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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
2007-1-00019
November 15, 2006
Catalyst for Improving the Environment
Why We Did This Audit
We performed this audit in
accordance with the Government
Management Reform Act, which
requires the U.S. Environmental
Protection Agency (EPA) to
prepare, and the Office of
Inspector General to audit, the
Agency's financial statements
each year. Our primary
objectives were to determine
whether:
•	EPA's consolidated financial
statements were fairly
presented in all material
respects.
•	EPA's internal controls over
financial reporting were in
place.
•	EPA management complied
with applicable laws and
regulations.
Background
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.
For further information, contact
our Office of Congressional and
Public Liaison at (202) 566-2391.
To view the full report, click on the
following link:
www.epa.qov/oiq/reports/2007/
20061115-2007-1 -00019.pdf
Audit of EPA's Fiscal 2006 and 2005
Consolidated Financial Statements
EPA Receives Unqualified Opinion
We rendered an unqualified, or clean, opinion on EPA's Consolidated Financial
Statements for fiscal 2006 and 2005, meaning that they were fairly presented
and free of material misstatement.
Internal Control Reportable Conditions Noted
We noted the two following reportable conditions:
•	EPA implemented two accounting processes in fiscal 2006 that led to
misstatements of the Agency's fiscal 2006 bad debt expense, revenue, contra
revenue, advance accounts, and unearned revenue accounts. The processes
included reclassifying receivables older than 2 years as currently not
collectible, and transferring the receivables and related allowance accounts
from regional financial management offices to financial management
centers.
•	EPA did not properly account for advance funding agreements with other
Federal Government agencies. EPA recorded advances disbursed under
Interagency Agreements as expenses instead of as assets. As a result, EPA
overstated expenses and understated assets by $55,982,983.
Noncompliance With Laws and Regulations Noted
EPA is in noncompliance with regulations relating to reconciling
intragovernmental transactions. The Agency did not reconcile material activity
and balances with the Department of Health and Human Services during the
year, and had out of balance situations with many other agencies.
Agency Comments and Office of Inspector General Evaluation
In a memorandum received on November 13, 2006, from the Chief Financial
Officer, the Agency agreed with the issues raised and indicated it will take
needed corrective actions.

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