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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
Fiscal Year 2006 and 2005
Financial Statements for the
Pesticides Reregistration and
Expedited Processing Fund
Report No. 2007-1-00070
May 30, 2007
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Report Contributors: Paul Curtis Ethel Lowery
Wanda Whitfield Sheila May
Bill Samuel Javier Negron
Sheree Brice Demetrios Papakonstantinou
Diane Forrest Cynthia Poteat
Carol Kwok Phil Weihrouch
Abbreviations
EPA
U.S. Environmental Protection Agency
EPM
Environmental Programs and Management
FIFRA
Federal Insecticide, Fungicide, and Rodenticide Act
FMFIA
Federal Managers' Financial Integrity Act
IFMS
Integrated Financial Management System
OIG
Office of Inspector General
OMB
Office of Management and Budget
SFFAS
Statement of Federal Financial Accounting Standards
WFC
Washington Finance Center
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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
2007-1-00070
May 30, 2007
Why We Did This Audit
The Food Quality Protection
Act requires that we perform
an annual audit of the
Pesticides Reregistration and
Expedited Processing Fund
(known as FIFRA) financial
statements.
Background
The U.S. Environmental
Protection Agency (EPA) is
responsible for reassessing the
safety of older pesticide
registrations against modern
health and environmental
testing standards. To expedite
this reregistration process,
Congress authorized EPA to
collect fees from pesticide
manufacturers. The fees are
deposited into the FIFRA
Fund. Each year, the Agency
prepares financial statements
that present financial
information about the Fund,
along with information about
EPA's progress in
reregistering pesticides.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
To view the full report,
click on the following link:
www.epa.aov/oia/reports/2007/
20070530-2007-1 -00070.pdf
Catalyst for Improving the Environment
Fiscal Year 2006 and 2005 Financial Statements
for the Pesticides Reregistration and Expedited
Processing Fund
EPA Receives Unqualified Opinion
We rendered an unqualified, or clean, opinion on EPA's Pesticides Reregistration
and Expedited Processing Fund Financial Statements for fiscal years 2006 and
2005, meaning that they were fairly presented and free of material misstatement.
Internal Control Reportable Conditions Noted
We noted the following two reportable conditions:
• EPA materially understated the FIFRA payroll unfunded leave accrual and
related expenses reported in the draft financial statements for fiscal year 2006.
The Agency's practice of transferring employees and related expenses and
liabilities from FIFRA to Environmental Programs and Management (EPM)
created the situation, which led to the misstatement. Just prior to year-end, the
Agency transferred a significant number of employees from FIFRA to EPM,
decreasing the base upon which the accrual was calculated, and leading
directly to the misstatement. As a result, FIFRA liabilities and related
expenses were understated by $1,964,312 in the draft financial statements.
• EPA's Washington Finance Center recorded adjustments to entries in the
Integrated Financial Management System, such as schedules of collections,
that were not supported by sufficient documentation.
Compliance With Laws and Regulations Noted
We tested compliance with those laws and regulations that could either materially
affect the FIFRA Fund financial statements, or that we considered significant to the
audit. The objective of our audit, including our tests of compliance with applicable
laws and regulations, was not to provide an opinion on overall compliance with
such provisions. Accordingly, we do not express such an opinion. We did not
identify any noncompliances that would result in a material misstatement to the
audited financial statements.
Agency Comments and Office of Inspector General Evaluation
In a memorandum dated May 10, 2007, the Office of the Chief Financial Officer
and the Office of Prevention, Pesticides, and Toxic Substances responded to our
draft report.
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i \ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
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OFFICE OF
INSPECTOR GENERAL
May 30, 2007
MEMORANDUM
SUBJECT: Fiscal Year 2006 and 2005 Financial Statements for the Pesticides
Reregi strati on and Expedited Processing Fund
Report No. 2007-1-00070
FROM: Melissa M. Heist
Assistant Inspector General for Audit
TO: James B. Gulliford
Assistant Administrator for Prevention,
Pesticides, and Toxic Substances
Lyons Gray
Chief Financial Officer
This is our report on the audit of the U.S. Environmental Protection Agency's (EPA's)
Fiscal Year 2006 and 2005 financial statements for the Pesticides Reregi strati on and
Expedited Processing Fund, conducted by the EPA Office of Inspector General (OIG).
This report contains findings that describe the problems the OIG has identified and
corrective actions the OIG recommends. The report represents the opinion of the OIG and
does not necessarily represent the final EPA position. Final determinations on matters in
this report will be made by EPA managers in accordance with established audit resolution
procedures.
The estimated cost of this report - calculated by multiplying the project's staff days by the
applicable daily full cost billing rates in effect at the time - is $274,000.
Action Required
In accordance with EPA Manual 2750, you are required to provide a written response to
this report within 90 calendar days of the date of this report. You should include a
corrective action plan for each recommendation that includes milestone dates.
If you or your staff have any questions regarding this report, please contact me at
(202) 566-0899 or heist.melissa@epa.gov. or Paul Curtis at (202) 566-2523 or
curtis.paul@epa.gov.
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Fiscal Year 2006 and 2005 Financial Statements for the
Pesticides Reregistration and Expedited Processing Fund
Table of C
Inspector General's Report on the Fiscal Year 2006 and 2005
Financial Statements for the Pesticides Reregistration
and Expedited Processing Fund
Opinion on the FIFRA Fund Financial Statements 1
Evaluation of Internal Controls 2
Tests of Compliance with Laws and Regulations 4
Overview Section of the Financial Statements 5
Prior Audit Coverage 5
Agency Response and OIG Evaluation 6
Attachments
1 Reportable Conditions 7
Misstatement of FIFRA Payroll Unfunded Leave 8
Lack of Supporting Documentation for FIFRA Collections Recorded in IFMS.... 10
2 Status of Recommendations and Potential Monetary Benefits 11
Appendices
A Fiscal Year 2006 and 2005 FIFRA Financial Statements
B Full Text of Agency Response
C Distribution
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Inspector General's Report on the
Fiscal Year 2006 and 2005 Financial Statements for the
Pesticides Reregistration and Expedited Processing Fund
The Administrator
U.S. Environmental Protection Agency
We have audited the Pesticides Reregistration and Expedited Processing Fund (known as the
FIFRA fund) balance sheet as of September 30, 2006 and 2005, and the related statements of net
cost, changes in net position, budgetary resources, and financing for the years then ended. These
financial statements are the responsibility of the U.S. Environmental Protection Agency's
(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 No. 06-03, Audit Requirements for Federal Financial Statements. These standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit 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.
In our opinion, the financial statements present fairly the assets, liabilities, net position,
budgetary resources, financing activities, and reconciliation of net costs to budgetary obligations
of the FIFRA fund, as of and for the years ended September 30, 2006 and 2005, in accordance
with accounting principles generally accepted in the United States of America.
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Evaluation of Internal Controls
As defined by OMB Bulletin No. 06-03, 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 preparation of the financial statements 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.
Compliance with applicable laws and regulations - Transactions are executed in
accordance with laws governing the use of budget authority and other laws, regulations
and Government-wide policies identified by OMB that could have a direct and material
effect on the financial statements.
In planning and performing our audit, we considered EPA's internal controls over FIFRA
financial reporting by obtaining an understanding of the Agency's internal controls. We
determined whether internal controls have been placed in operation, assessing control risk, and
performing tests of controls in order to determine our auditing procedures for the purpose of
expressing an opinion on the financial statements. We limited our internal control testing to
those controls necessary to achieve the objectives described in OMB Bulletin No. 06-03. We did
not test all internal controls relevant to operating objectives as broadly defined by the Federal
Managers' Financial Integrity Act (FMFIA) 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 controls that might be reportable conditions or material weaknesses.
Because of inherent limitations in any internal control structure, losses, noncompliance, or
misstatements could occur and not be detected. Also, projecting our evaluation of internal
controls to future periods is subject to the risk that controls may become inadequate because of
changes in conditions, or the degree of compliance with such controls may deteriorate.
With respect to internal controls related to performance measures presented in the 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.
06-03. Our procedures were not designed to provide assurance on internal controls over reported
performance measures and, accordingly, we do not express an opinion on internal controls.
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Material Weaknesses
Material weaknesses, as defined by OMB Bulletin No. 06-03, are 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 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. We noted certain matters discussed
below involving operations that we consider to be reportable conditions, although we do not
believe they are material weaknesses.
Reportable Conditions
OMB Bulletin No. 06-03 defines reportable conditions as matters that come 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 controls that could adversely affect
the organization's ability to meet the objectives defined on the previous page. For fiscal year
2006, we identified two reportable conditions:
Misstatement of FIFRA Payroll Unfunded Leave
EPA materially understated the FIFRA payroll unfunded leave accrual and related
expenses reported in the draft financial statements for fiscal year 2006. The Statement of
Federal Financial Accounting Standards (SFFAS) No. 5, Accounting for Liabilities of the
Federal Government, states "liabilities shall be recognized when they are incurred
regardless of whether they are covered by available budgetary resources." The Agency's
practice of transferring employees and related expenses and liabilities from FIFRA to
Environmental Programs and Management (EPM) for budgetary reasons created the
situation, which led to the misstatement. The accrual is calculated using the total number
of FIFRA employees multiplied by their hourly rates and accrued leave balances. Just
prior to year-end, the Agency transferred a significant number of employees from FIFRA
to EPM, decreasing the base upon which the accrual was calculated, and leading directly
to the misstatement. As a result, FIFRA liabilities and related expenses were understated
by $1,964,312 in the draft financial statements. Such material misstatements could have
impacted the opinion on the financial statements and reliance on reported FIFRA
financial information. Correcting misstatements also contributes to delays and the
increased cost of audits.
Lack of Supporting Documentation for FIFRA Collections Recorded in IFMS
For fiscal year 2006, we identified a weakness in the Agency's documentation of
adjustments to the Integrated Financial Management System (IFMS) entries. During our
analysis of FIFRA collections recorded at EPA's Washington Finance Center (WFC), we
found seven adjustments to entries in IFMS totaling $1,045,600 that were not supported
by sufficient documentation, such as schedules of collections. These entries also did not
contain evidence of supervisory review or approval on the adjustments. EPA
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Comptroller Policy Announcement 93-02, Policies for Documenting Agency Financial
Transactions, requires that all financial transactions recorded in the accounting system be
supported by adequate source documentation that is easily accessible. These
requirements apply to transactions initially entered into IFMS and to adjustments made to
the entries. WFC had no procedures in place to document adjustments to IFMS entries.
Inputting adjusting entries into the Agency's accounting system without adequate
documentation increases the risk of fraud, waste, and abuse by increasing the possibility
that unauthorized or inaccurate information is entered.
In February 2006, the Agency began implementing several corrective actions to address
the lack of documentation to support adjustments for collections recorded in IFMS.
Since substantially all FIFRA collections occurred prior to WFC's change in policy, we
will follow up on the implementation of the corrective actions during the fiscal year 2007
financial statement audits.
We have reported less significant matters involving internal controls in the form of position
papers during the course of the audit. We will not issue a separate management letter.
Comparison of EPA's FMFIA Report with Our Evaluation of Internal Controls
OMB Bulletin No. 06-03 requires us to compare material weaknesses disclosed during the audit
with those material weaknesses reported in the Agency's FMFIA report that relate to the
financial statements and identify material weaknesses disclosed by audit that were not reported
in the Agency's FMFIA report.
For reporting under FMFIA, material weaknesses are defined differently than they are 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.
Our audit did not disclose any material weaknesses, nor were any reported by the Agency as part
of the Integrity Act process.
Tests of Compliance with Laws and Regulations
As part of obtaining reasonable assurance about whether the Agency's financial statements are
free of material misstatement, we tested compliance with those laws and regulations that could
either materially affect the FIFRA financial statements, or that we considered significant to the
audit. The objective of our audit, including our tests of compliance with applicable laws and
regulations, was not to provide an opinion on overall compliance with such provisions.
Accordingly, we do not express such an opinion. However, we did not identify any
noncompliances that would result in a material misstatement to the audited financial statements.
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Overview Section of the Financial Statements
Our audit work related to the information presented in Management's Overview and Analysis of
the Pesticide Program included comparing the overview information with information in EPA's
principal financial statements for consistency. We did not identify material inconsistencies
between the information presented in the two documents.
Our audit work also included obtaining an understanding of the design of significant internal
controls relating to the existence and completeness assertions of the performance measures in the
Overview. 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.
We reviewed supporting documentation for the tolerance performance measure and the five
reregi strati on performance measures listed in Management's Overview and Analysis of the
Pesticides Program. We did not note any significant discrepancies in these measures.
Prior Audit Coverage
During previous financial or financial-related audits, we reported the following reportable
conditions:
¦ We identified a weakness in the Agency's documentation of adjustments to the IFMS
entries.
¦ We could not assess the adequacy of IFMS automated controls.
¦ We identified a weakness in the Agency's preparation and quality control of the financial
statements and footnotes.
The Agency began corrective action to improve documentation of adjusting and correcting
entries in IFMS. WFC updated its procedures to include maintaining adequate source
documentation when adjusting and correcting entries are made to transactions already entered in
IFMS. WFC staff will include an adjustment control sheet to document the reason for the
adjustments and corrections. In addition, a separate staff person will be assigned to review and
approve the transactions (.Fiscal 2005 and 2004 (restated) Financial Statements for the Pesticide
Registration Fund, Audit Report 2007-1-00002).
EPA has made progress toward replacing IFMS. However, until EPA implements the planned
replacement automated accounting system that addresses past issues, we will continue to disclose
a reportable condition concerning documentation of the current accounting system and its
automated application processing controls {Audit of EPA 's Fiscal 2006 and 2005 Consolidated
Financial Statements, Audit Report 2007-1-00019). We continue to find weaknesses in the
Agency's preparation and quality control of the financial statements and footnotes. See
Reportable Conditions in Attachment 1, "Misstatement of FIFRA Payroll Unfunded Leave."
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Agency Response and OIG Evaluation
In a memorandum dated May 10, 2007, the Office of the Chief Financial Officer and the Office
of Prevention, Pesticides, and Toxic Substances responded to our draft report.
The rationale for our conclusions and a summary of the Agency comments are included in the
appropriate sections of this report. The Agency's complete response is included in Appendix B
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
Director, Financial Statement Audits
Office of Inspector General
U.S. Environmental Protection Agency
May 16, 2007
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Reportable Conditions
Table of Contents
Attachment 1
1 - Misstatement of FIFRA Payroll Unfunded Leave 8
2 - Lack of Supporting Documentation for FIFRA Collections
Recorded in IFMS 10
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1 - Misstatement of FIFRA Payroll Unfunded Leave
EPA materially understated the FIFRA payroll unfunded leave accrual and related expenses
reported in the draft financial statements for fiscal year 2006. SFFAS No. 5, Accounting for
Liabilities of the Federal Government, states "liabilities shall be recognized when they are
incurred regardless of whether they are covered by available budgetary resources." The
Agency's practice of transferring employees and related expenses and liabilities from FIFRA to
EPM for budgetary reasons created the situation, which led to the misstatement. The accrual is
calculated using the total number of FIFRA employees multiplied by their hourly rates and
accrued leave balances. Just prior to year-end, the Agency transferred a significant number of
employees from FIFRA to EPM, decreasing the base upon which the accrual was calculated, and
leading directly to the misstatement. As a result, FIFRA liabilities and related expenses were
understated by $1,964,312 in the draft financial statements. Such material misstatements could
have impacted the opinion on the financial statements and reliance on reported FIFRA financial
information. Correcting misstatements also contributes to delays and the increased cost of
audits.
The Appropriations Act gives EPA the authority to use EPM for "a broad range of abatement,
prevention, and compliance activities, and personnel compensation, benefits, travel, and
expenses for all programs of the Agency ...SFFAS No. 5 states "liabilities shall be recognized
when they are incurred regardless of whether they are covered by available budgetary resources."
The Statement also directs that liabilities arising from transactions should be recognized for the
unpaid amounts due as of the reporting date. OMB Circular No. 136, Financial Reporting
Requirements, further classifies liabilities of Federal agencies as liabilities covered or not
covered by budgetary resources (e.g., unfunded).
EPA began the practice of moving payroll expenses from FIFRA to the EPM in fiscal year 2000.
Whenever FIFRA resources were low, the Agency would transfer employees to EPM in order to
keep FIFRA obligations and disbursements within budgetary and cash limits. Subsequently,
after adjusting the fee rates, FIFRA had sufficient funds to fund payroll expenses for most of the
year, but not the entire fiscal year. However, the Agency continued to move payroll expenses in
and out of FIFRA according to its projected budgetary needs. When FIFRA expenses are close
to projected amounts, expenses are moved to the EPM, and back to FIFRA as fees are collected
the following year. The process of moving employees and the related expenses and liabilities
between FIFRA and EPM resulted in a material misstatement in the Agency's draft financial
statements. Finding and correcting such errors also causes delays in issuing the FIFRA financial
statements and drives up audit costs. The Agency expects that the practice of transferring payroll
expenses between FIFRA and EPM will continue beyond 2006.
The Agency indicated that the Office of Prevention, Pesticides, and Toxic Substances transferred
employees out of FIFRA one pay period earlier than in fiscal year 2005, resulting in the decrease
in the unfunded leave accrual and expense of $1,964,312. The Agency calculates accruals and
payables in pay period 26. In fiscal year 2006, more than half of the FIFRA staff had already
been transferred out, leaving a smaller number on which to calculate the accrual. The accrual is
calculated using the total number of FIFRA employees multiplied by their hourly rates and
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accrued leave balances. In fiscal year 2005, most of the staff had not been transferred until the
end of the fiscal year.
By transferring a significant number of employees from FIFRA to EPM just prior to the end of
the year, the Agency unintentionally decreased the base upon which the accrual was calculated.
After being brought to its attention, the Agency properly adjusted its unfunded leave accrual and
related expenses.
Recommendations
We recommend that the Chief Financial Officer:
1-1 Have the Director, Office of Financial Services, provide closer monitoring of the
unfunded leave accruals for FIFRA at year-end.
1-2 Have the Director, Office of Financial Management, provide closer oversight of
the preparation of the financial statements.
Agency Response and OIG Evaluation
The Agency concurred with the recommendations, and indicated that it will take the needed
corrective actions.
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2 - Lack of Supporting Documentation for FIFRA Collections
Recorded in IFMS
During our analysis of FIFRA collections recorded in WFC, we found seven adjustments to
entries in IFMS totaling $1,045,600 that were not supported by sufficient documentation, such as
schedules of collections. These entries also did not contain evidence of supervisory review or
approval of the adjustments. EPA Comptroller Policy Announcement 93-02, Policies for
Documenting Agency Financial Transactions, requires that all financial transactions recorded in
the accounting system be supported by adequate source documentation that is easily accessible.
WFC had no procedures in place to document adjustments to IFMS entries. Inputting adjusting
entries into the Agency's accounting system without adequate documentation increases the risk
of fraud, waste, and abuse by increasing the possibility that unauthorized or inaccurate
information is entered.
EPA Comptroller Policy Announcement 93-02 requires that all financial transactions recorded in
the accounting system be supported by adequate source documentation that is easily accessible.
These requirements apply to transactions initially entered into IFMS and to adjustments made to
the entries. According to Policy Announcement 93-02:
"Adequately documented" means an independent individual competent in
accounting and possessing reasonable knowledge of EPA's operations should be
able to examine the documentation and reach substantially the same conclusions
as the persons who made and/or approved the entry.
"Easily accessible " means the entry should contain sufficient information to
identify the supporting documentation, and the documentation should be
organized andfiled in a manner to facilitate its retrieval.
The Government Accountability Office's Standards for Internal Controls in the Federal
Government state that "... all transactions and other significant events are to be clearly
documented, and the documentation is to be readily available for examination." The Standards
also state "qualified and continuous supervision is to be provided to ensure that internal control
objectives are achieved."
In February 2006, the Agency began implementing several corrective actions to address the lack
of documentation to support adjustments for collections recorded in IFMS. Since substantially
all FIFRA collections occurred prior to WFC's change in policy, we will follow up on the
implementation of the corrective actions during the fiscal year 2007 financial statement audits.
We have no additional recommendations.
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Attachment 2
Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
1-1 9 Have the Director, Office of Financial Services,
provide closer monitoring of the unfunded leave
accruals for FIFRA at year-end.
1-2 9 Have the Director, Office of Financial Management,
provide closer oversight of the preparation of the
financial statements.
Chief Financial Officer
Chief Financial Officer
Claimed
Amount
Agreed To
Amount
1 0 = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress
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Appendix A
FYs 2006 and 2005 PESTICIDES REREGISTRA TION
and EXPEDITED PROCESSING FUND (FIFRA)
FINANCIAL
STATEMENTS
in
(3
T
Produced by the U.S. Environmental Protection Agency
Office of the Chief Financial Officer
Office of Financial Management
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TABLE OF CONTENTS
Management's Discussion and Analysis
Principal Financial Statements
i
EPA's FY 2006 Annual FIFRA Financial Statements
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Management's Discussion and Analysis
i
EPA's FY 2006 Annual FIFRA Financial Statements
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The Agency's Office of Pesticide Programs (OPP) was established pursuant to the
Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) to protect public health and the
environment. The law requires the Agency to balance public health and environmental concerns
with the expected economic benefits derived from pesticides. The guiding principles of the
pesticide program are to reduce risks from pesticides in food, the workplace, and other exposure
pathways and to prevent pollution by encouraging the use of new and safer pesticides.
In accordance with FIFRA and the Federal Food, Drug, and Cosmetic Act (FFDCA), the
pesticide program administers the Revolving Fund for Certification and Other Services
(Tolerance Fund) and the Pesticides Reregi strati on and Expedited Processing Fund (FIFRA
Fund). As of 1996, fees for both tolerance and reregi strati on are deposited to the FIFRA
account, which is available to the EPA without further appropriation.
Tolerance Program Description
As part of its authority to regulate pesticides, EPA is responsible for setting "tolerances."
If the pesticide is being considered for use on a food or feed crop or as a food or feed additive,
the applicant must petition EPA for establishment of a tolerance (or exemption from a tolerance)
under authority of the FFDCA. A tolerance is the maximum legal limit of a pesticide residue on
food commodities and animal feed. Tolerances are set at levels that ensure that the public is
protected from health risks posed by eating foods that have been treated with pesticides in
accordance with label directions.
In 1954, Congress authorized the collection of fees for the establishment of tolerances for
raw agricultural commodities (Section 408 of FFDCA). Congress, however, did not authorize
the collection of fees for food additive tolerances (Section 409 of FFDCA). EPA, therefore, does
not collect fees for food additive tolerances. The Agency also does not collect fees for Agency-
initiated actions such as the revocation of tolerances for previously canceled pesticides. Fees
collected from tolerances for raw agricultural commodities were deposited to the U.S. Treasury
General Fund until 1963 when Congress established the Tolerance Fund.
In 1996, pesticide reform legislation included provisions for additional fees to support
reregi strati on activities. Passage of the Food Quality Protection Act (FQPA) of 1996 requires
tolerances to be reassessed as part of the reregi strati on program. Effective January 1997, all fees
related to tolerance activities were deposited in the FIFRA Fund. With passage of the Pesticide
Registration Improvement Act (PRIA) of 2003, no additional tolerance petition fees will be
deposited to the FIFRA Fund through FY 2008.
2
EPA's FY 2006 Annual FIFRA Financial Statements
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Pesticide Reregistration Program Description
As part of its authority to regulate pesticides, EPA is responsible for re-registering
existing pesticides. The FIFRA legislation, requiring the registration of pesticide products, was
originally passed in 1947. Since then, health and environmental standards have become more
stringent and scientific analysis techniques much more precise and sophisticated. In the 1988
amendments to FIFRA (FIFRA '88), Congress mandated the accelerated reregistration of all
products registered prior to November 1, 1984. The amendments established a statutory goal of
completing reregistration eligibility decisions (REDs) by 1997. The legislation allows for
various time extensions which can extend the deadline by three years or more. The statutory
requirement for the completion of reregistration food-use (REDs) is 2006, in conjunction with
the new tolerance reassessment program. For the non-food-use active ingredient REDs, the
current legal deadline under PRIA for completion of reregistration is October 3, 2008.
Congress authorized the collection of two kinds of fees to supplement appropriated funds
for the reregistration program: an annual maintenance fee and a one-time reregistration fee.
Maintenance fees are assessed on registrants of pesticide products and were structured to collect
approximately $14 million per year. Reregistration fees are assessed on the manufacturers of the
active ingredients in pesticide products and are based on the manufacturer's share of the market
for the active ingredient. In fiscal years 1992 through 1999, approximately 14% of the
maintenance fees collected, up to $2 million each year, were used for the expedited processing of
old chemical and amended registration applications. Fees are deposited into the FIFRA
Revolving Fund. By statute, excess monies in the FIFRA Fund may be invested. Waivers
and/or refunds are granted for minor use pesticides, antimicrobial pesticides, and small
businesses.
In 1996, pesticide reform legislation included provisions for additional fees to support
reregistration activities. Passage of the FQPA of 1996 implemented the following changes in the
Pesticide Reregistration Program: reauthorized collection of maintenance fees through 2001 to
complete the review of older pesticides to ensure they meet current standards (increased annual
fees from $14 million to $16 million per year for 1998, 1999, and 2000 only) and required all
tolerances (over 9,700) to be reassessed by 2006. EPA's 2002 appropriations bill extended
authority to collect maintenance fees by one year for the amount of $17 million and the FY 2003
appropriations extended the authority to collect fees again by one year in the amount of $21.5
million. Passage of PRIA in FY 2004 extended the authority to collect maintenance fees through
FY 2008 (with annual fee amounts at $26 million in FY 2004; $27 million in FY 2005-2006; $21
million in FY 2007; and $15 million in FY 2008).
The reregistration process is being conducted through reviews of groupings of similar
active ingredients called cases. There are five major phases of reregistration:
~ Phase 1 - Listing of Active Ingredients. EPA publishes lists of active ingredients and
asks registrants whether they intend to seek reregistration. (Completed in FY 1989)
~ Phase 2 - Declaration of Intent and Identification of Studies. Registrants notify EPA if
they intend to reregister and identify missing studies. (Completed in FY 1990)
3
EPA's FY 2006 Annual FIFRA Financial Statements
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~ Phase 3 - Summarization of Studies. Registrants submit required existing studies.
(Completed in FY 1991)
~ Phase 4 - EPA Review and Data Call-Ins (DCIs). EPA reviews the studies, identifies and
"calls-in" missing studies by issuing a DCI. A "DCI" is a request to a pesticide registrant
for scientific data to assist the Agency in determining the pesticide's eligibility for
reregi strati on. (Completed in FY 1994)
~ Phase 5 - Reregi strati on Decisions. EPA reviews all studies and issues a Reregi strati on
Eligibility Decision (RED) for the active ingredient(s). A "RED" is a decision by the
Agency defining whether uses of a pesticide active ingredient are eligible or ineligible for
reregi strati on. The registrant complies with the RED by submitting product specific data
and new labels. EPA reregisters or cancels the product. Pesticide products are re-
registered, based on a RED, when it meets all label requirements. This normally takes 14
to 20 months after issuance of the RED.
Research Program Description
EPA's pesticides and toxics research continues to focus on providing scientifically-valid,
cost-effective, and low-burden methods for evaluating risks associated with pesticide
manufacture, use, and release into the environment.
EPA's FY 2006 research addressed aggregate and cumulative risks that would result from
both agricultural and residential exposures. Special emphasis was placed on addressing exposure
and effects science issues regarding children's health, including the special susceptibilities of
infants and children exposed to pesticides and other toxins. Results from this work support
human and environmental risk assessments.
Specifically, in FY 2006, EPA research results directly influenced regulatory actions and
risk assessment decisions for pesticides to which the young are uniquely sensitive. To decrease
the potential for exposure in the young, EPA's OPP cancelled or reduced household and
agricultural uses of selected cholinesterase-inhibiting pesticides. Additionally, OPP issued a DCI
for all registered organophosphates (-30) to collect data on comparative sensitivity of the young.
This DCI provided important information for Agency consideration in evaluating the risk to
infants and children.
Enforcement and Compliance Assurance Program Description
The Pesticide Enforcement and Compliance Assurance Program focuses on pesticide
product and user compliance, including problems relating to pesticide worker safety protection,
ineffective antimicrobial products, food safety, adverse effects, risks of pesticides to endangered
species, ineffective pesticide containers and containment facilities, and e-commerce. The
enforcement and compliance assurance program provides compliance assistance to the regulated
community through its National Agriculture Compliance Assistance Center, seminars, guidance
documents, brochures, and other forms of communication to ensure knowledge of and
compliance with environmental laws.
4
EPA's FY 2006 Annual FIFRA Financial Statements
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EPA's grant support to states' and tribes' pesticide programs emphasizes enforcement of
the pesticide worker protection standards. In FY 2006, states continued to conduct compliance
monitoring inspections on core pesticide requirements.
EPA will continue its commitment to maintaining a strong compliance and enforcement
presence. Agency priorities for FY 2007 and FY 2008 include enforcement for products making
illegal public health claims, including unregistered and ineffective products, such as
inefficacious hospital disinfectants; enforcement of worker protection standards; compliance
monitoring and enforcement activities related to newly promulgated pesticide container and
containment rules, protection of endangered species from pesticides, and special action
chemicals identified by the Office of Pesticide Programs as well as illegal distribution, sale, and
advertisement of pesticides and pesticidal services via the Internet.
Highlights and Accomplishments
Tolerance Performance Measures
As mandated by PRIA, no Tolerance fees were collected and deposited to the FIFRA
Fund in FY 2006.
Measure: Tolerance re-evaluations.
Results: In FY 2006, EPA completed 1,820 tolerance reassessment decisions. Of these,
1,037 reassessments occurred through reregistration/REDs, 306 were obtained through
Tolerance Reassessment Decisions (TREDs), 1 was obtained through a registration decision,
185 were from tolerance revocations, and 291 were from other decisions including inert
decisions. At the end of FY 2006, EPA had completed 9,637 tolerance reassessment decisions,
addressing over 99% of the 9,721 tolerances that require reassessment.
Reresistration (FIFRA) Financial Perspective
During FY 2006, the Agency's obligations charged against the FIFRA Fund for the cost
of the reregi strati on programs and other authorized pesticide programs were $26.7 million and
186.7 workyears. Of these amounts, OPP obligated $24.0 million of this cost and funded the
186.7 workyears.
Appropriated funds are used in addition to FIFRA revolving funds. In FY 2006,
approximately $53.5 million in appropriated funds were obligated for reregi strati on program
activities. The unobligated balance in the Fund at the end of FY 2006 was $5.6
million.
The Fund has two types of receipts: fee collections and interest earned on investments.
Of the $26.4 million in FY 2006 receipts, approximately 98% were fee collections.
5
EPA's FY 2006 Annual FIFRA Financial Statements
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Reregistration Program (FIFRA) Performance Measures
The following measures support the program's strategic goals of Healthy Communities
and Ecosystems as contained in the FY 2006 President's budget.
Measure 1: Number of Reregistration Eligibility Documents (REDs) completed.
Results: In FY 2006, OPP completed decisions for 83 pesticides including 59 REDs, 4
IREDs, and 19 TREDs. Of the 613 chemical cases (representing 3,822 chemical active
ingredients), that initially were subject to reregistration, 3,301 have completed REDs. An
additional 229 reregistration cases were voluntarily canceled before EPA invested significant
resources in developing REDs. A total of559 reregistration cases ( 91%), therefore, had
completed the reregistration eligibility decision making process by the end of FY 2006, leaving
54 cases (9%) awaiting such decisions.
Measure 2: Number of products reregistered, canceled, or amended. Over 20,000
products are or eventually will be subject to product reregistration. Many products,
however, contain more than one active ingredient. Since products are reassessed
separately for each active ingredient, EPA will conduct approximately 38,000 product
reviews.
Results: In FY 2006, 169product reregistration actions, 40product amendment actions,
297product cancellation actions, and 0 product suspension actions were completed. Currently,
a universe of over 20,250 products are undergoing or have completed product reregistration.
The status of those products at the end of FY 2006 was as follows: 2,063 products had been
reregistered; 554product registrations had been amended; 4,672 products were cancelled; 30
products were sent for suspension; and 12,932 products had actions/decisions pending. The
Agency's goal in FY 2007 is to complete 545product reregistration actions.
Measure 3: Progress in Reducing the Number of Unreviewed, Required
Reregistration Studies.
Results: EPA is making good progress in reviewing scientific studies submitted by
registrants in support of pesticides undergoing reregistration. 27,533 studies have been received
by the Agency through the reregistration program. Nearly 85% of these studies have been
reviewed or have been found to be extraneous. Approximately 15% of all studies are awaiting
review for future REDs to complete the reregistration program.
Measure 4: Number and Type of DCIs Issued to Support Product Reregistration by
Active Ingredient.
Results: The number and type of data requests or Data Call-In notices (DCIs) issued by
EPA under FIFRA section 3(c)(2)(B) to support product reregistration for pesticide active
ingredients included in FY 2006 REDs/TREDs are shown in Tables 1 and 2.
Table 1. Data Call-Ins Issued to Support Product Reregistration for FY 2006 REDs/TREDs:
6
EPA's FY 2006 Annual FIFRA Financial Statements
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Case No.
Case Name
Number of
Products
Covered by
the RED1
Number of
Product
Chemistry
Studies
Required2
Number of Acute Toxicology Studies
Required3
Number of
Efficacy
Studies
Required
0350
ADBAC
1047
PDCI has not
been
completed yet
Antimicrobial RED - Acute toxicity
batching not completed yet
PDCI has
not been
completed
yet
3003
Aliphatic Alkyl Quarternaries
(DDAC)
382
PDCI has not
been
completed yet
Antimicrobial RED - Acute toxicity
batching not completed yet
PDCI has
not been
completed
yet
3004
Aliphatic Solvents
158
31
Acute toxicity batching not
completed yet
PDCI has
not been
completed
yet
4006
Alkylbenzene Sulfonates
20
0
Antimicrobial RED - Acute toxicity
batching not completed yet
5
2080
Cacodylic Acid
36
31
See footnote below*
0
4023
Chlorine Dioxide
95
PDCI has not
been
completed yet
Antimicrobial RED - Acute toxicity
batching not completed
PDCI has
not been
completed
yet
0649
Copper Compounds II
173
31
Needs batching
0
4025
Copper and Oxides
237
PDCI has not
been
completed yet
Acute toxicity batching not
completed
PDCI has
not been
completed
yet
4026
Copper Salts
38
31
Acute toxicity batching not
completed yet
0
0636
Copper Sulfate
127
31
Acute toxicity batching not
completed yet
0
2130
Cypermethrin
69
31
Acute toxicity batching not
completed yet
PDCI has
not been
completed
yet
0065
Dicamba
448
31
Acute toxicity batching not
completed yet
0
0113
Dichloran (DCNA)
25
31
54 (1 batch/8 not batched)
0
PDCI has
0310
Dichlorvos (DDVP)
100
31
258 (20 batches/23 not batched)
not been
completed
yet
0088
Dimethoate
54
31
96 (7 batches/9 not batched)
0
0091
Formetantate HCL (IRED)
6
31
36(6 products not batched)
0
3078
Imazapyr
19
31
Acute toxicity batching not
completed yet
0
4049
Inorganic Chlorates
(Sodium Chlorate)
58
31
156 (9 batches/17 not batched)
PDCI has
not been
completed
yet
4056
Inorganic Sulfites
9
31
Acute toxicity batching not
completed yet
1
3080
Iodine and Iodophor
Complexes
67
0
126 (12 batches/9 not batched)
9
0248
Malathion
153
31
Acute toxicity batching not
completed yet
PDCI has
not been
completed
yet
7
EPA's FY 2006 Annual FIFRA Financial Statements
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Case No.
Case Name
Number of
Products
Covered by
the RED1
Number of
Product
Chemistry
Studies
Required2
Number of Acute Toxicology Studies
Required3
Number of
Efficacy
Studies
Required
2365
MCPB and Salts
5
31
24 (1 batch/3 not batched)
0
0576
Metaldehyde
52
31
102(7 batches/10 not batched)
0
2395
Methanearsonic acid, salts
(Organic Arsenicals)
(MSMA/DSMA/CAMA)
129
See footnote
below*
See footnote below*
See
footnote
below*
0335
Methyl Bromide
(RED/TRED)
14
31
Not Applicable
1
2430
MGK 264
653
31
Acute toxicity batching not
completed yet
PDCI has
not been
completed
yet
4066
Mineral Bases, Weak
(Sodium Carbonate)
4
PDCI has not
been
completed yet
Antimicrobial RED - Acute toxicity
batching not completed yet
PDCI has
not been
completed
yet
2575
2-Phenylphenol and Salts
(Orthophenyl Phenol)
118
PDCI has not
been
completed yet
450 (22 batches/53 not batched)
PDCI has
not been
completed
yet
0128
PCNB
82
31
270 (14 batches/31 not batched)
0
2510
Permethrin
957
31
Acute toxicity batching not
completed yet
PDCI has
not been
completed
yet
2525
Piperonyl Butoxide (PBO)
1451
31
Acute toxicity batching not
completed yet
PDCI has
not been
completed
yet
3125
Propiconazole
172
31
264 (14 batches/30 not batched)
0
2560
Propylene Oxide (PPO)
3
31
18 (3 not batched)
0
2580
Pyrethrins
1286
31
Acute toxicity batching not
completed yet
PDCI has
not been
completed
yet
0421
Resmethrin
232
31
Acute toxicity batching not
completed yet
PDCI has
not been
completed
yet
0070
Simazine
44
31
84 (8 batches/6 not batched)
0
2625
TCMTB
27
PDCI has not
been
completed yet
Antimicrobial RED - Acute toxicity
batching not completed yet
PDCI has
not been
completed
yet
2700
Triadimefon
56
31
102 (7 batches/10 not batched)
0
Total
8606
ineligible for reregistration; public comments under consideration. Depending on the Agency's formal response to
the public comments, PDCIs may be required for these chemicals.
Special Local Need (SLN) or Section 24(c) products are not included in the acute toxicity batching. These products
have a parent product; therefore, acute toxicity data do not need to be generated for these SLN or Section 24(c)
products.
1 The number of registered products containing a pesticide active ingredient can change over time. The product total
that appears in the RED document (counted when the RED is signed) may be different than the number of products
8 EPA's FY 2006 Annual FIFRA Financial Statements
-------
that EPA is tracking for product reregistration (counted later, when the RED is issued). This table reflects the final
number of products associated with each RED, as they are being tracked for product reregistration.
2 This column shows the number of product chemistry studies that are required for each product covered by the
RED.
3 In an effort to reduce the time, resources, and number of animals needed to fulfill acute toxicity data requirements,
EPA "batches" products that can be considered similar from an acute toxicity standpoint. For example, one batch
could contain five products. In this instance, if six acute toxicology studies usually were required per product, only
six studies (rather than 30 studies) would be required for the entire batch. Factors considered in the sorting process
include each product's active and inert ingredients (e.g., identity, percent composition, and biological activity), type
of formulation (e.g., emulsifiable concentrate, aerosol, wettable powder, granular, etc.), and labeling (e.g., signal
word, use classification, precautionary labeling, etc.). The Agency does not describe batched products as
"substantially similar," because all products within a batch may not be considered chemically similar or have
identical use patterns. (Note: FIFRA Section 24(c) or Special Local Need (SLN) registrations are not included in
acute toxicity hatchings because they are supported by a valid parent product (Section 3) registration.)
There are special cases where product-specific data call-ins may be required for TREDs,
particularly if the Agency believes that adequate product chemistry or acute toxicity data are not
currently on file to support the reregistration of the products associated with the TREDs. The
Agency is requiring a product-specific data call-in for the following TRED:
Table 2. Data Call-In Issued to Support Product Reregistration for FY 2006 TRED
Number of
Number of
Number of Acute Toxicology
Number
Products
Product
Studies Required3
of
Case No.
Case Name
Covered by
Chemistry
Efficacy
the TRED1
Studies
Studies
Required2
Required
NA
Triadimenol
7
31
42 (7 products not batched)
0
Total No. of Products
7
1 The number of registered products containing a pesticide active ingredient can change over time. The product total
that appears in the TRED document (counted when the TRED is signed) may be different than the number of
products that EPA is tracking for product reregistration (counted later, when the TRED is issued). This table reflects
the final number of products associated with each TRED, as they are being tracked for product reregistration.
2 This column shows the number of product chemistry studies that are required for each product covered by the
TRED.
3 In an effort to reduce the time, resources, and number of animals needed to fulfill acute toxicity data requirements,
EPA "batches" products that can be considered similar from an acute toxicity standpoint. For example, one batch
could contain five products. In this instance, if six acute toxicology studies usually were required per product, only
six studies (rather than 30 studies) would be required for the entire batch. Factors considered in the sorting process
include each product's active and inert ingredients (e.g., identity, percent composition, and biological activity), type
of formulation (e.g., emulsifiable concentrate, aerosol, wettable powder, granular, etc.), and labeling (e.g., signal
word, use classification, precautionary labeling, etc.). The Agency does not describe batched products as
"substantially similar," because all products within a batch may not be considered chemically similar or have
identical use patterns. (Note: FIFRA Section 24(c) or Special Local Need (SLN) registrations are not included in
acute toxicity batchings because they are supported by a valid parent product (Section 3) registration.)
Measure 5: Future Schedule for Reregistrations.
Results: EPA has conducted reregistration in conjunction with tolerance reassessment
under FQPA. That law required the Agency to reassess all existing tolerances over a ten year
9
EPA's FY 2006 Annual FIFRA Financial Statements
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period to ensure consistency with the new safety standard, and to consider pesticides that
appeared to pose the greatest risk first. The organophosphate (OP) pesticides thus have been
the focal point of EPA 's reregistration and tolerance reassessment programs for several years
(see List 1).
List 1. The Organophosphate Pesticides
Organophosphate Pesticides with Individual Decisions Completed
Acephate
Dicrotophos
Methamidophos
Pirimiphos methyl
Azinphos-methyl
Dimethoate
Methidathion
Profenofos
Bensulide
Disulfoton
Methyl parathion
Propetamphos
Cadusafos
Ethion
Mevinphos
Sulfotepp
Chlorethoxyfos
Ethoprop
Naled
Temephos
Chlorpyrifos
Ethyl Parathion
Oxydemeton-methyl
Terbufos
Chlorpyrifos methyl
Fenamiphos
Phorate
Tetrachlorvinphos
Coumaphos
Fenitrothion
Phosalone
Tribufos (DEF)
Diazinon
Fenthion
Phosmet
Trichlorfon
Dichlorvos (DDVP)
Malathion
Phostebupirim
EPA completed the remaining OP IREDs and RED as well as the OP cumulative risk
assessment in FY 2006. The OP IREDs are now consideredfinal reregistration eligibility
decisions, and OP tolerances have been found to meet the FQPA safety standard (see List 2).
List 2. Fiscal Year 2007 Candidates for Decisions
FY 2007 RED, IRED, and TRED Candidate Pesticides
RED Candidates
2,4 DP
Aldicarb [N-methyl carbamate IRED and
RED]
Aliphatic alcohols
Aliphatic esters
Alkyl trimethylenediamines
Allethrin stereoisomers
4-Aminopyridine
Antimycin A
Benzoic acid
Bioban-p-1487
Bromonitrostyrene
Chlorflurenol
Chloropicrin
Dazomet
Dikegulac sodium
Ethylene oxide (ETO) [TRED completed in
FY 2006]
Glutaraldehyde
MCPP
Mefluidide
Methyl bromide [soil fumigant uses RED;
commodity uses TRED & RED completed
FY 2006]
Methyldithiocarbamate salts (metam
sodium/metam potassium)
MITC
Naphthalene salts
Octhilinone
Rotenone [TRED completed in FY 2006]
Triclosan (Irgasan)
10
EPA's FY 2006 Annual FIFRA Financial Statements
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The following N-methyl carbamate IREDs will become REDs when the cumulative risk
assessment is completed.
Carbaryl Carbofuran Formetanate HC1 Oxamyl
11
EPA's FY 2006 Annual FIFRA Financial Statements
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PRINCIPAL
FINANCIAL STATEMENTS
12
EPA's FY 2006 Annual FIFRA Financial Statements
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TABLE OF CONTENTS
Financial Statements
Balance Sheet 14
Statement of Net Cost 15
Statement of Changes in Net Position 16
Statement of Budgetary Resources 17
Statement of Financing 18
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies 19
Note 2. Fund Balances with Treasury 22
Note 3. Other Assets - Advances to Working Capital Fund 22
Note 4. Other Liabilities 22
Note 5. Payroll and Benefits Payable, non-Federal 23
Note 6. Income and Expenses from Other Appropriations 24
Note 7. Exchange Revenues, Statement of Net Cost 25
Note 8. Intragovernmental Costs and Revenue 25
13
EPA's FY 2006 Annual FIFRA Financial Statements
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Environmental Protection Agency
FIFRA
Balance Sheet
As of September 30, 2006 and 2005
(Dollars in Thousands)
ASSETS
Intragovernmental
Fund Balance With Treasuiy (Note 2)
Other (Note 3)
Total Intragovernmental
Total Assets
FY 2006
8,045
558
8,603
8,603
FY 2005
7,941
1,489
9,430
9,430
LIABILITIES
Intragovernmental
Accounts Payable & Accrued Liabilities
Other (Note 4)
Total Intragovernmental
254
84
338
319
226
545
Accounts Payable & Accrued Liabilities
Payroll & Benefits Payable (Note 5)
Other (Note 4)
Total Liabilities
470
3,105
8,071
11,984
3,292
8,509
12,434
NET POSITION
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
(3,381)
(3,381)
8,603
(3,004)
(3,004)
9,430
The accompanying notes are an integral part of these statements.
14
EPA's FY 2006 Annual FIFRA Financial Statements
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Environmental Protection Agency
FIFRA
Statement of Net Cost
For the Years Ended September 30, 2006 and 2005
(Dollars in Thousands)
FY 2006
FY 2005
COSTS
Gross Cost (Note 8)
$ 27,746
$ 26,063
Expenses from Other Appropriations (Note 6)
49,999
50,511
Total Costs
$ 77,745
$ 76,574
Less:
Earned Revenues, (Notes 7 and 8)
$ 26,857
$ 23,854
NET COST OF OPERATIONS (Note 8)
$ 50,888
$ 52,720
The accompanying notes are an integral part of these statements.
15
EPA's FY 2006 Annual FIFRA Financial Statements
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Environmental Protection Agency
FIFRA
Statement of Changes in Net Position
For the Years Ended September 30, 2006 and 2005
(Dollars in Thousands)
FY 2006 FY 2005
Net Position-Beginning of Period $ (3,004) $ (2,520)
Budgetary Financing Sources:
Income from Other Appropriations (Note 6) 49,999 50,511
Total Budgetary Financing Sources $ 49,999 $ 50,511
Other Financing Sources:
Imputed Financing Sources 512 1,725
Total Other Financing Sources $ 512 $ 1,725
Net Cost of Operations (50,888) (52,720)
Net Change (377) (484)
Net Position - End of Period $ (3,381) $ (3,004)
The accompanying notes are an integral part of these statements.
16
EPA's FY 2006 Annual FIFRA Financial Statements
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Environmental Protection Agency
FIFRA
Statement of Budgetary Resources
For the Years Ended September 30, 2006 and 2005
(Dollars in Thousands)
FY 2006 FY 2005
BUDGETARY RESOURCES
Unobligated Balance, Brought Forward, October 1: $ 4,986 $ 2,532
Recoveries of Prior Year Unpaid Obligations 894 101
Spending Authority from Offsetting Collections:
Earned:
Collected 26,867 23,857
Change in Unfilled Customer Orders:
Advance Received (437) 4,159
Total Budgetary Resources $ 32,310 $ 30,649
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Reimbursable $ 26,694 $ 25,663
Total Obligations Incurred 26,694 25,663
Unobligated Balances:
Apportioned 5,616 4,986
Total Status of Budgetary Resources $ 32,310 $ 30,649
CHANGE IN OBLIGATED BALANCE
Obligated Balance, Net:
Unpaid Obligations, Brought Forward, October 1 $ 2,952 $ 2,348
Total Unpaid Obligated Balance, Net 2,952 2,348
Obligations Incurred, Net 26,694 25,663
Less: Gross Outlays (26,325) (24,958)
Less: Recoveries of Prior Year Unpaid Obligations (894) (101)
Total, Change in Obligated Balance 2,427 2,952
Obligated Balance, Net, End of Period:
Unpaid Obligations 2,427 2,952
Total, Unpaid Obligated Balance, Net, End of Period $ 2,427 $ 2,952
NET OUTLAYS
Net Outlays:
Gross Outlays $ 26,325 $ 24,958
Less: Offsetting Collections (26,429) (28,016)
Total, Net Outlays $ (104) $ (3,058)
The accompanying notes are an integral part of these statements.
17
EPA's FY 2006 Annual FIFRA Financial Statements
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Environmental Protection Agency
Statement of Financing
FIFRA
For the Years Ended September 30, 2006 and 2005
(Dollars in Thousands)
FY 2006 FY 2005
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred $ 26,694 $ 25,663
Less: Spending Authority from Offsetting
Collections and Recoveries (27,323) (28,117)
Obligations, Net of Offsetting Collections $ (629) $ (2,454)
Other Resources
Imputed Financing Sources $ 512 $ 1,725
Income from Other Appropriations (Note 6) 49,999 50,511
Net Other Resources Used to Finance Activities $ 50,511 $ 52,236
Total Resources Used To Finance Activities $ 49,882 $ 49,782
RESOURCES USED TO FINANCE ITEMS
NOT PART OF NET COST OF OPERATIONS
Change in Budgetary Resources Obligated for Goods $ 521 $ 3,069
Resources that Fund Prior Period Expenses (132)
Total Resources Used to Finance Items Not Part of the Net Cost of Operations $ 521 $ 2,937
Total Resources Used to Finance the Net
Cost of Operations $ 50,403 $ 52,719
COMPONENTS OF NET COST OF OPERATIONS
THAT WILL NOT REQUIRE OR GENERATE
RESOURCES IN THE CURRENT PERIOD
Components Requiring or Generating Resources in Future Periods:
Increase in Annual Leave Liability (Note 5) 485
Components Not Requiring/Generating Resources:
Expenses Not Requiring Budgetary Resources - 1
Net Cost of Operations $ 50,888 $ 52,720
The accompanying notes are an integral part of these statements.
18
EPA's FY 2006 Annual FIFRA Financial Statements
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Environmental Protection Agency
FIFRA
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies:
A. Basis of Presentation
These financial statements have been prepared to report the financial position and results of
operations of the Environmental Protection Agency (EPA) for the Reregi strati on and Expedited
Processing (FIFRA) Revolving Fund as required by the Chief Financial Officers Act of 1990.
The reports have been prepared from the books and records of EPA in accordance with Financial
Reporting Requirements, Office of Management and Budget (OMB) Circular A-136 and EPA's
accounting policies which are summarized in this note. These statements are therefore different
from the financial reports also prepared by EPA pursuant to OMB directives that are used to
monitor and control EPA's use of budgetary resources.
B. Reporting Entity
EPA 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.
FIFRA was authorized in 1988 by amendments to the Federal Insecticide, Fungicide and
Rodenticide Act. The 1988 amendments mandated the accelerated reregi strati on of all products
registered prior to November 1, 1984. Congress authorized the collection of fees to supplement
appropriations to fund re-registration and to fund expedited processing of pesticides. FIFRA also
includes provisions for the registration of new pesticides, monitoring the distribution and use of
pesticides, issuing civil or criminal penalties for violations, establishing cooperative agreements
with the states, and certifying training programs for users of restricted chemicals. Appropriated
funds, however, pay for these activities. The FIFRA Revolving Fund is accounted for under
Treasury symbol number 68X4310.
FIFRA may charge some administrative costs directly to the fund and charge the remainder of
the administrative costs to Agency wide appropriations. Costs funded by Agency wide
appropriations for FYs 2006 and 2005 were $49,999 thousand and $50,511 thousand,
respectively. These amounts were included as Income from Other Appropriations on the
Statements of Changes in Net Position and Financing and as Expenses from Other
Appropriations on the Statement of Net Cost.
19
EPA's FY 2006 Annual FIFRA Financial Statements
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C. Budgets and Budgetary Accounting
Funding of the FIFRA Revolving Fund is provided by fees collected from industry to offset costs
incurred by EPA in carrying out these programs. Each year EPA submits an apportionment
request to OMB based on the anticipated collections of industry fees.
D. Basis of Accounting
Transactions are recorded on an accrual accounting basis and a budgetary basis. Under the
accrual method, revenues are recognized when earned and expenses are recognized when a
liability is incurred, without regard to receipt or payment of cash. Budgetary accounting
facilitates compliance with legal constraints and controls over the use of Federal funds. All
interfund balances and transactions have been eliminated.
E. Revenues and Other Financing Sources
For FYs 2006 and 2005, FIFRA received funding from fees collected for registration, re-
registration and from interest collected on investments in U.S. Government securities. However,
after September 30, 2002 the Agency no longer has the authority to collect Reregi strati on
Maintenance Fees. For FYs 2006 and 2005 revenues were recognized from fee collections to the
extent that expenses are incurred during the fiscal year.
F. Funds with the Treasury
FIFRA deposits receipts and processes disbursements through its operating account maintained
at the U.S. Department of Treasury. Cash funds in excess of immediate needs, are invested in
U.S. Government securities.
G. Investments in U. S. Government Securities
Investments in U. S. Government securities are maintained by Treasury and are reported at
amortized cost net of unamortized discounts. Discounts are amortized over the term of the
investments and reported as interest income. FIFRA holds the investments to maturity, unless
needed to finance operations of the fund. No provision is made for unrealized gains or losses on
these securities because, in the majority of cases, they are held to maturity.
H. Accounts Receivable and Interest Receivable
FIFRA receivables are mainly for interest receivable on investments.
20
EPA's FY 2006 Annual FIFRA Financial Statements
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I. Liabilities
Liabilities represent the amount of monies or other resources that are likely to be paid by EPA as
the result of a transaction or event that has already occurred. However, no liability can be paid
by EPA 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. For FIFRA, liabilities are liquidated from
fee receipts and interest earnings, since FIFRA receives no appropriation. Liabilities of EPA,
arising from other than contracts, can be abrogated by the Government acting in its sovereign
capacity.
J. Annual, Sick and Other Leave
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
Balance Sheet as a component of "Payroll and Benefits Payable."
K. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to
January 1, 1984, may participate in the Civil Service Retirement System (CSRS). On January 1,
1987, the Federal Employees Retirement System (FERS) went into effect pursuant to Public Law
99-335. Most employees hired after December 31, 1983, are automatically covered by FERS and
Social Security. Employees hired prior to January 1, 1984, elected to either join FERS and Social
Security or remain in CSRS. A primary feature of FERS is that it offers a savings plan to which
the Agency automatically contributes one percent of pay and matches any employee
contributions up to an additional four percent of pay. The Agency also contributes the
employer's matching share for Social Security.
With the issuance of "Accounting for Liabilities of the Federal Government" (SFFAS No.5),
accounting and reporting standards were established for liabilities relating to the Federal
employee benefit programs (Retirement, Health Benefits and Life Insurance). SFFAS No. 5
requires employing agencies to recognize the cost of pensions and other retirement benefits
during their employees' active years of service. SFFAS No. 5 requires that the Office of
Personnel Management, as administrator of the CSRS, the FERS, 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.
21
EPA's FY 2006 Annual FIFRA Financial Statements
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Note 2. Fund Balances with Treasury:
FY 2006 FY 2005
Revolving Funds: Entity Assets $ 8,045 $ 7,941
Note 3. Other Assets - Advances to Working Capital Fund
FIFRA advances funds to the EPA's Working Capital Fund to pay for computer, postage, and
other administrative support services. As of September 30, 2006 and 2005, funds advanced that
will be applied to future costs as incurred were $558 thousand and $1,489 thousand, respectively.
Note 4. Other Liabilities:
For FYs 2006 and 2005, the Payroll and Benefits Payable, non-Federal, are presented on a
separate line of the Balance Sheet and in a separate footnote (see Note 5 below).
FY 2006 FY 2005
Other Intragovernmental Liabilities - Covered by
Budgetary Resources
Employer Contributions - Payroll $ 84 $ 226
Total $ 84" $ 226"
Other Non-Federal Liabilities - Covered by
Budgetary Resources
Advances to Non-Federal Entities $ 8,071 8,509
Total $ 8,071 8,509
22
EPA's FY 2006 Annual FIFRA Financial Statements
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Note 5. Payroll and Benefits Payable, non-Federal:
FY 2006 FY 2005
Covered by Budgetary Resources
Accrued Payroll Payable to Employees $ 197 $ 546
Withholdings Payable 176 478
Thrift Savings Plan Benefits Payable \3_ 34
Total $ 386 $ 1,058
Not Covered by Budgetary Resources
Unfunded Annual Leave Liability -
Beginning of the Year $ 2,234 $ 2,367
Unfunded Annual Leave Expense $ 485 $ (133)
Unfunded Annual Leave Liability - End of
the Year $ 2,719 $ 2,234
At various periods throughout FYs 2006 and 2005, employees with their associated payroll costs
were transferred from the FIFRA fund to the Environmental Programs and Management (EPM)
appropriation. (See graph in Note 6 below showing trend of hours charged per month to the
FIFRA fund for FYs 2006 and 2005.) These employees were transferred in order to keep
FIFRA's obligations and disbursements within budgetary and cash limits. When resources
became available, the employees charging to FIFRA increased in order to utilize resources as
much as possible. The Agency expects that the practice of transferring employees when
FIFRA's resources are low, and restoring employees when funds become available, will continue
throughout FY 2006 and probably beyond that period.
This process has led to variations between the year-end liabilities for FYs 2006 and 2005. The
liabilities covered by budgetary resources (both intragovernmental and non-Federal) represent
unpaid payroll and benefits at year-end. At the end of FY 2006, 109 employees were charging
all or part of their salary and benefits to FIFRA compared to 346 employees for the end of FY
2005. As of September 30, 2006 these liabilities were $84 thousand and $386 thousand for
employer contributions and accrued funded payroll and benefits, as compared to FY 2005's
balances of $226 thousand and $1,058 thousand, respectively.
In contrast, the unfunded annual leave liability is a longer term liability than the funded
liabilities. At various periods throughout FYs 2006 and 2005, approximately 353 employees in
total have been under FIFRA's accountability. During the last pay period of FY 2006 many
FIFRA employees had been transferred to EPM so the liability was computed based on the 323
employees charged to FIFRA during the pay period before the last pay period. Therefore, both
the September 30, 2006 and 2005 liability balances for unfunded annual leave were accrued to
cover the employees charged to FIFRA close to the end of the fiscal year for a total of $2,719
thousand and $2,234 thousand, respectively.
23
EPA's FY 2006 Annual FIFRA Financial Statements
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Note 6. Income and Expenses front 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 FYs 2006 and 2005, EPA had two appropriations which funded a variety of
programmatic and non-programmatic activities across the Agency, subject to statutory
requirements. The EPM appropriation was created to fund personnel compensation and benefits,
travel, procurement, and contract activities. Transfers of employees from FIFRA to EPM at
various times during these years (see Note 5 above) resulted in an increase in payroll expenses in
EPM, and these costs financed by EPM are reflected as an increase in the Expenses from Other
Appropriations on the Statement of Net Cost. The increased financing from EPM is reported on
the Statement of Changes in Net Position as Income from Other Appropriations.
In terms of hours charged to FIFRA each month, the transfers of employees and their associated
costs during FYs 2006 and 2005 are shown below. Note that a decrease in hours charged to
FIFRA normally signifies an increase in EPM's payroll costs, and vice versa. In addition,
Pesticide was separated from FIFRA starting with FY 2004 and Pesticide has its own set of
financial statements.
FIFRA Payroll Hours Per Month
70,000.00
"g 60,000.00
E>
ra
-E
o
o
X
50,000.00
40,000.00
30,000.00
® 20,000.00
E
= 10,000.00
0.00
CT
f cf ^ «
* ^ ^ **
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All of the expenses from EPM were distributed among EPA's two Reporting Entities: Superfund
and All Other (includes FIFRA). 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 FIFRA's Net Position.
Income From Other Expenses From Other Net
Appropriations Appropriations Effect
FY 2006 $ 49,999 $ 49,999 $ 0_
FY 2005 $ 50,511 $ 50,511 $ 0
Note 7. Exchange Revenues, Statement of Net Cost
For FYs 2006 and 2005, the exchange revenues reported on the Statement of Net Cost include
both Federal and non-Federal amounts.
Note 8. Intragovernmental Costs and Exchange Revenue
FY 2006 FY 2005
COSTS:
Intragovernmental $ 6,788 $ 7,038
With the Public 20,958 19,025
Expenses from Other Approprations 49,999 50,511
Total Costs $ 77,745 $ 76,574
REVENUE:
Intragovernmental $ 558 $ 315
With the Public 26,299 23,539
Total Revenue $ 26,857 $ 23,854
NET COST OF OPERATIONS $ 50,888 $ 52,720
Intragovernmental costs relate to the source of the goods or services not the classification of the
related revenue.
25
EPA's FY 2006 Annual FIFRA Financial Statements
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Appendix B
Full Text of Agency Response
May 10, 2007
MEMORANDUM
SUBJECT: Response to Draft Audit Report on EPA's Fiscal 2006 and 2005 Pesticides
Reregi strati on and Expedited Processing Fund
FROM: James B. Gulliford/s/
Assistant Administrator for Prevention,
Pesticides, and Toxic Substances
Lyons Gray /s/
Chief Financial Officer
TO: Paul C. Curtis
Director, Financial Statement Audits
We appreciate the opportunity to respond to the findings and recommendations made in
the "Draft" Audit of the Environmental Protection Agency's (EPA) Fiscal Year 2006 and 2005
Financial Statements for the Pesticides Reregi strati on and Expedited Processing Fund (known as
the FIFRA fund).
We disagree with the OIG's comments stating that the enactment of PRIA enabled
FIFRA to have sufficient funds to cover payroll expenses for the entire year (page 8). The two
fee mechanisms are separate and they represent two different activities. Unlike PRIA, where
fees are collected as applications are received, Section 4(i)(5) of FIFRA mandates the collection
of maintenance fees (for existing registrations) by January 15 of each year. OPP sends out the
bills to the registrants by December 1 to give them adequate time to submit payment by January
15. Thus the program is faced with insufficient funds to cover the FIFRA Full-time Equivalent
(FTE) at the beginning of each fiscal year, necessitating the transfer of FTEs to the
Environmental Program Management Appropriation.
Audit Recommendations
We concur with the recommendations in the Draft Report.
1. The Office of Financial Services will develop and implement a procedure that
will provide closer monitoring of the unfunded leave accruals for FIFRA.
2. The Office of Financial Management will develop and implement a procedure that will
increase oversight over preparation of the financial statements.
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If you have any questions concerning the audit response, please contact MelaJo Kubacki,
Director, Financial Policy and Planning Staff, at 202-564-3155.
cc: Lorna M. McAllister
Iantha Gilmore
Milton Brown
Raffael Stein
Richard L. Bennett
Mark Bolyard
Melissa Heist
MelaJo Kubacki
Aracely Nunez-Mattocks
Jim Jones
Marty Monell
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Appendix C
Distribution
Office of the Administrator
Chief Financial Officer
Assistant Administrator for Prevention, Pesticides, and Toxic Substances
Agency Followup Official (the CFO)
Deputy Chief Financial Officer
Agency Followup Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Director, Office of Pesticide Programs
Deputy Director, Office of Pesticide Programs
Director, Biopesticides and Pollution Prevention Division
Director, Special Review and Reregi strati on Division
Director, Registration Division
Director, Antimicrobials Division
Director, Information Technology and Resources Management Division
Director, Office of Financial Management
Director, Office of Financial Services
Director, Washington Finance Center
Director, Reporting and Analysis Staff
Director, Financial Policy and Planning Staff
Audit Followup Coordinator, Office of Prevention, Pesticides, and Toxic Substances
Audit Followup Coordinator, Office of Chief Financial Officer
Audit Liaison, Washington Finance Center
Acting Inspector General
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