f O \ OIG
\ '
% ^ OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
Audit of EPA's
Fiscal 2002 and 2001
Financial Statements
Audit Report 2003-1-00045
January 29, 2003
-------
Abbreviations
CPS
Contract Payment System
EPA
Environmental Protection Agency
FFMIA
Federal Financial Management Improvement Act
FinRS
Financial Replacement System
FMFIA
Federal Managers' Financial Integrity Act
IFMS
Integrated Financial Management System
IGMS
Integrated Grants Management System
JFMIP
Joint Financial Management Improvement Program
NIST
National Institute of Standards and Technology
OIG
Office of Inspector General
OMB
Office of Management and Budget
PPE
Property, Plant, and Equipment
RSSI
Required Supplemental Stewardship Information
SFFAS
Statement of Federal Financial Accounting Standards
Cover photo: By Carl Friedrich, OIG
(North Cascades National Park, Washington)
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
January 29, 2003
MEMORANDUM
SUBJECT: Audit of EPA's Fiscal 2002 and 2001 Financial Statements
FROM: Paul C.
Assignment Manager
Financial Audit Division (2422T)
TO: Linda M. Combs
Chief Financial Officer (271 OA)
Morris X. Winn
Assistant Administrator for
Administration and Resources Management (3101 A)
Marcia Mulkey
Director, Office of Pesticide Protection (7510C)
Howard F. Corcoran
Director, Office of Grants and Debarment (3901R)
Attached is our audit report on the Agency's fiscal 2002 and 2001 financial statements,
The report reflects our view that the Agency is not in compliance with the managerial cost
accounting standard; however, the level of compliance does not meet Office of Management
and Budget's definition of substantial non-compliance. We also recognize that the Agency
has started a process that will, when fully implemented, provide managers with the type of
cost information they need to effectively manage their programs. The audit report also
contains other findings that describe issues the OIG has identified and corrective action 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
' A L
X —
PRO"*6
-------
brought by EPA or the Department of Justice. We have no objections to the further release
of this report to the public.
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 the financial management
issues, we are requesting the 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) 566-2523, or Pat Hill, Director, Business Systems at (202) 566-0894.
Attachment
cc: See Appendix III, Report Distribution List
-------
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 2002 and 2001 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, 2002 and
2001, and budgetary resources as of and for the year ended September 30,
2002, in accordance with generally accepted accounting principles.
i
-------
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 for preparing
Required Supplemental Stewardship Information (RSSI), Required
Supplemental Information, and Management Discussion and Analysis, and
reviewed this information for consistency with the principal 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 Supplemental 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 seven
reportable conditions in the following areas, which are detailed further in
Attachment 1:
Documentation and Approval of Journal Vouchers
Reconciling Unearned Revenue for State Superfund Contracts
Reconciling Deferred Cashouts
Integrated Grants Management System Security Plan
Automated Application Processing Controls for the Integrated Financial
Management System
-------
Capitalization of Superfund Contractor-Held Property
Revenue Recognition on Cashouts
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 compliance
with certain provisions of laws and regulations for which noncompliance could
have a direct and material effect on the determination of financial statement
amounts. Providing an opinion on compliance with all laws and regulations
applicable to the Agency 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, which are discussed
further in Attachment 2.
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 did not identify any instances of substantial (as defined by OMB)
noncompliance with FFMIA requirements. We recognize improvements the
OCFO has made in cost accounting and believe that while there are still
noncompliance issues with cost accounting, those noncompliances no longer meet
OMB's definition of substantial noncompliance.
The Agency was not in compliance with Statement of Federal Financial
Accounting Standards No. 4 that requires EPA to provide full costs per
output to management in a timely fashion.
We also identified the following three additional instances of FFMIA
noncompliance.
Reconciliation of intra-governmental transactions was not in compliance with
OMB and Treasury Financial Manual requirements. However, it does not
meet the OMB criteria for substantial noncompliance.
-------
The Contract Payment System was not in compliance with the Joint
Financial Management Improvement Program system requirements.
The fiscal 1999 Remediation Plan to correct some FFMIA issues has not
been completed.
Compliance with the Treasury Financial Manual
The Agency does not prepare the SF 224 Statement of Transactions in
accordance with the Treasury Financial Manual.
Compliance with the Food Quality Protection Act of 1996
The Agency was not in compliance with the requirements of the Food Quality
Protection Act of 1996 because it exceeded the amount of maintenance fees
that could be used for expedited processing. The Agency subsequently made
adjustments to correct the non-compliance.
Agency Comments and OIG Evaluation
In a memorandum dated January 22, 2003, the Office of the Chief Financial
Officer responded to our draft report. The OCFO generally concurred with
our findings and is the process of implementing corrective actions. However,
the OCFO did expand on comments in some areas to reflect their view that
they have made substantial improvements.
The OCFO believes that they are complying with the Managerial Cost
Accounting Standard by preparing quarterly subobjective level reports, taking
actions to execute the Agency's plan for expanding cost information, and
moving from 10 goals to 5 in the new Strategic Plan. We recognize
improvements that the Agency has made in the area of Cost Accounting and
believe that the new plan for expanding cost information will eventually
provide managers the cost information they need to manage. However, we do
not agree with OCFO that the subobjective level reports provide useful,
timely, and full cost information.
The OCFO also stated that they developed a new process and report for
reconciling the Contract Payment System with the Integrated Financial
Management System that they believe satisfies the OIG's concerns. The OIG
did not review the new process and report because they were developed after
we completed our work.
iv
-------
Table of Contents
Executive Summary i
Inspector General's Report on EPA's
Fiscal 2002 and 2001 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 7
Prior Audit Coverage 8
Agency Comments and OIG Evaluation 9
Attachments
1. Reportable Conditions
2. Compliance with Laws and Regulations
Federal Financial Management Improvement Act
Noncompliance Issues
Other Noncompliance Issues
3. Status of Prior Audit Report Recommendations
Appendices
I. EPA's Fiscal 2002 and 2001 Financial Statements
II. Agency's Response to Draft Report
III. Report Distribution List
-------
-------
Inspector General's Report on EPA's
Fiscal 2002 and 2001 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, 2002 and
2001, and the related consolidating statements of net cost, changes in net position and
financing, and consolidated statements of net cost by goal and custodial activity for the years
then ended, and the related combined statement of budgetary resources for the year ended
September 30, 2002. 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 expenses 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.
1
-------
OIG are not material to EPA's financial statements. The OIG is organizationally
independent with respect to all other assets of the Agency's activities.
In our opinion, the consolidating financial statements present fairly the consolidated and
individual assets, liabilities, net position, 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, 2002 and 2001, and
budgetary resources as of and for the year ended September 30, 2002, 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 for preparing Required Supplemental
Stewardship Information (RSSI), Required Supplemental Information, 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 Supplemental
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.
2
-------
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. 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.
Finally, with respect to internal controls related to performance measures presented in EPA's
Fiscal Year 2002 Annual Report, Section 1, Overview and Analysis (which addresses
3
-------
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 seven reportable
conditions, as follows:
Documentation and Approval of Journal Vouchers
EPA's Financial Reports and Analysis Branch did not always adequately document
journal vouchers and standard vouchers prior to the transactions being entered into
the Integrated Financial Management System (IFMS). For example, of 447
transaction documents reviewed, 39 did not have adequate backup to support entries,
and 3 did not have appropriate signatures. After performing additional work we were
able to determine that most of the entries appeared to be correct. However, we are
concerned about the vulnerability associated with executing transactions without
proper documentation and supervisory review and approval. The review and
approval process would reduce the potential for errors occurring.
Reconciling Superfund State Cost Share Contracts
EPA did not reconcile the unearned revenue from State Superfund Contracts for fiscal
2002. When EPA assumes the lead for a Superfund site remedial action in a state, the
State Superfund Contract clarifies EPA and state responsibilities. EPA records
unearned revenue when a State is billed for its share of the estimated remedial action
costs on the site, and recognizes earned revenue as it incurs costs. However, EPA's
Financial Management Division did not reconcile the unearned revenue from State
Superfund Contracts to the general ledger liability account - Unearned Advances,
Non-Federal. This was because EPA relied on its accounting system's internal
controls and Regional year-end adjustments to unearned revenue. As a result, EPA
could not ensure the accuracy of the State Superfund Contract unearned revenue
accounts. Additional work performed by the OIG enabled the Agency to post
adjustments to reduce the variance.
4
-------
Reconciliation of Deferred Cashouts
EPA did not properly reconcile Superfund cashouts at the Regional level. Cashouts
represent money that potentially responsible parties agree to pay EPA for cleanups.
We found that EPA's Regions did not periodically reconcile the uncollected
receivables for Superfund cashouts to the general ledger liability accounts Deferred
Cashouts Federal and Deferred Cashouts Non-Federal. This occurred because the
Financial Management Division did not require the reconciliations or provide
guidance. As a result, the Regional finance offices were not able to reconcile their
deferred cashouts and could not ensure the accuracy of the accounts, which totaled
approximately $44 million. While the combined net difference of the variances were
under $2 million, the individual variances in the regional offices were significant and
could result in a material misstatement if proper reconciliations are not performed.
IGMS Security Plan Compliance with Federal Requirements
The Integrated Grants Management System (IGMS) security plan did not adequately
describe the security requirements or the controls used to protect the system and its
data. The IGMS security plan reflected only 41 percent of the 140 elements required
by the National Institute of Standards and Technology's (NIST) Special Publication
800-18. In addition, the IGMS security plan included only 50 percent of the 30 Core
Financial System technical requirements mandated by the Joint Financial
Management Improvement Program (JFMIP). The IGMS security plan was missing
many key elements required by federal regulations because the Director for Grants
and Debarment used EPA's Information Security Planning Guidance as a benchmark
for developing the IGMS security plan. Management agreed that addressing NIST
and JFMIP system requirements would significantly raise the bar for evaluating
security plans. As such, management has established a schedule for addressing
unmet requirements.
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 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.
Capitalization of Superfund Contractor-Held Property
EPA did not capitalize and depreciate approximately $33.3 million in Superfund
contractor-held property in accordance with Statement of Federal Financial
Accounting Standards (SFFAS) No. 6, Accounting For Property, Plant, and
Equipment. Instead, the Agency expensed all costs for contractor-held property used
for Superfund site-specific projects. The Agency explained that it expensed property
5
-------
on these Superfund remediation sites because the property would remain at the site
and not be useful on future sites due to contamination. The $33.3 million cumulative
amount included approximately $10.2 million for fiscal 2002 and $23.1 million from
prior years. By expensing these costs, the Agency is understating the value of its
property in the possession of contractors and, therefore, the value of general Property,
Plant, and Equipment. Subsequently, the Agency adjusted the financial statements to
capitalize contractor-held property used for Superfund site-specific projects.
Revenue Recognition on Cashouts
The Financial Management Division overstated by $53 million a fiscal 2001 on-top
financial statement adjustment for earned revenue from past costs in Superfund
special accounts. This overstatement also affected the fiscal 2002 Superfund
financial statements by understating liabilities and overstating income. EPA did not
restate the financial statements because it lacked adequate internal controls for
reporting corrections of errors. As a result, EPA's fiscal 2001 and 2002 financial
statements would have been materially misstated without prompting by the OIG.
Attachment 1 describes each of the above reportable conditions in more detail, and contains
our recommendations on actions that should be taken to correct these conditions. We will
also be reporting other less significant matters involving the internal control structure and its
operation in a separate management letter.
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 2002 Annual Report. For a discussion on Agency reported
Integrity Act material weaknesses and corrective action strategy, please refer to EPA's Fiscal
Year 2002 Annual Report, Section III, FY 2002 Management Accomplishments and
Challenges.
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.
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
6
-------
assigned functions. Our audit did not disclose any material weakness that was not reported
by the Agency as part of the Integrity Act process.
The Agency did not report any material weaknesses for fiscal 2002 as part of the Integrity
Act process.
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
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
7
-------
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 did not disclose any instances where the Agency's financial
management systems did not substantially comply with the applicable Federal accounting
standard.
We recognize improvements the OCFO has made in cost accounting and believe that while
there are still noncompliance issues with cost accounting, those noncompliances no longer
meet OMB's definition of substantial noncompliance. However, the Agency was not in
compliance with Statement of Federal Financial Accounting Standards No. 4 that requires
EPA to provide full costs per output to management in a timely fashion.
We identified three other FFMIA noncompliances, related to reconciliation of intra-
governmental transactions, Contract Payment System compliance with JFMIP system
requirements, and completion of the fiscal 1999 FFMIA remediation plan. However, these
noncompliances do not meet the definition of substantial noncompliance as described in OMB
guidance.
Our tests also disclosed two other instances of noncompliance with laws and regulations,
related to the Food Quality Protection Act of 1996 and the Treasury Financial Manual for
preparation of SF 224 "Statement of Transactions."
Attachment 2 provides additional details, as well as our recommendations on actions that
should be taken on these matters. We will also be reporting other less significant matters
involving compliance with laws and regulations in a separate management letter.
Prior Audit Coverage
During previous financial or financial-related audits, weaknesses that impacted our audit
objectives were reported in the following areas:
• Complying with FFMIA requirements.
Reconciliation and Reporting intra-governmental transactions, 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.
Interagency Agreement invoice approval process.
• Documenting EPA's IFMS.
Complying with Federal financial management system security requirements.
Accounting for payments for grants funded from multiple appropriations.
Documentation and approval of journal vouchers.
8
-------
Timely repayment of Asbestos Loan Debt to Treasury.
Assessing automated application processing controls for the IFMS.
Compliance of financial system security plans.
Attachment 3, Status of Prior Audit Report Recommendations, summarizes the current status
of corrective actions taken on prior audit report recommendations with corrective actions in
process.
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 few issues have been unresolved for many years.
The OIG will continue to work with the Office of Chief Financial Officer in helping to resolve
all audit issues resulting from our financial statement audits.
Agency Comments and OIG Evaluation
In a memorandum dated January 22, 2003, the Office of the Chief Financial Officer
responded to our draft report. The OCFO generally concurred with our findings and is in the
process of implementing corrective actions. However, the OCFO did expand on comments in
some areas to reflect their view that they have made substantial improvements.
The OCFO believes that they are complying with the Managerial Cost Accounting Standard
by preparing quarterly subobjective level reports, taking actions to execute the Agency's plan
for expanding cost information, and moving from 10 goals to 5 in the new Strategic Plan. We
recognize improvements that the Agency has made in the area of Cost Accounting and believe
that the new plan for expanding cost information will eventually provide manager's the cost
information they need to manage. However, we do not agree with OCFO that the
subobjective level reports provide useful, timely and full cost information.
The OCFO also stated that they developed a new process and report for reconciling the
Contract Payment System with IFMS that they believe satisfies the OIG's concerns. The OIG
did not review the new process and report because they were developed after we completed
our work.
The rationale for our conclusions and a summary of the Agency comments are included in the
appropriate sections of this report, and the Agency's complete response is included as
Appendix II to this report.
9
-------
This report is intended soleh for the information and use of the management of I-PA, OMB,
and Congress, and is not intended to be and should .not be used by anyone other th.in these
specified parties.
Paul C, C.\iit(s
Assignment Manager
Financial Audit Division
(Mike oflnspeetor C seneral
U.S. hnvironmental Proteeiioti Agency
January 22,2003
10
-------
Attachment 1
Reportable Conditions
Table of Contents
Page
1 - Documentation of Journal and Standard Vouchers
Needs Improvement 1-1
2 - Improvement Needed in Reconciling Unearned Revenue
for State Superfund Contracts 1-2
3 - Improvements Needed in Reconciling Deferred Cashouts 1-4
4 - Integrated Grants Management System Security Plan
Does Not Address Required Controls 1-5
5 - Automated Application Processing Controls for
Integrated Financial Management System Could Not Be Assessed 1-6
6 - Capitalization of Superfund Contractor-Held Property Needs to Be
Improved 1-8
7 - Revenue Recognition on Cashouts Needs to Be Improved 1-9
-------
-------
1 - Documentation of Journal and Standard Vouchers
Needs Improvement
EPA's Financial Reports and Analysis Branch did not always adequately document journal
vouchers and standard vouchers prior to the transactions being entered into IFMS. For
example, of 447 transaction documents reviewed, 39 did not have adequate backup to support
entries, and 3 did not have appropriate signatures.
The General Accounting Office Standards for Internal Control in the Federal Government
(1999) 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. Further, EPA's Comptroller Policy Announcement No. 93-02 states
that all journal voucher entries must be submitted to the Financial Reports and Analysis
Branch for approval. The Policy Announcement also states that "EPA policies require that all
financial transactions recorded in the accounting system be supported by adequate source
documentation, and that this documentation be easily accessible." The EPA form for journal
and standard voucher documents, as provided for in EPA's IFMS User's Guide, includes a
place for preparer and approval signatures.
After performing additional work we were able to determine that most of the entries appeared
to be correct. However we are concerned about the vulnerability associated with executing
transactions without proper documentation and supervisory review and approval. The review
and approval process would reduce the potential for errors occurring.
Recommendations
We recommend that the Office of Chief Financial Officer:
1-1. Remind staff of the need to properly document accounting transactions before entry
into IFMS.
1-2. Make all staff aware of existing procedures to assure that all journal and standard
vouchers are reviewed and approved prior to entry into IFMS.
Agency Comments
The OCFO agreed in principle with our findings and will issue a memorandum to staff
instructing them on the importance of following existing procedures and of providing
adequate supporting documentation for journal voucher entries.
1-1
-------
2 - Improvement Needed in Reconciling
Unearned Revenue for State Superfund Contracts
EPA did not reconcile the unearned revenue from State Superfund Contracts for fiscal 2002.
When EPA assumes the lead for a Superfund site remedial action in a state, the State
Superfund Contract clarifies EPA and state responsibilities. EPA records unearned revenue
when a State is billed for its share of the estimated remedial action costs on the site, and
recognizes earned revenue as it incurs costs. However, EPA's Financial Management
Division did not reconcile the unearned revenue from State Superfund Contracts to the
general ledger liability account - Unearned Advances, Non-Federal. This occurred because
EPA relied on its accounting system's internal controls and Regional year-end adjustments to
unearned revenue. As a result, EPA could not ensure the accuracy of the State Superfund
Contract unearned revenue accounts, which totaled approximately $45 million.
The Chief Financial Officers Act requires the Agency's Chief Financial Officer to develop
and maintain an integrated agency accounting and financial management system, including
financial reporting and internal controls, that provides for complete, reliable, consistent, and
timely information. EPA should have adequate internal controls to ensure that it performs
annual reconciliations of the State Superfund Contract unearned revenue accounts.
For the six Regions examined, we found variances totaling $12,122,052 between the
calculated unearned revenue and the corresponding Regional general ledger balances. In
addition, we found errors in all six of the Regional year-end adjustments on the spreadsheets
examined. Further, in our analysis of the overall reasonableness of Unearned Advances for all
of EPA, we found a variance of $5,388,426 between the unearned revenue for all accounting
points as of September 30, 2002, and the consolidated general ledger balance.
Based upon the additional work performed by the OIG, the Agency was able make on-top
adjustments to the financial statements for most of the Regional errors and reduce the overall
variance to avoid a material misstatement of Unearned Advances. Due to the complexity of
accounting for unearned revenue, proper annual reconciliations are needed to ensure the
reliability of Unearned Advances.
Recommendations
We recommend that the Office of Chief Financial Officer have the Financial Management
Division:
1-3. Annually calculate the combined unearned revenue from State Superfund Contracts
for all accounting points and reconcile the amount to the consolidated Unearned
Advances balance.
1-2
-------
1-4. Improve the reliability of Regional State Superfund Contract spreadsheet calculations
for the year-end unearned revenue adjustments by providing the Regional finance
offices with additional training in the preparation of the spreadsheet and by conducting
a review of the completed spreadsheets.
Agency Comments
The OCFO agreed with our findings and will issue written guidance for calculations and
reconciliation of accounts by June 30, 2003. The Financial Management Division will also
review the regions' computations for accuracy.
1-3
-------
3 - Improvement Needed in Reconciling
Deferred Cashouts
EPA did not properly reconcile Superfund cashouts at the Regional level. Cashouts represent
money that potentially responsible parties agree to pay EPA for cleanups. We found that
EPA's Regions did not periodically reconcile the uncollected receivables for Superfund
cashouts to the general ledger liability accounts - Deferred Cashouts, Federal and Deferred
Cashouts, Non-Federal. This occurred because the Financial Management Division (FMD)
did not require the reconciliations or provide guidance. As a result, the Regional finance
offices were not able to reconcile their deferred cashouts and could not ensure the accuracy of
the accounts, which totaled approximately $44 million.
We previously brought this issue to the attention of the OCFO in a position paper last year.
The Financial Management Division completed the proper reclassification entries, as
recommended. However, while the Financial Management Division issued "Superfund
Special Account Guidance" on July 16, 2002, to provide the Regional finance offices with
accounting procedures for recording and tracking special account funds, this memorandum
did not include guidance for reconciling Deferred Cashouts, Federal and Non-Federal.
We found variances between the total of uncollected receivables for non-Federal Superfund
cashouts and the corresponding balance for Deferred Cashouts. The combined variance for
the six Regions examined totaled $1,714,160. However, the combined variance included
significant offsetting amounts, including a Region 2 understatement of $11,803,352 to
Deferred Cashouts and a Region 9 overstatement of $7,220,634. These significant Regional
variances indicate that a material misstatement of Deferred Cashouts could occur if proper
reconciliations are not performed.
The Chief Financial Officers Act requires the Agency's Chief Financial Officer to develop
and maintain an integrated agency accounting and financial management system, including
financial reporting and internal controls, that provides for complete, reliable, consistent, and
timely information. Each Region should have adequate internal controls to ensure that it
performs periodic reconciliations of the deferred cashout accounts.
Recommendation
1-5. We recommend that the Chief Financial Officer have the Financial Management
Division provide the Regional finance offices with guidance for reconciling the
Deferred Cashout, Federal and Non-Federal accounts on a regular basis.
Agency Comments
The OCFO concurred with our findings and will issue written guidance for reconciling
accounts by June 30, 2003.
1-4
-------
4 - Integrated Grants Management System Security Plan
Does Not Address Required Controls
The Integrated Grants Management System (IGMS) security plan did not adequately describe
the security requirements or the controls used to protect the system and its data. The IGMS
security plan reflected only 41 percent of the 140 elements required by the National Institute
of Standards and Technology's (NIST) Special Publication 800-18. In addition, the IGMS
security plan included only 50 percent of the 30 Core Financial System technical requirements
mandated by the JFMIP. The IGMS security plan was missing many key elements required
by federal regulations because the Director for Grants and Debarment used EPA's
Information Security Planning Guidance as a benchmark for developing the IGMS security
plan. Management agreed that addressing NIST and JFMIP system requirements would
significantly raise the bar for evaluating security plans. As such, management has established
a schedule for addressing unmet requirements.
OMB Circular A-127 establishes security controls requirements for financial and mixed-
financial systems, including JFMIP mandatory system controls. Likewise, OMB Circular A-
130 establishes security requirements for system security plans, including those found in
NIST publications. EPA also mandated using the Information Security Planning Guidance as
a benchmark for developing major application security plans.
IGMS information has a direct and material impact on the Agency's financial statements. A
security plan that does not comply with federal regulations limits management's assurance
that the system's owner has identified all applicable security requirements. In addition,
management cannot be assured that adequate controls are in place or planned for meeting
those requirements
Recommendation
1-6. We recommend that the Director for Grants and Debarment revise the IGMS security
plan to include all applicable elements of federally-acceptable security plans for major,
financial computer applications, including but not limited to NIST, JFMIP, and
Agency requirements.
Agency Comments
The OFCO accepted our recommendation to revise the IGMS Security Plan to include
requirements identified in the JFMIP standards for financial systems and NIST Publication
800-18. Management's plan for addressing the audit recommendation indicates the IGMS
Security Plan should be in compliance with JFMIP and NIST standards by December 31,
2004.
1-5
-------
5 - 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 2002 Review Results
As part of our fiscal 2002 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 2002, the Agency performed the
following activities:
1-6
-------
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
Comptroller 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 will not be able to assess the adequacy of the automated internal
control structure.
Agency Comments
While OCFO continues to believe its current level of documentation is sufficient, management
has taken a number of actions to improve documentation, as stated above. The OCFO
believes the issue will be resolved with implementation of the replacement system.
1-7
-------
6 - Capitalization of Superfund Contractor-Held Property
Needs to Be Improved
EPA did not capitalize and depreciate approximately $33.3 million in Superfund contractor-
held property in accordance with SFFAS No. 6, Accounting For Property, Plant, and
Equipment. Instead, the Agency expensed all costs for contractor-held property used for
Superfund site-specific projects. The Agency explained that it expensed property on these
Superfund remediation sites because the property would remain at the site and not be useful
on future sites due to contamination. The $33.3 million cumulative amount included
approximately $10.2 million for fiscal 2002 and $23.1 million from prior years. By expensing
these costs, the Agency is understating the value of its property in the possession of
contractors and, therefore, the value of general Property, Plant, and Equipment (PP&E).
According to SFFAS No. 6, paragraph 26 states, "All general PP&E shall be recorded at cost.
Cost shall include all costs incurred to bring the PP&E to a form and location suitable for its
intended use." Paragraph 39 asserts, "General PP&E shall be removed from general PP&E
accounts along with associated accumulated depreciation/amortization, if prior to disposal,
retirement or removal from service, it no longer provides service in the operations of the
entity. This could be either because it has suffered damage, becomes obsolete in advance of
expectations, or is identified as excess."
As a result of EPA's decision not to capitalize all contractor-held property, general PP&E was
understated by approximately $33.3 million in the fiscal 2002 financial statements,
accumulated depreciation was understated by a component of that amount, and expenses were
overstated.
Recommendation
1-7. We recommend that the Office of Chief Financial Officer capitalize current Superfund
site-specific contractor-held property costs meeting capitalization thresholds and only
remove property from the general PP&E accounts, in accordance with SFFAS No. 6.
Agency Comments
The OCFO agreed with our findings and made the corrections to the fiscal 2002 and 2001
financial statements. The OCFO will issue written guidance on capitalization criteria by June
30, 2003.
1-8
-------
7 - Revenue Recognition on Cashouts
Needs to Be Improved
EPA did not restate the fiscal 2001 financial statements to reflect a $53 million error, and the
fiscal 2002 financial statements were also impacted. The Financial Management Division
overstated by $53 million a fiscal 2001 on-top financial statement adjustment for earned
revenue from past costs in Superfund special accounts. This overstatement also affected the
fiscal 2002 Superfund financial statements by understating liabilities and overstating income.
EPA did not restate the financial statements because it lacked adequate internal controls for
reporting corrections of errors. As a result, EPA's fiscal 2001 and 2002 financial statements
would have been materially misstated without prompting by the OIG.
SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles,
requires reporting entities to restate prior period financial statements for material errors
discovered in the current period, if such statements are provided for comparative purposes,
and if the effect of the error would be material to the financial statements in either period.
EPA did not properly characterize several Region 9 special account amounts in a fiscal 2001
on-top adjustment as unearned revenue from future costs or earned revenue from past costs.
As a result, EPA understated the fiscal 2001 balance of Advances Cashouts Non-Federal, and
overstated Miscellaneous Receipts Revenue Public Exchange, by $53,255,918. Although
Region 9 issued a corrected analysis of the special accounts, Financial Management Division
did not restate its financial statements to reflect the correction.
Recommendations
We recommend that the Office of Chief Financial Officer have the Financial Management
Division:
1-8. Restate the fiscal 2001 financial statements and adjust the fiscal 2002 financial
statements for the $53 million misstatement.
1-9. Implement internal controls to ensure that EPA complies with financial reporting
standards for reporting corrections of errors.
Agency Comments
The OCFO agreed with our findings and made corrections to the fiscal 2002 and 2001
financial statements.
1-9
-------
-------
Attachment 2
Compliance with Laws and Regulations
Table of Contents
Federal Financial Management Improvement Act
Noncompliance Issues 2
8 - EPA Progressed Toward Compliance with
Managerial Cost Accounting Standard 2-1
9 - EPA Continues to Experience Difficulties in Reconciling
Intra-Governmental Transactions 2-5
10 - Contract Payment System Not in Compliance with
Joint Financial Management Improvement Program System
Requirements 2-6
11- Fiscal 1999 FFMIA Remediation Plan Not Yet Completed 2-8
Other Noncompliance Issues
12 - EPA Not in Compliance with Food Quality Protection Act 2-10
13 - EPA Not in Compliance with Treasury Financial
Manual for Preparation of SF 224 2-11
2 We are reporting these noncompliance issues under FFMIA as they directly relate to FFMIA
reporting requirements; however, we note that the issues do not meet the OMB criteria for substantial
noncompliance under FFMIA.
-------
-------
8 - EPA Progressed Toward Compliance with
Managerial Cost Accounting Standard
During fiscal 2002 EPA did not comply with SFFAS No. 4, Managerial Cost Accounting
Concepts and Standards for the Federal Government. Specifically, EPA did not comply with
the requirement to provide costs per output to management in a timely fashion. Additionally,
under EPA's current cost accounting structure, when costs per output are produced, such costs
are not full costs and are not in sufficient detail to be useful to managers. However, EPA
recently created enhanced reporting capabilities that allow any EPA employee to determine
the cost of EPA outputs using the Financial Data Warehouse. We believe this action, along
with an additional initiative to expand cost accounting capabilities within EPA, allows us to
reduce the degree of noncompliance with the Standard. However, while the Agency can now
produce timely reports on costs per output, such reports do not include full costs such as grant
accruals. We believe the Agency still needs to go further to produce full cost reports that are
useful for managers.
Objectives and Purpose of the 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 in
paragraph 22 of the Standard. They include:
Provide program managers with relevant and reliable information relating costs of
outputs and activities. Based upon this information, program managers can respond to
inquires 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 and 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,
2-1
-------
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.
Some Cost Reports Are Being Used
EPA's accounting structure does provide a significant amount of financial information and
several Agency offices regularly produce reports which contain useful cost information.
Some examples of reports being used by managers as tools to administer programs are:
Reports are generated using the Financial Data Warehouse that show the amounts
committed, unliquidated obligations, and amount expended by GPRA objective.
The Office of Prevention, Pesticides and Toxic Substances' Special Review and
Reregi strati on Division uses a report that shows the amount obligated and spent on
each related goal, objective, and subobjective.
The Office of Research and Development uses a report that tracks budgeted amounts
and expenditures at the laboratory/center, division, and branch levels.
Region 3 uses a report which displays environmental programs and management
expenses by various categories (e.g., travel costs, material costs, etc.) for the
Chesapeake Bay Program.
Region 4 uses a report to track Leaking Underground Storage Tank (LUST) current
expenditures, unliquidated obligations, and future planned spending for each State by
LUST site.
Region 2 uses a report that depicts Brownfield program costs by recipient for all grants
and loans.
We believe that the financial information provided by these types of reports is useful for
managing EPA programs, and believe that other useful financial reports also may exist
throughout the Agency. The Standard requires EPA to report the full costs of its outputs in
general purpose financial reports. Because Agency defines its outputs as its sub objectives, we
believe that the Agency is required to report the full costs of its sub objectives. In fiscal 2002,
the Agency did not meet this requirement, but as of January 2003, using the Financial Data
Warehouse, any EPA employee can determine the cost of any Agency output. We do not
believe this completely meets the requirement for the Agency to report the full costs of its
outputs in general purpose financial reports, because it does not include costs such as grant
accruals. However, we believe this is a significant step towards meeting the requirements of
the Standard.
2-2
-------
We agree with the steps the OCFO is taking steps to expand the cost accounting information
available to EPA managers. The Agency should develop a standardized set of functional
reports and disseminate them for use throughout EPA program and regional offices. A
standardized set of cost accounting reports would help to ensure that cost accounting
methodologies are consistently applied throughout the Agency and would allow for
comparisons between EPA offices or among EPA programs. In addition, we look forward to
assessing the results of OCFO's current action plan to expand the use of meaningful cost
information at EPA. As part of that plan, OCFO intends to educate managers about the
benefits of cost accounting, determine the cost accounting needs of EPA's various programs,
and develop an effective and flexible cost accounting system. The plan relies on a business
intelligence reporting tool - Business Objects - to provide the Agency's standard financial
reporting system. The OCFO's plan anticipates that by the end of fiscal 2003, Business
Objects will provide EPA manager with useful, detailed, and timely cost information. We
commend OCFO for developing this plan and believe that effective implementation of the
plan should improve the quality and timeliness of EPA's cost information.
EPA Should Change its Cost Accounting Outputs
We believe one of the factors that hinders the quality of EPA's cost accounting information is
how OCFO has chosen to define its cost accounting "outputs." As stated earlier, the Standard
requires EPA to report the full costs of its outputs, and defines an output as "any product or
service generated from the consumption of resources." In Comptroller Policy Announcement
98-10, OCFO defines the Agency's outputs as its Program Results Code (PRC) subobjectives.
This definition creates a problem, because many of EPA's subobjectives do not conform to
the SFFAS No. 4 definition of an output - that is, they are not discrete products or services.
We would like to see OCFO change EPA's cost accounting outputs from the subobjective
level to discrete products or services generated by the Agency. We also think the Agency's
outputs should be redefined because, in many instances, reporting costs at the subobjective
level presents costs at too high a level to be useful to managers for activity-based assessments
and decision-making purposes.
We believe the Agency's cost accounting processes should enable managers to know the cost
of Agency efforts to meet Annual Performance Goals (APGs). Showing the costs associated
with each APG in EPA's Annual Performance Report would enable stakeholders to measure
the efficiency and effectiveness of EPA's accomplishments. We recognize that any changes
in the Agency's outputs should only be made after consultation with program and regional
managers, as well as with other stakeholders.
We recommend that the OCFO :
2-1. Set a goal to provide EPA managers with useful and timely reports that present the full
costs of their outputs and programs by the end of fiscal year.
2-2. Continue to implement the actions specified in the September 2002 plan to expand
cost information at EPA.
2-3
-------
2-3. Promote change of the Agency's cost accounting outputs, so they will represent
discrete products and services produced by the Agency.
Agency Comments and OIG Evaluation
The OCFO believes that they are complying with the Managerial Cost Accounting Standard
by preparing quarterly subobjective level reports, taking actions to execute the Agency's plan
for expanding cost information, and moving from 10 goals to 5 in the new Strategic Plan. We
recognize improvements that the Agency has made in the area of Cost Accounting and believe
that the new plan for expanding cost information will eventually provide managers the cost
information they need to manage. However, we do not agree with OCFO that the
subobjective level reports provide useful, timely, and full cost information.
2-4
-------
9 - 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
required supplementary information 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 Office of Chief Financial Officer issued a supplemental procedural policy in May 2001 to
assist finance offices in confirming and reconciling intra-governmental transactions. The
Office of Chief Financial Officer 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 a JFMIP 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.
Agency Comments
The OCFO agreed with our findings and will continue to participate in government-wide
initiatives to resolve difficulties of reconciling intergovernmental transactions between
agencies.
2-5
-------
10 - Contract Payment System Not In Compliance
with Joint Financial Management Improvement Program
System Requirements
During fiscal 2002, the Contract Payment System (CPS) was not in compliance with JFMIP
mandatory system requirement because no report existed to reconcile the total number of
dollars and transactions transferred daily between CPS and IFMS.
OMB Circular A-127 states that agency financial management systems shall conform to
existing applicable functional requirements, as defined in a series of publications issued by
the JFMIP. The JFMIP Core Financial System Requirements, dated November 2001, states
"the Core system must provide internal controls with the Application Program Interface (e.g.,
control totals, record counts) to ensure the integrity of received and processed transactions
(Technical Document-04)."
Rather than reconciling line counts and control totals for all batch transactions electronically
submitted to IFMS, the CPS staff relied on identifying and correcting rejected transactions.
As such, the CPS staff assumed that all transactions transmitted by CPS and not shown as
rejected within the IFMS Suspense File were posted correctly and completely within the
IFMS General Ledger.
As an additional compensating control, EPA management relied on reconciliations of CPS
data transferred from IFMS into the Financial Data Warehouse. Although CPS employees
were not responsible for monitoring the subsequent posting of transactions to the general
ledger, they periodically used Financial Data Warehouse data to follow up on and reconcile
specific transactions. It is important to note that a single transaction sent as part of the CPS
nightly interface could create multiple transactions in the general ledger, and cascade into
many tables within IFMS. As such, the manual reconciliation process was reserved for
transactions that needed additional attention. Our review also noted that neither the interface
between CPS and IFMS nor the one between IFMS and the Financial Data Warehouse used
batch controls that would ensure the integrity of the data, as required by JFMIP. We
concluded that current interface controls did not meet JFMIP requirements and could not
provide the intended level of assurance regarding the complete and accurate transfer of
contract payment information into the IFMS general ledger.
Subsequent to our review, CPS staff modified the IFMS Transaction Totals Report to include
a section that provides both dollar and line counts for the transactions received from CPS into
the IFMS suspense file. Management agreed to use this report on a daily basis to ensure that
the transactions transmitted by CPS were accurately and completely received within the IFMS
Suspense File. We did not review the newly created report or the new process as a part of this
audit.
2-6
-------
Agency Comments
The OCFO believes that the revised report satisfies the OIG's concerns.
2-7
-------
11 - Fiscal 1999 FFMIA Remediation Plan
Not Yet Completed
After 3 years, EPA had not yet completed two key action items from the Office of Chief
Financial Officer's 1999 Remediation Plan for achieving compliance with FFMIA
requirements. When an agency's systems do not significantly comply with FFMIA financial
management systems requirements, the agency must establish a remediation plan that
identifies the resources, remedies, and intermediate target dates necessary to bring the systems
into substantial compliance. The remediation plan must bring the agency's financial
management systems into substantial compliance no later than 3 years after the date the
determination was made, unless the agency identifies special conditions at the onset of the
plan. EPA established its Remediation Plan in 1999 and, at that time, assigned specific action
items and milestone dates to achieve compliance within the specified 3 year period.
In its August 2002 status report to OMB, Office of Chief Financial Officer management
reported that both Item #11 and #13 (further discussed below) were completed in June 2002.
However, subsequent examination disclosed that neither item had been completed by
September 30, 2002, as required by FFMIA. Both of these action items were to be completed
by program offices other than the Office of Chief Financial Officer. Item #11 called for EPA
to "implement a security certification process for key personnel," while Item #13 required the
Office of Environmental Information to establish a process for the Chief Information Officer's
independent review of security program effectiveness.
Item #11
Our review disclosed that the Office of Environmental Information had completed a proposal
to require more stringent levels of background checks for personnel based on the sensitivity of
their access to EPA systems and data. However, the Office of Environmental Information did
not possess the authority to enact the proposal. As such, they submitted the proposal to the
Office of Human Resources and Organizational Services, so it could be incorporated into
Agency policies and procedures. Our further review determined that the Office of Human
Resources and Organizational Services had not included this process in the Agency's Draft
Personnel Security Manual. Subsequent to fiscal 2002, when the Office of Human Resources
and Organizational Services had not finalized the Agency's Personnel Security Manual, the
Office Administration and Resources Management transferred the responsibility for
completing and issuing the draft manual to its Office of Administration. The Office of
Administration and Resources Management could not specify a firm date when all of the
security certification processes would be approved and implemented. In the interim, EPA
does not have a formal program in place to adequately address background investigations and
other personnel security issues for key personnel (employees, grantees, contractors, etc.).
Because Item #11 had not been completed by September 30, 2002, EPA was also in
noncompliance with the FFMIA requirement to complete its remediation plan actions within 3
years.
2-8
-------
Item # 13:
While the Office of Environmental Information had taken some independent oversight actions
involving security, it had not instituted policies or procedures that established a formal
process for the independent Chief Information Officer review of the effectiveness of the
security program. We informed management that we expected the process to:
Identify the major components of the Agency's Security Program, and
Establish a formal methodology that documents a systematic recurring approach for
evaluating the effectiveness of each of the components.
Subsequent to the period under review, the Office of Environmental Information finalized a
formal procedures document that established the process for an independent Chief
Information Officer review of the security program. We did not review the scope or
soundness of the Office of Environmental Information's procedures document as part of this
audit.
Recommendations
With respect to Item # 11, we recommend that the Office of the Chief Financial Officer:
2-4. Obtain an updated schedule with firm milestone dates from the Office Administration
and Resources Management as to when it will complete actions to establish a security
certification process for key personnel.
2-5. Revise the 1999 Remediation Plan to indicate the correct responsible office, and most
feasible date when the Office Administration and Resources Management will complete
the specified action necessary to bring the Agency into compliance with FFMIA.
2-6. Provide the revised 1999 Remediation Plan status report to OMB to disclose the changes
for Item #11.
Agency Comments
The OCFO agrees with the report recommendations and will obtain an updated schedule from
the Office of Administration and Resources Management for revamping the Agency's
personnel security program. Then, OCFO will revise the 1999 Remediation Plan and reissue
the Remediation Plan status report to OMB for Item #11.
2-9
-------
12 - EPA Not in Compliance with Food Quality Protection Act
EPA did not comply with the Food Quality Protection Act of 1996 for fiscal 2002 because the
Agency exceeded the limitation on the usage of maintenance fees. The Act stipulates that
maintenance fees should not exceed $17 million, and not more than one-tenth of these fees
should be used for personnel and resources for expedited processing and review. The Office
of Pesticide Programs collected approximately $16 million in maintenance fees in fiscal 2002,
and therefore did not exceed the $17 million threshold. However, the Office of Pesticide
Programs used approximately $2.2 million of the $16 million for expedited processing and
review, thus exceeding the one-tenth mandate by $600,000. Office of Pesticide Programs
officials said they were unaware of the new one-tenth requirement and instead used the old
requirement of one-seventh.
After we brought this issue to the attention of the Office of Pesticide Programs, that Office
partnered with payroll personnel to redistribute personnel and resource costs to reflect the new
one-tenth requirement for fiscal 2002. We commend the Office for addressing the issue in an
expeditious manner.
Recommendation
2-7. We recommend that the Director, Office of Pesticide Programs closely monitor
amendments to the Food Quality Protection Act to identify revisions that establish new
compliance requirements and ensure action is taken to comply with the requirements.
Agency Comments and OIG Evaluation.
The Office of Pesticide Programs agreed to closely monitor amendments to the Food Quality
Protection Act to identify any potential revisions that will impact compliance requirements.
2-10
-------
13 - EPA Not in Compliance with Treasury Financial Manual
for Preparation of SF 224
EPA did not complete the required SF 224 "Statement of Transactions" during fiscal 2002 in
accordance with Treasury guidance since it reported adjusted rather than actual amounts.
EPA reconciled its IFMS against external information available from Treasury, such as
CASHLINK and Intra-governmental Payment and Collection system, then adjusted the
SF 224 for differences found. Outstanding items or differences between IFMS and Treasury
were then reported on the SF 224 in suspense accounts (68F3875 or 68F3885) until receipt of
proper documentation (normally the following month), and then processed in IFMS.
However, by reporting adjusted IFMS amounts rather than EPA's actual general ledger
amounts, the Agency prevented differences from being reported by Treasury on the Statement
of Differences (Form 6652).
Treasury Financial Manual, Volume 1, Part 2 - Chapter 3300, Reports of Agencies for which
the Treasury Disburses (FMS Form 224), Section 3330, Preparation of FMS Form 224, states
"each reporting office will prepare the FMS form directly from its accounts promptly at the
close of each accounting month." However, instead of following this guidance, several
regions and finance centers followed desk procedures from 1995 that were not in compliance
with the Treasury Financial Manual. Preparing the SF 224 based on Treasury records rather
than EPA's actual general ledger amounts does not provide an accurate account of the
Agency's financial activity at the time of completion. This can result in a misstatement of
EPA's Fund Balance with Treasury as well as its annual financial statements.
Recommendations
We recommend that the Office of Chief Financial Officer:
2-8. Update desk procedures to adhere to Treasury Financial Manual requirements and
disseminate to all regions and finance centers for implementation.
2-9. Complete the SF 224 solely from finance accounts without referencing Treasury
accounts.
2-10. Discontinue including the adjusted amount on the SF 224, thus enabling Treasury to
report these amounts through the Statement of Differences (Form 6652).
Agency Comments
The OCFO agreed with our findings and recommendations. The OCFO formed a workgroup
to re-engineer and standardize current Agency financial processes relating to SF 224
reporting, reconciliation, and the Agency Fund Balance with Treasury. The workgroup has
developed a corrective action plan with milestones to address report recommendations.
2-11
-------
Attachment 3
Status of Prior
Audit Report Recommendations
EPA's position is that "audit follow-up is an integral part of good management" and
"corrective action taken by management on resolved findings and recommendations is
essential to improving the effectiveness and efficiency of Government operations." The Chief
Financial Officer is the Agency Audit Follow-Up Official and is responsible for ensuring that
corrective actions are implemented. To resolve long-standing audit recommendations, the
Deputy Chief Financial Officer formed an Audit Follow-Up Council in July 2000. The
Council reviews the progress on audit findings, discusses approaches to resolving audit issues,
and provides coordination and support across the Office of Chief Financial Officer on audit-
related matters. Council membership consists of the Deputy Chief Financial Officer, the
Office of the Chief Financial Officer Audit Follow-Up Coordinator, the Comptroller,
Comptroller Division Directors, and the Director of the Office of Planning, Analysis, and
Accountability.
Through its efforts, the Council has resolved several long-standing issues, and during the
audit of the fiscal 2001 financial statements, we noted substantial progress in completing a
number of corrective actions from prior years. In fiscal 2002, corrective action was
completed for EPA's interagency agreement invoice approval process, i.e., an automated
project officer notification system was implemented. The remaining issue areas from prior
financial statement audits, with corrective actions in process, are listed in the table on the
following page.
-------
Audit Issue Areas with Corrective Actions in Process
Automated Application Processing Controls for IFMS:
Improvements have been made, but there are continuing problems. Until EPA
implements the planned 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 information.
Financial System Security Plans:
The Agency reported that all planned corrective actions had been completed.
However, OIG auditors determined that two corrective actions had not been
completed as reported. Please see Attachment 2 for additional information.
Managerial Cost Accounting Standards:
In the audits of the fiscal 1999, 2000, and 2001 financial statements, we reported
that EPA did not comply with the managerial cost accounting standard. The Chief
Financial Officer, while acknowledging the desirability for continuing
improvements as envisioned by the standard, disagrees with our conclusion that
EPA did not comply with the standard. However, recent actions by the Agency in
enhancing reporting capabilities along with an additional initiative to expand cost
accounting capabilities allowed us to reduce the degree of noncompliance. Please
refer to Attachment 2 for details on this audit issue.
3-2
-------
-------
Appendix I
EPA's Fiscal 2002 and 2001
Financial Statements
-------
-------
January 2003
EPA's FY2002 CFO
AUDITED FINANCIAL
STATEMENTS
-------
-------
TABLE OF CONTENTS
Overview and Analysis 3
Principal Financial Statements 29
EPA's FY 2002 Annual Financial Statements Page 1
-------
Note: All components of EPA's FY2002 CFO Audited Financial Statements are
included in EPA '.s FY 2002 Annual Report (Publication Number: EPA-190-R-03-
001). The "Overview and Analysis" section of this report serves as Section I of the
Annual Report. The "Principal Financial Statements" section of this report is
contained in Section IV of the Annual Report.
Page 2
EPA's FY 2002 Annual Financial Statements
-------
OVERVIEW
AND
ANALYSIS
EPA's FY 2002 Annual Financial Statements
Page 3
-------
Page 4 EPA's FY 2002 Annual Financial Statements
-------
OVERVIEW AND ANALYSIS
INTRODUCTION
The United States Environmental Protection Agency (EPA) was established in 1970 to
protect human health and safeguard the environment. Since that time the Agency has worked
continuously to ensure that the American people have air that is safe to breathe, water that is
clean and safe to drink, and land that is protected from toxic chemicals and other hazards.
Consistent with the Government Performance and Results Act (GPRA), in 1997 EPA 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. These
goals and the accompanying statement of objectives and strategies to achieve results constituted
the Agency's first Strategic Plan under GPRA. In 2000, when the Agency released a revised
Strategic Plan, the goals were modified slightly. Each fiscal year, as required under 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 year. EPA is accountable to the
American people for making yearly progress toward its annual and long-term goals and is
required to assess that progress and report to Congress and the public. As a result, at the end of
every fiscal year, the Agency develops an Annual Report that describes the year's programmatic
and financial achievements.
This Annual Report is intended to provide a comprehensive assessment of the Agency's
fiscal year (FY) 2002 progress in protecting human health and the environment and in using
taxpayer dollars efficiently and effectively to do so. The Agency's FY 2002 performance results
were achieved by using a mix of tools and approaches and by adjusting strategies in light of the
performance assessments of previous years' accomplishments. Throughout the year EPA worked
closely with its primary partners-states, tribes and other federal agencies-whose contributions
were critical to many of the results described in the report.
EPA's FY 2002 Annual Report contains four main sections. First, this Overview and
Analysis is intended to provide a broad view of EPA's performance and fiscal accountability
over the past year.1 In discussing performance results, the Overview focuses on environmental
achievements, particularly under EPA's Goals 1 through 6. The Overview also presents
approaches and tools the Agency is using to improve managing for results, discusses significant
factors that might affect future Agency operations, and highlights EPA's accomplishments in
sound financial management.
Section II describes in greater detail the results that EPA-working with its federal, state,
tribal, and local government partners-achieved under each of the Agency's 10 goals. It also
presents progress in meeting the Annual Performance Goals established in EPA's FY 2002
Annual Plan and longer-range strategic goals and objectives identified in EPA's 2000 Strategic
1 The Overview and Analysis also addresses requirements for a "Management's Discussion and Analysis"
of the annual financial statements included in EPA's FY 2002 Annual Report. Because the FY 2002 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.
EPA's FY 2002 Annual Financial Statements
Page 5
-------
Plan. Section III discusses major management challenges EPA faced during the year and
presents the Agency's approaches and accomplishments in addressing the challenges. Finally,
Section IV summarizes EPA's financial activities and achievements and presents the Agency's
annual financial statements, which have been independently audited by EPA's Inspector
General.
PERFORMANCE RESULTS
During FY 2002 EPA and its partners, building on FY 2001 accomplishments, made
significant progress in protecting human health and the environment. The sections below
highlight key environmental and program results, summarize the Agency's performance in
meeting its FY 2002 performance goals, and discuss some of EPA's current performance issues
and concerns.
Environmental Accomplishments
Clean Air: Under EPA's Clean Air goal, the Agency and its partners made significant
progress in FY 2002 in reducing air pollution and protecting Americans-particularly children,
the elderly, and people with respiratory ailments-from the health risks posed by air pollution.
During FY 2002 EPA's state and tribal partners continued to work toward achieving or
maintaining the National Ambient Air Quality Standards, and the Agency provided guidance,
tools, and resources to help its partners meet their objectives. As a result, in FY 2002 more than
19 million Americans live in geographic areas newly designated by EPA as achieving clean air.1
In FY 2002 as EPA promulgated 13 new standards for toxic air pollutants, its state and tribal
partners implemented standards for toxic pollutants that were already in place.2 In FY 2002
emissions of toxic air pollutants nationwide from stationary and mobile sources combined were
reduced by an additional 1.5 percent, or 90,000 tons, from FY 2001 levels. This percentage
represents a cumulative reduction of almost 33.8 percent, or about 2 million tons, from the 1993
baseline of 6 million tons.3
Power-generating utilities regulated under the market-based Acid Rain Program continue
to achieve or exceed the required reductions for sulfur dioxide (S02) and nitrogen oxide (NOx).
Through FY 2001 S02 emissions continued to decline from their high of 17 million tons in 1980
to 10.6 million tons. NOx emissions were reduced by 2 million tons nationally during the same
period.4
Lastly, EPA issued emissions standards for several types of previously unregulated non-
road engines and vehicles that contribute to ozone formation and/or particulate matter emissions,
both which cause significant health concern. These standards apply to recreational vehicles,
diesel marine engines, and large industrial spark-ignition engines. When the standards are fully
implemented, EPA expects an overall 72 percent reduction in hydrocarbon emissions from such
engines, an 80 percent reduction in NOx emissions, and a 56 percent reduction in carbon
monoxide emissions annually. These controls will improve visibility in national parks and
wilderness areas and reduce exposure for people who operate, work with, or are close to these
engines and vehicles. The annual human health benefits of this rulemaking include avoiding
about 1,000 premature deaths, preventing 1,000 hospital admissions, reducing asthma attacks by
23,400, and preventing 200,000 days of lost work. In monetary terms, EPA estimates these
Page 6
EPA's FY 2002 Annual Financial Statements
-------
health benefits to be worth roughly $8 billion per year when the standards are fully
implemented.5
Clean and Safe Water: In FY 2002 EPA continued its work to ensure that all Americans
have drinking water that is clean and safe to drink; that the country's rivers, lakes, wetlands,
aquifers, and coastal and ocean waters are healthy; and that watersheds and aquatic ecosystems
are restored and protected. During FY 2002, 91 percent of Americans who obtained their
drinking water from community water systems received drinking water that met all EPA health
standards.6
EPA and its partners worked in FY 2002 to increase the security of the nation's drinking
water supplies and wastewater systems and protect them from potential terrorist attacks. Since
November 2001 about 6,000 drinking water and wastewater plant managers and operators have
received security training in assessing the vulnerabilities of their water supply systems,
developing emergency and response plans, and communicating risks to communities. EPA
expects that the drinking water supplies of more than 120 million people, or nearly half the
population served by the nation's community water systems, will be more secure as a result of
the greater awareness fostered by this FY 2002 training. Lastly, in FY 2002 EPA developed a
protocol for ensuring the safe disposal of wastewater from the cleanup of anthrax-contaminated
sites.
Safe Food: Throughout FY 2002 EPA worked to ensure that the nation's food supply is
safe from risks posed by pesticide residues. Through its pesticide registration program, EPA
made available to the agricultural community alternatives to currently used pesticides posing
risks to human health and the environment. EPA registered an alternative to methyl bromide, 9
organophosphate alternatives, 11 bio-pesticides, and 4 conventional reduced-risk pesticides. The
Agency also completed its first-ever cumulative risk assessment of a group of pesticides that
have a common mechanism of toxicity or a common effect on the human body. This risk
assessment evaluated how much risk a group of pesticides posed to human health by estimating
human exposure to the pesticides through food, water, skin, and inhalation in residential and
public settings in this country. By continuing to conduct cumulative risk assessments in
FY 2003, EPA will be able to determine whether the risks posed by groups of similar pesticides
meet the current safety standard required by the Food Quality Protection Act of 1996.
Preventing Pollution and Reducing Risk in Communities. Homes. Workplaces, and
Ecosystems: In FY 2002 EPA continued its work to reduce risk in communities, homes,
workplaces, and ecosystems. In FY 2002 the Agency launched a national advertising campaign
coupled with a major outreach effort, cosponsored by EPA and key medical, consumer, and
community organizations, to protect the more than 15 million children who are exposed to
secondhand smoke in their homes. In addition, in FY 2002 the Agency, working cooperatively
with the chemical industry, established the Voluntary Children's Chemical Evaluation Program.
Under this program 35 chemical manufacturers and 10 consortia have volunteered to sponsor and
respond to risk assessments for 20 chemicals to which children have a high likelihood of being
exposed. Further, during FY 2002 EPA, in partnership with states, facilitated the safe disposal of
more than 10,000 transformers and 22,000 large capacitors containing a group of toxic chemicals
EPA's FY 2002 Annual Financial Statements
Page 7
-------
known as polychlorinated biphenyls, or PCBs. Finally, in FY 2002 nearly 1,000 hospitals across
the country enrolled in EPA's Hospitals for a Healthy Environment program, which seeks to cut
the waste generated by hospital facilities in half and to eliminate the use of mercury, a toxic
chemical.
Better Waste Management. Restoration of Contaminated Waste Sites, and
Emergency Response: To better protect this nation's land, EPA continued to promote safe
waste management, clean up hazardous waste sites, return abandoned or underutilized industrial
and commercial properties to productive use, and respond rapidly and effectively to waste-
related accidents and emergencies. During FY 2002 EPA's emergency response program
supported the environmental cleanup at the World Trade Center (WTC) and the Pentagon. EPA
employees monitored these locations for toxic and other air pollutants released from the burning
of building contents (particularly from plastics and computers), assisted with waste management,
advised on cleanup and decontamination, and provided information to the public. At the WTC
EPA was the federal lead on environmental contamination. When outbreaks of anthrax
bioterrorism occurred during October 2001, the Agency's response personnel led the effort to
clean up and decontaminate six post offices in Florida and four congressional office buildings in
Washington, DC. Success in this area depended on counterterrorism research, planning, and
preparedness at the federal, state, and local levels.
In FY 2002 the Agency exceeded its performance goal of completing the cleanup of 40
Superfund sites by achieving "construction completes" at 42 sites on the Superfund National
Priority List. In addition, the Brownfields Program leveraged more than $4.8 billion in public
and private investments and resulted in more than 21,000 jobs in cleanup, construction, and
redevelopment from 1995 through June 2002. The primary goal of EPA's Brownfields Program
is to provide states, tribes, and local governments with the tools and financial assistance they
need to assess, clean up, and redevelop Brownfield properties. Since 1995, 3,807 properties have
been assessed using federal funds. The job training and development demonstration pilots have
trained more than 1,200 participants, of whom more than 750 have obtained jobs.
Reduction of Global and Cross-Border Environmental Risks: By working
collaboratively with other countries, international organizations, and U.S. federal agencies, EPA
provided U.S. leadership in addressing global environmental challenges. For example, EPA and
the Government of Mexico-in cooperation with other federal agencies, the 10 states along the
U.S.-Mexican border, and participating tribes-drafted a new "Border 2012" environmental
program. This program will protect the environment and the 11.8 million people living near the
border over the next 10 years by, among other things, providing potable drinking water and
wastewater services, reducing the health and water quality risks posed by discarded tire piles and
exposure to pesticides, and addressing the high rates of asthma in children living near the border.
Further, at the World Summit on Sustainable Development in Johannesburg, South Africa, in
August and September 2002, EPA announced new global partnerships to develop children's
environmental health indicators, reduce indoor air pollution, eliminate lead from gasoline, and
reduce sulfur in vehicle fuels.
Page 8
EPA's FY 2002 Annual Financial Statements
-------
A Credible Deterrent to Pollution and Greater Compliance with the Law: In
FY 2002 EPA took significant actions to promote and monitor compliance with environmental
laws as well as to enforce the laws as appropriate. During FY 2002 EPA helped small and
medium-sized businesses, local governments, and federal facilities to understand and to comply
with their environmental regulatory obligations through 10 Internet-based Compliance
Assistance Centers.
During FY 2002 EPA concluded several enforcement settlements that significantly
advanced environmental and human health protection. In FY 2002 EPA's Enforcement and
Compliance Assurance Program eliminated 266 million pounds of pollution from the air, water,
and land, and compelled violating companies to invest $56.4 million in environmental
improvements. For example, EPA reached a settlement to end the discharge of an estimated 30
million gallons a year of untreated wastewater contaminated with bacteria, pathogens, and other
harmful pollutants into the Baltimore harbor. Also during FY 2002 a judicial action was
concluded against a large brass fitting company in Alabama for violations of the Resource
Conservation and Recovery Act. Illegal treatment of hazardous waste foundry sand at the facility
resulted in lead-contaminated sand which the company then donated to city and county
governments for use as fill on playgrounds and ballfields. The settlement will eliminate public
contact with the sand. Under another settlement reached in FY 2002, a large energy utility in
New Jersey will spend $337 million to install state-of-the-art pollution controls to reduce its
emissions of S02 by 90 percent and NOx by more than 80 percent, eliminating about 54,000 tons
of air pollutants per year.
Other Agency Accomplishments and the President's Management Agenda (PMA)
To successfully protect human health and the environment, EPA recognizes that it must
develop and apply the best available science in carrying out its programs, function effectively as
an organization, serve the public responsively, and use its resources wisely. For example, to
improve its understanding of environmental risk as well as its ability to detect and address
emerging environmental problems, in FY 2002 the Agency produced a modeling framework for
estimating human exposure to pollutants through multiple environmental media (e.g., air, water,
food) and multiple pathways. This framework will help the Agency in assessing and managing
risks for a variety of pollutants, such as pesticides and toxic air pollutants and in protecting
children and other susceptible subpopulations from harmful exposures. Further, during FY 2002
EPA developed two innovative computer software programs that allow industry and state and
local decision makers to apply the best available science to (1) estimate the potential
environmental impact of chemical process designs, and (2) evaluate the inhalation impact of
metal finishing facilities on workers and nearby residents. (Refer to Goal 8 for more
information.)
In FY 2002 EPA also made significant progress in ensuring that it has safe, healthy,
energy-efficient office facilities and laboratories to support its work and employees. During
FY 2002 EPA completed the new state-of-the art laboratory facilities in North Carolina and
Kansas that will enable the Agency to better address the environmental scientific challenges of
EPA's FY 2002 Annual Financial Statements
Page 9
-------
the 21st century. In January 2002 EPA's Massachusetts laboratory facility received a White
House "Closing the Circle Award" for its environmental performance. Finally, EPA completed
its relocation to the newly renovated buildings in the Federal Triangle complex in Washington,
DC. This project began in 1993 and involved the design and renovation of 1.3 million square feet
to support the work of 5,500 EPA employees. (Refer to Goal 10 for more information.)
EPA's senior managers recognize that managing the organization and its resources
effectively is key to achieving long-term environmental results. The Agency's most significant
accomplishments in this area occurred as it addressed the five areas identified in the President's
Management Agenda (PMA)7, the Administration's strategy for improving the management and
performance of the federal government. In FY 2002 the President's Office of Management and
Budget (OMB) credited EPA for taking major steps forward in each of the five areas. OMB's
PMA scorecard8- used to rate agencies on each initiative using a "score" of red, yellow or
green-designated EPA's progress as green in all five areas, marking EPA as 1 of the 2 agencies
out of the 24 CFO agencies accomplishing this progress rating as of September 30, 2002.
Improved Financial Performance: This area of the PMA calls for reducing erroneous
payments and ensuring that federal financial systems produce accurate and timely information to
support operating, budget, and policy decisions. EPA made significant progress in FY 2002 in
improving its financial performance by reviewing internal controls to assess the potential for
making erroneous payments under the State Revolving Funds managed by the water program,
submitting the final FY 2001 financial statements on time with clean audit opinions, and issuing
interim financial statements on schedule. The Agency also made great strides in the grants arena
by issuing a grants competition policy, appointing a senior executive as the Agency Grants
Competition Advocate, establishing an internal web site to facilitate implementation, and
providing training on the policy. EPA also made significant progress in FY 2002 by correcting
all four of its current material weaknesses-deficiencies in program policies, guidance, or
procedures that might impair EPA's ability to achieve its mission-under the Federal Managers
Financial Integrity Act.
Budget and Performance Integration: This area focuses on linking resources to
performance, using program evaluation in planning and budget decision-making, and improving
accountability for performance. As one of the few agencies with an integrated, goal-based
budget, EPA has long been a leader in budget and performance integration consistent with the
PMA. In FY 2002 the Agency made good progress addressing the PMA criteria for this area,
including developing a methodology to include social costs in the Agency's revised strategic
plan. EPA's selection as a finalist for the President's Quality Award in the area of budget and
performance integration distinguished the Agency government-wide.
Expanded Electronic Government: This area seeks to make it easier for people to
receive high quality government services through the Internet, while reducing the cost of
delivering those services. In FY 2002 EPA was recognized by OMB as a model partner for its
work under 14 E-government projects that use information technology to improve environmental
decision making, eliminate redundant activities across multiple federal agencies, and achieve a
Page 10
EPA's FY 2002 Annual Financial Statements
-------
more seamless, citizen-centered provision of services. EPA also was designated to be the
managing partner and lead agency for the Online Rulemaking Initiative, which will make the
rulemaking process more transparent to citizens and businesses.
Strategic Management of Human Capital: This area calls for ensuring that an agency's
human capital strategy is aligned with its mission and organizational objectives. EPA uses its
Human Resource Council, made up of senior managers from across the Agency, as a forum to
discuss key human resource issues and provide direction for its human capital efforts. In FY
2002 EPA launched a Senior Executive Service Candidate Development Program, hired a group
of highly skilled and educated EPA interns, and provided grants competition training for current
EPA employees, all aimed at improving and enhancing EPA's human resources. The Agency
also is aligning its human capital strategy with its revised Strategic Plan to help build the skills
and competencies needed in its workforce to carry out the Agency's mission and to strengthen
employee recruitment and retention.
Competitive Sourcing: This area of the PMA focuses on achieving greater efficiencies
in program administration and effective competition between public and private sources. EPA
has embraced the President's competitive sourcing initiative, and is committed to introducing
more competition into the activities EPA performs. By doing so, the Agency can improve how it
protects the environment and human health. Competitive sourcing provides EPA with an
opportunity to take a fresh look at how the Agency conducts operations, to reevaluate what EPA
does as well as how it is done, to generate greater value for the taxpayer, and to introduce
efficiencies to business processes. In FY 2002 the Agency completed all targeted conversions
and 100 percent of the combined FY 2002/2003 competitive sourcing goal. EPA also launched
an Agency-wide competitive sourcing team to develop recommendations for a strategic and
sustainable approach to competitive sourcing. The team's report will include an analysis of
Agency-wide, cross-cutting functions and activities that can be bundled as possible candidates
for further study and competition with the private sector as well as a proposed framework for
conducting competitive sourcing at EPA.
Summary of Performance Data
In FY 2002 EPA met 48 (83 percent) of the Annual Performance Goals (APGs) for which
data are provided in this report. (EPA identified 71 APGs in its FY 2002 Annual Plan; however,
final results for 13 of these APGs are not available until FY 2003 or later, and will be discussed
in future annual reports.) This reflects an improvement over the total percentage of goals met in
FY 2001. The goal chapters in Section II include charts that present EPA's FY 2002
performance results and highlights of 4-year performance trends (FY 1999-FY 2002).
During FY 2002 final performance results data became available for six FY 2001 and
two FY 2000 APGs. For example, the Agency met its FY 2001 goals for reducing greenhouse
gas emissions and consumption of ozone depleting substances as well as S02 and NOx emissions.
EPA can now report achievement of 46 (69 percent) of the 67 APGs for which it has FY 2001
data. For FY 2000 EPA can now report achievement of 58 (82 percent) of the 71 APGs for
EPA's FY 2002 Annual Financial Statements
Page 11
-------
which it has performance data. Delays in reporting cycles and targets set beyond the fiscal year
continue to affect three FY 2001 APGs, two FY 2000 APGs, and four FY 1999 APGs.
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 2002. However, the Agency does not expect the shortfall in meeting these
APGs to compromise progress toward achieving its long-range goals and strategic objectives.
For 4 of the 11 missed APGs, EPA fell only slightly short of the targets and met the cumulative
goals.
External factors contributed to seven of the missed APGs. For example, EPA had
anticipated that 10 areas would be redesignated from non-attainment to attainment of the ozone
standard in FY 2002, but fell considerably short of that goal. Several states previously revocated
for the 1-hour ozone standard decided not to redesignate and instead wait for implementation
guidance for the new 8-hour ozone standard. As long as issues remain concerning the move
toward the more protective 8-hour ozone standard, states are reluctant to request redesignation to
the current 1-hour ozone standard.
EPA had anticipated that six areas would be redesignated to attainment of PM standards,
but due to delays in the redesignation process for one state and the failure of a second state to
submit a maintenance plan as scheduled, only four areas were redesignated to attainment.
Despite these difficulties, EPA and states continue to work together to ensure progress in
meeting the present ozone and PM standards while facilitating a smooth transition as new
standards are implemented.
In addition, under its goal to achieve Credible Deterrent to Pollution and Greater
Compliance with the Law, EPA anticipated a pollution reduction of 300 million pounds of
pollutants due to enforcement settlement provisions, an estimated target based on the results of
concluded enforcement actions from previous years. In FY 2002 only 266 million pounds of
pollutants were reduced. The Agency does not establish quotas for the number of enforcement
cases to be pursued, and estimated pollution reduction targets sometimes vary widely from year
to year. EPA greatly exceeded the targets for pollution reduction in FY 2000 and FY 2001. The
Agency continues to direct enforcement actions to maximize compliance and address
environmental and human health problems.
One final example of external factors contributing to performance shortfalls is the
Agency's leaking underground storage tank (LUST) program, which oversees cleanup of
releases from underground storage tanks containing gasoline, other petroleum products, or
hazardous substances. In 2002 EPA and its state partners completed 15,769 cleanups, for a total
of nearly 284,000 since 1987. The FY 2002 target of 22,000 cleanups was not met due to the
presence at many sites of the contaminate methyl tertiary butyl ether (MTBE), a gasoline
additive, which has complicated cleanup and resulted in longer-than-expected cleanup times and
higher-than-expected cleanup costs at LUST sites. MTBE contamination also led to the
Page 12
EPA's FY 2002 Annual Financial Statements
-------
reopening of previously closed sites in 12 states, thus deflecting resources from completion of
other cleanup sites.
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 point sources. NPDES permits help
reduce or eliminate discharges into the Nation's waters of inadequately treated wastewater from
municipal and industrial facilities and of pollutants from urban stormwater, combined sewer
overflows, and concentrated animal feeding operations. In FY 2002 permits issued covered only
83 percent of the targeted 90 percent of major point sources. While EPA is making progress to
address the permit backlog, the missed target can be attributed to a number of factors including
complexities associated with integrating individual permits with watershed and other planning
processes.
In summary, EPA and its partners did not meet 10 of the 58 FY 2002 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 various causes of these shortfalls-legal issues,
redirection or shortages of staff, continued complexities in cleanup processes, technological
limitations, and other factors-as it adjusts APGs and program strategies for FY 2003 and sets
priorities for 2004 and beyond. The performance data charts in Section II provide more complete
information on missed targets and discuss Agency progress toward achievement of its strategic
goals and objectives.
IMPROVING RESULTS
In FY 2002 EPA strengthened its ability to achieve environmental results and measure its
performance. The Agency's Managing for Improved Results Steering Group, composed of senior
managers from across EPA, examined a number of current management practices-including
priority-setting, planning and budgeting, and performance tracking and reporting-with an eye
toward dramatically improving them. In FY 2002 the group finalized a set of short- and long-
term recommendations for improving EPA's results-based management processes. Many of the
short-term recommendations were implemented in FY 2002 and have become the driving force
behind development of EPA's FY 2004 budget and the 2003 revision of the Agency's Strategic
Plan.
For example, in FY 2002 EPA institutionalized a process for developing its annual
funding request by analyzing the previous year's results and engaging partners and stakeholders
to identify priority areas. This process focused on the Agency's ability to fulfill commitments set
forth in its Strategic Plan. It included a series of meetings on each of the 10 strategic goals with
the Deputy Administrator and Chief Financial Officer to examine the Agency's performance and
identify areas where EPA is not achieving its intended results. Taken together, the
recommendations that the Results Group developed in FY 2002 will improve the alignment of
day-to-day activities with strategic goals and objectives; improve accountability between EPA's
headquarters and regional offices; strengthen the involvement of the Agency's 10 regions, states,
EPA's FY 2002 Annual Financial Statements
Page 13
-------
and tribes in EPA's planning and priority-setting processes; and build the capacity of Agency
managers and staff in managing for results.
In addition in FY 2002, 11 EPA programs, accounting for 20 percent of EPA's budget,
were evaluated using the Administration's new Program Assessment Rating Tool (PART),
which aims to identify opportunities for federal agencies to improve strategic planning,
management, and results of its programs. The results of PART analyses, which showed that
some programs have insufficient data, reinforced the need for EPA to continue its progress in
identifying outcome-based goals and measures to better link its activities to actual improvements
in health or ecosystem quality. In FY 2003 OMB plans to conduct PART reviews for another 20
percent of the Agency's programs during the FY 2005 budget formulation process.
As discussed below, in FY 2002 EPA strengthened other areas critical to its ability to
achieve long-term results: (1) collaborating with its partners, (2) conducting and applying the
results of program evaluations, (3) tracking and measuring performance, (4) addressing
environmental performance data issues, and (5) anticipating future trends and issues.
Strengthening Partnerships
Many of the FY 2002 advances in environmental protection discussed in Section II
would not have been possible without strong collaboration between EPA and its federal, state,
local, and tribal partners. EPA continues to collaborate closely with states and tribes and is
committed to strengthening vital partnerships with organizations such as the Environmental
Council of the States (ECOS) and the Tribal Caucus. EPA envisions a stronger role for states and
tribes in its annual planning and budgeting and has been striving to involve them early in these
processes. In FY 2002 ECOS and tribal representatives participated in EPA's FY 2004 Annual
Planning Meeting to present recommendations for the Agency's FY 2004 budget priorities.
Similarly, during FY 2002 EPA regional offices consulted with states and tribes on overall EPA
budget priorities and developing regional budget initiatives.
Apart from soliciting state input and participation in its annual planning processes, EPA
worked closely with ECOS and other state organizations in FY 2002 as it began to revise its
long-range Strategic Plan. In spring 2002 EPA solicited state views on the greatest challenges
and opportunities in environmental and human health protection that the Agency and the nation
would likely face in the coming 5 to 10 years. These views were taken into account as the
Agency developed options for a new strategic goal framework. The Agency's managers shared
these goal framework options with ECOS, carefully considering the state feedback as they
developed their recommendations for EPA Administrator Whitman. In July 2002, after the
Administrator announced a new five-goal structure, EPA continued consulting with states to help
determine more precisely the desired results to be achieved under each of the new strategic
goals. EPA will continue to consult extensively with states in completing the 2003 Strategic Plan
and will carefully consider state priorities and issues as it develops the objectives, strategies, and
approaches for achieving the Agency's new strategic goals.
Page 14
EPA's FY 2002 Annual Financial Statements
-------
EPA and several states, through an ECOS Ad Hoc Committee, conducted a joint system
evaluation of the National Environmental Performance Partnership System (NEPPS) during
FY 2002. The evaluation reviewed the accomplishments of Performance Partnerships and
barriers to further improvement in results-based partnering with states. Recommendations from
this evaluative process pull together and build upon other Agency efforts such as the Managing
for Improved Results initiative, Indicators project, and the new EPA Innovations Strategy. The
Agency will work with selected states in FY 2003 to model having the Performance Partnership
Agreement (PPA) become the definitive operating agreement between the Agency and a state. A
complementary effort to improve the value of Performance Partnership Grants (PPGs) is also
underway with anticipated benefits in flexibility and reduced transaction costs to be realized in
FY 2003 and beyond.
During FY 2002 EPA also continued to work closely with tribal governments to identify
priorities, improve management of environmental issues, and help develop the capacity to carry
out environmental programs in Indian Country. For example, in FY 2002 EPA developed a
highly accessible database containing environmental profiles of 300 federally recognized tribes.
This new database includes historical information, maps, geographic dimensions, inventories of
regulated facilities, governmental structure, descriptions of wastewater and drinking water
facilities, grant activities, and the status of environmental programs for each individual tribe.
EPA also developed resource materials useful to both the tribes and the Agency in managing
tribal grants and maintaining quality grant oversight. The Agency worked closely with
authorized tribes to publish the brochure How Water Quality Standards Protect Tribal Waters,
an informative tool for citizens, tribes, and other stakeholders.
During FY 2002 EPA continued to collaborate with other federal agencies on a wide
variety of programs with environmental protection benefits. EPA developed and managed the
WTC Multi-Agency Database, which provided decision makers from 13 government and private
partner organizations at the WTC site with access to the results of environmental monitoring. In
FY 2002 the Agency also developed a Compendium of Environmental Programs, an interactive
Web-enabled database that catalogues and cross-references the environmental programs of 29
federal departments and agencies for use in their collaborative planning, implementation,
program evaluation, and resource sharing.
In FY 2002 EPA teamed with the Department of the Army and the Department of
Defense Logistics Agency to implement alternatives to ozone-depleting halons used in fire
protection. EPA and its two Defense Department partners also began jointly investigating
environmentally friendly options for destroying stockpiles of certain ozone-depleting substances.
Also, because of a strong partnership between EPA and the U.S. Forest Service, the U.S. Fish
and Wildlife Service, and the Natural Resources Conservation Service, as well as state and local
governments in Maryland, Pennsylvania, and Virginia, EPA exceeded its commitment to reduce
nonpoint source pollution and restore important forest areas near local waterways and the
Chesapeake Bay. As a result EPA and its partners are ahead of schedule to restore 2,010 miles of
critical riparian forest areas by 2010 and in FY 2003 will set new goals to extend this restoration.
EPA's FY 2002 Annual Financial Statements
Page 15
-------
Further, working with its federal partners in FY 2002, EPA was able to clean up five
Superfund sites at federally owned facilities. EPA also entered into a partnership with the
National Oceanic and Atmospheric Administration to promote coastal resource protection
through smart growth in coastal areas. This collaboration provides developers, local
governments, infrastructure providers, and others with information, technical assistance, and
recommendations regarding best practices to minimize the detrimental environmental impacts of
growth in these sensitive areas.
Using Program Evaluation
During FY 2002 EPA continued to build Agency-wide capability to effectively conduct
program evaluations and analyses that inform management decisions, enhance organizational
learning, promote innovation, and foster better environmental results. For example, in FY 2002
EPA conducted an evaluation to assess how effectively the Agency's Clean Air Program is using
its resources to build tribal capacity for addressing air quality in Indian Country. The evaluation
noted the success that EPA has had since 1995 in increasing the number of tribes participating in
the Clean Air Program, but also recognized the significant remaining need for support, expertise,
and coordination in Indian Country. The evaluation led to 30 recommendations for improving
EPA's approaches to addressing air problems in tribal lands. EPA began implementing many of
the recommendations in FY 2002 before the evaluation was complete, and several more will be
implemented over time.
In an FY 2002 report, the General Accounting Office (GAO) recognized EPA's
Compliance Assistance Program as one of five federal public information dissemination
programs employing useful program evaluation strategies that could serve as a model for other
federal agencies.9 GAO also found that EPA's Compliance Assistance Program is the only
program that had developed an approach for measuring the long-term health and environmental
outcomes or benefits resulting from its program. In many cases, the positive environmental
effects of complying with environmental requirements could be seen relatively quickly. To
continue to promote such program evaluation efforts and help foster environmental program
evaluation as a nationally recognized discipline, EPA launched a Web-based "gateway" in
FY 2002, linking environmental program evaluation information within EPA and with
information resources outside the Agency.10 In FY 2003 EPA will continue to add relevant
information to this site, specifically focusing on new developments and new information from
states, tribes, and the academic community.
Improving Environmental Indicators and Performance Measurement
During FY 2002 EPA made significant progress in developing and improving
environmental indicators and performance measures to measure and assess the Agency's results
over the next several years. For example, in FY 2002 EPA began work on an Agency-wide
Environmental Indicators Initiative. Environmental indicators are measurements of
environmental conditions over time. Indicators help measure the state of air, water, and land
resources; the pressures on them; and the resulting effects on ecological and human health. The
Page 16
EPA's FY 2002 Annual Financial Statements
-------
purpose of the Environmental Indicators Initiative is to improve the Agency's ability to report on
the status of and trends in environmental conditions and their impacts on human health and the
nation's natural resources. As a first step, in FY 2002 EPA collected currently available data and
indicators and began drafting a report on the environment, which it plans to release for public
comment in FY 2003.
In FY 2002 the Agency continued to increase the environmental outcome orientation of
its annual performance goals and measures (APGs and PMs) that are used to plan and budget
resources. EPA recognizes that to use its resources wisely, it should measure the results it is
achieving with respect to environmental protection in terms of outcomes such as cleaner air and
cleaner water. During FY 2002 the Agency increased the percentage of environmental outcome-
oriented APGs tied to its annual budget by 7 percentage points while increasing the percentage
of outcome-oriented PMs by 11 percentage points.11 In addition, the Agency streamlined its
APGs and PMs by consolidating two overlapping sets of goals and measures into a single, more
easily understandable set for EPA's FY2004 Annual Plan and Budget.
In FY 2002 the Agency also worked to develop improved performance measures in a
number of highly focused projects. For example, during FY 2002 new draft measures were
developed for assessing the impact in future years of the Agency's planned implementation of
provisions relevant to international technical assistance in the Stockholm Convention on
Persistent Organic Pollutants (POPs). In this case measures of current activities, such as
inventorying stockpiles of POPs, were tied to the more important externally reported measures of
POPs stockpiles collected and destroyed. When appropriate, the Agency can use such external
measures for external communication as well as management.
Finally, during FY 2002, in an effort to develop more useful measures, the Agency
selected several performance measurement improvement projects to fund via an Agency-wide
competition. Two examples of these projects include developing outcome PMs for EPA's
Brownfields Program and evaluating a measure of the effects of harmful pesticides on bird
populations.
Improving Data Quality
During FY 2002 the Agency continued to improve its ability to detect and correct errors
in environmental data, standardize reporting, and exchange and integrate electronic data and data
quality information among its federal, state, and local data-sharing partners. In FY 2002 EPA
completed work on an internal set of Information Quality Guidelines to help ensure that the
information the Agency provides to the public is of the highest quality.12 These guidelines were
developed using an electronically enhanced public participation process, and they contain EPA's
policy and procedural guidance for maximizing the quality of the information the Agency
disseminates. The guidelines also contain new Agency procedures for individuals to seek and
obtain correction of information collected by EPA that might not comply with these information
guidelines. The information contained in the Performance Data Charts in Section II -
EPA's FY 2002 Annual Financial Statements
Page 17
-------
Performance Results relative to data quality references can be found in Appendix B - Data
Quality for Assessment of FY 2002 Performance.
This FY 2002 Annual Report is one of EPA's first publicly released documents to apply
the guidelines to the data on which the Agency's performance is being measured. The report
documents, to the extent possible, the quality of the Agency's performance data; makes
transparent the methods of analysis and data manipulation; and references data sources. Most of
this information is captured in Appendix B. That appendix also explains how EPA's program
offices use well-established and robust Agency policies and procedures to ensure data quality,
such as the quality system, peer review process, Inspector General's audits, and other error
correction processes. Appendix B also discusses the limitations of the performance data
contained in this report, as well as data lags in reporting progress toward some FY 2002 goals.
During FY 2002 EPA undertook several other initiatives to improve the quality of its
environmental data. For example, EPA's Science Advisory Board Executive Committee began
investigating commonly accepted means by which the scientific community communicates
information, analyses, and findings. In addition, EPA's Science Policy Council began work on
developing assessment factors for use in reviewing the quality of data submitted to the Agency
by third parties. Lastly, EPA's National Health and Environmental Effects Research Laboratory
developed and tested software to capture, sort, store, and retrieve the wealth of scientific data
developed by EPA's research organizations.
Considering Future Trends
During FY 2002 EPA continued to look to the future to identify potential new challenges
and opportunities for human health and environmental protection. The Agency recognizes that in
addition to addressing long-standing environmental protection issues, it must try to anticipate
and plan for future developments. The future will be marked by increased rates of change and
greater uncertainty about the responses of complex biological, ecological, social, and political
systems. EPA is exploring ways to keep pace with these developments by looking ahead to better
understand potential threats, such as global warming. Further, the Agency and its partners
increasingly recognize that many world developments are likely to present opportunities to
further develop environmental protection efforts.
Population growth and the way resources are consumed to sustain this growth are altering
the earth in unprecedented ways. The earth's population now exceeds 6 billion. Over the next 25
years this total will increase by nearly 2 billion, largely in developing countries. By 2025 an
estimated 2.7 billion people will live in areas experiencing severe water scarcity, creating the
potential for regional conflicts over water rights. In the United States, growth in the South and
Southwest will pose water management problems such as substantial water and wastewater
infrastructure maintenance, aquifer depletion, and surface water contamination. The expected
unprecedented population growth will also affect the Agency's long-standing environmental
concerns, such as air quality. Urbanization of undeveloped areas, for example, will likely
Page 18
EPA's FY 2002 Annual Financial Statements
-------
increase demands for transportation, potentially leading to more vehicle miles traveled and
increased emissions of pollutants.
Today's world is on the edge of a far-reaching industrial transformation. A number of
recent technological developments and advances will pose new issues for human health and
environmental protection. Scientists have deciphered the human genome and the genomes of
many other organisms, including rice, the food most consumed throughout the world. A number
of patents have been filed for a new type of technology where devices are built using single
atoms and molecules; i.e., nanotechnology. EPA may need to examine the impact that
nanotechnology might have on human health and the environment and also to explore
opportunities to foster more environmentally benign technologies that use fewer resources and
less energy. Production of industrial biotechnology products, such as pharmaceuticals raised as
crop plants, is growing and might present environmental and human health protection issues. In
the area of research advances, scientists might soon be able to ascertain whether current droughts
are a normal variation of the earth's weather patterns or an increasingly likely phenomenon due
to the effects of climate change. To plan for the future, EPA and its partners must consider these
and other technological and scientific advances and the implications they hold for environmental
protection work.
During FY 2002, as part of its strategic planning work, EPA completed several efforts to
assist managers and staff in adopting a longer-range, futures perspective and in applying their
findings to planning activities. In May 2002 senior Agency managers met to discuss emerging
issues in environmental protection. The managers focused on two topics, fuel cells and
genomics, as examples of emerging technologies with significant implications for EPA's work.
In addition, the Agency has been using the results of a Look-Out Panel, including interviews
with leaders and experts outside the Agency on future challenges and opportunities facing EPA.
This panel will also inform the development of EPA's 2003 Strategic Plan.
The National Advisory Council for Environmental Policy and Technology (NACEPT)
provides independent advice to the EPA Administrator on a broad range of environmental
policy, technology, and management issues. Earlier this year NACEPT completed a major report
The Environmental Future: Emerging Challenges and Opportunities for EPA.13 The report
makes several overarching recommendations related to planning: create an ongoing scanning
process that involves all major parts of EPA; support the ongoing work of EPA's Futures
Network and provide additional training on environmental scanning, scenario development, and
modeling; and incorporate futures analysis into EPA's strategic planning. EPA is considering
how it will incorporate the findings of this report into its planning processes. In addition to these
planning-related recommendations, there are more than 50 emerging challenges and
opportunities. These represent important environmental issues for the future that do not fit well
with EPA's traditional roles. The Agency will encourage the programs and regions to consider
the emerging challenges and opportunities identified in the report in their long-term planning and
use them as a starting point for futures projects within their core work areas. As a result, these
programs should be better prepared to respond to changing environmental conditions.
EPA's FY 2002 Annual Financial Statements
Page 19
-------
EPA intends to continue using innovative approaches and sound science to investigate
complex interdisciplinary problems in environmental protection and to address them in its
strategic planning. The Agency will need to expand its efforts to achieve interagency and
international cooperation to address environmental issues on a global scale and will continue to
rely on relationships with its federal, state, local, and tribal government partners and with its
stakeholders to anticipate and address future environmental challenges.
LOOKING AHEAD TO FY 2003
Over the next year EPA expects to make significant improvements in the use of
performance and results information to inform the Agency's internal planning and decision
making and to communicate to the public the environmental results it is achieving. During
FY 2003 many of the recommendations of the Agency's Results Steering Group will be carried
out for both near-term improvements and more far-reaching reforms to improve the way EPA
manages for results. In FY 2003 the Agency will issue a revised Strategic Plan. Among other
improvements, the Plan will contain a smaller set of more environmentally focused strategic
goals and objectives. As recommended by the Results Steering Group, the Plan will set clear
directions for the Agency, enable cross-Agency and cross-program planning, accommodate EPA
program and regional office priority setting, and reflect input from EPA partners and
stakeholders.
Finally, as mentioned earlier, in FY 2003 EPA plans to release a draft report on the
environment. This report will use available national environmental indicators data to describe the
current status of environmental conditions and human health concerns. It will also address many
of the public's frequently asked questions on the environment, and will reflect work being done
by others, such as the H. John Heinz III Center for Science, Economics and the Environment, the
EPA Science Advisory Board, and the National Research Council.
FINANCIAL ANALYSIS
A central theme of the President's Management Agenda is the need for greater
accountability in government. The financial statements provided in Section IV are one important
aspect of Agency accountability in that they provide a snapshot of EPA's financial position at
the end of the fiscal year. These financial statements are prepared in accordance with established
federal accounting standards and audited by EPA's Inspector General. In addition to the financial
statements, other views of how the Agency spends its resources are depicted in the discussion
below.
Page 20
EPA's FY 2002 Annual Financial Statements
-------
$13
$12
S11
S10
in $9
S8
EPA Resources: 1998 to 2002 EPA Financial Trends
EPA's available resources from all
appropriations and aggregate spending are
depicted in the EPA Financial Trends chart.14
Budgetary Resources consist of resources
available each fiscal year largely from three
sources: (1) yearly appropriations received
from Congress, (2) unspent appropriations
from previous years that the Agency has the
authority to use in subsequent fiscal years,
and (3) resources received from other sources
such as collections of federal receipts that remit to the Agency and that the Agency may use for
specific purposes. 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. The actual payment of the contract or grant may extend over several years
depending on the terms and conditions. Outlays represent cash payments for goods and services
received. The Statement of Budgetary Resources in Section IV provides more detail on the
makeup of these resources.
S7
S6
••• Outlays
• ¦ Obligations
—
Budgetary Resources
12.3
11.1
11^6^-*-*'
10J>
10-6 —
8-9
t
i
i
o
CP)
l
l
t
8.1
8.1
8.2
8.4
6.9
7.4
1998
1999
2000
Fiscal Year
2001
2002
EPA FY 2002 Spending
FY' 2002 Gross Costs by Goal
G10 Effective
Management
4,9%
EPA spending can be depicted a
number of different ways. The Gross Costs
by Goal chart provides the percentage
breakdown of EPA costs by each of the 10
strategic goals.15 Costs are EPA's expenses
for services rendered or activities performed
whether from contractors, grantees, or EPA
staff salaries. The difference between this
graph and the Statement of Net Costs in
Section IV is that net costs reflect a
reduction for any related offsetting income
such as Superfund cost recovery receipts. FY 2002 costs incurred to achieve the Agency's 10
goals total about $8 billion.
FY 2002 Cost Categories
G1 Clean Air
G9 Credible
Deterrent
G8 Sound
Science
4.1%
G6 GlobaH
G7 Right-to-Know
3.2% 3'0%
G3 Safe Food
1.6%
G4 Preventing
Pollution
3.9%
II other
4.6%
EPA's obligations and costs are largely for services
performed outside the Agency. As illustrated in the FY2002
Cost Categories chart16, more than 75 percent of EPA's costs are
in the form of contracts or grants. EPA's costs are also incurred
in the Agency's headquarters and regional offices, which are
responsible for carrying out many of the Agency's programs.
Payroll
16.9%
Grants
54.2%
EPA's FY 2002 Annual Financial Statements
Page 21
-------
FY 2002 OBLIGATIONS BY GOAL
(Dollars in Millions)
Appropriations
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
233
3,241
0
99
74
10
25
0
70
0
0
0
3,752
All Other
355
649
112
223
273
203
167
301
363
376
287
700*
4,009
Superfund
0
0
0
0
1,473
0
10
3
18
52
130
0
1,686
TOTAL
588
3,890
112
322
1,820
213
202
304
451
428
417
700
9,447
% of Total
6.22
41.18
1.19
3.41
19.27
2.25
2.14
3.22
4.77
4.53
4.41
7.41
100.00
NOTE; Actual costs are reflected in Section IV - Annual Financial Statements
* The $700 million represents an annual payment from the general revenue to the Hazardous Substance Superfund and transfers from other federal agencies.
Most of EPA's costs are associated with grant programs, and nearly half of the Agency's
grants are awarded from two state revolving funds (SRFs). The Clean Water SRJF (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 in complying with the Safe Drinking Water
Act. The DWSRF 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.)
Funding for both revolving funds 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 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 FY 2002 CWSRFs have turned $19.5
billion in federal capitalization grants into more than $38.7
billion in assistance to municipalities and other entities for wastewater projects. In recent years
CWSRFs have directed about $4 billion in annual loan assistance to wastewater projects. More
than $200 million of these funds are used each year to manage polluted runoff, making the
CWSRF an effective tool in addressing nonpoint source problems.1'
FY 2002 Major Grant Categories
Clean Water SRF
32.1%
All Others
47.8%
Drinking
Water SRF
16.3% .
Superfund
3.8%
Page 22
EPA's FY 2002 Annual Financial Statements
-------
In a similar fashion the newer DWSRFs have turned $4.4 billion in federal capitalization
grants into more than $5.1 billion in loan assistance, of which $1.3 billion was provided in
assistance in FY 2002 alone.18 States have also used more than $694 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 43
percent of EPA's costs are incurred in connection with its Clean and Safe Water Goal, as
depicted in the Major Grant Categories chart. 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.
Homeland Security Spending
EPA's actions in responding to homeland
security concerns in the wake of September 11 are
described in Section II. During FY 2002 the
Agency obligated a total of $159.6 million19 for
homeland security for the activities shown in the
chart. Most of these resources have been devoted to
Preparedness, which addresses many potential
kinds of terrorism incidents. Response covers the
immediate actions taken in response to the
September 11 and other attacks. Mitigation is action
taken to reduce the risk and potential damage
caused by future events, and Recovery constitutes
actions to rebuild and otherwise return to normal.
FY 2002 Homeland Security Obligations
S120
$100
S80
= $60
S40
$20
SO
Recovery Mitigation Response Preparedness __
S110.3
-
-
-
S38.2
-
S9.9
$1.2
Superfund Cost Recovery
The Superfund Program was established
Cumulative Superfund Trust Fund Cost Recoveries
FY 1997-FY 2002
53.1
1^1
S2.6
| S2.4
S2.1 |
S1.7
¦
1
1997 1998 1999 2000 2001 2002
Fiscal Year
under the Comprehensive Environmental
Response, Compensation, and Liability Act
(CERCLA) of 1980 (P.L. 96-510) to address
public health and environmental threats from
abandoned toxic waste dumps and releases of
hazardous substances. CERCLA was
subsequently amended by the Superfund
Amendments and Reauthorization Act (SARA)
of 1986 (P.L. 99-499).
Under CERCLA, Congress authorized
the Superfund Program for 5 years
(1981-1985) with funding of $1.6 billion and
established the Hazardous Substance Response
EPA's FY 2002 Annual Financial Statements
Page 23
-------
Trust Fund, known as the Hazardous Substance Superfund (Trust Fund). Because of the long-
term nature and expense of site cleanups, Congress reauthorized the Superfund Program by
passing SARA. Under SARA the Superfund Program was authorized for an additional 5 years
(1987-1991) and the Trust Fund's funding level was increased to $8.5 million. The Omnibus
Budget Reconciliation Act, passed by Congress on November 5, 1990, extended the Superfund
program for an additional 4 years (1992-1995) and increased the Trust Fund's funding level by
$5.1 billion. Although the Superfund Program has not been reauthorized, the program continues
to operate based on annual congressional appropriations.
The Trust Fund was largely funded by excise taxes charged on crude oil and petroleum
and on the sale or use of certain chemicals. Also, a corporate environmental tax (alternative
minimum tax) was levied on corporations having a taxable annual income in excess of $2
million. The Trust Fund's other revenue sources include cost recoveries, fines and penalties,
interest revenue from investments, and general revenue appropriated by Congress. Superfund
cost recoveries represent amounts recovered by EPA through legal settlements with responsible
parties for site clean up cost incurred by EPA. Tax revenues provided the Trust Fund with most
of its funding until the Superfund's authority to tax expired on December 31, 1995. With the
expiration of tax authority, current Trust Fund revenue is composed of the other revenues
discussed above; appropriations from general revenues make up the largest funding source in
this group.
Cost recovery continues to be a major revenue source of the Trust Fund. Cumulative cost
recovery receipts since the inception of the
program now total $3.1 billion.20
EPA Spending Related to Other Federal
Agencies
As published in the Treasury =
Department's annual Statement of Receipts and 1
Outlays, EPA's net outlays are relatively small
in relation to those of other federal agencies
and the federal government as a whole. A
comparison of EPA with selected cabinet-level
departments is displayed.
Innovative Environmental Financing: The Advantage of Public-Private Partnerships
EPA leverages federal funds through several innovative environmental financing efforts
that are mutually beneficial public-private partnerships, such as the Environmental Finance
Program.
The Environmental Finance Program uses leveraging and partnerships to extend the
reach and impact of its activities. The program has three closely related components that provide
Government Net Outlays by Selected Department
FY 2002
EPA COMMERCE STATE INTERIOR NASA ENERGY
Departments
Page 24
EPA's FY 2002 Annual Financial Statements
-------
financial outreach services to Agency customers and the regulated community. First, the
Environmental Financial Advisory Board (EFAB), a discretionary federally chartered advisory
committee, provides innovative ideas and recommendations to the EPA Administrator and EPA
program offices on ways to lower costs, increase investments, and promote public-private
partnerships with respect to 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 and partners with states, tribes, local
governments, and the private sector to address how to cover the costs of meeting environmental
standards. Through FY 2002 the EFCs had worked in 46 states delivering this assistance and
sharing information among interested parties and throughout the network. (See Section II, Goal
10, for more information.) Third, the Environmental Financing Information Network, through its
highly popular Web site and other means, catalogues the work and accomplishments of EFAB
and the EFC Network and has provided full-text copies of more than 50 EFAB documents,
summaries of over 350 environmental financing tools, and about 1,000 abstracts and case studies
of valuable environmental finance documents.
EPA's FY 2002 Annual Financial Statements
Page 25
-------
Notes:
1 .Geographic Areas redesignated by EPA as in attainment of the NAAQS: Billings MT Area, Redesignated to
Attainment for CO, 67 FR 7966, February 21, 2002. Denver-Boulder CO Area Redesignated to Attainment for CO,
66 FR 64751, December 14, 2001. Great Falls Area MT Area Redesignated to Attainment for CO, 67 FR 31143,
May 9, 2002. Klamath Falls OR Area Redesignated to Attainment for CO, 66 FR 48349, September 20, 2001.
Lowell MA Area Redesignated to Attainment for CO, 67 FR 7272, February 19, 2002. Medford OR Area
Redesignated to Attainment for CO, 67 FR 48388, July 24, 2002. New York-N. New Jersey-Long Lsland NY Area
Redesignated to Attainment for CO, 67 FR 54574, August 23, 2002. New York-N. New Jersey-Long Lsland NY Area
Redesignated to Attainment for CO, 67 FR 19337, April 19, 2002. Springfield MA Area Redesignated to Attainment
for CO, 67 FR 7272, February 19, 2002. Waltham MA Area Redesignated to Attainment for CO, 67 FR 7272,
February 19, 2002. Worcester MA Area Redesignated to Attainment for CO, 67 FR 7272, February 19, 2002.
Cincinnati-Hamilton KY Area Redesignated to Attainment for Ozone, 67 FR 49600, July 31, 2002. Adams, Denver,
and Boulder Counties; Denver Metropolitan Areas Redesignated to Attainment for PM-10, 67 FR 58335, September
16, 2002. Mohave County (part); Bullhead City AZ Area Redesignated to Attainment for PM-10, 67 FR 43020, June
26, 2002. Pinal and Gila Counties; Payson AZ Area Redesignated to Attainment for PM-10, 67 FR 43013 , June 26,
2002. Ramsey County; (part) MN Area Redesignated to Attainment for PM-10, 67 FR 48787, July 26, 2002. A QCR
238: Marathon County: Rothschild Sub-city Area, Rib Mountain, Weston WLArea Redesignated to Attainment for
S02, 67 FR 37328, May 29, 2002. Central Steptoe Valley NV Area Redesignated to Attainment for S02, 67 FR
17939, April 12, 2002.
2. Sources for standards for toxic pollutants already in place in FY 2002: Generic MACT: Carbon Black
Production, Cyanide Chemicals Manufacturing, Ethylene Processes, and Spandex Production, 67 FR 39301, June
7,2002. Large Appliances: (Surface Coating), 67 FR 48253, July 23, 2002. Leather Finishing Operations, 67 FR
915510, February 27, 2002. Polyvinyl Chloride & Copolymers Production, 67 FR 45885, July 9, 2002. Primary
Copper, 67 FR 40477, June 12, 2002. Tire Manufacturing, 67 FR 45598, July 9, 2002. Cellulose Production:
Carboxymethylcellulose Production, Cellulose Ethers Production, Cellulose Food Casing Manufacturing,
Cellophane Production, Methylcellulose Production, Rayon Production, 65 FR 52166, August 28, 2000, and Signed:
May 15,2002. Petroleum Refineries: Catalytic Cracking, Catalytic Reforming & Sulfur Plant Units. 67 FR 43244,
April 11, 2002. Wet Formed Fiberglass Mat Production, 67 FR 17823, April 11, 2002.
3. U.S. EPA, Emissions Modeling System for Hazardous Air Pollutants (August 2002),
http://www.epa. gov/scramOO 1/1122.htm.
4. U.S. EPA, Clean Air Markets-Progress and Results: The EPA Acid Rain Program 2001 Progress Report,
http://www.epa. gov/airmarkets/cmprpt/arpO 1/index.html.
5. U.S. EPA, EPA's Tier 2/Gasoline Sulfur Final Rulemaking (February 10, 2000) Regulatory Impact Analysis.
Chapter VII: Benefit-Cost Analysis, EPA 420-R-99-023, December 22, 1999, http://www.epa. gov/otaa/regs/ld-
hwv/tier-2/frm/ria/chvii.pdf. See also EPA's Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel
Sulfur Control Requirements (December 21, 2000), Chapter VII: Benefit-Cost Analysis. Regulatory Impact Analysis
EPA420-R-00-026 (December 2000), http://www.epa.gov/otaa/regs/hd2007/frm/ria-vii.pdf.
6. U.S. EPA, Office of Ground Water and Drinking Water's Drinking Water National Information Management
System, http://www.epa.gov/OGWDW/dwsrf/dwnims.html.
7. Office of Management and Budget, The Executive Office of the President, Federal Management, The President's
Management Agenda, http://www.whitehouse.gov/omb/budget/IV2002/pma index.html.
Page 26
EPA's FY 2002 Annual Financial Statements
-------
8. Office of Management and Budget, The Executive Office of the President, July 15, 2002, Executive Branch
Management Scorecard, Agency Scorecard: U.S. EPA,
http://www.whitehouse.gov/omb/budintegration/scorecards/epa scorecard.html.
9. General Accounting Office, Program Evaluation, Strategies for Assessing How Information Dissemination
Contributes to Agency Goals, GAO-02-923 (September 2002).
10. U.S. EPA, Evaluation Support, Evaluation of Environmental Programs, http://www.epa.gov/evaluate/.
11. U.S. EPA, Office of the Chief Financial Officer, Office of Planning, Analysis, and Accountability, Analysis
Staff, Internal analysis, Outcome Orientation According to the GAO Classification and the Hierarchy of Indicators
(Hoi), (April 2002).
12. U.S. EPA, Office of Environment Information, Information Quality Guidelines,
http://www.epa.gov/oei/aualitvguidelines/index.htm.
13 .National Advisory Council for Environmental Policy and Technology, The Environmental Future: Emerging
Challenges and Opportunities for EPA EPA 100-R-02-001, (Washington, DC, U.S. EPA, Office of the
Administrator, Office of Cooperative Environmental Management September 2002), http://www.epa. gov/ocem.
14. Section IV,FY 1998 to FY 2002 Statement of Budgetary Resources.
15. Section IV,FY 2002 Statement of Net Costs.
16. U.S. EPA, Office of the Chief Financial Officer (OCFO), EPA's Integrated Financial Accounting System.
17. U.S. EPA, Office of Water, Clean Water State Revolving Fund National Information Management System,
http://www.epa. gov/r5water/cwsrf.
18. U.S. EPA, Office of Ground Water and Drinking Water's Drinking Water National Information Management
System, http://www.epa.gov/OGWDW/dwsrf/dwnims.html.
19. U.S. EPA, OCFO, EPA's FY 2002 Budget Automation System.
20. U.S. Department of the Treasury, FY 2002 Superfund Trust Fund Financial Statements.
EPA's FY 2002 Annual Financial Statements
Page 27
-------
Page 28 EPA's FY 2002 Financial Statements
-------
PRINCIPAL
FINANCIAL
STATEMENTS
EPA's FY 2002 Financial Statements
Page 29
-------
Page 30 EPA's FY 2002 Financial Statements
-------
CONTENTS
Financial Statements
Consolidating Balance Sheet
Consolidating Statement of Net Cost
Consolidated Statement of Net Cost by Goal
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. Summary of Significant Accounting Policies
Note 2. Fund Balance With Treasury
Note 3. Cash
Note 4. Investments
Note 5. Accounts Receivable
Note 6. Other Assets
Note 7. Loans Receivable, Net - Non-Federal
Note 8. Accounts Payable and Accrued Liabilities
Note 9. General Plant, Property and Equipment
Note 10. Debt
Note 11. Custodial Liability
Note 12. Other Liabilities
Note 13. Leases
Note 14. Pensions and Other Actuarial Benefits
Note 15. Cash out Advances, Superfund
Note 16. Unexpended Appropriations
Note 17. Amounts Held by Treasury
Note 18. Commitments and Contingencies
Note 19. Exchange Revenues, Statement of Net Cost
Note 20. Environmental Cleanup Costs
Note 21. Superfund State Credits
Note 22. Superfund Preauthorized Mixed Funding Agreements
Note 23. Income and Expenses from Other Appropriations
Note 24. Custodial Revenues and Accounts Receivable
Note 25. Statement of Budgetary Resources
Note 26. Recoveries and Permanently Not Available, Statement of Budgetary Resources
Note 27. Unobligated Balances Available
Note 28. Offsetting Receipts
Note 29. Statement of Financing
Note 30. Costs Not Assigned to Goals
EPA's FY 2002 Financial Statements
Page 31
-------
Notes to Financial Statements (continued)
Note 31. Transfers-in and out, Statement of Changes in Net Position
Note 32. Imputed Financing
Note 33. Payroll and Benefits Payable
Note 34. Other Adjustments, Statement of Changes in Net Position
Note 35. Nonexchange Revenue, Statement of Changes in Net Position
Note 36. Correction of Error in Revenue, Prior Year, Superfund
Note 37. Correction of Error in Contractor-held Property, Prior Years, Superfund
Supplemental Information Requested by OMB
Required Supplemental Information
Deferred Maintenance (Unaudited)
Intragovernmental Assets (Unaudited)
Intragovernmental Liabilities (Unaudited)
Intragovernmental Revenues and Costs (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)
Page 32
EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 2002 and 2001 (Restated*See Notes 36 and 37)
(Dollars in Thousands)
Superfund
Trust Fund
FY 2002
Superfund
Trust Fund
FY 2001 *
All
Others
FY 2002
All
Others
FY 2001
Combined
Totals
FY 2002
ASSETS
Intragovernmental
Fund Balance With Treasury (Note 2)
Investments (Note 4)
Accounts Receivable, Net (Note 5)
Other (Note 6)
32,229
3,309,975
33,309
4,520
6,706
3,724,044
31,178
5,521
11,688,934
1,952,052
72,298
4,578
11,272,374
1,778,818
69,977
4,386
11,721,163
5,262,027
105,607
9,098
Total Intragovernmental $
3,380,033 $
3,767,449 3
6 13,717,862 3
6 13,125,555 3
! 17,097,895
Cash and Other Monetary Assets (Note 3)
0
0
10
0
10
Accounts Receivable, Net (Note 5)
411,437
466,038
49,398
75,027
460,835
Loans Receivable, Net - Non-Federal (Note 7)
0
0
64,646
75,552
64,646
Property, Plant and Equipment, Net (Notes 9 and 37)
38,746
40,169
551,336
526,893
590,082
Other (Note 6)
780
8,878
4,937
1,128
5,717
Total Assets
$ 3,830,996 $ 4,282,534 $ 14,388,189 $ 13,804,155 $ 18,219,185
LIABILITIES
Intragovernmental
Accounts Payable and Accrued Liabilities (Note 8) $
116,239 $
123,537 $
43,983 $
41,659 $
160,222
Debt Due to Treasury (Note 10)
0
0
24,290
31,124
24,290
Custodial Liability (Note 11)
0
0
69,706
77,778
69,706
Other (Note 12)
23,727
21,308
26,381
27,507
50,108
Total Intragovernmental $
139,966 $
144,845 $
164,360 $
178,068 $
304,326
Accounts Payable and Accrued Liabilities (Note 8)
145,805
137,735
511,236
655,274
657,041
Pensions and Other Actuarial Liabilities (Note 14)
7,698
7,731
31,759
31,902
39,457
Environmental Cleanup Costs (Note 20)
0
0
13,309
14,528
13,309
Cashout Advances, Superfund (Notes 15 and 36)
337,139
447,955
0
0
337,139
Commitments and Contingencies (Note 18)
0
3,778
20
6,020
20
Payroll and Benefits Payable (Note 33)
39,136
35,111
177,432
163,730
216,568
Other (Notes 12 and 13)
45,515
27,659
47,479
60,536
92,994
Total Liabilities $
715,259 $
804,814 $
945,595 $
1,110,058 $
1,660,854
NET POSITION
Unexpended Appropriations (Note 16) $ 0 $ 0 $ 10,923,889 $ 10,358,961 $ 10,923,889
Cumulative Results of Operations (Notes 36 & 37) 3,115,737 3,477,720 2,518,705 2,335,136 5,634,442
Total Net Position 3,115,737 3,477,720 13,442,594 12,694,097 16,558,331
Total Liabilities and Net Position $ 3,830,996 $ 4,282,534 $ 14,388,189 $ 13,804,155 $ 18,219,185
* Cashout Advances; Property, Plant and Equipment, Net; and Cumulative Results of Operations, Superfund, are restated for
FY 2001.
The accompanying notes are an integral part of these statements.
EPA's FY 2002 Financial Statements
Page 33
-------
Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 2002 and 2001 (Restated*See Notes 36 and 37)
(Dollars in Thousands)
Combined
Intra-agency
Intra-agency
Consolidated Consolidated
Totals
Elimination
Elimination
Totals
Totals
FY 2001*
FY 2002
FY 2001
FY 2002
FY 2001*
ASSETS
Intragovernmental
Fund Balance With Treasury (Note 2) $
11,279,080 I
5 0 $
0 $
11,721,163
$ 11,279,080
Investments (Note 4)
5,502,862
0
0
5,262,027
5,502,862
Accounts Receivable, Net (Note 5)
101,155
(47,412)
(48,128)
58,195
53,027
Other (Note 6)
9,907
(4,447)
(5,739)
4,651
4,168
Total Intragovernmental $
16,893,004 I
i (51,859) $
(53,867) $
17,046,036
$ 16,839,137
Cash and Other Monetary Assets (Note 3)
0
0
0
10
0
Accounts Receivable, Net (Note 5)
541,065
0
0
460,835
541,065
Loans Receivable, Net - Non-Federal (Note 7)
75,552
0
0
64,646
75,552
Property, Plant and Equipment, Net (Note 9 and 37)
567,062
0
0
590,082
567,062
Other (Note 6)
10,006
0
0
5,717
10,006
Total Assets $
18,086,689 I
i (51,859) $
(53,867) $
18,167,326
$ 18,032,822
LIABILITIES
Intragovernmental
Accounts Payable and Accrued Liabilities (Note 8) $
165,196 I
i (47,480) $
(48,512) $
112,742
$ 116,684
Debt Due to Treasury (Note 10)
31,124
0
0
24,290
31,124
Custodial Liability (Note 11)
77,778
0
0
69,706
77,778
Other (Note 12)
48,815
(4,379)
(5,355)
45,729
43,460
Total Intragovernmental $
322,913 !
i (51,859) $
(53,867) $
252,467
$ 269,046
Accounts Payable and Accrued Liabilities (Note 8)
793,009
0
0
657,041
793,009
Pensions and Other Actuarial Liabilities (Note 14)
39,633
0
0
39,457
39,633
Environmental Cleanup Costs (Note 20)
14,528
0
0
13,309
14,528
Cashout Advances, Superfund (Notes 15 and 36)
447,955
0
0
337,139
447,955
Commitments and Contingencies (Note 18)
9,798
0
0
20
9,798
Payroll and Benefits Payable (Note 33)
198,841
0
0
216,568
198,841
Other (Notes 12 and 13)
88,195
0
0
92,994
88,195
Total Liabilities $
1,914,872 I
i (51,859) $
(53,867) $
1,608,995
$ 1,861,005
NET POSITION
Unexpended Appropriations (Note 16) $
10,358,961 I
5 0 $
0 $
10,923,889
$ 10,358,961
Cumulative Results of Operations (Notes 36 & 37)
5,812,856
0
0
5,634,442
5,812,856
Total Net Position
16,171,817
0
0
16,558,331
16,171,817
Total Liabilities and Net Position $
18,086,689 !
i (51,859) $
(53,867) $
18,167,326
$ 18,032,822
* Cashout Advances; Property, Plant and Equipment, Net; and Cumulative Results of Operations, Superfund, are
restated for
FY 2001.
The accompanying notes are an integral part of these statements.
Page 34
EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Consolidating Statement of Net Cost
For the Years Ended September 30, 2002 and 2001 (Restated*See Notes 36 and 37)
(Dollars in'
Thousands)
Superfund
Superfund
All
All
Combine
Trust Fund
Trust Fund
Others
Others
Totals
FY 2002
FY 2001 *
FY 2002
FY 2001
FY 2002
COSTS
Intragovernmental
$ 348,980
$ 426,499 $
782,110 $
710,290
$1,131,090
With the Public
1,209,338
1,177,849
5,678,789
5,784,628
6,888,127
Expenses from Other Appropriations (Note 23) 114,297
103,654
(114,297)
(103,654)
0
Total Costs (Note 37)
$ 1,672,615
$ 1,708,002 $
6,346,602 $
6,391,264
$8,019,217
Less:
Earned Revenues, Federal (Note 19)
22,932
104,318
127,250
Earned Revenues, Non-Federal (Note 19)
477,768
24,927
502,695
Total Earned Revenues (Notes 19 and 36)
$ 500,700
435,141 $
129,245
77,933
$ 629,945
NET COST OF OPERATIONS
$ 1,171,915
$ 1,272,861 $
6,217,357 $
6,313,331
$7,389,272
Environmental Protection Agency
Consolidating Statement of Net Cost
For the Years Ended September 30, 2002 and 2001 (Restated*See Notes 36 and 37)
(Dollars in Thousands)
Combined Intra-agency
Intra-agency
Consolidated
Consolidated
Totals Eliminations
Eliminations
Totals
Totals
FY 2001* FY 2002
FY 2001
FY 2002
FY 2001*
COSTS
Intragovernmental $ 1,136,789$ (20,795) $
(19,627) :
$ 1,110,295$
; 1,117,162
With the Public 6,962,477 0
0
6,888,127
6,962,477
Expenses from Other Appropriations (Note 23) 0 0
0
0
0
Total Costs (Note 37) $ 8,099,266$ (20,795) $
(19,627) :
$ 7,998,422 $
; 8,079,639
Less:
Earned Revenues, Federal (Note 19) (20,795)
106,455
Earned Revenues, Non-Federal (Note 19) 0
502,695
Total Earned Revenues (Notes 19 and 36) 513,074 $ (20,795)
(19,627) !
$ 609,150
493,447
NET COST OF OPERATIONS $ 7,586,192$ 0 $
o :
$ 7,389,272 $
; 7,586,192
The accompanying notes are an integral part of these statements.
EPA's FY 2002 Financial Statements
Page 35
-------
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2002
(Dollars in Thousands)
Clean
Clean and Safe
Safe
Prevent
Better Waste
Global
Air
Water
Food
Pollution
Management
Risks
COSTS
Intergovernmental $
101,347
$ 183,063 $
37,022 $
55,734
$ 440,640 $
36,020
With the Public
487,461
3,264,051
91,795
253,462
1,488,511
206,938
Total Costs
588,808
3,447,114
128,817
309,196
1,929,151
242,958
Less:
Earned Revenue, Federal
266
3,744
109
1,497
92,691
4,081
Earned Revenue, Non Federal
25
2,290
14,960
1,193
473,739
586
Total Earned Revenue (Note 19)
291
6,034
15,069
2,690
566,430
4,667
Management Cost Allocation
59,337
87,575
26,585
37,863
143,513
16,636
NET COST OF OPERATIONS $
647,854
$ 3,528,655 $
140,333 $
344,369
$ 1,506,234 $
254,927
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2001 (Restated*See Notes 36 and 37)
(Dollars in Thousands)
Clean Clean and Safe Safe Prevent Better Waste Global
Air Water Food Pollution Management* Risks
COSTS
Federal $
87,360 $
156,900 $
30,210 $
41,065
$ 465,452 J
; 39,816
With the Public
458,256
3,482,906
77,687
236,933
1,441,486
186,919
Total Costs (Note 37)
545,616
3,639,806
107,897
277,998
1,906,938
226,735
Less:
Earned Revenue (Note 36)
702
4,966
17,051
1,545
457,649
7,286
Total Earned Revenue (Note 19)
702
4,966
17,051
1,545
457,649
7,286
Management Cost Allocation
NET COST OF OPERATIONS $
610,872 $
3,711,968 $
124,503 $
318,520
$ 1,553,091 $
; 242,731
Detailed descriptions of the above Goals are provided in EPA's FY 2002 Annual Report, Section II - Performance Results.
The accompanying notes are an integral part of these statements.
Page 36
EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2002
(Dollars in Thousands)
Right to
Know
Sound
Science
Credible
Deterrent
Effective
Management
Not Assigned
to Goals**
Consolidated
Totals
COSTS
Intergovernmental
$ 60,624 $
62,030
$ 106,374 $
23,393 $
4,048 $
1,110,295
With the Public
193,241
263,592
281,171
366,798
(8,893)
6,888,127
Total Costs
253,865
325,622
387,545
390,191
(4,845)
7,998,422
Less:
Earned Revenue, Federal
130,237
800
234
(125,025)
(2,179)
106,455
Earned Revenue, Non Federal
154
84
914
3,300
5,450
502,695
Total Earned Revenue (Note 19)
130,391
884
1,148
(121,725)
3,271
609,150
Management Cost Allocation
28,089
30,408
81,910
(511,916)
0
0
NET COST OF OPERATIONS
$ 151,563 $
355,146
$ 468,307 $
0 $
(8,116) $
7,389,272
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal
For the Year Ended September 30, 2001 (Restated*See Notes 36 and 37)
(Dollars in Thousands)
Right to Sound Credible Effective Not Assigned Consolidated
Know Science Deterrent Management to Goals** 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) 6,962,477
Total Costs (Note 37)
167,694
348,860
399,137
490,497
(31,539)
8,079,639
Less:
Earned Revenue (Note 36)
324
706
786
4,330
(1,898)
493,447
Total Earned Revenue (Note 19)
2,335,136
10,358,961
786
10,358,961
(1,898)
493,447
Management Cost Allocation
NET COST OF OPERATIONS 3
i (2,167,442) 3
! (2,654,016) $
398,351 $
(2,512,379) $
(29,641) $
7,586,192
**See Note 30.
Detailed descriptions of the above Goals are provided in EPA's FY 2002 Annual Report, Section II - Performance Results.
The accompanying notes are an integral part of these statements.
EPA's FY 2002 Financial Statements
Page 37
-------
Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Year Ended September 30, 2002
(Dollars in Thousands)
Cumulative
Cumulative
Cumulative
Results of
Results of
Unexpended
Results of
Unexpended
Operations
Operations
Appropriations Operations
Appropriations
Superfund
All
All
Consolidated
Consolidated
Trust Fund
Others
Others
Totals*
Totals*
Net Position - Beginning of Period, restated
(Notes 36 and 37)
$ 3,477,720
$ 2,335,136
$ 10,358,961 !
$ 5,812,856 $
; 10,358,961
Budgetary Financing Sources:
Appropriations Received
0
0
7,356,085
0
7,356,085
Appropriations Transferred In/Out (Note 31)
0
0
28,598
0
28,598
Other Adjustments (Note 34)
0
0
(35,460)
0
(35,460)
Appropriations Used
0
6,784,295
(6,784,295)
6,784,295
(6,784,295)
Nonexchange Revenue (Notes 17 and 35)
108,038
260,111
0
368,149
0
Transfers In/Out (Note 31)
(103,448)
63,672
0
(39,776)
0
Trust Fund Appropriations (Note 17)
676,292
(676,292)
0
0
0
Income from Other Appropriations (Note 23)
114,297
(114,297)
0
0
0
Total Budgetary Financing Sources
$ 795,179
$ 6,317,489
$ 564,928 !
$ 7,112,668 $
; 564,928
Other Financing Sources:
Transfers In/Out (Note 31)
47
398
0
445
0
Imputed Financing Sources (Note 32)
14,706
83,039
0
97,745
0
Total Other Financing Sources
$ 14,753
$ 83,437
$ o :
$ 98,190 $
; o
Net Cost of Operations
(1,171,915)
(6,217,357)
0
(7,389,272)
0
Net Position - End of Period
$ 3,115,737
$ 2,518,705
$ 10,923,889 :
$ 5,634,442 $
; 10,923,889
* This statement does not have any intra-agency eliminations for FY 2002.
The accompanying notes are an integral part of these statements.
Page 38
EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Year Ended September 30, 2001 (Restated*See Notes 36 and 37)
(Dollars in Thousands)
Superfund
All
Combined
Intra-agency
Consolidate
d
Trust Fund
Others
Totals
Eliminations
Totals
FY 2001*
FY 2001
FY 2001*
FY 2001
FY 2001*
Net Cost of Operations (Notes 36 and 37)
$ 1,272,861 !
S 6,313,331
$ 7,586,192
$ o :
$ 7,586,192
Financing Sources
(Other than Exchange Revenue)
Appropriations Used
0
6,867,762
6,867,762
0
6,867,762
Taxes & Non Exchange Interest (Note 17)
226,861
276,346
503,207
0
503,207
Other Non Exchange Revenue
2,775
11,878
14,653
0
14,653
Imputed Financing (Note 32)
13,686
77,855
91,541
0
91,541
Trust Fund Appropriations (Note 17)
633,603
(633,603)
0
0
0
Transfers-In (Note 31)
0
62,861
62,861
(47,894)
14,967
Transfers-Out (Note 31)
(127,927)
0
(127,927)
47,894
(80,033)
Income from Other Appropriations (Note 23)
103,654
(103,654)
0
0
0
Net Change in Cumulative Results of Operations
(420,209)
246,114
(174,095)
0
(174,095)
Increases/Decreases in Unexpended Appropriations
0
239,122
239,122
0
239,122
Change in Net Position
(420,209)
485,236
65,027
0
65,027
Net Position-Beginning of Period
3,875,439
12,208,861
16,084,300
0
16,084,300
Prior Period Adjustment (Note 37)
22,490
22,490
22,490
AdjustedNet Position-Beginning of Period
3,897,929
12,208,861
16,106,790
0
16,106,790
Net Position-End of Period (Notes 36 and 37)
$ 3,477,720 <
S 12,694,097
$16,171,817
$ o :
$ 16,171,817
The accompanying notes are an integral part of these statements.
EPA's FY 2002 Financial Statements
Page 39
-------
Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Year Ended September 30, 2002
(Dollars in Thousands)
Superfund Trust
All
Combined
Fund
Others
Totals
FY 2002
FY 2002
FY 2002
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $
0 $
7,371,085 $
7,371,085
Borrowing Authority
0
0
0
Net Transfers
1,329,490
101,010
1,430,500
Other
0
0
0
Unobligated Balances:
Beginning of Period
714,321
1,911,304
2,625,625
Net Transfers, Actual
0
500
500
Anticipated Transfers Balance
0
0
0
Spending Authority from Offsetting Collections:
Earned and Collected
193,835
262,102
455,937
Receivable from Federal Sources
3,523
1,410
4,933
Change in Unfilled Customer Orders
Advance Received
(22,548)
2,133
(20,415)
Without Advance from Federal Sources
1,749
62,549
64,298
Anticipated for Rest of Year
0
0
0
Transfers from Trust Funds
0
48,671
48,671
Total Spending Authority from Collections $
176,559 $
376,865 $
553,424
Recoveries of Prior Year Obligations (Note 26)
230,628
89,440
320,068
Permanently Not Available (Note 26)
(2,000)
(42,292)
(44,292)
Total Budgetary Resources (Note 25) $
2,448,998 $
9,807,912 $
12,256,910
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $
1,548,650 $
7,514,054 $
9,062,704
Reimbursable
149,354
248,610
397,964
Total Obligations Incurred (Note 25) $
1,698,004 $
7,762,664 $
9,460,668
Unobligated Balances:
Apportioned (Note 27)
726,589
1,917,637
2,644,226
Exempt from Apportionment
0
0
0
Unobligated Balances Not Available (Note 27)
24,405
127,611
152,016
Total Status of Budgetary Resources $
2,448,998 $
9,807,912 $
12,256,910
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $
1,290,817 $
7,296,359 $
8,587,176
Obligated Balances, Net - Beginning of Period
2,108,696
9,324,855
11,433,551
Accounts Receivable
3,694
72,577
76,271
Unfilled Customer Orders from Federal Sources
66,448
253,348
319,796
Undelivered Orders, Unpaid
(1,831,268)
(9,277,925)
(11,109,193)
Accounts Payable
(260,633)
(656,652)
(917,285)
Total Outlays (Note 25) $
1,377,754 $
7,012,562 $
8,390,316
Disbursements $
1,549,041 $
7,323,740 $
8,872,781
Collections
(171,287)
(311,178)
(482,465)
Less: Offsetting Receipts (Note 28)
(248,252)
(687,650)
(935,902)
Net Outlays $
1,129,502 $
6,324,912 $
7,454,414
The accompanying notes are an integral part of these statements.
Page 40
EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Consolidating Statement of Financing
For the Year Ended September 30, 2002
(Dollars in Thousands)
Superfund
All
Consolidated
Trust Fund
Others
Totals*
FY 2002
FY 2002
FY 2002
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred
$ 1,698,004 $
7,762,664 $
9,460,668
Less: Spending Authority from Offsetting
0
Collections and Recoveries
(407,187)
(466,305)
(873,492)
Obligations, Net of Offsetting Collections
$ 1,290,817 $
7,296,359 $
8,587,176
Less: Offsetting Receipts (Note 28)
(248,252)
(687,650)
(935,902)
Net Obligations
$ 1,042,565 $
6,608,709 $
7,651,274
Other Resources
Transfers In/Out without Reimbursement,
Property (Note 31)
$ 47 $
(47) $
0
Imputed Financing Sources (Note 32)
14,706
83,039
97,745
Income from Other Appropriations (Note 23)
114,297
(114,297)
0
Net Other Resources Used to Finance Activities
$ 129,050 $
(31,305) $
97,745
Total Resources Used To Finance Activities
$ 1,171,615 $
6,577,404 $
7,749,019
RESOURCES USED TO FINANCE ITEMS
NOT PART OF NET COST OF OPERATIONS
Change in Budgetary Resources Obligated
$ 64,738 $
(422,293) $
(357,555)
Resources that Fund Prior Period Expenses (Note 29)
(1,590)
(399)
(1,989)
Budgetary Offsetting Collections and Receipts
that Do Not Affect Net Cost of Operations
Credit Program Collections Increasing Loan
Liabilities for Guarantees of Subsidy Allowances
0
4,394
4,394
Offsetting Receipts Not Affecting Net Cost
248,252
11,358
259,610
Resources that Finance Asset Acquisition
(6,587)
(53,692)
(60,279)
Adjustments to Expenditure Transfers
that Do Not Affect Net Cost
(48,758)
48,670
(88)
Total Resources Used to Finance Items Not
Part of the Net Cost of Operations
$ 256,055 $
(411,962) $
(155,907)
Total Resources Used to Finance the Net
Cost of Operations
$ 1,427,670 $
6,165,442 $
7,593,112
* This statement did not have any intra-agency eliminations for FY 2002.
The accompanying notes are an integral part of these statements.
EPA's FY 2002 Financial Statements
Page 41
-------
Environmental Protection Agency
Consolidating Statement of Financing
For the Year Ended September 30, 2002
(Dollars in Thousands)
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 29)
Increase in Environmental and Disposal Liability (Note 29)
Up/Downward Reestimates of Subsidy Expense
Increase in Public Exchange Revenue Receivable
Increase in Workers Compensation Costs (Note 29)
Total Components of Net Cost of Operations that
Requires or Generates Resources in the Future
Components Not Requiring/Generating Resources
Depreciation and Amortization
Revaluation of Assets or Liabilities
Expenses Not Requiring Budgetary Resources
Total Components of Net Cost of Operations
that Will Not Require or Generate Resources
Superfund All Consolidated
Trust Fund Others Totals*
FY 2002 FY 2002 FY 2002
$ 0 $ 0 $ 0
0 578 578
0 (371) (371)
(305,035) (2,422) (307,457)
0 0 0
$ (305,035) $ (2,215) $ (307,250)
7,854 27,022 34,876
0 0 0
41,426 27,108 68,534
$ 49,280 $ 54,130 $ 103,410
Total Components of Net Cost of Operations
That Will Not Require or Generate
Resources in the Current Period
Net Cost of Operations
(255,755)
51,915
1,171,915 $
(203,840)
6,217,357 $
7,389,272
* This statement did not have any intra-agency eliminations for FY 2002.
The accompanying notes are an integral part of these statements.
Page 42
EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Consolidating Statement of Financing
For the Year Ended September 30, 2001 (Restated *See Notes 36 and 37)
(Dollars in Thousands)
Superfund All Consolidated
Trust Fund Others Totals
FY 2001* FY 2001 FY 2001**
Obligations and Nonbudgetary Resources
Obligations Incurred
$ 1,570,056 $
7,431,802 $
9,001,858
Less: Spending Authority from Offsetting Collections
Earned Reimbursements
Collected
(311,271)
(227,827)
(539,098)
Receivable from Federal Sources
3,716
6,306
10,022
Change in Unfilled Customer Orders
(41,203)
(36,273)
(77,476)
Transfers from Trust Funds
0
(46,178)
(46,178)
Recoveries of Prior Year Obligations
(196,644)
(76,814)
(273,458)
Imputed Financing for Cost Subsidies (Note 32)
13,686
77,855
91,541
Income from Other Appropriations (Note 23)
103,654
(103,654)
0
Transfers In/Out of Nonmonetary Assets
0
0
0
Exchange Revenue Not in the Entity's Budget (Note 36)
(128,757)
(2,072)
(130,829)
Total Obligations and Nonbudgetary Resources
1,013,237
7,023,145
8,036,382
Resources that Do Not Fund Net Cost of Operations
Change in Amount of Goods/Services Ordered but
but Not Yet Provided (Increases)/Decreases
145,931
(117,998)
27,933
Change in Unfilled Customer Orders, etc.
41,203
36,273
77,476
Costs Capitalized on the Balance Sheet
General Plant, Property and Equipment (Note 37)
(12,530)
(74,092)
(86,622)
Purchases of Inventory
52
52
Adjustments to Costs Capitalized on the Balance Sheet
(40)
(4)
(44)
Collections that Decrease Credit Program Receivables or
Increase Program Liabilities
0
7,722
7,722
Adjustment for Trust Fund Outlays that Do Not
Affect Net Cost
(47,894)
(587,424)
(635,318)
Total Resources that Do Not Fund Net Costs of Operations
126,670
(735,471)
(608,801)
Components of Costs that Do Not Require or
Generate Resources
Depreciation and Amortization (Note 37)
7,091
19,333
26,424
Bad Debt Related to Uncollectible Receivables
133,761
2,881
136,642
Loss (Gain) on Disposition of Assets
(9,426)
895
(8,531)
Other Expenses Not Requiring Budgetary Resources
699
(5,686)
(4,987)
Total Costs That Do Not Require Resources
132,125
17,423
149,548
Financing Sources Yet to be Provided
829
8,234
9,063
Net Costs of Operations (Notes 36 and 37)
$ 1,272,861 $
6,313,331 $
7,586,192
** This statement did not have any intra-agency eliminations for FY 2001.
The accompanying notes are an integral part of these statements.
EPA's FY 2002 Financial Statements
Page 43
-------
Environmental Protection Agency
Consolidated Statement of Custodial Activity
For the Years Ended September 30, 2002 and 2001
(Dollars in Thousands)
Revenue Activity:
Sources of Collections
Fines and Penalties
Other
Total Cash Collections
Accrual Adjustment
Total Custodial Revenue (Note 24)
Disposition of Collections:
Transferred to Others (General Fund)
Increases/Decreases in Amounts to be Transferred
Total Disposition of Collections
FY 2002 FY 2001
94,237 $
114,830
9,322
31,754
103,559 $
146,584
(8,070)
(24,692)
95,489 $
121,892
103,818 $
147,045
(8,329)
(25,153)
95,489 $
121,892
Net Custodial Revenue Activity (Note 24) $ 0 $
The accompanying notes are an integral part of these statements.
Page 44
EPA's FY 2002 Financial Statements
-------
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 2002, 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.
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
EPA's FY 2002 Financial Statements
Page 45
-------
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
Federal Insecticide, Fungicide and Rodenticide Act (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 one 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,
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 2002,
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
Page 46
EPA's FY 2002 Financial Statements
-------
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
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 the 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
EPA's FY 2002 Financial Statements
Page 47
-------
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 IP AC Payments and Collections. Clearing accounts are accounted for
under Treasury symbols 3875, 3880, and 3885.
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
Page 48
EPA's FY 2002 Financial Statements
-------
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 $53.5 million for FY 2001 and $49.1 million for FY 2002.
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 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.
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.
EPA's FY 2002 Financial Statements
Page 49
-------
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 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 2001, 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.
F. Funds with the Treasury
Page 50
EPA's FY 2002 Financial Statements
-------
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. (See Note 2)
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. (See Note 4)
H. Notes Receivable
Superfund
The Agency records notes receivable at their face value and any accrued interest as of the date of receipt.
(See Note 6)
I. Marketable Equity Securities
The Agency records marketable securities at cost as of the date of receipt. Marketable securities are held
by Treasury, and reported at their cost value in the financial statements until sold. Currently EPA does
not hold any marketable securities.
J. Accounts Receivable and Interest Receivable (See Note 5)
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 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
EPA's FY 2002 Financial Statements
Page 51
-------
The majority 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. Advances and Prepayments
Superfund and All Other Funds
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. (See Note 6)
L. 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 7. 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.
M. 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. (See
Note 17)
N. Property, Plant, and Equipment
Superfund and All Other Funds
The Fixed Assets Subsystem (FAS), implemented in FY 1997, maintains EPA's personal property, real
property, and capital software records in accordance with Statement of Federal Financial Accounting
Standards No. 6, "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 valued at $25 thousand or more with 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 for specific assets with useful lives ranging from two to 15 years.
Superfund contractor-held property used as part of the remedy for site-specific response actions is
capitalized in accordance with Agency's capitalization threshold. This property is part of the remedy at
the site and eventually becomes part of the site itself. Once the response action has been completed and
the remedy implemented, EPA will retain control of the property, e.g., pump and treat facility, for 10
years or less, and will transfer its interest in the facility to the respective state for mandatory operation
Page 52
EPA's FY 2002 Financial Statements
-------
and maintenance - usually 20 years or more. Consistent with EPA's 10 year retention period,
depreciation for this property will be based on a 10 year life. However, if any property is transferred to a
state in a year or less, this property will be charged to expense. If any property is sold prior to EPA
relinquishing interest, the proceeds from the sale of that property shall be applied against contract
payments or refunded as required by the Federal Acquisition Regulations.
In FY 1997 the EPA's Working Capital Fund, a revenue generating activity, implemented requirements
to capitalize software if the purchase price was $100,000 or more with an estimated useful life of two
years or more. 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. (See
Note 9)
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.
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 2002, 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
EPA's FY 2002 Financial Statements
Page 53
-------
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" (see Note 33).
S. Retirement Plan
Superfund and All Other Funds
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, 1984, 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 1 percent
of pay and matches any employee contributions up to an additional 4 percent of pay. The Agency also
contributes the employer's matching share for Social Security.
With the issuance of SFFAS No.5, "Accounting for Liabilities of the Federal Government," (SFFAS
No. 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 No. 5 requires that the employing agencies recognize the cost of
pensions and other retirement benefits during their employees' active years of service. SFFAS No. 5
requires that the Office of Personnel Management, 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.
T. Prior Period Adjustments
Prior period adjustments will be made in accordance with SFFAS No. 21, "Reporting Corrections of
Errors and Changes in Accounting Principles," which is effective for FY 2002. EPA will make prior
period adjustments for material errors as follows in accordance with SFFAS No. 21. Prior period
adjustments will only be made for material prior period errors to: (1) the current period financial
statements and (2) the prior period financial statements presented for comparison. Adjustments related to
changes in accounting principles will only be made to the current period financial statements, but not to
prior period financial statements presented for comparison. (See Notes 36 and 37.)
Page 54
EPA's FY 2002 Financial Statements
-------
Note 2. Fund Balances with Treasury
Fund Balances with Treasury as of September 30, 2002 and 2001, consist of the following (in thousands):
FY 2002 FY 2001
Entity Non-Entity Entity Non-Entity
Assets Assets Total Assets Assets Total
Trust Funds:
Superfund $ 32,229 $ 0 $ 32,229 $ 6,706 $ 0 $ 6,706
LUST 16,405 0 16,405 18,158 0 18,158
Oil Spill 3,796 0 3,796 3,165 0 3,165
Revolving Funds:
FIFRA/Tolerance 3,028 0 3,028 3,496 0 3,496
Working Capital 57,380 0 57,380 51,267 0 51,267
Appropriated 11,504,638 0 11,504,638 11,088,824 0 11,088,824
Other Fund Types 99,575 4,112 103,687 88,218 19,246 107,464
Total ft 11 717051 $ 4 117 ft 11 771 163 11 759 834 $ 19 746 $ 11 779 080
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.
For FY 2002, the amounts on the financial statements are $2,828 thousand less than the balances on
Treasury's records. These differences consist mainly of unrecorded transactions from the last two months
of FY 2002 that will be recorded by the agency early in FY 2003. The differences for Superfund and All
Other Funds are $1,301 thousand and $1,527 thousand, respectively.
Note 3. Cash
In All Others, as of September 30, 2002, Cash consisted of imprest funds totaling $10 thousand.
EPA's FY 2002 Financial Statements
Page 55
-------
Note 4. Investments
As of September 30, 2002 and 2001, investments consisted of the following:
Unamortized
(Premium)
Interest
Investments,
Market
Cost
Discount
Receivable
Net
Value
Superfund
Intragovernmental
Securities:
Non-Marketable
FY 2002 !
K 3 7.34 35?.
$ C6? 650s!
$ 1 ?. 973 '
S 3 309 975
$
3 309 975
FY 2001 !
K 3 630 186
$ C33 967s!
$ 59 891 '
S 3 7?4 044
$
3 7?4 044
All Others
Intragovernmental
Securities:
Non-Marketable
FY 2002 !
K 1 89? 769
$ C36 75?.^
$ ?.?. 531 '
S 1 95? 05?
$
1 95? 05?
FY 2001 !
K 1 703 909
$ C5? 55n
$ ?.?. 358 '
S 1778 818
$
1 778 818
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, 2002 and 2001, 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 2002
FY 2001
Superfund All Others
33,309 $
33-309
87,443
783,279
(459,285)
411-437
Superfund
72,298
72.298
2,210
101,392
(54,204)
49J28
31,178
31-178
86,470
949,566
(569,998)
466-038
All Others
69,977
69-977
1,668
133,787
(60,428)
75.027
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.
Page 56 EPA's FY 2002 Financial Statements
-------
Note 6. Other Assets
For FY 2002, inventory and operating materials and supplies were included in Other Non-Federal Assets.
In FY 2001, these items were originally reported on a separate line.
Other Assets for September 30, 2002, consist of the following:
Superfund
Trust Fund
Intragovernmental Assets:
Advances to Federal Agencies
Advances to Working Capital Fund
Advances for Postage
Total Intragovernmental Assets
Non-Federal Assets:
Travel Advances
Letter of Credit Advances
Grant Advances
Other Advances
Operating Materials and Supplies
Inventory for Sale
Total Non-Federal Assets
141
4,379
0
4,520
(13)
0
0
793
0
0
All
Others
Combined
Totals
4,163
0
415
4,578
(911)
2,388
3,054
148
216
42
4,304
4,379
415
9,098
(924)
2,388
3,054
941
216
42
780
4,937
5,717
Other Assets for September 30, 2001, consist of the following:
Superfund All Combined
Trust Fund Others Totals
Intragovernmental Assets:
Advances to Federal Agencies $ 166 $ 4,265 $ 4,431
Advances to Working Capital Fund 5,355 0 5,355
Advances for Postage 0 121 121
Total Intragovernmental Assets $ 5,521 $ 4,386 $ 9,907
Non-Federal Assets:
Travel Advances $ 7 $ (854) $ (847)
Letter of Credit Advances 0 315 315
Grant Advances 0 1,322 1,322
Other Advances 769 92 861
Bank Card Payments 10 1
Operating Materials and Supplies 0 252 252
Inventory for Sale 0 1 1
Bankruptcy Settlement* 8,101 0 8,101
Total Non-Federal Assets $ 8,878 $ 1,128 $ 10,006
^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. The note was paid off in FY 2002.
EPA's FY 2002 Financial Statements
Page 57
-------
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, 2002 and 2001, is provided in
the following sections.
Direct Loans
Obligated Prior to
FY 1992
Direct Loans
Obligated After
FY 1991
Total
Loans
Receivable,
Gross
41,181
FY 2002
Allowance*
Value of
Assets Related Loans
to Direct Receivable,
Loans Gross
38,664
79-845
(15.199)
ns-iw>
o $
23,465
FY 2001
Allowance*
41,181 $ 49,683 $
42,779
(>2.4r,2
Value of
Assets Related
to Direct
Loans
0 $
(16.910)
49,683
25,869
JZ5452
* 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 2002
$ 115
$ 157 3
> 0 J
i 272
Downward Subsidy Reestimate - FY 2002
(496)
(816)
0
(1,312)
FY 2002 Totals
$ (381)
$ (659) 3
> 0 J
; (1,040)
Direct Loan Subsidy Expense - FY 2001
$ 1,227
2,353
0
3,580
Note 8. Accounts Payable and Accrued Liabilities
The Accounts Payable and Accrued Liabilities, both Federal and non-Federal, are current liabilities
consisting of the following amounts as of September 30, 2002:
Federal:
Superfund Trust All Other Funds Combined
Fund Total
Page 58
EPA's FY 2002 Financial Statements
-------
Accounts Payable to other Federal Agencies $ 4,964 $ 620 $ 5,584
Liability for Allocation Transfers 20,017 20,017
Expenditure Transfers Payable to other EPA Funds 45,701 45,701
Accrued Liabilities, Federal 45.557 43.363 88.920
Total Federal Accounts Payable & Accrued $ 116.239 $ 43.983 $ 160.222
Liabilities
Non-Federal:
Accounts Payable, non-Federal $
Advances Payable, non-Federal
Interest Payable
Grant Liabilities
Other Accrued Liabilities, non-Federal
Total non-Federal Accounts Payable & Accrued $
Liabilities
43,344 $ 74,260 $ 117,604
14 3 17
333 1 334
14,590 348,474 363,064
87.524 88.498 176.022
145.805 $ 511.236 $ 657.041
The Accounts Payable and Accrued Liabilities, both Federal and non-Federal, consisted of the following
amounts as of September 30, 2001:
Federal:
Superfund Trust
Fund
All Other Funds
Combined
Total
Accounts Payable to other Federal Agencies
Liability for Allocation Transfers
Expenditure Transfers Payable to other EPA Funds
Accrued Liabilities, Federal
Total Federal Accounts Payable & Accrued
Liabilities
759
20,163
44,887
57.728
123,537
1,118
40.541
41,659
1,877
20,163
44,887
98.269
165,196
Non-Federal:
Accounts Payable, non-Federal
Advances Payable, non-Federal
Interest Payable
Grant Liabilities
Other Accrued Liabilities, non-Federal
Total non-Federal Accounts Payable & Accrued
Liabilities
39,746
5
126
16,921
80.937
137.735
91,050
33
476,749
87.442
655.274
130,796
38
126
493,670
168.379
793.009
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, 2002, Plant, Property and Equipment consisted of the following:
EPA's FY 2002 Financial Statements
Page 59
-------
Superfund
All Others
EPA-Held Equipment
Software
Contractor-Held
Property:
Superfund
Site-Specific
General
Land and Buildings
Capital Leases
Total
Acquisition
Value
$ 25,968
961
32,472
10,407
0
$ 69,808
Accumulated
Depreciation
$ (15,245)
(85)
(12,065)
(3,667)
0
Net Book
Value
$ 10,723
876
20,407
6,740
0
Acquisition
Value
$ 148,693
26,358
0
18,412
41,614
Accumulated
Depreciation
$ (92,920)
(2,520)
0
(9,689)
(14,889)
Net Book
Value
$ 55,773
23,838
0
8,723
26,725
$ (31,062) $ 38,746 $ 756,592 $ (205,256) $ 551,336
As of September 30, 2001, Plant, Property and Equipment consisted of the following (as restated; see
Note 37):
Superfund
All Others
EPA-Held Equipment
Software
Contractor-held
Property:
Superfund
Site- Specific
General
Land and Buildings
Capital Leases
Total
Acquisition
Value
$ 23,832
559
32,472
9,447
Accumulated
Depreciation
Net Book
Value
$ (15,031) $
(5)
(8,818)
(2,287)
0
554
23,654
7,160
0
Acquisition
Value
Accumulated
Depreciation
10,398
0
16,752
40,992
(148)
0
(7,647)
(13,126)
Net Book
Value
;,801 $ 161,253 $ (105,484) $ 55,769
66,310
$ (26,141) $ 40,169 $ 730,249 $ (203,356)
10,250
0
9,105
27,866
526,893
Note 10. Debt
The Debt consisted of the following as of September 30, 2002 and 2001:
All Others
Other Debt:
Debt to Treasury
Classification of Debt:
Intra-governmental Debt
Total
FY 2002 FY 2001
Beginning Net Ending Beginning Net Ending
Balance Borrowing Balance Balance Borrowing Balance
31 m S (6 834) $ 7.4 7.90 tt 37 97.7. tt (6 798) tt 31 17.4
$ 24,290
S 7.4 790
31,124
31 174
Page 60
EPA's FY 2002 Financial Statements
-------
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, 2002 are as follows:
Other Liabilities - Intragovernmental Covered by Not Covered by
Budgetary Resources Budgetary Resources Total
Superfund - Current
Employer Contributions & Payroll Taxes $ 3,169 0 $ 3,169
Other Advances 2,470 0 2,470
Advances, HRSTF Cashout 16,618 0 16,618
Deferred HRSTF Cashout 30 0 30
Resources Payable to Treasury 0 0 0
Superfund - Non-Current
Unfunded FECA Liability 0 1,440 1,440
Total Superfund ^ 77 7*7 n i nn
-------
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
« 1 Q 887
« 1 <
E 91 ^08
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 $ 7.1 166 $ 6 341 ft 7.7 507
Total
27,659
* 77 659
$ 4,275
0
19,331
36,930
$ 60,536
Note 13. Leases
The Capital Leases as of September 30, 2002 and 2001, consist of the following:
Capital Leases, All Other Funds:
Summary of Assets Under CaDital
FY 2002
FY 2001
Lease:
Real Property
$ 40,913 J
£ 40,913
Personal Property
701
79
Total
* 41614
K 40 QQ7
Accumulated Amortization
« 1 d 88Q <
E nnfi
Other Liabilities - Non-Federal
Superfund - Current
Unearned Advances, Non- Federal
Total Superfund
All Other - Current
Unearned Advances, Non- Federal
Deferred Credits
Liability for Deposit Funds, Non-Federal
All Other - Non-Current
Capital Lease Liability
Total All Other
Covered by
Budgetary Resources
$ 27,659
Not Covered by
Budgetary Resources
77 659 $_
4,275
0
19,331
0
0
0
0
36,930
23,606
36,930
Page 62
EPA's FY 2002 Financial Statements
-------
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 expired in FY 2002 and capital leases for seven
shuttle buses terminating in FY 2007. 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
2003
$ 6,439
2004
6,439
2005
6,439
2006
6,439
2007
6,331
After 5 Years
R3 605
Total Future Minimum Lease Payments
115,692
Less: Imputed Interest
(78,963)
Net Capital Lease Liability
JK 36 77.9
Liabilities not Covered by
Budgetary Resources (See Note 12)
JK 36 77.9
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 2002. Most 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). Two of these operating leases expired in FY 2002. Two of
these operating leases that were due to expire in FY 2002 were extended: one until FY 2004 and the other
on a monthly basis. Two others expire in fiscal years 2017 and 2020. The fifth lease that expired in FY
2001 was extended until FY 2007. The charges are expended out of the EPM appropriation. The total
minimum future costs of operating leases are listed below.
Fiscal Year Superfund All Others Total Land & 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
EPA's FY 2002 Financial Statements
Page 63
-------
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, 2002 and 2001, consisted of the following:
FY 2002 FY 2001
Superfund All Other Superfund All Other
FECA Actuarial Liability * 7 60S a ti 7SQ
-------
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, 2002 and 2001. 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.
SUPERFUND FY 2002
EPA
Treasury
Combined
Undistributed Balances
Available for Investment
$ 0 $
1,876 $
1,876
Total Undisbursed Balance
0
1,876
1,876
Interest Receivable
0
12,973
12,973
Investments, Net of Discounts
2,762,430
534,572
3,297,002
Total Assets
$ 7 767 430 $
549 471 $
3 311 851
Liabilities & Equity
Equity
$ 2,762,430 $
549,421 $
3,311,851
Total Liabilities and Equity
$ 7 1(0. 430 $
549 471 $
3 31 1 851
Receipts
Corporate Environmental
$ 0 $
7,466 $
7,466
Cost Recoveries
0
248,252
248,252
Fines & Penalties
0
1,444
1,444
Total Revenue
0
257,162
257,162
Appropriations Received
0
676,292
676,292
Interest Income
0
110,577
110,577
Total Receipts
0
1 044 031
1 044 031
Outlays
Transfers to/from EPA, Net
1,329,490
(1,329,490)
0
Transfers to CDC
0
(49,502)
(49,502)
Total Outlays
1,329,490
(1,378,992)
(49,502)
Net Income
$ 1 37.9 490 $
H34 96n $
994 579
EPA's FY 2002 Financial Statements
Page 65
-------
SUPERFUND FY 2001
EPA
Treasury
Combined
Undistributed Balances
Available for Investment
$ 0 $
768 $
768
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
$ r 837 7.43 $
887 569 $
3 774 81?
Liabilities & Equity
Equity
$ 2,837,243 $
887,569 $
3,724,812
Total Liabilities and Equity
$ r 837 7.43 $
887 569 $
3 774 81?
Receipts
Petroleum-Imported
$ 0 $
2,471 $
2,471
Petroleum-Domestic
0
(12)
(12)
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 7? 7 360 $
<737 487*1 $
989 873
LUST (Audited)
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FY 2002
there were no fund receipts from cost recoveries, and only $40 thousand in cost recoveries were received
in FY 2001. The following represents LUST Trust Fund as maintained by the U.S. Department of
Treasury. The amounts contained in these statements have been provided by Treasury and are audited.
Outlays represent appropriations received by EPA's LUST Trust Fund; such funds are eliminated on
consolidation with the LUST Trust Fund maintained by Treasury.
Page 66
EPA's FY 2002 Financial Statements
-------
LUST FY 2002
EPA
Treasury
Combined
Undistributed Balances
Available for Investment $
0 $
12,232 $
12,232
Total Undisbursed Balance
0
12,232
12,232
Interest Receivable
0
22,531
22,531
Investments, Net of Discounts
80,875
1,848,646
1,929,521
Total Assets $
80 875 X
1 883 409 X
1 964 784
Liabilities & Equity
Equity $
80,875 $
1,883,409 $
1,964,284
Total Liabilities and Equity $
80 875 X
1 883 409 X
1 964 784
Receipts
Highway TF Tax $
0 $
173,351 $
173,351
Airport TF Tax
0
13,199
13,199
Inland TF Tax
0
474
474
Refund Gasoline Tax
0
(2,167)
(2,167)
Refund Diesel Tax
0
(3,357)
(3,357)
Refund Aviation Tax
0
(310)
(310)
Total Revenue
0
181,190
181,190
Interest Income
0
67,563
67,563
Total Receipts
0
248,753
248,753
Outlays
Transfers to/from EPA, Net
72,912
(72,912)
0
Total Outlays
72,912
(72,912)
0
Net Income $
79.91?. X
175 841 X
748 753
EPA's FY 2002 Financial Statements Page 67
-------
LUST FY 2001
EPA
Treasury
Combined
Undistributed Balances
Available for Investment $
0 $
12,211 $
12,211
Total Undisbursed Balance
0
12,211
12,211
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 X
1,791,029
Liabilities & Equity
Equity $
83,460 $
1,707,569 $
1,791,029
Total Liabilities and Equity $
83 460 X
1 707 569 X
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
Total Revenue
0
181,584
181,584
Interest Income
0
94,802
94,802
Total 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 X
276,386
Note 18. Commitments and Contingencies
EPA may be a party in various administrative proceedings, legal actions and claims brought by or
against it. These include:
Various personnel actions, suits, or claims brought against the Agency by employees and others.
Various contract and assistance program claims brought against the Agency by vendors, grantees and
others.
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 06(a), EPA issues administrative orders that require parties to clean up contaminated
sites. CERCLA 06(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
Page 68
EPA's FY 2002 Financial Statements
-------
eligible for reimbursement, the party must demonstrate either that it was not a liable party under
CERCLA 07(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 one CERCLA 06(b) administrative claim. If the claimant is successful, the total
losses on the administrative and judicial claims could amount to approximately $17.8 million. The
Environmental Appeals Board has not yet issued final decisions on the administrative claim; therefore, a
definite estimate of the amount of the contingent loss cannot be made. The claimant's chance of success
overall is characterized as reasonably possible.
All Other
There is one material claim which may be considered threatened litigation involving all other
appropriated funds of the Agency. If the claimant is successful, the total losses of the claim could
amount to $82.8 million. The claim is currently being evaluated by GSA contracting officials and their
private sector claims consultant. The claimant's chance of success overall is characterized as reasonably
possible.
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, 2002, there are no material claims pending in the Treasury Judgement Fund.
Note 19. Exchange Revenues, Statement of Net Cost
For FY 2002, the exchange revenues reported on the Statement of Net Cost are separated into Federal
and non-Federal portions. Exchange revenues were reported only in total for the FY 2001 Statement of
Net Cost. Exchange revenues on the Statement of Net Cost include income from services provided, non-
custodial interest revenue (with the exception of interest earned on trust fund investments), and non-
custodial miscellaneous earned revenue.
Note 20. Environmental Cleanup Costs
The EPA has one site that requires clean up stemming from its activities. Costs amounting to $20
thousand may be paid out of the Treasury Judgement Fund. (The $20 thousand represents the lower end
of a range estimate, of which the maximum of the range will total $200 thousand.) The claimant's
chance of success is characterized as probable. 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 $13.4 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
EPA's FY 2002 Financial Statements
Page 69
-------
subsequent years.
The FY 2002 estimate for unfunded cleanup costs increased by $1 million resulting from a Denver
facility move from an existing site to a newly renovated building at the Denver Federal Center. Of the
remaining $13.3 million in estimated cleanup costs, approximately $6 million represents the estimated
expense to close the current RTP facility. These costs will be incurred within the next year. The
remaining amount represents the future decontamination and decommissioning costs of EPA's other
research facilities. There was a net decrease of approximately $1.8 million in funded cleanup costs from
FY 2001 to FY 2002. 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
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, 2002, total
remaining State credits have been estimated at $11.2 million. The estimated ending credit balance on
September 30, 2001 was $10.7 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, 2002,
EPA had 15 outstanding preauthorized mixed funding agreements with obligations totaling $37.4 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 Years 2002 and 2001, EPA had one appropriation which funded a variety of programmatic
and non-programmatic activities across the Agency, subject to statutory requirements. The
Page 70
EPA's FY 2002 Financial Statements
-------
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.
Income From
Other
Appropriations
FY 2002
Expenses From
Other
Appropriations
Income From
Net Other
Effect Appropriations
FY 2001
Expenses From
Other
Appropriations
Net
Effect
Superfund
All Others
Total
114,297
(114.297-)
IL $_
(114,297) $
114,297
JL $.
0 $
0
_0 $_
103,654
(103.6541
(103,654) $
103,654
JL $_
JL $_
Note 24. Custodial Revenues and Accounts Receivable
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.
Fines, Penalties and Other Misc Revenue (EPA)
FY2002
FY2001
95 489 $_
l?.l *97.
Accounts Receivable for Fines, Penalties and
Other Miscellaneous Receipts
Accounts Receivable
Less: Allowance for Doubtful Accounts
Total
107,779 $
39,383
123,966
46,186
68 396 $_
77 780
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, 2002 and 2001, are as follows:
EPA's FY 2002 Financial Statements
Page 71
-------
FY 2002
Superfund
Statement of Budgetary Resources
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other
Budget of the United States Government
All Other
Statement of Budgetary Resources
Less: Funds Reported by Other Federal
Entities
Adjustments to Unliquidated Obligations,
Unfilled Customer Orders and Other
Budget of the United States Government
Budgetary Obligations
Resources Incurred Outlays
$ 2,448,998 $ 1,698,004 $ 1,377,754
(17.4631 (17.4631 (1.313)
$ 2,431,535 $ 1,680,541 $ 1,376,441
$ 9,807,912 $ 7,762,664 $ 7,012,562
(24,419) (24,066) (24,582)
0_ (622) (26)
S 9 783 493 tt 7 737 976 tt 6 987 954
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 X222—
Note 26. Recoveries and Permanently Not Available, Statement of Budgetary Resources
Details of Recoveries of Prior Year Obligations and Permanently Not Available on the Statement of
Budgetary Resources are represented by the following categories:
Superfund FY 2002 FY 2001
Recoveries of Prior Year Obligations $ 230,628 $ 196,644
Less: Rescinded Authority (2.000) 0
Total $ 998^78 s 1Qa add
All Others FY 2002 FY 2001
Recoveries of Prior Year Obligations $ 89,440 $ 76,815
Adjustments to Beginning
Unobligated Balances 0 0
Less: Payments to Treasury (6,834) (6,798)
Rescinded Authority (1,588) (15,668)
Canceled Authority (33.870) (36.254)
Total $ dl 148 1! 18 HQ'S
Page 72
EPA's FY 2002 Financial Statements
-------
Note 27. Unobligated Balances Available
Availability of unobligated balances are shown comparatively for FY 2002 and FY 2001. The unexpired
authority is available to be apportioned by the Office of Management and Budget for new obligations at
the beginning of FY 2003. Expired authority is available for upward adjustments of obligations incurred
as of the end of the fiscal year.
Superfund FY 2002 FY 2001
Unexpired Unobligated Balance $ 726,589 $ 714,321
Authority Available for
Apportionment 24,386 0
Expired Unobligated Balance 19_ 0_
Total $ 750 994 $ 714 37.1
All Others
Unexpired Unobligated Balance $ 1,917,637 $ 1,791,475
Authority Available for
Apportionment 1,150 0
Expired Unobligated Balance 126,461 119,829
Total $ 7.045 7.48 $ 1 911 304
Note 28. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund or trust fund receipt accounts
offset gross outlays. For FY 2002, the following receipts were generated from these activities:
Superfund FY 2002
Trust Fund Recoveries $ 248,252
Total $ 7.48 7.57.
All Others
Special Fund Environmental Service $ 11,358
Trust Fund Appropriation 676,292
Total $ 687,650
Note 29. Statement of Financing
Specific components requiring or generating resources in future periods and resources that fund expenses
recognized in prior periods are related to changes in liabilities not covered by budgetary resources. For
FY 2002, the following line items are reconciled to the increases or decreases in those liabilities.
EPA's FY 2002 Financial Statements
Page 73
-------
Statement of Financing lines:
Superfund Trust
All Other
Combined
Fund
Funds
Total
Resources that fund expenses recognized in
$ $
: 3
prior periods
(1,590)
(399)
(1,989)
Increases in environmental liabilities
0
578
578
Total
$ (1,590) $
; 179 J
i (i,4ii)
Increases (Decreases) in Liabilities Not
Covered by Budgetary Resources and
Reconciling Items
Unfunded Annual Leave Liability
$ 2,206 $
; 5,375 $
7,581
Unfunded Contingent Liability
(3,778)
(6,000)
(9,778)
Unfunded Workers Compensation Liability
14
61
75
Actuarial Workers Compensation Liability
(32)
(143)
(175)
Subsidy Payable to Treasury
0
(942)
(942)
Unfunded Clean-up Costs Liability
0
578
578
Negative subsidy entries
0
616
616
Subsidy re-estimate entries
0
634
634
Total
$ (1,590) $
; 179 J
I (1,411)
Note 30. Costs Not Assigned to Goals
FY 2002's Statement of Net Cost by Goal has -$4.8 million in gross costs not assigned to goals. This
amount is comprised of decreases of $6.0 million in unfunded contingent liabilities and $2.5 million in
bad debt expenses; offset by increases of $2.0 million interest on borrowing, $0.6 million in
environmental cleanup costs, $0.6 million in undistributed Federal payroll-related costs, and $0.5 million
in other interest costs.
For FY 2001's Statement of Net Cost by Goal, -$31.5 million in gross costs were not assigned to goals.
This amount was comprised of a decrease of $57.0 million to the year-end grant accruals; 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.
Note 31. Transfers-in and out, Statement of Changes in Net Position
Appropriation Transfers. In/Out:
For FY 2002, the Appropriation Transfers under Budgetary Financing Sources on the Statement of
Changes in Net Position are comprised of nonexpenditure transfers which affect Unexpended
Appropriations for non-invested appropriations. These amounts are included in the Budget Authority,
Net Transfers and Prior Year Unobligated Balance, Net Transfers lines on the Statement of Budgetary
Resources. Detail of the Appropriation Transfers on the Statement of Changes in Net Position and a
reconciliation with the Statement of Budgetary Resources follow:
Fund/Type of Account Superfund All Other Funds
GSA Building Fund $ 0 $ 23,948
EPM (from current year balances) 0 3,750
EPM (from prior year balances) 0 500
STAG 0_ 400
Total Appropriation Transfers $ 0 28,598
Net Transfers to Invested Funds* $ 1,329,490 $ 72,912
Total of Net Transfers on Statement
of Budgetary Resources $
Portion of transfers on Statement of Budgetary Resources that are not part of Appropriation Transfers on Statement of
Changes in Net Position
Page 74
EPA's FY 2002 Financial Statements
-------
Transfers in/out Without Reimbursement. Budgetary:
For FY 2002, Transfers In/Out under Budgetary Financing Sources on the Statement of Changes in Net
Position are comprised of transfers to or from other Federal agencies and between EPA funds. These
transfers affect Cumulative Results of Operations. A breakdown of the transfers-in and transfers-out,
expenditure and nonexpenditure, follows:
Type of Transfer/Funds Superfund All Other Funds
Transfers-in(out), expenditure, $ (36,891) $ 36,891
Superfund to S&T fund
Transfers-in(out), expenditure, (11,867) 11,867
Superfund to OIG fund
Transfers-out, nonexpenditure, from (5,188)
Superfund to other Federal agencies
Transfers-out, nonexpenditure, from (49,502)
Treasury trust fund to CDC
Transfers-in, nonexpenditure, Oil
Spill
Transfer-in(out) adjustments,
canceled funds
Total Transfers in(out) without $
Reimbursement, Budgetary
15,000
(86)
(103,448) 63,672
Transfers in/out without Reimbursement. Other Financing Sources:
For FY 2002, Transfers in/out without Reimbursement under Other Financing Sources on the Statement
of Changes in Net Position are comprised of 1) transfers of property, plant, and equipment between EPA
funds and 2) transfers of negative subsidy to a special receipt fund for the credit reform funds. The
amounts reported on the Statement of Changes in Net Position are as follows:
Type of Transfer/Funds
Transfer-in(out) of property, between $
Superfund and EPM
Transfer-out of FY 2002 negative
subsidy, to be paid in FY 2003
Adjustment to transfer-out of FY
2001 negative subsidy, paid out in
FY 2002 and adjusted to funded
expenses
Total Transfers in(out) without $
Reimbursement, Budgetary
Superfund All Other Funds
47 $ (47)
(371)
816
47 398
For FY 2001, 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.
EPA's FY 2002 Financial Statements
Page 75
-------
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 2002 were $14.7 million and $83.0 million for Superfund and All Other Funds,
respectively. For FY 2001, the estimates were $13.4 million and $76.5 million for Superfund and All
Other Funds, respectively.
In addition to the pension and retirement benefits described above, EPA also records imputed costs and
financing for Treasury Judgement Fund payments on behalf of the agency. Entries are made in
accordance with the Interpretation of Federal Financial Accounting Standards No. 2, Accounting for
Treasury Judgement Fund Transactions. For FY 2002, no Judgement Fund payments were made on
EPA's behalf. For FY 2001, entries for Judgement Fund payments totaled $0.3 million and $1.3 million
for Superfund and All Other Funds, respectively.
Note 33. Payroll and Benefits Payable
The amounts that relate to payroll and benefits payable to EPA employees for the years ending
September 30, 2002 and 2001, are detailed in the following tables.
FY 2002 Payroll and Covered by Not Covered by Total
Benefits Payables Budgetary Resources Budgetary Resources
Superfund - Current
Accrued Funded Payroll and
Benefits $
9,146
$ 0 $
9,146
Withholdings Payable
6,897
0
6,897
Employer Contributions
Payable, non Federal (TSP)
443
0
443
Other Post-employment
Benefits Payable
3
0
3
Accrued Unfunded Annual
Leave
0
22,647
22,647
Total - Superfund - Current $
tfk 48Q
S 77 fkdl S
w 1 ™
All Other Funds - Current
Accrued Funded Payroll and
Benefits $
41,309
$ 0 $
41,309
Withholdings Payable
30,233
0
30,233
Employer Contributions
Payable, non Federal (TSP)
1,943
0
1,943
Other Post-employment
Benefits Payable
29
0
29
Accrued Funded Leave, WCF
320
0
320
Accrued Unfunded Annual
Leave
0
103.598
103.598
Total - All Other Funds -
Current $
-------
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 S
70440 S
^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 $ ^ *"7 $ os m 7^n
Note 34. Other Adjustments, Statement of Changes in Net Position
The Other Adjustments under Budgetary Financing Sources on the Statement of Changes in Net Position
are comprised of rescissions to appropriated funds and cancellations of funds that expired on September
30, 1997. These amounts affected Unexpended Appropriations for All Other Funds for FY 2002.
Rescissions to Appropriated Funds $ 1,588
Canceled Authority 33,872
Total Other Adjustments $
Note 35. Nonexchange Revenue, Statement of Changes in Net Position
The Nonexchange Revenue, Budgetary Financing Sources on the Statement of Changes in Net Position
for FY 2002 is comprised of the following items:
Superfund Trust All Other Combined
Fund Funds Total
Interest on Trust Fund Investments $ 110,577 $ 67,563 $ 178,140
Tax Revenue, Net of Refunds 7,466 181,190 188,656
Fines and Penalties Revenue * (10,005) 0 (10,005)
Special Receipt Fund Revenue 0 11,358 11,358
Total Nonexchange Revenue $ 108,038 $ 260,111 $ 368,149
* Fines and penalties revenue included the following negative items: a $9,664 thousand write-off and $1,339 thousand
allowance for uncollectible accounts.
EPA's FY 2002 Financial Statements
Page 77
-------
Note 36. Correction of Error in Revenue, Prior Year, Superfund
In fiscal year 2001, in accordance with agency General Counsel opinions, EPA started placing both past
and future cost settlement amounts into site-specific accounts that could be used immediately without a
Congressional appropriation. (See also Note 15, Cashout Advances, Superfund.) In that same fiscal year
a material error was made in accruing revenue from the cashout advance account. That error resulted in
an overstatement of earned revenue of $53,256 thousand for FY 2001 for Superfund. The applicable
statements are restated in accordance with Statement of Federal Financial Standards No. 21, Paragraphs
10 and 11.
The FY 2001 Statements of Changes in Net Position and Financing are restated in the same format as the
FY 2001 EPA Audited Financial Statements. Because extensive format changes to these statements were
required in FY 2002 by OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements,
these statements will not be comparative. The lines affected on the FY 2001 Statement of Financing
were "Exchange Revenue not in the Entity's Budget" and "Net Cost of Operations."
The effect of the change on Earned Revenue, Net Cost of Operations, and Net Position, Superfund, for
FY 2001 are as follows:
Amount
on FY 2001
Statements
Earned Revenue $ 488,397
(applied to Strategic Goal
of Better Waste Management)
Net Cost of Operations
Net Position
$1,220,769
$3,507,322
Revenue
Restatement
Increase/
('Decrease')
$(53,256)
$ 53,256
$(53,256)
Property
Restatement
(See Note 37)
Inc / (Dec)
$(1,164)
23,654
Restated
Amount
$ 435,141
1,272,861
3,477,720
Note 37. Correction of Error in Contractor-held Property, Prior Years, Superfund
Prior to FY 2002, Superfund contractor-held property used on site-specific response actions were
charged to expense in the period acquired. While some of this site-specific property was transferred to
states for mandatory operation and maintenance, other items were held by EPA for a period in excess of
two years. These items should have been capitalized and depreciated in accordance with Federal
accounting standards for property, plant, and equipment.
The omission of these Superfund site-specific items resulted in material errors in prior years' statements
from FY 1996 to FY 2001. In accordance with SFFAS No. 21, "Reporting Corrections of Errors and
Changes in Accounting Principles", the FY 2001 statements presented have been restated. The effect on
statements for fiscal years prior to FY 2001 is reported as a prior period adjustment increase of $22,490
thousand to FY 200l's beginning net position. The effect on relevant statement lines for Superfund for
the fiscal years 1996 to 2001 are presented below.
The FY 2001 Statements of Changes in Net Position and Financing are restated in the same format as the
FY 2001 EPA Audited Financial Statements. Because extensive format changes to these statements were
required in FY 2002 by OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements,
these statements will not be comparative. The lines affected on the FY 2001 Statement of Financing
were "Costs Capitalized on the Balance Sheet-General Property, Plant, and Equipment", "Depreciation
and Amortization", and "Net Cost of Operations."
Page 78 EPA's FY 2002 Financial Statements
-------
Effect on Property. Plant and Equipment. Net. Superfund:
Amount
Corrected
FY
Effect on Cost
Effect on
Depreciation
Net Effect
Cumulative
Effect
Reported on
Statements
Balances (FY
2001 Restated)
1996
$ 1,359
$ 68
$ 1,291
$ 1,291
$ 8,735
$ 10,026
1997
8,410
815
7,595
8,886
6,485
15,371
1998
4,129
1,053
3,076
11,962
6,560
18,522
1999
6,040
1,540
4,500
16,462
13,407
29,869
2000
8,334
2,306
6,028
22,490
13,581
36,071
2001
4,224
3,060
1,164
23,654
16,515
40,169
Effect on Total Costs*. Superfund:
Fiscal Year
1996**
1997
1998
1999
2000**
2001
Amount Reported
on Statements
$ 1,542,925
1,489,086
1,505,963
1,744,559
1,644,516
1,709,166
Effect on Net Position. Superfund:
Fiscal Year
1996**
1997
1998
1999
2000**
2001
Amount
Reported on
Statements
6,106,381
5,649,530
5,064,268
4,301,250
3,875,439
3,507,322
Net Effect of
Error (from
previous table)
; (i,29i)
(7,595)
(3,076)
(4,500)
(6,028)
(1,164)
Cumulative
Effect of Error
(from previous
table)
$ 1,291
8,886
11,962
16,462
22,490
23,654
Corrected Balances
(FY 2001 Restated)
$ 1,541,634
1,481,491
1,502,887
1,740,059
1,638,488
1,708,002
Revenue
Restate-
ment (see
Note 36)
$(53,256)
Corrected
Balances (FY
2001 restated)
S 6,107,672
5,658,416
5,076,230
4,317,712
3,897,929
3,477,720
Because of changes in OMB Form and Content Bulletin requirements, for FY 1996 and 1997 "Total Funded Costs" plus
"Unfunded Expenses" provided the closest comparison with later years' statements' "Total Costs. " For years in which
the Statement of Net Cost by Goal was presented, the costs were applied to the Strategic Goal of "Better Waste
Management."
** As restated on the following year's Audited Financial Statements.
EPA's FY 2002 Financial Statements
Page 79
-------
Environmental Protection Agency
Required Supplemental Information
As of September 30, 2002
(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 2002).
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 Commerce,
Department of the Treasury, Department of Housing and Urban Development, the Nuclear Regulatory
Commission, the Tennessee Valley Authority, and the National Science Foundation.
Trading Investments Accounts Receivable Other
Partner
Code Agency Superfun All Other Superfund All Other Superfund All Other
d
04 Government Printing Office $ 0$ 0$ 0$ 0$ 47$ 1,683
11 Executive Office of the
President 3
12 Department of Agriculture 115 4
13 Department of Commerce 61 4 22
14 Department of Interior 13,583 568 5
15 Department of lustice 80 58
17 Department of the Navy 70 468
18 U. S. Postal Service 16 415
19 Department of State 20 2,418
20 Department of the Treasury 3,309,975 1,952,052 35 155
21 Department of the Army 8,120 23
31 Nuclear Regulatory
Commission 2 1
45 Equal Employment
OpportunityCommission 53
47 General Services
Administration f. i
Page 80
EPA's FY 2002 Financial Statements
-------
Trading Investments Accounts Receivable Other
Partner
Code Agency Superfund All Other Superfund All Other Superfund All Other
57 Department of the Air
Force 131 185
58 Federal Emergency
Management Agency 9 549
68 EPA (between Superfund
and All Other) 47,412 4,387 60
69 Department of
Transportation 9 ^95
72 Agency for International
Development 1,153
75 Department of Health and
Human Services 510 442
80 National Aeronautics and
Space Administration 10
86 Department of Housing and
Urban Development 45
89 Department of Energy 124 399
96 US Army Corps of
Engineers 8 1,344
97 US Department of Defense 10,509 60
99 Treasury General Fund 371
00 Unassigned 0 0 0 274 24 (25)
Total $3.309.975 $1.952.052 $33.309 $72.298 $4.520 $4.578
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), the Department of Justice (15), the Office of Personnel Management (24), the Nuclear Regulatory
Commission (31), the Department of the Treasury (20), and the Department of Labor (16).
Trading Accounts Payable Accrued Liabilities Other Liabilities
Partner
Code
Asencv Superfund All
Other Superfund All
Other
Superfund All Other
03
Library of Congress $ 0 $
0 $ 13$
194
$ 0 $
0
04
Government Printing Office
60
1,023
12
Department of Agriculture
84 877
991
2,119
(5)
13
Department of Commerce 889
947
2,819
187
14
Department of Interior 901
3,566
2,415
4
90
15
Department of Justice 617
58 4,183
96
1,232
16
Department of Labor 2,25 8
147
477
1,440
6,402
17
Department of the Navy 351
89
872
47
EPA's FY 2002 Financial Statements
Page 81
-------
Trading Accounts Payable Accrued Liabilities Other Liabilities
Partner
Code Agency Superfund All Other Superfund All Other Superfund All Other
18 United States Postal
Service 2 2 15
19 Department of State 208
20 Department of the 44 266 372
Treasury
21 Department of the 27 896
Army
24 Office of Personnel
Management 47 367 2,318 10,163
31 US Nuclear Regulatory
Commission 2 9 20
36 Dept. of Veterans 74
Affairs
45 EEOC 40
47 General Services
Administration 4473 15315 3750 (91)
49 National Science
Foundation 6 91
57 Department of the Air
Force 2,673
58 Federal Emergency
Management Agency 15317 21 66
59 Nat'l Foundation on Arts
and Humanities Y2
64 Tennessee Valley Authority
74 36
68 EPA (between Superfund
and All Others) 45,742 27 1,711 4,379
69 Department of
Transportation 4128 3,420 17
72 Agency for International
Development 5
75 Department of Health and
Human Services 16 3 43! 7^50
80 National Aeronautics and
Space Administration 239
86 Department of Housing and
Urban Development 327
89 Department of Energy 378 4,407 164
93 Federal Mediation Service 22
95 Independent Agencies 5 508 1,490
Page 82
EPA's FY 2002 Financial Statements
-------
Trading Accounts Payable Accrued Liabilities Other Liabilities
Partner
Code Agency Superfund All Other Superfund All Other Superfund All Other
96 US Army Corps of
Engineers 46U 438 21,191 1,533 5 19
97 Office of the Secretary of
Defense 49 338 l 044 33
99 Treasury General Fund 851 3,721
00 Unassigned (22) 13 237 425 18
Total $70.682 $620 $45.557 $43.363 $23.727 $26.381
For All Other Funds' remaining intragovernmental liabilities, $24,290 thousand in Debt is assigned to the
Department of the Treasury (trading partner Code 20), and $69,706 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 $22,932 $104,318
Associated Costs to generate above
Revenue (Budget Functional
Classification 304) 22'932 104,318
EPA's FY 2002 Financial Statements
Page 83
-------
Environmental Protection Agency
Required Supplemental Information
Supplemental Statement of Budgetary Resources
As of September 30, 2002
(Dollars in Thousands)
Environ-
mental
Science
Total
Programs &
and
LUST
All
All
STAG
Manage-
Technology
FIFRA
Trust Fund
Other
Other
ment
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $
3,738,276 3
>2,093,511 $
788,397 $
03
i 0 $
750,901 $
7,371,085
Borrowing Authority
0
0
0
0
0
0
0
Net Transfers
400
3,750
0
0
72,912
23,948
101,010
Other
0
0
0
0
0
0
0
Unobligated Balances:
Beginning of Period
1,299,314
306,938
200,941
1,917
6,220
95,974
1,911,304
Net Transfers, Actual
0
500
0
0
0
0
500
Anticipated Transfers Balance
0
0
0
0
0
0
0
Spending Authority-Offsetting Collections
Earned and Collected
16,944
66,735
7,823
17,802
2
152,796
262,102
Receivable from Federal Sources
0
6,161
(5,908)
0
0
1,157
1,410
Change in Unfilled Customer Orders
Advance Received
0
166
475
(1)
0
1,493
2,133
Without Advance from Federal Sources
0
59,663
1,610
0
0
1,276
62,549
Anticipated for Rest of Year
0
0
0
0
0
0
0
Transfers from Trust Funds
0
0
36,891
0
0
11,780
48,671
Total Spending Authority from $
16,944 3
i 132,725 $
40,891 $
17,801 3
i 2$
168,502$
376,865
Collections
Recoveries of Prior Year Obligations
62,743
15,315
2,072
0
1,032
8,278
89,440
Permanently Not Available
0
(27,868)
(6,533)
0
0
(7,891)
(42,292)
Total Budgetary Resources $
5,117,677 3
S 2,524,871 $
1,025,768 $
19,718 3
i 80,166 $
1,039,712$
9,807,912
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $
3,751,750 3
S 2,091,207$
798,823 $
03
i 76,939 $
795,335$
7,514,054
Reimbursable
0
79,514
1,468
19,342
0
148,286
248,610
Total Obligations Incurred $
3,751,750 3
S 2,170,721$
800,291 $
19,342 3
i 76,939 $
943,621 $
7,762,664
Unobligated Balances:
Apportioned
1,365,927
249,695
203,607
376
3,227
94,805
1,917,637
Exempt from Apportionment
0
0
0
0
0
0
0
Unobligated Balances Not Available
0
104,455
21,870
0
0
1,286
127,611
Total Status of Budgetary Resources $
5,117,677 3
S 2,524,871$
1,025,768 $
19,718 3
i 80,166 $
1,039,712$
9,807,912
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $
3,672,063 3
S 2,022,681$
757,328 $
1,541 3
i 75,905 $
766,841 $
7,296,359
Obligated Balances, Net - Beginning
7,917,132
783,265
492,591
1,547
83,186
47,134
9,324,855
Accounts Receivable
0
15,680
41,803
0
0
15,094
72,577
Unfilled Customer Orders-Federal Sources
0
179,292
10,575
0
0
63,481
253,348
Undelivered Orders
(7,886,623)
(704,134)
(543,042)
(839)
(74,673)
(68,614)
(9,277,925)
Accounts Payable
(349,388)
(191,514)
(72,695)
(1,782)
(7,146)
(34,127)
(656,652)
Total Outlays $
3,353,184 3
S 2,105,270$
686,560 $
467 3
i 77,272 $
789,809 $
7,012,562
Disbursements $
3,370,128 3
S 2,172,171$
731,059 $
18,267 3
i 77,274 $
954,841 $
7,323,740
Collections
(16,944)
(66,901)
(44,499)
(17,800)
(2)
(165,032)
(311,178)
Less: Offsetting Receipts
0
0
0
0
0
(687,650)
(687,650)
Net Outlays $
3,353,184 3
S 2,105,270$
686,560 $
467 3
i 77,272 $
102,159$
6,324,912
Page 84 EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Balance Sheet
As of September 30, 2002
(Dollars in Thousands)
Unaudited
ASSETS
Intragovernmental
Fund Balance With Treasury $ 57,380
Accounts Receivable, Net Federal 10,754
Other 419
Total Intragovernmental $ 68,553
General Property, Plant and Equipment, Net 11,746
Other Non Federal Assets 43
Total Assets $ 80,342
LIABILITIES
Intragovernmental
Accounts Payable & Accrued Liabilities, Federal $ 1,978
Other Federal Liabilities 29,206
Total Intragovernmental $ 31,184
Accounts Payable & Accrued Liabilities, Non Federal 16,450
Payroll and Benefits Payable Non Federal 1,683
Other Non Federal Liabilities
Total Liabilities $ 49,317
NET POSITION
Cumulative Results of Operations $ 31,025
Total Net Position 31,025
Total Liabilities and Net Position $ 80,342
EPA's FY 2002 Financial Statements
Page 85
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Net Cost
For the Year Ended September 30, 2002
(Dollars in Thousands)
COSTS
Intragovernmental
With the Public
Total Costs
Less:
Earned Revenues, Federal
Earned Revenues, Non Federal
Total Earned Revenues
NET COST OF OPERATIONS
Unaudited
$ 17,836
112,735
$ 130,571
131,178
(32)
$ 131,146
$ (575)
Page 86
EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Changes in Net Position
For the Year Ended September 30, 2002
(Dollars in Thousands)
Unaudited
Net Position - Beginning of Period $ 28,708
Prior Period Adjustments 0
Beginning Balances, as adjusted $ 28,708
Budgetary Financing Sources:
Transfers In/Out 0
Other 0
Total Budgetary Financing Sources $ 0
Other Financing Sources:
Transfers In/Out 0
Imputed Financing Sources 1,742
Other 0
Total Other Financing Sources $ 1,742
Net Cost of Operations 575
Net Position - End of Period $ 31,025
EPA's FY 2002 Financial Statements
Page 87
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Budgetary Resources
For the Year Ended September 30, 2002
(Dollars in Thousands)
Unaudited
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $ 0
Borrowing Authority 0
Net Transfers 0
Other 0
Unobligated Balances:
Beginning of Period 23,034
Net Transfers, Actual 0
Anticipated Transfers Balance 0
Spending Authority from Offsetting Collections:
Earned and Collected 130,822
Receivable from Federal Sources 328
Change in Unfilled Customer Orders
Advance Received 1,621
Without Advance from Federal Sources (699)
Anticipated for Rest of Year 0
Transfers from Trust Funds 0
Total Spending Authority from Offsetting Collections $ 132,072
Recoveries of Prior Year Obligations 2,415
Permanently Not Available 0
Total Budgetary Resources $ 157,521
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Reimbursable $ 130,359
Unobligated Balances:
Apportioned 27,162
Exempt from Apportionment 0
Unobligated Balances Not Available 0
Total Status of Budgetary Resources $ 157,521
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $ (4,128)
Obligated Balances, Net - Beginning of Period 28,232
Accounts Receivable 114
Unfilled Customer Orders from Federal Sources 3,675
Undelivered Orders (14,993)
Accounts Payable (19,014)
Total Outlays $ (6,114)
Disbursements $ 126,330
Collections (132,444)
Less: Offsetting Receipts 0
Net Outlays $ (6,114)
Page 88
EPA's FY 2002 Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Financing
For the Year Ended September 30, 2002
(Dollars in Thousands)
Unaudited
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred $ 130,359
Less: Spending Authority from Offsetting Collections and Recoveries (134,487)
Obligations Net of Offsetting Collections and Recoveries $ (4,128)
Less: Offsetting Receipts 0_
Net Obligations $ (4,128)
Other Resources
Transfers In/Out Without Reimbursement, Property $ 0
Imputed Financing Sources 1,742
Other (+/-) 0
Income from Other Appropriations 0_
Net Other Resources Used to Finance Activities $ 1,742
Total Resources Used To Finance Activities $ (2,386)
RESOURCES USED TO FINANCE ITEMS NOT PART OF
NET COST OF OPERATIONS
Change in Budgetary Resources Obligated
Resources that Fund Prior Period Expenses
Budgetary Offsetting Collections and Receipts that Do Not
Affect Net Cost of Operations
Credit Program Collections Increasing Loan Liabilities for Guarantees of
Subsidy Allowances
Offsetting Receipts Not Affecting Net Cost of Operations
Resources that Finance the Acquisition of Assets
Other Resources or Adjustments to Net Obligated
Resources that Do Not Affect Net Cost of Operations
Total Resources Used to Finance Items Not Part of Net Cost of Operations
Total Resources Used to Finance the Net Cost of Operations
COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL NOT
REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD
Components Requiring or Generating Resources in Future Periods
Increase in Annual Leave Liability
Increase in Environmental and Disposal Liability
Upward/Downward Reestimates of Credit Subsidy Expense
Increase in Exchange Revenue Receivable from the Public
Increase in workers compensation costs
Total Components of Net Cost of Operations that Will
Require or Generate Resources in Future Periods
Components Not Requiring or Generating Resources
Depreciation and Amortization
Revaluation of Assets or Liabilities
Other Expenses Not Requiring Budgetary Resources
Total Components of Net Cost of Operations that Will
Not Require or Generate Resources
Total Components of Net Cost of Operations That Will Not
Require or Generate Resources in the Current Period
Net Cost of Operations
$ (597)
(170)
0
0
0
(1,717)
0_
$ (2,484)
$ (4,870)
0
4,326
0
(31)
4,295
4,295
(575)
EPA's FY 2002 Financial Statements
Page 89
-------
Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30, 2002
(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. The Environmental Protection Agency's (EPA) 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, efficient and
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 2002,
the full cost of the Agency's Research and Development activities totaled over $682.5 million. Below is a
breakout of the expenses (dollars in thousands):
FY 1998 FY 1999 FY 2000 FY 2001 FY 2002
Programmatic Expenses 507,828 543,777 541,117 555,794 559,218
Allocated Expenses 53,322 58,728 59,523 90,039 123,307
INVESTMENT IN THE NATION'S INFRASTRUCTURE
The Agency makes significant investments in the nation's drinking water and clean water infrastructure.
The investments are the result of three programs: the Construction Grants 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 focus of
municipal financial assistance from grants to loans that are provided by State Revolving Funds.
State Revolving Funds: EPA provides capital, in the form of capitalization grants, to state revolving
funds which state governments use to make loans to individuals, businesses, and governmental entities
for the construction of wastewater and drinking water treatment infrastructure. When the loans are repaid
to the state revolving fund, the collections are used to finance new loans for new construction projects.
The capital is reused by the states and is not returned to the Federal Government.
Page 90
EPA's FY 2002 Financial Statements
-------
The Agency also is 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
FY 2002
Construction Grants
444,817
414,528
55,766
63,344
149,841
Clean Water SRF
1,109,017
925,744
1,564,894
1,548,270
1,389,048
Safe Drinking Water SRF
94,936
387,429
588,116
728,921
708,528
Other Infrastructure
138,363
245,606
212,124
282,914
367,259
Grants
Allocated Expenses
187,649
213,117
266,299
424,999
576,536
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, 2002, the Agency possesses the following land and land rights:
Superfund Sites with Easements
Beginning Balance 29
Additions 2
Withdrawals 0
Ending Balance =^1
Superfund Sites with Land
Acquired
Beginning Balance 25
Additions 1
Withdrawals 2
Ending Balance 24
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):
EPA's FY 2002 Financial Statements
Page 91
-------
FY 1998 FY 1999 FY 2000 FY 2001 FY 2002
Training and Awareness Grants 39,131 46,630 49,265 48,697 49,444
Fellowships 11,084 10,239 9,570 11,451 8,728
Allocated Expenses 5,273 6,142 6,472 9,744 12,827
Page 92
EPA's FY 2002 Financial Statements
-------
Appendix II
Agency's Response to Draft Report
-------
-------
** A \
121221
% PBClt0
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JAN 2 2 2003
OFFICE OF THE
CHIEF FINANCIAL OFFICER
MEMORANDUM
TO:
SUBJEC
FROM:
Paul C. Curtis
Assignment Manager
Financial Audit Division
udit Report on EPA's Fiscal 2002 and 2001 Financial
Thank you for providing us the opportunity to comment on and respond to the findings
and recommendations made in the "Draft Audit of EPA's Fiscal 2002 and 2001 Financial
Statements." Attached is our response to the specific audit findings and recommendations.
I would like to express our appreciation for the OlG's recognition of the many actions and
initiatives that have been taken to resolve prior financial statement audit issues and the
accomplishments of the Audit Follow-Up Council established by the Deputy CFO. I also greatly
appreciate OIG's positive acknowledgment of OCFO's proactive efforts to reconcile intra-
governmental transactions.
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.
Attachments
cc: Linda Combs
Mike Ryan
Internet Address (URL) • http://www.epa.gov
Recycled/Recyclable • Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Postconsumer)
-------
Attachment I
RESPONSE TO DRAFT AUDIT OF EPA'S FISCAL 2001 AND 2002
FINANCIAL STATEMENTS AUDIT
REPORTABLE CONDITIONS
1 - Documentation of Journal and Standard Vouchers Needs Improvement
We recommend that the Office of Chief Financial Officer:
1-1. Remind staff of the need to properly document accounting transactions before entry
into IFMS.
Agency Comments:
After discussing what constitutes adequate documentation with the OIG staff, we have
agreed to provide copies of key reports on diskette and to further document any
calculations that support journal voucher entries. The Financial Management Division
(FMD) Director will issue a general reminder to the staff to fully document and support
all entries to IFMS.
Corrective Action Target Date
Issue reminder to staff February 15, 2003
1-2. Make all staff aware of existing procedures to assure that all journal and standard
vouchers are reviewed and approved prior to entry into IFMS.
Agency Comments:
The FMD Director will issue a memorandum to staff reminding them of the importance
of following existing procedures requiring review and approval of journal and standard
vouchers prior to entry into IFMS.
Corrective Action Target Date
Issue reminder to staff February 15, 2003
1
-------
2 - Improvement Needed in Reconciling Unearned Revenue for State Superfund Contracts
We recommend that the Office of Chief financial Officer have the Financial Management
Division:
1-3. Annually calculate the combined unearned revenue from State Superfund Contracts
for all accounting points and reconcile the amount to the consolidated Unearned
Advances balance.
Agency Comments:
FMD will calculate the Superfund State Contract (SSC) unearned revenue and will
perform a reconciliation at year end to validate the unearned revenue remaining after the
regional SSC accruals have been posted.
Corrective Action Target Date
Issue written guidance for calculations and reconciliation June 30, 2003
of accounts
1-4. Improve the reliability of Regional State Superfund Contract spreadsheet
calculations for the year-end unearned revenue adjustments by providing the
Regional finance offices with additional training in the preparation of the
spreadsheet and by conducting a review of the completed spreadsheets.
Agency Comments:
EPA regional offices have been provided detailed guidance on how to calculate the
accrual amount. FMD staff will continue to work with the regions to help ensure
regional personnel understand how to calculate the accrual effectively. FMD also will
review the regions' computations for accuracy.
3 - Improvement Needed in Reconciling Deferred Cashouts
1-5. We recommend that the Chief financial Officer have the Financial Management
Division provide the Regional finance offices with guidance for reconciling the
Deferred Cashout, Federal and Non-Federal accounts on a regular basis.
Agency Comments:
We agree with the need to prepare written guidance for reconciling uncollected cashout
accounts receivable related to general ledger liability accounts 2326 (Deferred Cashouts
Federal) and 2327 (Deferred Cashouts Non-Federal).
Corrective Action Target Date
Issue written guidance for reconciling accounts June 30, 2003
2
-------
4 - Integrated Grants Management System Security Plan Does Not Address Required
Controls
1-6. We recommend that the Director for Grants and Debarment revise the IGMS
security plan to include all applicable elements of federally-acceptable security
plans for major, financial computer applications, including but not limited to NIST,
JFMIP, and Agency requirements.
Agency Comments:
We agree with the Inspector General's recommendation to revise the IGMS Security Plan
to include requirements identified in the Joint Financial Management Improvement
Program (JFMIP) standards for financial systems and the National Institute of Standards
and Technology Standard 800-18. We believe the findings will be useful in identifying
opportunities for improvement in the IGMS Security Plan.
Over the last several years we have invested considerable effort in revising the Integrated
Grant Management System Security Plan to meet federal requirements. The move to
NIST Standard 800-18 and the JFMIP core financial standards as the criteria by which
security plans are judged represented a challenge for us. We have developed an action
plan for meeting those requirements.
Corrective Action Target Date
Complete final revisions to security plan December 31, 2004
5 - Automated Application Processing Controls for Integrated Financial Management
System Could Not Be Assessed
Agency Comments: The OIG made no recommendations but did state that the Agency is
moving in a credible fashion towards replacing IFMS. We believe our current level of
documentation is sufficient. However, as noted in the draft audit report, we have taken a
number of actions to improve documentation, including completing a system
documentation analysis and an analysis for creating a comprehensive data dictionary.
The issue will be resolved with the implementation of the replacement system.
6 - Capitalization of Contractor-Held Property Needs to Be Improved
1-7. We recommend that the Office of Chief Financial Officer capitalize current
Superfund site-specific contractor-held property costs meeting capitalization
thresholds and only remove property from the general PP&E accounts, in
accordance with SFFAS No.6.
3
-------
Agency Comments:
We agree with the OIGthat Superfund site-specific property that meets the capitalization
threshhold should be capitalized over its useful life.
Corrective Action Target Date
Issue written guidance on capitalization criteria June 30, 2003
7 - Revenue Recognition on Cashouts Needs to Be Improved
We recommend that the Office of Chief Financial Officer have the Financial Management
Division:
1-8. Restate the fiscal 2001 financial statements and adjust the fiscal 2002 financial
statements for the $53 million misstatement.
Agency Comments:
In the revised FY 2002 statements, EPA has restated its FY 2001 Balance Sheet,
Statement of Net Cost, Statement of Changes in Net Position, and Statement of Financing
to correctly reflect the prior year's revenue and net position. We removed the revenue
from the FY 2002 results, and have added a footnote disclosing the nature of the error
and the effect of the restatement.
1-9. Implement internal controls to ensure that EPA complies with financial reporting
standards for reporting corrections of errors.
Agency Comments:
FMD will track the current year postings for prior year "on the top" adjustment accruals
to validate that estimates were reasonably determined and for any with large variances,
investigate and adjust early in the current year.
4
-------
Attachment 2
COMPLIANCE WITH LAWS AND REGULATIONS
8 - EPA Did Not Comply with Managerial Cost Accounting Standard
NOTE: We understand that you will be revising your report to reflect that EPA is no
longer in substantial noncompliance with the Brown Bill.
We recommend that the Office of the Chief Financial Officer:
2-1. Set a goal to provide EPA managers with useful and timely reports that present the
full costs of their outputs and programs by the end of fiscal year.
Agency Comments:
We believe that we have met the goal. We currently prepare quarterly subobjective level
reports that are posted to the OCFO Intranet site. In addition to the Intranet sub-objective
level reports, we have the capability to produce sub-objective level cost reports from the
Financial Data Warehouse and the Budget Automation System. As we continue to
develop our reporting tools, our reporting capabilities will only be enhanced.
2-2. Continue to implement the actions specified in the September 2002 plan to expand
cost information at EPA.
Agency Comments:
We are taking actions to execute the Agency's Plan for Expanding Cost Information at
EPA.
2-3. Promote change of the Agency's cost accounting outputs so that they will represent
discrete products and services produced by the Agency.
Agency Comments:
We designated our "products and services" under Comptroller Policy Announcement 98-
10. We believe that sub-objective is an adequate level for defining "products and
services" and that this level is useful to managers. However, the Agency will be moving
from 10 goals to 5 in the new Strategic Plan and is evaluating what additional
information will be useful to EPA managers. We expect the revised structure will
provide additional dimensions on which the Agency will account for its resources.
5
-------
9 - EPA Continues to Experience Difficulties in Reconciling Intra-Governmental
Transactions
Agency Comments:
The OIG made no recommendations but did recognize our efforts to comply with the
federal requirements. We will continue to participate in the government-wide initiatives
to resolve the difficulties of reconciling intergovernmental transactions between agencies.
To date, the OCFO has completed or initiated the following short term remedies in
reconciling intra-governmental transactions:
• began reconciling quarterly with those trading partners that are able to do so;
• issued Transmittal Notice No. 03-01, implementing the Duns and Bradstreet Data
Numbering System (DUNS) numbers as unique business location identifiers;
• designated an Agency Registration Official to manage these DUNS numbers;
• joined the federal Integrated Acquisition Environment Team and began
participating in its weekly meetings; and
• issued Policy Announcement 03-03 to implement the Office of Management and
Budget's new business rules for intragovernmental transactions.
10 - Contract Payment System Not in Compliance with Joint Financial Management
Improvement Program System Requirements
Agency Comments: The OIG stated that no report existed to reconcile the total number
of dollars and transactions transferred daily between CPS and IFMS and therefore the
Agency did not comply with JFMIP Standard TD-04, which requires such an internal
control. However, we advised the OIG that CPS has relied on a detailed reconciliation
process to ensure that all transactions processed in CPS are accurately reflected in IFMS.
This reconciliation compares the amount obligated, paid, and unpaid against every
accounting line in both systems. Any disagreements appear on the reconciliation report,
which is closely monitored by RTP staff and appropriate action taken whenever a
discrepancy occurred. The OIG did not identify any discrepancies between CPS and
IFMS.
Subsequent to the OIG review, CPS staff modified the existing IFMS Transaction Totals
Report to include a section that provides both dollar and line counts for the transactions
received from CPS into the IFMS suspense file. EPA management agreed to use this
report on a daily basis to ensure that the transactions transmitted by CPS were accurately
and completely received within the IFMS Suspense File. The new report will be used in
addition to our regular report.
The OIG did not review the newly created report or the new process as a part of this audit
and makes no recommendations in this report. We believe the revised report satisfies the
OIG's concerns.
6
-------
11 - Fiscal 1999 FFMTA Remediation Plan Not Yet Completed
With respect to #11 of the Remediation Plan, we recommend that the Office of Chief
Financial Officer:
2-4. Obtain an updated schedule with firm milestone dates from the Office
Administration and Resources Management as to when it will complete actions to
establish a security certification process for key personnel.
Agency Comments'.
OCFO agrees to obtain an updated schedule from the Office of Administration and
Resources Management (OARM).
2-5. Revise the 1999 Remediation Plan to indicate the correct responsible office, and
most feasible date when the Office Administration and Resources Management will
complete the specified action necessary to bring the Agency into compliance with
FFMIA.
Agency Comments:
OCFO agrees to revise the Remediation Plan to show OARM's responsibility for the
security certification process and to include their target date for completion of the action.
2-6. Provide the revised 1999 Remediation Plan status report to OMB to disclose the
changes for Item #11.
Agency Comments:
OCFO agrees to provide the revised status report to OMB.
12 - EPA Not in Compliance with Food Quality Protection Act
2-7. We recommend that the Director, Office of Pesticide Programs closely monitor
amendments to the Food Quality Protection Act to identify revisions that establish
new compliance requirements and ensure action is taken to comply with the
requirements.
7
-------
Agency Comments:
Upon identification of the change in compliance requirements, the Office of Pesticide
Programs (OPP) immediately took corrective action and is now in compliance with the
revisions to the Food Quality Protection Act. OPP will closely monitor amendments to
the Act to identify any potential revisions that will impact compliance requirements.
Because of these actions, we recommend that this finding be deleted from the final audit
report.
13 - EPA Not in Compliance with Treasury Financial Manual For Preparation of SF 224
We recommend that the Office of Chief Financial Officer:
2-8. Update desk procedures to adhere to Treasury Financial Manual requirements and
disseminate to all regions and finance centers for implementation.
Agency Comments:
We concur with the OIG findings and recommendations. In November 2002 , the
Financial Statement Acceleration Cash Workgroup (Cash Workgroup) began a series of
meetings to reengineer and standardize current Agency financial processes relating to SF
224 reporting, reconciliation, and the Agency Fund Balance with Treasury. The Cash
Workgroup has developed a corrective action plan to address the recommendations of the
OIG and started identifying Agency-wide interim policies for SF 224 reporting and
reconciliation.
Corrective Action Target Date
Issue policies and procedures April 30, 2003
2-9. Complete the SF 224 solely from finance accounts without referencing Treasury
accounts.
Agency Comments:
See Agency comments in response to 2-8.
Corrective Action Target Date
Prepare SF 224 from general ledger accounts January 31, 2003
8
-------
2-10. Discontinue including the adjusted amount on the SF 224, thus enabling Treasury to
report these amounts through the Statement of Differences (Form 6652).
Agency Comments'.
See Agency comments in response to 2-8.
Corrective Action Target Date
Discontinue including the adjusted amount on the SF 224 January 31, 2003
14 - Agency Not in Compliance with Appropriations Law for Multiple Appropriation
Grants
No recommendations. The OIG noted that in fiscal 2001 the Agency had adopted new
policies and procedures for allocating costs on Multiple Appropriation awards that would
correct this problem for new grants. However, the OIG stated that there remained less
than $3M in "pipeline" grants that were issued under the prior practices.
Agency Comments:
We have provided documentation to the OIG showing that approximately $2.1M in grant
obligations remain in the "pipeline." Because the Agency has taken corrective actions,
and the amounts remaining are immaterial in a multi-billion dollar grant program, we
recommend removing this finding from the final audit report.
9
-------
Appendix III
Report Distribution List
Chief Financial Officer (271 OA)
Inspector General (2410)
Assistant Administrator for Administration and Resources Management (3101 A)
Comptroller (2731 A)
Deputy Assistant Administrator for Environmental Information (281 OA)
Director, Office of Policy and Resources Management, OARM (3102 A)
Director, Office of Grants and Debarment (3901R)
Director, Office of Technology Operations and Planning (281 OA)
Director, Annual Planning and Budget Division (2732A)
Director, Grants Administration Division (3903R)
Director, Facilities Management and Services Division (3204R)
Director, Financial Management Division (2733R)
Director, Financial Services Division (2734R)
Director, Office of Human Resources (361 OA)
Director, Office of Pesticide Protection (7510C)
Financial Management Officers at Regions 1 through 10,
Cincinnati, Las Vegas, and Research Triangle Park
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)
Agency Follow-up Official (271 OA)
Audit Liaison for the Office of Chief Financial Officer (271 OA)
Audit Liaison for the Office of Administration and Resources Management (3102A)
Audit Liaison for the Office of Solid Waste and Emergency Response (5103T)
Audit Liaison for the Office of Administration (3201 A)
Audit Liaison for the Office of Environmental Information (2812A, 2831 A)
Audit Liaison for the Office of Enforcement and Compliance Assurance (2201 A)
Audit Liaison for the Grants Administration Division (3910R)
Audit Liaison for the Administrator's Office (1104A)
Audit Liaison for the Financial Management and Financial Services Divisions (2733R)
Audit Liaison for the Office of General Counsel (2311 A)
------- |