cost of sub-objectives is not timely.
Once managers have basic cost information, they should use it to improve their operations and
make them more efficient. This fact has been proven through the operations of EPA's Working
Capital Fund. When Agency managers were not aware of the costs of running mainframe
computer reports, they ran their reports during peak hours. Once they became aware of the cost
differential between peak and off-peak usage rates, many opted to have their reports run during
off-peak hours. The same is true with postage costs. Once managers realized how much they
were paying for postage services, they began to use electronic mail more and postage services less.
Recommendations
We recommend that the OCFO:
1. Lead an effort to create a more cost conscious culture within the Agency.
2. Canvass Agency managers, executives, and other key stakeholders for the type of cost
information they believe they need to effectively manage programs and activities (beyond
the currently required costs per sub-objective).
3. Begin an education effort to explain why managerial cost accounting is important, the types
of information that can be provided, and how it can benefit decisions.
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4. Develop a method for providing cost information to managers in a timely manner.
5. Provide on-going technical assistance to managers on how to effectively utilize cost
information, to help ensure proper use of cost information when managers make decisions.
Agency Comments and OIG Evaluation
The OCFO believes they are complying with the Managerial Cost Accounting Standard and is
currently preparing a response to the points raised in the Inspector General's December 12, 2001
memorandum to the Administrator regarding the impasse over FFMIA compliance. We are
awaiting the Administrator's response.
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EPA Continues to Experience Difficulties in Reconciling
Intra-Governmental Transactions
EPA continues to experience difficulties in reconciling some of its intra-governmental assets and
liabilities due to some Federal entities not performing reconciliations. Without the proper
confirmations from its trading partners, EPA has limited assurance that intra-governmental
balances are accurate. EPA experienced similar occurrences last year that prohibited the Agency
from complying with the applicable requirements. Consequently, EPA prepared the RSI using data
from the Agency's financial accounting system.
OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements, requires Federal
agencies to report intra-governmental assets, liabilities, and earned revenue (exchange and non-
exchange) by Federal trading partner. This information is to be presented in the financial
statements as Required Supplementary Information and should reconcile with the applicable line
items in the financial statements. The Treasury Financial Manual also requires Federal agencies to
disclose intra-governmental assets, liabilities, and earned revenue by trading partner in the Federal
Agencies Centralized Trial-Balance System transmission. On September 28, 2001, Treasury
updated the Federal Intra-governmental Transactions Accounting Policies and Procedures Guide
to provide additional guidance to Federal entities (agencies) to reconcile intra-governmental
transactions.
EPA's intra-governmental earned revenue did not exceed the $500 million criterion; therefore,
EPA is excluded from reconciling and disclosing this activity.
The OCFO issued a supplemental procedural policy in May 2001 to assist finance offices in
confirming and reconciling intra-governmental transactions. The OCFO continues to undertake
proactive efforts to reconcile intra-governmental transactions in order to comply with Federal
financial reporting requirements. The OIG acknowledges and commends EPA's efforts to
reconcile intra-governmental transactions as required by Federal financial reporting requirements.
Intra-governmental reconciliations has been a major issue within the Federal government. A study
directed by Joint Financial Management Improvement Program task force identified multiple
deficiencies that prohibit Federal agencies from reconciling intra-governmental transactions.
Short-term major priorities being addressed are developing identification codes at business level,
revising the standard general ledger, determining standard data structure, and creating a web-based
clearinghouse portal for intra-governmental activity.
OIG suggests that EPA continue its proactive efforts in reconciling the Agency's intra-
governmental transactions to comply with Federal financial reporting requirements.
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Agency Comments and OIG Evaluation
The agency agreed with our findings.
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Attachment 3
Status of Prior
Audit Report Recommendations
The Chief Financial Officer, as the Agency's Audit Follow-up Official, oversees EPA's follow-up
on audit findings and recommendations, including resolution and implementation of corrective
actions. For these prior audits, final action occurs when the Agency completes implementation of
the corrective actions to remedy weaknesses identified in the audit.
In response to our inquiry on actions taken by OCFO to resolve long outstanding audit
recommendations, a representative informed us that the Deputy Chief Financial Officer formed an
Audit Follow-up Council in July 2000. The purpose of the Council is to: (1) review the progress
on audit findings, (2) discuss approaches to resolving audit issues, and (3) provide coordination
and support across OCFO on audit-related matters. Council membership consists of the Deputy
Chief Financial Officer; the OCFO Audit Follow-up Coordinator; the Comptroller and Comptroller
Division Directors, and the Director of the Office of Planning, Analysis, and Accountability. The
Council meets approximately every six weeks, as the need arises. Through its efforts, the Council
has resolved several long-standing audit issues.
The OIG will continue to work with the OCFO in helping to resolve all audit issues resulting from
our financial statement audits. We acknowledge that many actions and initiatives have been taken
to resolve prior financial statement audit issues. We also recognize that the issues we have
reported are complex and require extensive, long-term corrective actions, as well as coordination
by the Chief Financial Officer with various Assistant Administrators, Regional Administrators, and
Office Directors, before they can be completely resolved.
During the audit of the fiscal 2001 financial statements, we noted substantial progress in
completing a number of corrective actions from prior year audits. The major audit issue areas
where corrective actions were completed are shown in Table 1.
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Table 1
Fiscal
Year
Audited
2000
• Process for Preparing Financial Statements Needs Improvement. (Although all planned
corrective actions were reported as completed, we note that the Agency will continue to
improve its preparation process and is, or will be, automating major portions of the process for
preparing financial statements.)
• Accounting for Capitalized Property. (Although all planned corrective actions were reported as
completed, we again identified a reportable condition for this issue area. Please see Attachment
1 for additional comments and recommendations.)
• Process for Reviewing Unliquidated Obligations Needs Improvement.
• Documentation and Approval of Journal Vouchers Needs Improvement.
• EPA Needs to Timely Repay the Asbestos Loan Debt to the Treasury.
• EPA Was Unable to Reconcile Intra-Governmental Transactions. (Although all actions were
reported as completed, EPA continues to experience difficulties in reconciling some of its intra-
governmental assets and liabilities due to some Federal entities not performing their respective
reconciliations. Without the proper confirmations from its trading partners, EPA has limited
assurance that intra-governmental balances are accurate. Please see Attachment 2 for
additional comments.)
1998
• Further Improvements Needed in Managing EPA's Accounts Receivable.
1997
• EPA Is Not Compliant With Appropriations Law When Disbursing Grants Funded With
Multiple Appropriations. (Please see page 7 for additional comments.)
1995
• Automated Application Processing Controls for IFMS Could Not be Assessed. (Although all
planned corrective actions are shown as completed, additional actions are underway to replace
IFMS. Until such time as management implements a replacement automated accounting
system that addresses past issues, we will continue to disclose a reportable condition concerning
the current accounting system and its automated application processing controls. Please see
Attachment 1 for additional comments.)
1994
• Grantee Payment Requests Did Not Provide Necessary Information.
1993
• Higher Priority Needs to be Placed on Completing Required Reviews of User Fees.
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Since the completion of the audit of EPA's fiscal 2000 financial statements (February 28, 2001),
Agency managers have been working on completing a few corrective actions which are repeat
findings from prior audits. The major audit issue areas and the latest anticipated dates for
completion are shown in Table 2.
Table 2
Audit Issue Area for Corrcetivc Aetions In Proecss
Anticipated
Completion
Date
EPA's Interagency Agreement Invoice Approval Process
[Repeat finding since the fiscal 1994 audit]
• Implement manual process as a corrective action and plan to automate process.
04/30/02
Despite Improvements, Financial System Security Plans Continue to be Noncompliant
[Repeat finding since the fiscal 1997 audit]
The EPA Deputy Chief Financial Officer continues to address planned corrective actions
included in its fiscal 1999 remediation plan submitted to OMB on November 13, 2000, under
the FFMIA. On January 18, 2002, a revised remediation plan was updated and submitted as
part of EPA's fiscal 2003 budget submission to OMB. EPA reported that corrective actions
remain in progress for one of four areas included in the plan. Actions in progress are as
follows:
• Financial System Security Corrective Action Plan. While progress has been noted, the
planned completion date of June 2002 for Financial System Security Plan Improvements
will not be met in some instances. Some slippages have occurred due to contractor delays
beyond OCFO's control.
07/31/02
Compliance with Managerial Cost Accounting Standard
In the audits of the fiscal 1999 and 2000 financial statements, we reported that EPA did not
comply with the managerial cost accounting standard, and the OCFO and OIG remain at an
impasse on actions to be taken. The Deputy Chief Financial Officer, while acknowledging the
desirability for continuing improvements as envisioned by the standard, continues to disagree with
our conclusion that EPA did not comply with the standard. Because of this impasse, on December
12, 2001, we elevated this issue to the Administrator for resolution, as required by FFMIA. Please
refer to Attachment 2 for this audit issue.
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Appendix I
EPA's Fiscal 2001 and 2000 Financial Statements
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February 2002
EPA's FY2001 CFO
AUDITED FINANCIAL
STATEMENTS
Produced by the U.S. Environmental Protection Agency
Office of the Chief Financial Officer
Office of the Comptroller
Financial Management Division
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TABLE OF CONTENTS
Overview and Analysis 5
Principal Financial Statements 27
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Note: All components of EPA's FY2001 CFO Audited Financial Statements are included in EPA's
FY2001 Annual Report.
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OVERVIEW
AND
ANALYSIS
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OVERVIEW AND ANALYSIS
INTRODUCTION
The mission of the U.S. Environmental Protection Agency (EPA) is to protect human
health and to safeguard the natural environment—air, water, and land—upon which life depends.
The Agency is committed to making America's air cleaner, water purer, and land better protected
and to working closely with its federal, state, tribal, and local government partners; with citizens;
and with the regulated community to accomplish these goals. To carry out its mission, EPA has
established 10 long-term strategic goals that identify the environmental results the Agency is
working to achieve and reflect the sound financial and management practices it intends to employ.
Each year, as required under the Government Performance and Results Act (GPRA), the Agency
develops an annual plan that translates these long-term goals and objectives into specific actions to
be taken and resources to be used during the fiscal year. EPA is accountable to the American
people for making progress toward its long-term goals by achieving these annual performance
goals (APGs) and using taxpayer dollars efficiently and effectively to do so.
To manage its work and resources most effectively to achieve measurable environmental
results, for the past 3 years EPA has linked its long-term and annual planning, budgeting, financial
accounting, and performance reporting. For example, EPA has structured its strategic plan to
encompass the full scope of its workforce and resources and has restructured its budget and
finance processes to mirror strategic goals and objectives. To this end, the Agency's strategic
goals include both environmentally oriented goals, such as Clean Air and Safe Water, and
functional goals, such as Sound Science and Effective Management, which are critical to achieving
environmental and human health outcomes. Linking planning, budgeting, and finance helps EPA to
focus resource management on the environmental and human health results to be achieved,
provides longer term perspective and continuity for budgeting, and reinforces the importance of
financial stewardship and fiscal integrity in achieving the Agency's mission. As a result, EPA can
demonstrate to Congress and the public how taxpayer dollars are applied across the Agency's
strategic goals to support the achievement of environmental results.
EPA's Fiscal Year 2001 Annual Report demonstrates the Agency's accountability to
Congress and the American people. First, the Report describes the progress that EPA—working
with its federal, state, tribal, and local government partners—made toward the annual performance
goals established in its Fiscal Year (FY) 2001 Annual Plan and toward its longer range strategic
goals. Next, it discusses major management challenges EPA faced during the year and presents the
Agency's approaches, solutions, and accomplishments. Finally, after summarizing EPA's financial
activities and achievements, it presents the annual financial statements, a portrayal of the Agency's
financial position independently audited by EPA's Inspector General.
This Overview and Analysis, which addresses requirements for a "Management's
Discussion and Analysis" of the annual financial statements component of the Fiscal Year 2001
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Annual Report,3 is intended to provide a broad view of EPA's performance and fiscal
accountability over the year. In discussing performance results, it focuses on accomplishments
that contributed to environmental achievements, particularly under EPA's Goals 1 through 6.
The goal chapters that follow in Section II provide a more extensive discussion of progress and
achievements under all goals. The Overview and Analysis also presents approaches and tools the
Agency is using to improve results, reviews EPA's financial accomplishments, and discusses
significant factors that might affect future Agency operations.
PERFORMANCE RESULTS
During FY 2001 EPA, working with its federal, state, tribal, and local government
partners, continued to make significant progress toward a healthier environment—cleaner air,
purer water, and better protected land. The discussion that follows briefly describes results
achieved over the past fiscal year: it highlights environmental achievements, notes Agency
accomplishments in improved management and other functions, aggregates performance results
in terms of annual performance goals met and missed, and discusses performance issues and
concerns.
Environmental Accomplishments
Under EPA's Clean Air goal, the Agency and its partners continued to improve air
quality and to protect the health of all the public, including sensitive populations such as
asthmatics, children, and seniors, from the hazards of air pollution. Since the Clean Air Act
Amendments of 1990 EPA and its partners have dramatically reduced air pollution from mobile
and stationary sources to meet the National Ambient Air Quality Standards (NAAQS) and have
reduced acid rain and toxic air pollution to safeguard public health and the environment. Sulfur
dioxide (S02) and nitrogen oxide (NOx) gases, for example, form fine particles that, when
inhaled, contribute to premature mortality, chronic bronchitis, and other respiratory problems
and, in the environment, form haze resulting in decreased visibility.
During FY 2001 people who lived in all counties in which concentrations of nitrogen
dioxide (N02) or S02 were measured breathed air that met NAAQS for these pollutants. Today
all areas of the country are in attainment for N02; compared to 1990, fewer than half as many
people live in counties where monitored air quality exceeds the NAAQS for carbon monoxide;
and only 1.5 million people live in counties where lead levels exceed the NAAQS. In terms of
3Because the Fiscal Year 2001 Annual Report consolidates a number of specific
reports, some required components of the "Management's Discussion and Analysis" are
presented in greater detail elsewhere in this report. In particular, EPA's mission statement and
long-range goals appear at the front of the report and an EPA organization chart is included as
Appendix C. For a discussion of the Agency's performance goals, objectives, and results, refer
to Section II. Management accomplishments and challenges are discussed in Section III.
Financial statements, along with a discussion of systems, controls, and legal compliance, are
presented in Section IV.
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ozone, air quality continues to improve: nearly half the areas out of attainment with the 1-hour
NAAQS for ozone in 1991 have been brought into attainment and have approved maintenance
plans.
In FY 2001 EPA issued far-reaching rules that will dramatically reduce pollution from
heavy-duty trucks and buses and cut sulfur levels in diesel fuel, thereby providing the cleanest
running heavy-duty trucks in history. These vehicles will be 90 percent cleaner than today's
trucks and buses, resulting in an annual reduction of 2.6 million tons of NOx emissions by
calendar year 2030. In addition, during calendar year 2000, EPA's Acid Rain Program controlled
annual S02 emissions from utility sources to 11.2 million tons. Compared to the 17.5 million tons
released in 1980, this reduction represents a decrease of 6.3 million tons in annual emissions and
puts the Agency well on the way to achieving its 2010 goal of reducing S02 emissions to 8.5
million tons per year. Further, the Acid Rain Program reduced annual NOx emissions from coal-
fired utility sources by more than 2 million tons below those that would have occurred in the
absence of the Clean Air Act Amendments of 1990. In the area of air toxics, as of FY 2001
emissions from area, mobile, and stationary sources had decreased by 35 percent from the 1993
baseline of 4.3 million tons.
During FY 2001 EPA continued its work to ensure that all people have drinking water
that is clean and safe to drink; that the Nation's rivers, lakes, wetlands, aquifers, and coastal and
ocean waters are healthy; and that watersheds and aquatic ecosystems will be restored and
protected. Although population growth, as well as urban and rural nonpoint source pollution,
continues to challenge the capability of community water systems to provide safe drinking water,
in FY 2001, 91 percent of people served by community water systems received water that
complied with all health-based standards. In addition, during FY 2001, drinking water facilities
completed 469 infrastructure improvement projects to help maintain this high level of public
health protection.
Ensuring protection of America's land unites a variety of efforts under a number of the
Agency's strategic goals. Throughout FY 2001, EPA worked closely with its federal, state,
tribal, and local government partners to ensure that the public has food that is safe to eat and are
protected from health threats posed by pesticide residues. The Agency expanded the availability
of reduced-risk pesticides and alternatives to organophosphates to reduce health and
environmental risks from pesticide use while maintaining the vigor of the country's agricultural
production. In addition to preventing pollution from pesticides and other chemicals, the Agency
continued its work to reduce risk in communities, homes, workplaces, and ecosystems.
Culminating more than 5 years of work, in FY 2001 the Agency promulgated the Lead Hazard
Rule, which defines specific levels of lead in dust and soil to be considered "lead-based paint
hazards." EPA estimates that, as response actions are taken in homes that exceed these
standards, approximately 46 million children will benefit from reduced exposure to lead in paint,
dust, and soil over the next 50 years.
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Critical to protecting the Nation's land are better waste management, restoration of
contaminated sites, and rapid and effective response to waste-related or industrial accidents and
emergencies. In FY 2001 EPA's Emergency Response Program responded rapidly and
effectively to the terrorist incidents of September 11 and to subsequent acts of bioterrorism. EPA
employees were on the ground within hours of the attacks at the World Trade Center and the
Pentagon, monitoring for contamination, assisting with waste management, advising on cleanup
and decontamination, and providing information to the public. At the World Trade Center, EPA
assumed the lead role for coordination of the federal hazardous materials response. When
outbreaks of anthrax bioterrorism occurred in early October 2001, EPA response personnel were
among the first on the scene. They led the effort to clean up and decontaminate six post offices in
Florida and four Congressional office buildings in Washington, DC—the Ford, Longworth,
Dirksen, and Hart buildings. Because of their expertise in environmental matters, EPA criminal
investigators assisted the Federal Bureau of Investigation in the investigation of the attack.
Apart from these emergency situations, the Agency, working cooperatively with states,
tribes, and the regulated community, continued to improve environmental conditions and protect
human health by cleaning up hazardous waste sites and seeking to return abandoned or
underutilized industrial and commercial properties to productive use. In FY 2001 the Superfund
Program achieved 47 construction completions. ("Construction completion" refers to the point at
which a site remedy is in place, safeguards prevent the spread of further contamination, and no
further cleanup construction is needed.) The Superfund Program also cleaned up 2 million cubic
yards of solid hazardous waste and 68,000 gallons of liquid-based waste as a result of removal
response actions. The Agency and its partners provided alternative drinking water supplies to
1,000 people at 6 sites. Additionally, EPA cleaned up 302 Superfund removal sites and 19,074
leaking underground storage tanks. From the program's inception through the third quarter of
FY 2001, EPA's Brownfields Program, one of the Agency's most successful public partnerships,
leveraged more than $3.73 billion in public and private investments and helped create more than
17,000 jobs in cleanup, construction, and redevelopment.
EPA continued to work with other nations and to lead multilateral efforts to reduce
global and cross-border environmental risks. For example, the Agency and its partners made
significant progress in protecting and improving environmental conditions in the Great Lakes
region, removing or containing more than 400,000 cubic yards of contaminated sediments in
FY 2000;4 releasing the State of the Great Lakes 2001 report, for which more than 50
governmental and nongovernmental entities used 33 indicators to assess the health of the Great
Lakes; and demonstrating glass furnace technology on 70 tons of Fox River sediment near Green
Bay, Wisconsin. (Glass furnace technology destroys organic contaminants and immobilizes
inorganic metals in a glass matrix that can then be used as construction fill or for other beneficial
uses.)
4During FY 2001 new FY 2000 performance data became available for several EPA
programs for which there were delayed reporting cycles or targets set beyond FY 2000. These
FY 2000 data represent the Agency's latest results information; FY 2001 data will become
available in spring 2002.
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Results reported in FY 2001 demonstrate that EPA's voluntary Energy Star program,
methane outreach programs, and High Global Warming Potential (HGWP) environmental
stewardship program have increased the penetration of energy-efficient products into the
marketplace through effective program planning, implementation, and outreach to manufacturers
and consumers. The Energy Star label, for example, has become a national symbol for energy
efficiency recognized by more than 40 percent of the people. These voluntary programs yield an
immediate impact on environmental improvement. In results reported in FY 2000, actions taken
through EPA's voluntary climate programs such as Energy Star have saved consumers and
businesses more than $8 billion on their energy bills and saved 74 billion kilowatt-hours and more
than 10,000 megawatts of peak power. In addition, emissions of almost 160,000 tons of smog-
forming NOx were prevented in 2000, equivalent to the annual emissions from more than 100
power plants.
Finally, EPA's ongoing efforts to promote and monitor compliance and to enforce
environmental statutes and regulations continued to advance results in environmental and human
health protection. For example, in FY 2001 EPA reached settlements with four major petroleum
refiners to resolve significant areas of noncompliance with the Clean Air Act. The settlements,
adding pollution controls and operation changes at 27 separate refineries representing
approximately 28.8 percent of the Nation's domestic refining capacity, will result in an estimated
annual reduction of 87,000 tons of SOx, 49,500 tons of NOx, 8,220 tons of volatile organic
compounds, and 2,100 tons of particulate matter (PM). In addition, the companies will spend
$12 million in a variety of Supplemental Environmental Projects (SEPs) to improve the
environment. The SEPs will provide a variety of environmental benefits, including dissemination
of information to the public about local environmental issues, additional ambient monitoring, and
increased facility controls. One creative SEP will support an effort to reduce emissions from
school buses, while another will provide for enhanced public access to permit and compliance
information.
Other Agency Accomplishments
To carry out its mission and achieve environmental and human health results, EPA must
function effectively as an organization, serve the public responsively and efficiently, work well
with its partners and stakeholders, and make the most of its resources—such as quality
environmental information and sound science—to inform decision making and advance its efforts.
During FY 2001 EPA expanded its multi-year planning to address all major research programs
and to allow better assessment of progress toward its strategic research objectives. The Agency
continued to improve the collection, quality, and availability of environmental information and to
develop and apply the best available science, an improved understanding of environmental risk,
and greater innovation to detect emerging risks and to address environmental problems. For
example, for EPA's on-line Integrated Risk Information System, the Agency completed or
updated seven consensus human health assessments that describe the potential impacts of various
chemicals found in the environment. This information will be used for hazard and dose-response
evaluations in risk assessments across EPA, at the state level, and by the public and will provide
information critical to developing EPA's regulatory standards and making site cleanup decisions.
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Similarly, in FY 2001 EPA completed a 5-year pilot of the Environmental Technology
Verification program, through which the Agency can provide verified, commercial-ready
technologies that eliminate, minimize, or control high-risk pollutants from multiple sectors.
In the area of improved management, EPA's most significant accomplishments reflect
strides in strategic management of resources, as the Agency prepared to address the President's
Management Agenda. Specifically EPA developed a human capital strategic plan, "Investing in
Our People: EPA's Strategy for Human Capital, 2001 through 2003." In preparing the plan,
Agency executives and human resources professionals worked in partnership to fine-tune goals,
key strategies, and actions to address human resources. In FY 2001 EPA capitalized on the
power of the Internet by implementing electronic processes that allow citizens, grantees, and
vendors to transact business with the Agency on-line 24 hours a day, 7 days a week.
Summary of Performance Data
In FY 2001 EPA met 65 percent of the APGs for which data are provided in this report.
(EPA committed to a total of 70 APGs in its FY 2001 Annual Plan; however, because data for 9
of these APGs will not be available until FY 2002 or later, they are not included in these tallies.)
EPA also made significant progress toward the 20 APGs that were not achieved in FY 2001, and
the Agency remains on track to meet the long-term goals and objectives associated with these
annual targets.
During FY 2001 new performance data also became available for FY 2000 and FY 1999
APGs for which there were delayed reporting cycles or targets set beyond those fiscal years. EPA
now has performance data for five of the nine FY 2000 APGs for which there were delayed
reporting cycles or targets set beyond FY 2000. For example, the Agency met its goals for
reducing greenhouse gas emissions and restricting consumption of ozone depleting substances. In
summary, EPA can now report achievement of 81 percent (56) of the 69 APGs for which it has
FY 2000 performance data. In addition, new performance data became available during FY 2001
for three of the seven FY 1999 APGs for which there were delayed reporting cycles or targets set
beyond FY 1999. For FY 1999, EPA can now report achievement of 52 of the 65 APGs for
which it has performance data. Delays in reporting cycles and targets set beyond the fiscal year
continue to affect four FY 2000 APGs and four FY 1999 APGs.
Charts presenting EPA's FY 2001 performance results are provided with each goal
chapter in Section II. These charts present performance data for each of the Agency's FY 2001
APGs.
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Performance Issues and Concerns
Despite the best efforts of EPA and its partners, the Agency was not able to meet all
planned targets for FY 2001. However, the Agency does not expect the shortfall in meeting these
APGs to compromise progress toward achieving its long-range goals and objectives. For more
than half of the missed APGs, EPA fell only slightly short of the targets and met the cumulative
goals.
External factors contributed to over 75 percent of the missed APGs. For example, under
its Clean Air goal, EPA sets targets for both the number of areas that will move from
nonattainment to attainment for the six principal air pollutants and the number of people who will
breathe cleaner air as a result. In FY 2001 EPA anticipated that five areas would request
redesignation from nonattainment to attainment for the 1-hour ozone standard; however, only
three areas were redesignated. States have been reluctant to request redesignation to the current
1-hour ozone standard as long as legal issues remain to be resolved by the courts concerning the
more protective 8-hour standard that will replace the 1-hour standard. Despite this uncertainty,
however, EPA and states continue to work together to ensure that areas are striving to meet or
are maintaining the current 1-hour ozone standard.
For some missed APGs, shortfalls cannot be attributed to a single reason. For example,
under the Agency's Clean Water goal, EPA missed its target for issuing National Pollutant
Discharge Elimination System (NPDES) permits for major and minor point sources. NPDES
permits reduce or eliminate discharges into the Nation's waters of inadequately treated
wastewater from municipal and industrial facilities and of pollutants from urban storm water,
combined sewer overflows, and concentrated animal feeding operations. In FY 2001 the Agency
and its partners exceeded the target for permitting minor point sources, achieving 75 percent of a
planned 66 percent; however, permits issued covered only 75 percent of the targeted 89 percent
of major point sources. Many factors contributed to the permit backlog and missed target,
including permit appeals and challenges, states' lack of or redirection of resources, newly adopted
water quality standards that are increasingly comprehensive and more stringent, and the need to
integrate individual permits with watershed and other planning processes.
In many cases, missed APGs represent "near misses." One such example falls under the
Agency's leaking underground storage tank (LUST) program, which is responsible for cleaning
up releases from underground storage tank systems containing gasoline, other petroleum
products, or hazardous substances. In FY 2001 EPA and its state partners completed 19,074
cleanups, for a total of nearly 270,000 cleanups since FY 1987. The FY 2001 target of 21,000
LUST cleanups was not met, however, because of the increasing complexity of sites where
contaminated groundwater has migrated off-site or which require groundwater cleanup. In
addition, many cleanups were complicated by the presence of the contaminant methyl tertiary
butyl ether (MTBE), a gasoline additive. These factors have resulted in longer-than-expected
cleanup times and higher-than-expected cleanup costs at LUST sites.
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In all, EPA and its partners did not meet 20 of the 61 APGs for which performance data
are currently available. These APGs are associated with 7 of EPA's 10 strategic goals. The
Agency is considering the varied causes of these shortfalls—legal issues; implementation of new,
more stringent regulations or requirements; redirection or shortages of staff and resources;
unforeseen technical complexities in cleanup or remediation processes; and other factors—as it
adjusts its work and APGs for FY 2002 and proceeds to plan and set priorities for FY 2003 and
beyond. The performance data charts included in Section II provide more complete information
on these missed targets and discuss the progress the Agency has made toward its goals.
IMPROVING RESULTS
During FY 2001 EPA continued to sharpen its focus on achieving results and improving
performance. In August 2001 the Agency launched an effort to examine a number of its current
management practices—including priority-setting; planning and budgeting; and performance
tracking, measuring, and reporting—with an eye toward strengthening these processes and
improving the way the Agency works with its partners to focus resources on areas of greatest
concern and achieve better results. In addition, the Agency continues to advance its work by
strengthening its partnerships, further developing its capability to conduct and apply the results of
program evaluation activities, improving performance tracking and measurement, addressing data
quality issues, and looking ahead to anticipate future trends and issues.
Strengthening Partnerships
The advances in protection of human health and the environment made over the past year
and discussed in the goal chapters that follow would not have been possible without the
participation and collaboration of the Agency's federal, state, and tribal partners. During FY 2001
EPA worked in particular to strengthen its partnership with states and tribes to focus on
environmental results and make more effective use of collective resources. In spring 2001, for
example, states and tribes participated in the Agency's FY 2003 planning and priority-setting
process and in a May "lessons learned" forum on improving the Agency's annual performance
report.
In August 2001 Administrator Christine Todd Whitman initiated an effort to advance
EPA-state performance partnerships under the National Environmental Performance Partnership
System (NEPPS). Within the limits of its statutory and regulatory authorities, EPA is working to
provide the states with as much flexibility as possible to address state priorities and achieve the
greatest environmental results. During FY 2001 EPA Regional Administrators began to meet
individually with state leaders to maximize the opportunities available through negotiation of
performance partnership agreements and grants. Discussions focused on the flexibility available
under performance partnerships, creating additional incentives for participation, and the testing of
better measures of program performance. In FY 2001 EPA also began to consult closely with
states on two new initiatives to promote achievement of environmental results: designing a
strategy for developing and applying innovative approaches ("Innovating for Better
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Environmental Results") and developing an "Information Agenda" that will establish a strategic
vision and goals for the role of information in environmental programs in the coming years.
EPA also continues to work closely with tribal governments to identify priorities for
Indian Country, to improve management of environmental issues, and to develop tribal capability
to implement environmental programs. EPA's Indian Program involves significant cross-Agency
and multimedia activities designed to ensure that the Agency's trust responsibility to federally
recognized tribes is carried out.
In July 2001 Administrator Whitman met with the Tribal Operations Committee to
reaffirm the Agency's Indian Policy and the Tribal Operations Committee Charter. The Indian
Policy outlines the Agency's firm commitment to principles that promote partnerships with tribes
as an integral part of EPA's system to carry out its mission of environmental protection. The re-
signing of the Tribal Operations Committee Charter further demonstrates the Administration's
support for EPA-tribal government partnerships. EPA is committed to ensuring protection of the
environment and human health in Indian Country in a manner that is consistent with the
government-to-government relationship and conserves cultural use of natural resources.
EPA also continued to collaborate closely with other federal agencies on a variety of
efforts, from research and development projects to the design and implementation of cooperative
programs to advance protection of the environment and human health. For example, under the
Agency's National Coastal Assessment Program, EPA, the U.S. National Oceanic and
Atmospheric Administration, and U.S. Geological Survey laboratories in the Southern Atlantic
and Gulf of Mexico regions worked with the Delaware River Basin Committee and 24 of 26
coastal-marine states and tribes to assess the condition of the Nation's coastal resources. In
another joint effort to develop information and analytical methods that will improve EPA's
economic analyses of its policies and regulations, the Agency worked with the National Science
Foundation on solicitations designed to support economic research in a number of key areas.
Apart from such research initiatives, EPA continued to develop and implement
environmental programs in partnership with its sister agencies. An important area of
collaboration, for example, involves the cleanup of federal sites. During FY 2001 EPA worked
with the U.S. Department of Defense, the U.S. Department of Energy, and other federal agencies
to complete construction at 3 Superfund sites, to complete cleanups at 28 removal sites, and to
sign 4 interagency agreements to obtain enforceable cleanup commitments. In the area of
protecting human health, EPA and the U.S. Food and Drug Administration (FDA) developed a
national advisory for children and women of childbearing age on mercury in commercial and
noncommercial fish. EPA and FDA, in cooperation with the Centers for Disease Control,
distributed the advisory throughout the U.S. medical community.
Examples of significant partnership efforts with federal agencies, states, tribes, and local
governments are highlighted in the individual goal chapters in Section II.
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Using Program Evaluation
During FY 2001 EPA made significant strides in building Agency-wide capability to
conduct program evaluation and fostering the use of program evaluation as a management tool
for continuous improvement. These efforts will help EPA keep pace with the rapidly expanding
evaluation activities conducted at the state level and with the emergence of Environmental
Program Evaluation as a nationally recognized sub-discipline of program evaluation. For
example, in FY 2001 EPA's Office of the Inspector General (OIG) and Office of Research and
Development (ORD) participated in a joint pilot program evaluation focused on the Agency's
pollution prevention and new technologies research program. The pilot used a "logic model,"
which allows evaluators to identify relationships among resources, activities, outputs, customers,
and outcomes, to assess environmental research within the context of the Agency's strategic
goals and objectives. The pilot demonstrated the potential benefits of a partnership approach to
program evaluation and pointed out the need to focus on outcomes to identify the impacts of
research on long-term environmental results.
To continue to foster such program evaluation efforts, EPA has developed a Program
Evaluation Network of over 50 members who actively promote program evaluation within the
Agency. In addition, EPA has accelerated the application of evaluation practice within the
Agency by centrally funding internal evaluations on a competitive basis. From the FY 2001
competition, the Agency selected 6 out of 23 proposals for funding, allowing evaluation of a
variety of environmental programs. These evaluations are underway and will be reported in the
FY 2002 Annual Report.
Improving Environmental Indicators and Performance Measurement
EPA recognizes the need to make greater use of outcome-oriented performance goals and
measures. Therefore, the Agency has continued to invest in the development of environmental
indicator, monitoring, and management systems that will improve its capability to measure results,
plan accordingly, and manage its work to achieve environmental and health outcomes. During
FY 2001 EPA initiated a variety of projects to improve performance measurement: conducting
training and workshops; preparing analyses to support development of more outcome-oriented
goals and measures; benchmarking performance measures used by other agencies with similar
functions; and working with its federal, state, tribal, and local government partners and with other
stakeholders to improve environmental indicators and measures.
For example, to increase national and state capabilities for strategic monitoring of
ecological health, EPA worked with 24 states to complete the first national survey of coastal
waters, completed an integrated assessment of the Mid-Atlantic Highlands, and initiated the
Western Pilot Study to demonstrate the use of ecological indicators for streams in the 12 western
states. Approximately 30 states are evaluating new monitoring designs and a core set of
ecological indicators that provide consistent data on quality of the environment and identify
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changes taking place. Regional vulnerability analyses that use socioeconomic factors to forecast
environmental conditions more reliably are being tested in forests in the eastern United States.
In addition, through its Science to Achieve Results competitive research grants, EPA
established five Estuarine and Great Lakes Programs at major academic research institutions with
coastal expertise. These institutions will work to develop the next generation of environmental
indicators for use by the states in assessing the biological health of estuaries and the Great Lakes.
In FY 2001 a cooperative agreement between EPA and Florida State University (FSU)
supported the "Chemical and Pesticides Results Measures" project and its first published report.
The purpose of the project is to develop a set of environmental outcome indicators and measures
for toxic substances, pesticides, and pollution prevention. By working in cooperation with FSU,
stakeholders, and the Pollution Prevention Roundtable, EPA will identify indicators and measures
that federal, state, and local agencies; tribal entities; and others will find useful in describing,
measuring, and understanding environmental trends and conditions in response to environmental
programs. Data generated from this project, targeted to a broad audience of potential users, will
be used in improving FY 2002 and FY 2003 annual performance goals and measures. The second
phase of the project will provide a foundation for additional work on environmental indicators.
The Agency completed several other indicators projects during FY 2001, including the
report Development, Selection, and Pilot Demonstration of Preliminary Environmental
Indicators for the Clean Water State Revolving Fund. The product of a joint EPA/state work
group, the report demonstrated the feasibility of applying a set of 7 environmental indicators to
62 State Revolving Fund projects in 6 states.
Addressing Data Quality Problems
While data quality continues to present a significant management challenge for EPA, the
Agency's FY 2001 performance data generally can be considered acceptably reliable and
complete, according to criteria established by the Office of Management and Budget (OMB) and
discussed in OMB Circular A-l 1. (See Appendix B for a more complete discussion of data
quality issues.) Most of the Agency's performance data are collected in major EPA data systems
that are subject to Agency-wide data quality standards and periodic audits for accuracy and
completeness. As indicated in Appendix B, some common limitations in the performance data are
inconsistencies in data collection methods among multiple data sources; inaccuracies due to
imprecise measurement or unrepresentative statistical sampling; and uncertainties associated with
survey, voluntarily reported, or modeled data. The Agency is committed to full disclosure of
these limitations and is working to make significant improvements in its quality systems. For
many measures, EPA relies on states and other external sources for performance data and the
quality assurance/quality control protocols already in place. The Agency is making significant
efforts to engage its partners in improving detection and correction of data error, standardizing
measures, and improving the exchange of electronic data and data quality information.
EPA's performance data used to determine whether APGs have been attained are
complete for most performance measures. (See performance data charts provided with each goal
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chapter in Section II.) Where performance data are not yet available, Appendix B indicates when
complete data are expected.
During FY 2001 EPA undertook several initiatives to improve the quality of
environmental data used to support performance measurement. For example,
In response to the EPA OIG's declaration of laboratory quality systems as one of the
Agency's top 10 "management challenges," independent technical assessments of EPA
laboratories were conducted to determine whether laboratory operating systems are
producing environmental data of known and documented quality. The assessments
identified a number of "best practices" that are being shared across the laboratory
community.
EPA worked with the American Council of Independent Laboratories to develop
environmental laboratory ethical standards and train public and private sector laboratory
staff and managers on ethical conduct.
EPA developed the Data and Information Quality Strategic Plan which, when
implemented, will improve the measurement and quality of the Agency's data and
information over the next 5 to 10 years. The plan provides six overarching
recommendations: (1) create an Agency-wide information quality network to clarify the
roles, responsibilities, and relationships of Agency staff having data quality functions; (2)
develop and require the use of standard data quality indicator metadata; (3) improve
implementation of quality assurance requirements for grantees; (4) regularly assess and
report on standard quality measures throughout the information life-cycle; (5) expand
quality training for EPA and grantees; and (6) provide guidelines to improve information
use and product development. The plan represents one Agency response to a major
management challenge identified by the General Accounting Office and EPA's OIG. (See
Section III, "Management Accomplishments and Challenges," for further discussion.)
Further Agency responses to this challenge include implementation of the Central Data
Exchange (CDX), which allows the seamless, secure exchange of quality data between
EPA and its industrial and governmental partners. Three EPA programs (Toxics Release
Inventory, Air, and Drinking Water) now use the CDX.
EPA adopted a government-wide standard for quality system requirements for contractors
and grantees and issued interim guidelines for its use. The Agency is now revising its
official policy.
EPA reviewed 14 organizational Quality Management Plans (QMPs) and approved 9.
QMPs, which describe data quality management responsibilities, are required for every
EPA organization that collects or uses environmental data. The Agency scheduled follow-
up assessments of QMP implementation. EPA also reviewed eight quality systems.
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EPA undertook a formal assessment of Agency-wide, quality-related training needs. The
Agency also made progress in improving data quality under specific programs.
While undertaking long-term improvements in data quality, it is important for EPA to
disclose the limitations of its data supporting specific goals and measures, as reflected in
Appendix B. EPA's long-term strategies—including the Data and Information Quality Strategic
Plan—will address recognized Agency vulnerabilities in data quality management within and
across programs.
Considering Future Trends
Apart from long-standing environmental protection issues, new areas of focus will
challenge EPA's ability to look to the future and plan strategically. The future will likely be
characterized by increased rates of change and greater uncertainty about the responses of
complex biological, ecological, social, and political systems to this rapid change. EPA is exploring
ways to keep pace with these developments by looking ahead to gain a better understanding of
potential threats to ecological and human health. Issues such as global warming, biotechnology,
or threats to biodiversity will require the forging of new cooperative relationships with EPA's
federal, state, tribal, and local government partners and with the Agency's stakeholders.
The collective perspective about what actually constitutes "the environment" also is
changing. As we begin to appreciate the extent to which humans depend on the ecological
systems of the planet, it is becoming clear that numerous issues, previously thought of as
independent of the environment, are in fact connected to it. Human health, the economy, social
justice, and national security—particularly in terms of the potential for ecoterrorism—all have
important environmental aspects because each is dependent to some degree on the structure,
functioning, and resiliency of ecological systems.
In today's world, population growth and the resources consumed to sustain this growth
are altering the earth in unprecedented ways. Over the next 25 years, for example, the world's
population will grow by nearly 2 billion people, largely in developing areas. By 2025 an estimated
2.7 billion people will live in areas experiencing severe water scarcity, creating a potential for
major regional conflicts over water rights. Domestically, growth in the southern and southwestern
regions will pose major water management issues: water and wastewater infrastructure
maintenance, aquifer depletion, and prevention of surface water contamination.
Further, as the population continues to grow, the Agency's general environmental
concerns, such as air quality, are likely to continue. Urbanization of previously underdeveloped
areas will potentially generate a greater demand for transportation infrastructure, leading to
increases in vehicle miles traveled and emissions of conventional pollutants and greenhouse gases
like carbon dioxide.
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As EPA looks to the future, it will need to employ innovative approaches and sound
science to investigate complex, interdisciplinary problems in environmental protection. The
Agency will need to expand its efforts for interagency and international cooperation to address
environmental issues on an increasingly global scale. Considering energy efficiency and the
impacts of energy use—from global climate change to acid rain and multi-pollutant air
emissions—promoting closed-loop manufacturing technologies to prevent or reduce pollution,
and encouraging design for the environment are among the strategies the Agency is now
exploring.
LOOKING AHEAD
As noted earlier, in August 2001 EPA launched a new effort to examine and strengthen its
current management practices to achieve better results. As part of this "Managing for Improved
Results" initiative, during FY 2002 a Steering Group of senior Agency leaders will consider
options for improving EPA's strategic planning, annual planning and budgeting processes,
performance measurement, and capability to implement results-based management. As a result of
this work, the Agency expects both to make incremental changes to its processes and systems and
to effect far-reaching reforms that improve the way it works with its partners to achieve
environmental results.
The Agency continues to strive toward making more effective use of performance and
results information to inform internal planning and decision-making and to inform the public. In
FY 2001 EPA initiated an Agency-wide "Environmental Indicators Initiative" to gather the
information it needs to evaluate its progress and make sound, strategic decisions. Environmental
indicators are used to track and measure the environment's capacity to support human and
ecological health. EPA and others will use indicators such as ozone concentrations, nutrient levels
exported from watersheds, and blood lead concentrations to describe and assess conditions,
stressors, exposure, and response and to show progress toward meeting management or
performance goals. In FY 2002 EPA plans to compile the indicators information it collects to
develop the Agency's first State of the Environment Report.
Applying Lessons Learned
EPA is using its FY 2001 results to adjust approaches and develop new strategies for
FY 2002 and beyond. In some cases FY 2001 performance information has indicated a need to
revise existing annual targets. For example, EPA did not achieve its target for Superfund
construction completions in FY 2001. Several factors account for the FY 2001 decline in
completions including the large size and considerable complexity of remaining sites. Based on this
experience EPA is reducing its FY 2002 construction completion target and reevaluating the
constraints and complexity of remaining Superfund sites.
On the other hand, based on FY 2001 performance, the Agency expects that in FY 2002
states will be able to complete more drinking water source assessments than anticipated. In this
case national targets were originally established when states were in the early stages of
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Audit Report 2002-1-00082
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implementing the assessment program and were focused on the preliminary steps necessary to
establish source water protection programs (hiring staff, collecting data, setting up databases,
presenting plans to the public). Because states have completed these preliminary steps, they will
likely undertake source water assessment and prevention activities at a faster pace in the future.
Similarly, EPA has adjusted several of its criteria pollutant targets for FY 2002 based on
FY 2001 results. In particular EPA is working with states to ensure that they continue to make
progress toward attaining the ozone standard as the Agency continues to develop a policy to
make the transition from the 1-hour standard to the 8-hour standard.
In other cases the lessons EPA has learned from its FY 2001 performance, although not
specifically affecting goals or targets, will influence program strategies for the future. For
example, to achieve clean water, the Agency is continuing to meet its goals for the issuance of
effluent limitations guidelines. However, the Agency recognizes as a continuing challenge its
capability to adequately document actual loadings reductions given the limited data available. To
help address this problem and implement an overall loadings reductions strategy, EPA will take
steps in FY 2002 to determine the number of facilities in each major program. This will greatly
improve the Agency's capability to model expected reductions and validate these models using
the limited data available.
Lessons learned in FY 2001 were similarly helpful in reevaluating the Agency's Great
Lakes Program. Preliminary 2001 data show dissolved oxygen concentrations in Lake Erie's
central basin to be near the worst observed during the past 5 years, despite international success
in reducing phosphorus loadings. To understand and address this puzzling challenge, EPA's Great
Lakes Program is shifting program emphasis to develop missing information such as external
phosphorus load calculations, to research further the biological effects, to publicize the problem,
and to integrate research and management efforts through the Lake Erie Lake Management Plan.
Finally, the unexpected and tragic events of September 11, 2001, have raised new
concerns about the safety of the Agency's workforce. Like other federal agencies, in FY 2002
EPA will implement a national initiative to address security vulnerabilities and risks at all of its
facilities. This work might lead to the identification of new performance goals and measures
under a number of EPA's strategic goals.
FINANCIAL ANALYSIS
EPA continues to focus on integrating financial information with program performance
information to strengthen its planning, analysis, and accountability process. A key goal is to
provide program managers with timely and useful cost information and financial analysis to better
inform the decision-making process and ensure taxpayer dollars are used effectively and
efficiently in protecting the environment and public health.
The financial statements provided in Section IV are one important example of Agency
accountability, in that they provide a snapshot of EPA's financial position at the end of the fiscal
Audit Report 2002-1-00082
Page 19
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year. These financial statements are prepared in accordance with established federal accounting
standards and audited by EPA's OIG. The discussion that follows is a supplement to the financial
statements and describes EPA's resources and how they are used to accomplish the Agency's
mission.
FY 2001 Budgetary Resources: EPA Appropriations
Any discussion of finances begins with the appropriations process. An appropriation is a
legal authority to spend funds for purposes designated in an appropriations act. Congress
appropriates funding for EPA in annual legislation covering appropriations for the Department of
Veterans Affairs, the Department of Housing and Urban Development, and Independent
Agencies. For FY 2001 EPA's appropriated resources totaled $7.8 billion. As indicated in the
chart, three appropriations—Environmental Programs and
Management (EPM), State and Tribal Assistance Grants
(STAG), and Superfund—continue to make up a
substantial portion of the Agency's resources. The EPM
appropriation funds most of the Agency's payroll and
infrastructure. As its title implies, STAG primarily funds
grants to state and tribal partners for carrying out their
environmental programs. The Superfund appropriation
funds cleanup of abandoned hazardous waste sites. Finally,
"All Other" EPA appropriations include funding for
Science and Technology, Buildings and Facilities, Office of
Inspector General, and a number of smaller appropriation
accounts.
Obligations and Costs
For FY 2001 EPA is reporting both obligations and costs incurred in performance of its
10 goals. This presentation should provide a better link between the funds budgeted and the
resources actually used to accomplish each goal.
EPA's EPA's budget execution can be viewed in two ways: as obligations and as costs.
Obligations reflect legal authority and commitments to incur costs on the part of the
government. For example, an obligation is recognized when the government awards a contract
or a grant. In contrast, costs are recognized when the contractor actually delivers the requested
goods or services. By reporting obligations, EPA can show the use of its budgetary resources in
terms of
Appropriations By Fiscal Year
$9
$8
$7
$6
2 $5
o
m $4
$3
$2
$1
$0
$7.81
$7.58
$7.56
$7.i
$.887
$.871
$.896
$1.J
$1.1
$1.90
$1.22
$1.35
$1.44
$1.45
$2.l
$3.21
$3.41
$3.45
$3.62
1998
1999
2000
2001
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Audit Report 2002-1-00082
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contractual commitments made to achieve its environmental goals, and costs measure the
obligated resources actually consumed during the reporting period in achieving its goals.
FY 2001 OBLIGATIONS BY GOAL
(Dollars in Millions)
Appropriation
G-1
G-2
G-3
G-4
G-5
G-6
G-7
G-8
G-9
G-10
Reim.
Other
Total
State & Tribal
Assistance Grants
218
3,006
0
100
73
127
0
0
72
0
30
0
3,626
All Other
341
574
95
199
274
207
167
337
304
367
268
31*
3,164
Superfund
0
0
0
0
1,354
0
4
3
15
71
136
634"
2,217
TOTAL
559
3,580
95
299
1,701
334
171
340
391
438
434
665
9,007
% of Total
6.21
39.75
1.05
3.32
18.89
3.71
1.90
3.77
4.34
4.86
4.82
7.38
100.00
NOTE: Actual costs are reflected in Section IV - Annual Financial Statements
* The $31 million for the All Other appropriations row represents transfers from other federal agencies.
** The $634 million for the Superfund row represents a payment from general revenues to the Hazardous Substance Superfund.
Audit Report 2002-1-00082
Page 21
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FY 2001 obligations incurred in connection
with EPA's 10 goals are presented in the FY 2001
Obligations by Goal chart.5 FY 2001 costs incurred
to achieve the Agency's 10 goals total $8.1 billion
and are summarized in the Costs by Goal chart.6
EPA's obligations and costs are largely
incurred for services performed outside the Agency.
As illustrated in the FY 2001 Cost Categories chart,
more than 80 percent of EPA's costs are in the form
of contracts or grants.
FY 2001 Gross Costs by Goal
G1 Clean Air
6.7%.
G10 Effective
Management.
6.0%
G9 Credible
Deterrent-
4.9%
s" G3 Safe Food
1.8%
G4 Preventing
Pollution
3.4%
G8 Sound NJr /
Science /\j
4.3% /
/ G6 Global
G7 Right-to-Know Aisles
2.1%
FY 2001 Cost Categories
Contracts
and lAGs
23.8%
Most of EPA's costs are associated with grant programs,
2^%erand nearly half of the Agency's grants are awarded from two state
revolving funds (SRFs). The
Clean Water SRF (CWSRF)
provides assistance for wastewater
and other water projects, such as
those dealing with nonpoint
sources, estuaries, and storm
water. The Drinking Water SRF
(DWSRF) provides financing for improvements to community
water systems to assist compliance with the Safe Drinking
Water Act and also allows states to use grant funds for other
activities that support their drinking water programs. (See
Section II, Goal 2, for more information on the SRFs.)
FY 2001 Major Grant Categories
Clean Water SRF
33.1%
All Others
47.5%
Drinking
Water SRF
15.6%
Superfund
Funding for both is awarded as grants to states and tribes, which then make loans to
municipalities and other entities for construction of infrastructure projects, purchases of land or
conservation easements, and implementation of other water quality activities. Additional funds
from state match and leveraged bond proceeds expand the capital available in the SRFs to address
priority water quality and public health needs, while loan repayments and earnings ensure funding
5The total obligations in the chart differ from amounts reported in the Agency's
financial statements in Section IV because of different accounting and presentation
requirements. The basis for the chart is consistent with Office of Management and Budget
(OMB) budgetary guidance, whereas the financial statements are based on generally accepted
accounting principles.
6The chart indicates EPA's gross costs. EPA's "nef'costs are reported in Section IV,
under "Statement of Net Costs". "Net" costs are defined as the gross costs offset by
associated exchange revenues, e.g. Superfund cost recoveries and user fees.
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Audit Report 2002-1-00082
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for these activities far into the future. The flexibility and revolving nature of the SRFs have
provided states with a powerful tool to apply needed funding toward their clean water and
drinking water infrastructure needs.
Through 2001 CWSRFs have turned $18 billion in federal capitalization grants into over
$34 billion in assistance to municipalities and other entities for water projects. In recent years
CWSRFs have directed $3 billion to $4 billion in loan assistance to water projects. Approximately
$200 million of these funds are used each year to prevent polluted runoff, making the CWSRF an
effective tool in addressing nonpoint source problems.
Likewise the newer DWSRFs have turned $3.6 billion in federal capitalization grants into
over $3.8 billion in loan assistance, of which $1.3 billion was provided in assistance in FY 2001
alone. States have also used $576 million of their DWSRF grants to fund other programs and
activities that enhance water system management and protect sources of drinking water.
The large dollar volume of these two grant programs is the reason that more than 44
percent of EPA's costs are incurred in connection with its Clean and Safe Water goal. Other
grant programs include categorical assistance to states and tribes, consistent with EPA's
authorizing statutes, and research grants to universities and other nonprofit institutions.
Superfund Financial Trends
Superfund Trust Fund
Revenue Sources
$2200
$2000
$1800
$1600
$1400
$1200
$1000
$800
$600
$400
$200
| Taxes
Cost Recoveries
| General
AllOther
$1065
The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA) established
the Superfund Program and the Hazardous Substance Response
Trust Fund, now known as the Superfund. The Superfund
Program addresses the remediation of hazardous waste from
abandoned sites around the country and emergency response for
new spills and other incidents. Prior to FY 1996 the bulk of
Superfund financing consisted of special taxes. Although
CERCLA has not been reauthorized since it expired in 1995, the
Superfund Program continues to operate each year. With
CERCLA'S Cumulative Superfund Trust Fund Cost Recoveries
expiration, the
taxing authority
also expired,
FY 1996-FY 2001
$3000
$2500
resulting in a shift of Superfund financing sources as
shown in the Cumulative Superfund Trust Fund
Cost Recoveries, FY 1996 through FY 2001 chart.
Appropriations from general revenues now
constitute the largest share of Superfund trust fund
$2000
~ $1500
$1000
$500
1996 1997 1998 1999 2000 2001
Audit Report 2002-1-00082
Page 23
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revenues. At the same time cost recovery revenues have increased markedly since FY 1991, when
the cumulative total stood at $359 million.
Despite declining revenues to the Superfund Trust Fund, special account revenues have
continued to grow. Under CERCLA Section 122(b)(3), EPA may retain and use the proceeds it
receives under settlement agreements to conduct response actions at Superfund sites. Funds
received under these settlements are subsequently placed in interest-bearing, site-specific
accounts known as special accounts. Until recently only the future cost (or "cashout") component
could be placed in a special account, and any corresponding past cost (or cost recovery) amounts
were deposited in the Superfund Trust Fund. Based on a recent legal opinion by EPA's Office of
General Counsel, however, it was determined that both past and future cost amounts could be
placed in special accounts. Combining these amounts will make more resources readily available
without an appropriation for EPA-lead site responses and to reimburse responsible parties for
response work performed at sites pursuant to settlement agreements with the Agency.
As of September 30, 2001, EPA had established 197 special accounts with $878 million in
receipts. These accounts earned an additional $135 million in interest. At the end of FY 2001,
EPA had disbursed $326 million from its special accounts and had unliquidated obligations of
$118 million and an unexpended balance of $569 million.
Accounts Receivable and Debt Management
Improvement in management of the federal
government's debt portfolio has been a concern of
Congress in the past decade and is manifested in the 1996
passage of the Debt Collection Improvement Act, which
supplemented previous authorities for debt management.
EPA's accounts receivable do not approach the level of
other major federal creditor agencies. The Agency,
nonetheless, manages a gross debt portfolio that exceeded
$1 billion in each of the past 3 fiscal years.
More than three-fourths of EPA's accounts receivable are Superfund-related. Effective
management of Superfund debts requires close collaboration between two EPA offices (the
Office of the Chief Financial Officer and the Office of Enforcement and Compliance Assurance)
and the U.S. Department of Justice (DOJ). As illustrated in the Accounts Receivable
Management chart, EPA experienced a significant increase in collection of all debts, delinquent
and nondelinquent, from 2000 to 2001. In addition EPA has greatly stepped up its referral actions
of delinquent debts to the appropriate collection organizations the U.S. Department of Treasury
for non-Superfund debts and DOJ for Superfund-related debts), which are set up to take more
aggressive collection action.
Accounts Receivable Management
$700
$600
¦ All
Other
Superfund.
-
$616
$509
$400
-
$315
$310
_
$200
$100
$0
:
$145
1
$25
I
2000 2001 2000 2001
Referrals Collections
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Audit Report 2002-1-00082
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Innovative Environmental Financing: The Advantage of Public Private Partnerships
EPA has several innovative environmental financing initiatives which enable the Agency
to leverage federal funds through mutually beneficial public-private partnerships. Two examples
are the Environmental Finance Program and the Brownfields Program.
The Environmental Finance Program employs leveraging to extend its reach and magnify
its impact. The program has three related components that furnish financial outreach services to
Agency customers and the regulated community. First, the Environmental Financial Advisory
Board (EFAB), a federally chartered advisory committee, provides innovative ideas and
recommendations to EPA's Administrator and program offices on ways to lower the costs of, and
increase investments in, environmental and public health protection. Second, the Environmental
Finance Center (EFC) Network consisting of nine university-based programs in eight EPA
regions, delivers targeted technical assistance to smaller communities on the "how-to-pay" issues
of providing safe and reliable environmental services that meet standards. Third, the
Environmental Financing Information Network (EFIN), through its popular website and other
means, catalogues the results of the Advisory Board and the EFC Network and presents valuable
summaries of over 350 environmental finance tools and 1,000 abstracts and case studies of
environmental finance publications.
A good example of how the components work together to leverage results is presented by
the EFC Directors who serve on the Advisory Board as expert witnesses, thereby bringing their
unique perspective on finance issues and opportunities for the Board to consider and pass along
to EPA. Another innovative example is the charrette, a panel of experts tailored to address a
community's particular finance problem. After listening to the community, the panel exchanges
questions and answers and then presents recommendations for actions the community should
take. The panel is composed of finance experts and has often included EFAB members. Typically
participating communities would not have access to advice of this caliber, and many communities
have followed panel recommendations, saving significant resources in implementing their
projects. EPA further leverages the charrettes by documenting their results and making them
available as case studies through the EFC and EFIN web sites.
The Brownfields Program, one of EPA's most successful public-private partnerships,
leveraged more than $3.73 billion in public and private investments and resulted in more than
17,000 jobs in cleanup, construction, and redevelopment through the third quarter of FY 2001.
"Brownfields" are abandoned, idle, or under-used industrial and commercial properties where
redevelopment or expansion is complicated by real or perceived contamination. The primary goal
of EPA's Brownfields Program is to provide states, tribes, and local governments with the tools
and financial assistance needed to assess, clean up, and redevelop Brownfields properties. Since
1995, 2,594 properties have been assessed using federal funds and 876 properties have been
assessed using leveraged funds. The 46 job training and development demonstration pilots have
trained at least 700 participants, and more than 75 percent of the graduates have obtained
employment to date. (See Section II, Goal 5, for more information.)
Audit Report 2002-1-00082
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Page 26
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PRINCIPAL
FINANCIAL
STATEMENTS
Audit Report 2002-1-00082
Page 27
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CONTENTS
Financial Statements
Consolidating Balance Sheet
Consolidated Statement of Net Cost by Goal
Consolidating Statement of Net Cost
Consolidating Statement of Changes in Net Position
Combined Statement of Budgetary Resources
Consolidating Statement of Financing
Consolidated Statement of Custodial Activity
Notes to Financial Statements
Note
1.
Note
2.
Note
3.
Note
4.
Note
5.
Note
6.
Note
7.
Note
8.
Note
9.
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Note
24
Note
25
Note
26
Note
27
Note
28
Note
29
Note
30
Note
31.
Summary of Significant Accounting Policies
Fund Balances with Treasury
Cash
Investments
Accounts Receivable
Other Assets
Loans Receivable, Net - Non-Federal
Inventory and Property Received in Settlement
General Plant, Property and Equipment
End of Period
Page 28 Audit Report 2002-1-00082
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Notes to Financial Statements (continued)
Note 32. Imputed Financing
Note 33. Payroll and Benefits Payable
Note 34. Restatement of Imputed Costs and Financing for Prior Years
Note 35. Change in Accounting for Trust Funds in FY 2000
Note 36. Change in Accounting for Cashout Interest, Superfund in FY 2000
Note 37. Change in Accounting for Expenditure Transfers
Supplemental Information Requested by OMB
Required Supplemental Information
Deferred Maintenance (Unaudited)
Intra-governmental Assets (Unaudited)
Intra-governmental Liabilities (Unaudited)
Supplemental Statement of Budgetary Resources (Unaudited)
Working Capital Fund Supplemental Balance Sheet (Unaudited)
Working Capital Fund Supplemental Statement of Net Cost (Unaudited)
Working Capital Fund Supplemental Statement of Changes in Net Position (Unaudited)
Working Capital Fund Supplemental Statement of Budgetary Resources (Unaudited)
Working Capital Fund Supplemental Statement of Financing (Unaudited)
Required Supplemental Stewardship Information
Annual Stewardship Information (Unaudited)
Audit Report 2002-1-00082
Page 29
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Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 2001 and 2000 (FY 2000 Restated-See Note 37*)
(Dollars in Thousands)
Superfund
Superfund
All
All
Combined
Trust Fund
Trust Fund
Others
Others
Totals
FY 2001
FY 2000*
FY 2001 FY 2000*
FY 2001
ASSETS
Intragovernmental:
Fund Balance with Treasury (Note 2)
$ 6,706
$ 37,397
$ 11,272,374 $
11,059,256
$ 11,279,080
Investments (Note 4)
3,724,044
3,960,313
1,778,818
1,593,357
5,502,862
Accounts Receivable, Net (Notes 5 and 37)
31,178
40,671
69,977
80,824
101,155
Other (Note 6)
5,521
21,789
4,386
7,452
9,907
Total Intragovernmental
$ 3,767,449
4,060,170
13,125,555
12,740,889
16,893,004
Accounts Receivable, Net (Note 5)
466,038
617,039
75,027
87,895
541,065
Loans Receivables, Net - Non Federal (Note 7)
0
0
75,552
89,128
75,552
Cash (Note 3)
0
0
0
48
0
Inventory & Property Received in Settlement (Note 8)
0
5,086
253
347
253
Property, Plant and Equipment, Net (Note 9)
16,515
13,581
526,893
473,028
543,408
Other (Note 6)
8,878
750
875
1,712
9,753
Total Assets
$ 4,258,880
$ 4,696,626
$ 13,804,155 $
13,393,047
$ 18,063,035
LIABILITIES
Intragovernmental:
Accounts Payable (Note 37)
$ 65,809
$ 121,920
$ 1,118 $
1,506
$ 66,927
Accrued Liabilities
57,728
51,748
40,541
50,580
98,269
Custodial Liability (Note 11)
0
0
77,778
102,469
77,778
Debt (Note 10)
0
0
31,124
37,922
31,124
Other (Note 12)
21,308
8,848
27,507
28,849
48,815
Total Intragovernmental
144,845
182,516
178,068
221,326
322,913
Accounts Payable
39,878
46,066
91,083
84,956
130,961
Accrued Liabilities
97,857
145,358
564,191
631,909
662,048
Cashout Advances & Deferrals, Superfund (Note 15)
394,699
372,586
0
0
394,699
Payroll and Benefits Payable (Note 33)
35,111
32,832
163,730
151,363
198,841
Pensions and Other Actuarial Liabilities (Note 14)
7,731
6,637
31,902
27,036
39,633
Environmental Cleanup Costs (Note 20)
0
0
14,528
15,499
14,528
Commitments and Contingencies (Note 18)
3,778
5,000
6,020
2,950
9,798
Other (Note 12 and Note 13)
27,659
30,192
60,536
49,147
88,195
Total Liabilities
751,558
821,187
1,110,058
1,184,186
1,861,616
NET POSITION
Unexpended Appropriations (Note 16)
0
0
10,358,961
10,119,838
10,358,961
Cumulative Results of Operations (Note 37)
3,507,322
3,875,439
2,335,136
2,089,023
5,842,458
Total Net Position (Note 37)
3,507,322
3,875,439
12,694,097
12,208,861
16,201,419
Total Liabilities and Net Position
$ 4,258,880
$ 4,696,626
$ 13,804,155 $
13,393,047
$ 18,063,035
* Intragovernmental Accounts Receivable and Payable and Cumulative Results of Operations restated for FY 2000 •
¦ see Note 37.
The accompanying notes are an integral part of these statements.
Page 30
Audit Report 2002-1-00082
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Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 2001 and 2000 (FY2000 Restated-See Note 37*)
(Dollars in Thousands)
Combined
Intra-
¦agency
Intra-agency Consolidated
Consolidated
Totals
Elimination
Elimination
Totals
Totals
FY 2000*
FY
2001
FY 2000*
FY 2001
FY 2000
ASSETS
Intragovernmental:
Fund Balance with Treasury (Note 2)
$ 11,096,653
$
0
$ 0 $
11,279,080
$ 11,096,653
Investments (Note 4)
5,553,670
0
0
5,502,862
5,553,670
Accounts Receivable, Net (Notes 5 and 37)
121,495
(48,128)
(50,644)
53,027
70,851
Other (Note 6)
29,241
(5,739)
(6,510)
4,168
22,731
Total Intragovernmental
16,801,059
(53,867)
(57,154) $
16,839,137
16,743,905
Accounts Receivable, Net (Note 5)
704,934
0
0
541,065
704,934
Loans Receivables, Net - Non Federal (Note 7)
89,128
0
0
75,552
89,128
Cash (Note 3)
48
0
0
0
48
Inventory & Property Received in Settlement (Note 8)
5,433
0
0
253
5,433
General Property, Plant and Equipment, Net (Note 9)
486,609
0
0
543,408
486,609
Other (Note 6)
2,462
0
0
9,753
2,462
Total Assets
$ 18,089,673
$
(53,867)
0 (57,154) $
18,009,168
$ 18,032,519
LIABILITIES
Intragovernmental:
Accounts Payable (Note 37)
$ 123,426
$
(45,271)
$ (46,453)
21,656
$ 76,973
Accrued Liabilities
102,328
(3,241)
(4,191)
95,028
98,137
Custodial Liability (Note 11)
102,469
0
0
77,778
102,469
Debt (Note 10)
37,922
0
0
31,124
37,922
Other (Note 12)
37,697
(5,355)
(6,510)
43,460
31,187
Total Intragovernmental
403,842
(53,867)
(57,154) $
269,046
346,688
Accounts Payable
131,022
0
0
130,961
131,022
Accrued Liabilities
777,267
0
0
662,048
777,267
Cashout Advances & Deferrals, Superfund (Note 15)
372,586
0
0
394,699
372,586
Payroll and Benefits Payable (Note 33)
184,195
0
0
198,841
184,195
Pensions and Other Actuarial Liabilities (Note 14)
33,673
0
0
39,633
33,673
Environmental Cleanup Costs (Note 20)
15,499
0
0
14,528
15,499
Commitments and Contingencies (Note 18)
7,950
0
0
9,798
7,950
Other (Note 12 and Note 13)
79,339
0
0
88,195
79,339
Total Liabilities
2,005,373
(53,867)
(57,154)
1,807,749
1,948,219
NET POSITION
Unexpended Appropriations (Note 16)
10,119,838
0
0
10,358,961
10,119,838
Cumulative Results of Operations (Note 37)
5,964,462
0
0
5,842,458
5,964,462
Total Net Position (Note 37)
16,084,300
0
0
16,201,419
16,084,300
Total Liabilities and Net Position
$ 18,089,673
$
(53,867)
$ (57,154) $
18,009,168
$ 18,032,519
* Intragovernmental Accounts Receivable and Payable and Cumulative Results of Operations restated for FY 2000 - see Note 37.
Audit Report 2002-1-00082
Page 31
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The accompanying notes are an integral part of these statements.
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2001
(Dollars in Thousands)
Clean and Better
Clean Safe Safe Prevent Waste Global
Air Water Food Pollution Management Risks
COSTS:
Federal s
87,360 $
156,900 $
30,210 $
41,065
$ 465,452 $
39,816
With the Public
458,256
3,482,906
77,687
236,933
1,442,650
186,919
Total Costs
545,616
3,639,806
107,897
277,998
1,908,102
226,735
Less:
Earned Revenues
702
4,966
17,051
1,545
510,905
7,286
Total Revenue
702
4,966
17,051
1,545
510,905
7,286
Management Cost
Allocation
65,958
77,128
33,657
42,067
103,802
23,282
NET COST OF
OPERATIONS $_
610,872 $
3,711,968 $
124,503 $
318,520
$ 1,500,999 $
242,731
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2000-Restated (See Note 34)
(Dollars in Thousands)
Clean and Better
Clean Safe Safe Prevent Waste Global
Air Water Food Pollution Management Risks
COSTS:
Federal (Note 34) $ 62,400 $ 134,808 $ 18,372 $ 29,823 $ 387,651 $ 30,549
With the Public 462,922 3,209,971 80,003 231,151 1,478,910 179,880
Total Costs
525,322
3,344,779
98,375
260,974
1,866,561
210,429
Less:
Earned Revenues
219
5,794
21,247
4,180
336,253
6,939
Total Revenue 219 5>794 21>247 4>180 336>253 6>939
Management Cost
Ail /-it t 53,522 73,540 21,779 34,754 135,265 15,755
Allocation (Note 34) ____
NET COST OF
nram A ttamc * ->,i\ $ 578,625 $ 3,412,525 $ 98,907 $ 291,548 $ 1,665,573 $ 219,245
OPERATIONS (Note 34)
Detailed descriptions of the above Goals are provided in EPA's FY 2001 Annual Report, Section II - GPRA Performance
Results by Strategic Goal.
Page 32
Audit Report 2002-1-00082
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The accompanying notes are an integral part of these statements.
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2001
(Dollars in Thousands)
Right
to
Know
Sound
Science
Credible
Effective
Not
Assigned
to Goals*
Consolidated
Totals
COSTS:
Federal $
; 41,540 $
58,804 $
100,116
$ 66,461 $
29,438 $
1,117,162
With the Public
126,154
290,056
299,021
424,036
(60,977)
6,963,641
Total Costs
167,694
348,860
399,137
490,497
(31,539)
8,080,803
Less:
Earned Revenues
324
706
786
4,330
(1,898)
546,703
Total Revenue
324
706
786
4,330
(1,898)
546,703
Management Cost
Allnrntinn
30,017
47,331
62,925
(486,167)
0
0
NET COST OF
OPERATIONS
$ 197,387 $ 395,485 $ 461,276
0 $ (29,641) $
7,534,100
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2000-Restated (see Note 34)
(Dollars in Thousands)
Right
to Sound
Know Science
Credible
Effective
Not
Assigned
to Goals*
Consolidated
Totals
COSTS:
Federal (Note 34) s
22,120 $
42,324 $
52,421
$ 125,211 $
120,149 $
1,025,828
With the Public
114,439
286,882
317,423
339,874
25,346
6,726,801
Total Costs
136,559
329,206
369,844
465,085
145,495
7,752,629
Less:
Earned Revenues
338
1,490
495
1,694
3,335
381,984
Total Revenue
338
1,490
495
1,694
3,335
381,984
Management Cost
Allocation (Note 34)
22,752
30,676
75,348
(463,391)
0
0
NET COST OF
rvrnn A ttamc m t $ 158,973 $ 358,392 $ 444,697 $ 0 $ 142,160 $ 7,370,645
OPERATIONS (Note 34)
* See Note 30.
Audit Report 2002-1-00082
Page 33
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Detailed descriptions of the above Goals are provided in EPA's FY 2001 Annual Report, Section II - GPRA Performance
Results by Strategic Goal.
The accompanying notes are an integral part of these statements.
Environmental Protection Agency
Consolidating Statement of Net Cost
For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated-See Note 34)
(Dollars in Thousands)
Superfund Superfund All All Combined
Trust Fund Trust Fund Others Others Total
FY 2001 FY 2000* FY 2001 FY 2000* FY 2001
COSTS:
Intragovernmental (Note 34) 3
> 426,499
$ 353,782 $
710,290 $
689,140 $
1,136,789
With the Public
1,179,013
1,259,464
5,784,628
5,467,337
6,963,641
Expenses from Other Appropriations (Note 23)
103,654
31,270
(103,654)
(31,270)
0
Total Costs
1,709,166
1,644,516
6,391,264
6,125,207
8,100,430
Less:
Earned Revenues
488,397
307,200
77,933
91,878
566,330
Total Revenue
488,397
307,200
77,933
91,878
566,330
NET COST OF OPERATIONS (Note 34) 5
> 1,220,769
$ 1,337,316 $
6,313,331 $
6,033,329 $
7,534,100
* Restated amounts - See Note 34.
Page 34
Audit Report 2002-1-00082
-------
The accompanying notes are an integral part of these statements.
Environmental Protection Agency
Consolidating Statement of Net Cost
For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated-See Note 34)
(Dollars in Thousands)
Combined Intra-agency Intra-agency Consolidated Consolidated
Total Eliminations Eliminations Totals Totals
FY 2000* FY 2001 FY 2000 FY 2001 FY 2000*
COSTS:
Intragovernmental (Note 34)
$ 1,042,922 $
(19,627) $
(17,094) $
1,117,162 $
1,025,828
With the Public
6,726,801
0
0
6,963,641
6,726,801
Expenses from Other Appropriations (Note 23)
0
0
0
0
0
Total Costs
$ 7,769,723 $
(19,627) $
(17,094) $
8,080,803 $
7,752,629
Less:
Earned Revenues
399,078
(19,627)
(17,094)
546,703
381,984
Total Revenue
399,078
(19,627)
(17,094)
546,703
381,984
NET COST OF OPERATIONS (Note 34)
$ 7,370,645 $
0 $
0 $
7,534,100 $
7,370,645
* Restated amounts - See Note 34.
The accompanying notes are an integral part of these statements.
Audit Report 2002-1-00082
Page 35
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Years Ended September 30, 2001 and 2000 (FY2000 Restated*-See Notes 34 & 37)
(Dollars in Thousands)
Superfund Superfund All Others All Others Combined
Trust Fund Trust Fund FY 2001 FY 2000* Totals
FY 2001 FY 2000* FY 2001
Net Cost of Operations (Note 34) $
1,220,769$
1,337,316 $
6,313,331$
6,033,329 $
7,534,100
Financing Sources (Other Than Exchange Revenues):
Appropriations Used
0
0
6,867,762
6,632,631
6,867,762
Taxes & Non-Exchange Interest (Note 17)
226,861
240,808
276,346
260,272
503,207
Other Non-Exchange Revenue
2,775
1,192
11,878
12,958
14,653
Imputed Financing (Notes 32 and 34)
13,686
12,534
77,855
70,384
91,541
Trust Fund Appropriations (Note 17)
633,603
700,000
(633,603)
(700,000)
0
Transfers-In (Note 31 and 37)
0
9,707
62,861
64,995
62,861
Transfers-Out (Notes 31 and 37)
(127,927)
(124,200)
0
(990)
(127,927)
Income from Other Appropriations (Note 23)
103,654
31,270
(103,654)
(31,270)
0
Net Results of Operations before Accounting Changes for
Trust Funds, Cashout Interest, & Transfers
(368,117)
(466,005)
246,114
275,651
(122,003)
Cumulative Effect of Trust Fund Accounting Changes onNet
Results of Operations (Note 35)
0
2,656,831
0
91,596
0
Cumulative Effect of Cashout Interest Accounting Changes
on Net Results of Operations (Note 36)
0
85,382
0
0
0
Cumulative Effect of Expenditure Transfer Accounting
Changes on Net Results of Operations (Note 37)
0
(45,188)
0
45,188
0
Net Change in Cumulative Results
of Operations
(368,117)
2,231,020
246,114
412,435
(122,003)
Increases/(Decreases) in Unexpended Appropriations
0
(2,656,831)
239,122
42,874
239,122
Change in Net Position (368,117)
Net Position - Beginning of Period (Note 37) 3,875,439
Net Position - End of Period (Note 37)
(425,811) 485,236 455,309 117,119
4,301,250 12,208,861 11,753,552 16,084,300
3,875,439 $ 12,694,097$ 12,208,861 $ 16,201,419
$ 3,507,322$
* FY 2000 Net Cost of Operations and Imputed Financing are restated - See Note 34.
Also FY 2000 Transfers-in, Transfers-out, and Ending Net Position are restated; with an addtional
Accounting Change for Expenditure Transfers. - See Note 37.
The accompanying notes are an integral part of these statements.
Page 36 Audit Report 2002-1-00082
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Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated*-See Notes 34 and 37)
(Dollars in Thousands)
Combined Intra-agency Intra-agency Consolidated Consolidated
Totals Eliminations Eliminations Totals Totals
FY 2000* FY 2001 FY 2000* FY 2001 FY 2000*
Net Cost ofOperations (Note 34) $ 7,370,645 $ 0$ 0$ 7,534,100$ 7,370,645
Financing Sources (Other Than Exchange Revenues):
Appropriations Used 6,632,631
Taxes & Non-Exchange Interest (Note 17) 501,080
Other Non-Exchange Revenue 14,150
Imputed Financing (Notes 32 and 34) 82,918
Trust Fund Appropriations (Note 17) 0
Transfers-In (Notes 31 and 37) 74,702
Transfers-Out (Notes 31 and 37) (125,190)
Income from Other Appropriations (Note 23) 0
Net Results of Operations before Accounting Changes for (190,354)
Trust Funds, Cashout Interest, & Transfers
Cumulative Effect of Trust Fund Accounting Changes onNet 2,748,427
Results of Operations (Note 35)
Cumulative Effect of Cashout Interest Accounting Changes 85,382
on Net Results of Operations (Note 36)
Cumulative Effect of Expenditure Transfer Accounting 0
Changes on Net Results of Operations (Note 37)
0 0 6,867,762 6,632,631
0 0 503,207 501,080
0 0 14,653 14,150
0 0 91,541 82,918
0 0 0 0
(47,894) (49,990) 14,967 24,712
47,894 49,990 (80,033) (75,200)
0 0 0 0
0 0 (122,003) (190,354)
0 0 0 2,748,427
0 0 0 85,382
0 0 0 0
Net Change in Cumulative Results
of Operations
2,643,455
(122,003)
2,643,455
Increases/(Decreases) in Unexpended Appropriations
(2,613,957)
239,122
(2,613,957)
Change in Net Position 29,498 0 0 117,119 29,498
Net Position - Beginning of Period (Note 37) 16,054,802 0 0 16,084,300 16,054,802
Net Position-End of Period (Note 37) $ 16,084,300 $ 0$ 0$ 16,201,419$ 16,084,300
* FY 2000 Net Cost of Operations and Imputed Financing are restated - See Note 34.
Also FY 2000 Transfers-in, Transfers-out, and Ending Net Position are restated; with an additional
Accounting Change for Expenditure Transfers. - See Note 37.
The accompanying notes are an integral part of these statements.
Audit Report 2002-1-00082
Page 37
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Budgetary Resources
Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Year Ended September 30, 2001
(Dollars in Thousands)
Superfund All Combined
Trust Fund Others Totals
Budget Authority
Unobligated Balances, Beginning of Period
Net Transfers, Prior Period Balances
Spending Authority from Offsetting Collections
Adjustments (Note 26)
Total Budgetary Resources (Note 25)
1,288,437
450,538
0
348,758
196,644
7,245,878
1,774,158
1,003
303,972
18,095
8,534,315
2,224,696
1,003
652,730
214,739
$ 2,284,377 $ 9,343,106 $ 11,627,483
Status of Budgetary Resources
Obligations Incurred (Note 25)
Unobligated Balances Available - Apportioned (Note 27)
Unobligated Balances Not Available (Note 27)
Total, Status of Budgetary Resources (Note 25)
1,570,056 $
714,321
0
7,431,802
1,791,475
119,829
9,001,858
2,505,796
119,829
$ 2,284,377 $ 9,343,106 $ 11,627,483
Outlays (Note 25)
Obligations Incurred (Note 25)
Less: Spending Authority from Offsetting Collections and Adjustments
Subtotal
1,570,056 $ 7,431,802 $ 9,001,858
(545,402) (380,786) (926,188)
;,075,670
$ 1,024,654 $ 7,051,016 $
Obligated Balance, Net - Beginning of Period
Obligated Balance Transferred, Net
Less: Obligated Balance, Net - End of Period (Note 28)
2,283,790 9,289,444 11,573,234
0
0
(2,108,696) (9,324,855) (11,433,551)
Total Outlays (Note 25)
1.199.748 $ 7.015.605
8.215.353
Page 38
The accompanying notes are an integral part of these statements.
Audit Report 2002-1-00082
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Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated*-See Note 34)
(Dollars in
Thousands)
Superfund Superfund
T rust Fund T rust Fund
FY 2001 FY 2000*
All
Others
FY 2001
All
Others
FY 2000*
Obligations and Nonbudgetary Resources
Obligations Incurred
Less: Spending Authority for Offsetting Collections and Adjustments
$ 1,570,056 $
1,701,337
$ 7,431,802
$ 7,158,665
Earned Reimbursements
Collected
(311,271)
(108,997)
(227,827)
(230,981)
Receivable from Federal Sources
3,716
13,324
6,306
20,720
Change in Unfilled Customer Orders (Decreases)/Increases
(41,203)
(17,846)
(36,273)
(54,653)
Transfers from Trust Funds
0
(9,642)
(46,178)
(46,358)
Recoveries of Prior Year Obligations
(196,644)
(201,660)
(76,814)
(111,767)
Imputed Financing for Cost Subsidies (Notes 32 and 34)
13,686
12,534
77,855
70,384
Income from Other Appropriations (Note 23)
103,654
31,270
(103,654)
(31,270)
Transfers-in/(out) of Nonmonetary Assets
0
39
0
0
Exchange Revenue Not in the Entity's Budget
(182,013)
(215,449)
(2,072)
(3,088)
Total Obligations as Adjusted and Nonbudgetary Resources
959,981
1,204,910
7,023,145
6,771,652
Resources that Do Not Fund Net Cost of Operations
Change in Amount of Goods, Services, and Benefits Ordered but Not
Yet Provided - (Increases)/Decreases
145,931
143,536
(117,998)
(74,345)
Change in Unfilled Customer Orders, etc.
41,203
17,846
36,273
53,227
Costs Capitalized on the Balance Sheet - (Increases)/Decreases
General Plant, Property and Equipment
(8,306)
(3,827)
(74,092)
(107,711)
Purchases of Inventory
0
0
52
(68)
Adjustments to Costs Capitalized on the Balance Sheet
(40)
0
(4)
153
Collections that Decrease Credit Program Receivables or Increase
Credit Program Liabilities
0
0
7,722
5,014
Adjustment for Trust Fund Outlays that Do Not Affect Net Cost
(47,894)
(38,090)
(587,424)
(652,268)
Total Resources that Do Not Fund Net Costs of Operations
130,894
119,465
(735,471)
(775,998)
Components of Costs that Do Not Require or Generate Resources
Depreciation and Amortization
4,031
3,654
19,333
20,651
Bad Debt Related to Uncollectible Non-Credit Reform Receivables
133,761
3,075
2,881
1,518
Revaluation of Assets and Liabilities
0
0
0
(165)
Loss (Gain) on Disposition of Assets
(9,426)
(813)
895
0
Other Expenses not Requiring Budgetary Resources
699
45
(5,686)
3,409
Total Costs That Do Not Require Resources
129,065
5,961
17,423
25,413
Financing Sources Yet to be Provided (Note 29)
829
6,980
8,234
12,262
Net Costs of Operations (Note 34)
$ 1,220,769 $
1,337,316
$ 6,313,331
$ 6,033,329
* Imputed Financing and Net Cost of Operations restated for FY 2000 - See Note 34.
The accompanying notes are an integral part of these statements.
Audit Report 2002-1-00082
Page 39
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Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2001 and 2000 (FY 2000 Restated*-See Note 34)
(Dollars in Thousands)
Consolidated Consolidated
Totals Totals
FY2001** FY 2000* **
Obligations and Nonbudgetary Resources
Obligations Incurred
$ 9,001,858 $
8,860,002
Less: Spending Authority for Offsetting Collections and Adjustments
Earned Reimbursements
Collected
(539,098)
(339,978)
Receivable from Federal Sources
10,022
34,044
Change in Unfilled Customer Orders (Decreases)/Increases
(77,476)
(72,499)
Transfers from Trust Funds
(46,178)
(56,000)
Recoveries of Prior Year Obligations
(273,458)
(313,427)
Imputed Financing for Cost Subsidies (Notes 32 and 34)
91,541
82,918
Income from Other Appropriations (Note 23)
0
0
Transfers-in/(out) of Nonmonetary Assets
0
39
Exchange Revenue Not in the Entity's Budget
(184,085)
(218,537)
Total Obligations as Adjusted and Nonbudgetary Resources
7,983,126
7,976,562
Resources that Do Not Fund Net Cost of Operations
Change in Amount of Goods, Services, and Benefits Ordered but Not
Yet Provided - (Increases)/Decreases
27,933
69,191
Change in Unfilled Customer Orders, etc.
77,476
71,073
Costs Capitalized on the Balance Sheet - (Increases)/Decreases
General Plant, Property and Equipment
(82,398)
(111,538)
Purchases of Inventory
52
(68)
Adjustments to Costs Capitalized on the Balance Sheet
(44)
153
Collections that Decrease Credit Program Receivables or Increase
Credit Program Liabilities
7,722
5,014
Adjustment for Trust Fund Outlays that Do Not Affect Net Cost
(635,318)
(690,358)
Total Resources that Do Not Fund Net Costs of Operations
(604,577)
(656,533)
Components of Costs that Do Not Require or Generate Resources
Depreciation and Amortization
23,364
24,305
Bad Debt Related to Uncollectible Non-Credit Reform Receivables
136,642
4,593
Revaluation of Assets and Liabilities
0
(165)
Loss (Gain) on Disposition of Assets
(8,531)
(813)
Other Expenses not Requiring Budgetary Resources
(4,987)
3,454
Total Costs That Do Not Require Resources
146,488
31,374
Financing Sources Yet to be Provided (Note 29)
9,063
19,242
Net Costs of Operations (Note 34)
$ 7,534,100 $
7,370,645
* Imputed Financing and Net Cost of Operations restated for FY 2000 - See Note 34.
** This statement did not have any intra-agency eliminations for FY 2001 or FY 2000.
The accompanying notes are an integral part of these statements.
Page 40
Audit Report 2002-1-00082
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Environmental Protection Agency
Consolidated Statement of Custodial Activity
For the Years Ended September 30, 2001 and 2000
(Dollars in Thousands)
FY 2001
FY 2000
Revenue Activity:
Sources of Collections:
Fines and Penalties
114,830
76,850
Other :
$ 31,754 $
18,418
Total Cash Collections
146,584
95,268
Accrual Adjustment
(24,692)
(8,678)
Total Custodial Revenue (Note 24)
121,892
86,590
Disposition of Collections:
Transferred to Others (General Fund)
147,045
97,730
Increases/(Decreases) in Amounts To Be Transferred
(25,153)
(11,140)
Total Disposition of Collections
1?.1 89?.
86 590
Net Custodial Revenue Activity (Note 24) :
o
&
II
0
The accompanying notes are an integral part of these statements.
Audit Report 2002-1-00082
Page 41
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Environmental Protection Agency
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Basis of Presentation
These consolidating financial statements have been prepared to report the financial position and
results of operations of the Environmental Protection Agency (Agency) for the Hazardous Substance
Superfund (Superfund) Trust Fund and All Other Funds, 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 books and records of the Agency in accordance with "Form and Content for Agency
Financial Statements," specified by the Office of Management and Budget (OMB) in Bulletin 01-09,
and the Agency's accounting policies which are summarized in this note. In addition, to the guidance
in Bulletin 01-09, the Statement of Net Cost has been prepared by the EPA strategic goals. These
statements are therefore different from the financial reports also prepared by the Agency pursuant to
OMB directives that are used to monitor and control the Agency's use of budgetary resources.
B. Reporting Entities
The Environmental Protection Agency was created in 1970 by executive reorganization from various
components of other Federal agencies in order to better marshal and coordinate Federal pollution
control efforts. The Agency is generally organized around the media and substances it regulates —
air, water, land, hazardous waste, pesticides and toxic substances. For FY 2001, the reporting
entities are grouped as Hazardous Substance Superfund and All Other Funds.
Hazardous Substance Superfund
In 1980, the Hazardous Substance Superfund, commonly referred to as the Superfund Trust Fund,
was established by the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (CERCLA) to provide resources needed 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 Agency allocates funds
from its appropriation to other Federal agencies to carry out the Act. 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. Throughout this process, cleanup activities may be
supported by shorter term removal actions to reduce immediate risks. Removal actions may include
removing contaminated material from the site, providing an alternative water supply to people living
nearby, and installing security measures. NPL cleanups and removals are conducted and financed by
the Agency, private parties, or other Federal agencies. The Superfund Trust Fund includes the
Treasury collections and investment activity. The Superfund Trust Fund is accounted for under
Treasury symbol number 8145.
Page 42
Audit Report 2002-1-00082
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All Other Funds
All Other Funds include other Trust Fund appropriations, General Fund appropriations, Revolving
Funds, Special Funds, the Agency Budgetary Clearing accounts, Deposit Funds, General Fund
Receipt accounts, the Environmental Services Special Fund Receipt Account, the Miscellaneous
Contributed Funds Trust Fund, and General Fund appropriations transferred from other Federal
agencies as authorized by the Economy Act of 1932. Trust Fund appropriations are the Leaking
Underground Storage Tank (LUST) Trust Fund and the Oil Spill Response Trust Fund. General
Fund appropriations are the State and Tribal Assistance Grants (STAG), Science and Technology
(S&T), Environmental Programs and Management (EPM), Office of Inspector General (IG),
Buildings and Facilities (B&F), and Payment to the Hazardous Substance Superfund. General Fund
appropriation activities that no longer receive current definite appropriations but have unexpended
authority are the Asbestos Loan Program and Energy, Research and Development. Revolving Funds
include the FIFRA Revolving Fund and Tolerance Revolving Fund which receive no direct
appropriations; however, they do collect fees from public industry as a source of reimbursement for
the services provided. In addition to FIFRA and Tolerance, a Working Capital Fund (WCF) was
established and designated as a franchise fund to provide computer operations support and postage
service for the Agency. A Special Fund was established to collect the Exxon Valdez settlement as a
result of the Exxon Valdez oil spill. All Other Funds are as follows:
The LUST Trust Fund was authorized by the Superfund Amendments and Reauthorization Act of
1986 (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 to clean up those sites posing the greatest
threat to human health and environment. Funds are used for grants to non-state entities including
Indian tribes under section 8001 of the Resource Conservation and Recovery Act. The program is
financed by a 0.1 cent a gallon tax on motor fuels which will expire in 2005, and is accounted for
under Treasury symbol number 8153.
The Oil Spill Response Trust Fund was authorized by the Oil Pollution Act (OPA) of 1990. Monies
were appropriated to the Oil Spill Response Trust Fund in 1993. 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 of oil spill cleanup actions is provided through the Department of
Transportation under the Oil Spill Liability Trust Fund and reimbursable funding from other Federal
agencies. The Oil Spill Response Trust Fund is accounted for under Treasury symbol number 8221.
The State and Tribal Assistance Grants (STAG) appropriation provides funds for environmental
programs and infrastructure assistance including capitalization grants for State revolving funds and
performance partnership grants. Environmental programs and infrastructure supported are Clean and
Safe Water; Capitalization grants for the Drinking Water State Revolving Funds; Clean Air; Direct
grants for Water and Wastewater Infrastructure needs, Partnership grants to meet Health Standards,
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Protect Watersheds, Decrease Wetland Loss, and Address Agricultural and Urban Runoff and Storm
Water; Better Waste Management; Preventing Pollution and Reducing Risk in Communities, Homes,
Workplaces and Ecosystems; and Reduction of Global and Cross Border Environmental Risks.
STAG is accounted for under Treasury symbol 0103.
The Science and Technology (S&T) appropriation finances salaries; travel; science; technology;
research and development activities including laboratory and center supplies; certain operating
expenses; grants; contracts; intergovernmental agreements; and purchases of scientific equipment.
These activities provide the scientific basis for the Agency's regulatory actions. In FY 2001,
Superfund research costs were appropriated in Superfund and transferred to S&T to allow for proper
accounting of the costs. Scientific and technological activities for environmental issues include Clean
Air; Clean and Safe Water; Americans Right to Know About Their Environment; Better Waste
Management; Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces, and
Ecosystems; and Safe Food. The Science and Technology appropriation is accounted for under
Treasury symbol 0107.
The Environmental Programs and Management (EPM) appropriation includes funds for salaries,
travel, contracts, grants, and cooperative agreements for pollution abatement, control, and
compliance activities and administrative activities of the operating programs. Areas supported from
this appropriation include Clean Air; Clean and Safe Water; Preventing Pollution and Reducing Risk
in Communities, Homes, Workplaces, and Ecosystems; Better Waste Management, Restoration of
Contaminated Waste Sites, and Emergency Response; Reduction of Global and Cross Border
Environmental Risks; Americans' Right to Know About Their Environment; Sound Science;
Improved Understanding of Environmental Risk; and Greater Innovation to Address Environmental
Problems; Credible Deterrent to Pollution and Greater Compliance with the Law; and Effective
Management. The Environmental Programs and Management appropriation is accounted for under
Treasury symbol 0108.
The Office of Inspector General appropriation provides funds for audit and investigative functions to
identify and recommend corrective actions on management and administrative deficiencies that create
the conditions for existing or potential instances of fraud, waste and mismanagement. Additional
funds for audit and investigative activities associated with the Superfund Trust Fund and the Leaking
Underground Storage Tank Trust Funds are appropriated under those Trust Fund accounts and are
transferred to the Office of Inspector General account. The audit function provides contract, internal
and performance, and financial and grant audit services. The Office of Inspector General
appropriation is accounted for under Treasury symbol 0112 and includes expenses incurred and
reimbursed from the appropriated trust funds being accounted for under Treasury symbols 8145 and
8153.
The Buildings and Facilities appropriation provides for the construction, repair, improvement,
extension, alteration, and purchase of fixed equipment or facilities that are owned or used by the
Environmental Protection Agency. The Buildings and Facilities appropriation is accounted for under
Treasury symbol 0110.
The Payment to the Hazardous Substance Superfund appropriation authorizes appropriations from
the General Fund of the Treasury to finance activities conducted through Hazardous Substance
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Superfund. Payment to the Hazardous Substance Superfund is accounted for under Treasury symbol
0250.
The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act of 1986
to finance control of asbestos building materials in schools. Funds have not been appropriated for this
Program since FY 1993. For FY 1993 and FY1992, the program was funded by a subsidy
appropriated from the General Fund for the actual cost of financing the loans, and by borrowing from
Treasury for the unsubsidized portion of the loan. The Program Fund disburses the subsidy to the
Financing Fund for increases in subsidy. The Financing Fund receives the subsidy payment, borrows
from Treasury and collects the asbestos loans. The Asbestos Loan Program is accounted for under
Treasury symbol 0118 for the subsidy and administrative support, under Treasury symbol 4322 for
loan disbursements, loans receivable and loan collections on post FY 1991 loans, and under Treasury
symbol 2917 for pre FY 1992 loans receivable and loan collections.
The FIFRA Revolving Fund was authorized by the Federal Insecticide, Fungicide and Rodenticide
Act of 1972 as amended and as amended by the Food Quality Protection Act of 1996. Fees are paid
by industry to offset costs of accelerated reregi strati on, expedited processing of pesticides, and
establishing tolerances for pesticide chemicals in or on food and animal feed. The FIFRA Revolving
Fund is accounted for under Treasury symbol number 4310.
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. Fees are
paid by industry for Federal services of pesticide chemicals in or on food and animal feed. Effective
January 2, 1997, fees collected are now being collected and deposited in the Reregi strati on and
Expedited Processing Revolving Fund (4310). The fees collected prior to this date are accounted for
under Treasury symbol number 4311.
The Working Capital Fund (WCF) includes two activities: computer support services and postage.
WCF derives revenue from these activities based upon a fee for services. WCF's customers currently
consist solely of Agency program offices. Accordingly, revenues generated by WCF and expenses
recorded by the program offices for use of such services, along with the related advances/liabilities,
are eliminated on consolidation. The WCF is accounted for under Treasury symbol 4565.
The Exxon Valdez Settlement Fund has funds available to carry out authorized environmental
restoration activities. Funding is derived from the collection of reimbursements under the Exxon
Valdez settlement as a result of the oil spill. The Exxon Valdez Settlement fund is accounted for
under Treasury symbol number 5297.
Allocations and appropriations transferred to the Agency from other Federal agencies include funds
from the Appalachian Regional Commission and the Department of Commerce which provide
economic assistance to state and local developmental activities, the Agency for International
Development which provides assistance on environmental matters at international levels, and from the
General Services Administration which provides funds for rental of buildings, and operations, repairs,
and maintenance of rental space. The transfer allocations are accounted for under Treasury symbols
0200, 1010, and 4542; and the appropriation transfers are accounted for under 0108.
Clearing Accounts include the Budgetary suspense account, Unavailable Check Cancellations and
Overpayments, and Undistributed OP AC Payments and Collections. Clearing accounts are accounted
for under Treasury symbols 3875, 3880, and 3885.
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Deposit funds include Fees for Ocean Dumping; Nonconformance Penalties; Clean Air Allowance
Auction and Sale; Advances without Orders; and Suspense and payroll deposits for Savings Bonds,
and State and City Income Taxes Withheld. Deposit funds are accounted for under Treasury symbols
6050, 6264, 6265, 6266, 6275, and 6500.
General Fund Receipt Accounts include Hazardous Waste Permits; Miscellaneous Fines, Penalties
and Forfeitures; General Fund Interest; Interest from Credit Reform Financing Accounts; Fees and
Other Charges for Administrative and Professional Services; and Miscellaneous Recoveries and
Refunds. General Fund Receipt accounts are accounted for under Treasury symbols 0895, 1099,
1435, 1499, 3200, and 3220.
The Environmental Services Receipt account 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 will be
appropriated to the S&T appropriation and to the EPM appropriation to meet the expenses of the
programs that generate the receipts. Environmental Services are unavailable receipts accounted for
under Treasury symbol 5295.
The Miscellaneous Contributed Funds Trust Fund includes gifts for pollution control programs that
are usually designated for a specific use by the donor and deposits from pesticide registrants to cover
the costs of petition hearings when such hearings result in unfavorable decisions to the petitioner.
Miscellaneous Contributed Funds Trust Fund is accounted for under Treasury symbol 8741.
The accompanying financial statements include the accounts of all funds described in this note. The
expense allocation methodology is a financial statement estimate that presents EPA's programs at full
cost. Superfund may charge some costs directly to the fund and charge the remainder of the costs to
the All Other Funds in the Agency-wide appropriations. These amounts are presented as Expenses
from Other Appropriations on the Statement of Net Cost and as Income from Other Appropriations
on the Statement of Changes in Net Position and the Statement of Financing.
The Superfund Trust Fund is allocated to general support services costs (such as rent,
communications, utilities, mail operations, etc.) that were initially charged to the Agency's S&T and
EPM appropriations. During the year, these costs are allocated from the S&T and EPM
appropriations to the Superfund Trust Fund based on a ratio of direct labor hours, using budgeted or
actual full-time equivalent personnel charged to these appropriations, to the total of all direct labor
hours. Agency general support services cost charges to the Superfund Trust Fund may not exceed
the ceilings established in the Superfund Trust Fund appropriation. The related general support
services costs charged to the Superfund Trust Funds were $56.3 million for FY 2000 and $53.5
million for FY 2001.
C. Budgets and Budgetary Accounting
Superfund
Congress adopts an annual appropriation amount to be available until expended for the Superfund
Trust Fund. A transfer account for the Superfund Trust Fund has been established for purposes of
carrying out the program activities. As the Agency disburses obligated amounts from the transfer
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account, the Agency draws down monies from the Superfund Trust Fund at Treasury to cover the
amounts being disbursed.
All Other Funds
Congress adopts an annual appropriation amount for the LUST Trust Fund and for the Oil Spill
Response Trust Fund to remain available until expended. A transfer account for the LUST Trust
Fund has 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
LUST Trust Fund at Treasury to cover the amounts being disbursed. The Agency draws down all the
appropriated monies from the Treasury's Oil Spill Liability trust fund to the Oil Spill Response Trust
Fund when Congress adopts the appropriation amount. Congress adopts an annual appropriation for
STAG, Buildings and Facilities, and for Payments to the Hazardous Substance Superfund to be
available until expended; adopts annual appropriations for S&T, EPM and for the Office of the
Inspector General to be available for two fiscal years. When the appropriations for the General Funds
are enacted, Treasury issues a warrant to the respective appropriations. As the Agency disburses
obligated amounts, the balance of funds available to the appropriation is reduced at Treasury.
The Asbestos Loan Program is a commercial activity financed by a combination from two sources:
one for the long term costs of the loans and another for the remaining non-subsidized portion of the
loans. Congress adapted a one year appropriation, available for obligation in the fiscal year for which
it was appropriated, to cover the estimated long term cost of the Asbestos loans. The long term costs
are defined as the net present value of the estimated cash flows associated with the loans. The
portion of each loan disbursement that did not represent long term cost was financed under a
permanent indefinite borrowing authority established with the Treasury. A permanent indefinite
appropriation is available to finance the costs of subsidy re-estimates that occur after the year in
which the loan was disbursed. In FY 2000, subsidy increases totaled $3,580 thousand which became
an indefinite appropriation in FY 2001. In FY 2001, subsidy increases equaled $272 thousand for
loans disbursed from FY 1992 authority. The increases in subsidy will be appropriated in FY 2002.
Also in FY 2001, subsidy decreases totaled $1,313 thousand for loans disbursed from FY 1993
authority; the decreases in subsidy will be deposited with Treasury in FY 2002.
Funding of the FIFRA and the Tolerance Revolving Funds 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 WCF is provided by fees collected from other Agency appropriations collected to
offset costs incurred for providing the Agency administrative support for computer support and
postage.
Funds transferred from other Federal agencies are funded by a non expenditure transfer of funds from
the other Federal agencies. As the Agency disburses the obligated amounts, the balance of funding
available to the appropriation is reduced at Treasury.
Clearing accounts, Deposit accounts, and Receipt accounts receive no budget. The amounts are
recorded to the Clearing and Deposit accounts pending further disposition. Amounts recorded to the
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Receipt accounts capture amounts receivable to or collected for the General Fund of the U.S.
Treasury.
D. Basis of Accounting
Superfund and All Other Funds
Transactions are recorded on an accrual accounting basis and on a budgetary basis (where budgets
are issued). 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.
All interfund balances and transactions have been eliminated.
E. Revenues and Other Financing Sources
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
under Inter-Agency Agreements (IAGs), state cost share payments under Superfund State Contracts
(SSCs), and settlement proceeds from Potentially Responsible Parties (PRPs), under CERCLA Section
122(b)(3), placed in special accounts. Special accounts were previously limited to settlement amounts
for future costs; however, beginning in FY 2000, cost recovery amounts received under CERCLA
Section 122(b)(3) settlements could be placed in special accounts. Cost recovery settlements that are not
placed in special accounts, continue to be deposited in the Superfund Trust Fund.
All Other Funds
The majority of All Other Funds appropriations receive funding needed to support programs through
appropriations, which may be used, within statutory limits, for operating and capital expenditures. Under
Credit Reform provisions, the Asbestos Loan Program received funding to support the subsidy cost of
loans through appropriations which may be used with statutory limits. The Asbestos Direct Loan
Financing fund, an off-budget fund, receives additional funding to support the outstanding loans through
collections from the Program fund for the subsidized portion of the loan. The last year Congress
provided appropriations to make new loans was 1993. The FIFRA and the Tolerance Revolving Funds
receive funding, which is now deposited with the FIFRA Revolving Fund, through fees collected for
services provided. The FIFRA Revolving Fund also receives interest on invested funds. The WCF
receives revenue through fees collected for services provided to Agency program offices. Such revenue
is eliminated with related Agency program expenses on Consolidation. The Exxon Valdez Settlement
Fund received funding through reimbursements.
Appropriations are recognized as Other Financing Sources when earned, i.e., 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.
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F. Funds with the Treasury
Superfund and All Other Funds
The Agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements are
handled by Treasury. The funds maintained with Treasury are Appropriated Funds, Revolving Funds and
Trust Funds. These funds have balances available to pay current liabilities and finance authorized
purchase commitments.
G. Investments in U.S. Government Securities
All Other Funds
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.
H. Marketable Equity Securities
Superfund
During FY 1993 and FY 1996, the Agency received marketable equity securities, valued at a total of $5.1
million from a company in settlement of Superfund cost recovery actions, which were sold during FY
2001. 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.
I. Notes Receivable
Superfund
In FY 2001, the Agency received a note receivable valued at $8.1 million, from a company in
settlement of Superfund cost recovery actions. The Agency records notes receivable at their face
value and any accrued interest as of the date of receipt.
J. Accounts Receivable and Interest Receivable
Superfund
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as
amended by the Superfund Amendments and Reauthorization Act (SARA) provides for the recovery
of costs from potentially responsible parties (PRPs). However, cost recovery expenditures are
expensed when incurred since there is no assurance that these funds will be recovered.
It is the Agency's policy to record accounts receivable from PRPs for Superfund site response costs
when a consent decree, judgment, administrative order, or settlement is entered. These agreements
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are generally negotiated after 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 Superfund State
Contracts (SSCs), cost sharing arrangements under SSCs 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% or 50% of site
remedial action costs. States may pay the full amount of their share in advance, or incrementally
throughout the remedial action process. Allowances for uncollectible state cost share receivables have
not been recorded, because the Agency has not had collection problems with these agreements.
All Other Funds
The maj ority of receivables for All Other Funds represent interest receivable for Asbestos and FIFRA
and both accounts receivable and interest receivable to the General Fund of the Treasury.
K. Loans Receivable
All Other Funds
Loans are accounted for as receivables after funds have been disbursed. The amount of Asbestos Loan
Program loans obligated but not disbursed is disclosed in Note 6. Loans receivable resulting from
obligations on or before September 30, 1991 are reduced by the allowance for uncollectible loans.
Loans receivable resulting from loans obligated on or after October 1, 1991 are reduced by an
allowance equal to the present value of the subsidy costs associated with these loans. The subsidy cost
is calculated based on the interest rate differential between the loans and Treasury borrowing, the
estimated delinquencies and defaults net of recoveries offset by fees collected and other estimated cash
flows associated with these loans.
L. Appropriated Amounts Held by Treasury
Superfund and All Other Funds
For the Superfund and LUST Trust Funds, and for amounts appropriated to the Office of Inspector
General from the Superfund and LUST Trust Funds, cash available to the Agency that is not needed
immediately for current disbursements remains in the respective Trust Funds managed by Treasury.
At the end of FY 2001, approximately $2.8 billion remained in the Treasury managed Superfund
Trust Fund and approximately $83.5 million remained in the LUST Trust Fund to meet the Agency's
disbursement needs. During FY 2000, the funds' balances were $2.7 billion and $86.2 million,
respectively.
M. Advances and Prepayments
Superfund and All Other Funds
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Advances and prepayments represent funds advanced or prepaid to other entities both internal and
external to the Agency for which a budgetary expenditure has not yet occurred.
N. Property, Plant, and Equipment
Superfund and All Other Funds
The Fixed Assets Subsystem (FAS), implemented in FY 1997, maintains EPA-held personal, real
property, and capital software records in accordance with Statement of Federal Financial Accounting
Standards Number Six, "Accounting for Property, Plant and Equipment,"(SFFAS No. 6). The FAS
automatically generates depreciation entries monthly based on acquisition dates. Purchases of EPA-
held and contractor-held personal property are capitalized if it is valued at $25 thousand or more and
has an estimated useful life of at least two years. Prior to implementing FAS, depreciation was taken
on a modified straight-line basis over a period of six years depreciating 10% the first and sixth year,
and 20% in years two through five. This modified straight-line method is still used for contractor-held
property. All EPA-held personal property purchased before the implementation of FAS was assumed
to have an estimated useful life of five years. New acquisitions of EPA-held personal property are
depreciated using the straight-line method over the specific assets with useful lives, ranging from two
to 15 years.
In FY1997, EPA implemented requirements to capitalize software if the purchase price was $100,000
or more with an estimated useful life of two years or more for the Working Capital Fund, which is a
revenue generating activity. In FY 2001, the Agency began capitalizing software for All Other Funds
whose acquisition value is $500,000 or more in accordance with the provisions of SFFAS No. 10,
"Accounting for Internal Use Software.". Software is depreciated using the straight-line method over
the specific assets' useful lives ranging from two to 10 years.
Real property consists of land, buildings, and capital and leasehold improvements. Real property,
other than land, is capitalized when the value is $75 thousand or more. Land is capitalized regardless
of cost. Buildings were valued at an estimated original cost basis, and land was valued at fair market
value if purchased prior to FY 1997. Real property purchased during and after FY 1997 are valued
at actual costs. Depreciation for real property is calculated using the straight-line method over the
specific assets' useful lives, ranging from 10 to 102 years. Leasehold improvements are amortized
over the lesser of their useful lives or the unexpired lease terms. Additions to property and
improvements not meeting the capitalization criteria, expenditures for minor alterations, and repairs
and maintenance are expensed as incurred.
O. Liabilities
Superfund and All Other Funds
Liabilities represent the amount of monies or other resources that are likely to be paid by the Agency
as the result of a transaction or event that has already occurred. However, no liability can be paid by
the Agency without an appropriation or other collection of revenue for services provided. 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.
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P. Borrowing Payable to the Treasury
All Other Funds
Borrowing payable to Treasury results from loans from Treasury to fund the Asbestos direct loans
described in part B and C of this note. Periodic principal payments are made to Treasury based on the
collections of loans receivable.
Q. Interest Payable to Treasury
All Other Funds
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt to
Treasury. At the end of FY 2001 and FY 2000, there was no outstanding interest payable to Treasury
since payment was made through September 30.
R. Accrued Unfunded Annual Leave
Superfund and All Other Funds
Annual, sick and other leave is expensed as taken during the fiscal year. Sick leave earned but not
taken is not accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year
is accrued as an unfunded liability. Accrued unfunded annual leave is included in the Statement of
Financial Position as a component of "Other Liabilities-Governmental." As of September 30, 2001,
the unfunded leave liability for the Superfund Trust Fund was $20.4 million, and for All Other Funds,
it was $98.2 million. During FY 2000, these liabilities were $19.6 million for the Superfund Trust
Fund and $93.2 million for All Other Funds.
S. Retirement Plan
Superfund and All Other Funds
Agency employees participate in either the Civil Service Retirement System (CSRS) or the Federal
Employees Retirement System (FERS). From October 1, 2000 to the pay period beginning prior to
January 1, 2001, employees contributed 7.4% and 1.2% to CSRS and FERS, respectively. The
employee contribution rates were rolled back as of January 1, 2001 to 7% and .8%, respectively. The
Agency contributed 8.51% to CSRS employees' and 10.7% for FERS employees' retirement plans.
On January 1,1987, the FERS went into effect pursuant to Public Law 99-33 5. Most employees hired
after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired
prior to January 1, 1984 were allowed to either join FERS and Social Security or remain in CSRS.
A primary feature of FERS is that it offers a savings plan to the Agency employees which
automatically contributes 1 percent of pay and matches any employee contribution up to an additional
4 percent of pay. For most employees hired after December 31, 1983, the Agency also contributes
the employer's matching share for Social Security.
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With the issuance of "Accounting for Liabilities of the Federal Government" (SFFAS-5), which was
effective for the FY 1997 financial statements, accounting and reporting standards were established
for liabilities relating to the Federal employee benefit programs (Retirement, Health Benefits and Life
Insurance). SFFAS-5 requires that employing agencies recognize the cost of pensions and other
retirement benefits during their employees' active years of service. SFFAS-5 requires that the Office
of Personnel Management, as administrator of the Civil Service Retirement and Federal Employees
Retirement Systems, the Federal Employees Health Benefits Program, and the Federal Employees
Group Life Insurance Program, provide EPA with the 'Cost Factors' to compute EPA's liability for
each program.
Note 2. Fund Balances with Treasury
Fund Balances with Treasury as of September 30, 2001 and 2000, consist of the following (in
thousands):
FY 2001 FY 2000
Entity Non-Entity Entity Non-Entity
Assets Assets Total Assets Assets Total
Trust Funds:
Superfund $ 6,706 $ 0 $ 6,706 $ 37,397 $ 0 $ 37,397
LUST 18,158 0 18,158 1,300 0 1,300
Oil Spill 3,165 0 3,165 3,106 0 3,106
Revolving Funds:
FIFRA 3,465 0 3,465 5,442 0 5,442
Tolerance 31 0 31 22 0 22
Working Capital 51,267 0 51,267 52,509 0 52,509
Appropriated 11,088,824 0 11,088,824 10,913,471 0 10,913,471
Other Fund Types 88,218 19,246 107,464 76,338 7,068 83,406
Total $ 11,259,834 $ 19,246 $ 11,279,080 11,089,585 $ 7,068 $ 11,096,653
Entity fund balances include balances that are available to pay current liabilities and to finance
authorized purchase commitments. Also, Entity Assets, Other Fund Types consist of the
Environmental Services Receipt account. The Environmental Services Receipt account is a special
fund receipt account. Upon Congress appropriating the funds, EPA will use the receipts in the Science
and Technology appropriation and the Environmental Programs and Management appropriation.
The non-entity Other Fund Type consist of clearing accounts and deposit funds. These funds are
awaiting documentation for the determination of proper accounting disposition.
Note 3. Cash
In All Others, as of September 30, 2000, Cash consisted of imprest funds totaling $48 thousand. All
imprest funds were closed out in fiscal year 2001.
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Note 4. Investments
As of September 30, 2001 and 2000, investments consisted of the following:
Cost
Unamortized
(Premium)
Discount
Interest
Receivable
Investments,
Net
Market
Value
Superfund
Intragovernmental
Securities:
Non-Marketable
FY 2001 :
FY 2000 :
S 3,630,186
S 4,126,450
$ (33,967) !
$ 166,180 !
S 59,891 !
S 43 :
S 3,724,044
S 3,960,313
$ 3,724,044
$ 3,960,313
All Others
Intragovernmental
Securities:
Non-Marketable
FY 2001 :
FY 2000 :
S 1,703,909
S 1,669,665
$ (52,551) !
$ 76,334 !
S 22,358 :
S 26 :
S 1,778,818
S 1,593,357
$ 1,778,818
$ 1,593,357
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from
responsible parties (RP). Some RPs file for bankruptcy under Title 11 of the U.S. Code. In
bankruptcy settlements, 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 these securities to cash as soon as practicable.
Note 5. Accounts Receivable
The Accounts Receivable for September 30, 2001 and 2000, consist of the following:
Intragovernmental Assets:
Accounts & Interest Receivable
Total
Non-Federal Assets:
Unbilled Accounts Receivable
Accounts & Interest Receivable
Less: Allowance for Uncollectibles
Total
FY 2001
Superfund All Others
FY 2000
31,178
31,178
86,470 $
949,566
(569,998)
466,038
Superfund
69,977 $
69,977
1,668
133,787
(60,428)
75,027
40,671
88,209
883,938
(355,108)
617,039
All Others
40,671 $
80,824
80,824
0
155,581
(67,686)
87,895
The Allowance for Doubtful Accounts is determined on a specific identification basis as a result of a
case-by-case review of receivables, and a reserve on a percentage basis for those not specifically
identified.
Audit Report 2002-1-00082 Page 55
-------
During FY 2001, an analysis of unbilled Federal accounts receivable revealed that approximately $10
million of receivables could not be substantiated as valid reimbursements receivable from specific
Federal agencies. The net receivables were reduced by that amount. Of the total reductions, $2.8
million affected Superfund receivables, $3.6 million affected expired All Other Funds, and $3.6 million
were charged against All Other Funds canceled as of September 30, 2001.
In addition, a non-Federal debtor owing $239 million in Superfund receivables declared bankruptcy.
That amount was therefore added to the allowance for uncollectibles for non-Federal receivables in
FY 2001.
Note 6. Other Assets
Other Assets for September 30, 2001, consist of the following:
Superfund
All
Combined
Intra-agency
Consolidated
Trust Fund
Others
Totals
Eliminations
Totals
Intragovernmental Assets:
Advances to Federal Agencies
$ 166
$ 4,265
$ 4,431
$ (384)
$ 4,047
Advances to Working Capital Fund
5,355
0
5,355
(5,355)
0
Advances for Postage
0
121
121
0
121
Total Intragovernmental Assets
$ 5,521
$ 4,386
$ 9,907
$ (5,739)
$ 4,168
Non-Federal Assets:
Travel Advances
$ 7
$ (854)
$ (847)
$ 0
$ (847)
Letter of Credit Advances
0
315
315
0
315
Grant Advances
0
1,322
1,322
0
1,322
Other Advances
769
92
861
0
861
Bank Card Payments
1
0
1
0
1
Deposit on Returnable Containers
0
0
0
0
0
Prepaid Rent
0
0
0
0
0
Bankruptcy Settlement*
8,101
0
8,101
0
8,101
Total Non-Federal Assets
$ 8,878
$ 875
$ 9,753
$ 0
$ 9,753
^Bankruptcy Settlement: A promissory note in the amount of $8.1 million was issued to the
Superfund in a bankruptcy settlement by Joy Global, Inc. Interest rate is 10.75 per annum with
future payment date of April 30, 2006.
Page 56
Audit Report 2002-1-00082
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Other Assets for September 30, 2000, consist of the following:
Superfund
All
Combined
Intra-agency
Consolidated
Trust Fund
Others
Totals
Eliminations
Totals
Intragovernmental Assets:
Advances to Federal Agencies
$ 15,279
$ 7,409
$ 22,688
$ 0
$ 22,688
Advances to Working Capital Fund
6,510
0
6,510
(6,510)
0
Advances for Postage
0
43
43
0
43
Total Intragovernmental Assets
$ 21,789
$ 7,452
$ 29,241
$ (6,510)
$ 22,731
Non-Federal Assets:
Travel Advances
$ (18)
$ (916)
$ (934)
$ 0
$ (934)
Letter of Credit Advances
0
599
599
0
599
Grant Advances
0
1,945
1,945
0
1,945
Other Advances
767
75
842
0
842
Bank Card Payments
1
0
1
0
1
Deposit on Returnable Containers
0
(2)
(2)
0
(2)
Prepaid Rent
0
11
11
0
11
Total Non-Federal Assets
$ 750
$ 1,712
$ 2,462
$ 0
$ 2,462
Note 7. Loans Receivable, Net - Non-Federal
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 are net of an
allowance 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. The
Act 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 present value of loans is the amount of the gross loan
receivable less the present value of the subsidy.
An analysis of loans receivable and the nature and amounts of the subsidy and administrative expenses
associated entirely with Asbestos Loan Program loans as of September 30,2001 and 2000, is provided
in the following sections.
FY 2001
FY 2000
Direct Loans
Obligated Prior to
FY 1992
Direct Loans
Obligated After
FY 1991
Total
Loans
Receivable,
Gross
Allowance*
Value of
Assets Related Loans
to Direct Receivable,
Gross
49,683 $
42,779
92,462
(16,910)
(16,910)
Loans
0 $
25,869
75,552
Allowance*
Value of
Assets Related
to Direct
Loans
49,683 $ 58,114
0 $
46,909
105,023
(15,895)
(15,895)
58,114
31,014
89,128
Audit Report 2002-1-00082
Page 57
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* Allowance for Pre-Credit Reform loans (Prior to FY 1992 ) is the Allowance for Estimated
Uncollectible Loans and the Allowance for Post Credit Reform Loans (After FY 1991) is the
Allowance for Subsidy Cost (present value).
Subsidy Expenses for Post Credit Reform Loans:
Interest Expected Fee
Differential Defaults Offsets Total
Direct Loan Subsidy Expense - FY 2001
Direct Loan Subsidy Expense - FY 2000
Note 8. Inventory and Property Received in Settlement, Net
The Inventory and Related Property at September 30, 2001 and 2000, consisted of the following:
FY 2001 FY 2000
Superfund All Others Superfund All Other
Operating Materials and Supplies Held $ 0 $ 253 $ 0 $ 306
for Use in Normal Operations
Securities Received in Settlement 0 0 5,086 $ 41_
Total
The securities represented assets received during a bankruptcy proceeding, and were all sold in
FY2001.
Note 9. General Plant, Property and Equipment
Superfund property, plant and equipment, consists of personal property items held by contractors and
the Agency. EPA also has property funded by various other Agency appropriations. The property
funded by these appropriations are presented in the aggregate under "All Others" and consists of
software; real, EPA-Held and Contractor-Held personal, and capitalized-leased property.
As of September 30, 2001, Plant, Property and Equipment consisted of the following:
Superfund
All Others
EPA-Held
Equipment
Software
Contractor-Held
Equipment
Land and
Buildings
Capital Leases
Total
Acquisition
Value
$ 23,832
559
9,422
0
0
$ 33,813
Accumulated
Depreciation
$ (15,031)
(5)
(2,262)
0
0
Net Book
Value
$ 8,801
554
7,160
0
0
Acquisition
Value
$ 161,253
10,398
16,752
500,854
40,992
Accumulated
Depreciation
$ (105,484)
(148)
(7,647)
(76,951)
(13,126)
$ (17,298) $ 16,515 $ 730,249 $ (203,356)
Net Book
Value
$ 55,769
10,250
9,105
423,903
27,866
$ 526,893
Page 58
Audit Report 2002-1-00082
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As of September 30, 2000, Plant, Property and Equipment consisted of the following:
Superfund All Others
Acquisition Accumulated Net Book Acquisition Accumulated Net Book
Value Depreciation Value Value Depreciation Value
EPA-Held
Equipment $ 24,733 $ (16,313) $ 8,420 $ 134,893 $ (86,883) $ 48,010
Software 0 0 0 550 0 550
Contractor-Held
Equipment 8,814 (3,653) 5,161 34,103 (27,551) 6,552
Land and
Buildings 0 0 0 461,817 (73,430) 388,387
Capital Leases 0 0 0 40,992 (11,463) 29,529
Total $ 33,547 $ (19,966) $ 13,581 $ 672,355 $ (199,327) $ 473,028
Note 10. Debt
The Debt consisted of the following as of September 30, 2001 and 2000:
FY 2001 FY 2000
Beginning Net Ending Beginning Net Ending
All Others Balance Borrowing Balance Balance Borrowing Balance
Other Debt:
Debt to Treasury $^2^22. $^^121 $^2^22 $^2^22
Classification of Debt:
Intra-governmental Debt $ 31,124 $ 37,922
Total $^1^21 $^2^22
Note 11. Custodial Liability
Custodial Liability represents the amount of net accounts receivable that, when collected, will be
deposited to the General Fund of the Treasury. Included in the custodial liability are amounts for
fines and penalties, interest assessments, repayments of loans, and miscellaneous other accounts
receivable.
Note 12. Other Liabilities
The Other Liabilities, both intragovernmental and non-Federal, for September 30, 2001 are as
follows:
Audit Report 2002-1-00082
Page 59
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Other Liabilities - Intragovernmental
Covered by
Not Covered by
Budgetary Resources
Budgetary Resources
Total
Superfund - Current
Employer Contributions & Payroll Taxes
$ 2,682
0 !
£ 2,682
Other Advances
1,045
0
1,045
Advances, HRSTF Cashout
15,208
0
15,208
Deferred HRSTF Cashout
947
0
947
Resources Payable to Treasury
0
0
0
Superfund - Non-Current
Unfunded FECA Liability
0
1,426
1,426
Total Superfund
« «
e ?i
All Other - Current
Employer Contributions & Payroll Taxes
$ 11,935
$ 0 !
£ 11,935
WCF Advances
5,355
0
5,355
Other Advances
2,646
0
2,646
Liability for Deposit Funds
(85)
0
(85)
Resources Payable to Treasury
2
0
2
Subsidy Payable to Treasury
1,313
0
1,313
All Other - Non-Current
Unfunded FECA Liability
0
6,341
6,341
Total All Other
-------
Other Liabilities - Intragovernmental
Covered by
Not Covered by
Budgetary Resources
Budgetary Resources
Total
Superfund - Current
Employer Contributions & Payroll Taxes
$ 2,900
$ o :
$ 2,900
Other Advances
1,681
0
1,681
Advances, HRSTF Cashout
2,414
0
2,414
Deferred HRSTF Cashout
437
0
437
Resources Payable to Treasury
61
0
61
Superfund - Non-Current
Unfunded FECA Liability
0
1,355
1,355
Total Superfund
« 7 4Q-?
« 1 ^5S '
t 8 848
All Other - Current
Employer Contributions & Payroll Taxes
$ 12,690
$ o :
$ 12,690
WCF Advances
6,510
0
6,510
Other Advances
3,638
0
3,638
Liability for Deposit Funds
(20)
0
(20)
Resources Payable to Treasury
(33)
0
(33)
All Other - Non-Current
Unfunded FECA Liability
0
6,064
6,064
Total All Other
-------
Note 13. Leases
The Capital Leases as of September 30, 2001 and 2000, consist of the following:
Capital Leases, All Other Funds:
Summary of Assets Under Capital
Lease:
Real Property
Personal Property
Total
Accumulated Amortization
FY 2001 FY 2000
$ 40,913 $ 40,913
79 79_
$ _^Q!222_ $^^Q!222_
$ 13 176 $ 11 463
EPA has three capital leases for land and buildings housing scientific laboratories and/or computer
facilities. All of these leases include a base rental charge and escalator 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). EPA has one capital lease for a xerox copier that expires in FY
2002. The real property leases terminate in fiscal years 2010, 2013, and 2025. The charges are
expended out of the Environmental Programs and Management (EPM) appropriation. The total
future minimum lease payments of the capital leases are listed below.
Future Payments Due: All Others
Fiscal Year
2002 $ 6,303
2003 6,295
2004 6,295
2005 6,295
2006 6,295
After 5 Years 89.899
Total Future Minimum Lease Payments 121,382
Less: Imputed Interest (84,461)
Difference in Lease Payments to be
corrected FY 2002 9
Net Capital Lease Liability $^^36,2211
Liabilities not Covered by
Budgetary Resources (See Note 12)
Operating Leases:
The General Services Administration (GSA) provides leased real property (land and buildings) as
office space for EPA employees. GSA charges a Standard Level Users Charge that approximates
the commercial rental rates for similar properties.
EPA has five direct operating leases for land and buildings housing scientific laboratories and/or
computer facilities during FY 2001. Most of these leases include a base rental charge and
Page 62
Audit Report 2002-1-00082
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escalator 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). Two of these operating
leases expire in FY 2002. Two others expire in fiscal years 2017 and 2020. Respectively, the fifth
lease expired in FY 2001 and is extended on a monthly basis. The charges are expended out of the
EPM appropriation. The total minimum future costs of operating leases are listed below.
Total Land
Fiscal Year
Superfund
All Others
& Buildings
2002
$ 0
$ 2,102
$ 2,102
2003
0
74
74
2004
0
74
74
2005
0
74
74
2006
0
74
74
Beyond 2006
0
920
920
Total Future Minimum
Lease Payments
Note 14. Pension and Other Actuarial Liabilities
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,
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 at September 30, 2001 and 2000, consisted of the following:
FY 2001 FY 2000
Superfund All Other Superfund All Other
FECA Actuarial * 7 7^1 * ti QQ9 * 6^7 a 97 n^
The FY 2001 present value of these estimates was calculated using a discount rate of 5.21 percent.
The estimated future costs are recorded as an unfunded liability.
Note 15. Cashout Advances and Deferrals, Superfund
Cashouts are funds received by EPA, a state, or another Potentially 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), cashout funds received by EPA are
placed in site-specific, interest bearing accounts known as special accounts and are used in
accordance with the terms of the settlement agreement. Funds placed in special accounts may be
used without further appropriation by Congress.
Audit Report 2002-1-00082
Page 63
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Note 16. Unexpended Appropriations
As of September 30, 2001 and 2000, the Unexpended Appropriations consisted of the following
for All Other Funds:
Unexpended Appropriations: FY 2001 FY 2000
Unobligated
Available $ 1,635,071 $ 1,518,675
Unavailable 64,930 83,396
Undelivered Orders 8,658,960 8,517,767
Total $ 10 358 961 $ 10119 838
Note 17. Amounts Held by Treasury
Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship by
the U.S. Department of Treasury in the "Hazardous Substance Superfund Trust Fund" (Superfund)
and the "Leaking Underground Storage Tank Trust Fund" (LUST).
Superfund (Audited)
Superfund is supported primarily by an environmental tax on corporations, cost recoveries of funds
spent to clean up hazardous waste sites, and fines and penalties. Prior to December 31, 1995, the
fund was also supported by other taxes on crude and petroleum and on the sale or use of certain
chemicals. The authority to assess those taxes and the environmental tax on corporations also
expired on December 31, 1995, and has not been renewed by Congress. It is not known if or when
such taxes will be reassessed in the future.
The following reflects the Superfund Trust Fund maintained by the U.S. Department of Treasury
as of September 30, 2001 and 2000. The amounts contained in these statements have been
provided by the Treasury and are audited. Outlays represent amounts received by EPA's
Superfund Trust Fund; such funds are eliminated on consolidation with the Superfund Trust Fund
maintained by Treasury.
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Audit Report 2002-1-00082
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SUPERFUND FY 2001
EPA
Treasury
Combined
Undistributed Balances
Available for Investment
$ 0 $
768 $
768
Unavailable for Investment
0
0
0
Total Undisbursed Balance
0
768
768
Interest Receivable
0
59,891
59,891
Investments, Net of Discounts
2,837,243
826,910
3,664,153
Total Assets
$ 7 837 7.43 $
887 569 $
3 774 817
Liabilities & Equity
Debt
$ 0 $
0 $
0
Equity
2,837,243
887,569
3,724,812
Total Liability and Equity
$ 7 837 7.43 $
887 569 $
3 774 817
Receipts
Petroleum-Imported
$ 0 $
2,471 $
2,471
Petroleum-Domestic
0
(12)
(12)
Crude and Petroleum
0
0
0
Certain Chemicals
0
32
32
Imported Substances
0
5
5
Corporate Environmental
0
3,861
3,861
Cost Recoveries
0
202,132
202,132
Fines & Penalties
0
2,112
2,112
Total Revenue
0
210,601
210,601
Appropriations Received
0
633,603
633,603
Interest Income
0
220,504
220,504
Total Receipts
0
1 064 708
1 064 708
Outlays
Transfers to EPA
1,227,360
(1,227,360)
0
Transfers to CDC
0
(74,835)
(74,835)
Total Outlays
1,227,360
(1,302,195)
(74,835)
Net Income
$ 1 777 360 $
C737 487*1 $
989 873
Audit Report 2002-1-00082
Page 65
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SUPERFUND FY 2000
EPA
Treasury
Combined
Undistributed Balances
Available for Investment
$ 0 $
1,986 $
1,986
Unavailable for Investment
0
0
0
Total Undisbursed Balance
0
1,986
1,986
Interest Receivable
0
43
43
Investments, Net of Discounts
2,770,969
1,189,301
3,960,270
Total Assets
-------
FISCAL YEAR 2001 LUST
EPA
Treasury
Combined
Undistributed Balances
Available for Investment $
0 $
12,211 $
12,211
Unavailable for Investment
0
0
0
Total Undisbursed Balance
0
12,211
12,211
Taxes Receivable
0
0
0
Interest Receivable
0
22,358
22,358
Investments, Net of Discounts
83,460
1,673,000
1,756,460
Total Assets $.
83 460 X
1 707 569 $
1,791,029
Liabilities & Equity
Accrued Liabilities $
0 $
0 $
0
Equity
83,460
1,707,569
1,791,029
Total Liability and Equity $.
83 460 X
1 707 569 $
1,791,029
Receipts
Highway TF Tax $
0 $
167,408 $
167,408
Airport TF Tax
0
16,114
16,114
Inland TF Tax
0
582
582
Refund Gasoline Tax
0
(834)
(834)
Refund Diesel Tax
0
(1,584)
(1,584)
Refund Aviation Tax
0
(19)
(19)
Refund Aviation Fuel Tax
0
(123)
(123)
Cost Recovery
0
40
40
Audit Adjustment
0
0
0
Gross Revenue
0
181,584
181,584
Less: Reimbursement to
General Fund
0
0
0
Net Revenue
0
181,584
181,584
Interest Income
0
94,802
94,802
Net Receipts
0
276,386
276,386
Outlays
Transfers to EPA
74,617
(74,617)
0
Total Outlays
74,617
(74,617)
0
Net Income $.
74 617 X
?01 769 $
276,386
Audit Report 2002-1-00082
Page 67
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FISCAL YEAR 2000 LUST
EPA
Treasury
Combined
Undistributed Balances
Available for Investment 1
i 0 J
i (725)
$ (725)
Unavailable for Investment
0
0
0
Total Undisbursed Balance
0
(725)
(725)
Taxes Receivable
0
221
221
Interest Receivable
0
26
26
Investments, Net of Discounts
86,283
1,506,348
1,592,631
Total Assets J
1 86 ?83
-------
The legal recovery of Superfund costs incurred for pollution cleanup of specific sites, to
include the collection of fines and penalties from responsible parties.
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.
Superfund
Under CERCLA /106(a), EPA issues administrative orders that require parties to clean up
contaminated sites. CERCLA /106(b) allows a party that has complied with such an order to
petition 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 /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.
There are currently three CERCLA /106(b) administrative claims and one pending lawsuit. If the
claimants are successful, the total losses on the administrative and judicial claims could amount to
approximately $25.8 million and $3.8 million, respectively. The Environmental Appeals Board has
not yet issued final decisions on the administrative claims; therefore, a definite estimate of the
amount of the contingent loss cannot be made. The claimants' chance of success in all three of
these outstanding claims overall is characterized as reasonably possible. The claimants' chance of
success in the pending lawsuit is also reasonably possible.
All Other
There were no material litigation, asserted or unasserted claims or assessments involving all other
appropriated funds of the Agency.
Judgement Fund
In cases that are paid by the U.S. Treasury Judgement Fund, the Agency must recognize the full
cost of a claim regardless of who is actually paying the claim. Until these claims are settled or a
court judgement is assessed and the Judgement 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 judgement, the liability will be
reduced and an imputed financing source recognized. See Interpretation of Federal Financial
Accounting Standards No. 2, Accounting for Treasury Judgement Fund Transactions.
As of September 30, 2001, $3.8 million of Superfund related claims and $6.0 million of All Other
funds' claims were accrued as contingent liabilities under these criteria. Other contingent liabilities
exist under 27 cases of which anticipated amounts for attorney fees alone cannot be estimated or
known at this time. These amounts are believed to be less than material.
In addition, EPA is party to certain pending litigation upon which EPA believes it has a reasonable
legal position. $25.6 million of Judgement Fund claims in addition to the above accrued amounts
are pending.
Audit Report 2002-1-00082
Page 69
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In the opinion of EPA's management and General Counsel, the ultimate resolution of any legal
actions still pending will not materially affect EPA's operations or financial position.
Note 19. Grant Accrual
The EPA has revised the methodology for calculating the accrued grant expense for the Fiscal
Year 2001 financial statements using a model based on historical grant payments and a survey of
major grantees on billing practices. Average days of accrual at year end for sample grantees were
determined from survey results and were used with average daily billings as determined by
historical payment data to project the year end accrual for the sample group. The accrual for the
sample group was then projected to provide the year end accrual for all grants. For FY 2001, the
accrual for Superfund is $16.9 million and the All Other grant accrual is $476.7 million. IN FY
2000, the accrual for Superfund was $43.0 million and the All Other accrual was $507.6 million.
In the Statement of Net Cost by Goal, the grant accrual amounts are included in "Not Assigned to
Goals."
Note 20. Environmental Cleanup Costs
The EPA has four sites that require clean up stemming from its activities. Costs amounting to $98
thousand for three of these sites will be paid out of the Treasury Judgement Fund. (The $98
thousand represents the lower end of three separate range estimates, of which the maximum of the
ranges would total $110 thousand.) EPA estimates cleanup on the one other site will cost
approximately $20 thousand. EPA also holds title to a site in Edison, New Jersey which was
formerly an Army Depot. While EPA did not cause the contamination, the Agency could
potentially be liable for a portion of the cleanup costs. However, it is expected that the
Department of Defense and General Services Administration will bear all or most of the cost of
remediation.
Accrued Cleanup Cost
The EPA has 14 sites that will require future clean up associated with permanent closure and one
site with clean up presently underway. The estimated costs will be approximately $14.5 million.
Since the cleanup costs associated with permanent closure are not primarily recovered through
user fees, EPA has elected to recognize the estimated total cleanup cost as a liability and record
changes to the estimate in subsequent years.
The FY 2001 estimate for unfunded cleanup costs decreased by $5.8 million from the FY 2000
estimate. This represents a change of approximately 41 percent due in large part to the funding of
cleanup at several Research Triangle Park (RTP) facilities associated with the ongoing
consolidation at RTP. Of the $14.5 million in estimated cleanup costs, approximately $9.5 million
represents the estimated expense to close the current RTP facility. These costs will be incurred
within the next two years. The remaining amount represents the future decontamination and
decommissioning costs of EPA's other research facilities. There was a net increase of
approximately $4.8 million in funded cleanup costs from FY 2000 to FY 2001. EPA could also be
potentially liable for cleanup costs, at a GSA-leased site; however, the amounts are not known.
Note 21. Superfund State Credits
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Audit Report 2002-1-00082
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Authorizing statutory language for Superfund and related Federal regulations require States to
enter into Superfund State Contracts (SSCs) when 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 they will share in the cost of the remedial action. Under Superfund's authorizing
statutory language, States will provide EPA with a ten percent cost share for remedial action costs
incurred at privately owned or operated sites, and at least fifty 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. Credit is limited to State site-specific
expenses EPA has determined to be reasonable, documented, direct out-of-pocket expenditures of
non-Federal funds for remedial action. Once 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 EPA. As of September 30, 2001,
total remaining State credits have been estimated at $10.7 million. The estimated ending credit
balance on September 30, 2000 was $12.6 million.
Note 22. Superfund Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, Potentially Responsible Parties (PRPs)
agree to perform response actions at their sites with the understanding that EPA will reimburse the
PRPs a certain percentage of their total response action costs. EPA's authority to enter into mixed
funding agreements is provided under Section 111(a)(2) of the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) of 1980. Under Section 122(b)(1) of
CERCLA, as amended by the Superfund Amendments and Reauthorization Act (SARA) of 1986,
a PRP 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, 2001, EPA had 15 outstanding preauthorized mixed funding agreements with
obligations totaling $41.1 million. A liability is not recognized for these amounts until all work has
been performed by the PRP and has been approved by EPA for payment. Further, 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 EPA.
Note 23. Income and Expenses from other Appropriations
The Statement of Net Cost reports program costs that include the full costs of the program outputs
and consist of the direct costs and all other costs that can be directly traced, assigned on a cause
and effect basis, or reasonably allocated to program outputs.
During Fiscal Year 2001, EPA had one appropriation which funded a variety of programmatic and
non-programmatic activities across the Agency, subject to statutory requirements. The
Environmental Programs and Management (EPM) appropriation was created to fund personnel
compensation and benefits, travel, procurement, and contract activities.
All of the expenses from EPM were distributed among EPA's two Reporting Entities: Superfund
and All Others. This distribution is calculated using a combination of specific identification of
expenses to Reporting Entities, and a weighted average that distributes expenses proportionately
to total programmatic expenses.
As illustrated below, this estimate does not impact the net effect of the Statement of Net Costs.
Audit Report 2002-1-00082
Page 71
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FY 2001
FY 2000
Income From
Other
Appropriations
Expenses From
Other Net
Appropriations Effect
Income From
Other
Appropriations
Expenses From
Other Net
Appropriations Effect
Superfund
All Others
Total
103,654 $
(103,654)
a $.
(103,654)
103,654
_Q. $_
0 $
0
31,270
(31,270)
JL $.
(31,270) $
31,270
JL $.
_Q. $_
Note 24. Custodial Non-Exchange Revenues
EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous
receipts. Collectibility by EPA of the fines and penalties is based on the responsible parties'
willingness and ability to pay.
FY2001 FY2000
Fines, Penalties and Other Misc Revenue (EPA) S 17.1 897. $ 86 590
Accounts Receivable for Fines, Penalties and
Other Miscellaneous Receipts
Accounts Receivable $ 123,966 $ 154,803
Less: Allowance for Doubtful Accounts 46,186 52,336
Total $ 77 780 $ 107 467
Note 25. Statement of Budgetary Resources
Reconciliations of budgetary resources, obligations incurred, and outlays, as presented in the
audited Statements of Budgetary Resources, to amounts included in the Budget of the United
States Government for the years ended September 30, 2001 and 2000, are as follows:
Page 72
Audit Report 2002-1-00082
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FY 2001 Budgetary Obligations
Resources Incurred Outlays
Superfund
Statement of Budgetary Resources $ 2,284,377 $ 1,570,056 $ 1,199,748
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other (3,650) 13,813 0_
Budget of the United States Government $ 2,280,727 $ 1,583,869 $ 1,199,748
All Other
Statement of Budgetary Resources $ 9,343,106 $ 7,431,802 $ 7,015,605
Less: Funds Reported by Other Federal
Entities (26,148) (25,677) (25,342)
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other (5,229) (5,229) 0_
Budget of the United States Government
FY 2000 Budgetary Obligations
Resources Incurred Outlays
Superfund
Statement of Budgetary Resources $ 2,151,875 $ 1,701,337 $ 1,526,587
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other (328) (1,744) 1,000
Budget of the United States Government $ 2,151,547 $ 1,699,593 $ 1,527,587
All Other
Statement of Budgetary Resources $ 8,932,823 $ 7,158,665 $ 6,602,265
Less: Funds Reported by Other Federal
Entities (24,778) (23,835) (24,545)
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other 66,618 67,907 57
Budget of the United States Government
Note 26. Adjustments
Adjustments for FY 2001and FY 2000 are represented by the following categories:
Superfund FY 2001 FY 2000
Recoveries of Prior Year Obligations $ 196,644 $ 201,660
Less: Cancelled Authority 0_ 2,288
Total $ 196 644 $ 199 177.
Audit Report 2002-1-00082
Page 73
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All Others
FY 2001
FY 2000
Recoveries of Prior Year Obligations
$ 76,815 $
111,767
Adjustments to Beginning
Unobligated Balances
0
615
Less: Payments to Treasury
(6,798)
0
Rescinded Authority
(15,668)
(28,848)
Canceled Authority
(36,254)
(55,687)
Total
JK 18 095 $
7.7 847
Note 2 7. Unobligated Balances Available
Availability of unobligated balances ae shown comparatively for FY 2001 and FY 2000. The
unexpired authority is available to be apportioned by the Office of Management and Budget for
new obligations at the beginning of FY 2001. Expired authority is available for upward
adjustments of obligations incurred as of the end of the fiscal year.
Superfund FY 2001 FY 2000
Unexpired Unobligated Balance $ 714,321 $ 449,538
Expired Unobligated Balance 0_ 1,000
Total $ 714 37.1 $ 450 538
All Others
Unexpired Unobligated Balance $ 1,791,475 $ 1,644,998
Expired Unobligated Balance 119,829 129,160
Total $ 1 911 304 $ 1 774 158
Note 28. Obligated Balance, Net - End of Period
The following unpaid undelivered orders are included in the Obligated Balance, Net - End of
Period for FY 2001 and FY 2000.
Superfund FY 2001 FY 2000
Undelivered Orders, Unpaid $
All Others
Undelivered Orders, Unpaid $
Note 29. Statement of Financing
Increases in Unfunded Liabilities relate to changes in unfunded annual leave, environmental
liabilities, contingent liabilities and the Federal Employees Compensation Act (FECA) special
benefit fund. For Superfund and All Others, the changes are reflected in Financing Sources Yet to
Be Provided.
Page 74
Audit Report 2002-1-00082
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FY2001 FY2000
Financing Sources Yet to Be Provided
Superfund
All Others
$ 829 $ 6,980
8,234 12,262
$ 9 063 $ 19 747
Total
Note 30. Costs Not Assigned to Goals
FY 2001's Statement of Net Cost by Goal has $(31.5) million in gross costs not assigned to goals.
Grant accruals are part of the "Costs Not Assigned to Goals." The FY 2001 amount is comprised
of a decrease of $57.0 million to the year-end grant accruals (see Note 19); partially offset by
$19.7 million in bad debt expense not assigned to goals, $2.4 million in interest on Treasury
borrowing, $3.1 million in undistributed imputed costs, and $0.3 million in miscellaneous expenses.
For FY 2000's Statement of Net Cost by Goal, $145.5 million in gross costs were not assigned to
goals. This amount was comprised of a $106.4 million increase to the year-end grant accruals,
$15.2 million in unfunded expenses, $19.9 million in depreciation expenses that were not assigned,
$3.0 million in bad debt expense, and $1 million in miscellaneous expenses.
Note 31. Transfers-in and out, Statement of Changes in Net Position
The consolidated amounts shown as transfers-in on the Statement of Changes in Net Position are
comprised of transfers from other Federal agencies in accordance with applicable legislation. The
consolidated amounts shown as transfers-out are nonexpenditure transfers to other Hazardous
Substance Superfund allocation agency funds, such as HHS and Labor. Elimination transactions
consist of intra-agency transfers between EPA funds.
Note 32. Imputed Financing
In accordance with Statement of Federal Financial Accounting Standard No. 5 (Liabilities of the
Federal Government), Federal agencies must recognize the portion of employees' pensions and
other retirement benefits to be paid by the Office of Personnel Management (OPM) trust funds.
These amounts are recorded as imputed costs and imputed financing for the 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 2001 were $13.4 million and $76.5
million for Superfund and All Other Funds, respectively. For FY 2000, the revised estimates (see
Note 34) were $12.5 million and $70.4 million for Superfund and All Other Funds, respectively.
In addition to the pension and retirement benefits described above, in FY 2001 EPA also recorded
imputed costs and financing for Treasury Judgement Fund payments on behalf of the agency.
Entries are in accordance with the Interpretation of Federal Financial Accounting Standards No. 2,
Accounting for Treasury Judgement Fund Transactions. These entries totaled $0.3 million and
$1.3 million for Superfund and All Other Funds, respectively.
Audit Report 2002-1-00082
Page 75
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Note 33. Payroll and Benefits Payable
The amounts that relate to payroll and benefits payable to EPA employees for the years ending
September 30, 2001 and 2000 are detailed in the following tables. For FY 2000, these amounts
were included with Other Liabilities, non-Federal. The FY 2000 portion of this note has been
drawn from the prior year's note on Other Liabilities.
FY 2001 Payroll and Covered by Not Covered by Total
Benefits Payables Budgetary Resources Budgetary Resources
Superfund - Current
Accrued Funded Payroll and
Benefits $ 8,361 $ 0 $ 8,361
Withholdings Payable 5,935 0 5,935
Employer Contributions
Payable, non Federal (TSP) 372 0 372
Other Post-employment
Benefits Payable 3 0 3
Accrued Unfunded Annual
Leave 0 20,440 20,440
Total - Superfund - Current $ 14,671 $ 20,440 $ 35,111
All Other Funds - Current
Accrued Funded Payroll and
Benefits $ 37,099 $ 0 $ 37,099
Withholdings Payable 26,410 0 26,410
Employer Contributions
Payable, non Federal (TSP) 1,645 0 1,645
Other Post-employment
Benefits Payable 33 0 33
Accrued Funded Leave, WCF 320 0 320
Accrued Unfunded Annual
Leave 0 98,223 98,223
Total - All Other Funds -
Current $ 65,507 $ 98,223 $ 163,730
Page 76
Audit Report 2002-1-00082
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Covered by Not Covered by
FY 2000 Payroll and Budgetary Budgetary Total
Benefits Payables Resources Resources
Superfund - Current
Accrued Funded Payroll and $ 7,499 $ 0 $ 7,499
Benefits
Withholdings Payable 5,777 0 5,777
Other Post-employment 3 0 3
Benefits Payable
Accrued Unfunded Annual 0 19,553 19,553
Leave
Total - Superfund - $ 13,279 $ 19,553 $ 32,832
Current
All Other Funds-Current
Accrued Funded Payroll and $ 32,570 $ 0 $ 32,570
Benefits
Withholdings Payable 25,278 0 25,278
Other Post-employment 44 0 44
Benefits Payable
Accrued Funded Annual 320 0 320
Leave, WCF
Accrued Unfunded Annual 0 93,151 93,151
Leave
Total -All Other Funds - $ 58,212 $ 93,151 $ 151,363
Current
Note 34. Restatement of Imputed Costs and Financing for Prior Years
In fiscal years 1998, 1999, and 2000, the imputed costs and financing recognized on EPA's
financial statements differed from the calculations stipulated in OPM's Financial Management
Letters issued annually. Because these errors resulted in offsetting differences in costs and
financing sources, they had no effect on Net Position. However, Intragovernmental Costs on the
Statement of Net Cost and Imputed Financing on the Statements of Changes in Net Position and
Financing were misstated for those fiscal years. The table below shows the differences in
thousands for each fiscal year.
Audit Report 2002-1-00082
Page 77
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Imputed Costs Imputed Costs Imputed Costs
and Financing for and Financing and Financing for
FY 1998 for FY 1999 FY 2000
Superfund:
Corrected Amounts $ 12,422 $ 12,851 $ 12,534
Amounts on Statements 30,155 31,437 32,063
Difference $ ri7 7331 $ C18 5861 $ H9 5791
All Other:
Corrected Amounts $ 74,970 $ 71,839 $ 70,384
Amounts on Statements 161,853 165,232 168,659
Difference $ r86 8831 $ (93 3931 $ C98 7751
In accordance with the Statement of Federal Financial Accounting Standard No. 21 (Reporting
Corrections of Errors and Changes in Accounting Principles), the amounts for imputed costs and
financing are restated in the Statements of Net Cost, the Statement of Changes in Net Position, and
the Statement of Financing presented for FY 2000. Since this error has no effect on Net Position,
the beginning Net Position does not need to be restated for either FY 2000 or FY 2001. The effect
on the applicable lines of FY 2000's statements, in thousands, is presented below:
Superfund Superfund All Other All Other Consolidated
FY 2000
statements
FY 2000
Restated
Difference
FY 2000
statements
FY 2000
Restated
Difference
FY 2000 Total
Difference
Statement of Net Cost:
Costs: Intragovernmental
$ 373,311
$ 353,782
$ 19,529
$ 787,415
$ 689,140
$9
'8,275
$117,804
Total Costs
$1,664,045
$1,644,516
$ 19,529
$6,223,482
$6,125,207
$9
'8,275
$117,804
Net Cost of Operations
$1,356,845
$1,337,316
$ 19,529
$6,131,604
$6,033,329
$9
'8,275
$117,804
Statement of Changes in
Net Position:
Net Cost of Operations
$1,356,845
$1,337,316
$ 19,529
$6,131,604
$6,033,329
$9
'8,275
$117,804
Imputed Financing
$ 32,063
$ 12,534
$ 19,529
$ 168,659
$ 70,384
$9
'8,275
$117,804
Statement ofFinancing:
Imputed Financing for
Cost Subsidies
$ 32,063
$ 12,534
$ 19,529
$ 168,659
$ 70,384
$9
'8,275
$117,804
Net Cost of Operations $1,356,845 $1,337,316 $ 19,529 $6,131,604 $6,033,329 $98,275 $117,804
The amounts reduced (in thousands) on the restated Statement of Net Costs by Goal for FY 2000
are:
Intragovernmental
Management Cost
Net Cost of
Costs
Allocation
Operations
Clean Air
$
11,793
$ 1,633
$ 13,426
Clean and Safe Water
18,672
2,245
20,917
Safe Food
4,914
665
5,579
Prevent Pollution
7,862
1,061
8,923
Better Waste management
27,209
4,127
31,336
Global Risks
3,931
481
4,412
Right to Know
5,109
695
5,804
Sound Science
6,879
937
7,816
Credible Deterrent
17,292
2,299
19,591
Effective Management
14,143
(14,143)
0
Total Reduction
$
117,804
$ 0
$ 117,804
Page 78 Audit Report 2002-1-00082
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Note 35. Change in Accounting for Trust Funds in FY 2000
During FY 2000, in compliance with Statement of Federal Financial Accounting Standard No. 7
(Accounting for Revenue and Other Financing Sources), the U. S. Standard General Ledger Board
issued definitive guidance for trust fund accounting and added new Standard General Ledger
accounts to further distinguish trust fund transactions from other funds. As of FY 2000, the EPA
implemented these changes for all trust funds. These changes eliminate the use of Unexpended
Appropriations and Appropriations Used for trust funds, and indicate the inclusion of only the
Cumulative Results of Operations account in Net Position for trust funds.
The changes affected transactions in this manner: In lieu of increases to Unexpended
Appropriations, amounts appropriated or transferred to the trust funds are recorded in new
accounts as Trust Fund Financing Sources-Transfers In. Amounts transferred out no longer
decrease Unexpended Appropriations, but are recorded in new accounts as Trust Fund Financing
Sources -Transfers Out. These new accounts are reported on the Statement of Changes in Net
Position as Other Financing Sources, and are closed out at year end to Cumulative Results of
Operations. Expenditures from trust funds are still reported as expenses or purchases of capital
assets and reflected in budgetary expenditures, but are no longer reported as increases to
Appropriations Used and decreases to Unexpended Appropriations.
The cumulative effect of these changes on the accounts was to move all balances as of October 1,
1999 in Unexpended Appropriations for trust funds into Cumulative Results of Operations. This
cumulative effect is reported on a separate line on the Statement of Changes in Net Position for
fiscal year 2000. The decreases to Unexpended Appropriations for trust funds are detailed below:
Hazardous Substance Superfund No-Year Trust Fund
Superfund Annual Funds
Leaking Underground Storage Tank Trust Fund
Oil Spill Response Trust Fund
Miscellaneous Contributed Funds Trust Fund
Superfund
2,607,783
49,048
0
0
0
All Other
0
0
81,830
9,690
76
Totals
$2,656,831
$91,596
Note 36. Change in Accounting for Cashout Interest, Superfund for FY 2000
Per an agreement dated October 3, 1996 between the Office of Management and Budget (OMB)
and the EPA, the EPA is allowed additional budget authority for interest earnings on Cashout
(Special Account) collections for Superfund. Prior to FY 2000, the authority for interest earnings
had previously been classified as Cashout Advances and Deferrals, Superfund, on the
Consolidating Balance Sheet and as Spending Authority from Offsetting Collections on the
Combined Statement of Budgetary Resources . In FY 2000, the beginning balance for interest
earnings on Special Accounts was reclassified from Cashout Advances and Deferrals, Superfund to
Net Position on the Consolidating Balance Sheet for Superfund. The change is consistent with
guidance from OMB to treat the interest as permanently appropriated and is consistent with
definitive guidance for trust fund accounting issued by the U. S. Standard General Ledger Board.
This change is also in compliance with Statement of Federal Financial Accounting Standard No. 7
(Accounting for Revenue and Other Financing Sources).
Audit Report 2002-1-00082
Page 79
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For FY 2000 and 2001, interest earnings that became available during the fiscal years are recorded
in Trust Fund Financing Sources - Transfers In for EPA, and are then eliminated against
Treasury's Transfers-Out in the consolidation of the Treasury and EPA funds. Current year's
earnings are included as Budget Authority on the Combined Statement of Budgetary Resources for
Superfund.
Note 3 7. Change in Accounting for Expenditure Transfers
In fiscal year 2000, Treasury implemented changes in accounting for expenditure transfers from
trust funds to eligible fund symbols. These changes allowed the transfers to be recorded as
financing sources rather than unexpended or expended appropriations. In addition, new receivable
and payable accounts provided the mechanism to record invested financing sources available to
cover expenditures until the actual transfers could be completed at a later date.
In accordance with this change, in FY 2001 EPA established new intra-agency accounts receivable
and payable accounts for transfers between Superfund and the IG and Science & Technology
funds. For comparative purposes, the FY 2000 Balance Sheet and Statement of Changes in Net
Position are restated to show $46.5 million of activity that reflects the cumulative effect of these
new accounts. Specifically, the All Others intragovernmental receivables and the Superfund
intragovernmental accounts payable were both increased by $46.5 million for FY 2000, with
offsetting amounts reported in the respective cumulative results of operations on the Balance
Sheet. On the Statement of Changes in Net Position, an accounting change for FY 2000 was
reported which restated ending net position for Superfund and All Others for FY 2000. Of this
change, $45.2 million represents the beginning balance changes for FY 2000 and $1.3 million was
added to All Others transfers-in and Superfund transfers-out to reflect the changes in activity
relating solely to FY 2000.
Page 80
Audit Report 2002-1-00082
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Environmental Protection Agency
Required Supplemental Information
As of September 30, 2001
(Dollars in Thousands)
(Unaudited)
Deferred Maintenance
The EPA classifies tangible property, plant, and equipment as follows: 1) EPA-Held Equipment, 2)
Contractor-Held Equipment, 3) Land and Buildings, and, 4) Capital Leases. The condition assessment
survey method of measuring deferred maintenance is utilized. The Agency adopts requirements or standards
for acceptable operating condition in conformance with industry practices. No deferred maintenance was
reported for any of the four categories.
Intragovernmental Assets
Intragovernmental amounts represent transactions between all federal departments and agencies and are
reported by trading partner (entities that EPA did business with during FY 2001).
EPA confirmed its investment balances with the Bureau of the Public Debt, Department of the Treasury. In
addition, EPA sent out requests to trading partners to reconcile and confirm intragovernmental receivables
and transfers. Responses or inquiries were received from the Department of Defense, Department of the
Interior, Department of Commerce, Department of the Treasury, Nuclear Regulatory Commission and the
National Science Foundation.
Trading Investments Accounts Receivable Other
Partner
Code
04
11
12
13
14
15
17
18
19
20
21
45
47
Agency Superfund All Other Superfund All Other Superfund All Other
Government Printing Office $ 0$ 0$ 0$ 0$ 56$ 1,529
Executive Office of the
President 11
Department of Agriculture 425 97
Department of Commerce 17 96 2 27
Department of Interior 13,539 794
Department of Justice 81
Department of the Navy 111 810
U. S. Postal Service 16 122
Department of State 154 2,418
Department of the Treasury 75 104
Department of the Army 8,806 127
Equal Employment
Opportunity Commission 121
General Services
Administration 175 36
Audit Report 2002-1-00082
Page 81
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Trading Investments Accounts Receivable Other
Partner
Code Agency Superfund All Other Superfund All Other Superfund All Other
49 National Science
Foundation 14
57 Department of the Air Force
604 110
58 Federal Emergency
Management Agency 957
61 Consumer Product Safety
Commission 1
64 Tennessee Valley Authority
15
68 EPA (between Superfund
and All Other) 48,128 5,448 291
69 Department of
Transportation 8,927
72 Agency for International
Development 1,937
75 Department of Health and
Human Services 245 868
80 National Aeronautics and
Space Administration 39
86 Department of Housing and
Urban Development 149
89 Department of Energy 85 469
96 US Army Corps of
Engineers 87 4,460
97 US Department of Defense 6,912 219
99 Treasury Managed Trust
Funds 3,724,044 1,778,818 1,313
00 Unassigned 0 0 0 21 15 (_Q
Total $3.724.044$ 1.778.818 $31.178 $69.977 $5.521 $4.386
Intragovernmental Liabilities
EPA received a few requests for intragovernmental liabilities reconciliation from trading partners. EPA was
able to confirm balances with the National Science Foundation (49), the Department of Commerce (13),
Tennessee Valley Authority (64), the Office of Personnel Management (24), the Department of the Treasury
(20), and the Department of Labor (16).
Page 82
Audit Report 2002-1-00082
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Trading Accounts Payable
Partner
Code Agency Superfund All Other
03 Library of Congress $ 0 $ 0
04 Government Printing Office
11 Executive Office of the
President
12 Department of Agriculture
13 Department of Commerce 1,035
14 Department of Interior 901
15 Department of Justice 617
16 Department of Labor 2,258
17 Department of the Navy
18 United States Postal Service
19 Department of State
20 Department of the Treasury
21 Department of the Army
24 Office of Personnel
Management
31 US Nuclear Regulatory
Commission
33 Smithsonian Institution
45 EEOC
47 General Services
Administration
49 National Science
Foundation
56 Central Intelligence Agency
57 Department of the Air Force
58 Federal Emergency
Management Agency 15,317
64 Tennessee Valley Authority
68 EPA (between Superfund
and All Others) 44,759 512
69 Department of
Transportation
73 Small Business
Administration
Accrued Liabilities Other Liabilities
Superfund All Other Superfund All Other
$ $
0 $
0
6
157
45
1,146
(6)
26
68
1,199
2,085
48
699
2,071
140
4,611
2,593
81
3,418
50
1,067
53
43
1,426
6,341
218
440
102
24
7
14
628
41
226
3,258
45
426
1,964
8,742
6
20
6
31
20
3,619
17,258
6,875
(87)
7
241
21
2,760
45
16
1
198
16
3,241 5,355
6,287 141
10
Audit Report 2002-1-00082
Page 83
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Trading Accounts Payable Accrued Liabilities Other Liabilities
Partner
Code Agency Superfund All Other Superfund All Other Superfund All Other
75 Department of Health and
Human Services 16 12,793 6,639
80 National Aeronautics and
Space Administration 212
86 Department of Housing and
Urban Development 4 1,849
88 National Archives &
Records Administration 1
89 Department of Energy 392 4,537 47
91 Department of Education 4
95 Independent Agencies 11 8
96 US Army Corps of
Engineers 881 422 21,381 1,287 331
97 Office of the Secretary of
Defense 3 125 174 1,044 56
99 Treasury General Fund 690 4,507
00 Unassigned 22 59 770 737 23 (2}
Total $65.809 $1.118 $57.728 $40.541 $21.308 $27.507
For All Other Funds' remaining intragovernmental liabilities, $31,124 thousand in Debt is assigned
to the Department of the Treasury (trading partner Code 20), and $77,778 thousand in Custodial
Liability is assigned to the Treasury General Fund (trading partner Code 99).
Intragovernmental Revenues and Costs
EPA's intragovernmental earned revenues are not reported by trading partners because they are
below OMB's threshold of $500 million.
Superfund All Others
Intragovernmental Earned Revenue $37,241 $57,444
Associated Costs to generate Above
Revenue (Budget Functional
Classification 304)
Page 84
Audit Report 2002-1-00082
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Environmental Protection Agency
Required Supplemental Information
Supplemental Statement of Budgetary Resources
As of September 30, 2001
(Dollars in Thousands)
Unaudited
Environ- Miscellaneous Consolidated
mental Science & LUST All All
STAG Programs & Technology FIFRA Trust Fund Other Other
Management
Budgetary Resources:
Budget Authority $ 3,649,325 $ 2,091,490 $ 697,000 $ 0 $ 71,795 $ 736,268 $ 7,245,878
Unobligated Balances - Beginning of
the Period 1,218,633 270,917 180,150 4,596 4,331 95,531 1,774,158
Net Transfers, Prior Year Balance 0 1,107 0 0 0 (104) 1,003
Spending Authority from Offsetting
Collections 29,855 51,154 37,592 15,701 40 169,630 303,972
Adjustments 27,154 (14,349) 844 196 2,290 1,960 18,095
Total Budgetary Resources $^24^! $2^421 $^2S45& $JBQ0a!2£l $^y4a,Mi
Status of Budgetary Resources:
Obligations Incurred $ 3,625,653 $ 2,093,381 $ 714,645 $ 18,576 $ 72,236 $ 907,311 $ 7,431,802
Unobligated Balances - Available 1,299,314 214,529 175,274 1,917 6,134 94,307 1,791,475
Unobligated Balances-Not Available 0 92,409 25,667 0 86 1,667 119,829
Total Status of Budgetary Resources $ 4,924,967 $ 2,400,319 $ 915,586 $20,493 $ 78,456 $ 1,003,285 $ 9,343,106
Outlays:
Obligations Incurred $ 3,625,653 $ 2,093,381 $ 714,645 $ 18,576 $ 72,236 $ 907,311 $ 7,431,802
Less: Spending Authority from
Offsetting Collections and 64,992 70,515 46,657 15,897 2,330 180,395 380,786
Obligated Balance, Net - Beginning
of the Period 7,874,156 750,109 500,950 1,544 83,976 78,709 9,289,444
Less: Obligated Balance, Net - End
of the Period 7,917,132 783,265 492,591 1,547 83,186 47,134 9,324,855
Total Outlays $3,517,68 $ 1,989,71 $676,347 $ 2,676 $ 70,696 $ 758,491 $ 7,015,605
5 Q
Audit Report 2002-1-00082
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Balance Sheet
As of September 30, 2001
(Dollars in Thousands)
ASSETS Unaudited
Intragovernmental:
Fund Balance With Treasury $ 51,267
Accounts Receivable, Net 20,332
Other 121
Total Intragovernmental 71,720
Inventory and Related Property, Net 14
General Property, Plant and Equipment, Net 14,353
Other 2
Total Assets $ 86.089
LIABILITIES
Intragovernmental:
Accrued Liabilities $ 1,987
Advances from Other EPA Funds 37,422
Other 94
Total Intragovernmental 39,503
Accounts Payable 2,746
Accrued Liabilities 13,287
Other 1.845
Total Liabilities $ 57.381
NET POSITION
Cumulative Results of Operations 28.708
Total Net Position 28,708
Total Liabilities and Net Position $ 86,089
Audit Report 2002-1-00082
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Net Cost
For the Year Ended September 30, 2001
(Dollars in Thousands)
COSTS:
Intragovernmental
With the Public
Total Costs
Less:
Earned Revenues
Net Cost of Operations
Unaudited
$ 15,409
104,190
119,599
(124,819)
$ (5,220)
Audit Report 2002-1-00082
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Changes in Net Position
For the Year Ended September 30, 2001
(Dollars in Thousands)
Unaudited
Net Cost of Operations $ 5,220
Financing Sources (Other Than Exchange Revenues):
Imputed Financing 1,704
Transfers-In 0
Transfers-Out 0
Net Results of Operations $ 6,924
Prior-Period Adjustments 0
Net Change in Cumulative Results of Operations $ 6,924
Net Position - Beginning of the Period 21,784
Net Position - End of the Period $ 28,708
Audit Report 2002-1-00082
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Budgetary Resources
For the Year Ended September 30, 2001
(Dollars in Thousands)
Budgetary Resources Unaudited
Unobligated Balances, Beginning of the Period $ 21,820
Spending Authority from Offsetting Collections 125,706
Adjustments 2,990
Total Budgetary Resources
Status of Budgetary Resources
Obligations Incurred $ 127,482
Unobligated Balances Available 23,034
Total, Status of Budgetary Resources
Outlays
Obligations Incurred $ 127,482
Less: Spending Authority from Offsetting Collections and
Adjustments (128,696)
Subtotal (1,214)
Obligated Balance, Net - Beginning of the Period 30,688
Less: Obligated Balance, Net - End of the Period (28.232)
Total Outlays
Audit Report 2002-1-00082
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Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Financing
For the Year Ended September 30, 2001
(Dollars in Thousands)
Obligations and Nonbudgetary Resources Unaudited
Obligations Incurred $ 127,482
Less: Spending Authority for Offsetting Collections and Adjustments
Earned Reimbursements
Collected (125,394)
Receivable from Federal Sources 498
Change in Unfilled Orders - (Decreases)/Increases (810)
Recoveries from Prior Year Obligations (2,990)
Financing Imputed for Cost Subsidies 1,704
Total Obligations as Adjusted and Nonbudgetary Resources
Resources that Do Not Fund Net Cost of Operations
Change in Amount of Goods, Services and Benefits Ordered but
Yet Received or Provided - (Increases)/Decreases
Change in Unfilled Customers Orders, etc. - Increases/(Decreases)
Costs Capitalized on the Balance Sheet
General Plant, Property and Equipment
Purchases of Inventory
Total Resources that Do Not Fund Net Costs of Operations
Components of Costs of Operations that Do Not Require
or Generate Resources
Depreciation and Amortization 4,396
Loss on Disposition of Assets 124
Total Costs That Do Not Require Resources 4,520
Financing Sources Yet to be Provided 411
Net Costs of Operations $ (5,220)
(2,256)
810
(9,227)
32
$ no64n
Page 90
Audit Report 2002-1-00082
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Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30, 2001
(Dollars in Thousands)
INVESTMENT IN THE NATION'S RESEARCH AND DEVELOPMENT:
Public and private sector institutions have long been significant contributors to our Nation's
environment and human health research agenda. EPA's Office of Research and Development,
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 both risk assessment and risk management. Science 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 and technologies we need to detect, abate, and avoid environmental
problems. Science provides the crucial underpinning for EPA decisions and challenges us to
apply the best available science and technical analysis to our environmental problems and to
practice more integrated, more efficient, and more effective approaches to reducing
environmental risks.
Among the Agency's highest priorities are research programs that address the effects of the
environment on children's health, the potential risks of unregulated contaminants in drinking
water, the health effects of air pollutants such as particulate matter, and the protection of the
Nation's ecosystems. For FY 2001, the full cost of the Agency's Research and Development
activities totaled almost $646 million. Below is a breakout of the expenses (dollars in
thousands):
FY 1998 FY 1999 FY 2000 FY 2001
Programmatic Expenses 507,828 543,777 541,117 555,794
Allocated Expenses 53,322 58,728 59,523 90,039
INVESTMENT IN THE NATION'S INFRASTRUCTURE
The Agency makes significant investments in the Nations's drinking water and clean water
infrastructure. The investments are the result of three programs: The Construction Grant
Program which is being phased out, and two State Revolving Fund (SRF) programs.
Construction Grants Program: During the 1970s and 1980s, the Construction Grants Program
was a source of Federal funds, providing 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. Beyond 1990, EPA shifted the
Audit Report 2002-1-00082
Page 91
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focus of municipal financial assistance from grants to loans that are provided by State Revolving
Funds.
State Revolving Funds: The Environmental Protection Agency 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.
The Agency is also appropriated funds to finance the construction of infrastructure outside the
Revolving Funds. These are reported below as Other Infrastructure Grants.
The Agency's expenses related to investments in the Nation's Water Infrastructure are outlined
below (dollars in thousands):
FY 1998
FY 1999
FY 2000
FY 2001
Construction Grants
444,817
414,528
55,766
63,344
Clean Water SRF
1,109,017
925,744
1,564,894
1,548,270
Safe Drinking Water SRF
94,936
387,429
588,116
728,921
Other Infrastructure
138,363
245,606
212,124
282,914
Grants
Allocated Expenses
187,649
213,117
266,299
424,999
STEWARDSHIP LAND
The Agency acquires title to certain land and land rights under the authorities provided in Section
104 (J) CERCLA related to remedial clean-up sites. The land rights are in the form of easements
to allow access to clean-up sites or to restrict usage of remediated sites. In some instances, the
Agency takes title to the land during remediation and returns it to private ownership 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.
As of September 30, 2001, the Agency possesses the following land and land rights:
Superfund Sites with Easements
Beginning Balance
Additions
Withdrawals
Ending Balance
Superfund Sites with Land
Acquired
Beginning Balance 23
Additions 2
Withdrawals 0
Page 92
Audit Report 2002-1-00082
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Ending Balance
25
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):
Training and Awareness Grants
Fellowships
Allocated Expenses
FY 1998 FY 1999 FY 2000 FY 2001
39,131 46,630 49,265 48,697
11,084 10,239 9,570 11,451
5,273 6,142 6,472 9,744
Audit Report 2002-1-00082
Page 93
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Appendix II
Agency's Response to Draft Report
Page 94
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Audit Report 2002-1-00082 Page 95
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~ To UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
| | WASHINGTON, D.C. 20460
wcsi*-
FEB ! 2 2002
OFFICE OF THE
CHIEF FiNANCIAL OFFICER
MEMORANDUM
Draft Audit Report on EPA's Fiscal 2001 and 2000 Financial
SUBJECT:
esponses
FROM:
itroller
raul C. Curtis
Project Manager
TO:
Financial Audit Division
Attached is our response to the Fiscal 2001 and 2000 Financial Statement Draft Audit
Report. We appreciate the opportunity to respond to this audit. We also appreciate the OIG's
recognition of our improvement in the preparation process of the fiscal 2001 financial statements
and of our significant progress in the resolution of prior financial statement audit issues.
If you have any questions concerning our response to the draft audit report findings,
please contact Juliette McNeil, Director of the Financial Management Division at 564-4905.
Attachment
Internet Address (URL) • http://www.epa.gov
R«cycted/R*cycl*ble * Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% PostcorisumeO
Page 96
Audit Report 2002-1-00082
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Attachment
RESPONSE TO DRAFT AUDIT REPORT ON EPA'S FISCAL 2001 AND 2000
FINANCIAL STATEMENTS
REPORTABLE CONDITIONS
1 — EPA Did Not Implement Accounting for Internal Use Software Standard Timely
Agency Comments'.
Comments will be forthcoming after we meet.
2 — Additional Improvements Needed in EPA's Interagency Agreement Invoice Approval
Process
Agency Comments.
The Draft Audit report acknowledged corrective actions that we have underway in
response to the OIG's earlier recommendations and did not make new
recommendations. Our remaining corrective action is to implement an automated
project officer notification system to replace our current manual system. We plan to
complete that action by April 30, 2002, which will close out the earlier
recommendations.
3 — Automated Application Processing Controls for Integrated Financial Management
System could not be assessed.
Agency Comments:
The Draft Audit stated that the steps EPA is taking indicate that the Agency is
moving in a credible fashion towards replacing IFMS. The report did note that "until
the new system is in place and [the OIG has] a chance to audit it, [the OIG] cannot
assess the adequacy of the automated internal control structure." We appreciate the
OIG's recognition of our progress on the IFMS replacement project.
Audit Report 2002-1-00082
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COMPLIANCE WITH LAWS AND LAWS AND REGULATIONS
Substantial Noncompliance with Federal Financial Management Improvement Act
4 — EPA Did Not Comply with Managerial Cost Accounting Standard
Agency Comments'.
As we stated in earlier communications, we believe we are complying with the
Managerial Cost Accounting Standards. Currently, we are preparing a response to
the points raised in the Inspector General's December 12, 2001, memorandum to the
Administrator regarding the impasse over FFMIA compliance. Because the issues
stated in the Draft Audit are essentially the same as in your letter to the
Administrator, we will address those issues in our response to the December 12
memorandum.
Other Noncompliance Issue with Federal Financial Management Improvement Act
5 — EPA Continues to Experience Difficulties in Reconciling Intra-Governmental
Transactions.
Agency Comment:
The OIG suggested that EPA continue its proactive efforts in reconciling the
Agency's intra-governmental transactions to comply with Federal financial reporting
requirements. We appreciate the OIG's acknowledgment of our efforts and of our
dependency on other agencies' actions to enable us to fully comply.
Page 98
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Audit Report 2002-1-00082
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? £%, \ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
i I WASHINGTON, D.C. 20460
"t- PRCH&
OFFICE OF THE
CHIEF FINANCIAL OFFICER
FEB 2 5 2002
MEMORANDUM
SUBJECT: Response to the Draft Audit Report on EPA's Fiscal 2001 and 2000 Financial
Statements Finding on Accounting for Internal Use Software
/
1
FROM: Joseph L. Dilloni_///' // ^
Comptroller^... p\-'" / \
TO: Paul C. Curti^ \j
Project Manager
Financial Audit Division
In our February 12, 2002, response to the Draft Audit Report on EPA's Fiscal 2001 and
2000 Financial statements, we reserved comment on your finding regarding accounting for
internal use software until our offices had a further opportunity to discuss that subject. We
appreciate the time that you and your staff have taken to work with us to address our concerns.
We are now forwarding our comments, which should be included in the Agency
comments section of the audit report and in the Appendix for the Agency's Response to the Draft
Report.
Please contact Juliette McNeil, Director, Financial Management Division, at 564-4905, if
you have any questions about our response.
Attachment
Recycled/Recyclable • Printed with Vegetable OH Based Inks on 100% Recycled Paper <20% Postconsumer)
Page 100
Audit Report 2002-1-00082
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Attachment
DRAFT AUDIT REPORT ON EPA'S FISCAL 2001 AND 2000 FINANCIAL
STATEMENTS-RESPONSE TO REPORTABLE CONDITION NO. 1
"EPA Did Not Implement Accounting for Internal Use Software Standard Timely"
OCFO acknowledges that SFFAS No. 10 was implemented at the end of the fiscal year.
However, by doing so, EPA was able to use the most recent guidance on this subject and develop
more accurate and complete costs. For example, EPA was able to: 1) take advantage of
"Implementation Guidance on SFFAS No. 10," issued in May 2001; 2) utilize the most recent (late
fiscal year 2001) OMB Information Technology Exhibit 53 and Exhibit 300b issuances; and 3)
capture actual FY 2001 contracts costs rather than relying solely on end of fiscal year cost estimates
provided by system owners.
OCFO undertook a comprehensive review to identify all internal use software subject to the
standard. This included briefings and interviews with EPA systems owners, as well as a review of
software project plans, purchase requisitions, invoices, and payments. The ensuing amount for
capitalized software systems costs of $10.8 million, and the related depreciation, reflect verifiable
and compliant software balances. For those systems not capitalized, we determined that the cost
either did not meet the $500,000 dollar threshold or did not meet the capitalization criteria
established by SFFAS No. 10.
Finally, the OCFO review provided for a consistent application of the requirements of SFFAS
No. 10 and we are confident that the resultant amounts are accurate and reliable. Our detailed and
complete documentation has been provided to your office.
Audit Report 2002-1-00082
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Appendix III
Report Distribution List
Administrator (1101 A)
Deputy Administrator (1101 A)
Chief Financial Officer (271 OA)
Inspector General (2410)
Assistant Inspectors General
Assistant Administrator for Administration and Resources Management (3101 A)
Assistant Administrator for Solid Waste and Emergency Response (5101)
Assistant Administrator for Enforcement and Compliance Assurance (2201 A)
General Counsel (2310A)
Comptroller (2731 A)
Associate Administrator for Congressional and Intergovernmental Relations (1301 A)
Associate Administrator for Communications, Education, and Media Relations (1703 A)
Deputy Assistant Administrator for Environmental Information (2810A)
Director, Office of Policy and Resources Management, OARM (3102 A)
Director, Office of Administration (3201 A)
Director, Office of Acquisition Management (3801R)
Director, Office of Grants and Debarment (3901R)
Director, Office of Administration and Resources Management, Cincinnati, OH
Director, Office of Administration and Resources Management, RTP, NC
Director, Office of Technology Operations and Planning (2810A)
Director, Office of Site Remediation Enforcement (2271 A)
Director, Office of Emergency and Remedial Response (5201G)
Director, Annual Planning and Budget Division (2732A)
Director, Grants Administration Division (3903R)
Director, HQ and Desktop Services Division, OTOP (2832)
Director, Facilities Management and Services Division (3204R)
Director, Financial Management Division (2733R)
Director, Financial Services Division (2734R)
Director, National Technology and Services Division, OTOP, RTP, NC
Financial Management Officers at Regions 1 through 10, Cincinnati, Las Vegas,
and Research Triangle Park
Divisional Inspectors General for Audit
Chief, Financial Reports and Analysis Branch (2733R)
Chief, Program and Cost Accounting Branch (2733R)
Chief, Financial Systems Branch (2733R)
Chief, Financial Policies, Procedures and Compliance Branch (2733R)
Chief, Washington Financial Management Center (2734R)
Agency Audit Follow-up Coordinator (2724A) [Bernie Davis]
Audit Report 2002-1-00082
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Agency Follow-up Official (2710A)
Audit Liaison for the Office of Financial Officer [Brigid Rapp]
Audit Liaison for the Office of Administration and Resources Management (3102A)
[Sandra Womack-Butler]
Audit Liaison for the Office of Solid Waste and Emergency Response (5103)
[Johnsie Webster]
Audit Liaison for the Office of Administration (3201 A) [Tom Pastore]
Audit Liaison for the Office of Environmental Information (2812A) [Jeff Worthington]
Audit Liaison for the Office of Environmental Information (2812A) [Maria Rost Rublee]
Audit Liaison for the Office of Enforcement and Compliance [Greg Marion]
Audit Liaison for the Grants Administration Division (391 OR) [John Nolan]
Audit Liaison for the Administrator's Office (1104A) [Pat Gilchriest]
Audit Liaison for the Financial Management and the Financial Services Division (2733R)
[A1 Demarcki]
Audit Liaison for the Office of General Counsel (2311 A) [William Stewart]
Audit Report 2002-1-00082
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Please visit our web site to view and download this audit report at:
http://www.epa.gov/oigearth
To obtain a copy of this report, please contact:
U.S. Environmental Protection Agency
Office of Inspector General
Financial Audit Division
Mail Code 2422
1200 Pennsylvania Avenue, NW
Washington, DC 20460
Telephone: 202-260-1397
FAX: 202-260-1398
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