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Report Contributors:
Teren Crawford
Doug LaTessa
Patrick Mclntyre
Michael Petscavage
Abbreviations
AFR
Agency Financial Report
CWSRF
Clean Water State Revolving Fund
DWSRF
Drinking Water State Revolving Fund
EPA
U.S. Environmental Protection Agency
FY
Fiscal Year
IPERA
Improper Payments Elimination and Recovery Act of 2010
OCFO
Office of the Chief Financial Officer
OIG
Office of Inspector General
OMB
Office of Management and Budget
U.S.C.
United States Code
Cover photo: Graphic illustrating how compliance with IPERA can result in a reduction in
improper payments. (EPA OIG image).
Are you aware of fraud, waste or abuse in an
EPA program?
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Washington, DC 20460
(888) 546-8740
(202) 566-2599 (fax)
OIG Hotline@epa.gov
Learn more about our OIG Hotline.
EPA Office of Inspector General
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Washington, DC 20460
(202) 566-2391
www.epa.gov/oiq
Subscribe to our Email Updates
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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
18-P-0153
April 16, 2018
Why We Did This Project
The Improper Payments
Elimination and Recovery Act
of 2010 (IPERA), as modified
by the Improper Payments
Elimination and Recovery
Improvement Act of 2012,
requires that each fiscal year
the Inspector General of each
agency determine whether the
agency is in compliance with
the law. In addition, Office of
Management and Budget
(OMB) Memorandum M-15-02
states that the Office of
Inspector General may
evaluate the accuracy and
completeness of agency
reporting. Our audit focused on
the U.S. Environmental
Protection Agency's (EPA's)
compliance with these
requirements.
This report addresses the
following:
• Compliance with the law.
EPA Complied With Improper Payments
Elimination and Recovery Act Requirements
What We Found
The EPA complied with IPERA and OMB
Memorandum M-15-02 requirements when
reporting improper payments in its fiscal year
2017 Agency Financial Report (AFR). IPERA
and OMB Memorandum M-15-02 established
six mandatory steps for agency compliance:
Through compliance with
IPERA, the EPA provides
better assurance that efforts
are being made to reduce
improper payments.
• Publish an AFR or Performance and Accountability Report for the most
recent fiscal year and post that reporting and any accompanying materials
required by OMB on the agency website.
• Conduct a program-specific risk assessment for each program or activity
that conforms with 31 U.S.C. Section 3321 (if required).
• Publish improper payment estimates for all programs and activities
identified as susceptible to significant improper payments under its risk
assessment (if required).
• Publish programmatic corrective action plans in the AFR or Performance
and Accountability Report (if required).
• Publish, and meet, annual reduction targets for each program assessed to
be at risk and estimated for improper payments (if required and applicable).
• Report a gross improper payment rate of less than 10 percent for each
program and activity for which an improper payment estimate was obtained
and published in the AFR or Performance and Accountability Report.
In its fiscal year 2017 AFR, the EPA reported an estimated $15.79 million of
improper payments. We found that the EPA reported accurate and complete
data. Also, the EPA's reported current reduction targets should assist in reducing
future estimated improper payments. According to the fiscal year 2017 AFR, the
information, data and analyses presented in the AFR provide assistance to the
President, Congress and the public in evaluating the agency's yearly activities
and accomplishments.
There are no recommendations for corrective action in this report.
Send all inquiries to our public
affairs office at (202) 566-2391
or visit www.epa.gov/oiq.
Listing of OIG reports.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
April 16, 2018
MEMORANDUM
SUBJECT: EPA Complied With Improper Payments Elimination and Recovery Act Requirements
R pnr\rt Wrv 1 & _ P _ f)1 S ^
This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the
U.S. Environmental Protection Agency (EPA). The project number for this audit was OA-FY18-0048.
You are not required to provide a written response to this final report because there are no
recommendations. Should you choose to provide a final response, we will post your response on the
OIG's website, along with our memorandum commenting on your response. Your response should be
provided as an Adobe PDF file that complies with the accessibility requirements of Section 508 of the
Rehabilitation Act of 1973, as amended. The final response should not contain data that you do not want
to be released to the public; if your response contains such data, you should identify the data for redaction
or removal along with corresponding justification.
FROM
Arthur A. Elkins, Jr.
TO
Holly Greaves, Chief Financial Officer
We will post this report to our website at www.epa.gov/oig.
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EPA's Complied With Improper Payments
Elimination and Recovery Act Requirements
18-P-0153
Table of C
Purpose 1
Background 1
Responsible Office 2
Scope and Methodology 2
Prior Audit Coverage 3
Results 3
Agency Response 5
Appendix
A Distribution 6
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Purpose
The purpose of the audit was to report on the U.S. Environmental Protection
Agency's (EPA's) compliance with the Improper Payments Elimination and
Recovery Act of 2010 (IPERA), and to evaluate the accuracy and completeness of
agency reporting.
Background
Inspectors General must annually determine whether agencies are in compliance
with the six requirements identified in IPERA. Also, Office of Management and
Budget (OMB) Memorandum M-15-021 states that Inspectors General may
evaluate the accuracy and completeness of agency reporting.
IPERA requires agencies to conduct risk assessments of their programs or
activities to determine whether they are susceptible to significant improper
payments. This act defines significant improper payments as improper payments
in the preceding year that may have exceeded the statutory threshold of both
$10 million of all program or activity payments made during the fiscal year
reported and 1.5 percent of program outlays, or $100 million. IPERA defines an
improper payment as:
(A) means any payment that should not have been made or that
was made in an incorrect amount (including overpayments and
underpayments) under statutory, contractual, administrative, or
other legally applicable requirements; and
(B) includes any payment to an ineligible recipient, any payment
for an ineligible good or service, any duplicate payment, any
payment for a good or service not received (except for such
payments where authorized by law), and any payment that does not
account for credit for applicable discounts.
According to IPERA and OMB Memorandum M-15-02, agencies are required to
annually estimate and report improper payments for programs and activities that
are deemed susceptible to significant improper payments. The EPA annually
collects and reports improper payments by type of activity in its Agency Financial
Report (AFR).
In its fiscal year (FY) 2017 AFR, the EPA reported an estimate of $15.79 million
in improper payments. Table 1 summarizes the risk level for improper payments
for each of the EPA's programs.
1 OMB Memorandum M-15-02, dated October 20, 2014, modified OMB Circular No. A-123, Appendix C,
Requirements for Effective Estimation and Remediation of Improper Payments.
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Table 1: Program risk level
Program
Low
risk
Susceptible to
significant improper
payments
Commodities
X
Contracts
X
Clean Water State Revolving Fund (CWSRF)
X
Drinking Water State Revolving Fund (DWSRF)
X
Grants
X
Hurricane Sandy
X
Payroll
X
Purchase Cards
X
Travel
X
Source: EPA FY 2017 AFR.
According to the EPA, four of the agency's risk-susceptible activities—CWSRF,
DWSRF, Grants and Hurricane Sandy—remain below statutory thresholds.
According to the AFR, OMB deemed the CWSRF and DWSRF to be susceptible
to significant improper payments. The Disaster Relief Appropriations Act of 2013
(Public Law 113-2) designated Hurricane Sandy funding as susceptible to
significant improper payments. Grant payment activities were identified as
susceptible to significant improper payments based on the results of a quantitative
risk assessment performed in FY 2016 that identified improper payments above
the statutory threshold.
Responsible Office
The Office of the Controller, within the Office of the Chief Financial Officer
(OCFO), develops, manages and supports the agency's federal financial
management program by interpreting fiscal legislation, maintaining fiscal
operations, and implementing governmentwide external reporting reforms.
OCFO also provides financial services for the EPA and makes payments to the
EPA grant recipients, contractors and other vendors. The office provides policy,
reports and oversight essential for the financial operations of the EPA.
Scope and Methodology
We conducted this performance audit from November 2017 to March 2018 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objectives.
The objectives of the audit were to determine whether the EPA is in compliance
with IPERA and evaluate the accuracy and completeness of agency reporting. To
determine whether the EPA complied with IPERA, we reviewed the EPA's
18-P-0153
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FY 2017 AFR and accompanying materials. We interviewed staff at the EPA
headquarters for OCFO, the Office of Administration and Resources
Management's Office of Grants and Debarment, and the Office of Water. We also
interviewed OCFO staff from the Las Vegas Finance Center.
We gained an understanding of the processes, procedures and controls used for
improper payment and recovery reporting across the EPA—including the
CWSRF, DWSRF, Grants and Hurricane Sandy—and selected judgmental
samples from each activity. We traced improper payments in our sample back to
source documentation to test the accuracy of improper payment reporting in the
EPA'sFY 2017 AFR.
For the CWSRF and DWSRF, we reviewed the transaction testing worksheets to
verify compliance with EPA policies. We took steps to confirm the accuracy of
both the Office of Grants and Debarment's and Las Vegas Finance Center's
improper payment schedules to the EPA system-generated support data for grants.
For EPA activities that are currently considered to be susceptible to significant
improper payments, we reviewed a sample of funds returned, Program Evaluation
Reports, and transaction testing reports and worksheets, to identify improper
payments that were not reported.
We also used data systems, including the Grantee Compliance and Recipient
Activity Database and Compass Data Warehouse. We verified the information in
the systems to source documentation, and concluded that the information
provided a reasonable basis for our findings and conclusions.
Prior Audit Coverage
We followed up on agency corrective actions from EPA OIG Report No.
17-P-0212. EPA Complied With Improper Payment Legislation, but Testing Can
Be Improved, issued May 10, 2017. That report made one recommendation:
"revise the annual guidance on improper payments reporting to include language
requiring that 100 percent of all dollars associated with statistically selected
samples are tested for improper payments." The EPA reported the corrective
action was completed on May 18, 2017.
Results
The EPA's FY 2017 improper payment reporting complied with IPERA. IPERA
established six requirements that must be met for agencies to be considered in
compliance, and we found that the EPA complied with all six requirements and
reported accurate and complete data. As a result, the EPA can demonstrate to the
public that efforts are being made to reduce improper payments in the EPA's
programs. Table 2 shows the six IPERA requirements and what the EPA did
regarding each requirement during FY 2017.
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Table 2: EPA met the six requirements of IPERA
Requirement
Comply?
Description
Publish an AFR or
Performance and
Accountability Report
for the most recent
fiscal year and post
that report and any
accompanying
materials required by
OMB on the agency
website.
Yes
The EPA published the FY 2017 AFR on the agency website on
November 15, 2017.
Conduct a program-
specific risk
assessment for each
program or activity
that conforms with 31
U.S.C. Section 3321
(if required).
Yes
Risk assessments for the EPA's low risk programs (Commodities,
Contracts, Payroll, Purchase Cards and Travel) were not required
because the risk assessments were performed in prior years. Per the
IPERA of 2010, the EPA is required to conduct a risk assessment for
its low-risk programs once every 3 years.
Publish improper
payment estimates for
all programs and
activities identified as
susceptible to
significant improper
payments under its
risk assessment
(if required).
Yes
The EPA performed program statistical sampling for each of its four
risk-susceptible programs, as follows:
• CWSRF
• DWSRF
• Hurricane Sandy
• Grants
The Grants program is susceptible to significant improper payments
due to exceeding IPERA thresholds for improper payments for the risk
assessment conducted in FY 2016. The CWSRF and DWSRF
programs were deemed susceptible to significant improper payments
by OMB. The EPA reported improper payment estimates for these
programs in Table 2.1 in the Payment Integrity section of the FY 2017
AFR.
The Disaster Relief Appropriations Act of 2013 states that all funds
received under that act are automatically deemed susceptible to
significant improper payments. Since this act provides Hurricane
Sandy aid, this program is deemed susceptible to significant improper
payments. As a result, the EPA designed and implemented a
statistical sampling plan for testing Hurricane Sandy expenditures. The
EPA reported improper payment estimates for Hurricane Sandy funds
in Table 2.1 in the Payment Integrity section of the FY 2017 AFR.
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Requirement
Comply?
Description
Publish programmatic
corrective action plans
in the AFR or
Performance and
Accountability Report
(if required).
Not
Required
The EPA did not exceed the statutory threshold identified in IPERA of
$10 million and 1.5 percent of program outlays, or $100 million, and
therefore the corrective action plan is not required. Improper payment
amounts and rates reported for risk-susceptible programs were:
• CWSRF: $2.62 million, 0.18%
• DWSRF: $760,000, 0.06%
• Hurricane Sandy: $40,000, 0.28%
• Grants: $12.37 million, 0.72%2
Publish, and meet,
annual reduction
targets for each
program assessed to
be at risk and
estimated for improper
payments.
Yes
The EPA published annual reduction targets for each of the four
programs identified as susceptible to significant improper payments.
The actual improper payment rate was less than the reduction target
identified in the FY 2016 AFR for the following programs:
Payment
stream
Targeted rate
(percent)
Actual rate
(percent)
CWSRF
1.43
0.18
DWSRF
1.98
0.06
Hurricane Sandy
1.5
0.28
The EPA met the annual reduction targets for FY 2017 AFR reporting.
However, the EPA did not publish a reduction target for the grants
program in the FY 2016 AFR. FY 2017 was the first year that the EPA
was required to publish an improper payment estimate for the Grants
program.3
Report a gross
improper payment rate
of less than
10 percent for each
program and activity
for which an improper
payment estimate was
obtained.
Yes
The EPA reported gross improper payment rates of less than
10 percent for each program:
• CWSRF: 0.18%
• DWSRF: 0.06%
• Hurricane Sandy: 0.28%
• Grants: 0.72%
Source: OIG analysis of EPA data.
Agency Response
We make no recommendations for agency corrective actions. We met with EPA
management on March 1, 2018, to discuss the report. EPA management agreed
with our conclusions and had no comments.
2 The EPA exceeded the statutory threshold of $10 million but did not exceed the 1.5 percent threshold of program
outlays.
3 The EPA FY 2017 AFR provided that based on the quantitative risk assessment performed in FY 2016, the grants
payment stream was determined to have exceeded the statutory threshold for significant improper payments. As a
result, a valid statistical sampling methodology was developed to ensure accurate improper payment measurements.
The EPA submitted the sampling methodology to OMB in September 2016 and began applying it during the
FY 2017 AFR reporting cycle.
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Appendix A
Distribution
The Administrator
Chief of Staff
Chief of Operations
Deputy Chief of Operations
Chief Financial Officer
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Deputy Chief Financial Officer
Controller, Office of the Controller, Office of the Chief Financial Officer
Director, Policy, Analysis and Accountability Division, Office of the Chief Financial Officer
Chief, Management Integrity and Accountability Branch, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Administrator
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
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