-60S
V
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
Audit of EPA's
Fiscal 2004 and 2003
Financial Statements
Audit Report 2005-1-00021
November 15, 2004
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Abbreviations
EPA
Environmental Protection Agency
FFMIA
Federal Financial Management Improvement Act
FMFIA
Federal Managers' Financial Integrity Act
GPAS
Grant Payment Allocation System
IDOTS
Inter-Governmental Document Online Tracking System
IFMS
Integrated Financial Management System
JFMIP
Joint Financial Management Improvement Program
OARM
Office of Administration and Resources Management
OCFO
Office of the Chief Financial Officer
OIG
Office of Inspector General
OMB
Office of Management and Budget
ORBIT
OCFO Reporting and Business Intelligence Tool
OSS
Operations Systems Staff
QA
Quality Assurance
RSSI
Required Supplemental Stewardship Information
ssc
State Superfund Contracts
Cover photo: Provided by Cynthia R. Poteat, OIG
Waterfall, Juneau, Alaska
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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
2005-1-00021
November 15, 2004
Catalyst for Improving the Environment
Why We Did This Audit
We performed this audit in
accordance with the Government
Management Reform Act, which
requires 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 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.aov/oia/reports/2005/
20041115-2005-1 -00021 .pdf
Audit of EPA's Fiscal 2004 and 2003
Financial Statements
EPA Receives Unqualified Opinion
We rendered an unqualified, or clean, opinion on EPA's Consolidated
Financial Statements for fiscal 2004 and 2003, meaning that they were fairly
presented and free of material misstatement.
Internal Control Reportable Conditions Noted
We identified the following reportable conditions:
EPA needs to improve financial management quality assurance.
EPA could not ensure the accuracy of the unearned revenue accounts.
EPA did not timely record accounts receivable.
EPA did not promptly record marketable securities.
Accounting for contractor-held property needs improvement.
Improvement is needed in EPA's accounting for obligations.
Systems development for several systems needs improvement.
System certification and accreditation is needed.
Weaknesses in system's change control procedures were noted.
Automated Application Processing Controls could not be assessed.
Noncompliances With Laws and Regulations Noted
We noted the following noncompliances with laws and regulations, though
none are considered to be substantial noncompliances:
• EPA needs to continue improvements related to cost accounting.
• Difficulties in reconciling intragovernmental transactions continue.
• EPA needs to strengthen security screening for non-Federal personnel.
• EPA is not in compliance in preparing the Statement of Transactions.
Agency Comments and Office of Inspector General Evaluation
In a memorandum received November 12, 2004, the Agency responded to
our draft report, and generally agreed to take sufficient corrective actions.
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| M M 'o UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
3 S WASHINGTON, D.C. 20460
% T
V
"'i PRO"^ OFFICE OF
INSPECTOR GENERAL
November 15, 2004
MEMORANDUM
SUBJECT: Audit of EPA's Fiscal 2004 and 2003 Financial Statements
Report No. 2005-1-00021
FROM: Paul C. Curtis, Director
Financial Audit ^
TO: Charles E. Johnson
Chief Financial Officer (271 OA)
Attached is our audit report on the Environmental Protection Agency's (EPA's) fiscal 2004 and
2003 financial statements. The report reflects our view that the Agency continues not to be in
full compliance with the managerial cost accounting standard; however, the level of compliance
does not meet Office of Management and Budget's definition of substantial noncompliance. We
also recognize that the Agency is in the process of making improvements. The audit report also
addresses the deficit in the Superfund Trust Fund. During Fiscal 2004 and 2003, Trust Fund
assets were not sufficient to cover appropriations to the EPA, leaving a deficit of approximately
$7.6 million and $82.7 million in fiscal years 2004 and 2003 respectively. The audit report also
contains other findings that describe issues the Office of Inspector General (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 EPA position. EPA managers in accordance with established
EPA audit resolution procedures will make final determinations on matters in this audit report.
Accordingly, the findings described in this audit report are not binding upon EPA in any
enforcement proceeding brought by EPA or the Department of Justice. We have no objections to
the further release of this report to the public.
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In accordance with EPA Manual 2750, Audit Management Process, the primary action official is
required to provide us with a written response to the final audit report within 90 days of the final
audit report date. Since this report deals primarily with financial management issues, we are
requesting the 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 Melissa Heist, Assistant Inspector General, Office of Audit, at
(202) 566-0889.
Attachment
cc: See Appendix III, Report Distribution List
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Table of Contents
At a Glance
Inspector General's Report on EPA's
Fiscal 2004 and 2003 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 9
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 Issue
3. Status of Prior Audit Report Recommendations
Appendices
I. EPA's Fiscal 2004 and 2003 Financial Statements
II. Agency's Response to Draft Report
III. Report Distribution List
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Inspector General's Report on EPA's
Fiscal 2004 and 2003 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, 2004 and 2003, and the related
consolidating statements of net cost, changes in net position and financing, and consolidated
statements of net cost by goal, custodial activity, and combined statements of budgetary
resources for the years then ended. 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 auditing standards generally accepted in the United
States of America; 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 U.S. Treasury collects and accounts for
excise taxes that are deposited into the Superfund and Leaking Underground Storage Tank Trust
Funds.1 The U.S. Treasury is also responsible for investing amounts not needed for current
disbursements and transferring funds to EPA as authorized in legislation. Since the U.S.
Treasury, and not EPA, is responsible for these activities, our audit work did not cover these
activities.
As more fully described in Note 36 to the financial statements, the Superfund Trust Fund,
managed by the U.S. Treasury Bureau of Public Debt, transferred funds to EPA in excess of the
assets available to be transferred by $7.6 million in fiscal 2004 and $82.7 million in fiscal 2003.
EPA's view is that the shortfalls will be covered by the collection of cost recoveries and receipt
of interest income over time. In our opinion, because cost recoveries have declined and the
1 The Leaking Underground Storage Tank Trust Fund is included in the All Other Appropriated Funds column of the
financial statements.
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investment principal upon which the interest is earned has steadily decreased, any deficit and
future financing will have to be covered almost entirely by appropriations from the Treasury's
general fund in order for the Superfund Trust Fund to continue operations.
The Office of Inspector General (OIG) is not independent with respect to amounts pertaining to
OIG operations that are presented in the financial statements. The amounts included for the 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, in all material respects, the
consolidated and individual assets, liabilities, net position, net cost, net cost by goal, changes in
net position, budgetary resources, reconciliation of net cost to budgetary obligations, and
custodial activity of EPA and its subsidiary funds, the Superfund Trust Fund, and All Other
Appropriated Funds, as of and for the years ended September 30, 2004 and 2003, in conformity
with accounting principles generally accepted in the United States of America.
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 EPA continues to experience difficulties in reconciling some of its intragovernmental
transactions due to some Federal entities not providing information for reconciliations (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 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
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permit the preparation of performance information in accordance with criteria stated by
management.
Compliance with applicable laws and regulations - Transactions are executed in
accordance with laws governing the use of budget authority and other laws 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, determining whether
internal controls had been placed in operation, assessing control risk, and performing 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 2004 Annual Report, Section 1, Overview and Analysis (which addresses
requirements for a Management's Discussion and Analysis), we obtained an understanding of the
design of significant internal controls relating to the existence and completeness assertions, as
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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 10 reportable conditions, as
follows:
Financial Management Quality Assurance Process
EPA's Quality Assurance Guide, which is the framework for implementing the Agency's
financial management quality assurance program, is out of date. EPA offices did not
consistently review all required accounting events identified in the guide, and those
reviews conducted were not sufficiently comprehensive. Financial Centers placed
minimal emphasis on financial system functional reviews to support Federal Managers'D
Financial Integrity Act (FMFIA) certifications, and EPA has no central oversight of the
Quality Assurance program. As a result, the program's effectiveness was minimized.
Unearned Revenue and Superfund Unbilled Oversight Cost Accruals
Although EPA made financial improvements in fiscal 2004 by reconciling State
Superfund Contracts' unearned revenue and implementing accelerated unbilled oversight
cost accrual procedures, errors continued to occur in regional spreadsheet calculations.
Regional calculations did not include the proper amounts of cumulative disbursements,
resulting in a $14 million understatement of unearned revenue. Regional billed oversight
calculations did not follow all the new accrual procedures, resulting in a $3 million
understatement of the accrual, and the prior year's unbilled oversight accrual was
overstated by $10 million due to prior year errors.
Supporting Documentation for Accounts Receivable
Finance offices were unable to record accounts receivable transactions promptly in the
Integrated Financial Management System (IFMS) due to the Office of General/Regional
Counsel and program offices not submitting documentation in a timely manner. Finance
offices received documentation supporting the establishment of receivables up to
6 months after the agreements were executed. Further, we identified $1,963,980 in fines
and penalties that were unrecorded at the time of our audit. We noted numerous
instances in which the finance offices requested support for previously unrecorded
accounts receivable only after collected.
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Recording of Marketable Securities
EPA did not promptly record marketable securities received from companies in
settlement of debts. During fiscal 2004, the Agency received securities from three
companies for settlement of debts under receivables recorded at four accounting offices.
Of the four accounting offices, only one recorded receipt of non-cash assets. The
accounting offices that did not record the receipt of non-cash assets either were not aware
that marketable securities were received or stated that they were awaiting additional
information from Headquarters.
Accounting for Contractor-Held Property
Contractor-held property acquisition values were understated by about $6.9 million.
When we attempted to tie the ending balances as shown on all the EPA Reports of
Government-Owned/Contractor-Held Property documents to the September 30, 2004
general ledger balance for contractor-held property, we discovered that contractor-held
balances did not include a $6,883,574 contract. Also, the Agency improperly accounted
for surplused contractor-held property in depreciation computations.
Accounting for Obligations
Obligations were not recorded in the proper accounting period. In one region and a
finance center, we found 10 out of 16 obligations tested were recorded in fiscal 2005 but
were actually fiscal 2004 obligations. Also, for one of the obligation transactions tested,
involving an adjustment, the finance center had no supporting documentation. Further, in
one region, four out of seven inactive unliquidated obligations were not deobligated in a
timely manner.
Systems Development for Grant and Inter-Governmental Systems
The Operations Systems Staff of the Office of the Chief Financial Officer (OCFO)
developed and implemented accounting systems without assessing the risks these systems
pose to Agency assets, personnel, and operations. The staff also did not produce key
documents for the Grant Payment Allocation System and Inter-Governmental Document
Online Tracking System because they did not deem these systems to be major
applications. However, since both systems are used to submit information into IFMS,
EPA's main financial accounting system, we consider these systems to be major
applications.
System Certification and Accreditation for Grant and Inter-Governmental
Systems
OCFO's Operations Systems Staff did not ensure management controls were operating
effectively by assessing and testing security controls for the Grant Payment Allocation
System and Inter-Governmental Document Online Tracking System. Specifically the
staffs policies and procedures could not provide reasonable assurance that applications
achieved their intended results; resources were protected from fraud, waste, and abuse;
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and applications followed applicable Agency policies and Federal guidelines. Also, we
found four "high risk" security holes on a critical server hosting eight financial
applications.
IFMS Change Control Procedures
In an August 24, 2004, audit report, EPA Needs to Improve Change Controls for
Integrated Financial Management System (2004-P-00026), we reported a general
breakdown of security controls related to software changes that could undermine the
integrity of IFMS software libraries and financial system data. Weaknesses included
inadequate segregation of change management duties, and inappropriate ID use. In
response to the recommendations in our prior report, OCFO concurred with our
recommendations and generally outlined appropriate corrective actions.
IFMS Automated Application Processing Controls
We continue to be unable to assess the adequacy of the automated application control
structure as it relates to automated input, processing, and output controls for IFMS. Since
IFMS applications have a direct and material impact on the Agency's financial
statements, assessing each application is necessary to determine the reliance we can place
on the financial statements. During past financial statement audits, we attempted to
evaluate controls without systems documentation, but these alternatives proved to be
inefficient and impractical. OCFO has no plans to update the IFMS system
documentation until it implements the new financial replacement software package,
currently projected for fiscal 2008. Until the new system is in place, we cannot assess the
adequacy of the automated internal control structure.
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 have also
reported other less significant matters involving the internal control structure and its operations
in separate position papers during the course of our audit. We will not be issuing 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 FMFIA report that relate to the financial statements and identify material
weaknesses disclosed by audit that were not reported in the Agency's FMFIA report. EPA
reports on Integrity Act decisions in EPA's Fiscal Year 2004 Annual Report. For a discussion
on Agency reported Integrity Act material weaknesses and corrective action strategy, please refer
to EPA's Fiscal Year 2004 Annual Report, Section III, FY 2004 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
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Control, defines a material weakness as a deficiency that the Agency head determines to be
significant enough to be reported outside the Agency.
For financial statement audit purposes, OMB defines material weaknesses in internal control as
reportable conditions in which the design or operation of the internal control does not reduce to a
relatively low level the risk that errors, fraud, or noncompliance in amounts that would be
material in relation to the financial statements or RSSI being audited, or material to a
performance measure or aggregation of related performance measures, may occur and not be
detected within a timely period by employees in the normal course of performing their assigned
functions.
The Agency did not report as part of the Integrity Act process, and our audit did not detect, any
material weaknesses for fiscal 2004.
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. In addition,
the Agency reported that the approximately 9,000 confidential financial disclosure forms filed by
EPA employees by November 1, 2004, will be reviewed by the deputy ethics officials no later
than January 22, 2005. Since the Agency has not had time to review such reports and disclose
matters that would require further inquiry, resolution, or reporting, we did not perform any tests
or additional inquiries about those reports. Had the Agency been able to review the reports and
we had been able to perform tests or make additional inquiries, matters may have come to our
attention that would require reporting.
None of the noncompliances discussed below would result in material misstatements to the
audited financial statements.
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FFMIA 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 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 OCFO has made in cost accounting and believe that while there are
still noncompliance issues with cost accounting, those noncompliances do not 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 two other FFMIA noncompliances, related to reconciliation of intragovernmental
transactions and strengthening practices regarding security screening for non-Federal personnel.
However, these noncompliances do not meet the definition of substantial noncompliance as
described in OMB guidance.
Our tests also noted one other instance of noncompliance with laws and regulations, related to
the Treasury Financial Manual for preparation of Statement of Transactions. Subsequent to the
completion of our audit work, the Agency took action to implement Treasury procedures for
preparation of Statement of Transactions.
Attachment 2 provides additional details, as well as our recommendations on actions that should
be taken on these matters. We have also reported other less significant matters involving
compliance with laws and regulations in position papers during the course of our audit. We will
not be issuing a separate management letter.
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Prior Audit Coverage
During previous financial or financial-related audits, weaknesses that impacted our audit
objectives were reported in the following areas:
¦ Reconciling and reporting intra-governmental transactions, assets, and liabilities by
Federal trading partner.
¦ Complying with Statement of Federal Financial Accounting Standards No. 4,
including accounting for the cost to achieve goals and identifying and allocating
indirect costs.
¦ Interagency Agreement invoice approval process.
¦ Documenting EPA's IFMS.
¦ Complying with Federal financial management system security requirements.
¦ Preparation and reconciliation of Statement of Transactions.
¦ Documentation and approval of journal vouchers.
¦ Assessing automated application processing controls for IFMS.
¦ Reconciling Unearned Revenue for State Superfund Contracts.
¦ Managing EPA's Accounts Receivable.
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 Followup Official, oversees EPA's followup
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 OCFO in helping to resolve all audit issues resulting from our
financial statement audits.
Agency Comments and OIG Evaluation
In a memorandum dated November 12, 2004, OCFO responded to our draft report.
The rationale for our conclusions and a summary of the Agency comments are included in the
appropriate sections of this report, and the Agency's complete response is included as
Appendix II to this report.
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This report is intended solely for the information and use of the management of EPA, OMB, and
Congress, and is not intended to be and should not be used by anyone other than these specified
parties.
Paul C. Curtis, Director
Financial Audit
Office of Inspector General
U.S. Environmental Protection Agency
November 5, 2004
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Attachment 1
Reportable Conditions
Table of Contents
1 - EPA's Financial Management Quality Assurance Process
Needs Improvement 12
2 - EPA Needs to Further Improve State Superfund Contracts'
Unearned Revenue and Superfund Unbilled Oversight Cost Accruals 14
3 - Accounts Receivable Not Timely Recorded
Due to Late Submission of Supporting Documentation 15
4 - EPA Did Not Promptly Record Marketable Securities 17
5 - Accounting for Contractor-Held Property Needs Improvement 18
6 - Improvement Needed in EPA's Accounting for Obligations 19
7 - Systems Development for Grant and Inter-Governmental Systems
Needs Improvement 21
8 - System Certification and Accreditation for Grant and
Inter-Governmental Systems Needed 23
9 - Weaknesses in Change Control Procedures for
Integrated Financial Management System 25
10 - Automated Application Processing Controls for
Integrated Financial Management System Could Not Be Assessed 26
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1 - EPA's Financial Management Quality Assurance
Process Needs Improvement
EPA needs to improve its financial management quality assurance program. The Quality
Assurance (QA) Guide, which is the framework for implementing this program, is out of date.
EPA offices did not consistently review all accounting events identified in the guide, and when
they did perform reviews the reviews were not as comprehensive as the guide suggests. The
financial centers placed minimal emphasis on financial system functional reviews to support
their FMFIA certifications, and EPA has no central oversight of the region and finance center
implementation of the QA program. As a result, the effectiveness of the QA program was
minimized.
EPA's quality assurance program was designed to implement the requirements of the Federal
Managers' Financial Integrity Act of1982 and OMB Circular No. A-123, Management
Accountability and Control, revised June 21, 1995. EPA's revised QA Guide describes a
structured approach to conduct quality assurance reviews and provides a model framework for
evaluating and reporting on finance office compliance with internal control standards and
relevant accounting principles and standards. However EPA's QA Guide, dated August 1995, is
outdated. The QA Guide does not reflect developments since August 1995, such as new
authoritative guidance, modernization of the accounting systems, discontinuance of accounting
functions (such as the imprest fund), and recent transfers of accounting functions from the
regions to finance centers. Office of Financial Management, Financial Policy and Planning Staff
recognized the need to update its QA Guide, and have dedicated one employee to update the
guide. However, the guide is not expected to be completed until December 2006.
Some field locations did not complete reviews of accounting events. The QA Guide requires
each location to conduct a review of each applicable accounting event at least once every 3
years. Three of the five Regions and three of the four Finance Centers we audited did not
complete reviews of all applicable accounting events. Further, only one of the five regions
performed a Superfund Cost Recovery Review in the last 3 years. Conflicting information in the
QA Guide created uncertainty about the requirements to perform the Superfund Cost Recovery
Review. As a result, EPA has not reviewed the internal controls of this high-risk area.
In examining eight regional and finance center quality assurance reviews, we found that the
reviews on accounting events were more limited in scope than what was provided for in the QA
Guide. The QA Guide provides control objectives and test procedures for each accounting event.
By not following the guide, the limited reviews circumvented the guide's intent of determining
whether control objectives were met.
The finance centers placed minimal emphasis on financial system functional reviews to support
their FMFIA certifications. They did not perform the reviews required by OMB Circular A-127,
Financial Management Systems, and Joint Financial Management Improvement Program
(JFMIP) system standards. Two of the four finance centers did not perform any accounting
system reviews in fiscal 2004.
While the Office of Financial Management, Financial Policy and Planning Staff develop and
manage the QA program, no headquarters function was providing oversight of the Regional and
Finance Center implementation of the QA program. No central oversight of the quality or
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quantity of Regional and Finance Center QA workplans and reviews exists. EPA does not
centrally coordinate the reviews among Regions and Finance Centers to ensure coverage of
multi-location accounting events. EPA has not provided recent training on the FMFIA
requirements and procedures for performing the reviews. Accounting staff in three locations
indicated that they had not received FMFIA training in several years.
Recommendations
We recommend that the Office of the Chief Financial Officer:
1. Update and clarify the QA Guide and develop procedures to update the guide routinely to
reflect changes in the organization, accounting events, internal control standards, and
relevant accounting principles and standards.
2. Provide increased oversight of the QA program to include: approving the QA workplans;
monitoring regional and finance center review coverage and scope of reviews; providing
feedback on reviews; and coordinating review coverage of multi-location accounting
events.
3. Provide basic and refresher training to appropriate personnel on the FMFIA requirements
and the Agency's QA process.
Agency Comment and OIG Evaluation
The OCFO believes the existing QA program is effective. OCFO also stated they are in the
process of updating the QA Guide to incorporate new principles and standards and will develop
an action plan to monitor the program and provide annual training.
We disagree with OCFO about the current effectiveness of the QA program. However, the
Agency has agreed to implement our recommendations. When completed, and with proper
oversight, the QA program will be effective.
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2 - EPA Needs to Further Improve State Superfund Contracts'
Unearned Revenue and Superfund Unbilled Oversight Cost Accruals
EPA made financial improvements in fiscal 2004 by reconciling State Superfund Contracts'
(SSCs') unearned revenue and implementing accelerated unbilled oversight cost accrual
procedures. However, errors continued to occur in the regional spreadsheet calculations, due to a
lack of supervision and review. As a result, EPA could not ensure the accuracy of the unearned
revenue and the unbilled oversight accounts, which totaled approximately $43 million and $52
million, respectively.
When EPA assumes the lead for a Superfund site remedial action in a State, the SSC clarifies
EPA's and the State's responsibilities to complete the remedial action. EPA records a liability
(unearned revenue) when billing a State for its share of the estimated site costs, and recognizes
earned revenue when costs are incurred on the site. EPA incurs oversight costs while overseeing
cleanup work being performed and paid for by potentially responsible parties at Superfund sites.
EPA seeks to recover its oversight costs from the potentially responsible parties in a settlement
agreement and recognizes revenue when it bills oversight costs. The unbilled oversight accrual
is an asset established to properly match revenues and expenses.
We found errors in both SSC unearned revenue and unbilled oversight calculations. Regional
SSC calculations did not include the proper amounts of cumulative site disbursements, resulting
in a $14 million understatement of unearned revenue. Regional unbilled oversight calculations
did not follow all the new accrual procedures, resulting in a $3 million understatement of the
accrual. In addition, the prior year's unbilled oversight accrual was overstated by $10 million
due to prior year errors.
EPA promptly reworked the calculations to correct the errors and made the necessary on-top
adjustments to the financial statements. We believe that if the Agency increased supervision
over the preparation of quarterly SSC calculations, the process would be greatly improved.
Recommendations
We recommend that the Office of the Chief Financial Officer have the Office of Financial
Management:
4. Provide increased supervision of the quarterly SSC unearned revenue and unbilled
oversight cost accruals.
5. Analyze whether centralizing and consolidating the accrual processes could improve the
efficiency and accuracy of the accruals.
Agency Comment
The Agency agreed with our findings.
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3 - Accounts Receivable Not Timely Recorded
Due to Late Submission of Supporting Documentation
Finance offices were unable to record transactions promptly in IFMS due to the Office of
General/Regional Counsel and program offices not submitting supporting documentation in a
timely fashion.
Finance offices received documentation supporting the establishment of receivables up to 6
months after the agreements were executed. Further, we identified $1,963,980 in fines and
penalties that were unrecorded at the time of our audit. After being informed of the unrecorded
amounts, the finance offices requested the support and recorded the related receivable. In
addition, we noted numerous instances in which the finance offices requested support for
previously unrecorded accounts receivable only after being collected.
The Agency's Resource Management Directive System guidelines states that within 5 days of
determining a debt is owed to the Agency, the responsible office must forward source documents
to the finance office. For Superfund receivables, the Resource Management Directive System
states that the Office of Regional Counsel is responsible for forwarding copies of all source
documents to the Financial Management Office required to establish accounts receivable within
3 workdays.
During instances when valid receivables are not promptly recorded, the debtor may not be
appropriately billed, interest may not accurately accrue, and the Agency may not be paid the total
debt. Furthermore, receivable balances could be materially misstated on the financial statements
due to unrecorded receivables.
Recommendations
We recommend that the Office of the Chief Financial Officer:
6. Require the Director, Office of Financial Management, to develop procedures for
monthly reconciliations of accounts receivables established in IFMS to information
tracked by Regional Hearing Clerks and program offices; this reconciliation should be
documented and all outstanding receivables specifically identified for followup action.
7. Request the Office of General Counsel and program offices to:
• Strengthen existing policies and procedures requiring timely forwarding of billing
documents to finance offices.
• Implement procedures requiring Offices of Regional Counsel and program offices to
expedite forwarding any outstanding agreement identified as a result of the Financial
Management Office/Center's monthly reconciliations.
• Develop a mechanism to track and document the forwarding of all billing documents
to the Financial Management Offices/Centers, to ensure accountability.
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Agency Comment and OIG Evaluation
OCFO believes the current policies and procedures adequately address the proper identification
and recording requirements for accounts receivable. The OCFO did agree to collaborate with
applicable Agency offices and programs, ensure existing policies are followed, and increase
awareness on the importance of recording accounts receivable timely.
After we reported our initial findings to the Agency, they went through an intensive effort to
identify and record receivables. Had the Agency's current policies and procedures been
effectively applied, we would not have found unrecorded receivables and such an effort would
not have been necessary.
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4 - EPA Did Not Promptly Record Marketable Securities
EPA did not promptly record marketable securities received from companies in settlement of
debts. During fiscal 2004, the Agency received securities from three companies for settlement of
debts under receivables recorded at four accounting offices. Of the four accounting offices that
received marketable securities, only one office recorded the receipt of non-cash assets. The
accounting offices that did not record the receipt of non-cash assets either were not aware that
marketable securities were received or stated that they were awaiting additional information from
Headquarters.
EPA has not established adequate reconciliation or followup procedures to ensure that
marketable securities received are included in the financial statements. Agency procedures
require finance offices to log securities received; however, there are no reconciliations performed
to ensure that securities logged are forwarded to the appropriate finance office and properly
recorded in the accounting system.
The Statement of Federal Financial Accounting Standards No. 3, "Accounting for Inventory and
Related Property," states that monetary instruments shall be valued at fair market value when
obtained. Agency policies and procedures also require the recording of marketable securities at
their fair market value at the time of receipt.
Recommendations
We recommend that the Office of the Chief Financial Officer:
8. Require the Director, Office of Financial Management to strengthen procedures to ensure
that receiving financial management offices have sufficient information to record
securities.
9. Require the Director, Office of Financial Management to develop reconciliation
procedures to ensure marketable securities are recorded by the respective finance offices
at fair market value when received. In conjunction with the preparation of quarterly
financial statements, perform a reconciliation between amounts logged and those
recorded in the general ledger to ensure a proper and complete non-cash asset balance.
10. Require the Directors, Financial Management Offices/Centers, to ensure staff record
marketable securities upon receipt.
Agency Comment
OCFO issued a policy on marketable securities in fiscal 2004 that documented roles and
responsibilities and emphasized the need to strengthen processes. OCFO will evaluate the policy
implementation in fiscal 2005 and identify improvements needed. OCFO also stated they will
require quarterly Superfund Accounts Receivable analyses.
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5 - Accounting for Contractor-Held Property Needs Improvement
Contractor-held property acquisition values were understated by about $6.9 million. When we
attempted to tie the ending balances as shown on all the EPA Reports of Government-
Owned/Contractor-Held Property documents to the September 30, 2004, general ledger balance
for contractor-held property, we discovered that contractor-held balances did not include a
$6,883,574 contract (Contract No. 68W04005).
Also, the Agency improperly accounted for surplused contractor-held property. The Agency
computes depreciation on contractor-held property over its estimated useful life (10 years for
Superfund site specific property, 5 years for other contractor-held property). The Agency
considers surplused contractor-held property to be fully depreciated, without regard to
acquisition dates or remaining useful life. For example, we found $11.6 million of Superfund
site specific property that was acquired no more than 8 years ago that was surplused and treated
as if it had been fully depreciated. As a result, accumulated depreciation on the remaining
property was understated and the loss associated with surplusing property was not recorded. In
addition, the Agency continued to compute depreciation expense on such property as if the
property was never surplused, in effect, distributing the loss on disposal over several years.
Recommendations
We recommend that the Office of the Chief Financial Officer:
11. Develop a methodology to reasonably estimate the net book value of all contractor-held
property and the related accumulated depreciation balances to reflect their proper
balances as of September 30, 2004.
12. Use the recalculated net book value of contractor-held property to compute fiscal 2004
depreciation expense.
13. Record the loss associated with surplusing equipment.
14. Determine whether the $6,883,574 for Contract No. 68W04005 should be added to the
contractor-held general property acquisition value.
Agency Comment and OIG Evaluation
The Agency agreed with our findings and recommendations and made the appropriate
adjustments to the financial statements.
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6 - Improvement Needed in EPA's Accounting for Obilgations
EPA needs to make improvements in its accounting for obligations. During fiscal 2004, we
found:
• Obligations not recorded in the proper accounting period.
• Lack of documentation to support obligation accounting transactions.
• Inactive unliquidated obligations that were not deobligated.
Fiscal 2004 Obligations Not Recorded in Proper Accounting Period
Financial management offices did not always record obligations in the correct accounting period.
EPA's Comptroller Policy Announcement No. 86-09 states that individuals with obligational
authority are responsible for ensuring that the valid obligating document is received by the
servicing financial management offices within 3 working days of execution of the obligating
document. However, in one region and a finance center, we found 10 out of 16 obligation
transactions tested (62.5 percent, totaling $1,036,139) were recorded in fiscal 2005 but were
actually fiscal 2004 obligations. As a result, fiscal 2004 obligations were understated. The
finance offices did not receive the 10 obligating documents from the originating offices until
between 4 to 66 working days after the execution of the obligating document. If the documents
were received more timely, these obligations could have been recorded in IFMS by the finance
office or the Office of Financial Management's Reporting and Analysis Staff as fiscal 2004
transactions.
Lack of Documentation to Support Accounting Transactions
The Agency needs to ensure that adequate documentation is maintained for obligation
transactions recorded in IFMS. For one of the obligation transactions we tested, we found that
the finance center had no supporting documentation. The Agency learned that this debit
transaction to general ledger account 4821 was an adjustment made the same day as the original
transaction. Since the two transactions went into IFMS in the same nightly cycle, the
transactions netted to the correct amount. Because the accountant did not consider this to be an
after-the-fact adjustment, no standard voucher was prepared for the adjustment nor was it
documented in the files.
Inactive Unliquidated Obligations Not Deobligated
In one region, we found that four out of seven inactive unliquidated obligations were not
deobligated in a timely manner. Resources Management Directive System 2520, Chapter 3, and
EPA's Comptroller Policy Announcement No. 96-04 require an annual review and certification
of unliquidated obligations to ensure all current and prior year obligations are valid and viable.
The funds were no longer needed for their intended purpose and could have been deobligated.
The Agency agreed and deobligated the inactive miscellaneous obligations, totaling $38,316.
However, grant obligations (totaling $2,283,274), which have been inactive for a period of 5 to 8
years since the last action, have not been deobligated.
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Recommendations
We recommend that the Office of the Chief Financial Officer:
15. Remind the financial management offices and finance centers that: (1) obligations should
be entered into the accounting system promptly and for the proper accounting period;
(2) adequate supporting documentation for all IFMS accounting entries should be
maintained; and (3) Agency's policy and year-end closing instructions for the review of
unliquidated obligations should be followed.
16. Establish a policy requiring the financial management offices and finance centers to
monitor obligations received during the first 15 days of October to determine whether the
obligations should be reported in the prior fiscal year; report any adjustments for
inclusion in the Agency's financial statements; and maintain adequate supporting
documentation for adjustments.
17. Record the identified obligations of $1,036,139 in the proper accounting period.
18. Deobligate inactive obligations of $2,283,274.
Agency Comment and OIG Evaluation
OCFO recognized the importance of processing obligations and deobligations timely. However,
they stated that grant obligations of $2,283,274 cannot be deobligated until the grantee submits
the final Financial Status Report and other related closeout information. OCFO also will not
prepare the recommended adjustment for recording obligations because they stated the amount is
not material to the financial statements.
We recognized that the amounts reported are not in and of themselves material to the financial
statements or in comparison with the billions in outstanding obligations. What we are concerned
about is that the internal controls and processes that allow such obligations and deobligations to
go undetected by the Agency, if not corrected, would allow for potential material misstatements.
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7 - Systems Development for Grant and Inter-Governmental
Systems Needs Improvement
OCFO's Operations Systems Staff (OSS) developed and implemented accounting systems
without assessing the risks these systems pose to Agency assets, personnel, and operations, and
consequently did not record results of assessments in key technical and security documentation
as required. Specifically, OSS did not produce key documents (e.g., Risk Assessments, Security
Plans, Disaster Recovery Plans, System Technical Documentation, and Cost Benefit Analyses)
for the Grant Payment Allocation System (GPAS) and Inter-Governmental Document Online
Tracking System (IDOTS). Further, GPAS did not comply with the following JFMIP technical
requirements: (1) to produce complete installation, operating, and system maintenance
documentation covering product installation and transaction entry procedures; and (2) to
establish password expiration settings.
OSS did not follow EPA's system development policy when developing GPAS and IDOTS.
OSS did not consider the Agency's policy to be applicable to GPAS or IDOTS, because it did
not deem them to be major applications or core financial systems. OSS had not reviewed JFMIP
guidelines or GPAS' current functionality to ensure it met applicable JFMIP standards.
OSS implemented GPAS and IDOTS to support fund payment allocation for grants and
Interagency Agreements. Both GPAS and IDOTS interface and prepare input for submission
into IFMS, EPA's main financial accounting system. Therefore, these systems are major
applications, based on their association with IFMS and the significance of processed financial
transactions. According to OSS officials, these systems processed $1.4 billion in payments for
fiscal 2004. GPAS has significant program implications because it processes approximately
89 percent of the grant payment transactions at EPA's Las Vegas Finance Center. Because of
the critical functions performed by these systems and the special attention required by
management to ensure they operate effectively, OSS should classify GPAS and IDOTS as major
applications. As such, OSS should have documented a formal risk assessment before placing the
systems into production, developed security plans, and followed Agency policy to produce
necessary system documentation when developing these systems.
During audit field work, we alerted OSS that GPAS and IDOTS required risk assessments and
security plans, and OSS provided draft security plans for both systems and subsequently
approved these plans. Since we did not receive the approved security plans until after
completing our field work, we defer a detailed review of the plans until the fiscal 2005 audit
cycle. OSS did not provide risk assessment documentation for either system, but referenced a
fiscal 2004 system review (self-assessment) of IDOTS, which had been conducted in conjunction
with the Federal Information Security Management Act. Agency policy considers a "self-
assessment" an adequate security review when the system has a risk assessment completed and
documented as part of a General Support System Security Plan, but neither GPAS nor IDOTS
had such risk assessments.
By not following EPA's system development policy, Agency officials have inadequate assurance
these systems are providing the appropriate information on which to base decisions. In addition,
vital documentation necessary for system operations and maintenance is not available. As such,
serious doubt exists that the Agency could troubleshoot, correct, or recover from system-
processing problems without the institutional knowledge residing with current OSS employees.
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Recommendations
We recommend that the Office of the Chief Financial Officer have the Director, Office of
Financial Services:
19. Conduct and document a formal risk assessment for GPAS and IDOTS.
20. Conduct and document a formal review of GPAS' compliance with all applicable JFMIP
system requirements.
21. Direct Offices to follow Agency system development policy for all future system
development efforts.
Agency Comment and OIG Evaluation
The Director for OCFO's Office of Financial Services concurred with our recommendations and
provided a corrective action plan that, when implemented, should adequately address most of the
recommendations' intent. However, we expressed concerns that more needed to be done to
ensure the risks associated with these systems were adequately assessed and documented. In
response to our concerns, management:
• Classified GPAS and IDOTS as major applications.
• Updated its corrective action plan, indicating GPAS will undergo a system review (self-
assessment).
• Indicated it would ensure the Office of Administration and Resource Management's
General Support System Security Plan includes a formal risk assessment for both GPAS
and IDOTS by September 1, 2005.
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8 - System Certification and Accreditation
for Grant and inter-Governmental Systems Needed
OSS did not ensure management controls were operating effectively by assessing and testing
security controls for GPAS and IDOTS. Specifically, OSS current policies and procedures could
not provide reasonable assurance that:
• Applications achieved their intended results;
• Resources were protected from fraud, waste, and abuse; and
• Applications followed applicable Agency policies and Federal guidelines.
Additionally, we found four "high risk" security holes on a critical server hosting eight financial
applications. EPA's Office of Administration and Resources Management manages the server,
while OCFO's OSS is responsible for the applications and the Oracle software on the server.
We reviewed the security certification and accreditation practices for GPAS and IDOTS. In
addition, we used a vulnerability scanner to test for known system vulnerabilities and improperly
configured security settings surrounding the server hosting these applications.
We found that none of the applications had undergone required certification and accreditation
procedures prior to placement into operation. OSS indicated certification and accreditation was
not applicable to IDOTS during its fiscal 2004 system review (self-assessment), nor had they
completed a self-assessment of GPAS. Further, OSS had not developed or implemented
procedures to: (1) identify, test, and implement operating system and application patches when
available; and (2) conduct vulnerability-scanning tests on a regular basis to ensure the systems
remain properly configured against known threats. Although OSS had certified, through its
annual FMFIA review, that security controls were working as intended, management could not
show that the controls had been tested.
Without periodically assessing and testing security controls, OSS has no assurance that these
systems were processing financial transactions accurately. Combined, GPAS and IDOTS
processed approximately $1.4 billion in financial transactions for fiscal 2004. Our vulnerability-
scanning test corroborated the importance of periodic testing, as it identified four known high-
risk security holes on the server. A potential attacker could have exploited these high-risk
vulnerabilities to gain control of the database or to shut down the application. We disclosed
these vulnerabilities to OSS management, and it took immediate action to upgrade the server to
mitigate the security threats.
Recommendations
We recommend that the Office of the Chief Financial Officer have the Director, Office of
Financial Services:
22. Complete and document a formal certification and accreditation for GPAS and IDOTS.
23. Update IDOTS' certification and accreditation status in the Agency's system review
(self-assessment) database and complete one for GPAS.
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24. Develop and implement a formal patch management process to identify, test, and install
system and application fixes/upgrades.
25. Implement a formal process to conduct vulnerability scanning and control testing on a
regular basis.
Agency Comment and OIG Evaluation
OCFO's Director for the Office of Financial Services concurred with our recommendations and
provided corrective action plans that would adequately address the recommendations. In
particular, management agreed to develop a Standard Operating Procedure to formalize the patch
management process no later than November 17, 2004. Additionally, by December 14, 2004,
OSS plans to develop a Standard Operating Procedure to ensure vulnerability scanning and
control testing takes place on a regular basis.
However, management's response seemed to significantly rely on performing self-assessment
reviews of system security, so we reiterated our concerns regarding the lack of formal
certification testing of GPAS and IDOTS. In particular, we clarified that a system review (self-
assessment) was not a sufficient basis to determine whether implemented controls were operating
as intended, and that Federal guidelines and Agency policy required offices to conduct formal
control testing. In response to our concerns, management indicated that a "Base" review, as
outlined in the Agency's Risk Assessment Procedures, would be appropriate for both GPAS and
IDOTS. This review includes completing the system review (self-assessment) and the General
Support System's Security Plan, which supports the application and includes testing of controls.
The Director stated OSS completed an IDOTS' system review (self-assessment) in August 2004,
and planned to complete one for GPAS as well. Additionally, management indicated it would
ensure the Office of Administration and Resource Management's General Support System
Security Plan includes formal controls testing for both GPAS and IDOTS by September 1, 2005.
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9 - Weaknesses in Change Control Procedures
for Integrated Financial Management System
In an August 24, 2004, audit report, EPA Needs to Improve Change Controls for Integrated
Financial Management System (2004-P-00026), we reported a general breakdown of security
controls related to software changes that could undermine the integrity of IFMS software
libraries and financial system data. Specifically:
• Change management duties had not been adequately segregated between contractor
personnel to prevent any individual from controlling all critical stages of the process.
• Individuals used an inappropriate ID or continued to have system access after no longer
needing it.
• Management had not instituted a formal, structured change control process for IFMS to
ensure software program modifications were properly authorized, tested, and approved.
• Management was not properly using its Change Management System to manage change
activities for IFMS and provide technical direction to contract staff.
We made various recommendations to the Office of the Chief Financial Officer to improve IFMS
controls:
• Management needs to perform a risk assessment of Endevor, a commercial off-the-shelf
product used to control IFMS' development, testing, and production libraries and
software.
• OCFO should develop a security plan for Endevor.
• OCFO should establish a systematic process for (1) identifying key responsibilities of
roles related to IFMS security and Endevor contract administration, and (2) holding
employees accountable for successful performance of those duties.
In responding to the prior report, OCFO concurred with our recommendations and generally
outlined appropriate corrective actions to improve security and change controls over IFMS.
Agency Comment and OIG Evaluation
OCFO concurred with this finding, but disagreed that a "general breakdown of security controls"
exists that could undermine the integrity of the financial system and data. Nonetheless,
management agreed with our emphasis on the importance of change controls and stated its intent
to better define key change control roles and responsibilities.
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10 - Automated Application Processing Controls for Integrated
Financial Management System Could Not Be Assessed
We continue to be unable to assess the adequacy of the automated application control structure
as it relates to automated input, processing, and output controls for IFMS. Since IFMS
applications have a direct and material impact on the Agency's financial statements, assessing
each application is necessary to determine the reliance we can place on the financial statements.
During past financial statement audits, we attempted to evaluate controls without systems
documentation, but these alternatives proved to be inefficient and impractical.
Since 1995, Agency officials have maintained that the current level of documentation is
sufficient for operations and will address systems documentation when they replace the core
IFMS system with a JFMIP-compliant, commercial off-the-shelf financial software package.
Nevertheless, Agency officials have taken actions on a number of our recommendations,
including completing a system documentation analysis, developing updated accounts receivable
documentation, and analyzing the process for creating a comprehensive IFMS data dictionary.
During our fiscal 2004 financial statement audit work, we evaluated OCFO's IFMS replacement
activities and found that this project had not progressed beyond the planning stage. Last year,
OCFO projected a target date of fiscal 2006 for replacing IFMS, but EPA's latest budget
submission indicates OCFO has pushed the target date back to fiscal 2008. The target date was
moved back to reflect recommended alternatives consistent with OMB 's Line of Business
initiative.
Although OCFO made no significant progress to replace IFMS during fiscal 2004, OCFO plans
to conduct the following replacement activities during fiscal 2005:
• Develop an acquisition strategy;
• Draft a governance structure composed of a Governing Board, an Executive Steering
Committee, and a Change Control Board;
• Draft a replacement system project plan;
• Develop a concept of operations document outlining the scope of the project using
industry best practices; and
• Develop a system requirements list.
OCFO has no plans to update IFMS system documentation until it implements the new financial
replacement software package. Until the new system is in place, we cannot assess the adequacy
of the automated internal control structure.
Agency Comment
The Agency agreed with our finding.
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Attachment 2
Compliance with Laws and Regulations
Table of Contents
Federal Financial Management Improvement Act
Noncompliance Issues 2
11- EPA Continues Actions to Improve Cost Accounting 28
12 - EPA Continues to Experience Difficulties in Reconciling
Intragovernmental Transactions 31
13 - EPA Needs to Strengthen Practices Regarding Security
Screening for Non-Federal Personnel 32
Other Noncompliance Issue
14 - EPA Continues to Improve Its Compliance with
Reconciling Fund Balances with Treasury 33
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.
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11 - EPA Continues Actions to Improve Cost Accounting
While EPA still does not produce reports that show the full costs of its outputs, during fiscal
2004 the Agency took actions that should help improve the quality of financial and performance
information available to its managers. Since fiscal 1999, we have reported that EPA does not
comply with the requirements of Statement of Federal Financial Accounting Standards No. 4,
Managerial Cost Accounting Concepts and Standards for the Federal Government. We have
taken this position largely because EPA has not produced general purpose financial reports that
show the full cost of its outputs, as required by the Standard. However, in fiscal 2002, OCFO
developed a plan to further expand cost accounting capabilities within EPA, and in early 2003
created reporting capabilities that could be used to determine the costs of its outputs. As a result,
in 2003 we reported that although EPA was not in full compliance with the Standard, we no
longer consider this issue to be a significant noncompliance. EPA continued to improve its cost
accounting capabilities in fiscal 2004 by: (1) deploying a business intelligence tool intended to
integrate EPA's financial, administrative, and performance information; and (2) under the
direction of OMB, beginning to establish a framework for decision making to guide EPA's
future financial data integration efforts.
EPA Has Changed its Accounting Structure
Beginning October 1, 2003, EPA changed its accounting structure to accommodate the budgeting
and accounting requirements under EPA's new Strategic Plan. Some of the major changes
included:
• Replacing EPA's 10 strategic goals with 5 goals.
• Changing the Program Results Code budget and accounting structure so that major
programs and subobjectives are no longer part of the Code.
• Adding to the Program Results Code the Program/Projects that describe "what" the
Agency does and activities to describe "how" the Agency does its work.
• Taking steps to link subobjectives to the Program/Projects by the use of business rules.
The subobjectives are important to EPA's cost accounting efforts because they reflect EPA's
cost accounting outputs. Although EPA is still in the process of developing and implementing
the business rules that will link the subobjectives to the Program/Projects, EPA has taken some
significant steps toward providing decision-makers with useful financial data in a user-friendly
manner.
EPA Launches New Financial Reporting Tool
OCFO's fiscal 2002 plan to expand cost accounting capabilities within EPA included the
development of a new standard financial reporting tool. Work on this reporting tool began in
fiscal 2003 and resulted in the December 2003 launch of Phase I of the OCFO Reporting and
Business Intelligence Tool (ORBIT). This tool, which is EPA's first Agency-wide business
intelligence application, is to have three phases of development, and has the following three
major components:
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• An executive "dashboard" that uses a graphical format to provide users with high-level
operating, funding, and human resources information.
• A suite of standard reports to provide users with significant finance, budget, and payroll
information.
• A capability to allow advanced users to construct ad hoc queries.
In June 2004, OCFO began ORBIT developmental phase II, with a goal to provide users with
additional organizational information that relates to specific business needs and processes.
Developmental phase III is scheduled to begin in June 2005 and run through December 2006.
The goal for this phase is to expand dashboard, programmatic, and reporting capabilities.
Financial Data Integration Initiative
Another step toward providing decision-makers with useful financial data is EPA's financial data
integration initiative. This initiative includes designing processes that will integrate financial
data into day-to-day decisions using the following steps prescribed by OMB:
• Identify and monitor the key business lines that will be monitored and tracked.
• Obtain accurate, relevant, and timely financial data that informs users about each
business line.
• Present the financial information in a meaningful format that Agency senior officials and
managers can use.
• Validate that senior officials and program managers are using these reports on a regular
basis.
Based upon collaboration among OCFO stakeholders, business lines have been identified.
During fiscal 2005, OCFO plans a series of roundtable discussions with stakeholders to identify
key business questions, data needs, and data gaps related to each business line.
Both Statement of Federal Financial Accounting Standards No. 4 and OMB's financial data
integration initiatives are aimed at providing decision-makers with reliable and timely cost
information. Therefore, as EPA progresses with OMB's financial data integration steps, it
should also move toward satisfying the requirements of the Standard. We look forward to
monitoring the progress EPA makes toward financial data integration.
Recommendations
We recommend that the Office of the Chief Financial Officer:
26. Continue with current efforts to integrate financial data into management decision
making.
27. Consider redefining EPA's Statement of Federal Financial Accounting Standards No. 4
outputs so that they fit within the future financial data integration reports framework.
29
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Agency Comment and OIG Evaluation
OFCO agreed with our findings and expressed that they are committed to ensuring that financial
information is available for decision-making within the Agency. OCFO stated they are in the
preliminary stages of redefining cost accounting needs and Statement of Federal Financial
Accounting Standards No. 4 outputs. OCFO also stated that because the financial integration
framework is in its conceptual stage, it is premature to make output commitments referencing
this initiative at this time. The OIG will continue to report cost accounting as a noncompliance
until such time as the Agency adheres to the Statement of Federal Financial Accounting
Standards No. 4 and provides useful and timely financial data for decision-making.
30
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12 - EPA Continues to Experience Difficulties in Reconciling
Intragovernmental Transactions
EPA continues to experience difficulties in reconciling some of its intragovernmental
transactions due to some Federal entities not providing information for reconciliations. Without
the proper confirmations from its trading partners, EPA has limited assurance that
intragovernmental balances are accurate. EPA has experienced similar occurrences the past
several years that prohibited the Agency from fully complying with the applicable requirements.
OMB Bulletin 01-09, Form and Content of Agency Financial Statements, dated September 25,
2001, requires Federal agencies to reconcile and confirm intragovernmental assets, liabilities,
and revenue with their trading partners quarterly. This information is to be presented in the
financial statements as Required Supplementary Information and should agree with line items
reported on the balance sheet. However, intragovernmental transactions have been classified by
the
Government Accountability Office as a government-wide material weakness due to the lack of
standardization in recording and processing intragovernmental activities. To resolve the issue,
OMB established standard business rules (Memorandum M-03-01, October 4, 2002) to be used
in intragovernmental exchange activities. The Federal Intragovernmental Transactions
Accounting Policies Guide was updated in September 2004, providing tools to facilitate quarterly
reconciliation of intragovernmental activities. The Agency has taken action to reconcile its
intragovernmental activity on a quarterly basis. As of year end, the Agency had $187 million in
unreconciled activity with four government agencies. OIG suggests that EPA continue its efforts
in reconciling the Agency's intragovernmental transactions to comply with Federal financial
reporting requirements.
Agency Comment
The Agency agreed with our findings.
31
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13 - EPA Needs to Strengthen Practices Regarding
Security Screening for Non-Federal Personnel
In the 2003 financial statement audit report, we concluded that EPA had taken all necessary
actions to correct security weaknesses in the fiscal 1999 Remediation Plan except for
establishing a background check program for non-Federal personnel. OCFO addressed the
remaining weakness by issuing a policy to require the appropriate type of personnel security
screening for Federal and non-Federal personnel accessing IFMS. However, EPA still does not
have a target date for addressing security certification for contractor personnel.
In Audit Report 2004-P-00026, EPA Needs to Improve Change Controls for Integrated
Financial Management System, dated August 24, 2004, we found that OCFO had granted some
contractor staff-sensitive access rights to IFMS production software and data even though
management had not requested nor received assurance that these individuals did not pose a
significant risk to the integrity of the system. In light of those findings, we reviewed OCFO's
1999 Remediation Plan (last updated on August 30, 2004) to determine Office of Administration
and Resources Management's (OARM's) latest commitment for establishing a security
certification process for key personnel, as well as contractor and grantee personnel. While
OARM plans to develop policy addressing security certifications for grantee personnel by July
2005, it has not identified a target date to address similar concerns with respect to contractor
personnel.
OCFO concurred with our recommendations and generally outlined appropriate corrective
actions to improve the certifying of contractor access to IFMS. However, OARM management
did not concur with our recommendations concerning contractor background investigations,
asserting that "suitability" background investigations of Federal contractors are not required.
OARM stated its existing, interim procedures were sufficient to guide offices that chose to
initiate background investigations. However, current EPA policy and Federal guidance strongly
recommend screening comparable to that for Federal staff, and we strongly urge such screening.
Agency Comment and OIG Evaluation
OCFO agreed with our finding and, with respect to IFMS, stated that support contractors either
received an acceptable suitability background investigation or have one currently in process.
OCFO also stated that it will continue to work with OARM on addressing contractor security
background checks, and will update its internal policy to align with any future Agency-level
policy.
In addition to its current interim personnel screening policy, OARM stated it would institute the
following new processes to help mitigate potential security risks: insert suitability criteria into
contract requirements; require fingerprint and national criminal history checks; and implement
commercial checks performed by private firms. However, OARM provided no specificity
regarding its implementation strategy or projected milestone dates for us to determine the
thoroughness and scope of these new processes. We will conduct followup work during the
fiscal 2005 financial statement audit.
32
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14 - EPA Continues to Improve Its Compliance with
Reconciling Fund Balances with Treasury
The Agency continues to improve reconciling its Fund Balances with Treasury. The Agency has
re-engineered its financial processes relating to preparing its cash Statement of Transactions and
reconciling to Treasury's Statement of Differences. Most Agency locations we audited were
properly preparing and reconciling the Statements. However, two of the nine locations we
audited continued to include amounts on the Statement of Transactions that did not come from
the Agency's accounting system. Subsequent to our audit work, the Agency informed us that
one of these locations began reconciling Treasury's Statement of Difference. This reconciliation
was not completed in time for our testing.
EPA Comptroller Policy and the Treasury Financial Manual require that the Statement of
Transactions be prepared directly from its accounts [accounting system] promptly at the close of
each accounting month. Further, EPA Comptroller Policy requires the reconciliation of cash
differences between Treasury and EPA records each reporting period.
Recommendations
We recommend that the Office of the Chief Financial Officer:
28. Require that the quality assurance guide's Fund Balance with Treasury test procedures be
modified to apply to all accounting points.
29. Require that all accounting points perform the quality assurance testing procedures.
Agency Comment and OIG Evaluation
The OCFO agreed with our findings and recommendations and provided training in September
2004 to implement Treasury procedures. OCFO will continue to monitor cash reconciliations to
ensure they are properly completed.
33
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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 OCFO on audit-related matters. Council membership consists of the Deputy
Chief Financial Officer, the OCFO Audit Follow-Up Coordinator, and all of the OCFO Office
Directors.
The Agency has continued to make substantial progress in completing corrective actions from
prior years. These issue areas from prior financial statement audits, with corrective actions in
process, are listed in the following table.
Audit Issue Areas with Corrective Actions in Process
• Automated Application Processing Controls for IFMS:
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.
• D Financial System Security Plans:
An audit report issued during fiscal 2004 found that there are still some weaknesses
regarding contractor access to IFMS. The Agency's 1999 Remediation Plan is still not
completely implemented. OCFO has concurred with our recommendations in this area,
and we anticipate receiving further corrective action plans soon. Please see Attachment 2
for additional information.
• D Managerial Cost Accounting Standards:
In our financial statements audits for the last 5 fiscal years, we reported that EPA did not
comply with the managerial cost accounting standard. In our fiscal 2003 report, we found
EPA was no longer in substantial noncompliance with the standard. During fiscal 2004,
the Agency has taken actions which, when completed, will help to improve the quality of
financial and performance information available to its managers. Please see Attachment 2
for additional information.
• D Reconciling Unearned Revenue for State Superfund Contracts:
In fiscal 2004, the Agency improved its reconciliation process, but errors continued in
some regions due to lack of adequate oversight. Please see Attachment 1 for additional
information.
34
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Audit Issue Areas with Corrective Actions in Process
Preparation and Reconciliation of Statements of Transactions:
The Agency continued to improve its procedures to reconcile cash with Treasury.
However, we found some locations were not in full compliance with the procedures.
Please see Attachment 2 for additional information.
•
Continued Improvement Needed in EPA's Interagency Agreement Invoice Approval
Process:
The Agency issued the needed guidance and developed a training plan for a stand-alone
Interagency Agreement Project Officer training course. The Agency will begin training
the Project Officers soon. We have no new recommendations in this area.
•
EPA Did Not Promptly Record Marketable Securities Received
Again in fiscal 2004, EPA did not promptly record marketable securities received. EPA
has not yet established adequate reconciliation or follow-up procedures. Please see
Attachment 1 for additional information.
Further Improvements Needed in Managing EPA's Accounts Receivable
In fiscal 2004, OCFO took some actions to improve timely recording of accounts
receivable in IFMS, however, other offices still failed in a number of instances to provide
documentation timely to EPA finance offices. We made several further recommendations
in this area. Please see Attachment 1 for additional information.
EPA Continues to Experience Difficulties in Reconciling Intragovernmental
Transactions
In fiscal 2004, the Agency continued to experience difficulties in reconciling some of its
intragovernmental transactions due to some Federal entities not providing information for
reconciliations. Please see Attachment 2 for additional information.
•
Plan of Action Developed for Documentation of Standard Vouchers
In fiscal 2004, OCFO developed a plan of action to address our recommendation to
establish written procedures for calculating the amount of monthly transfers from Treasury
to EPA Trust Fund accounts and providing complete documentation to support the amount
of the transfers.
35
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36
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Appendix I
EPA's Fiscal 2004 and 2003
Financial Statements
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November 2004
EPA's FY 2004 CFO
AUDITED FINANCIAL
STATEMENTS
/#to s r"%
I 2
\%.
ro
z
LU
0
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TABLE OF CONTENTS
Overview and Analysis 3
Principal Financial Statements 31
EPA's FY 2004 Financial Statements Page 1-1
-------
Note: All components of EPA's FY2004 CFO Audited
Financial Statements are included in EPA's FY 2004
Annual Report (Publication Number: EPA-190-R-04-
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 III of the Annual Report.
-------
OVERVIEW
AND
ANALYSIS
EPA's FY 2004 Financial Statements
Page 1-3
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Page 1-4 EPA's FY 2004 Financial Statements
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OVERVIEW AND ANALYSIS
Today's environmental challenges are very complex, and future challenges will likely be
even more daunting. To continue to meet these challenges, the U.S. Environmental Protection
Agency (EPA) has worked during FY 2004 to increase the pace of improvement and identify
new and better ways to protect human health and the environment. By focusing on the results to
be achieved and expanding collaboration, improving technology, and increasing market
incentives, EPA is working to do more, and to do it faster and more cost efficiently.
In this report, the Agency reviews its FY 2004
progress toward achieving environmental results—
improving the quality of air and water and preserving
and protecting the land—while keeping the nation
economically competitive. This document meets the
requirements of the Government Performance and
Results Act and other management legislation.1
In FY 2004, with resource obligations of $10.16 billion and 17,511 full-time-equivalent
employees, EPA achieved significant results under each of the five long-term environmental
goals established in its 2003 Strategic Plan. To help measure EPA's annual progress and assess
its success, Agency leaders established 79 critical performance goals at the beginning of
FY 2004. EPA's progress toward these goals is reported in the chapters that follow. Because
managing taxpayer dollars efficiently and effectively is key to delivering the greatest results to
the American people, this report also presents a picture of the Agency's financial activities and
achievements during the year.
The FY 2004 Annual Report contains three sections. Section I, Overview and Analysis,
provides a broad picture of EPA's environmental and fiscal performance during FY 2004. It
highlights EPA's environmental accomplishments and performance challenges, outlines the
Agency's financial position at the end of FY 2004, discusses efforts to strengthen performance
and manage for improved results, and describes how EPA is addressing management issues and
audit recommendations. Section II, Performance Results, 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 five goals. It also discusses EPA's successes and challenges in meeting the
Annual Performance Goals established in EPA's FY 2004 Annual Plan. Section III, FY 2004
Audited Financial Statements, summarizes EPA's financial activities and achievements and
presents the Agency's annual financial statements as well as a summary of the independent audit
conducted by EPA's Inspector General.
EPA's Long-Term Strategic Goals
1.
Clean Air and Global Climate Change
2.
Clean and Safe Water
3.
Land Preservation and Restoration
4.
Healthy Communities and Ecosystems
5.
Compliance and Environmental Stewardship
The Overview and Analysis also addresses requirements for a "Management's Discussion and Analysis" of the
annual financial statements included in EPA's FY 2004 Annual Report. Because the FY 2004 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
organization chart appear at the front of the report. Section II discusses the Agency's performance goals and results.
Section III presents EPA's financial statements, along with a discussion of systems, controls, and legal compliance.
EPA's FY 2004 Financial Statements
Page 1-5
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OVERVIEW OF PERFORMANCE RESULTS
Throughout FY 2004, EPA collaborated closely with its partners to achieve better
environmental results by improving approaches and using resources wisely. The section below
describes key environmental and program results in protecting the nation's air, water, and land;
summarizes how well the Agency did in meeting its FY 2004 performance goals; and discusses
current performance challenges.
Environmental Accomplishments
The air is getting cleaner every year.
Clean Air and Global Climate Change. Every year, state and federal criteria air pollutant
programs established under the 1990 Clean Air Act Amendments prevent tens of thousands of
premature mortalities, millions of incidences of chronic and acute illness, tens of thousands of
hospitalizations and emergency room visits, and millions of lost work days.
In FY 2004, EPA announced a new suite of rules, critical to achieving cleaner, healthier
air. The Clean Air Rules of 2004 include the Clean Air Ozone Rules, Clean Air Fine Particle
Rules, Clean Air Interstate Rule, and Clean Air Mercury Rule. EPA identified which areas of
the country were and were not currently meeting the health-based ozone standard. EPA also
issued a new rule classifying geographic areas by the severity of their ozone conditions and
establishing a deadline for state and local governments to reduce ozone levels. In early 2005, the
Agency will make similar geographic boundary determinations for the new particulate matter
(PM) standard.
In addition, EPA issued the Clean Air Non-Road Diesel Rule, which requires strong
pollution controls on diesel engines used in construction, agriculture, mining, and other
industries. By combining tough exhaust standards with cleaner fuel requirements, the rule will
reduce the sulfur content of diesel fuel by 99 percent and cut emission levels from nonroad diesel
equipment by over 90 percent. This program is expected to provide dramatic health benefits
each year, preventing 12,000 premature deaths and hundreds of thousands of respiratory
problems. EPA estimates that the overall public health benefits of this rule outweigh the
economic costs by 40:1,3 Combined with existing EPA programs, the new Clean Air Rules and
Clean Air Non-Road Diesel Rule are estimated to bring well over half of the nation's
nonattainment areas into attainment with the National Ambient Air Quality Standards for ozone
and PM.4
In FY 2004, the Agency completed the first phase of a two-phase program for addressing
large stationary sources of toxic air pollutants. The 96 Maximum Achievable Control
Technology Standards completed and issued under this program have resulted in annual
reductions of approximately 1.5 million tons of toxic air emissions and will achieve even greater
reductions when all sources come into full compliance by 2007. In the second, risk-based phase
of the air toxics program, EPA will emphasize a community-based approach to address local
problems and reduce exposures to such pollutants as toxic chemicals, particulates, and asthma
triggers.
Page 1-6
EPA's FY 2004 Financial Statements
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Based on data obtained in FY 2004, EPA's climate protection programs again exceeded
their goals for reducing greenhouse gas emissions.5 These programs remain on track to provide
40 percent of the greenhouse gas reductions required to meet the President's 18 percent
greenhouse gas intensity improvement goal by 2012. Encouraged by the Agency's ENERGY
STAR program, American consumers and businesses avoided greenhouse gas emissions
equivalent to those from 15 million automobiles, while saving approximately $8 billion on their
energy bills.6
EPA also continued important research on PM during FY 2004 that supports the
association between exposure to PM and illness and death, specifically for asthmatic children
n
and other susceptible groups. Scientists also found that PM2.5, the component of PM smaller
than 2.5 microns in diameter, penetrates most indoor environments easily. In FY 2004, EPA
provided an estimate of the relationships between indoor concentrations of PM2.5 and people's
o
exposure to particles from both indoor and outdoor sources. These research results will enable
regulators to more accurately estimate the risks posed by personal exposure to PM2.5.
Drinking water is safer and surface waters are cleaner.
Clean and Safe Water. The percentage of the population served by U.S. community
water systems that met all health-based drinking water standards in effect in 1994 increased from
79 percent in 1993 to 90 percent in 2003. Although final FY 2004 drinking water data will not
be available until January 2005, EPA expects that these critical gains have been maintained.
During FY 2004, EPA reviewed and approved new or revised water quality standards for
27 states and promulgated federal standards for Puerto Rico. By the end of FY 2004, 25 tribes
had EPA-approved water quality standards in place. In addition, EPA supported states and tribes
in developing biological and nutrient criteria that will enable them to adopt water quality
standards that more fully protect aquatic life and water.
Despite ongoing challenges in issuing permits to protect surface water under the National
Pollutant Discharge Elimination System (NPDES), in FY 2004, permits implementing effluent
guidelines prevented the discharge of approximately 136 million pounds of pollutants into the
nation's waters. This represents a cumulative total of 2.3 billion pounds since 1999.9 Part of this
success is due to the states and EPA's issuance of permits at concentrated animal feeding
operations to protect surface water from animal waste.
EPA and its state partners also continued to improve their understanding of water quality.
In FY 2004, EPA released for public comment the second report on the condition of the nation's
coastal resources, including estuaries, coastal wetlands, and coral reefs. In addition, in FY 2004
EPA and the states initiated the first national study of the ecological condition of small streams
throughout the United States and will use the results to make program and resource decisions at
the national and state levels. In April 2004, EPA published a "List of Beaches"10 that, for the
first time, provided the names, locations, and monitoring status of beaches along the country's
coastal and Great Lakes waters.
EPA's FY 2004 Financial Statements
Page 1-7
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Cleanup construction completed at 926 Superfund sites
since the early 1990s.
Land Preservation and Restoration. In FY 2004, EPA completed cleanup ("construction
completes") and reduced risks posed to human health at 40 sites on the Superfund National
Priorities List (NPL), including the 900th site on the list in Port Salerno, Florida. At the close of
FY 2004, more than 83 percent of Superfund NPL sites and 84 percent of high-priority RCRA
corrective action facilities had met Agency goals for human health indicators, meaning that
controls are in place to prevent any unacceptable human exposures from occurring under current
land and groundwater use. In addition, groundwater protection goals had been met at nearly 67
percent of Superfund sites and 70 percent of high-priority RCRA corrective action facilities.
Under the Agency's waste
prevention programs, underground
storage tank releases were reduced to
fewer than 5,000 by the middle of
FY 2004 compared with more than
12,000 releases in FY 2003. EPA
exceeded its FY 2004 goal of
permitting or establishing approved
controls to prevent dangerous
releases to air, soil, and groundwater
at 81 percent of the country's
hazardous waste management
facilities.
EPA's waste management
and cleanup programs faced several
challenges in FY 2004. The
Superfund program faced a growing
backlog of projects ready to begin
construction, coupled with the
challenge of funding several large
and complex ongoing projects.
During FY 2004, Superfund
underwent a series of internal and
external evaluations to explore this
problem. As a result, the program
has engaged in a public dialogue to
identify and implement a series of
reforms that will address these issues
over the coming years.11
Generation of municipal
solid waste (MSW) remained stable,
at slightly less than 4.5 pounds per capita daily, while increases in the rate of recycling did not
occur as projected. As a result, EPA is unlikely to reach its goal of 35 percent recycling by 2005,
Love Canal Removed from Superfund List
On September 30,2004, EPA removed the Love Canal site in Niagara County,
New York, from the Superfund NPL. All cleanup work at the site has been
completed, and follow-up monitoring conducted for the past 15 years confirms
that cleanup goals have been reached. EPA and the New York State
Department of Environmental Conservation have contained and secured wastes
already in the canal so that they no longer leak into surrounding soils and
groundwater and have revitalized properties in the neighborhood surrounding
the canal.
The 70-acre Love Canal site encompasses a hazardous waste landfill where
chemical waste products were disposed of from 1942 through 1952. In 1953, the
original 16-acre hazardous waste landfill was covered, and a school and more
than 200 homes were built nearby. Residents reported odors and residues as
early as the 1960s; studies in the 1970s showed that numerous toxic chemicals
were migrating from the landfill and contaminating nearby waterways. In 1978,
New York Governor Hugh Carey ordered the purchase of residents' homes
surrounding the canal. In 1978 and 1980, President Jimmy Carter declared two
separate environmental emergencies and, as a result, approximately 950
families were evacuated from a 10-block area surrounding the canal. The
emergency declaration area included neighborhoods adjacent to the site
covering 350 acres. In 1980, the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), also known as Superfund, which
addresses abandoned hazardous waste sites, was passed largely due to the
problems at Love Canal.
Today, the area known as Love Canal is once again a flourishing community.
Forty acres are covered by a synthetic liner and clay cap and surrounded by a
barrier drainage system. Contamination from the site is also controlled by a
leachate collection and treatment facility. Neighborhoods to the west and north
of the canal have been revitalized, with more than 200 formerly boarded-up
homes renovated and sold to new owners, and 10 apartment buildings
constructed. The area east of the canal has also been sold for light industrial
and commercial redevelopment. The Love Canal site will continue to be
monitored and remain eligible for cleanup work in the unlikely event that a
change in site conditions should warrant such an action.
Page 1-8
EPA's FY 2004 Financial Statements
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and is extending this goal to 2008. To help increase recycling rates, EPA is targeting the paper,
plastics, packaging, and organics segments of the MSW stream. For example, EPA launched its
"Greenscapes" program in FY 2004 to foster composting of food and yard wastes—organic
materials representing over 25 percent of MSW—and using the compost to landscape roads,
highways, golf courses, ski resorts, and industrial and institutional facilities.
Healthy Communities and Ecosystems. Through FY 2004, EPA continued to reduce risks
to communities, homes, workplaces, and ecosystems. The Agency reviewed new chemicals and
pesticides before they were put on the market and older chemicals and pesticides already in use
for unacceptable risks. EPA-screened chemicals now comprise more than 22 percent of the U.S.
12
inventory of more than 76,000 commercial and/or industrial chemicals. In 2004, EPA provided
industry with tools to pre-screen new chemicals for adverse effects early in their development,
saving resources and enhancing environmental protection and stewardship. In addition, more
than 400 chemical companies and 100 industry consortia in FY 2004 committed to develop data
for more than 2,200 chemicals produced or imported in quantities greater than 1 million pounds
per year (high-production-volume, or HPV, chemicals). These hazard screening data will be
available to the public and will cover 92 percent of the nation's chemicals that EPA has
identified as having incomplete hazard-screening data.13
EPA registered another 26 new safer pesticides in FY2004.
In 2004, EPA met new standards for efficiency and new deadlines under the Pesticide
Registration Improvement Act of 2003 (PRIA), allowing innovative and safer pesticide products
to reach the marketplace faster, and exceeding its goal for registering alternatives to pesticides
that may endanger human health and the environment. In 2004, for example, EPA registered one
new active ingredient as an alternative for methyl bromide, a pesticide known to deplete the
ozone layer and scheduled for phase-out. EPA also registered 10 new agricultural uses for
already-registered active ingredients, as alternatives for methyl bromide.
Childhood lead poisoning has been reduced by half since the early 1990s.
EPA is also making progress toward protecting the health of vulnerable children—the
incidence of childhood lead poisoning has been reduced by half since the early 1990s.14 In 2004,
EPA began to focus outreach and education efforts on "hot spots" where the incidence of
childhood lead poisoning remains high, often in disadvantaged urban centers. The Agency also
completed a study providing significant new data on the aggregate exposures of preschool
children to pollutants commonly found in their homes and daycare centers.
Administrator Leavitt leads Great Lakes Federal Task Force.
In May 2004, the President signed an Executive Order directing Administrator Leavitt to
establish the Great Lakes Federal Task Force, comprising nine Cabinet agencies, the U.S. Army
Corps of Engineers, and the Council on Environmental Quality, to coordinate the federal effort to
improve water quality in the Great Lakes.15 The Order calls for regional collaboration to develop
action plans to address priorities, identify resource needs, develop an implementation schedule,
and facilitate a cohesive management process. During FY 2004, EPA worked with Canada to
monitor conditions in the Great Lakes by tracking a number of indicators, such as
polychlorinated biphenyl (PCB) concentrations in predator fish, atmospheric deposition of toxic
EPA's FY 2004 Financial Statements
Page 1-9
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chemicals, and phosphorus levels in the water.16 Water quality monitoring conducted in 2003 of
the Lake Erie Central Basin "dead zone" showed that phosphorus concentrations are
approximately twice the target levels. EPA is conducting a study of this problem, believed to be
linked to invasive species such as zebra mussels, and expects to issue the final report in FY 2005.
In FY 2004, EPA also protected and restored over 100,000 acres of estuarine habitat
within the 28 estuaries of the National Estuary Program. In addition, the President announced an
aggressive new national goal to achieve an overall increase of America's wetlands over the next
5 years. To reach this goal, EPA will be working to restore 6,000 acres and enhance an
additional 6,000 acres of wetlands over the next 5 years (an average of 1,200 acres per year in
17
each category).
Compliance and Environmental Stewardship. EPA continued to promote compliance
with environmental requirements, enforce environmental laws, and encourage environmental
stewardship. The Agency estimates that enforcement actions concluded in FY 2004 will reduce,
treat, or eliminate over 1 billion pounds of pollutants, with a total estimated reduction of
2.5 billion pounds since FY 2001. Eighty three percent of enforcement actions concluded in FY
2004 will result in increased environmental protection or improved long-term facility
environmental management practices.
EPA also provided specialized compliance assistance to over 731,000 facilities, states,
and other regulated entities to improve their understanding of requirements and environmental
management practices. In FY 2004, 90 percent of the regulated community responding to
compliance assistance center surveys indicated an improved understanding of environmental
regulation, and 72 percent of the respondents improved environmental management practices as
18
a result of the assistance.
EPA '.v pollution prevention programs eliminated over 600 million pounds
of hazardous chemicals in FY2004.
Under EPA's Green Chemistry Challenge Award program, which provides Presidential
recognition to industries achieving outstanding pollution prevention, 134 million pounds of
hazardous chemicals were eliminated from the environment.19 EPA also worked with industry
in its Design for the Environment program to develop cleaner, more environmentally friendly
products. In FY 2004, Design for the Environment eliminated 63 million pounds of hazardous
chemical use, saved 23 million gallons of water, and provided industry $488,000 in cost
20
savings. Taken together, all of EPA's pollution prevention programs resulted in the
elimination of over 600 million pounds of hazardous chemicals, saved 495 million gallons of
21
water, and saved companies $936,000. An additional benefit of the Agency's pollution
prevention work was the elimination of 77 metric tons of carbon dioxide.
Vulnerability assessments completed on all major water systems.
Homeland Security
In FY 2004 EPA revised its Homeland Security Strategic Plan, which identifies the range
of homeland security activities the Agency conducts, taking into account the evolving role of the
U.S. Department of Homeland Security.22 The Agency also spent considerable time and effort
Page I-10
EPA's FY 2004 Financial Statements
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mapping out responsibilities and strategies to address recently issued Presidential Directives.
More information on EPA's Homeland Security Program is available at
www.epa.gov/homelandsecuritv.
FY 2004 Progress in Homeland Security
• Protecting Water Facilities From Terrorist Attacks: EPA continued to assist the nation's drinking water and wastewater facilities
in protecting infrastructure from terrorist and other intentional attacks. By the end of FY 2004,100 percent of water systems serving
at least 100,000 people had completed vulnerability assessments. EPA expects 100 percent of the nation's small systems to have
assessments in place in 2005.
• Improving Emergency Preparedness for Large-Scale Incidents: EPA collaborated with its federal partners to enhance the
incident command system across government and the private sector, assist states, and develop national policy and guidance on
response coordination and emergency support. EPA field responders were trained to detect, analyze, and respond to chemical,
biological, and radiological agents. In addition, the Agency's criminal enforcement personnel supported the U.S. Secret Service and
FBI at designated National Special Security Events such as the G-8 Nations Summit, and supported the U.S. Capital Police and FBI
during the ricin incident at the U.S. Capitol.
• Developing the Nation's Ability to Respond to Chemical Terrorism: EPA led a collaborative effort with nine federal agencies,
numerous state agencies, private industry, emergency medical associations, and other organizations to increase understanding of
the potential health effects from various levels of exposure to hazardous chemicals during a terrorist incident. In FY 2004, "Acute
Exposure Guideline Levels" were proposed for 22 highly hazardous chemicals, bringing the cumulative total to 128 chemicals.
• Eliminating Anthrax Spores: EPA continued to spearhead scientific collaboration to measure the effectiveness of various liquid,
gaseous, and vaporized chemical sporicides for eliminating anthrax spores resulting from a terrorist incident.
Improved scores under the President's Management Agenda.
The President's Management Agenda
EPA's leaders recognize that organizing the Agency and managing its work and
resources as efficiently as possible will deliver the best results to the American people. The
President's Management Agenda (PMA) provides a framework for assessing resource
management efforts and ensuring that EPA is streamlined, responsive, and results-oriented.
Building on its FY 2003 accomplishments, EPA made significant progress in implementing the
PMA reforms for Strategic Management of Human Capital, Competitive Sourcing, Expanding E-
Government, Improved Financial Performance, and Budget and Performance Integration. More
information about the Agency's work under the PMA is available at www.epa.gov/pmaresults.
EPA's FY 2004 Financial Statements
Page I-11
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EPA'S FY 2004 PROGRESS UNDER
THE PRESIDENT'S MANAGEMENT AGENDA
INITIATIVE
STATUS23
PROGRESS
HIGHLIGHTS
Human Capital
Yellow
Green
• Improved status score to "yellow" and received "green" progress score from the Office of
Management and Budget (OMB) for 4 quarters in FY 2004. Achieved EPA's July 1, 2004, "Proud-
To-Be" goals.
• Issued a revised "EPA Strategy for Human Capital" and made significant progress in implementing
it.
• Developed and implemented a human capital accountability plan.
• Aligned all employee performance standards with the Agency's mission and Strategic Plan.
• Began implementing a plan to move from a two-level to a multi-level performance management
system for Agency employees.
Competitive
Sourcing
Yellow
Green
• Improved status score to "yellow" and received "green" progress scores from OMB for 3 quarters in
FY 2004. Achieved the Agency's July 1, 2004, "Proud-To-Be" goals.
• Began conducting EPA's first standard competition of Agency-wide Employee Benefit services in
May 2004. However, EPA's participation in another government-wide initiative led to cancellation
of this competition.
• Initiated a second standard competition, covering Agency-wide Vendor Payment services with
completion expected in August 2005.
• Submitted a long-term competitive sourcing plan to OMB for review.
• Expanded EPA's Competitive Sourcing Council to include all major program offices, as well as
other headquarters and regional offices.
Expanded E-
Government
Green
Green
• For the first time, achieved "green" status score from OMB for E-Government. Achieved EPA's
July 1, 2004, "Proud-To-Be" goals.
• Participated in 17 of the 25 E-Government initiatives under the PMA. Led the architecture
workgroup for the financial management piece of OMB's "Line of Business" efforts.
• Continued to serve as the federal agency lead for the E-Rulemaking initiative. Reached agreement
on the core functions and architecture for the Federal Docket Management System (FDMS).
• Completed all 13 E-Government Memoranda of Understanding (MOUs) that EPA was required to
complete in FY 2004.
• Implemented an Earned Value Management System (EVMS).
• Submitted the Critical Infrastructure Protection plan to OMB.
Improved
Financial
Performance
Green
Green
• Maintained EPA's "green" status score. Received "green" progress scores from OMB for 4 quarters
in FY 2004 and achieved the Agency's July 1, 2004, "Proud-To-Be" goals.
• Delivered EPA's FY 2004 Annual Report with audited financial statements by the required
November 15, 2004, deadline, and met all required deadlines for the Agency's quarterly financial
statements.
• Developed a framework and action plan to guide the Agency's future efforts in integrating financial
and performance information for decision making.
• Worked with Treasury and OMB and reconciled variances in year-end Superfund Trust Fund
resources, which have accumulated over the last 3^4 fiscal years. The Superfund Trust Fund
account balance statements are now in agreement across all three agencies.
• Identified EPA's high-risk areas for erroneous payments, and expanded the scope of the Agency's
erroneous payments review to determine that funds are used for their intended purpose.
Budget and
Performance
Integration
Yellow
Green
• Received "green" progress scores for three out of four quarters in FY 2004. Did not achieve EPA's
July 1, 2004, "Proud-To-Be" goals.
• Worked cooperatively with OMB on the FY 2006 Program Assessment Rating Tool (PART)
process, completing 32 PART assessments to date.
• Developed OMB-approved efficiency measures for an additional 20 programs that have undergone a
PART review.
• Developed a new streamlined, transparent process for reaching agreement on regional performance
commitments, enabling EPA regions to consider targets across five national programs and engage
more effectively with states and tribes.
Page 1-12
EPA's FY 2004 Financial Statements
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Summary of Performance Data
In FY 2004, EPA met 78 percent of the
annual performance goals (APGs) for which data
are provided in this report. FY 2004 results to date
reflect an improvement over the 73 percent of goals
the Agency met in FY 2003.
In its FY 2004 Annual Plan, EPA committed
to 79 APGs. However, because final data for 25 of
these APGs will not be available until later in 2004
or beyond, these APGs are not included in the
tallies provided in this report. They will be
discussed in future annual reports. Figure 1
provides an update of results for prior years; charts
presenting EPA's FY 2004 performance results and
highlights of 4-year performance trends are
provided with each chapter in Section II.
Despite EPA's and its partners' best efforts, the Agency was not able to meet all planned
targets for FY 2004. EPA did not meet 12 of the 54 FY 2004 APGs for which performance data
are currently available. However, the Agency does not expect this shortfall to compromise its
ability to meet its longer-range goals and strategic objectives. EPA will consider these shortfalls
as it adjusts its APGs and program strategies for FY 2005 and beyond. The performance data
charts in Section II provide more complete information on missed targets, discuss efforts to meet
future targets, and describe the Agency's progress toward its longer-range strategic goals and
objectives.
FINANCIAL ANALYSIS
Administrator Leavitt's 500-Day Plan to
"increase the velocity of environmental progress by
implementing a better way" recognizes the
importance of managing resources: Managing
Resources Wisely is one of the plan's nine priorities.
Key to the Administrator's principles for "a better
way" is considering the benefits and costs of EPA
actions. Agency managers rely on financial analyses
as well as performance information to make planning
and priority-setting decisions that influence results.
EPA's financial statements, presented in
Section III, are an important aspect of accountability. They provide a snapshot of EPA's
financial position at the end of FY 2004 and have been audited by the Office of Inspector
General.
2
<
O
100
90-
80-
70-
60
50 -
40 -
30 -
20-
10 -
0-
Figure I: EPA s Updated Performance Results for Prior Years
3 3 13 6
67
—
78
79
72
—
80
1 ¦ ¦ Not Met ¦ Data Not Yet Available 1
_
_
1999
2000
1~
2001 2002
Fiscal Year
2003
During FY 2004, final performance results data became available for a number
of APGs from prior years: 19 for FY 2003, two for FY 2002, one for FY 2001,
and one for FY 1999. The above graph Includes these additional results. Delays
In reporting cycles and targets set beyond the fiscal year continue to affect four
FY 2003 APGs, two FY 2002 APGs, one FY 2001 APG, two FY 2000 APGs, and
two FY 1999 APGs.
Financial Highlights
• Received the 2003 President's Quality
Award for Improved Financial
Performance.
• Achieved greater financial
accountability by maintaining a less than
1 percent erroneous payment rate.
• Earned an unqualified audit opinion on
the FY 2004 financial statements.
EPA's FY 2004 Financial Statements
Page 1-13
-------
Resources and Outlays
In FY 2004 EPA received $8.41 billion in
24 25
Congressional appropriations. EPA Financial Trends
(Figure 2) shows a 5-year snapshot of the Agency's
available and used resources. The Statement of Budgetary
Resources, included in Section III, presents additional
information on the Agency's
resources.
Figure 2: EPA Financial Trends
Figure 3: Government Net
Outlays by Selected Agencies
3.152
12.228
11.627
11.085
0.155
Fisca Year
| Budgetary Resources Obligations Total Outlays |
EPA's net outlays, as published in the U.S. Department of
the Treasury's Annual Statement of Receipts and Outlays, are
relatively small compared to those of other federal agencies and the
entire federal government. Figure 3 compares EPA's net outlays
with those of selected Cabinet4evel departments. Figure 4 shows
EPA's FY 2004 obligations by Congressional appropriation.
Figure 4: FY 2004 Obligations by Appropriation
(Dollars in Thousands)
State & Tribal Assistant Grants
$3,908,755 (38.8%)
All Other
$4,769,489 (47.0%)
Superfund
$1,477,137 (14.5%)
Total
$10,155,381 (100%)
EPA works with its partners in the public
and private sectors to accomplish its mission and
uses a variety of funding mechanisms—including
grants, contracts, innovative financing, and
collaborative networks—to protect human health
and the environment. Figure 5 depicts EPA's
costs (expenses for services rendered or activities
performed) by spending category.26
Grant programs comprise 58
percent of EPA's costs (Figure 5). Two
State Revolving Funds (SRFs) that support
the Agency's Clean and Safe Water goal
(Figure 6) account for 43 percent of the
Agency's grant awards. Other major EPA
environmental grant programs include
assistance to states and tribes, consistent
with EPA's authorizing statutes, and
research grants to universities and
nonprofit institutions.
Innovative Financing: Partnerships and the Environmental Finance Program
Over 25 percent of the Agency's funds go toward improving water quality. EPA
leverages federal funds through several innovative environmental financing efforts, mutually
beneficial public-private partnerships, such as SRFs and the Environmental Finance Program.
Figure 5: FY 2004 Cost Categories
All Other
1.5%
\
Figure 6: FY 2004 Major Grant Categories
Iw
Superfund
Page 1-14
EPA's FY 2004 Financial Statements
-------
Collaboration and partnerships with the states help EPA manage its resources wisely to
keep the nation's water clean and safe. As of early FY 2004, the Clean Water SRF had
leveraged nearly $21 billion in federal capitalization grants into more than $43.5 billion in
assistance to municipalities and other entities for wastewater projects. The Drinking Water SRF
has leveraged $6.4 billion in federal capitalization grants into more than $8.1 billion available for
drinking water assistance.
The Environmental Finance Program helps regulated entities find creative ways to fund
environmental programs, projects, and activities. The program seeks to lower costs, increase
investments, and build capacity via partnerships with state and local governments and the private
sector. It provides leveraged financial outreach services to these partners through three distinct,
but related, components: the federally chartered Environmental Financial Advisory Board; a
network of nine university-based Environmental Finance Centers (EFCs); and an online
database, the Environmental Financing Information Network.
Additional information is available at www.epa.gov/efinpage.
To date, the EFC Network has provided education, technical
assistance, and analytic support to public and private entities in 48
states. The EFCs accomplish this through leveraging base grants from
EPA with up to 3.5 times as much in additional grants and contracts
from other public and private clients (Figure 7).
Superfund Cost Recovery
Figure 8: Cumulative Superfund
^ cost Recoveries i999-2oo4 EPA applies consistent and certain enforcement to motivate
3.ocompliance. One of the Agency's enforcement success stories is its
2.5Superfund program, which leverages funding to increase cleanup of
J 20contaminated sites.
a 1.5
10Under Superfund, EPA may recover the cost of cleanups.
Figure 8 shows that since 1980, EPA has collected $3.28 billion in
1999 2000 2001 2002 2003 2004 cost recoveries.27 EPA also retains and uses the proceeds received
under settlement agreements to conduct cleanup activities, placing
these funds in interest-bearing, site-specific special accounts. With careful management, EPA
uses and leverages these resources to the fullest extent possible. As of September 30, 2004, EPA
had established 444 special accounts with $1.3 billion in receipts. These accounts earned an
additional $5.2 million in interest.28
Figure 7: EFCN Funding Sources
*
Figure 8: Cumulative Superfund
Cost Recoveries 1999—2004
1999 2000 20O1 2002 2003 20D4
Year
Measuring Financial Management Results
EPA tracks its performance in key financial
management areas: processing payments; reconciling
cash, along with managing accounts receivable;
budgets; contracts; Superfund billings; and property.
In FY 2004, the Agency generally met or exceeded its
performance goals. Figure 9 presents results for three
Agency performance measures that support the
Administrator's e-government and improved financial
management priorities.
60
u 40
20
Figure 9: Financial Management Performance Measures
98.8
99.1
.99.0
85.0 r^-
94.2
^92.4\
—¦
92.9
^"90.7
S 96.6 "V S'
^^55.9
58.2
32.9
2000
2001
2002
Fiscal Year
2003
2004
Electronic Salary Payments Electronic Travel Payments
Elgible Debts Referred to Treasury
EPA's FY 2004 Financial Statements
Page 1-15
-------
As required by the Improper Payments Information Act (IPIA) of 2002 and the Office of
Management and Budget (OMB) Memorandum M-03-07, EPA conducted a risk assessment on
various programs in FY 2004 and identified a less than 1 percent error rate in payments (Figure
10). EPA will statistically sample and annually report on improper payments in the two SRFs
previously covered under OMB Circular Number A-l 1, Section 57.
Figure 10: IMPROPER PAYMENT REDUCTION OUTLOOK FOR FY 2004 - FY 2007
(dollars in millions)
PROGRAM
FY 04
OUTLAYS
FY 04
Improper
Payments %
FY 04
Improper
Payments
FY 05
Improper
Payments %
FY 06
Improper
Payments %
FY 07
Improper
Payments %
Clean Water and Drinking
Water Revolving Funds
$2,105
.49%
$10.3
.45%
.40%
.35%
New Financial Management Initiatives
Timely, accurate information is critical for
managing resources wisely. The Agency
leverages technology and updates its systems to
produce the information program managers need
to make sound decisions. EPA is committed to
managing its finances thoroughly and responsibly,
and to using resources efficiently and effectively
to further its progress in protecting human health
and the environment.
IMPROVING RESULTS
To address increasingly complex environmental challenges, it is essential that EPA and
its partners work together to establish goals and priorities, plan and budget to achieve results,
measure their progress, and adjust strategies to improve their performance. In FY 2004, EPA
continued to collaborate closely with states and tribes, strengthening vital partnerships with the
Environmental Council of the States (ECOS) and the Tribal Caucus. The Agency also focused
on improving how it conducts program evaluations and applies findings, tracks and measures its
performance, addresses environmental data issues, and anticipates and plans for future trends and
issues.
Strengthening Collaboration with Partners
Without the support and participation of states, tribes, and other federal agencies, EPA
could not have achieved its FY 2004 accomplishments and will not achieve its long-term goals
for protecting human health and the environment. EPA is committed to strengthening its
partnerships and working collaboratively with states and tribes to focus on the most important
work to be done and complement and leverage—not duplicate—efforts.
Leveraging Technology
• Data mining—searching data for hidden
correlations
• Business Intelligence—linking disparate
databases and making data connections
• Web technologies—providing easy access to
useful data
• Defining business lines—identifying and
capturing data meaningfully for program
management decision making
• Integrating the Strategic Plan and the
Budget—using EPA's strategic goal-based
architecture as the basis for developing the
Agency's budget and tracking spending.
Page 1-16
EPA's FY 2004 Financial Statements
-------
During FY 2004, EPA worked closely with ECOS to improve joint planning and priority-
setting. EPA and states focused on aligning planning processes to enable states, tribes, and EPA
regions to engage more meaningfully at the earliest stages of the Agency's annual planning;
making EPA's planning process as open and inclusive as possible; streamlining processes and
minimizing transaction costs; and improving communication, particularly in terms of defining
roles, priorities, and accountability for results. This collaboration resulted in several significant
29
reforms to the Agency's annual planning process. In FY 2004, EPA:
• Developed Regional Plans that consider regional conditions, reflect regional, state, and
tribal priorities, and link regional strategies and initiatives to the Agency's Strategic Plan.
• Expanded opportunities for states and tribes to engage in EPA's annual planning, inviting
them to participate in planning and performance meetings and soliciting their input to FY
2005 guidance that will shape program priorities and commitments for the next 3 years.
• Implemented a streamlined process for developing annual regional performance
commitments that actively engages states and tribes prior to and during regional-national
program negotiations.
• Funded with ECOS a Cooperative Agreement for conducting pilot projects to strengthen
states' capabilities to manage for results and to improve joint regional-state planning.
FY 2004 projects involved 22 states and 6 regions; pilot results are providing models for
other states.
• Worked with ECOS to improve Performance Partnership Agreements, grounding them in
integrated planning and structuring them around essential elements to more clearly define
state-EPA working relationships.
While the Agency worked with ECOS to improve collaboration overall, EPA program
and regional offices, states, and tribes continued to achieve specific environmental results. EPA
worked with the State of Michigan to reduce chemical hazards in Flint, Michigan, schools by
auditing and collecting hazardous chemicals, including mercury and lead, and increasing the
community's awareness of risks posed by chemicals in the area. Approximately 7,000 pounds of
various chemicals were collected and disposed of in an environmentally safe manner. Colorado's
State Department of Public Health and Environment prevented mercury releases to the air and
land by working with automobile salvage yards to remove mercury switches from junk
automobiles before they were dismantled, shredded, and melted at electric arc furnace steel mills.
EPA and Native American Tribes worked together to address key environmental
problems in Indian Country. For example,
• EPA and more than 50 tribes have formed the Yukon River Inter-Tribal Watershed
Council, which is building holistic programs to reduce contaminants in subsistence food
sources, homes, and schools within tribal communities. In 2004, the Council completed a
large-scale environmental plan to address contaminant issues on the Yukon River.
• EPA, the State of Idaho, and the Nez Perce Tribe signed a Memorandum of Agreement in
FY 2004 to develop a Total Maximum Daily Load standard for sediments, temperature,
nutrients, dissolved oxygen, and bacteria that will protect water quality on tribal lands.
This effort provides a model for working in partnerships and leveraging resources to
improve water quality.
• EPA conducted seven pollution prevention assessments at tribal clinics across California,
Arizona, and Nevada to help reduce or eliminate mercury-containing devices and red bag
medical waste; recycle metals and hazardous and solid waste; and substitute
EPA's FY 2004 Financial Statements
Page 1-17
-------
environmentally preferable products, procedures, and best management practices for
toxic cleaning, disinfection, and pest management substances. This ongoing partnership
aims to virtually eliminate mercury-containing waste from these waste streams by 2005,
reduce the overall volume of all wastes by 30 percent by 2005 and 50 percent by 2010,
and identify further opportunities for preventing pollution and reducing hazardous waste.
EPA continues to cooperate closely with its federal partners. In FY 2004, EPA and the
U.S. Food and Drug Administration (FDA) jointly developed a methylmercury fish advisory—
for the first time merging their fish advisories to provide the public with comprehensive
30
information in one document. Based on the success of this endeavor, FDA and EPA intend to
work together to address PCBs and other fish contamination concerns.
Using Program Evaluation and the PART
EPA relies on program evaluations and analyses to inform decisions, design effective
strategies, and adjust approaches to improve results. During the FY 2006 budget formulation
process, for example, EPA senior managers used the results of the Administration's Program
Assessment Rating Tool (PART) reviews to identify needs for program improvement, justify
resource requests, and guide decisions.
More EPA programs demonstrated results.
The PART process, which rates programs' effectiveness, was first used in FY 2002 for
the development of EPA's FY 2004 budget. During that first year, only one of the programs
"PARTed" received a rating of "adequate." In contrast, the following year (i.e., FY 2003 for the
FY 2005 budget) 7 programs received ratings of "adequate" or "moderately effective." This
improvement in PART ratings illustrates the commitment across EPA's workforce to designing
and implementing programs that fully deliver environmental results. Ratings for programs
assessed during FY 2004 for the FY 2006 budget will not be available until February 2005.
EPA continued developing efficiency measures that assess how program results relate to
the resources and time spent to achieve those results. By the end of FY 2004, EPA had
developed efficiency measures for 28 programs that have undergone PART assessments. For
example, the Agency developed an efficiency measure for its drinking water program that tracks
dollars spent per person receiving drinking water compliant with EPA's health-based drinking
water standards. Under its water program, EPA will track the number of water bodies restored,
improved, or protected per million dollars provided to states under the Clean Water State
Revolving Fund. The Agency will also track cumulative tons of ozone depleting potential-
weighted emissions reduced per cumulative EPA and industry dollars spent. A complete list of
measures developed during the FY 2004 and FY 2005 PART process can be found in
Appendix C. Additional information on the PART process is available at
www.whitehouse.gov/omb/part/index.html.
EPA conducted other types of program evaluations in FY 2004 as well. For example, the
Agency assessed the influence and cost of Oregon's Toxics Use and Waste Reduction Assistance
Program (TUWRAP), particularly TUWRAP's impact on compliance with hazardous waste
requirements. The evaluation found that Oregon's site visits to provide technical assistance
strongly influenced hazardous waste generator compliance, leading Oregon's Department of
Page 1-18
EPA's FY 2004 Financial Statements
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Environmental Quality (DEQ) and EPA's Region 10 office to discuss how to incorporate
TUWRAP into DEQ's overall compliance program. Appendix A contains a complete list of
program evaluations completed in FY 2004.
Improving Environmental Indicators, Performance Measurement, and Data Quality
EPA issued its first Draft Report on the Environment in FY 2003 to present the best
available indicators of the current state of the environment and provide a baseline of
environmental information for measuring future performance. In FY 2004, the Agency initiated
a national dialogue on the draft report to refine environmental indicator information and make it
more useful to decision makers. Through a series of public meetings across the country with
stakeholder groups and other interested parties, EPA gained ideas for improving indicators,
filling key environmental data gaps, and meeting research needs. This information will help
EPA shape the next Report on the Environment, to be issued in FY 2006.
As the Agency moves forward, EPA also intends to develop and use environmental
indicators that can enhance our ability to manage for results in order to report more clearly on
progress in achieving long-term environmental and human health goals. The Agency's strategic
planning, work on environmental indicators, and development of the next Report on the
Environment, are now being coordinated with this end in mind. The Draft Report on the
Environment and information on the Agency's "Indicators Initiative" are available at
http://www.epa.gov/indicators.
EPA made strides in measuring environmental outcomes.
EPA furthered its effort to focus annual performance goals and measures on
environmental outcomes, rather than activity-based outputs. The percentage of annual
performance goals that track environmental or intermediate outcomes increased from 44 percent
in EPA's FY 2004 Annual Performance Plan to approximately 60 percent in its FY 2005 Annual
Performance Plan. Likewise, the percentage of annual performance measures tracking outcomes
increased to approximately 64 percent, up from 51 percent the previous year. In addition, in FY
2004 the Agency developed more than 20 new multi-year Measure Development and
Implementation Plans to improve its measures over time. A variety of programs, representing all
five of the Agency's strategic
goals and including some
programs assessed under the
PART process, have adopted
these plans.
Finally, EPA
continued to ensure that its
performance and financial
data are reliable and
complete. In FY 2004, EPA
detected and corrected errors
in environmental data;
standardized reporting; and
collaborated with federal,
New EPA Performance Measures Developed in FY 2004
• Air Toxics: EPA will measure cumulative reductions in air toxic emissions,
differentiating between cancer and noncancer risks reduced.
• Stratospheric Ozone: EPA will report every 5 years on chlorine and bromine (two
key ozone- depleting chemicals) loadings in the atmosphere. Further, in 2050,
EPA will report on the number of reductions in melanoma and nonmelanoma skin
cancers and the number of premature deaths avoided.
• Pesticide Worker Protection: EPA will measure the number of occupational
pesticide poisoning incidents to assess the effectiveness of the Agency's Worker
Protection Standard for Agricultural Workers, established in 1995.
• Coastal and Ocean Waters: EPA will measure specific indicators of aquatic system
health for coastal wetlands, and water clarity and dissolved oxygen in coastal
waters at the national level.
EPA's FY 2004 Financial Statements
Page 1-19
-------
state, and local data-sharing partners to exchange and integrate electronic data and information.
For complete information on the quality of the data contained in Section II—Performance
Results, see Appendix B.
Considering Future Trends and Looking Ahead
EPA recognizes the value of foresight in strategic planning. In FY 2004, the Agency
revised its approach to conducting environmental futures analyses and incorporating findings
into the Agency's strategic planning. EPA senior managers and staff identified significant
environmental trends, demographic issues, transformative technologies, and industrial trends that
might have consequences for environmental quality and EPA's work. Information gleaned from
these discussions will provide the basis for a more in-depth analysis of emerging environmental
trends, the results of which will better inform the Agency's planning and 2006 Strategic Plan.
In FY 2004, EPA also began projects to build staff capabilities for using futures analysis
to increase environmental foresight and inform planning. One project developed a range of
plausible forecasts of the growth of hydrogen micro-fuel cell technologies in the marketplace and
their potential environmental impacts.
Page 1-20
EPA's FY 2004 Financial Statements
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ADDRESSING MANAGEMENT ISSUES AND CHALLENGES
31 •
The Reports Consolidation Act of 2000 authorizes agencies to consolidate various
management reports and submit them as part of their annual reports. This section discusses
EPA's progress in strengthening management practices to achieve program results. It includes
the FY 2004 Integrity Act Report, which highlights the strategies implemented and progress
made in addressing management concerns identified under the Federal Managers Financial
Integrity Act (FMFIA);32 Management's Report on Audits, which summarizes the Agency's
efforts to carry out corrective actions on audits issued by EPA's Office of the Inspector General
(OIG); and a summary of the OIG's list of EPA's top management challenges facing the Agency
along with a brief update on the Agency's progress to address each issue. A more detailed
discussion of these issues can be found at
http://www.epa.gov/ocfo/finstatement/2004ar/20Q4ar.htm.
FY 2004 Integrity Act Report
In FY 2004, for the third year, EPA had no material weaknesses to report under FMFIA.
During the year, the Agency resolved three of its less severe, internal Agency weaknesses,
reportable conditions that merit the attention of the
Administrator (see chart "4 Year Trend of Material
and Agency Level Weaknesses" below). To
identify management issues and monitor progress
in addressing them, Agency senior leaders use a
system of internal and independent reviews and
program evaluations, audits by the Government
Accountability Office (GAO) and EPA's OIG, and
performance measurement. These efforts help
ensure that program activities are effectively
carried out in accordance with applicable laws and
sound management policy, and provide reasonable
assurance that Agency resources are protected
against fraud, waste, abuse, and mismanagement.
OMB continues to recognize EPA's efforts
to maintain effective and efficient management
controls. Since June 2003, the Agency has maintained its "green" status score for Improved
Financial Performance under the PMA. EPA's senior managers meet periodically during the
course of the year to provide updates on the progress the Agency is making to resolve its current
management challenges and to identify and discuss 4-Year Trend of Material and Agency-L*vel Weaknesses
emerging management issues so that new issues can be
addressed before they become serious problems.
In FY 2004, EPA made progress in addressing a
wide range of major management challenges, thereby
strengthening its ability to achieve environmental and
human health results. The Agency's advancements in
establishing and implementing effective management
controls in environmental programs include:
Fiscal Year 2004
Annual Assurance Statement
I am pleased to give an unqualified
statement of assurance that the Agency's
programs and resources are protected from
fraud, waste, and mismanagement, based on
EPA's annual self-assessment of its internal
management and financial control systems.
Michael O. Leavitt
Administrator
November 2, 2004
20-
15-
Material
Agency
1J i
2001 2002 2003 2004
Fiscal Year
EPA's FY 2004 Financial Statements
Page 1-21
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• Using a comprehensive, integrated strategy to address risk from all sources of air
toxics—major, area, and mobile. In FY 2004, EPA completed all of its 10-year
Maximum Achievable Control Technology standards. This effort has already resulted in
annual reductions of 1.5 million tons of toxic air emissions and is expected to achieve
even grater reductions when all sources come into full compliance by 2007. Other
aspects of the strategy include a focus on air toxics reductions in communities and
working on mobile source regulations through reformulated gasoline, engine standards,
and other efforts, as well as a voluntary diesel retrofit program.
• Addressing Laboratory Quality System Practices through EPA's Forum on
Environmental Measurement of the Science Policy Council, which developed a policy
directive ensuring and documenting the competency of Agency laboratories. Under the
policy, EPA laboratories demonstrate on-going performance through independent
external assessments, accreditation or certification, and inter-laboratory comparison
studies of their operations.
33
• Improving water quality by reducing the backlog of NPDES Permits and setting
priorities for water permits to achieve environmental results. In collaboration with states
and regions, EPA continues to implement the Permitting for Environmental Results
strategy to assess and identify opportunities for enhancing the integrity and efficiency of
the NPDES program.
• Redesigning and modernizing EPA's Permit Compliance System to address expanded
requirements of the NPDES permitting program and provide better information for the
Agency's compliance and enforcement programs (e.g., tracking pollutant loadings,
capturing information on storm water sources, and assessing the health of individual
watersheds).
The Agency also addressed a number of challenges in administrative and management
areas, which provide the infrastructure supporting EPA's ability to achieve results. Following
are examples of FY 2004 accomplishments toward continued improvement in effective
management of resources:
• Implementing a comprehensive approach to managing grant awards, which make up
more than half of the Agency's budget.34 Having issued policies to address competition
and post-award monitoring, EPA implemented its Grants Management Training Plan to
enhance the skills of personnel involved in grants management. EPA is also focusing
efforts on improving grant recipients' understanding of federal grant requirements. In
addition, EPA is the first agency to successfully enhance and deploy the Integrated
Grants Management System, which fully automates grant processes in regional offices.
• Strengthening management controls to ensure that the Information Security Program
collects data of sufficient quality for decision makers. Advancements include improved
technology and hardware, along with new testing and evaluation processes and greater
investments in information security training.
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EPA's FY 2004 Financial Statements
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• Making significant progress in the area of human capital. In FY 2004, EPA achieved
"green" progress and "yellow" status scores for successfully implementing the human
capital portion of the PMA.35 In addition, the Agency began documenting the
relationship between every employee's work and the Agency's strategic goals to fulfill
Agency commitments to the Office of Personnel Management and OMB. EPA has taken
crucial steps in the areas of workforce planning and staff development, with particular
emphasis on management development.
The "Key Management Challenges" section in the Overview (which follows the
"FY 2004 Management's Report on Audits" section below) lists EPA's Top 10 management
challenges as identified by EPA's OIG and others and summarizes actions EPA is taking to
address these issues. More detailed information on the work being done to address the Agency's
management issues is available at http://www.epa.gov/ocfo/fmstatement/2004ar/2004ar.htm.
FY 2004 Management's Report on Audits
The Inspector General Act of 1978, as amended,36 requires federal agencies to report to
Congress on the status of their progress in carrying out audit recommendations. Audit
management serves as a tool in assessing the Agency's ability to meet its strategic objectives.
EPA continues to strengthen its audit management practices and has improved its ability to
address and complete corrective actions in a timely manner.
In FY 2004, EPA was responsible for addressing OIG's recommendations and tracking
follow-up activities on 249 audits. The Agency achieved final action (i.e., completion of all
corrective actions associated with an audit) on 136 audits, which include Program
Evaluation/Program Performance Audits, Assistance Agreements Audits, Contracts Audits, and
Single Audits. Results achieved during FY 2004 for the Agency's audit management activities
are summarized below. A listing of audits for which corrective actions have not been completed
within a year can be found at http://www.epa.gov/ocfo/fmstatement/2004ar/2004ar.htm.
• Final Corrective Action Taken. EPA completed final corrective actions on 15
performance and 121 financial audits. Of the 121 financial audits, OIG questioned costs
of more than $ 97 million (i.e., costs incurred by the Agency from contractors or grantees
which may be ineligible by law or regulation; not supported by sufficient documentation;
or unnecessary expenditures). After careful review, OIG and the Agency agreed to
disallow approximately $35 million of these questioned costs (i.e., either deny payment
or seek reimbursement for payments already made). In the performance audit arena, EPA
managers and the OIG did not identify funds that could be put to better use.
• Final Corrective Action Not Taken. As of the end of FY 2004, 112 audits were without
final action and have not been fully resolved (excluding those audits with management
decisions under administrative appeal by the grantee).
• Final Corrective Action Not Taken Beyond 1 Year. Of the 112 audits, EPA officials
had not completed final action on 29 audits within 1 year after the management decision
(i.e., the point at which the OIG and the Action Official reach agreement on the
corrective action plan). Because of the complexity of the issues, it often takes Agency
EPA's FY 2004 Financial Statements
Page 1-23
-------
management more than 1 year after management decisions are reached with OIG to
complete the agreed-upon corrective actions.
• Audits Awaiting Decision on Appeal. EPA regulations allow grantees to appeal
management decisions on financial assistance audits that seek monetary reimbursement
from the recipient. In the case of an appeal, EPA must not take action to collect the
account receivable until the Agency issues a decision on the appeal. At the end of
FY 2004, 39 audits were in administrative appeal.
DISALLOWED COSTS & FUNDS PUT TO BETTER USE
October 1, 2003 - September 30, 2004
Category
Disallowed Costs
(Financial Audits)
Better Use
(Performance Audits)
Number
Value
Number
Value
A. Audits with management decisions but without
final action at the beginning of FY 2004.
83
$106,591,146
27
$0
B. Audits for which management decisions were
made during FY 2004:
(i) Management decisions with disallowed
costs. (23)
(ii) Management decisions with no
disallowed costs. (90)
113
$ 3,007,793
25
$0
C. Total audits pending final action during
FY 2004. (A+B)
196
$109,598,939
52
$0
D. Final action taken during FY 2004:
(i) Recoveries
a) Offsets
b) Collections
c) Value of Property
d) Other
(ii) Write-offs
(iii) Reinstated through grantee appeal
(iv) Value of recommendations completed
Value of recommendations
management decided should/could not
be completed
121
$ 35,213,332
$ 7,993,454
$ 772,680
$ 0
$ 11,196,584
$ 9,508,924
$ 5,741,690
16
$0
$0
$0
E. Audit reports needing final action at the end of
FY 2004. (C-D)
75
$ 74,385,607
37
$0
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EPA's FY 2004 Financial Statements
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Key Management Challenges
(Prepared by EPA's Office of the Inspector General)
EPA continues to make progress in addressing long-standing management challenges
identified by the Office of the Inspector General (OIG). Results of a recent OIG survey indicate
that EPA senior leaders are committed to strengthening strategic human capital management and
linking human capital to program success. EPA continues to enhance its Information Security
Program through risk assessments of its major systems, conducting internal and external
penetration testing, and monitoring the Agency's firewall and intrusion detection system. EPA is
also working closely with federal, state, and local counterparts to strengthen and effectively
coordinate on Homeland Security issues.
While EPA continues to address the management challenges, sustained attention and
management action must continue to correct outstanding issues. The following table identifies
the top management challenges faced by the Agency and the relation of the issues to EPA's
Strategic Plan and the President's Management Agenda.
EPA's Top Management Challenges
Reported by the Office of Inspector General
FY
200237
FY
200338
FY
200439
Link to EPA's
Strategic Goal
Link to
President's
Management
Agenda
Linking Mission to Management:
Development of outcome-based targets.
•
•
Cross Goal
Budget and
Performance
Integration
Agency Efforts in Support of Homeland
Security: Implementing a strategy to effectively
coordinate and address threats.
•
•
Cross Goal
Superfund Evaluation and Policy Identification:
Improving the usefulness of internal evaluations,
and implementing program policy decisions.
Goal 3
Information Resource Management and Data
Quality: Improving the quality of data used.
Cross Goal
Expanded
E-Government
EPA's Use of Assistance Agreements to
Accomplish Its Mission: Improving Management
of the billions in grant funding awarded by EPA.
Cross Goal
Improved
Financial
Performance
Challenges in Addressing Air Toxics Program
Phase 1 and Phase 2 Goals: Reducing air toxic
emissions by improving approach and measures.
Goal 1
Human Capital Management: Implementing a
strategy to develop staff.
Cross Goal
Human Capital
Information Security: Protecting information
systems by preventing intrusion and abuse.
Cross Goal
Expanded
E-Government
Management of Biosolids: Improving sewage
sludge management to sufficiently protect the
public.
Goal 2
Backlog of National Pollutant Discharge
Elimination System Permits: Addressing permit
renewal backlog for water dischargers.
Goal 2
EPA's Working Relationship with States:
Improving structure for working with states
t
Cross Goal
t In FY 2004, EPA's Working Relationship with States was consolidated in item I, Linking Mission to
Management.
EPA's FY 2004 Financial Statements Page 1-25
-------
Highlights of EPA's Actions to Address
OIG's Key Management Challenges
OIG's Top Management Challenges
Summary of EPA's Actions
Linking Mission and Management: OIG believes that
while EPA has begun linking costs to goals, it must continue to
work with its partners to develop appropriate outcome
measures and accounting systems that track environmental
and human health results across the Agency's new goal
structure. This information must then become an integral part
of the Agency's decision-making process.
• Implemented a new financial architecture that
provides greater program and project details in the
Agency's accounting system.
• Developed Regional Plans that link to Agency's
Strategic Plan.
• Implemented annual commitment system for regions
and national programs.
Agency Efforts in Support of Homeland Security:
EPA needs to develop better processes for ensuring security at
Nationally Significant Events, assess vulnerability of water
utilities and determine how to measure water security
improvements, and better define the Agency's role in
protecting air from terrorist threats.
• Revised the Homeland Security Strategic plan.
• Established the Homeland Security Collaborative
Network to coordinate and address high priority,
cross-Agency technical and policy issues related to
homeland security programs.
• Developed a homeland security information
management system
(see Overview for programmatic examples)
Superfund Evaluation and Policy Identification: OIG
believes EPA faces significant challenges in its ability to meet
effectively current and future Superfund needs and must
establish a strong working relationship between states and
tribes in order to achieve its environmental goals.
• Initiated an internal review of the Superfund program
to identify opportunities for program efficiencies.
• Worked to increase oversight of the Tribal
Association on Solid Waste and Emergency
Response cooperative agreement, in accordance
with commitments to OIG.
• Developing a program evaluation strategy to
identify, develop, and select evaluation projects
aimed at improving the efficiency and effectiveness
of remedial programs.
Information Resource Management and Data Quality:
EPA faces a number of challenges with the data it uses to
make decisions and monitor progress against environmental
goals.
• Improved data management and usage by providing
tools and planning processes for effective data
sharing, integration, and identification of key data
gaps.
• Developed and issued a policy directive to ensure
and document the competency of Agency
laboratories.
EPA's Use of Assistance Agreements to Accomplish
Its Mission: EPA needs to improve oversight for awarding
and administering assistance agreements to ensure effective
and efficient use of resources. Recent OIG and GAO audits
continue to identify problems in the use of assistance
agreements.
• Developed a long-term Grants Management Plan
which outlines the Agency's approach to effective
grants management.
• Implemented the Grants Management Training Plan
to enhance the skills of EPA personnel involved in
grants management.
• Issued a comprehensive post-award monitoring
policy (EPA Order 5700.6).
Challenges in Addressing Air Toxics Program Phase
1 and Phase 2 Goals: While EPA has achieved its Phase I
goal of issuing technology-based standards, there are
concerns about EPA's efforts to assess and implement Phase
2, residual risk standards, as well as the accuracy of air toxics
data used in measuring progress.
• Completed all MACT standards. This effort has
already resulted in annual reductions of 1.5 million
tons of toxic air emissions and will achieve even
greater reductions when all sources come into full
compliance by 2007.
• Developed an efficiency measure, "toxicity-weight
emissions," to better understand risk reduction.
Human Capital Management: While EPA is making
progress on human capital efforts, it must continue developing
and implementing its Human Capital Strategy and focus on
accountability and better communication of planned strategies
• Established a comprehensive system of
management controls:
o Completed EPA's Human Capital Strategy,
o Created a new office to oversee
implementation of strategy.
• Continued investment in workforce through
developmental programs at the staff and managerial
levels.
Information Security: Due to the dynamic nature of
information security, EPA needs to continue its emphasis and
vigilance on strong information security.
• Strengthened management controls to improve
implementation of the Agency's security program
and implemented testing and evaluation processes
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EPA's FY 2004 Financial Statements
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to verify their effectiveness.
• Continued enhancing program through risk
assessments, penetration testing, and monitoring of
firewall and intrusion detection systems.
Management of Biosolids: Although EPA is directing
renewed attention to biosolids, EPA needs to implement a
national biosolids program and establish strong enforcement
to meet CWA to reduce risks and maximize the beneficial use
of sewage sledge.
• Continues to meet statutory obligations under the
Clean Water Act pertaining to sewage sludge
(biosolids).
• Maintains an active presence in biosolids
compliance and enforcement activities.
• Published action plan in the Federal Register (68 FR
75531) to strengthen sewage sludge use and
disposal program (e.g., field studies on land
application, development of improved analytical
methods).
Backlog of National Pollutant Discharge Elimination
System Permits: While EPA is making progress in
reducing the backlog, OIG is assessing the environmental
impact of the backlog, how well the backlog measures reflect
impacts, and how successful EPA and states have been at
managing the backlog.
• Developed and implemented the Permitting for
Environmental Results strategy to focus scarce
permit-writing resources on environmentally
significant permits.
• Streamlined the NPDES permitting process by
developing tools to ensure efficiency (automated
permit writing process).
(see Overview for proqrammatic results)
1 The Federal Managers Financial Integrity Act, the Inspector General Act Amendments, the Government Management Reform
Act, the Chief Financial Officers Act, and the Reports Consolidation Act.
2 EPA (U.S. Environmental Protection Agency). 1997. Benefits and Costs of the Clean Air Act, 1970 to 1990. Final Report to
Congress. EPA 410/R-97-002. Office of Air and Radiation, Office of Policy, Planning and Evaluation. U.S. Environmental
Protection Agency, Washington, DC. Available at: http://www.epa.gov/oar/sect812/contsetc.pdf.
3 U. S. Environmental Protection Agency, Office of Air and Radiation. May 2004. Clean Air Nonroad Diesel Rule Summary.
EPA 420-F-04-029. Available online at: http://www.epa.gov/otaa/regs/nonroad/eauip-hd/2004fr/420fD4029.pdf.
4 "Clean Air Rules of2004 Oral Testimony": EPA testimony as prepared for delivery before the U.S. Senate Committee on
Environment and Public Works, Subcommittee on Clean Air, Climate and Nuclear Safety. April 10, 2004.
5 Each of EPA's climate protection partnerships is designed to achieve long-term greenhouse gas emission reduction goals, which
were set through an interagency process in 2001 and communicated to the Secretariat of the Framework Convention on Climate
Change in the U.S. Climate Action Report—2002.
6 U.S. Environmental Protection Agency. September 2004. Protecting the Environment-Together. ENERGY STAR and Other
Voluntary Programs 2003 Annual Report. Available at: http://www.energvstar.gov/ia/news/downloads/annual report 2003.pdf.
7 Slaughter, J.C., et al. "Effects of Ambient Air Pollution on Symptom Severity and Medication Use in Children with Asthma."
Annals of Allergy, Asthma, and Immunology 2003: 91346-53.
8 U.S. Environmental Protection Agency. 2004. Use of Indoor-Outdoor Sulfur Concentrations to Estimate the Infiltration Factor,
Personal Exposure Factor, Penetration Coefficient, and Deposition rate for Individual Homes.
9 Loading reductions are calculated and tracked using a spreadsheet maintained by the Office of Science and Technology. U.S.
EPA, Office of Science and T echnology, Loadings Reduction Spread Sheet for Direct Discharges from Point Sources Subject to
Effluent Guidelines (Washington, DC: U.S. EPA, updated 2004).
10 U.S. Environmental Protection Agency, Office of Water. March 2004. National List of Beaches. EPA-823-R-04-004.
Washington, DC. Available at: http://www.epa.gov/waterscience/beaches.
11 More information on the Agency's Superfund cleanup program's is available at: http://www.epa.gov/superfund.
http://www.epa.gov/superfund/news/120davstudv.pdf. and http://www.epa.gov/oswer/docs/naceptdocs/NACEPTsuperfund-
F inal-Report. pdf.
12 U.S. Environmental Protection Agency, Office of Pollution Prevention and Toxics. "TSCA New Chemicals Program." Internal
monthly report by Chemical Abstract Services.
13 U.S. Environmental Protection Agency, Office of Pollution Prevention and Toxics. "High Production Volume Challenge
Program, HPV Commitment Tracking System." Available at: http://www.epa.gov/chemrtk/viewsrch.htm.
14 Centers for Disease Control, National Center for Health Statistics. National Health and Nutrition Examination Survey:1999-
2002. Available at: http://www.cdc.gov/nchs/nhanes.htm.
EPA's FY 2004 Financial Statements
Page 1-27
-------
1'Additional information regarding the Great Lakes, the Interagency Task Force and the Executive Order is available at
http://www.epa.gov/glnpo/taskforce/eo.html.
16 Data for 2004 will not be available until 2005 due to quality assurance issues and lags in aggregating U.S. and Canadian data.
Canadian data will be reported in 2005.
17 More information is available at: http://www.whitehouse.gov/news/releases/2004/04/20040422-4.htm.
18 This information was collected through exit surveys completed by users of the National Compliance Assistance Centers. U.S.
Environmental Protection Agency, Office of Enforcement and Compliance Assurance. "Compliance Assistance Results."
Available at: http://www.assistancecenters.net/results.
19 U.S. Environmental Protection Agency, Office of Pollution Prevention and Toxics. "Green Chemistry Challenge. " Internal
database. Continually updated.
20 Electronic communication from Noramtech Corporation to EPA Design for Environment staff, November 20, 2002.
21 U.S Environmental Protection Agency, Office of Pollution Prevention and Toxics, Pollution Prevention and Toxics, Internal
Pollution Prevention Tracking System, continually updated.
22 Refer to Sustained Progress in Addressing Management Issues available at
http://www.epa.ogv/ocfo/fmstatement/2004ar/2004ar.htm.
23 The Office of Management and Budget (OMB) regularly releases an executive scorecard which rates each federal agency's
overall status and progress in implementing the PMA initiatives. The scorecard ratings use a color-coded system that is based on
criteria determined by OMB.
24 Public Law 108-199 H.R. 2673.
25 Section III, FY 2004 Statement of Budgetary Resources.
26Section III, FY 2004 Statement of Net Costs.
27US Department of the Treasury, FY 2004 Superfund Trust Fund Financial Statements.
28 EPA's Integrated Financial Management System.
29 Refer to Sustained Progress in Addressing Management Issues available at
http://www.epa.ogv/ocfo/fmstatement/2004ar/2004ar.htm.
30 U.S. Department ofHealth&Human Services and U.S. Environmental Protection Agency. "What You Need To Know About
Mercury In Fish & Shellfish." EPA-823-R-04-005. March 2004. Available on the internet at:
http://www.epa.gov/waterscience/fishadvice/advice.html.
31 Reports Consolidation Act of 2000. Public Law 106-531 (January 24,2004).
32 Federal Managers Financial Integrity Act of 1982. Public Law 97-255 (September 8, 1982).
33 U.S. Environmental Protection Agency, Office of Water. "National Pollutant Discharge Elimination System (NPDES),
Backlog Reduction." Available at: http://cfpub.epa.gov/npdes/permitissuance/backlog.cfm.
34 U.S. Environmental Protection Agency. Grants Information and Control System (GICS) database.
35 Executive Office of the President, Office of Management and Budget. The President's Management Agenda. Available at:
http://www.whitehouse.gov/omb/budintegration/pma index.html.
36 Inspector General Act of 1978, as amended. Public Law 95-542 (October 12,1978).
37 OIG Memorandum of September 6,2002 to EPA Administrator, "EPA's Key Management Challenges."
38 OIG Memorandum of May 22, 2003 to EPA Administrator, "EPA's Key Management Challenges."
39 OIG Memorandum of April 21, 2004 to EPA Administrator, "EPA's Key Management Challenges."
Page 1-28
EPA's FY 2004 Financial Statements
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PRINCIPAL
FINANCIAL
STATEMENTS
EPA's FY 2004 Financial Statements
Page 1-29
-------
CONTENTS
Financial Statements
1. Consolidating Balance Sheet
2. Consolidating Statement of Net Cost
3. Consolidated Statement of Net Cost by Goal
4. Consolidating Statement of Changes in Net Position
5. Combined Statement of Budgetary Resources
6. Consolidating Statement of Financing
7. 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. Cashout Advances, Superfund
Note 16. Unexpended Appropriations, All Other Funds
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; General Support Services
Charged to Superfund
Note 24. Custodial Revenues and Accounts Receivable
Note 25. Statement of Budgetary Resources
Note 26. Recoveries and Resources 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
Page 1-30
EPA's FY 2004 Financial Statements
-------
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. Superfund Trust Fund Balances
Supplemental Information Requested by OMB
Required Supplemental Information
1. Deferred Maintenance (Unaudited)
2. Intragovernmental Assets (Unaudited)
3. Intragovernmental Liabilities (Unaudited)
4. Intragovernmental Revenues and Costs (Unaudited)
5. Supplemental Statement of Budgetary Resources (Unaudited)
6. 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)
7. Annual Stewardship Information (Unaudited)
8. Improper Payments Information Act of 2002 (IPIA) Report
EPA's FY 2004 Financial Statements
Page 1-31
-------
1.
Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 2004 and 2003
(Dollars in Thousands)
Superfund
Superfund
All
All
Combined
Trust Fund
TrustFund
Others
Others
Totals
FY 2004
FY 2003
FY 2004
FY 2003
FY 2004
ASSETS
Intragovernmental
Fund Balance With Treasury (Note 2) 3
6 199,406 3
S 26,448 3
S 11,865,739 3
S 11,758,357 3
S 12,065,145
Investments (Notes 4 and 17)
2,217,334
2,516,147
2,317,164
2,114,684
4,534,498
Accounts Receivable, Net (Note 5)
27,212
34,665
89,267
119,941
116,479
Other (Note 6)
6,781
7,414
1,288
3,827
8,069
Total Intragovernmental 3
6 2,450,733 3
S 2,584,674 3
S 14,273,458 3
S 13,996,809 3
S 16,724,191
Cash and Other Monetary Assets (Note 3)
0
0
10
10
10
Accounts Receivable, Net (Note 5)
369,148
428,486
45,347
65,296
414,495
Loans Receivable, Net - Non-Federal (Note 7)
0
0
48,927
53,506
48,927
Property, Plant & Equipment, Net (Note 9)
47,821
45,855
625,542
579,471
673,363
Other (Note 6)
699
680
809
3,502
1,508
Total Assets 3
6 2,868,401 3
i 3,059,695 3
S 14,994,093 3
S 14,698,594 3
S 17,862,494
LIABILITIES
Intragovernmental
Accounts Payable & Accrued Liabilities (Note 8) 3
i 140,781 3
S 145,631 3
6 37,592 3
S 70,156 3
6 178,373
Debt Due to Treasury (Note 10)
0
0
24,101
21,189
24,101
Custodial Liability (Note 11)
0
0
52,216
78,776
52,216
Other (Note 12)
37,752
30,600
47,118
21,611
84,870
Total Intragovernmental 3
6 178,533 3
S 176,231 3
S 161,027 3
S 191,732 3
S 339,560
Accounts Payable & Accrued Liabilities (Note 8)
145,369
165,550
736,482
722,784
881,851
Pensions & Other Actuarial Liabilities (Note 14)
7,263
7,937
33,018
36,159
40,281
Environmental Cleanup Costs (Note 20)
0
0
8,407
8,880
8,407
Cashout Advances, Superfund (Note 15)
259,361
279,092
0
0
259,361
Commitments & Contingencies (Note 18)
0
0
1,625
18
1,625
Payroll & Benefits Payable (Note 33)
31,695
31,039
149,051
142,791
180,746
Other (Notes 12 and 13)
46,211
49,809
57,705
53,105
103,916
Total Liabilities 3
i 668,432 3
S 709,658 3
6 1,147,315 3
S 1,155,469 3
6 1,815,747
NET POSITION
Unexpended Appropriations (Note 16) 3
6 0 3
i 0 3
S 10,860,136 3
S 10,768,236 3
S 10,860,136
Cumulative Results of Operations (Note 36)
2,199,969
2,350,037
2,986,642
2,774,889
5,186,611
Total Net Position
2,199,969
2,350,037
13,846,778
13,543,125
16,046,747
Total Liabilities and Net Position 3
i 2,868,401 3
6 3,059,695 3
6 14,994,093 3
S 14,698,594 3
6 17,862,494
The accompanying notes are an integral part of these statements.
Page 1-32 EPA's FY 2004 Financial Statements
-------
1.
Environmental Protection Agency
Consolidating Balance Sheet
As of September 30, 2004 and 2003
(Dollars in Thousands)
Combined
Intra-agency
Intra-agency
Consolidated
Consolidated
Totals
Elimination
Elimination
Totals
Totals
FY 2003
FY 2004
FY 2003
FY 2004
FY 2003
ASSETS
Intragovernmental
Fund Balance With Treasury (Note 2) !
$ 11,784,805 3
s o a
S 0 3
i 12,065,145 3
S 11,784,805
Investments (Notes 4 and 17)
4,630,831
0
0
4,534,498
4,630,831
Accounts Receivable, Net (Note 5)
154,606
(73,709)
(89,789)
42,770
64,817
Other (Note 6)
11,241
(6,749)
(7,269)
1,320
3,972
Total Intragovernmental !
$ 16,581,483 3
S (80,458) 3
i (97,058) 3
! 16,643,733 3
i 16,484,425
Cash and Other Monetary Assets (Note 3)
10
0
0
10
10
Accounts Receivable, Net (Note 5)
493,782
0
0
414,495
493,782
Loans Receivable, Net - Non-Federal (Note 7)
53,506
0
0
48,927
53,506
Property, Plant & Equipment, Net (Note 9)
625,326
0
0
673,363
625,326
Other (Note 6)
4,182
0
0
1,508
4,182
Total Assets !
$ 17,758,289 3
S (80,458) 3
i (97,058) 3
! 17,782,036 3
i 17,661,231
LIABILITIES
Intragovernmental
Accounts Payable & Accrued Liabilities (Note 8) !
$ 215,787 3
S (73,709) 3
S (89,789) 3
i 104,664 3
S 125,998
Debt Due to Treasury (Note 10)
21,189
0
0
24,101
21,189
Custodial Liability (Note 11)
78,776
0
0
52,216
78,776
Other (Note 12)
52,211
(6,749)
(7,269)
78,121
44,942
Total Intragovernmental !
$ 367,963 3
S (80,458) 3
i (97,058) 3
! 259,102 3
i 270,905
Accounts Payable & Accrued Liabilities (Note 8)
888,334
0
0
881,851
888,334
Pensions & Other Actuarial Liabilities (Note 14)
44,096
0
0
40,281
44,096
Environmental Cleanup Costs (Note 20)
8,880
0
0
8,407
8,880
Cashout Advances, Superfund (Note 15)
279,092
0
0
259,361
279,092
Commitments & Contingencies (Note 18)
18
0
0
1,625
18
Payroll & Benefits Payable (Note 33)
173,830
0
0
180,746
173,830
Other (Notes 12 and 13)
102,914
0
0
103,916
102,914
Total Liabilities !
$ 1,865,127 3
S (80,458) 3
S (97,058) 3
i 1,735,289 3
S 1,768,069
NET POSITION
Unexpended Appropriations (Note 16) !
$ 10,768,236 3
i 0 3
i 0 3
! 10,860,136 3
i 10,768,236
Cumulative Results of Operations (Note 36)
5,124,926
0
0
5,186,611
5,124,926
Total Net Position
15,893,162
0
0
16,046,747
15,893,162
Total Liabilities and Net Position !
$ 17,758,289 3
S (80,458) 3
S (97,058) 3
i 17,782,036 3
S 17,661,231
The accompanying notes are an integral part of these statements.
EPA's FY 2004 Financial Statements Page 1-33
-------
2.
Environmental Protection Agency
Consolidating Statement of Net Cost
For the Years Ended September 30, 2004 and 2003
(Dollars in
Thousands)
Superfund
Superfund
All
All
Combined
Trust Fund
Trust Fund
Others
Others
Totals
FY 2004
FY 2003
FY 2004
FY 2003
FY 2004
COSTS
Intragovernmental $
; 368,045
$ 341,817
$ 860,314 $
816,624 $
1,228,359
With the Public
1,262,540
1,246,427
6,387,327
6,427,497
7,649,867
Expenses from Other Appropriations (Note 23)
82,776
75,597
(82,776)
(75,597)
0
Total Costs J
; 1,713,361
$ 1,663,841
$ 7,164,865 $
7,168,524 $
8,878,226
Less:
Earned Revenues, Federal (Note 19) $
; 27,450
$ 16,682
$ 61,475 $
124,233 $
88,925
Earned Revenues, Non-Federal (Note 19)
233,171
394,295
46,928
31,304
280,099
Total Earned Revenues
260,621
410,977
108,403
155,537
369,024
NET COST OF OPERATIONS $
; 1,452,740
$ 1,252,864
$ 7,056,462 $
7,012,987 $
8,509,202
Intra-
Intra-
Combined
agency
agency
Consolidated
Consolidated
Totals
Eliminations
Eliminations
Totals
Totals
FY 2003
FY 2004
FY 2003
FY 2004
FY 2003
COSTS
Intragovernmental $
1,158,441 $
(22,663) $
(20,240) :
i 1,205,696
$ 1,138,201
With the Public
7,673,924
0
0
7,649,867
7,673,924
Expenses from Other Appropriations (Note 23)
0
0
0
0
0
Total Costs $
8,832,365 $
(22,663) $
(20,240) :
i 8,855,563
$ 8,812,125
Less:
Earned Revenues, Federal (Note 19) $
140,915 $
(22,663) $
(20,240) :
i 66,262
$ 120,675
Earned Revenues, Non-Federal (Note 19)
425,599
0
0
280,099
425,599
Total Earned Revenues
566,514
(22,663)
(20,240)
346,361
546,274
NET COST OF OPERATIONS $
8,265,851 $
0 $
o :
i 8,509,202
$ 8,265,851
The accompanying notes are an integral part of these statements.
Page 1-34
EPA's FY 2004 Financial Statements
-------
3.
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal*
For the Year Ended September 30, 2004
(Dollars in Thousands)
Clean Air
Clean and
Safe Water
Land
Preservation
& Restoration
Healthy
Communities
& Ecosystems
Compliance &
Environmental
Stewardship
:osts
Intragovernmental
With the Public
$ 168,684 3
774,151
i 177,573 3
3,835,046
i 411,593 3
1,610,080
6 257,208 3
885,982
S 159,492
557,567
Total Costs
$ 942,835 3
i 4,012,619 3
i 2,021,673 3
6 1,143,190 3
S 717,059
Less:
Earned Revenue, Federal
Earned Revenue, Non-Federal
$ 21,092 3
970
i 6,320 3
1,996
i 19,877 3
227,936
6 7,117 3
33,556
S 13,857
1,498
Total Earned Revenue
$ 22,062
8,316 3
i 247,813 3
6 40,673 3
S 15,355
NET COST OF OPERATIONS $ 920,773 $ 4,004,303 $ 1,773,860 $ 1,102,517 $ 701,704
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal*
For the Year Ended September 30, 2003
(Dollars in Thousands)
Clean Air
Clean and
Safe Water
Safe Food
Prevent
Pollution
Better Waste
Management
Global Risks
COSTS
Intragovernmental !
With the Public
i 84,961 I
532,480
i 139,303
3,817,701
$ 31,028 $
97,848
54,492 !
281,634
S 409,312 $
1,581,550
35,643
219,692
Total Costs !
J 617,441 I
S 3,957,004
$ 128,876 $
336,126 !
S 1,990,862 $
255,335
Less:
Earned Revenue, Federal !
Earned Revenue, Non-Federal
i 3,234 I
71
i 5,394
1,876
$ 37 $
20,729
1,197 :
300
S 80,029 $
396,738
3,911
1,652
Total Earned Revenue !
J 3,305 I
S 7,270
$ 20,766 $
1,497 :
S 476,767 $
5,563
Management Cost Allocation
55,231
83,892
24,379
36,784
136,240
15,031
NET COST OF OPERATIONS !
i 669,367 I
i 4,033,626
$ 132,489 $
371,413 !
S 1,650,335 $
264,803
* The agency implemented a 5-goal strategic plan structure for FY 2004 costs. FY 2003 costs are presented in the former 10-goal
structure.
The accompanying notes are an integral part of these statements.
EPA's FY 2004 Financial Statements Page 1-35
-------
3.
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal*
For the Year Ended September 30, 2004
(Dollars in Thousands)
Not
Assigned
to Goals**
Consolidated
Total
COSTS
Intragovernmental
$ 31,146 $
1,205,696
With the Public
(12,959)
7,649,867
Total Costs
$ 18,187 $
8,855,563
Less:
Earned Revenue, Federal
$ (2,001) $
66,262
Earned Revenue, Non-Federal
14,143
280,099
Total Earned Revenue
$ 12,142 $
346,361
NET COST OF OPERATIONS
6,045 $
8,509,202
Environmental Protection Agency
Consolidated Statement of Net Cost by Goal*
For the Year Ended September 30, 2003
(Dollars in Thousands)
Environ. Sound Credible Effective Not Assigned Consolidated
Information Science Deterrent Management to Goals** Total
COS IS
Intragovernmental $
174,224 $
51,118 $
93,695 $
40,751 $
23,674 $
1,138,201
With the Public
191,351
293,552
325,968
343,036
(10,888)
7,673,924
Total Costs $
365,575 $
344,670 $
419,663 $
383,787 $
12,786 $
8,812,125
Less:
Earned Revenue, Federal $
126,261 $
1,198 $
272 $
(100,428) $
(430) $
120,675
Earned Revenue, Non-Federal
121
364
1,220
1,367
1,161
425,599
Total Earned Revenue $
126,382 $
1,562 $
1,492 $
(99,061) $
731 $
546,274
Management Cost Allocation
26,018
28,766
76,507
(482,848)
0
0
NET COST OF OPERATIONS $
265,211 $
371,874 $
494,678 $
0 $
12,055 $
8,265,851
* The agency implemented a 5-goal strategic plan structure for FY 2004 costs. FY 2003 costs are presented in the former 10-goal
structure.
** See Note 30.
The accompanying notes are an integral part of these statements.
Page 1-36
EPA's FY 2004 Financial Statements
-------
4.
Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
Cumulative
Cumulative
Cumulative
Cumulative
Cumulative
Results of
Results of
Results of
Results of
Results of
Operations
Operations
Operations
Operations
Operations
Superfund
Superfund
All
All
Consolidated
Trust Fund
Trust Fund
Others
Others
Totals
FY 2004
FY 2003
FY 2004
FY 2003
FY 2004*
Net Position - Beginning of Period
$ 2,350,037 3
i 3,115,737 3
! 2,774,889 3
i 2,518,705 3
i 5,124,926
Prior Period Adjustments
0
0
0
0
0
Beginning Balances, as Adjusted
$ 2,350,037 3
i 3,115,737 3
i 2,774,889 3
i 2,518,705 3
i 5,124,926
Budgetary Financing Sources:
Appropriations Received
0
0
0
0
0
Appropriations Transferred In/Out (Note 31)
0
0
0
0
0
Other Adjustments (Note 34)
0
0
0
0
0
Appropriations Used
0
0
8,162,544
7,496,463
8,162,544
Nonexchange Revenue (Note 35)
30,239
(49,692)
269,486
260,515
299,725
Transfers In/Out (Note 31)
(87,586)
(191,131)
67,779
111,614
(19,807)
Trust Fund Appropriations
1,257,537
632,307
(1,257,537)
(632,307)
0
Income from Other Appropriations (Note 23)
82,776
75,597
(82,776)
(75,597)
0
Total Budgetary Financing Sources
$ 1,282,966 3
i 467,081 3
i 7,159,496 3
S 7,160,688 3
i 8,442,462
Other Financing Sources:
Transfers In/Out (Note 31)
(1)
84
(435)
287
(436)
Imputed Financing Sources (Note 32)
19,707
19,999
109,154
108,196
128,861
Total Other Financing Sources
$ 19,706 3
i 20,083 3
! 108,719 3
i 108,483 3
i 128,425
Net Cost of Operations
(1,452,740)
(1,252,864)
(7,056,462)
(7,012,987)
(8,509,202)
Net Position - End of Period
$ 2,199,969 3
i 2,350,037 3
i 2,986,642 3
S 2,774,889 3
i 5,186,611
* This statement does not have any intra-agency eliminations for FY 2004 or 2003.
The accompanying notes are an integral part of these statements.
EPA's FY 2004 Financial Statements Page 1-37
-------
4.
Environmental Protection Agency
Consolidating Statement of Changes in Net Position
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
Cumulative
Results of
Unexpended
Unexpended
Operations
Approps.
Approps.
Consolidated
All
All
Consolidated
Consolidated
Totals
Others
Others
Totals
Totals
FY 2003*
FY 2004
FY 2003
FY 2004*
FY 2003*
Net Position - Beginning of Period 3
S 5,634,442 3
S 10,768,236 3
S 10,923,889 3
i 15,893,162 3
i 16,558,331
Prior Period Adjustments
0
0
0
0
0
Beginning Balances, as Adjusted 3
S 5,634,442 3
6 10,768,236 3
6 10,923,889 3
S 15,893,162 3
i 16,558,331
Budgetary Financing Sources:
Appropriations Received
0
8,322,860
7,408,126
8,322,860
7,408,126
Appropriations Transferred In/Out (Note 31)
0
152
4,550
152
4,550
Other Adjustments (Note 34)
0
(68,568)
(71,866)
(68,568)
(71,866)
Appropriations Used
7,496,463
(8,162,544)
(7,496,463)
0
0
Nonexchange Revenue (Note 35)
210,823
0
0
299,725
210,823
Transfers In/Out (Note 31)
(79,517)
0
0
(19,807)
(79,517)
Trust Fund Appropriations
0
0
0
0
0
Income from Other Appropriations (Note 23)
0
0
0
0
0
Total Budgetary Financing Sources 3
S 7,627,769 3
6 91,900 3
S (155,653) 3
i 8,534,362 3
i 7,472,116
Other Financing Sources:
Transfers In/Out (Note 31)
371
0
0
(436)
371
Imputed Financing Sources (Note 32)
128,195
0
0
128,861
128,195
Total Other Financing Sources 3
S 128,566 3
S 0 3
S 0 3
i 128,425 3
i 128,566
Net Cost of Operations
(8,265,851)
0
0
(8,509,202)
(8,265,851)
Net Position-End of Period 3
S 5,124,926 3
6 10,860,136 3
6 10,768,236 3
i 16,046,747 3
i 15,893,162
* This statement does not have any intra-agency eliminations for FY 2004 or 2003.
The accompanying notes are an integral part of these statements.
Page 1-38
EPA's FY 2004 Financial Statements
-------
5.
Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
Superfund
Superfund
All
Trust Fund
Trust Fund
Others
FY 2004
FY 2003
FY 2004
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $
0 $
0 $
8,353,924
Borrowing Authority
0
0
5,554
Net Transfers
1,259,096
1,286,342
77,690
Unobligated Balances:
Beginning of Period
766,805
750,994
2,098,872
Net Transfers, Actual
0
0
(1,538)
Spending Authority from Offsetting Collections:
Earned and Collected $
229,658 $
211,066 $
242,119
Receivable from Federal Sources
(7,853)
(1,728)
(15,303)
Change in Unfilled Customer Orders:
Advance Received
(44,218)
(41,608)
13,011
Without Advance from Federal Sources
5,978
5,259
1,310
Transfers from Trust Funds
0
(9,642)
51,666
Total Spending Authority from Collections $
183,565 $
163,347 $
292,803
Recoveries of Prior Year Obligations (Note 26)
98,848
124,797
95,927
Temporarily Not Available Pursuant to Public Law (Note 26)
(7,464)
0
(790)
Permanently Not Available (Note 26)
0
(8,274)
(71,203)
Total Budgetary Resources (Note 25) $
2,300,850 $
2,317,206 $
10,851,239
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $
1,328,864 $
1,373,144 $
8,416,742
Reimbursable
148,273
177,257
261,502
Total Obligations Incurred (Note 25) $
1,477,137 $
1,550,401 $
8,678,244
Unobligated Balances:
Apportioned (Note 27)
823,694
766,786
2,080,155
Unobligated Balances Not Available (Note 27)
19
19
92,840
Total Status of Budgetary Resources $
2,300,850 $
2,317,206 $
10,851,239
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $
1,194,724 $
1,262,257 $
8,289,514
Obligated Balances, Net - Beginning of Period
1,838,503
2,021,759
9,582,216
Accounts Receivable
(5,886)
1,965
86,440
Unfilled Customer Orders from Federal Sources
77,685
71,707
226,184
Undelivered Orders, Unpaid
(1,374,232)
(1,612,994)
(9,093,405)
Accounts Payable
(266,926)
(299,181)
(857,634)
Total Outlays (Note 25) $
1,463,868 $
1,445,513 $
8,233,315
Disbursements $
1,649,308 $
1,605,329 $
8,556,405
Collections
(185,440)
(159,816)
(323,090)
Less: Offsetting Receipts (Note 28)
(74,063)
(146,502)
(1,276,778)
Net Outlays $
1,389,805 $
1,299,011 $
6,956,537
The accompanying notes are an integral part of these statements.
EPA's FY 2004 Financial Statements
Page 1-39
-------
5.
Environmental Protection Agency
Combined Statement of Budgetary Resources
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
All
Combined
Combined
Others
Totals
Totals
FY 2003
FY 2004
FY 2003
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $
7,424,350 $
8,353,924 $
7,424,350
Borrowing Authority
0
5,554
0
Net Transfers
76,863
1,336,786
1,363,205
Unobligated Balances:
Beginning of Period
2,045,248
2,865,677
2,796,242
Net Transfers, Actual
0
(1,538)
0
Spending Authority from Offsetting Collections:
Earned and Collected $
273,703 $
471,777 $
484,769
Receivable from Federal Sources
5,074
(23,156)
3,346
Change in Unfilled Customer Orders
0
Advance Received
(20,362)
(31,207)
(61,970)
Without Advance from Federal Sources
(28,473)
7,288
(23,214)
Transfers from Trust Funds
96,135
51,666
86,493
Total Spending Authority from Collections $
326,077 $
476,368 $
489,424
Recoveries of Prior Year Obligations (Note 26)
114,437
194,775
239,234
Temporarily Not Available Pursuant to Public Law (Note 26)
0
(8,254)
0
Permanently Not Available (Note 26)
(76,182)
(71,203)
(84,456)
Total Budgetary Resources (Note 25) $
9,910,793 $
13,152,089 $
12,227,999
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $
7,539,595 $
9,745,606 $
8,912,739
Reimbursable
272,326
409,775
449,583
Total Obligations Incurred (Note 25) $
7,811,921 $
10,155,381 $
9,362,322
Unobligated Balances:
Apportioned (Note 27)
2,011,471
2,903,849
2,778,257
Unobligated Balances Not Available (Note 27)
87,401
92,859
87,420
Total Status of Budgetary Resources $
9,910,793 $
13,152,089 $
12,227,999
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $
7,371,407 $
9,484,238 $
8,633,664
Obligated Balances, Net - Beginning of Period
9,608,652
11,420,719
11,630,411
Accounts Receivable
118,037
80,554
120,002
Unfilled Customer Orders from Federal Sources
224,874
303,869
296,581
Undelivered Orders, Unpaid
(9,077,583)
(10,467,637)
(10,690,577)
Accounts Payable
(847,544)
(1,124,560)
(1,146,725)
Total Outlays (Note 25) $
7,397,843 $
9,697,183 $
8,843,356
Disbursements $
7,706,933 $
10,205,713 $
9,312,262
Collections
(309,090)
(508,530)
(468,906)
Less: Offsetting Receipts (Note 28)
(643,956)
(1,350,841)
(790,458)
Net Outlays $
6,753,887 $
8,346,342 $
8,052,898
The accompanying notes are an integral part of these statements.
Page 1-40
EPA's FY 2004 Financial Statements
-------
6.
Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
Superfund
Superfund
All
Trust Fund
Trust Fund
Others
FY 2004
FY 2003
FY 2004
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred
$ 1,477,137 3
! 1,550,401 $
8,678,244
Less: Spending Authority from Offsetting
Collections and Recoveries
(282,413)
(288,144)
(388,730)
Obligations, Net of Offsetting Collections
$ 1,194,724 3
i 1,262,257 $
8,289,514
Less: Offsetting Receipts (Note 28)
(74,063)
(146,502)
(1,276,778)
Net Obligations
$ 1,120,661 3
! 1,115,755 $
7,012,736
Other Resources
Transfers In/Out without Reimbursement,
Property (Note 31)
$ (1) 3
^r
00
1
Imputed Financing Sources (Note 32)
19,707
19,999
109,154
Income from Other Appropriations (Note 23)
82,776
75,597
(82,776)
Net Other Resources Used to Finance Activities
$ 102,482 3
i 95,680 $
26,379
Total Resources Used To Finance Activities
$ 1,223,143 3
i 1,211,435 $
7,039,115
RESOURCES USED TO FINANCE ITEMS
NOT PART OF NET COST OF OPERATIONS
Change in Budgetary Resources Obligated
$ 199,979 3
! 179,096 $
(7,108)
Resources that Fund Prior Period Expenses (Note 29)
(2,243)
0
(11,612)
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
0
4,142
Offsetting Receipts Not Affecting Net Cost
74,063
146,502
19,241
Resources that Finance Asset Acquisition
(16,104)
(16,287)
(90,081)
Adjustments to Expenditure Transfers
that Do Not Affect Net Cost
(51,666)
(105,777)
51,666
Total Resources Used to Finance Items Not
Part of the Net Cost of Operations
$ 204,029 3
! 203,534 $
(33,752)
Total Resources Used to Finance the Net
Cost of Operations
$ 1,427,172 3
! 1,414,969 $
7,005,363
The accompanying notes are an integral part of these statements.
EPA's FY 2004 Financial Statements Page 1-41
-------
6.
Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
COMPONENTS OF NET COST OF OPERATIONS
THAT Wil l, 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)
Increase in Unfunded Contingencies (Note 29)
Up/Downward Reestimates of Subsidy Expense (Note 29)
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
Total Components of Net Cost of Operations
That Will Not Require or Generate
Resources in the Current Period
Net Cost of Operations
Superfund Superfund All
Trust Fund Trust Fund Others
FY 2004 FY 2003 FY 2004
$ 0 $ 1,088 $ 0
0 0 1,244
0 0 22,425
0 0 0
(41,446) (205,844) (18,491)
0 246 0
$ (41,446) $ (204,510) $ 5,178
7,939 8,915 39,852
0 0 0
59,075 33,490 6,069
$ 67,014 $ 42,405 $ 45,921
25,568 (162,105) 51,099
$ 1,452,740 $ 1,252,864 $ 7,056,462
The accompanying notes are an integral part of these statements.
Page 1-42
EPA's FY 2004 Financial Statements
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6.
Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
All
Consolidated
Consolidated
Others
Totals*
Totals*
FY 2003
FY 2004
FY 2003
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred
$ 7,811,921 $
10,155,381 $
9,362,322
Less: Spending Authority from Offsetting
Collections and Recoveries
(440,514)
(671,143)
(728,658)
Obligations, Net of Offsetting Collections
$ 7,371,407 $
9,484,238 $
8,633,664
Less: Offsetting Receipts (Note 28)
(643,956)
(1,350,841)
(790,458)
Net Obligations
$ 6,727,451 $
8,133,397 $
7,843,206
Other Resources
Transfers In/Out without Reimbursement,
Property (Note 31)
$ (84) $
0 $
0
Imputed Financing Sources (Note 32)
108,196
128,861
128,195
Income from Other Appropriations (Note 23)
(75,597)
0
0
Net Other Resources Used to Finance Activities
$ 32,515 $
128,861 $
128,195
Total Resources Used To Finance Activities
$ 6,759,966 $
8,262,258 $
7,971,401
RESOURCES USED TO FINANCE ITEMS
NOT PART OF NET COST OF OPERATIONS
Change in Budgetary Resources Obligated
$ 165,667 $
192,871 $
344,763
Resources that Fund Prior Period Expenses (Note 29)
0
(13,855)
0
Budgetary Offsetting Collections and Receipts
that Do Not Affect Net Cost of Operations:
Credit Program Collections Increasing Loan
Liabilities for Guarantees of Subsidy Allowances
4,980
4,142
4,980
Offsetting Receipts Not Affecting Net Cost
11,649
93,304
158,151
Resources that Finance Asset Acquisition
(66,321)
(106,185)
(82,608)
Adjustments to Expenditure Transfers
that Do Not Affect Net Cost
96,135
0
(9,642)
Total Resources Used to Finance Items Not
Part of the Net Cost of Operations $ 212,110 $ 170,277 $ 415,644
Total Resources Used to Finance the Net
Cost of Operations $ 6,972,076 $ 8,432,535 $ 8,387,045
* This statement did not have any intra-agency eliminations for FY 2004 or 2003.
The accompanying notes are an integral part of these statements.
EPA's FY 2004 Financial Statements Page 1-43
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6.
Environmental Protection Agency
Consolidating Statement of Financing
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
COMPONENTS OF NET COST OF OPERATIONS
THAT Wil l, 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)
Increase in Unfunded Contingencies (Note 29)
Up/Downward Reestimates of Subsidy Expense (Note 29)
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
All
Others
FY 2003
5,647
(3,276)
0
170
(1,706)
4,591
Consolidated
Totals*
FY 2004
0
1,244
22,425
0
(59,937)
0
5,426 $
36,289
0
(804)
Consolidated
Totals*
FY 2003
(36,268) $
47,791
0
65,144
35,485 $
112,935 $
6,735
(3,276)
0
170
(207,550)
4,837
(199,084)
45,204
0
32,686
77,890
Total Components of Net Cost of Operations
That Will Not Require or Generate
Resources in the Current Period
Net Cost of Operations
40,911
76,667
7,012,987 $
8,509,202 $
(121,194)
8,265,851
* This statement did not have any intra-agency eliminations for FY 2004 or 2003.
The accompanying notes are an integral part of these statements.
Page 1-44
EPA's FY 2004 Financial Statements
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7.
Environmental Protection Agency
Consolidated Statement of Custodial Activity
For the Years Ended September 30, 2004 and 2003
(Dollars in Thousands)
FY 2004 FY 2003
Revenue Activity:
Sources of Collections
Fines and Penalties $
162,948 $
161,544
Other
24,463
5,793
Total Cash Collections $
187,411 $
167,337
Accrual Adjustment
(24,865)
7,172
Total Custodial Revenue (Note 24) $
162,546 $
174,509
Disposition of Collections:
Transferred to Others (General Fund) $
187,194 $
165,440
Increases/Decreases in Amounts to be Transferred
(24,648)
9,069
Total Disposition of Collections $
162,546 $
174,509
Net Custodial Revenue Activity (Note 24) $
0 $
0
The accompanying notes are an integral part of these statements.
EPA's FY 2004 Financial Statements Page 1-45
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Environmental Protection Agency
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
A. Basis of Presentation
These consolidating financial statements have been prepared to report the financial position and
results of operations of the U. S. Environmental Protection Agency (EPA or 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 financial system and records of the Agency in accordance with
Form and Content of Agency Financial Statements, OMB Bulletin No. 01-09, and the EPA's
accounting policies which are summarized in this note. In addition to the reports required by OMB
Bulletin No. 01-09, the Statement of Net Cost has been prepared by the Agency's strategic goals.
B. Reporting Entities
The EPA was created in 1970 by executive reorganization from various components of other federal
agencies in order to better marshal and coordinate federal pollution control efforts. The Agency is
generally organized around the media and substances it regulates — air, water, land, hazardous waste,
pesticides and toxic substances. For FY 2004 the reporting entities are grouped as the Superfund
Trust Fund and All Other Funds.
Superfund Trust Fund
In 1980, the Superfund Trust Fund, Treasury fund group 8145, 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 EPA allocates funds from its appropriation to
other federal agencies to carry out CERCLA. 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. NPL cleanups and removals are conducted and financed by the
EPA, private parties, or other federal agencies. The Superfund Trust Fund includes Treasury's
collections and investment activity.
The accompanying financial statements include the accounts of all funds described in this note. EPA
uses an expense allocation methodology as a financial statement estimate to present EPA programs'
full cost. This methodology is used because Superfund programs may charge some costs directly to
the Superfund Trust Fund and charge the remainder of their costs to 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. (See Note 23.)
Page 1-46 EPA's FY 2004 Financial Statements
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In addition, specific general support services costs (e.g., rent, communications, utilities, and mail
operations) initially charged to the Agency's Science and Technology (S&T) and Environment
Programs and Management (EPM) appropriations, are allocated to the Superfund Trust Fund. During
the year, these costs are allocated based on a ratio of Superfund direct labor hours to the Agency
total of all direct labor hours, using budgeted or actual full-time equivalent personnel charged to
these appropriations. Agency general support services cost charges to the Superfund Trust Fund may
not exceed the ceilings established in its appropriation. (See Note 23.)
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. 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. Detailed descriptions of All Other Funds are as
follows:
The Leaking Underground Storage Tank (LUST) Trust Fund, Treasury fund group 8153, 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 the
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.
The Oil Spill Response Trust Fund, Treasury fund group 8221, was authorized by the Oil Pollution
Act of 1990 (OPA). 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 for 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 State and Tribal Assistance Grants (STAG) appropriation, Treasury fund group 0103, 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
EPA's FY 2004 Financial Statements Page 1-47
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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.
The S&T appropriation, Treasury fund group 0107, 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 2004,
Superfund research costs were appropriated in Superfund and transferred to S&T to allow for proper
accounting of the costs. Environmental scientific and technological activities and programs 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 EPM appropriation, Treasury fund group 0108, includes funds for salaries, travel, contracts,
grants, and cooperative agreements for pollution abatement, control, and compliance activities and
administrative activities of the Agency's operating programs. Areas supported from this
appropriation include: Clean Air, Clean and Safe Water, Land Preservation and Restoration, Healthy
Communities and Ecosystems, and Compliance and Environmental Stewardship.
The Office of Inspector General (OIG) appropriation, Treasury fund group 0112, 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 and the LUST Trust Funds are appropriated under those Trust Fund accounts and
transferred to the Office of Inspector General account. The audit function provides contract, internal
controls and performance, and financial and grant audit services. The appropriation includes
expenses incurred and reimbursed from the appropriated trust funds accounted for under Treasury
fund group 8145 and 8153.
The Buildings and Facilities appropriation, Treasury fund group 0110, provides for the construction,
repair, improvement, extension, alteration, and purchase of fixed equipment or facilities that are
owned or used by the EPA.
The Payment to the Hazardous Substance Superfund appropriation Treasury fund group 0250,
authorizes appropriations from the General Fund of the Treasury to finance activities conducted
through the Hazardous Substance Superfund Program.
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
Page 1-48 EPA's FY 2004 Financial Statements
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under Treasury fund group 0118 for the subsidy and administrative support; under Treasury fund
group 4322 for loan disbursements, loans receivable and loan collections on post FY 1991 loans; and
under Treasury fund group 2917 for pre FY 1992 loans receivable and loan collections.
The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) Revolving Fund, Treasury fund
group 4310, was authorized by the FIFRA Act of 1972, as amended in 1988 and as amended by the
Food Quality Protection Act of 1996. Pesticide Maintenance fees are paid by industry to offset the
costs of pesticide reregi strati on and reassessment of tolerances for pesticides used in or on food and
animal feed, as required by law.
The Tolerance Revolving Fund, Treasury fund group 4311, was authorized in 1963 for the deposit of
tolerance fees. Fees are paid by industry for federal services to set pesticide chemical residue limits
in or on food and animal feed. The fees collected prior to January 2, 1997 were accounted for under
this fund. Presently these fees are being deposited in the FIFRA fund (see above).
The Working Capital Fund (WCF), Treasury fund group, 4565, includes two activities: computer
support services and postage. The 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 Exxon Valdez Settlement Fund, Treasury fund group 5297, 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 an oil spill.
The Pesticide Registration Fund, Treasury fund group 5374, was authorized in 2004 for the
expedited processing of certain registration petitions and associated establishment of tolerances for
pesticides to be used in or on food and animal feed. Fees covering these activities, as authorized
under the FIFRA Act of 1988, are to be paid by industry and deposited into this fund group.
Allocations and appropriations transferred to the Agency from other federal agencies include funds
from the Appalachian Regional Commission, which provides economic assistance to state and local
developmental activities, and the Agency for International Development, which provides assistance
on environmental matters at international levels. The transfer allocations are accounted for under
Treasury fund group 0200 and the appropriation transfers are accounted for under 0108.
The EPA Department of the Treasury Clearing Accounts include: (1) the Budgetary Suspense
Account, (2) the Unavailable Check Cancellations and Overpayments Account, and (3) the
Undistributed Intra-agency Payments and Collections (IPAC) Account. These are accounted for
under Treasury fund groups 3875, 3880 and 3885, respectively.
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. These funds are accounted for under Treasury fund
groups 6050, 6264, 6265, 6266, 6275 and 6500.
EPA's FY 2004 Financial Statements Page 1-49
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General Fund Receipt Accounts include: Hazardous Waste Permits; Miscellaneous Fines, Penalties
and Forfeitures; General Fund Interest; Interest from Credit Reform Financing Accounts; Downward
Reestimates of Subsidies; Fees and Other Charges for Administrative and Professional Services; and
Miscellaneous Recoveries and Refunds. These accounts are accounted for under Treasury fund
groups 0895, 1099, 1435, 1499, 2753.3, 3200 and 3220, respectively.
The Environmental Services Receipt account, Treasury fund group 5295, 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 and the EPM appropriations to meet the
expenses of the programs that generate the receipts.
The Miscellaneous Contributed Funds Trust Fund, Treasury fund group 8741, includes gifts for
pollution control programs that are usually designated for a specific use by donors and/or deposits
from pesticide registrants to cover the costs of petition hearings when such hearings result in
unfavorable decisions to the petitioner.
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 and the Oil Spill Response Trust
Funds 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,
B&F, and for Payments to the Hazardous Substance Superfund to be available until expended, as
well as annual appropriations for S&T, EPM and for the OIG to be available for 2 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 from a combination of two sources,
one for the long term costs of the loans and another for the remaining non-subsidized portion of the
loans. Congress adopted a 1 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
Page 1-50
EPA's FY 2004 Financial Statements
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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 is financed under 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 Pesticide Registration 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 to offset costs
incurred for providing the Agency administrative support for computer support and postage.
Funds transferred from other federal agencies are funded by a nonexpenditure 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 appropriated funds. Amounts
are recorded to the clearing and deposit accounts pending further disposition. Amounts recorded to
the receipt accounts capture amounts collected for or payable to the Treasury General Fund.
D. Basis of Accounting
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.
Material interfund balances and transactions are eliminated.
E. Revenues and Other Financing Sources.
The following EPA policies and procedures to account for inflow of revenue and other financing
sources are in accordance with Statement of Federal Financial Accounting Standards (SFFAS)
No. 7, "Accounting for Revenues and Other Financing Sources."
EPA's FY 2004 Financial Statements
Page 1-51
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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, 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 Trust Fund.
All Other Funds
The majority of All Other Funds receive funding needed to support programs through
appropriations, which may be used, within statutory limits, for operating and capital expenditures.
However, 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
Pesticide Registration funds receive funding through fees collected for services provided and 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 upon
consolidation of the Agency's financial statements. The Exxon Valdez Settlement Fund receives
funding through reimbursements.
Appropriated funds are recognized as Other Financing Sources expended 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
The Agency does not maintain cash in commercial bank accounts. Cash receipts and disbursements
are handled by Treasury. The major funds maintained with Treasury are Appropriated Funds,
Revolving Funds, Trust Funds, Special Funds, Deposit Funds, and Clearing Accounts. These funds
have balances available to pay current liabilities and finance authorized obligations, as applicable.
(See Note 2.)
G. Investments in U.S. Government Securities
Investments in U.S. Government securities are maintained by Treasury and are reported at amortized
cost net of unamortized discounts. Discounts are amortized over the term of the investments and
reported as interest income. 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.)
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EPA's FY 2004 Financial Statements
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H. Notes Receivable
The Agency records notes receivable at their face value and any accrued interest as of the date of
receipt.
I. Marketable 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. (See Note 6.)
J. Accounts Receivable and Interest Receivable (See Note 5.)
Superfund
CERCLA as amended by SARA provides for the recovery of costs from 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 SSCs, cost sharing
arrangements 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 percent or 50 percent of site remedial action costs. States may
pay the full amount of their share in advance, or incrementally throughout the remedial action
process. Allowances for uncollectible state cost share receivables have not been recorded, because
the Agency has not had collection problems with these agreements.
All Other Funds
The majority of receivables for All Other Funds represent penalties and interest receivable for
general fund receipt accounts, unbilled intragovernmental reimbursements receivable, allocations
receivable from Superfund (eliminated in consolidated totals), and refunds receivable for the STAG
appropriation.
EPA's FY 2004 Financial Statements
Page 1-53
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K. Advances and Prepayments
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
Loans are accounted for as receivables after funds have been disbursed. 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. (See Note 7.)
M. Appropriated Amounts Held by Treasury
For the Superfund and LUST Trust Funds and for amounts appropriated from the Superfund Trust
Fund to the OIG, 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
EPA accounts for its personal and real property accounting records in accordance with SFFAS No.
6, "Accounting for Property, Plant and Equipment." For EPA-held property, the Fixed Assets
Subsystem (FAS) automatically generates depreciation entries monthly based on acquisition dates.
(See Note 9).
A purchase of EPA-held or contractor-held personal property is capitalized if it is valued at $25
thousand or more and has an estimated useful life of at least 2 years. Prior to implementing FAS,
depreciation was taken on a modified straight-line basis over a period of 6 years depreciating 10
percent the first and sixth year, and 20 percent in years 2 through 5. This modified straight-line
method is still used for contractor-held property; detailed records are maintained and accounted for
in contractor systems, not in FAS. All EPA-held personal property purchased before the
implementation of FAS was assumed to have an estimated useful life of 5 years. New acquisitions of
EPA-held personal property are depreciated using the straight-line method over the specific asset's
useful life, ranging from 2 to 15 years.
Superfund contractor-held property used as part of the remedy for site-specific response actions is
capitalized in accordance with the 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 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
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EPA's FY 2004 Financial Statements
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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.
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 cost. Depreciation for real property is calculated using the straight-line method over the
specific asset's useful life, ranging from 10 to 102 years. Leasehold improvements are amortized
over the lesser of their useful life or the unexpired lease term. Additions to property and
improvements not meeting the capitalization criteria, expenditures for minor alterations, and repairs
and maintenance are expensed as incurred.
In FY 1997, EPA's Working Capital Fund, a revenue generating activity, implemented requirements
to capitalize software if the purchase price was $100 thousand or more with an estimated useful life
of 2 years or more. In FY 2001, the Agency began capitalizing software for All Other Funds whose
acquisition value is $500 thousand 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 asset's useful life ranging from 2 to 10 years.
O. Liabilities
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 collections. 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
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
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt to
Treasury. At the end of FY 2003 and FY 2004, there was no outstanding interest payable to Treasury
since payment was made through September 30.
EPA's FY 2004 Financial Statements
Page 1-55
-------
R. Accrued Unfunded Annual Leave
Annual, sick and other leave is expensed as taken during the fiscal year. Sick leave earned but not
taken is not accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is
accrued as an unfunded liability. Accrued unfunded annual leave is included in the Statement of
Financial Position as a component of "Payroll and Benefits Payable." (See Note 33.)
S. Retirement Plan
There are two primary retirement systems for federal employees. Employees hired prior to January
1, 1984, may participate in the Civil Service Retirement System (CSRS). On January 1, 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 one percent of pay and matches any employee contributions up to an
additional four percent of pay. The Agency also contributes the employer's matching share for
Social Security.
With the issuance of SFFAS No. 5, "Accounting for Liabilities of the Federal Government,"
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
(OPM), 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 federal agencies with the actuarial cost factors to compute the 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." Specifically, 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.
Page 1-56
EPA's FY 2004 Financial Statements
-------
Note 2. Fund Balances with Treasury
Fund Balances with Treasury as of September 30, 2004 and 2003, consist of the following:
FY 2004 FY 2003
Entity Non-Entity Entity Non-Entity
Assets Assets Total Assets Assets Total
Trust Funds:
Superfund $ 199,406 $ $ 199,406 $ 26,448 $ $ 26,448
LUST 14,825 14,825 34,008 34,008
Oil Spill & Misc. 10,222 10,222 5,581 5,581
Revolving Funds:
FIFRA/T olerance 4,913 4,913 1,826 1,826
Working Capital 53,560 53,560 57,780 57,780
Cr. Reform Finan. 492 492 492 492
Appropriated 11,639,189 11,639,189 11,526,823 11,526,823
Other Fund Types 136.646 5.892 142.538 111.599 20.248 131.847
Total $ 12,059,253 $ 5,892 $ 12,065,145 $ 11,764,557 $ 20,248 $ 11,784,805
Entity fund balances, except for special fund receipt accounts, are available to pay current liabilities
and to finance authorized purchase commitments (see Status of Fund Balances below). Entity Assets
for Other Fund Types consist of special purpose funds and special fund receipt accounts, such as the
Pesticide Registration funds and the Environmental Services receipt account. The Non-Entity Assets
for Other Fund Types consist of clearing accounts and deposit funds, which are either awaiting
documentation for the determination of proper disposition or being held by EPA for other entities.
Status of Fund Balances:
FY 2004
FY 2003
Sunerfund
All Others
Sunerfund
All Others
Unobligated Amounts in Fund Balances:
Available for Obligation
$ 823,694 $
2,080,155 $
766,786 $
2,011,471
Unavailable for Obligation
19
92,842
19
87,404
Net Receivables from Invested Balances
(2,381,849)
(89,725)
(2,579,726)
(66,574)
Balances in Treasury Trust Fund (Note 17)
188,182
13,256
866
12,377
Obligated Balance not yet Disbursed
1,569,360
9,638,406
1,838,503
9,582,206
Balances not subject to Obligation
130,805
131,473
Totals
$ 199.406 $
11.865.739 $
26.448 $
11.758.357
The funds available for obligation may be apportioned by the OMB for new obligations at the
beginning of the following fiscal year. Funds unavailable for obligation are mostly balances in
expired funds, which are available only for adjustments of existing obligations. For FY 2004 and FY
2003 no differences existed between Treasury's accounts and EPA's statements for fund balances
with Treasury.
EPA's FY 2004 Financial Statements
Page 1-57
-------
Note 3. Cash
As of September 30, 2004 and 2003, cash consists of an imprest fund of $10 thousand.
Note 4. Investments
As of September 30, 2004 and 2003, investments consist of the following:
Unamortized Interest Investments,
Cost (Premium) Receivable Net Market Value
Discount
SuDerfund
Intragovernmental Securities:
Non-Marketable FY 2004
$ 2,226,973 $
9,677 $
38 $
2,217,334$
2,217,334
FY 2003
$ 2,507,927 $
(8.183) $
37 $
2.516.147$
2.516.147
All Others
Intragovernmental Securities:
Non-Marketable FY 2004
$ 2,232,674 $
(57,213) $
27,277 $
2,317,164$
2,317,164
FY 2003
$ 2,037,560 $
(51.290) $
25,834 $
2.114.684$
2.114.684
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 them to cash as soon as practicable. (See Note 6.)
Note 5. Accounts Receivable
The Accounts Receivable for September 30, 2004 and 2003, consist of the following:
FY 2004 FY 2003
Superfund
All Others
Superfund
All Others
Intragovernmental Assets:
Accounts & Interest Receivable
$ 27,212 $
89,267 !
£ 34,665 $
119,941
Non-Federal Assets:
Unbilled Accounts Receivable
$ 91,758 $
1,682 !
£ 109,272 $
1,668
Accounts & Interest Receivable
911,452
104,269
815,119
113,130
Less: Allowance for Uncollectibles
(634,062)
(60,604)
(495,905)
(49,502)
Total
$ 369,148 $
45,347 J
£ 428,486 $
65,296
The Allowance for Doubtful Accounts is determined both on a specific identification basis, as a
result of a case-by-case review of receivables, and on a percentage basis for receivables not
specifically identified.
Page 1-58
EPA's FY 2004 Financial Statements
-------
Note 6. Other Assets
Other Assets for September 30, 2004, consist of the following:
All Combined
Intratiovern mental Assets: Superfund Others Totals
Advances to Federal Agencies $ 32 $ 735 $ 767
Advances to Working Capital Fund 6,749 6,749
Advances for Postage 553 553
Total Intragovernmental Assets $ 6,781 $ 1,288 $ 8,069
Non-Federal Assets:
Travel Advances $ (53) $ (955) $ (1,008)
Letter of Credit Advances 271 271
Grant Advances 1,164 1,164
Other Advances 751 79 830
Operating Materials and Supplies 1 199 200
Inventory for Sale 51 51
Total Non-Federal Assets $ 699 $ 809 $ 1,508
Other Assets for September 30, 2003, consist of the following:
All Combined
Intragovernmental Assets: Superfund Others totals
Advances to Federal Agencies $ 146 $ 3,233 $ 3,379
Advances to Working Capital Fund 7,268 7,268
Advances for Postage 594 594
Total Intragovernmental Assets $ 7,414 $ 3,827 $ 11,241
Non-Federal Assets:
Travel Advances $ (51) $ (918) $ (969)
Letter of Credit Advances 601 601
Grant Advances 1,544 1,544
Other Advances 731 95 826
Operating Materials and Supplies 217 217
Inventory for Sale 51 51
Securities Received in Settlement for Debt 1,912 1,912
Total Non-Federal Assets $ 680 $ 3,502 $ 4,182
EPA's FY 2004 Financial Statements Page 1-59
-------
Note 7. Loans Receivable, Net - Non-Federal
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 are net of
allowances 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,
which 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. For All Other Funds, the loans receivable,
allowances, and the nature and amounts of the subsidy expenses associated with the loans as of
September 30, 2004 and 2003, are as follows:
FY 2004 FY 2003
Loans Value of Loans Value of
Receivable, Assets Related Receivable, Assets Related
Gross Allowance* to Direct Loans Gross Allowance* to Direct Loans
Direct Loans
Obligated Prior to $ 25>243 $ $ 25,243$ 33,245 $ $ 33,245
FY 1992
Direct Loans
Obligated After 30>466 (6,782) 23,684 34,597 (14,336) 20,261
FY 1991
Total $ 55,709 $ (6,782) $ 48,927 $ 67,842 $ (14,336) $ 53,506
* 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 Credit Reform Loans (reported on a cash basis):
Interest Rate
Technical
Re-estimate
Re-estimate
Total
Direct Loan Subsidy Expense - FY 2004
$ $
$
0
Downward Subsidy Reestimate - FY 2004
(2,660)
(2,894)
(5,554)
FY 2004 Totals
$ (2,660)
(2,894)
(5,554)
Direct Loan Subsidy Expense - FY 2003
$ 377 $
528 $
905
Downward Subsidy Reestimate - FY 2003
(170)
(201)
(371)
FY 2003 Totals $ 207 $ 327 $ 534
Note 8. Accounts Payable and Accrued Liabilities
The Accounts Payable and Accrued Liabilities are current liabilities and consist of the following
amounts as of September 30, 2004:
Page 1-60
EPA's FY 2004 Financial Statements
-------
Intragovernmental:
Accounts Payable to other Federal Agencies $
Liability for Allocation Transfers
Expenditure Transfers Payable to other EPA Funds
Accrued Liabilities, Federal
Total $
Superfund All Others Combined
Total
1,602 $ 206 $ 1,808
31,286 31,286
69,793 69,793
38,100 37,386 75,486
140,781 $ 37,592 $ 178,373
Non-Federal:
Accounts Payable, Non-Federal
Advances Payable, Non-Federal
Interest Payable
Grant Liabilities
Other Accrued Liabilities, Non-Federal
Total
36,546
3
21,694
87,126
145,369
56,716
16
41
572,430
107,279
736,482
93,262
19
41
594,124
194,405
881,851
* Dashes indicate a balance below the rounding level of one thousand dollars.
The Accounts Payable and Accrued Liabilities consist of the following as of September 30, 2003:
Superfund
All Others
Intragovernmental:
Accounts Payable to other Federal Agencies $
Liability for Allocation Transfers
Expenditure Transfers Payable to other EPA Funds
Accrued Liabilities, Federal
Total $
593
20,017
86,087
38,934
145,631
618
69,538
70,156 $
Combined
Total
1,211
20,017
86,087
108,472
215,787
Non-Federal:
Accounts Payable, Non-Federal
Advances Payable, Non-Federal
Interest Payable
Grant Liabilities
Other Accrued Liabilities, Non-Federal
Total
Superfund
45,880
3
553
21,714
97,400
All Others
71,160 $
13
2
545,872
105,737
Combined
Total
117,040
16
555
567,586
203,137
165,550
722,784
,334
Note 9. General Plant, Property and Equipment
Superfund plant, property and equipment consist of personal property items held by contractors and
the EPA. EPA also has property funded by various other Agency appropriations. The property
funded by these appropriations is presented in the aggregate under "All Others" and consists of
software; real, EPA-Held and Contractor-Held personal, and capital lease property.
As of September 30, 2004, Plant, Property and Equipment consist of the following:
EPA's FY 2004 Financial Statements Page 1-61
-------
Superfund
All Others
EPA-Held
Equipment
Software
Contractor-Held
Property:
Superfund
Site-Specific
General
Land and Buildings
Capital Leases
Total
Acquisition
Value
29,159
7,432
31,328
9,556
Accumulated
Depreciation
Net Book
Value
Acquisition
Value
Accumulated
Depreciation
Net Book
Value
(15,544)
(1,147)
(11,702)
(1,261)
13,615
6,285
19,626
8,295
159,685
98,202
20,687
547,876
49,956
(97,249) $
(13,734)
(6,422)
(114,184)
(19,275)
62,436
84,468
14,265
433,692
30,681
77,475
(29,654) $ 47,821 $ 876,406
(250,864) $ 625,542
As of September 30, 2003, Plant, Property and Equipment consisted of the following:
Superfund
All Others
Acquisition
Value
Accumulated
Depreciation
Net Book
Value
Acquisition
Value
Accumulated
Depreciation
Net Book
Value
EPA-Held Equipment
Software
Contractor-Held
Property:
Superfund
Site-Specific
General
Land and Buildings
Capital Leases
Total
28,990
3,649
40,505
7,607
(15,664)
(138)
(16,642)
(2,452)
13,326
3,511
23,863
5,155
158,199
53,888
15,679
536,212
41,535
(97,785)
(4,397)
(6,429)
(100,826)
(16,605)
60,414
49,491
9,250
435,386
24,930
$ 80,751 $ (34,896) $ 45,855 $ 805,513 $ (226,042) $
579,471
Page 1-62
EPA's FY 2004 Financial Statements
-------
Note 10. Debt
The debt due to Treasury consists of the following as of September 30, 2004 and 2003:
All Other Funds FY 2004 FY 2003
Beginning Net Ending Beginning Net Ending
Intragovernmental: Balance Borrowing Balance Balance Borrowing Balance
Debt to Treasury $ 21,189 $ 2,912 $ 24,101 $ 24,290 $ (3,101) $ 21,189
Note 11. Custodial Liability
Custodial Liability represents the amount of net accounts receivable that, when collected, will be
deposited to the Treasury General Fund. 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
Other Liabilities consist of the following as of September 30, 2004:
Other Liabilities - Intragovernmental Covered by Not Covered by
Budgetary Resources Budgetary Resources Total
Superfund - Current
Employer Contributions & Payroll Taxes $ 1,918 $ $ 1,918
Other Advances 1,538 1,538
Advances, HRSTF Cashout 32,724 32,724
Deferred HRSTF Cashout 3 3
Superfund - Non-Current
Unfunded FECA Liability 1,569 1,569
Total Superfund $ 36,183 $ 1,569 $ 37,752
All Other - Current
Employer Contributions & Payroll Taxes $ 8,842 $ $ 8,842
WCF Advances 6,749 6,749
Other Advances 1,984 1,984
Liability for Deposit Funds (30) (30)
Resources Payable to Treasury 1 1
Subsidy Payable to Treasury 437 437
All Other - Non-Current
Payable to Treasury Judgment Fund * 22,000 22,000
Unfunded FECA Liability 7,135 7,135
Total All Other $ 17,983 $ 29,135 $ 47,118
EPA's FY 2004 Financial Statements Page 1-63
-------
Covered by Not Covered by
Other Liabilities - Non-Federal Budgetary Resources Budgetary Resources Total
Superfund - Current
Unearned Advances, Non- Federal $ 46,211 $ $ 46,211
All Other - Current
Unearned Advances, Non-Federal $ 10,613 $ $ 10,613
Liability for Deposit Funds, Non-Federal 5,601 5,601
All Other - Non-Current
Capital Lease Liability 41,491 41,491
Total All Other $ 16,214 $ 41,491 $ 57,705
* This amount represents a Contract Disputes Act settlement paid by the Treasury Judgment Fund on EPA's behalf for
which the Agency is liable.
Other Liabilities consist of the following as of September 30, 2003:
Other Liabilities - Intragovernmental Covered by Not Covered by
Budgetary Resources Budgetary Resources Total
Superfund - Current
Employer Contributions & Payroll Taxes
$ 1,379 $
$
1,379
Other Advances
1,811
1,811
Advances, HRSTF Cashout
25,016
25,016
Deferred HRSTF Cashout
947
947
Superfund - Non-Current
Unfunded FECA Liability
1,447
1,447
Total Superfund
$ 29,153 $
1,447$
30,600
All Other - Current
Employer Contributions & Payroll Taxes
$ 6,589 $
$
6,589
WCF Advances
7,269
7,269
Other Advances
1,674
1,674
Liability for Deposit Funds
(515)
(515)
Resources Payable to Treasury
1
1
All Other - Non-Current
Unfunded FECA Liability
6,593
6,593
Total All Other
$ 15,018 $
6,593$
21,611
Other Liabilities - Non-Federal
Superfund - Current
Unearned Advances, Non-Federal
$ 49,809 $
$
49,809
All Other - Current
Unearned Advances, Non-Federal
$ 5,044 $
$
5,044
Liability for Deposit Funds, Non-Federal
12,261
12,261
All Other - Non-Current
Capital Lease Liability
35,800
35,800
Total All Other
$ 17,305 $
35,800$
53,105
Note 13. Leases
Page 1-64
EPA's FY 2004 Financial Statements
-------
Capital Leases:
The Capital Leases for All Other Funds as of September 30, 2004 and 2003, consist of the following:
Summary of Assets Under Capital
Real Property
Personal Property
Software License
Total
Accumulated Amortization
FY 2004 FY 2003
$ 40,913 $ 40,913
2,606 622
6,437
$ 49,956 $ 41,535
$ 19,275 $ 16,605
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. The real property leases terminate in FYs 2010, 2013, and 2025. EPA
also has capital leases terminating in FY 2007 for seven shuttle buses. These charges are expended
out of the EPM appropriation.
During FY 2004 EPA entered into lease agreements for an IBM Supercomputer and Microsoft
Office software. These leases terminate in 2006 and 2009, respectively. These charges are expended
out of the Working Capital Fund.
The total future minimum lease payments of the capital leases are listed below.
Future Payments Due: All Others
Fiscal Year
2005 $ 8,734
2006 8,716
2007 8,050
2008 7,821
2009 6,295
After 5 Years 71,014
Total Future Minimum Lease Payments 110,630
Less: Imputed Interest (69,139)
Net Capital Lease Liability $ 41,491
Liabilities not Covered by
Budgetary Resources (See Note 12) $ 41,491
EPA's FY 2004 Financial Statements Page 1-65
-------
Operating Leases:
The GSA provides leased real property (land and buildings) as office space for EPA employees.
GSA charges a Standard Level User Charge that approximates the commercial rental rates for
similar properties.
For All Other Funds, EPA has three direct operating leases for land and buildings housing scientific
laboratories and/or computer facilities during FY 2004. 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. Two of these leases expire in FYs 2017 and 2020. A
third lease that expired in FY 2001 was extended until FY 2007. These charges are expended from
the EPM appropriation. The total minimum future costs of operating leases are listed below.
Fiscal Year Operating Leases, Land &
Buildings —All Others
2005 $ 87
2006 87
2007 81
2008 74
2009 74
Beyond 2009 698
Total Future Minimum 1,101
Lease Payments $
Note 14. Pension and Other Actuarial Liabilities
The Federal Employees' Compensation Act (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, 2004 and 2003, consists of the following:
FY 2004 FY 2003
Superfund All Others Superfund All Others
FECA Actuarial Liability $ 7,263 33,018 $ 7,937 $ 36,159
The FY 2004 present value of these estimated outflows are calculated using a discount rate of 4.883
percent in the first year, and 5.235 percent in the years thereafter. The estimated future costs are
recorded as an unfunded liability.
Page 1-66
EPA's FY 2004 Financial Statements
-------
Note 15. Cashout Advances, Superfund
Cashouts are funds received by EPA, a state, or another PRP under the terms of a settlement
agreement (e.g., consent decree) to finance response action costs at a specified Superfund site. Under
CERCLA Section 122(b)(3), cashout funds received by EPA are placed in site-specific, interest
bearing accounts known as special accounts and are used in accordance with the terms of the
settlement agreement. Funds placed in special accounts may be used without further appropriation
by Congress.
Note 16. Unexpended Appropriations, All Other Funds
As of September 30, 2004 and 2003, the Unexpended Appropriations consist of the following for All
Other Funds:
Unexpended Appropriations: FY 2004 FY 2003
Unobligated
Available $ 1,911,797 $ 1,797,410
Unavailable 39,591 41,667
Undelivered Orders 8,908,748 8,929,159
Total $ 10,860,136 $ 10,768,236
Note 17. Amounts Held by Treasury
Amounts Held by Treasury for Future Appropriations consist of amounts held in trusteeship by
Treasury in the Superfund Trust Fund and the LUST Trust Fund.
Superfund (Audited)
Superfund is supported primarily by general revenues, cost recoveries of funds spent to clean up
hazardous waste sites, interest income, and fines and penalties. Prior to December 31, 1995, the fund
was also supported by other taxes on crude oil and petroleum and on the sale or use of certain
chemicals. The authority to assess those taxes and the environmental tax on corporations also
expired on December 31, 1995, and has not been renewed by Congress. It is not known if or when
such taxes will be reassessed in the future. (See Note 36 for more information on the status of this
trust fund.)
The following reflects the Superfund Trust Fund maintained by Treasury as of September 30, 2004
and 2003. The amounts contained in these notes have been provided by Treasury and are audited. As
indicated, a portion of the outlays represents amounts received by EPA's Superfund Trust Fund;
such funds are eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
EPA's FY 2004 Financial Statements Page 1-67
-------
SUPERFUND FY 2004
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance
$ $
188,182$
188,182
Total Undisbursed Balance
188,182
188,182
Interest Receivable
38
38
Investments, Net
2,402,074
(184,778)
2,217,296
Total Assets
$ 2,402,074 $
3,442 $
2,405,516
Liabilities & Equity
Liability for Allocation to CDC
11,061
11,061
Equity (Note 36)
$ 2,402,074 $
(7,619)$
2,394,455
Total Liabilities and Equity
$ 2,402,074 $
3,442$
2,405,516
Receipts
Corporate Environmental
$ $
867$
867
Cost Recoveries
74,063
74,063
Fines & Penalties
2,818
2,818
Total Revenue
77,748
77,748
Appropriations Received
1,257,536
1,257,536
Interest Income
27,380
27,380
Total Receipts
$ $
1,362,664 $
1,362,664
Outlays
Transfers to/from EPA, Net
$ 1,256,790 $
(1,256,790)$
0
Transfers to CDC
(30,763)
(30,763)
Total Outlays
1,256,790
(1,287,553)
(30,763)
Net Income
$ 1,256,790 $
75,111$
1,331,901
Page 1-68
EPA's FY 2004 Financial Statements
-------
SUPERFUND FY 2003
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance
$ $
866 $
866
Total Undisbursed Balance
866
866
Interest Receivable
37
37
Investments, Net
2,599,744
(83,634)
2,516,110
Total Assets
$ 2,599,744 $
(82,731) $
2,517,013
Liabilities & Equity
Equity (Note 36)
$ 2,599,744 $
(82,731) $
2,517,013
Total Liabilities and Equity
$ 2,599,744 $
(82,731) $
2,517,013
Receipts
Corporate Environmental
$ $
(99,355) $
(99,355)
Cost Recoveries
146,502
146,502
Fines & Penalties
2,873
2,873
Total Revenue
50,020
50,020
Appropriations Received
632,307
632,307
Interest Income
48,945
48,945
Total Receipts
$ $
731,272 $
731,272
Outlays
Transfers to EPA
$ 1,283,223 $
(1,283,223) $
0
Transfers to CDC
0
(80,200)
(80,200)
Total Outlays
1,283,223
(1,363,423)
(80,200)
Net Income
$ 1,283,223 $
(632,151) $
651,072
LUST (Audited)
LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. In FYs
2004 and 2003 there were no fund receipts from cost recoveries. The following represents the LUST
Trust Fund as maintained by Treasury. The amounts contained in these notes 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.
EPA's FY 2004 Financial Statements
Page 1-69
-------
LUST FY 2004
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance
$ $
13,256 J
i 13,256
Total Undisbursed Balance
13,256
13,256
Interest Receivable
27,277
27,277
Investments, Net
89,725
2,200,165
2,289,890
Total Assets
$ 89,725 $
2,240,698 J
i 2,330,423
Liabilities & Equity
Equity
$ 89,725 $
2,240,698 J
i 2,330,423
Total Liabilities and Equity
$ 89,725 $
2,240,698 3
i 2,330,423
Receipts
Highway TF Tax
$ $
180,763 J
i 180,763
Airport TF Tax
11,678
11,678
Inland TF Tax
454
454
Refund Gasoline Tax
(1,535)
(1,535)
Refund Diesel Tax
(2,136)
(2,136)
Refund Aviation Tax
(227)
(227)
Total Revenue
188,997
188,997
Interest Income
66,762
66,762
Total Receipts
&
&
255,759 J
i 255,759
Outlays
Transfers to/from EPA, Net
$ 75,552$
(75,552) J
i 0
Total Outlays
75,552
(75,552)
0
Net Income
$ 75,552$
180,207 J
i 255,759
Page 1-70
EPA's FY 2004 Financial Statements
-------
LUST FY 2003
EPA
Treasury
Combined
Undistributed Balances
Uninvested Fund Balance !
S $
12,377
$ 12,377
Total Undisbursed Balance
12,377
12,377
Interest Receivable
25,834
25,834
Investments, Net
66,574
2,022,279
2,088,853
Total Assets !
S 66,574 $
2,060,490
$ 2,127,064
Liabilities & Equity
Equity !
S 66,574 $
2,060,490
$ 2,127,064
Total Liabilities and Equity !
S 66,574 $
2,060,490
$ 2,127,064
Receipts
Highway TF Tax :
S $
177,340
$ 177,340
Airport TF Tax
12,241
12,241
Inland TF Tax
448
448
Refund Gasoline Tax
(2,064)
(2,064)
Refund Diesel Tax
(3,214)
(3,214)
Refund Aviation Tax
(274)
(274)
Total Revenue
184,477
184,477
Interest Income
64,447
64,447
Total Receipts !
S $
248,924
$ 248,924
Outlays
Transfers to/from EPA, Net !
S 71,843 $
(71,843)
$ 0
Total Outlays
71,843
(71,843)
0
Net Income !
S 71,843 $
177,081
$ 248,924
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.
EPA's FY 2004 Financial Statements
Page 1-71
-------
Superfund:
Under CERCLA Section 106(a), EPA issues administrative orders that require parties to clean up
contaminated sites. CERCLA Section 106(b) allows a party that has complied with such an order to
petition EPA for reimbursement from the fund of its reasonable costs of responding to the order, plus
interest. To be eligible for reimbursement, the party must demonstrate either that it was not a liable
party under CERCLA Section 107(a) for the response action ordered, or that the Agency's selection
of the response action was arbitrary and capricious or otherwise not in accordance with law.
As of September 30, 2004, there are currently five CERCLA Section 106(b) administrative claims. If
the claimants are successful, the total losses on the administrative and judicial claims could amount
to approximately $68.0 million. The Environmental Appeals Board has not yet issued final decisions
on any of these administrative claims; therefore, a definite estimate of the amount of the contingent
loss cannot be made. The claimants' chance of success overall is characterized as reasonably
possible.
All Other Funds:
As of September 30, 2004, there are three claims which may be considered threatened litigation
involving all other appropriated funds of the Agency. If the claimants are successful, the total losses
of the claims are estimated to range from $7.9 to $13.9 million. The largest claim (estimated range
from $6.0 to $12.0 million, deemed reasonably possible) is an unasserted Contract Disputes Act
matter which EPA will contest if asserted.
Judgment Fund:
In cases that are paid by the U.S. Treasury Judgment 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
judgment is assessed and the Judgment 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 judgment, the liability will be reduced and
an imputed financing source recognized. See Interpretation of Federal Financial Accounting
Standards No. 2, "Accounting for Treasury Judgment Fund Transactions."
As of September 30, 2004, there are no material claims pending in the Treasury Judgment Fund.
Note 19. Exchange Revenues, Statement of Net Cost
Exchange revenues on the Statement of Net Cost include income from services provided, interest
revenue (with the exception of interest earned on trust fund investments), and miscellaneous earned
revenue.
Page 1-72
EPA's FY 2004 Financial Statements
-------
Note 20. Environmental Cleanup Costs
As of September 30, 2004, the EPA has three sites that require clean up stemming from its activities.
Costs amounting to $1.22 million may be paid out of the Treasury Judgment Fund. One claimant's
chance of success ($1.20 million) is characterized as probable; the other two are characterized as
reasonably possible.
Accrued Cleanup Cost:
The EPA has 12 sites that will require future clean up associated with permanent closure and two
sites with clean up presently underway. The estimated costs are approximately $8.4 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 subsequent years.
The FY 2004 estimate for unfunded cleanup costs decreased by $62 thousand from the FY 2003
estimate. There was a net decrease of $535 thousand in funded cleanup costs from FY 2003 to FY
2004. 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 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 10 percent cost share for remedial action costs incurred at privately owned or operated sites, and at
least 50 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, 2004, the total remaining state credits have been estimated at
$5.4 million. The estimated ending credit balance on September 30, 2003 was $9.6 million.
Note 22. Superfund Preauthorized Mixed Funding Agreements
Under Superfund preauthorized mixed funding agreements, 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
EPA's FY 2004 Financial Statements Page 1-73
-------
under CERCLA Section 111(a)(2). Under CERCLA Section 122(b)(1), as amended by SARA, PRPs
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, 2004, EPA had 15 outstanding preauthorized mixed funding agreements with
obligations totaling $34.0 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; General Support Services Charged to
Superfund
The Statement of Net Cost reports costs that represent the full costs of the program outputs. These
costs 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. (See Note IB, Reporting Entities,
Superfund.)
During FYs 2004 and 2003, the EPM appropriation funded a variety of programmatic and
non-programmatic activities across the Agency, subject to statutory requirements. This appropriation
was created to fund personnel compensation and benefits, travel, procurement, and contract
activities.
All of the expenses from EPM are distributed between EPA's two Reporting Entities: Superfund and
All Other Funds. 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 consolidated
totals of the Statement of Net Cost or the Statement of Changes in Net Position.
Income From
Other
Appropriations
FY 2004
Expenses From
Other
Appropriations
Income From
Net Other
Effect Appropriations
FY 2003
Expenses From
Other
Appropriations
Net
Effect
Superfund
All Others
Total
82,776
(82,776)
(82,776)
82,776
0
0
0 $
0
0 $
75,597
(75,597)
(75,597)
75,597
0
0
In addition, the related general support services costs allocated to the Superfund Trust Fund from the
S&T and EPM funds are $14.1 million for FY 2004 and $11.9 million for FY 2003.
Page 1-74
EPA's FY 2004 Financial Statements
-------
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 RPs' willingness and ability
to pay.
FY 2004
FY 2003
Fines, Penalties and Other Miscellaneous Receipts Revenue
Accounts Receivable for Fines, Penalties and
Other Miscellaneous Receipts
Accounts Receivable
Less: Allowance for Doubtful Accounts
Total
162,546
174,509
103,847
(51,630)
117,191
(40,311)
52,217
76,880
Note 25. Statement of Budgetary Resources
Budgetary resources, obligations incurred, and outlays, as presented in the audited Statement of
Budgetary Resources, are reconciled to amounts to be included in the Budget of the United States
Government, FY 2006, as follows. The Budget of the United States Government with actual
numbers for FY 2004 has not yet been published. We expect it will be published by March 2005, and
it will be available on the OMB website at www.whitehouse.gov/omb/budget/fy2006. The actual
amounts published for the year ended September 30, 2004, will be included in EPA's FY 2005
financial statement disclosures.
FY 2004 Budgetary Resources Obligations Outlays
Superfund:
Statement of Budgetary Resources $ 2,300,850 $ 1,477,137 $ 1,463,868
5,885 5,903
Adjustments to Unliquidated Obligations, Unfilled
Customer Orders and Other
Expired Funds *
Reported for Budget of the U. S. Government $ 2,306,735 $ 1,483,040 $ 1,463,868
All Other Funds:
Statement of Budgetary Resources $ 10,851,239 $ 8,678,244 $ 8,233,315
Funds Reported by Other Federal Entities 1,185 1,185
Adjustments to Unliquidated Obligations, Unfilled 622 (6,726)
Customer Orders and Other
Expired and Immaterial Funds * (91,468) 2,740
Reported for Budget of the U. S. Government $ 10,761,578 $ 8,675,443 $ 8,233,315
Budgetary resources, obligations incurred, and outlays, as presented in the audited Statement of
Budgetary Resources, are reconciled to amounts included in the Budget of the United States
Government, FY 2005-Appendix (Budget Appendix), as follows. The Budget Appendix with actual
EPA's FY 2004 Financial Statements Page 1-75
-------
numbers for FY 2003 was published after the audited financial statements were issued. In
accordance with FASAB Technical Bulletin 2002-2, the applicable Budget Appendix amounts for
FY 2003 are included below.
FY 2003
Superfund
Statement of Budgetary Resources
Adjustments to Unliquidated Obligations, Unfilled
Customer Orders and Other
Expired Funds *
Reporting by other Agencies with Allocations
OMB-level Adjustment - appropriation temporarily
not available, special account interest
Rounding differences **
Budget of the United States Government, final
All Other
Statement of Budgetary Resources
Funds Reported by Other Federal Entities
Adjustments to Unliquidated Obligations, Unfilled
Customer Orders and Other
Expired and Immaterial Funds *
Rounding differences **
Budget of the United States Government, final
Budgetary Resources Obligations
2,317,206 $
2,114
17,636
(141,000)
(1,956)
622
(83,946)
(1,116)
1,550,401
2,133
5,499
(33)
2,194,000 $
9,910,793 $ 7,811,921
(353)
4,142
(63)
9,826,000 $
Outlays
1,445,513
1,313
7,741
433
1,558,000 $
1,455,000
7,397,843
(36)
26
167
7,816,000 $
7,398,000
* Expired funds are not included in Budgetary Resources Available for Obligation and Total New Obligations in the
Budget Appendix (lines 23.90 and 10.00). Also, minor funds are not included in the Budget Appendix.
** Balances are rounded to millions in the Budget Appendix.
Note 26. Recoveries and Resources Not Available, Statement of Budgetary Resources
Recoveries of Prior Year Obligations, Temporarily Not Available, and Permanently Not Available
on the Statement of Budgetary Resources consist of the following amounts:
Superfund FY 2004 FY 2003
Recoveries of Prior Year Obligations-downward
adjustments of prior years'obligations $ 98,848 $ 124,797
Not Available-rescinded authority (7,464) (8,274)
Page 1-76 EPA's FY 2004 Financial Statements
-------
All Others
FY 2004
FY 2003
Recoveries of Prior Year Obligations-downward
adjustments of prior years' obligations
$ 95,927 $
114,437
Temporarily Not Available-rescinded authority
(790)
Permanently Not Available:
Payments to Treasury
(2,641)
(3,101)
Rescinded authority
(49,099)
(49,362)
Canceled authority
(19,463)
(23,719)
Total Permanently Not Available
$ (71,203) $
(76,182)
Note 27. Unobligated Balances Available
The availability of unobligated balances consists of the following as of September 30, 2004 and
2003. Unexpired unobligated balances are available to be apportioned by the OMB for new
obligations at the beginning of the following fiscal year. The expired unobligated balances are only
available for upward adjustments of existing obligations.
Superfund FY 2004 FY 2003
Unexpired Unobligated Balance $ 823,694 $ 766,786
Expired Unobligated Balance 19_ 19
Total $ 823,713 $ 766,805
All Others
Unexpired Unobligated Balance $ 2,080,155 $ 2,011,471
Expired Unobligated Balance 92,840 87,401
Total $ 2,172,995 $ 2,098,872
Note 28. Offsetting Receipts
Distributed offsetting receipts credited to the general fund, special fund, or trust fund receipt
accounts offset gross outlays. For FYs 2004 and 2003, the following receipts were generated from
these activities:
EPA's FY 2004 Financial Statements
Page 1-77
-------
Superfund
Trust Fund Recoveries
Total
All Others
Special Fund Environmental Service
Downward Re-estimates of Subsidies
Trust Fund Appropriation
Total
FY 2004
74,063
13,688
5,554
1,257,536
1,276,778
FY 2003
146,502
74,063 $
146,502
11,649
632,307
643,956
: Not reported as part of Offsetting Receipts in FY 2003. FY 2003 downward re-estimates were $371 thousand.
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 FYs 2004 and 2003, the following line items are reconciled to the increases or
decreases in those liabilities.
Statement of Financing lines FY 2004: Superfund All Others Combined Total
Resources that fund prior period expenses (2,243) (11,612) (13,855)
Components requiring or generating resources in
future periods:
Increases in environmental liabilities
1,244
1,244
Increase in contingencies
22,425
22,425
Total $
(2,243) $
12,057 $
9,814
Increases (Decreases) in Liabilities Not Covered
by Budgetary Resources and Reconciling Items
Unfunded Annual Leave Liability $
(1,690) $
(5,339) $
(7,029)
Unfunded Contingent Liability
1,607
1,607
Unfunded Judgment Fund Liability
22,000
22,000
Unfunded Workers Compensation Liability
122
542
664
Actuarial Workers Compensation Liability
(675)
(3,140)
(3,815)
Unfunded Clean-up Costs Liability
61
61
Allowance for Subsidy
(3,097)
(3,097)
Subsidy re-estimates
(577)
(577)
Total $
(2,243) $
12,057 $
9,814
Page 1-78
EPA's FY 2004 Financial Statements
-------
Statement of Financing lines FY 2003:
Superfund
All Others
Combined Total
Components requiring or generating resources in
future periods:
Increase in annual leave liability $
1,088 $
: 5,647 3
> 6,735
Increases in environmental liabilities
(3,276)
(3,276)
Increase in workers compensation costs
246
4,591
4,837
Total $
1,334 3
> 6,962 3
> 8,296
Increases (Decreases) in Liabilities Not Covered
by Budgetary Resources and Reconciling Items
Unfunded Annual Leave Liability $
1,088 $
; 5,888 3
> 6,976
Unfunded Contingent Liability
(2)
(2)
Unfunded Workers Compensation Liability
7
191
198
Actuarial Workers Compensation Liability
239
4,400
4,639
Subsidy Payable to Treasury
(371)
(371)
Unfunded Clean-up Costs Liability
(3,274)
(3,274)
Allowance for subsidy
201
201
Subsidy re-estimates
(71)
(71)
Total $
1,334 3
> 6,962 !
S 8,296
Note 30. Costs Not Assigned to Goals
FY 2004's Statement of Net Cost by Goal has $18.2 million in gross costs not assigned to goals. This
amount is comprised of decreases of $5.7 million in unfunded cleanup costs, $5.6 million in
overhead costs, $27.0 million in other unfunded expenses and $2.9 in subsidy expense; offset by
increases of $13.8 million in undistributed federal payroll costs, $3.7 million in depreciation
expense, $40.1 million in operating expenses, and $1.8 million change in actuarial liability.
FY 2003's Statement of Net Cost by Goal has $12.8 million in gross costs not assigned to goals. This
amount is comprised of decreases of $3.3 million in environmental cleanup costs, $1.4 million in bad
debt expenses, and $1.2 million in capitalized overhead charges; offset by increases of $0.4 million
in undistributed federal payroll-related costs, $3.8 million in depreciation expenses not assigned,
$0.2 million in imputed costs, $0.3 million in other unfunded expenses, and $14.0 million in
operating program expenses.
Note 31. Transfers-In and Out, Statement of Changes in Net Position
Appropriation Transfers, In/Out:
For FYs 2004 and 2003, the Appropriation Transfers under Budgetary Financing Sources on the
Statement of Changes in Net Position are comprised of nonexpenditure transfers that 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:
EPA's FY 2004 Financial Statements
Page 1-79
-------
Superfund Superfund All Others All Others
Fund/Type of Account FY 2004 FY 2003 FY 2004 FY 2003
GSA Building Fund (1,538)
Appalachian Regional Commission 60
EPM $ $ $ 1,630 $ 4,550
Total Appropriation Transfers $ $ $ 152 $ 4,550
Net Transfers from Invested Funds 1,256,790 1,283,223 75,552 71,843
Transfers to Other Agencies (5,157) (5,155)
Allocations Rescinded 7,463 8,274 448 470
Total of Net Transfers on Statement of
Budgetary Resources $ 1,259,096 $ 1,286,342 $ 76,152 $ 76,863
Transfers- In/Out Without Reimbursement, Budgetary:
For FY 2004 and 2003, Transfers In/Out under Budgetary Financing Sources on the Statement of
Changes in Net Position consist of transfers to or from other federal agencies and between EPA
funds. These transfers affect Cumulative Results of Operations. Detail of the transfers-in and
transfers-out, expenditure and nonexpenditure, follows:
Type of Transfer/Funds Superfund Superfund All Others All Others
FY 2004 FY 2003 FY 2004 FY 2003
Transfers-in(out), expenditure, Superfund to $ (44,433) $ (85,608) $ 44,433 $ 85,608
S&T fund
Transfers-in(out), expenditure, Superfund to (13,136) (12,659) 13,136 12,659
OIG fond
Transfers-out, nonexpenditure, from (5,157) (5,155)
Superfund to other federal agencies
Transfer-out, expenditure, to Superfund (9,642)
Special Accounts
Transfers-out, nonexpenditure, from (30,763) (80,200)
Treasury trust fund to CDC
Transfers-in, nonexpenditure, Oil Spill 16,113 15,480
Transfer-in(out), cancelled funds 5,903 2,133 (5,903) (2,133)
Total Transfers in(out) without $ (87,586) $ (191,131) $ 67,779 $ 111,614
Reimbursement, Budgetary
Transfers In/Out without Reimbursement, Other Financing Sources:
For FYs 2004 and 2003, Transfers In/Out without Reimbursement under Other Financing Sources on
the Statement of Changes in Net Position are comprised of transfers of property, plant and
equipment between EPA funds and 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:
Page 1-80
EPA's FY 2004 Financial Statements
-------
Type of Transfer/Funds Superfund Superfund All Others All Others
FY 2004 FY 2003 FY 2004 FY 2003
Transfer-in(out) of property, $ (1)$ 84$ 1$ (84)
between Superfund and EPM
Transfers of negative subsidy, (436) 371
transfer-in paid and funded in year
following transfer-(out)
Total Transfers in(out) without $ (1) $ 84 $ (435) $ 287
Reimbursement, Budgetary
Note 32. Imputed Financing
In accordance with SFFAS 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 OPM
trust funds. These amounts are recorded as imputed costs and imputed financing for each 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 2004 were $19.7 million
and $106.3 million for Superfund and All Other Funds, respectively. For FY 2003, the estimates for
Superfund and All Other Funds were $17.8 million and $103.2 million, respectively.
In addition to the pension and retirement benefits described above, EPA also records imputed costs
and financing for Treasury Judgment 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 Judgment Fund Transactions." For FY 2004 entries for Judgment Fund payments for
Superfund and All Other Funds totaled $23.6 thousand and $2.8 million, respectively. For FY 2003,
entries for Judgment Fund payments for Superfund and All Other Funds totaled $2.2 million and $5
million, respectively.
Note 33. Payroll and Benefits Payable
Payroll and benefits payable to EPA employees for the years ending September 30, 2004 and 2003,
consist of the following:
EPA's FY 2004 Financial Statements
Page 1-81
-------
FY 2004 Payroll & Benefits Payable
Superfund - Current
Accrued Funded Payroll & Benefits
Withholdings Payable
Employer Contributions Payable-TSP
Other Post-employment Benefits
Payable
Accrued Unfunded Annual Leave
Total - Superfund - Current
All Other Funds - Current
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Payable-TSP
Other Post-employment Benefits
Payable
Accrued Funded Leave, WCF
Accrued Unfunded Annual Leave
Total - All Other Funds - Current
FY 2003 Payroll & Benefits Payable
Superfund - Current
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Payable-TSP
Other Post-employment Benefits
Payable
Accrued Unfunded Annual Leave
Total - Superfund - Current
Covered by Budgetary
Resources
4,097
3,007
197
3
Not Covered by Budgetary
Resources
Total
5,307
4,059
282
9,651 $
24,538
18,712
1,301
33
320
44,904 $
22,044
22,044 $
104,147
104,147 $
23,735
7,304 $
23,735 $
5,307
4,059
282
3
22,044
31,695
24,538
18,712
1,301
33
320
104,147
149,051
4,097
3,007
197
3
23,735
31,039
All Other Funds - Current
Accrued Funded Payroll and Benefits
Withholdings Payable
Employer Contributions Payable-TSP
Other Post-employment Benefits
Payable
Accrued Funded Leave, WCF
Accrued Unfunded Annual Leave
17,645
14,366
940
33
320
109,487
17,645
14,366
940
33
320
109,487
Total - All Other Funds - Current
33,304 $
109,487 $
142,791
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 consist of rescissions to appropriated funds and cancellations of funds that expired five
years earlier. These amounts affect Unexpended Appropriations for All Other Funds.
Rescissions to General Appropriations
Canceled General Authority
Total Other Adjustments
FY 2004
49,105
19,463
68,568
FY 2003
48,147
23,719
71,866
Page 1-82
EPA's FY 2004 Financial Statements
-------
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 FYs 2004 and 2003 consists of the following items:
FY 2004
Interest on Trust Fund Investments
Tax Revenue, Net of Refunds
Fines and Penalties Revenue
Special Receipt Fund Revenue
Superfund All Others Combined Total
27,380 $ 66,762 $ 94,142
867 188,997 189,864
1,992 (19) 1,973
13,746 13,746
Total Nonexchange Revenue
30,239 $
269,486 $
299,725
FY 2003
Interest on Trust Fund Investments
Tax Revenue, Net of Refunds*
Fines and Penalties Revenue
Special Receipt Fund Revenue
Superfund All Others Combined Total
48,945 $ 64,447 $ 113,392
(99,355) 184,477 85,122
718 718
11,591 11,591
Total Nonexchange Revenue
(49,692) $ 260,515
210,823
: In FY 2003 the Superfund trust fund refunded $99,355 thousand in previously accrued corporate environmental taxes.
EPA's FY 2004 Financial Statements
Page 1-83
-------
Note 36. Superfund Trust Fund Balances
In FY 2004, the EPA received an appropriation for Superfund of $1,257.5 million. Treasury's
Bureau of Public Debt (BPD), the manager of the Superfund Trust Fund assets, records a liability to
EPA for the amount of the appropriation. BPD does this to indicate those trust fund assets that have
been assigned for use and, therefore, are not available for appropriation. As of September 30, 2004
and 2003, the Treasury Trust Fund has a liability to EPA for previously appropriated funds of
$2,402.1 million and $2,599.7 million, respectively.
During FY 2004 and 2003, the Superfund Trust Fund revenue from cost recoveries and investment
interest was less than anticipated. In addition, in FY 2003 the Internal Revenue Service issued
approximately $99.4 million in corporate net tax refunds that were previously deposited in the Trust
Fund. Due to these circumstances, the amount appropriated to EPA for Superfund activities
exceeded the assets available for appropriation in the Trust Fund by $7.6 million and $82.7 million
at the end of FY 2004 and 2003, respectively. The Agency expects the Trust Fund to continue to
receive revenues from cost recoveries and investment interest. In EPA's view the shortfall will be
covered by the collection of cost recoveries and receipt of interest income to the Trust Fund over
time. This is evidenced by FY 2004's shortfall reduction of $75.1 million from the shortfall at the
end of FY 2003.
Page 1-84
EPA's FY 2004 Financial Statements
-------
Environmental Protection Agency
Required Supplemental Information
As of September 30, 2004
(Dollars in Thousands)
(Unaudited)
1.
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.
2.
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 2004).
Trading Investments Accounts Receivable Other Assets
Partner
Code Agency Superfund All Others Superfund All Others Superfund All Others
4 Government Printing Office 12 701
11 Executive Office of the President 123
12 Department of Agriculture 214 13
13 Department of Commerce 912 4 67
14 Department of Interior 13,243 (168)
15 Department of Justice 102 5 58
17 Department of the Navy 99 316
18 U. S. Postal Service 166 553
19 Department of State (274) (41)
20 Department of the Treasury 2,217,334 2,317,164 56 103
21 Department of the Army 9,840 233
31 Nuclear Regulatory Commission 2 1
45 Equal Employment Opportunity
Commission (95)
47 General Services Administration (3) 380
49 National Science Foundation 36
57 Department of the Air Force 11 8
61 Consumer Product Safety 8
Commission
64 Tennessee Valley Authority (5)
68 EPA (between Superfund and All
Others) 73,709 6,749
Page 1-85
EPA's FY 2004 Financial Statements
-------
Trading
Partner Agency
Code
69 Department of Transportation
70 Department of Homeland
Security
71 Overseas Private Investment
Corporation
72 Agency for International
Development
75 Department of Health and
Human Services
80 National Aeronautics and Space
Administration
86 Department of Housing and
Urban Development
89 Department of Energy
95 Independent Agencies
96 US Army Corps of Engineers
97 US Department of Defense
99 Treasury General Fund
0 Unassigned
Total '
Investments
Accounts Receivable
Other Assets
Superfund All Others Superfund All Others Superfund All Others
2,217,334 2,317,164$
(18)
(2)
288
(62)
126
924
2,500
27,212
3,948
4,273
(13)
602
1,119
175
192
562
(26)
1,497
537
443
420
89,267$
(58)
16
(33)
6,781
1,288
Trading
3.
Intragovernmental Liabilities
Accounts Payable
Accrued Liabilities
Other Liabilities
Partner
Code
Agencv
Superfund All Others
Superfund
All Others
Superfund All Others
3
Library of Congress
16
168
(54)
4
Government Printing Office
38
1,163
(9)
1,145
5
General Accounting Office
(367)
(1)
10
The Judiciary
(18)
11
Executive Office of the
22
16
President
12
Department of Agriculture
414
854
2,285
1,254
13
Department of Commerce
(1,702)
295
2,223
(1,033)
14
Department of Interior
(96)
2,463
3,188
49
937
15
Department of Justice
617
8,444
50
571
(2,971)
16
Department of Labor
1,609
112
446
1,569
3,869
17
Department of the Navy
351
(40)
4
1,814
118
18
United States Postal Service
322
14
(216)
Page 1-86
EPA's FY 2004 Financial Statements
-------
Trading
Accounts
Payable
Accrued Liabilities
Other Liabilities
Partner
Agencv
SuDerfund
All Others
SuDerfund
All Others
SuDerfund All Others
Code
19
Department of State
100
(20)
20
Department of the Treasury
153
140
143
22,004
21
Department of the Army
27
3,278
(17)
24
Office of Personnel
Management
112
725
1,412
6,953
31
US Nuclear Regulatory
Commission
6
11
33
Smithsonian Institution
2
37
(26)
36
Dept. of Veterans Affairs
176
128
(1,051)
45
EEOC
29
47
General Services Administration
19
12,301
10,775
(12,147)
49
National Science Foundation
113
26
57
Department of the Air Force
9,701
59
Nat'l Foundation on Arts and
Humanities
64
Tennessee Valley Authority
95
70
68
EPA (between Superfund and
All Others)
69,793
3,916
6,749
69
Department of Transportation
4,895
133
11,112
70
Department of Homeland
Security
14,428
1,542
65
(851)
72
Agency for International
Development
3
73
Small Business Administration
17
100
75
Department of Health and
Human Services
11,078
1,071
6,459
6,065
80
National Aeronautics and Space
Administration
22
232
(8)
86
Department of Housing and
Urban Development
231
89
Department of Energy
459
3,739
5
273
93
Federal Mediation Service
8
95
Independent Agencies
1,561
1,460
3,019
96
US Army Corps of Engineers
1,659
189
13,403
1,038
50
97
Office of the Secretary of
Defense
(351)
207
1,238
7,269
(1,475)
99
Treasury General Fund
6,081
506
2,768
0
Unassigned
(786)
17
348
774
(2,723)
247
Total $
102,681
206 3
i 38,100
37,386$
37,752
47,118
For All Other Funds remaining intragovernmental liabilities, $24,101 thousand in Debt is assigned to the
Department of the Treasury (trading partner Code 20), and $52,216 thousand in Custodial Liability is assigned to
the Treasury General Fund (trading partner Code 99).
EPA's FY 2004 Financial Statements Page 1-87
-------
EPA has confirmed the year-end intragovernmental fiduciary assets, liabilities, revenue, and expenses with the
BPD, the DOL, and the OPM. EPA has also contacted several other federal agencies to confirm nonfiduciary
intragovernmental balances for year-end as required.
4.
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 $ 27,450 $ 61,475
Associated Costs to generate above Revenue
(Budget Functional Classification 304) $ 27 450 $ 61475
Page 1-88
EPA's FY 2004 Financial Statements
-------
5.
Environmental Protection Agency
Required Supplemental Information
Supplemental Statement of Budgetary Resources-All Other Funds
As of September 30, 2004
(Dollars in Thousands)
STAG EPM S & T FTFRA LUST Other Total
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $
3,900,400 $
; 2,293,578 3
i 786,588 $
; 0 3
; 0
$ 1,373,358 5
i 8,353,924
Borrowing Authority
0
0
0
0
0
5,554
5,554
Net Transfers
0
1,630
0
0
76,000
60
77,690
Other
Unobligated Balances:
Beginning of Period
1,400,831
295,696
294,234
890
3,896
103,325
2,098,872
Net Transfers, Actual
0
0
0
0
0
(1,538)
(1,538)
Anticipated Transfers Balance
Spending Authority-Offsetting Collections
Earned and Collected
11,684
44,308
6,409
22,220
4
157,494
242,119
Receivable from Federal Sources
0
(10,084)
64
0
0
(5,283)
(15,303)
Change in Unfilled Customer Orders
Advance Received
0
486
833
4,129
0
7,563
13,011
Without Advance from Federal Sources
0
222
(1,748)
0
0
2,836
1,310
Transfers from Trust Funds
0
0
38,680
0
0
12,986
51,666
Total Spending Auth. from Collections
11,684
34,932
44,238
26,349
4
175,596
292,803
Recoveries of Prior Year Obligations
71,427
12,545
6,382
40
225
5,308
95,927
Temporarily Not Available
0
0
(264)
0
(448)
(78)
(790)
Permanently Not Available
(23,012)
(31,953)
(5,596)
0
0
(10,642)
(71,203)
Total Budgetary Resources $
5,361,330 $
; 2,606,428 3
i 1,125,582 $
; 27,279 3
; 79,677
$ 1,650,943 3
6 10,851,239
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Direct $
3,908,755 $
; 2,223,938 3
i 832,230 $
; 0 3
; 73,390
$ 1,378,429 3
6 8,416,742
Reimbursable
0
50,565
7,958
24,747
0
178,232
261,502
Total Obligations Incurred
3,908,755
2,274,503
840,188
24,747
73,390
1,556,661
8,678,244
Unobligated Balances:
Apportioned
1,452,575
257,752
269,948
2,532
6,287
91,061
2,080,155
Exempt from Apportionment
Unobligated Balances Not Available
0
74,173
15,446
0
0
3,221
92,840
Total Status of Budgetary Resources $
5,361,330 $
; 2,606,428 3
i 1,125,582 $
; 27,279 $
; 79,677
$ 1,650,943 3
6 10,851,239
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $
3,825,644 $
; 2,227,026 3
i 789,568 $
; (1,642) 3
; 73,161
$ 1,375,757 S
i 8,289,514
Obligated Balances, Net - Beginning
8,352,080
640,523
474,874
904
84,307
29,528
9,582,216
Accounts Receivable
0
12,019
68,396
0
0
6,025
86,440
Unfilled Customer Orders-Federal Sources
0
125,112
9,020
0
0
92,052
226,184
Undelivered Orders
(7,753,563)
(637,253)
(519,995)
(1,197)
(76,189)
(105,208)
(9,093,405)
Accounts Payable
(518,598)
(190,062)
(93,122)
(1,151)
(8,817)
(45,884)
(857,634)
Total Outlays $
3,905,563 $
; 2,177,365 3
i 728,741 $
; (3,086) 3
; 72,462
$ 1,352,270 S
i 8,233,315
Disbursements $
3,917,246 $
; 2,222,158 3
i 789,628 $
; 23,263 3
; 72,466
$ 1,531,644 3
6 8,556,405
Collections
(11,683)
(44,793)
(60,887)
(26,349)
(4)
(179,374)
(323,090)
Less: Offsetting Receipts
0
0
0
0
0
(1,276,778)
(1,276,778)
Net Outlays $
3,905,563 $
; 2,177,365 3
i 728,741 $
; (3,086) 3
; 72,462
$ 75,492 S
i 6,956,537
EPA's FY 2004 Financial Statements
Page 1-89
-------
6.
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Balance Sheet
As of September 30, 2004
(Dollars in Thousands)
Unaudited
ASSETS
Intragovernmental
Fund Balance With Treasury $ 53,560
Accounts Receivable, Net Federal 24,233
Other 555
Total Intragovernmental $ 78,348
General Property, Plant and Equipment, Net 16,693
Other Non Federal Assets 53
Total Assets $ 95,094
LIABILITIES
Intragovernmental
Accounts Payable & Accrued Liabilities, Federal $ 1,378
Other Federal Liabilities 30,413
Total Intragovernmental $ 31,791
Accounts Payable & Accrued Liabilities, Non Federal 24,969
Payroll and Benefits Payable Non Federal 1,451
Capital Lease Liability 6,727
Total Liabilities $ 64,938
NET POSITION
Cumulative Results of Operations $ 30,156
Total Net Position 30,156
Total Liabilities and Net Position $ 95,094
Page 1-90
EPA's FY 2004 Financial Statements
-------
6.
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Net Cost
For the Year Ended September 30, 2004
(Dollars in Thousands)
Unaudited
COSTS
Intragovernmental $ 70,739
With the Public 71,923
Total Costs $ 142,662
Less:
Earned Revenues, Federal 140,244
Earned Revenues, Non Federal 0
Total Earned Revenues $ 140,244
NET COST OF OPERATIONS $ 2,418
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Changes in Net Position
For the Year Ended September 30, 2004
(Dollars in Thousands)
Unaudited
Net Position-Beginning of Period $ 31,770
Prior Period Adjustments 0
Beginning Balances, as adjusted $ 31,770
Other Financing Sources:
Transfers In/Out 0
Imputed Financing Sources 804
Total Other Financing Sources $ 804
Net Cost of Operations (2,418)
Net Position-End of Period $ 30,156
EPA's FY 2004 Financial Statements
Page 1-91
-------
6.
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Budgetary Resources
For the Year Ended September 30, 2004
(Dollars in Thousands)
Unaudited
BUDGETARY RESOURCES
Budgetary Authority:
Appropriations Received $ 0
Borrowing Authority
Net Transfers
Other
Unobligated Balances:
Beginning of Period 22,324
Spending Authority from Offsetting Collections:
Earned and Collected $ 140,268
Receivable from Federal Sources 0
Change in Unfilled Customer Orders:
Advance Received 7,564
Without Advance from Federal Sources (2,991)
Transfers from Trust Funds 0
Total Spending Authority from Offsetting Collections 144,841
Recoveries of Prior Year Obligations 1,352
Permanently Not Available 0
Total Budgetary Resources $ 168,517
STATUS OF BUDGETARY RESOURCES
Obligations Incurred:
Reimbursable $ 163,897
Unobligated Balances:
Apportioned 4,620
Unobligated Balances Not Available 0
Total Status of Budgetary Resources $ 168,517
RELATIONSHIP OF OBLIGATIONS TO OUTLAYS
Obligations Incurred, Net $ 17,704
Obligated Balances, Net - Beginning of Period 35,457
Accounts Receivable 114
Unfilled Customer Orders from Federal Sources 23,091
Undelivered Orders (38,710)
Accounts Payable (33,436)
Total Outlays $ 4,220
Disbursements $ 152,052
Collections (147,832)
Less: Offsetting Receipts 0
Net Outlays $ 4,220
Page 1-92 EPA's FY 2004 Financial Statements
-------
6.
Environmental Protection Agency
Required Supplemental Information
Working Capital Fund
Supplemental Statement of Financing
For the Year Ended September 30, 2004
(Dollars in Thousands)
Unaudited
RESOURCES USED TO FINANCE ACTIVITIES:
Budgetary Resources Obligated
Obligations Incurred $ 163,897
Less: Spending Authority from Offsetting Collections and Recoveries (146,193)
Obligations Net of Offsetting Collections and Recoveries $ 17,704
Other Resources
Transfers In/Out Without Reimbursement, Property $ 0
Imputed Financing Sources 804
Net Other Resources Used to Finance Activities $ 804
Total Resources Used To Finance Activities $ 18,508
RESOURCES USED TO FINANCE ITEMS NOT PART OF NET
COST OF OPERATIONS
Change in Budgetary Resources Obligated $ (10,185)
Resources that Fund Prior Period Expenses (130)
Budgetary Offsetting Collections and Receipts that Do Not Affect Net
Cost of Operations 0
Resources that Finance the Acquisition of Assets (10,732)
Other Resources or Adjustments to Net Obligated
Resources that Do Not Affect Net Cost of Operations 0
Total Resources Used to Finance Items Not Part of Net Cost of Operations $ (21,047)
Total Resources Used to Finance the Net Cost of Operations $ (2,539)
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 $ 0
Increase in Exchange Revenue Receivable from the Public 0
Total Components of Net Cost of Operations that Will
Require or Generate Resources in Future Periods $ 0
Components Not Requiring or Generating Resources
Depreciation and Amortization $ 4,933
Revaluation of Assets or Liabilities 0
Other Expenses Not Requiring Budgetary Resources 24
Total Components of Net Cost of Operations that Will
Not Require or Generate Resources $ 4,957
Total Components of Net Cost of Operations That Will Not
Require or Generate Resources in the Current Period $ 4,957
Net Cost of Operations $ 2,418
EPA's FY 2004 Financial Statements
Page 1-93
-------
7.
Environmental Protection Agency
Required Supplemental Stewardship Information
For the Year Ended September 30, 2004
(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 development of alternative techniques for prioritizing chemicals for further testing
through computational toxicology; the provision of near-term, appropriate, affordable, reliable, tested, and
effective technologies and guidance for potential threats to homeland security; 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 2004, the full cost of the Agency's Research and
Development activities totaled over $673 million. Below is a breakout of the expenses (dollars in
thousands):
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.
Page 1-94 EPA's FY 2004 Financial Statements
Programmatic Expenses
Allocated Expenses
FY 2000 FY 2001 FY 2002 FY 2003 FY 2004
541,117 555,794 559,218 593,295 581,323
59,523 90,039 123,307 106,971 91,675
-------
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. After 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.
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):
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, 2004, the Agency possesses the following land and land rights:
Construction Grants
Clean Water SRF
Safe Drinking Water SRF
Other Infrastructure Grants
Allocated Expenses
FY 2000 FY 2001 FY 2002 FY 2003 FY 2004
55,766 63,344 149,841 15,845 48,948
1,564,894 1,548,270 1,389,048 1,295,394 1,407,345
588,116 728,921 708,528 842,936 802,629
212,124 282,914 367,259 582,091 341,767
266,299 424,999 576,536 493,349 410,129
Superfund Sites with Easements
Beginning Balance
Additions
Withdrawals
Ending Balance
31
1
_0
32
EPA's FY 2004 Financial Statements
Page 1-95
-------
Superfund Sites with Land Acquired
Beginning Balance
Additions
Withdrawals
Ending Balance
25
2
_2
25
HUMAN CAPITAL
Agencies are required to report expenses incurred to train the public with the intent of increasing or
maintaining the nation's economic productive capacity. Training, public awareness, and research
fellowships are components of many of the Agency's programs and are effective in achieving the Agency's
mission of protecting public health and the environment, but the focus is on enhancing the nation's
environmental, not economic, capacity.
The Agency's expenses related to investments in the Human Capital are outlined below (dollars in
thousands):
Training and Awareness Grants
Fellowships
Allocated Expenses
FY 2000 FY 2001 FY 2002 FY 2003 FY 2004
49,265 48,697 49,444 47,827 48,416
9,570 11,451 8,728 6,572 7,553
6,472 9,744 12,827 9,808 8,826
Page 1-96
EPA's FY 2004 Financial Statements
-------
8.
Environmental Protection Agency
Required Supplemental Information
For the Year Ended September 30, 2004
IMPROPER PA YMENTSINFORMATIONACT OF 2002 (IPIA) REPORT
I. RISK ASSESSMENTS: After reviewing and sampling disbursements made in the highest risk
susceptible inventories, EPA determined that its programs do not have significant erroneous payments, as
defined by the IPIA as payments exceeding $10 million and 2.5% of program payments. The error rates for
EPA's largest programs were as follows.
Program Erroneous Pay Error Rate
Clean Water and Drinking Water State Revolving Funds $10.3 million .49%
Where erroneous payments exceed $10 million, each Agency must identify the reasons why its programs are
at risk. In addition, the two EPA programs identified above, being former Section 57 programs, require a
corrective action plan. EPA prepared corrective action plans for the Clean Water and Drinking Water State
Revolving Funds. We also recognize there are areas that require further EPA review. In particular, EPA
must:
• Review and enhance internal controls, as needed, in the Agency's overall payment processes,
• As part of the post award process, continue to monitor payments made to sub-recipients,
• Comply with new Performance Accountability Report (PAR) reporting requirements for improper
payments, and
• Implement and operate the Agency's audit recovery program.
II. STATISTICAL SAMPLING PROCESS: For the initial action plan submitted to OMB on May 28, 2004,
EPA pulled a statistical sample of approximately 300 payments out of a population of 45,000 grant
payments. Based on additional instructions from OMB, EPA expanded its initial review to incorporate
findings from program and auditor reviews and audits of the two state revolving funds.
III. CORRECTIVE ACTION PLANS: In order to meet OMB's objectives, EPA conducted additional risk
assessments by forming four subgroups with expertise in grants, contracts, payroll, and travel/purchase
credit cards to review internal controls, identify and measure high risk areas, and develop corrective action
plans for each subject area. Planned actions in each of the areas are as follows:
A. Grants: EPA began collecting information on grants management findings to include erroneous
payment (i.e., funding is not being utilized for the intended purpose) in calendar year 2004. Based on
information in the Grantee Compliance Tracking Systems, EPA will prepare statistical reports on the
number of recipients where erroneous payments were found. In addition, comparisons will be made to the
total recipient population to determine if there are particular types of recipients who are more likely to have
erroneous payment problems.
The Office of Grants and Debarment will complete an erroneous payment review by February 28, 2005,
covering calendar year 2004. This review will identify whether or not "high risk" grant areas exist and will
develop, as appropriate, corrective action plans to be implemented in the years ahead.
EPA's FY 2004 Financial Statements
Page 1-97
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In FY 2005 EPA will be revising its policy on compliance, review, and monitoring. This policy provides
guidance and protocols to EPA headquarters and regional offices on how to conduct advanced monitoring
reviews. As part of these revisions, EPA will propose that offices evaluate the extent and nature of grantee
monitoring of sub-recipients. For example, how frequently do grantees monitor/evaluate sub-recipients and
what have been the results of this monitoring. The expanded monitoring is designed to assist the Agency in
expanding its improper payment identification, beyond recipients to sub-recipients. The Agency anticipates
the compliance policy changes will be effective starting in calendar year 2006.
B. Contracts: EPA continues to take appropriate action as needed to reduce or eliminate improper
payments. The appropriate Contracts Officer Representatives or On Scene Coordinators are notified of all
improper payments discovered. In FY 2004, there were 8 improper payments due to an error in the billing
number used to retrieve the banking information for a contractor. Billing numbers received on contracts are
now verified prior to entering information in Contract Payment System. Keying errors are reviewed by the
staff and efforts are made to prevent or detect these types of errors in the future. The problem of credit
invoice and refunds processed is closely reviewed to prevent this type of occurrence in the future.
In January 2003, EPA implemented a monthly Improper Payment Report. The report categorizes the number
of improper payments per month and provides information on each improper payment including the reason.
In FY 2003, from January through September, EPA found 25 improper payments in the 24,056 payments
processed for contracts. For FY 2004, there have been 21 improper payments found as of July 31, 2004, in
the 20,417 payments processed. Considering that there is not a full year to compare, the number of improper
payments is decreasing. The percentage of proper payments is 99.9%.
Additional actions include the addition of an improper payment review element for the Quality Assurance
Review for invoices and the initiation of the Recovery Audit process which is currently underway.
The continued pro-active process of reviewing and implementing changes as needed when an improper
payment occurs should continue to reduce the number of improper payments. The Contracts Officer
Representatives, On Scene Coordinators or Contracting Officers will continue to be notified of all improper
payments that involve their contract. Suggested actions will be provided and if the problem continues,
actions will be elevated. Previously documented keying errors are being noted by the staff at EPA to assist
in the detection by the initial data entry personnel as well as the sample reviewer and the certifying officer.
C. Commodity Payments: Since no high risk areas have been identified, no corrective action is required.
EPA continues to take appropriate action as needed to reduce or eliminate any improper payments. There
have been 19 improper payments identified from the 14,772 invoices paid from January through July 2004.
Eleven improper payments have been attributed to selection of incorrect vendor codes. The payment and
certifying staff have been alerted to this fact and are making an effort to double check all vendor codes to
prevent this in the future. Six of the improper payments were identified as duplicate payments on invoices
the vendor submitted twice. The edits in Small Purchase Information Tracking System have been enhanced
to prevent this in the future. All invoices marked past due are being reviewed to determine if they are
duplicate invoices.
A tracking mechanism was put in place in January 2004 to gather improper payment data in anticipation that
purchase order payments would be included in the erroneous payment process in 2004. The result of this
Page 1-98
EPA's FY 2004 Financial Statements
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tracking system provides the data for a monthly Improper Payment Report. The report provides information
on each improper payment.
D. Payroll: By December 31, 2004, the Payroll Workgroup will:
1. Review Payroll internal control documentation.
2. Conduct personnel interviews to verify/test whether internal controls are understood and
being utilized.
3. Summarize the results of the review of the internal controls.
4. Submit recommendations to reduce improper payments.
Additionally, by the end of the second quarter FY 2005, the workgroup will develop a corrective action
plan/best practices.
E. Travel Card/Purchase Card: The Agency will continue to monitor the charge card transactions and
employee accounts using the tools described above to ensure that the cards are used in accordance with the
Agency policies and procedures.
The Agency will continue to monitor the issuance of purchase cards to ensure that spending limits and span
of control are kept to a minimum. The Office of Acquisition Management is in the process of implementing
a monitoring program that is to be performed by each of the Senior Resource Officials in the Agency. This
program will mandate that each office perform yearly reviews of the purchases made within their program
offices. These reviews will ensure the integrity of the purchase card program.
IV. IMPROPER PAYMENT REDUCTION OUTLOOK FY 2004 - FY 2007
(dollars in millions)
PROGRAM
FY 04
OUTLAYS
FY 04
IP%
FY 04
IP $
FY 05
IP%
FY 06
IP%
FY 07
IP%
Clean Water and Drinking
Water Revolving Funds
$2,105 (est)
.49%
10.3
.45%
.40%
.35%
V. RECOVERY AUDIT PROGRAMS: The Agency has hired a contractor, Business Strategy, Inc (BSI), to
conduct the recovery audit. BSI has completed its preliminary interviews as part of the Discovery phase of
its work. This involved discussions with key individuals involved in the contract obligation and payment
process and individuals knowledgeable in EPA financial systems.
BSI has received data from the Integrated Financial Management System and begun its field work to identify
and collect contract overpayments. BSI hopes to complete its fieldwork by the end of the first quarter FY
2005. Once improper payments are identified, EPA will work with BSI to strengthen payment processes and
internal controls to prevent further occurrences.
EPA's FY 2004 Financial Statements
Page 1-99
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VI. ENSURING MANAGEMENT ACCOUNTABILITY: As previously outlined in the corrective action
plans, the Agency is moving to strengthen already strong internal controls in key payment processes.
Information on erroneous payments from reviews and audits for the two state revolving funds, our largest
grant programs, is reported quarterly to management in both the Office of Water and the Office of the Chief
Financial Officer. In all cases action is taken with the appropriate officials to ensure improper payments
are recovered and to avoid future improper payments.
VII. INFORMATION SYSTEMS AND INFRASTRUCTURE: The Agency's information systems are
sufficient to reduce improper payments to targeted levels.
VIII. STATUTORY AND REGULATORY BARRIERS: Currently, EPA is determining what information
exists within our current review process that looks at sub-recipients invoices and financial operations. We
will determine to what extent we can gather information from a sample to develop baseline numbers without
interfering with current federal/state cooperative relationships.
IX. CONCLUSIONS: In the 1st quarter of FY 2005, we will:
A. Continue monitoring for improper payments in the two State Revolving Funds;
B. Research payments to sub-recipient in the two State Revolving Funds; and
C. Research payments by grantee types to determine if some are more susceptible to creating
improper payments.
Page I-100
EPA's FY 2004 Financial Statements
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Appendix II
Agency's Response to Draft Report
MEMORANDUM
SUBJECT: Draft Audit Report: Response to Audit of EPA's Fiscal Years 2004 and 2003
Financial Statements
FROM: Charles E. Johnson/s/
Chief Financial Officer (2710A)
TO: Paul C. Curtis, Director
Financial Audit (2422T)
My staff and I thank you for the opportunity to respond to the Environmental Protection
Agency's Draft Financial Statement Audit Report for the fiscal years ended 2004 and 2003. The
attached provides the Office of Chief Financial Officer (OCFO) perspective on the observations
and related recommendations noted by the audit team. OCFO respects the hard work the Office
of Inspector General (OIG) put into this audit and looks forward to working collectively in the
future on financial management issues. We also appreciate being recognized for various actions
and initiatives the OCFO has taken to anticipate and resolve financial statement audit issues.
OCFO views the work done today of significant benefit to the Agency's financial
information needs and decision-making processes. As we move forward in identifying a solution
for replacing the legacy financial management system, our collaboration will be all-important
during the development and implementation of a complex project that will evolve over the next
several years.
In closing, I look forward to another productive year working in unison with the OIG. If
you have any questions, please contact Lorna McAllister, Director, Office of Financial
Management at 564-4905.
Attachment
cc: Mike Ryan
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Attachment
Response to Draft Audit Report of EPA's Fiscal 2004 and 2003 Financial Statements
General Comments
The following represents OCFO's general comments.
1. At a Glance
In general, while this section identifies specific observations noted during the audit, it lacks
context and is misleading on the magnitude of the issues. As a result, the following changes
are recommended:
Internal Control Reportable Conditions Noted:
2nd bullet - Additional reconciliations needed for Superfund Contract transactions.
3rd bullet - Strengthen accounts receivable process.
4th bullet - Promptly record marketable securities.
Noncompliance With Laws and Regulations Noted
1st bullet - Continue improvements related to cost accounting.
2nd bullet - Continue progress in reconciling intragovernmental transactions.
3rd bullet - Strengthen security screening for non-Federal personnel.
4th bullet - Continue to improve processes in preparing the Statement of Transactions.
2. Page 12, Paragraph 3, 2nd Sentence.
Revise to state "The QA Guide requires each location to conduct a review... "
3. Page 14, Paragraph 1—"However, errors continued to occur in the regional
spreadsheet calculations, due to a lack of supervision."
We recommend that the statement "lack of supervision" be deleted. While additional control
and management may be one factor contributing to the issue, there may be other factors
which could come into play. We feel that citing supervision as the only factor relating to this
issue is not a fair representation, and could be misleading to the reader.
4. Page 18, Agency Comment.
Revise to state "The agency agreed with our findings and made the appropriate adjustments
to the financial statements, including the $6.9 million."
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5. Page 20, Agency Comment and OIG Evaluation
We recommend that the last paragraph containing the OIG evaluation be deleted. While we
agree that internal controls are one factor contributing to the issue, there may be other factors
which could come into play. We feel that citing controls as the only factor relating to this
issue is not a fair representation, and could be misleading to the reader.
6. Page 25, last sentence before Agency Comment and OIG Evaluation.
We recommend that the sentence, "We should receive OCFO's written corrective action
plan, including projected milestone dates, by November 22, 2004," be deleted. Since this
Report will be used by many different readers over an extended period of time, including a
date so close to the Report date is not relevant information and may cause confusion to
readers.
7. Organizational Name Change: OCFO's Financial Services Division is now an Office. The
proper name of this office is: Office of Financial Services.
8. Page 26, Automated Application Processing Controls for Integrated Financial
Management System Could Not Be Assessed, 4th paragraph.
Modify to state, "OCFO plans to conduct the following financial systems replacement
activities during fiscal year 2005."
9. Page 30, EPA Continues Actions to Improve Cost Accounting, Agency Comment, last
sentence.
Replace with, "OCFO is in the preliminary stages of redefining its cost accounting needs and
SFFAS No. 4 outputs. Because the financial data integration framework is in its conceptual
stage, it is premature to make output commitments referencing this initiative at this time."
10. Page 32, EPA Needs to Strengthen Practices Regarding Security Screening for Non-
Federal Personnel, Agency Comment.
Include information provided by the Office of Administration and Resources Management.
"OARM is also committed to mitigating potential security risks at the Agency level. OARM
has interim procedures that guide offices through the security screening process. OARM is
also implementing several improved processes, such as insertion of suitability criteria into
contract requirements; fingerprint and national criminal history checks; and commercial
checks performed by private firms."
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Reportable Conditions
1. EPA's Financial Management Quality Assurance Process Needs Improvement
OIG Recommends:
1. Update and clarify the QA Guide and develop procedures to update the guide routinely to
reflect changes in the organization, accounting events, internal control standards, and
relevant accounting principles and standards.
2. Provide increased oversight of the QA program to include: approving the QA work
plans; monitoring regional and finance center review coverage and scope of reviews;
providing feedback on reviews; and coordinating review coverage of multi-location
accounting events.
3. Provide basic and refresher training to appropriate personnel on the FMFIA requirements
and the Agency's QA process.
Agency Comments:
OCFO oversees the efforts performed in the Agency's finance community and believes the
existing Quality Assurance program is effective. While there is always room for
improvement, OCFO is in the process of updating the Quality Assurance Guide,
incorporating new principles and standards. In addition, OCFO will develop an action plan
to monitor the program and provide annual training.
Action Office: OCFO/Office of Financial Management
2. EPA Needs to Further Improve State Superfund Contracts' (SSC) Unearned Revenue
and Superfund Unbilled Oversight Cost Accruals
OIG Recommends:
1. Provide increased supervision of the quarterly SSC unearned revenue and unbilled
oversight cost accruals.
2. Analyze whether centralizing and consolidating the accrual processes could improve the
efficiency and accuracy of the accruals.
Agency Comments:
As the OIG acknowledges, during Fiscal Year 2004 OCFO automated several processes and
made procedural improvements that resulted in more accurate SSC unearned revenue and
unbilled oversight cost information. The oversight employed and frequent communications
within the Agency's finance community significantly reduced the level of effort required for
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year-end adjustments and confirmed that adequate internal controls exists. OCFO remains
committed to continual progress in these two areas.
OCFO consolidated some aspects of unearned revenue accruals and will explore additional
opportunities in concert with pending realignment of Agency financial duties.
Action Offices: OCFO/Office of Financial Management & Office of Financial Services
3. Accounts Receivable Not Timely Recorded Due to Late Submission of Supporting
Documentation
OIG Recommends:
1. Require the Director, Office of Financial Management, to develop procedures for
monthly reconciliations of accounts receivables established in [the agency's financial
management system] to information tracked by Regional Hearing Clerks and program
offices; this reconciliation should be documented and all outstanding receivables
specifically identified for follow-up action.
2. Request the Office of General Counsel and program offices to:
• Strengthen existing policies and procedures requiring timely forwarding of billing
documents to finance offices.
• Implement procedures requiring Offices of Regional Counsel and program offices to
expedite forwarding any outstanding agreement identified as a result of the Financial
Management Office/Center's monthly reconciliations.
• Develop a mechanism to track and document the forwarding of all billing documents
to the Financial Management Offices/Centers, to ensure accountability.
Agency Comments:
OCFO believes the current policies and procedures adequately address the proper
identification and recording requirements for accounts receivable. OCFO along with the
finance community reviewed more than 2,500 administrative actions totaling $245.6 million
and determined that less than 0.010 percent of the documents amounting to $452,691.00, or
0.002 percent were not recorded timely in the accounting system. Although the amounts are
immaterial for financial reporting, OCFO will collaborate with applicable agency offices and
programs, ensure existing policies are followed, and increase awareness on the importance of
recording accounts receivable timely.
Action Office: OCFO/Office of Financial Management
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4. EPA Did Not Promptly Record Marketable Securities
OIG Recommends:
1. Require the Director, Office of Financial Management to strengthen procedures to ensure
that receiving financial management offices have sufficient information to record
securities.
2. Require the Director, Office of Financial Management to develop reconciliation
procedures and ensure marketable securities are recorded by the respective finance
offices at fair market value when received. In conjunction with the preparation of
quarterly financial statements, perform reconciliation between amounts logged and those
recorded in the general ledger to ensure a proper and complete non-cash asset balance.
3. Require the Directors, Financial Management Offices/Centers, to ensure staff record
marketable securities upon receipt.
Agency Comments:
In FY 2004, OCFO issued the marketable securities policy that documented roles and
responsibilities and emphasized the need to strengthen processes associated with recording
marketable securities. Historically, EPA receives very few securities each year in settlement
of debts. In FY 2005, OCFO will evaluate policy implementation and identify and resolve
needed improvements. In addition, existing marketable securities policy and procedures will
be updated to require quarterly Superfund Accounts Receivables analyses.
Action Office: OCFO/Office of Financial Management
5. Accounting for Contractor-Held Property Needs Improvement
OIG Recommends:
1. Develop a methodology to reasonably estimate the net book value of all contractor-held
property and the related accumulated depreciation balances to reflect their proper
balances as of September 30, 2004.
2. Use the recalculated net book value of contractor-held property to compute fiscal 2004
depreciation expense.
3. Record the loss associated with surplus equipment.
4. Determine whether the $6,883,574 for contract 68W04005 should be added to the
contractor-held general property acquisition value.
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Agency Comments:
OCFO and the Office of Administration and Resources Management modified the
methodology for estimating net book value, depreciation expense, acquisition value, and
accumulated depreciation for all contractor-held property. This methodology was applied
and resulted in accurate reporting in FY 2004 and continuing into the future.
Action Offices: Office of Administration and Resources Management & OCFO/Office of
Financial Management
6. Improvement Needed in EPA's Accounting for Obligations
OIG Recommends:
1. Remind the financial management offices and finance centers that: (1) obligations should
be entered into the accounting system promptly and for the proper accounting period;
(2) adequate supporting documentation for all Integrated Financial Management Systems
accounting entries should be maintained; and (3) Agency's policy and year-end closing
instructions for the review of unliquidated obligations should be followed.
2. Establish a policy requiring the financial management offices and finance centers to
monitor obligations received during the first 15 days of October to determine whether the
obligations should be reported in the prior fiscal year; report any adjustments for
inclusion in the Agency's financial statements; and maintain adequate supporting
documentation for adjustments.
3. Record the identified obligations of $1,036,139 in the proper accounting period.
4. Deobligate inactive obligations of $2,283,274.
Agency Comments:
OCFO has a strong set of policy and procedures regarding obligations and recognizes the
importance of processing related documents timely and in the proper accounting period.
Through year-end instructions and weekly communications, OCFO will continue requiring
the finance community and program offices to regularly review obligations and determine
those funds available for deobligation, and particularly at year-end — review and report
material amounts recorded after the close of the fiscal year.
Please note that the 14 documents cited by OIG represent only 0.03% of the Agency's
approximately 36,000 obligation documents. The $1.2 million represents only 0.01% of the
EPA's almost $11.5 billion in unliquidated obligations.
While the OCFO understands the need for accurate recording of obligations, the
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recommended adjustment of $1,036,139 will not be prepared since the amount has no
material impact on the financial statements. However, OCFO will ensure that there are
strong internal controls over obligations and deobligations in order to prevent material
misstatements.
The Grant Obligations of $2,283,274 are unavailable for deobligation until the grantee
submits the final Financial Status Report and other related closeout information to the Project
Officer.
Action Office: OCFO/Office of Financial Management
7. Systems Development for Grant and Inter-Governmental Applications Need
Improvement
OIG Recommends:
1. Conduct and document a formal risk assessment for Grant Payment Allocation System
(GPAS) and Inter-Governmental Document Online Tracking System (IDOTS).
2. Conduct and document a formal review of GPAS' compliance with all applicable Joint
Financial Management Improvement Program system requirements.
3. Direct Offices to follow Agency system development policy for all future system
development efforts.
Agency Comments:
OCFO conducted a risk assessment in August 2004 and October 2004 on GPAS and IDOTS,
respectively. OCFO will conduct and document a formal review of GPAS' compliance with
all applicable and relevant Joint Financial Management Improvement Program requirements.
In addition, an office-wide Standard Operating Procedure will be developed to insure that all
future system development efforts, including enhancements, follow relevant agency system
development policy.
Action Offices: OCFO/Office of Financial Management & Office of Financial Services
8. System Certification and Accreditation for Grant and Inter-Governmental Systems
Needed
OIG Recommends:
1. Complete and document a formal certification and accreditation for GPAS and IDOTS.
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2. Update IDOTS' certification and accreditation status in the Agency's system review
(self-assessment) database and complete one for GPAS.
3. Develop and implement a formal patch management process to identify, test, and install
system and application fixes/upgrades.
4. Implement a formal process to conduct vulnerability scanning and control testing on a
regular basis.
Agency Comments:
A formal certification was completed in August 2004 on IDOTS and will be completed in
October 2004 on GPAS. The accreditation documents were included with the security plans
signed in September 2004. OCFO will develop a Standard Operating Procedure that will
formalize the patch management process in November 2004. In addition, procedures will be
developed to assure vulnerability scanning and control testing takes place on a regular basis.
These efforts will be coordinated with the OIG.
Action Offices: OCFO/Office of Financial Management & Office of Financial Services
9. Weaknesses in Change Control Procedures for Integrated Financial Management
System
OIG Recommends:
OIG reported concerns about security controls related to software changes that could
undermine the integrity of IFMS software libraries and financial system data. Specifically:
• Change management duties had not been adequately segregated between contractor
personnel to prevent any individual from controlling all critical stages of the process.
• Individuals used an inappropriate ID or continued to have system access after no longer
needing it.
• Management had not instituted a formal, structured change control process for IFMS to
ensure software program modifications were properly authorized, tested, and approved.
• Management was not properly using its Change Management System to manage change
activities for IFMS and provide technical direction to contract staff.
We made various recommendations to the Office of the Chief Financial Officer to improve
IFMS controls:
• Management needs to perform a risk assessment of Endevor, a commercial off-the-shelf
product used to control IFMS' development, testing, and production libraries and
software.
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• OCFO should develop a security plan for Endevor.
• OCFO should establish a systematic process for (1) identifying key responsibilities of
roles related to IFMS security and Endevor contract administration, and (2) holding
employees accountable for successful performance of those duties.
Agency Comments:
The OCFO agrees with the OIG on the importance of change controls but does not believe
there is general breakdown of security controls that could undermine the integrity of our
financial system and data. Although the OCFO makes every effort to ensure that key change
control roles and responsibilities are clearly defined and employed by our trained system
experts, the OCFO acknowledges that there is always room for improvement. To this end,
we continually initiate actions that will enhance our existing controls. For example, OCFO
recently developed an automated annual security recertification process, grounded in the
concept of least privilege and proper separation of duties. Furthermore, to ensure that the
Change Management System (CMS) continues to be a valuable tool to us in our change
control process, actions are currently underway to replace the antiquated Change
Management System.
Action Office: OCFO/Office of Financial Management
10. Automated Application Processing Controls for Integrated Financial Management
System Could Not Be Assessed
OIG Recommends:
Although OCFO made no significant progress to replace IFMS during fiscal 2004, OCFO
plans to conduct the following replacement activities during fiscal year 2005:
• Develop an acquisition strategy;
• Draft a governance structure composed of a Governing Board, an Executive Steering
Committee, and a Change Control Board;
• Draft a replacement system project plan;
• Develop a concept of operations document outlining the scope of the project using
industry best practices; and
• Develop a system requirements list.
Agency Comments:
Consistent with the Office of Management and Budget's Line of Business initiative, the
OCFO has a planned target date of 2008 for replacing the Agency's financial management
system. However, in the interim, we maintain that the current level of documentation is
sufficient for operations. To support pending financial systems replacement, the OCFO is in
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the process of developing an acquisition strategy, governance structure, replacement system
project plan, and a concept of operations document.
Action Offices: Several offices within the OCFO
Federal Financial Management Improvement Act Noncompliance Issues
11. EPA Continues Actions to Improve Cost Accounting
OIG Recommends:
1. Continue with current efforts to integrate financial data into management decision-making.
2. Consider redefining EPA's Statement of Federal Financial Accounting Standards
(SFFAS) No. 4 outputs so that they fit within the future financial data integration reports
framework.
Agency Comments:
OCFO remains committed to insuring that financial information is available for decision-
making within the Agency. The efforts to date, as acknowledged by the OIG, moves the
Agency further along in defining program specific financial information needs and enhancing
decision-making capabilities. During FY 2005, OCFO will continue making progress in this
area.
OCFO is in the preliminary stages of redefining its cost accounting needs and SFFAS No. 4
outputs. Because the financial data integration framework is in its conceptual stage, it is
premature to make output commitments referencing this initiative at this time.
Action Office: OCFO/Office of Financial Management
12. EPA Continues to Experience Difficulties in Reconciling Intragovernmental
Transactions
OIG Recommends:
OIG suggests that EPA continue its efforts in reconciling the Agency's intragovernmental
transactions to comply with Federal financial reporting requirements.
Agency Comments:
OCFO, as acknowledged by the OIG, continues to make strides in reconciling the Agency's
intra-governmental transactions and complying with Federal financial reporting
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requirements. Although this requirement is a major issue government-wide, EPA performs
exceptionally well.
Action Office: OCFO/Office of Financial Management
13. EPA Needs to Strengthen Practices Regarding Security Screening for Non-Federal
Personnel
OIG Recommends:
EPA does not have a target date for addressing security certification for contractor personnel.
Agency Comments:
The OIG identified that EPA had taken several necessary actions to correct security issues
and implement the FY 1999 Remediation plan, to include issuing a policy on personnel
security screening processes. The OIG noted the policy was fully implemented, except for
establishing a background check program for non-Federal personnel. OCFO has outlined
appropriate corrective actions concerning contractors' access to IFMS and assures that all
contractors receive suitable background investigations or that security investigations are in
process. The Office of Administration and Resources Management (OARM) is also
committed to mitigating potential security risks at the Agency level. OARM has interim
procedures that guide offices through the security screening process. OARM is also
implementing several improved processes, such as insertion of suitability criteria into
contract requirements; fingerprint and national criminal history checks; and commercial
checks performed by private firms. Existing internal controls, combined with planned
improved processes, ensure that EPA's security screening process is solid and meets future
goals.
Action Offices: Office of Administration and Resources Management & OCFO/Office of
Financial Management
Other Noncompliance Issue
14. EPA Continues to Improve its Compliance with Reconciling Fund Balances with
Treasury
OIG Recommends:
1. Require that the quality assurance guide's Fund Balance with Treasury test procedures be
modified to apply to all accounting points.
2. Require that all accounting points perform the quality assurance testing procedures.
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Agency Comments:
OCFO provided training in September 2004 and each finance office instituted the appropriate
reconciliation procedures. As acknowledged by the OIG, EPA took action to implement
Treasury procedures consistent with Agency policy during the fiscal year. OCFO will
continue to monitor cash reconciliations to ensure they are properly completed.
Action Offices: OCFO/Office of Financial Management & Office of Financial Services
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Appendix III
Report Distribution List
Chief Financial Officer (271 OA)
Inspector General (2410)
Assistant Administrator for Administration and Resources Management (3101 A)
General Counsel
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, Office of Financial Management (2733R)
Director, Office of Financial Services (2734R)
Director, Office of Human Resources (361 OA)
Financial Management Officers at Regions 1 through 10,
Cincinnati, Las Vegas, and Research Triangle Park
Director, Reporting and Analysis Staff (2733R)
Acting Director, Program Costing Staff (2733R)
Director, Financial Systems Staff (2733R)
Director, Financial Policy and Planning Staff (2733R)
Director, Washington Finance Center (2734R)
Agency Audit Followup Coordinator (2724A)
Agency Followup Official (271 OA)
Audit Liaison for the Office of the 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 Offices (2733R)
Audit Liaison for the Office of General Counsel (2311 A)
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